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[2013] ZAGPPHC 545
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Land & Agricultural Development Bank of SA v Master of the North Gauteng High Court and Others (60959/2011) [2013] ZAGPPHC 545 (8 April 2013)
IN
THE NORTH GAUTENG HIGH COURT, PRETORIA
REPUBLIC
OF SOUTH AFRICA
CASE NO:
60959/2011
DATE: 8 APRIL
2013
REPORTABLE
NOT OF INTEREST
TO OTHER JUDGES
In the matter
between:
LAND
& AGRICULTURAL DEVELOPMENT BANK OF
SA
....................................................
Applicant
and
MASTER
OF THE NORTH GAUTENG HIGH
COURT
...................................................
First
Respondent
DEON
MARIUS BOTHA
NO
............................................................................................
Second
Respondent
BRIAN
ST CLAIR COOPER
NO
.........................................................................................
Third
Respondent
FIRST
RAND BANK
LIMITED
.........................................................................................
Fourth
Respondent
JUDGMENT
Tuchten
J
:
1.
This is an application to review and set aside the decision by the
first respondent, the Master of the High Court, to reject
the
applicant's objection to the allocation by the second and third
respondents, the liquidators of Rubaco Boerdery (Pty) Limited
(in
liquidation), which I shall call Rubaco, of the amount of R1 905
836,76 of the free residue to the fourth respondent as a preferent
creditor. The review is brought under the provisions of
s 151
of the
Insolvency Act, 24 of 1936
. It is not in dispute that this court is
empowered to enter upon and decide the matter
de
novo
1
2. The fourth
respondent opposed the application. The Master did not Nor did
Rubaco’s liquidators, although the liquidators
appeared through
counsel to make certain submissions on costs.
3.
The issue relates to the proceeds of certain old order mineral rights
which belonged to Rubaco. The mineral rights were sold
by the
liquidators on 5 March 2003 for R2 501 000. The nett proceeds formed
part of the free residue because the mineral rights
were not
encumbered assets as that term is used in
Mars
,
Law of Insolvency in South Africa, ninth ed (2008), para 22.1, ie the
mineral rights did not serve as security for the claim of
a creditor.
4. The fourth
respondent is the holder of a holder of a duly registered notarial
bond over Rubaco’s movable property. The
bond is a special bond
in relation to certain of Rubaco’s cattle and a general bond in
relation to all the rest of Rubaco’s
movable property. It is
common cause that the mineral rights were immovable property and thus
not encumbered by the fourth respondent’s
notarial bond.
5. During November
2001, before the liquidation of Rubaco commenced, the fourth
respondent perfected its notarial bond by taking
possession of the
movable assets covered by the bond. The fourth respondent submitted a
claim in the liquidation in the amount
of R3 849 230,57 and relied
for security on its notarial bond.
6. The movables
subject to the notarial bond were sold by the liquidators and an
amount corresponding to the nett proceeds of the
sale were awarded by
the liquidators to the fourth respondent. This award is
uncontentious. However, the account framed by the
liquidators also
provided for the payment of the balance in the free residue to the
fourth respondent as a preferent creditor.
7.
The applicant objected to the allocation of the balance in the free
residue to the fourth respondent as a preferent creditor.
The Master
dismissed the objection. Thus, ultimately, the present application.
2
8. The applicant
contends that the fourth respondent is entitled to preference only in
respect of the proceeds in the free residue
constituted by the sale
of movable property and enjoys no preferent right in relation to the
proceeds of immovable property. The
fourth respondent, on the other
hand, argues that its claim is secured to the extent of the value of
the movables encumbered by
its notarial bond and preferent to the
extent of the balance of its claim. The case for the fourth
respondent is that there is
no provision in the 1936 Insolvency which
limits the preferent claim of the holder of a general notarial bond
to that portion of
the free residue constituted by the proceeds of
movable property.
9. I think that the
true enquiry is this: is the extent of the notarial bond holder’s
security (if any) plus its preference
restricted under the 1936
Insolvency Act to
the value of the movables encumbered by the
notarial bond or does the notarial bond holder enjoy a preference to
money forming
part of the free residue unrestricted by and unrelated
to the value of those movables?
10.
The rights of a genera! notarial bond holder to preference derive
from s 102 of the 1936
Insolvency Act
3
Sections 96
to
103
prescribe the order of preference in which certain
claims must be defrayed from the free residue.
Section 102
provides:
Thereafter any
balance of the free residue shall be applied in the payment of any
claims proved against the estate in question which
were secured by a
general mortgage bond, in their order of preference ....
11.
I think it is helpful to trace the development of the security and
preference afforded by a notarial bond. This subject was
comprehensively dealt with by Joubert JA in
Cooper
NO en Andere v Die Meesteren ‘n Ander.
4
For
present purposes, one may begin with the position in South Africa
immediately before the coming into force, on 1 January 1917,
of the
Insolvency Act, 32 of 1916. Up till then, a general clause in a
notarial bond created a general bond over all the goods
and rights,
existing as well as future, of the mortgagor.
5
Between competing bond holders of the same class, the earlier bond
enjoyed preference over the later in accordance with the principle
qui
prior est tempore potior est jure
(the
earlier right is stronger in law).
This
preference was enjoyed by such a bondholder whether or not he had
perfected his bond by taking possession of the goods subject
to the
bond. His preference was to the extent of the value of the mortgaged
articles in the possession of the debtor or his trustee
in
insolvency.
6
12.
This position was changed by s 87 of the 1916 Insolvency Act. General
bonds registered after the 1916 Act came into operation
conferred a
preference, as against concurrent creditors, without delivery of the
debtor’s property,
only
over
the proceeds of his movable assets and had no operation over the
proceeds of immovable property.
7
Under the 1916 Insolvency Act, a special bond without delivery
conferred no greater value than a general bond. A special bond
hypothecating movables conferred a preference in respect of the
movables so specially hypothecated on their realisation by the
trustee in insolvency.
8
13.
In
B
Ebrahim Ismail & Co v Khan’s Trustee,
9
a
creditor held a notarial bond over movables which had not been
perfected by possession. The question before the Natal court was
whether the creditor enjoyed any preference, having regard to the
fact that he had not been in possession of the assets referred
to in
the bond. The court held, after mentioning that counsel conceded the
point, that under common law, the creditor was entitled
to a
preference as
... consists of the
net proceeds of the property intended to be covered by the bond;...
The court proceeded
to investigate the question whether the 1916 Insolvency Act had
changed the common law position and concluded
that it had not.
14. Section 86 of
the 1936 Insolvency Act perpetuated the abolition of any preference
in respect of immovable property as conferred
by a general mortgage
bond. The same Act draws a distinction between creditors whose claims
are secured and creditors whose claims
are preferent. The concept of
preference in insolvency relates to the order in which claimants
participate in the free residue
and contemplates a hierarchy in which
claims higher in the hierarchy are to be defrayed in preference to
those lower in the hierarchy.
Thus, eg, funeral and death bed
expenses of the insolvent enjoy priority over all other claims on the
free residue.
15.
Although the present question does not appear squarely to have come
before the courts, it was referred to in a number of reported
cases
to which counsel for the applicant drew my attention. In
Ninian
& Lester (Pty) Ltd v Perry NO and Others,
10
Shearer
J found that a creditor who held a special lien ranked in insolvency
above a the preference conferred by s 102 on the holder
of an
unperfected general notarial bond. The learned judge held
11
that the preference arising in terms of s 102 arose
... in respect of
the free residue above concurrent creditors insofar as such free
residue might consist of the proceeds of movable
property generally
hypothecated to the mortgagee.
16.
In
Contract
Forwarding (Pty) Ltd v Chesterfin (Pty) Ltd
,
12
the court per Harms JA contrasted the positions of a general notarial
bond holder before and after perfection and held as follows:
[3] The bondholder
is not a secured creditor and is entitled to a preference over the
concurrent assets of the insolvent only with
respect to the proceeds
of assets subject to the bond.
[4] A perfection
clause entitles the holder of the bond to take possession of the
movables over which the bond has been registered.
Such a clause
amounts to an agreement to constitute a pledge and will be enforced
at the instance of the bondholder, whereupon
the creditor obtains a
real right of security.
17.
In
International
Shipping Co (Pty) Ltd v Affinity (Pty) Ltd and Another,
13
Grosskopf
J addressed the position of the holder of a general notarial bond who
had obtained a rule
nisi
calling
upon the debtor and all other interested persons to show cause why
the bond should not be perfected. Before the return day
of the rule,
the debtor was provisionally wound up. The learned judge held as
follows:
14
As the holder of a
notarial general bond, the applicant was not a secured creditor. On
the insolvency of the mortgagor, the assets
covered by the mortgage,
or their proceeds, would fall into the free residue, and the only
preference which the mortgagee would
have in respect of such assets
or proceeds would be to take precedence over ordinary concurrent
creditors. However, once the mortgagee
obtained possession of the
mortgaged articles, his position is much strengthened.
He would then be in
the position of a pledgee, with all the security attaching to a
pledge.
18.
And finally, on this point, the issue in
Cooper
A/O,
supra,
was
formulated as follows:
15
... of Sentraalwes
as verbandhouer van die geregistreerde spesiale notariële
verband van die bepaalde roerende sake wat in
die besit van die
verbandgewer Aldrich gebly het totdat sy boedel gesekwestreer is, 'n
preferensie het bo konkurrente skuldeisers
ten aansien van die
opbrengs van die bepaalde roerende sake wat die vrye oorskot uitmaak.
This formulation
clearly excluded any possibility that the bond holder as holder of a
special bond could rank preferent for any
amount in excess of the
proceeds of the specific goods subject to its bond.
19
Section 102 of the 1936 Insolvency Act perpetuated the common law
position in relation to a general notarial bond that the holder
was
entitled to preference whether or not he had perfected. But in
Cooper
NO, supra,
the
Appellate Division held that an unperfected
special
notarial
bond conferred no preference above concurrent creditors.
16
20.
The legislature moved swiftly to alleviate this disadvantage suffered
by the holders of special notarial bonds by the enactment
of the
Security by Means of Movable Property Act, 57 of 1993. Section 1
provided that property “specified and described in
the bond in
a manner which renders it readily recognizable” and which had
not been delivered to the mortgagee was to be deemed
to have been
pledged to the mortgagee as effectually as if it had expressly been
pledged and delivered to the mortgagee. The security
enjoyed by the
holder of a pledge is limited to the value of the proceeds of the
pledged articles. The effect of this measure was
thus to render the
holder of a special mortgage bond a secured creditor for the nett
value of the goods specified and described
in his bond. I think that
the legislative policy underlying the enactment of the measure was to
extend to holders of special notarial
bonds protection equivalent to
that enjoyed by virtue of s 102 by the holders of general notarial
bonds, with one significant exception.
21.
The exception between the protection enjoyed by holders of general
and special notarial bonds is that the holder of the latter
is, under
the Security by Means of Movable Property Act, on insolvency a
secured creditor whether or not the special bond has been
perfected.
But the holder of a general notarial bond is not in such
circumstances a secured creditor unless he has perfected.
17
22. It is therefore
manifest that for more than 120 years our case law has been
consistent in the approach that any preference enjoyed
by the holder
of a notarial bond was limited to the value of the mortgaged
property. The legislative trend has been to extend protection
to
holders of both forms of notarial bonds to the extent of the value of
the goods encumbered by the bond.
23. Against this
background, I proceed to evaluate the contention of the fourth
respondent that its claim under the general clause
in its notarial
bond is secured to the extent of the value of the movables properly
subject to its bond and preferent to the extent
of the balance of its
claim. The first point to be made against the contention is that the
proposition finds no support in our
case law and there is a
considerable body of authority which goes the other way.
24.
Counsel for the fourth respondent submitted that the wording of s 102
is dear in conveying the meaning for which counsel contends
and
referred to the definition of
free
residue
in
s 1
of the
Insolvency Act of 1936
in support of his proposition. In
relation to insolvent estates, unless inconsistent with the context
free residue
is
defined to mean that portion of the estate which is not subject to
any right of preference by reason of any special mortgage,
legal
hypothec, pledge or right of retention;
preference
to
mean
the right to payment of that claim out of the assets of the estate in
preference to other claims and
preferent
to
have a corresponding meaning; and
security
to
mean property of that estate over which the creditor has a preferent
right by virtue of any special mortgage, landlord's legal
hypothec,
pledge or right of retention.
25.
In
Natal
Joint Municipal Pension Fund v Endumeni Municipality
,
18
the present state of the law in relation to the interpretation of
words used in documents was laid down:
Interpretation is
the process of attributing meaning to the words used in a document,
be it legislation, some other statutory instrument,
or contract,
having regard to the context provided by reading the particular
provision or provisions in the light of the document
as a whole and
the circumstances attendant upon its coming into existence. Whatever
the nature of the document, consideration must
be given to the
language used in the light of the ordinary rules of grammar and
syntax; the context in which the provision appears;
the apparent
purpose to which it is directed and the material known to those
responsible for its production. Where more than one
meaning is
possible each possibility must be weighed in the light of all these
factors. The process is objective, not subjective.
A sensible meaning
is to be preferred to one that leads to insensible or unbusinesslike
results or undermines the apparent purpose
of the document. Judges
must be alert to, and guard against, the temptation to substitute
what they regard as reasonable, sensible
or businesslike for the
words actually used. To do so in regard to a statute or statutory
instrument is to cross the divide between
interpretation and
legislation; in a contractual context it is to make a contract for
the parties other than the one they in fact
made. The 'inevitable
point of departure is the language of the provision itself, read in
context and having regard to the purpose
of the provision and the
background to the preparation and production of the document.
26.
Because security means property over which the creditor has in
certain circumstances a
preferent
(as
defined) right, it therefore seems clear that a secured claim is a
kind of preferent claim.
Section 102
confers in terms preference on
general notarial bonds
in
their order of preference.
Viewed
against the development of the protection conferred on notarial bonds
as I have described, this language, in my view is indeed
clear. It
conveys that protection is extended to the extent of the preference.
It therefore follows, in my view, that the claim
of the holder of a
general notarial bond can never be greater in amount as a preferent
claim in the strict sense (ie when the bond
has not been perfected)
than it will be as a secured claim in the strict sense (ie when the
bond has been perfected). In either
case the protection enjoyed by
the holder of a general bond is limited to the value of the goods
covered by the bond.
19
It thus follows that once an award is made to the holder of a general
notarial bond as a secured creditor, his preference under
s 102
is
extinguished to the extent of the nett value of his security and he
will only recover as a preferent creditor to the extent,
if any, of
the nett value of other movables than those in respect of which he
has perfected. The same end result will operate,
in my view, where
the bond is both (as in this case) special in relation to specific
goods and general. Whether or not there has
been perfection in
relation to the goods specified in the bond, the claim will be
secured pursuant to
s 1
of the Security by Means of Movable Property
Act to the extent of the nett value of such specified goods. If there
has been perfection
in relation to other goods, ie those unspecified
goods covered by the bond
qua
general
bond, the same will apply and the claim will be secured to the extent
of the value of such unspecified goods. Where there
has not been
perfection in relation to such unspecified goods, the claim will not
be secured in relation to such goods or their
value but will be
preferent under s 102.
In any of these
cases, the sum total of the security and preference cannot exceed the
nett value of the goods covered by the bond.
27. Even if the
meaning for which counsel for the fourth respondent contends is one
of the possible meanings, which I do not think
it is, I would find
against the fourth respondent. Counsel for the fourth respondent
accepted that the consequence of his argument
was that the holder of
a general bond who was owed several million rands by his debtor would
rank preferent even though the goods
encumbered by his bond were
realised for a trivial amount. I would add that in logic, counsel’s
submission would have to
remain the same even if no movables at all
were realised in insolvency. It is in my view simply not conceivable
that
s 102
of the
Insolvency Act, 24 of 1936
privileges holders of
general notarial bonds in contradistinction to holders of special
notarial bonds to the extent that the former
would enjoy a preference
entirely independent of the value of the security held under the
general notarial bond. I would regard
that as subversive of good
commercial practice, which would be at variance with the purpose of
the Act. The interpretation for
which counsel for the fourth
respondent contends would constitute a radical and (because
subversive of good commercial practice)
irrational departure from a
common law and legislative scheme going back many years.
28. In my view,
therefore, s 102 extends protection to the holder of a general
notarial bond only to the extent of the nett value
of the goods
secured by the bond, whether or not he qualifies as a secured
creditor as well as or instead of being a preferent
creditor.
29.
I think I should say something about the controversy in the books
about whether the preference of the holder of a general notarial
bond
is restricted to the proceeds within the free residue only of movable
property or whether his preference extends also to the
proceeds of
immovable property.
20
If one accepts, as in my view one must, that the total of any
security and preference conferred by a notarial bond cannot exceed
the value of the nett proceeds of the goods covered by the bond,
whatever form the bond may take, then it follows that the question
cannot arise.
Ex
hypothesi,
in
my view, the preference is limited to the nett proceeds of the
movable property encumbered by the bond less any amount awarded
to
the bond holder as a secured creditor. Because the holder of a
notarial bond ranks below other preferent creditors, he may in
some
cases get less than these nett proceeds but he can as preferent
and/or secured creditor never get more.
30. Finally, I must
deal with an argument raised by counsel for the liquidators who
prefaced his submissions by assuring me that
his clients did not
appear to oppose the application but merely to protect their
position. Counsel asked that the liquidators be
awarded certain costs
incurred by them in considering their position. What the position may
be as between the liquidators and the
creditors to whom they may be
answerable is not known to me and I say nothing about such costs as
costs of administering the affairs
of Rubaco. As between the
liquidators and the applicant and fourth respondent as litigants,
however, I do not think the liquidators
are entitled to an order for
costs. Costs were not sought against them by the applicant save only
if they opposed the application,
which they did not. Once the
liquidators had decided that they would not oppose the application,
they did not need to come to court
to protect their position.
31. It follows
accordingly that the application must succeed. I make the following
order:
1 It is declared
that the fourth respondent is not entitled to any allocation from the
free residue of Rubaco Boerdery (Pty) Limited
(in liquidation)
(“Rubaco”) in excess of the value of the nett proceeds of
the goods mortgaged under notarial bond
BN 20986/97 (at pp22-32 of
the papers) less the amount awarded to the fourth respondent as a
secured creditor in relation to such
goods.
2. For avoidance of
doubt, it is declared that because the fourth respondent was awarded,
as a secured creditor, the value of the
full nett proceeds of such
goods, the fourth respondent is accordingly entitled to no allocation
at all from the free residue of
Rubaco.
3. The decision of
the first respondent on 1 August 2011, in terms of which the first
respondent rejected the objection by the applicant
to the allocation
of the amount of R1 905 836,76 in the free residue of Rubaco to the
fourth respondent as a preferent creditor,
is hereby reviewed and set
aside.
4. The objection of
the applicant is upheld. The amount of R1 905 836,76 in the free
residue of Rubaco must be distributed among
the concurrent creditors
of Rubaco.
5. The second and
third respondents are directed to revise their second and final
liquidation account of Rubaco in accordance with
this order.
6. The fourth
respondent must pay the applicant’s costs which are to include
the costs of both senior and junior counsel.
NB Tuchten
Judge of the High
Court
8 April 2013
For applicant:
Adv DM Fine SC and
Adv JM Hoffman
Instructed by
Mkhabela Huntley
Adekeye Inc
Johannesburg
For second and third
respondents:
Adv Z Schoeman
Instructed by
Tintlnger Inc
Pretoria
For fourth
respondent:
Adv DM Leathern SC
Instructed by
Rorich
Wolmarans & Luderitz Inc
Pretoria
1
Compare
Johannesburg
Consolidated Investment Co Ltd v Johannesburg Town Council
1903
TS 111 117
2
The
applicant initially sought the review of the Master’s decision
on other grounds but amended its notice of motion. No
point was made
of this in argument.
3
As
made applicable to the liquidation of companies.
4
1992
3 SA 60
AD
5
71G-H
6
Hare
v Trustee of Heath
(1884)
3 SC 32
33-34
7
Mars,
The
Law of Insolvency in South Africa, third ed (1936) 343.
8
M
ars,
The Law of Insolvency in South Africa, third ed (1936) 344.
9
1930
NLR 136
at 142
10
1991 1 SA 66
N
11
72H-I
12
2003
2 SA 253
AD
13
1983 1 SA 79
C
14
84
C-E
15
84C-E
16
82D-E
17
Mars,
The
Law of Insolvency in South Africa, third ed (1936) para 22.11.
18
2012
4 SA 593
SCA para 17
19
So
too, in the case of a special bond.
20
See
Mars,
The Law of Insolvency in South Africa, third ed (1936) para 22.11.