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[2016] ZAGPPHC 306
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Argent Steel Group (Pty) Ltd v Go Suspensions And Axles (Pty) Ltd, In re: Kubere and Another v Argent Steel Group (Pty) Ltd and Others (36414/2012) [2016] ZAGPPHC 306 (24 February 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
DIVISION. PRETORIA)
CASE
NO: 36414/2012
DATE:
24 FEBRUARY 2016
In the matter
between
ARGENT STEEL
GROUP (PTY)
LTD
............................................................................
APPLICANT
And
GO SUSPENSIONS
AND AXLES (PTY)
LTD
............................................................
RESPONDENT
AND
T. P.
KUBERE
..........................................................................................
1ST
INTERVENING PARTY
D. M.
MADHLABANE
..........................................................................
2ND
INTERVENING PARTY
And
ARGENT STEEL
GROUP (PTY)
LTD
................................................................
1ST
RESPONDENT
GO SUSPENSIONS
AQND AXLES (PTY)
LTD
................................................
2ND
RESPONDENT
M. F. RAMONETHA
N.O
.....................................................................................
3RD
RESPONDENT
JUDGMENT
PRELLER J:
This is a dispute
about liability for the reserved costs of an opposed application for
the liquidation of the respondent. There
was also an application to
intervene by two of the employees of the respondent. For the sake of
convenience I shall refer to the
parties in the main application as
the applicant and the respondent and where applicable, to the others
as the parties for intervention.
The history is
briefly that the applicant and the respondent have had a business
relationship since about 1993. The respondent manufactures
axles and
suspensions for heavy trailers and uses the services of the applicant
to make certain bushes and other components. For
this purpose the
respondent had provided certain moulds to the applicant. The
respondent, incidentally, alleges that the applicant
used these
moulds in order to compete unlawfully with the respondent and in fact
stole one of its main customers in the process,
resulting in severe
financial losses for the respondent. The allegation is denied by the
applicant, who points out that the respondent
surprisingly does not
annex nor even allege any correspondence to corroborate this serious
accusation.
What is not
disputed, however, is that the respondent experienced financial
difficulties during 2012. As a result the applicant
was informed by a
firm of business consultants that they had been “mandated to
facilitate the recapitalisation” of
the respondent. It seems to
me that what it means is that money would be lent to the respondent
against the security of a bond
over its property. At that stage the
respondent was indebted to the applicant to the tune of almost R 200
000.
I am not informed
what the outcome of the mandate, the facilitation or the
recapitalisation was, but the respondent alleges that
it made an
arrangement with the applicant to purchase goods from it on a C.O.D.
basis with the qualification that all payments
made on that basis
would be allocated not to the current sale, but to the oldest debt on
the applicant’s books. The purpose
of the arrangement was,
according to the respondent, “to enable the age analysis on the
respondent's trade account to reflect
a more healthy balance and
would allow the respondent to pay off the arrears owed to the
applicant sooner rather than later”
This probably means nothing
more than the intention was to make the respondent’s debts in
the applicant’s books look
better, but the respondent does not
explain how the outstanding balance would be reduced without
additional payments.
By December 2012 the
applicant caused a letter of demand in terms of section 345 of the
Companies Act to be written to the respondent
in respect of the
outstanding amount. The letter was addressed to the registered office
of the respondent and was to be served
by the sheriff. For some
reason service was only effected in April 2013. The managing director
of the respondent says that the
auditor of the company forwarded the
letter to him, but that he did not pay particular attention to it
because he received it at
a time when he was very busy and when he
noticed that it was dated some four months earlier, he assumed that
the notice had lapsed
and he just ignored it.
On 12 June 2013 the
applicant launched the application for liquidation. It was served at
the registered office of the company, being
that of ARB Inc., the
auditors of the company, on 18 July 2013. The delay of more than a
month between the issue and the service
of the application is not
explained.
Something needs to
be said about the returns of service. In terms of Uniform Rule 4
service can be effected on a company at its
registered office by
handing a copy to a responsible employee. Despite the clear
requirements of the rule, the sheriff merely rendered
four returns of
service according to which he had served copies uon ARB9 by leaving
copies with “Tina the secretary”.
The Rule requires
service on the company and not on its auditors. It is the duty of an
attorney to scrutinise the sheriff’s
return and if it is not in
order, to insist on better service or that a proper return be
rendered. The offices of the auditors
are in lllovo, Johannesburg,
while the principal place of business of the respondent is, to the
knowledge of the applicant, in
Alberton. Although service at the
registered office would have sufficed, it would have made more sense
to serve on the respondent,
its employees and the relevant unions at
its principal place of business. The terms of the attorney’s
instructions to the
sheriff are not clear, but according to the last
page of the Notice of Motion it was addressed to inter alia the
respondent, its
directors, employees and auditors, all at the same
address in lllovo. The question whether service on the employees in
this manner
was valid, is a major dispute in this application.
The application is
based mainly on the respondent’s failure to react to the letter
in terms of sec. 345 and also on its failure
to pay as envisaged in
the letter from the business consultants. Under the circumstances set
out above the application was not
opposed and on 1 August 2013 a
provisional order of liquidation, returnable on 17 October, was
granted. In terms of the order it
had to be served on inter alia the
Master, SARS and the employees of the company.
Once again there was
an unexplained delay of more than a month before service was effected
on 6 September 2013 on the secretary
of ARB “...at THE
DIRECTORS OF THE Defendant Company’s registered
office.(presumably intended as service on the directors,
since there
was also service on the respondent at the same address) and also on
her “...at THE EMPLOYESS (sic) Company’s
registered
office...”. The latter is the only indication that any attempt
was made to serve the order on the employees.
Notice of intention
to oppose was delivered on 3 October together with an opposing
affidavit by the respondent’s managing
director. The affidavit
concludes with prayers that:
1. The provisional
order be discharged;
2. The application
be dismissed;
3. It be declared
that the application is an abuse of the procedure, alternatively is
malicious or vexatious and that the respondent
be allowed to prove
the damages (sic) that it may have suffered and to be paid such
compensation as the court may deem fit;
4. An order for
costs on the scale as between attorney and client as well as any
costs incurred in the process of the provisional
liquidation.
In the affidavit the
managing director explains that he only learnt of the existence of
the provisional order on 5 September when
he received a phone call
from the respondent’s bank manager. He saw the respondent’s
attorney and auditor on 10 September
and the affidavit was
commissioned more than three weeks later on 2 October.
More than five pages
of the answering affidavit are devoted to the respondent’s
objections in limine. The deponent complains
that there has not been
proper service on SARS because there is nothing more than a feint
SARS date stamp on his copy of the application.
He states that the
time of service and also the name of the person who received the copy
should have been reflected on the original
and other copies. That is
news to me since I have never in the years that I have been on the
bench seen such an acknowledgement
of receipt by SARS and a simple
date stamp has consistently been accepted as sufficient proof of
service.
The main ground of
objection in this regard is the applicant’s failure to serve on
the employees and any unions representing
them at the principal place
of business. The deponent complains in exaggerated terms about the
applicant’s “lack of
respect and utter disregard for the
plight” of the employees. He argues that the provisions of sec.
346{4A)(a) of the Companies
Act are peremptory and that the
application has to be served on every relevant union and also on the
employees by affixing a copy
on a notice board or at the main
entrance to the premises. I have always understood the effect of the
provision to be that the
principle of notice to the employees and
unions is peremptory and that the manner of such notice is in the
discretion of the court.
I have often come across cases of a
provisional order having been granted without adequate or even any
notice to them and the court
then giving directions for service of
the final order on them.
The deponent goes
further and submits that the failure of the legal practitioner moving
the order to invite the attention of the
court to the defects amounts
to improper conduct and should be reported to his/her professional
body. Later in the papers the respondent
insists on the name of the
practitioner being disclosed and even asks for an order for costs de
bonis propriis against the applicant’s
legal team. I prefer not
to go into the details of the correspondence that was later exchanged
between the attorneys on this topic.
It is not clear on what basis
this order is sought, i.e. whether the respondent intended that the
matter be argued as an appeal
or otherwise. No information is
available about the events at hearing of the application and the
respondent did not provide a transcript
of the recorded proceedings.
It is therefore by no means clear that the court hearing the
application was unaware of the defective
service on the employees and
their unions. In my experience the first thing that a judge checks in
preparing the roll for the unopposed
motion court, is whether there
has been proper service on all parties concerned. It is therefore
likely that the court hearing
the matter would have debated the
defective service with counsel appearing for the applicant and may
have been persuaded to condone
whatever defects there may have been.
If a court considered the service and decided to condone any defects,
the order stands until
it is set aside on appeal.
The respondent
submits that the letter of demand and subsequent application
constitute an abuse of the process, because the applicant
was aware
that the respondent is well able to meet its commitments in the
ordinary course of business. According to the respondent
this is
evidenced by the fact that the applicant is continuing to sell goods
to the respondent on a COD basis, which implies that
the respondent
is able to pay for its purchases. The running up of “enormous
costs” in launching the application is
described as “...simply
a stratagem ... to obtain payment of its claim sooner rather than
later and to bypass the ordinary
court process by holding a
proverbial gun to the respondent’s head.” The respondent
advances this alleged improper
conduct as justification for a
punitive cost order against the applicant. I have referred above to
the respondent’s argument
about the COD payments and will come
back to the running up of costs later in this judgment.
The following
defences are raised on the merits of the application:
1. The respondent
has a counterclaim for several million Rand arising from the unlawful
competition mentioned above. Although the
applicant pointed out the
absence of any correspondence dealing with this aspect, the
respondent did not deal with it in its further
affidavit.
2. The claim for R
192 00 on which the applicant relies would have been “substantially
reduced” by way of the payments
made in terms of their C.O.D.
arrangement and which the applicant failed to credit to the trading
account. It is not explained
how the respondent’s total
indebtedness, be it in terms of a trading or some other account,
would be reduced by C.O.D. purchases
unless there were additional
payments, of which no mention is made. If the respondent’s
oldest debt were to be extinguished
by the payment for a fresh C.O.D.
purchase, a fresh debt for exactly the same amount would be added to
the total indebtedness,
making no difference at all to the amount
owing.
3. The respondent is
not insolvent and in fact has reserves of more than R 24 million. The
respondent also annexes copies of its
“Nedbank
Greenstone account"
bank statements for the period since June 2013 “to the
present”, which would be the date of
the affidavit, being 2
October 2013. The statements consist of 16 pages which are not
chronologically bound. The earliest date
that I could find on any of
them was 31 May and the latest 11 September. There are no statements
for the period between 12 September
and the date of the affidavit.
Furthermore I could not find any indication that the statements are
from a Nedbank Greenstone account,
if the name means anything. I
could find the name of the respondent and the account number supplied
on only three of the 16 pages.
In the circumstances the annexures are
of very limited assistance and constitute sloppy work. What is
significant, however, is
that the statements consistently show a
credit balance, most of the time in excess of several hundred
thousand rand, often more
than R1 million and on a few days more than
R2 million. It seems to me that some consideration should have been
given to the possibility
of saving the considerable costs of this
litigation by simply paying the applicant’s claim, if needs be
under protest, or
of providing security for the claim.
4. On 5 June 2013
and in the regional court the applicant issued summons against the
respondent for the same amount. The claim is
defended on the basis of
the respondent’s counterclaim, but unfortunately the respondent
does not say whether the application
was launched before or after the
notice of intention to defend. The respondent says that the fact that
the applicant instituted
action rather than bringing an application
for judgment, indicates that the applicant is aware that there are
genuine disputes
of fact that would rule out motion proceedings.
5. Insofar as it may
be a defence, in answer to the applicant’s reference to the
proposed recapitalisation the respondent
says nothing more than that
the industry as a whole suffered a downturn, but that the respondent
succeeded in obtaining sufficient
capital to ensure that it could
continue to trade profitably. Nothing is mentioned about paying the
applicant’s claim.
The respondent
concludes by submitting that the prejudice caused to it by the
application is “extremely grave and real”.
This consists
mainly of the prejudice to its reputation in the market place, the
deprivation of its board of its powers of decision-making
and the
interruption of its ongoing work.
On the return day of
the provisional order (17 October 2013) the respondent applied in the
unopposed motion court for the discharge
of the provisional order.
Not unexpectedly the court did not decide the opposed application in
the court for unopposed matters
and simply extended the return day to
20 December, being the next available motion court day.
The respondent
thereupon launched an urgent application on 21 October for hearing on
29 October. The immediate relief sought was
for the anticipation and
discharge of the provisional order with a punitive cost order, and
further relief in the form of a declaratory
order that the
application constituted an abuse of the procedure and certain
ancillary relief, which was to be heard at a later
date. On 23
October the applicant served its replying affidavit in the original
application, which was apparently also intended
to serve as its
opposing affidavit in the urgent application. The applicant points
out that the financial statement annexed by
the respondent shows that
it made a loss of R 8.7 million in 2012/3 and a profit of only R 209
193 over the next six months. It
also remarks (somewhat cynically, in
view of the admittedly lame explanation for the respondent’s
failure to oppose the initial
application) that the “technical
objections” about service of the papers should have been raised
when the application
for the provisional order was heard.
The respondent did
not file any replying papers in the urgent application and the
outcome was that the application was struck off
the roll with costs
for lack of urgency. In its “Further Affidavit in Regard to
Costs” the respondent submits that
the latter order was
incorrectly made, without any attempt to explain the delay between
being informed of the provisional order
and the launching of the
urgent application.
On 4 November 2013
certain employees of the respondent gave notice of an urgent
application, to be heard on 12 November, for leave
to intervene and
have the provisional order declared a nullity. It seems that at this
late stage sanity finally prevailed: the
parties obviously discussed
the matter sensibly and the order was granted by consent, the costs
of the proceedings being reserved
for later determination. The court
order also noted that the respondent had, without admitting
liability, consented to provide
security for the amount of the
disputed claim.
After the order
referred to above the respondent filed a further affidavit regarding
the issue of costs. This evoked an answering
as well as a replying
affidavit which, together with the annexures thereto, ran to more
than 200 pages. They consist mainly of
arguments, reproaches and a
regurgitation of the contents of letters exchanged between the
attorneys of which neither side can
be proud. If the ball had been
played rather than the man, the dispute could have been resolved long
before the start of litigation.
I should also
mention that the answering affidavit deals with 10 letters (annexures
AFL3 to AFL12) as well as an affidavit which
are simply not included
in the bundle before me. In addition the first 13 pages of the
answering affidavit were not bound in sequence
and I had to dismantle
the bundle and sort out the pages and bind them again before I could
read the affidavit. As dominus litis
it is the responsibility of the
applicant to ensure that the record is in order.
I am astonished that
two substantial enterprises that had been in a business relationship
with one another for almost 20 years could
waste the amount of money
and time that they did over an amount that is trifling when compared
to the amount of the legal costs
incurred in avoidable litigation.
What is even more regrettable is that the mudslinging became only
worse once their attorneys
became involved.
I am now asked to
decide who should be liable for the costs of these unfortunate
proceedings. I take into account the cavalier approach
of the
applicant to its duty to effect proper service of the letter of
demand and the application on the respondent and its employees
as
well as the state of the papers that were placed before me. On the
side of the respondent I take into account that by its conduct
and
failure to react to the letter of demand, it was almost asking to be
wound up. If it had all the cash available that is reflected
in the
annexed bank statements, it would have been a simple matter to either
pay or put up security for the amount of the applicant’s
claim,
thereby putting an end to the prejudice of which the respondent was
complaining. It is regrettable that neither of the parties
nor their
attorneys thought of simply making a phone call to the other side to
put an end to the wasting of time and money. Furthermore
the
mudslinging and the playing of the man instead of the ball that is
apparent from the correspondence annexed to the papers is
not what
one would expect from professional men acting in the interest of
their clients.
As a mark of my
disapproval I am not inclined to award costs against either party.
ORDER:
No order of costs is
made.
F G PRELLER
JUDGE OF THE HIGH
COURT