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[2018] ZAGPJHC 526
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Power Horse Energy Drinks GmbH v Tribeone Festivals (Pty) Limited (28106/2016) [2018] ZAGPJHC 526 (12 September 2018)

REPUBLIC
OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
GAUTENG LOCAL DIVISION,
JOHANNESBURG
CASE NO:  28106/2016
12/9/2018
In the matter
between:
POWER
HORSE ENERGY DRINKS
GmbH
Applicant
and
TRIBEONE
FESTIVALS (PTY)
LIMITED
Respondent
J U D G M E N T
VAN
DER LINDE, J
:
Introduction
[1]
This is an application for
the winding-up of the respondent company in terms of Chapter 14 of
the Companies Act 61 of 1973 (“the
old Act”), still
applicable in the Act 71 of 2008 era.  The case against the
respondent is that it cannot pay its debts
and, more particularly,
that it is deemed not to be able to pay its debts because it did not
do so despite receipt of a letter
duly dispatched in terms of section
345 of the old Act, and the passage of three weeks after receipt.
[2]
The respondent’s
defence to the application is that the debt which the applicant
claims is owing to it, is a disputed debt,
on
bona
fide
and reasonable
grounds; and so this application for the winding-up of the respondent
is an abuse of process because the applicant
was well aware, as in
fact its own section 345 letter presages, that the debt was disputed.
[3]
The application introduces
an interesting dimension because the applicant has disclosed
correspondence between the parties which,
at least,
prima
facie
, was engaged
upon in order to settle the dispute. It relies on this disclosed
correspondence, particularly a letter of 22 February
2016 by the
respondent, for its contention that the respondent has admitted being
indebted to the applicant in an amount of just
over €21 000.
[4]
The aggregate amount of
the applicant’s claim is €170 000 in respect of which –
on the applicant’s argument
– the letter by the
respondent of 22 February 2016 admits an indebtedness in respect of
some €21 000.
The applicant accepts that ordinarily
such correspondence would not be admissible by virtue of the general
principle that without
prejudice correspondence entered into in a
bona fide
attempt to settle a dispute is protected by
litigation privilege.
[5]
However in this case the
applicant argues that in the letter of 22 February 2016 the
respondent not only admitted indebtedness to
the applicant in the
amount of €21 000, but in fact also committed an act of
insolvency.  Relying on the judgment
of
Absa
Bank Limited v Hammerle Group (Pty Ltd,
[2016] JOL 33570
(SCA)
,
the applicant contends that the letter and its contents is admissible
against the respondent.
[6]
Making matters more
interesting is the fact that in an interlocutory application the
respondent had applied to this Court for an
order compelling the
applicant to put up security for the costs of the winding-up
application, because the applicant is a
peregrinus
not only of the court but also of the country.  In that
application the applicant also disclosed the same contentious without

prejudice correspondence, including the letter of 22 February 2016,
in its answering affidavit. The respondent objected to the
disclosure
of the correspondence on the basis of litigation privilege, applying
to have it struck out.
[7]
The respondent’s
application to compel the applicant to furnish security succeeded
before my colleague Nyathi, AJ but his
Lordship refused the
application for striking out.  His Lordship did not provide
reasons for his order.  The applicant
now argues that inevitably
the only reasoning that could have motivated his Lordship to have
come to that conclusion, was that
the judgment in
Absa
Bank Limited v Hammerle
was followed and the letter became admissible on the basis, not that
it contained an admission by the respondent that it was insolvent
and
could not pay its debts as and when they fell due for payment, but
rather simply on the basis that the letter constituted an
attempt by
a debtor to compromise its debts; and that constituted an act of
insolvency under the
Insolvency Act, 24 of 1936
.
[8]
In other words, the
applicant argues that the ratio of
Absa
v Hammerle
is not
simply that an admission of an act of insolvency in the course of
correspondence otherwise protected by privilege, is admissible
in an
application for the sequestration of the estate of a debtor; but is
also admissible in an application for the winding-up
of a company
debtor. This submission was not derailed by the acceptance that a
company cannot be wound up on the basis of it having
committed an act
of insolvency under the
Insolvency Act, as
opposed to it being unable
to pay its debts for purposes of the old Act.
[9]
There is yet a further
facet to this argument, and it is this.  The applicant argues
that the order of Nyathi, AJ is
res
judicata
and that
issue estoppel applies, meaning that the issue as to the
admissibility or otherwise of the correspondence has been decided
in
a manner that is binding on the parties, and therefore the
correspondence must be admitted.
[10]
The applicant argues in
this regard that the conclusion is inevitable that Nyathi, AJ also
concluded that the letter of 22 February
2016 constituted an act of
insolvency and is therefore admissible, relying on
Absa
Bank v Hammerle
,
against a company debtor in a winding-up application.
[11]
In a sense these issues,
interesting as they are, do not really determine the substance of the
matter because, as was submitted
by Mr Bhana, SC who appeared with Mr
Rowan for the respondent, even if the correspondence were admitted,
the debt of the applicant,
meaning the entire debt, is disputed on a
bona fide
and reasonable ground and therefore the application for the
winding-up of the respondent must fail in any event.
[12]
However, the issues as to
the admissibility of evidence raised by the applicant are important
and they need to be addressed.
As concerns the respondent’s
submission that the entire debt contended for by the applicant is in
any event disputed on a
bona
fide
and reasonable
ground, it will assist if something is said by way of introduction to
that topic.
[13]
What had happened is that
some time ago in 2012 the applicant and the respondent concluded a
written agreement in terms of which
the applicant would pay the
respondent €200 000 for the respondent to advertise the
applicant’s power drink both
before and during a music festival
which the respondent would organise.
[14]
The applicant proceeded to
pay to the respondent the total amount of €170 000 (not the
full amount of €200 000)
and in turn the respondent went
ahead and provided advertising space and exposure to the applicant
before the music event.
The contract did not allocate the
amount of €200 000 to exposure before the music festival
and exposure during the music
festival; and indeed the contract
conferred upon the respondent a discretion as to how to allocate
advertising exposure in respect
of the applicant’s product in
the run-up to the music festival and at the music festival itself.
[15]
What then happened is that
the City of Tshwane rendered the facility at which the music festival
would be held unavailable and accordingly,
according to the
respondent, force majeure rendered performance by the respondent of
advertising exposure at the music festival
impossible, not
ex
tunc
, but
pro
nunc
.  In other
words, according to the respondent at least, the contract became
impossible of performance not
ab
initio
, but from that
point onwards into the future.
[16]
The applicant on the other
hand regarded the respondent’s inability to continue with the
arrangement of the music festival
as a breach of contract on the
respondent’s part, as the applicant purported to cancel the
agreement. Pursuant to that cancellation,
the applicant claimed from
the respondent repayment of the €170 000 which the
applicant had part-paid to the respondent
pursuant to the applicant’s
obligations in terms of their agreement.
[17]
The applicant says that
its claim is not a damages claim but simply a claim for repayment of
its performance.  This is important
from the applicant’s
perspective, because the respondent relies on clause 12 of the
agreement between the parties in terms
of which, in the event of the
respondent’s performance being rendered impossible through
force majeure, no breach will have
been committed by the respondent,
which would otherwise have given rise to an entitlement on the part
of the applicant not only
to cancel the agreement, but also to claim
anything, be it damages or repayment of performance, pursuant to such
cancellation.
[18]
Important however for
purposes of this part of the application is the respondent’s
contention that from the get-go of the
dispute between the parties,
the applicant appreciated that it could not justifiably claim
repayment of every Euro that it had
paid to the respondent, because
admittedly the respondent had provided advertising exposure to the
applicant.
[19]
That gave rise to a ground
of dispute between the applicant and the respondent which in turn led
to negotiations between them, without
prejudice, in an attempt to
settle the value to which the applicant would be entitled in respect
of the advertising exposure which
the respondent had afforded to the
applicant; and then if there was a margin favourable to the
applicant, what that margin would
be and how that margin would be
settled.
[20]
It is that debate between
the parties that gave rise to the letter by the respondent of 22
February 2016 in which the respondent
suggested to the applicant that
an appropriate margin in favour of the applicant was some €21 000;
and the respondent
proposed in the letter that that margin be settled
by tripling it up to some €54 000 and then providing, as it
were,
performance in kind by providing advertising exposure to the
applicant in the future at other future music festivals to be
arranged
by the respondent.
[21]
It is that letter which
the applicant then construes as an admission of liability in the
amount of €21 000, thereby establishing
not only the
applicant’s
locus
standi
in the
winding-up proceedings but also the inability of the respondent to
pay its debts.
[22]
It seems to me, for
reasons that I will set out more fully below, that the correct
approach to this matter is as follows. First,
a merely interlocutory
order of my brother Nyathi, AJ would ordinarily bind neither him nor
me. It did not purport to deal with
the merits of the dispute between
the parties and since that is so,
res
judicata
or issue
estoppel does not apply.
[23]
Next, the ratio in
Absa
v Hammerle
does not
apply, because all that that judgment decided was that a
communication by a debtor company that it is insolvent and unable
to
pay its debts is not protected by the privilege which normally
protects settlement negotiations, in the public interest.
This
is what Mbha, JA said:
[13] It is true that as a general
rule, negotiations between parties which are undertaken with a view
to a settlement of their disputes
are privileged from disclosure.
This is regardless of whether or not the negotiations have been
stipulated to be without prejudice.
However, there are exceptions to
this rule. One of these exceptions is that an offer made, even on a
"without prejudice"
basis, is admissible in evidence as an
act of insolvency. Where a party therefore concedes insolvency, as
the respondent did in
this case, public policy dictates that such
admissions of insolvency should not be precluded from sequestration
or winding-up proceedings,
even if made on a privileged occasion. The
reason for the exception is that liquidation or insolvency
proceedings are a matter
which by its very nature involves the public
interest. A concursus creditorum is created and the trading
public is protected
from the risk of further dealing with a person or
company trading in insolvent circumstances. It follows that any
admission of
such insolvency, whether made in confidence or
otherwise, cannot be considered privileged. This is explained by the
words of Van
Schalkwyk J in Absa Bank Ltd v Chopdat, when
he said:
"[A]s a matter of public
policy, an act of insolvency should not always be afforded the same
protection which the common law
privilege accords to settlement
negotiations.
A creditor who undertakes the
sequestration of a debtor's estate is not merely engaging in private
litigation; he initiates a juridical
process which can have extensive
and indeed profound consequences for many other creditors, some of
whom might be gravely prejudiced
if the debtor is permitted to
continue to trade whilst insolvent. I would therefore be inclined to
draw an analogy between the
individual who seeks to protect from
disclosure a criminal threat upon the basis of privilege and the
debtor who objects to the
disclosure of an act of insolvency on the
same basis."
In the final analysis, the learned
Judge said at 1094F:
"In this case the respondent
has admitted his insolvency. Public policy would require that such
admission should not be precluded
from these proceedings, even if
made on a privileged occasion."
[24]
However, in the present
matter, I do not believe that the letter by the respondent of 22
February 2016 can be described as an admission
by the respondent of
an inability on its part to pay its debts as and when they fall due
for payment, or an admission on the part
of the respondent that it is
insolvent.  That being so, the letter of 22 February 2016 would
ordinarily be inadmissible and
the respondent’s striking out
application ought to have succeeded, were it not for the next
consideration.
[25]
The order of Nyathi, AJ –
whether correct or incorrect - had the legal effect of removing from
the contentious letter the
shield of protection against disclosure
that the respondent was entitled to hold up. The letter became part
of the official record
in the interlocutory application, open to the
public. That being so, the protection afforded by legal/professional
privilege cannot
revive; compare
South
African Airways SOC v BDFM Publishers (Pty) Ltd and Others,
2016 (2)
SA 561
(GJ)
, per
Sutherland, J:
[43] Building upon that proposition
it was further argued on behalf of SAA that once a person has
exercised the human right to claim
privilege over given information,
the right of privilege in respect thereof can be invoked as against
the world to protect and
preserve the confidentiality of the
information which is subject to a claim of privilege. Accordingly, so
runs the argument, even
when that confidentiality has been breached,
the right to protection is not extinguished, but continues in
perpetuity. Thus, the
confirmation of the order is appropriate,
because a clear right has been established in the right to privilege
so described, further
publication will perpetuate the harm, and no
other suitable remedy can achieve the suppression of further
dissemination of the
information.
[4] …
[48] By invoking such legal advice
privilege, no less than litigation privilege, the client invokes a
'negative' right, ie the right
entitles a client to refuse disclosure
by holding up the shield of privilege. What the right to refuse to
disclose legal advice
in proceedings cannot be is a 'positive right',
ie a right to protection from the world learning of the advice if the
advice is
revealed to the world without authorisation. The client may
indeed restrain a legal advisor on the grounds of their relationship,

and may also restrain a thief who takes a document evidencing
confidential information on delictual grounds.
[49] But if the confidentiality is
lost and the world comes to know of the information, there is no
remedy in law to restrain publication
by strangers who learn of it.
This is because what the law gives to the client is a 'privilege' to
refuse to disclose, not a right
to suppress publication if the
confidentiality is breached. A client must take steps to secure the
confidentiality and, if these
steps prove ineffective, the quality or
attribute of confidentiality in the legal advice is dissipated. The
concept of legal advice
privilege does not exist to secure
confidentiality against misappropriation; it exists solely to
legitimise a client in proceedings
refusing to divulge the
subject-matter of communications with a legal advisor, received in
confidence. This vulnerability to loss
of the confidentiality of the
information over which a claim of privilege can and strangers who
learn of it. This is because what
the law gives to the client is a
'privilege' to refuse to disclose, not a right to suppress
publication if the confidentiality
is breached. A client must take
steps to secure the confidentiality and, if these steps prove
ineffective, the quality or attribute
of confidentiality in the legal
advice is dissipated. The concept of legal advice privilege does not
exist to secure confidentiality
against misappropriation; it
exists solely to legitimise a client in proceedings refusing to
divulge the subject-matter of
communications with a legal advisor,
received in confidence. This vulnerability to loss of the
confidentiality of the information
over which a claim of privilege
can and is made flows from the nature of the right itself. The
proposition about the consequences
of loss of confidentiality is
endorsed by the authorities.”
[26]
It does not seem to me
that the disclosure issue is fact-driven; once as a matter of law the
privilege was lost through court order,
it was irretrievably lost,
absent possibly an appeal against the order, no matter whether one or
more persons actually saw the
letter. The letter was now part of a
public record.
[27]
That leaves the question
whether the defence which the respondent has put up is a
bona
fide
defence and one
which is raised on reasonable grounds.  In turn, this involves
the question whether the respondent’s
contention in its
answering affidavit that the applicant received more advertising
value than the €170 000 which it paid
to the respondent
pursuant to the agreement, can be dismissed as not being
bona
fide
and not being
raised on reasonable grounds.
[28]
In my view that conclusion
cannot be drawn.  The respondent’s exposition of the value
which it attributes to the advertising
exposure which it afforded to
the applicant may be contentious, but even the applicant has to
accept that some value is attributable
to the exposure which the
respondent afforded to it. Despite applicant’s counsel
describing the language used by the respondent
as gobbledygook, this
court cannot dismiss out of hand that in the business of advertising
exposure, rand value must be accorded
to what the respondent calls
“
eye-ball
”
exposure to the applicant’s product.
[29]
There is a further
dimension to this. The applicant argued that the contradiction
between the admitted advertising value in the
contentious letter and
that subsequently contended fro in the answering affidavit, shows
that the defence is not bona fide. But
the applicant never accepted
the lesser value which the respondent ascribed in its contentious
letter to the rand value of such
advertising exposure that the
applicant received in the event. That means the offer that the
respondent made in the contentious
letter lapsed. It seems to me that
it is therefore not open to the applicant to argue that the
respondent actually admitted an
indebted to the applicant in the
amount of € 20 000.
[30]
It follows that the
application for the winding-up of the respondent must be dismissed
with costs including the costs of two counsel.
I do not believe
that a special costs order is warranted. In the result I make the
following order:
(a)
The application is
dismissed with costs including the costs of two counsel.
WHG van der Linde
Judge, High Court
Johannesburg
For the applicant: Adv A Kemack, SC
Adv J Hoffman
Instructed by: WerthSchröder Inc
Applicant’s attorneys
1
st
Floor, Kiepersol House
Stonemill Office Park 300
Acacia Road
Darrenwood
Tel:  (011) 476 1776
Fax:  (011) 476 1813
Email:
kschroder@wertschroeder.com
Ref:  RAKSchröder\SP\KSP00014
For the respondent: Adv R Bhana, SC
Adv A W T Rowan
Instructed by: Mervyn Taback Inc
Respondent’s attorneys
13 Eton Road, Parktown
Johannesburg
Tel: (011) 358 7700
Email:
nm3@tabacks.com
Ref:
Ms N Mather