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[2015] ZAKZDHC 34
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178 Stamfordhill CC v Velvet Star Entertainment CC (1506/15) [2015] ZAKZDHC 34 (1 April 2015)
IN THE KWAZULU-NATAL
HIGH COURT, DURBAN
REPUBLIC OF SOUTH
AFRICA
CASE: 1506/15
DATE: 01 APRIL 2015
In the matter between:
178 STAMFORDHILL
CC
................................................................................................
APPLICANT
AND
VELVET STAR ENTERTAINMENT
CC
....................................................................
RESPONDENT
JUDGMENT
THATCHER AJ:
[1] The applicant, 178 Stamfordhill CC,
is the owner of an immovable property at 178 Stamfordhill Road,
Morningside, Durban. The
respondent, Velvet Star Entertainment CC,
from about 2011 traded as the Bellagio Night Club from the property
in terms of a lease.
On 28 June 2013, a further contract of lease
was concluded in terms of which the respondent leased the property
from 1 July 2013
for 48 months at an initial rental of R55 000,00
plus VAT per month for six months, R58 000,00 plus VAT per month for
a further
six months, and, with effect from 1 June 2014 the rent
would increase annually at 10% per annum.
[2] In terms of clauses 8.1 and 8.2, a
deposit of R180 000,00 was to be paid on signature of the contract.
Further material terms
of the lease were the following:
(a) Clause 13 which is as follows:
"13. Alterations, additions and
improvements
13.1 The [respondent] shall not make
any alterations or additions to the Premises without the
[applicant’s] prior written
consent ... .
13.2 If the [respondent] does alter,
add to, or improve the Premises ... whether in breach of clause 13.1
or not, the [respondent]
shall, if so required in writing by the
[applicant], restore the Premises on the termination of this lease to
their condition as
it was prior to such alteration, addition or
improvement having been made. ...
13.3 Save for any improvement which is
removed from the Premises as required by the [applicant] in terms of
clause 13.2, all improvements
made to the Premises shall belong to
the [applicant] and may not be removed from the Premises at any time.
The [respondent] shall
not, whatever the circumstances, have any
claim against the [applicant] for compensation for any improvement to
the Premises."
(b) Clause 18 which is as follows:
"18. Special remedy for breach
18.1 Should the [respondent] default in
any payment due under this lease or be in breach of its terms in any
other way, and fail
to remedy such breach (other than payment) within
7 (seven) days after receiving a written demand that it be remedied,
the [applicant]
shall be entitled, without prejudice to any
alternative or additional right of action or remedy available to the
[applicant] under
the circumstances, to cancel this lease with
immediate effect, be repossessed of the Premises, and recover from
the [respondent]
damages for the default or breach and the
cancellation of this lease. The [applicant] shall not be obliged to
give any written
notice to cure non-payment of any amount due in
terms of this lease."
[3] It is common cause that the
respondent has been in occupation since July 2013 and that it failed
to pay in full the deposit
of R180 000,00 and the rentals for
November 2014 to date. It is also common cause that on 25 July 2014,
Loven Marimuthu, the driving
force behind the respondent, executed an
acknowledgment of debt in terms of which he acknowledged on behalf of
the respondent that
it was indebted to the applicant in an amount of
R135 557,42 made up of the balance of the deposit at R97 796,32 and
arrear rental
of R37 761,00.
[4] On the 4 November 2014, Mr
Marimuthu deposed to an affidavit putting the respondent into
business rescue and on 5 November 2014
the business rescue
application was delivered to the Companies and Intellectual Property
Commission and accordingly the business
rescue commenced.
[5] In this application, launched as a
matter of urgency on the 13 February 2015, the applicant sought,
firstly, an order in terms
of
section 133(1)(b)
of the
Companies Act,
2008
, for such leave as may be necessary to bring this application
for, inter alia, a declarator that the lease had been cancelled, and,
secondly, for the eviction of the respondent from the property.
[6] It is helpful to set out the events
from November 2014 as they unfolded.
[7] On 12 November 2014, Werner Cawood
and Johan Christian Beer were appointed to oversee the respondent
during the business rescue
proceedings. (I shall hereinafter refer
to the business rescue practitioners as "the “BRPs”.)
On 19 November
2014, the applicant’s attorney addressed a
letter to the BRPs advising that they would attend the meeting of
creditors on
the 25 November 2014 and attached to that letter the
acknowledgment of debt and an updated certificate of balance stating
that
the respondent was indebted to the applicant in the amount of
R198 014,25.
[8] On 25 November 2014, the first
meeting of creditors was held. At that meeting, one of the concerns
raised was the indebtedness
of the respondent to the applicant.
[9] The business rescue plan was, in
terms of
section 150(5)
of the Act, to be published by the 17
December 2014. On 11 December 2014, the BRPs requested that
publication of that plan be
postponed until Friday 30 January 2015,
and that request was granted by creditors. The applicant declined to
consent to the postponement.
[10] On 12 December 2014, the
applicant’s attorneys sent a letter to the BRPs:
(a) recording that R62 456,92 was
outstanding in respect of the November rental and a further R135
557,42 for past arrears as recorded
in the acknowledgment of debt was
owing;
(b) calling upon the respondent to pay
the total of R198 040,34 within seven days failing which the contract
of lease would be cancelled.
[11] It would appear that on 24
November 2014, the BRPs had addressed a letter to the applicant
advising that they had "suspended"
the lease agreement for
the duration of the business rescue. A copy of that letter does not
form part of the papers. The applicant's
attorneys in their letter
of 12 December 2014 referred to the purported suspension set out in
the letter of 24 November 2014, and
demanded the return of the leased
premises.
[12] On the 22 January 2015, the
applicant’s attorney addressed a letter to the BRPs advising
that in the light of the respondent’s
failure to pay the arrear
rentals, the applicant was cancelling the contract. The letter also
called upon the respondent to vacate
the premises by 30 January 2015
failing which an application would be brought for the return of the
leased premises to the applicant.
[13] On 3 February 2015, the BRPs
advised all affected parties, including the applicant, that they had
concluded that “there
no longer remains any prospect in
continuing with the business rescue proceedings” for the
respondent and that they would
“now take the necessary steps in
terms of
section 141(1)
” of the Act.
[14] On 4 February 2015, and unbeknown
to the applicant, the winding up application was launched. On 5
February 2015, the applicant’s
attorneys, in writing, confirmed
that they had cancelled the contract.
[15] This application was launched on
13 February 2015. The BRPs were advised of this on that date and on
14 February 2015, the
application papers were emailed to the BRP’s.
On 16 February 2015, the BRPs acknowledged receipt of the
application papers
and advised that they have been sent to their
attorneys. On 19 February 2015, the applicant was advised of the
liquidation application.
Urgency
[16] The first point raised by Mr van
der Merwe, who appeared for the respondents, was that the matter was
not urgent. He submitted
that since July 2014 the applicant had been
in possession of an acknowledgment of debt in its favour and the
applicant could have
instituted proceedings based upon that
acknowledgement of debt. In addition, there was a suretyship in
place so that the applicant
could have sued the surety for any sum
owed by the respondent. He argued in the alternative that any
element of urgency was as
a result of the applicant’s own
conduct.
[17] Mr Kemp SC, who appeared for the
applicant, argued that the matter was urgent. He summarised how
events had unfolded, culminating
in the bringing of the application.
The payment program set out in the acknowledgment of debt signed in
July 2014 provided for
the arrears to be made up in four instalments,
payable on the last days of the month of December 2014, March, June
and September
2015. The repayment structure was to afford the
respondent the opportunity of capitalising on the anticipated
improved business
over the festive season at the end of the year.
Rentals were paid in the months after July 2014, but then at the
beginning of
November 2014 the respondent was placed in business
rescue and no rental for November paid. The applicant anticipated
the business
rescue plan being published by 17 December 2014 and not
unreasonably presumed that in the business rescue plan provision
would
be made for the payment of rentals. However the publication of
the business rescue plan was then postponed until the end of January
2015. With no rental being paid and the anticipated busy festive
trading imminent, in an endeavour to obtain payment of rental,
the
letter of demand dated 12 December 2014 was sent. That letter met
with no response. By 22 January 2015, still no rental had
been paid
whereupon the applicant sent the notice cancelling the lease
agreement. At the end of January 2015, no business rescue
plan was
published and shortly thereafter, on 3 February 2015, the applicant
received the notice from the BRPs that they had concluded
that there
was no merit in continuing with the business rescue proceedings and
that “the practitioners will now take the
necessary steps in
terms of
section 141(1)
of [the Act] and all affected parties will
receive the prescribed notice for such further steps”. Thus
having received no
rent and no proposal in terms of the business
rescue plan for the payment of any rent, and having heard nothing
further, by 13
February 2015, this application for the respondent’s
ejectment was launched. (At that stage the applicant had not been
informed
that in fact on 4 February 2015 the BRPs had instituted an
application in the Gauteng High Court for the winding up of the
respondent.)
[18] It is clear from the way in which
events unfolded since July 2014 that the applicant, not unreasonably,
anticipated that, firstly,
the arrears would begin to be paid off at
the end of 2014, and, secondly, that the business rescue would
provide payment of at
least some rental. Thus the applicant cannot
be faulted for waiting until December before taking any steps to
recover the arrear
rental owed to it. When at the beginning of
February 2015 the applicant was advised that business rescue was to
end and it was
clear that the respondent was going to continue
trading without paying a cent to the applicant for its occupation of
the premises,
the applicant launched this application.
[19] The applicant was, according to Ms
Charles, the managing member of the applicant, financially
embarrassed as it was incurring
monthly expenses of R12 000.00 per
month for the property for levies, rates, lights and water and
insurances with no rental being
paid. There is therefore an element
of urgency in this application which entitled the applicant to move
the application in the
manner in which it did. The respondent was
afforded sufficient opportunity to respond to the application and to
place all the
evidence it wished to place before the court. It
delivered both a preliminary answering affidavit and a more
comprehensive answering
affidavit. Mr van der Merwe, correctly, did
not submit that the respondent was in any way prejudiced because of
the manner in
which the application had been brought. In the
circumstances of this case, I find that there is no merit in the
respondent's contention
that the matter was not urgent.
The status of the contract of lease
[20] It is common cause that at the
commencement of the business rescue proceedings, the amount of the
acknowledgment of debt (comprising
arrear rental due before the
business rescue proceedings commenced and a portion of the unpaid
deposit as at 25 July 2014) had
not been paid. In terms of clause 18
of the lease, the applicant could summarily cancel the lease without
notice to remedy that
breach. Clause 18 can be interpreted in no
other way. Despite not being required to do so by clause 18, written
notice was sent
to the respondent on 12 December demanding payment
within seven days of the amount of acknowledgement of debt as well as
the November
rental of R62 456,92. There was no response to that
letter and accordingly on 22 January 2015, the applicant, in writing,
sent
an email to the BRPs cancelling the lease and calling upon them
to vacate the premises by 30 January 2015, failing which proceedings
would be brought to regain possession of the premises.
[21] Mr van der Merwe's argument was,
as I understand it, the following. On 25 May 2014, the BRPs
suspended the lease. No legal
proceedings could be brought against
the respondent in relation to its possession of the property without
the leave of the court.
The court should not grant leave because if
it ordered the ejectment of the respondent from the property and, as
was contemplated
by the BRPs, the business rescue proceedings were
converted to liquidation proceedings, the liquidation would be deemed
to commence
on 5 November 2014 (the date of the commencement of
business rescue proceedings). That being the case, if the respondent
was ejected
from the premises, it would be compelled to leave on the
premises its movable property as well as the improvements it made to
the
property. The applicant would as the deponent to the answering
affidavit expressed it, "hijack" the assets of the
respondent
for its own benefit, and elevate itself above other
creditors in the liquidation, to the detriment of those other
creditors.
[22] The first question to be dealt
with is whether the applicant was entitled to cancel the lease after
the business rescue proceedings
had commenced.
[23] Mr Kemp submitted that the
applicant was entitled to do so because the grounds upon which it
relied subsisted prior to the
commencement of business rescue, a
situation permitted by
section 136(2)
of the Act. In support of
this, Mr Kemp referred to
section 136(2)
prior to its amendment in
2011. Initially
section 136(2)
read as follows:-
“(2) Subject to
sections 35A
and
35B
of the
Insolvency Act, 1936
... despite any provision of an
agreement to the contrary, during business rescue proceedings, the
practitioner may cancel or suspend
entirely, partially or
conditionally any provision of an agreement to which the company is a
party at the commencement of the business
rescue period, other than
an agreement of employment.”
[24] The draconian effect this had on
third parties who had concluded contracts with the company before the
business rescue proceedings
commenced led in 2011 to
section 136(2)
being amended so that today it reads as follows:-
“(2) Subject to subsection (2A) …
during business rescue proceedings, the practitioner may –
(a) entirely, partially or
conditionally suspend, for the duration of the business rescue
proceedings, any obligation of the company
that :-
(i) arises under an agreement to which
the company was a party at the commencement of the business rescue
proceedings; and
(ii) would otherwise become due during
those proceedings…”
[25]
Section 136(2)
as it now is means
that the rentals due by the respondent for the months after the
business rescue proceedings commenced cannot
be claimed, but that the
claim for rental due when the business rescue proceedings commenced
were unaffected by the business rescue
and could be claimed.
[26] The question which then arises is
whether the applicant could, during the subsistence of the business
rescue proceedings, cancel
the lease. Mr van der Merwe argued that
the applicant could not do so because the BRPs had suspended the
contract.
[27] Mr Kemp submitted that it was
competent for the applicant to cancel the lease and seek the
ejectment of the respondent. The
position of the BRPs vis-à-vis
the contract is akin to that of a liquidator of a company in
liquidation or a trustee in
insolvency. On the authority of Ellerine
Brothers (Pty) Ltd v McCarthy Ltd
2014 (4) SA 22
(SCA) and Porteous v
Strydom NO
1984 (2) SA 489
(D), notwithstanding the establishment of
a concursus creditorum, a contract with the respondent can be
cancelled. The lease survives
the concursus creditorum and the
rights and obligations of both parties to the contract remain in
existence, and insofar as the
obligations of the insolvent in terms
of the contract are concerned, the trustee steps into the insolvent's
shoes. The trustee
is obliged to perform whatever is required of the
insolvent in terms of the contract, including unfulfilled past
obligations of
the insolvent. The contract is neither terminated nor
modified nor in any way altered by the insolvency of one of the
parties,
except in one respect, and that is because of the
supervening concursus, the trustee cannot be compelled by the other
party to
perform the contract. The so-called suspension of the lease
cannot amount to anything more than the BRPs' right not to be
compelled
to perform in terms of the contract. Mr Kemp submitted
that this did not permit the BRPs to remain in occupation of the
property,
for the respondent to continue trading, as it apparently
was in February 2015, and not honour its obligation to pay rent. It
had
to honour its obligations in terms of the contract incurred prior
to the business rescue proceedings commencing, and as it had not
done
so, the applicant was entitled to cancel the contract. I agree with
Mr Kemp's submissions in this regard.
[28] The second question is whether the
lease has been validly cancelled. Notwithstanding clause 18, on 12
December 2014, the BRPs
were called upon to pay the arrears, and when
that evoked no response, on 22 January 2015, the BRPs were notified
in writing of
the cancellation of the lease. The lease has therefore
been properly cancelled.
[29] Mr Kemp submitted that as the
lease had been lawfully cancelled, the property was not lawfully in
the possession of the respondent,
and accordingly it was unnecessary
to seek the leave of the court in terms of
section 131(1)(b)
for
leave to bring these proceedings for the ejectment of the respondent
from the applicant's premises. He submitted in the alternative
that
if the leave of the court is required, the court should grant such
leave. He submitted the court should do so for the following
reason.
The purpose of the general moratorium on legal proceedings against
the company provided for in
section 133
was to procure the situation
that the prospect of a successful business rescue should not be
jeopardised or destroyed by creditors
being able to institute legal
proceedings whilst the business rescue proceedings were still in
operation. However, given that
on 3 February 2015, prior to the
launching of this application, the BRPs had notified the creditors,
including the applicant, that
the business rescue was not going to be
successful and was not going to proceed, the necessity for the
moratorium on legal proceedings
had fallen away and the applicant
ought to be able to exercise its right to obtain repossession of the
property consequent upon
the cancellation of the lease. There was no
longer a concern that the business rescue would be endangered or
frustrated by legal
proceedings because the business rescue was not
going to proceed.
[30] I do not propose to determine
whether Mr Kemp's submission that the court's leave to bring these
proceedings is not required,
since I am of the view that if it was
required, this is a case where the court should grant leave. It
should do so not only for
the cogent reason provided by Mr Kemp I
have set out above, but also because it would be in the interests of
all the creditors
of the respondent if its occupation of the premises
ceased as soon as possible so that the quantum of the claim against
the respondent
by the applicant is limited and does not increase as a
result of the respondent continuing to occupy the leased premises.
[31] Accordingly, insofar as is
necessary, leave is given to the applicant to bring these
proceedings. For the reasons I have set
out above, the applicant is
entitled to an order for the ejectment of the respondent from the
premises.
Movables and Improvements
[32] Mr van der Merwe argued that the
security enjoyed by the respondent with regard to the assets (both
the movables and the improvements
to the premises) would be lost if
the court ordered the ejectment of the respondent from the premises.
It appears from the replying
affidavit of the applicant that the
BRPs' attorneys had on 6 March 2015 instructed Park Village
Auctioneers to conduct an inventory
of the movable property on the
premises and to remove any movables for safe keeping pending the
liquidation proceedings. In order
to meet the respondent's argument
that the ejectment from the premises of the respondent would elevate
the ranking of the applicant's
claim against the respondent above the
ranking of the claims of the respondent's other creditors, in its
replying affidavit the
applicant proposed the granting of an amended
order which provided for Park Village Auctioneers to take an
inventory of the movable
on the premises and to remove them pending
the liquidation proceedings. That draft order also provided for a
declarator that the
applicant had perfected its landlord's hypothec
over all those movables. However at the hearing, Mr Kemp stated that
the applicant
would be content with the draft order including a
paragraph that the removal by Park Village Auctioneers of the
movables from the
premises would be without prejudice to the
applicant's right to contend that it had perfected its landlord's
hypothec in respect
of those movables.
[33] With regard to the improvements to
the property, Mr Kemp submitted that what would remain after Park
Village Auctioneers removed
the movables would be the fixtures and
fittings which were not movable. He submitted that these fell to be
dealt with in terms
of clause 13 of the lease which I have set out
earlier in this judgment. He submitted that the respondent had not
placed in evidence
any facts which rendered inapplicable clause 13.
The respondent could not exercise any right of retention over those
improvements
because a right of retention only arises when one has a
claim to those improvements. The respondent had not set out any
facts
in support of the proposition that despite the terms of clause
13, those improvements were owned by the respondent or that it had
a
valid claim to them. Accordingly, Mr Kemp submitted, no right of
retention with regard to those improvements could exist. Indeed
the
terms of the lease specifically provided otherwise. In those
circumstances the respondent has no right of retention as it
cannot
point to any right which entitles it to a claim for those
improvements. I agree.
[34] Notwithstanding this, at the
hearing, I invited Mr van der Merwe to frame an order safeguarding
the respondent's right to make
any claim against the applicant
arising from those improvements and the following day he provided me
with a proposed order on this
aspect. I do not believe that such an
order is necessary as it would be open to the liquidator in any event
to make a claim based
upon those improvements against the applicant
should he be of the view that such a claim is of merit. I agree with
Mr Kemp however
that on the evidence before me, no such claim is made
out. Notwithstanding this, and in the light of the applicant not
opposing
the suggested order on this aspect by Mr van der Merwe, I
propose to include in the order a paragraph safeguarding the
respondent's
right to make a claim against the applicant arising from
those improvements.
Costs
[35] The applicant sought an order for
costs against the respondent. Mr van der Merwe contended that the
respondent was entitled
to oppose the application, because, he
maintained, the application was not brought so much as with the
object of obtaining the
ejectment of the respondent from the premises
but rather was brought to improve the position of the applicant as
against the respondent's
other creditors vis-à-vis the
movables and improvements. Evidence of this, he submitted was, the
terms of the amended order
now sought by the applicant in its
replying affidavit.
[36] I disagree. The primary object of
the application was the ejectment of the respondent from the
premises. Furthermore, the
respondent never at any stage tendered to
vacate the premises, either in the opposing affidavits or at the
hearing. Indeed, as
Mr Kemp submitted, one of the BRPs himself in
the answering affidavit stated at page 168 that “the suspension
of the agreement
between the parties goes to the heart of the current
application". The BRPs throughout the application sedulously
persisted
in the notion that the respondent was entitled to remain on
the premises. As a result, the respondent remained on the premises,
and continued to trade therefrom, but without paying a cent to the
applicant for its occupation. The applicant has achieved substantial
success and I see no reason why the costs should not follow the
result. Furthermore, the issues raised in the application were
not
uncomplicated and justified the retention of senior counsel.
[37] Accordingly I make an order in the
following terms:-
1. Park Village Auctioneers, on behalf
of the respondent’s business rescue practitioners (Messrs
Cawood and De Beer) shall
enter the premises at 178 Stamfordhill Road
(“the premises”) and shall take a detailed inventory of
all the moveables
on the premises.
2. Park Village Auctioneers shall then
remove and safeguard the moveables on the inventory on behalf of the
aforementioned business
rescue practitioners pending the outcome of
the liquidation application in the North Gauteng High Court under
case number 8280/2015.
3. The removal from the premises of the
moveables as set out above shall be without prejudice to the
applicant’s right to
contend that it has perfected its
landlord’s hypothec in respect of those moveables.
4. Should any liquidator be appointed
pursuant to an order under case number 8280/2015, the movables shall
then be delivered to
the trustee subject to the retention of the
applicant’s rights under
section 47
of Act no.24 of 1936.
5. If the liquidation application
referred to is dismissed, the item shall forthwith be returned to the
applicant’s possession.
6. The respondent is directed to vacate
the premises within seven days of the grant of this order and to
restore to the applicant
vacant and unrestricted access to the
premises.
7. In the event of the respondent
failing to do so within the aforesaid period of seven days, the
sheriff or his deputy is authorised
to eject the respondent from the
premises and to hand to the applicant vacant and unrestricted access
to them.
8. The respondent's vacation of the
premises shall be without prejudice to its right to contend that it
has a claim or claims against
the applicant in relation to any
alleged improvements to the premises and any security the respondent
may have for such claim arising
from its possession of the premises
shall not be prejudiced by the respondent vacating the premises.
9. The respondent is ordered to pay the
applicant's costs of the application including the costs consequent
upon the employment
by the applicant of senior counsel.
Date of Hearing : 25 March 2015
Date of Judgment : 1 April 2015
Counsel for Applicant : Adv. K J
Kemp SC
Instructed by : Jodi Halkier &
Associates
031-5636723
Counsel for Respondent : Adv. L K
van der Merwe
Instructed by : Koster Attorneys
031-3044212