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[2013] ZAGPPHC 44
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Ellerine Brothers (Pty) Ltd and Another In re: Ellerine Brothers (Pty) Ltd v McCarthy Ltd (63367/09) [2013] ZAGPPHC 44 (12 February 2013)
NOT
REPORTABLE
IN
THE NORTH GAUTENG HIGH COURT, PRETORIA
(REPUBLIC
OF SOUTH AFRICA)
CASE
NUMBER:- 63367/09
DATE:12/02/2013
In
the matter between:
ELLERINE
BROTHERS (PTY)
LTD
.......................................................................
1st
Applicant
McCarthy
LTD
..........................................................................................................
2nd Applicant
In
Re:
ELLERINE
BROTHERS (PTY)
LTD
.......................................................................
Plaintiff
and
McCarthy
LTD
...........................................................................................................
Defendant
JUDGMENT
DE
VOS J:
[1]
This matter involves a stated case in terms of Rule 33(1). The
particular issue to be determined has been separated from the
other
issues in the main action in terms of Rule 33(4).
[2]
The particular point of law to be determined is whether concursus
creditorum prevents a party to an agreement from exercising
an
accrued right to cancel a lease when that right accrued prior to
concursus creditorum.
[3]
The First Applicant, Ellerine Brothers (Pty) Ltd (Plaintiff) issued
summons during October 2009 against the Second Applicant,
McCarthy
Ltd (Defendant) under Case No:- 63367/2009
(the
action). In this action the First Applicant (Plaintiff) claims rent
from the Second Applicant (Defendant), which pertains to
the premises
that the Second Applicant occupied and which premises belong to the
First Applicant. The Plaintiff took cession from
the liquidators of
Toits Motor Group’s claim against the Defendant for rental
allegedly due in terms of a sublease. The Plaintiff
then instituted
the present action claiming payment of the same.
[4]
The aforesaid action is opposed by the Second Applicant. The Second
Applicant filed a plea and the First Applicant filed a replication
thereto.
[5]
It is contended by both parties acting as First and Second Applicant
respectively, that under the appropriate circumstances
it is
imperative to determine whether a valid cancellation of the head
lease agreement could occur, and did indeed occurred. This
is the
issue which both applicants agree should be first determined, and
which overall would be convenient to all involved. In
effect this
would resolve the main dispute between the parties; if there was a
valid cancellation, First Applicant’s claim
against Second
Applicant must fail.
[6]
The following facts are common cause between the parties:
6.1
On 14th November 2006 a head lease agreement was entered into between
the First Applicant/Plaintiff (as lessor) and a company,
known as
Toits Motor Group (Pty) Ltd (“Toits Motor Group”) (as
lessee) in respect of an immovable property (“the
head lease”);
6.2
Subsequent to entering into the head lease agreement, a sub lease
agreement was entered into between Toits Motor Group (as sub-lessor)
and the Second Applicant/Defendant (as sub-lessee) on 28th November
2000 in terms of which the Second Applicant/Defendant rented
a
portion of the immovable property from Toits Motor Group (“the
sublease);
6.3
Toits Motor Group failed to pay rentals in terms of the head lease
agreement due to the First Applicant/Plaintiff, and was at
all times
during January and February 2009 in arrears vis-a-vis the First
Applicant/Plaintiff;
6.4
On 16th of January 2009 the First Applicant/Plaintiff placed Toits
Motor Group on terms to settle payment of the arrears and
informing
them that if Toits Motor Group did not remedy their breach of the
head lease agreement, the First Applicant would be
entitled, amongst
others, to cancel the head lease agreement. The head lease agreement
provides that a seven day notice period
is required before
cancellation upon a breach occurring;
6.5
Toits Motor Group did not rectify their breach within the seven day
notice period and on 27th January 2009 the First Applicant
“cancelled” the head lease agreement (the
word
“cancelled” is put in inverted commas due to the reason
as evident from what is set out below);
6.6
Toits was finally wound-up by means of a Court Order granted on 17th
February 2009.
6.7The
Plaintiff took cession of Toits’ claim against the Defendant
for rentals allegedly due in terms of the lease. The Plaintiff
then
instituted the present action.
6.8
The cancellation is to be considered against the following:
6.8.1
On 21st January 2009 an application for the liquidation of Toits
Motor Group was issued out of the (then) Transvaal Provincial
Division;
6.8.2
On 27th January 2009 a rule nisi was issued by this Court placing
Toits Motor group under provisional liquidation, and on
the same date
the First Applicant/Plaintiff “cancelled” the head lease
agreement with Toits Motor Group;
6.8.3
On 17th February 2009 the rule nisi was confirmed and Toits Motor
Group was placed under final liquidation;
6.9The
issue is:
6.9.1
Whether a valid cancellation of a lease agreement could occur, under
these circumstances;
6.9.2
Whether a valid cancellation of the head lease agreement indeed
occurred.
6.8
Essentially, the First Applicant submits that a valid cancellation
could not occur, and that the head lease agreement was not
"validly"
cancelled. The First Applicant contends, that because of the
liquidation application on 21st January 2009,
and the dates relevant
thereto, the notice of cancellation was suspended in terms of the
provisions of Section 37 of the Insolvency
Act, Act 24 of 1936. The
Second Applicant, however, contends otherwise - the Second Applicant
(McCarthy Ltd) contends that a valid
cancellation of the head lease
agreement occurred.
6.9
Ellerines’ contention is that if the lease was not validly
cancelled on 27th January 2009, the sublease between Toits
Motor
Group and McCarthy did not end on that date. The liquidator would
therefore be entitled to cede the rights of Toits Motor
Group under
the sublease to Ellerines. Ellerines, as cessionary, would therefore
be entitled to enforce the claim for rental under
the sublease as
against McCarthy.
[7]
The First Applicant's (Ellerines) contentions rely on two main
grounds:
7.1
On a proper interpretation of Section 37 of the Insolvency Act 24
1936, (“the act”), a lessor cannot exercise a
right of
cancellation after the commencement of the liquidation.
7.2
The concursus creditorum freezes creditors rights as at date of the
commencement of liquidation and accordingly a lessor cannot
exercise
a right of cancellation after the commencement of the concursus
creditorum;
[8]
In order to determine the dispute between the two applicants, it is
necessary to refer to the relevant legislation applicable.
Section 37
of the
Insolvency Act, Act
24 of 1936 reads as follows:
“
37.
Effect of sequestration upon a lease - (1) A lease entered into by
any person as lessee shall not be determined by sequestration
of his
estate, but the trustee of his insolvent estate may determine the
lease by notice in writing to the lessor. Provided that
the lessor
may claim from the estate compensation for any loss which he may have
sustained by reason of the non-performance of
the terms of such
lease.
(2)
If the trustee does not, within three (3) months of his appointment
notify the lessor that he desires to continue the lease
on behalf of
the estate, he shall be deemed to have determined the lease at the
end of such three months.
(3)
The rent due under any such lease, from the date of the sequestration
of the estate of the lessee to the determination of the
cession
thereof by the trustee, shall be included in the costs of
sequestration.
(4)
The determination of the lease by the trustee in terms of this
section shall deprive the insolvent estate of any right to
compensation
for improvements, other than improvements made in terms
of an agreement with the lessor, made on the leased property during
the
period of the lease.
(5)
A stipulation in a lease that the lease shall terminate or be varied
upon the sequestration of the estate of either party shall
be null
and void, but a stipulation in a lease which restricts or prohibits
the transfer of any right under the lease or which
provides for the
termination or cancellation of the lease by reason of the death of
the lessee or his successor in title, shall
bind the trustee of the
insolvent estate of the lessee or of his successor in title, as if he
were the lessee or the said successor,
or the executor in the estate
of the lessee or his said successor, as the case may be”.
[9]
Section 37
of the
Insolvency Act, Act
24 of 1936 was preceded by
various preceding Insolvency Acts. First Applicant contends that in
order to understand the relevant
case law and its development (that
will be referred to later on in this Judgement), it is necessary to
refer to previous enactments
prior to Act 24 of 1936 which are still
in force. After becoming
the
Union of South Africa in 1910, the
Insolvency Act, Act
32 of 1916 was
enacted, consolidating the enactments of the four provinces.
9.1
Section 36 of the Insolvency Act 32 of 1916 reads as follows:
“
36.
(1) No lease entered into by the insolvent as lessee shall be
determined by reason merely of the sequestration of his estate
but
the trustee may determine the same by notice in writing to the
lessor, subject to a concurrent claim by the lessor against
the
estate for any damages he may have sustained by reason of the
non-performance of the terms of such lease.
(2)
If the trustee does not within 3 (three) months of his appointment
notify the lessor that he is prepared to continue the lease
on behalf
of the estate, he shall be deemed to have determined the lease at the
end of such 3 months.
(3)
The rent due under any lease so determined, from the date of the
sequestration of the estate of the lessee to the determination
of the
sale thereof by the trustee, shall be included in the costs of
administration. The fact that a lease has been determined
by the
trustee shall deprive him of any right to compensation for
improvements made during the period of that lease”.
9.2
The 1916 Act repealed Ordonants 6 of 1843, which was then applicable
in the Cape and the Insolvency law Act, Act 13 of 1895
of
Zuid-Afrikaansche Republiek, Law No. 47 of 1887 in the Colony of
Natal and Hoofstuk CIV van Het Wetboek van den Oranjevrystaat
[10]
The position in the Cape prior to 1916
10.1
Section CIV of Ordonants 6 of 1843 (Cape) reads as follows:
“
CIV.
And be it enacted, that if any insolvent shall be entitled to any
lease, or agreement for any lease of any immovable property,
such
lease or agreement for lease shall, upon the surrender or
adjudication of sequestration of the estate of such insolvent, cease
and determine. Provided, that nothing herein contained shall prevent
the lessor or person having made such agreement, from suing
the
trustee or trustees in any competent court, and from recovering
judgment against the insolvent estate for any rent which he
shall
prove to the satisfaction of such court to have been due by the
insolvent prior to the surrender or adjudication of sequestration
of
his estate, or for any damage which he shall prove to the
satisfaction of such court to have been by him sustained, in
consequence
of the
non-performance
of the conditions of such lease or agreement for a lease during the
full period of the stipulated endurance thereof,
or to deprive the
trustee or trustees of their legal defence against such suit; or to
prevent such trustee or trustees from suing
the lessor or person
having made such an agreement in any competent court, for the amount
of any ameliorations made on the subject,
and in contemplation of
such lease or agreement, by the insolvent, prior to the surrender or
adjudication of sequestration of his
estate, or to deprive such
lessor or person of his legal defence against such suit; and provided
also, that it shall be lawful
for such trustee or trustees, when sued
for damages for the non-fulfilment of such lease or agreement for a
lease, to offer to
take over and accept the same and to perform the
conditions thereof, during the full period of the stipulated
endurance thereof;
and that it shall be lawful for such lessor or
person having made such agreement, when sued for the amount of such
ameliorations
as aforesaid, to offer to receive the trustee or
trustees, as lessors in the place of the insolvent, under the
conditions and for
the full period of the stipulated endurance of
such lease; and if such offer shall be refused, the party who has
made it shall
be absolved from the suit in which it has been made,
and shall be entitled to his costs”.
10.2
Ordinants 6 of 1843 Cape was preceded by Ordinants 64 of 1829 (Cape),
and Section 80 thereof provides that:
“
80.
And be it enacted, That, if any insolvent shall be entitled to any
Lease or Agreement for any Lease or of any immovable Property,
such
Lease or Agreement for Lease shall, upon the surrender or
adjudication of Sequestration of the Estate of such Insolvent, cease
and determine. Provided, that nothing herein contained shall prevent
the Lessor, or Person having made such Agreement, from suing
the
Trustee or Trustees in any competent Court, and from recovering
Judgement against the Insolvent Estate for any Rent, which
he shall
prove to the satisfaction of such Court to have been due by the
Insolvent prior to the surrender or adjudication of Sequestration
of
his Estate, or for any damage, which he shall prove to the
satisfaction of such Court to have been by him sustained, in
consequence
of the non-performance of the Conditions of such Lease or
Agreement for a Lease during the full period of the stipulated
endurance
thereof nor to deprive the Trustee or Trustees,
of
their legal defence against such Suit, or to prevent such Trustee or
Trustees from suing the Lessor or Person having made such
Agreement
in any competent Court for the amount of any ameliorations made on
the subject and in contemplation of such Lease or
Agreement, by the
Insolvent, prior to the surrender or adjudication of Sequestration of
his Estate, or to deprive such Lessor or
Person of his legal defence
against such suit: And provided also, that it shall be lawful for
such Trustee or Trustees, when sued
for damages for the
non-fulfilment (sic) of such Lease or Agreement for a Lease, to offer
to take over and accept the same, and
to perform the Conditions
thereof during the full period of the stipulated endurance thereof;
and that it shall be lawful for such
Lessor or Person having made
such Agreement when sued for the amount of such ameliorations as
aforesaid, to offer to receive the
Trustee or Trustees, as Lessors,
in the place of the Insolvent, under the conditions and for the full
period of the stipulated
endurance of such Lease; and, if such offer
shall be refused, the Party, who has made it, shall be absolved from
the Suit in which
it has been made, and shall be entitled to his
Costs”.
[11]
The position in the ZAR
11.1
In Z.A.R wet no.13, 1895 (Insolventievet) came into force on 1st
January 1896.
Section
43 thereof read as follows:
“
Met
het verleenen van de order tot sequestratie vervalien de huren en
huurcontracten door den insolvent als huurder voor dien tijd
aangegaan niet.
De
curator zal echter binnen 6 weken na de bekrachtiiging van zijne
verkiezing, in overleg met die crediteuren, moeten beslissen
of hij
die huren of huurcontracten al dan niet wil nakomen; bij gebreke
waarvan zij als vervallen zullen worden beschouwd.
De
verhuurder of ander persoon de zoodaning contract gemaakt heeft, kan
in elk geval den curator voor eenig bevoegd Gerechtshof
dagvaarden
tot verhaal van de huurpenningen hem tot op dien tijd verschuldigd of
van de schade, welke hij sal bewijzen door het
niet nakomen van
zoodanige huur of huurcontract te hebben geleden.
De
curator heeft daarentegen het recht den verhuurder of anderen
persoon, de zoodanig contract gemaakt heeft, voor eenig bevoegd
Gerechtshof te dagvaarden tot verhaal van het bedrag der
verbeteringen, welke voor de sequesiratie aan het gehuurde zijn
aangebracht”.
[12]
The position in the Oranjevrijstaat
12.1
Section 23 provides that all pending actions (“alle actien
hangende”) against the insolvent is stopped (“gestaakt
worden”) whereupon
“
en
het zal den eischer in zoodanige actie vrijstaan om zijne vordering
te bewijzen... en het voordeel daarvan te trekken bij de
verdeling
van den boedel, mits nogtans...dat alle actien hangende teen enige
insolven voor... of verbreking van eenig contract
door hem gepreegd,
zoodanige skade onseker zijnde, of tot verhaal van enige vordering
ongelikwideerd ten opzichte van deszelfs
bedragen, en alle procedures
daarin zullen, nadat ene order is uitgemaakt tot de sekwestratie van
zijnen boedel, gestaakt worden,
tot een curator zijn gekosen..., en
daarop sal die eischer in sondanige actie, na den die curato te
hebben gedagvaard om sodanige
actie op te nemen...”.
12.2
Section 24 provides inter alia
“
dat
alle actien begonnen door eenigen persoon wiens boedel naderhand als
insolvent onder sekwestratie sal worden gesteld voor enige
skuld of
vordering aan den gemelde boedel verskuldigd, en alle procedures
daarin nadat de order tot zoodanige sekwestratie is uitgemaakt,
zullen moeten ophanden, totdat die curator... sal beslissen of hij
dezelve will voortsitten of staken, en de curator sal verplicht
sijn
zoodanige verkiezing te maken binne ses weken...”.
[13]
The Natal Insolvency Law. Law no. 47 1887 provided in Section 25,
that:
13.1
“All actions pending against any insolvent for any debs or
demand provable against his estate, and all proceedings therein
shall, upon any order being made for the sequestration of such estate
in virtue thereof be stayed... Provided, however, that all
actions
pending against any insolvent for damages... or breach of contract
committed by him, such damages being uncertain, or for
the recovery
of any claim unliquidated as to its amount, and all proceedings
therein shall upon any order being made for the sequestration
of his
estate, be stayed until a trustee shall be elected”.
13.2
Section 26 provides that:
“
All
actions commenced by any person whose estate shall afterwards be
placed under sequestration as insolvent for any debt or demand
due to
the said estate... upon the order for such sequestration being made,
be stayed until the trustee thereafter
chosen
for the administration of the said estate shall make election to
prosecute or discontinue the same, and the trustee shall
be bound to
make such decision within six weeks after notice to that effect shall
be served upon him... or otherwise shall be deemed
to have abandoned
the same”.
In
terms of the Natal Sequestration Act, the curator had no right to
make an election to continue with a lease if the insolvent
was the
debtor. The legal positions in the Free State and Natal were
therefore similar in nature; but for present purposes, it
is of no
assistance.
[14]
INNES CJ discussed the general rule that the provisions of one
statute afford no clue to the correct interpretation of another
(see
Kirkland v Romyn N.O.,
1915 AD 327
, 330) and remarked but with one
exception; because the Transvaal Rule of 1895 is in effect the Old
Cape Ordinance, but rearranged,
abridged, and in some instances
amended “that the one statute is an adaption of the other is
apparent upon the most casual
inspection”.
[15]
It appears that the provisions of Section 36 of the 1916 Act
corresponds more closely with the provisions of Section 43 of
the
Z.A.R wet.
[16]
First Applicant contends that it emerges from both the Cape
Provisions (1834 Ordinance) that the trustee was in certain
circumstances
entitled to take over the lease. In particular the word
"and” provided also that it shall be lawful for such
trustee
or trustees, when sued for damages for the non-fulfilment of
such lease or agreement for a lease, to offer to take over and accept
the same, and to perform the conditions thereof, during the full
period of the stipulated endurance thereof, notwithstanding the
provision that the lease comes to an end. The 1829 Ordinance was to a
similar effect.
[17]
First Applicant points out that there seems to be some confusion in
the latter part of section CIV of Order 6 of 1843 (Cape).
It states
that when the lessor is sued for improvements, the lessor can “offer
to receive the trustee or trustees as lessors
in the place of the
insolvent”. Both counsel for first and Second Applicant are at
idem that it seems to them that this should
read, as “lessees”.
However, the same wording occurs in Section 111 of the draft
ordinance produced prior to the passing
of Ordinance no. 6, as also
in the 1829 ordinance.
[18]
First Applicant also submits that it is significant that the trustee
can, in certain circumstances, adopt the lease notwithstanding
its
termination by law.
[14]
The Z.A.R provision allows the trustee six weeks to decide whether to
give effect to the lease or not. This he must do in consultation
with
the creditors. First Applicant submits that it emerges from these
earlier regulations that the legislator envisages circumstances
where
the trustee could maintain and enforce the lease. This submission
accords with the often quoted passages made by INNES J
in Walker v
Syfret N.O., 1911 (AD) 141 at 166:
“
The
object of the Insolvent Ordinance is to ensure a due distribution of
assets among creditors in the order of their preference.
And with
this object all the debtors rights are vested in the Master or the
trustee from the moment insolvency commences. The sequestration
order
crystallises the insolvent's position; the hand of the law is laid
upon the estate, and at once the rights of the general
body of
creditors have to be taken into consideration. No transaction can
thereafter be entered into with regard to estate matters
by a single
creditor to the prejudice of the general body. The claim of each
creditor much be dealt with as it existed at the issue
of the order.
Now, to deprive the estate of a valid defence to a claim against it
is as prejudicial to the creditors as to take
from it the most
tangible asset of corresponding amount. And a transaction of that
nature would be of no validity as against the
trustee. ”
[15]
Counsel for the First Applicant also referred to a report which
preceded Ordinance 6. A committee was appointed to enquire
into the
system of Insolvent Law in the Cape. My attention was drawn to a note
that appears on the report made by MENZIES J who
wrote the report,
making the following comment when talking about ranking of debts:
“
Therefore,
where it is not that the committee have stated that the English rule
is, in their opinion, “founded upon a sound
and equitable
principle” I should have been led to conclude, that the
committee proposed the adoption of the English rule
in this colony,
merely because it was the English rule, and without regard to the
principle upon which it was founded, or whether
it was founded upon
any principle at all.”
He
concludes his remarks by suggesting that the “Law of the
Colony”, should remain.
[16]
The First Applicant submits that the decision in Walker v Syfred N.O
encapsulates the principle that when insolvency commences
nothing
should be done to the prejudice of the general body of creditors. No
creditor, including a lessor, should be able to advance
his position
above that of other creditors after the commencement of the
winding-up. The First Applicant submits that a lease is,
or could be,
a valuable asset in the estate which includes any subleases entered
into between the lessee. It is common cause that
subsequent to the
entering into the head lease agreement between the First Applicant as
lessor and Toits
Motor
Group (Pty) Ltd (the insolvent as lessee), the lessee (as sub-lessor)
and the Second Applicant McCarthy Ltd as sub-lessee
entered into a
further agreement in terms of which the Second Applicant rented a
portion of their movable property from Toits Motor
Group. The First
Applicant contends that creditors would benefit by continuation of
the lease as the trustee/liquidator may wish
to retain the lease in
force in order to benefit the general body of creditors by collecting
the income derived from the sublease.
[22]
First Applicant contends that this submission accords with the aim of
the law that nothing will be done to prejudice the general
body of
creditors. If the lease is to be continued with a general body of
contractors, it will secure an equal distribution in
the best
interest of all creditors. Therefore, it is concluded that
liquidation does not terminate a lease. Section 37 of the Insolvency
Act 24 of 1936 (as amended) in effect gives the trustee/liquidator a
spatium deliberandi of three months to decide whether to maintain
or
cancel the lease. As trustees/liquidators are normally appointed days
or even weeks after the issue of the order, the liquidator/trustee
must have time to familiarise himself with the facts regarding the
lease. As liquidation commences when the application is filed
in
court. In terms of Section 348 of the Companies Act 61 of 1973, the
concursus creditorum does take place on that date and in
this
specific case on the 21st of January 2009. The concursus crystallises
the creditors’ rights in the estate. Those rights
cannot
subsequently be changed to the advantage or disadvantage of any
creditor.
[23]
To summarise, First Applicant contends that in the present matter the
lessor had no right to cancel as at 24th January 2009
the notice
period had not yet expired and the right to cancel would only arise
on the expiry of the notice period. The First Applicant
submits that
no creditor, including a lessor, should be able to advance his
position above that of other creditors after the commencement
of the
winding-up. Why, one can ask, should a creditor/lessor, who is given
notice, but not exercise the right of cancellation,
be in a better
position than, for instance, a mortgagee under a notorial bond who
has instituted proceedings to perfect the bond
but has not obtained a
perfection order before the commencement of the winding-up. The First
Applicant contends that the lease
is, or could be, a valuable asset
in the estate. On the probabilities, the creditors would benefit by
their continuation of the
lease. The trustee/liquidator would then
presumably, in the three month period allowed, decide to retain the
lease, enforcing it
in order to benefit the general body of
creditors. This accords with the aim of the Law to secure an equal
distribution in the
best interest of all creditors. Counsel for the
First Applicant then referred me to a couple of examples which
explains his point:
23.1
Example 1: On day 1, the lessee breaches the lease agreement by
non-payment.
On
day 10, the lessor sends a notice requiring payment within 10 (ten)
days, failing
which
cancellation will ensue. On day 15, winding-up commences. On day 20,
notice of cancellation is given. On day 23, a provisional
liquidator
is appointed.
The
Effect: The provisional liquidator:
23.1.1
has no chance of considering whether to maintain or abandon the
lease;
23.1.2
has had no opportunity to seek power from the creditors, the court or
the master;
23.1.3
the lease is “lost” as an asset in the estate.
23.2
Example 2: A property is let to a lesee for an amount of R1000 per
month. The lessee sublets the said premises for an amount
of R10 000
per month. The lessee fails to pay on day 1. Winding-up commences on
day 7. On day 10 the lessor gives notice of cancellation
(when notice
period not required), delivered to the domicilium, which is in any
event a vacant stand. On day 16 a provisional liquidator
is
appointed.
The Effect:
17.2.1
The lease is cancelled after commencement of winding-up;
17.2.2
The lease is cancelled before appointment of the trustee/liquidator;
17.2.3
An asset of R9000 per month is lost to the estate;
17.2.4
The trustee is precluded from “selling” a profitable
sublease.
23.3
Example 3: Company A owns a property, which is let to Company B, its
subsidiary or associate. Company B carries on business
as a petrol
filling station. B fails to pay rental. A wants, in any event, to
make a new deal with another wholesale distributor,
and gives B
notice to rectify non-payment with a contractually prescribed notice
period. B is wound up before such period expires.
A cancels the
contract after presentation of the winding-up application. B’s
business is tied up, under its retail license,
to the property. B
loses the property, and thereby has no business. Creditors therefore
have nothing which can be sold, which,
but for the cancellation,
could have been sold for the benefit of the estate.
[24]
The First Applicant submits that the true import of
Section 37
of the
Insolvency Act is
that it creates a spatium deliberandi for the
trustee/liquidator. This interval is necessary to allow the
liquidator to:
24.1
be appointed;
24.2
familiarise himself with the estate;
24.3
consult with creditors;
24.4
obtain the necessary powers to act;
25.5
to make an informed decision.
First
Applicant contends that
Section 35
of the
Insolvency Act creates
a
similar, but not identical, spatium for the trustee. The Law of
Insolvency recognises this change in the situation. It is in
fact a
cardinal principle of the Law. Other creditors rights are stayed; why
not, one may ask, also a lessor creditor. First Applicant
submits
that the provisions of Section 361 of the Companies Act, Act 61 of
1973, provide no real remedy. The section provides that
the
“property” of the company is placed under the Master’s
control. The Master, however, as a matter of practice,
is unlikely to
be able to affect payment of a rental demanded by a lessor. Likewise,
the directors have ceased to have any authority.
See Secretary for
Customs and Excise v Millman N.O., 1975(1) SA 544 (A) at 552 H.
In
the interim period, between liquidation and when the property is
under the Master’s control, until the provisional liquidator
has been appointed, there exists a hiatus in which the lessor can
act, to the detriment of the estate.
[22]
The First Applicant’s argument centralises about what the term
concursus creditorum means,
i.
e. the “gathering of creditors”. This takes place at the
domicile of the insolvent - the locus concursus. See Trustee
of
Howse, Sons and Co. v Trustees of Howse, Sons and Co., (3) SC 14 at
20 LORD DE VILLIERS C.J. where it was held:
“
The
object of the distribution of insolvence effects being perfect
equality among those who have equal rights and no preferant clain,
it
was held that this could only be conveniently and effectually
attained in one place, which was termed the locus concursus
creditorum...”.
In
Walker v Syfred supra at 160 the same Judge said:
“
The
effect of a winding-up order is to establish a concursus creditorum,
and nothing can thereafter be allowed to be done by any
of the
creditors to alter the rights of other creditors”.
CANEY
J said in Magill, Grant and Nell (Pty) Ltd v Administrator, Natal,
1968(4) SA 44 (N) at 49(C):
“
Whatever
rights the Plaintiff company had at the date of the liquidation order
to receive payment, presently or in future, from
the Defendant, fell
to be fulfilled by the Defendant by payment to the liquidator, and
any debts due by the company at that date
fell to be established with
the liquidator as claims against the company which, if amongst the
concurrent claims, would rank for
payment of a dividend in the
distribution of the free residue of the company”; and, further
down on the same page he says:
“
It
appears to me not to be a matter of insolvency of a principal
terminating the authority of his agent so that the latter can no
longer act under the
authority
conferred upon him, but the answer in my opinion is that the law
intervenes to assure the rights and liabilities of all
persons
concerned in a concursus creditorum are given effect to”; and
on 50(C):
“
Likewise
in the present case, it appears to me, the right which the Defendant
had to pay in full the claims of certain creditors
of the company and
thereby to discharge his own debt to the company no longer subsisted
after the liquidation order”.
[26]
The effect of the concursus was also discussed in Ward v Barret, N.O.
and Another N.O., 1963(2) SA 546 (AD). At 552(H) to 553(B),
STEYN CJ
held that the concursus precluded an action being brought for
specific performance:
“
At
that date, the Apellant was entitled to claim registration of the
notorial bond. But a concursus having supervened, she could
not bring
an action against the First Respondent for specific performance (see
F Harris v Trustee of Buissinne,
2 Menz. 105
; Lucas’ Trustee vs
Ismael and Ammot,
1905 TS 239
at 248) and the latter had no authority
to accede to any such claim, as the interests of other creditors
would inevitably have
been prejudiced thereby. The Appellant’s
personal right to the registration of a bond could, therefore, not be
converted
into a jus in rem under a vested bond. Neither could such a
transformation be brought about by the power of attorney,
irrespective
of whether or not it is a procuratuo in rem suam; even
if irrevocable, the mere grant and existence of the power to effect
registration
could not and did not change the personal right into a
real one”.
The
applicant concludes his argument by stating that the concursus
precludes the exercise of a right of cancellation after the coming
into effect of a winding-up. See in this regard Development Bank of
Southern Africa Ltd v Van Rensburg and Others N.N.O., 2002(5)
SA 425
(SCA); Nedbank Ltd v Chance and Others, 2008(4) SA 209 (D); and
concluded with a reference to Marse, The Law of Insolvency
in South
Africa, where it was said:
“
The
concursus creditorum is regarded as one of the key concepts of the
South African Law of Insolvency. The concept entails that
the rights
of the creditors as a group are preferred to the rights of individual
creditors. For example, a single creditor can
no longer by means of
execution obtain full payment of his claim at the expenses of others.
Neither can the creditors attach assets
acquired by the debtor after
sequestration. Because a debtor’s capacity to act is limited
until his rehabilitation, he may
no longer alleviate or burden his
assets”;
and
at 171:
“
The
sequestration of a debtor’s estate establishes a concursus
creditorum. Thereafter nothing may be done by any of the creditors
to
alter the rights of the other creditors... The establishment of a
concursus creditorum, and the persables? involved, affect
a number of
other matters, such as uncompleted contracts, liens, the right of set
off, the granting of a provisional order of sequestration
after
another court had granted a similar application, as well as ultra
vires acts and overpayment by a trustee”.
[27]
The Second Applicant, Defendant in the main action, accepts that in
terms of Section 348 of the Companies Act, no 61 of 1973,
the
winding-up of Toits must be deemed to have commenced when the
application papers for the winding-up were lodged with the Registrar
on 21st January 2009. Therefore, concursus creditorum must be deemed
to have been brought about on this day. The issue is, however,
whether the advent of concursus creditorum prevented the Plaintiff
from lawfully cancelling the head lease by means of a letter
dated
27th January 2009. If he did, then the sublease still exists. If he
did not, then the sublease came to an end, simultaneously
with the
lease on 27th January 2009, and the Plaintiff has no claim against
the Defendant for rentals, allegedly due in terms thereof
post the
cancellation of the head lease.
The
winding-up of Toits began to commence when the application papers for
the winding-up were lodged with the Registrar on 21st
January 2009.
The issue is, as said before, that whether the advent of the
concursus creditorum prevented the Plaintiff from lawfully
cancelling
the head lease by means of a letter dated 27th January 2009. The
Defendant (Second Applicant) submits that Section 37
of the
Insolvency Act 24 of 1936 (the 1936 Act) “is quite clearly
applicable in this matter”. The Second Applicant
rely on the
case of Mitchell v Sotiralis’s Trustee, 1936 (TPD) at 252;
SOLOMON J made certain comments in this matter regarding
Section 36
of the 1916 Act which preceded the present Section 37 of the 1934
Act, safe for subsection 37 (5) of the 1936 Act (which
is not
applicable). The two Sections are for all intents and purposes
identical. It is to be noted that the new subsection (5)
introduced
into Section 37 of the 1936
Insolvency Act only
occurred in 1943 when
Section 37 of the 1936
Insolvency Act was
amended. See in this regard
Liquidators, Durban Icedromes and Another, 1965(1) SA 600 at 612
(PTC). Second Applicant submits that
the comments made by SOLOMON J
in the Mitchell case, regarding Section 36 of the 1916 Act applies
with equal force to Section 37
of the 1936 Act.
In
Mitchell's case, SOLOMON J held as follows:
“
However,
what is clear about sec. 36 is that the insolvency of the lessee does
not determine the lease, but the trustee has the
right to determine
the lease, saving all other rights of the lessor... and it is clear
that the terms of the lease are in no way
affected, except in so far
as the date of termination is concerned. The section does not refer
to the right to cancel or to any
other covenant in the lease, except
its duration”.
[28]
Second Applicant submits that Mitchell’s case was followed by
FRIEDMAN J in Smith and Another v Parton N.O., 1980(3)
SA 724 (D).
This case dealt with the cancellation of a sale of a business.
Neither Section 35 (which deals with sales of immovable
properties),
nor Section 37 of the 1936 Act were applicable to this case. FRIEDMAN
J therefore applied the Common Law. He held
as follows:
“
Once
one accepts, therefore, that the only real basic principle is that
the contract survives the insolvency, then it seems to me
to follow
inevitably that the accrued right to cancel survives. Where the
creditor decides after insolvency to exercise his right
of
cancellation, he is not thereby enforcing a right against the
insolvent estate and in that way altering the order of things
as
established by the concursus; he is simply notifying the trustee of
his election to exercise a right which he has and which
has survived
the insolvency”.
[29]
Second Applicant also relied on the case of Porteous v Strydom N.O.,
1984(2) SA 489 (B) which dealt with a contract for the
sale and
purchase of immovable property. Accordingly, Section 35 of the 1936
Act was applicable. For present purposes, Sections
35 and 37 are
virtually identical.
The
facts of the Porteous case (safe for the nature of the contract
concerned), were identical with the facts of the present matter.
Notice demanding payment had been given before concursus creditorum
but the notice period expired after concursus creditorum. GALGUT
J,
after referring to the judgment in Smith and Another v Parton N.O.,
supra (CIT) held that nothing in Section 35 nor anything
else in our
Law excuses a trustee from performing the insolvence obligations. If
payment was not made pursuant to the notice, then
the consequent
cancellation was not affected by the concursus creditorum.
[30]
Second Applicant also referred to the case of De Wet N.O. v Uys N.O.
en Andere, 1998(4) SA 694 (T), where LE ROUX J likewise
had to deal
with a contract for the sale of immovable property. The learned judge
held albeit orbitor dictum as follows:
“
...waar
‘n party ‘n lex commissoria wou afdwing, die voorwaardes
wat dit in werking stel streng nagekom moes word (see
Rautenbach v
Venner, 1928 (TPD) 26 op 30; North-Vaal Mineral Company Ltd v Lovasz,
1961(3) SA 604 (T) op 606J. Indien daar ‘n
reg tot kansellasie
ontstaan het voor insolvensie, het dit die concursus creditorum
oorleef en kon dit na insolvensie uitgeoefen
word" (see Smith
and Another v Parton N.O., 1980(3) SA 724 (D) at 729).
[31]
To summarise the argument of the Second Applicant, it is contended
that the constant theme which runs throughout the aforementioned
judgments is that concursus creditorum does not alter the party's
rights and obligations, safe only that a trustee has an election
to
end the agreement. If he elects to abide the agreement, then he is
obliged to ensure that all the obligations of the insolvent
are met.
Concursus creditorum does not affect any accrued rights of a seller
or lessor. An accrued right to cancel may, therefore,
be exercised
after concursus.
[32]
In the present case it is not in dispute that the Second Applicant
obtained the right to cancel the contract subject to prior
notice
been given prior to the concursus creditorum. The notice to comply
with the terms of the contract was to place the insolvent
in mora
within a certain prescribed period. As such, the contract made
provision for a time clause to expire before the lessor
could cancel
the contract.
A
time clause; sometimes called a "dies” or “term"
is not the condition of a contract, see Venter Agentskappe
(Edms.)
Bpk. v De Sousa, 1990(3) SA 203 (A) at 111 E - F; Jurgens
Eiendomsagente v Share, 1990(4) SA 664 (A) at 674 I. See also
Pothier, Obligatons, paragraph 23 O which was approved in the Venter
Agentskappe case at 111 E - G supra. In Pothier’s words,
a
"time clause" differs from a condition inasmuch a condition
suspends an engagement formed by the agreement; whereas
a "time
clause" does not suspend the engagement, but merely postpones
the execution of it. A person who owes anything
subject to a "time
clause" not yet expired is a real debtor, and if he pays within
the time he has no right of repetition,
for he has only paid what was
in effect due from him; but now he is a real debtor, he is not
compellable to discharge his obligation
until the expiration of
"time". Pothier also stated in paragraph 235 that if,
however, the debtor goes insolvent before
the time mentioned the
creditor can immediately claim against the insolvent estate as a
concurrent creditor.
[33]
It seems to me that when a time clause for performance is
incorporated in a contract within which an obligation is to be
performed,
the normal rule is that performance cannot be
claimed
until the day after the stipulated day or the end of the period
because the debtor has the whole of the last day to perform,
see
Christie, The Law of Contract, 6th edition, 457.
The
Common Law however, provides that if the debtor goes insolvent before
the time mentioned by the creditor, the claim becomes
automatically
and immediately due and payable. In my view the provisions of
Section
37
of the
Insolvency Act do
not alter the Common Law as it refers to
contracts that survive the insolvency of the debtor.
[34]
It is my view that in terms of the Common Law the First Applicant
became entitled to cancel the contract immediately when the
liquidation commenced on 21st January 2009. He could have exercised
this right of cancellation immediately upon concursus creditorum
or
at the time set for the performance stated in the notice of demand.
The fact that notice was only given at the date of expiry
of the
notice period is totally irrelevant. Ellerines would under normal
circumstances and in the absence of an application to
liquidate be
entitled to cancel the contract on the ground that Toits Motor Group
failed to comply with its commitments in terms
of the contract i.e.
the failure to pay rent alternatively on the basis that Toits
repudiated the contract by vacating the premises
occupied by
themselves and its failure to pay its rent. These facts are not in
dispute.
[35]
The First Applicant elected to cancel the agreement as set out in
Plaintiffs attorney’s letter dated 27th January 2009.
The
validity of the cancellation notice is therefore not challenged by
the First Applicant safe for the provisions of
Section 37
of the
Insolvency Act. HOLMES
JA held in the case of Crest Enterprises (Pty)
Ltd v Rycklof (Edms) Bpk, 1972(2) SA 863 (A) at 870 G - H that a
contractual right
is enforceable if, before the rescission, it was
accrued, due and enforceable as a cause of action independent of any
executory
part of the contract. The passage referred to above was
examined by the appeal court in the decision of Thomas Construction
(Pty)
Ltd (in liquidation) v Grafton Furniture Manufacturers (Pty)
Ltd, 1988(2) SA 546 (AD) at 563 J and further. This was an appeal
against a judgment given by NIENABER J and which was reported in the
Law Reports under the same name with the following reference:
1986(4)
SA 510 (N). After referring to the decision and various other cases
BOTHA AJA referred to HOLMES JA’s judgment as
follows on 565 B.
BOTHA AJA remarked that in the Crest Enterprises case HOLMES JA
referred to the rule in Walker's case. That was
a case in which the
Plaintiff had for several months rendered services to the Defendant
under a contract, which was then repudiated
by the Defendant. The
Plaintiff accepted the repudiation and sued for payment of monies
which had accrued and were due under the
contract before the
repudiation. The passage in question, Walker’s case, appears in
1972(2) SA at 870 G - H. BOTHA AJA then
said;
“
To
sum up on this aspect, the rule in the Walker case supra is confined
to cases where, prior to the rescission of a contract by
one party’s
acceptance of the other’s repudiation, there exists a right
which is accrued, due, and enforceable as a
cause of action
independent of any executory part of the contract”.
NIENABER
J held at 516 A of his judgment (supra) that the principle embodied
in the passage was not restricted to rescission upon
liquidation, but
that it applied to all forms of breach culminating in cancellation.
BOTHA
AJA remarked at 564 C of the Appeal Court’s decision: "I
agree, with respect. Nor was there any argument to the
contrary in
this Court”.
[36]
The First Applicant’s argument must be placed in perspective. A
contract survives the insolvency only to the extent that
the rights
and obligations of both parties remain in existence as it is at the
moment of concursus creditorum. In the present case
the First
Applicant made an election to cancel. Furthermore, the liquidators
are bound by the insolvent’s choice made before
the concursus
to stop paying rent and by vacating the premises; thereby repudiating
the contract. The notice of cancellation merely
confirms that the
terms of the contract have not been complied with and that the lessor
was executing his rights in terms of the
contract.
[37]
On the facts placed before me it is abundantly clear that the breach
of the contract by the insolvent was of such a nature
that it evinces
an intention on the part of the insolvent that the contract should be
treated as being discharged and that he is
no longer to be bound by
the terms of the contract for the future, see in this regard Segal v
Mazur, 1920 (CPD) 635 at 644 - 645.
The conduct of the insolvent
prior to the liquidation was plainly inconsistent with an intention
to enforce it. In Smith and Another
v Parton N.O., 1980(3) SA (D) 724
at 729 D-E FRIEDMAN J held that if:
“
...the
contract survives the insolvency, then it seems to me to follow
inevitably that the accrued right to cancel survives. Where
the
creditor decides after insolvency to exercise his right of
cancellation, he is not thereby enforcing a right against the
insolvent
estate and in that way altering the order of things as
established by the concursus; he is simply notifying the trustee of
his
election to exercise a right which he has and which has survived
the insolvency”.
On
729 H he continues and says that a right accrued before insolvency
flows as a legal consequence even after insolvency, ''(a)nd
to
prevent them from exercising this right
would
firstly involve the trustee acquiring rights under the contract
greater than those of the insolvent whose place he is taking...
and
secondly would entirely negate the rights acquired by the applicants
and which has survived the insolvency. What this means
from a
practical point of view is that if the trustee abandons the agreement
ex hypothesi it is determined; if he attempts to affirm
it the
applicant can cancel it. On either basis and because the applicants
desire to terminate the contract they can notwithstanding
the
insolvency inevitably achieve that result".
See
also in this regard De Wet N.O. v Uys N.O. en Andere, 1998(4) SA 694
(T).
[38]
Having regard to the aforesaid I am of the opinion that the lease
contract between Toits Motor Group of companies and the lessor
was
lawfully cancelled and that the provisions of
Section 37
of the
Insolvency Act does
not apply.
[39]
First Applicant’s claim against the Second Applicant is based
on a cession agreement entered into between the First Applicant
and
the liquidators of Toits Motor Group. The cession involves the
continuation of the sublease entered into between Toits Motor
Group
and the Second Applicant for the period after concursus creditorum
came into effect.
It
follows from my finding that a cession of the sublease is not
permitted hence the cancellation of the head lease agreement. The
First Applicant therefore has no cause for its claim against the
Second Applicant.
I
THEREFORE MAKE THE FOLLOWING ORDER:
1.
The action is dismissed with costs; which cost is to be paid by the
First Applicant.
2.
Such costs are to include:
(i)
The employment of senior and junior counsel (where so employed).
(ii)
The costs of the application in terms of Rule 33(4).
H
J DE VOS
JUDGE
OF THE NORTH &
SOUTH
GAUTENG HIGH COURTS,PRETORIA
On
behalf of the First Applicant:
ATTORNEYS:
Cox Yeats Attorneys
C/O
MacRobert Inc
MacRobert
Building
C/O
Charles & Duncan Streets Pretoria
On
behalf of the Second Applicant:
ATTORNEYS:Gideon
Pretorius Inc
C/O
Hack Stupel & Ross 2nd Floor
Standar
Bank Building Church Square
Pretoria