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[2015] ZAGPPHC 172
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Nedbank Limited v Spencer and Others (27051/2014) [2015] ZAGPPHC 172 (3 March 2015)
REPUBLIC
OF SOUTH AFRICA
IN THE HIGH COURT
OF SOUTH AFRICA
(NORTH GAUTENG,
PRETORIA)
CASE NO:
27051/2014
DATE: 3 MARCH
2015
NOT REPORTABLE
NOT OF INTEREST
TO OTHER JUDGES
In the matter
between:
NEDBANK
LIMITED
................................................................................................................
APPLICANT
AND
SPENCER,
FRANK
.....................................................................................................
FIRST
RESPONDENT
SPENCER,
CORNELIA
.........................................................................................
SECOND
RESPONDENT
YZEL, JOHANNA
WILLEMINA
NO
......................................................................
THIRD
RESPONDENT
MASILO, MICHAEL
MMATHOMO
NO
............................................................
FOURTH
RESPONDENT
THE MASTER, NORTH
GAUTENG HIGH COURT
.............................................
FIFTH
RESPONDENT
In re the ex parte
application by:
SPENCER,FRANK
........................................................................................................
FIRST
APPLICANT
SPENCER,
CORNELIA
...........................................................................................
SECOND
APPLICANT
JUDGMENT
WEBSTER J
1. The applicant
seeks an order in the following terms:
"1. That the
order of sequestration of the first and second respondents issued on
4 June 2014 be rescinded;
2. That the
application for sequestration of the first and second respondents be
dismissed;
3. That the first
and second respondents pay the costs of this application, jointly and
severally with any other party who may oppose
the application.”
2. The application
was duly served and filed and proceeded on an unopposed basis as no
opposing papers were filed.
3. Shortly, the
background to this matter is a voluntary surrender application that
was brought by the first and second respondents.
An order was granted
on 4 June 2014 by my brother Mothle J in favour of the first and
second respondents which the applicant in
this application now seeks
to be rescinded. Subsequent to the granting of the order for
voluntary surrender, the third and fourth
respondents herein were
appointed as provisional trustees in the estate of the first and
second respondents. The only relief sought
by the applicant is
against the first and second respondents.
4. The applicant
avers in its papers that the first and second respondents did not
place all the relevant material facts before
the court and further
that had the court been aware of the true facts, that my brother
Mothle J would not have granted the voluntary
surrender application.
5. The deponent to
the founding affidavit in this rescission application is Jacques
Pienaar who is employed by the applicant as
Senior Manager in its
Specialised Legal Recoveries, Personal and Business Banking Credit
division. He states that the certificate
of balance mentions the
amount of R773 694.84 as being the amount owing on a mortgage loan as
at 4 June 2014 and not R605 280.25
as indicated in the voluntary
surrender application. The next point is the value of the property
being reflected as R850 000.00
in the surrender application whereas
the applicant annexed a sworn valuation by Gary Wampach stating that
the forced sale value
of the property is only R500 000.00. He goes on
to state in paragraph 17 the following:
“
77.
Accordingly, the
averment that there would be R0.33 in the Rand available for
distribution to concurrent creditors is not correct,
There would in
reality be nothing available for distribution to concurrent
creditors:
17.1 Mr and Mrs
Spencer averred in the founding affidavit that they owed R203 523.00
on their movable assets of R200 000.00. The
true picture is not clear
from the founding affidavit, but it appears from the annexures that
the movable assets consist of a vehicle
to the value of R160 000.00
on a forced sale and furniture to the value of R40 000.00 on a forced
sale;
17.2 It further
appears from the annexures that Mr and Mrs Spencer owe the R203
523.00 on the motor vehicle. This means that the
only assets to which
the concurrent creditors including Nedbank and the financier of the
vehicle could look for payment would be
furniture to the alleged
value of R40 000.00. Those assets must satisfy:
17.2.1 The
shortfall to be suffered by Nedbank, in excess of R270 000.00 if the
costs of sequestration are taken into account;
17.2.2 The
shortfall to be suffered by the financier of the vehicle, in excess
of R43 523.00 on the version of Mr and Mrs Spencer,
if the costs of
sequestration are taken into account;
17.2.3 The other
concurrent creditors who are owed R311 797.40, on the version of Mr
and Mrs Spencer;
17.2.4 The costs
of sequestration to the value of R138 109.00 on the version of Mr and
Mrs Spencer."
6. The duty of
applicants in applications for voluntary surrender is very clearly
set out in the case of Ex Parte: Quinton Ronald
Erasmus and Leatitia
Erasmus, Case no.: 55075/2014 where Bertelsmann J stated the
following:
“
6.
Applications of voluntary surrender are usually launched
ex
parte.
Unless
any creditor decides to intervene, only one party approaches the
court for relief. The indisputable duty therefore rests
upon the
shoulders of every applicant, and upon the shoulders of his or her
legal representative, to act openly and honestly toward
the court in
every respect.
7.
This duty was described as follows by Gorven J in
Ex
parte Arntzen
2013
(1) SA 49
(KZP):
‘
5.
Courts have long required an applicant in voluntary surrender
applications to make a full and frank disclosure - This arises
at
least in part from the stringent test referred to above. It is quite
clear that without a full and frank disclosure, the court
cannot be
‘satisfied’ as to the above two criteria in particular.
The required high level of disclosure is also affected,
in no small
measure, by the fact that the application is ordinarily brought on an
ex parte basis as is the present one. There is
ample authority that
applications brought on that basis require the utmost good faith
-
The principles
were succinctly stated by Le Roux J in Schlesinger v Schlesingefi in
a rescission application as follows:
‘
(1)
in ex parte applications all material facts must be disclosed which
might influence a Court in coming to a decision;
2. the
non-disclosure or suppression of facts need not be wilful or mala
fide to incur the penalty of rescission; and
3. the court,
apprised of the true facts, has a discretion to set aside the formal
order or to preserve it.
…
.............
11.
Voluntary surrender applications have begun to proliferate in this
division. A fledgling cottage industry has reared its head.
As
was
the situation with
‘friendly’ sequestrations in Mthimkhulu, many of these
take a standard form with almost identical
averments and are drafted
by a small set of attorneys who have chosen to specialise in such
applications. In most cases the estate
is small, as is the case in
the present application. In many of them, confronted by the
requirement that all the costs of sequestration
must be defrayed from
the estate and it must still be shown that sequestration would be to
the advantage of creditors, a formula
has arisen to reduce these
costs. The applicant states that a friend or relative has undertaken
to pay the costs of the applicant’s
attorney and that the
attorney concerned will not look to the estate for his or her costs.
Just such an averment is made in the
present application.
12. I take the
view that there is an even greater risk of abuse and a risk that the
interests of creditors will be undermined in
voluntary surrender
applications than in ‘friendly’ sequestration
applications. Therefore the need for full and frank
disclosure and
well founded evidence concerning the debtor’s estate is even
more pronounced. There are a number of reasons
for this, some of
which have been foreshadowed in the discussion above. I shall mention
only some. First, the applicant tends to
focus on the formal
requirements of s 4 of the Act and does not seem to appreciate the
need to satisfy a more rigorous test than
for sequestration
applications at both provisional and final stages as regards
advantage to creditors. Secondly the court must
perforce, in most
instances, rely on the founding papers. This brings into play the
peculiar characteristics mentioned above of
voluntary surrenders
being brought as ex parte applications. Thirdly, no collusion between
friendly creditor and debtor is necessary
since it is the debtor who
is the applicant and has a more direct interest in the application
succeeding and understanding of the
genuine position than the
friendliest of creditors. Voluntary surrender applications therefore
require an even higher level of
disclosure than do ‘friendly’
sequestrations if the court is to be placed in a position where it
can arrive at the
findings and exercise the discretion set out in s
6(1) of the Act. ’
8.
In
Ex Parte
Cloete,
case
no 1097/2013
[2013] ZAFSHC 45
.Daffue J. emphasised that valuators
are obliged to act honestly and conscientiously when furnishing their
expert opinion of the
value of assets that fall into an estate that
is ought to be surrendered voluntarily:
‘
[15]
In these applications, “friendly sequestrations”
included, there is often doubt, or an uneasiness, as to the
relationship
between the attorney and valuator or between the debtor
and the valuator. In casu the valuator’s business is located in
Simontown,
the attorney is from Pretoria and the debtor is resident
in between in the Goldfields town of Virginia. Such factors should
raise
the eyebrows, especially where the valuator’s fee is
alleged to be R500,00 only and his report is o f no assistance to the
court.
[16]
I am in full agreement with the dicta of Gorven J in
Ex
Parte Arentzen
loc
cit
at paras [12] and [13] to the effect that voluntary surrender
applications require an even higher level of disclosure than
“friendly sequestrations” and that it is appropriate at
the very least to require compliance with those guidelines set
out in
Mthimkhulu v Rampersad
(BOE
Bank
Ltd, Intervening Creditor)
Í20001
3 All SA
512
at 517b-h.
Although the court in Mthimkhulu dealt with a “friendly
sequestration’’, the guidelines can be applied
in
voluntary surrender applications as well, but also bearing in mind
what is stated infra.
[17]
In
Craaas v
Dedekind and three similar applications.
1996
(1) SA 935
(C) at
936 H, Conradie J referred with approval to the following remarks of
Curlewis JP in
Kerbel
v Chames
1925 WLD 72
at
76-77:
“
...
and one has a strong suspicion that in a very large number of
sequestrations in this court, these sequestration proceedings
are not
for the benefit of the creditors, but are entirely for the benefit of
the insolvent and are very often instituted by a
friend to help the
debtor out of his difficulties. ”
Conradie
J went onat 936J to 937A to refer to the fact that courts have warned
over many years
against neglecting the interests of
creditors, but notwithstanding that, even then (in 1995) it was still
a
legitimate concern
which should continue to engage the attention of the courts. Although
the court dealt with’’ friendly
sequestrations”,
the concerns pertaining to voluntary surrender applications are
exactly the same.
[18]
In
Ex Parte
Anthony en ‘n Ander en 6 soortelyke aansoeke
2000 (4) SA 116
©
Blignaut J
dealt with seven separate applications for voluntary surrender. In
all seven cases each estate consisted of one mortgaged
immovable
property and a few movables. The court’s main concern
was
the advantage to
creditors and Blignaut J, writing for the full bench, found that
notwithstanding valuations obtained by the applicants
in each case,
they failed to prove that the valuations would be achieved in the
event of forced sales. The court relied on the
judgment of Leveson J
in
Nel v Lubbe
1999 (3) SA 109
(W)
where the learned Judge was also confronted with a valuation which
was
nothing more but
“a bold assertion of value".
[19]
In
Nel v Lubbe
loc
cit,
Leveson J made it clear that a court will look to the guidance of an
expert when it is satisfied that it is incapable of forming
an
opinion without it, but that the court is not a rubber stamp for the
acceptance of the expert’s opinion. It is important
that
evidence must be placed before the court of the facts relied upon by
the expert for his opinion as well as the reasons upon
which it is
based. The learned Judge went further:
“
The
court will not blindly accept the assertion of the expert without
full explanation. If it does so its function will have been
usurped.”
(at 111G)
The
manner in which expert evidence must be placed before the court is
nothing new. Wessels JA put it as follows in
Coopers
(SA) (Pty) Ltd v Deutsche Gesellschaft
1976
(3) SA 352
(A) at 371G-H:
“
As
I see it, an expert’s opinion represents his reasoned
conclusion based on certain facts or data, which are either common
cause or established by his own evidence or that of some other
competent witness. Except possibly where it is not controverted,
an
expert’s bald statement of his opinion is not of any real
assistance. Proper evaluation of the opinion can only be undertaken
if the process of reasoning which led to the conclusion, including
the premises from which the reasoning proceeds, are disclosed
by the
expert. ”
[20]
In
Ex parta Ogunlaia and others f20111 JOL 27029
(GNP), Bertelsmann J endorsed
the approach by Levenson J in
Net v Lubbe
and
went further to explain
the applicable requirements regarding expert testimony in paras [15]
and [16], It is apposite to emphasise
the following warnings in paras
[35] to [39]:
“
[35]
It is necessary to add that the nature of the valuation report is
such that, in the absence of a reliable method of calculation
of the
value of the immovable properties, the court is left with the
uncomfortable impression that the valuator and the applicants,
or the
applicants’ legal representatives, are too close to one another
to allow the preparation of an independent expert’s
report. The
thought is difficult to dismiss in these applications, and in many
others the court has seen over the past two to three
years, that the
valuator is fully aware of the value that needs to be certified for
assets in every individual insolvent estate
to ensure that the papers
reflect the conclusion that an advantage to creditors is assured if
the surrender is accepted ...
[36] If this
impression is correct, it is clear that the process of voluntary
surrenders is being abused. ...
[37] If the
suggestion is allowed to take hold that certain valuators manipulate
the true value of assets upward to persuade the
court to accept
applications such as the matters under consideration, the result must
be a deep suspicion on the part of the court
of any valuation report
prepared by the valuators concerned.
[38]
To prevent such an uncomfortable situation from arising, valuators
should certify under oath that they prepared every valuation
without
any knowledge of the facts of the relevant application. In addition,
proof of physical inspections of immovable properties
ought to be
provided by way of photographs and a detailed description of the
physical condition in which each property
was
found, as well as
the effect that the physical appearance of the property has upon the
valuation thereof.
[39]
The applicants themselves and the attorney acting for them should
likewise confirm that the valuator
was
not made privy to
the value that the assets in the estate must realise in order to
constitute an advantage to creditors. ”
Although the
learned Judge referred to valuation of immovable properties only, I
am of the view that photographs and a detailed
description of the
physical condition of movable property and motor vehicles in
particular, property that are used on a daily basis,
should be
obtained as well.
[21]
In
Smit v Absa Bank Ltd 120111 JOL 27973
(GNP), Southwood, J also found
that the applicants’ valuation
was
completely
defective as it did not comply with the requirements laid down in the
case law. In para [7] the court also frowned upon
the allegation that
the applicants' estate consisted of one immovable property only and
mentioned the following:
“
It
is also difficult to believe that the applicants own no other assets.
The overall impression is that the applicants have not
taken the
court into their confidence.”
Southwood,
J in
Ex Parte Mattysen ed uxor
2003
(2)
SA
308
(T) adjudicated upon an
application for voluntary surrender and made two relevant
observations, one pertaining to the valuation
of the immovable
property and the other pertaining to the failure to make full
disclosure pertaining to the sale of that property.
Regarding the
valuation the court foundat p 316A that the affidavit of the valuator
did not contain relevant facts or reasons,
did not assist the court
in any way and
was
nothing but “an
exercise in futility". With reference to the failure to make
full disclosure the court stated the following
at 316E:
“
Here
it appears that there has been a deliberate misrepresentation of the
facts. The probability is overwhelming that this was done
with the
assistance of the applicants’ attorney. By the time the
applicants’ affidavit was made on 3 July the applicants
would
have been served with the summons, the warrant of execution/notice of
attachment would have been served on them and the notice
of sale in
execution would have been published. Without an explanation it is
highly improbable that they would not have known about
this and
informed their attorney accordingly. ”
THE COSTS
OF SEQUESTRATION AND ADVANTAGE TO CREDITORS
[22] For several
years it has been accepted as a rule of practice in the Free State
High Court that sequestration and administration
costs as a general
rule be accepted in the amount of R20 000,00 in order to calculate
the concurrent dividend payable to concurrent
creditors. This has to
be reconsidered as I have recently established from the Registrar
that taxed sequestration costs in unopposed
sequestration
applications vary between R18 000 and R21 000,00. Further enquiries
indicated that it can be as high as R25 000.00
and that the costs of
voluntary surrender applications are in line with these costs.
Obviously if more than one firm of attorneys
is involved, which is
often the case, the costs are higher. In order to establish the total
costs to be paid out of the free residue
of an insolvent estate,
(that is including the costs of administration of the insolvent
estate), the trustee’s and Master’s
fees, advertising
costs, security costs, the auctioneer’s fees and expenses,
postage and diverse items must be added. The
administration costs of
a small estate with unencumbered movable assets of R200 000.00 can be
as high as R35 000.00 to R40 000.00
if the trustee’s fees of
10% on R200 000.00 plus VAT and the other costs referred to above are
added. Iftaxed sequestration
costs of R22 000.00 only is added, the
total costs to be paid from the free residue may be as high as R62
000.00 in this example
which is much higher that the amount accepted
as a general rule in this division. Obviously, this will have a huge
effect on the
dividend payable.
[23]
There has been a further long standing practice in this division
pertaining to advantage to creditors. Once it is established
that a
dividend of 10 cents in the Rand will be payable to concurrent
creditors in so-called “friendly sequestrations”
or
applications for voluntary surrender, an advantage to creditors has
been proven. If the position in the North Gauteng High Court
is
considered it appears as if a dividend of 10 cents in the Rand is too
negligible a dividend. I am fortified in my view if applications
for
rehabilitation are considered. It is too frequently evident from
these applications that no or much smaller dividends than
anticipated
were paid out to concurrent creditors notwithstanding the fact that
many concurrent creditors often do not even prove
claims against
insolvent estates. I am of the view that this division should follow
the guidelines in North Gauteng where the court
has laid down that
advantage to creditors requires a dividend of at least 20 cents in
the Rand. See
Smit v Absa Bank
Ltdloc
cit para [3] and
Ex Parte Opunlaia and others
loc cit at para [9], In the last
mentioned judgment the minimum dividend of 10 cents in the Rand has
been regarded as insufficient
and a dividend of 20 cents in the Rand
was regarded as the minimum benefit that would have to be established
before an application
for surrender of an estate or compulsory
sequestration will be granted. ’
In
Ex parte Snooke
Case
No 752/2014 (FSB), (unreported), Daffue J expanded upon the theme of
misleading applications for voluntary surrender as follows:
[23]
In
my view the correct approach to follow is that of the Gauteng North
Division of the High Court. Southwood, J’s judgment,
writing
for the full bench in
Ex parte Kelly
2008 (4)
SA
615
(T), is with respect
laudable. In view of the importance of the matter I quote extensively
from paragraphs 1 to 13:
77/.....
The total fees
claimed amounted to R37 742,21 and the total expenses claimed
amounted to R30 987,21: grand total R68 729,42 (instead
of the R9550
alleged in the application). At the taxation the trustee appointed in
the insolvent estate objected to the amounts
claimed in the two bills
of costs on the ground that they exceeded the amount of the legal
costs stated in the application for
surrender. The attorneys
contended that the figures alleged in the application merely provided
an indication of the legal costs.
After hearing argument the taxing
master allowed the amount alleged in the application together with
VAT: ie R10 887. This decision
gave rise to this review of taxation.
[8] The
applicant's notice of review in terms of rule 48 requests the taxing
master to prepare a stated case relating to the two
bills of costs.
The notice alleges that the taxing master erred -
(a) By not taxing
the bills but simply fixing a global amount for both accounts; and
(b) by not taxing
the accounts in the normal course.
[9] On 10 March
2006 the taxing master provided his stated case in which he concedes
that he erred in not taxing the bills and only
allowing the fixed
amount. He states that the bills of costs should be subject to normal
taxation in terms of rule 70 of the Uniform
Rules of Court.
Understandably, the applicant agrees.
[10] In his
report in terms of rule 48(5)(b) the taxing master expands on his
stated case. He refers to the principal contentions
of the parties at
the taxation which have been referred to. His view now is that the
correct approach is that the taxing master
must consider each item of
the bill presented to him and decide whether the amount claimed is
reasonable subject to an order by
the court limiting the fees which
the attorney can claim from the insolvent estate. Even in that case
the taxing master will consider
the individual items in the bill. If
the total of the fees and expenses is less than those alleged in the
application then that
is what the taxing master will allow. If the
total is greater than the fees and expenses alleged in the
application then only the
amounts alleged will be allowed.
[11]
Where the
applicant's attorney presents to the court an application for
voluntary surrender or sequestration in which allegations
are made
that the costs of the sequestration will amount to
a
stated figure, and the court grants that application, it does so in
the belief that those figures
are
correct and that the dividend will be paid. Even though the court
does not make an order
that
the attorneys' fees and expenses are to be limited that is the clear
assumption on which
the
order is made.
It
is therefore essential that all funds received by the attorney from
the applicant and all funds held by the attorney on behalf
of the
applicant and all expenses incurred in connection with the
application must be disclosed.
[12]
In the light of
the allegations in the application regarding the attorneys' costs,
and the necessity for limiting these costs to
arrive at the dividend
alleged, the order must be understood to
contain
such a limitation
-
see Firestone South Africa (Pty) Ltd v Genticuro AG
1977 (4) SA 298
(A) at 304D - H; Administrator, Cape, and Another v Ntshwaqela and
0thers1990 (1) SA 705 (A) at 715F -1.
In
addition the application must be understood to contain an undertaking
by the attorney to limit his
fees and expenses to those stated in the application. The attorney
makes a representation to the
court that his fees and expenses in the application will be
limited to those alleged. On
the strength of that representation the court grants the order. It
would make a mockery of the
whole procedure if the attorney could then claim other fees and
expenses far exceeding those
alleged.
The
present case is a good example. The two attorneys now claim, as the
costs of sequestration, almost seven times the fees and
expenses
alleged in the application. The trustee points out that if the full
amount of the bills of costs is allowed concurrent
creditors will not
receive any dividend and may have to pay a contribution.
It
also seems to be unprofessional conduct on the part of the attorney
to do this.
However
it is not necessary for present purposes to make a final finding in
this regard.
[13] Obviously it
will lend certainty if the court granting a sequestration order where
the attorneys' fees are stated to be a fixed
figure orders that they
be so limited for purposes of taxation. But that does not detract
from the finding that even in the absence
of such an order they are
to be limited as set out in the application.
[14] The
application to review the taxation of the bill of costs is dismissed
and the allocatur is confirmed in the figure of R10
887.”
(emphasis added.)
[24]
Bertelsmann, J, in relying on the
Kelly
judgment supra severely
criticised the approach of legal representatives in voluntary
surrender and sequestration applications of
relying on an estimate of
costs to be taxed in future and suggested that it was unacceptable
and should no longer be allowed. See:
Ex parte
Ogunlaia
[2011]
JOL
27029
(GNP).
The learned judge continued as follows at paragraph
42
and
43
with which dicta I agree
fully:
“
[42]
By
making provision for a later taxation, the attorney introduces an
element of uncertainty into the process of calculating the
advantage
to creditors.
Empirical
studies have shown that bills of
costs
are presented for taxation that reflect a multiple of the amount that
was
provided
for in
the
application under oath,
and
that was factored into the calculation of the existence of an
advantage to creditors. This represents another
abuse
of the process of voluntary surrenders
and
unopposed sequestration applications
.
Attorneys
who prepare applications of this
nature
are bound
by the estimate presented in the papers as a realistic expectation of
the costs
involved
in the process, subject of course to the court’s power to limit
the legal representative’s costs to a lower
figure in order to
ensure a true advantage to creditors.
[43]
If
the procedure laid down in
Kelly,
supra, is ignored in future, the
court may be compelled to issue punitive costs orders.”
(emphasis added.)
[25]
Bertelsmann et al,
Mars. The Law of Insolvency in
South Africa.
9
th
ed. at 64 are of the view that it is a lacuna in our present
legislation that no provision is made for judicial oversight of the
actual results of the liquidation process. Judges are not informed
whether the dividend that was held up to creditors in the application
was
in fact realised.
I decided some time ago, when having to consider rehabilitation
applications, to arrange for perusal of the applicable
applications
for voluntary surrender or sequestration to obtain personal knowledge
of the allegations made under oath and have
no hesitation to state
that the averments under oath in so-called friendly sequestration and
voluntary surrender applications in
order to prove advantage to
creditors are far from the truth in many instances. My own experience
that sequestration in the majority
of cases eventually turns out not
to be to the advantage of creditors is no surprise at all. This much
is apparent from a survey
conducted more than three decades earlier.
See: South African Law Commission Review of the Law of Insolvency:
Prerequisites for
and Alternatives to Sequestration (Working Paper
29
Project
63
(1989)
and
Hillhouse
v Stott
1990 (4)
SA
580
(W).
Information obtained from the Pretoria office of the Master revealed
that concurrent creditors received dividends in only
28.6%
of the cases included in
the survey, while creditors were liable to pay contributions in
40.6%
of the cases. There is
no reason to believe that the position in the Free State is
remarkably different.'
7. It is clear from
the above that the applicant has indeed made out a proper case for
the relief it seeks. In the circumstances,
the following order is
granted:
IT IS ORDERED:
1. THAT the order
of sequestration of the first and second respondents issued on 4 June
2014 be and is hereby rescinded;
2. THAT the
application for sequestration of the first and second respondents be
dismissed;
3. THAT the first
and second respondents pay the costs of this application.
G. WEBSTER
JUDGE IN THE HIGH
COURT