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[2017] ZAGPPHC 875
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First Rand Bank Limited v Classco Trading (Pty) Ltd (2012/72945) [2017] ZAGPPHC 875 (24 March 2017)
IN
THE GAUTENG DIVISION OF THE HIGH COURT OF SOUTH AFRICA,
PRETORIA
CASE
NO.: 2012/72945
24/3/2017
Not
reportable
Not
of interest to other judges
Not
revised
In
the matter
between:
-
FIRST
RAND
BANK
LIMITED
APPLICANT
And
CLASSCO
TRADING
(PTY)
LTD
RESPONDENT
JUDGEMENT
TSATSAWANE
AJ
Introduction
1.
The applicant
("
the
bank
")
seeks an order
in
terms
of which
the first respondent
("
Classco
")
is
placed
in
final
liquidation.
Classco
opposes
the
relief
which
the bank
seeks
against
it.
2.
There
are
various
pending
applications
for
leave
to
intervene
in
this
application
by
other
parties.
These
applications
are
not
before
me
at the
moment
and
I
need
not
express
any
view
in relation
thereto.
The parties
impressed
upon
me
that
any order
that
I
may
grant
in
this
application
will
not
adversely
affect
the
rights
of
those who
seek to
intervene.
3.
There is
a
provisional liquidation order
granted by Mabuse J
which
has
been
extended
from time to time.
This is a return
date
of that
order.
4.
This judgment
only
deals with
the
question
whether
the
bank
has
locus
standi
to seek the
relief
which
it
seeks.
If
it
does
not,
it
follows
that
the
provisional
order
cannot be
extended
and the application
will
have to be
dismissed.
The facts
5.
The bank seeks the relief which it seeks on the
basis that it is Classco's creditor.
It
alleges that Classco is indebted to it.
Ifindebtedness is established, then in that
event,
the
bank
should
be
entitled
to
seek
the
relief
which
it
seeks.
If
indebtedness
is not
established,
then
in that
event,
the
bank
will
not
have
the
necessary standing to seek the relief which it seeks.
6.
In support
of
its case, the bank
relies
on a deed
of
suretyship
and
a memorandum of agreement
in
which
the
indebtedness
upon
which
it
relies
was
allegedly acknowledged.
7.
The
facts
on
the
basis
of
which
the
bank
alleges
that
it
is
Classco's
creditor
are
complex
and require
some detailed
examination.
For this reason, and to the extent that
it
may
be
necessary,
I will
quote
from the
relevant
documents
placed
before
me to justify
my
conclusions.
The facility
agreements
8.
On 5 March
2008,
the bank
and Mamie
Developments
(Pty) Ltd
("
Marnie
Developments
")
concluded
an
agreement
in
terms
of
which
the
bank
provided certain banking
facilities to Mamie Developments
("
the
facility
agreement
").
In concluding
the
facility
agreement,
Mamie
Developments
was represented
by
Manuel
Henrique
de
Sousa
de Freitas
("
Freitas
").
In terms
of
the
facility agreement,
the bank
provided
Mamie
Developments
with
8.1
a
working
capital facility in
the
amount of
R14
500
000,00
repayable on demand;
8.2
a
contingent
guarantee facility in
the
amount
of
R383
109,00
in
terms
of which
individual
guarantees
could
not
exceed
12 months;
8.3
a settlement facility for the encashment of
cheques m the amount of R
l
00 000,00
repayable
on demand.
9.
The
facility
agreement and
the aforesaid
facilities were also governed by
the
bank's
general
terms
and
conditions
applicable
to
facilities
and accepted
by
Marnie
Developments.
These
general
terms
are
attached
to
the facility agreement.
10.
The conclusion
of
the
facility
agreement
and
the
terms
applicable
thereto
are not in dispute. It
is
also not in dispute that the bank
made
the abovementioned facilities
available
to
Mamie
Developments
and
that
Mamie
Developments
used
the
facilities.
11.
In
October
2010,
the
bank
and
Marnie
Developments
concluded
another
facility agreement.
Nothing
much seems
to
tum on
this
further facility agreement. In fact,
in
paragraph
13 of
its
founding
affidavit,
the
bank
says
that
the
terms
and conditions
of
this
further
facility
agreement
are
identical
to
those
of
the
facility agreement
save
that the
applicable
interest rate
is
the bank's
prime
rate plus
2%.
The Vaal
Bricks
suretyship
12.
On
16
October
2010,
Vaal
Bricks
(Pty)
Ltd
("
Vaal
Bricks
")
(previously
Useful
Trading 16
(Pty)
Ltd)
executed
a
deed of
suretyship
in
favour
of
the
bank
as surety
for
and
as
co-principal
debtor
with
Marnie
Developments
and
as
security
for
the
due
payment
by Marnie Developments of
all
monies
due
by it
to
the bank.
13.
The conclusion of the Vaal Bricks suretyship and the terms
thereof are not in dispute.
The
Classco
suretyship
14.
On
3
September
2012,
Classco
executed
a
deed
of
suretyship
in favour
of
the bank for Vaal Bricks'
debts
("
the
Classco suretyship
").
15.
The conclusion of the Classco suretyship and the terms thereof are
not in dispute. There is a dispute about whether it
was intended to
secure the debts of Vaal Bricks or those of Marnie Developments.
16.
The Vaal Bricks debts secured by the Classco
suretyship would include its debts arising
from
the
Vaal
Bricks
suretyship
in
terms
of
which
it
secured
Marnie Developments'
debts
owed to the bank.
17.
Classco itself
does
not
directly
owe
the
bank.
For
the
relief
which
it
seeks against Classco, the bank
relies
on
the Classco
suretyship.
Without the Classco suretyship, the bank
cannot
succeed with the relief which it seeks in
this
application. For suretyship
liability
to arise, there has to be
a
debt which
is due and payable
secured by a deed of suretyship. Without there being a debt secured
by a deed of suretyship being due and payable,
a surety cannot be
liable.
The
bank's
complaints
and
alleged
indebtedness
18.
In
its
founding
affidavit,
the bank
alleges
that
Freitas
and
others
embarked
on
numerous
fraudulent
activities
which
resulted
in
Classco
and
its
other
related companies being heavily indebted to it.
19.
In paragraph
34.5
of its founding affidavit, the bank
says
that at a meeting held on
19
July
2012,
Freitas
informed
its
representatives
that
"the
respondent
and
the
other
entities
within
the
Freitas
Group
are
unable
to
make
payment
of
the
amounts
owed
to
the
applicant
and
that
the
winding-up
of
the
companies
within the Freitas Group including Vaal
Bricks would follow
".
Freitas
denies this version and gives a different version in Classco's
answering affidavit
. It
is necessary that I highlight the material parts
of Freitas' version in this regard.
20.
In paragraph 88 of Classco' s answering affidavit, Freitas says that
"88.1
I
stated
that the
Marnie
Group would be in a position, given reasonable time
to do so,
to
repay
the
amount
allegedly
owing
by
it
to the Applicant.
88.2 At
the
conclusion
of this
meeting
I
spoke
to Jan
van
der Walt, whom
I had
met
on
a
previous occasion. Van der Walt asked
whether
Marnie
Group
could
furnish
security
to
the
Applicant for
monies
owing
by
the Group.
88.3 I informed
him that Classco had sufficient assets to secure
the amount owing to
the
Applicant.
88.4 He
wanted
to
see
the
property. Van der
Walt
and I, in our
individual
motor vehicles, then drove to the Classco
property.
I
explained to Van der
Walt
that Mercantile
Bank
had
a
First
Mortgage
Bond
over
the land in
a
sum of approximately
R64,
000, 000-00 but that once transfers
of
certain
sold
units
of
the
development
had
been affected, this amount would be
reduced to approximately RI
5,
000, 000.
…
88.7 Save as
aforesaid I deny these allegations."
21.
The purpose and enforceability
of the Classco suretyship must be considered
in the context in which
it
was concluded. The bank says that it was executed in its favour
as
security
for
the
indebtedness of
Vaal
Bricks. On
the
other
hand,
Classco disputes this and says that it was concluded or executed for
purposes of the
debts
referred
to
in
the
memorandum
of
agreement
to
which
I
will
refer
below.
In addition, it was
contended
on behalf
of Classco that
the
reference
to Vaal
Bricks
in
the
deed
of
suretyship
is
in
fact
incorrect
and
that
the
deed
of suretyship
ought
to be
rectified
to
reflect
that
it
was
executed
for purposes
of
Marnie Developments' debts.
22.
The
bank
further
says
that
its head
of
fraud
and
disputes,
Jelal,
conducted
an investigation
into
the conduct of Freitas and others, i.e. Borrageiro,
Concalves, and Fernandes
in
relation to the conduct of the accounts of the Freitas Group of
companies.
This full-scale
investigation revealed,
so
the bank
says,
"thatfraud
was committed in respect of the accounts
of Freitas Group, that R82 029 475,08 was
deposited
in
Vaal Bricks
account
and
that
there
is
clearly
scope for the laying
of
criminal
charges."
23.
Freitas
denies
that
"fraud
was
committed'
and
says
that
Jelal's
report
contains
Jelal's
"opinion not
based
on
the
facts
set
out
in this
affidavit."
Freitas
accepts
that
meetings were held between the parties
"aiming
to reach a settlement."
He,
however, denies the alleged indebtedness upon
which the bank relies.
24.
Despite Jelal's aforesaid findings which the bank says are true and
correct and the alleged indebtedness, the bank was
still prepared to
do business with Freitas and the companies associated with him, to
the extent of even considering to finance
a property development
project in which Classco was involved. The bank was prepared to
finance the development subject to certain
conditions, amongst
others, that Freitas and the Freitas Group of companies
"enter
into a memorandum
of
agreement
in
terms
of
which
they
acknowledged their indebtedness
towards
the
applicant."
The memorandum
of agreement to acknowledge indebtedness was presented to Freitas for
signature on 30 August 2012.
25.
The
bank
says
the
following
in
its
founding
affidavit
about
the
aforesaid
memorandum
of
agreement
which
was
presented
to
Freitas for signature
[1]
"43 Freitas,
as a sign
of
his
commitment in resolving the
m
atter,
signed the memorandum of
agreement in
his personal capacity
and on behalf
of
the
Freitas Group and delivered the signed agreement to the applicant's
offices.
44 From
the
memorandum
of agreement,
it is evident
that Freitas
and
the
Freitas
Group
acknowledged
their
indebtedness
towards
the
applicant.
45
It
is
important to note that the
memorandum of agreement was not signed bv the applicant, as the
applicant at that stage had not completed
its
investigation
into
the
property development and
whether
to
provide
funding
for it,
nor
was
the
applicant
in a position to present
the memorandum of agreement to its credit
committee
for
consideration
as
there
was still
outstanding information
required from Freitas ..."
(my
emphasis).
26.
It is important to note that the bank does not
say that it was not necessary
for
it
to
sign
the
memorandum
of
agreement
for
it
to
be
legally
binding
upon
the
parties.
It
says that
it
did
not
sign it
because
it had
not
completed
its
investigation. At the bottom of
the
memorandum of agreement, it is
stated
that
"This
is a legal document and will be legally
binding on the
parties
after signature
thereof
"
27.
On its own terms, the document
upon which the bank relies is not
"legally
binding
on the
parties "
because
it
has not
been
signed
by
the
bank.
Furthermore, clause 6.4
thereof
provides
that should
the
agreement not
the
executed before l
7h00
on
5
September
2012,
it
"will
be
of
no force
and
effect
and
First
Rand
shall be
entitled to
immediately institute
legal
proceedings
for
the
recovery
of the
debt."
Accordingly, on
its
own
terms,
the document
is
not legally
binding
upon the parties
due
to the fact that
it was not
executed by the bank before
17h00
on 5 September
2012.
28.
In
paragraph
49 of its founding
affidavit,
the bank says
that Vaal
Bricks is indebted
to
it
in
the
amount
of
R82
029
475,00,
Marnie
Developments
in
the amount of RS
835
140,06.
On this basis,
the bank
continues to
say
that
"54
By
virtue of the Classco Trading suretyship
and
the Vaal Bricks suretyship,
the
respondent
is
liable to the applicant
for the
full amount owing
by Marnie Developments to the applicant in
terms of the renewed
facility
agreement ...
55
By
virtue of the
fraud
and the Vaal Bricks suretyship, the respondent is also
indebted
to the applicant
jointly and
severally together
with the other entities within the Freitas
Group in the amount of R82
018
475.08 ..."
(my
emphasis).
29.
The
bank
also
relies
on
the
alleged
"massive
fraud perpetrated
by
Freitas
in
respect
of
the
account
held
by
the
Freitas
Group
with
the
applican
t
"
for
its
numerous conclusions on the basis of which it
contends that Classco is insolvent; Classco
is
unable
to
pay
its
debts
and
that
it
would
be
just
and
equitable
for
Classco to be placed in liquidation.
30.
It is necessary that I first deal with the question whether bank has
established that Classco is liable to it on the basis of
the
memorandum of agreement and the Classco suretyship. In this regard, I
must have regard to what the memorandum of agreement
says and whether
it is binding upon the parties.
30.1
Classco and Vaal Bricks are parties to the
memorandum
of agreement
and are defined therein,
collectively
with
others, as
"the Debtor
s
"
and again as
"the
sureties".
30.2
The preamble records (in clause
1.2 thereof) that the debtors have received
"certain
banking
facilities"
from
the bank
and
"have breached
these facilities
and are accordingly
indebted'
to
the
bank
in
the amount of R89 288 264
together with interest thereon etc.
30.3
Clause 1.3
thereof,
which is part of the preamble and background section of the
memorandum
of agreement
records
that,
amongst
others,
Classco
and Vaal
Bricks
acknowledge
that
they
are indebted
to
the bank
"for the
debt set
out
in paragraph
1.2 above,
by
virtue
of
unlimited
deeds
of suretyship
either
executed by them prior to the signature of this agreement
alternatively to
be
executed by
them
simultaneously with
the
signature
of this
agreement
in favour"
of
the
bank.
The
Vaal Bricks suretyship
is
the only
one
which
was
executed
prior
to the
memorandum
of
agreement.
The Classco
suretyship
was
executed
on
the
same
day
as
the
memorandum of agreement.
30.4
The
Classco
suretyship
upon
which
the
bank
relies
was
signed
on
3
September 2012 -
the
same date that the memorandum of agreement was
signed
by Freitas for and on behalf of himself and the other entities. It
is
the
same
suretyship
which
is
referred
to
in
clause
1.3.5
of
the
memorandum
of
agreement
which
memorandum
of
agreement
the
bank
did
not
conclude.
It was
given
to
secure the
debts
contemplated
in
the
memorandum
of agreement.
30.5
Clause 6
of
the
memorandum
of
agreement
deals
with the rights of
the bank
in
the
event
of its breach.
It
provides
that
in the
event
of a breach,
the
bank shall
have the
right
to
apply for liquidation of
any
of
the
debtors, including
Classco.
Clause
6.3
provides
that
it
is
"recorded, by
the parties"
that
in
the
exercise
of
the
bank's
rights
in
terms
of
clause
6,
"this agreement
and
certificates
of
balance ...,
shall
be
prima
facie
proof of
the
contents
for
purpose of anyjudgment or order."
31.
In
paragraphs
53,
54
and
55
of
its
founding
affidavit,
the
bank
relies
on
certificates
of
balance to
prove
what it
says
is
owed
to
it
by Classco.
This
is
despite
the
fact
that
the
bank did not conclude the memorandum of
agreement
which makes
prov1s10n for the use of certificates of balance to prove
indebtedness.
32.
In my
view,
insofar
as
the bank
did
not
conclude
the memorandum
of agreement
which
makes
provision
for
the
use
of
certificates
of balance,
it
follows that
there is no
agreement
between
the
bank
and
the
parties
to
the
memorandum
of agreement
that
the
bank
could
rely
on
certificates
of
indebtedness
signed
by
its managers as
proof
of
indebtedness
for
purposes of
the
relief
which
it
seeks
in
this
application.
33.
The
position
would
obviously
have
been
different
if
both
parties
had
concluded
the memorandum
of agreement.
The bank
cannot
rely
on the certificates of
balance
or
indebtedness
to
prove
Classco's
indebtedness
to
it
due to
the
fact
that there
is no
agreement
to
use
such
an
instrument
for
such
a purpose.
The
certificate of indebtedness
contemplated
in clause
19
of
the
Classco deed of suretyship
itself
can
only
be
in
relation
to
the
debts
contemplated
in
the memorandum of
agreement
which
would
have
been
proved
by
a
certificate
of balance
if
that agreement
had been
concluded
by
both parties.
34.
Clause
6.3
of
the
memorandum
of
agreement
provides
that
the
memorandum
of
agreement
would be of no
force
and
effect if it is not executed
before
17h00 on 5 September
2012.
This
being
the
case,
it
follows
that
the
memorandum of agreement is
of
no
force
and effect and
the
contents
thereof
cannot
be
relied upon
in
support
of
the
relief
which
the
bank
seeks
in this
application
due
to
the fact that the bank
did
not
conclude
it.
35.
In
paragraph
43
of
its
founding
affidavit,
the
bank
says
that
Freitas
signed
the memorandum
of
agreement
on his behalf
and
on
behalf
of the
other entities
"as
a sign
of
his
commitment
in resolving
the
matter."
On the
other
hand,
in its
answering affidavit, Classco says
the
following
about why it signed
the
memorandum
of agreement
-
"36 I signed
the documents within the pack on the understanding between me and the
representatives of the applicant
that my signature would
constitute an offer made by the various entities referred to in
the memorandum
of
agreement
(including the respondent) to the applicant in settlement of the
indebtedness of the debtors (as defined in the agreement)
to the
b
ank.
37 I interpose to
say that Classco did not have an account with the applicant ...
but
tor
the
pro
posed
settlement
the
applicant
would never have a claim against
C
lassco.
38 It was the
common intention of the representatives of the applicant and
I that my signature
on
the Classco suretyship,
which
was
furnished
to
the
applicant simultaneously with the memorandum of
agreement
would
constitute
–
38.1 an offer
made by Classco to bind itself as surety
for the obligations
of Marnie Developments to the applicants;
and
38.2
that the suretyship would relate to the debt recorded
in
the
memorandum of agreement.
…
40. It
is common
cause
that
the
applicant
did
not
accept
the
offer
made
by
the
debtors to
it,
and
accordingly no
agreement was concluded between
the parties.
It
follows
that
the
Classco
suretyship which
was given
for
the specific purpose of the settlement,
is
unenforceable.
41. the
applicant did
thus
not
accept
the
Classco 's offer
to
bind
itself
as
surety for
the
debts
circumscribed in
the
memorandum
of
agreement.
Accordingly no
deed
of
suretyship
was
concluded
between
the
parties and/or
executed
by Classco infavour of the applicant."
(my emphasis).
36.
It is clear from the above that the reason
for the
signing
of the memorandum
of
agreement
by
Freitas
is
not
common
cause between
the
parties.
The bank
says that
Freitas
signed the memorandum
of
agreement
"as a sign
of his commitment in
resolving
the
matter"
whereas
Freitas
himself
says
that
he
was
making
an
offer
"to the
applicant in settlement
of
the
indebtedness"
which
offer
had
to
be
accepted by the bank failing which
it would fall a
way.
It is so that clause 6.4 of the memorandum
of
agreement provides that it had to be executed before
l7h00 on
5
September 2012
failing
which
"this agreement
will be of
no
force and effect."
37.
In the premises,
without
the memorandum
of agreement
having been
executed or
accepted
by
the
bank,
the
bank
cannot
rely
on
it
in
support
of
this
application. Even
if
I
am wrong
on this
issue,
on
both
versions,
neither
the
bank
nor
Freitas
intended
that
the memorandum
of
agreement
would
constitute
a
legally
binding agreement
unless
signed
by
both
parties.
The
bank
even
considered it
to
be
a
"sign of commitmen
t
"
which
is
far less than
an offer of
settlement
which
Freitas
considered
it to be, the acceptance of which by the bank would have resulted
in a legally binding and enforceable agreement
between the parties.
38.
As far
as
the Classco suretyship itself
is
concerned,
Freitas says
that it
was intended to
secure
Marnie Developments' debts
to
the
bank
and
not
those of Vaal
Bricks.
To the extent that
it
refers to Vaal
Bricks,
Freitas
says
that
it ought to
be
rectified.
This
means
that,
according
to
Freitas,
the
common
intention
of
the parties
was not
correctly
recorded
in the Classco deed of
suretyship.
Freitas'
version
in this regard
is supported by clause
1.3.5
of
the memorandum
of
agreement
which
contemplates
Classco
executing
a deed
of
suretyship
in
favour of
Marnie Developments
and
not in
favour
of
Vaal Bricks. The
bank
denies Freitas'
version.
As
a
result,
it
is not
common
cause that
the
Classco
suretyship
was intended
to cover the
Vaal
Bricks
debts due to the
fact
that
Freitas
says that a reference
to
Vaal
Bricks
in
it
is wrong
and
ought
to
be rectified.
This
is not
a
dispute
which
I
can
resolve
on
the
papers
before
me.
In
addition,
Classco
does
not in any event seek an order to rectify the deed of suretyship.
39.
In
addition,
Freitas
says
that
the
Classco
suretyship
relates
to
the
debts
contemplated in
the
memorandum of
agreement.
The
bank
vehemently
denies
this.
The bank,
however,
has
not
produced
any
evidence
to
show
any other
basis
on which
or the
purpose
for
which
the
Classco
suretyship
was
executed
than
the
debts contemplated
in the
memorandum
of
agreement.
40.
In
paragraph
59
of
its
replying affidavit,
the
bank gives
a
different purpose for the memorandum of
a
greement. It says that
"the
agreement is an acknowledgement of indebtedness
arising
from
the Marnie
Developments
facility and
the
fraudulent
conduct."
It
further
says that
"the
September agreement serves
to
confirm
the
acknowledgement of
indebtedness
by
Freitas on
behalf
of
Classco."
41.
Of
importance,
the
bank
denies
that
it
would
not
have
a
claim
against
Classco
without
the
memorandum
of
agreement.
In
this
regard,
the
bank,
however,
does
not explain as
to why the
first
time in
the chronological
sequence
of events reference
is
made
to
the
Classco
suretyship
is
in
the
September
agreement
and why the
suretyship
was
executed
on the very same day that the September agreement
was
signed
by
Freitas
ifthere
is
no relationship
between
the
two.
42.
In my
view,
there
are
material
disputes
of fact between
the
parties
and this
is not a
dispute
which can
be
resolved on
the
papers before
me.
These
proceedings,
being
motion
proceedings, are
clearly
not
designed
to
resolve
disputes
such
as the disputes
which
I have
outlined
above.
43.
In
National
Director of Public
Prosecutions v Zuma
[2009] ZASCA 1
;
2009
(2)
SA
277
(SCA)
the Court
restated the
legal position as
far
as
motion
proceedings and disputes of fact are concerned
as follows
"[26] Motion
proceedings, unless
concerned
with
interim
relief, are
all
about the resolution
of
legal
issues
based
on
common
cause
facts.
Unless
the circumstances
are
special
they
cannot
be
used
to
resolve factual
issues
because they are not designed to
determine
probabilities. It
is
well
established under the
Plascon-Evans
rule that
where
in
motion
proceedings disputes
o
f
fact arise
on
the
affidavit,
a
final
order
can
be
granted only
if the
facts
averred
in the
applicant 's
...
affidavits,
which
have
been admitted
by the respondent ...,
together
with
the facts alleged
by
the
latter,
justify such
order.
It
may
be
different
if the
respondent 's version consists of bald or
uncreditworthy denials, raises
fictitious
disputes
of
fact,
is
culpably
implausible,
far-fetched
or
so
clearly
untenable that
the
Court
is
justified in
rejecting
them
merely on
the papers. The Court below did
not
have
regard
to
these propositions and instead decided
the
case
on
probabilities without
rejecting
the NDPP's
version."
44.
In
further
support
of
its
contention
that
Classco
is
liable
to
it
as
a
result
of
the alleged
fraud,
the bank
criticizes
Freitas
for
not
explaining
the role
of
Classco
in the
kite
flying
activities.
In
this
regard,
the
bank
seeks
to
suggest,
in
paragraph 60 of
its
replying
affidavit
that
there
was
a
duty
upon
Freitas
to
explain
the
role of
Classco
in the
kite
flying activities
and
the
benefits
that
Classco
had
from
the fraudulent
conduct.
There
was
no
such
duty
upon
Freitas
to
explain
the
alleged role
of
Classco
in
the
alleged
kite
flying
activities.
It
is
the
bank
which
had
to
place
common
cause
facts
before
the
Court
on
the
basis
of
which
it
says
it
is
in law entitled
to
the relief
which
it seeks. It failed
to
do so.
The allegations
of fraud
45.
As
I
have
stated
above,
the
bank
relies
on
allegations
of
fraud
allegedly committed by
Freitas and
others
for
various
conclusions, amongst others,
that
Classco
is
insolvent,
that
Classco
is
unable
to
pay
its
debts
and that
it
would
be just
and
equitable
to
liquidate
Classco.
46.
The alleged
fraud
upon
which the bank
relies
is
what
is referred
to in the founding
affidavit
as
"kiting",
"kite
flying "
or
"cross
firing "
allegedly
perpetrated
by
Freitas,
Borrageiro,
Concalves
and
Fernandes.
None
of these people are
before
me
in
this
application
and a
finding
to
the
effect
that
they participated
in
"kite
flying"
would have a
negative
impact upon them without them having
been
heard.
47.
The
"kite
flying "
activity
is
described
in
paragraphs
22
and
32
of
the
bank's
founding affidavit as
follows
"22
"Kiting", "
kite f
lying"
or
"
cross
f
iring"
are
terms
used
to
denote
a
speci fic type
of fraud
whereby
cash
is
recorded
in
more
than one
bank account, however, in reality the cash
is either non-existent or in
transit.
"Kiting'',
"
kite
f
lying"
or
"
cross
f
iring"
is committed
between
multiple
bank
accounts
either
within
the
same
bank
or
across
various banks.
…
The
conduct of
Freitas
in
regard to
the
accounts within the
Freitas
Group
constitutes
a
classic
example
of
"kiting", "
kite f
lying"
or
"cross
firing" ,
in terms
of
which
false
and fraudulent
transactions
are
created
for
two
reasons
-
firstly,
a false increase of
turnover on
the
relevant
accounts
are
thereby
created
demonstrating active trading and
flow
o
f
funds and
secondly,
to
syphon
o
f
funds
to which
there
is no
entitlement.
It
effectively
created false
credits
which
could
be
utilised by Freitas
and
the
entities."
(my
emphasis).
48.
In paragraphs
28
to 30 of Classco's
answering
affidavit, Freitas denies involvement
in kite flying and alleges that he explained to
the bank's representatives
in
December
2011 when they
raised the issue that there was possible
wrongdoing
on
his
part
and
on
the
part
of
the
Freitas
Group
of Companies.
In
this regard,
Freitas
says that
he
explained
that
the
entities
in
issue
"had
loan
accounts between them
which
necessitated movement of funds between
these
entities"
and that the
bank's
representatives did not complain
about this movement
of
funds until
March
and
July
2013.
Freitas
therefore suggests
that
the
bank
was
fully
aware
of
the
movement
of
funds
between
the
relevant entities and
the
reason for
it
or
purpose
thereof. The
bank, however,
denies
this
version
in
its
replying
affidavit
but
says
the
following
in
paragraph 32 thereof
"32 I
deny
that
any "cash management
scheme" was
implemented or
that it
was
agreed to
by
the
applicant.
Booth and
Scrace
confirmed that they were
not
aware
of such
a scheme
and
certainly
that such a scheme
could only be implemented and operated
if there was a written agreement in place
.
.."
(my emphasis).
49.
It
is
important to note that the bank does
not say
that
the cash management scheme
as
described
by
Freitas
is
per se
unlawful.
It says
that
the
cash
management
scheme as
described by Freitas could only
be
"implemented
and operated'
if
there was a written agreement in p
lace. It is
not possible to determine
on
the
papers
before
me
if
the
bank's
representatives
knew
about
the cash
management scheme or
if
they
condoned it
as
suggested by Freitas. It is therefore
not
possible
to
conclude
that
fraud
has
been
committed
and
that such justifies
the
conclusions
which
the bank
seeks to draw.
50.
In
Gates v
Gates
1939 AD 150
at
155 it was held that
"It
is
true
that
in
certain cases more especially in
those in
which
charges of criminal or
immoral
conduct are
made,
it
has
repeatedly been
said that
such
charges
must
be proved
by
the "clearest" evidence
or "clear
and
satisfactory"
evidence
or
"clear and
convincing"
evidence
or
some
similar
phrase."
51.
The
contents
of Jelal'
s
report
and
the
different
versions
in
the
papers
before
me
do not
constitute
the clearest evidence of fraud having
been
committed by Freitas
and
the
other
individuals.
I
also
cannot
arrive
at
that
conclusion
without the
alleged
perpetrators being
before
me
in
this
application
and
without
them having been
given
an opportunity to respond
to
the fraud allegations made against them.
52.
It was
also
contended
on
behalf
of
Classco
that
the
suretyship
upon
which
the bank
relies
does
not
comply
with
section
45
of
the
Companies
Act,
2008
and
that
for this reason,
it is unenforceable
against
Classco to entitle the bank
to rely on
it
for
purposes
of
the
relief
which
it
seeks
in
this
application. In
the
view which I have taken above, it is
not necessary to consider the
merits of
this
defence.
53.
In the premises,
the
following
order is made
53.1
The provisional
liquidation
order is set aside.
53.2
The application
is
dismissed
with costs.
_____________________
Kennedy
Tastsawane
Acting
Judge of the Gauteng Division of the High Court of South Africa.
For
the applicant: JE Smit
Werksmans,
Johannesburg c/o Serfontein Viljoen and Swart, Pretoria.
For
the respondent: AB Rossouw SC
Afzal
Lahree Attorneys, Johannesburg
[1]
It is necessary that I highlight the material parts of the bank's
version in this regard.