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[2017] ZAGPPHC 88
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Firstrand Bank Limited v Viking Steel Division CC (95264/2015) [2017] ZAGPPHC 88 (3 March 2017)
IN THE HIGH COURT OF
SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
CASE NO: 95264/2015
3/3/2017
Reportable:
No
Of
interest to other judges: No
Revised.
In
the matter between:
FIRSTRAND
BANK LIMITED
Applicant
and
VIKING
STEEL DIVISION CC
Respondent
JUDGMENT
MANAMELA,
AJ
Introduction
[1]
This application was issued on an urgent basis on 27 November 2015 by
the applicant, a commercial bank (Firstrand), for the
liquidation
(either provisional or final) of the respondent (Viking). As
alternative to liquidation, Firstrand requested the Court
to
interdict Viking from transacting (save for making deposits) in
respect of some specified bank account of Viking, pending an
application or action to be brought by Firstrand regarding ownership
of or entitlement to the funds in the bank account. On 08
December
2015, the Court granted the alternative relief and from the papers it
appears that such was by agreement between the parties,
pending a
determination of the ownership of or entitlement to the funds in
Viking's bank account.
[2]
However, only a prayer for liquidation is currently pursued.
Firstrand is pursuing the current liquidation application on the
basis that it is just and equitable under the circumstances for this
Court to liquidate Viking. Viking did not only oppose the
liquidation
application, but launched a counterapplication. In the
counterapplication, Viking requests this Court to order the
transfer
of the impugned funds to the liquidators of an entity called Profin
Trading 35 CC (Profin).
[1]
Profin and its liquidators are not taking any part in these
proceedings.
[3]
Firstrand filed its answering affidavit to the counterapplication,
out of time. The answering affidavit incorporates the replying
affidavit in the liquidation application (the replying affidavit).
Viking contends that the replying affidavit should be ignored
as it
was not accompanied by condonation application. I allowed the
affidavit to form part of the papers before the Court and undertook
to furnish reasons for the ruling at the same time as the main ruling
on the issues. I will therefore commence with the reasons
for this
ruling, before I tum to the issues in the liquidation and counter
applications.
[4]
It is also submitted in the written heads of argument that there is a
fourth or further affidavit, besides the founding, opposing
and
replying affidavits, but counsel were in agreement that this
affidavit is not dealt with anywhere in the papers. It was also
not
dealt with at the hearing on the matter and therefore it will not be
entertained for purposes of the outcome of this matter.
Late delivery of
Firstrand's replying affidavit (the first point in limine)
[5]
The issue of the late delivery of the replying affidavit was raised
by Viking as one of its two points
in limine
(the first point
in limine).
The second point
in limine
was with regard
to the authority of the deponent to Firstrand's founding affidavit
and will be dealt with later below. Viking submitted
that its
opposing affidavit, incorporating the counterapplication, was served
on 20 April 2016. This, it is submitted, was in terms
of an order of
this Court granted on 30 March 2016. Firstrand only served its
replying affidavit on 20 June 2016, after Viking
had actually
delivered its practice note and heads of argument on 06 June 2016.
Therefore, the replying affidavit was some 32 days
late. It is
submitted on behalf of Viking that the affidavit should be
disregarded. This is also because the same affidavit did
not contain
any application for condonation for its late delivery. Therefore, the
matter should be determined on the basis of the
founding affidavit
and opposing affidavits. Effectively, this would mean that the facts
contained
in the opposing affidavit stand undisputed and ought to be accepted.
This will also mean that the counterapplication would
also be
determined on an unopposed basis.
[6]
Mr J Vorster, appearing for Firstrand, passionately relied on the
decision in the matter of
Pangbourne
Properties Ltd v Pulse Moving
CC
and
Another
[2]
for his
submissions that the replying affidavit ought to be allowed in. He
submitted that the facts in that decision were at all
fours with
those in this matter and in that decision the Court admitted the
affidavit in the interests of justice. He even submitted
that this
Court is bound by the
Pangbourne
decision.
Further, he raised the fact that no prejudice was shown by Viking
relating to the late delivery of the affidavit. In my
view
Pangbourne
does
not avail Firstrand, as in
Pangbourne
both
the answering and replying affidavits were delivered late. This is
not the situation in this matter. Mr JC Klopper, appearing
for
Viking, submitted that the non-compliance is made worse by the fact
that there is not even an attempt at condonation. I agree.
A party
who has not complied with the rules of Court ought to try and explain
to the Court whose rules he failed or neglected to
comply with the
reasons therefor and why this ought to be overlooked. To conduct
himself or herself otherwise and brazenly assert
that there is no
prejudice to his or her opponent, may be considered to reflect
hallmarks of wilful disregard of the rules. This
ought not to be
countenanced.
[7]
It is always regrettable when litigants who enjoy legal
representation choose not to obey or comply with the rules and
practice
directives of the Court. Yes, the Court should always frown
at any signal of transgression, minuscule or gigantic, and ensure
that
its disapproval is felt by all transgressors, by, for example,
excluding the non-compliant material or admitting same as part of
the
papers with imposition of a costs order. But, most of the time the
wrath of the Court, so to speak, is borne by the litigant
clients,
who are simply victims of their own choices in legal representation.
It is against this background that, I decided to
allow the replying
affidavit. Even more so, I considered it rather prudent to have the
full complement of the available affidavits.
This, in my view, is in
the interests of justice.
[3]
However, I will ensure that this exercise of discretion by the Court
is not without consequences by granting the appropriate costs
order
regarding the replying affidavit.
Authority of the
deponent to the founding affidavit (the second point in limine)
[8]
Viking raised another point in
limine.
It
submitted that the deponent to Firstrand's founding papers is only an
employee and not a "member" and as such requires
explicit
authorisation by way of resolution. It is also submitted that the
resolution and other documents filed do not prove authority
of the
deponent. I hasten to point out that there is no merit in this
contention. The issue of authority of a deponent to affidavits
before
a Court is settled law in terms of legal authorities.
[4]
The authority of the deponent to an affidavit is irrelevant.
[5]
What is of relevance is the authorisation of the actual legal
proceedings in the form of an application.
[6]
[9]
Where the challenge extends to the attorneys involved in the
institution of the legal proceedings, a proper route or procedure
to
follow is that provided in terms of rule 7 of the Uniform Rules of
this Court.
[7]
Therefore, there
will be no merit in this form of challenge and no further attention
will be devoted to this issue.
Relevant background
(in brief)
[10]
The brief background to this matter is as follows. During or about
November 2014, Firstrand and Profin entered into an agreement
in
terms of which Firstrand agreed to provide Profin with debtor finance
in an amount of R2.4 million. In terms of the debtor finance
facility
agreement, any and all rights which Profin had towards its debtors
were ceded to Firstrand. Firstrand terminated the debtor
finance
agreement at some stage due to monies due to Profin from Profin's
debtors having been paid to Viking. It now asserts that
Viking is
indebted to Firstrand for the collected debtors and applies for
Viking's liquidation. Profin was at some stage placed
in liquidation.
[11]
It is also common cause that Firstrand is entitled to receive
payments made by the debtors of Profin in terms of debtor finance
agreement with Profin.
[8]
It is
also not in dispute that the payments meant for Profin were
incorrectly made to Viking.
Firstrand's
case
[12]
Viking challenges the standing of Firstrand in bringing the
liquidation application. Firstrand submits that it is a creditor
of
Viking and therefore it is entitled to bring a winding- up or
liquidation application, specifically on the ground that it was
just
and equitable to do so, as contemplated in section 346(1)(b) of the
Companies Act 61 of 1973 (the 1973 Companies Act). Whether
or not
Firstrand is a creditor of Viking is one of the issues to be
determined in this matter and will be dealt with below.
[13]
Firstrand submits that its debtor finance agreement incorporated an
out-and-out cession in respect of the debtors of Profin.
[9]
It is submitted in this regard that Firstrand, as a cessionary, has
become the legal holder of the personal rights of Profin and
can now
realise the incorporeal property in its own name. In other words,
that Firstrand can directly claim payment from the debtors
in the
books of Profin, as the cedent. The submission is further expanded by
stating that the cessionary becomes the legal holder
of the claims
and will also not become a creditor of the insolvent estate of the
cedent, and cedent merely acquires a reversionary
right against the
estate of cessionary, which entails that the claims (rights) must be
ceded back to the original cedent after
satisfaction of the
underlying debt (i.e. after the cessionary has collected enough book
debts to satisfy the debt of the cedent).
[10]
I will revert to this below.
Just
and equitable wind-up of Viking due to allegations of fraud
[14]
As indicated above, Firstrand submits that it is just and equitable
to wind-up Viking due to allegations of perpetration of
fraud on
Viking's part. The location of these submissions is in electronic
mail correspondences exchanged between Firstrand's functionaries
and
Viking's member. I consider the following material in this regard:
"Ek sal sien
dat ons vir jou die volledige lys stuur van gelde wat
verkeerdelik
in
VSD [i.e. Viking] se rekening in betaal is."
[11]
[underlining
added for emphasis]
and:
"Daar is
absoluut geen manier waarop een van ons kliente so kontant betaal het
nie. Dit was 'n fout aan ons kant, dit moes
nie so ingelees gewees
het nie, ek het geen idee wat daar gebeur het nie. Ek het nie die
transaksie geprocess nie, en vemeem dit
was ChrisChe wie ek weg
gejaag het wat iets probeer het op Pastel en nie besef het wat sy
doen nie.
Van my kant af het
ek dit onmiddelik reg gestel toe ek die report gesien het van die
kasboek."
[12]
[15]
Firstrand submits that the statements above confirm questionable
conduct in the way in which Viking or its business is being
conducted
and justifies an order for the liquidation of Viking by this Court.
Firstrand submits that the statements create a basis
for winding up
in terms of section 344(h) of the 1973 Companies Act.
[16]
It is submitted in this regard that illegality of the objects of the
company and fraud committed in connection therewith justify
winding-up on the just and equitable principle.
[13]
It is a further submitted that the circumstances of this matter are
such that Viking is an instrument in suspicious transactions
and
potential fraud perpetrated by its sole member, being the deponent to
the opposing affidavit in cahoots with Profin.
[14]
The aforesaid sole member is married to one Mr FA Du Plessis, who was
also a member of Viking until 12 October 2015, when he resigned.
[15]
[17]
As stated above, the undue receipt of the funds of Profin has been
acknowledged by Viking. The payment of the undue funds was
made
shortly before the voluntary liquidation of Profin.
[16]
[18]
It is submitted that under the above-mentioned circumstances, it is
just and equitable that this Court order the winding-up
of Viking. I
will revert to this after discussing Viking's response and
counterapplication.
Viking's
case
[19]
Viking disputed that it is insolvent or that it ought to be wound-up.
It also submitted that Firstrand appears to have abandoned
its
alternative relief for an interdict, whether interim or final,
although it failed to satisfy the requirements necessary to
prove an
interdict, be it interim or final. I don't think anything turns on
the latter aspect.
[20]
Viking admits that money was incorrectly deposited into its
bank account, but submits that this money remains secured as the bank
account is currently suspended following the order of this Court
granted on 08 December 2015.
[21]
Further, it is submitted that the provisions of section 344(h) of the
1973 Companies Act do not apply to insolvent companies,
but the
provisions of item 9(2) of schedule 5 of the Companies Act 71 of 2008
(the 2008
Companies Act). The
latter is set to regulate the limited
application of section 344 of the 1973
Companies Act as
from O1 May
2011. It is further argued that item 9(2) of schedule 5 of the 2008
Companies Act explicitly
states that sections 343, 344, 346 and 348
to 353 of the 1973
Companies Act do
not apply to the winding-up of
solvent companies.
[22]
It is submitted that Viking is a solvent company as confirmed by its
financial statements included as part of the papers. This
argument is
expanded to include that, Firstrand did not challenge the solvency of
Viking or even allege that Viking is insolvent
in the first place.
There is no factual allegation on behalf of Firstrand that Viking is
insolvent and actually Viking specifically
submits that it is not
insolvent. It is submitted that this is not disputed by Firstrand.
[23]
Is also submitted that the current application for liquidation
constitutes an abuse of the process of this Court, as there
is a
bona
fide
dispute
and that liquidation is therefore untenable under the
circumstances.
[17]
[24]
It is submitted that there is a dispute of facts confirmed by the
following:
[24.1] Firstrand
alleges that the amount that was incorrectly deposited is R684
000.00, whereas in terms of Viking's calculations
the incorrectly
deposited amount is R507 367.43. However, Firstrand did not provide
proof of its calculation of the aforesaid amount,
be it in the
founding or replying affidavit, whereas Viking did provide a
reconciliation using source documents for its calculation.
[24.2] an employee
of Firstrand (from FNB Brits branch) investigated the matter in 2015,
but thereafter allowed Viking to withdraw
some money leaving only a
balance of R588 598.85 in the suspended bank account.
[18]
Viking submits that the contention that this employee made a mistake
is unreasonable, as the employee is based on the ground and
actually
worked with the impugned bank accounts on a daily basis and will know
what amount was incorrectly deposited, as opposed
to Cawood, the
deponent to Firstrand's affidavit based at the recoveries department
of Firstrand in Pretoria.
[24.3] further it is
submitted that an inference should be drawn from the fact that there
is no disclosure of the nature and outcome
of the preliminary
investigation embarked upon by Cawood.
[19]
Viking's
Counterapplication
[25]
Viking prays, in terms of the counterapplication, that an amount of
R507 367.43 be paid to the liquidators of Profin and the
balance be
held in trust by Viking's attorneys of record pending an action or
application for payment by Firstrand within a prescribed
time period
and if not, for the remaining balance to be paid to Viking.
[20]
The counterapplication is opposed by Firstrand.
[26]
According to Viking's calculation, only an amount of R507 367.43 was
incorrectly deposited into the suspended bank account
and Viking
disputes that more than this amount was incorrectly deposited, hence
the tender for repayment of this amount.
[27]
Viking explains that the reason for the counterapplication as being
due to the intransigence on the part of Firstrand, which
it is
submitted frustrated the attempts by Viking to finalise the
arrangements for payment of the amount of R507 367.43 of the
total
amount currently held in the bank account to the liquidators of
Profin or to Firstrand, if so ordered by this Court. It is
submitted
Viking actually made the tender or proposal incessantly, but in vain.
[28]
ls
further submitted that liquidation application is not possible where
the claim is disputed on
bona
fide
grounds
by Viking and that in terms of what is called the
Badenhorst
rule,
the onus is not on Viking to show that it is not indebted to
Firstrand, but Viking has to merely show that the indebtedness
is
disputed on
bona
fide
and
reasonable grounds.
[21]
Winding up proceedings are not appropriate when the alleged
creditor's claim is reasonably disputed as the insolvency procedure
is not designed for resolution of disputes as to the existence or
non existence of debts.
[22]
Legal principles and
the facts (a discussion)
[29]
As indicated above, the liquidation application is based on section
344(h) of the Companies Act 61 of 1973 (the 1973 Companies
Act).
[23]
This provision reads as follows in the material part:
“
A company may
be wound up by the Court if
(a) …
…
(h) it appears to
the Court that it is just and equitable that the company should be
wound up."
[30]
Firstrand submits that it is just and equitable for this Court to
wind-up Viking, as it is an instrument of suspicious transactions
and
potential fraud. I have dealt with the allegations above and the
explanations by Viking that the payments were erroneously
(verkeerdelik)
made.
[24]
[31]
I do not agree that it would be just and equitable to wind-up Viking
on the basis that the monies transferred or the transfer
of money
meant for Profin were paid into Viking's bank account. There is no
sufficient basis for this conclusion, particularly
when considering
the explanations proffered by Viking. Firstrand has not succeeded in
casting doubt on the veracity of the explanations.
[32]
Although fraud may serve as ground for winding-up a company on the
just and equitable principle,
[25]
there is no sufficient evidence available to this Court in this
matter to conclude that there was perpetration or commission of
fraud. Nothing indicates that Viking wanted to defraud Firstrand or
anyone by the receipt of payments from debtors of Profin. I
agree
that at first blush the situation raises eyebrows, but this is not
enough to sustain a drastic debt-recovery mechanism of
liquidation.
Therefore, the liquidation application would fail.
Commercial
Insolvency
[33]
During argument, counsel for Firstrand also made submissions to the
effect that Viking was insolvent due to loans indicated
in its papers
and ought to be liquidated on this ground. The Court was referred, in
this regard, to the absence of evidence indicating
how Viking is
paying its loans and whether the bank statements indicated any
solvency.
[26]
Without
necessarily implying that Firstrand or its counsel was entitled to
expand the case to be met by Viking in legal argument,
I hasten to
point out that commercial insolvency is the requirement for
liquidation of companies, as opposed to factual insolvency
applicable
to natural persons and partnerships. Therefore, this road will not
avail Firstrand for the liquidation of Viking. I
am not implying that
the submissions were meritorious with regard to a case of factual
insolvency. There is no need for me to pronounce
on this.
Reasonable
dispute of claim
[34]
The
Badenhorst
rule
referred to above is still very much part of our law and ought to
have been borne in mind in this matter. It has been recently
applied
in the decision of
GAP
Merchant Recycling
CC
v
Goal Reach Trading 55 CC
[27]
where the
Court had this to say regarding this rule:
"[20] The rule
that winding-up proceedings should not be resorted to as a means of
enforcing payment of a debt, the existence
of which is bona fide
disputed on reasonable grounds, is part of the broader principle that
the court's processes should not be
abused. Liquidation proceedings
are not intended as a means of deciding claims which are genuinely
and reasonably disputed. The
rule is generally known as the
'Badenhorst rule', after one of the leading cases on the subject,
Badenhorst v Northern Construction Enterprises (Pty) Ltd
1956
(2) SA 346
(T) at 347H – 348C."
Counterapplication
[35]
The counterapplication by Viking is crafted in such a way that it
assumes that there will be a finding that Firstrand is not
entitled
to the money and therefore the main application is unsuccessful on
this basis. This is not my finding. It may well be
that Firstrand
will somewhat succeed in getting the money to be paid over to it. All
that is decided here is that liquidation application
is
ill-conceived.
[36]
Be that as it may, I do not find merit in the counterapplication.
There appears no reason under the current circumstances to
transfer
the money to the liquidators of Profin. However, in my view, the
counterapplication appears to have been conceived with
noble
intentions towards amicable resolution of this matter. This will be
significant with regard to the issue of costs.
Costs
[37]
Therefore, the above being my finding, there is no need for me to
determine the other issues raised in the papers as they have
been
rendered superfluous. The main application for liquidation fails and
costs will follow this outcome.
[38]
The counterapplication also fails as indicated above. However, I do
not consider it to be in the interests of justice to mulct
Viking
with any costs in this regard. The counterapplication actually
represents a noble gesture on the part of Viking aimed towards
practical resolution of this matter. Viking would not have benefitted
from payment of the monies to Profin as prayed for in the
counterapplication. This ought to be encouraged. This is so despite
my dismissal of the counterapplication. Therefore, I will grant
no
order as to costs with regard to the counterapplication.
[39]
However, as explained above, I will mark the disapproval of this
Court with regard to non-compliance in the delivery of the
replying
affidavit, by granting a costs order on the scale of attorney and
client in this regard.
Order
[40]
In the premises, I make the following order:
(a) the application
is dismissed with costs;
(b) the costs in (a)
hereof relating to the replying affidavit are payable on an attorney
and client scale;
(c) the
counterapplication is dismissed without any order a to costs.
----------------------------------------
K. La M. Manamela
Acting
Judge of the High Court
DATE
OF HEARING: 05 DECEMBER 2016
DATE
OF JUDGMENT : 03 MARCH 2017
Appearances:
For
the Applicant: Adv J Vorster
Instructed
by: Rorich Wolmarans & Luderitz Inc
Pretoria
For
the Respondent: Adv JC Klapper
Instructed
by: Olivier, Cronje & Stiglingh,
c/o
DBM Attorneys, Pretoria
[1]
See pars 1-2 of the notice of motion on indexed pp 164-167.
[2]
2013 (3) SA 140 (GSJ).
[3]
See generally Cilliers AC, Loots C and Ne! HC Herbstein and van
Winsen
The
Civil Practice of the High Courts and Supreme Court of Appeal of
South Africa
5th edition
(Juta Cape Town 2009) at pp 723-724.
[4]
See
Ganes
and Another v Telecom Namibia ltd
2004 (3) SA
615
(SCA).
[5]
See
Eskom
v Soweto City Council
1992 (2) SA
703
(WLD) at 705E-706C.
[6]
See
Ganes
and Another v Telecom Namibia ltd
2004 (3) SA
615 (SCA).
[7]
Rule 7(1) of the Uniform rules reads: "( 1) Subject to the
provisions of subrules (2) and (3) a power of attorney to act
need
not be filed, but the authority of anyone acting on behalf of a
party may, within 10 days after it has come to the notice
of a party
that such person is so acting, or with the leave of the court on
good cause shown at any time before judgment, be
disputed,
whereafter such person may no longer act unless he satisfied the
court that he is authorised so to act, and to enable
him to do so
the court may postpone the hearing of the action or application."
[8]
See par 21 of the founding affidavit on indexed page 14.
[9]
See Bertelsmann E
et
al Mars The Law of Insolvency in South Africa
9
th
ed (Juta
Cape Town 2008) at pp 2-3.
[10]
See Mercatrust Bpk v Keepers Hosiery Suid-Afrika (Edms) Bpk
1980 (3)
SA 311
(w).
[11]
See par 20 of the founding affidavit on indexed p 14; annexure "FA6"
on indexed p 57.
[12]
See par 21 of the founding affidavit on indexed p 14; annexure
"FA7'' on indexed p 58.
[13]
See
Rand
Air (Pty) ltd v Ray Bester Investments (Pty) ltd
1985 (2) SA
345
(W) at 350 C-H; and
Thunder
Cats Investments 92 (Pty) ltd & Another v Nkonjane Economic
Prospecting and Investment (Pty) ltd & Others
(847/12)
[2013] ZASCA 164
at par 16.
[14]
See par 7 of the founding affidavit on indexed p 10; par 29 of the
founding affidavit on indexed p 17.
[15]
See par 10 of the founding affidavit on indexed p 18.
[16]
See par 17 of the founding affidavit on indexed p 13.
[17]
Pillay
v Frier
1913
CPD 433
at 436;
Laeveldse
Kooperasie Bpk v Joubert
1980(3) SA
1117 (T) at 1120;
Investec
Bank Ltd v Lewis
2002 (2) SA
111
(C) at 116C - G and 119F- H.
[18]
See par 25.6 of the opposing affidavit on indexed pp 114 -115.
[19]
See par 15 of the founding affidavit on indexed p 12.
[20]
See par 2 of the respondent supplementary heads of argument.
[21]
See
Badenhorst
v Northern Construction Enterprises (Pty) Ltd
1956 (2) SA
346
(T) at 347H-348B;
Kalil
v Decotex (Pty) Ltd
1988
(1) SA 943
(A) at 9808-981 A;
Payslip
Investment Holdings CC v Y2K TEC Ltd
2001
(4) SA 781
(CPD) at 783E- I.
[22]
Robson v
Wax Works (Ply) Ltd and Others
2001 (3) SA
1122
(CPD) as pars [13]-[l 7];
Sonnenberg
Mcloughlin v Spiro
2004
(1) SA 90
(C) at 968-C
;
Helderberg laboratories CC v Solar Technologies
2008 (2) 627
(CPD) at pars [21 )- [23].
[23]
See par 9 of the founding affidavit on indexed p 10; par 16 of the
applicant's heads of argument.
[24]
See par 20 of the founding affidavit on indexed p 14; annexure "FA6"
to the founding affidavit on indexed p 57.
[25]
See
Kyle
v Maritz & Pieterse Inc
[2002] 3 All
SA 223 (T).
[26]
See par 34.3 of the opposing affidavit on indexed p 122.
[27]
2016 (I) SA 261 (WCC).