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[2012] ZAKZDHC 42
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European Metal Trading (Africa) (Pty) Ltd v Lee Metals CC (78/2012) [2012] ZAKZDHC 42 (6 July 2012)
In
the KwaZulu-Natal High Court, Durban
Republic
of South Africa
Case No : 78/2012
In
the matter between :
European
Metal Trading (Africa) (Pty) Ltd
(in
winding up)
…................................................................................................
Applicant
and
Lee
Metals CC
…...........................................................................................
Respondent
Judgment
Lopes J
[1] This application is brought by the
liquidators of European Metal Trading (Africa) (Pty) Ltd (in winding
up) (‘the company’).
The liquidators seek the ejectment
of the respondent from three business premises owned by the company
at the time of its liquidation,
two in Phoenix Industrial Park and
another at 20 Kent Road in Durban.
[2] It is common cause that the
company carried on business as a scrap metal dealer and recycler of
secondary metals. The business
thrived between 2003 and 2008. At that
stage the company embarked upon an expansion programme involving the
acquisition of a port
facility, with equipment and a large number of
vehicles to serve the port facility, giving the company the advantage
of being able
to load scrap metal and other metals straight into
ships from its port facility. Unfortunately, the economic recession
which occurred
in 2008 saw metal prices dropping to approximately 14%
of their previous levels, ultimately leading to the company’s
demise.
During this time the only shareholders and directors of the
company were Iain Davie and Michael Flanagan.
[3] The company’s principal
creditors were Mercantile Bank Limited and Standard Bank. Those banks
had provided finance for
the purchase of the movable assets of the
business, and were the owners of the assets in terms of instalment
sale agreements. Mercantile
Bank Limited was also the mortgagee of
the three immovable properties referred to above, as security for a
loan of R20 million
which it had advanced to the company. As matters
deteriorated, various negotiations were conducted between the company
and Mercantile
Bank Limited, all to no effect, and on the 14
th
June 2011 an order was granted provisionally winding up the company.
That order was made final on the 21
st
July 2011.
[4] It is common cause that from the
30
th
September 2010 the respondent had taken over the
business of the company and was running it for its own account. It
was evident
to the liquidators from an examination of the books of
the company, that the company’s business was being run without
any
rental being paid for its immovable property which was being
used, and VAT returns had been prepared for the applicant on that
basis. One Leon Muller, the financial manager of the respondent,
confirmed in discussions with the liquidators that an ‘operating
rental agreement’ had purportedly been concluded between the
company and the respondent for the use of the company’s
assets
from the 1
st
October 2010.
[5] On the 4
th
August 2011
the liquidators were presented with copies of two property leases. Ex
facie those leases they provided for the letting
of the two immovable
properties at Phoenix Industrial Park and the other property at 20
Kent Road Durban to the respondent. The
leases, which are in
identical form, ex facie their contents provide that they commenced
on the 1
st
November 2009. The agreements of lease had been
signed on behalf of the company by Michael Flanagan and on behalf of
the respondent
by Elizabeth Davie ( the wife of Iain Davie ) and the
date of the signature on each lease is October 2009. The rentals
payable
by the respondent in terms of those leases was R95 000 and
R20 000 per month respectively.
[6] The liquidators formed the
opinion, for the reasons which I deal with below, that the leases
were simulated agreements. However
and without prejudice to that
contention, they required that the respondent pay to them the lease
payments which should have been
made to the company by the respondent
during the period of the lease. Those amounts were calculated from
the 1
st
November 2009 (the month after the leases were
allegedly signed), until the 31
st
August 2011.
[7] In response to that demand the
respondent alleged that there was an error in the dating of the
leases and that they should have
been dated the 10
th
October 2010. In addition the allegation was made that the company
had received the proceeds of a sale actually intended for the
account
of the respondent in the sum of R1 341 595,04, and that amount was
set off against the lease obligations of the respondent
to the
company. It was further alleged that the respondent had paid R359
117,65 in October and November of 2010 to Mercantile Bank
Limited. It
is not made clear the basis on which that payment was made, but
thereafter payments of R30 000 per week were made to
the liquidators
by the respondent, allegedly for rent.
[8] On the 16
th
November
2011 a further demand was sent to the respondent by the liquidators
for payment of the rentals for October and November
of 2011. An
outstanding amount of R182 857,14 was claimed.
[9] In its answering affidavits the
respondent has alleged that it was carrying on the business formerly
conducted by the applicant
with the consent of the officials of
Mercantile Bank Limited, the principal creditor and owner of the
movable property formerly
operated by the company.
[10] These allegations are dealt with
in detail in an affidavit filed by Mr Maistry, the accounts executive
of Mercantile Bank Limited,
and Mr Maistry’s statements are
confirmed by Mr Waywell the national commercial manager, and by Mr
Kumbier a director of
the bank. They outline the continuing
discussions with the representatives of the company which were
conducted in an attempt to
stave off the liquidation. It is evident
from those affidavits that the steps taken to try to save the company
were in vain, as
none of the promised financial assistance came to
fruition. The allegation of consent of the officials of Mercantile
Bank Limited
to the respondent running the business of the company,
made by the deponent to the respondent’s main answering
affidavit,
are emphatically denied by the representatives of
Mercantile Bank Limited who were involved in the discussions.
[11] Mr
Harcourt
who appeared
for the applicant submitted that the respondent was then left in the
position where :
either the leases were indeed
fabricated; or
the leases were in fact genuine, but
the respondent was in arrears with rental payments and the
liquidators were entitled to cancel
the lease agreements for the
immovable properties and had done so.
In either case the respondents had no
legal right to continue in occupation of the immovable properties.
[12] He submitted that it is clear
from the papers that the same persons who were responsible for the
running of the company had
taken over the business of the company,
used its equipment and premises, and continued to run the company,
but for the benefit
of the respondent.
[13] Although the immovable properties
were owned by the company when this application was launched, they
have since been sold.
The ownership of them by the company, and the
standing of the liquidators to sue for ejectment, was not a point
taken in the opposing
affidavits. This was, however, raised in
argument by Mr
Tobias,
who appeared for the respondent. In
their replying affidavit the liquidators point out that the Phoenix
Industrial Park properties
have been sold to Four Arrows Investments
(Pty) Ltd, which is in the process of taking transfer of the
properties. The sales were
made free of leases to the purchasers.
[14] The Kent Road property has been
sold and transferred to Prodicat (Pty) Ltd. Having sold the
properties free of leases the liquidators
would have the right to
apply for the ejectment of the respondent from the properties.
See
:
United Building Society
Ltd & Another NO v Du Plessis
1990 (3) S.A. 75
(W).
[15] In any event, as the Phoenix
Industrial Properties have not yet been transferred, the liquidators
would have standing to sue
for ejectment in respect of these
properties. As the purchasers of the properties are entitled to have
them delivered with vacant
possession, and as the company owned the
properties when the application was instituted, the liquidators
would, in any event, have
standing to apply for the ejectment of any
occupiers lacking the right to claim possession.
See
:
Jadwat and Moola v
Seedat
1956 (4) S.A. 273
(N);
Nicholas v Wigglesworth
1937
N.P.D. 376.
[16] There is accordingly no merit in
the submission that the applicant does not have locus standi to
obtain the ejectment of the
respondent from the immovable properties.
[17] Mr
Tobias
submitted that I
should refer this matter for the hearing of oral evidence in order to
resolve the disputes of fact which arise
on the papers, or whether I
can deal with them on the papers as they stand. The main reason for
referring the disputes to be resolved
by way of oral evidence would
be if it was likely that the probabilities in the principal case
might be disturbed by such a referral.
[18] Mr
Tobias
submitted that
the following issues should be referred for determination by the
hearing of oral evidence:
whether the lease agreements were in
fact concluded;
whether payments in respect of the
lease agreements were made; and
whether the respondent was given a
proper default notice in respect of the late rental payments, and,
consequently whether the
leases were validly cancelled.
[19] Mr
Tobias
referred me to
Sewmungal & Another NNO v Regent Cinema
1977 (1) S.A. 814
(N) as authority for the proposition that it may be undesirable to
adopt a robust approach to deciding disputes of fact on affidavits
alone without the hearing of oral evidence. In this regard Leon J
stated at page 818G – 820 F:
‘
The
principal ways in which a dispute of fact may arise are set out in
the oft-quoted case of
Room
Hire Co. (Pty.) Ltd. v Jeppe Street Mansions (Pty.) Ltd.
,
1949 (3) S.A. 1155
(T) at p. 1163, as follows:
"The clearest
instance is, of course,
(a)
when the respondent denies all the
material allegations made by the various deponents on the applicant's
behalf, and produces or
will produce, positive evidence by deponents
or witnesses to the contrary. ... The respondent may
(b)
admit
the applicant's affidavit evidence but allege other facts which the
applicant disputes. Or
(c)
he may concede that he has no
knowledge of the main facts stated by the applicant, but may deny
them putting applicant to the proof
and himself giving or proposing
to give evidence to show that the applicant and his deponents are
biased and untruthful or otherwise
unreliable, and that certain facts
upon which applicant and his deponents rely to prove the main facts
are untrue. The absence
of any positive evidence possessed by a
respondent directly contradicting applicant's main allegations does
not render a case such
as this free of a real dispute of fact. Or
(d)
he may state that he can lead no evidence himself or by others to
dispute the truth of applicant's statements, which are peculiarly
within applicant's knowledge, but he puts applicant to the proof
thereof by oral evidence subject to cross-examination".
The present case falls
under
(b)
and the question arises as to whether the Court
a
quo
was correct in deciding the case finally on the affidavits
without acceding to the application that oral evidence be heard. In
approaching this particular type of problem, it is not wrong for a
Court at the outset to have some regard to the realities of
litigation. What appears to be a good case on paper may become less
impressive after the deponents to the affidavits have been
cross-examined. Conversely, what appears to be an improbable case on
the affidavits, may turn out to be less improbable or even
probable
in relation to a particular witness after he has been seen and heard
by a Court. ... The undesirability of attempting
to decide real
disputes of fact on the probabilities as they appear from the
affidavits was stressed by MURRAY, A.J.P., in the
Room Hire
case where the learned Judge said this at p. 1162 -
"inasmuch as the
ascertainment of the true facts is effected by the trial Judge, on
considerations not only of probability
but also of credibility of
witnesses giving evidence
viva voce
, it has been emphasised
repeatedly that (except in interlocutory matters) it is undesirable
to attempt to settle disputes of fact
solely on probabilities
disclosed in contradictory affidavits in disregard of the additional
advantages of
viva voce
evidence..."
It is also clear from the
above-mentioned case that once a case falls under
(a), (b)
or
(c)
,
supra
,
"there is a real
dispute of fact and (except where the parties specially request such
a course) the Court should ordinarily
decline to decide the dispute
purely on the probabilities as disclosed in the affidavits, and
should at its discretion select the
most suitable method of employing
viva voce
evidence for the determination of the dispute".
Despite the approach
referred to above - which I have no doubt is the proper one - there
has been a tendency in recent years for
Courts to decide disputed
questions of fact on the probabilities emerging from the affidavits
without having any or any proper
regard to the advantages of
viva
voce
evidence.
...
I suspect that this tendency owes its
origin to the remarks of PRICE, J.P., in
Soffiantini v Mould
,
1956 (4) S.A. 150
(E), where the learned Judge stated at p. 154H
that:
"It is necessary to
make a robust, common-sense approach to a dispute on motion as
otherwise the effective functioning of the
Court can be hamstrung and
circumvented by the most simple and blatant stratagem. The Court must
not hesitate to decide an issue
of fact on affidavit merely because
it may be difficult to do so. Justice can be defeated or seriously
impeded and delayed by an
over-fastidious approach to a dispute
raised in affidavits."
It must be borne in mind
that in that case the respondent had sworn to a number of bare
denials in his affidavits and the remarks
of the learned
JUDGE-PRESIDENT must be viewed in the light of the setting in which
they occur. ... The application of the so-called
robust approach to a
case involving bare denials cannot be criticised in any way. And
there are no doubt other cases where the
mere allegation of a dispute
of fact is not conclusive of its existence for in every case the
Court must examine the alleged dispute
of fact and see whether in
truth there is a real issue of fact which cannot be satisfactorily
determined without the aid of oral
evidence (
Peterson
v Cuthbert & Co. Ltd.
,
1945 A.D. 420
at
p. 428). ...
Where, however, the
respondent does not content himself with a bare denial but "produces
or will produce, positive evidence
by deponents or witnesses"
and there is a conflict of fact on the papers, caution must be
exercised in applying the so-called
robust approach, for otherwise a
Court might be tempted to settle disputes of fact solely on the
probabilities emerging from the
affidavits without giving any or due
consideration to the advantages of
viva voce
evidence.
’
[20]
This approach was confirmed by Botha JA in
Administrator,Transvaal
& Others v Theletsane & Others
[1990] ZASCA 156
;
1991
(2) S.A. 192
(A) at 197A-D as follows:
‘
For
my purpose it is enough to say that in motion proceedings, as a
general rule, decisions of fact cannot properly be founded on
a
consideration of the probabilities, unless the Court is satisfied
that there is no real and genuine dispute on the facts in question,
or that the one party's allegations are so far-fetched or clearly
untenable as to warrant their rejection merely on the papers,
or that
viva
voce
evidence
would not disturb the balance of probabilities appearing from the
affidavits.
[21] With regard to the question of
whether or not the leases were valid, there are a number of inherent
improbabilities and contradictions
in the matters raised by the
respondent in its opposition to the application and its allegations
that the lease agreements were
concluded in October of 2010. Those
probabilities and contradictions include :
the fact that ex facie the leases,
they were to operate from the 1
st
November 2009;
ex facie the leases they were signed
in October 2009;
the leases were signed by Elizabeth
Davie for the respondent, but she only became a representative
member of the respondent on
the 19
th
April 2010;
the first indication that the
liquidators had that those leases were in existence at all, was at a
meeting held on the 4
th
August 2011;
there were no accounts in the books
of the company which evidenced the existence of those leases;
VAT was paid by the company for
payments made to it by the respondent, but this was for the lease of
the movables and on the basis
that the leases for the immovable
properties did not exist;
although the management of the
respondent is identical to what the management of the company was
during the time of its operations,
no evidence is put up whatsoever
to substantiate the existence of the leases; the leases were not
disclosed in an offer of compromise
application which had been made
by the company prior to its liquidation;
the (unsolicited) payments made by
the respondent to the liquidators bore no relation to the rentals
reflected in the lease documents;
the lease payments reflected in the
lease agreements are entirely inconsistent with the finance charges
being levied on the debts
owed by the company to the banks.
[22] For all the reasons set forth
above I am of the view that the lease agreements are not genuine
documents and were fabricated
in order to attempt to establish a
defence to the eviction of the respondent. I do not believe that a
dispute of fact exists which
would warrant a referral to oral
evidence. Approaching the matter cautiously, and mindful of the
pitfalls of deciding disputes
of fact in a robust manner, I find that
the alleged disputes in this matter are a chimera, raised only to sow
doubt and confusion.
The allegations of valid leases fall into the
category of allegations which are far-fetched and clearly untenable.
[23] However, lest my adoption of an
overly-robust approach has led me into error in that conclusion, the
respondent was in any
event in default of the payment of rental at
the time that the second demand was made by the applicant. The
respondent failed to
pay within the time period set forth in the
notice of default, and has failed to pay since. Mr
Tobias
suggests that because :
(a) the default letter required
payment ‘within seven (7) days hereof …’;
(b) the letter was only sent the next
day – ie the 31
st
August; and
(c) the notice period given was
accordingly short of one day, and the respondent was not bound by it.
[24] This approach was considered in
Lurlev (Pty) Ltd v Unifreight General Services (Pty) Ltd &
Others
1978 (1) S.A. 74
(D) at 76D-77A, where Didcott J stated:
‘
The
notice to remedy the defaults was attacked. The papers do not include
a copy of it. I am therefore in the dark about its actual
terms. The
deponent to the first defendant's affidavit has however complained
that it:
"... allowed the
first defendant less time than the plaintiff was obliged to allow it
in terms of clause 23 of the lease to
remedy the breaches alleged in
such notice to have been committed by the first defendant."
In other words, as I read
this, the notice called upon the first defendant to remedy the
defaults within a shorter period than the
opportunity of fourteen
days granted by the lease. I shall assume that it in fact did so. For
that reason, according to the first
defendant, it was bad and could
be disobeyed with impunity. Non-compliance with it had not resulted
in the plaintiff's right to
cancel the tenancy, and the cancellation
itself was ineffective. That was the first defence. But it had no
substance and was wisely
abandoned during argument. Clause 23
provided in its relevant respects that:
"Should the rental
not be paid on due date and remain unpaid for 14 days after written
notice has been given by the landlord
to the tenant requiring such
payment... the landlord shall be entitled... to cancel this lease
forthwith."
Clause 23, one thus sees,
did not stipulate that the notice should specify the period during
which the defaults had to be remedied.
All the notice was required to
contain was a demand that the defaults be remedied. The clause itself
then fixed the period for
compliance. The plaintiff was free to allow
the first defendant more time and, if it had chosen to do so in the
notice, it would
no doubt have been bound by the concession. But it
could not unilaterally reduce the period. The first defendant was
therefore
at liberty to disregard the addition to the notice which
purported to have that effect. Such surplusage did not however
invalidate
the rest of the notice (cf.
Minister
of Defence v Carlson
,
1971 (2) SA 231
(N) at
p. 236B - C). The demand stood and, as soon as the contractually
prescribed period passed without payment, clause 23 entitled
the
plaintiff to cancel the tenancy. (See
Chatrooghoon
v Desai and Others
,
1951 (4) S.A. 122
(N) at
pp. 127A - 128B;
Tangney and Others v Zive's
Trustee
,
1961 (1) S.A. 449
(W) at pp. 453F -
454B;
North Vaal Mineral Co. Ltd. v Lovasz
,
1961 (3) S.A. 604
(T) at pp. 606C - 607D;
Godbold
v Tomson
,
1970 (1) S.A. 61
(D) at p. 65A -
D).
[25] There was accordingly no
obligation on the applicant to have set out the dies agreed upon in
the lease agreements. It was sufficient
merely to mention the fact
that the respondent was in breach of the lease agreement and that it
was required to comply with its
contractual obligations contained in
the lease agreement. It had not done so.
[26] The respondent’s
representatives do not suggest that the payments for rental as
reflected in the lease agreements had
been made. They refer to a
set-off and a payment made to Mercantile Bank Limited without showing
that these figures would have
satisfied the outstanding rentals. They
make no attempt to explain the non-payment of the second demand
notice.
[27] In all the circumstances there is
no defence to the applicant’s claim for ejectment. I
accordingly grant the following
order :
Lee Metals CC (‘the
respondent’) is directed, within three days of the service of
this order by the Sheriff to vacate
the premises described as:
Erf 123 and Erf 309 (which are
notarially tied), Phoenix Industrial Park having the street
addresses 7 Vulcan Place and 22 Hunslett
Road, Phoenix Industrial
Park, Phoenix respectively;
Portion 19 (a portion of Portion 18
of Erf 1332 Durban) having the street address 20 Kent Road, Durban.
In the event that the respondent
fails to vacate any of those properties within three days of the
service of this order upon it,
the Sheriff of this court is
authorised and directed to take all such steps as may be necessary
to eject the respondent from
such of the properties as the
respondent has failed to vacate.
(c) The respondent is directed to pay
the costs of this application.
Date of hearing : 25
th
June
2012
Date of judgment : 6
th
July
2012
Counsel for the Applicant : A W M
Harcourt SC (instructed by Edward Nathan Sonnenbergs)
Counsel for the Respondent : D G
Tobias (instructed by L Pillay Attorneys)