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[2007] ZASCA 32
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McCarthy Ltd. v Gore NO (163/06) [2007] ZASCA 32; [2007] SCA 32 (RSA) ; [2007] 4 All SA 1212 (SCA) ; 2007 (6) SA 366 (SCA) (28 March 2007)
Links to summary
THE
SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
Case no: 163/06
In the matter
between:
McCARTHY LIMITED
......................
APPELLANT
and
STEPHEN MALCOLM GORE
N.O.
......................
RESPONDENT
In his capacity as the duly appointed
liquidator of
Ramsauer Transport (Pty) Ltd (In
Liquidation)
CORAM: HARMS ADP, BRAND, NUGENT, JAFTA JJA
et
THERON AJA
DATE
OF HEARING: 20 MARCH 2007
DATE
OF DELIVERY:
28 MARCH 2007
Summary:
Insolvency –
Insolvency Act 24 of 1936
− Disposition
of property – Insolvent selling property – No notice of
sale given in terms of
s 34(1)
− Definition of ‘trader’
limited to primary business activities and does not extend to
incidental activities .
Neutral
citation:
This judgment may be
referred to as
McCarthy Ltd v Gore N.O.
[2007] SCA 32 RSA
_____________________________________________________________________________
JUDGMENT
_____________________________________________________________________________
THERON AJA:
[1] The respondent, in his capacity as liquidator of
Ramsauer Transport (Proprietary) Limited (in liquidation) (the
company) instituted
action against the appellant in the High Court
(Cape) in terms of s 34(1) of the Insolvency Act 24 of 1936 (‘the
Act’),
read with s 340 of the Companies Act 61 of 1973 for an
order declaring the transfer of 28 vehicles by the company to the
appellant
(‘McCarthy’), void. The order was granted and
McCarthy now appeals with the leave of the court
a
quo
.
[2] The background to this litigation is the following.
The business of the company was that of a transport haulier conveying
goods
on a long-haul basis. It owned and operated a fleet of between
sixty and eighty heavy vehicles and generated an average income from
the conveyance of goods of between R32m and R35m annually during the
period 1996 to 1999. The company did from time to time renew
its
fleet of vehicles and this involved the purchasing and selling of
vehicles. The evidence was that there had been a recoupment
on the
sale of vehicles by the company in the amounts of R3 108 211,50 and
R86 903,42 for the 1996 and 1997 financial years, respectively.
[3] In 1996, the company entered into a factoring
agreement with Cutfin (Proprietary) Limited (‘Cutfin’) in
terms of which
its book debts were sold to Cutfin on a monthly basis
and advance payments by Cutfin to the company were discounted.
According to
the evidence, the sale of vehicles and the factoring of
book debts were effected in order to improve the liquidity of the
company
to allow it to continue with its transport business.
[4] On 17 December 1999, the company and McCarthy
concluded an agreement in terms of which the company sold to the
appellant 28 vehicles
for a purchase consideration of R2 052 000,00.
The trailers were transferred to the appellant prior to the
winding-up of the appellant
on 29 December 1999. It is common cause
that the company did not benefit from the sale as the proceeds
thereof were paid by the company
to an associated company. It is also
common cause that the sale was not advertised in terms of s 34(1) of
the Act.
[5] The liquidator, in the court
a
quo
, contended that inasmuch as the primary
business of the company was that of a transport contractor, the
company was a ‘trader’
for the purpose of s 34(1) as it
sold its vehicles from time to time on a substantial basis and also
sold its book debts as a regular
and integral feature of its
business. It was alleged that the company had disposed of the
vehicles and transferred them otherwise
than in the ordinary course
of the company’s business. By reason of the fact that the
company had not published a notice concerning
the sale and transfer
of the vehicles to the appellant as provided for in s 34(1) of the
Act, the transfer was voidable at the instance
of the liquidator.
McCarthy, on the other hand contended that the company was not a
trader as defined in s 2 of the Act and that
therefore the provisions
of s 34(1) were not applicable to the transaction.
[6] Davis J in the court
a quo
held that the sale of the vehicles to the appellant was
the kind of transaction which the company ‘had performed
regularly in
the past, namely, the sale of vehicles pursuant to and
as part of its business’. The learned judge found that ‘trader’
should not be interpreted restrictively and is not to be limited to
the company’s primary business but includes transactions
concluded in the ordinary course of a business ancillary to its
primary (haulage) business. The trial court held that the transfer
of
the vehicles to the appellant was void for want of compliance with
the provisions of s 34(1).
1
[7] The sole issue in this appeal is whether the company
was a ‘trader’ within the meaning of s 34(1) as read with
the
definition of ‘trader’ in s 2 of the Act. Section
34(1) reads:
‘If a trader transfers in terms of a contract any business
belonging to him, or the goodwill of such business, or any goods
or
property forming part thereof (except in the ordinary course of that
business or for securing the payment of a debt), and such
trader has
not published a notice of such intended transfer in the
Gazette,
and in two issues of an Afrikaans and two issues of an English
newspaper circulating in the district in which that business is
carried
on, within a period not less than thirty days and not more
than sixty days before the date of such transfer, the said transfer
shall
be void as against his creditors for a period of six months
after such transfer, and shall be void against the trustee of his
estate,
if his estate is sequestrated at any time within the said
period.’
[8] The purpose of the legislature in enacting s 34(1)
is clearly to protect creditors by preventing traders who are in
financial
difficulty from disposing of their business assets to third
parties who are not liable for the debts of the business, without due
advertisement to all the creditors of the business.
2
But the provisions of s 34(1) can be invoked only if the
company is a ‘trader’ as defined in s 2 of the Act.
Section 2
reads as follows:
‘“trader” means any person who carries on any
trade, business, industry or undertaking in which property is sold,
or is bought, exchanged or manufactured for purpose of sale or
exchange, or in which building operations of whatever nature are
performed,
or an object whereof is public entertainment, or who
carries on the business of an hotel keeper or boarding-house keeper,
or who
acts as a broker or agent of any person in the sale or
purchase of any property or in the letting or hiring of immovable
property;
and any person shall be deemed to be a trader for the
purpose of this Act (except for the purposes of subsection (10) of
section
twenty-one) unless it is proved that he is not a trader as
hereinbefore defined: Provided that if any person carries on the
trade,
business, industry or undertaking of selling property which he
produced (either personally or through any servant) by means of
farming
operations, the provisions of this Act relating to traders
only shall not apply to him in connection with his said trade,
business,
industry or undertaking;’
[9] A ‘trader’ is therefore a person
carrying on any trade, business, industry or undertaking of the types
specified in
the balance of the definition after the words ‘in
which’. This emerges from the judgment of Mthiyane JA in
Kevin
and Lasia Property Investment CC v Roos NO
3
where it was held that each clause in s 2 of the Act is
separate and distinct from the other:
‘The definition commences with the words ‘“trader”
means any person’. There follows a number of clauses
which
commence with the word “who” and thereafter, the words
“or who”, ie “who carries on any trade
… or
who carries on the business … or who acts as a broker”.
Each clause is separate and distinct from the others.’
[10] The question then is not whether the company
carries on any trade, business, industry or undertaking at all but
whether it carries
on such a trade falling into one of the specified
categories. It is apparent that a transport haulier is not included
in the definition
in s 2. The only category which could possibly be
relevant and upon which the liquidator relied in the court
a
quo
, is the first, namely, that the company
was a person carrying on a business ‘in which property is
sold’.
[11] The question whether the company is a trader is
answered by having regard to the nature of the undertaking (in this
instance
the sale of book debts and vehicles) and determining whether
such undertaking is part of the core business of the company
(transport
haulier) or incidental thereto. Counsel for the liquidator
accepted that the sale of vehicles and the factoring of the book
debts
were incidental to the company’s main business but
contended that the factoring of the book debts and the selling of
vehicles,
although incidental to the core business of the company,
was a substantial and integral part of its business, in effect
arguing that
there are degrees of incidentality.
[12] In my view, once it is established that these
undertakings are incidental activities, that is the end of the
matter. There are
no degrees of incidentality. The construction of
‘trader’ contended for by the liquidator would apply to
any business
in which property is sold for whatever reason. Why then
have a definition of trader in the Act which circumscribes the nature
of
the trades, businesses, industries or undertakings that are
conducted by traders? In my view, the purpose of the definition is to
identify those types of trade, business, industry or undertaking
which, by reason of the fact that they engage in specified
activities,
attract the obligations of traders in terms of the Act.
It is not the function of this court to extend the list created by
the legislature.
Mthiyane JA put the matter thus in
Roos
:
4
‘It was also submitted that there is no apparent reason why a
business consisting of a letting or hiring of immovable property
should be excluded. But it cannot be submitted that the omission
results in an absurdity entitling a court to fill the
lacuna
.
It might equally be asked why the Legislature did not include, as it
obviously did not, a person who acts as a broker or agent of
any
person in the letting or hiring of movable property. In the absence
of some factor common to the enterprises which are included
−
and there is none − a court cannot add to that list on the
basis that the omission was an obvious oversight.’
[13] I accordingly conclude that the court
a
quo
erred in finding that -
‘to restrict the meaning, of the word “company which
carries on trade, or business in which property is sold” to
the
narrow ambit of its haulage business is to ignore the very nature of
the business and the transactions conducted pursuant thereto
by the
company over a lengthy period’.
5
The error in my view lies in the fact that it extended
the definition of ‘trader’ as contained in s 2 of the Act
to virtually
every type of business by elevating the incidental
activities of that business above its actual trade, business,
industry or undertaking.
The interpretation of ‘trader’
adopted by the court
a quo
is
thus far too broad for the purposes of the Act. It is difficult to
envisage a business in which it is not necessary at some stage
to
sell or buy goods. In my judgment, the definition of a trader must be
linked to the primary business activities of the enterprise
concerned
and not be extended to activities incidental thereto. Extending the
definition of ‘trader’ would result in
undue hardship and
operate unfairly against innocent third parties, such as the
appellant, who enter into transactions unaware that
publication as
provided for in s 34(1) of the Act is required. That the legislation
does not contemplate.
[13] For these reasons the appeal is upheld with costs.
The judgment of the court
a quo
is
set aside and substituted with the following:
‘
The plaintiff’s claim is dismissed with
costs.’
L V Theron
Acting Judge of Appeal
CONCUR:
HARMS
ADP
BRAND
JA
NUGENT
JA
JAFTA
JA
1
The
judgment of Davis J in the court
a quo
is reported as
Gore
NO v McCarthy Ltd
2006 (3) SA 229
(C).
2
Galaxie
Melodies (Pty) Ltd v Dally
1975 (4) SA 736
(A);
Gore NO v
Saficon Industial (Pty) Ltd
1994 (4) SA 536
(W);
Bank of
Lisbon International v Western Province Cellar
Ltd
1998
(3) SA 899
(W);
Kelvin Park Properties CC v Paterson NO
2001
(3) SA 31
(SCA).
3
2004
(4) SA 103
(SCA) para 14.
4
Kevin
and Lasia Property Investment CC v Roos NO
2004 (4) SA 103
(SCA)
p
ara 15.
5
Gore
NO v McCarthy Ltd
2006 (3) SA 229
(C) 237C-D.