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[2016] ZAGPPHC 1016
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Chapman Fund Managers (Pty) Ltd and Another v Phala (75973/2015) [2016] ZAGPPHC 1016 (11 November 2016)
THE HIGH COURT OF SOUTH
AFRICA
GAUTENG DIVISION,
PRETORIA
CASE
NUMBER: 75973
/
2015
DATE
OF HEARING: 26 OCTOBER 2016
DATE
OF JUDGMENT: 11 NOVEMBER 2016
NOT
REPORTABLE
NOT
OF INTEREST TO OTHER JUDGES
REVISED
In
the matter between:
CHAPMAN FUND MANAGERS
(PTY) LTD
First
Applicant
CHAPMAN
UTILITY MANAGEMENT SERVICES (PTY) LTD
Second
Applicant
and
RONALD
GEORGE
PHALA
Respondent
JUDGMENT
AVVAKOUMIDES,
AJ
INTRODUCTION
[1]
This is a sequestration application brought by the applicants, more
specifically the second applicant, against the respondent.
The
respondent was the erstwhile managing director of the second
applicant (CUMS). The respondent holds indirect shareholding in
a
company known as Tidal Sea Trading 59 (Pty) Ltd ("Tidal Sea")
through shareholding he alleges to hold in Enersec (Pty)
Ltd (which
allegedly holds the shares in Tidal Sea). Tidal Sea concluded a
shareholders’ agreement with, inter alia, the
first applicant
(CFM).
[2]
Following the misappropriation of CUMS's funds by the respondent and
a company of the respondent, namely Face Languta, CUMS instituted
action against respondent and Face Languta under case number
1666/2010 and successfully obtained a judgment for payment of the
sums of R45 600.00 and R38 095.36 together with interests and costs
in the action and in ensuing the appeal under case number A494/12.
[3]
CFM also instituted action against respondent and Tidal Sea under
case number 8447/2010. This action was prompted by allegations
of
misappropriation and/or undue enrichment and breach of respondent’s
fiduciary duties towards CFM. During the course of
the action, CFM
obtained the following orders in its favour:
[3.1] a cost order taxed
in the sum of R176 212.55.
[3.2] an order in the
action pursuant to a judgment granted by Legodi
J
on 18
September 2015 for payment of the sums of R100 000.00 and R1 150
000.00. Leave to appeal was subsequently granted by Legodi
J
on
11 November 2015 but the appeal has since lapsed due to the
appellants' (respondent's) failure to timeously lodge the record.
[4]
The respondent is thus indebted to the applicants as follows:
[4.1] To CFM (under case
number 8447/2010) the taxed costs in the sum of R176 212.55.
[4.2) To CUMS (under case
numbers 16666/10; SCA 254/2012 (an application for leave to appeal
was successfully launched by CUMS and
A494/12, i.e. the CUMS matter
which was finally resolved on appeal in the Gauteng Division), as
follows:
[4.2.1]
R45 000.00, being the capital sum of the judgment together with
interest at the rate of 15.5% per annum from 17 December
2009. As at
20 August 2015 this amount was R73 461.60; and
[4.2.2] R38 095.36 being
the further capital sum in respect of the aforesaid judgment together
with interest at the rate of 15.5%
from 14 January 2010, which amount
was R61 371.62 as at 20 August 2015;
[4.2.3]
the taxed bill of costs in respect of the CUMS trial action in the
sum of R201 933.52.
[4.2.4]
the taxed bill of costs in respect of the CUMS appeals in the
sum of R143 355.16.
[5]
The respondent total indebtedness is thus R176 212.55 to CFM and R480
121.90 to CUMS, together with further interests and costs
incurred in
respect of the execution processes.
RESPONDENT'S DEFENCES
[6]
The respondent submitted that he relocated to Cape Town in December
2014 and as a result this court does not have jurisdiction
to
entertain the application.
[7]
The respondent submitted that the deponent to the founding affidavit,
namely Mr Kruger, is not authorised to instruct the applicants'
attorneys to institute these proceedings on behalf of the second
applicant.
[8]
The respondent submitted that CFM's claim has been extinguished by
set-off of a claim of Tidal Sea against CFM.
[9]
The respondent thus submitted that the requirements of section 8 (b)
of the Insolvency Act have not been satisfied.
JURISDICTION
[10]
The respondent is a director of numerous companies, with registered
offices either at Greenside, Johannesburg (the respondent's
alleged
erstwhile residence) or in Sandton. The searches conducted still
indicate the respondent's residential address as being
No 5, Withered
Road, Greenside, which is situated in Johannesburg. From a company
and employment perspective the respondent is
employed by these
companies who are all situate within the jurisdiction of this court.
[11]
On the respondent's version he relocated to Cape Town in December
2014.
Section 149(1)(b)
of the
Insolvency Act, No. 24 of 1936
provides the following:
"149 Jurisdiction of
the court
(1) The court shall have
jurisdiction under this Act over every debtor and in regard to the
estate of every debtor who-
(a) on the date on which a
petition for the acceptance of the surrender or for the sequestration
of his estate is lodged with
the registrar of the court, is domiciled
or owns or is entitled to property situate within the jurisdiction of
the court; or
(b) at any time within twelve
months immediately preceding the lodging of the petition ordinarily
resided or carried on business
within the jurisdiction of the court:
Provided that when it
appears to the court equitable or convenient that the estate of a
person domiciled in a State which has not
been designated in terms of
section 2 of the Cross-Border Insolvency Act, 2000 (Act 42 of 2000),
should be sequestrated by a court
outside the Republic, or that the
estate of a person over whom it has jurisdiction be sequestrated by
another court within the
Republic, the court may refuse or postpone
the acceptance of the surrender or the sequestration."
[12]
This application was filed with the Registrar of this court on 17
September 2015. It must follow thus that this court does have
the
necessary jurisdiction to entertain the application because the
respondent, in the period of 12 months immediately preceding
the
lodging of the petition, originally resided within the jurisdiction
of the court and the respondent carried on, and still carries
on,
business within the court's jurisdiction. Meskin Insolvency Law at
par 15.1.6.1 provides the following synopses on the application
of
section 149(1) of the Insolvency Act:
''These concerns with
··equity" and "convenience" relate not
to the adjudication of the application
but to the process of
administration of the estate after the grant of the order. The
intention is to empower a Court to decline
to exercise a jurisdiction
technically available where, in the circumstances, it would be
appropriate if the sequestration were
to occur in another forum, eg,
on the date an application is lodged with the Registrar of the Court,
the debtor is domiciled in
a foreign country and the only ground of
jurisdiction is that, fortuitously, movable property owned by him is
situated in its area
of jurisdiction; or on such date the debtor is
ordinarily resident in the area of jurisdiction of the Court but, in
fact, only
recently has become so resident and became insolvent while
carrying on business in the area of jurisdiction of another Court in
the Republic."
AUTHORITY OF KRUGER TO
ACT ON BEHALF OF THE SECOND APPLICANT
[13]
Since the respondent was removed as the managing director of CUMS,
Kruger took over the relevant tasks and responsibilities pertaining
to CUMS. Kruger instructed attorneys to institute the court action
under case number 16666/10 and did so, inter alia, on the basis
of
the authority then given to him by CUMS' board of directors. At the
stage of the applications for leave to appeal before the
court a quo
and before the Supreme Court of Appeal, respondent apparently and
unsuccessfully sought to question Kruger's authority
and is therefore
precluded from again attempting to do so. So it is submitted.
[16]
Kruger is the Managing Director of CUMS. This is not disputed
by the respondent. He is therefore still authorised to act on behalf
of CUMS and to authorise attorneys to institute the present
application for sequestration. If the respondent seriously intended
to dispute Kruger's authority he should have complied with the
relevant rules of court. Streicher JA, in Ganes and Another v Telecom
Namibia Ltd
2004 (3) SA 615
(SCA) at 624-5, par [19] stated the
following:
"In my view, it is
irrelevant whether Hanke had been authorised to depose to the
founding affidavit. The deponent to an affidavit
in motion
proceedings need not be authorised by the party concerned to depose
to the affidavit. It is the institution of the proceedings
and the
prosecution thereof which must be authorised. In the present case the
proceedings were instituted and prosecuted by a firm
of attorneys
purporting to act on behalf of the respondent. In an affidavit filed
together with the notice of motion a Mr Kurz
stated that he was a
director in the firm of attorneys acting on behalf of the respondent
and that such firm of attorneys was duly
appointed to represent the
respondent. That statement has not been challenged by the appellants.
It must, therefore, be accepted
that the institution of the
proceedings was duly authorised. In any event, Rule 7 provides a
procedure to be followed by a respondent
who wishes to challenge the
authority of an attorney who instituted motion proceedings on behalf
of an applicant. The appellants
did not avail themselves of the
procedure so provided. (See A Eskom v Soweto City Council
1992 (2) SA
703
(W) at 705C - J.)"
[17]
The respondent did not follow the prov1s1ons of rule 7 and
this point too cannot be upheld.
CLAIM AGAINST CFM
[18]
Whether respondent has a claim against CFM is not relevant to
the second applicant to whom substantial amounts are due.
EXECUTION PROCESS AND
RETURNS OF SERVICE
[19]
The applicants endeavoured to execute on the judgments on
several occasions. These attempts have been unsuccessful because the
respondent's
whereabouts were unknown. When the applicants' attorney
contacted the respondent he refused to provide information of his
whereabouts.
Correspondence between the applicants' attorneys and the
respondent's attorneys at that stage remained unanswered. The
respondent
was cautioned that service and execution would take place
by sheriff at court when the CFM matter was to be heard. At the day
of
the hearing of the trial in the CFM matter, on 20 August 2015, the
Deputy Sheriff proceeded to execute three writs of execution
against
the respondent in person. The returns contain wording to the effect
that:
(i) payment of certain amounts was
demanded from respondent;
(ii) respondent was unable to pay the
judgment debt and costs in full or in part;
(iii) the returns are one of nulla
bona.
[20]
The return relied upon stated as follows:
"IT IS HEREBY
CERTIFIED:
That on 20 August 2015 at
09h30 at the High Court PRETORIA CNR MADIBA & VERMEULEN STREET,
PRETORIA being the place where Execution
took place as arranged,
payment of the judgment debt in the amount of 73 838.63 and R61
371.62 COSTS PLUS VAT were demanded from
MR RONNIE PHALA wherewith to
satisfy this warrant. MR RONNIE PHALA declared that he has no money,
moveable or disposable property
wherewith to satisfy the said
warrant. No moveable or disposable property was pointed out to me, or
could after a diligent search
and enquiry be found at the given
address. It is further certified that he was requested to declare
whether he owns any immovable
property which is executable, on which
the following reply was furnished. "No.
That simultaneously with
the execution, a copy of the warrant of execution was served by
handing it to MR RONNIE PHALA personally
after the original document
was displayed and the nature and contents thereof explained to him.
Rule 4[1](a)(i).
THUS MY RETURN IS ONE OF
A NULLA BONA"
[21]
The warrants of execution were served upon the respondent at
court. The respondent contended that this was irregular and contrary
to the provisions of rule 45(1).
Rule
45(3) provides as follows:
"(3) Whenever by any
process of the court the sheriff is commanded to levy and raise any
sum of money upon the goods of any
person, he shall forthwith himself
or by his assistant proceed to the dwelling-house or place of
employment or business of such
person (unless the judgment creditor
shall give different instructions regarding the situation of the
assets to be attached), and
there-
(a) demand satisfaction of the
writ and, failing satisfaction,
(b) demand that so much movable
and disposable property be pointed out as he may deem sufficient to
satisfy the said writ,
and failing such pointing out,
(c) search for such property.
Any such property shall
be immediately inventoried and, unless the execution creditor shall
otherwise have directed, and subject
to the provisions of subrule
(5), shall be taken into the custody of the sheriff: Provided-
(i) that if there is any claim made by
any other person to any such property seized or about to be seized by
the sheriff, then,
if the plaintiff gives the sheriff an indemnity to
his satisfaction to save him harmless from any loss or damage by
reason of the
seizure thereof, the sheriff shall retain or shall
seize, as the case may be, make an inventory of and keep the said
property;
and
(ii) that if satisfaction of the writ
was not demanded from the judgment debtor personally, the sheriff
shall give to the judgment
debtor written notice of the attachment
and a copy of the inventory made by him, unless his whereabouts are
unknown."
[22]
The respondent has not made any attempt to have the warrants
or the attachments set aside. In Wilken NNO v Reichenberg
1999 (1) SA
852
(W) at 8581 it was held that that it could not possibly have been
the intention of the Rule to disallow personal service in
circumstances
where the debtor was not at his home or at his place of
employment or business. Goldstein J stated as follows at 858-859:
"What the Rule
allows is service at such places in the absence of the debtor. The
Rule even allows service at some other location
if the assets to be
attached are there and presumably if the debtor is not. It would be
absurd, however, to deduce from these provisions
that the best of all
service, namely personal service, was being sanctioned only if the
debtor was at one of the places mentioned
in the Rule and was
otherwise not to be permitted. If this were so a debtor attempting to
evade his creditor and having left all
addresses known to the latter
could not be served with a writ under Rule 45(3) if he were found
staying temporarily in an hotel
as the respondent says was the case
with himself."
[23]
The warrants were accordingly properly executed at court. The
respondent further contended that the nulla bona returns are invalid
because the requirements of section 8 (b) of the Insolvency Act were
not complied with. In this regard the respondent argued that
the
sheriff "...
demanded immediate payment of the debt. He asked
me if I had assets with me to pay the debt. He did not ask me to
indicate sufficient
property to satisfy the debt."
In terms
of section 8 (b) of the Insolvency Act a debtor commits an act of
insolvency:
"if a court has
given judgment against him and he fails, upon the demand of the
officer whose duty it is to execute that judgment,
to satisfy it or
to indicate to that officer disposable property sufficient to satisfy
it, or if it appears from the return made
by that officer that he has
not found sufficient disposable property to satisfy the judgment."
[24]
Section 8 (b) requires personal service only and it does not
state where such service has to take place. It is trite that section
8(b) contains two acts of insolvency, the first being personal
service and the debtor fails to satisfy the judgment or to indicate
sufficient disposable property to satisfy it, and the second being
where personal service does not take place and a search by the
officer fails to produce sufficient disposable property to satisfy
the judgment. In this case there was personal service. See
Hocklys Insolvency Law, by P. Sharrock, Juta Law Books, 9th Edition,
2012 and Dicks v Marais 1952 (3) NPD 165. There was
accordingly
no obligation upon the sheriff to conduct a diligent search to find
sufficient disposable property. It was incumbent
upon the respondent
to have indicated not only the nature of the assets but also their
whereabouts, if there were any, had he wished
to avoid the possible
consequences which may flow from a nulla bona return.
[25]
The word "indicate" in section 8 (b) means that the
debtor should tell the officer executing the writ what the property
is and where it is. He should do so with sufficient particularity to
enable the officer to attach and sell the property. The respondent
failed to do so. The respondent alleged in his answering affidavit
that if the sheriff had asked him the questions reflected in
the
return he would have pointed out, at his home address, two motor
vehicles which he conservatively estimated to be worth R200
000.00
and that he has cash of around R500 000.00 in a bank account. The
identity of the bank where such monies were deposited
remains a
mystery.
[26]
The respondent opportunistically, in my view, alleged that he
did not tell the sheriff that he had no assets but told the sheriff
that he did not have assets with him at court. I am satisfied that
the sheriff's conduct was in order and that the respondent is
playing
on words to escape the inevitable. The respondent contended that the
reason why he has not paid the
CUMS
judgment debts to date is
because he
"believed that this would be part of an overall
settlement of the disputes between the parties once the trial action
with the
first applicant has been finalised'.
The respondent does
not indicate what detail, if any, of any discussions, dates,
persons involved or written communication
had been provided to
substantiate this statement. There is nothing contained in the papers
to the effect that any of the proceedings
or judgments would have
been held over pending a settlement.
INSOLVENCY AND
CONCLUSION
[27]
The respondent has indeed committed an act of insolvency which
entitled the applicants to launch the sequestration proceedings. The
requirements for the compulsory sequestration of the respondent's
estate have been satisfied. The sequestration of the respondent's
estate would clearly be to the advantage of creditors. The respondent
submitted that he has no other creditors and that the applicants
are
the only creditors. On the respondent's version he has assets and it
thus appears likely that the second respondent will receive
a
dividend. There may very well be further assets that may come to the
fore after sequestration.
SERVICE OF THE
APPLICATION
[28]
The last point raised by the respondent warrants discussion.
The respondent submitted that the application has not been served
upon
his domestic assistant and therefore there is no compliance with
section 9
(4A) of the
Insolvency Act 24 of 1936
. The respondent
relied upon the decision of Stratford and Others v Investec Bank
Limited and Others
2015 (3) SA 1
(CC) wherein it was held that for
purposes of the
Insolvency Act 24 of 1936
,
section 9(4A)
thereof, the
word "employees" includes domestic employees.
[29]
Section 9(4A)(a)
provides:
"When a petition is
presented to the court, the petitioner must furnish a copy of the
petition-
(i)
to every registered trade union that, as far as the petitioner can
reasonably ascertain, represents any of the debtor's employees;
and
(ii) to the employees themselves-
(aa) by affixing a copy of the
petition to any notice board to which the petitioner and the
employees have access inside the debtor's
premises; or
(bb) if there is no access to the
premises by the petitioner and the employees, by affixing a copy of
the petition to the front
gate of the premises, where applicable,
failing which to the front door of the premises from which the debtor
conducted any business
at the time of the presentation of the
petition;
(iii) to the South African Revenue
Service; and
(iv) to the debtor. unless the court,
at its discretion, dispenses with the furnishing of a copy where the
court is satisfied that
it would be in the interest of the debtor or
of the creditors to dispense with it."
[30]
In EB Steam Company (Pty) Ltd v Eskom Holdings Soc Ltd
[2013]
ZASCA 167
the court held that "whilst the obligation to furnish
the application papers to the employees is peremptory, the modes of
doing so indicated in the section are directory and alternative
effective means may be adopted. In other words the methods for
furnishing employees with the application papers as set out in
section 346(4A)(a)(ii)
are no more than guides." (Emphasis
added)
[31]
The question is however whether the failure of the applicants
to have served upon the respondent's domestic servant, if any (it
remains unknown) precludes an order of sequestration. In EB Steam,
Wallis JA stated the following:
"[24] That leaves
one final question, namely whether the inability of the applicant,
for whatever reason, to furnish the application
papers to the
employees before the hearing precludes the court from granting any
relief. Certainly the failure to provide a security
certificate in
terms of
s 346(3)
or the failure to lodge the papers with the Master
in terms of
s 346(4)
is fatal to the grant of immediate relief.
However, that is because of the nature and purpose of these
requirements To permit an
application for winding-up to proceed
without security having been furnished may result in costs being
incurred, including by public
officials, without any means of
recouping them. As the Master is the person who will have to oversee
the winding-up there are obvious
reasons for ascertaining in advance
whether the Master is aware of reasons why a winding-up order should
not be granted. The position
in regard to the notification provisions
in
s 346(4A)
is different. Their purpose is to ensure that certain
specified persons, who may have an interest in the winding-up, in
order to
protect their own interests, are, so far as reasonably
possible, furnished with the application papers in order to assess
their
own position in the light of the case made by the applicant.
They may well applaud and support the application as did some of the
employees in Hendricks.
[25] The fact that the
requirement that these persons be furnished with the application
papers is peremptory means that it is not
permissible for the court
to grant a final winding-up order without that having occurred. Does
that mean that it is equally impermissible
for the court to grant a
provisional winding-up order? In my view it does not. The position
may well be that an overwhelming case
is made on the papers for the
grant of a winding-up order and that any delay will allow assets to
be concealed or disposed of to
the detriment of the general body of
creditors and particularly the employees and SARS, who may have
preferential claims. It would
be absurd to hold that the court was
disabled from granting a provisional order merely because it had not
been feasible, possibly
as a result of the conduct of the employer,
to furnish a copy of the application papers to the employees or a
representative trade
union or even SARS, although the latter is
unlikely to be a practical problem."
[32]
In the premises I deem it appropriate to make the following
order:
[32.1] The estate of the
respondent is placed under provisional sequestration in the hands of
the Master of the High Court.
[32.2] The respondent and
any other interested parties are called upon to advance reasons, if
any, why the court should not grant
a final order of sequestration of
the respondent's estate on 19 JANUARY 2017 at 10:00 or as soon
thereafter as the matter may be
heard.
[32.3] A copy of this
order must be served on:
[32.3.1]
the respondent; and
[32.3.2] any trade union
referred to in section 11(4) of the Insolvency Act No 24 of 1936 (if
applicable);
[32.3.3] the respondent's
employees (if any) by affixing a copy of the petition to any notice
board to which the employees' have
access inside the respondent's
residence or other premises, or if there is no access to the premises
by the employees, by affixing
a copy to the front gate, where
applicable, failing which to the front door of the premises from
which the respondent conducted
any business or at his residence, as
the case may be, at the time of the presentation of the petition; and
[32.3.4] the South
African Revenue Services and the Master of the High Court.
[32.4] This order
must further be served upon to any known employees, and to every
registered trade union, as far as it can
be reasonably ascertained,
representing any of the respondent's employees, in the manner as
provided in
section 9(4A)
of the
Insolvency Act No 24 of 1936
.
[32.5] This order must
also be advertised in the Beeld and in the Cape Argus no later than
10 days before the return date of this
sequestration application.
__________________________
G.
T. AVVAKOUMIDES
ACTING
JUDGE OF THE HIGH COURT
GAUTENG
DIVISION, PRETORIA
DATE:
11 NOVEMBER 2016
Representation
for Applicants:
Counsel:
A. M. Heystek
Instructed
by:
Stefan Swart Attorneys
Representation
for Respondent:
Counsel:
J. P. Van Den Berg
Instructed
by:
Thabiso Maseko attorneys