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[2016] ZAGPPHC 350
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Burco Civils CC v Stolz and Another (26201/15) [2016] ZAGPPHC 350 (19 May 2016)
IN THE HIGH COURT OF
SOUTH AFRICA
GAUTENG DIVISION,
PRETORIA
19/5/2016
CASE
NUMBER 26201/15
Not
reportable
Not of
interest to others
Revised.
In the matter between
BURCO
CIVILS
CC
Applicant
and
ALIDA
ADRIANA
STOLZ
First
Respondent
WILLEM
HENDRIK
STEYN
Second
Respondent
JUDGMENT
THULARE
AJ
[1]
The Applicant seeks an order declaring the respondents personally
liable for claim which creditors are unable to recover in
the
liquidation of Caveoplant (Pty) Ltd (Caveoplant).
[2] It
is common cause that Caveoplant has been placed under final winding
up in the hands of the Master of the High Court. Caveoplant
is
indebted to the applicant in the amount of R1 066 196-80. Despite
notices in terms of section 345 of the Companies Act, 2008
(Act No.
71 of 2008) (the new
Companies Act), Caveoplant
failed and or refused
to pay the amounts owed to the applicant. As a result, an application
for the liquidation of Caveoplant was
launched.
[3]
The applicant, in anticipation of the liquidation, launched this
application to protect its interests in terms of section 424
of the
Companies Act, 1973 (Act No. 61 of 1973) (the Companies Act),
alternatively in terms of section 218 (2) of the new Companies
Act.
[4]
The applicant alleges that, as a result of the material
misrepresentations by the respondents, more specifically that the
first
respondent was authorized to act on behalf of Caveoprox (Pty)
Ltd (Caveoprox) and that Caveoprox had sufficient funds to pay the
applicant and other creditors, were they to let their equipment to
Caveoprox, the applicant concluded an agreement, believing it
to be
with Caveoprox, in June 2014, in terms of which Caveoprox required
plant from applicant to be let to EC Mining.
[5]
The applicant alleges that it was advised by the first respondent,
subsequent to the conclusion of the agreement, that Cavoeprox
name
have changed to Caveoplant with a new VAT number 4920266402, and that
all suppliers, including applicant, were to ensure that
the details
were correct on all the invoices as from 1 August 2014, and that no
invoices will be paid unless the correct details
were on the invoice.
The first respondent assured that it is only a name change as
management and all services will still be done
by herself.
[6]
The applicant alleges that it subsequently established that:
(a)
Cavoeprox and Caveoplant are two separate entities,
(b)
Caveoprox has its own registration number, its own VAT number and is
a well-established company, established in 2009. It has
not changed
its name to Caveoplant, and the sole director is a Mr Sittert who has
been such a director since 2010. It was not the
entity that concluded
the agreement with the applicant.
(c)
Caveoplant has its own registration number and its own VAT number and
was established during March 2014, approximately 2 months
prior to
the conclusion of the agreement between the applicant and the first
respondent.
(d)
The first respondent and/or her company or companies do not have
sufficient funds to pay for equipment rented.
(e)
The first respondent at all relevant times, was a director of
Caveoplant and was never a director of Caveoprox.
[7]
The applicant alleges that the first respondent carried on the
business of Caveoplant recklessly and/or with gross negligence
and/or
with the intent to defraud among others, the applicant and/or for a
fraudulent purpose.
[8]
Over and above the misrepresentations referred to earlier in this
judgment, applicant alleges that the first respondent entered
into
inter alia
agreements with the applicant at a time when there
was no reasonable prospect of honouring any monetary payment, that
she failed
or neglected to initiate business rescue proceedings, rely
on the provisions of section 129 (7) of the new Act or to initiate
liquidation
proceedings when Caveoplant was under financial distress.
As a consequence, the applicant alleges that the first respondent,
during
the business dealings between applicant and Caveoplant:
(a)
did not act in good faith and for a proper purpose, and
(b)
did not act in the best interest of Caveoplant and
(c)
did not act with the degree, skill and diligence that may be
reasonably expected.
[9]
The applicant submits that the conduct set out above constituted the
carrying on of the business of Caveoplant fraudulently
and in
contravention of sections 22 and 76 of the new Companies Act and that
the first respondent was knowingly a party to that
conduct, that her
conduct was fraudulent and in the premise, the first respondent is to
be held personally liable to the applicant
in terms of section 424 of
the Companies Act, in the alternative, the first respondent is to be
held personally liable to the applicant
in terms of section 218 (2)
of the new Companies Act.
[10]
The applicant alleges that the second respondent also made himself
guilty of the same conduct, and that in particular as Manager,
he did
not correct the first respondent when she introduced their company
but instead brought the applicant under the impression
that it was
doing business with Caveoplant as an established company which had
the means to pay the bills to the creditors. In
addition, the
majority of the requests for postponement in respect of payment was
made by him. It is the applicant’s view
that he did not at all
comply with the provisions of the Companies Act as stipulated
alternatively he conducted the affairs of
Caveoplant in a fraudulent
manner and it is prayed that he be held personally liable for the
debts of Caveoplant.
[11]
The respondents oppose the application. The first respondent is the
deponent of their opposing affidavit.
[12]
Her allegations are that during or about July 2013 she and her
husband, second respondent, identified a business opportunity
to rent
out earth moving equipment to mines. At the time, they did not own
any such equipment and did not have a registered company.
They
envisaged themselves to be an earth moving equipment brokerage,
hiring equipment and renting same to mines at a marked-up
price.
[13]
Time being of the essence, and her impression that it took long to
register a company, together with her husband they approached
friends
of theirs, the Sitterts, who had a dormant company that was not
trading, namely Caveoprox. The Sitterts agreed and authorized
them to
use Caveoprox to explore the business opportunity. Upon that
authorization and provision of company particulars and banking
details by Mrs Sittert, Caveoprox commenced trading.
[14]
The understanding with the Sitterts was that should the business
opportunity prevail, she would register a separate company,
together
with an accompanying VAT number, to ensure that she became the
director of a profit bearing company. It was not their
intention, nor
did they foresee that their conduct would be construed as unlawful.
She takes exception to any allegation that their
conduct was
fraudulent.
[15]
On 16 July 2014 Caveoprox obtained an order for the rental of earth
moving equipment from an entity known as EC Mining. The
deal was
brokered by Jacques of a company known as Solefela Earthmoving CC in
January 2014. The contact person at EC Mining was
Vince Lategan, who
contacted her on 10 June 2014. The respondents had no control over EC
Mining.
[16]
As part of the order EC Mining required two excavators, which
Caveoprox leased from the applicant. At all relevant times the
applicant was aware that Caveoprox acted as a broker and that the
equipment was to be used by EC Mining. Accordingly Caveoprox
made out
an order to the applicant on 30 July 2014. The applicant was also
informed of the intention to register. The applicant
was also
forwarded with EC Mining’s particulars.
[17]
The applicant delivered the Case 20 Ton Excavator (BR 18) and a Case
20 Ton Excavator (BR 03) to the site of EC Mining on 31
July 2014 and
11 August 2014 respectively.
[18]
Thirty days after the equipment started operating on EC Mining site
she would make out an invoice to EC Mining which would
then become
due and payable thirty days after delivery. This meant that a period
of sixty days would lapse from the date on which
Caveoprox would be
paid and by which time it could pay its suppliers.
[19]
During the sixty days period she endeavoured to obtain a VAT number
for Caveoplant which she secured. After obtaining the VAT
number, as
initially envisaged from day one, she sent out a letter to all
customers and all suppliers with the new company’s
details. At
all relevant times she was
de facto
the contact and manager
for both companies. The intention behind the letter was simply to
ensure that payment be made to and from
the correct entity.
[20]
At no point was there an intention for her to mislead or defraud any
customer or supplier. She is not a legally trained professional
and
did not intend nor foresee that her letter to customers and suppliers
could be perceived as a misrepresentation or fraudulent.
As intended,
Caveoplant took over the operation of the existing agreements.
[21]
The applicant had the opportunity to investigate the affairs and had
the full choice to refuse or at the very least communicate
with her
in this regard. The applicant elected to accept the change. The
applicant makes unfounded allegations in retrospect. The
applicant
was fully aware with whom and on what basis it was doing business.
The applicant had knowledge of the fact that Caveoplant
was to be
registered and that same would take over the lease agreement.
[22]
The first supplier invoice sent to the applicant on 31 August 2014
was from Caveoplant. Applicant replied on 10 September 2014
via
e-mail with pro forma invoices made out to Caveoplant for August
2014. On 12 September 2014 the applicant requested an invoice
for the
night shift. Caveoplant sent an order on 19 September 2014. On 18
September 2014, after receiving first payment from EC
Mining,
Caveoplant paid over an amount to applicant. Applicant was aware of
the factual position.
[23]
EC Mining did not pay Caveoplant for the amounts due for the months
of September and October 2014, in the sums of R884 995-91
and R700
899-47 respectively. This caused immediate cash flow constraints on
the part of Caveoplant. On 18 November 2014 Vince
Lategan from EC
Mining informed her that due to problematic equipment breakdowns
there would be delays in effecting payments. Without
the equipment
that broke down, known as 2 FEL’s, production was at a minimum.
[24]
Applicant had knowledge of the problems Caveoplant were having in
obtaining payment. This is because there was also communication
between applicant and EC Mining, which caused applicant, in the face
of non-payment, to convince her to keep the equipment in site
and not
remove them from Harmony Mine where they were to be utilized.
Applicant stopped operations on 20 December 2014.
[25]
When EC Mining effected partial payment to Caveoplant, Caveoplant
effected partial payment to the applicant.
[26]
In January 2015 Caveoplant met with EC Mining where EC Mining assured
that everything was fine and that they will be effecting
payment over
a period of eight months. EC Mining effected payments in January and
February 2015, which Caveoplant used to partially
pay its suppliers,
including the applicant, immediately.
[27]
Caveoplant ultimately instituted legal proceedings against EC Mining
for the recovery of the outstanding debt. In the interim,
it has been
learnt that EC Mining has been liquidated. The prospects of
recovering any amounts from EC Mining seem remote at best.
EC Mining
was Caveoplant’s biggest client and after this, Caveoplant had
no means with which to pay its credtors. The view
is that Caveoplant
has no remedy against the liquidation application, which informed the
decision that Caveoplant would not oppose
the liquidation application
brought against it.
[28]
The resolution of the applicant, attached to the applicant’s
papers on pages 20 and 21 and marked annexure “A”
to the
founding affidavit deposed to by Wiilem Hendrik Burger (Burger), does
not authorise Burger to institute legal action against
2
nd
respondent in his personal capacity for payment of all monies not
recovered from Caveoplant in liquidation. It only authorizes
him to
take such actions and measures for the first respondent in her
personal capacity. On that point of departure, applicant’s
motion against second respondent must fail.
[29]
The respondents deny an intention to defraud, and to that end they
allege that the applicant had background knowledge of and
was aware
of the relationship between themselves and Caveoprox, and that it was
intended that Caveoplant would be established and
take over from
Caveoprox. The case of the respondents is that at the time, when he
was made aware of the intention to register
a new company, he did not
have a problem.
[30]
To take this aspect further, the applicant was served with the
particulars of the new entity, Caveoplant, per letter, and advised
to
make invoices into the new names and VAT number. The respondent’s
case is that even at that stage, the applicant did not
have any
problems with the arrangement that was then in place. In furtherance
of associating itself with the change of entity with
whom it did
business, it changed its billing documents accordingly. The Applicant
itself took active steps to ensure that Caveoplant
and not Caveoprox
were being billed correctly.
[31]
The case of the respondent is that the applicant, if it was not party
to the then arrangement, could have easily investigated
the affairs
and even chosen to refuse to do business with an entity unknown to
it, or at most sought a meeting to discuss the change.
The applicant
however accepted the change, which it knew was coming. The case of
the respondent is that the applicant is making
these unfounded
allegations in retrospect, in other words, portraying a situation
which looks good now as it is flavoured with
the benefit of
hindsight, but which does not reflect what the true position then.
[32]
The respondent’s case is further that the applicant was aware
that Caveoplant was a broker, who had EC Mining as a main
client. It
was also aware that its earth moving equipment was being used by EC
Mining at Harmony Mine, where it delivered the machinery.
It was also
aware of the route of payment, in that Caveoplant could only bill
after the machinery had been working for 30 days
on site, and that EC
Mining would then have 30 days to pay that bill. In other words, a
supplier in the applicant’s position
could only be paid by
Caveoplant after 60 days.
[33]
This knowledge was confirmed by the fact that when EC Mining started
experiencing financial problems around September 2014
when the
machinery in use experienced breakdowns, Caveoplant could not pay
applicant as was to be. Applicant itself directly communicated
with
EC Mining around payment. Applicant was aware that Caveoplant could
not pay them as a supplier because Caveoplant was not
being paid by
EC Mining, which could not produce because of breakdowns. The case of
respondents is that the failure of EC Mining
to remain in business
had a ripple effect. It could not pay Caveoplant, which in turn could
not pay applicant. If that be the case,
the failure of Caveoplant to
pay its creditors, including applicant, cannot be attributed to
recklessness, negligence or any fraud
on the part of Caveoplant or
the respondents.
[34]
The issue is whether the respondents contravened the provisions of
section 22(1) and 76 (3) of the Companies Act, and if so,
whether, in
terms of section 218, the respondents are liable to the applicant for
the loss suffered as a result of that contravention.
[35]
In
Howard v Herrigel and Another NNO
[1991] ZASCA 7
;
1991 (2) SA 660
(AD) at
664H -665B Goldstane JA said the following:
“
The
correct approach in a case such as the present was laid down by this
Court in Tamarillo (Pty) Ltd v B N Aitken (Pty) Ltd
1982
(1) SA 398
(A) at 430G-431A.
Miller JA
said this:
‘
A
litigant is entitled to seek relief by way of notice of motion. If he
has reason to believe that facts essential to the success
of his
claim will probably be disputed he chooses that procedural form at
his peril, for the Court in the exercise of its discretion
might
decide neither to refer the matter for trial nor to direct that oral
evidence on the disputed facts be placed before it,
but to dismiss
the application. (Room Hire Co (Pty) Ltd v Jeppe Street Mansions
(Pty) Ltd
1949 (3)
SA 1155
(T)
at
1168.) But if, notwithstanding that there are facts in dispute on the
papers before it, the Court is satisfied that on the facts
stated by
the respondent, together with the admitted facts in the applicant’s
affidavits, the applicant is entitled to relief
(whether in respect
of all his claims or one of them) it will make an order giving effect
to such finding, with an appropriate
order as to costs. (Cf
Stellenbosch Farmer’s Winery Ltd v Stellenvale Winery (Pty) Ltd
1957 (4) SA 342
(C)
at 235
; Burnkloof
Caterers (Pty) Ltd v Horseshoe Caterers (Green Point) (Pty) Ltd
1976
(2) SA 930
(A) at 938
.)
The court does not exercise a discretion in motion proceedings
whether or not to grant claims established by the admitted or
undisputed facts; except perhaps in very extraordinary circumstances
the applicant has a right to an order in respect of such established
claims. (Rooms Hire case at
1166.)”
[36]
Section 218(2) which provides as follows:
“
218
Civil actions
…
(2)
Any person who contravenes any provision of this Act is liable to any
other person for any loss or damage suffered by that person
as a
result of that contravention.”
[37]
Section 22(1) provides as follows:
“
22.
Reckless trading prohibited. – (1) A company must not carry on
its business recklessly, with gross negligence, with intent
to
defraud any person or for any fraudulent purpose.”
[38]
Section 76(3) provides as follows:
“
76.
Standards of directors conduct. – … (3) Subject to
subsections (4) and (5), a director of a company, when acting
in that
capacity, must exercise the powers and perform the functions of
director –
(a)
In good faith
and for a proper purpose;
(b)
In the best
interests of the company; and
(c)
With the degree
of care, skill and diligence that may reasonably be expected of a
person –
(i)
Carrying out the same functions in relation to the company as those
carried out by that director; and
(ii)
Having the general knowledge, skill and experience of that director.”
[39]
In determining whether the respondents can be said to be reckless or
grossly negligent, we have to establish what that means
in our law.
In
S v Dhlamini
1988 (2) SA 302
(AD) at 308D-E Steyn JA said:
“
Gross
negligence, in our law, both criminal and civil, connotes a
particular attitude or state of mind characterized by an entire
failure to give consideration to the consequences of one’s
actions, in other words, an attitude of reckless disregard of
such
consequences. See eg Rosenthal v Marks
1944
TPD 172
at 180;
S v
Smith an Andere
1973
(3) SA 217
(T) at 218D-F
and
Bickle v Joint Ministers of Law and Order
1980
(2) SA 764
(R) at 770D-E.”
[40]
Henochsberg on the
Companies Act, 71 of 2008
,
in
his discussion of recklessness, comments as follows:
“
It
is submitted, carrying on any business of the company recklessly
means carrying it on by conduct which evinces a lack of any
genuine
concern for its prosperity.”
Following
Brand AJA as he then was, in
L
& P Plant Hire BK en andere v Bosch en Andere
2002
(2) SA 662
(SCA) at 678A-B at paragraph 40, when it comes to
creditors, the interpretation of the provisions must be limited to
apply to reckless
or gross negligent conduct of business which have
an adverse effect on the creditors’ claims against the company.
[41]
The respondents have demonstrated a lack of skill, and may have been
out of place and chose an inappropriate route for the
purpose of
commencing their business operations. However, that lack of aptitude
or their ineptitude, in my view, cannot be said
to have amounted to
using the business to incur obligations recklessly grossly negligent,
as interpreted in our law. In my understanding,
to carry on business
recklessly or grossly negligent is to carry on business by conduct
which
evinces a lack of
any genuine concern for its prosperity, which conduct has an adverse
effect on the creditors’ claims against
the company.
[42]
As regards fraud, in
R v Latib
1973 (3) AD 982
at 984G-985B
Steyn JA said:
“
In
a transaction on credit, the representation as to ability to pay is a
representation by the purchaser of a present that he will
be able to
pay when payment falls due, rather than a representation as to what
his financial condition will in fact be at a future
date, if his
belief is genuine, even though somewhat optimistic, the
representation is not false, whatever his financial position
may turn
out to be at the due date. His ability to pay at the time of purchase
and his prospects in relation to the date of payment,
would, of
course, be relevant to show whether or not he did in fact entertain
such a belief, but what is placed in issue is a state
of mind rather
than a financial condition. The same applies in a cash transaction.
The instant ability to pay may there be of decisive
importance, but
even in such a transaction a buyer whose money has been stolen or who
has inadvertently overdrawn his account at
his bank, may unexpectedly
find himself quite unable to pay for a purchase already concluded.
That the representation here in question
is primarily a
representation as to the state of mind of the accused, appears from
Rex v Persotam supra. In that case it was contended,
upon an
indictment in terms similar to this charge, inter alia that it did
not allege a representation of present intention. In
that connection
Stratford, J.A., observed:
‘
The
representation alleged is that the accused was ‘able and
willing to pay’ on the day and place stipulated. In my
judgment
a representation of this kind can only mean ‘I am bona fide in
making this bargain, I intend to implement it’.
The
representation is the exact antithesis of saying ‘I am mala
fide – I have no intention of paying you’. I
agree with
the learned Judge, therefore, when he says that the allegation in the
indictment ‘at least involves a representation
that the
purchaser intends to meet the draft on presentation’ …
The truth is that there is always an implied representation
of good
faith by the purchaser of the goods on credit.”…
[43]
It cannot be said, on the facts, that from inception the respondents
were involved with a fraudulent scheme with a bogus company.
Neither
can it be said that from inception they had no intention that payment
for the services ordered and received through them,
to which
applicant’s claim relate, was ever to be made. In my view, it
cannot be said that they were both unable, unwilling
and did not
intend to pay, when they concluded their agreements with the
creditors, including the applicant. It follows that I
am unable to
find that the respondents conducted their business for a fraudulent
purpose. There was never an indication, when they
incurred credit,
that the business will never be able to satisfy the claims of its
creditors. The respondents genuinely believed
in the success and
prosperity of their business.
[44]
The respondents in their papers indicate that applicant became aware
of their non-payment by EC Mining, which applicant acknowledges.
Most
importantly, they allege that when they asked the applicant to remove
its machinery from site, the applicant convinced them
not to remove
the machinery from site despite non-payment, and indicated
utilization thereof irrespective of the lack of payment.
All that the
applicant says, in answer hereto, is that EC Mining was not a party
to the applicant’s agreement with Caveoplant.
This in my view,
indicates how cold aloof and unjustifiably removed from the reality
applicant is.
[45]
Furthermore, respondents indicate that they continued engagement with
EC Mining, resulting in partial payments in December
2014, January
2015 and February 2015, and that consequently applicant received
partial payments in those months. More importantly,
is the allegation
that EC Mining gave a glimmer of hope that everything will be fine
and that the arrear payment will be worked
in the payments of the
following eight months. Applicant’s response thereto is simply
that it never agreed that payment to
it would be delayed if EC Mining
did not pay. This is against the background that Caveoplant was a
broker, with a six month turn-around
payment to applicant from date
of service. The Applicant confirms its knowledge that between March
2015 and May 2015, respondents
took legal action against EC Mining,
which initially denied indebtedness and was later liquidated.
[46]
Against this background, I am unable to find that the respondents
contravened
section 76
(3) of the
Companies Act.
[47
]
In my view, to succeed on the basis of
section 218(2)
, it must not
only be shown that a person contravened any provisions of the Act,
and that another person suffered damage. It must
also be shown that
such damage suffered was as a result of that contravention. In other
words, there must be proof of a causal
link or connection between the
contravention of the
Companies Act, and
the debts or liabilities for
which the person may be held liable.
[48]
The section, in my view is not some backdoor for businessmen and
women, through which to seek to use as an escape route and
derive an
unfair advantage of getting others to personally carry the cost of
their business risk, which risk they must naturally
and ordinarily
carry under the circumstances caused by the loss of money or some
interest as a result of external business pressures.
In my view, what
is envisaged in the section, is any contravention, whether it amounts
to an offence or not, which has an adverse
effect on the creditors’
claims.
[49] From the facts as
set out in the papers before me, in my view, the real and proximate
cause of the inability of Caveoplant
to pay its creditors which
include the applicant, is the financial difficulties experienced by
EC Mining. In my view, the failure
of Caveoplant was as a result of
external forces, and not internal forces and more specifically it was
not as a result of the conduct
of the respondents. There is nothing
to indicate that the respondents were not attentive to the affairs of
Caveoplant.
For
these reasons I make the following order:
The
application is dismissed with costs.
_______________________
DM THULARE
ACTING JUDGE OF THE
HIGH COURT
Date of
Hearing:
11 May 2016
Counsel for the
Applicant:
Adv DA de Kock
Attorney for the
Applicant:
Langenhoven
Pistorius & Partners
Counsel for the
Respondents:
Adv SJ van Rensburg
Attorney for the
Respondents:
Danie Potgieter Attorneys
Judgment delivered
on:
19 May 2016