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[2012] ZAKZPHC 49
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Holderness NO and Others v Maxwell and Others (6518/11) [2012] ZAKZPHC 49 (31 July 2012)
IN
THE KWAZULU-NATAL HIGH COURT, PIETERMARITZBURGREPUBLIC OF SOUTH
AFRICA
CASE NO : 6518/11
In
the matter between:
DIANNE MARGARETA HOLDERNESS N.O.
…................................
First
Applicant
CLIVE SCOTT HENDERSON N.O.
…...........................................
Second
Applicant
TIMOTHY JOHN HOLDERNESS N.O.
….........................................
Third
Applicant
and
WILLIAM GRAEME MAXWELL
…................................................
First
Respondent
EUGENE NEL N.O.
…...............................................................
Second
Respondent
MUKHTAR AHMED ISMAIL DAWOOD N.O.
…...........................
Third
Respondent
PREETHA DABIDEEN N.O.
…...................................................
Fourth
Respondent
______________________________________________________________
J U D G M E N T
K
PILLAY J
[1] This application concerns a herd
of cattle referred to as the Razzle Dazzle Herd (“the Herd”),
the ownership whereof
is in dispute.
[2] The Applicants’ seek an
order
inter alia
directing the sale of the herd, the retention
of the proceeds of the sale in trust and an account from the First
Respondent in
respect of the sale of cattle belonging to the Razzle
Dazzle Herd by him and the sale of milk produced by the Razzle Dazzle
Herd
whilst the herd was in his possession.
[3] The order is to issue pending the
final determination of the ownership of the Razzle Dazzle Herd, in an
action to be instituted
by the Applicants in due course.
[4] The application was initially
brought on an urgent basis. However the parties eventually argued the
matter on a full set of
papers on the opposed roll.
BACKGROUND
[5] The First Applicant, together with
her husband to whom she is married out of community of property
(hereinafter referred to
as the “insolvent”) operate a
dairy farm in the Karkloof area of the Natal Midlands through what
appears to be a variety
of entities, including the trust.
[6] The First Applicant asserts that
during 1984, she commenced purchasing Jersey and Holstein cows for
her own account. By 1997,
she had built the herd up to 130 cattle.
These cattle formed the basis of the Razzle Dazzle Herd. She sold the
said herd to the
Trust during 1998/1999.
[7] The First Respondent is the owner,
through a company of which he is the sole shareholder and director,
of several pieces of
land collectively referred to in the papers as
the Yarrow Farm and the Gala Farm.
[8] On 31 August 2000, he and the
insolvent concluded a written agreement of lease for the Yarrow Farm
for a period of three years
ending 31 August 2003. This agreement
provided the insolvent with a right of extension for a further period
of two years which
the insolvent exercised by way of fax dated 22
April 2003. This was accepted by the First Respondent who faxed back
his acknowledgement
thereof on 8 May 2003. The extended lease was due
to expire on the 31 August 2005.
[9] On 20 July 2004, the insolvent
requested, by way of fax, the First Respondent’s permission to
sublet Yarrow Farm to an
entity known as Trade Avail CC, which was
another of the entities through which the First Applicant and the
insolvent operated.
This fax expressly stated that the dairy
operation was run under the name of Trade Avail CC. The First
Respondent faxed back his
consent on the same day.
[10] However, on 11 August 2004, the
insolvent and the First Respondent concluded a new lease agreement
for the Yarrow Farm, which
lease was to operate from 1 August 2004
until the 31 July 2009. For almost two years thereafter, everything
ran smoothly, until
June 2006, when the insolvent failed to pay the
rent.
[11] On 25 February 2008, the First
Respondent was informed by the son of the First Applicant and the
insolvent that the herd situated
on the Yarrow Farm belonged to the
Trust. The son also appears to have been involved in the running of
the dairy farm. The First
Respondent alleges that up to this point,
he did not know of the Trust’s existence. On 12 June 2008, the
First Respondent
cancelled the lease agreement by way of registered
letter.
[12] The First respondent then secured
a provisional sequestration order against the insolvent on 8 June
2009. This was made final
on 24 August 2009. On 16 October 2009 the
Master of the High Court appointed the Second, Third and Fourth
Respondents as Trustees
in the insolvent estate. Throughout all of
this, the herd appears to have remained on the Yarrow farm.
[13] In his affidavit deposed to in
support of the sequestration application the First Respondent
referred to the Razzle Dazzle
Herd as “the Holderness Herd”
and alleged that the insolvent was the owner thereof. In fact, as
appears from extracts
of the aforesaid affidavit put up by the
Applicants, the First Respondent averred that he did not recognise
the Trust as the owner
of the Razzle Dazzle Herd. The First
Respondent claims to have a lien over the Razzle Dazzle Herd as
security for the insolvent’s
indebtedness to him.
[14] It is common cause that the
Razzle Dazzle Herd is currently in possession of the First
Respondent. The Applicants assert that
the First Respondent refused
to deliver the said herd when demand was made therefor by the Second,
Third and Fourth Respondents,
subsequent to their appointment as
Trustees.
[15] In addition, it is submitted that
the First Respondent is milking the cows of the herd and has failed
to account to the Trust
or the aforesaid Trustees for the proceeds of
the sale of such milk, despite agreeing to do so.
[16] Further, that during or about
December 2009, the First Respondent sold approximately 34 head of
cattle belonging to the herd
without the sanction of any Court Order
and it is believed that a further 26 cows were sold during September
2010.
[17] It is not in dispute that the
First Respondent’s claim against the insolvent estate amounted
to R323 980.26. On the First
Respondent’s version the Razzle
Dazzle Herd comprised 368 head of cattle when the First Respondent
first took possession
thereof. It appears to be not in dispute that
the herd now stands at 192.
[18] In a counter-application, the
First Respondent seeks an order directing the attachment of the
Razzle Dazzle Herd and certain
movable property to secure certain
claims which the First Respondent alleges he has against the
insolvent estate on the basis that
he has a landlord’s hypothec
over the said goods. The counter-application is opposed.
[19] The First Respondent, in opposing
the application and claiming a lien over the aforesaid herd does not
categorically state
who owns the herd. He vacillates from it being
the insolvent (in the liquidation proceedings) to he does not know
who the herd
belongs to in these proceedings. For the purposes of
this application it is not necessary for me to determine, the
ownership of
the herd. What is clear on the papers is that the herd
belongs either to the insolvent or the Trust. Both parties consent to
the
sale of the herd.
IF THE HERD BELONGS TO THE
INSOLVENT
[20] In the event that the insolvent
is the owner of the Razzle Dazzle Herd then
Section 85(2)
of the
Insolvency Act 24 of 1936
, recognises the First Respondent’s
tacit hypothec in respect of arrear rental for Yarrow Farm. The legal
hypothec vests statutorily
and no attachment is necessary to render
it effective as against the insolvent estate.
[21] In addition
Section 47
of the
Insolvency Act 24 of 1936
affords further protection to the First
Respondent’s legal hypothec.
“
If a
creditor of an insolvent estate who is in possession of any property
belonging to that estate, to which he has a right of retention,
or
over which he has the landlord’s legal hypothec, delivers that
property to the trustee of that estate, at the latter’s
request, he shall not thereby lose the security afforded by his right
of retention or lose his legal hypothec, if when delivering
the
property, he notifies the trustee in writing of his rights and in due
course proves his claim against the estate.”
[22] He is in terms of this provision
obliged to deliver the cattle upon demand. He is also obliged to
inform the Trustees, that
the herd was his security as he possessed a
lien and in due course to prove his claim. He did none of the above.
IF THE HERD IS THE PROPERTY OF THE
TRUST
[23] The Applicants contend that if
the herd is the property of the Trust, in order to establish a
hypothec over the herd, the First
Respondent was obliged to obtain
attachment of the herd prior to gaining knowledge of the Trust’s
claim to ownership of the
said herd.
[24] The landlord’s
tacit hypothec
1
refers to the
security a landlord retains under common law over his tenant’s
movables situated on the leased premises for
unpaid rent. However,
this hypothec can also extend over the movables owned by third
parties brought onto the premises.
[25] The
requirements that must be present before the hypothec can be extended
to property of third parties were succinctly summarised
by Combrink J
in
Paradise
lost Properties (Pty) Ltd v Standard Bank of South Africa and Another
2
as follows:
3
‘
In order
to succeed in proving that the hypothec operated over property of a
third party the lessor must establish the following:
the goods must be on the leased
premises with the knowledge and consent of the third party;
the lessor must be unaware of the
fact that the goods are owned by the third party;
the goods were brought onto the
premises for the use of the lessee;
the goods were intended to remain
on the premises indefinitely.’
[26] It is evident from the above
passage that the onus rests on the landlord to establish the
existence of his hypothec.
[27] The basis for
extending the hypothec in these circumstances to the property of a
third party was explained by Curlewis JA in
Bloemfontein
Municipality v Jackson
4
thus:
5
‘
When
goods belonging to a third person are brought on to a leased premises
with the knowledge and consent, express or implied, the
owner of the
goods, and with the intention that they shall remain there
indefinitely for the use of the tenant, and the owner,
being in a
position to give notice of his ownership to the landlord, fails to do
so, and the landlord is unaware that the goods
do not belong to the
tenant, the owner will thereby be taken to have consented to the
goods being subject to the landlord’s
tacit hypothec, and
liable to attachment.’
[28] As the basis
of extending the hypothec in this way is either that of implied
consent or a form of estoppel the evidentiary
burden in this
particular aspect rests on the third party to show that the landlord
knew that the tenant was not the owner or that
the landlord was not
induced by an erroneous belief and he therefore knew the true state
of affairs.
6
However, the
landlord is to a certain extent also expected to exercise reasonable
care
7
in that he cannot
heedlessly turn a blind eye to the facts before him.
8
[29] Although the
hypothec arises automatically as soon as the rent is in arrears
9
the benefits of the
hypothec are not automatically obtained,
10
and the mere
existence of the hypothec does not give the landlord an automatic
real right of security.
11
In order to be
effectual the movables must be attached.
12
This right of
attachment is a crucial aspect of the hypothec which has been said to
be of ‘small value’ without it.
13
Attachment is
therefore crucial to the existence of the lien, and consequently, a
landlord cannot prevent removal of the goods from
the premises
without first seeking an attachment order.
14
[30] The issue of
whether or not the hypothec continues if, prior to attachment, the
landlord subsequently becomes aware that the
property belongs to a
third party, was considered in
Eight
Kaya Sands v Valley Irrigation Equipment.
15
This decision
confirmed that a third party who creates the
“
appearance”
that
his/her goods, which were available to the tenant are in fact the
goods of the tenant exposes those goods to the landlord’s
hypothec this changes once ownership of the goods are made known to
the landlord. Consequently once this
“
appearance”
is removed the
basis for the extension of the hypothec is also removed.
16
There exists no
legal obligation between the third party and the landlord, and there
is no justification for a third party’s
property serving as
security for a tenant’s debt. Consequently, if the appearance
disappears before the movables have been
attached, the landlord must
return the goods to the third party.
17
APPLICATION
[31] It is common
cause between the parties that the First Respondent, as landlord, was
made aware on 25 February 2008 that the
Trust was the owner of the
herd and at this time had not sought to attach the herd and thereby
perfect any hypothec he may have
had. Therefore, any evidentiary onus
resting on the Applicants referred to by Combrink J in the
Paradise
Lost
need
not be discussed.
[32] The crucial
issue in this matter consequently, is whether or not this court
should follow the majority decision of
Eight
Kaya Sands.
Counsel
for the First Respondent submitted that
Eight
Kaya Sands
is
in conflict with
Reddy
v Johnson,
18
a decision which is
binding on this court. He made further submissions similar to that of
the minority judgment in
Eight
Kaya Sands,
namely
that
Webster
v Ellison,
19
read correctly, is
not authority for the proposition that
‘
perfection’
is
a requirement for the creation of the hypothec.
[33] Firstly, it is
unclear how
Reddy
v Johnson
can
be in conflict with
Eight
Kaya Sands.
The
issues in
Reddy
were different, and
in that case there was no ownership claim by a third party, a fact
that is central to the issue
in
casu
.
[34] Secondly, the
stumbling block to Counsel’s further argument is that it
appears to somewhat misconstrue the issue being
not whether
perfection creates the real right afforded to a landlord, but rather
whether the landlord’s subsequent knowledge
of the true owner
prior to perfection destroys it. The majority decision in
Eight
Kaya Sands
is
far more convincing.
[35] Secondly, as discussed in
Eight
Kaya Sands,
there is no legal relationship between the landlord
and the third party and there can be no justification to attach such
property
as security for the debt of the tenant. To hold that even
where the landlord becomes aware of the true owner prior to
perfection,
the hypothec continues, would create a situation where
the property of a third party becomes security for the debts of
another.
[36] For these reasons, the majority
judgment in
Eight Kaya Sands
appears to be correct, and
therefore the First Respondent cannot be said to have a hypothec over
the herd.
[37] The First Respondent’s
counter-claim therefore fails and is dismissed with costs.
[38] It is instructive that the First
Respondent has admitted to selling 34 head of cattle belonging to the
Razzle Dazzle Herd,
without advancing any legal ground rendering such
sale lawful.
[39] It is not in dispute that he also
failed to disclose the proceeds of the sale of cattle and of the sale
of milk produced by
the cattle belonging to the Razzle Dazzle Herd,
either to the insolvent or to the Trust, who are the only parties in
whom ownership
can possibly vest. In fact the First Respondent
undertook in writing to hold the proceeds of the sale of milk in
trust pending
a determination of what was to happen to the proceeds,
but failed to do so.
[40] There can be no dispute that the
herd is diminishing. I am satisfied that the Applicants have
established a
prima facie
right to an order to preserve the
asset, albeit in a different format.
[41] The only parties, in whom
ownership can possibly vest, agree that the herd should be sold and
the proceeds retained in trust
pending the determination of the
ownership of the herd.
[42] The First Respondent also takes
the point that there has been some mixing of the herds, which might
make the execution of the
order sought by the Applicants difficult.
[43] In this regard the proposal made
by the Applicants’ Counsel appears sound namely that prior to
removal from the possession
of the First Respondent and the sale, the
cattle belonging to the Razzle Dazzle Herd be properly identified by
a joint exercise
being conducted between the Applicants, the First
Respondent, the Second, Third and Fourth Respondents to identify the
aforesaid
cattle with the assistance of the herd management records.
[44] In the circumstances I grant the
following order:
That pending the final determination
of an action to be instituted by the Applicants as set out in
paragraph (ix) below, the First
Respondent is directed to forthwith
deliver to the Second, Third and Fourth Respondents possession and
control of all cattle
inclusive of the progeny belonging to the
Razzle Dazzle herd and of which he still has possession and control,
such will exclude
the 27 calves referred to in paragraph 34 of
Applicants Replying Affidavit.
That in the event of the First
Respondent failing to comply with the abovementioned order within
five calendar days of the date
of the issue of this order, the
sheriff of this court and/or his deputy are hereby directed to take
all such steps as may be
necessary to deliver possession and control
of the abovementioned cattle to the Second, Third and Fourth
Respondents.
That the Second, Third and Fourth
Respondents are directed to within a period of thirty days of
obtaining possession and control
of the Razzle Dazzle herd, cause
the sale of the said herd by public livestock auction held by a
livestock auctioneer.
That the Second, Third and Fourth
Respondents are directed to retain the net proceeds of the
abovementioned auction in trust pending
the final determination of
the ownership of the Razzle Dazzle herd and/or the identity of the
party or parties entitled to the
proceeds of the said auction.
That the First Respondent is directed
to account to the Second, Third and Fourth Respondents in respect of
all sales by him of
cattle inclusive of the progeny belonging to the
Razzle Dazzle herd, such accounting to include:
The date of each sale of cattle;
The identity and address of the
purchaser(s) of the cattle on each occasion;
The price at which each animal or
parcel of animals were sold;
The identity mark and/or stud
registration number and/or tag name and/or tattoo of each and every
animal sold;
Copies of all vouchers relating to
such sales;
Payment of an amount equal to the
gross proceeds of such sales to the Second, Third and Fourth
Respondents.
That the First Respondent is directed
to account to the Second, Third and Fourth Respondents in respect of
all sales by him of
milk produced by the Razzle Dazzle herd, such
account to include:
the date of each such sale;
the identity and address of the
purchaser(s) of all such milk sold;
the price(s) at which such milk was
sold from time to time;
details of the gross proceeds of all
such milk sales received by the First Respondent or by any entity
under his control;
copies of all vouchers relating to
such milk;
payment of an amount equal to the
gross proceeds of all such milk sales to the Second, Third and
Fourth Respondents.
That the Second, Third and Fourth
Respondents are directed to retain the proceeds of the above
accounting received from the First
respondent in trust pending the
final determination of the identity of the party or parties entitled
to such proceeds.
That the Second, Third and Fourth
Respondents are directed to disclose the accounting received from
the First Respondent to the
Applicants.
That the Applicants are directed to
within thirty days of the holding of the public auction and of
receipt of the abovementioned
accounting results from the Second,
Third and Fourth Respondents, whichever is the later, institute
action for the determination
of the ownership of the Razzle Dazzle
herd, the determination of the identity of the party or parties
entitled to the proceeds
of the sale of cattle belonging to the said
herd, the determination of the identity of the party or parties
entitled to the proceeds
of the sale of milk produced by the Razzle
Dazzle herd and such ancillary relief as the Applicants may deem
fit.
That the costs of this Application be
reserved for decision in the action to be instituted as set out in
paragraph (ix) above.
___________________
K PILLAY J
Date of Judgment : 31 July 2012
Applicants’ Counsel : Advocate G M E Lotz SC
Instructed by : Hay & Scott Attorneys
Applicants’ Attorneys
3 Highgate Drive
Redlands Estate
1 George Macfarlane Lane
PIETERMARITZBURG
Ref: LWeakley/evdw/12/N074001
1
st
Respondent’s Counsel : Advocate A M Van Wyk
Instructed by : Dreyer & Niewwoudt Attorneys
1
st
Respondent’s Attorneys
c/o Lister & Lister
Suite 101
161 Pietermaritz Street
PIETERMARITZBURG
Ref: RIL/01/D085/001/Komesh
1
Also
referred to as the lessor’s residual hypothec
2
1997
(2) SA 815
(D)
3
At
818
4
1929
AD 266
5
At
271
6
Paradise
Lost (Pty) Ltd v Standard Bank note 2 above at 819
7
Paradise
Lost v Standard Bank note 2 above at 822 G-H
8
Paradise
Lost Properties (Pty) Ltd v Standard Bank of South Africa
1998 (4)
SA 1030
(N) at 1036
9
Reddy
v Johnson
1923 NPD 190
at 194
10
A
Kerr The Law of Sale and Lease 3ed at 402
11
17(2)
LAWSA 441
12
Webster
v Ellison
1911 AD 73
at 79
13
Per
Innes J in Webster v Ellison supra at 87
14
Reddy
v Johnson
1923 NPD 190
15
2003
(2) SA 495
(T)
16
The
law of Property – Silverberg and Schoeman 5
th
Edition Page 406
17
At
501 F – 502 B
18
Note
9 above
19
Note
12 above