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[2019] ZAWCHC 110
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Recycling and Economic Development Initiative of South Africa NPC v Moodliar and Others Kusaga Taka Consulting (Pty) Ltd v Gore and Others (2688/2019 & 5500/2019; 2687/2019 & 5499/2019) [2019] ZAWCHC 110; [2019] 4 All SA 812 (WCC); 2020 (1) SA 632 (WCC) (26 June 2019)
IN
THE HIGH COURT OF SOUTH AFRICA
[WESTERN CAPE DIVISION, CAPE TOWN]
[REPORTABLE]
Case
No’s: 2688/2019 & 5500/2019
In
the matter between –
RECYCLING
AND ECONOMIC DEVELOPMENT
Applicant
/ Respondent
INITIATIVE
OF SOUTH AFRICA NPC
And
SIVALUTCHMEE
MOODLIAR
First
Respondent / Applicant
TREVOR
PHILIP
GLAUM
Second
Respondent / Applicant
KEITUMETSE
TAUNYANE
Third
respondent / Applicant
BOWMAN
GILFILLAN
INC
Fourth
respondent
THE
MASTER OF THE HIGH
COURT,
Fifth
Respondent
WESTERN
CAPE DIVISION, CAPE TOWN
THE
MINISTER OF ENVIRONMENTAL
AFFAIRS
Sixth
Respondent
And
Case
No: 2687/2019 & 5499/2019
In
the matter between –
KUSAGA
TAKA CONSULTING (PTY)
LTD
Applicant
/ Respondent
And
STEPHEN
MALCOLM GORE
First
Respondent / Applicant
TREVOR
PHILIP
GLAUM
Second
Respondent / Applicant
FRANCIS
TJALE
Third
Respondent / Applicant
BOWMAN
GILFILLAN
INC
Fourth
Respondent
THE
MASTER OF THE HIGH COURT,
Fifth
Respondent
WESTERN
CAPE DIVISION, CAPE TOWN
THE
MINISTER OF ENVIRONMENTAL
AFFAIRS
Sixth
Respondent
Judgment
Delivered: 26 June 2019
Introduction:
[1] In these matters I have prepared
one judgment. The matters are interrelated raising the same factual
material and the same question
of law. The Applicants in the
two main applications, Recycling and Economic Development Initiative
of South Africa NPC (“Redisa”)
and Kusaga Taka Consulting
(Pty) Ltd (“KT”) are companies that were placed under
provisional final winding-up orders
in June 2017 and in final
liquidation in September 2017. The Fifth Respondent (“the
Master”) appointed the respective
First, Second and Third
Respondents as the provisional liquidators of Redissa and KT. For
ease of reference I will refer to Redissa
and Kusaga as the Companies
and the provisional liquidators as the Liquidators.
[2] The Liquidators, in the counter
application, seek to join the Sixth Respondent (“the Minister”)
as a party to the
proceedings (“the joinder application”).
The liquidators also applied for certain consequential amendments to
their
notices of motion in the joinder application. The companies
have also launched an application to strike out certain matter from
the Liquidators’ affidavits on the grounds that it is
irrelevant, scandalous, vexatious and that it raised new matter in
reply (“the strike out application”).
[3] The Fourth Respondent, a firm of
attorneys, holds certain funds in its trust account which is the
subject matter of the main
dispute between the Companies and the
Liquidators.
[4] The Fourth and Fifth Respondent
abides by the decision of the Court. The Minister and the Companies
opposed the Liquidators
relief sought in the joinder application.
Background facts:
[5]
The factual matrix underpinning all these matters are largely common
cause. Briefly stated they are the following: Redisa
was
responsible for the implementation of a waste tyre recycling scheme
under the Redisa Plan, which was promulgated in late 2012
by the
Minister in terms of the National Environment Management: Waste Act
59 of 2008. Redisa engaged KT to provide administrative
and
management services in respect of the scheme.
The
Redisa Plan operates indefinitely, subject to a review conducted
every five years. The first was in November 2017. The Redisa
Plan was
apparently approved by the Minister but on 1 June 2017, the Minister
on an urgent basis sought and obtained a provisional
order, first
against Redisa and then on the same basis a week later against KT.
[6]
The Minister’s broad contentions that it was ‘just and
equitable’ to wind-up the Companies were premised on
the
grounds that firstly, certain of Redisa’s directors had not
disclosed their relationship with or significant shareholding
in KT
and that this had enabled them to misappropriate public funds by
using KT as their vehicle to unlawfully channel funds collected
by
Redisa under the Plan for their personal benefit. The second ground
for winding up Redisa, which was that Redisa’s business
plan on
23 May 2017 had acknowledged that it would have to begin to ‘wind
down’ from 1 June 2017, if the Minister’s
Department had
to allocate insufficient funds to meet its operational requirements.
Upon learning of the provisional orders the
companies applied for the
provisional orders to be discharged. On 15 September 2017, judgment
was granted, finally winding-up both
Companies, on ‘just and
equitable’ grounds.
[7] Both Redisa and KT were solvent
companies when they were placed under orders of winding-up.
Redisa’s cash reserves
exceeded R170 million and KT’s
exceeded R9 million. The Master appointed the respective
Liquidators. Upon their
appointment, the Liquidators took control of
the assets of the companies including their funds and were obliged to
manage them
in accordance with their duties as liquidators.
[8] Redisa and KT appealed against the
windings-up and the appeals were set down for hearing in the Supreme
Court of Appeal (“SCA”)
on 1 and 2 November 2018.
[9] A week before the hearings in the
SCA, on 24 October 2018, the Redisa liquidators transferred
R20 million from the current
account which they operated in
Redisa’s name into the Fourth Respondent’s trust account
and the KT liquidators transferred
R2 million from the current
account operated in KT’s name, also into the Fourth
Respondent’s trust account.
[10] On 24 January 2019, the SCA
handed down its judgment. Both appeals were successful.
The majority judgment of the
SCA ruled that the orders of provisional
liquidation in respect of both companies had been improperly
obtained. It set aside
the final winding-up orders granted on
15 September 2017 and replaced them with orders discharging the
provisional winding-up orders.
[11] On 29 January 2019, a meeting was
held, between directors of the Companies the Liquidators, and the
parties’ legal representatives
generally regarding the return
of control of the Companies to its respective directors. At the
meeting, the liquidators advised
that they had taken the decision to
retain an amount of R20 million as cover for their fees in
respect of Redisa and R2 million
in respect of KT and that such
sums have transferred into the trust account of Fourth Respondent.
[12] The transfer of the
abovementioned funds to the Fourth Respondent has, after the SCA
judgement, sparked a litany of correspondence
between the Companies’
and the Liquidators’ legal representatives. It needs to be
mentioned that shortly before the
launch of these proceedings, the
Liquidators instructed the Fourth Respondent to pay portions of the
funds to the Companies, which
they did. The current position is
that approximately R16.8 million of the Companies funds are being
held in Fourth Respondent’s
trust account.
[13] The Companies are adamant the
transfer of the funds by the Liquidators to the Fourth Respondent,
contravened s 394(1) of the
Companies Act, 61 of 1973 and it should
be returned. On the other hand, the Liquidators holds the firm view
the Companies and or
the Minister are liable to pay their reasonable
remuneration as taxed or agreed and that the Fourth Respondent should
retain the
funds pending taxation and or agreement, to pay the
disputed funds to whomsoever would be entitled to it.
Counsel:
[14] Advocates J Dickerson, SC
assisted by Ms K Reynolds appeared for the Companies in the main
application. Advocate L Kelly appeared
for the Companies in the
joinder application. Advocates B Manca, SC assisted by Ms C Morgan
appeared for the Liquidators.
For the Minister was the State
Attorney and Counsel.
Argument:
[15] The principal contentions
advanced by Mr. Dickerson were, that; - the disputed funds are assets
of the companies; the liquidators
were upon the discharge of the
companies from liquidation, required to immediately return all of the
companies’ assets to
the companies; the Liquidators’ fees
are only payable when the Master has determined the quantum of the
fees by taxation;
the Master has in this instance not done so in
respect of the fees claimed by the respective Liquidators, and
accordingly no fees
are due and payable.
[16] It was further contended that the
Liquidators do not hold a lien or other form of security over
Companies assets as security
for their fees, pending the Master’s
determination or for that matter any other basis. Moreover, it was
argued that no agreement
exists between the Fourth Respondent,
Liquidators and the Companies that permits and or obliges the Fourth
Respondent to hold the
funds in the capacity of a stakeholder. It was
also contended the Liquidators further failed to plead the
requirements of a stake-holding
arrangement and in the present
instance, on the facts, no such arrangement was intended by the
Liquidators or the Fourth Respondent
when the funds were transferred.
Lastly, it was argued that the transfers of the funds to the Fourth
Respondent is in contravention
of s 394(1) of the Companies Act.
[17]
The main contentions advanced by Mr. Mance were, that: -the
Liquidators have accounted to the Companies in intromissions
accounts;
these accounts have in the interim been lodged with the
Master to be taxed; the Liquidators believe these amounts are payable
to
them and the funds are currently held in the Fourth Respondent’s
trust account. The balance of the Companies’ funds
has been
remitted to them; the Fourth Respondent holds the funds as a
stakeholder; and must pay to whomsoever may be entitled thereto
on
taxation or agreement; the liquidators reasonably apprehended that
the Companies would dispute their remuneration; as a matter
of law,
they were entitled to retain the disputed funds (for the latter
proposition reliance was placed on
Van Eck v Meyer,
[1]
and the cases cited therein,
In
re Insolvent Estate Paruk
[2]
and
Rose
v Kemp
[3]
to which I will return); the liquidators do not seek to gain a
preference but simply exercised the rights to which they are entitled
and chose to place the funds in the hands of a third party in order
to display their
bona
fides
.
The Liquidators’ remuneration
and entitlement to withhold funds:
[18] In order to deal and resolve the
abovementioned issue(s), it is perhaps necessary to briefly highlight
the status of the Liquidators
and their obligations flowing
therefrom. In terms of the definition in s 1 of the Companies Act,
“liquidator” includes
“provisional liquidators”.
Ordinarily, it is the duty of a liquidator to recover and reduce into
possession the assets
of the company, then to realise them and apply
the proceeds in satisfaction of the costs of winding - up and the
claims of creditors
and, if there is a residue to distribute it among
the persons entitled thereto. This is the effect of s 391 of the
Companies Act.
The duty to recover and reduce into possession the
assets applies equally to the provisional liquidator. In many
instances, for
a variety of reasons, it may be necessary for the
liquidator or provisional liquidator to continue the business
operations of the
company and to keep it intact as a going concern.
[19]
It is however, trite that liquidators stand in a fiduciary
relationship to the company and to the body of creditors as a whole
and the body of members as a whole
[4]
.
[20]
There is also an obligation upon Liquidators, as fiduciaries, to act
at all times openly and in good faith. They must
exercise their
powers for the benefit of the companies and the creditors as a whole,
and not for their own benefit or a third party’s
benefit or for
any other collateral purpose. They may also not act in matters
in which they have a personal interest which
conflicts, or which
might possibly conflict, with their duties as liquidators of the
company.
[5]
[21]
When a company is under an order of winding-up, as in this instance,
a provisional liquidator conducts and controls the affairs
of the
company as if he/she is an officer of the company.
[6]
T
he lawful exercise of
most powers by liquidators depend on their having such powers as
envisaged by s 386 of the Companies
Act of 1973, liquidators’
powers are limited in a way that a board of directors’ powers
are not.
In
respect of certain of their functions, liquidators do not stand in
the place of the company; they have duties – for example
to
creditors or to the Master – which the board of directors would
not have had before the company was wound-up.
[7]
[22]
Upon discharge of a company from liquidation, there is ordinarily a
‘
complete
reversal
’
of the position under liquidation, where the liquidators effectively
stood in for the board. On discharge, from liquidation,
the
court held in AMS Marketing
[8]
that: -
‘
The
liquidator is immediately divested of his powers and the directors
are restored to their former position. Nothing in the
Act gives
the liquidator power to extend his activities beyond the moment when
the discharge takes place … There are no
grounds upon which he
may retain any of the assets of the company and any books, records
and documents which came into existence
must remain with the company
when he vacates his office.
’
[23]
In
Howzat
Motors
[9]
,
it was further held that: -
‘
[A] company continues to
exist until it is wound up and struck off the register of companies.
If, during the period that it is under
provisional liquidation, it
continues to trade, then all its activities during that time are the
acts and deeds of the company.
A provisional liquidator who controls
and conducts those activities is for all practical purposes an
officer of the company while
he is so controlling and conducting. Any
books or entries therein, any documents or vouchers relating to the
affairs of the company,
be they the old books or a new set of books
which come into existence or are written up in the period during
which the provisional
liquidator conducts and controls the affairs of
the company, are in law the property of the company; they are
held or possessed
by the liquidator as it were as an officer of the
company as and for the company. The liquidator, therefore, has
no right
to retain any of those books or documents or vouchers when
the provisional order is discharged. The assets, including all
the books and documents, must be returned to the persons who control
the affairs of the company – usually the directors.’
[24] From the abovementioned, the
principles that; - (i) liquidators must immediately on the discharge
of a company from liquidation
deliver to the company or its directors
all its assets,- (ii) liquidators’ appointment end
simultaneously with the
discharge and they retain no powers in
respect of the company or its assets and;- (iii) liquidators have no
lien or other form
of security over company assets as security for
their fees, have firmly been established in our law.
[25] Turning to the question of the
liquidators’ fees. In terms of the provisions of s 384(1)
of the Companies Act of
1973, ‘no liquidator shall be entitled
either by himself or his partner to receive out of the assets of the
company any remuneration
for his services except the remuneration to
which he is entitled to under this Act.’ In terms of s 384(2)
of the Companies
Act of 1973, the Master may reduce or increase such
remuneration if in his or her opinion there is good cause for doing
so, and
may disallow such remuneration, either entirely or in part,
on account of any failure or delay by the liquidator in the discharge
of his or her duties.
[26]
In terms of Winding-up Regulation 24
[10]
read with Form CM104 thereto, where an appointment is provisional and
the application is withdrawn or dismissed (or a final order
is made
but the provisional liquidator does not continue as a final
liquidator), the liquidator is entitled to “
a
fee to be taxed by the Master with due regard to the special
circumstances of the case
”.
[27]
The amount of fees that may be paid to a provisional trustee (or
liquidator) is stipulated in Tariff B in the Second Schedule
to the
Insolvency Act, which provides that a provisional trustee (or
liquidator) is entitled to “
reasonable remuneration
”
to be determined by the Master and not exceeding the rate of
remuneration of a (final) trustee (or liquidator) under the
tariff.
In other words, a provisional liquidator is entitled to his or her
reasonable remuneration, taxed by the Master.
[28]
It is evident on a reading of the regulations that on the discharge
of a company from liquidation, the liquidators (be they
provisional
or final) are obliged to account to the controllers of the company
(usually the directors) for their stewardship of
the company's
affairs and to include in such, an account for their reasonable
remuneration, which fee is to be taxed by the Master
with due regard
to the special circumstances of the case.
[29]
In casu, the Liquidators did set out and advise the Companies of the
basis of their reasonable numeration. The Liquidators
hold the view
they could not have the Master taxed their fees prior to the
companies’ discharge from liquidation
.
Moreover,
the fact that the remuneration has not been taxed or agreed does not
detract from their entitlement to retain sufficient
funds to cover
that which they consider to be their reasonable remuneration. It was
contended that a liquidator’s remuneration
and costs is
different to the position pertaining to the other assets of a company
formerly in liquidation. As authority for such
proposition reliance
was placed on
Van
Eck v Meyer
,
In
re Insolvent Estate Paruk
and
Rose
v Kemp
[11]
.
[30]
In my view, the Liquidators’ contention on the latter point is
not supported under the Companies Act of 1973, the winding-up
regulations, the relevant case-law and by the legal commentators on
insolvency.
[31]
On a reading of the s 384 (3) of the Companies Act of 1973, it is
evident that in a case of a provisional liquidator, as in
this
instance, his remuneration is to be taxed by the Master in accordance
with the prescribed tariff and with due regard to the
special
circumstances of the winding- up. In addition, in terms of
subsection (2) the Master may reduce or increase such
remuneration if
in his or her opinion there is good cause for doing so, and may
disallow such remuneration, either wholly or in
part, on account of
any failure or delay by the liquidator in the discharge of his or her
duties.
[32]
Furthermore, Annexure CM104.I provides that, where the appointment is
provisional and the application is withdrawn or dismissed
(or a final
order is made but the provisional liquidator does not continue as a
final liquidator), the liquidator is entitled to
‘
a
fee to be taxed by the Master with due regard to the special
circumstances of the case
’.
Annexure CM101.5 also stipulates that a liquidation and
distribution account may ‘
provisionally
’ reflect
the amount claimed in respect of liquidators’ remuneration, but
‘
no such remuneration or part thereof shall, except by
permission of the Master … or the Court, be drawn until the
account
in which it appears has been confirmed
’.
[33]
In the present instance the Liquidators remuneration has not been
confirmed and as stated earlier, the Master may still increase
or
decrease the liquidators’ remuneration if in his or her opinion
there is good cause for doing so.
[34]
In
Van
Eck v Meyer
[12]
,
an order of provisional sequestration had been set aside and the
former provisional trustee (the plaintiff) handed all assets
back to
the defendant. The plaintiff then sued the defendant for his
reasonable remuneration as erstwhile provisional trustee.
The
court held (in exception proceedings relating to the particulars of
claim) that the plaintiff had a claim for reasonable remuneration
and
that he had not lost that claim by returning the defendant’s
assets to him (at 612C). The court at 612 A held that
“..Indien
sekere bates reeds te gelde gemaak was voor opheffing van die
voorlopige bevel of die voorlopige kurator sekere
gelde ten behoewe
van die insolvent boedel ingesamel het sal hy na my mening geregtig
wees om in sy rekening die uitgawes wat hy
gehad het en sy vergoeding
in verband met die gedeeltelike bereddering as a debiet te toon en
die bedrag aan hom verskuldig in
verrekening te bring-‘. The
Court went on and said at 612 C-D that ‘
Inderdaad
het hy by opheffing van die bevel na my mening geen ander uitweg
gehad as om die bates waarvan die eiendomsreg by opheffing
van die
bevel weer in die gewese insolvent gevestig het terug te gee nie
’.
[35]
On a proper reading of
Van Eck
, I can find no authority for
the proposition that the liquidators are entitled to retain
sufficient funds to cover their remuneration.
What was indeed said
was that the liquidators are obliged to account to the controllers of
the company (usually the directors)
for their stewardship of the
company and are entitled to include into such an account their
remuneration. Moreover, upon
discharge of the winding-up order all
the assets, including books and documents must be returned to the
persons who control the
affairs of the company- usually the
directors.
[36]
In
Re Insolvent Estate
Paruk
[13]
,
a provisional trustee was appointed in an estate which was
provisionally sequestrated. The petitioner with leave of the court
then withdrew the summons. During the provisional sequestration
period the trustee collected certain rent monies. There were no
other
assets other than the rent monies available for the administration of
the estate. The trustee deducted the administration
expenses from the
rent monies and allocated the balance to the insolvent.
The
firm of E M Paruk to whom the former insolvent had ceded all monies
in his estate, objected thereto. The Court held that:
“
There
were no assets in this Estate other than the rents in the Trustee’s
hands available for the costs of the administration
of the estate and
we think therefore that such expenses must be charged against the
rents which were the only moneys in the trustee’s
hands. …
There will be an order that the balance in the Trustee’s hands
arising from the rents in question is to be
allocated to E M Paruk as
part of his security
.”
[37]
In
Commentary
on the Companies Act
[14]
,
the following passage appears with a reference in a footnote to
Paruk
:
‘
Where
after the appointment of a provisional liquidator the liquidation
proceedings are withdrawn, the provisional liquidator is
entitled to
deduct his expenses and remuneration.
’
[38]
In my view
Paruk,
is not authority for the proposition that, where the law requires
that trustees’ or liquidators’ fees be taxed before
they
become payable, the trustees or liquidators may withhold and retain a
self-determined fee from company assets.
Paruk
’s
is however clear authority for the proposition that, where a
sequestration application is withdrawn, the erstwhile provisional
trustee may in his or her account reflect a claim for his or her
remuneration as trustee against the former insolvent, and may
do so
up to an amount equivalent to the total value of the former
insolvent’s assets.
Under
the
common law, a trustee was and is not permitted to draw his or her
remuneration until the account in the estate showing the amount
claimed has been confirmed
[15]
.
[39]
In
Rose v Kemp
[16]
an
insolvent, under a provisional order of sequestration, agreed with
the plaintiff (a preferent creditor), his concurrent creditors
and
with the defendant, his provisional trustee, that for certain
considerations the provisional order should be discharged. The
insolvent would thereon transfer to plaintiff his business and assets
to which the plaintiff would be entitled to. The plaintiff
would pay
the costs of the sequestration, of the discharge thereof and the
remuneration of the trustee. The Defendant signed the
agreement
“merely as consenting thereto in his capacity as provisional
trustee”, and all the parties bound themselves
for the due
performance of the agreement. The provisional order was discharged,
and the unrealized assets (the whole of which were
movables) were
handed over to plaintiff by defendant, with the exception of a sum of
£227 which defendant, in his administration
account, claimed to
retain as remuneration, being five per cent of the total value of the
assets. The Master had not taxed the
account on the ground that, by
the supersession of the provisional order he was
functus
officio
.
[40]
The Plaintiff claimed the defendant was not entitled the more then £
27, being 5% of the assets actually realised by
the defendant and
sued for the balance. The court held at page 20 that;-
“
If the order for provisional
sequestration is superseded in the ordinary way without further
agreement it becomes his duty ipso
jure to account to the insolvent,
and the property of the insolvent which was vested in him during the
insolvency becomes ipso
jure vested in the late insolvent. The sum of
£ 200 for which the present claim is, does not become vested in
the insolvent,
but there arises a right in the insolvent to claim an
account and the amount due. This would be the effect of the
supersession
of an order of insolvency in the ordinary course without
any agreement between the parties. But in this case there is an
agreement….
One of the terms of the agreement is the plaintiff
shall be entitled that position of the business as it immediately
after the
discharge of the provisional order. He was therefore
entitled upon the discharge to take possession of all the assets
including,
a right to claim an account from the trustee of his
dealing and the balance shown.”
At
page 21, the court further held that :- “
The law allows the
provisional trustee reasonable remuneration to be fixed by the
Master, whose decision is subject to appeal to
the court.’
[42]
The Liquidators’ reliance on the dictum of
Rose
v Kemp
that
the
disputed amount of the trustee’s remuneration (i.e. the sum of
£200) did not become vested in the former insolvent
on
discharge, but that “
there
arises a right in the insolvent to claim an account and the amount
due
,
to support the contention that
their
remuneration and costs is different to the position pertaining to the
other assets of the companies formerly in liquidation
and that they
are entitled to retain the disputed funds, is unsound, not supported
by the Companies Act of 1973 and the Winding
-Up Regulations and
later case-law
[17]
.
[43]
It is clear that under the Companies Act of 1973 and the Winding-up
Regulations, liquidators may not simply retain funds for
themselves,
out of the assets of the company, what they propose as their fees.
In terms of the laws which apply to these
proceedings, liquidators’
proposed fees must first be taxed by the Master and the quantum
accordingly determined. As mentioned
previously, Annexure
CM101.5 further provides that a liquidation and distribution account
may ‘
provisionally
’ reflect the amount claimed in
respect of liquidators’ remuneration, but ‘
no such
remuneration or part thereof shall, except by permission of the
Master … or the Court, be drawn until the account
in which it
appears has been confirmed
’.
This as much
has also been decided in
Rose v Kemp
,
even-though the Master had not taxed the account on the ground that,
by the supersession of the provisional order, he was
functus
officio
and the Court had to deal with
the issue.
The
Liquidators’ reasonable apprehension they would not be paid:
[44]
The liquidators have advanced a number of reasons why they reasonably
apprehended that the companies have no intention of paying
their
remuneration and accordingly decided it was necessary for the Fourth
Respondent to retain the disputed funds in its trust
account. Chief
among the concerns raised by the Liquidators are the alleged
irregular and corrupt transactions they have uncovered
in the conduct
of the Companies’ businesses before the discharge from
liquidation, events after the discharge and the open
hostility by the
Company towards the Liquidators.
[45]
To this end, the Liquidators relied on an e-mail by one of the
Directors of Redisa that wrote on behalf of the Companies that
they
(the Liquidators) would not be entitled to charge a fee where the
companies were discharged from liquidation.
Regarding
the irregular transactions, the Liquidators aver that there is no
basis for a company with KT’s business to be sponsoring
the
Ruling Party (the ANC), by paying for old travel debts of the ANC’s
members dating back to 2011 and sponsoring T-shirts
in an election
year. Reference was also made to the fact that the current
spokesperson for the ANC was a full-time employee of
KT until he was
elected to Parliament in May 2014. According to the Liquidators there
were certain SMS messages exchanged between
the spokesperson and the
CEO of Redisa, between 20 July 2014 and 6 August 2014, a few months
after the ANC’s fundraising
efforts for its gala dinner in
January 2014. The Liquidators further aver that KT overcharged
Redisa, a non -profit company, for
the services it rendered Redisa –
and thus that Redisa overpaid for the services. The Liquidators also
alleged that Redisa
has unfairly expressed some unhappiness with the
performance of the Liquidators.
[46] According to the Liquidators the
ineluctable inference to be drawn from these facts is that the
transactions were
prima facie
irregular and is evidence of
corrupt activities. The Liquidators further alleged that these
transactions were of great concern
to them as they demonstrate the
manner in which the businesses of the companies were operated and may
well operate in future.
[47] All of these allegations,
according to the Liquidators, contributed to the reasonable
apprehension that the Companies had no
intention of paying their
reasonable remuneration. Furthermore, the uncovering of the alleged
irregular transactions contributed
to the hostile relationship
between the directors of the Companies and themselves which
exacerbated their apprehension that they
would not be paid.
[48] The Companies’ took serious
exception to the allegations of corruption levelled against them and
applied that the allegations
be struck-out as it is scandalous,
vexatious and irrelevant to the issues of dispute in the main and
counter-applications. According
to the Companies, the Liquidators do
not rely on the alleged conduct prior to the Liquidation to justify
their retention of the
disputed funds in the main applications and
counter-applications.
[49] On the papers filed of record, I
agree with the Companies’ contention that the Liquidators
cannot in the circumstances
of this case rely on the alleged
misconduct, prior to liquidation of the Companies, which is disputed
on paper, to justify their
withholding of the disputed funds from the
Companies. The fact that a party may in law be entitled to reasonable
remuneration as
taxed by the Master, does not infer a right to such a
party to also debit their fees from the Companies’ funds and to
hold
those funds as security.
The Stakeholder:
[50] The Liquidators are of the firm
view that the Fourth Respondent holds the disputed funds as a
stakeholder. The Companies dispute
this claim and are of the view
that there is no lawful basis for the Fourth Respondent’s
position. According to the Companies,
the stakeholder contention is
not supported and or borne out by the facts on the papers.
Furthermore, the earlier explanations
that were given by the
Liquidators and the Fourth Respondent regarding the transfer of the
disputed funds are inconsistent with
a stakeholder’s agreement.
[51]
In
Baker
v Probert
[18]
the Appellate Division (as it then was) examined the contract between
the parties and scrutinised the law as to whether an estate
agency
who sold a property and had accepted the purchase price from the
buyer on behalf of the seller in terms of a contract of
sale had done
so in terms of a contract which was a "
species
of
depositum sequestrarium" i.e. whether the estate agency "
was
in the position of a
sequester
or
stakeholder
".
[19]
[52] The Appellate Division at 441 B-E
held the following:
“
the
concept of the stakeholder is best known in our law in the context of
the person all holds a res litigiosa – where property
is the
subject matter of litigation- between two rival claimants,…[I]t
is known also in the context of a person who holds
money which is the
subject of a wager, to paid over to the party would turns out to be
the winner of the bet…[I]n both instances
it is of the essence
of the stakeholding that at its inception it is uncertain which of
the two parties involved will ultimately
become entitled to receive
what the stakeholder is holding. The identity of the creditor will
only be established on the happening
of an uncertain future event-
the outcome of the litigation or of the wager. That being so, it can
be said in these instances,
that the stakeholder holds the money or
the thing on behalf of that one of the two parties involved who will
eventually become
entitled to it, but it cannot be said that
the stake holder, when he receives the money or the thing, or while
he is holding
it pending the happening of the future event, is acting
as the agent of specifically the one or the other of the two
parties.’
[53]
The Liquidators rely heavily on the dictum in
Aero-duct
Installations CC v Degaturn (Pty) Ltd t/a as Profour Projects &
Another
[20]
, that a tripartite agreement exists between the Fourth Respondent,
as stakeholder, the respective companies entered into by its
then
representatives, the Liquidators, in October 2018 before transfer of
the funds to the trust account and the Liquidators in
their personal
capacities, as the party entitled to their reasonable remuneration in
each company.
[54]
In
Aero-duct
,
the appellant concluded a contract with the first respondent to
supply and install air conditioning equipment at premises where
the
first respondent was the main contractor. A completion certificate
was issued in respect of the work but most of what the first
respondent owed to the appellant went unpaid, despite demand.
[21]
The appellant applied for the first respondent’s liquidation.
Thereupon, the first respondent arranged that the amount demanded
by
the appellant be placed in the trust account of the second
respondent, its attorney (“the attorney”), to stave off
the liquidation application and pending resolution of the dispute
which had arisen between the appellant and the first respondent
as to
the terms upon which the work had been done and the quality thereof.
[55]
The attorney wrote the appellant a letter setting out the basis on
which he (the attorney) held the funds pending the resolution
of the
dispute between the parties. The letter recorded inter alia that: - ‘
My client has attended to place the relevant funds into my trust
account, not as an admission of the averments set out in your clients
application, but solely as a means of addressing the dispute between
our respective clients in accordance with the terms and conditions
of
the Sub-contract.
’
[56]
It was this letter which the Court examined as “
the
touchstone (i.e as the contract between them) by which the rights and
obligations of the parties involved is to be measured
”. The
Court found that it was apparent from the letter that the attorney
had received an irrevocable mandate i.e. that the
attorney would not
pay out the funds if, for example, his client (the first respondent)
tried to cancel the arrangement entered
into between the three
parties the attorney, the first respondent and the appellant, who had
accepted the terms of the letter.
[57]
The Court made these findings in the context of a further liquidation
application that was brought against the first respondent
by another
creditor – at that point, the first respondent went into
liquidation and it was the liquidator who demanded and
sued for the
return of the funds in the attorney’s trust account. The
liquidator considered that the funds in the trust account
would be a
realisation in the liquidation made for the benefit of all the first
respondent’s creditors and not just the appellant.
The Court
found that this would have been the case had the attorney held the
funds on an ordinary mandate between an attorney and
its client (i.e.
in terms of a mandate of agency which would have terminated on the
client’s (the first respondent’s)
liquidation. On the
facts, however, the Court found that the attorney held the funds as a
stakeholder for the specific purpose
of satisfying the terms of the
subsequent resolution of the dispute whereupon the first respondent
would be entitled to the residue.
The Court held that; -
“
The first
respondent agreed and undertook not only to pay the sum of money over
to its attorney for the specific purpose of satisfying
the terms of
any subsequent agreement, arbitration or judgement, but to divest
itself of the ordinary right which a client has
vis a vis his
attorney, to revoke or alter the mandate. The result, in my view, was
that, when the money was paid into the trust
account, the first
respondent divested itself of any right to recall the money other
than a right to receive payment of the residue
on fulfilment of the
resolutive condition under which it was held by [the attorney]. In my
view it is clear that [the attorney]
was constituted as a stakeholder
in regard to the money paid to him by the first respondent.
”
[22]
[58] The contention by the Liquidators
in the present instance that the Fourth Respondent’s letter of
5 March 2019, that it
is a stakeholder holding the funds pending
agreement and or taxation is an irrevocable mandate in the context of
the facts, is
misguided.
[59] The context underpinning the
attorney’s letter in
Aero-duct
differs significantly
from the present instance and is distinguishable. The letter by the
Fourth Respondent on 5 March 2019 was
in fact preceded by certain
correspondence between the attorneys of the Companies, the
Liquidators and the Fourth Respondent.
[60] In casu, of significance was the
following: The Liquidators first informed the Companies about the
transfer of the disputed
funds at the meeting of 29 January 2019.
They advised that they had decided to ‘
ringfence
’
R20 million and R2 million as cover for their fees.
The Liquidators and or the Fourth Respondent did not
mention that the
funds had been transferred to and were being held by Fourth
Respondent as a stakeholder. They also did not
suggest that
there were competing claims to the disputed funds.
[61] On 8 February 2019, the Fourth
Respondent wrote to the attorneys of the Companies advising that it
was holding the funds in
trust on the basis that ‘
our
clients are in law … entitled to payment of their remuneration
by the companies and are entitled to debit their fees
when accounting
to the companies …
’. The Fourth Respondent did
not contend that it held the funds in view of competing claims to the
disputed funds. The
Fourth Respondent however stated that it held the
funds because its clients were entitled to deduct their fees when
accounting
to the companies.
[62] Fourth Respondent on 14 February
2019, sent the Companies’ attorneys another letter which is
incompatible with the existence
of a stakeholder arrangement in
several respects: The letter firstly advised that Fourth Respondent’s
clients ‘
are entitled to debit their remuneration against
the already realized assets … They have, instead, retained
their remuneration
in an interest-bearing account pending any
resolution of any queries that your clients may have in regard
thereto.’
The letter continued and recorded
that: ‘
We have been instructed to arrange for the transfer
of all amounts held in Trust, over and above the amount reflected in
the account
as our clients’ remuneration…’
On
the common cause facts an amount of R22 million was transferred
on 24 August 2018 into the trust account of Fourth Respondent
and
shortly before the launch of these proceedings, the Liquidators
instructed the Fourth Respondent to pay portions of the funds
to the
Companies, which they did. Currently an approximate amount of
R16.8 million of the disputed funds are being held in
Fourth
Respondent’s trust account. The fact that the liquidators gave
an unilateral instruction, which the Fourth Respondent
carried out,
is at odds with the dictum in
Aero-duct
where it was
held that ‘
when the money was paid into the trust account,
the first respondent divested itself of any right to recall the money
other than
a right to receive payment of the residue on fulfilment of
the resolutive condition under which it was held by [the attorney].
If the Fourth Respondent indeed held the funds as a stakeholder,
amounts could only have been transferred from the disputed funds
with
the agreement of both competing claimants, which in this instance did
not happen.
[63] Furthermore, on 1 March 2019, the
Fourth Respondent replied to Redisa’s attorneys’
requests, regarding the identity
of the account-holder where the
disputed funds were being held, as follows: ‘
To respond to
your question as to the identity of the account-holder of the funds
held in trust by Bowmans, we confirm that the
funds are invested in
the name of REDISA NPC.’
The fact that the funds are
held in the companies’ names is in itself incompatible with the
Fourth Respondent having
received the funds in the capacity of a
neutral stakeholder in view of two competing claims to the funds.
[64] In my view having regard to the
requirements as set out in
Baker v Probert
, and in
Aero-duct
, and in considering the background facts and context
of the letter of 5 March 2019, the Fourth Respondent in my view was
not constituted
as a stakeholder in regard to the disputed funds.
Transfer of funds in contravention
of s 394(1) of the Companies Act of 1973:
[65]
The complaint by the Companies is that an attorneys’ trust
account is not a form of banking account or investment contemplated
in ss 394(1)(b) or (c), and the Liquidators’ transfer of
funds from the current accounts which they operated in the
companies’
names (which constitute accounts contemplated in s 394(1)(a)) to
Fourth Respondent’s trust account
contravened the provisions of
s 394(1). In my view this complaint can be dealt with
swiftly, as it is without merit.
[66]
The relevant provision is section 394(1) of the 1973 Companies Act.
Section 394(1) provides that liquidators: - must open a
current
account in the name of the company in liquidation to hold the
company’s funds (section 394(1)(a));may open a savings
account
and/or an interest-bearing account in the name of the company, and
may transfer funds from the current account to the savings
and/or
interest-bearing account, provided that such funds are not
immediately required for the payment of claims against the company
(section 394(1)(b) and (c)); may not withdraw funds from the savings
and/or interest-bearing account except by way of a transfer
to the
current account (section 394(1)(d)).
[67]
The primary object of s 394(1)-(6) is to regulate the manner in which
the company in liquidation’ funds are held and
expended in a
manner that facilitates the keeping of a vouched record that can be
easily checked by the Master and any other interested
person.
By placing the disputed funds in the Fourth Respondent’s trust
account (where the funds are invested in an
interest-bearing savings
account in terms of section 78(2A) of the Attorneys Act 53 of 1979)
the liquidators have complied with
the provisions of section
394(1)(b) and did not thwart the objects of s 394.
Counter- and Joinder
Application(s):
[68]
In the counter – and related applications as amended, the
following declaratory relief are sought, namely: -(1) the Companies
be liable to pay the Liquidators their reasonable remuneration
(inclusive of their disbursements), as taxed or agreed; (2) The
Fourth Respondent be directed to retain the disputed funds in its
trust account pending taxation or agreement on the Liquidators’
remuneration; (3) on taxation or agreement, to pay the disputed funds
to whomsoever of the Companies and or the Liquidators are
entitled
thereto; (4) the status quo be preserved pending the determination of
the application and counter application; (5) in
the alternative the
Minister be liable to pay the Liquidators their reasonable
remuneration (inclusive of their disbursements),
as taxed or agreed
and (6) in the alternative, upon the Minister be declared to pay the
Liquidators their reasonable remuneration
(inclusive of their
disbursements), as taxed or agreed, the Fourth Respondent be directed
to pay the disputed funds to Redisa.
[69] For the reasons stated in the
main- application the only remaining issues to consider in the
counter applications as amended,
are whether the Minister should be
joined to these proceedings and prayers 1 and 5.
[70] In respect of the Joinder
applications, they were launched on the basis that the founding
affidavits in the main applications
do not contain an unequivocal
acknowledgement by the Companies that they are liable to pay their
respective liquidators’
remuneration; nor do they contain an
unequivocal undertaking that they will do so.
[71] The replying affidavits in the
main applications record that the Companies will “
pay the
liquidators what is lawfully owed
.” The answering affidavit
in the counter-applications recorded that the companies had “
not
yet formed a view”
on their liability for the Liquidators’
fees. This conceivable doubt as regards to who is actually
responsible for payment
of the Liquidators’ remuneration
compelled the Liquidators to launch the joinder application.
[72] The doubt as to who is ultimately
responsible for the Liquidators’ fees was finally put to rest
in the Companies’
answering affidavit in the joinder
applications where the following was pleaded:
“
I confirm
that Redisa and KT accept that they are liable (not the Minister) for
the liquidators’ reasonable fees and disbursements
as taxed by
the Master.”
[73] In their replying affidavit the
Liquidators have seemingly accepted that there is no dispute about
who is liable for their
fees, but have adopted the position that the
joinder applications would not be necessary should the companies
consent to the relief
sought in prayer 1 of the counter-applications.
According to the Liquidators it would be desirable that the legal
controversy as
to the liability of the Liquidators remuneration be
decided in a single hearing.
[74]
It is now well-established in our law that declaratory relief is a
discretionary remedy.
[23]
It is also well-established that Courts will not grant declaratory
relief in cases where abstract, hypothetical or academic
issues are
raised, or where there is no dispute between the parties. In
JT
Publishing
[24]
the
Constitutional Court held as follows:
[25]
‘
I
interpose that enquiry because a declaratory order is a discretionary
remedy, in the sense that the claim lodged by an interested
party for
such an order does not in itself oblige the Court handling the matter
to respond to the question which it poses, even
when that looks like
being capable of a ready answer. A corollary is the judicial
policy governing the discretion thus vested
in the Courts, a
well-established and uniformly observed policy which directs them not
to exercise it in favour of deciding points
that are merely abstract,
academic or hypothetical ones. I see no reason why this new Court of
ours should not adhere in turn to
a rule that sounds so sensible.
Its provenance lies in the intrinsic character and object of the
remedy, after all, rather
than some jurisdictional concept peculiar
to the work of the Supreme Court or otherwise foreign to that
performed here.’
[75] On the papers, there can
currently be no dispute as to who in law is liable for the
Liquidators fees. The Companies’
in their answering has
accepted that they and not the Minister are liable for the
liquidators’ reasonable fees and disbursements
as taxed by the
Master. For these reasons the Joinder Application falls to be
dismissed.
[76] In view of the abovementioned,
the fact that there is no dispute in law who is liable for the
Liquidators’ fees and disbursements,
prayers 1 and 5 in the
counter applications have become moot, unnecessary to consider and
falls to be dismissed.
Striking-out
applications:
[77] The Liquidators sought to strike
out firstly, matter which they perceive to have been scandalous,
vexatious and irrelevant
and secondly, matter which was raised for
the first time in reply. As a result of the view I have taken, it
would be unnecessary
to deal with the new matter that was raised in
reply by the Liquidators.
[78] The main offending matters
complained about are the allegations of corruption by Redisa and that
KT overcharged Redisa, a non-profit
company, for services it rendered
Redisa. The allegations of corruption by the Liquidators involve also
the ANC and its spokesperson
who are not a party to these
proceedings. These allegations are serious in nature but were
irrelevant in determining the
core disputes between the parties.
[79] There can be no doubt that if
these allegations are permitted to stand in the affidavits, which are
public record it could
be damaging to the Companies and their
representatives and to those mentioned that were not party to these
proceedings to defend
themselves. It is therefore only proper that
the offending matter complained of be struck out.
Conclusion:
[80] In conclusion, for all the
reasons stated, it follows that the relief sought in prayer 3 of the
respective Notices of Motions
in the Main Applications must succeed
with costs. The Counter Applications as Amended, including the
Joinder Applications, falls
to be dismissed with costs.
[81] In the result the following order
is made:
The
relief sought by both Redisa and KT in prayer 3 of their Notices of
Motion respectively, is granted with costs. The Counter
Applications
and Joinder Applications are dismissed with costs. Such costs to
include
the
costs attendant upon two counsel.
___________________
LE GRANGE, J
[1]
Van Eck
v Meyer
1964 (4) SA 609
(GW).
[2]
In re
Insolvent Estate Paruk
1913 NPD 424.
[3]
Rose v
Kemp
1914 WLD 14.
[4]
E.g.
Cronje NO and others v
Hillcrest Village (Pty) Ltd and another
2009 (6) SA 12
(SCA) at [25].
[5]
See generally Blackman
Commentary
on the Companies Act
volume 3 14-380 to 14-381.
[6]
Howat
Motors (Pty) Ltd v Waterson
1963
(3) SA 669
(TPD) at 673B-C;
AMS
Marketing Co v Holzman and anothe
r
1983 (3) 263 (WLD) at 268 to 269.
[7]
Barclays Zimbabwe Nominees
(Pvt) Ltd v Black
[1990] ZASCA 92
;
1990 (4)
SA 720
(AD) at 726B-C.
[8]
Ft 3,
supra
at 270A-C.
[9]
Ft 3 at 672G to 673B. See also
Van
Eck v Meyer
1964 (4) SA
609 (GWPA).
[10]
Published
under GN R2490 in Government Gazette 4128 of 28 December 1973.
[11]
See supra
[12]
See ft 9
[13]
Ft 2
[14]
Blackman et
al, Vol 2, 14 -324 [Revision Service 8, 2011]
[15]
In this regard
see
Strydom
v The Master of the High Court
supra
at [27].
[16]
Ft 3
[17]
See: AMS
Marketing and Howzat Motors, supra.
[18]
Baker v
Probert
1985 (3) SA 429 (A).
[19]
Baker
supra at 440J.
[20]
[2006] JOL
17631 (KZN)
[21]
Aero-duct
supra at 1.
[22]
Aero-duct
supra at 13.
[23]
JT
Publishing (Pty) Ltd v Minister of Safety & Security
[1996] ZACC 23
;
1997 (3) SA 514
(CC) at para 15.
[24]
JT
Publishing (was referred to more recently with approval in
Director-General
Department of Home Affairs v Mukhamadiva
2014 (3) BCLR 306
(CC)).
[25]
At para 15.