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[2011] ZASCA 187
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Gainsford NO and Others v Tiffski Property Investments (Pty) Ltd and Others (874/2010) [2011] ZASCA 187; [2011] 4 All SA 445 (SCA); 2012 (3) SA 35 (SCA) (30 September 2011)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 874/2010
In
the matter between:
GAVIN
CECIL GAINSFORD NO
…................................................................................
First
Appellant
ENVER
MOHAMED MOTALA NO
…................................................................
Second
Appellant
MADELAINE
ABRAHAMS NO
…..........................................................................
Third
Appellant
and
TIFFSKI
PROPERTY INVESTMENTS
…...........................................................
First
Respondent
NITROCHRON
INVESTMENTS
…................................................................
Second
Respondent
STATE
BANK OF INDIA LIMITED
…................................................................
Third
Respondent
REGISTRAR
OF DEEDS, CAPE TOWN
…....................................................
Fourth
Respondent
THE
MASTER OF THE HIGH COURT,
JOHANNESBURG
…..........................................................................................
Fifth
Respondent
AFRICAN
DAWN PROPERTY TRANSFER
….................................................
Sixth
Respondent
Neutral citation
:
Gavin Cecil Gainsford NO v Tiffski Property Investments (Pty) Ltd
(874/2010)
[2011] ZASCA 187
(30 September 2011)
Coram:
HARMS AP,
CLOETE, MHLANTLA, LEACH JJA and PETSE AJA
Heard:
15
September 2011
Delivered:
30
September 2011
Summary:
Insolvency
– Insolvency Act 24 of 1924 – s 34(1) – void
disposition of assets of business otherwise than in the
ordinary
course of that business or for securing the payment of a debt –
non-compliance with requirements – consequences
thereof.
______________________________________________________________________
ORDER
____________________________________________________________________
On appeal from:
South
Gauteng High Court, Johannesburg (Victor J sitting as court of first
instance):
1 The appeal is upheld
with costs.
2 The order of the court
below is set aside and substituted as follows:
‘
a
The application succeeds and an order is granted in terms of prayers
1, 2, 3 and 4 of applicants’ notice of motion.
b The first and third
respondents are ordered, jointly and severally the one paying the
other to be absolved, to pay the costs of
the application.
c The first respondent is
further ordered to pay the costs of the proceedings instituted under
case number 38361/09.’
3 The cross-appeal is
dismissed with costs.
_______________________________________________________________________
JUDGMENT
_____________________________________________________________________
PETSE AJA (HARMS AP,
CLOETE, MHLANTLA and LEACH JJA CONCURRING):
[1] This appeal is
against a judgment of Victor J sitting in the South Gauteng High
Court in terms of which the learned judge dismissed
with costs an
application launched by the appellants against the respondents.
[2] The appellants are
the joint liquidators of Tiffindell Ski Limited (the company) which
was placed under final liquidation by
order of the South Gauteng High
Court granted on 31 March 2009 pursuant to an application launched on
23 October 2008.
[3] In the court below
the appellants sought an order in the following terms:
‘
1.
That the Applicants are authorised in terms of section 386(5) of the
Companies Act, 1973 read with section 387(3) of the Companies
Act,
1973, as well as section 386(4)(a) and/or 386 (4)(i) of the Companies
Act, 1973, to make application to the Honourable Court
for the relief
set out in the notice of motion, and for this purpose to engage
attorneys and counsel.
2.
That the transfer of the business of Tiffindell Ski Limited (in
liquidation) to the First Respondent on 16 September 2008 in
terms of
the agreement of sale entered into between Tiffindell Ski Limited (in
liquidation), as seller, and the First Respondent,
as purchaser, on
12 July 2007 be declared void in terms of
section 34(1)
of the
Insolvency Act No 24 of 1936
, and that the transfer of the following
assets to the First Respondent accordingly be declared void:
2.1
the transfer to the First Respondent of Erf 1 Tiffindell in Senqu
Municipality, Division of Barkly East, Eastern Cape Province,
in
extent 101,8593 hectares (“the immovable property”) in
terms of deed of transfer T061149/08;
2.2
the transfer to the First Respondent of all moveable assets of
Tiffendell Ski Limited (in liquidation) including the moveable
assets
listed in annexure “X” hereto.
3.
That the registration of the following mortgage bonds be declared
void:
3.1
mortgage bond B057375/08 registered over the immovable property in
favour of Tiffindell Ski Limited (in liquidation);
3.2
mortgage bond B057376/08 registered over the immovable property in
favour of the Third Respondent.
4.
That the Third Respondent be directed to effect the relevant
endorsements necessary to give effect to 2 and 3 above.
5.
That the First Respondent be ordered to pay the costs of suit,
including the costs reserved in the proceedings in the above
Honourable Court under case number 38361/09, save that in the event
of any other Respondent(s) opposing any of the relief claimed
in the
notice of motion, that such Respondent(s) be ordered, jointly and
severally with the First Respondent, to pay the aforesaid
costs.
6.
Granting to the Applicants further and/or alternative relief.’
[4] The application was
opposed
by
Tiffski Property Investments (Pty) Limited (Tiffski) who had taken
‘transfer’ of the disputed property and the State
Bank of
India Limited (the Bank) in whose favour the disputed mortgage bonds
were registered.
[5] The Bank also filed a
counter-application conditional upon the success of the appellants’
claim, in terms of which it
sought an order directing the appellants
to pay to it a sum of R19 878 422.70 representing the amount
‘secured’ by
the disputed mortgage bonds and costs of the
counter-application.
[6] In the event the
court below dismissed the appellants’ application with costs.
Concerning the counter-application, it
held that the conclusion
reached by it in relation to the
main
application
rendered it unnecessary to deal with the
counter-application. Thus it dismissed it and made no order as to
costs. The appeal and
the conditional cross-appeal are with the leave
of the court below.
[7] The application
launched by the appellants in the court below arose against the
following factual background. On 12 July 2007
the company represented
by Ivan van Eck concluded a written contract of sale with Tiffski
represented by Andre P Le Roux in terms
of which the company sold to
Tiffski the immovable property on which it conducted the hotel and
resort enterprise, together with
all its fixed and movable assets
necessary for the operation of its business enterprise, for a sum of
R22 686 020.
[8] The written contract
of the parties contained, inter alia, the following terms that are
relevant for present purposes:
a. That possession,
occupation and control of the enterprise and the immovable property
would be given by the company to Tiffski
on the ‘date of
transfer’ which was defined as ‘the date on which the
transfer of the property is registered
at the applicable Deeds Office
in the name of the purchaser’.
b. That the agreement of
sale would not be published as contemplated in
s 34
of the
Insolvency
Act 24 of 1936
.
c. That the company
would, pending transfer, continue to conduct the business of the
enterprise ‘in the normal and regular
manner’ as it had
been doing before the conclusion of the written contract.
d. That the signed
written contract represented the entire agreement between the parties
and that no variation of or addition to
or consensual cancellation
thereof nor waiver by the company of any of its rights thereunder
would be of any force or effect unless
reduced to writing and signed
on behalf of the parties.
[9] It is common cause
that registration of transfer of the property into the name of
Tiffski was effected on 16 September 2008
and that the disputed
mortgage bonds were registered in favour of the Bank simultaneously
with transfer.
[10] The appellants
assailed the validity of the transfer of the property of the company
to Tiffski on the grounds that it was void
in terms of s 34(1) of the
Insolvency Act 24 of 1936 (the Act) as against them qua liquidators
because: (a) the winding-up of the
company was deemed to have
commenced on 23 October 2008; (b) the transfer was not in the
ordinary course of business of the company
which was to conduct a ski
resort business; (c) the transfer of the business was not for the
purpose of securing the payment by
the company of its debts; and (d)
notice of the sale had not been published as required by s 34.
[11] The registration of
the disputed mortgage bonds was assailed on the grounds that: (a)
Tiffski did not acquire valid title to
the immovable property on the
purported transfer to it; and (b) thus could not validly grant the
Bank a real right thereon by hypothecating
or encumbering the
immovable property. Thus the mortgage bonds registered simultaneously
with registration of transfer of the immovable
property to Tiffski
were void.
[12] In this court both
Tiffski and the Bank, as they did in the court below, made common
cause in opposing the grant of the relief
sought by the appellants.
Tiffski asserted that the immovable property and the movable assets
of the company which were the subject
of the application were
acquired by it in the ordinary course of business, in good
faith
and for value as it paid a purchase price of R22 686 020 therefor. It
also denied that the company was a trader as defined in the
Act and
put the appellants to the proof of their assertion
in
that
regard. Tiffski went on to assert further that despite
the fact that registration of transfer of the property to it was
effected
on 16 September 2008 it had taken de facto control of the
immovable property and delivery of the enterprise’s movable
assets
‘with the full blessing, consent and knowledge of the
company’ in January 2008. As more fully set out below Tiffski
relied on this to argue that the six months period in s 34 had
already expired by the time the appellants launched proceedings
against it.
[13] The Bank moreover
asserted that it had granted a loan to Tiffski subject to Tiffski
providing security, which it did by registering
a first mortgage bond
over the company’s immovable property for a sum of R14 million
and a surety mortgage bond for a sum
of R5 million. The Bank stated
that it had been involved in the negotiations between the company and
Tiffski that cultimated in
the conclusion of the written contract
between the company and Tiffski and in so doing had acted ‘in a
bona fide manner and
concluded all the agreements as a reasonable
banker would have done’ in the prevailing circumstances. Nor
had it been at
any stage aware of possible financial difficulties
facing the company. The Bank further asserted that it had been
advised at the
material time that the registration of mortgage bonds
over the immovable property would afford it real security that would
avail
it against the world.
[14] In the alternative
the Bank submitted that the grant of the relief sought by the
appellants would constitute a deprivation
of its real rights and thus
property in breach of its constitutional rights enshrined in s 25(1)
of the Constitution.
[15] I consider it
convenient at this stage to set out the provisions of the Act which
are relevant to this appeal. Section 2 defines
a trader as follows:
‘
any
person who carries on any trade, business, industry or undertaking in
which property is sold, or is bought, exchanged or manufactured
for
purpose of sale or exchange, or in which building operations of
whatever nature are performed, or an object whereof is public
entertainment, or who carries on the business of an hotel keeper or
boarding-housekeeper, or who acts as a broker or agent of any
person
in the sale or purchase of any property or in the letting or hiring
of immovable property; and any person shall be deemed
to be a trader
for the purpose of this Act (except for the purposes of ss (10) of
section
twenty-one
)
unless it is proved that he is not a trader as hereinbefore defined:
Provided that if any person carries on the trade, business,
industry
or undertaking of selling property which he produced (either
personally or through any servant) by means of farming operations,
the provisions of this Act relating to traders only shall not apply
to him in connection with his said trade, business, industry
or
undertaking.’
[16] Section 34(1) reads
thus:
‘
If
a trader transfers in terms of a contract any business belonging to
him, or the goodwill of such business, or any goods or property
forming part thereof (except in the ordinary course of that business
or for securing the payment of a debt), and such trader has
not
published a notice of such intended transfer in the
Gazette,
and
in two issues of an Afrikaans and two issues of an English newspaper
circulating in the district in which that business is carried
on,
within a period not less than thirty days and not more than sixty
days before the date of such transfer, the said transfer
shall be
void as against his creditors for a period of six months after such
transfer, and shall be void as against the trustees
of his estate, if
his estate is sequestrated at any time within the said period.’
[17] The court below said
that the issues that required determination were whether: (a) the
applicants discharged the onus to prove
their reliance on s 34(1);
(b) the alienation (presumably it intended to say ‘transfer’)
was not in the ordinary course
of business; (c) the company was a
trader as defined; (d) the insolvency took place within the six
months’ period; and (e)
the appellants were legally required,
as a pre-requisite for the setting aside of the transfer, to tender
restitution to the Bank
as an innocent third party that had in good
faith and for value acquired a real right in the immovable property.
With regard to
all the foregoing issues the court below found against
the appellants. In what follows these questions are dealt with in a
different
order.
Time of transfer
[18] The provisions of s
34(1) in their current formulation came about as a consequence of the
amendment effected in terms of s
1(a) of the Insolvency Amendment Act
6 of 1991. The most notable change effected by this amendment was the
substitution of the
word ‘transfer’ for the words
‘disposes of’.
[19] Transfer of the
business of the company as envisaged in the agreement of sale
concluded between the company and Tiffski took
place on 16 September
2008 which is when registration of transfer of the property in the
Deeds Office Cape Town was effected. In
terms of clause 6 of the
agreement of sale ‘possession, occupation and control’ of
the business was given by the company
to Tiffski and the latter
assumed ‘all the benefit and risk of ownership’ of the
business on that date.
[20] In this court, as in
the court below, it was contended on behalf of the appellants that
the transfer of the business comprising
the immovable property and
the other ‘goods or property forming part of the business’
– regard being had to the
date of registration of transfer in
the Deeds Office – took place less than six months prior to the
commencement of the proceedings
for the winding-up of the company.
That being the case, so it was argued, such transfer was, in terms of
s 34(1) of the Act, void
as against the company’s liquidators.
In support of this submission counsel for the appellants called into
aid two judgments
of this court, namely
Harrismith
Board of Executors v Odendaal
1
and
Galaxie
Melodies (Pty) Ltd v Dally NO
2
as also
Roos
NO
& ‘n ander
v Kevin & Lasia Property Investments BK & andere.
3
[21] In an attempt to
place itself beyond the reach of s 34(1) of the Act Tiffski contended
that the transfer of the business from
the company to itself either
took place on 12 July 2007 when the sale was approved by the
company’s shareholders or in January
2008 when it took de facto
control of the immovable property and delivery of the movable assets
of the ski resorts. This contention
was upheld by the court below
which went on to find that the transfer of the company’s
business therefore took place outside
the six months period provided
for in s 34(1) of the Act.
[22] In this court the
finding of the court below was assailed on two grounds. First, it was
contended that even assuming that Tiffski
took delivery of the
movable assets and took occupation of the immovable property in
January 2008, the company was nonetheless
not divested of its
ownership of such assets, for the company did not have the requisite
intention to transfer ownership to Tiffski
nor did Tiffski have the
intention to accept ownership. For this proposition counsel for the
appellants relied on, inter alia:
Trust
Bank van Afrika Bpk v Western Bank Bpk & andere NNO
;
4
Air-Kel (Edms) Bpk h/a Merkel
Motors v Bodenstein & ‘n ander;
5
Concor Construction (Cape) (Pty)
Ltd v Santambank Ltd;
6
and
Dreyer
& another NNO v AXZS Industries (Pty) Ltd.
7
Nor could the company on the authority
of
Legator McKenna Inc &
another v Shea & others
8
have acquired ownership of the
immovable property prior to the registration of its transfer in the
Deeds Registry.
[23] In elaboration it
was contended that the finding of the court below as aforesaid –
were it allowed to stand – would
render s 34(1) of the Act
ineffective and thus undermine the central purpose for which s 34(1)
was enacted, which is to protect
creditors by preventing traders who
are in financial difficulty from disposing of their business assets
to third parties who are
not liable for the debts of the business
without due advertisement as is required by s 34(1). See in this
regard
McCarthy Ltd v Gore
NO;
9
and
Kelvin
Park Properties CC v Paterson NO.
10
[24] Tiffski’s
argument that everyone including the company’s creditors knew
about the transfer and that it was therefore
not necessary to
advertise as required by s 34(1) of the Act cannot be sustained. The
short answer to it is that it is only the
advertisement as
contemplated in s 34(1) that renders liquidated claims presently
payable.
11
It is the giving of that notice –
not knowledge that the sale is to take place – which gives rise
to rights and obligations.
[25] In my view the
finding of the court below cannot be defended. Transfer of the
business of the company took place on 16 September
2008 which is
within six months of the deemed liquidation date of the company,
namely 23 October 2008.
Transfer in the
ordinary course of business
[26] Tiffski asserted
that the agreement of sale was entered into in the ordinary course of
business. The appellants argue that
if this is taken to mean that the
transfer of the business of the company in terms of the written
contract of sale was effected
in the ordinary course
of the business of the company
– for this is what is hit by s 34(1) of the Act – such a
contention is manifestly untenable,
because the disposal by the
company of all its assets (being the immovable property and the
movable assets employed by the company
in conducting its ski resort
business) can by no stretch of imagination be said to be in the
ordinary course of business.
[27] The test to
determine whether an activity was in the ordinary course of business
of the seller was formulated as follows in
Joosab
v Ensor NO.
12
‘
It
will be observed that what is expected from the ambit of sec 34 (1)
is not, as the case in some of the other sections of the
Act (see eg
sec 29 (1)), an alienation “in the ordinary course of
business”, but an alienation “in the ordinary
course of
that business”. The test for determining whether a transaction
was “in the ordinary course of business”
is an objective
one, namely whether, having regard to the terms of the transaction
and the circumstances under which it was entered
into, the
transaction was one which would normally have been entered into by
solvent business men. (
Hendriks
NO v Swanepoel
1962
(4) SA 338
(AD) at p 345). The word “that” in the
expression “in the ordinary course of that business” in
sec 34 (1)
introduces the necessity of an enquiry into the kind of
business in question, and the usual or ordinary business transaction
of
a business of that kind, in relation to which the above test is to
be applied. It follows that the test to be applied, to determine
whether an alienation by a trader of goods forming part of his
business was in the ordinary course of that business, is whether,
having regard to all the circumstances, the alienation was one which
would normally have been transacted by a solvent business
man
carrying on a business of that kind.’
[28] In
Ensor
NO v Rensco Motors (Pty) Ltd
13
this court had occasion to remark
that:
‘
[T]here
are two elements in the critical phrase in s 34 (1): (i) “the
ordinary course”, and (ii) “of that business”.
Both
are equally important in construing or applying the requirement;
contrary to counsel’s argument, neither should predominate
over
the other; and, according to the above
dicta
in
Joosab’s
case,
when these two elements are read together, they in substance and
effect pose the objective test: “whether, having regard
to all
the circumstances, the alienation was one which would normally have
been transacted by a solvent business man carrying on
a business of
that kind”.’
I would, however, point
out that in terms of s 34(1) as it now reads, it is the ‘transfer’
and
not the ‘agreement’
pursuant to which the transfer takes place that is void against the
creditors or the trader’s
trustee if his estate is sequestrated
at any time within a period of six months after such transfer.
[29]
In considering the provisions of s 34(1) of the Act sight should not
be lost of the mischief that they seek to guard against.
In
Kelvin
Park Properties CC v Paterson NO
14
this
court had occasion to say the following:
‘
The
purpose which the Legislature wished to achieve in enacting s 34(1)
was to prevent traders in financial difficulties from disposing
of
their business to third parties who are not liable for the debts of
the business, without due advertisement to all their creditors,
and,
in so doing, from dissipating the purchase price or using the
purchase price to pay certain creditors regardless of the claims
of
others (citations omitted).’
[30] This court found in
Ensor NO v Rensco Motors
(Pty) Ltd
at 821E–822E
that the onus to prove that the transfer was not in the ordinary
course of business of the company was on the
applicant. Accepting
that they bore the onus of establishing that the company’s
transfer of its business to Tiffski was not
in the ordinary course of
that business, counsel for the appellants contended that the
appellants discharged such onus. I agree
with this submission. The
facts of this appeal to my mind amply demonstrate that in concluding
the written contract with Tiffski
on 12 July 2008 the company
divested itself of its major asset base necessary to enable it to
continue with its ski resort enterprise.
Compare
Gore
& another NNO v Saficon Industrial (Pty) Ltd
at
547E–G.
15
Trader
[31] In its answering
affidavit Tiffski denied that it was a trader and went on to say that
the appellants were put to the proof
of their allegation that it was
such a trader. It is of
course common cause on
the papers that the company conducted a ski resort business at the
immovable property which, inter alia,
comprised the following:
conducting a business of an hotel keeper; operating a ski resort
which encompassed the operation of ski
lifts and hiring of ski
equipment to guests; and the sale of ski clothing and equipment –
which was also conducted at its
Fourways outlet in Gauteng. Thus the
short answer to Tiffski’s denial that the company was a trader
at the time of transfer
lies in the definition of a ‘trader’
in s 2 of the Act which, after providing in terms what a trader is,
continues
to provide that ‘and any person shall be deemed to be
a trader for the purposes of this Act . . . unless it is proved that
he is not a trader as hereinbefore defined’. To my mind the
deeming provisions of s 2 clearly contemplate that the onus of
establishing that someone who is alleged to be a trader is not one
would be on the person alleging the contrary. Tiffski in its
answering affidavit merely contented itself with making a bald denial
to the appellant’s averment that the company was a
trader at
the material time. On the authority of
Kelvin
Park Properties CC
para 18
it therefore failed to discharge the onus resting on it.
[32] Before I proceed to
consider the contentions advanced by the Bank I should for the sake
of completeness mention that in this
court counsel for Tiffski soon
appreciated the futility of defending what was manifestly
indefensible and conceded, rightly so,
that the company was a trader
within the meaning of that term as defined in s 2 of the Act and that
the transfer of the company’s
business to Tiffski was void as
against the appellants.
Validity of the
mortgage bonds
[33] I come now to the
case of the Bank. Its contentions are the following. In lending
moneys to Tiffski it acted bona fide and
reasonably as it was unaware
of the possible financial difficulties that the company faced.
Consequently the mortgage bonds passed
by Tiffski over the immovable
property transferred from the company constituted real rights in the
said immovable property that
serve as its only ‘real security’
for the moneys lent and advanced by it to Tiffski. Thus any order
declaring such
mortgage bonds void would cause it irreparable
financial harm as it would not have granted a loan to Tiffski without
the security
of the mortgage bonds.
[34] To my mind the
arguments advanced by the Bank turn primarily upon the proper
examination of the factual matrix and the effect
of s 34(1) of the
Act. In
Galaxie
Melodies
this court held at 743B–C
that:
‘
An
alienation referred to in
sec 34
(1) of the
Insolvency Act shall
, in
the circumstances therein set out, “be void as against the
trustee”. The alienation is not declared void in any
absolute
sense, but only as against the trustee. That means that it is within
the discretion of the trustee whether to treat such
an alienation as
void or not. He may, as Innes CJ pointed out in
Harrismith
Board of Executors v Odendaal
,
1923 AD 530
at p 539, waive
or
determine not to exercise his powers under the section. If he waives
his rights, the alienation remains standing. If he exercises
his
powers under the section and treats the alienation as void, he in
effect avoids or annuls it, and, therefore, sets it aside
in that
sense.’
[35] The Bank sought to
rely on a number of decisions of this and other courts notably
Frye’s
(Pty) Ltd v Ries;
16
Petersen & another NNO v
Claassen & others
17
for the proposition that the validity
of a mortgage bond duly registered in the Deeds Office is not
dependent on the validity of
the antecedent contract. Whilst those
cases correctly reflect the state of the law on their facts, however,
they do not assist
the Bank on the facts of this appeal for the dicta
in the cases upon which the Bank pins its hopes were made in entirely
different
contexts.
[36] The fundamental
fallacy in the submissions advanced on behalf of the Bank in this
regard lies in the fact that these contentions
wrongly assume that
s
34(1)
of the Act caters for the same situation relating to
impeachable dispositions dealt with, for example, in ss 26, 29, 30
and 31
of the Act whereas in fact it does not. In
Galaxie
Melodies
this
court held at 743G–H that:
‘
An
order made by the Court in declaring void an alienation made in
conflict with the provisions of
sec
34 (1), does not differ in substance from an order setting aside or
declaring void a voidable disposition under secs 26, 29,
30 and 31 of
the Act, as such an order is also an order “declaratory of a
right”. (Gunn and Another NNO v Barclays
Bank DCO,
1962 (3) SA
678
(A) at p 684). It is only in the effect of an order under sec 34
(1), and an order under secs 26, 29, 30 or 31, respectively, that
there may be some difference
,
in that the effect of an order under sec 34 (1) is that the
alienation in question is declared void
ab
initio
(Harrismith
Board of Executors v Odendaal, at p 538), whereas the effect of an
order under secs 26, 29, 30 or 31 is that the disposition
in question
is, subject to the provisions of secs 32 (3) and 33, not invalidated
ab
initio
,
except perhaps as between the insolvent and the person to whom the
disposition was made
’
(emphasis
added).
[37] To contend that the
trustee cannot acquire more rights than those held by the insolvent
in the context of s 34(1) is to overlook
the fundamental distinction
manifest in the provisions of ss 26, 29, 30 and 31 that deal with
voidable dispositions by the insolvent
and s 34(1), which explicitly
provides that a transfer in terms of a contract of a business, or any
goods or property forming part
thereof, otherwise than in the
ordinary course of that business and which is not published as
required, is void as against the
creditors for a period of six months
after such transfer; and also void against the trustee of the
trader’s estate if his
estate is sequestrated at any time
within the said period.
18
[38] It is trite that no
legal consequences flow from a void jural act. Moreover the well
entrenched principle of our law expressed
in the maxim
nemo
plus iuris ad alium transferre potest quam ipse haberet
19
reinforces this very point. As Tiffski
did not acquire ownership of the company’s immovable property –
on account of
the voidness of the transfer – it must logically
follow that Tiffski could not in turn grant any rights, let alone
real rights,
in the immovable property to the Bank.
[39] The fact that the
mortgage bonds upon which the Bank relies for its contentions were
registered in the Deeds Office also does
not in itself assist the
Bank either. This is so
because the transfer of
the company’s property to Tiffski has, as a consequence of the
company being wound up within six months
after such transfer, become
void ab initio. Given the fact that our system of deeds registration
is the negative system of
registration the true
owner of the property – the company in this case – did
not lose its right of ownership in the
property notwithstanding the
transfer thereof to Tiffski on 16 September 2008. According to our
law any information in the Deeds
Office that is inaccurate may be
corrected
20
and such correction in the context of
this case will result in the transfer and registration of the
mortgage bonds being cancelled
on account of the voidness ab initio
of the transfer.
[40] With respect to the
argument that the Bank acted bona fide and reasonably, the appellants
contended that in view of the fact
that the Bank had admitted that it
‘was involved in the negotiations which took place between the
company and Tiffski’
it should have been on its guard and
insisted upon publication of a notice as is required by s 34(1). Not
only has the Bank failed
to do so it has also not explained why it
did not do so nor has any explanation been proffered as to why it was
expressly agreed
between the company and Tiffski that there would be
no publication of a notice in terms of s 34(1).
[41] The Bank granted
loans to Tiffski ‘with its eyes open’ and on the facts of
this appeal it cannot be said that it
was oblivious to the
consequences of the decision of the company and Tiffski –
apparently taken with its approval or acquiescence
– not to
publish a notice of sale of the business as required by s 34(1). To
uphold the Bank’s argument would defeat
the very purpose which
the Legislature wished to achieve in enacting s 34(1) and benefit the
Bank at the expense of the creditors
of the company. The Bank must be
taken to have consciously assumed the risk of the transfer of the
company’s business to
Tiffski falling foul of s 34(1) and
nevertheless agreed to advance moneys to Tiffski fully aware of the
attendant risk in doing
so. In any event even if the Bank acted
bona
fide
and reasonably this
would not avail it in the context of s 34(1) of the Act.
Section 25(1) of the
Constitution
[42] I come now to deal
with the alternative and last leg of the Bank’s opposition to
the grant of the relief sought by the
appellants. This ground of
opposition has its foundation in the provisions of s 25(1) of the
Constitution. Section 25(1) reads
as follows:
‘
No
one may be deprived of property except in terms of law of general
application, and no law may permit arbitrary deprivation of
property.’
[43] It was argued on
behalf of the Bank with reference to various judgments of the
Constitutional Court
21
that the real rights created as a
result of the registration of the mortgage bonds over the immovable
property reclaimed by the
appellants constitute property as envisaged
in s 25(1) of the Constitution. For this reason, so went the
argument, to grant the
relief sought by the appellants would result
in the Bank being deprived of its property under circumstances that
would render the
deprivation arbitrary. In elaboration it was
submitted that there was, on the facts of this case, no sufficient
reason to deprive
the Bank of its right because: the Bank had
advanced in excess of R19 million to Tiffski on the strength of the
security provided
by Tiffski; the object of s 34(1) of the Act which
is to protect creditors and to prevent traders in financial
difficulties from
disposing their businesses to third parties or
dissipating the purchase price, would be defeated.
[44] In countering these
submissions counsel for the appellants contended, in the first place,
that whilst a mortgage bond properly
drawn up and registered in the
Deeds Office ordinarily confers a limited right of security in the
immovable property over which
the bond is registered,
22
the disputed mortgage bonds in this
case do not enjoy protection from s 25(1) of the Constitution because
the Bank has not been
deprived of property. This is so because, so
went the argument, any transfer of business hit by s 34(1) of the Act
is rendered
void ab initio which means that Tiffski did not acquire
any right of ownership in the company’s immovable property and
thus
could not in turn pass any real right in the property to the
Bank.
[45] In the second place
counsel for the appellants argued that to the extent that s 25(1)
sets its face against any one being deprived
of property ‘except
in terms of a law of general application’, s 34(1) of the Act
is evidently a law of general application
as contemplated in s 25(1)
of the Constitution. For this submission counsel placed much reliance
on a passage appearing in Woolmann
et al
23
where the following statement appears:
‘
As
it occurs in s 25(1), the requirement that any deprivation of
property must occur “in terms of law of general application”
is intended to protect individuals from being deprived of property by
bills of attainder or other laws that single them out for
“discriminatory treatment”, or which “capriciously
interfere with [their] property rights”.’
[46] In the third place
it was argued on behalf of the appellants with reference to judgments
of the Constitutional Court
24
that even assuming that granting the
relief sought by the appellants would result in the Bank being
deprived of its property, such
deprivation would not be arbitrary.
This is so, so went the argument, because there is a rational
connection between the voidness
of a transfer hit by s 34(1) of the
Act and the ends sought to be achieved, namely to protect the
creditors of a trader who transfers
his business at a time when he is
in financial difficulties.
[47] The counter
arguments advanced on behalf of the appellants are, to my mind,
sound. I therefore reject the argument advanced
on behalf of the
Bank, partly for the
reasons already stated
above in relation to Tiffski and partly for the reason that to uphold
the Bank’s contentions would
subvert the purpose of s 34(1) of
the Act and thus run counter to sound and binding authority
25
that has stood the test of time for
decades.
Conclusion
[48] For all the
aforegoing reasons therefore it is my conclusion that both Tiffski
and the Bank failed to establish valid defences
to the appellants’
application on any of the grounds relied upon by them. Thus the
application in the court below should
have succeeded.
[49] It remains to deal
with the question of the costs relating to the proceedings instituted
by the appellants in the South Gauteng
High Court under case number
38361/09 in which the appellants obtained an interdict against
Tiffski restraining Tiffski from, inter
alia, selling, alienating,
encumbering and disposing the property which the company transferred
to Tiffski on 16 September 2008
pursuant to the agreement of sale
between the parties. The costs attendant on those proceedings were
made costs in the cause in
the main application which was
subsequently instituted in the court below and is now on appeal
before us.
[50] In the result the
following order is made:
1 The appeal is upheld
with costs.
2 The order of the court
below is set aside and substituted as follows:
‘
a
The application succeeds and an order is granted in terms of prayers
1, 2, 3 and 4 of applicants’ notice of motion.
b The first and third
respondents are ordered, jointly and severally the one paying the
other to be absolved, to pay the costs of
the application.
c The first respondent is
further ordered to pay the costs of the proceedings instituted under
case number 38361/09.’
3 The cross-appeal is
dismissed with costs.
____________________
X M Petse
Acting Judge of Appeal
APPEARANCES
APPELLANT: P T Rood SC
Instructed by Kern &
Partners, Johannesburg
Naudes Inc. Bloemfontein
FIRST RESPONDENT: D J
Joubert
Instructed by David
Baybliss Attorneys, Johannesburg
Symington & De Kok,
Bloemfontein
THIRD RESPONDENT: C A Da
Silva SC
Instructed by A W Jaffer
Attorneys, Johannesburg
Symington & De Kok;
Bloemfontein
1
Harrismith
Board of Executors v Odendaal
1923 AD 530
at 539.
2
Galaxie
Melodies (Pty) Ltd v Dally
NO
1975 (4) SA 736
at 743B–H.
3
Roos
NO
& ‘n ander v Kevin & Lasia Property
Investments BK & andere
2002 (6) SA 409
(T) at 421I–
422B.
4
Trust
Bank van Afrika Bpk v Western Bank Bpk & andere
NNO
1978 (4)
SA 281
(A) at 301H–302A.
5
Air-Kel
(Edms) Bpk h/a Merkel Motors v Bodenstein & ‘n ander
1980 (3) SA 917
(A) at 922E–F.
6
Concor
Construction (Cape) (Pty) Ltd v Santambank Ltd
1993 (3) SA 930
(A) at 933A–H.
7
Dreyer
& another NNO v AXZS Industries (Pty) Ltd
2006 (5) SA 548
(SCA) at 554F–H.
8
Legator
McKenna Inc & another v Shea & others
2010 (1) SA 35
(SCA) at 44G–H.
9
McCarthy
Ltd v Gore NO
2007 (6) SA 366
(SCA) at 369E–F.
10
Kelvin
Park Properties CC v Paterson NO
2001 (3) SA 31
(SCA) para 15.
11
See
fn 1 above at 538.
12
Joosab
v Ensor NO
1966 (1) SA 319
(A) at 326D–G.
13
Ensor
NO v Rensco Motors (Pty) Ltd
1981 (1) SA 815
(A) at 824 H–825A.
14
See
fn 10 above.
15
Gore
& another NNO v Saficon Industrial
(Pty) Ltd
1994 (4) SA 536
(W).
16
Frye’s
(Pty) Ltd v Ries
1957 (3) SA 575
(A) at 583E–F.
17
Petersen
& another NNO v Claassen & others
[2005] ZAWCHC 44
;
2006 (5) SA 191
(C).
18
See:
Mars
The Law of Insolvency in South Africa
9
th
ed
(2008) at 290.
19
No
one can transfer more rights to another than he himself has.
20
C
G van der Merwe
Sakeveg 2nd ed
(1989) at 342;
Barclays
Nasionale Bank Bpk v Registrateur van Aktes
,
Transvaal &
‘n ander
1975 (4) SA 936
(T) at 940B–941C;
Standard
Bank van SA Bpk v Breitenbach
1977 (1) SA 151
(T);
Knysna
Hotel CC v Coetzee NO
[1997] ZASCA 114
;
1998 (2) SA 743
(SCA) 753B–C in
which the following is stated: ‘. . . according to our system
of registration it can no longer be
said that a person in whose name
land is registered is necessarily the owner of that land. Someone
else could, for example, have
become the owner of the property by
way of prescription without being reflected as the owner in the
Deeds Office. He would then,
on proof of prescription be able to
assail the registration in the name of he original owner and have it
amended. This system
is sometimes classified as the ‘negative
system’ in contrast to the ‘positive system’ where
registration
serves as irrefutable proof of ownership’. (My
translation)
21
First
National Bank of SA Ltd t/a Wesbank v Commissioner, South African
Revenue Service & another;
First National Bank of SA v
Minister of Finance
[2002] ZACC 5
;
2002 (4) SA 768
(CC).
22
17
Lawsa 2 ed paras 325 and 352;
Lief NO v Dettmann
1964 (2) SA
252
(A) at 265B–C.
23
Constitutional
Law of South Africa
2 ed Vol 3 para 46.5(a).
24
First
National Bank of SA Limited t/a Wesbank v Commissioner
,
South
African Revenue Service & another
[2002] ZACC 5
;
2002 (4) SA 768
(CC) paras
54 and 61;
Mkontwana v Nelson Mandela Metropolitan Municipality &
another
2005 (1) SA 530
(CC) para 89;
Reflect-All 1025 CC &
others v MEC for Public Transport, Roads and Works, Gauteng
Provincial Government & others
2009 (6) SA 391
(CC) para 36.
25
See
fn 1 at 538.