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[2019] ZAFSHC 173
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Standard Bank of South Africa Ltd v Bloemfontein Celtic Football Club (Pty) Ltd (3894/2018) [2019] ZAFSHC 173; 2020 (3) SA 298 (FB) (12 September 2019)
IN
THE HIGH COURT OF SOUTH AFRICA,
FREE
STATE DIVISION, BLOEMFONTEIN
Case
No.: 3894/2018
In
the matter between:-
STANDARD
BANK OF SOUTH AFRICA
LTD
Applicant
and
BLOEMFONTEIN
CELTIC FOOTBALL CLUB (PTY)
LTD
Respondent
JUDGMENT
BY:
C. J. MUSI, JP
HEARD
ON:
27 JUNE 2019
DELIVERED
ON:
12 SEPTEMBER 2019
[1]
The applicant, Standard Bank of South Africa Ltd, sought an order for
the provisional liquidation of the respondent, Bloemfontein
Celtic
Football Club (pty) Ltd (registration number 2015/344554/07).
[2]
During December 2015 the applicant and the respondent entered into
six separate home loan agreements in terms of which R 3 693
664.00
was loaned and advanced to the respondent by the applicant. Mortgage
bonds were registered as security over all six properties.
[3]
The respondent defaulted. On 25
April 2018 the applicant served notices in terms of section 129(1) of
the National Credit Act
[1]
on the respondent in respect of each of the agreements. It also
served notices in terms of section 345(1)
[2]
of the Companies Act, 61 of 1973 read with item 9 of schedule 5 of
the
Companies Act, 71 of 2008
in respect of each of the outstanding
amounts owed by the respondent.
[4]
On 12 July 2018, in terms of the certificate of balance, the
respondent owed the applicant approximately R 6134 474.12 as a
result
of defaulting on the loan agreements.
[5]
The respondent failed to reply to the
section 345(1)
notices and then
failed to effect payment, or to secure or compound for it, to the
reasonable satisfaction of the applicant within
three weeks of the
service of the notices, or at all.
[6]
On 14 May 2018 the respondent's attorney responded to the respective
section 129
notices. He indicated that he was instructed to try and
solve the matter amicably by devising a payment plan for the
outstanding
arrears owed by the respondent. Furthermore, the
respondent proposed to settle all the outstanding arrears on 15 June
2018. The
respondent did not, however, honour this undertaking.
[7]
On 2 August 2018 the applicant instituted liquidation proceedings
against the respondent on the basis that the respondent should
be
deemed unable to pay its debts. On 13 August 2018, the respondent
filed a notice of its intention to oppose the application.
[8]
The parties had settlement discussions which resulted in them
entering into a memorandum of agreement. In terms of the agreement,
they recorded that the respondent was in arrears with its monthly
payments of the various home loans in the amount of R 481 632.
84.
They agreed that the last mentioned amount should be paid by 31
August 2018 and that the full outstanding amounts due and owing
in
respect of all six home loan agreements would be settled by 28
February 2019.
[9]
The respondent also signed a power of attorney in terms of which it
gave the applicant the right to sell the properties on its
behalf and
to settle or reduce its indebtedness to the applicant in the event of
its default. The parties furthermore agreed that:
2.1 If Celtic Football Club fails at
any time during the six month period to make monthly payments in
respect of one or more of
the various home loan accounts then the
full outstanding amount on all the accounts become due and payable.
2.2 In this event Celtic football
agrees that Standard Bank may enrol the liquidation application, on
an unopposed basis, to obtain
a liquidation order, under case number
3894/2018.
[10]
They also agreed that if the respondent did not settle the full
outstanding amounts by 28 February 2019, the applicant could
sell the
properties in terms of the power of attorney or proceed with the
liquidation application on an unopposed basis as set
out in paragraph
2.2 of their agreement.
[11]
The respondent paid the monthly instalments as agreed upon.
However, it did not settle its full indebtedness to the applicant.
[12]
On 31 May 2019, the applicant served its supplementary
founding affidavit and a notice of set down on the respondent via
email,
indicating that the matter had been set down for hearing on 13
June 2019.
[13]
The applicant approached this court, under the same case
number, on the same papers duly supplemented, alleging that the
respondent
failed to make the monthly payments as agreed and
furthermore that it failed to settle its indebtedness by 28 February
2019. It
prayed for an order in terms of its original notice of
motion.
[14]
At the hearing of the application, Mr Epstein, on behalf of
the respondent, took a point
in limine
to the effect that
clause 2.2 of the memorandum was contrary to public policy, therefore
void, and that no effect could be given
to it.
[15]
Mr P Zietsman, on behalf the applicant, contended that even
though paragraph 2.2 of the memorandum might be void, the respondent
had an opportunity to oppose the application and it did indeed oppose
it. He argued there was thus no prejudice suffered by the
respondent.
[16]
It is trite that this court has the power to declare a contract as
being contrary to public policy and to refuse to give effect
to it.
The power to do so should however be exercised sparingly. In
Eastwood
v Shepstone
,
[3]
Innes CJ stated the principle as follows:
Now this Court has the power to treat
as void and to refuse in anyway to recognize contracts and
transactions which are against
public policy or contrary to good
morals. It is a power not to be hastily or rashly exercised; but when
once it is clear that any
arrangement is against public policy, the
Court would be wanting it its duty if it hesitated to declare such an
arrangement void.
What we have to look to is the tendency of the
proposed transaction, not its actually proved result.
[4]
[17]
Smallberger JA warned against the indiscriminate and arbitrary use of
the power to declare contracts contrary to public policy.
In
Sasfin
(Pty) Ltd v Beukes
[5]
he said:
No
court should therefore shrink from the duty of declaring a contract
contrary to public policy when the occasion so demands. The
power to
declare contracts contrary to public policy should, however, be
exercised sparingly and only in the clearest of cases,
lest
uncertainty as to the validity of contracts result from an arbitrary
and indiscriminate use of the power. One must be careful
not to
conclude that a contract is contrary to public policy merely because
its terms (or some of them) offend one's individual
sense of
propriety and fairness.
[6]
[18]
What is the effect and tendency of paragraph 2.2 of the memorandum?
First, the applicant reserved the right to re-enrol the
provisional
liquidation application under the same case number and based on the
same ground. Second, the respondent agreed that
the applicant could
do so on an unopposed basis.
[19]
The memorandum effectively meant that the applicant
conditionally abandoned its right to provisionally liquidate the
respondent
on the basis relied upon in case number 3894/2018. The
applicable condition was that the respondent should strictly perform
its
obligations in terms of the memorandum.
[20]
It is common cause that the respondent did not comply with its
obligations as stipulated in the memorandum. Under these
circumstances,
may the applicant fall back on the original notice of
motion of 2 August 2018?
[21]
The answer to this
question is to be found in
Van
Zyl v Niemann
[7]
.
In that case it was held that a settlement agreement, such as the
memorandum in this case, has the same effect as
res
judicata.
This would
exclude litigation on the same cause of action, unless the settlement
agreement expressly or by express implication stipulates
that in the
event of non-compliance with the terms of the settlement agreement,
the plaintiff or applicant may revert to the original
cause of action
or ground.
[8]
[22]
Clause 2.2 of the memorandum ostensibly reserves the applicant's
right to revert to the original cause of action in the event
of
non-compliance with the settlement agreement. Embedded in this
clause, however, is a stipulation that the respondent agreed
that the
applicant could enrol the original application on an unopposed basis.
[23]
The applicant effectively agreed not to oppose a future application
for its liquidation in the event that it did not comply
with the
terms of the settlement agreement. This stipulation deprived the
respondent of its right to defend any proceeding in a
court of law.
In
Standard Bank SA Ltd v
Essop,
[9]
the settlement agreement contained a similar clause. It provided that
'in the event of the respondent failing to pay any amount
on the due
date, the applicant shall be entitled to reinstate the application
for the respondent's sequestration on the unopposed
motion roll and
to utilize the affidavit opposed by the respondent consenting to a
provisional and final order of sequestration'.
[24]
Meskin J considered the clause and correctly said the following about
it:
In my opinion, applicant's conduct in
having purported to stipulate for these rights
was,
and remains,
unconscionable. It has purported to empower itself. in the event of
any relevant default by the respondent, deprive
him of his status as
a solvent person, and inevitably to subject him to all the onerous
obligations and extensive restrictions
which bind an insolvent in
terms of the Act, without any notice to him and without his being
able in any event to defend himself.
This conduct offends my, and in
my opinion it would offend any reasonable person's, sense of what is
procedurally fair and it offends
my, and in my opinion would offend
any reasonable person's, sense of justice.
[10]
[25]
Clause 2.2 falls squarely in the category of offensive and
unconscionable agreements as described by Meskin J. It also deprives
the respondent of a Constitutional right. Section 34 of our
Constitution expressly gives everyone the right to have any dispute
that can be resolved by the application of law decided in a fair
public hearing before a Court. Clause 2.2 has a tendency to deprive
the respondent of that right.
[26]
Mr Zietsman contended that
Essop
is distinguishable
because it concerned sequestration and not liquidation. I disagree.
The liquidation of a company and the sequestration
of a person have
the same effect: the status of the company and that of the natural
person are both changed. The sentiments expressed
in
Essop
are
in my view, with the necessary changes, applicable to the liquidation
of a company.
[27]
Counsel further contended that in
Essop
the bank sought
to change the status of the respondent without giving him notice.
That is exactly what the bank tried to do in this
matter. It is for
that very reason that the bank included the stipulation that the
respondent agreed that the bank could approach
this court on an
unopposed basis in the event of the respondent defaulting.
[28]
Mr Zietsman pointed out that the respondent filed an answering
affidavit and that he was not prevented by the applicant from
doing
so. That might be so. What I have to look at, however, is the
tendency of the clause and not its actually proved result.
His
argument is in essence that the actual defending and filing of an
answering affidavit can cure an illegal agreement. I disagree.
The
offending agreement or clause remains illegal and cannot be
transformed by expedience or pragmatism.
[29]
In my view clause 2.2 of the memorandum is and was contrary to public
policy and is thus illegal. That being the case, it is
void and no
effect can be given to it. The applicant's attempt to revert to the
notice of motion of 2 August 2018 is predicated
on clause 2.2, namely
that it could do so in the event of the respondent defaulting. Clause
2.2 being illegal, and that part of
the agreement thus a nullity,
there is no other basis for the applicant to fall back on the 2
August 2018 notice of motion.
[30]
There is another reason why
this application should fail. Assuming that the agreement between the
parties is legal and valid, it
is clear that I should not exercise my
discretion in favour of the applicant.
[11]
I say this because the applicant was inept in granting the respondent
credit and it has a less onerous, but more effective, way
to recover
its money, or a substantial part thereof. An exposition of the facts
supports these conclusions.
[31]
Mr Pakiso Lloyd Tshabalala and Mr Samuel Matlabe Tshabalala are
brothers. During 2014 a company registered as 2014/144056/07
(South
Africa) (Pty) Ltd (2014 Company) bought Bloemfontein Celtic Football
Club. The 2014 Company traded as Bloemfontein Celtic
Football Club.
Mr Pakiso Tshabalala was the sole director of the 2014 Company when
it bought Bloemfontein Celtic Football Club.
On 14 December 2018, Mr
Samuel Tshabalala replaced Mr Pakiso Tshabalala as the sole director
of the 2014 Company.
[32]
On 28 September 2015, a company was registered with the name
Bloemfontein Celtic Football Club Pty Ltd and with registration
number 2015/344554/07 (2015 Company). Mr Samuel Tshabalala is the
sole director of the 2015 Company. The 2015 Company was registered,
inter alia,
to register the name and insignia of the club as
trademarks. It is common cause that the 2015 Company is the
respondent.
[33]
During 2016, the respondent approached the applicant for loans in
order to acquire the six properties that were going to be
used to
accommodate the players of the club. It applied for home loans equal
to 100% of the purchase prices of the respective properties.
During
February and March 2016, the loans were granted, as requested, and
mortgage bonds registered in favour of the applicant.
[34]
At the time of granting the home loans the respondent had no assets,
no bank account, no income tax registration number nor
any financial
statements.
[35]
The applicant stated that it knew that the Tshabalala brothers were
involved in three entities, namely the 2014 Company, the
2015 Company
and Lezmin 2815 trading as lkaheng Developers and Plant Hire. It
further stated that it granted the loans to the 2015
Company based on
an assessment made of the finances of the group. The finances of the
group consisted of the financial statements
of the 2014 Company,
indicating that it had assets of more than R46 million, the personal
income of Mr Samuel Tshabalala that was
indicated as approximately
R347,000,00 per month and the financial statements of Lezmin 2815.
[36]
The explanation that the money was loaned to the 2015 Company based
on the finances of the group is unsatisfactory to say the
least.
There is no group of companies in this matter. At best for the
applicant it can be said that Mr Samuel Tshabalala is involved
in the
three entities. I will therefore assume that it is in this context
that the applicant is referring to a group. However,
the money was
loaned to one particular entity. The applicant did not obtain any
financial statements from the respondent. No cross
guarantees or
sureties were requested from any other entity or person.
[37]
The applicant knew nothing
about the respondent when it granted the loans. This is a clear
violation of section 21A of the Financial
Intelligence Centre Act
(FICA)
[12]
,
which reads:
When an accountable institution
engages with a prospective client to establish a business
relationship as contemplated in section
21, the institution must, in
addition to the steps required under section 21 and in accordance
with its Risk Management and Compliance
Programme, obtain information
to reasonably enable the accountable institution to determine whether
future transactions that will
be performed in the course of the
business relationship concerned are consistent with the institution's
knowledge of that prospective
client, including information
describing-
(a) the nature of the business
relationship concerned;
(b) the intended purpose of the
business relationship concerned; and
(c) the source of the funds
which that prospective client expects to use in concluding
transactions in the course of the business
relationship concerned.
[38]
In terms of section 1 schedule 1 of FICA a bank is an accountable
institution. It is clear that the bank should have obtained
all the
necessary information about the respondent as a prospective client
and it failed to do so.
[39]
In terms of the memorandum, the respondent gave the bank a power of
attorney granting it the power to sell any or all of the
six
properties at its complete discretion at a purchase price and under
conditions that the bank deemed appropriate. The bank,
a secured
creditor by virtue of the mortgage bonds, is also the only creditor
of the respondent. The respondent did not do any
business and
therefore has no other creditors.
[40]
If the respondent is liquidated, other associated costs will have to
be incurred by it. Liquidators will have to be appointed,
at a fee.
The properties will have to be sold by way of a public auction.
Forced sales notoriously receive lower prices because
the prospective
buyer is aware that the properties are sold on liquidation.
[41]
Moreover, the respondent has no other assets and the applicant is its
only creditor. I can conceive of no benefit for the applicant
if the
properties are sold by liquidators rather than the applicant, who has
a power of attorney. The applicant also does not explain
why it wants
to follow the route of liquidation instead of using its power of
attorney to sell the properties.
[42]
As indicated above, I have the discretion to grant a winding up
order
[13]
.
I have decided, for the reasons stated above, not to exercise my
discretion in favour of the applicant.
[43]
I accordingly make the following order:
The
application is dismissed with costs, including the costs of two
counsel.
________________
C.J.
MUSI, JP
Appearances:
For
the Plaintiff: Adv P Zietsman SC
Instructed
by Honey Attorneys Bloemfontein
For
the Defendant: Adv H Epstein SC
with
Adv T Mabuda
Instructed
by Marius van Zyl Inc.
Bloemfontein
[1]
Act 34 of 2005. Section 129(1) and (2) provides:
(1)
If the consumer is in default under a credit agreement, the credit
provider-
(a) may draw the default to the
notice of the consumer in writing and propose that the consumer
refer the credit agreement to
a debt counsellor, alternative dispute
resolution agent, consumer court or ombud with jurisdiction, with
the intent that the
parties resolve any dispute under the agreement
or develop and agree on a plan to bring the payments under the
agreement up to
date; and
(b) subject to section 130 (2), may
not commence any legal proceedings to enforce the agreement before-
(i) first providing notice to the
consumer, as contemplated in paragraph (a), or in section 86 (10),
as the case may be; and
(ii) meeting any further requirements
set out in section 130.
(2)
Subsection (1) does not apply to a credit agreement that is subject
to a debt restructuring order, or to proceedings in a
court that
could result in such an order...
[2]
(1) A company or body corporate shall be deemed to be unable to pay
its debts if-
(a) a creditor, by cession or
otherwise, to whom the company is indebted in a sum not less than
one hundred rand then due-
(i) has served on the company, by
leaving the same at its registered office, a demand requiring the
company to pay the sum so
due; or
(ii) in the case of any body
corporate not incorporated under this Act, has served such demand by
leaving it at its main office
or delivering it to the secretary or
some director, manager or principal officer of such body corporate
or in such other manner
as the Court may direct,
and the company or body corporate has
for three weeks thereafter neglected to pay the sum, or to secure or
compound for it to
the reasonable satisfaction of the creditor; or
(b) any process issued on a judgment,
decree or order of any court in favour of a creditor of the company
is returned by the sheriff
or the messenger with an endorsement that
he has not found sufficient disposable property to satisfy the
judgment, decree or
order or that any disposable property found did
not upon sale satisfy such process; or
(c) it is proved to the satisfaction
of the Court that the company is unable to pay its debts.
[3]
1902 TS 294.
[4]
Ibid 302.
[5]
1989 (1) SA 1 (A).
[6]
Ibid 9B-C.
[7]
1964 (4) SA 661(A).
[8]
Ibid 669H - 670.
[9]
1997 (4) SA 569
(D & CLD).
[10]
Ibid 575 E-G.
[11]
Section 347(1) Companies Act, 1973 provides:
"The Court may grant or dismiss
any application under section 346, or adjourn the hearing thereof,
conditionally or unconditionally,
or make any interim order or any
other order it may deem just, but the Court shall not refuse to make
a winding-up order on the
ground only that the assets of the company
have been mortgaged to an amount equal to or in excess of those
assets or that the
company has no assets.''
[12]
Act 38 of 2001.
[13]
See Kalil v Oecotex (Pty) Ltd
1988 (1) SA 943
(A) 974 and LECA
Investments (Pty) Ltd v Shiers
1978 (4) SA 703
at 705.