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[2008] ZAWCHC 219
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Klopper NO v Master of the High Court (2475/2008) [2008] ZAWCHC 219 (13 June 2008)
JUDGMENT
IN
THE SUPREME COURT OF SOUTH AFRICA
(CAPE
OF GOOD HOPE PROVINCIAL DIVISION)
CASE
NO
:
2475/2008
DATE
:
13
JUNE 2008
In
the matter between:
JOHANNES
FREDERICK KLOPPER N.O.
AppEicant
and
THE
MASTER OF THE HIGH COURT
Respondent
JUDGMENT
THRING,
J:
The
applicant in this matter, who is an insolvency practioner of some 25
years' standing, is the duly appointed liquidator of the
Green
Medicine Company (Pty) Ltd (to which I shall refer as "the
company"). The company was placed under a provisional
winding-up
order on the 22
nd
May, 2002. The order was made final on the 2
nd
July, 2002. The applicant seeks to have reviewed and set aside the
decision of the Master, which was taken on the 18
th
June, 2007, not to allow him as liquidator's remuneration an amount
exceeding that prescribed in the applicable tariff. The applicant
seeks an order fixing his remuneration at an amount of R171
000 in his second liquidation and distribution account.
The
applicant contends that this will result in reasonable remuneration
for his services as is contemplated by section 384 of the
Companies
Act, No. 61 of 1973, At our insistence, notice of the application was
duly given by the applicant to two major creditors
of the company who
had objected to the fees reflected by the applicant in his second
liquidation and distribution account, namely
the South African
Revenue Service and Nedbank Ltd.
Two
liquidation and distribution accounts have been framed in this
matter. The first of these has been confirmed, and the other
not. The
first liquidation and distribution account was lodged with the Master
and was confirmed on the 3
rd
September,
2003. The applicant's remuneration of R308 222,02 before Value Added
Tax ("VAT") reflected therein was calculated
in accordance
with the applicable tariff. An amended second liquidation and
distribution account was subsequently lodged with the
Master on the
22
nd
August 2006. Remuneration totalling R150 000 before VAT is claimed by
the applicant in this account. Although the tariff remuneration
is
R23 257,13, an additional amount of R126 742,87 is claimed, yielding
an aggregate remuneration in the account of R150 000 before
VAT.
The
applicant contends that it is the reasonableness of his overall
remuneration for his services in attending to the company's
winding-up which must be considered. He contends further that, in the
light of various relevant factors, an aggregate liquidator's
remuneration in this matter of R458 222,02 for the applicant's
services since his provisional appointment on the 27
Eh
November, 2002, is reasonable. The applicant has used as a benchmark
the time spent on the administration of the affairs of the
company,
taking into account what he says are the reasonable charge-out rates
of the staff employed by him.
The
applicant submitted fuEl motivation to the Master on the 27
th
September, 2006 regarding his remuneration. On the 18
th
June,
2007, the Master, who is apparently a lady, responded in writing. She
said the folEowing:
"The
tariff as per the second Schedule, Tariff B of the Insolvency Act,
24/1936 read with CN104 of Companies Act, 61/1973 serves
as a point
of departure in the determination of appropriate liquidator's fees.
In order for the Master to exercise his/her discretion
whether to
increase or decrease the amount of remuneration arrived at by
application of the tariff, there should be "good
cause".
Factors to be considered but not limited to include complexity of the
matter, degree of difficulty encountered, amount
of work done, time
spent in discharge of duties. For purposes of your application I will
confine myself to the basis of your application.
Time spent on the
performance of normal duties of a liquidator includes but is not
limited to communication (telephonic, electronic
or by post) with
creditors or the Master, consultation with co-liquidators, respective
purchasers, former directors of the company,
drafting of liquidation
and distribution account or other duties in relation to account,
monitoring of bank accounts etc. These
items are covered by the
tariff and do not constitute extraordinary which merits an additional
discretionary fee.
Van
Heerden, AJA
found in
Nel
v The Master
2005(1}
SA 276 (SCA) that time spent in the rendering of service is, at the
very least, one of the tasks that may be taken into
consideration in
deciding whether "good cause" reduction or increase of
tariff remuneration. It is clearly not the only
factor to be
considered and may not be the most important factor. Remuneration
therefore must be according to the result attained.
Items as
indicated in the timesheets which you provided relates to the
performance of normal duties of a liquidator and no
relation
is made to an extraordinary work performed by you.
Therefore
your application for special fee is hereby disapproved and you are
hereby call upon to amend the account accordingly within
14 days from
date hereof".
The
applicant's case may be summarised as follows:
(a) His
duties as liquidator spanned more than four years, were complex,
difficult and time-consuming. The Master is prepared to
allow a
total tariff account of R331 479,15. Remuneration based purely on
time spent would amount to R599 963,33. The applicant
asserts,
however, that overall remuneration for his services of R458 222,02
would be reasonable.
(b) Had
the Master properly considered the matter and taken into account all
the relevant factors, she would have been driven to
the concrusion
that the applicant's tariff remuneration of R331 479,15 was not
reasonable and that there was thus good cause
to increase the
remuneration in accordance with section 384(2) of the Companies
Act.
(c)
The Court has the power to review the decision of the Master where it
is clearly wrong, and the Court is at large itself to
determine what
is reasonable remuneration for the applicant. Alternatively, the
Master's decision is reviewable in terms of
section 6(2)
of the
Promotion of Administrative Justice Act, No. 3 of 2000
.
In
terms of section 384(1) of the Companies Act, a liquidator is
entitled to reasonable remuneration for his services, to be taxed
by
the Master
in
accordance
with the prescribed tariff of remuneration. The tariff is contained
in Annexure CN104 to the winding-up regulations,
Regulation 24. This
in turn makes applicable Tariff B contained in the Second Schedule to
the
Insolvency Act, No. 24 of 1936
. The Master may reduce or increase
the tariff remuneration if, in his opinion, there is good cause for
doing so
in
accordance
with section 384(2} of the Companies Act. The section reads, in its
relevant parts:
°(1)
in
any
winding-up a liquidator shall be entitled to reasonable remuneration
for his services to be taxed by the Master in accordance
with the
prescribed tariff of remuneration...
(2)
The Master may reduce or increase such remuneratfon
if
in
his opinion there is good cause for doing so..."
The
tariff is, however, merely a guide to taxation of the liquidator's
remuneration. It is not to be regarded as embodying a full
statement
of the services which he may have to perform, or as constituting a
minimum or a maximum scale of remuneration, (See
Glaum
N.O. v The Master
.
1980(2) SA 600 (C) at 618C-F) The overriding consideration is that a
liquidator should receive reasonable remuneration for the
services
which he renders. The approach to be adopted by the Master in
determining whether the remuneration of the provisional
liquidator is
reasonable is described as follows in
Nel
& Another NNO v The Master (Absa Bank Ltd & Others
Intervening)
,
2005{1) SA 276 (SCA) at 284G:
"...the
Master, as a statutory functionary, is not free to choose whether or
not to tax the liquidator's remuneration - the
Master
must
tax in accordance with the tariff (section 384(1)), but having done
so,
may
reduce or increase the amount arrived at by applying the tariff if,
in his or her discretion, there is "good cause" to
do so.
The dominant provision in section 384(1) remains that the
remuneration to which a liquidator is entitled is
remuneration
for work or services rendered
not a set commission
and
that
it must be
reasonable
".
The
Court went on in that case at 284H-J to set out a two-stage approach
to be adopted by the Master, namely, (a) the taxation of
the bill in
question in accordance with the tariff and, thereafter, (b) the
exercise of a flexible discretion to either increase
or decrease the
amount of remuneration arrived at by the application of the tariff if
"good cause" exists for so doing.
Moreover, the Court held
in
Net's
case that the discretion vested in the Master by section 284(2) of
the Companies Act is a wide one {at 285A). The Court also said
at
285C-D:
"The
concept of "good cause" is very wide and there is nothing
in section 384 of the Act which indicates that it
should be
interpreted so as to exclude
any
factor which may be relevant in determining what constitutes
reasonable remuneration for a liquidator's services in the
circumstances
of each case". !f was held in
Nel's
case that the relevant factors in determining "good cause"
may include the following:
(a) the
complexity of the estate in question;
(b) the
degree of difficulty encountered by the liquidator in the
administration thereof;
(c) the
amount of work done by the liquidator;
(d) the
time spent by the liquidator in the discharge of his
duties.
What
emerges from the Nel case is that the Courts have moved away from a
commission-based system of remuneration for liquidators.
The
overriding consideration now is that reasonable remuneration must be
fixed. In determining what is reasonable, factors such
as the
complexity of the administration, the degree of difficulty, the
amount of work done and the amount of time spent are to
be considered
by the Master. If the application of the tariff does not result in
reasonable remuneration this amounts to "good
cause" to
increase or decrease the amount as is provided for in section 384(2)
of the Companies Act. The notion of so-called
"swings and
roundabouts', i.e. that liquidator's under-remuneration in smaller
estates may be compensated for by greater fees
in larger estates was
rejected in the
Nel
case at 294F-295A.
The
corollary of the rejection of the "swings and roundabouts"
principle is that, where the application of the tariff
under-remunerates a liquidator, the converse of the
NeE
case, the Master is obliged to tax a higher remuneration than the
tariff allows in order to arrive at remuneration which is reasonable.
In short, a liquidator's fee is no longer contingent what assets may
or may not be in the estate. The modern corporate environment
requires insolvency practioners to have the facilities and
professional staff to deal with substantial liquidations. This
entails
significant overhead structures, as the applicant has been at
pains in his papers to point out.
The
applicant has set out in his founding affidavit the services which he
has rendered in his administration of the winding-up of
the company.
His administration spanned a period of more than five years. The
winding-up was multi-faceted, complex and difficult.
Thus, the
applicant was required to deal with the South African Revenue Service
in complicated customs' issues concerning the company's
stock. The
South African Revenue Service asserted that it was entitled to seize
the company's goods in terms of section 88(1) of
the Customs &
Excise Act, No. 91 of 1964. Then, cross-border issues had to be
resolved with regard to the Australian suppliers
of the company's
specialised stock and the reservation of ownership which it claimed.
The Australian suppliers' position as a secured
creditor was
disputed. Objections by various creditors had to be dealt with. The
objections were sustained by the Master on the
20
th
June, 2005 and the applicant was directed to treat the Australian
suppliers' claim as concurrent. This led to the institution of
legal
proceedings against the applicant by the Australian suppliers in his
capacity as the liquidator of the company. These
proceedings were
instituted during June
2005.
After further negotiations the action was later withdrawn.
The
applicant also engaged in lengthy negotiations for the sale of the
company's stock and the Green Medicine trademark, both in
relation to
South African and Australian purchasers. The sale of the stock was
eventually concluded on the 8
lh
July, 2002. The applicant had to negotiate the release of a lien
which was claimed over the stock by a third party. This release
was
procured only after founding papers in an application to court had
been prepared. The company's book debts had been factored
to Nedbank
Ltd, and difficulties were experienced in relation to its claims
under the agreement. Negotiations were conducted with
the bank
regarding its advanced dividend.
The
Value Added Tax claims by the South African Revenue Service required
extensive investigation. The South African Revenue Service
asserted a
claim in this regard of some R3.9 million. The applicant also
convened an enquiry in terms of section 415 of the Companies
Act
between February and June, 2004 and considerable time was spent
analysing documents and records in this connection. Possible
offences
on the part of the former directors of the company were also
investigated and
their
potential
liability under section 424 of the Companies Act had to be
considered.
An
assessment of the time spent by the applicant on his administration
between the 28
th
May, 2002 and the 18
th
September,
2006, a period of over four years, at reasonable charge-out rates is
alleged to indicate a total remuneration on this
basis of R599
963,33, excluding VAT. Although a liquidator is under no obligation
to keep time records regarding the fulfilment
of his duties in
administering an estate, an estimate of the time spent will be
acceptable: see
Net's
case,
supra,
at
295B-G. The applicant has estimated the time he and his professional
staff spent on the administration from the time of his appointment
on
the 28
th
May, 2002 until the 3
rd
September,
2002. The remuneration for the total time spent based on aliegedly
reasonable charge-out rates, together with disbursements,
is averred
by the applicant to amount to R447 750. The applicant did not at that
stage keep detailed timesheets as he was not aware
that his
administration would be unduly protracted or that the remuneration
which he now claims would be put in issue.
In
his motivation to the Master on the 27
th
September, 2006 regarding his remuneration, the applicant annexed a
detailed record of the time spent by him and his staff between
the
5
th
September
2003 and the 18
th
September 2006. At allegedly reasonable charge-out rates this is
averred to amount to R152 213,33. The time-based total amount
of R599
963,33 is substantially greater than the overall remuneration of R458
222
h
02
now claimed by the applicant for his services. This is the sum of
R308 222,02 reflected in the first liquidation and distribution
account, and R150 000 claimed in the amended second liquidation and
distribution account. These figures are both net of VAT. The
time-based total of R599 966,33 is approximately 30.9% greater than
the total remuneration now claimed by the applicant.
The
Court
has
the power to review the taxation by the Master of a liquidator's
remuneration. This power is conferred by
section 151
of the
Insolvency Act, which
reads:
"...any
person aggrieved by any decision, ruling, order or taxation of the
Master may bring it under review by the court and
to that end may
apply to the court by motion after notice to the Master". The
statutory power of review in the present case
is wider than the
ordinary judicial review of administrative action, being the third
type of review identified by
Innes,
CJ
in
Johannesburg
Consolidated Investment Company v Johannesburg Town
Council
.
1903 TS 111
at 117 where the learned Judge stated that, on review, a
Court could:
"...enter
upon and decide the matter
de
novo.
It
possesses not only the powers of a court of review in the legal
sense, but it has the functions of a court of appeal with the
additional privileges of being able, after setting aside the decision
arrived at by the lower tribunal, to deal with the whole
matter upon
fresh evidence as a court of first instance".
(See,
also,
Nel
& Another NNO v The Master (Absa Bank Ltd & Others
intervening)
,
supra,
at
286C-288D. Thus the Court may receive new evidence and enter into and
decide the whole matter afresh. The Court has the powers
both of
appeal and review.
We
are of the view that the Master erred in her ruling of the 18
th
June, 2007, to the effect that the applicant's remuneration was to be
limited to the tariff. In this regard, although she accepted
that
factors such as the complexity of the matter, the degree of
difficulty, the amount of work done and the time spent by the
liquidator were to be taken into account, she erroneously dismissed
the applicant's detailed motivation by stating that the items
were
covered by the tariff, and that these related to what she called the
"normal duties of a liquidator". The tariff
does not refer
to the duties to be undertaken by a liquidator; it merely sets out
the percentages allowed as remuneration for
the liquidator on the
disposal of various classes of property. It does no more. The only
relevant consideration was whether the
application of the tariff
resulted in remuneration for the applicant which was reasonable when
measured against the various factors
mentioned. If it did not, this
amounted to good cause to increase the remuneration in accordance
with section 384(2) of the Companies
Act.
A
liquidator's administration is governed by the exigencies of each
particular case. A diligent liquidator will discharge the duties
imposed on him by law. The reason advanced by the Master that a
liquidator's remuneration must be determined by "the result
attained" is, in our view, a misdirection. To the extent that
this assertion can be given any content at all it is, at best,
irrelevant.
Although
the Court will usually be slow to interfere where the dispute
concerns the
quantum
of
a liquidator's fees, it will do so where the Master was clearly
wrong. (See
Nel's
case,
supra,
at
287B-288G and
President
of the Republic of South Africa & Others v Gautenq Lions Rugby
Union & Another
.
2002(2) SA 64 (CC) at 73C-F.
We
find, first, that the Master was wrong in her approach to the matter
and that lip-service only was paid to the relevant factors
which she
ought to have taken into account. Secondly, we find that there is a
material disparity between the remuneration which
ought to have been
allowed and that which the Master has allowed, based on the
application of the tariff. As I have said, the applicant
claims
substantially less than the amount calculated on a time basis alone.
That does not, of course, necessarily mean that the
amount of
remuneration claimed by the applicant is reasonable. It may or may
not be. However, we find that, in all the relevant
circumstances to
be reasonable the applicant's total remuneration must substantially
exceed the sum of R331 479,15 before VAT to
which the Master seeks to
limit it in terms of the applicable tariff.
In
the
Nel
case,
supra,
the
Court made no finding as to whether the applicants should have
formulated their grounds of review so as to bring them within
the
ambit of the grounds specified in
section 6(2)
of the
Promotion of
Administrative Justice Act. The
applicant in the present matter has,
nevertheless, relied in its founding papers on this section of that
Act in the alternative.
We
find that the reasons stated by the Master for her decision amount to
a misdirection and indicate that she was materially influenced
by an
error of law, that she took into account irrelevant considerations
and that she did not consider relevant considerations.
She also seems
to have acted arbitrarily, her decision was proportionately
unreasonable and the exercise of her discretion was
not according to
law. Having said that, we do not find that the Master was in any way
mala
fide
or
influenced by any improper or ulterior motive. She has at all times
acted in good faith in this matter: nor has the contrary
been alleged
by the applicant.
It
follows, in our judgment, that the relevant decision of the Master
must be set aside on review. However, it does not necessarily
follow
that we, sitting as a Court of review, should fix the applicant's
remuneration in the amended second liquidation and distribution
account at the amount claimed by the applicant (R150 GOO before VAT,
or R171 000 after the addition of VAT). This Court fs not
expert in
the practical
minutiae
of
the winding-up of companies, or familiar with the multitude of
administrative and other tasks which such work involves. The Master
and the applicant have far more expert knowledge of these matters
than we have.
The
precise determination of remuneration for the applicant which would
be reasonable in alt the relevant circumstances is, in this
case,
best left to the Master, in our view. We therefore do not propose
to embark in this matter on a minute
examination of
each item in respect of which the applicant claims to be entitled to
be remunerated. It may be that in other cases
situations may arise
where it will be both possible and desirable for a Court on review to
perform the function of the Master and
to fix the precise amount
which would represent reasonable remuneration for a liquidator. In
such cases, the Court would have to
be in as good a position, as the
Master was to make such a determination. Here, however, the Court is
not in such a position especially
in the light of the criticism of
certain items in respect of which remuneration is claimed by the
applicant which have given rise
to certain concerns to which I shall
presently advert.
There
are certain items in the applicant's daily timesheets which, on the
face of them, give us pause, even if only on a
prima
facie
view.
These include the three items which are specifically referred to in a
letter to the Master dated the 8
th
December,
2006, from one of the company's creditors, Nedbank Ltd, namely the
following; on the 18
th
March, 2004 there is an item in terms of which R3 240 is claimed by
the applicant for perusing a 36-page transcript of the proceedings
of
a section 415 enquiry, which would appear to represent a fee of R90
per page. Secondly, on the 14
th
June, 2004, remuneration of R46 500 is claimed for perusing a 155
page transcript of the proceedings of a section 415 enquiry at
what
seems to be R300 per page. Thirdly, on the 30
:ri
June, 2005, remuneration of R14 220 is claimed for perusing a summons
running to 79 pages at what would appear to be a rate of
R180 per
page. It may be that these and other items reflected in the
timesheets are reasonable. On the other hand, it may be that
they
will be found to be excessive on consideration by the Master. All
that we are able to say at this stage is that, on an overall
view of
the matter we are satisfied that reasonable remuneration for the
applicant will be considerably in excess of the aggregate
sum which
the Master has hitherto been prepared to allow, based on the
application of the tariff. The function of the Master in
taxing the
applicants remuneration in a matter such as this does not appear to
us to be materially different from that of a Taxing
Master taxing a
bill of legal costs (see
Nel's
case,
supra,
at
288F-G).
For
these reasons the following order is made:
1.
The decision of the respondent taken on the 18
[h
June, 2007 not to tax the applicant's remuneration otherwise than
according to Tariff B of the Second Schedule to the
Insolvency Act,
No. 24 of 1936
, read with form CN104 of the Companies Act, No. 61
of 1973, is set aside.
2. The
matter is referred back to the respondent for her reconsideration,
bearing in mind what has been said in this judgment,
it being found
that in terms of section 384(2) of the Companies Act, good cause
exists for remuneration to be awarded to the
applicant in excess of
the amount arrived at solely by applying the provisions of the said
tariff.
3. No
order is made as to the costs of this application.
THRING,
J
BOZALEK,
J
:
I agree.
BOZALEK,
J