Sackstein NO v Proudfoot SA (Pty) Ltd. (141/05) [2006] ZASCA 8; [2006] 2 All SA 577 (SCA); 2006 (6) SA 358 (SCA) (10 March 2006)

About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2006
>>
[2006] ZASCA 8
|

|

Sackstein NO v Proudfoot SA (Pty) Ltd. (141/05) [2006] ZASCA 8; [2006] 2 All SA 577 (SCA); 2006 (6) SA 358 (SCA) (10 March 2006)

Case number : 141/05
Reportable
In
the matter between :
L
N SACKSTEIN NO in his capacity as liquidator
of
TSUMEB CORPORATION LIMITED (in liquidation) APPELLANT
and
PROUDFOOT
SA (PTY) LIMITED RESPONDENT
CORAM : MPATI DP, NAVSA, CONRADIE, CLOETE, HEHER
JJA
HEARD : 16 FEBRUARY 2006
DELIVERED : 10 MARCH 2006
Summary: Company – insolvency – time when company
must be unable to pay
all
its debts in terms of s 340 (1) of the Companies Act, 61 of 1973.
Restitution
–
cancellation
– obligation to tender to return benefits received or explain lack
of tender.
Neutral citation: This judgment may be referred to as
Sackstein NO v
Proudfoot
SA (Pty) Limited
[2006] SCA 9 (RSA).
_________________________________________________________
JUDGMENT
CLOETE JA
/
CLOETE JA:
INTRODUCTION
[1] The appellant is the liquidator in South Africa of
Tsumeb Corporation Limited, a company incorporated in Namibia and
registered
as an external company in South Africa in terms of s 322
of the Companies Act, 61 of 1973. The company was placed under
provisional
liquidation in Namibia on 29 April 1998 and in South
Africa on 29 July of the same year. In both countries the provisional
orders
were subsequently made final.
[2] The company was discharged from liquidation in
Namibia in terms of an order of the High Court of Namibia. The order
was granted
on 10 March 2000 in consequence of a scheme of
arrangement sanctioned by that court in terms of s 311 of the
Namibian Companies Act.
That section is in the same terms as s 311 of
the South African Companies Act.
[3] On 14 April 2000 (i.e. subsequent to the order
sanctioning the scheme of arrangement) the appellant commenced the
action which
is the subject matter of this appeal against the
respondent, Proudfoot SA (Pty) Limited. The purpose of the action is
to recover
payments made by the company to the respondent under a
contract for the provision of consultancy services by the respondent
to the
company during the period 1 December 1997 until 29 April 1998
when the company was placed under provisional liquidation in Namibia.
The respondent was retained to advise the company as to its future
viability and to implement a strategy to turn its fortunes around.
[4] The main claim brought by the appellant comprises
two statutory claims, namely:
1. A
claim in terms of
s 29(1)
of the
Insolvency Act, 24 of 1936
, in the
amount of R2 637 927,00 in respect of payments made by the
company to the respondent within six months of the provisional
liquidation of the company in South Africa at a time when the
company’s assets exceeded its liabilities and which had the effect
of preferring the respondent above other creditors;
2. A
claim of R2 637 927,00 in terms of the provisions of
s
30(1)
of the
Insolvency Act in
respect of payments made to the
respondent from 1 December 1997 until 28 January 1998 on the basis
that such payments were made by
the company at a time when its assets
exceeded its liabilities and with the intention of preferring the
respondent above the company’s
other creditors.
In the alternative to the statutory claims, the
appellant advanced a contractual claim for the recovery of the full
amount of R5 275 854,00
paid by the company to the
respondent from 1 December 1997 until 29 April 1998. The basis of the
contractual claim, which contained
an alternative, will be analysed
in due course.
[5] The court below (Blieden J) dismissed all the
claims
1
and granted leave to appeal to this court. The learned judge in his
judgment ventured into the deep waters of cross-border insolvency
law
on issues not raised by counsel. I propose adopting an entirely
different approach which has substantially the same outcome.
I should
perhaps add that the correctness of the decision of this court in
earlier proceedings in this same matter, reported as
Sackstein NO
v Proudfoot SA (Pty) Limited
2
,
was not debated before us.
THE
STATUTORY CLAIMS
[6]
Sections 29
and
30
of the
Insolvency Act only
find
application if the requirements of s 340(1) of the Companies Act have
been met. That section provides:
‘
Every
disposition by a company of its property which, if made by an
individual, could, for any reason, be set aside in the event of
his
insolvency, may, if made by a company, be set aside in the event of
the company being wound up and unable to pay all its debts,
and the
provisions of the law relating to insolvency shall
mutatis
mutandis
be applied to any such disposition.’
It
is not disputed that until the sanction of the offer of compromise, s
340(1) applied and the appellant was entitled to institute
action to
impeach the payments made by the company to the respondent in terms
of
ss 29
and
30
of the
Insolvency Act. But
the action was instituted
after the compromise was sanctioned and the compromise had a
considerable impact on the solvency of the
company. In view of the
concession made on behalf of the appellant referred to in para [9]
below, it is unnecessary to analyse the
effect of the compromise in
any detail.
[7] The crucial question which arises for decision is
when a company must be unable to pay all its debts for the purposes
of
s 340(1).
The appellant contended that if, as at the date of
liquidation or at any time thereafter, a company is unable to pay all
its debts,
the liquidator may bring impeachment proceedings
irrespective of the ability of the company to pay at the time the
proceedings are
instituted. The respondent contended that the
company’s inability to pay must exist at the time the impeachment
proceedings are
brought.
[8] In
Taylor and Steyn NNO v Koekemoer
3
,
a case concerned with the stage at which the inability to pay had to
be present (for the purposes of an interrogation in terms of
s 415(1)
of the Companies Act), Margo J writing for the full bench of the
Transvaal said
4
:
‘
In
my opinion, therefore, the expression in s 415(1), “a company which
is
being wound up and
is
unable to pay its debts”,
bears its ordinary meaning, namely a company which is unable to pay
its debts at the time that the section
is invoked by the liquidator
or by a creditor who has proved a claim.’
The
appellant’s counsel submitted that this conclusion is wrong. It
was, however, quoted with approval by this court in
Standard Bank
of South Africa Limited v The Master and Others
5
(a case also concerned with s 415(1)). There can be no doubt that the
same construction is applicable to the other sections of the
Companies Act which contain the identical or a substantially similar
phrase,
6
including s 340(1). Nienaber JA said in the
Standard Bank
case
7
:
‘
There
would be no call, for instance, to conduct an examination of
directors and others at an enquiry contemplated in ss 415 or 417
where the company which is being wound up is able to meet all its
commitments’
and
went on to quote
8
inter alia the following statement in the
Taylor and Steyn
decision
9
:
‘
Where
a company being wound up is able to pay its debts, there is no need
for those of the aforesaid provisions which are designed
to
facilitate recovery of assets and investigations thereanent.’
The same applies to impeachment proceedings under s
340(1).
[9] The appellant’s counsel fairly and correctly
conceded (as he had in the court
a quo
) that the appellant had
not discharged the onus of proving that the company’s inability to
pay existed at the time the present
action was instituted. That is
the end of the statutory claims. The proper order would have been
absolution from the instance and
to this extent the order made by the
court
a quo
must be amended.
CONTRACTUAL
CLAIM
[10] The principal claim in contract was that because
the respondent had materially breached the terms of the consultancy
agreement
with the appellant, the respondent was not entitled to
recover the amounts paid to it in terms of that agreement and it was
accordingly
obliged to repay them. This is not a claim based on
enrichment, as no allegation was made that the payments to the
respondent were
made due to an excusable error on the part of the
company, nor was it alleged that the respondent was enriched at the
company’s
expense:
Willis Faber Enthoven (Pty) Limited v
Receiver of Revenue
10
;
McCarthy Retail Limited v Shortdistance Carriers CC
11
.
The evidence did not establish the basis for such a claim either. Nor
is the claim one for restitution, as the appellant did not
allege
cancellation; and that omission must have been intentional, for it is
the alternative claim only which contains such an allegation.
Had
cancellation been alleged, the claim would have suffered from the
same deficiencies as the alternative claim to which I now turn.
[11] The alternative claim is clearly one for
restitution following cancellation. This court said in
Extel
Industrial (Pty) Limited and Another v Crown Mills (Pty) Limited
12
:
‘
That
a tender of restitution, or the explanation and excuse for its
failure, is a requirement in proceedings for restitution is indeed
trite.’
In
the context of the contract between the company and the respondent,
the appellant would have had to restore the benefits that the
company
received by way of a pecuniary substitution. But there is no tender
for restitution. The submission by the appellant’s
counsel was that
the consultancy services rendered by the respondent had been of no
value to the company; but the evidence of Mr
Neethling, who was the
production manager of the company at the relevant time, established
that, after the employment of the respondent,
the company for the
first time in quite a substantial period after it started its mining
activities managed to mine to budget and
its financial position
improved. The contractual claims accordingly fall to be dismissed.
ORDER
[12] The following order is made:
1. The
order of the court
a quo
is altered to read:
1.1 There will be absolution from the instance in
respect of the statutory claims.
1.2 The contractual claims are dismissed.
1.3 The appellant is ordered in his representative
capacity to pay the respondent’s costs, including the costs of two
counsel.
2. Save
as aforesaid the appeal is dismissed with costs, including the costs
of two counsel.
______________
T
D CLOETE
JUDGE
OF APPEAL
Concur: Mpati DP
Navsa JA
Conradie
JA
Heher
JA
1
Sackstein
v Proudfoot SA (Pty) Limited
[2005] JOL 14088
(W).
2
2003
(4) SA 348
(SCA).
3
1982
(1) SA 374
(T).
4
At
379B.
5
1999
(2) SA 257
(SCA) at 263B.
6
See
the
Standard Bank
case at 262B-D.
7
At
262E-F.
8
At
262G.
9
At
377H.
10
[1991] ZASCA 163
;
1992
(4) SA 202
(A) especially at 224H-225A.
11
2001
(3) SA 482
(SCA) paras 15, 16 and 20.
12
[1998] ZASCA 67
;
1999
(2) SA 719
(SCA) at 732B-C.