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[2015] ZAKZDHC 74
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Six-A-Property Investments (Pty) Ltd v Ferreira and Another (11267/2014) [2015] ZAKZDHC 74 (10 September 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU
NATAL LOCAL DIVISION, DURBAN
CASE
NO: 11267/2014
DATE:
10 SEPTEMBER 2015
In
the matter between:
SIX–A–PROPERTY
INVESTMENTS (PTY)
LTD
.........................................................
APPLICANT
And
CORNELIS
JOHANNES ANDRIES
FERREIRA
.........................................
FIRST
RESPONDENT
SHERIFF
OF THE HIGH COURT,
PINETOWN
.....................................
SECOND
RESPONDENT
JUDGMENT
Date
of Judgment delivered: 10 September 2015
MARKS,
AJ
:
1.
The applicant Six–A–Property Investments (Pty) Ltd, is a
company duly incorporated and registered according to law
which has
its registered office at 5 Park Lane, Kloof, Durban. The first
respondent is Cornelis Johannes Andries Ferreira, a male
attorney who
is also a shareholder of the applicant. The second respondent is the
Sheriff of the High Court Pinetown.
2.
The applicant seeks a declaratory order that set off of debts applies
between it and the first respondent and costs of the application.
No
relief is claimed against the second respondent.
3.
In a counter application, the first respondent seeks a declaratory
order in the following terms:
3.1)
that reciprocal debts owed by the applicant and first respondent to
each other are not subject to the operation of set off;
3.2)
that any amounts allegedly owed by the first respondent to the
applicant prior to 28 February 2012 have been extinguished by
prescription; and
3.3)
that the applicant pays the costs of the counter application;
Both
these applications are opposed by the respective parties.
4.
Further applications and counter applications relating to striking
out of paragraphs 21.2 of the applicant’s replying affidavit
as
well as an application to admit a further affidavit together with
costs, were settled by the parties in a draft order prayed
by consent
which was handed into court when the matter was set down on 28 August
2015 on an opposed basis and argued. This order
is recorded at
paragraphs 13.1 – 13.4 of this judgment.
[5]
BACKGROUND AND SUMMARY OF FACTS THAT
ARE NOT IN DISPUTE
There
are no disputes of facts and the following is common cause: –
5.1)
The applicant was formed in 1983 as a vehicle to acquire business
premises for a firm of attorneys, Halse Havemann & Lloyd.
All the
shareholders of the applicant are attorneys, including the first
respondent who is a 1/6
th
shareholder in the applicant.
5.2)
On 30 March 2004 the shareholders concluded an agreement which
conferred on each of them the right to occupy their respective
portions of the business premises , in consideration for paying their
pro-rata share of the expenses of the applicant. The pertinent
term
of the contract was that the first respondent was obligated to pay
his 1/6
th
share of the company’s monthly expenses without deduction or
demand as determined by the company’s auditors from time
to
time.
5.3)
In September 2004, and every year thereafter up to 21 November 2012,
the first respondent objected to the applicant’s
annual
financial statements. The relationship between the parties then
became extremely acrimonious and fraught with disputes
resulting in
continuous litigation between the applicant and the first respondent.
5.4)
In 2005 the applicant unlawfully locked the first respondent out of
his suite. The first respondent successfully brought a
spoliation
application against the applicant which was granted with costs which
were paid by the applicant.
5.5)
Then, in 2007 the first respondent launched a minority shareholders
relief application under s 252 of the Companies Act, 1973
and for the
winding up of the applicant. These applications were unsuccessful and
were dismissed with costs which were paid by
the first respondent to
the applicant.
5.6)
In September 2011 the applicant launched an ejectment application,
which ran its full course through appeals and petitions
to the
Supreme Court of Appeal. The taxed bill of cost of this litigation
amounted to R52 921.76. (It is this undisputed debt
that the
applicant seeks in this application to avoid by the operation of set
off.)
5.7)
On 24 January 2013, the applicant’s auditors submitted an
Auditors’ Report to the applicant confirming the accuracy
of
the expenses payable by the first respondent for his 1/6
th
share of the total expenses due by him for 2004 to 2012 inclusive.
The total amount determined by the auditors to be owing for
the
period 2004 – 2012 by the first respondent was R282 630.04.
This amount is disputed by the first respondent.
5.8)
On 26 September 2014 the present application was launched by the
applicant, claiming set off of the R52 921.76 it owes
the first
respondent from the taxed bill, against the R217 612.61 which it
alleges the first respondent owes it in unpaid
contribution to
expenses. The first respondent opposed the application and brought a
counter application of prescription which
was opposed by the
applicant.
[6]
ISSUES FOR DERMINATION
The
court therefore has to determine the following:
6.1)
whether the applicant has established that the debt it seeks to set
off against exists. This requires a determination of when
the alleged
debt became due and owing in order to determine whether or not it has
prescribed;
6.2)
whether the amount of the First Respondent’s debt has been
established and is liquidated.
6.3)
whether set off was excluded in terms of the agreement.
[7]
ARGUMENT
7.1)
The applicant contended that it is entitled to apply set off because
the judgment delivered in favour of the first respondent
in the
ejectment proceedings meant that the liability of the first
respondent’s share of expenses would only be due and payable
after the auditors had done a proper calculation of the amount owing.
The auditors had completed the audit of the financial affairs
of the
company and had made the determination. A letter to this effect was
sent to the first respondent on 24 January 2013 bringing
this to his
attention. Therefore, the debt became due on that date and therefore
had not prescribed. The Court was referred to
a number of authorities
which will be dealt with later in this judgment. Mr
Lingerfelder
for the applicant argued further that the contract or agreement did
not preclude set off despite including the terms “without
deduction or demand”.
7.2)
The first respondent contended that firstly, the existence and amount
of this alleged debt is disputed by him, secondly, the
alleged debt
had been extinguished by prescription and thirdly the agreement
between the parties
[1]
, excluded
set off being raised. Mr De Beer SC, for the first respondent,
further argued that the list of authorities referred to
in the
applicant’s heads of argument are legally irrelevant to the
determination of this application, and / or are distinguishable
in
principle or distinguishable on the facts.
[8]
THE LEGAL POSITION: – SET
OFF
8.1)
In order for set off to operate, the reciprocal debts must be
liquidated in the sense that the debts:
(i)
must be based on liquid document; or
(ii)
are admitted; or
(iii)
the money value as been ascertained; or
(iv)
are
capable of prompt assessment
[2]
.
8.2)
In the present matter, the applicant has argued that the money value
has been ascertained that the first respondent owes the
amount of
R217 612,61. The applicant further contends that this amount was
determined by auditors. Furthermore, it is not
necessary to prove the
exact amount of a liquidated claim if it is capable of prompt
assessment.
8.3)
The first respondent disputes the amount owing and argues that from
2004 until 2012, he has disputed these amounts which is
evident from
the papers. Furthermore, if any amounts are owing, these amounts are
not capable of prompt assessment. Furthermore,
the first respondent
avers that the auditor’s report is nothing more than a
collection of data from the monthly financial
statements that he has
objected to all along.
8.4)
It is trite, that set off cannot be defeated merely by denying or
querying a debt that otherwise qualifies. It is not necessary
to
prove the exact amount of a defendants liquidated claim if it is
clear that it is capable of prompt assessment and it exceeds
the
amount of the plaintiff’s claim
[3]
.
8.5)
Set off is really equivalent to payment. As soon as there are two
debts in existence, the one debt can be compensated against
the
other. By operation of law, the one debt extinguishes the other
pro
tanto
[4]
.
Furthermore the operation of set off dates back to the moment when
the two parties concerned were
reciprocally
liable
to one another. In other words set off cannot come into effect until
or relate back to a time before both debts are due. A debt
that has
already prescribed before the necessary mutuality of debts arises
cannot under the common law be set off.
8.6)
Before applying the facts of the particular matter to the principles
of set off, it is encumbent upon this court to determine
whether
there are
reciprocal debts
that are capable at being set off, as the first respondent claims
that any alleged debt incurred before 2012 had been extinguished
due
to prescription.
[9]
THE LEGAL POSITION – EXTINCTIVE
PRESCRIPTION
9.1)
In terms of section 12(1) the
Prescription Act, 1969
prescription
begins to run as soon as the deb is due.
Section 12(3)
of the
Prescription Act further
provides:
‘
A
debt shall not be deemed to be due until the creditor has knowledge
of the identity of the debtor and of the facts from which
the debt
arises: provided that a creditor shall be deemed to have such
knowledge if he could have acquired it by exercising reasonable
care.
’
9.2)
The applicant contends that the first respondent’s debt arose
out of his 1/6
th
liability to pay the expenses of the applicant for the period 2006 to
28 February 2012. However, it is common cause that the first
respondent has consistently disputed the debt or amounts owed by him
to the applicant as is evident by his various objections raised
in
the correspondence to the applicant, dated from 27 September 2004
until 21 November 2012.
[5]
During this period the applicant was fully aware of the debts that
were due and yet had taken no legal steps such as the issuing
of a
summons to claim payment of the first respondent’s debts.
Instead the applicant sought an ejectment order in 2011, based
on the
fact that they believed his refusal to pay his debt amounted to a
repudiation of the agreement entered into in 2004.
9.3)
The applicant then interpreted the legal consequences of the
ejectment judgment to mean that until the auditors do a calculation
and then notify the first respondent of the amount due for
contributions for expenses, the applicant would have an incomplete
cause of action. The applicant believes that therefore prescription
of the applicant’s claim against the first respondent
did not
begin to run as contemplated in
s12(1)
of the
Prescription Act in
that as it had an incomplete cause of action, the debt only became
due after the auditors had completed the audit and notified
the first
respondent of all the amounts he owed since 2006 – 2012 in a
letter sent to him during February 2013
[6]
.
9.4)
This argument is untenable for a number of reasons. Firstly, no court
may draft a ‘new’ agreement for the parties.
Secondly, if
the applicant’s contention is correct, this would mean that the
applicant could unilaterally and indefinitely
postpone the
commencement of the running of prescription by delaying the
determination of the auditors for the amount due by the
first
respondent - as indeed happened in this case where the auditors
‘determined’ the first respondent’s alleged
debt on
24 January 2013 in respect of the period 2006 to 28
th
February 2012. Thirdly, the applicant was to establish its alleged
claims in law by taking timeous legal steps against the first
respondent which it never did.
9.5)
The cases referred to by the applicant do not assist in its
application as I am in agreement with Mr
De
Beer
SC for the first respondent that
they are legally irrelevant to this determination, and / or
distinguishable in principle or on
the facts. I state this for the
following reasons:
9.5.1)
The cases of
Aspek Pipe Co (Pty) Ltd and
Another v Mauerberger and Others
1968
(1) SA 517
(C);
Sammel And Others v
President Brand Gold Mining Co Ltd
1969
(3) SA 629
A; and
Garden Province
Investment and Others v Aleph (Pty) Ltd And Others
1979 (2) SA 525
(D) pertain to oppressive conduct and shareholders
relief including the shareholders majority decision prevailing.
9.5.2)
Benson and Another v Walters and Others
1984 (1) SA 73
(A) pertains to the taxation of a bill of costs
between an attorney and his client. The court held that prescription
runs not from
the date of taxation but from date of completion or
termination of an attorney’s mandate.
9.5.3)
Deloitte Haskin & Sells Consultants
(Pty) Ltd v Bowthorpe Hellerman Deutsh (PTY) Ltd
[1990] ZASCA 136
;
1991
(1) SA 525
(A) related to a claim that was based in contract and not
on the common law. The contract itself introduced a
mora
date that the consultants had to supply a system or the services of a
third party would be consulted. In the present matter, the
applicant’s auditors are not a ‘third party’ which
is required to determine the amount of liability. The auditors
in the
present case are the applicants own auditors. The
Deloitte
case related to a claim for payment of damages. In the present matter
the applicant is seeking to enforce a contract.
9.5.4)
Lester Investments (PTY) Ltd v Narshi
1951 (2) SA 464
(C) pertains to ejectment under the provisions of the
Rent Act. It was held on the facts that the tenants claim for damages
for
improvements to the leased property was liquidated for the
purpose of set off. This matter is distinguishable on the facts.
9.5.5)
List v Jungers
1979 (3) SA 106
(A) pertains to the interpretation of what
constitutes a ‘guarantee’ within the context of a
particular contract.
9.5.6)
The
Master
v IL Back and Co Ltd and Others
1983
(1) SA 986
(A) pertained to a claim by the Master for his fees and
the question of whether such fees constituted a ‘tax or duty’
for the purposes of prescription. The Master’s claim was held
to be one for fees for which the prescription period was three
years
and not thirty years prescribed for a ‘tax or duty.’
9.6)
The argument by the applicant that it’s claim is conditional in
the sense that it only arose once an amount has been
determined by
the auditors, after Mnguni J’s judgment in 2013, is therefore
wrong. The judgment of Mnguni J did not in any
way make out a new
conditional contract for the parties but merely interpreted the
contract.
9.7)
Therefore, the applicant cannot rely on the argument that the debt
did not became due before the judgment of Mnguni J. To my
mind any
debt owed by the first respondent to the applicant as at 28 February
2012 have been extinguished by prescription, as the
applicant had
knowledge of the debt since 2006 and had taken no legal steps against
the first respondent to recover the disputed
debt. The applicant had
sat back and failed to calculate the alleged debt according to its
contractual obligation, with reasonable
care and within a reasonable
time period.
9.8)
It follows that the applicant has no claim to ‘set off’
against the respondents undisputed claim for taxed costs.
Moreover,
the other legal requirements, for set off aforementioned, have in any
event, not been satisfied, in that it is not admitted,
not based on a
liquid document, the money value has not been correctly ascertained
and is not capable of prompt assessment.
9.9)
In the event that I am wrong it is necessary to determine whether the
agreement excluded set off between the contracting parties.
[10]
THE AGREEMENT
10.1)
The question whether the parties can contract out of the operation of
set off was answered in
Herriggel NO v
Bon Roads Construction (Pty) Ltd
1980
(4) SA 669
SWA, where it was held: –
“
that
by virtue of the agreement whereby the parties both agreed or at
least by necessary implication in their dealings with each
other
agreed, not to set off their reciprocal debts but to pay them to each
other in full, the defendant was not entitled to claim
set off
operated
[7]
.”
10.2)
The applicant has argued further that it was not a party to the
contract. Moreover the phrase ‘without deduction
or demand’
appearing in the contract functions only within the context of
matters dealt with therein and between the shareholders.
10.3)
This argument is untenable as the contract is clearly between the
company on the one hand and the first respondent
and other
shareholders on the other hand. Besides clause 1 relating
specifically to the first respondent, clauses 6 and 7 relates
to an
agreement between the company and other parties in respect of the
transfer of the shares held by the respective parties.
Moreover
it was on the strength of this very same contract between the parties
that the aforementioned ejectment application was
launched.
10.4)
Clause 1 of the agreement states:
“
That
C J A Ferreira continues to occupy the portion of the premises on the
ground floor Media House currently occupied by him without
paying any
consideration therefore other than the monthly expenditure referred
to in 3 below
without
deduction or demand
as determined by the company auditors
from
time to time
.
[8]
”
(my underlining)
10.5)
The parties do not agree on the meaning of an expression in this
contract, that is whether the words ‘without
deduction or
demand,’ excluded ‘set off.’ When interpreting a
contract, the golden rule applicable is to ascertain
and to follow
the intention of the parties. The wording of the contract itself, or
any admissible evidence under the circumstances,
which affords a
definite indication of the meaning of the contracting parties, is
taken into account. A court should always give
effect to that
meaning
[9]
.
10.6)
Considering the words of the contract one must have regard to the
nature and purpose of the contract as a whole.
In this matter the
agreement between the parties was concluded in an attempt to regulate
the obligations between the applicant
and the first respondent. The
first respondent would retain the use of his portion of the property
and would pay his 1/6
th
share of the applicant’s monthly expenditure, without deduction
or demand as determined by the auditors from time to time.
10.7)
It follows that the intention of the parties were that the first
respondent once given the auditor’s report
from time to time
was obligated to pay without deduction or demand. To my mind, these
words
did
exclude
set off. In other words, once a proper audited account was forwarded
to the respondent, from time to time he would have
been obligated to
pay without deduction or demand. He could not claim set off.
10.8)
It is clear that the intention of the parties when concluding the
contract or agreement in 2004 was to exclude
set off. This can be
seen from the conduct of the parties concerning the different
disputes and litigation in the courts. The resultant
costs orders
against the respective unsuccessful party were paid to the successful
party. There was no set off claimed in the past.
10.9)
Moreover, the applicant and first respondent expressly or at least
tacitly agreed, that set off would not operate
between them or put
differently, that they expressly, or by necessary implication
contracted out of the applicability of set off
to any mutual debt
that may arise.
[11]
IN CONCLUSION
11.1)
The applicant had a duty to all the shareholders to ensure that a
properly audited financial report be submitted
to the first
respondent from time to time after the contract was concluded in
2004
. The applicant has failed to do so until 2013. The
applicant has therefore failed to discharge the
onus
to prove
that set off applies.
11.2)
The first respondent however, has discharged the
onus
to prove that the alleged debts that were incurred by the first
respondent up until 28 February 2012 have been extinguished by
prescription.
[12]
COSTS
12.1)
In considering the issue of costs, the Court has a discretion which
is to be exercised judicially. The Court is
required to take into
consideration the circumstances of the case, the issues at hand, the
conduct of the parties and any other
relevant circumstances.
12.2)
The general rule is that the costs follow the result. In other words
that party which is successful should be
entitled to an order as to
costs. There are no circumstances in this matter for the Court to
deviate from the general principle.
12.3)
However, the reserved costs occasioned by the adjournment of the
opposed hearing on 19 May 2015 when the matter
could not be argued is
due to no fault of the parties and therefore in fairness the Court
will order that these costs be costs
in the cause.
[13]
ORDER
13.1)
Paragraph 21.2 of the applicant’s replying affidavit is struck
out on the basis that it is irrelevant, argumentative
and
speculative.
13.2)
The applicant is directed to pay the costs of the first respondent’s
application to strike out dated 20
July 2015.
13.3)
The affidavit by Dennis Vincent Fraser is admitted.
13.4)
The applicant is directed to pay the costs of its conditional counter
application for leave to file the affidavit
of the said Dennis
Vincent Fraser.
13.5)
The application is dismissed with costs, such to include the costs of
senior counsel where employed.
13.6)
It is declared that reciprocal debts owed by the applicant and the
first respondent to each other are not subject
to the operation of
set off subsequent to 30 March 2004.
13.7)
It is declared that any alleged debts owed by the first respondent to
the applicant up until 28 February 2012
have been extinguished by
prescription.
13.8)
The applicant is to pay the costs of the counter application, such to
include the costs of senior counsel where
employed.
13.9)
The costs occasioned by the adjournment of the opposed hearing on 19
May 2015 shall be costs in the cause, such
include the costs of
senior counsel where employed.
S MARKS AJ
APPEARANCES
Attorney
for the Applicant: Mr Lingenfelder SC,
instructed
by Lingenfelder Attorneys, Gillets; represented by Webber Attorneys,
Durban.
Counsel
for the Respondents: Mr De Beer SC,
instructed
by Louis M Podbielski, Durban.
Date
of Hearing: 27 August 2015.
Date
of Judgment: 10 September 2015.
[1]
Annexure
A to the founding affidavit of the applicant of the papers p
[2]
Fatti’s
Engineering Co (Pty) Ltd v Vendick Spares (Pty) Ltd
1962
(1) SA 736
(T) at 739
[3]
Christie’s
‘The law of contract in South Africa 6
th
Edition’ p 495
[4]
Great
North Farms (EDMS) BPK v Ras
1972 (4) SA 7
(T) at 9E – F citing with approval
In
re: Trans – African Insurance Co Ltd (in liquidation)
1958 (4) SA 324
(W).
[5]
Annexures
“CF1” to “CF9” to the answering affidavit;
papers pages 52 -71.
[6]
CF
3 of the papers pages 83 – 84.
[7]
At
p 676.
[8]
Annexure
A of the Founding Affidavit papers page 13.
[9]
Kerr
“Law of Contract” 6
th
Edition p 386.