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[2017] ZASCA 66
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Aon South Africa (Pty) Ltd v Van den Heever NO and Others (615/2016) [2017] ZASCA 66; [2017] 3 All SA 365 (SCA); 2018 (6) SA 38 (SCA) (30 May 2017)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 615/2016
In the matter between:
AON SOUTH AFRICA
(PTY)
LTD
APPELLANT
and
CORNÉ VAN
DEN HEEVER NO
FIRST RESPONDENT
MARYNA ESTELLE SYMES NO
SECOND RESPONDENT
GLENRAND MIB FINANCIAL
SERVICES
(PTY) LTD (IN
LIQUIDATION)
THIRD RESPONDENT
Neutral citation:
AON South Africa (Pty) Ltd v Van den
Heever NO
(615/2016)
2017 ZASCA 66
(30
May 2017)
Coram:
NAVSA, THERON, WALLIS, PETSE and ZONDI JJA
Heard
:
19 May 2017
Delivered
:
30 May 2017
Summary:
Res judicata
–
requirements – issue estoppel –
identity of interest between plaintiffs in the two actions sufficient
to satisfy requirement
of same party – identity of issues and
claims in both actions
ORDER
On appeal from:
Gauteng Local Division,
Johannesburg of High Court (Moshidi J, sitting as court of first
instance):
(1)
The appeal is upheld with costs.
(2)
The order of the high court is set
aside and replaced with the following order:
‘
(a)
The special plea is upheld in relation to claims A, B and C.
(b)
Claims A, B and C are dismissed.
(c)
The plaintiffs are to pay the defendant’s costs in relation to
the defence of claims A, B and C including the costs consequent
upon
the separate determination of the special plea.’
JUDGMENT
Wallis JA (Navsa,
Theron, Petse and Zondi JJA concurring)
Introduction
[1]
This is the second occasion on which the
events surrounding the collapse and liquidation of New Protector
Group Holdings (Pty) Ltd
(New Protector) have come before this
court.
[1]
Both cases flowed from the acquisition by New Protector of the
business of Protector Group Holdings (Pty) Ltd (Protector). The
Industrial Development Corporation (IDC) financed that purchase.
Prior to its liquidation New Protector paid Protector some R63
million in discharge of the purchase price of the business.
[2]
Of that sum, R50 million was paid to Glenrand MIB Financial
Services (Pty) Ltd (Financial Services) as the purchase price
of its
65 percent stake in Protector. That was sold to a company
called Freefall Trading 65 (Pty) Ltd (Freefall), which held
a 49 per
cent stake in New Protector.
[2]
Financial Services was a wholly owned
subsidiary of Glenrand MIB Ltd (Glenrand) existing solely for the
purpose of holding the 65
percent interest in Protector. It used the
entire sum of R50 million to repay an existing indebtedness to
Glenrand of some R38
million and a dividend to Glenrand of some R12
million. Both the previous action and the present one have been
directed at recovering
that sum for the ultimate benefit of New
Protector’s creditors, of which the IDC is by far the largest.
The involvement of
the appellant, AON South Africa (Pty) Ltd (AON),
arose because, shortly before the previous action reached finality,
it acquired
Glenrand’s business and assumed liability for any
claims against Glenrand. It accordingly intervened in the previous
action
and was the defendant in the present case. Glenrand was
deregistered in 2011.
[3]
The previous litigation was brought
by the liquidators of Protector and cited both Financial Services and
Glenrand as defendants.
At the end of the day, after the appeal to
this court, the liquidators succeeded against Financial Services on
the ground of enrichment
alone. Within a few months of the previous
judgment Financial Services was liquidated and its liquidators
instituted proceedings
against AON. This appeal arises from a special
plea by AON flowing from the fact that the previous litigation
against Glenrand,
and therefore indirectly against AON, was resolved
in its favour. It contended that it was not open to the present
plaintiffs to
commence proceedings in order to pursue what was in
essence the same claim. In legal terms it said that the issues raised
by the
present case were resolved in its favour in the previous
litigation and are
res judicata
as
against Financial Services’ liquidators. The form of
res
judicata
on which it relies is commonly
referred to as issue estoppel. The special plea was heard separately
and dismissed by Moshidi J.
This appeal is with his leave.
The factual background
[4]
The background was largely set out in
the previous judgment of this court from which I have borrowed
freely. The business of Protector
in the health sector of the economy
was markedly different from that of Glenrand. In 2003 Glenrand
decided to dispose of its interest
in Protector. In August 2003 two
directors of Protector, Messrs Van Rensburg and Seelenbinder,
indicated an interest in acquiring
that interest. They already held,
through Protector Group Management Company (Pty) Ltd (PGMC), the
remaining 35 percent in Protector.
On 10 November 2003 the board of
directors of Financial Services adopted a resolution to dispose of
that shareholding by entering
into an agreement with ‘Newco or
its nominee’. An agreement to that effect was signed on 15
December 2003. The signatory
on behalf of the purchaser was Mr Van
Rensburg. The price payable to Financial Services was R 50
million and Glenrand was
to be released from a suretyship obligation
on behalf of Protector.
[5]
On 4 March 2004 Messrs Van Rensburg and
Seelenbinder purported to nominate Freefall as the purchaser in terms
of this agreement.
The previous judgment held that this nomination
was ineffective to create any obligation on the part of Freefall to
pay the agreed
purchase price for Financial Services stake in
Protector, because the agreement itself was invalid and
unenforceable.
[3]
Nonetheless it held that the payment of R50 million to Financial
Services was made on the footing that it was in discharge
of the
purchase price payable by Freefall to Financial Services under the
invalid agreement.
[6]
Messrs Van Rensburg and Seelenbinder lacked
the resources to purchase Financial Services’ interest in
Protector. They approached
the IDC for a loan. The loan was approved
on 25 November 2003 on condition that the transaction would be
structured as a black
empowerment transaction. That led, early in
2004, to the creation of New Protector, an entity in which Freefall
would have a 49
percent stake, with the remaining 51 percent to be
held by a black empowerment partner. Thereafter New Protector
purchased the
business of Protector as a going concern. This sale
required the approval of the Competition Commission. On 5 March 2004,
before
that approval was obtained, the IDC released a little over R69
million to New Protector. From these funds an amount of R50 million
was paid into the trust account of a firm of attorneys, to be held by
it pending such approval and, on approval, to be paid to
Financial
Services.
[7]
On 15 March 2004, after Competition
Commission approval was obtained, the attorneys paid the R50 million,
plus accrued interest
of nearly R1 million, into Glenrand’s
bank account. Apparently Financial Services did not have its own bank
account.
Its books of account showed an historic indebtedness to
Glenrand of a little over R38 million, incurred when it acquired
the
65 per cent stake in Protector. This indebtedness was set off
against the R50 million. On 13 June 2005 Financial Services declared
a dividend of nearly R12 million in favour of Glenrand and once
again this was discharged by set-off. The historical debt
and the
dividend together totalled exactly R50 million. That amount,
plus the interest accruing on it while it was held in
trust,
accordingly ended up in the hands of Glenrand. No underlying
transaction has been identified justifying Glenrand in retaining
the
accrued interest as against Financial Services and this will need to
be dealt with separately. For the present it can be ignored.
[8]
The picture that emerges is that the IDC
lent money to New Protector and R50 million of that money found
its way by the route
described above to Glenrand. The intermediaries,
in the form of New Protector, Protector and Freefall, were all
insolvent and unable
to pay their debts when the business of New
Protector failed in the second half of 2004.
[4]
Financial Services was a shell company with no assets after its
disposal of its interest in Protector. Realistically the only
prospect of recovering this R50 million was if liability could
be laid at the door of Glenrand. That is what the liquidators
of
Protector set out to do in the first case and it is what the
liquidators of Financial Services are seeking to do in this case.
The previous litigation
[9]
The liquidators of Protector brought an
action against Financial Services, Glenrand, Freefall, Messrs
Mansfield and Harpur, two
of the directors of Glenrand, and Messrs
Seelenbinder and Van Rensburg. During the course of the litigation
Freefall was deregistered
and Mr Seelenbinder sequestrated, but that
did not affect the issues canvassed at the trial. Claims were
advanced against Financial
Services and Glenrand on five grounds and
there was a separate claim against the four individuals. These aimed
primarily at the
recovery of the R50 million, but under some
heads the claim was for the full amount of slightly more than
R69 million
released to New Protector by the IDC on 5 March
2004.
[10]
Claim A sought to recover from Financial
Services and Glenrand, together with all the other defendants, an
amount of over R63 million,
made up of three disbursements from the
sum paid to Protector by New Protector and emanating from the IDC
loan. The largest disbursement
was the R50 million paid to Financial
Services. It was alleged that Protector:
‘
in
collusion with the Defendants conceived a scheme whereby, out of the
funds paid to [Protector] for the sale of its business to
[New
Protector] … [Financial Services] would be paid R50 000 000,00
…’
The pleading alleged that
the scheme was implemented and that, as a result, Financial Services,
alternatively Glenrand, received
R50 million. It claimed that
the scheme fell within s 31(1) of the Insolvency Act 24 of 1936
(the
Insolvency Act), which
provides that:
‘
After
the sequestration of a debtor’s estate the court may set aside
any transaction entered into by the debtor before the
sequestration,
whereby he, in collusion with another person, disposed of property
belonging to him in a manner which had the effect
of prejudicing his
creditors or of preferring one of his creditors above another.’
Claim E was based on
the same alleged scheme. The relevant allegation was that the scheme
had been ‘conceived and implemented
with the intention of
defrauding the general body of [Protector’s] creditors’.
[11]
Claim B was a claim that Financial
Services, alternatively Glenrand, intentionally and unlawfully
appropriated the amount of R50 million
upon its transfer from
the attorneys to Glenrand’s bank account. In substance it was a
claim that they stole the money. Like
claims A and E, it involved
allegations of dishonesty against Financial Services and Glenrand.
The individuals allegedly responsible
for such dishonesty were their
co-defendants, Messrs Mansfield and Harpur, who were directors of all
three companies involved in
these allegations, namely, Financial
Services, Glenrand and Protector. They had resigned as directors of
Protector after the sale
of the business of Protector to New
Protector was approved on 2 March 2004 and before the IDC released
part of the loan to New
Protector.
[12]
Claim C was based upon the proposition that
payment of the sum of R50 million to Financial Services,
alternatively Glenrand,
was not due to either of them; was made at
the expense of Protector; and resulted in one or other of them, in
the alternative,
being enriched. Lastly, so far as Financial Services
and Glenrand were concerned claim D was based on
s 26(1)
of the
Insolvency Act. It
was alleged that the payment of the amount of
R50 million to Financial Services, alternatively Glenrand, was a
disposition
by Protector of its property made without value and
therefore recoverable by the liquidators of Protector. The further
claim F
was brought only against the four directors. It alleged a
breach of their fiduciary duties to Protector, such breach being
constituted
by the alleged collusive scheme.
[13]
In sum therefore, claims A, E and F were
all based on the existence of a scheme that the liquidators of
Protector contended was
dishonest. The alleged scheme was said to be
the brainchild of the four directors. Claim B was also based on
dishonesty by the
directors in the form of a theft of the money paid
by New Protector to Protector. Only the enrichment claim and the
claim under
s 26(1)
of the
Insolvency Act were
not founded on
the dishonest conduct of the directors.
[14]
A lengthy trial ensued before Monama J.
Senior counsel appeared on behalf of the liquidators and two senior
counsel appeared together
on behalf of the defendants other than Van
Rensburg, that is, Financial Services, Glenrand, and Messrs Mansfield
and Harpur. By
arrangement with these defendants Van Rensburg was not
represented and testified for the liquidators. These defendants made
common
cause in their defence to the litigation. At the end of the
trial claims A and E were abandoned by Protector’s liquidators
and they indicated that they were not seeking judgment against
Glenrand. Notwithstanding that concession, Monama J entered judgment
against Financial Services and Glenrand jointly and severally for
repayment of the R50 million plus the interest accrued on
that
amount while the attorneys held it in trust. He did so on the basis
that claims B (misappropriation of money), C (unjust enrichment)
and
D (disposition without value) were well founded. He also upheld claim
F against the four directors personally.
[15]
Prior to the appeal from that judgment the
liquidators of Protector abandoned the judgment against Glenrand in
its entirety. Nonetheless
the present appellant, which had by then
assumed Glenrand’s liabilities and intervened in the
proceedings, appeared in order
to seek an order for costs. The appeal
by Financial Services on the misappropriation claim and the
disposition without value were
upheld, but the judgment against
Financial Services was sustained on the grounds of unjust enrichment.
As mentioned above, this
was based on a finding that the contract in
terms of which Freefall purchased Financial Services’ stake in
Protector was
invalid and unenforceable. The appeal against the
judgment on claim F also succeeded.
[16]
When dealing with the misappropriation
claim this court made a clear finding that there was no intention to
defraud the creditors
of Protector. In the light of that finding it
was conceded that claim F, the claim that the directors had breached
their fiduciary
duties by colluding in the conception and
implementation of the alleged scheme, also had to fail and the appeal
against the judgment
on this claim was upheld. In sum therefore, this
court held on the basis of the full record of the trial, in which
both Mr Harpur
and Mr Mansfield gave evidence, that the liquidators
of Protector had failed to prove the existence of a scheme as alleged
or any
dishonesty on the part of the directors.
The present litigation
[17]
Financial Services was liquidated after the
previous judgment was delivered. Although different individuals were
appointed as liquidators
to those appointed for Protector, they came
from the same company, D & T Trust (Pty) Ltd, and the litigation
they instituted
was clearly driven by the creditors of Protector. The
sole target of the action was AON by virtue of its having assumed the
obligations
of Glenrand. The claims being advanced were statutory
claims arising under the
Insolvency Act’s
provisions for
attacking dispositions by insolvents. It is unclear on what basis AON
can be pursued on these claims, but as no
point has been taken in
that regard I will assume, notwithstanding certain reservations, that
AON’s assumption of liability
for the obligations of Glenrand
included the claims as formulated in these proceedings.
[5]
[18]
Turning to the pleadings the liquidators of
Financial Services seek to recover the full amount of R50 million,
plus the interest
that accrued on it while it was in the attorneys’
trust account, but they divide the claim into three separate
components,
namely the set-off component, the dividend and the
interest. In all three instances the claim commences with the
allegation that
the entire amount of R50 million plus interest
constituted property of Financial Services. In respect of the set-off
of Financial
Services historic debt of approximately R38 million,
reliance is placed on
s 30(1)
of the
Insolvency Act, which
reads:
‘
If
a debtor made a disposition of his property at a time when his
liabilities exceeded his assets, with the intention of preferring
one
of his creditors above another, and his estate is thereafter
sequestrated, the court may set aside the disposition.’
In order to pursue
this claim successfully the liquidators of Financial Services will
need to prove that Financial Services contemplated
liquidation and
intended to prefer Glenrand over their other creditors, by permitting
the amount of R50 million to be paid
into Glenrand’s bank
account, so that set-off would occur by operation of law.
[6]
[19]
In regard to the dividend paid to Glenrand
the liquidators of Financial Services adopt a twofold approach. They
contend that the
payment was made with an intention to prefer
Glenrand and falls to be set aside under
s 30(1)
of the
Insolvency Act. To
that extent the basis for the claim is the same as
that in respect of the set-off amount. But they also contend that the
payment
was made pursuant to a collusive scheme conceived with the
intention of defrauding and prejudicing Financial Services’
creditors.
Here the liquidators rely on
s 31(1)
of the
Insolvency Act. Collusion
in this context means an agreement between
two or more parties that has a fraudulent purpose.
[7]
It is a conniving together of the insolvent and another to practise a
fraud on the insolvent’s other creditors.
[8]
[20]
The last claim by the liquidators of
Financial Services is to recover the interest that accumulated on the
sum of R50 million
while it was held in the attorneys’
trust account, during the period when the sale of business from
Protector to New Protector
was awaiting Competition Commission
approval. This claim is not made in terms of the provisions of the
Insolvency Act, but
on the simple basis that the interest accrued in
favour of Financial Services and neither the set-off in relation to
its historic
indebtedness to Glenrand, nor the payment of the
dividend affected it. Accordingly it remained Financial Services
money, albeit
that it was being held on its behalf in Glenrand’s
bank account.
[21]
The special plea is that the liquidators of
Financial Services are not entitled to pursue these claims against
AON in the light
of the previous judgment. It proceeds as follows. In
the previous litigation the substantial issue was the recovery from
Financial
Services and Glenrand of the capital amount of R50 million
and the interest accrued thereon. Financial Services and Glenrand
made common cause in that litigation. The judgment granted against
Glenrand in the high court was abandoned prior to the appeal
to this
court. The appeal to this court dismissed all claims based on
dishonesty. In those circumstances and by reason of:
·
considerations of public policy;
·
the principles of fairness and
particularly that AON should not be exposed to a second trial;
·
the fact that the same sum of money
paid in the same circumstances is in issue;
·
the facts, evidence and the
underlying cause of the claim being, by and large, similar to the
facts, evidence and underlying cause
of the first action; and
·
the question of the payment of the
money having previously been definitively disposed of; AON contends
that the liquidators of Financial
Services are precluded by the
exceptio res judicata vel litis finitae
,
or issue estoppel, from pursuing the present proceedings.
The
exceptio rei
judicata
[22]
As mentioned earlier the plea of
res
judicata
in this case takes the
attenuated form commonly referred to as issue estoppel.
Res
judicata
deals with the situation where
the same parties are in dispute over the same cause of action and the
same relief,
[9]
and in the form of issue estoppel arises:
‘
Where
the decision set up as a
res
judicata
necessarily involves a judicial determination of some question of law
or issue of fact, in the sense that the decision could not
have been
legitimately or rationally pronounced by the tribunal without at the
same time, and in the same breath, so to speak,
determining that
question or issue in a particular way, such determination, though not
declared on the face of the recorded decision,
is deemed to
constitute an integral part of it as effectively as if it had been
made so in express terms …’
[10]
[23]
Although initially controversial that
decision has subsequently been endorsed by this court as falling
within the realm of
res judicata
.
[11]
The current state of the law was summarised by Scott JA in the
following passage:
[12]
‘
Following
the decision in
Boshoff
v Union Government
1932
TPD 345
the ambit of the
exceptio
res judicata
has
over the years been extended by the relaxation in appropriate cases
of the common-law requirements that the relief claimed and
the cause
of action be the same (
eadem
res
and
eadem
petendi causa
) in
both the case in question and the earlier judgment. Where the
circumstances justify the relaxation of these requirements those
that
remain are that the parties must be the same (
idem
actor
) and that the
same issue (
eadem
quastio
) must
arise. Broadly stated, the latter involves an enquiry whether an
issue of fact or law was an essential element of the judgment
on
which reliance is placed.
Where
the plea of
res
judicata
is raised
in the absence of a commonality of cause of action and relief claimed
it has become commonplace to adopt the terminology
of English law and
to speak of issue estoppel. But, as was stressed by Botha JA in
Kommissaris van
Binnelandse Inkomste v Absa Bank Bpk
1995 (1) SA 653
(A) at 669D, 670J-671B, this is not to be construed
as implying an abandonment of the principles of the common law in
favour of
those of English law; the defence remains one of
res
judicata
. The
recognition of the defence in such cases will however require careful
scrutiny. Each case will depend on its own facts and
any extension of
the defence will be on a case-by-case basis … Relevant
considerations will include questions of equity
and fairness not only
to the parties themselves but also to others. As pointed out by De
Villiers CJ as long ago as 1893 in
Bertram
v Wood
(1893) 10 SC
177
at 180, “unless carefully circumscribed, [the defence of
res
judicata
]
is capable of producing great hardship and even positive injustice to
individuals”.’
[24]
The high court held that the special plea
failed on all three aspects of the defence of
res
judicata
. It said that the parties were
different because the plaintiffs in this case are the liquidators of
Financial Services, whereas
in the previous case the plaintiffs were
the liquidators of Protector. As regards the causes of action it
compared the relevant
facts on which the claims in each case were
based and held that they were entirely different. It is unclear on
what basis it thought
that the relief claimed was different, as it
gave no explanation for that conclusion.
Discussion
[25]
It is correct that there is a technical
distinction between the plaintiffs in the present action and the
plaintiffs in the previous
action, but that is a matter of form not
substance. The liquidators of Protector are the persons who sought
and obtained the liquidation
of Financial Services and they did so on
the basis of the judgment they obtained in the previous action. As
matters stand at present
they are the only creditor of Financial
Services.
[13]
The sole purpose of the litigation is to recover the amount of
R50 million, in order that it can be distributed to Protector
on
the winding up of Financial Services. To all intents and purposes the
liquidators of Financial Services are merely surrogates
for the
liquidators of Protector. The fact that the liquidators of both
companies are employees of the same firm of professional
liquidators
lends emphasis to this point.
[26]
As far as the defendants in the two actions
are concerned, Glenrand (in whose shoes AON stands) was a defendant
in the previous
action. It is true that at the end of the trial no
relief was sought against it but that cannot matter, especially as
the trial
judge disregarded that and granted judgment against it. It
was a party to the previous appeal, if only for the purpose of
obtaining
an order for costs, the judgment having been abandoned. The
same attorneys and counsel represented it and Financial Services in
that case. That emphasises the commercial reality that there was a
complete identity of interests between it and Financial Services,
both in the transactions that gave rise to that litigation and in the
litigation itself. Financial Services was a special purpose
vehicle
that existed solely for the purpose of holding Glenrand’
s 65
per cent interest in Protector. The individuals whose conduct was
examined in the previous case were directors of both Glenrand
and
Financial Services. In those circumstances it seems to me that there
was a complete identity of interests between them and
it would be
artificial to say that findings against or in favour of Financial
Services in the previous case would not be binding
upon Glenrand.
[27]
I do not think that this involves any
significant development of the law in this regard.
Res
judicata
has always been available as a
defence against the privies of parties to earlier litigation. Voet’s
description of those who
are the same parties for the purposes of
res
judicata
goes well beyond those who are
privies in the strict sense of deriving their rights from a party to
the original litigation.
[14]
In addition the joint stock company and similar entities, enjoying
limited liability, were unknown to Voet, and the concepts he
employed
must be adapted to our modern commercial world. In
Goldex
[15]
Brand JA said:
‘
In
this case Prinsloo not only represented the trust, he was the
controlling mind of that entity. It would therefore surprise me
if
the controlling mind were not bound by an earlier decision that he
committed fraud, while the mindless body of the trust was
held bound
by that finding.’
Likewise the sole
member of a close corporation has been held to be the privy of the
corporation itself.
[16]
In the present case Glenrand, through its directors Messrs Mansfield
and Harpur, was the controlling mind of Financial Services.
It would
be extremely surprising then to learn that, after a trial where the
evidence of those two men had been heard, Glenrand
could, in
subsequent litigation, dispute findings made against Financial
Services. In
Caesarstone
[17]
I adverted to this type of situation and said:
‘
Subject
to the person concerned having had a fair opportunity to participate
in the initial litigation, where the relevant issue
was litigated and
decided, there seems to me to be something odd in permitting that
person to demand that the issue be litigated
all over again with the
same witnesses and the same evidence in the hope of a different
outcome, merely because there is some difference
in the identity of
the other litigating party.’
I conclude that the
approach of the trial judge was incorrect. It focussed too much on
the fact that the plaintiffs in the two actions
were liquidators of
two separate companies and insufficiently on the fact that there was
a complete identity of interests between
the two sets of liquidators
and a similar identity of interests between the defendants in both
actions.
[28]
In fairness to counsel for the respondents
I did not understand him to challenge this approach. His focus lay on
the next issue,
namely whether the decision in the previous case
involved a finding on an issue that would be determinative of the
outcome of the
present case. That turned largely on the following two
paragraphs from the previous judgment dealing with the
misappropriation
claim:
‘
The
IDC knew that Glenrand MIB was selling its 65 per cent shareholding
in Protector and the IDC intended, when its board approved
the
financing on 25 November 2003, that the proceeds of the loan would be
applied towards settling the purchase price of the sale
of shares of
Glenrand MIB and PGMC. The IDC’s recognition that the proceeds
of the loan would immediately be applied towards
paying for Glenrand
MIB’s shares in Protector, was in full knowledge of the IDC’s
decision that ultimately the business
of Protector would be located
in a new vehicle, which would represent a consortium led by a BEE
shareholder.
There is no
evidence to suggest that the IDC, and all the other relevant parties,
in agreeing or arranging that the proceeds of
the loan should be paid
to the shareholders of Protector, intended to defraud the creditors
of Protector. The common intention
of Glenrand MIB, the IDC, and of
Seelenbinder and Van Rensburg, was that the money should be applied
to discharge Freefall’s
indebtedness arising from the sale of
shares by Glenrand MIB and PGMC. In the circumstances, the
respondents have not made out
a case for dishonesty on the part of
Harpur and Mansfield [the two relevant directors of Glenrand and
Financial Services]. It was
not established that, in arranging that
part of the proceeds of the IDC loan be paid to Financial Services,
they had the subjective
intention to steal the money. It follows that
the claim of theft cannot be sustained.’
The existence of a
collusive scheme was not canvassed separately in the High Court
judgment from which this appeal lay because judgment
was not sought
or granted on claims A and E. But this reasoning is entirely
inconsistent with the existence of such a scheme. Counsel
very
properly accepted that the effect of the abandonment of these claims
was that they stood on the same footing as if they had
been
dismissed.
[29]
Starting with the claim to recover the
dividend on the basis that it was paid pursuant to a collusive
transaction between Financial
Services and Glenrand, that case
requires the liquidators to prove that the decision by Glenrand, as
the sole shareholder of Financial
Services, to declare a dividend was
the product of a fraudulent agreement between the two companies,
represented by Messrs Mansfield
and Harpur, directed at defrauding
the other creditors of Financial Services. Bearing in mind that
Financial Services was not a
trading entity it had no other creditors
save, for the purposes of this argument, Protector in respect of its
enrichment claim.
So any collusive arrangement had to be one
dishonestly determined with a view to defeating that enrichment
claim.
[30]
Such a claim is entirely inconsistent with
the findings by this court in the previous judgment. Two findings in
particular are important.
The first is that all the parties to the
payment by Protector to Financial Services were aware of the payment
and intended that
it be made in precisely the manner that in fact
occurred. A finding in the present litigation that Messrs Mansfield
and Harpur
were aware of the existence of an enrichment claim by
Protector to recover the payment made by it to Financial Services
would fly
in the face of that. The second, and even more important
finding, was that there was no evidence of an intention to defraud
the
creditors of Protector and no evidence of dishonesty on the part
of Messrs Mansfield and Harpur. If they were not dishonest in
securing that Protector paid Financial Services R50 million, they
could not possibly have been dishonest in securing that Financial
Services, itself merely a vehicle for holding Glenrand’s
interest in Protector, paid that amount by lawful means to Glenrand.
[31]
Counsel sought to circumvent this
difficulty by compartmentalising (as he put it) the period leading up
to the payment to Financial
Services and the subsequent period when
the set-off occurred and the dividend was paid. In so doing he sought
to contend that although
the previous judgment effectively rejected
the notion that the payment to Financial Services was a product of
the fraudulent and
collusive scheme originally pleaded, there
remained scope for a different collusive scheme conceived and
concluded at a later stage.
He placed the dividing line between the
compartments at 5 March 2004 when the IDC released the funds to
New Protector. However,
nothing occurring between that date and 22
June 2004, when payment was made to Glenrand, warranted drawing a
line at the earlier
date. Indeed, until the latter date, the absence
of Competition Commission approval for the sale of Protector’s
business
to New Protector meant that Financial Services had no claim
to the R50 million. The enrichment claim could only arise once
payment was made on 22 June 2004.
[32]
If there is to be a compartmentalisation,
the defining line between the two must be drawn as at 22 June 2004,
the date on which
Financial Services was paid. In regard to the
period after that date the dividend was paid over nearly a year later
on 13 June
2005. The allegation in the particulars of claim in the
present litigation was that, in the intervening period, the leading
individual
behind the BEE partner in New Protector approached Mr
Harpur and accused Financial Services of having stolen the purchase
price
of R50 Million. This caused Mr Harpur to enquire from Mr
Seelenbinder how the funds flowed from Protector into the attorneys’
trust account. The plaintiffs allege that, in the light of the
explanation he received, Mr Harpur became aware that Financial
Services had no entitlement to the payment of the R50 Million,
alternatively he became aware that Protector had a claim to recoup
this amount. That formed the basis for the allegation that the
payment of the dividend was part of a collusive scheme ‘conceived
with the intention of defrauding and prejudicing’ Financial
Services’ creditors, in other words, Protector.
[33]
There are overwhelming difficulties
confronting this argument. It sought to excise a component of
the claims of collusion
and dishonesty made in the first action and
to characterise it as a separate collusive transaction. It aimed at
revisiting issues
already dealt with in the previous case and was
inconsistent with the findings in the previous judgment. Financial
Services had
contended in relation to the enrichment claim that it
had bona fide disgorged the R50 million by way of the set-off and
payment
of the dividend. In rebuttal the liquidators of Protector
referred to the approach to Mr Harpur, the allegation that the money
had been stolen and Mr Harpur’s enquiry to Mr Seelenbinder in
regard to the flow of funds. The manner in which this court
dealt
with that evidence refutes the claim of collusion that the present
plaintiffs seek to advance.
[34]
The present claim depends upon a finding
that Mr Harpur knew when the dividend was paid that Protector was
entitled to its repayment
by Financial Services. That is inconsistent
with the finding this court made in relation to this evidence. It
highlighted the fact
that in Mr Seelenbinder’s explanation it
emerged that the funds advanced to New Protector and paid to
Protector had been
routed via a firm of accountants in Namibia which
paid the R50 million into the attorneys’ trust account. The
reason given
for adopting this course was a concern that otherwise
the payment might have involved a contravention of s 38 of the
Companies
Act 61 of 1973. Mr Harpur testified that he thought there
was nothing untoward in this and disputed the suggestion that he must
have known that something was amiss and that Financial Services was
not entitled to retain the money.
[35]
This evidence was not rejected. The
previous judgment accepted that there was no evidence of dishonesty
on the part of Mr Harpur
in receiving payment of the R50 million.
On this issue it held that, as an experienced CEO of the company, he
‘should
have been alerted to a possible contravention of s 38
of the Companies Act’ and ‘should have investigated the
validity of Seelenbinder’s claim that this had been averted by
directing the funds through Namibia’. Its conclusion,
in
rejecting the defence of non-enrichment, was that “Financial
Services and Harpur should have been aware that Financial
Services
had been enriched sine causa at the expense of Protector’. That
is inconsistent with a finding that Mr Harpur was
in fact aware that
Protector had a valid enrichment claim against Financial Services.
[36]
The collusion case that the liquidators of
Financial Services now seek to run would involve a reconsideration of
this very evidence.
The court would be required to find that Mr
Harpur knew, as a matter of fact, that the payments were made in
circumstances amounting
to a contravention of s 38 and that he
deliberately thereafter secured the declaration and payment of the
dividend in order
to defeat Protector’s enrichment claim. That
would be inconsistent with the findings in the previous case. To
achieve that
result the trial court would have to hear the evidence
of the same witness, Mr Harpur, and conclude that he was lying if he
repeated
his previous testimony. That is precisely the situation that
the recognition of the defence of
res
judicata
is intended to prevent.
[37]
The compartmentalisation argument also
underpinned the contention that the statutory claims to set aside
both the set-off and the
payment of the dividend as undue preferences
were not defeated by reliance on
res
judicata
in the form of issue estoppel.
To recapitulate, those claims required proof of the intention to
prefer, as shown by proof that liquidation
was contemplated and that
the payment in question was made with the intention to prefer
Glenrand over Protector. But central to
such a case was the
proposition that Glenrand, through Mr Harpur, was aware of the
existence of Protector’s enrichment claim.
A finding to that
effect would be inconsistent with the findings made by this court in
the previous judgment.
[38]
Even on its own terms therefore the
compartmentalisation argument cannot succeed. But its own terms are
entirely artificial and
contrary to the evidence that led this court
to hold, in the passages cited in [28] above, that all the parties
were aware of the
payments to be made using the funds provided by the
IDC and in particular were aware that the price of R50 million that
Financial
Services required for its 65 per cent stake in Protector
would be paid from these funds. The previous judgment held that
Messrs
Harpur and Mansfield were not guilty of fraud in relation to
that payment and were not dishonest. The reason is not far to seek.
It was that the transaction originated in the decision by Glenrand to
dispose of its interest in Protector. Central to that decision
was
that Financial Services would no longer serve any purpose. Retaining
the proceeds of the sale in its books, but not its bank
account
because it had none, would serve no useful or conceivable purpose.
[39]
From the outset the entire transaction was
posited on Glenrand receiving the proceeds of the disposal. In the
first instance they
would be used to recoup the initial cost of the
investment in Protector, as reflected in Financial Services’
historical indebtedness
to Glenrand. Set-off occurred the moment the
funds arrived in Glenrand’s bank account. There could be no
question of compartmentalisation
in that situation as the argument
based on it depended upon events subsequent to the receipt of the
funds. As far as the dividend
was concerned this was nothing more
than the mechanism whereby receipt of the balance of the proceeds by
Glenrand would be reflected
in the books of account of Financial
Services as having passed to Glenrand. The notion that it occurred in
consequence of a collusive
agreement between Financial Services and
Glenrand is wholly inconsistent with the factual findings
underpinning the previous judgment.
[40]
My conclusion is that the claims advanced
in these proceedings by the liquidators of Financial Services involve
the reconsideration
of the very evidence and issues that were the
subject of determination in the previous action. Insofar as the
relief was concerned
it was not suggested that it was not the same in
both actions. Both were directed at recovering from Glenrand the R50
million paid
to Financial Services as the price for its 65 per cent
stake in Protector. With respect, the court below erred in holding
otherwise
by looking mechanically at the elements of the causes of
action in the two cases, instead of examining the issues that had
been
determined in the previous case and comparing them with the
issues that would need to be determined if the present case went to
trial.
[41]
The elements of
res
judicata
in the form of issue estoppel
were accordingly satisfied and the special plea should have been
upheld. During the course of argument
it was pointed out to counsel
that the special plea could not have any application to the claim in
respect of the interest that
accrued on the sum of R50 million while
it was held in the trust account of the attorneys pending the
decision by the Competition
Commission. For some reason, possibly
oversight, neither the set-off nor the dividend included this amount.
It accordingly remained
an amount to which Financial Services was
entitled, albeit that it was held in Glenrand’s bank account.
Whether AON has some
other ground for resisting this claim is not an
issue for determination in this appeal and must be left for the
further conduct
of the proceedings.
Result
[42]
The appeal must succeed and the order made
by the high court must be set aside. It will be replaced by a
suitable order upholding
the special plea in regard to claims A, B
and C, but not D. The costs of the appeal and the determination of
the special plea must
follow the result.
[43]
I make the following order:
(1)
The appeal is upheld with costs.
(2)
The order of the high court is set aside and replaced with the
following order:
‘
(a)
The special plea is upheld in relation to claims A, B and C.
(b)
Claims A, B and C are dismissed.
(c)
The plaintiffs are to pay the defendant’s costs in relation to
the defence of claims A, B and C including the costs consequent
upon
the separate determination of the special plea.’
M J D WALLIS
JUDGE OF
APPEAL
Appearances
For appellant:
R Stockwell SC
Instructed by:
Fluxmans Inc, Johannesburg;
Lovius Block Attorneys, Bloemfontein
For respondent:
P F Rossouw SC
Instructed by:
De Vries Inc, Sandton;
Matsepes
Inc, Bloemfontein.
[1]
The first occasion was in
Glenrand
MIB Financial Services (Pty) Ltd and Others v Van den Heever NO
and others
[2012] ZASCA 195
;
[2013] 1
All SA 511
(SCA), referred to hereafter as the ‘previous
judgment’.
[2]
We were informed that Protector guaranteed
repayment of this loan, thereby giving the IDC a claim against
Protector when that
company was liquidated.
[3]
Previous judgment
paras
29 and 31.
[4]
It was provisionally liquidated on 2 September
2004. The principal reason for this was the loss of its main
money-generative contract
as a medical scheme administrator. See
Phodiclinics (Pty) Ltd and Others and
Protector Group Medical Services (Pty) Ltd (in Liquidation) and
Others
[2007] ZACT 17
paras 54 to 66.
[5]
The relevant sections provide for a court to set
aside the disposition. The right to approach a court for the setting
aside of
the disposition vests in the first instance in the
liquidator. Such claims arise on liquidation and have the effect of
creating
an indebtedness where none previously existed. See
Duet
and Magnum Financial Services CC (in liquidation) v Koster
[2010]
ZASCA 34
;
2010
(4) SA 499
(SCA) paras 11-13. By the time any such right arose in
this case and inhered in the liquidators, Glenrand had been
deregistered.
AON is a separate legal entity to Glenrand and it
played no part in the transactions giving rise to this litigation.
Hence my
reservations. It is unclear whether the provisions of
s 116(6)(b)
and (7)(b) of the
Companies Act 71 of 2008
operate
to impose liability on AON in respect of dispositions, but that is
not the case pleaded.
[6]
Pretorius NO v Stock Owners’
Co-operative Co Ltd
1959 (4) SA 462
(A) at 471B-472G;
Cooper and Another
NNO v Merchant Trade Finance Ltd
2000
(3) SA 1009
(SCA) paras 6-16.
[7]
Meyer NO v Transvaal Lewendehawe Koöperasie
Bpk
1982 (4) SA 746
(A) 771C-D.
[8]
Finn’s Trustee v Prior
1919
EDL 133
at 137 approved in
Gert de
Jager (Edms) Bpk v Jones NO en McHardy NO
1964
(3) SA 325
(A) 331A.
[9]
National Sorghum Breweries (Pty) Ltd (t/a Vivo
African Breweries) v International Liquor Distributors (Pty) Ltd
[2000] ZASCA 70
;
2001 (2) SA 232
(SCA)
para 2 (per Olivier JA);
Prinsloo NO
and Others v Goldex 15 (Pty) Ltd
[2012]
ZASCA 28
;
2014
(5) SA 297
(SCA) (
Goldex)
para
23.
[10]
Boshoff v Union Government
1932
TPD 345
at 350-351 citing Spencer-Bower’s
Res
Judicata
.
[11]
Kommissaris van Binnelandse Inkomste v ABSA
Bank Bpk
[1994] ZASCA 144
;
1995
(1) SA 653
(A) at 669F-G.
[12]
Smith v Porritt & others
[2007] ZASCA 19
;
2008 (6) SA 303
(SCA) para 10.
[13]
There is a notional possibility, if this action
succeeded, that AON might be able to prove a late claim for the
historic debt
that Financial Services owed to Glenrand but it was
not suggested that this affected the position.
[14]
Johannes Voet
The
Selective Voet being the Commentary on the Pandects
(Gane’s
translation, 1957) 44.2.5, vol 6 at 558
.
He included a principal and agent;
the pledgor and pledgee in relation to the right to possession of
the thing pledged; two joint
and several debtors or creditors in
relation to a claim to a thing, and a surety and the principal
debtor as falling within the
concept of ‘the same parties’
for the purposes of
res judicata
.
[15]
Prinsloo & others v Goldex
supra para 15.
[16]
MAN Truck
& Bus (SA) (Pty) Ltd v Dusbus Leasing CC and Others
2004
(1) SA 454
(W) paras 38-39.
[17]
Caesarstone Sdot-Yam Ltd v The World of Marble
and Granite 2000 CC and Others
[2013]
ZASCA 129
;
2013 (6) SA 499
(SCA) para 43.