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[2013] ZAGPPHC 543
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Waterkloof Marina Estates (Pty) Ltd v Charter Development (Pty) Ltd and Others (64309/2009) [2013] ZAGPPHC 543 (10 May 2013)
IN
THE HIGH COURT OF SOUTH AFRICA
(NORTH GAUTENG
HIGH COURT)
Case number:
64309/2009
Date: 10 May 2013
In the matter
between:
WATERKLOOF
MARINA ESTATES (PTY)
LTD
...........................................................................
Plaintiff
and
CHARTER
DEVELOPMENT (PTY) LTD (IN
LIQUIDATION)
........................................
First
Defendant
CITY
LAKE MARINA (PTY)
LTD
.....................................................................................
Second
Defendant
YUNNAN
CONSTRUCTION ENGINEERING
CC
.............................................................
Third
Defendant
THE
MASTER OF THE HIGH COURT
PRETORIA
.......................................................
Fourth
Defendant
and
H
A
MARAIS
.....................................................................................................................................
Third
Party
JUDGMENT
PRETORIUS J.
[1] This is a stated
case where the court has to decide certain issues separately in terms
of Rule 33 (4) of the Uniform Rules of
Court.
[2] The issues the
court has to adjudicate are separated. In this application the court
has to adjudicate:
“
paragraph
7 & 8 of the plaintiffs particulars of claim;
Paragraph 6.4 of
the first defendant’s amended plea;
Paragraph 1 of
the plaintiff’s amended replication;
Paragraph 2.3
& 2.4 of the third party’s consequentially amended
plea; and
Paragraph 1.3 of
first defendants adjusted rejoinder.”
[3]
The parties have agreed that for purposes of the stated case the
court must assume that the plaintiff acted
bona
fide
as
envisaged in
section 82(8)
of the
Insolvency Act, 1936
; and that the
second meeting of creditors were properly constituted; and that the
persons present at this meeting was duly authorised
and that they
acted in accordance with the terms of their respective mandates.
[4] The court has to
determine whether, as matter of law, the plaintiff is entitled to
rely on and compel performance of the sale
of shares agreement having
regard to the provisions of
section 82(8)
of the
Insolvency Act 24 of
1936
and the provisions of section 339, 386(3) and 386(4)(h) and
389(3)(a) of the Companies Act, 61 of 1973. (the “Act”)
[5] The parties to
the stated case are the plaintiff, the first defendant and the third
party. The background is that the first
defendant was placed into
final liquidation on 30 July 2002. The third party was appointed as
sole liquidator of the first defendant
on 28 October 2002.
[6]
On 30 January 2003 the second meeting of creditors of the first
defendant was held where,
inter
alia,
resolution
6 was adopted which authorized the third party:
“
...to
dispose of the movable assets of the (first defendant) by public
auction, private treaty or public tender in his sole discretion
and
that the mode of sale of any one or more of the assests shall be
detenvined by the (third party) and that all costs incurred
in
relation thereto be costs of administration and paid for by the
estate. ”
[7] There were no
contributories of the first defendant. It is common cause that no
second meeting of members of the first defendant
was held at all and
the resolutions of 30 January 2003 were not adopted by the members of
the first defendant.
[8] On 18 August
2004 the plaintiff entered into a written agreement with the first
defendant, represented by the third party, in
terms of which the
first defendant, acting under authority granted to him at the meeting
of creditors held on 30 January 2003,
sold and the plaintiff bought
40% of the issued shares in the second defendant for the amount of
R6,000,000.00.
[9] On 14 September
2006 Chavonnes Badenhorst St Clair Cooper was appointed as joint
liquidator of the first defendant together
with the third party to
finalize the winding up of the first defendant. The first defendant
has refused to comply with the sale
agreement and has refused to
transfer the shares against a tender of payment of the purchase price
alleging that the sale of shares
agreement was invalid and
unenforceable.
[10] On 20 October
2009 the plaintiff issued summons praying for an order directing the
delivery and transfer of first defendant’s
40% shareholding in
the second defendant, against payment of R6 million.
[11] On 16 January
2012 the third party resigned as liquidator of the first defendant.
In February 2012 the first defendant issued
a third party notice,
claiming that in the event it is found that effect should be given to
the sale of the share agreement in
terms of
section 82(8)
of the
Insolvency Act 24 of 1936
, the third party should be held liable to
make good to the estate twice the amount of the loss which the estate
may have sustained
as a result of him contravening
section 82
when
dealing with the property.
[12] The first
defendant contends that the third party was not authorized by the
members of the first defendant to sell any movable
property of the
first defendant by private contract as provided for in section
389(3)(a) read with section 386(4)(h) of the Companies
Act. The
plaintiff contends that the third party acted pursuant to the
resolutions passed by the creditors of the first defendant
at the
second meeting of creditors on 30 January 2003, which authorized the
third party to sell the first defendant’s shares
in the second
defendant to the plaintiff by private contract without the members’
authority, and this did not invalidate
the administration action.
[13] Alternatively,
the plaintiff contends that the sale of shares agreement is valid and
enforceable as provided for in
section 82(8)
of the
Insolvency Act
read
with the provisions of section 339 of the Companies Act.
[14] The court has
to determine whether the sale of shares agreement is valid and
enforceable. Section 386 (3)(a) and 4(h) of the
Act provide:
“
(3)
The liquidator of a company -
in
a winding up by the Court, with the authority
granted
by meetings of creditors and members or contributories
or
on the directions of the master given under section 387;
(4)The powers
referred to in subsection (3) are -
...
(h)
to seii any movable and immovable property of the company by public
auction
,
public
tender or private contract or to give delivery thereof.”
(Court’s
emphasis)
[15] It is clear
from section 386(3) that a liquidator may only act with the authority
of both creditors and members or contributories
or on the direction
by the Master of the High Court. A liquidator who seeks to exercise
his powers in terms of section 368(4)(h)
has to have the authority of
both the creditors and the members. Neither the contributories nor
the Master had authorized the sale
of the shares in the company and
no court application was launched to rectify the situation. Unless
section 82
of the
Insolvency Act is
applicable the court has to find
against the plaintiff.
[16]
In
Griffin
and Others v The Master and Another (Commins and another intervening)
2006 (1) SA 187
(SCA)
at
paragraph 6 and 7 Zulman JA held:
“
[6]
It is clear that
s 386(3)
specifies in terms that a liquidator may
only exercise the powers given (with certain exceptions which are not
here relevant) if
granted authority to do so.
Furthermore,
s 386(3)(a)
specifies from whom this authority must be obtained;
namely, in the case of a winding-up by the court, meetings of
creditors and
members or contributories or on the directions of the
Master.
It
is not suggested that in this case there was any authority given by
contributories or that there were directions from the Master.
[7] The learned
authors Blackman et al in their Commentary on the Companies Act
(2002) vol 3 at 14 - 330 correctly state the position
in these terms:
'Section
386(3) provides that with the required authority the liquidator
"shall have the powers mentioned in ss
(4)".
Thus it would seem that the grant of authority is not merely a
condition for the exercise of those powers, but, is rather,
a
necessary condition for their existence. Where the liquidator
requires such authority to exercise a particular power, other than
the power to litigate [a situation not of application here], it is
open to a third party to raise the question of the liquidator's
lack
of authority.' ”
(Court’s
emphasis)
[17]
The court has to decide whether the conclusion of the agreement
qualified as administrative action by the liquidator who is
the third
party in this application. In
President
of the Republic of South Africa and Another v South African Rugby
Football Union and Others
2000 (1) SA 1
(CC)
at
66
F
-
68
B
the Constitutional Court held:
“
[141]
In s 33 the adjective
'
administrative
'
not
'
executive
'
is
used to qualify 'action'. This suggests that the test for determining
whether conduct constitutes 'administrative action
'
is
not the question whether the action concerned is performed by a
member of the executive arm of government What matters is not
so much
the functionary as the function. The question is whether the task
itself is administrative or not It may well be, as contemplated
in
Fedsure, that some acts of a legislature may constitute
'administrative
actionSimilarly, judicial officers may, from time to time, carry out
administrative tasks. “
[18]
In
Gamevest
(Pty) Ltd v Regional Land Claims Commissioner, Northern Province and
Mpumalanga and others 2003 (1) SA373 (SCA)
at
382 B-D Olivier JA found:
“
[12]
What is an administrative act for the purpose of justiciability?
There is no neat, ready-made definition in our case law, but
in Hira
and Another v Booysen and Another
1992 (4) SA
69
(A)
Corbett CJ at 93A - B required, for common-law review, the
non-performance or wrong performance of a statutory duty or power;
where the
duty/power is
essentially a decision-making one and the person or body concerned
has taken a decision, a review is available.”
(Court’s
emphasis)
[19] The liquidator
had to act in the interest of the creditors and the members, not in
the public interest, as this was a private
agreement. The liquidator
made no decision on which he had acted, he only acted on the
authority of the creditors who authorised
him to sell 40% of the
shares. It cannot be held to have been a decision which can be
characterized as administrative action as
he had made no decision.
[20] Section 1 of
PAJA provides and sets out what a “decision” is:
““
decision”
means
any decision of an administrative nature made, proposed to be made,
or required to be made, as the case may be, under an empowering
provision, including a decision relating to
—
(a)
...
(b)...
(c)
...
(d)imposing a
condition or restriction;
(e) making a
declaration, demand or requirement;
(f) retaining, or
refusing to deliver up, an article; or
(g) doing or
refusing to do any other act or thing of an administrative nature,
and a reference to a failure to take a decision
must be construed
accordingl.”
[21] The liquidator
had to act in the interest of the creditors and the members, not in
the public interest, as this was a private
agreement. The liquidator
made no decision on which he had acted, he only acted on the
authority of the creditors who authorised
him to sell 40% of the
shares. It cannot be held to have been a decision which can be
characterized as administrative action as
he had made no decision.
[22] The court finds
that the agreement was not an administrative action as the liquidator
did not take a decision, but was granted
authority by the creditors
to sell the shares and PAJA is thus not applicable.
[23]
The court has to decide whether the alternative argument that the
sale of shares is valid and enforceable by virtue of the
application
of the provisions of
section 82(8)
of the
Insolvency
Act, 1936
read
with section 339 of the Act.
[24]
Section
339
of
the
Companies
Act
provides:
“
In
the winding up of a company unable to pay its debts, the provisions
of the law relating to insolvency shall, insofar as they
are
applicable
,
be
applied
mutatis
mutandis
in respect of any
matter not specifically provided for in this Act.’’
(Court’s
emphasis)
[25]
Section 82(1)
of the
Insolvency
Act
provides
:
“
Subject
to the provisions of
sections
eighty-three
and
ninety
the trustee of an
insolvent estate shall, as soon as he is authorized to do so at the
second meeting of the creditors of that estate
,
sell
all the property in that estate in such manner and upon such
conditions as the creditors may direct
”
[26]
Section 82(8)
of
the
Insolvency Act
provides
:
“
If
any person other than a person mentioned in
subsection
(7)
has
purchased in good faith from an insolvent estate any property which
was sold to him in contravention of this section, or if
any person in
good faith and for value acquired from a person mentioned in
subsection
(7)
any
property which the last mentioned person acquired from an insolvent
estate in contravention of that subsection,
the
purchase or other acquisition shall nevertheless be valid, but the
person who sold or otherwise disposed of the property shall
be liable
to make good to the estate twice the amount of the loss which the
estate may have sustained as a result of the dealing
with the
property in contravention of this section.’’
(Court’s
emphasis)
[27]
There is a difference between a company’s liquidation and a
private individual’s insolvency. The property of the
company
remains vested in the company whereas in an insolvency the property
of the individual vests in the trustee. In
van
Zyl NO v Commissioner for INL Rey
1997 (1) SA 883
CPD
at
891 C Hodes AJ held:
“
It
should be remembered that a company in liquidation is administered
not only for the benefit of creditors, but that the liquidator
is
obliged to take the interests of members into account. In terms ofs
342(1) of the Companies Act, if there is a surplus after
payment to
creditors, this goes to members. The interest of members in the
proper winding-up of the company is recognised in ss
360(1),
386(3)(a) and 387(1) of the Companies Act”
[28] However the
position of a trustee and a liquidator are similar, a trustee, like a
liquidator, may sell on the direction of
creditors, although in the
case of a company the direction of members must be sought.
[29] The liquidator,
who has been authorized in terms of abovementioned sections of the
Act to sell the company property, performs
a juristic act on behalf
and in the name of the company. The liquidator acts in a
representative capacity and the rights and obligations
arising from
his acts accrue to the company in liquidation.
[30]
The court was referred to
Oertel
and Others NNO v Director of Local Government and Others
1981 (4) SA
491
(T),
a
Full Bench decision of this division where Nestadt J held at p 508:
“
In
terms of s 82 the trustee of an insolvent estate shall, as soon as he
is authorised to do so at the second meeting of the creditors
of that
estate,
sell all the property in
such manner and upon such conditions as the creditors may direct. It
is not whether the necessary authority
of the creditors
of
the company to sell
was
obtained.
In any event the creditors could not validly so direct.
The
obligations imposed on a trustee and a liquidator under s 82
obviously presuppose that the sale of estate property is not unlawful
or prohibited
(Courts
emphasis)
[31] The court
confirmed that
section 82
of the
Insolvency Act is
applicable in the
winding-up of a company in terms of section 339 of the Companies Act
although it dealt with a creditors’
voluntary liquidation.
Therefor the provisions of
section 82
of the
Insolvency Act apply
in
the winding-up of a company.
[32] In an
insolvency, where the estate is in fact insolvent, the trustee of the
insolvent estate is obliged by statute to sell
the assets of the
insolvent without considering the wishes of the insolvent as set out
in
section 82(1)
of the
Insolvency Act.
[33
]
In
Mookrey
v Smith NO and Another
1989 (2) SA 707
(C)
at
711C to 711F it was set out:
“
To
the extent that a trustee is bound to comply with instructions from
creditors as to the manner which the estate is to be wound
up and the
assets to be disposed of, he may be regarded as a kind of statutory
agent for creditors.
If an agent
acts outside his powers his act, ieaving aside ratification, is a
nullity. It therefore seems to me that the Legislature
could not have
intended that an
act
performed by a trustee beyond
the scope of authority given to him at the second meeting of
creditors should be anything but invalid.’’
[34] and at 711 E -
F:
“
But
where an act is clearly ultra vires the authority given by the
creditors to the trustee it seems to me that invalidity must
have
been intended to result. This is also the view of A L Stander in an
article on Mookrey v Smith in (1988) 51 THRHR at 252.
Once there is
a
rule
as uncompromising as this, it goes almost without saying that some
method has to be devised to protect an innocent third party
from the
consequences of having entered into an unenforcable transaction.
Section 82(8)
does this by providing that if a purchaser is bona fide
the sale shall nevertheless be valid.”
(Court
s emphasis)
[35]
The first respondent argues that
section 82(8)
is devised to protect
bona
fide
purchasers
in
a
sui generis
situation
where the common law principles of agency cannot apply as in the
present action. According to the first respondent in
the present
action the principles of agency should apply. The first respondent
argues that the innocent plaintiff will be able
to sue the liquidator
for any damages, if it chooses not to approach the court to ratify
the sale.
[36] It is clear
that there is no provision in the Companies Act of 1973 which deals
with this situation where a liquidator sells
the property of the
company in liquidation without authorization by the members of the
company in liquidation.
[37] Therefore the
provisions of section 339 of the Act must apply and
section 82(8)
of
the
Insolvency Act of 1936
applies. Oertel’s case was
overturned on appeal, but the finding that
section 82
is applicable
to companies in liquidation was unaffected.
[38]
In
Sherry
v Henning NO
(supra)
DE
Vos J held at para 6:
“
There
is no similar provision in the Companies
Act
dealing with sale of property and it follows that section 82 is
therefore applicable
”
(Court’s
emphasis)
[39] I have
considered all the arguments, facts and authorities and I can find no
reason not to agree with the authorities and find
that
section 82
of
the
Insolvency Act i
s applicable. Therefore I find that the third
party and the plaintiff entered into the agreement in terms of which
the third party
sold to the plaintiff the shares in the second
respondent.
[40] The following
order is made:
1. The court finds
that the sale of shares agreement is valid and enforceable;
2. The first
defendant to pay the costs of the plaintiff including the costs
occasioned by the use of two counsel.
Judge Pretorius
Case number:
64309/2009
Heard on: 11 April
2013
For the Plaintiff:
Adv. Hoffman SC
: Adv. Kuny
Instructed by :
David Kahn & Associates
For the First
Defendant: Adv. Rossouw SC
Adv. Moller
Instructed by :
Brooks & Brand Inc
For the Third Party:
Adv. Swart SC
Instructed by: VDT
Attorneys
Date
of Judgment: 10 May 2013