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[2007] ZASCA 160
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Carmel Trading Company Ltd. v Commissioner for the South African Revenue Services and Others (447/07) [2007] ZASCA 160; [2008] 2 All SA 125 (SCA); 2008 (2) SA 433 (SCA); 70 SATC 1 (29 November 2007)
Links to summary
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case No: 447/07
Reportable
In the matter between:
CARMEL
TRADING COMPANY LIMITED
................................
Appellant
and
THE COMMISSIONER FOR THE
SOUTH AFRICAN REVENUE SERVICE
................................
First Respondent
HAWKER AVIATION SERVICES
PARTNERSHIP
................................
Second Respondent
HAWKER AIR SERVICES (PTY) LIMITED
(In
Liquidation)
................................
Third Respondent
SOUTH AFRICAN CIVIL AVIATION AUTHORITY
................................
Fourth Respondent
Coram:
HARMS ADP, SCOTT, MTHIYANE, NUGENT JJA and MHLANTLA AJA
Heard:
19 NOVEMBER 2007
Delivered:
29 NOVEMBER 2007
Summary:
Civil procedure ─
preservation order ─ sale of goods in foreign jurisdiction
Neutral Cititation:
This
judgment may be referred to as
Carmel Trading
Company Limited v CSARS
[2007] SCA 160 (RSA)
J U D G M E N T
HARMS ADP/
HARMS ADP
[1] A Falcon 900B executive jet has
been languishing at the Dassault maintenance facility at Le Bourget
Airport near Paris, France,
since 3 April 2003. The respondent, the
Commissioner for the SA Revenue Services, wishes to have the Falcon
(with registration number
ZC-DAV) sold and the proceeds kept in trust
pending the finalisation of an action instituted by the Commissioner
against one David
Cunningham King and a number of corporate entities.
The Commissioner contends that King and a company of his, Ben Nevis
Holdings
Ltd, have a substantial income tax liability and that the
other defendants were, and are, being used by King to conceal his
assets.
(King was assessed to tax for more than R900 million and Ben
Nevis for more than R1 400 million as long ago as February 2002.) One
of these companies is Carmel Trading Co Ltd, the present appellant,
and the only entity opposed to the sale of the Falcon.
[2] The Falcon has always been and
still is registered in South Africa with the local civil aviation
authorities in the name of Hawker
Air Services (Pty) Ltd (‘HAS’),
a company liquidated by order of this Court on 31 March 2006.
1
The holding company of HAS was
Metlika Trading Ltd. HAS was an equal partner with Hawker Management
(Pty) Ltd (‘Manco’)
in a partnership known as Hawker
Aviation Services Partnership and the partnership was the beneficial
owner of the Falcon. However,
Rand Merchant Bank (‘RMB’)
is said to have been an undisclosed partner holding a 99.8 per cent
interest in the Falcon.
The Commissioner has an additional VAT
related claim against both HAS and the partnership of some R73
million.
[3] On 3 September 2002, Hartzenberg J issued a
preservation and anti-dissipation order in relation to the Falcon.
Such an order,
which interdicts a respondent from disposing of or
dissipating assets, is granted in respect of a respondent’s
property to
which the applicant can lay no special claim. To obtain
the order the applicant has to satisfy the court that the respondent
is wasting
or secreting assets with the intention of defeating the
claims of creditors. Importantly, the order does not create a
preference
for the applicant to the property interdicted.
[4] But on 5 September 2002 and in
spite of the order Carmel ‘took over’ the interests of
RMB and Manco. Carmel’s
attitude was that since it was not
bound by the order it could do so. Under normal circumstances such a
taking over would have had
the effect of putting an end to the
existing partnership and creating a new one. In a later judgment on
18 February 2003, Hartzenberg
J extended the preservation and
anti-dissipation order and ordered Carmel to return the Falcon to
South Africa.
2
(The Falcon had previously been flown
out of the country for fear of an attachment by the Commissioner.) He
held, in the course of
his judgment that the sale of the interests in
the Falcon to Carmel was ‘a contrived transaction,
in
fraudem legis
, to
by-pass the preservation order’ and that Carmel was but a tool
of King and under his direct control.
[5] Carmel and the other interested
parties obtained leave to appeal to this Court. In the event this
Court dismissed the appeal by
Carmel and the already mentioned
factual findings of Hartzenberg J were foundational to its judgment.
3
An application for leave to appeal to
the Constitutional Court was dismissed.
[6] The Commissioner earlier had sought an order
implementing the order to return the Falcon to South Africa pending
the finalisation
of the said appeal. This had been refused, in part
because of a perjured affidavit filed on Carmel’s behalf that
the Falcon
was safely stored and protected in a hangar at Le Bourget.
Another reason was that the aviation authorities had grounded the
Falcon
on 3 April 2003.
[7] The Falcon remained put at Le
Bourget and this led to a contempt application against, amongst
others, King, HAS and Carmel. King,
conveniently, had resigned as
director of HAS and this, according to Botha J (who heard the
contempt application), meant that he
could not be held liable for the
breach of the order by HAS. After the dismissal of the contempt
proceedings King was reinstated
as the sole director of HAS. In any
event, since the respondent parties involved ‘displayed a
willingness to cooperate in bringing
about the return of the Falcon
to South Africa’, Botha J held that in consequence a committal
would be inappropriate.
4
He made an order that would
‘hopefully have the effect of bringing the Falcon back’.
It did not. Metlika, who was supposed
to provide the finance for the
return of the Falcon, withdrew its financial support; Carmel refused
to make any funds available for
returning the Falcon; and Carmel
refused to give consent to the sheriff to return the Falcon to South
Africa.
[8] Carmel, for a reason not disclosed, does not want
the Falcon back in the country. It sought to register it in Mauritius
and the
High Court had to interdict it from doing so. It also made a
non-binding offer according to which it would consent to the return
of the Falcon provided the liquidator of HAS and the Commissioner
release the necessary funds and that it be registered in Mauritius
and be used by Carmel for chartering business (the other conditions
need not be mentioned – there were many). Once again, it
failed
to disclose why it wished to have the aircraft removed from the local
register, and counsel could not suggest a reason. Otherwise,
its
attitude is that the Commissioner must carry the risk of paying for
the repair and maintenance of the Falcon in order to have
it
returned. But, as I shall show in due course, Carmel as partner or
ex-partner is not entitled to the use of partnership property
especially in the absence of the consent of the other partner or (as
in this case) the liquidator of HAS. In addition, the undisputed
evidence of one Steyn was that it would probably not be profitable to
use the Falcon for charter purposes only.
[9] At the time of the preservation order the value of
the Falcon was in the vicinity of R200 million. Although King, in
previous
matters, created the impression that the Falcon was kept in
a hangar, the fact of the matter is that it was never so kept. This
misrepresentation
has not been explained. In any event, it is common
cause that the Falcon is fast deteriorating and will soon be
basically worthless.
To keep it stored in a hangar will only reduce
the rate of depreciation but will cost some R150 000 per month.
This means that
the preservation order has become meaningless unless
amplified. The High Court, this time per Preller J, accordingly
issued a variation
order to the effect that the Falcon should be sold
by the sheriff and the proceeds kept in trust in an interest bearing
account pending
the outcome of the action. It is this order, which is
with the leave of the court below, that is the subject of the present
appeal.
The detailed terms of the order need not be quoted because
the appeal is not directed against the terms of the order but against
any sale of the Falcon.
[10] The Commissioner, in the founding affidavit, stated
that in the light of the history of the case the behaviour of the new
partnership
to leave the Falcon stranded and neglected in a foreign
country is an obvious and desperate attempt to prevent our courts
from eventually
making an effective order in respect of this valuable
asset. He also alleged that King’s apparent attitude is that he
must
at all cost prevent the Falcon from being brought under the
control of the court in the hope that something may happen which will
make the Falcon or its value available to him in a foreign country.
And, concluded the Commissioner, failing this King is ‘patently
prepared to see the value of the Falcon lost rather than being
utilised to pay’ the Commissioner. These allegations have not
been controverted.
[11] As Streicher JA pointed out –
‘
An interdict at the instance of a creditor
preventing his debtor, pending an action instituted or to be
instituted by the creditor,
from getting rid of his assets to defeat
his creditors has for many years been recognised in our law [
Knox
D’Arcy Ltd v Jamieson
[1996] ZASCA 58
;
1996
(4) SA 348
(A) at 372C–F]. It is similar to the
Mareva
injunction in English law.’
5
He also quoted
6
Lord Donaldson of Lymington MR
7
who said:
“
We live in a time of rapidly growing
commercial and financial sophistication and it behoves the courts to
adapt their practices to
meet the current wiles of those defendants
who are prepared to devote as much energy to making themselves immune
to the courts’
orders as to resisting the making of such orders
on the merits of their case.”
[12] I agree with Mr van der Merwe (who, on behalf of
the liquidator of HAS, supported the Commissioner and the judgment of
Preller
J) that, considering the purpose of a preservation order, all
the high court was asked to do was to authorise the conversion into
cash of a deteriorating asset, which already was the subject of a
preservation order. It should be emphasised that previously in
this
Court Carmel and its associates did not contend that the Commissioner
had not established the requisites for a preservation
order. Their
case concerned the jurisdiction of the court, arguing that the high
court did not have jurisdiction because of the doctrine
of
effectiveness. This argument was rejected but an attempt to
resuscitate it before us likewise has to be rejected.
[13] Carmel’s opposition to the
sale of the Falcon can only be described either as conduct
animo
vicino nocendi
, or
‘Schadenfreude’ (according to Mr Gauntlett for the
Commissioner), or to use an old Dutch phrase, ‘uyt enckele
spijt ende kregelheydt’ (merely out of spite and
obstreperousness). It reminds one of the farmer who in order to
escape paying
tithe destroyed his whole crop.
8
The Romans had a short answer for
such conduct: ‘Malitiis non indulgendum esse’ –
there must be no indulgence to
malice.
9
Carmel’s objection lacks
reality.
10
[14] Mr Labuschagne’s counter on behalf of Carmel
was based on s 25(1) of the Bill of Rights, which provides that ‘no
law may permit arbitrary deprivation of property’. He says that
an order to sell the property and keep the proceeds in trust
pending
the finalisation of the main litigation amounts to an arbitrary
deprivation of Carmel’s property. This argument breaks
down at
many levels.
[15] Carmel’s first problem is
that the Falcon is not Carmel’s property. Carmel may have had a
proprietary interest in
the Falcon in its capacity as partner in the
partnership that was the beneficial owner of the Falcon. However, as
I have pointed
out, the ‘taking over’ of Manco and RMB’s
partnership interest was fraudulent and Carmel cannot rely on a
simulated
and fraudulent agreement.
11
There is a second point. The
partnership (whether the old or the new one) was dissolved by the
liquidation of one of the partners,
namely HAS. A former partner has
no proprietary claim in respect of the property of a dissolved
partnership. The claim is at best
for a proportionate share of the
proceeds after liquidation of the partnership because, as Prof
Beinart mentioned, common partnership
property falls for division
between the partners on dissolution, which, in the case of an
indivisible object such as the Falcon means
that it has to be
liquidated.
12
[16] The next problem Carmel has is
that the sale will not amount to a deprivation. If there was any
deprivation it was when Hartzenberg
J issued the preservation order.
The object of the order of Preller J was to replace an asset, which
is deteriorating. Carmel’s
position will not, after a sale, be
any different from what it is now. No one is divested of anything on
a permanent basis. The value
of the asset is being retained for both
the owner and those creditors who, eventually, would be entitled to
execute.
13
When asked what the act of
deprivation relied on is, counsel said that it was the sale coupled
with the retention of the proceeds
in trust because Carmel will not
have access to the money before the finalisation of the main case.
Since Carmel does in any event
not have the use of the Falcon the
argument is not understood.
[17] Whether the order to sell or the
sale is ‘arbitrary’ depends on whether there is
sufficient reason for the deprivation
and whether it is procedurally
fair; both are factual issues.
14
There can, on the facts recited, be
no doubt that the deprivation in this case is by no means arbitrary.
The decision to order the
sale was taken after a procedurally fair
hearing and the reason for the sale is quite obvious. Carmel’s
argument on the point
did not address the constitutional test.
Instead, counsel said that the order created a security for the
Commissioner which he did
not have. That argument is without any
merit because, as indicated at the outset of this judgment, a
preservation order does not
create any security or precedence for the
applicant creditor. Another complaint was that the proceeds are to be
kept in trust by
the attorneys of the Commissioner pending the
finalisation of the matter. This, according to the argument gave the
Commissioner control
over the money, which is nonsense. The money is
kept in trust on behalf of the owner of the Falcon. The only effect
of the order
is that the owner may not dissipate it pending the main
case. I should note that there was no attack on the ability or
competence
of the attorney to hold the money in trust and Carmel did
not ask that the money be kept in trust by someone else.
[18] Another argument of Carmel
concerns the right of the sheriff to sell the Falcon in the absence
of an attachment. The argument
is namely that an order of court
permitting the sheriff to sell something that has not been attached
amounts to an arbitrary deprivation
of property. Since the logic
escapes me I am unable to deal with the argument any further. Another
related argument was that at common
law a sheriff could only sell
goods that are deteriorating provided they had been attached. For
this reference was made to Voet’s
Commentarius
ad Pandectas
2.4.61
where Voet said that goods detained by arrest that are not capable of
preservation by keeping may be sold under a court order.
This section
of Voet deals with the effect of an arrest
ad
fundandam jurisdictionem
and
not with the powers of a court. In other words, Voet did not suggest
that courts may only order the sale of attached goods; all
he said
was that perishable goods that have been attached may be sold in
terms of a court order. Carmel also argued that it would
be
impermissible to use this example of Voet as an analogy in order to
make the preservation order effective – why, counsel
did not
articulate. A similar argument about the court’s power to
develop the common law was rejected in
Universal
City Studios Inc v Network Video (Pty) Ltd
[1986] ZASCA 3
;
1986
(2) SA 734
(A) by Corbett JA at 751G-I read with 754G-755A. Lastly,
on the attachment point, the submission was made that without an
attachment
the court cannot accept, considering that the Falcon is
not within the country, that the order could be executed and that,
accordingly,
the doctrine of effectiveness has been satisfied. The
answer is to be found in
Bid Industrial
Holdings v Strang
[2007] SCA 144 (RSA) at
para 55, namely
‘
that the responsibility for achieving
effectiveness, absent attachment, is essentially that of the parties,
and more especially the
plaintiff.’
[19] I should in conclusion record
one further argument – the others do not justify any judicial
time. Carmel relied on a preservation
order issued by a Crown Court
in England prohibiting Carmel of disposing the Falcon. A sale by the
sheriff, said Carmel, would amount
to a breach of that order. It is
not surprising that, although this was the main defence on the
papers, counsel did not press the
non
sequitur
.
[20] The appeal is dismissed with
costs, including the costs of two counsel.
____________________
L T C HARMS
ACTING
DEPUTY PRESIDENT
CONCUR:
SCOTT JA
MTHIYANE JA
NUGENT JA
MHLANTLA AJA
1
Commissioner,
South African Revenue Services v Hawker Air Services (Pty) Ltd
[2006] ZASCA 51
;
2006 (4) SA 292
(SCA).
2
The
different orders are quoted in
Metlika
Trading Ltd v Commissioner, SA Revenue Services
2005
(3) SA 1 (SCA).
3
Metlika
Trading
paras 18 and 35.
4
Botha
J was also not prepared to judge the role of King in Carmel. Why he
did not consider himself bound by the findings of Hartzenberg
J does
not appear from his judgment.
5
Metlika
para 35. See also Voet 2.4.18
6
Metlika
para 44.
7
Derby
& Co Ltd and others v Weldon and others (No 2)
[1989]
1 All ER 1002
at 1007f–g.
8
Van
der Merwe & Olivier
Die Onregmatige
Daad in die Suid-Afrikaanse Reg
6 ed p
64 fn 21.
9
Digesta
6.1.38 (Celsus). The translation is that of Watson. See the chapter
with this name in JE Spruit
Metopen:
Verzamelde Essays over het Romeinse Recht en zijn Geschiedenis
(2002) p 251.
10
MV
Spirit of Namibia: Big Red One v Marco Fishing
(Pty) Ltd
2006 (6) SA 309
(SCA) para
14.
11
Cf
Wells v South African Alumenite Co
1927 AD 69.
12
B
Beinart ‘Capital in Partnership’
1961
Acta
Juridica
118
at 146.
13
Cf
Harksen v Lane NO
[1997] ZACC 12
;
1998
(1) SA 300
(CC) para 35-37.
14
For
the meaning of the term:
First National
Bank of SA Ltd t/a Wesbank v Commissioner SA Revenue Service
[2002] ZACC 5
;
2002 (4) SA 768
(CC) para 100.