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[2021] ZAGPJHC 630
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Voltex (Pty) Limited v First Strut (RF) Limited and Others (43914/17) [2021] ZAGPJHC 630 (5 October 2021)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
CASE
NO: 43914/17
REPORTABLE:
YES
OF
INTEREST TO OTHER JUDGES: YES
REVISED:
NO
DATE:
5 October 2021
In
the matter between:
VOLTEX
(PTY)
LIMITED
APPLICANT
and
FIRST
STRUT (RF) LIMITED (IN LIQUIDATION)
1
sT
RESPONDENT
THE
MASTER OF THE HIGH COURT, PRETORIA
2
ND
RESPONDENT
PREVANCE
BONDS (PTY) LIMITED
3
RD
RESPONDENT
JUDGMENT
Van
der Schyff J
Introduction
[1]
This is an application for the rectification of 'an application for
credit
incorporating a cession of book debts' (the written
agreement). The applicant avers that the written agreement was
concluded between
itself and the first respondent prior to the latter
being wound up. Although the written agreement reflects the
applicant's name
(Voltex (Pty) Ltd -previously known as Voltex
Distributors (Pty) Ltd - herein referred to as 'Voltex 2'), it does
not reflect the
applicant's company registration number.
Coincidentally it reflects the company registration number of a
pre-existing company with
an identical name (Voltex (Pty) Ltd -
'Voltex 1'), which company effected a name change to Aberdale Cables
SA (Pty) Ltd during
1998. The applicant concluded a general cession
of book debts in favour of Voltex 1 during 1995 and allegedly a
second credit agreement
with cession of book debts with Voltex 2
during 1999. This second agreement constitutes the written agreement
that is the subject-matter
of this application because it reflects
Voltex 1's company registration number, and not Voltex 2's company
registration number.
The first respondent is presently in
liquidation. The applicant seeks to advance a secured claim against
the insolvent estate of
the first respondent relying on the cession.
The rectification application was launched almost four years after
the winding-up
commenced.
[2]
When the application was heard, the applicant did not press for the
relief
sought in the notice of motion but sought a referral to oral
evidence concerning the alleged common intention between itself and
the first respondent. The applicant averred that a referral to oral
evidence would enable the third respondent, who has no personal
knowledge of any of the relevant facts but raised a legal challenge
to the application, to cross-examine the applicant's witnesses
for
purposes of establishing the veracity of the applicant's version
supporting the rectification. The applicant argued that referring
the
matter to oral evidence from the onset will prevent a piecemeal
approach to the issues to be determined. Counsel for the applicant
emphasised that the request for referral to oral evidence was made
because recent development dictates that such a request needs
to be
made at the onset of a hearing if it is to be considered.
[3]
The third respondent, a rival creditor in the insolvent estate of the
first respondent, opposes the application. The third respondent
contests that the applicant is a secured creditor as opposed to
a
concurrent creditor. Counsel for the third respondent contends that
the two critical questions for determination are (i) whether
an
application for the rectification of the written agreement which
would subsequent to its rectification confer security on a
debtor,
can be brought against an insolvent debtor after the institution of a
concursus creditorum
(the legal challenge), and (ii) whether
the applicant provided sufficient evidence to sustain a claim for
rectification on motion
(the factual question). The third respondent
opposed the referral of the application to oral evidence and
contended that even if
the applicant could establish the facts
necessary for a rectification claim, the relief is not legally
competent as this would
disturb the
concursus creditorum.
[4]
Since
the legal
challenge regarding the competency
of the
relief claimed constitutes a question of law which, if upheld, will
be dispositive of the application, it can conveniently
be decided
separately
from the factual question. Having said that, it is of significance to
consider that the applicant invited three respondents
to the present
proceedings. The first respondent is the company in liquidation. The
application was served on the appointed liquidators.
It is trite that
when liquidators are appointed, they step in the shoes of an
insolvent company.
[1]
A
liquidator is statutorily conferred with the power to institute and
defend legal proceedings against the company in liquidation.
Of the
three respondents, the liquidator who represents the insolvent
company, is the only party who can contest the applicant's
averments
that the applicant and the first respondent intended for the
agreement to be concluded between them and that the wrong
company
registration number reflected in the written agreement
stands to
be rectified. In the absence of any opposition on behalf of the
company in liquidation, in circumstances
where the
application was served on the liquidator in accordance with the rules
of court, these averments stand uncontested. It
is not necessary to
refer the application to oral evidence to provide
the third
respondent with the opportunity to test the veracity of the
applicant's version
in
circumstances where it is not contested by the first defendant. The
factual question can be considered on the papers as it stands.
The
legal challenge will be
addressed
first.
Legal
challenge
[5]
Both
parties base the relief they seek on the premise that the effect of a
liquidation order is to crystallise the insolvent's position
and that
no transaction can be entered into thereafter with regard to the
estate, as it was explained by the then Appellate
Division in
Walker v
Syfret
N
O
.
[2]
[6]
Relying on
the judgment in
lncledon
(Welkom) (Pty) Ltd v QwaQwa Development Corporation Ltd,
[3]
the
third respondent contends that as between the insolvent estate
and the
creditors, the relationship of the creditors
inter
se,
became fixed and their rights and o ligations became vested and
complete on the company being liquidated. Counsel submitted
that one
of the consequences hereof, as confirmed in a number of judgments,
[4]
is that a creditor who was only a concurrent creditor at the date of
winding-up, cannot by rectification of an agreement between
the
parties alter its position post liquidation to become a preferent
creditor, as this would disturb the
concursus
creditorum.
The
third respondent therefore raised the legal challenge.
[7]
The
applicant, on the other hand, asserts that the rectification of the
agreement will not elevate the applicant from being a concurrent
creditor to being a secured creditor. Counsel
for
the
applicant
submitted
with
reference
to,
inter
alia, Guman
v
Latib,
[5]
that the security was created when the security session, in terms of
which the first respondent ceded its book debts and other
debts to
the applicant as continuing covering security, was concluded on 26
January 1999. The cession did not require any formality
such as
registration in a Deeds Office to be satisfied before the real right
of security came into existence. The fact that the
security session
reflects the
incorrect
registration number for the applicant does not change the fact that
the applicant was a secured creditor from 26 January
1999. The
rectification will merely ensure that the written agreement accords
with the actual agreement as concluded between the
applicant and the
first respondent.
Counsel
maintained
with
reference to,
inter
alia, Weinerlein v Goch Buildings Ltd,
[6]
that it
is a trite principle that it is not the actual agreement between the
parties that is rectified by a claim for rectification
but the
document recording the agreement. This principle, counsel submitted,
has
been
overlooked by the court in
Nedbank
Ltd v Chance,
[7]
and
Standard
Bank of South Africa Ltd v Strydom
respectively,
[8]
and resulted in erroneous findings that are wrong in legal principle
and contrary to binding appeal court authority. As a result,
counsel
argued that this court should not follow the said judgments. Once the
trite
principle
that 'rectification corrects the document, not the juristic act
expressed by
the
document, and does not amount to a variation of the contract' is
applied, the objection to a
post-concursus
rectification
as affecting the insolvent company's position that crystallises upon
liquidation dissipates. Counsel emphasised that
the Supreme Court of
Appeal confirmed in
Thienhaus
NO v Metje
&
Ziegler
Ltd and Another
that
a
post-concursus
rectification
of a security agreement is competent provided that the creditor
already enjoyed real security before the
concursus.
Counsel
emphasised
that
although
the
majority
in
Thienhaus
acknowledged
that to
permit
post-concursus
rectification
could
open
the
door
to
possible
fraud
they
held that
'[t]he mere possibility
of fraud
should not affect the legal position in any case.'
Discussion
[8]
The question that lies at the heart of the dispute between the
parties,
is whether in circumstances where one party to an agreement
is in liquidation, a written agreement concluded
inter
se can
be rectified after the
concursus creditorum
was established.
[9]
The security cession in issue in the present application is a cession
of book debts.
[10]
It is
trite
that the rectification of an agreement corrects the document wherein
the agreement is captured to reflect the true agreement
between the
parties. It
does
not alter,
or add to the terms
of
the
agreement.
In
Lazarus
v
Gorfinkel
[9]
it
was held
that
the
doctrine of rectification also
applies
where
a
document
wrongly
records
the
identity
of
a
party,
so
as
to
give
effect
to the
intention
of
the
true
parties
in
terms
of a prior
oral agreement or understanding between them. Rectification, once
granted, operates
ex
tunc.
[10]
Williamson
JA held in
Thienhaus
N.
O.
v
Metje
&
Ziegler
Ltd and Another
[11]
that
'Rectification may be a
necessary step when some essential or desired act or result can only
eventuate if the contract is actually
correct in all its details.'
[11]
Another
consideration
also
comes
into
play
when
rectification
is
considered.
In
Industrial
Finance and Trust
Co
(Pty)
Ltd v Heitner and Another
[12]
Marais
J explained:
"[A] right to have
the note rectified by coupling a notification of agency to the
defendants' signatures on the face of the
instrument - is one
recognised by law
(Hill v Wilson,
8 Ch. A.C. 888 at p. 899). A
negotiable instrument is a written contract, with some special
features. No logical or practical reason
suggests itself why it
should not be as capable of reformation as any other written
contract, provided the negotiability and transferability
of the
instrument is not affected thereby. To fulfil this condition, the
rectification would have to be strictly limited, in its
effect, to
the parties concerned in the error sought to be rectified. That is,
in fact, a requirement of the rules as to rectification
of contracts
other than negotiable instruments. Williston on
Contracts,
vol.
5, para. 1547;
Restatement
of
the
Law
of
Contract,
para.
504;
Weinerlein v Goch Buildings Ltd.,
1925 AD 262
at p. 291;
Meyer v Merchants' Trust Ltd.,
1942 AD 254.
In this respect
there is no difference between rectification and the admission of
extrinsic evidence under LORD WATSON'S rule:
innocent third parties
may not be allowed to suffer prejudice in consequence of the
application of a rule which is essentally
(sic.)
founded on
equitable considerations.' (My emphasis).
[12]
The law of
contract and insolvency law comes to a cross road, or rather a
T-junction, where the issue of rectification after liquidation
arises.
Once a
company is liquidated a
concursus
creditorum
is
established. It is trite that the main objective of a sequestration
or liquidation order is to secure
the orderly
and
equitable
distribution
of the
insolvent's assets in accordance with a pre-determined ranking of
claims.
[13]
In order to attain
this objective -
'The sequestration order
crystallises the insolvent's position; the
hand of the
law is laid upon the estate, and at once the rights of the general
body of creditors have to be taken into consideration.
No transaction
can thereafter be entered into with regard to estate matters by a
single creditor to the prejudice of the general
body.
The claim
of each creditor must be dealt with as it existed at the issue of the
order.'
[14]
[13]
In considering the application for rectification the first question
that needs to be determined
is whether the rectification of the
written agreement will alter or change the nature of the applicant's
claim to constitute something
more than what it was at the time when
the liquidation order was granted. To phrase the question differently
- Will the effect
or result of the rectification be to make the
applicant a preferent or secured creditor? The second question that
needs to be considered
is whether innocent third parties may suffer
prejudice as a consequence of the rectification.
[14]
The issue
of rectification after liquidation arose in
Durmalingam
v Bruce, N.O.
[15]
The
facts of
the case, as set out in the headnote of that judgment, are that:
'M, prior to his
insolvency, had passed in favour of the excipient (the defendant) a
notarial bond in terms of which he had hypothecated
an H bus and all
the licences and motor carrier certificates' presently and from time
to time attaching'. In 1961 M had replaced
the bus with an I bus and
had surrendered the motor carrier certificate held in respect of the
H bus for a certificate relating
to the I bus. When M's estate was
sequestrated his trustee, the plaintiff, claimed that it was the
common intention of M and the
excipient that the bond should
hypothecate any certificate obtained in substitution for the
certificate in regard to the H bus
and claimed rectification of the
bond to express such intention. Alternatively, he averred that it was
an implied term of the bond
that it should hypothecate any
certificate obtained in substitution for the certificate for the H
bus. The excipient took exception
to the declaration as disclosing no
cause of action in that to grant any of the relief claimed would have
the effect (a) of adding
to the assets hypothecated by the bond,
which would inevitably prejudice third parties, and (b) of altering
the rights of the creditors
inter se
after a
concursus
creditorum
had occurred by conferring on the plaintiff a
preference which did not exist when the insolvent's estate was
sequestrated.'
[15]
In deciding the matter, the court commenced by referring to
Walker
v Syfret, N.
O.
where it was held that an insolvent's position is crystallised when
the liquidation order is granted. The court then referred
to
Ward
v Barrett, N.
O.
[16]
where it was held that a personal right to the registration of a bond
that existed before a
concursus
supervened,
could not thereafter be converted into a
jus
in rem
under
a registered bond.
In
Ward,
Steyn
CJ held:
'Even if irrevocable, the
mere grant and existence of the power to effect registration could
not and did not change the personal
right into a real one'.
The
learned judge held in
Ourmalingam
that the same reasoning
applied to the facts before him. He explained:
'Whatever rights the
respondent may have had against the insolvent prior to insolvency,
the position was altered by the insolvency....
The claim of each
creditor has to be dealt with by the trustee as it existed at the
date of the sequestration of the insolvent
estate. At that date, the
respondent was merely a concurrent creditor in so far as the proceeds
of realisation of the certificates
relating to the International bus
are concerned. Assuming the correctness of the facts alleged in the
declaration, the respondent
was, at that date, entitled to claim
rectification of the notarial bond as to give him a preference in
respect of such proceeds.'
[16]
It is significant to note that Act 18 of 1932 applied to the notarial
bond in question
in
Durmalingam.
Section 1(1) of the Act
provided that the Act shall apply only to movables situated within
the Province of Natal and shall apply
only to a notarial bond in so
far as such bond hypothecates movables specifically described and
enumerated therein. Section 2 of
the Act provided that movables
specially hypothecated by a notarial bond shall subject to any
landlord's hypothec be deemed to
have been pledged to the holder of
the bond as security for the debt secured in the same manner as if
they had been delivered to
him as a pledge. Section 4 of the Act
provided that movables specially hypothecated by a notarial bond
would not form part of the
free residue of the mortgagor's insolvent
estate. It was argued on behalf of the excipient that the respondent
would only receive
a preference if a rectification is granted
because, only on rectification, the certificate obtained in
substitution for the certificate
in regard to the H bus would be
described and enumerated in the bond. The court held (i) that a
mistake could be rectified only
so long as third parties were not
injured thereby, (ii) that rectification must be strictly limited, in
its effect, to the parties
concerned in the error to be rectified,
and (iii) that the interests of other creditors would inevitably be
prejudiced by granting
the rectification claimed. The court allowed
the exception.
[17]
In my view, the misdescription of a party is to be distinguished from
the facts in
Durmalingam.
Reliance on
Durmalingam
in
the present matter is misplaced. In
Durmalingam
the notarial
bond that was passed did not contain the description of an asset
sought to be hypothecated in circumstances where the
applicable
legislation required the movable property covered by the bond to be
described in writing. Despite the parties' intention
that the I bus
would replace the H bus as security, their intention or oral
agreement was not enough to create the security they
intended to
create, in light of the statutory requirement that the movable asset
under consideration had to be described in a written
agreement. When
the
concursus
came into existence, no security right existed.
[18]
The issue
of rectification after liquidation again arose in
Thienhaus,
N.O.
v
Metje
&
Ziegler
Ltd
and
Another.
[17]
The
relevant
fact of
this case can be summarised
as
follows:
[18]
'The debt in a suretyship
mortgage bond passed by B Company in favour of the first respondent
was wrongly described in that a conveyancer's
error had resulted in
an individuals' name being substituted for that of a company as
principal debtor. The mortgagor company was
place in liquidation and
the liquidator applied for an order declaring that the mortgage bond
did not create a valid security in
favour of the mortgagee, arguing
that the registration of the bond had not created a real right
because of the misdescription of
the principal debt. The existence of
the debt
intended
to be secured by the bond was acknowledged
in the liquidator's prayer for a declaration that the mortgagee's
claim was concurrent
only. Since a
concursus creditorum
has
taken place, the crisp question for decision was whether the bond, in
the absence of rectification prior to the liquidation
of the
mortgagor, gave rise to a real right.'
[19]
The question was answered in the affirmative by the court of first
instance and the judgment
was upheld by the, then, Appellate Division
by a majority of three to two. In coming to their decision, the
majority, acknowledged
that Mr. G Merjenberg and G. Merjenberg (Pty)
Ltd were two separate legal
personae.
The facts indicated that
the mortgagor and the mortgagee were fully
ad idem
in regard
to (i) the nature and amount of the debt for which the mortgagor was
standing security and which had to be secured by
the bond; (ii) the
property to be mortgaged as security for the mortgagor's said
security obligation; (iii) the nature of the debts
due by the
principal debtor for which the mortgagee required a suretyship,
re-inforced by a bond passed by the surety; and (iv)
the identity of
the debtor whose liabilities to the mortgagee were thus guaranteed.
The bond was registered in respect of the suretyship
obligation of
the mortgagor, against the title of the correct property of the
surety company, and it set out the correct type of
debt due by the
person whose liabilities to the mortgagee were being guaranteed - the
identity of this latter person was however,
incorrectly stated.
[20]
Williamson
JA, writing for the majority, stated with reference to
Walker
v Syfret N.O,
that
if it is found that the first respondent did not possess a real right
in the mortgaged
property at
the time when the liquidation order was granted, it would not during
liquidation acquire a real right as a result of
the rectification of
the mortgage bond.
The learned
judge of Appeal further held that it is essential to determine
exactly what rights the first respondent had in regard
to the bond at
the moment of liquidation and the first step into such enquiry is to
ascertain the requirements for the validity
of the bond.
[19]
Williamson JA quoted from
Weinerlein
v Goch Buildings Ltd:
[20]
'from the above it is
clear that the Romans did not allow the true agreement between the
parties to be prejudiced by a slip of the
pen or other inaccurate
expression'
[21]
In applying
the judgment in
Weinerlein
to the
facts before him, Williamson
JA
held:
[21]
'... both parties were
bound, in terms of their true agreement, from the moment the bond was
registered. If the parties had earlier
noticed the error in the bond
in relation to the description of the agreed debts giving rise to the
suretyship obligation undertaken
by the mortgagor - the obligation
actually secured by the bond - they could, if it was considered
necessary or desirable, have
applied to the Registrar ... for a
correction 'in the name or description of a person ... mentioned
therein'.; in the circumstances
he would no doubt have granted a
rectification. But it could hardly be contended that the bond then
acquired its necessary accessory
obligation so as to give it validity
only as from that date'.
[22]
The majority held that is was not essential to the operation of the
bond as a binding transaction
as between the mortgagor and mortgagee
that any rectification be obtained. In the circumstances the majority
held that it was not
necessary for any steps to be taken by way of
rectification for the bond to bring into being a valid
jus in re
aliena
as security for a debt 'indubitably and undisputedly due
to the mortgagor. That real right was in existence at the moment of
liquidation;
it did not require to be brought into existence
thereafter.' As for the creditors suffering any prejudice the court
held that the
fact that the creditors are not allowed to gain an
advantage from the actual misdescription, is not a prejudice suffered
by them.
The majority regarded the misdescription 'an irrelevant
error in the bond' and allowed the rectification.
[23]
Wessels JA, writing for the minority, highlighted that when De
Villiers JA in
Weinerlein
held that a court would not refuse
to recognise the existence of an agreement between the parties to an
agreement 'because the memorandum
thereof contains some mistake
through 'a slip of the pen', the court was dealing with the position
as between the parties to the
agreement -
'The judgment does not
furnish authority for a somewhat wider proposition, namely, that in
so far as a third party is concerned,
and in so far as his knowledge
of the transaction might be relevant, the Court will determine the
matter upon a consideration of
the real agreement between the parties
and not upon the version contained in the memorandum thereof, even
where it appears that
the third party's knowledge is restricted to
that contained in the memorandum.
Having regard to the
accessory nature of the real right which is constituted by the
registration of a mortgage bond, it is notionally
impossible for the
antecedent agreement to be valid and enforceable without reference
therein to the principal debt which it is
intended to secure by
hypothecation.'
[24]
The issue
of rectification after liquidation was again considered in
PG
Bison Ltd and Others v The Master of the High Court, Grahamstown
and
Another.
[22]
The court had to interpret a clause in a cession contract to
determine whether a condition contained
in a
hand-written clause had to be complied with before the cession became
valid.
The
court held that where one party to an agreement became insolvent, no
rectification of the agreement is possible after insolvency
intervened where the rights of other creditors will be 'injured' or
prejudiced thereby.
'This is so because the
insolvency order once granted establishes a
concursus creditorum
and the claim of each creditor must be dealt with as it existed
at the issue of the order. The rights of concurrent creditors will
be
injured if the effect of the rectification will be to elevate a
concurrent claim to a preferent or secured claim.' (References
omitted.)
The
court concluded that a mutual mistake in an agreement will only be
rectified by the court as long as third parties are not prejudiced
thereby.
[25]
In
Nedbank
Limited v Chance and Others,
[23]
the
court again had to decide an issue concerning the rectification of an
agreement after liquidation. The material facts were common
cause. In
1998, the plaintiff, Nedbank Ltd (Nedbank), obtained a provisional
winding-up order against Chance Brothers (Pty) Ltd
(Chance). Nedbank
and Chance subsequently concluded a 'reorganisation agreement'
with the
purpose of restructuring Chance's indebtedness to Nedbank and to
remove Chance from provisional liquidation. The restructuring
agreement recorded the fact that Chance owed Nedbank an amount in
excess of R10 million and that its sureties personally
guaranteed
Chance's
obligations
to Nedbank in terms of suretyship agreements executed during 2013. In
terms of the restructuring agreement, a portion
of the debt, an
amount of R3.5 million, was to be repaid to Nedbank by issuing in
Nedbank's favour, 3.5 million cumulative redeemable
preference
shares. The balance was to
be dealt
with in terms of a loan agreement concluded between the parties in
1996. By mistake, the reorganisation agreement inaccurately
reflected
the parties' agreement. It reflected the redemption value of the
preference shares as R35 000
instead of
the agreed upon and intended R3.5 million. Chance was wound up in
2002. Nedbank's claim was accepted by the joint liquidators
for R10
752 119.85, and as such reflected in the second and final liquidation
and distribution accounts.
These
accounts were confirmed by the Master in 2004 and 2007 respectively.
Nedbank received dividends of R7 936 835.81. Nedbank
subsequently
sued the sureties for the balance which it contended was owed to it
by Chance at the time of Chance's winding-up.
In the same action
Nedbank sought rectification of the reorganisation agreement to
correctly reflect the redemption value of the
preference shares as
R3.5 million. The sureties' defence was that, as a matter of law, the
reorganisation agreement could not be
rectified after Chance's
winding-up. It was
common
cause that if Nedbank failed in its claim for rectification, there
would be no outstanding balance for which the sureties
would be
liable to Nedbank. The application was argued before Theron J on the
basis of an agreed set of facts.
[26]
Theron J dismissed Nedbank's claim for rectification. She relied on
the above quoted passage
from
Walker v Syfret N.O.
and
emphasised the last sentence of the passage that - '[t]he claim of
each creditor must be dealt with as it existed as the issue
of the
order.' She explained:
'The insolvent estate is
'frozen' and nothing can thereafter be done by any one creditor that
would have the effect of altering
or prejudicing the rights of other
creditors. As between the estate and the creditors and as between the
creditors
inter
se. their relationship becomes fixed and their
rights and obligations become vested and complete. One consequence of
this is that
a creditor who at the date of winding-up was only a
concurrent creditor cannot by rectification of an agreement alter its
position
to become a preferent or secured creditor as this would
disturb the
concursus.
The same must hold for a creditor who
seeks rectification to improve its position from that of a preferent
creditor in a certain
amount, to a preferent creditor in a greater
amount. This approach is in line with the general principle that the
claim of each
creditor must be dealt with as it existed at the date
of liquidation. Rectification post
concursus
would almost
inevitably prejudice the rights of other creditors.' (Footnotes
omitted).
[27]
The
applicant in the present application urged the court not to follow
the judgment
in
Nedbank
Ltd v Chance.
In
Standard
Bank of South Africa Ltd v Strydom N.O.
and
Others
[24]
Janse
Van Nieuwenhuizen J from this Division, however, stated that the
judgment in
Nedbank
Ltd v Chance
was
based on 'the long line of authorities on the subject of altering a
creditor's rights post
concursus.'
In the
absence of convincing argument and reference to authorities that hold
different views, she was not prepared to interfere
with the clear
reasoning and findings of the court in
Nedbank
Ltd
v Chance.
She,
however, did not find it necessary to deal with the issue as the
facts of the matter did not substantiate the claim for rectification.
Although
Nedbank
Ltd v Chance
does
not emanate from this Division,
stare
decisis
dictates
that cognisance must be taken of the judgment, not as authority but
for the reasoning contained therein.
[28]
Counsel for the applicant argued that it does not appear from the -
'somewhat terse judgment
in
Nedbank v Chance
that the court's attention was drawn to
the guiding trite principle that rectification does not change the
actual agreement between
the parties, and that accordingly the
preference that the creditor contended for in that matter had existed
all along and it was
only by the slip of a pen that the written
document did not record that preference.'
[29]
Counsel submitted although Theron J referred to the majority judgment
in
Thienhaus,
she only referred to the passage where
Walker
v Syfret N.O.
is quoted.
Thienhaus
went further, however,
and found that a post
concursus
rectification would not offend
the
concursus
if the actual agreement between the parties had
already conferred the preference on the creditor by the time of the
concursus.
Counsel submitted that in failing to appreciate and
apply the principle as stated in
Thienhaus,
the court in
Nedbank Ltd v Chance
erred. If read in its totality, counsel
contends,
Thienhaus
does not support the findings in
Nedbank
Ltd v Chance.
As for the remainder of the cases relied on in
Nedbank Ltd v Chance,
counsel contended that some of the
precedents cited are not on point, and that the position where no
real right of security existed
when the
concursus
came into
existence, should be differentiated from those cases where a real
right of security already existed by way of the 'true
agreement'
between the parties before
concursus
supervened.
[30]
Due to the reliance placed on passages from
Walker v Syfret,
not
only in
Nedbank Ltd v
Chance but in all the cases dealing with
the issue of rectification after liquidation, it is necessary to
revisit this old authority
to determine the context within which to
consider the
dictum
relied upon in matters where rectification
was refused. The issue in
Walker v Syfret
was that the holder
of debentures in a company had transferred them to his brother, after
liquidation, in an attempt to avoid set-off.
The brother lodged a
claim against the insolvent company. The debentures were regarded as
negotiable instruments. The court held
that the set-off also operated
in relation to the brother's claim because he had no greater rights
in respect of the debentures
that the transferor himself would have
had if he had proved his claim on them instead of selling them to his
brother. The issue
of rectification never arose in
Walker
v
Syfret.
The principle laid down that creditor's rights are
'crystallised' when a concursus is established, is unassailable.
However, I find
nothing in the case to substantiate a view that
because of the fact that a creditor's claim is crystallised, the
crystallisation
of the claim prevents the rectification of the
written document wherein the claim is captured, where the document
erroneously reflects
the description of a party in order to reflect
the correct description of the parties to the agreement. The correct
approach as
stated in
Thienhaus
is to determine whether the
agreement under consideration was valid at the moment of liquidation.
[31]
Although not dealing with rectification, the judgment in
Van
Zyl and Others NNO v
The
Master, Western Cape High Court and Another,
[25]
is
relevant for the present discussion because the core issue in the
matter required:
'resolving the tension
between the principle that, once there has been a
concursus
creditorum,
no creditor in a liquidated estate can take steps to
improve its position to the prejudice of other estate creditors, on
the one
hand, and, on the other, the principle that temporary
non-compliance with the provisions of reg 10(1)(c) of the Exchange
Control
Regulations, which requires treasury approval of any
transaction involving the export of capital, does not present a bar
to the
validity or enforceability of a claim based on such a
transaction.'
[32]
In
Van Zyl,
Bozalek
J
held with
reference
to
Oilwell
(Pty) Ltd v Protec
International
Ltd and Others:
[26]
'By parity of reasoning I
consider that a claim by a creditor against an insolvent estate
cannot be rejected for the sole reason
that it is based upon a
transaction requiring treasury approval in terms of reg 10(1)9C) but
which approval has at the relevant
time neither been obtained nor
refused. To hold otherwise would lead to 'greater inconvenience and
impropriety', the phrase used
by Voet as referred to in
Standard
Bank v Estate Van Rhyn
1925 AD 266
at 274, and deliver a windfall
advantage to competing creditors in the estate. It ignores the fact
that the underlying transaction,
the loan agreement, was not void and
that treasury approval therefor could still be sought.'
He
continued:
[33] To
hold that a claim by a creditor based on a transaction in respect of
which treasury approval has not been
obtained is irrevocably
unenforceable because a
concurs
us
creditorum
intervened
before such approval was sought would, I consider, produce an
arbitrary and inequitable result not intended by the regulations.
The
argument that until treasury consent is obtained the transaction is
not enforceable, and that allowing the claim will impermissibly
disturb the concursus
creditorum
is based, in my view, upon a
narrow reading of para 25 of the judgment in
Oilwell
where
Harms DP stated that this does not mean that in the absence of
treasury consent the transaction is enforceable 'without more'.
Significantly, in the same passage, citing
Barclays National Bank
Ltd v Thompson,
he goes on to state that this does not mean that
the transaction, absent consent, is void at the behest or election of
one of the
parties thereto. At best an affected party may file a
dilatory plea pending the determination by the treasury of the
application
for the necessary consent.
[34]
The argument for the applicants relied heavily on the principle that
the rights of other creditors should
not be prejudiced by anything
done post-concursus since the positions of the parties are frozen as
at that date and their rights
and obligations are determined on that
basis. I consider, however, that it is a misconception to view ex
post facto treasury approval
as an interference with the position
obtaining at the
concursus creditorum
and therefore of no
effect. This view appears to be based on the assumption that without
treasury consent AlK's claim is invalid
and on the premise that the
underlying transaction was void. As the leading decisions on the
effect of the Regulations have made
clear, there is nothing
preventing SARB from affording the relevant transaction the necessary
consent ex post facto. At best for
the competing creditors as
concursus creditorum
they had no more than a
spes
that
the transaction underlying AlK's claim would ultimately not receive
treasury consent, in which event the claim might be unenforceable.
Applying the principles in
Oilwell
and
Barclays National
Bank Ltd
in an insolvency context must, in my view, of necessity
lead to the recognition of a claim whose only defect is that treasury
consent
has yet to be obtained in terms of reg 10(1
)(c)
of the
Exchange Control Regulations, notwithstanding that a
concursus
creditorum
has intervened. Should such consent be thereafter
refused a different situation arises and argument may then arise as
to the validity
of the claim. That question, however, does not
require to be addressed in the present matter since treasury consent
was ultimately
obtained prior to the master taking her decision not
to expunge the claim.'
[33]
The present
situation is to be distinguished from a situation where a case is
made
out
that a commitment to provide security has not been implemented prior
to liquidation.
[27]
It should
also be distinguished from the position where registration is
required before a real right or security right can come
into
existence, or where the
assets that
are hypothecated should either clearly be described in a written
document or be in the possession of a creditor before
a real security
right vests.
[28]
The
principle is firmly established that no greater rights can be
acquired post liquidation than what was enjoyed at the date of
liquidation.
[29]
[34]
Boraine
et
al,
[30]
with reliance on
Thienhaus,
advocate
that the effect of the existing authorities dealing with the issue of
rectification after liquidation is not to preclude
the right
to claim rectification, but only to preclude the rectification where
such would result in a creditor acquiring a right
or a claim not
already held at the institution of the
concursus.
They
contend:
'Thus were such a right
or claim in fact already exists as at such date, rectification is
permissible where it is necessary in order
to reflect the correct
position according to the true intention of the parties as at such a
date. In such a case the creditor is
not afforded a real right
greater than which he enjoyed as at the commencement of the concursus
since the effect of the rectification
would be to reflect the true
position
prior
such commencement.'
[35]
Du Plessis
and Stander
[31]
propose that
the core question to be answered where the issue of rectification
after liquidation arises is whether the rectification
will result in
the
creation of new rights or whether it would simply amount to an
acknowledgement of exiting rights. Steyn,
[32]
is of the view that the rectification of an agreement to reflect the
common intention of the parties as it existed when the contract
was
concluded, does not amount to a 'transaction'
that is
being concluded.
She
explained that:
'Rectification does not
alter a concurrent creditor's position for it to
become
a
preferent or secured creditor, nor, as Theron J viewed it, does it
improve, or elevate a creditor's position from that of a preferent
creditor in a certain amount to a preferent creditor in a greater
amount. Rectification would simply have allowed the document
to
reflect the agreement which existed, and hence provide documentary
evidence of the rights which had been created before liquidation'
[36]
After considering the case law and sources referred to above, I am of
the view that in
circumstances where the facts prove that (i) a valid
cession agreement was concluded between the parties prior to a
liquidation
order been granted, but (ii) the agreement does not
reflect the parties' common intention in the sense that the creditor
is not
correctly described, and the evidence indicates that the
insolvent and the creditor are in actual fact the parties to the
agreement,
rectification will neither create nor detract from any
rights as it existed when the
concursus creditorum
came into
existence. It is a misconception to view
ex post facto
rectification of the description of a party to an agreement as an
interference with the position obtained at the
concursus
creditorum.
If, in the present case, it is found on the facts
that a valid cession of book debts was transacted between the
parties, the applicant
is a secured creditor and has been such from
the moment of liquidation. Where a misdescription of a party is the
only issue taken
with the contentious agreement there can be no
prejudice to third parties if the document wherein the agreement is
captured is
rectified to reflect the correct description of the
parties. The
status quo
is not affected by such rectification.
It is an opportunistic creditor who claims that it will be prejudiced
by the rectification
of a patent error concerning the description of
a party to a valid contract concluded before liquidation.
[37]
In
determining whether a valid cession agreement was concluded
cognisance must be had to the Supreme Court of Appeal's reiteration
in
Brayton
Carlswald (Pty) Ltd
and
Another v Brews
[33]
that
cession is
a bilateral
juristic
act in
terms whereof
a right
is
transferred by agreement between the transferor (cedent) and the
transferee (cessionary). Generally, no formalities are required
for
the antecedent obligatory agreement or the act of cession to
constitute a valid session. Unless the parties agree otherwise
and
unless a statute sets particular requirements there are no formal or
publicity requirements
for
cession.
Cession can
be effected
even verbally.
[34]
The
existence
of
a
written
deed
of
cession
can,
however,
provide
evidence of
an intention to cede.
[38]
The questions as to (i) whether a valid session was concluded between
the applicant and the first
respondent that existed when the
concursus creditorum
came into existence, and (ii) whether the
applicant made out a proper case for the rectification, need to be
determined on the facts
of the case as set out in the affidavits.
The factual question
[39]
In order to determine the factual question as to whether the
applicant made out a case for the
rectification of the agreement on
paper, it is necessary to consider the parties' respective
affidavits.
[40]
The applicant explains in the founding affidavit the relevant
background that contextualises
its claim that it is erroneously
described in the document containing the cession of book debts that
it seeks to rectify. The applicant,
was previously called Voltex
Distributors (Pty) Ltd - registration number 1964/006740/07. Another
company existed using the name
Voltex (Pty) Ltd - registration number
88/006535/07 (Voltex 1). Voltex 1 conducted business with at least
two divisions, a manufacturing
division and a distribution division.
The deponent to the founding affidavit was the Chief Executive
Officer (CEO) of both companies.
On 31 July 1998 Voltex 1 changed its
name to Aberdale Cables SA (Pty) Ltd - registration number
88/006535/07. On the same day,
Voltex Distributors (Pty) Ltd changed
its name to Voltex (Pty) Ltd - registration number 1964/006740/07
(Voltex 2). Voltex 1 sold
its distribution division to Voltex 2.
Voltex 1 ceased to carry on its distribution business which was taken
over by Voltex 2 and
was finally deregistered with effect from 12
November 2011.
[41]
Voltex 1 and the first respondent concluded numerous business
transactions since 1992 until the
first respondent's liquidation.
Voltex 2 also entered into business with the first respondent and on
the first respondent's liquidation,
Voltex 2 was the first
respondent's largest creditor. Voltex 1 and Voltex 2 was continually
represented by the same CEO. The first
respondent's CEO and its
director were fully aware of the sale of Voltex 1's distribution
division to Voltex 2. The first respondent
was fully aware that it
dealt with Voltex 2 from 31 July 1998. Voltex 2 sold goods to and
purchased goods from the respondent.
On 26 January 1999 the first
respondent, through both its CEO and its director approached Voltex 2
and formally applied for credit
facilities. The credit application
form contains the security cession relied upon by Voltex 2 to secure
its claim in the first
respondent's insolvent estate. At the time the
security session was signed the first respondent intended to provide
security to
Voltex 2 and Voltex 2 intended to take the security from
the first respondent.
[42]
Voltex 2, however, in error, used Voltex 1's pre-printed standard
credit application form to
record the security cession. Although
Voltex 2's name appears on the document, it is Voltex 1's (now
Aberdale Cables SA (Pty) Ltd)'s
registration number that accompanies
the company name. Voltex 2 presented the security cession to the
first respondent. The security
session was signed in the mistaken but
bona fide
belief that it correctly recorded the common
continuing intention of the parties which was (and remains) that the
security cession
was given by the first respondent in favour of
Voltex 2, the applicant. Voltex 2 brought this application to rectify
the security
session concluded between itself and the first
respondent on 26 January 1999 by deleting "REG. NO. 88/06535/07"
as it
appears on page 2 of the document and replace it with "REG.
NO. 1964/006740/07".
[43]
It needs to be mentioned that the affidavits filed by the CEO in
support of all 13 of Voltex
2's claims in the liquidation contains
errors. The CEO explains that he mistakenly attached a previous
security cession given by
the first respondent in favour of Voltex 1
during 1995, in addition to the security session granted by the first
respondent in
favour of the applicant in 1999, in support of the
claims.
[44]
The first respondent did not file any notice of intention to oppose
this application, despite
the application being served on its
liquidators.
[45]
The third respondent opposes the application. The third respondent
claims in its answering
affidavit that:
(i)
The relief sought is incompetent;
(ii)
This is not a matter that should have been brought on motion
proceedings and that the bringing
of the proceedings by way of
application is ill-conceived and an abuse of process;
(iii)
The applicant has no
locus standi;
(iv)
The applicant's insurers (Credit Guarantee Insurance Corporation of
Africa Limited) are endeavouring
to obtain security for the
applicant's unsecured claims so as to obtain payment for their
claims;
(v)
The first respondent should have on receipt of the application
opposed the relief sought
and addressed the exclusion of the
applicant's claims having regard to the fact same were premised on
unsupported documents and
false affidavits.
[46]
The third respondent, is not able to deal with the applicant's
averments relating to the
conclusion of the agreement and the
parties' intention as it was not a party to the agreement and has no
personal knowledge of
any of the relevant transactions that took
place between the applicant and the first respondent prior to its
liquidation. The majority
of the averments contained in the answering
affidavit has no relevance to the rectification application other
than that it attempts
to create doubt regarding the applicant and the
first respondent's representatives'
bona tides.
Of relevance
is the third respondent's contention that pursuant to the Master's
ruling every secured creditor who had proved a claim
ought to have
been notified by the liquidators of the rectification application.
The third respondent contends that the crux of
the applicant's
application, namely that there was a meeting of minds and that the
first respondent's CEO and its director intended
to grant the
security cession to the applicant is either based on inadmissible
hearsay evidence as these averments are not confirmed
by the first
respondent in a confirmatory affidavit, or unsubstantiated because
the applicant was not able to provide any invoices
issued by Voltex 2
to the first respondent or for the goods the first respondent sold to
Voltex 2, as referred to in paragraph
19 of the founding affidavit.
[47]
In its replying affidavit, the applicant avers that much of the
answering affidavit is
conjecture and argumentative. The applicant
states that the third respondent has no personal knowledge of the
transactions referred
to in the founding affidavit, while the
deponent to the founding and replying affidavit represented the
applicant in the transactions
described in the founding affidavit and
has personal knowledge thereof. The applicant proposes that the
application be referred
to oral evidence to be presented regarding
the issue whether there was a common continuing intention between the
applicant and
the first respondent that the security cessions was in
favour of the applicant and not Voltex 1 and should accordingly be
rectified.
The applicant denied that it had been paid and claimed
that it is in any event entitled to interest on its secured claim.
The applicant
avers that the claims have been advanced by the
applicant in its name albeit that its credit insured CGIC has
indemnified it and
pursues the recovery of the claims by way of
subrogation. The applicant refutes the contention that there is
anything sinister
to the fact that it is not able to provide invoices
of the transactions between itself and the first respondent and
attributes
it to the effluxion of time. The applicant states that no
challenge has been raised to the quantification of its claims but
that
the Master's ruling relates only to whether the proven claims
are to be reflected as secured claims. The applicant again explained
that the error occurred because a pre-printed credit application
bearing Voltex 1's details was erroneously used.
[48]
As far as the factual challenge is concerned, the third respondent
contends that the applicant
has failed to adduce sufficient evidence
regarding the parties common continuing intention as contended for in
the application.
The applicant states that it presented the evidence,
under oath of its duly authorised representative who negotiated with
the first
respondent's representatives in relation to all the
relevant transactions, including the conclusion of the security
cession.
[49]
A party
seeking
the
recUfication
of an
agreement
needs to
allege and prove:
[35]
(i)
An agreement between the parties which was reduced to writing;
(ii)
That the written document does not reflect the common intention of
the parties correctly;
(iii)
An intention by both parties to reduce the agreement to writing;
(iv)
A mistake in drafting the document;
(v)
The wording of the agreement as rectified.
[50]
Absent any opposition from the first respondent, the affidavits do
not reveal any dispute
of fact. The applicant, as a party to the
contested agreement, has the necessary
locus
standi in these
proceedings. The applicant contends that it is not the quantification
of its claim but its position as a secured
creditor that was affected
by the Master's ruling, and prompted it to approach the court for the
relief sought. The question as
to whether the applicant proved its
claims against the first respondent's insolvent estate is not a
question that this court is
required to answer. The applicant's
evidence, under oath, that the parties intended for the credit
agreement and security cession
to be concluded between the applicant
and the first respondent is not opposed by the only other party with
the required personal
knowledge to oppose it. The absence of any
confirmatory affidavit by the first respondent in circumstances where
the first respondent
was invited to the proceedings, cannot be
regarded to render the applicant's version inadmissible hearsay.
[51]
The applicant made out a proper case for the relief sought. Since I
am of the view that
a security right came into existence when the
agreement was concluded between the parties, that the applicant's
position as a secured
creditor existed at the moment of liquidation,
and that the rectification of the written agreement will only record
the correct
description of the parties to the agreement, no other
creditor can be prejudiced by any order for rectification. The
rectification
does not change, but confirms the
status quo
as
it existed at the moment of liquidation. Other remedies were
available to the third respondent if it wanted to contest the
validity
of the applicant's claims. Rectifying the credit agreement
with its concomitant security cession does not impact on the
quantification,
or proving of any claims.
ORDER
In
the result, the following order is made:
1.
The 'Application for Credit Facilities Incorporating Deed/s of
Suretyship' containing the security session, dated 26 January 1999,
a
copy of which is annexed to the Notice of Motion, is hereby rectified
by the deletion of "REG. NO. 88/0635/07" as it
appears on
page 2 thereof and substituted with "REG. NO. 1964/006740/07";
2.
The third respondent is to pay the costs of the application.
E
van der Schyff
Judge
of the High Court
Delivered:
This judgement is handed down electronically by uploading it to the
electronic file of this matter on Caselines. As a
courtesy gesture,
it will be sent to the parties/their legal representatives by email.
The date for hand-down is deemed to be 5
October 2021.
Counsel
for the applicant:
Adv. B. M. Gilbert
Instructed
by:
Reitz Attorneys
Counsel
for the third respondent:
Adv. J. Peter SC
Instructed
by:
Fluxmans Inc.
Date
of the hearing:
24 August 2021
Date
of judgment:
5 October 2021
[1]
Syfrets Bank Ltd and Others v Sheriff of the Supreme Court, Durban
Central, and Another; Shoerie NO v Syfrets Bank Ltd and Others
1997
(1) SA 764
(D) at 782H.
[2]
1911 AD 141
at 166.
[3]
[1990] ZASCA 85
;
1990 (4) SA 798
(A) at 803G-J.
[4]
Counsel for the third respondent referred the court to the judgments
in Durmalingam v Bruce
1964 (1) SA 807
D at 811G-H; Thienhaus NO v
Metje & Ziegler Ltd and Another
1965 (3) SA 25
(A) at 30A-C;
Klerc NO v Van Zyl and Maritz NNO and Another and Related Cases
1989
(4) SA 263
(SE) at 279F-E; Nedbank v Chance and Others
2008 (4) SA
209
(D) at 212 para [9]; The Standard Bank of South Africa Ltd v
Strydom NO and Others (64891/2015) [2019] ZAGPPHC 142 (9 May 2019).
[5]
1964 (4) SA 715
(A) at 722D-E. Reference was also made to
Botha
v Fick
[1994] ZASCA 184
;
1995 (2) SA 750
(A) at 779F-G; and De Hart NO v Virginia Land and
Estate Co Ltd 1957 (4) SA 501 (O).
[6]
1925 AD 282
- '... in reforming the agreement, ... all the Court
does is to allow to be put in writing what both parties intended to
be put
in writing and erroneously thought they had.' The court was
also referred to Spiller and Others v Lawrence
1976 (1) SA 307
(N)
at 310F;
Milner
Street Properties (Pty) Ltd v Eckstein Properties
(Pty) Ltd
2001 (4) SA 1315
(SCA);
National
Credit Regulator v Lewis Stores
2020 (2) (SCA).
[7]
2008 (4) SA 209 (D).
[8]
See note 4,
supra
[9]
1988 (4) SA 123
(C).
[10]
Weinerlein
v Goch Buildings Ltd
1925
AD 282
;
Spiller
and Others v Lawrence
1976
(1) SA 307 (N).
[11]
1965 (3) SA 25
(A) at 33.
[12]
1961 (1) SA 516
(W) at 522E-523.
[13]
Sharrock
et
al Hockly's Insolvency Law
8
ed (2006) 4.
[14]
Walker
v Syfret, NO.,
1911
AD 141
at 160.
[15]
1964 (1) SA 807 (D).
[16]
1963 (2) SA 546 (AD)
[17]
1965 (3) SA 25 (A).
[18]
Mathews, A.S. Annual Survey of South African Law, 1965, 222-246 at
236.
[19]
At 30.
[20]
1925 AD 282
[21]
At 33
[22]
[1998) JOL 1225 (E).
[23]
2008 (4) SA 209 (D).
[24]
(64891/2015) [2019] ZAGPPHC 142 (9 May 2019) at
[25]
2013 (5) SA 71 (WCC).
[26]
2011 (4) SA 394 (SCA).
[27]
FirstRand
Bank Ltd v Land and Agricultural Development Bank of South Africa
2015
(1) SA 38 (SCA)
[28]
Durmalingen;
Oertel NNO v Brink
1972
(2) PH A43 (WLD,
FirstRand
Bank Ltd.
[29]
FirstRand
Bank Ltd
at
para [31].
[30]
Boraine, A
et
al
(eds), Meskin's
Insolvency
Law,
LexisNexis
August 2021 - SI 56.
[31]
Du Plessis, A and Stander, L. 'Die totstandkoming van 'n
concursus
creditorum
en
die rektifikasie van 'n ooreenkoms: Nedbank Ltd v Chance Brothers
2008 4 SA 209
(D),
THRHR,
2011
(74), 230-246.
[32]
Steyn, L. 'Rectification and concursus creditorum - Nedbank Limited
v Chance 2008 4 209 (D)',
OBITER,
2008,
524-532.
[33]
2017 (5) SA 498
(SCA) at para [9].
[34]
Muller, G.
et
al
(eds), Silberberg
and
Schoeman's The Law of Property, 6
th
ed,
469.
[35]
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