Consolidated News Agencies v Mobile Telephone Networks (510/2008) [2009] ZASCA 130; [2010] 2 All SA 9 (SCA) ; 2010 (3) SA 382 (SCA) (29 September 2009)

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Consolidated News Agencies v Mobile Telephone Networks (510/2008) [2009] ZASCA 130; [2010] 2 All SA 9 (SCA) ; 2010 (3) SA 382 (SCA) (29 September 2009)

THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
J
UDGMENT
Case No:
510/2008
CONSOLIDATED
NEWS AGENCIES (PTY) LTD (IN LIQUIDATION)
Appellant
and
MOBILE
TELEPHONE NETWORKS (PTY) LTD
1
st
Respondent
MTN
SERVICE PROVIDER (PTY) LTD
2
nd
Respondent
Neutral
citation
:
Consolidated
News Agencies v Mobile Telephone Networks
(510/08)
[2009] ZASCA 130
(29 September 2009)
Coram: NAVSA, NUGENT,
HEHER, MHLANTLA
JJA and HURT AJA
Heard: 24
August 2009
Delivered: 29
September 2009
Updated:
Summary: Insolvency
– Act 24 of 1936 s 33(1) – disposition – restoration against
indemnification – ‘in return for any
disposition’ – ‘good
faith’ – meaning - contemplation of sequestration – when
present.
Company –
contract – or state of mind in concluding same – ‘directing
mind and will’ – where located.
____________________________________________________________________________________
ORDER
In
an appeal from the High Court, Johannesburg (Madam Justice SALDULKER
sitting as court of first instance).
The
following order is made:
The
appeal is dismissed with costs including the costs of two counsel.
JUDGMENT
___________________________
__________________________________________
HEHER JA:
[1] The
issue in this appeal concerns the entitlement of the respondents to
rely on the indemnity provisions of s 33(1) of the Insolvency
Act 24
of 1936 (‘the Act’)
1
.
[2] This is
an appeal from a judgment of the then Witwatersrand Local Division of
the High Court (Saldulker J), with leave of the
learned judge, who
had found for the present first and second respondents in respect of
an issue separated under Rule 33(4). The
court made the following
order in those proceedings:
‘
1. The
MTN parties are not obliged to restore any property or any other
benefit received under the (alleged) dispositions (on the
assumptions
recorded in the order of Court in terms of Rule 33(4)) unless the
liquidators have indemnified them for parting with
such property and
for losing such rights.
2. The
liquidators are ordered to pay the costs of suit up until the present
time, including the costs consequent upon the employment
of three
counsel.’
[3] The
parties to the appeal are referred to in the agreements to which the
litigation relates as ‘CNA’ (the appellant)
2
‘MTN’ (the first respondent) and ‘M-Tel’ (the second
respondent) and I shall continue to use those abbreviations save
that, where it is unnecessary to distinguish between the respondents,
I shall use the expression ‘the MTN parties’
3
.
The background to the
litigation
[4] Until
February 2001 CNA formed part of the Wooltru stable of companies.
Wooltru Ltd (‘Wooltru’) held all the shares in Consolidated
News
Agencies Holdings Ltd (‘CNA Holdings’) which in turn held all the
shares in CNA. Wooltru provided finance to CNA through
a subsidiary,
Wooltru Finance (Pty) Ltd.
[5] MTN and
M-Tel fell within the Johnnic group of companies. Several of the
group companies traded with CNA including M-Tel, Johnnic

Entertainment, Times Media and Caxton.
[6] The
trading relationship between M-Tel and CNA arose out of the highly
competitive nature of the mobile phone industry and,
in particular,
M-Tel’s need to find a retail outlet through which its products
could be marketed country-wide to the exclusion
of its competitors.
With 300 or more stores and an established reputation, CNA seemed to
provide an ideal solution.
[7] Accordingly,
on 19 April 1999 M-Tel and CNA concluded an agreement to govern their
trading relationship which they called the
‘Retailer Agreement’
(abbreviated in the proceedings to ‘RA’), the material aspects of
which were the following:
(i) It
created a relationship of exclusivity between the parties to it. For
the duration of the agreement CNA was obliged to stock
and promote
M-Tel’s products and was not entitled to stock or promote
competitive products.
(ii) It governed three
trading years, 30 June 1999 to 30 June 2000, 1 July 2000 to 30 June
2001, and 1 July 2001 to 30 June 2002.
(iii) M-Tel
warranted in favour of CNA that in respect of each of the three years
CNA would accrue discounts, commissions and incentives
arising from
the agreement equal to or exceeding R65 million for the first year,
R77 million for the second year and R84.7 million
for the third year.
(iv) In the
event of an audit certificate being issued that certified that an
income warranty had not been met, M-Tel would be obliged
within 14
days to pay to CNA the amount of the shortfall reflected in the
certificate.
(v) CNA undertook to use
its best endeavours to achieve the minimum targets and to that end
furnished certain warranties. Clause
25.4 provided as follows:
‘
The
parties wish to record that the warranties . . . are necessary to
ensure that the minimum targets . . . are achieved and accordingly,

any material or persistent breach of the warranties . . . which
materially prejudices the achievement of any of the minimum targets

shall constitute a material breach of this agreement and the service
provider shall be entitled to call upon the Retailer to rectify
such
breach within forty-eight hours of receiving such notice to rectify,
failing which the Service Provider shall be entitled
to immediately
terminate the Agreement upon written notice to the Retailer.’
[8] In the
first trading year there was a deficit of about R9.4 million in the
warranted amounts of discounts, commissions and incentives
accruing
to CNA which M-Tel made good.
[9] On 15
February 2001 (during the second warranty period) Wooltru sold its
interests in CNA Holdings and CNA to Gordon Kay &
Associates
(Pty) Ltd (‘GKA’), a company with few resources of its own. It
was controlled by Mark Lawrence Gordon (‘Gordon’)
and Hobart
Anthony Kay (‘Kay’). According to the sale agreement:
(i) the purchase price,
subject to adjustments, was R150 million;
(ii) Gordon and Kay were
required to provide personal suretyships in the sum of R30 million,
which were to be replaced, on or before
the effective date, by
commercial bank guarantees for the same amount;
(iii) On or
before the closing date GKA was required to provide a further bank
guarantee for R54.6 million, bringing the total of
such guarantees to
R84.6 million;
(iv) the balance of the
purchase price was to be secured by the suretyships, pledge and
cession for which the agreement made provision;
(v) CNA
Holdings was required to give a suretyship for the payment by GKA of
the balance of the purchase price in an amount of R134.6
million and
to pledge certain of its shares in CNA as security for its
obligations as surety. In addition, CNA was required to
bind itself
as surety for the payment by GKA of its obligations to Wooltru under
the sale agreement.
[10] At
about the same time it was becoming clear to M-Tel that CNA’s
income in respect of M-Tel products would not satisfy
the warranty
for the second year and that the shortfall would probably exceed R40
million.
[11] GKA
and Gordon and Kay defaulted on their obligations to provide
guarantees.
[12] GKA
approached the MTN group to provide the guarantees to Wooltru in lieu
of the guarantees owed by GKA. In a letter of comfort
of 9 March 2001
MTN recorded its willingness to do so.
[13] On 26
March 2001 a further agreement (the ‘Amended Retailer Agreement’,
abbreviated to ‘ARA’) was concluded between
M-Tel, MTN, CNA, CNA
Holdings, GKA, Wooltru, Johnnic Communications Ltd and Biotrace
Trading 89 (Pty) Ltd. (Biotrace was a vehicle
created to hold all but
the top 50 CNA stores.) The agreement was signed by
Buckley McGrath, a director of M-Tel, on
its behalf, and by Sifiso Dabengwa, a director of MTN, for that
company.
[14] In
summary, the ARA provided that-
(a) the
terms of the RA would remain in force except to the extent that those
of the ARA were inconsistent with them;
(b) (as a
recordal) M-Tel’s income warranty for the year ended 30 June 2000
had been fully discharged;
(c) CNA
waived its rights in respect of the income warranty for the year
ended 30 June 2001 and that warranty was deleted from the
RA;
(d) the
income warranty for the year ended 30 June 2002 was replaced by an
arrangement that-
(i) extended
the warranty period within which the minimum income was to be earned
to 15 months, i e from 1 April 2001 to 30 June
2002;
(ii) required
that any shortfall that M-Tel would have to pay under the new
warranty arrangement be paid into a trust account to
be opened by
attorneys Webber Wentzel Bowens for the purpose of enabling MTN to
meet its guarantee liability to Wooltru out of
that account;
(iii) required
CNA and Biotrace to pay all income
4
accruing to them between 1 April 2001 and 30 June 2002, to a maximum
of the sums payable in terms of the guarantees, into the trust

account, save that they would be entitled to withhold and to retain
for their own purposes 50% of their income from existing business
to
an aggregate maximum of R1 500 000 per month, and subject
further to a maximum total withholding by CNA and Biotrace

collectively of R20 million.
(iv) MTN
undertook to furnish two guarantees, for amounts of R30 million and
R54.6 million respectively to Wooltru, which in turn
agreed that
Gordon and Kay would thereby be released from the sureties furnished
by them under the agreement of sale. If MTN should
be called upon to
make payment under either guarantee it would be entitled to recover
the amounts paid by it from GKA, CNA and
Biotrace ‘it being the
intention of the parties that MTN will in fact be reimbursed by CNA
and Newco [i e Biotrace], such reimbursement
being effected from the
monies held in the Trust Account.’;
(v) CNA
ceded to MTN, as security, its rights in respect of the trust
account.
[15] On the
strength of the ARA and the implementation of the mechanisms created
under it, the sale of CNA was implemented from
April 2001.
[16] On 30
June 2002 MTN duly performed under the guarantees and paid Wooltru
the sum of about R86 million.
[17] On 27
July 2002 CNA was provisionally wound up.
The three actions
[18] The
three actions in the court below concerned, inter alia, the moneys
that remain in the trust account, M-Tel’s obligation
to top up
those moneys, and dispositions that the liquidators of CNA allege are
voidable at their instance.
[19] In
the action under case no 05/13586, MTN sued the liquidators of CNA on
the basis of an allegation that the latter is liable
as a
co-principal debtor with GKA to refund MTN in respect of MTN’s
payment under the guarantees issued in favour of Wooltru.
[20] The
liquidators defended that action on the ground that the provisions of
the ARA relied upon by MTN constitute voidable dispositions
in terms
of s 26 of the Act.
[21] To
that defence MTN replicated that:
‘
2.1 In
return for one or more of the dispositions, the plaintiff in good
faith paid to Wooltru an amount of R85,976,778.08 pursuant
to the
guarantees as pleaded in paragraph 8 of the particulars of claim;
2.2 The
first defendant’s liquidators have not indemnified the plaintiff in
respect of the above;
2.3 Accordingly,
in terms of
section 33(1)
of the
Insolvency Act 24 of 1936
, the
plaintiff is not liable to restore any benefits received under the
amend ing agreement.’
[22] In
the second action, under case no 05/13890, the liquidators instituted
action against, inter alia, MTN and M-Tel alleging
that five
particular provisions of the ARA constitute dispositions not for
value in terms of s 26 of the Act. The dispositions
are identified as
(1) the waiver of the second income warranty, (2) the undertaking to
pay monies into the trust account, (3) the
undertaking to reimburse
MTN, (4) the issuing of the undertaking as surety and co-principal
debtor in favour of MTN, and (5) the
cession of the funds in the
trust account in favour of MTN. MTN and M-Tel raised in their pleas
to that action, as one of their
defences, the following:
’
14.2 Alternatively
and in the event of it being found that dispositions were made and
are liable to be set aside as alleged (which
is denied) then in such
event the defendants aver:
14.2.1 in
return for one or more or all of the alleged dispositions the first
defendant [MTN], acting in good faith made payment
to Wooltru Limited
in amounts aggregating R85 976 778,08 pursuant to the aforesaid
guarantees;
14.2.2 further
in return for one or more of the aforesaid dispositions the second
defendant [M-Tel], acting in good faith lost its
right against
Consolidated [CNA] to terminate the retailer agreement consequent
upon the breaches by Consolidated pleaded in paragraph
6.2.3 above;
14.2.3 the
plaintiffs have not indemnified the first or second defendants in
respect of the aforegoing;
14.2.4 accordingly,
in terms of section 33(1) of Act 24 of 1936 the first and/or second
defendants are not liable to restore any
property or other benefits
received under the alleged dispositions unless they are indemnified
for parting with the aforesaid monies
and/or benefits and for losing
such right, in accordance with section 33(1).’
[23] In
the third action under case no 05/13893 the liquidators sued to
enforce the obligation of M-Tel, under clause 5.3 of the
ARA, to top
up the trust account. M-Tel’s plea did not raise a s 33(1) defence
to this claim.
The
issue
[24] The
parties’ agreement regarding the separate determination of an issue
under rule 33(4) was embodied in a minute which provided:
‘
Assuming
that the dispositions referred to at paragraph 15.4 of the
particulars of claim under case number 05/13890
5
constitute dispositions within the meaning of
section 2
of the
Insolvency Act, No 24 of 1936
, and were not made for value within a
period of two years prior to the liquidation of Consolidated and
would accordingly be liable
to be set aside (as alleged in paragraph
15.5.2.1 of the particulars of claim), the Court is requested to
determine the merits
of the defence pleaded in paragraphs 14.2.1 to
14.2.4 of the plea under case number 05/13890, read with paragraphs
2.1 to 2.3 of
the replication under case number 05/13586 (“the
section 33(1)
defence”).’
[25] Accordingly,
for the purposes of the hearing in the court below, only the merits
of the
s 33
point raised in MTN’s replication under case no
05/13586 and MTN and M-Tel’s plea under case no 05/13890, arose for
determination.
[26] As
agreed by the parties, and as directed in its order, the court was
requested and required to assume for the purposes of
the
determination that the five identified provisions of the ARA did
indeed constitute dispositions for the purposes of s 26 of
the Act
and that such dispositions were not made for value (that is, that CNA
did not receive value for making such dispositions).
[27] A
party relying on s 33(1) to avoid restoration of property or other
benefit received without indemnification must, according
to its
terms, prove that
(i) it
acted in good faith,
(ii) in
parting with property or security or in losing a right, and
(iii) such
parting or loss took place in return for the impugned disposition.
As
appears from the separated case, MTN and M-Tel were put to the proof
of all three elements.
The
admissibility and sufficiency of the evidence
[28] In
attempting to discharge the onus the MTN parties relied on the
evidence of two witnesses, Messrs Tredoux and Jenkins. Neither
was a
member of the board of either company in March 2001. Tredoux was
employed by MTN, as group executive (sales) while Jenkins
was a
non-executive director of M-Cell, the holding company of MTN and
M-Tel and Johnnic Holdings the listed company which held,
directly,
15% of the shares in M-Cell and, indirectly, 35% of the shares in
that company. Neither witness was a signatory to the
RA or, more
important, to the ARA. By contrast, MTN and M-Tel did not call
McGrath to testify on their behalf, despite the fact
that he attended
the trial, was readily available, had been an executive director of
M-Tel at all material times and had participated
in the negotiation
of the ARA and signed it on behalf of M-Tel
6
.
(It was not disputed that Dabengwa, who signed on behalf of MTN was
not available to testify.) CNA called no witnesses, but around
these
facts its counsel developed an argument that it had not been open to
MTN and M-Tel to rely on their witnesses for the purpose
of
establishing ‘the directing mind and will’ of those companies in
relation to either the presence of good faith
or
the lack of intention to obtain a preference in insolvency to the
prejudice of CNA’s creditors. Counsel sought to supplement
this
submission by categorizing Jenkins as a poor and unreliable witness.
According to Jenkins, McGrath
was ‘the person taking the most responsibility for the MTN side of
things’, and, so counsel submitted,
an inference should have been
drawn against the MTN parties because of the failure to call him to
testify.
[29] Pursuing
this line of attack, CNA’s counsel submitted that, as a matter of
law the persons who have the management and control
in relation to
the act in point are the directing mind and will of the company:
El
Ajou v Dollar Holdings plc
[1994]
2 All ER 684
(CA) at 695g-696d, 697e, 699h-j, 705-706g, and that, on
this matter, there is no difference between South African and English
law:
cf
Simon NO v Mitsui
and Co Ltd
1997 (2) SA 475
(W) at 526I-531A and Blackman,
Commentary
on the Companies Act
4-123-to
4-133. The
‘
directing
mind’ need not be one person or body; the knowledge of more than
one can be combined to comprise a piece of information
that is
regarded as knowledge of the company: Blackman,
op
cit
, at 4-131;
Brambles
Holdings Ltd v Carey
(1976)
2 ACLR 176
SC (SA) at 181.30-182.20;
Chisum
Services (Pty) Ltd and the Companies Act 1961
(1982)
7 ACLR 641
SC (NSW) at
298;
Entwells (Pty) Ltd v
National and General Insurance Co Ltd
(1991)
5 ACLR 424
SC (WA) at 429.7-10.
[30] Counsel
for the MTN parties sought, largely by reference to the same
authorities, to place a different slant on the matter.
They
emphasized that not only a director of a company but any natural
person who has management and control in relation to the
act or
omission in question can be said to be the directing mind of a
company:
El Ajou v Dollar
Holdings plc
supra at
696a-b, Blackman
op cit
at
4-123 to 4-133 and particular at 4-130 citing
Canadian
Dredge & Dock Co. Ltd v R
(1985)
19 DLR (4
th
)
314 (SCC) at 330/1:
‘
The
act will be considered to be that of the directing mind as long as it
is performed by the person in question within the sector
of the
company operation assigned to him by the company, which sector may be
functional or geographic, or be the entire undertaking
of the
company. No formal delegation is necessary, nor does it matter that
the directors are unaware of the activity in question
nor, in fact,
that the conduct had been expressly prohibited by the company.’
In
El Ajou v Dollar Holdings
plc
supra at 699h-j Rose LJ
said:
‘
First,
the directors of a company are, prima facie, likely to be regarded as
its directing mind and will whereas particular circumstances
may
confer that status on non-directors. Secondly, a company’s
directing mind and will may be found in different persons for

different activities of the company.’
See
also Hoffman LJ
op cit
706d-e to similar effect.
[31] The
authorities relied upon by the parties are not in conflict. Each must
of course be read in context. In each case the court
strives to
determine whether it is the company which has spoken or acted to a
particular effect through the voice or conduct of
a human agency and
is thereby to be held to the consequences or whether that agency was
engaged in an activity which cannot fairly
be attributed to the
company. Each case raises different facts and the eventual conclusion
must depend upon inference and probability
in the absence of express
evidence of adoption of the statements or conduct as the company’s
own. Respondents’ counsel referred
us to the following dictum from
Re Bank of Credit and
Commerce International SA (in liquidation) (No 15)
:
Morris v Bank of India
[2005] 2 BCLC 328
(CA) as
to the kind of factors that a court would look at in determining
whether a particular natural person is the directing mind
of the
company for a particular act or state of mind. The rules of
attribution would
‘
typically
depend on factors such as these: the agent’s importance or
seniority in the hierarchy of the company: the more senior
he is, the
easier it is to attribute. His significance and freedom to act in the
context of a particular transaction: the more
it is “his”
transaction, and the more he is effectively left to get on with it by
the board, the easier it is to attribute.
The degree to which the
board is informed, and the extent to which it was, in the broadest
sense, put upon enquiry: the greater
the grounds for suspicion or
even concern or questioning, the easier it is to attribute, if
questions were not raised or answers
were too readily accepted by the
board.’
[32] The
state of mind which is in question, and which MTN and M-Tel are
seeking to negate is the intention of either to obtain
a preference
in insolvency and that which they seek positively to establish is
good faith on the part of both or one, in each case
at the time of
concluding the ARA (which gave rise to the alleged parting with
property or security and loss of rights). In that
context I proceed
to examine the position of Jenkins, and the company
viz-a-viz
each other with particular
regard to the authority and role of McGrath.
[33] Before
Jenkins became employed by the Johnnic group he had worked himself up
to the position of senior commercial partner in
one of South Africa’s
most prominent firms of attorneys where he specialised in media and
entertainment law. MTN was a major
client for whom Jenkins acted as
lead commercial attorney. He joined Johnnic as executive director of
media and entertainment and
held as I have noted above,
responsibilities in several companies which, as his evidence makes
clear, transcended the strict confines
of individual corporate
interests. All of the group businesses were involved directly or
indirectly with CNA.
[34] Although
his area of responsibility took in a broad overview of group
interests, until about the end of February 2001 Jenkins
possessed no
detailed knowledge of the involvement of MTN and M-Tel in the
business of CNA. At that time he heard that Wooltru
had sold its
interest in CNA to GKA, a company unknown to him. During a chance
meeting Gordon, GKA’s director, asked him to assist
in establishing
the health of the relationship between CNA and MTN.
[35] Jenkins
acquainted himself with the terms of the RA and made enquiries. He
found what he termed ‘a seriously troubled and
problematic
relationship from an M-Tel perspective’. In consequence of a
decline in CNA turnover M-Tel was likely to have to
pay some R40
million to CNA at the end of June to satisfy its warranty obligation.
But M-Tel employers were blaming CNA for not
pulling its weight and
Reynolds, the M-Tel executive directly concerned, was threatening to
withhold payment and cancel the RA.
It was apparent to Jenkins that
the relationship was close to breaking, a rupture that would harm the
financial welfare of the
Johnnic group.
[36]
Jenkins discussed the situation with Gordon whose attitude was that
CNA needed the MTN products and that he preferred to
do business
rather than fight. They agreed that it was in both parties’
interest to resolve the disputes. Gordon suggested that
Jenkins work
out a formulation that would change the relationship and obligations
and be more acceptable to MTN. Jenkins reported
to Edwards, the CEO
of the Johnnic companies
,
and was instructed by him to solve the problem because of the overall
importance to the group.
[37] As a
result Jenkins held frequent discussions with ‘the MTN people’,
particularly McGrath, trying to devise an acceptable
compromise short
of ‘cancellation and a big fight’. As Jenkins phrased it (without
challenge in cross-examination) the object
was ‘to draw a line
under the past’. The important goal, he said, was to drive the
common business of CNA and M-Tel to meet
the targets. Gordon also
wanted increased trading with the Johnnic Group.
[38] In
devising and negotiating the ARA Jenkins had to be particularly
sensitive to his situation as an ‘outsider’ to MTN and
M-Tel. For
this reason he went out of his way to ensure that the executives of
both companies were consulted including McGrath.
[39] Jenkins
and Gordon both saw the common future interest in ‘a holistic
trading solution, a macro-vision of a new CNA . . .
with the support
of its suppliers’ and the creation of a ‘long-term and
sustainable commercial substratum to the relationship’.
None of
this evidence, which was fundamental to why the ARA was constructed
as it was, was challenged during the trial. Nor was
Jenkins’s
explanation for the protection which that agreement afforded to the
MTN parties by way, inter alia, of securities:
‘Any agreement that
does not deal with the ultimate risks would be a flawed agreement’.
[40] After
much ‘toing and froing’ (thus Jenkins) a draft was produced. It
was duly approved by the respective company boards
and signed. Of no
less importance, although it received little mention in argument, was
the co-operation agreement for which Jenkins
was also responsible. It
was signed, also on 26 March, by Johnnic Communications Ltd, CNA
Holdings, CNA and GKN. This contributed
to the holistic solution by
drawing group suppliers other than MTN and M-Tel into a closer
relationship with CNA. It provided for
joint investigation of
opportunities for future business ventures with a view to concluding
‘mutually beneficial agreements’
and for the joint promotion of
each other’s businesses, goods and services. This agreement was
only terminable after 30 June
2002 on three months’ notice. In the
context of the present appeal its importance is manifest: first, it
demonstrated that the
role played by Jenkins was recognised as
serving the group interest; second, it corroborates his evidence that
the main concern
from the side of the MTN parties was securing and
extending the trade footprint of their brand through the vehicle of
the CNA stores;
and third it confirmed that success was seen as bound
up with the long-term viability of CNA.
[41] The
scope of Jenkins’s interest and involvement was much broader than
the submission of CNA’s counsel allows. In so far
as his evidence
was required to make the case for M-Tel and MTN the court
a
quo
found him to be a satisfactory and
reliable witness. I am not persuaded that it was wrong in so finding.
The quality of Jenkins’s
evidence was, in my judgment, manifest in
the record. Of course he had imperfect recall of the precise sequence
of events, testifying,
as he did, years afterwards. He also conceded
that in the course of commercial negotiations it was sometimes
expedient to gild
the lily. Nevertheless I can find no reason to
impugn the truth and reliability of the main thrust of his testimony:
the primary
intention throughout was to provide a lasting solution
which would unite the commercial prosperity of CNA with the need of
the
MTN parties (and their holding companies) to match and better the
opposition by using CNA’s many and widespread outlets.
[42] The
objective probabilities which can be derived from the ARA and the
related multi-party co-operation agreement are decisive
in a
determination of a contemplation of liquidation. Those probabilities
reflect the best evidence as to the mindsets of the parties
to the
agreements. Their weight does not depend on the say-so of Jenkins,
though his evidence provides confirmation of the intention
behind the
bare words. The result is that the failure to call McGrath, did not,
on a holistic assessment of the evidence, tell
against the validity
of the conclusion. To do so would have been superfluous because the
board of each of the MTN parties revealed
its own unequivocal state
of mind in the ARA and in entering into the agreement must be
understood to have exercised the will of
its company accordingly.
[43] Counsel
for CNA submitted that McGrath as a witness would have provided
insight into what motivated the boards of MTN and M-Tel,
particularly
in so far as the uncertain financial situation of CNA was concerned.
But if the best evidence of their mindset resided
in the agreements
then such evidence was unnecessary. There was, at the end of the
evidence, and despite the absence of testimony
from any member of the
boards, no reason to believe that Jenkins had not properly informed
them of all relevant matters which might
bear on the decision to
conclude the agreement.
As the
trial judge pointed out the bona fides of the MTN parties should be
tested through a prospective lens, rather than examining
the state of
CNA at the time the ARA was signed. The agreements reflected the
importance placed on looking to the future on the
strength of the
foundation which they created. Nothing McGrath could have added would
have changed that.
[44] For
all these reasons I would dismiss the attack on the admissibility and
reliability of Jenkins’s evidence.
The
alleged parting with property and loss of rights in return for the
dispositions
[45] Before
entering upon a discussion of this question it is necessary to
consider precisely what was in issue between the parties
in this
connection. For reasons which will become obvious this question is of
more importance to M-Tel than to MTN.
[46] The
parties were represented in the court
a
quo
by experienced senior
and junior counsel. The formulation of the separation of issues was
presented to the trial judge without dissent.
Salduker J considered
the application and must have determined that the issues as
formulated could conveniently be decided separately
from other
questions arising on the pleadings. Her order fixed the specific
content of the dispute and bound both the judge and
the parties. A
court on appeal would be slow to read into its scope something which
the parties themselves forbore or omitted to
include and which had
not been drawn to the attention of the trial judge.
[47] The
formulation was expressly made subject to certain assumptions: 1)
that the dispositions in para 15.4 of the plea were ‘dispositions’

as defined in s 2 of the Act, 2) that the dispositions were not made
for value within two years prior to the liquidation of CNA,
and 3)
the dispositions were accordingly liable to be set aside. It was on
the foundation of these assumptions and no other that
the evidence
proceeded. The formulation confined the court
a
quo
to the merits of the
defence pleaded in specific paragraphs of the plea and replication.
Within those confines the enquiry became
one into proof of the
elements necessary for successful reliance on s 33(1). For present
purposes that meant that M-Tel elected
to rely only on a single act
in reciprocation for the disposition ie the loss of its right to
cancel. That this was the approach
of the parties and the
understanding of the court below appears from the judgment in that
court (paras 109, 111, 113-7, 118-9,
188 and 193-4).
[48] The
absence of M-Tel’s right to cancel was expressly raised in paras 28
and 42 of the application for leave to appeal; that
right only had
relevance in so far as it was the only loss of right or property
relied on by M-Tel in substantiation of the s 33(1)
defence.
[49] The
respondents’ failure to prove the reciprocal element of s 33(1) was
addressed in the appellant’s heads of argument
– at paras 137-40
in respect of MTN and at paras 141-3 in respect of M-Tel. The
defences were addressed separately because MTN
and M-Tel had pleaded
in substantially different terms in paras 14.2.1 and 14.2.2 and
raised independent defences; there was no
intimation that either
relied upon any factual allegation by the other.
[50] In
the respondents’ heads of argument (para 8) their counsel accepted
as common cause that each respondent bore the onus
of proving the
requisite elements of its s 33(1) defence.
[51] But
in paras 14 to 30 of those heads the suggestion was made, for the
first time, somewhat obliquely, that M-Tel may shrug
off its specific
reliance (in para 14.2.2 of the plea) on the loss of a right to
cancel, and, instead, broaden its case to rely
on ‘a holistic
transaction’ with interlinked terms in which ‘the evidence
established that
the rights
given up by the MTN parties
[my emphasis] were given in return for all the hypothesised
dispositions’, because, according to counsel, ‘the dispositions

in the ARA were not severable’. The legal consequence, according to
the submission, is that none of the dispositions can be set
aside
against either of the MTN parties unless and until MTN is indemnified
in the amount of the guarantees.
[52] That
was not the case pleaded and in terms of which the issues were put to
the learned judge. It is not reflected in her separation
order. Nor
was it the case canvassed in evidence
7
– where attention was focussed on the unsatisfactory contractual
performance
of CNA giving rise to
the supposed right of cancellation. Apparently this line was not
argued because the court
a
quo
only directed its
attention to the pleaded case – and received no criticism for so
doing. Finally, in argument before us Mr Kushke
for the appellant did
not think it necessary to address that aspect and Mr Subel neither
referred to nor developed the argument.
[53] Whether
the provisions of the ARA were indivisible raises potentially
complicated issues of interpretation: see
Bob’s
Shoe Centre v Heneways Freight Services (Pty) Ltd
[1994] ZASCA 158
;
1995
(2) SA 421
(A) at 429A-430E. If the contract should be construed as
indivisible, the impact of that construction on the s 33(1) defence,
given
the terms in which it was pleaded, is by no means obvious. The
matter was not addressed by either counsel. I would be loth to embark

on such an investigation without the benefit of their submissions.
But, as I have already pointed out, the effect of separating
the
issues, in terms chosen by the parties themselves, was to treat the
alleged reciprocal performances of MTN and M-Tel respectively
as
independent. That the respondents now find that election irksome or
even impracticable is a risk inherent in committing one’s
client to
a closely formulated issue.
[54] Even
if the terms of an order of court are capable of tacit variation or
extension by evidence in which an unpleaded issue
is unequivocally
raised and fully canvassed, as is on occasion allowed in relation to
such an issue,
8
that did not happen in this trial. The appellant was not put upon
notice of either the facts on which such reliance would be placed
or
the intention to depart from the pleaded case. When I raised the
restriction inherent in para 14.2.2 Mr Subel conceded its existence

but made no application for an amendment
9
.
M-Tel is thus bound to the limits of the order of court and its
pleadings.
[55] Assuming
that my analysis of the issue is correct, does that matter? If two
parties negotiate in their corporate interest,
as members of a group
of companies, for (what afterwards turns out to be) an impugnable
disposition, but only one of them has parted
with property or lost a
right in return for that disposition, can the other rely on the
parting or loss to invoke s 33(1)? I think
the answer must be ‘no’.
The section is concerned with parting and losing in a material sense.
It does not contemplate reliance
on another’s giving up of such
interests, as if the parting or loss could occur vicariously. Any
person who contends that he
is not obliged to restore must bring
himself strictly within its terms.
[56] Moreover,
as pointed out in
Barclays
National Bank Ltd v Umbogintwini Land and Investment Co (Pty) Ltd (in
liquidation) and Another
1985 (4) SA 407
(D) at 410
in
fine
there must be a causal
connection between the making of the disposition and the parting with
property, a connection described by
Kumleben J as ‘consideration
(“vergoeding”) or the
quid
pro quo
for the
dispositions’ (at 411B). The proposition holds equally in relation
to the loss of a right. I would carry the matter further
in the
circumstances of the present case: it is not sufficient for reliance
on s 33(1) that there should be an incidental connection
between the
disposition and the loss. ‘In return for’ necessarily implies
that M-Tel was willing to and did give up a right
because
CNA was willing to and did
make the disposition. When, as here, the respective acts of the
parties are said to have arisen in relation
to the conclusion of an
agreement (in this case, the ARA) examination of its terms is the
first step in determining whether reciprocity
in that sense is
proved.
[57] Clause
2.2 of the ARA recorded that:
‘
MTN
and M-Tel are both wholly-owned subsidiaries of MTN Holdings
(Proprietary) Limited. M-Tel has furnished the Income Warranties
to
CNA, subject to conditions. M-Tel’s liability in terms of the
Income Warranty for the year ended 30 June 2001 is substantial,
and
further claims may be made in respect of the Income Warranty for the
year ended 30 June 2002. The parties wish to renegotiate
the terms of
the Income Warranties.’
The
absence of any assertion of a right in the hands of M-Tel arising
from breaches by CNA is striking, if explicable in the background
of
‘drawing a line under the past’ (to adopt an expression used by
Jenkins to describe the negotiators’ intentions). But
the positive
manner in which M-Tel’s liability under the second income warranty
is stated, is, to say the least, not only in
conflict with the
existence of such a right but excludes any unspoken reliance on it.
[58] Clauses
4.1 and 4.2 enhance that impression:
‘
CNA,
Newco and M-Tel agree, with respect to the Income Warranties that:-
4.1 M-Tel
has fully discharged its obligations to CNA in respect of the Income
Warranty for the year ended 30 June 2000;
4.2 the
Income Warranty for the year ended 30 June 2001 is hereby deleted
from the Retailer Agreement. Accordingly neither CNA nor
Newco shall
have any claim against M-Tel arising from that Income Warranty, and
each of CNA and Newco waives any claims which
it may have against
M-Tel arising from that Income Warranty.’
The
existence and enforceability of claims by CNA arising from the second
warranty of the RA are expressly excluded. But potential
claims by
M-Tel deriving from the same source are neither excluded nor
preserved.
[59] Reading
clauses 2.2 and 4 together creates a probable inference that M-Tel
either did not regard such claims as extant or discounted
them as
possessing no value.
[60] In
its plea to CNA’s claim (para 6.2.3) M-Tel specified no fewer than
six categories of alleged shortfalls in the performance
of CNA’s
obligations under clause 25.3 of the RA
10
.
It was upon such breaches that M-Tel relied (in para 14.2.2 of its
plea) for the right to terminate the RA which it had lost in
return
for the dispositions by the CNA under the ARA. The evidence adduced
by M-Tel did not, however, attempt to substantiate the
pleaded
breaches
11
or whether any loss was suffered in consequence. It remains pure
speculation as to whether the opportunity to cancel possessed
any
value in M-Tel’s hands before the conclusion of the ARA.
[61] In
the circumstances, although the breaches relied on by M-Tel may in
fact have taken place and given rise to a right to claim

cancellation, I am satisfied that the loss of such a right was no
more than incidental to the conclusion of the ARA and was not
shown
by M-Tel to have been reciprocal for the dispositions under that
agreement. For that reason alone M-Tel failed to bring its
case
within the terms of s 33(1) and the learned judge should have
answered the reserved question against it.
[62] As
far as MTN is concerned the position is different. It pleaded to
CNA’s claim in reliance upon s 33(1) that in return for
one or more
of the alleged dispositions, acting in good faith, it made payment to
Wooltru of amounts aggregating R85 976 778.08
pursuant to the
guarantees which the ARA had required it to furnish. Although the
reciprocal nature of payments and the dispositions
was put in issue
in the pleadings. CNA formally admitted before the trial that ‘in
return for one or more of the dispositions
MTN gave the guarantees
under which payment was made to Wooltru’. But for the dispositive
undertakings in the ARA, MTN would
not have given the guarantees or
made any part of the payment and that connection satisfied the
element of reciprocality
12
.
Counsel’s submission that the obligation to pay flowed from the
guarantees and not from the agreement relies on an artificial

distinction. The appeal against this aspect of the judgment in favour
of MTN cannot succeed.
Good
faith
[63] Without
proof of good faith reliance on s 33(1) must fail. Such probity must
exist at the time of the reciprocation between
the parties. As was
pointed out by Williamson J in
Ruskin
NO v Barclays Bank DCO
1959
(1) SA 577
(W) at 584-5, the enquiry should not be limited to the
narrow action of parting or losing if there is reason to believe, for
example,
that the party in question breached that standard in the
course of the transaction which gives rise to that action. It is
unnecessary
to speculate on the unlimited breadth of circumstances
which may justify a conclusion that good faith was absent. In the
context
of s 33(1) generally, and in the circumstances of this case
in particular, ‘good faith’ necessarily implies absence of a
contemplation
of insolvency at the time of the transaction. This
flows from the definition in s 2 of the Act.
13
Significantly there is no limitation to dispositions made by the
insolvent or to the intention of the insolvent.
14
In so far as the definition sets a standard of moral culpability
there is no reason to distinguish in this regard between an insolvent

and his creditor.
15
As 33(1) deals specifically with dispositions the definition of good
faith properly measures the conduct of a party who invokes
it.
[64] Whether
actual contemplation of sequestration (or liquidation) exists has
been
assessed by the courts at
various levels of certainty
16
sometimes in expressions which assume that at the level of
substantial inevitability little doubt can remain
17
.
None of the cases was concerned with s 33 (1) (or an equivalent
provision) where the state of mind in question is not that of
the
insolvent but of someone who may not even be a creditor (as MTN was
not) and whose connection with the affairs of the insolvent
may be
tenuous but who nevertheless attracts an onus.
18
To pitch good faith on the basis of a high probability of
sequestration would appear to accord with fairness to a person in
such
a position. But it is unnecessary to decide the question
because, as I shall show on an analysis of the evidence, liquidation
was
certainly not present to the mind of either Jenkins or the board
of MTN as a probability.
[65] Jenkins
testified that he possessed no contemplation of liquidation as a real
possibility. It was ‘unthinkable’ he said.
By that I understood
him to mean, not that he excluded the possibility, but rather that he
regarded it as very unlikely. One does
not have to rely on his
unsubstantiated word. Every objective probability before and at the
time of concluding the ARA bears him
out.
[66] In
the letter of 9 March 2001 to Wooltru in which Mr Dabengwa recorded
MTN’s preparedness to furnish guarantees – written
at a time when
dissimulation served no purpose – the following was stated:
‘
Given
Wooltru’s stated intention of disposing of the CNA Group, we are
probably as keen to see a successful transaction concluded
as
yourselves. Furthermore it is in our business interest that CNA
should re-establish itself as a successful retail chain.
With
this in mind, we have had a number of discussions with the proposed
buyers of the CNA Group and believe that it will be possible
for us
to re-frame our agreement with the CNA Group in a manner which takes
into account the changing dynamics of the cellphone
market.’
[67] The
CNA had endured a long and successful existence. Jenkins, without
contradiction, called it ‘a South African icon’ and
described it
as ‘ingrained in the South African psyche’. It operated a large
number of retail stores, was found in nearly every
mall in the
country, mainly as an anchor tenant, its turnover was vast; with the
Johnnic group alone it amounted to about R100
million annually at the
time that the ARA was negotiated. It represented, as Jenkins said ‘a
huge channel to market’ which
it was strongly in MTN’s interest
to exploit and enlarge.
[68] The
difficulties that M-Tel experienced in its relationship with CNA had
not involved non-payment of cheques, undue delays
in payment,
reduction in orders, all of which would have been signs of financial
distress. Bills were paid as and when due.
[69] Wooltru
had sold the company for R150 million very shortly before, on the
strength of a positive report from an international
bank, a fact
which told strongly in the mind of an outsider such as MTN or M-Tel
against the prospect of liquidation in the foreseeable
future.
[70] Gordon
had produced considered and persuasive plans for the reorganization
and development of the business. There were afterwards
reflected in
the ARA and particular in the prominence given to the role of
Biotrace.
[71] In
concluding the ARA both parties manifested an unequivocal intention
to maintain and improve the business, an attitude totally

irreconcilable with a contemplation of liquidation as a real
possibility at any time prior to the September 2002 deadline. The

respondents’ intentions and confidence were manifested by conduct
and consequences:
(a) MTN,
which had no obligations to the CNA under the RA, undertook a
substantial new guarantee obligation, a risk which can only
be
rationalized by the overall benefits which the group expected to
achieve from the implementation of the ARA. The MTN parties
had not
seen and had no means of accessing CNA’s current financial
statements.
(b) Payment
of the guarantee furnished to Wooltru for R85.6 million, was to be
secured out of the future income of CNA from its
cell phone business.
Importantly, although the MTN parties considered it very likely that
M-Tel would have to make good its guarantee
for the second warranty
year to the extent of R40 million, that liability could not
materialize until 30 June 2001. Should insolvency
have intervened
either before that date or after it but before 30 June 2002, as
counsel conceded, M-Tel would have been absolved
from paying the
second warranty or the third warranty as the case might be. So that,
in undertaking the guarantee, MTN was committing
itself unreservedly
to pay R85.6 million as against, in the event of insolvency, either a
non-existent liability of M-Tel to CNA
or one which would be greatly
reduced. In short, if insolvency was a real prospect at the time of
concluding the ARA the MTN parties
were likely to be materially worse
off. In these circumstances the ‘ring-fencing’ of CNA’s income
in the trust account could
hardly be said, to place the MTN parties
in a more favourable position than they would have enjoyed if the
obligations of the RA
had remained in force, despite counsel’s
submission to that effect.
(c) Significantly,
the moneys paid into the trust fund out of CNA’s income could not
be used until September 2002. The income
from the cell phone business
in the second year of the RA had been projected at about R45 million,
leaving some R40 million to
be made good by M-Tel under the RA
guarantee, yet MTN and M-Tel were prepared to expose themselves to a
risk which required the
generation of turnover of R85.6 million over
15 months in order to balance the new guarantee obligation undertaken
in the ARA.
Such a willingness was commercially inexplicable unless
the MTN parties expected to recoup that obligation out of the added
benefits
which the ARA would produce. Added to this, MTN was content
with a pledge of shares in the CNA business rather than a balance
sheet
security. But if the business was not worth anything then
neither was the pledge.
(d) M-Tel
put Reynolds on the board of CNA to ensure that CNA put its weight
behind the implementation of the ARA.
(e) The
ARA made provision for R1.5 million per month to be excluded from the
payments into the trust and to be used in the CNA
business. That
arrangement too was consistent with a viable going concern rather
than a business whose demise was only a matter
of time.
(f) The
ARA introduced new Johnnic parties to the contractual relationship
with CNA, with the undoubted purpose of strengthening
the commercial
support for the overall business of CNA (and not merely the cell
phone side).
[72] The
cumulative weight of the aforegoing considerations together with the
thrust of Jenkins’s testimony persuades me that:-
1. The
main concern of the MTN parties was the retention of their market
share in the cell phone sector by means of their presence
in the CNA
outlets.
2. The
purpose of the ARA and the related Johnnic group agreement were to
stabilize and promote the CNA business so as to tighten
their grasp
on that share.
3. The
‘concessions’ extracted from CNA by MTN and M-Tel were motivated
by genuine commercial considerations and the benefits
which all
parties would derive from an ongoing and flourishing trading
relationship.
4. Such concerns as may
have exercised the minds of the executives of the Johnnic group
concerning the financial stability of CNA
were laid aside in the
conclusion of the ARA except in so far as commercial prudence
dictated.
[73] In an
attempt to offset the inherent probabilities in favour of MTN,
counsel for CNA relied in particular upon two documents
exhibited in
the trial. The first was notes made by Graham Bird of Cazenove South
Africa (Pty) Ltd
19
of a conversation with Jenkins on 9 March 2001 in the context of
GKN’s inability to provide guarantees to Wooltru as required
by the
sale agreement.
It was
during the course of this meeting that Jenkins agreed in principle
that MTN would instead undertake that liability. The conclusion
to
the note reads:
‘
The
conversation was extremely friendly, and Paul Jenkins was clearly
anxious to allay any fears that Willow [Wooltru] might have.
He
emphasised two key points several times:
* The
proposed deal makes sound commercial sense for both MTN and Johnnic,
and hence there is a strong commercial incentive for
them to complete
the project.
* Johnnic
has a strong incentive to see Crocus [CNA] survive. Consequently, he
has put considerable resources into the project to
ensure that the
timing requirements are met.
If
required, Paul Jenkins will call Barry Adams, of Mallinicks, to
provide additional comfort.
The
conversation was such that Graham was left with a very positive
feeling regarding MTN and Johnnic’s intentions and their
desire to
see closure of the Crocus sale and purchase agreement.’
Counsel
submitted that the reference to ‘Crocus’ surviving was a clear
indication that Jenkins regarded its viability as doubtful.
But that
ignores the positive thrust of the remainder of the quoted passage
(even allowing for ‘gilding’ by Jenkins) in the
context of what
the proposed deal was intended to achieve.
The
second document was the so-called ‘board circular’ of 12 March
2001 which was prepared by Jenkins, inter alia, to explain
to the
directors of M-Tel and MTN what the content of the proposed ARA would
be and what the thinking was that underlay the transaction.
Under the
heading ‘Evaluation’ the circular (in its draft form
20
)
stated:
‘
Legal
opinion obtained indicates that M-Tel is liable for an amount of up
to R45m in September 2001 and an amount of up to R85m
in September
2002. The suggested arrangement significantly reduced this exposure,
and the remaining exposure, being liquidation
on the short term can
be secured by the pledge of the 20% shares in the “Top 50 ‘
stores.
The
agreed mechanism of securitisation of the discounts, commissions and
incentives, further allow the commercial risk to be reduced.’
Counsel
emphasised the repeated reference to ‘exposure’ and ‘risk’
and especially the identification of the harm resulting
from
‘liquidation on the short term’ and its avoidance by the taking
of securities. Here, they submitted, the truth emerged
that Jenkins
recognised liquidation as a real prospect; in the absence of
resulting evidence from McGrath it must be assumed that
he viewed the
prospects in a similar light and should and would have communicated
those concerns to the board. There might be some
merit in this
submission if the statement is read in isolation and not as merely
one incident in the longer train of events. Once
again the objective
conduct embodied in the agreements carries far more
weight.
[74] The
cumulative weight of all the considerations to which I have alluded
identifies the ARA as a genuine commercial transaction
directed to
the long-term benefit of all its parties, benefit that could only be
derived from the future prosperity of the CNA.
As such it excludes
the possibility that MTN contemplated the liquidation of that company
whether according to a standard of inevitability
or even as a real
prospect.
[75] The
learned judge
a quo
was
therefore right to conclude that MTN had discharged the onus to show
good faith and in answering the separated issue in its
favour.
[76] I
would dismiss the appeal in respect of the order made in favour of
MTN, with costs of two counsel but uphold it in respect
of M-Tel.
____________________
J
A HEHER
JUDGE
OF APPEAL
NAVSA JA and HURT AJA
(NUGENT and MHLANTLA JJA concurring):
[77] We have had the
benefit of reading the judgment of our colleague Heher JA. We agree
with his analysis of the evidence presented
by Jenkins and the
inferences which he said were to be drawn from the agreements
themselves, in particular the ARA. We agree also
with his conclusions
concerning the bona fides of MTN, its entitlement to invoke the
provisions of s 33 of the Insolvency Act 24
of 1936 ('the Act') and
the order which he proposes concerning MTN. We respectfully disagree
with his conclusions in relation
to M-Tel and his proposed order to
the effect that it could not avail itself of the claim to an
indemnity under s 33.
[78] The
finding that M-Tel is not entitled to invoke the provisions of s
33(1) of the Act is based upon the conclusion that M-Tel
itself did
not part with any property or security or lose any right in return
for the waiver by CNA of its claim under the second
income warranty.
In this connection reference was made to the judgment of Kumleben J
in
Barclays National Bank Ltd v Umbogintwini
Land and Investment Co (Pty) Ltd (in Liquidation) and Another
1985
(4) SA 407
(D) at 410I.
[79] We cannot agree with
our colleague’s finding that, in the light of the evidence adduced,
the ‘right’ which M-Tel claimed
to have relinquished for the
purpose of paving the way for the conclusion of the ARA was more
illusory than real or that its loss
was 'no more than incidental to
the conclusion of the ARA and was not shown by M-Tel to have been
reciprocal for the dispositions
under that agreement'. We do not
agree that the 'right' can correctly be dismissed as illusory. The
evidence was that there was
substantial dissatisfaction with the way
in which CNA had gone about administering the RA. In our view it was
established that,
if it had not been possible to reach a solution by
amending the RA, litigation between M-Tel and CNA would most probably
have ensued.
There is nothing to suggest that M-Tel's complaints
about CNA were trumped-up or otherwise spurious. Although it is not
possible,
on the evidence, to attribute a value to M-Tel's possible
claim in this regard, if it is accepted (as we consider it must be)
that
there was some basis for a contention that CNA had failed to
comply with its obligations, that would have entitled M-Tel to
contest
its liability under the income warranty and possibly to claim
damages for the breach. The fact that the relinquishment of such a

right was 'incidental to the conclusion of the ARA' by no means
negates it as 'parting with property'. It in fact emphasizes that
the
relinquishment was designed to clear the way for the conclusion of
the amending agreement. We cannot therefore agree with
the
conclusion that, because it did not make a substantial contribution
of "property" to the ARA, M-Tel should be non-suited
in
regard to s 33.
[80] Furthermore, we take
the view, for the reasons set out below, that the contributions by
the MTN parties, which cumulatively
made the conclusion of the ARA
possible, cannot be separated and examined on an individual basis. It
is important to bear in mind
what was repeatedly emphasised by the
MTN parties and what was ultimately borne out by the evidence and the
documentation, namely
that the ARA was seen by all parties involved
as a holistic solution. It served the interest of all the Johnnic
parties; its purpose
was to ensure CNA’s viability and, in so
doing, it was promoting the interests of all its participants.
[81] MTN, which was not a
party to the RA, became involved in the ARA for the purpose of
protecting M-Tel’s, and the Johnnic Group's
position. Johnnic
became involved because a significant negative impact on M-Tel’s
position would affect the financial health
of the group as a whole.
[82] Seen in the
composite manner described above, the questions whether property was
parted with or rights lost, and the issue
as to whether this was done
in good faith, raised by the stated case, must, in our view, be
examined from the point of view of
the MTN parties as a group, and
not from the point of view of the individual actors. We are in
respectful agreement with the finding
of our colleague that, in so
far as MTN is concerned, it was entitled to rely upon s 33(1) on the
following basis: in return for
one or more of the dispositions in
question and acting in good faith it had made payments to Wooltru of
amounts aggregating R85
976 778.08 pursuant to the guarantee which
the ARA had required it to furnish. As he himself emphasized in
para 60(c), the
willingness of MTN and M-Tel to expose
themselves to a risk which required the generation of a turnover of
approximately R85 million
over 15 months is 'commercially
inexplicable unless the MTN parties expected to recoup that
obligation out of the added benefits
which the ARA would produce'.
[83] The stated case
required the court to assume that the dispositions by CNA were liable
to be impugned under s 26 of the Act.
On this assumption the court
was asked
'. . . to determine the
merits of the defence pleaded in paragraphs 14.2.1 to 14.2.4 of the
plea under case number 05/13890, read
with paragraphs 2.1 to 2.3 of
the replication under case number 05/13586 ("the section 33(1)
defence").'
The MTN parties accepted
that they bore the onus to show that they had parted with property or
security or had lost rights against
CNA and in so doing had acted in
good faith. It was on this basis that the MTN parties contended that
they were not obliged to
restore any of the dispositions unless
indemnified. Clause 2.4 of the ARA stipulates that ‘in
consideration for the concessions
made by CNA, MTN will furnish the
first and second guarantee to Wooltru'. In its particulars of claim
MTN alleged that it paid
Wooltru, pursuant to the guarantee, in
return for the dispositions. CNA admitted that the guarantees were in
return for one or
more of the dispositions.
[84] In para
27 of their heads of argument the MTN parties submit that the terms
or obligations under the ARA were not ‘materially
severable from
the holistic multiparty agreement the terms of which were
interlinked’. The last sentence of para 27, followed
by para 28,
with reference, inter alia, to
Umbogintwini
,
reads as follows:
‘
The ARA is in its
terms an indivisible transaction.
‘
(28) This latter
insight is important when it comes to considering the question of
setting aside dispositions vis-à-vis M-Tel
and their being set
aside vis-à-vis MTN. The dispositions in the ARA are not
severable, and no suggestion was put forward
by CNA as to any such
severance. Indeed, the action for setting aside the dispositions also
treats them holistically and seeks
an order as against all defendants
for their being set aside.’
[85] In the judgment of
the court below (para 152) the following is recorded:
‘
It is unchallenged
that the purpose of the ARA was to secure a viable CNA group going
forward which was mutually beneficial to everyone.’
[86] There
can, in our view, be no doubt that CNA knew what case it had to meet.
The ARA was at the very centre of the dispute between
the parties.
The pleadings and the evidence should not be viewed microscopically.
It is necessary to step back to see the bigger
picture. In case No
05/13586 (instituted on 24
th
June 2005), MTN claimed a return of the money it paid pursuant to the
guarantee provided for in the ARA. CNA resisted the claim
on the
basis that certain provisions of the ARA constituted dispositions
liable to be set aside in terms of
s 26
of the
Insolvency Act. MTN
replicated to the effect that it had made the substantial guarantee
payments in terms of the ARA in good faith and was entitled
to an
indemnification under
s 33
if the dispositions under the ARA were to
be set aside. In case No 05/13890 (instituted on 29
th
June 2005), the liquidators of CNA claimed, primarily against MTN and
M-Tel, the setting aside of the dispositions by CNA under
the ARA.
The riposte by MTN and M-Tel was that they had parted with property
in good faith under the ARA and that the dispositions
could not be
impugned unless the liquidators indemnified them. The stated case was
plainly framed with the consolidation of the
two actions in mind, and
the evidence adduced was clearly intended to be the basis on which
the court was required to rule on the
applicability of
s 33
(1). That
is how the court below treated the problem before it. We do not
consider that it erred in this regard.
[87] It was
not incumbent on M-Tel to prove that what it sacrificed for the
purpose of achieving the beneficial arrangement embodied
in the ARA
was, in itself, a substantial 'parting with property' in comparison
with the value of the waiver by CNA of the first
income warranty.
Even if this aspect of the evidence relied upon by the MTN parties
may have been open to doubt, the 'reciprocity'
referred to in
Barclays Bank
at p
410
21
is clearly to be found in the contribution to the ARA by MTN, without
which the ARA would never have been concluded and the dispositions

would never have been made. On our view of the evidence, though, the
'parting with property' in this case must be taken to encompass
both
the relinquishment of M-Tel's possible claim under the RA and the
substantial payment made by MTN in terms of the guarantees.
The two
cannot be separated, nor can they be individually assessed for the
purpose of determining whether they both match the extent
of the
dispositions by CNA.
[88] For the reasons set
out above, it cannot be said (and, indeed, we do not think that this
was the view of Heher JA) that the
ARA - the transaction in question-
was concluded in good faith by one of the MTN parties and not by the
other.
[89] Before
concluding, we are constrained to make the comments that follow.
Piecemeal litigation is not to be encouraged. Sometimes
it is
desirable to have a single issue decided separately, either by way of
a stated case or otherwise. If a decision on a discrete
issue
disposes of a major part of a case, or will in some way lead to
expedition it might well be desirable to have that issue
decided
first.
22
[90] This
court has warned that in many cases, once properly considered, issues
initially thought to be discrete are found to be
inextricably linked.
And even where the issues are discrete, the expeditious disposal of
the litigation is often best served by
ventilating all the issues at
one hearing. A trial court must be satisfied that it is convenient
and proper to try an issue separately.
23
[91] In the present case
counsel for both parties informed us that notwithstanding a decision
in this matter a number of issues
would still be outstanding. Not all
of the remaining issues were identified, nor do they appear to have
occupied the mind of the
court below.
[92] A
further complicating factor is that the anterior question ─ whether
the dispositions in question were made for value ─
was an
assumption (without a concession) ─ on which the court below and
this court were asked to decide the posterior question
of the
indemnification in terms of
s 33(1)
of the
Insolvency Act. The
true
nature and effect of the indemnification does not appear to have been
thoroughly considered.
[93] The decision by this
court on the question of the indemnification and the reasoning
leading up to it, including an analysis
of the impugned transaction,
namely the ARA, might well affect the outstanding issues, including
the question of a disposition
without value, which counsel for both
parties informed us was one of the outstanding issues. The wisdom of
the stated case might
well unravel. The difficulty, as identified
above, is that neither counsel nor the court below gave sufficient
consideration to
the practical effect of a decision on the stated
case. Perhaps more importantly, they did not consider whether a
separation of
issues was indeed desirable.
[94] Much effort and
costs were expended on the litigation leading up to this point. In
the light thereof it appears to us that
a decision on the separated
issue should ensue.
[95] The appeal is
dismissed with costs including the costs occasioned by the
employment of two
counsel.
_________________
M S NAVSA
JUDGE OF APPEAL
_________________
N HURT
ACTING JUDGE OF APPEAL
A
ppearances:
F
or
appellant: L S Kuschke SC and J C Butler SC
I
nstructed
by: Jan S De Villiers, Rosebank
Lovius
Block, Bloemfontein
F
or
respondents: A Subel SC and F Snyckers
I
nstructed
by: Feinsteins, Braamfontein
Matsepe
Inc, Bloemfontein
1
Sec 33(1)
provides:
‘
A
person who, in return for any disposition which is liable to be set
aside under section
twenty-six
,
twenty-nine
,
thirty
,
or
thirty-one
,
has parted with any property or security which he held or who has
lost any right against another person, shall, if he acted
in good
faith, not be obliged to restore any property or other benefit
received under such disposition, unless the trustee has
indemnified
him for parting with such property or security or for losing such
right.’
2
In fact the joint liquidators of CNA are the appellants but unless
it is necessary to do so I shall not distinguish between them
and
the company.
3
Broadly, MTN is a cellular service provider while M-Tel markets
cell-phones and related products.
4
Defined as ‘all income, discounts, incentives and commissions
earned by CNA from its cellular telephony business, whether from

M-Tel or third parties, and whether pursuant to the Retailer
Agreement or other agreements’.
5
Those summarised in para [22] above.
6
Both MTN parties admitted in their trial particulars that McGrath
was authorised to negotiate and conclude the ARA.
7
In so far as evidence was admissible to aid interpretation of the
ARA.
8
The applicable principles have often been stated. In
Middleton v
Carr
1949 (2) SA 374
(A) at 385-6 Schreiner JA expressed them
thus:
‘. . . as
has often been pointed out, where there has been full investigation
of a matter, that is, where there is no reasonable
ground for
thinking that further examination of the facts might lead to a
different conclusion, the Court is entitled to, and
generally
should, treat the issue as if it had been expressly and timeously
raised. But unless the Court is satisfied that the
investigation has
been full, in the above sense, injustice may easily be done if the
issue is treated as being before the Court.
Generally speaking the
issues in civil cases should be raised on the pleadings and if an
issue arises which does not appear from
the pleadings in their
original form an appropriate amendment should be sought. Parties
should not be unduly encouraged to rely,
in the hope, perhaps, of
obtaining some tactical advantage or of avoiding a special order as
to costs, on the court’s readiness
at the argument stage or on
appeal to treat unpleaded issues as having been fully investigated.’
9
Perhaps he could not have done so successfully in view of the
judgment in
David Hersch Organisation (Pty) Ltd v Absa Insurance
Brokers (Pty) Ltd
1998 (4) SA 783
(T) at 787C-H without first
setting aside the judgment of the court
a quo
.
10
In terms of which CNA agreed to use its best endeavours to achieve
the minimum annual targets, and, to that end furnished five

warranties relating to kiosks, staff, stock and the number of
operative trading stores.
11
The ‘lacklustre performance’ relied on in the judgment
a quo
fell far short of what was required to establish a breach, even
though unchallenged. All the ‘evidence’ was pure hearsay
as
neither Jenkins nor Tredoux testified from personal knowledge.
12
Clause 2.4 of the ARA recorded that ‘in consideration for the
concessions made by CNA, MTN will furnish the First Guarantee
and
the Second Guarantee to Wooltru’.
13
‘”good faith”, in relation to the disposition of property,
means the absence of any intention to prejudice creditors in

obtaining payment of their claims or to prefer one creditor above
another’.
14
In so far as Catherine Smith,
The Law of Insolvency
, 3ed 142
suggests that the definition is irrelevant ‘because it refers to
the state of mind of the insolvent’ I respectfully
disagree.
15
Cf
National Bank of South Africa Ltd v Hoffman’s Trustee
1923
AD 247
at 254-5.
16
Thorburn v Steward
1871 LR 3 PC 478
,
Malherbe’s Trustee
v Dinner and Others
1922 OPD 18
at 24-5,
Pretorius’ Trustee
v Van Blommenstein
1949 (1) SA 267
(O) at 278 and the cases
there cited: ‘knowledge that sequestration was substantially
inevitable’;
Pretorius NO v Stock Owner’s Co-operative Co Ltd
1959 (4) SA 462
(A) at 472G-H (with reference to
Swanepoel NO
v National Bank of South Africa
1923 OPD 35:
something less than
inevitability ‘might suffice’;
Gert de Jager (Edms) Bpk v
Jones NO en McHardy NO
1964 (3) SA 325
(A) at 331B: ‘wanneer
sekwestrasie oorweeg of verwag word’;
Venter v Volkskas Ltd
1973 (3) SA 175
(T) at 179E: ‘a likely event’.
17
In
Cooper and Another NNO v Merchant Trade Finance Ltd
2000
(3) SA 1009
(SCA) at para 30, Olivier JA said that ‘there has
developed a clearly defined point of departure in cases such as the
present
one [the application of s 29 of the Act]: once it is proved
that the debtor made a payment to one creditor at a time when he

knew that sequestration was substantially inevitable, there arises a
presumption . . .’.
18
The definition of ‘good faith’ does not exclude the possibility
of different emphasis according to the context of the section
in
which the expression is used.
19
Cazenove was the merchant banker which advised Wooltru in the sale
of the CNA and, was, it appears, responsible for fixing the
price of
R150 million.
20
Subsequent amendments before being issued in support of a round
robin resolution do not affect the point.
21
Per
Kumleben J
(as he then was) : 'The essence of the requirement in the subsection
is that there must be reciprocity between the
disposition and the
passing of property.'
22
SA Eagle Versekeringsmaatskappy Bpk v Harford
[1992] ZASCA 42
;
1992 (2) SA 786
(A).
23
Per Nugent JA in
Denel (Edms) Bpk v Vorster
2004 (4) SA 481
(SCA) para 3.