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2001
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[2001] ZAWCHC 3
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Terblanche and Others v Damji and Another (7895/2000) [2001] ZAWCHC 3; 2003 (5) SA 489 (C) (11 September 2001)
IN THE
HIGH COURT OF SOUTH AFRICA
(CAPE OF
GOOD HOPE PROVINCIAL DIVISION)
Case
Number:
7895/2000
In the matter between:
HELGARD MULLER MEIRING
TERBLANCHE First Applicant
MULLER TERBLANCHE
TRUSTEES (PTY) LTD Second Applicant
ABSA BANK
(PTY) Third Applicant
v
FARAH DAMJI
First Respondent
EILEEN MARGARET FEY
N.O. Second Respondent
(In her capacity as
liquidator of
OFFSHORE DESIGN
COMPANY (PTY) LTD)
JUDGMENT
DELIVERED ON 11 SEPTEMBER 2001
Knoll J:
This is an opposed
application brought in terms of the provisions of section 424 of the
Companies Act No 61 of 1973 (hereinafter
referred to as “the
Act”).
The relevant portions of
section 424 (1) and (2) (a) of the Act read as follows:-
“
When
it appears, whether it be in a winding-up, judicial management or
otherwise, that any business of the company was or is being
carried
on recklessly or with intent to defraud creditors of the company or
creditors of any other person or for any fraudulent
purpose, the
Court may, on the application of the Master, the liquidator, the
judicial manager, any creditor or member or contributory
of the
company, declare that any person who was knowingly a party to the
carrying on of the business in the manner aforesaid, shall
be
personally responsible, without any limitation of liability, for all
or any of the debts or other liabilities of the company
as the Court
may direct.
2a) Where the
court makes any such declaration, it may give such further directions
as it thinks
proper for the purpose of giving effect to the
declaration, and in particular may make provision for making the
liability of any
such person under the declaration a charge on any
debt or obligation due from the company to him...”
The applicants seek the
following orders:-
a)
That the first respondent be declared to be
personally responsible for all the liabilities of Offshore Design
Company (Pty) Ltd
(in liquidation), (hereinafter referred to as “the
company”), alternatively, for those liabilities of the company
to
first, second and third applicants.
b)
In terms of section 424 (2) (a), that it be
directed that such personal liability be a charge on any debt or
obligation due from
the company to the first respondent.
c)
That the costs of this application be costs in
the liquidation of the company, alternatively that the first
respondent pay them
on an attorney/client scale.
d)
Further and/or alternative relief.
In
the founding affidavit, deposed to by first applicant, he describes
himself as a business man and liquidator. He is the
managing
director and sole shareholder of second applicant. He alleges
that he is authorised, on behalf of second applicant,
to launch this
application. First applicant alleges that he receives any
appointments as a liquidator of companies in his personal
capacity.
Any duties which he carries out in that capacity are as a liquidator
nomine officio
. Second applicant does not receive such
appointments but is the administrative vehicle through which first
applicant receives
such appointments, with the approval and knowledge
of the Master. It is alleged that this is the practice followed
by most
liquidators. Third applicant is a bank and there is an
affidavit confirming first applicant’s affidavit, insofar as
it
is applicable to third applicant.
The first respondent is
sued because she was the sole shareholder and director of the company
at all material times.
The second respondent is
cited in her capacity as liquidator of the company and no relief is
sought against her. Second respondent
has not opposed the
application.
The
background to the matter is essentially common cause. On the
2nd of March 1999 the company was duly registered as
“
Rowmoor
Investments No 182 (Pty) Ltd
”. Its name was changed
on the 3rd of December 1999 to Offshore Design Company (Pty)
Ltd. First respondent
was the sole director of the company from
the 14th of June 1999.
On
the 10th of December 1999 a provisional liquidation order was
sought and granted in the former name of the company. (Hereinafter
referred to as “the first liquidation”). The first
liquidation was at the instance of first respondent, brought
by way
of a special resolution of the company signed by her as sole member.
On the 14th of December 1999 the first applicant
was appointed
as the provisional liquidator in the first liquidation. He
decided to continue running the business of the
company and certain
transactions were concluded during the period of its provisional
liquidation. On the 16th of March
2000 the provisional
liquidation order was discharged.
On
the 17th of August 2000 the three applicants in this application
sought the winding up of the company. The application
was
opposed by the first respondent. On the 5th of September
2000 the company was provisionally wound up by Van Reenen
J.
This provisional order was made final on the 11th of October
2000. (Hereinafter referred to as “the second
liquidation”). The second respondent was appointed as the
liquidator in the second liquidation.
The applicants allege
that the amount of R 34 402.00 is due and owing to first
applicant and/or second applicant and the amount
of R 213 400.00 to
the third applicant and/or the first applicant by the company.
The applicants allege
that the first respondent knowingly carried on the business of the
company recklessly and/or with the intention
to defraud its creditors
and/or creditors of applicants and/or with a fraudulent purpose.
They base their
allegations on a number of alleged acts of, and transactions
concluded by, first respondent related to the business
of the
company. These acts and transactions may conveniently be
compartmentalised as follows:-
e)
During November 1999, the fraudulent alteration
of the amount payable on a cheque made out to the company;
f)
The application by the first respondent for the
first provisional liquidation of the company;
g)
During March 2000 the unauthorised, allegedly
fraudulent, payment to Robfar Trust of three cheques made out by
first applicant to
creditors of the company while the company was
under the first provisional liquidation.
h)
From ± January to April 2000 a series of
fraudulent credit card transactions on credit card facilities granted
by third applicant.
i)
Certain transactions concluded from January to
March 2000 i.e. the sale of the first respondent’s shareholding
in the company
in liquidation, the sale of the business of the
company and the sale of certain assets, ostensibly belonging to first
respondent,
in her personal capacity.
j)
The first respondent’s opposition to the
second liquidation application.
First
respondent disputes the allegations of the applicants that she so
carried on business and raises a number of disputes relevant
to each
of the aforesaid transactions. First respondent has also raised
points
in limine, inter alia
, denying this court’s
jurisdiction to hear the matter; disputing the applicants’
locus standi
and submitting that certain parts of the
applicant’s founding affidavit be struck out.
Mr Mouton, who acted on
behalf of the applicants, made application at the outset of the
hearing for a separation of the issues in
terms of Rule 33 (4) of the
Uniform Rules of Court. He requested that this court order that
the issues be separated as follows:-
k)
That all issues relevant to the alleged
fraudulent credit card transactions be stayed; and
b) That
this court decide whether the applicants are entitled to the relief
claimed
only on the basis of all the aforesaid acts or transactions,
excluding the credit card transactions.
l)
That, should this court conclude that disputes
of fact in the affidavits with regard to all or any of the
transactions, excluding
the credit card transactions, do not allow of
final relief on the papers, that the whole case should be sent to
oral evidence.
m)
That, should this court find that the applicants
are not entitled to any relief on the basis of all or any of the
alleged transactions,
excluding the credit card transactions, then
the issue relating only to the credit card transactions should be
referred to oral
evidence.
Mr Hitchcock, who acted
on behalf of first respondent left the decision in this regard in the
hands of the court.
The application for
separation of the issues as set out above was granted and the issues
duly separated. I indicated that
reasons would follow. I
now briefly give reasons for this decision.
Rule 33 (4) provides that
on the application of any party in any pending action, a court shall
make an order that a question of
law or fact may be decided
separately from any other question and may order that all further
proceedings be stayed until such question
has been disposed of unless
it appears that such question cannot conveniently be decided
separately.
Mr
Mouton submitted that it would be convenient to remove the credit
card transaction allegations from the issues and decide the
matter on
the remaining transactions. He submitted that the applicants
were entitled to the relief claimed on the basis of
the remaining
transactions. Furthermore, he submitted that the matters raised
in limine
relevant to the whole matter, or only the remaining
transactions, could conveniently be disposed of at this stage of the
proceedings.
The
allegations of fraud with regard to the credit card transactions are
in dispute. The disputes are factual and, in my
prima facie
view, would have required referral to oral evidence. Oral evidence
would involve considerable costs and inconvenience to the parties,
particularly since the first respondent no longer resides in South
Africa.
A
number of the points raised
in limine
relate to problems
and/or
lacunae
in the applicants’ founding papers, which
the applicants attempted to resolve in reply, as also by way of an
application
to supplement their papers. Some of these points were
relevant only to the allegation by the applicants that first
respondent had
been the author of a number of fraudulent credit card
transactions. In addition, the application to supplement
applicants’
papers might well have necessitated a postponement
of the matter. The supplementation was relevant only to the
factual issues
with regard to the allegations of credit card
transaction fraud by first respondent.
I was of the view that,
if Mr Mouton were correct in his contention that the applicants were
entitled to the relief claimed on the
remaining transactions,
considerable extra costs and inconvenience would be avoided.
The matter might also be disposed of
by the points raised in limine.
It was my view that it would be convenient both to the court and the
parties should the application
be granted.
The applicants’
locus standi is placed in issue on the papers. It was
also alleged on the papers that certain
matters should be struck out
of the founding affidavit. These points were not pursued by Mr
Hitchcock in argument.
He conceded there was no foundation for
the allegations that certain matters should be struck out.
Even
though Mr Hitchcock did not pursue the disputed
locus standi
in argument, I have, in any event, considered the applicants’
locus standi.
First
applicant makes the allegation that the company is indebted to him
and/or the second applicant in the amount of R34 402,00
and to
himself and/or the third applicant in the amount of R213 400,00.
The applicants refer, in substantiation of this allegation,
to the
judgment of Van Reenen J annexed to the papers in the second
liquidation application. Van Reenen J refers to written
undertakings to pay the third applicant the amount of R213 400,00 and
the first and/or second applicant the amount of R26 402,00.
It
was found by Van Reenen J that the respondent’s instructions to
her attorneys to address these written undertakings to
the applicants
constitute clear acknowledgements of the company’s indebtedness
to the applicants and accordingly their
locus standi
to have
brought the liquidation application. In reply to these
allegations the respondent denies the indebtedness by the
company to
the applicants and their
locus standi
. Applicants have, in
reply, filed an affidavit from Adv. Mihalik, who appeared for
the first respondent in the second liquidation
application. To this
affidavit are annexed certain papers which were handed up during the
hearing of the second liquidation application.
Amongst these papers are the copies of the written undertakings to
pay the said amounts. I agree with Van Reenen J that these documents
constitute clear acknowledgements of the company’s indebtedness
to first and/or second and third applicants. The respondent
has
not disputed the existence of these acknowledgements of debt or their
correctness.
Other
than a bare denial of indebtedness the first respondent fails to deal
with the acknowledgements of debt at all. In my
view, this
denial is insufficient to raise a real, genuine and
bona fide
dispute of fact. [
Room Hire Co (Pty) Ltd v Jeppe Street Mansions
(Pty) Ltd
1949 (3) SA 1155
(T) at 1165
].
I
am satisfied on all the papers that the applicants are creditors of
the company in liquidation, at least, in the amounts of R26
402,00
and R213 400,00 as indicated, and accordingly that they have the
locus standi
to bring this application.
The issues which this
court is now required to decide are the following:-
1)
In limine
-
a)
Whether this court has jurisdiction to hear the matter;
b)
Whether with regard to the alleged transactions, excluding the credit
card transactions,
there are disputes of fact raised which disentitle
the applicant to final relief on the papers and/or which require
referral to
oral evidence.
n)
Merits
-
The
issue on the merits is whether the applicants are entitled to the
relief sought on the basis of all or any of the allegations
on the
papers, excluding the credit card transactions.
Jurisdiction
-
Section
19 (1) (a) of the Supreme Court Act No 59 of 1959 provides,
inter
alia
, that this court shall have jurisdiction over all
persons residing in its area of jurisdiction. The time for
determining
the jurisdiction of the court to entertain an action, is
the time of the commencement of the action. (
Thermo Radiant
Oven Sales (Pty) Ltd v Nelspruit Bakeries (Pty) Ltd
1969 (2) SA 295
(A) at 310 D to E
). Both counsel were
ad idem
that
the time when an application is regarded as having been instituted,
for the purposes of jurisdiction, is when the application
papers are
served. I agree with them that this is the correct time
to determine jurisdiction. (
Mills v Starwell Finance (Pty)
Ltd
1981 (3) SA 84
(N)
;
Ex Parte Minister of Native Affairs
1941 AD 53
at 58-59
;
Mayne v Main
2001 (2) SA 1239
(SCA) at
1243 C
). First respondent disputes that she was resident in
the area of jurisdiction of this court at the time of the service of
the application papers.
The
onus of establishing jurisdiction based on the respondent’s
residence rests on the applicants. (
Mayne v Main (
supra
)
at 1242 H
).
The
application papers were served personally on the first respondent on
the 30th of
October 2000 at no. 5
Mimosa Court, 279 Beach Road, Sea Point, Cape. Applicants
allege in the founding papers that first respondent
resided at that
address.
It
is common cause that first respondent was at all material times a
British citizen. It is not disputed that on the
30th of
October 2000, the first respondent was staying at the aforementioned
address. She admits in her opposing papers
that she was
“
resident
” at the above address on the
24th October 2000, that is the date on which first applicant
signed the founding affidavit.
This admission is made
“
subject to what is stated in sub-paragraph 20.2 below”
.
One looks in vain for paragraph 20.2 below. Assumedly, the
intention is to refer to 14.2. Paragraph 14.2 reads
as
follows:-
“
On
the aforesaid date I had already made all necessary arrangements to
travel to my residence in the United Kingdom pursuant to
the sentence
of the Regional Court, Cape Town (annexure “MT18" to
Terblanche’s founding affidavit)”.
It
is common cause that on the 8th of August 2000 the first
respondent was charged with, and convicted of, nine counts of fraud
in the Magistrates Court for the district of Cape Town. On each
of the nine counts she was sentenced to a fine or six months
imprisonment and, in addition, a further six months imprisonment was
suspended for five years on certain conditions,
inter alia
,
“
that accused leave South Africa on or before the 31st of
October 2000 and does not return
.”
The respondent makes the
allegation that to the knowledge of the applicants she neither
resided, nor was domiciled within the area
of jurisdiction of this
court on the date that the application was launched. She said
she was on the verge of departing from
South Africa in order to
return to the United Kingdom pursuant to the said sentence. She
had applied for, and received, an
extension, until the end of
November 2000, of the date set by the magistrate for her departure.
She stated that in terms
of the aforesaid sentence she was obliged to
depart and was not permitted to return. She therefore did not
have the intention,
after her departure, of ever returning to South
Africa. Mr Hitchcock submitted that because the first
respondent was on the
verge of departure from South Africa, she was
no longer residing here for the purposes of jurisdiction. He
argued that she
was only temporarily present within the jurisdiction
of the court. Mr Mouton contended that although she
intended to
depart from South Africa permanently, she had not yet
done so and consequently she still resided here.
In
the matter of
Mayne v Main (
supra
)
the
Supreme Court of Appeal again approved the basic principles which
govern a matter such as this one, as set out in
Ex parte Minister
of Native Affairs (
supra
)
. The
principles are summarised as follows at page 1243 A to E:-
“(1) In giving
a court statutory jurisdiction over a person who resides in
its area
the Legislature has simply followed the common law rule
actor
sequitur forum rei
..;
o)
The question is
not one of
domicile
but
of residence. A defendant may have his
domicile
at
one place and his residence for the time being at another..;
p)
A
person can have more than one residence. Where that is the case
he (or she) must be sued in the court having jurisdiction
at the
place where he is residing at the time when the summons is served..;
q)
A
person can not be said to reside at a place where he is temporarily
visiting. Nor does a person cease to reside at a place
even
though he may be temporarily absent on certain occasions and for
short periods..;
r)
Apart from
the above, the Courts have studiously refrained from
attempting ‘
the
impossible task’
of
giving a precise or exhaustive definition of the word
‘resides’
.
Whether a person resides at a particular place at any given time
depends upon all the circumstances of the case seen in
the light of
the applicable general principles.. .”
In addition to these
principles, the Supreme Court of Appeal held the following:-
s)
That although a person may have more than one
residence for the purposes of jurisdiction, a person can only be
residing in one place
at any given moment (p 1243 F).
t)
That
for the purposes of jurisdiction our courts do not recognise the
concept of a
vagabundus
.
A person must reside somewhere (page 1249 B).
u)
A person’s intention is not necessarily
conclusive. The objective facts must be looked to to decide the
question of
factual residence. (1248 I to J)
With regard to the
question of the meaning of residence, the Supreme Court of Appeal (at
1243 F to I) approved of three definitions
of residence as being
amongst the more appropriate definitions thereof. They are the
following:-
a)
“
It has never been layed down what degree of permanence is
required in residence; but at all events it ought to be shown that
the
person sought to be brought within the jurisdiction had some
interest in the place which he was served, in the sense that there
was some good reason for regarding it as his place of ordinary
habitation at the date of service
.” (
Hogsett v Buys
1913
CPD 2000
at page 205)
.
v)
“
(w)hen
it is said of an individual that he resides at a place it is
obviously meant that it is his home, his place of abode, the
place
where he generally sleeps after the work of the day is done
.”
(
Beedle
and Co. v Bowley
(1895) 12 SC 401
at 403
).
w)
Residence
“
conveys...some
sense of stability or something of a settled nature
.”
(
Tick
v Broude and Another
1973 (1) SA 462
(T) at 469 F to G
).
Applying these principles
to the facts of this case, it is my view, for the reasons set out
hereunder, that at the time of
the service of the application
papers the first respondent was resident at 5 Mimosa Court, Beach
Road, Sea Point as alleged by
the applicants.
Although
it is not apparent from the papers how long the respondent had been
resident in Cape Town, it is apparent that she had
been involved in
the running of the company in South Africa from at least 1999.
In June of 2000 the applicants brought a
certain application against
the first respondent in the Magistrate’s Court. The
papers in this application are annexed
to the first respondent’s
papers. In that application she deposed to an affidavit, dated
the 3rd of July 2000,
in which she admitted to being resident at
Mimosa Court, Beach Road, Cape Town. In that affidavit she
stated the following:-
“
I
have no intention of leaving the country, have family in the Republic
of South Africa and are permanently employed by Chartrade
32 CC t/a
Offshore Trading Company, 9-11 Regent Road, Sea Point.”
This statement was made
in reply to an averment by the applicants that the first respondent
might leave the country at any stage
because she is a British citizen
with a British passport.
It
is clear that before she was convicted of fraud, the first respondent
resided at Mimosa Court, Beach Road, Sea Point and had
no intention
of leaving South Africa. In addition, in her opposing affidavit
in the current application she admitted that,
as at the 24th of
October 2000, after she was found guilty of fraud, and the relevant
condition of suspension was imposed
on her as part of her sentence,
she was resident at Mimosa Court in Sea Point. She does not
allege that as at the date
of service of the papers she had moved
from this address.
It
is apparent that at the time of the service of this application,
Mimosa Court in Sea Point was the place of the first respondent’s
“ordinary habitation”. Although this situation was to be
changed, at that stage no physical change had yet taken place,
even
if she had made arrangements to return to London and set up residence
there. In my view, she had not yet established
residence
in London. Thus in this case, in my view, although her presence
in Sea Point was not “
of a settled or permanent nature
”,
indeed her permanent departure was imminent, it was nevertheless her
home at the time.
In
my view, the following words of Milne JP in
Klisser v McGovern
1963 (4) SA 483
(N) at 487 C to D
are appropriate to this case.
On the facts of that case it was held that the residence of the
particular respondent in South
Africa constituted him an
incola
.
The learned judge took the following view:-
“I take the view, further, that if his residence in this
country had such a character of permanency in a sufficient degree
to
make him an
i
ncola
,
he does not cease to be an incola, or a person who is resident in
this country, merely because he declares his intention of terminating
his residence at an early date.
Ex
hypothesi
it
has not been terminated, there has merely been a declaration of
intention to terminate it.”
Mr
Mouton referred me to the matter of
Becker v Forster; Karsten v
Forster
1913 CPD 962
. The facts of that case showed that
the defendants, who had resided at Brandfort and Bloemfontein
respectively, had abandoned
those residences and were on their way to
settle on certain erven at Waterkloof in the district of
Phillipolus. They intended
to go and reside there. Before
taking up residence there, however, they had stayed at a farm called,
Dwarsbalk, in the district
of Colesberg. Their time of residence at
Dwarsbalk was a matter of six weeks. Despite the fact that the
six week residence
was intended to be only of a temporary nature, the
fact that they had abandoned their earlier residences and had not yet
taken
up their new residence at Waterkloof, meant that they were
actually and ostensibly residing within the Colesberg area at the
time
of the proceedings and that the local Magistrate had
jurisdiction over them.
Mr
Mouton drew an analogy with the facts here in the sense that although
first respondent’s residence in Sea Point was not
of a
permanent and settled nature and she had the intention to leave
shortly after the application papers were served on her, that
was the
only residence which she had at the time of such service. She
had not yet taken up her new residence in London.
I agree with
Mr Mouton that the facts are analogous. Our law does not
recognise a
vagabundus
. The first respondent must have
been resident somewhere. The only place where she was actually
and ostensibly residing
at the time of the service of the application
was Sea Point.
Accordingly it is my
finding that this court has jurisdiction to entertain this
application.
Factual
disputes
.
I now turn to the issue
of whether there are factual disputes on the papers of a nature which
precludes final relief and/or requires
referral to oral evidence.
The
principles to be applied in the determination of this issue are as
set out in the
locus classicus
on this issue,
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634
E to 635 C
.
“
It
is correct that, where in proceedings on notice of motion disputes of
fact have arisen on the affidavits, a final order, whether
it be an
interdict or some other form of relief, may be granted if those facts
averred in the applicant’s affidavits which
have been admitted
by the respondent, together with the facts alleged by the respondent,
justify such an order. The power
of the Court to give such
final relief on the papers before it is, however, not confined to
such a situation. In certain
instances the denial by respondent
of a fact alleged by the applicant may not be such as to raise a
real, genuine or bona fide
dispute of fact (see in this regard
Room
Hire Co (Pty) Ltd v Jeppe Street Mansions (Pty) Ltd
1949 (3) SA 1155
(T) at 1163-5
;
Da
Mata v Otto NO
1972 (3) SA 858
(A) at 882D - H
).
If in such a case the respondent has not availed himself of his right
to apply for the deponents concerned to be called
for cross
examination under rule 6 (5) (g) of the Uniform Rules of Court...and
the Court is satisfied as to the inherent credibility
of the
applicant’s factual averment, it may proceed on the basis of
the correctness thereof and include this fact among those
upon which
it determines whether the applicant is entitled to the final relief
which he seeks...Moreover, there may be exceptions
to this general
rule, as, for example, where the allegations or denials of the
respondent are so far-fetched or clearly untenable
that the Court is
justified in rejecting them merely on the papers... .”
(
At
634 H to C
).
Mr
Mouton submitted that the disputes of fact raised by the respondent
on each of the transactions on which the applicants rely
for relief
are either not real, genuine or
bona fide
disputes of fact and
that the applicant’s statements are so inherently credible that
they may be accepted, or that the allegations
or denials of
respondent in these regards are clearly untenable. Mr
Hitchcock, on the other hand, submitted that this was
not a case
where the court could resolve the disputes of fact on the papers.
I shall deal with the
disputes raised with regard to each transaction seriatim, as
compartmentalised above.
x)
The
alleged fraudulent alteration of a cheque
.
As indicated above, it is
common cause that the first respondent was convicted of 9 counts of
fraud. Copies of the charge
sheet, first respondent’s
written statement in terms of section 112 (2) of Act 51 of 1977; her
conviction and sentence are
annexed to the applicant’s papers.
The allegations in count
9 were that, during November 1999, the first respondent fraudulently
altered the amount payable on a cheque
drawn by one, Janet Salt, and
payable to the company; the alteration was from R1 725 to R11 725;
and this cheque was fraudulently
presented to the ABSA Bank, Sea
Point by first respondent.
The relevant sections of
first respondent’s plea statement with regard to this count
read as follows:-
“
I
wish to come clean and plead guilty to all the charges...
Ad Charge 9
I admit that during November 1999 at Offshore Trading
Sea Point I presented to ABSA Sea Point a cheque in the amount of R11
725.00,
knowing that I was only entitled to an amount of R1 725.00.
I put the one (1) in front of the 1 725.00 and as such committed
fraud.”
In her opposing affidavit
in the instant case, the first respondent admits the charge,
conviction and sentence as well as her plea
and plea statement.
However, she alleges the following:-
“
46.2
..... it is necessary to place the aforesaid allegations in context
as it cannot be viewed in a vacuum. By 8 August
2000 I had been
embroiled in litigation and negotiation of more than one year with
the Director for Public Prosecutions and the
Department of Home
Affairs. I had also been embroiled in constant conflict with
Terblanche. I was involved in a host
of civil actions and was
involved in numerous disputes with Genesis Consulting.
Furthermore I was embroiled in civil actions
with an ex-boyfriend.
46.3 At the time of drafting
the plea I had already spent four nights incarcerated at Sea Point
Police cells
and would frankly have agreed to anything just to be
able to go home. I had no idea as to the threat of liquidation
or how
a plea of guilty would actually affect me in any tangible
way. My counsel asked me whether I would be prepared to plead
guilty
and if I wanted to stay in South Africa. At that point I
had no wish to remain in the Republic of South Africa and could not
see how it would affect me personally, or otherwise, in any way
whatsoever to plead guilty to these charges. If the true
position was explained to me, I would have been in a position to
consider pleading not guilty and making application for bail.”
I agree with Mr Mouton’s
submission that it is significant that nowhere in the first
respondent’s opposing affidavit
does she state that she is, in
fact, not guilty of count 9. Her reply to the applicant’s
allegations in this regard,
in my view, does no more than suggest
that, at the time of the plea of guilty, she did not fully appreciate
the ramifications of
a conviction following on such plea. She
then states that had she been aware of the ramifications, she would
have considered
pleading not guilty. Mr Hitchcock submitted
that a denial of guilt is implicit in her statements. I do not
agree with
Mr Hitchcock. In my view, all that is implied by her
statements is that she would not have pleaded guilty had she been
aware of
the consequences that have now occurred. In my view,
her statements in this regard leave the impression of evasiveness.
“Enough must be stated by respondent to enable the court ... to
conduct a preliminary examination of the position and
ascertain
whether the denials are not fictitious, intended merely to delay the
hearing. The respondent’s affidavits
must at least
disclose that there are material issues in which there is a
bona
fide
dispute
of fact capable of being decided only after
viva
voce
evidence
has been heard.”
(
Room
Hire Co (Pty) Ltd v Jeppe Street Mansions (Pty) Ltd (
supra
)
at 1165
).
The
respondent has admitted to pleading guilty in a court of law to
fraudulently altering a cheque and presenting it for a greater
amount
than it was made out for. Vague suggestions of compulsion to
plead guilty unaccompanied by an assertive statement
denying actual
guilt on count 9 are in my view insufficient to raise a real, genuine
and
bona fide
dispute of fact. I find, accordingly, that
the applicants’ allegations in this regard may be accepted.
y)
The first liquidation
The following allegations
were not in dispute:-
z)
That in her founding papers in the first
liquidation, first respondent did not disclose:-
i)
The company’s name change; and
ii) The
fact that the company owned an immovable property, erf 547 Bantry Bay
in
the Cape, the nett value of which persuaded first applicant to
continue trading to bridge what he regarded as temporary cash flow
problems.
iii) That the
company’s assets exceeded its liabilities;
aa)
The first liquidation was launched to ward off a
sale in execution of certain movable assets seized by the Sheriff in
execution
of a judgment against first respondent in her personal
capacity.
In her affidavit founding
the application for liquidation, first respondent alleged that the
attached goods belonged to the company
and that she had brought
interpleader proceedings but, because of her absence at the hearing,
despite the fact that she had
informed the relevant parties in
advance that she could not attend the hearing, it went ahead and the
company’s claim to
the goods was dismissed. She stated
that the creditors would be severely prejudiced as the goods attached
were ordered by
customers, and some paid for. New items would
have to be manufactured for these clients at extra cost to the
company.
She stated that the company was not in a financial
position to take further action, and that because of her foreign
nationality
she could not raise any loans. She proposed that a
liquidator should be appointed as a matter of urgency to consider
what steps
to take to recover the company’s goods.
In the instant
application, first respondent gives the following explanation for her
failure to disclose the company’s name
change and the immovable
property in the first liquidation application. She states that
she handed all the relevant documentation,
including the change of
name to her erstwhile attorney, de Rooy. She alleges that it
was on his advice that she moved for
the liquidation of the company,
which she was reluctant to do. Her counsel, according to her,
advised against liquidation,
but de Rooy insisted that it was the
only solution to the company’s problems. De Rooy
suggested the first applicant
as liquidator, and it is common cause
that the first applicant met with the first respondent prior to the
liquidation application.
First respondent alleges
that she expected de Rooy to have disclosed the name change and
furthermore that:-
“At the very first meeting with Terblanche
(first
applicant)
I
disclosed the company’s assets, including the immovable
property and I believed that counsel, who drafted the founding
affidavit, would have disclosed this in the papers.”
The allegations that she
disclosed the property to first applicant prior to liquidation are
denied in reply. First applicant
avers that he only became
aware of it after the liquidation. De Rooy, in reply, is silent
as to the property, but denies
that he or counsel were informed of
the name change prior to the application. Furthermore, he
denies that he advised first
respondent to proceed with the
liquidation. He avers that his advice was to the contrary.
The disputes on this
issue, in my view, are factual disputes which it is not possible to
decide without oral evidence. I cannot
agree with Mr Mouton
that there is room for a finding on these disputes that they are not
real and genuine or are completely untenable.
In regard to this
transaction therefore, I find only the facts which are admitted by,
together with the facts alleged by, first
respondent may be had
regard to.
bb)
The
three cheques paid to Robfar Trust
.
It
is common cause that, on the 15th of March 2000, three cheques
made out to three creditors, and drawn on the company in
provisional
liquidation’s account were handed to first respondent by first
applicant.
It is, furthermore,
common cause that the first respondent paid all three cheques into
the account of Robfar Trust, of which Trust
she is a trustee.
Furthermore, it is not disputed that she endorsed one of the
cheques.
The disputes as to these
transactions are the following:-
cc)
The first applicant averred that the three
cheques were handed over to the first respondent with the express
instruction to pay
them to the three creditors concerned. The
numbers in first respondent’s affidavits which refer to
paragraphs of applicants
affidavits at this point do not follow
consecutively. It is therefore not apparent whether this
averment is denied or admitted.
However, in my view, when first
respondent’s averments in regard to the cheques are had regard
to, it is clear that there
is no real and genuine dispute of fact
about this allegation.
dd)
First applicant avers that after the cheques had
been handed to first respondent, each of the three creditors came to
his offices
asking for payment of the amounts owed them. First
applicant informed them that first respondent had the cheques.
The
creditors requested payment from him because they did not want
to travel to Sea Point. First applicant then telephoned
first
respondent and advised her of this development. First
respondent undertook, at his request, to return the three cheques.
He accordingly paid the creditors with other cheques. All these
allegations are denied by first respondent.
ee)
First respondent avers that she paid all three
creditors with cheques from the Robfar Trust. This is denied by
the first applicant
in reply and three affidavits of persons
representing the aforesaid creditors are annexed confirming first
applicant’s allegations
in the founding papers with regard to
payment by him to them with company cheques. All three
affidavits state that
the creditors had not received payment by way
of cheques from Robfar Trust. In reply, applicants annex a
further affidavit
from one, Dale Irvine, allegedly the first
respondent’s co-trustee in Robfar Trust. He states that
he was unaware of
any attempts by the first respondent to draw funds
on the trust to pay the said creditors.
ff)
First applicant avers that the payment into
Robfar Trust by the first respondent was fraudulent. This is
denied. First
respondent gives the following explanation for
the payment into the trust:-
“
The
reason I did so was simply that I preferred not to have cheques lying
around the business, waiting to be collected by the payees.”
Mr Mouton submitted that
all these denials and disputed counter-averments by first respondent
were untenable. He pointed out
that copies of the cheques paid
to two of the creditors, which copies are annexed to the founding
affidavit and to each of the
relevant creditors’ replying
affidavit, shows that these creditors were indeed paid by first
applicant, on behalf of the
company, as alleged. I agree with
Mr Mouton, that in the light of the objective evidence of the
cheques, the genuiness of
which is not disputed, that respondent’s
denials that the creditors were paid by first applicant on behalf of
the company
as he alleges are untenable and applicant’s
averments are hereby rendered inherently credible.
It
is common cause that the three cheques were handed to the first
respondent on the 15th of March 2000. Copies of the
three
cheques which were handed to the first respondent and paid into the
Robfar Trust are annexed to the founding affidavit.
It is not
disputed that the respective date stamps on the cheques, indicating
the date on which they were paid into Robfar Trust’s
account,
are the 23rd of March 2000, the 25th of March 2000 and the
27th of March 2000. Mr Mouton submitted
that these dates
give the lie to the first respondent’s explanation as to why
she paid the cheques into Robfar Trust.
I agree with Mr
Mouton. The cheques were not all paid in on the same day.
Furthermore the cheques “lay around”
for a minimum of
eight days and, in the case of the last one, twelve days, after they
had been handed to her. The first respondent
gives no
explanation as to why it is that it was necessary for the cheques to
lie around at all and why she did not immediately
dispatch the
cheques to the creditors concerned. In my view, the first
respondent’s explanation is inherently lacking
in credibility
and untenable.
Furthermore, it is a
significant feature, in my view, that first respondent annexes no
documentation in the form of cheques or bank
statements in proof of
the payment she alleges she made from Robfar Trust to the creditors.
She avers that she paid them
by cheque drawn on the Robfar Trust.
There is no explanation why she has not annexed such proof of
payment.
Mr Hitchcock did not
suggest that I could not have regard to the affidavits of the
creditors and Mr Irvine in reply. He submitted
that it is one
party’s word against the other whether or not payment was made
by Robfar Trust. He submitted that in
such circumstances a
court cannot decide on papers.
In the instant case,
there is objective evidence which is not disputed which, as
indicated, contradicts the version of the first
respondent with
regard to the explanation for the payment into Robfar Trust.
Furthermore, there is a significant lack of
objective evidence from
first respondent showing that she indeed did pay monies from Robfar
Trust to these creditors. I am
of the view that, in this
instance, the first respondent’s averments and denials are also
untenable.
In summary, I am of the
view that applicants’ allegations that the first respondent
took cheques well knowing that they were
payable to creditors of the
company and paid them into the Robfar Trust, an entity of which she
was a trustee may be accepted.
I am further of the view that
the allegations may be accepted that monies were not paid from the
Robfar Trust to these creditors,
but that the company paid these
creditors with different cheques. The first respondent’s
explanation for her conduct
is untenable and is rejected on the
papers.
gg)
The
transactions concluded between January and March 2000
.
The following facts are
common cause:-
hh)
First
respondent was a member of a close corporation known as Char-Trade 33
CC. Char-Trade was registered on the 25th of
January 2000
and first respondent was a member as from the 24th of February
2000.
ii)
On
the 26th of March 2000 (10 days after the discharge of the
provisional order of liquidation) first respondent sold the business
of the company to Char-Trade for R100. The agreement is reduced
to writing and forms part of the papers. First respondent
signed as both buyer and seller.
jj)
According
to this agreement the subject matter sold was “
the
carrying on of the business of interior designers and traders
”.
The purchase price was calculated as follows:-
“
The
purchase price of the subject matter of this sale shall be the sum of
R100 (One Hundred Rand) derived as follows:
Assets
Liabilities
Stock
96000
Creditors
230000
Net Asset Value
(126000)
Monthly
Turnover
112500
Business Value
100
to
be paid by the Purchaser free of bank charges and commission at Cape
Town on demand.”
kk)
On
the 24th of February 2000 first respondent sold her shares in
the company (at that time in provisional liquidation) to the
Robfar
Trust for R10.
ll)
On
the 25th of February 2000 first respondent sold certain
“household contents”, in her personal capacity to Robfar
Trust for the amount of R618 500.
The only disputes of fact
in regard to any of these transactions relates to the affidavit of
Dale Irvine, in reply, who states that
the amount of R618 500 was
never paid by the trust to the first respondent. I do not
propose to have regard thereto.
This statement is not
appropriately made in reply and Mr Mouton has not suggested that it
is significant.
mm)
The
second liquidation
.
Before dealing with the
applicants’ allegations with regard to the first respondent’s
opposition of the liquidation
application, I shall deal with the
facts related thereto which are common cause.
i)
In terms of a written agreement, dated the 29th of August 2000,
first respondent
sold, on behalf of the company, the immovable
property at Bantry Bay to her parents for the purchase price of R1.
500, 000.
According to this agreement the purchase price was
payable on transfer.
ii)
A separate written addendum, also dated the 29th of August 2000,
was entered into by
the first respondent, on behalf of the company,
and her parents varying the terms of the said agreement of sale in
order to provide
that payment of the purchase price be made by way of
R950 000 upon registration of transfer and the balance payable “
on
25 years written notice. The outstanding balance shall be
interest free
.”
iii)
According to the judgment of van Reenen J, who heard argument in the
matter on the 29th of
August 2000, and granted the provisional
liquidation order on the 5th of September 2000, the company’s
only asset, as
disclosed to him, was the said immovable property.
A first mortgage bond had been registered over this property in
favour
of Saambou Bank, in respect of which Saambou Bank had obtained
summary judgment in the amount of R406 366.07. It is not
disputed
that this was the only asset of value which the company
owned at the stage of the provisional liquidation thereof.
iv) The said
agreement of sale formed part of the first respondent’s
opposing papers
in the opposition of the second liquidation
application.
v)
The application for liquidation was opposed,
inter alia
, on
the basis of the sale of the property for the purchase price of
R1.500, 000.
The applicants aver that
the first respondent failed to disclose to the court the existence of
the addendum. It is this averment
which is denied by first
respondent, who makes the following statements in this regard:-
“
Both
my attorney and counsel were fully aware of the terms of the addendum
which was handed to counsel by my instructing attorney
and I have
little doubt that counsel would have done the ethical thing by
handing it up to the judge seized with the matter....”
“
I
respectfully submit that, as already stated, counsel was handed the
addendum prior to argument at the application and that he
would not
have willingly misled the above Honourable Court.”
Adv Mihalik, who acted on
behalf of the first respondent at the liquidation hearing, has
annexed a replying affidavit in which he
denies having been handed
the addendum by his instructing attorney, Mr George De Beer, or by
first respondent. He denies
also that it was ever handed to the
court. Adv. Mihalik annexed a bundle of documents to his
affidavit which he avers are
the documents that were handed to the
court. Attorney De Beer, in a replying affidavit, confirms Adv.
Mihalik’s statements.
No addendum is referred to in any
of the documents which were annexed to Adv. Mihalik’s papers.
It
is apparent from Adv. Mihalik’s affidavit that the liquidation
application was launched on the 17th of August 2000,
that it was
opposed and postponed by agreement until the 24th and again
until the 29th of August when argument was heard.
Mr Mouton submitted that
first respondent’s averments with regard to the handing up of
the addendum to the court, were not
credible, based, not only on Adv.
Mihalik and attorney De Beer’s denial thereof, but also on the
judgment of van Reenen J.
In his judgment van
Reenen J refers to each of the documents which were handed up to him
or to which he had reference. His
references accord with the
documents annexed to Adv. Mihalik’s affidavit, which he avers
he handed up. Each of the
documents is referred to and dealt
with in the judgment. The learned judge refers throughout to
the deed of sale and the
purchase price therein of R1.500, 000 and
even makes the following remarks as to the transaction of sale:-
“
The
fact that the property was sold to the parents of the respondent’s
sole shareholder or their nominee; that the price appears
to be
substantively in excess of its market value; and the absence of
provisions normally found in armslength transactions, create
some
doubt in one’s mind regarding the genuiness thereof.”
I agree with Mr Mouton
that it is quite apparent from this judgment that the addendum was
not handed up or referred to in court.
Mr Hitchcock conceded in
argument that, had it been handed up or mentioned, it is
inconceivable that it would not have been referred
to in the
judgment.
Certain
documents are referred to in the judgment as having been handed up
during the course of argument in order to “
bolster first
respondent’s
bona fide’s”. According to
the judgment they are; a) a resolution passed by the company
ratifying the sale
of the property; b) a power of attorney
irrevocably to pass transfer; c) a statement of intention to
irrevocably pass transfer
and; d) a statement of intention to
irrevocably receive transfer from her parents. Copies of these
documents are annexed to Adv
Mihalik’s affidavit in reply in
the instant case and all of them are dated 29/8/2000, the day after
the addendum was signed.
It is interesting to note that the addendum
is not referred to in any one of these documents neither is there
reference to any
deferred payment of the purchase price. Where
the purchase price is referred to, it is referred to as the full
R1.500, 000.
The opposing affidavit in
the second liquidation application is signed by the first
respondent. The only references throughout
this affidavit to
the sale of the immovable property to her parents refers to the
purchase consideration of R1.500, 000.
Nowhere in the entire
document is there any reference to the terms of the addendum.
First respondent gives no explanation
as to why she signed an
opposing affidavit which did not disclose the deferred payment of a
portion of the purchase price.
In my view, no reliance
can be placed on first respondent’s statements in this regard.
Her averment on the papers that
the addendum was disclosed to the
court hearing the liquidation application is disingenuous. So
too is her allegation that
she gave the document to her attorney and
counsel. In my view, her statements in this regard should be
rejected as clearly
untenable on the papers. Applicants’
averments that first respondent failed to disclose the existence, or
the terms,
of the addendum to the court, may in my view, be accepted
on the papers.
Conclusion
.
As
indicated, the correct approach in matters such as these is as
referred to in
Plascon-Evans Paints v Van Riebeeck Paints (
supra
)
but it must also be borne in mind that “
if, notwithstanding
that there are facts in dispute on the papers before it, the court is
satisfied on the facts stated by the respondent,
together with the
admitted facts in the applicant’s affidavit, the applicant is
entitled to relief (whether in respect of
all his claims or one or
more of them) it will make an order giving effect to such finding,
with an appropriate order as to costs...The
court does not exercise a
discretion in motion proceedings whether or not to grant claims
established by the admitted or undisputed
facts; except perhaps in
very extraordinary circumstances the applicant has a right to an
order in respect of such established
claims
.”
(
Tamarillo (Pty) Ltd v BN Aitken (Pty) Ltd
1982 (1) SA 398
(A) at
430H to 431A
;
Howard v Herrigel and Another NNO
[1991] ZASCA 7
;
1991 (2) SA
660
(A) at 664H to 665G
)
In
the instant case, in addition to the admitted or undisputed facts
those allegations and denials which I have found to be untenable
or
not raising real, genuine or
bona fide
disputes of fact, must
be considered.
I proceed to examine the
facts of this case on that basis.
Before doing so however,
it is necessary to refer to the principles of law to which the facts
must be applied. These are the
following:-
The
law relating to section 424 of the Act
.
The
onus lies on the applicant to establish the necessary facts on a
balance of probabilities. (
Philotex (Pty) Ltd and Others v
Snyman and Others
;
Braitex (Pty) Ltd and Others v Snyman and
Others
[1997] ZASCA 92
;
1998 (2) SA 138
(SCA) at 142 I to J
).
In order for this court
to exercise its discretion whether or not to visit the respondent
with personal liability for the company’s
debts the relevant
portions of section 424 (1) require the applicants to establish
that;
nn)
Any
business of the company, which may refer to any one transaction, was
carried on; (
Gordon
N.O. and Rennie N.O. v Standard Merchant Bank Ltd and Others
1984 (2)
SA 519
(C) at 528 H to I
);
oo)
i)
Recklessly; or
ii) With
intent to defraud creditors
aa) of the company; or
bb) of any other
person; or
iii) With any
fraudulent purpose; and
pp)
By any person who was knowingly a party to the
carrying on of business in the manner aforesaid.
“
Knowingly
”
has
been held to mean, in this context that:-
“...
the
person sought to be held liable had knowledge of the facts from which
the conclusion is properly to be drawn that the business
of the
company was being carried on”
in
one or all of the sanctioned manners. It would not be necessary to go
further and prove that the person had actual
knowledge of
the legal consequences of those facts. (
Howard
v Herrigel and Another (
supra
)
at 673 I to 674 A
;
Philotex
(Pty) Ltd and Others v Snyman (
supra
)
at 143 A to B
).
Being
“a party” in the aforesaid context means to participate
in, take part in or concur in the sanctioned transaction.
(
Howard v Herrigel (
supra
) at 674 B to D
).
If the person concerned is a director of the company, however, he or
she has a duty to observe the utmost good faith
towards the
company and, in so doing to exercise reasonable skill and
diligence. Accordingly, a director “
has an
affirmative duty to safeguard and protect the affairs of the company”
and may be “
a party”
in the aforesaid context
“
even in the absence of some positive steps by him in the
carrying on of the company’s business”
. (
Howard
v Herrigel (
supra
) at 674 B to H
).
The
remedy created by section 424 is a punitive one and a director can
attract liability for the debts of the company without proof
of any
causal connection between his sanctioned conduct and those debts.
(
Howard v Herrigel (
supra
) at 672 E
;
Philotex v Snyman (
supra
) at 142 I
).
The
word “recklessly” as used in section 424 has been defined
as requiring at the very least gross negligence.
(
Philotex v
Snyman (
supra
) 144 A
).
“The test for recklessness is objective insofar as the
defendant’s actions are measured against the standard of
conduct
of a notional reasonable person and it is subjective insofar
as one has to postulate that notional being as belonging to the same
group or class as the defendant, moving in the same spheres and
having the same knowledge or means to knowledge.”
(
Philotex
v Snyman (
supra
)
at 143 G to H
)
.
The
subjective consciousness of risk taking is not relevant, however,
“
its existence is no impediment to the application of the
objective test
.”
(Philotex v Snyman (supra) 143 C
to H
).
The
issue of whether business was carried on with an “intent to
defraud” creditors or for a fraudulent purpose, on the
other
hand, involves a subjective enquiry as to the respondent’s
intention in carrying on business in the manner alleged.
(
Ex
parte Lebowa Development Corporation Ltd
1989 (3) SA 71
(T) at 103 G
to I
).
“
Fraud
is the unlawful and intentional making of a misrepresentation which
causes actual prejudice or which is potentially prejudicial
to
another
”
.
(
CR
Snyman; Criminal Law Third Edition at page 487
.)
The
necessary element of intention may, in the context of this section
take the form of
dolus directus
, or
dolus eventualis
.
(
Ex parte Lebowa (
supra
) at 101 D to 104 F
).
The
law applied to the facts
.
qq)
The
cheque-fraud transaction
.
In my view, applicants
have proved on a balance of probabilities that the first respondent
committed fraud in November 1999 by altering
the amount payable on a
cheque made out to the company. She was the perpetrator of the
transaction. All the elements
of fraud are present. In so
doing, she dishonestly inflated the assets of the company. The
most probable inference
to be drawn is that in so acting she was
carrying out the business of the company. Such business was
carried out with a fraudulent
purpose.
rr)
The
first liquidation
.
The second transaction
relied on occurred during the first liquidation proceedings.
The undisputed facts show that the change
of the company’s name
and its ownership of immovable property were not disclosed to the
court. It is, in my view, however
not possible, given the
disputes of fact in this regard, to find that the non-disclosure was
deliberate, or that it was a misrepresentation
made with fraudulent
intent.
The question does arise,
as to whether, on the undisputed and admitted facts, the signing of
an affidavit which did not disclose
the name change and the ownership
of the immovable property was reckless. The first respondent
was aware of the name change
and the existence of the immovable
property, yet she signed an affidavit, under oath, founding an
application for liquidation of
the company which did not disclose
these two facts. She fails to explain how this came about.
As a director of the
company she has a fiduciary duty towards the
company and its creditors. Her conduct in signing the affidavit
which did not
disclose these facts was, in my view, negligent.
However, on the limited undisputed facts on the papers, I am not
persuaded
that her conduct can be held to have been reckless.
It
is common cause that the first liquidation was brought,
inter
alia
, in order to avoid the sale and execution of certain movable
assets, allegedly belonging to the company. Clearly the
liquidation
of the company would not have had the effect of staying
any sale in execution of assets belonging to the respondent
personally.
The allegation was made by the respondent in the
liquidation papers that the company was unable to fund further
litigation
to recover these assets. The purpose was to have a
liquidator appointed who might be able to do so to the benefit of
creditors.
The papers do not reveal the outcome of the
liquidation application on the sale in execution. The purpose
of the liquidation
has not, in my view, been shown to have been
fraudulent; nor have her actions in bringing the first liquidation
application been
shown to be reckless.
ss)
The
three cheques paid to Robfar-Trust
.
It
has, in my view, been shown on the probabilities that between the
23rd and the 27th of March 2000 the first respondent
misappropriated company funds in the amount of R10 500. She
paid monies, which she well knew were intended for creditors,
into a trust account in which she had an interest. She did not
pay the creditors the amounts owed. The most probable inference
from
these facts is that the first respondent stole the money from the
company. This is so, even if she intended repaying
it at a
later date. (
Cf. S v de Jager and Another
1965 (3) SA 616
(A) at 624 C to 626 A
). Clearly such action would be
detrimental to the company and potentially so to its creditors.
Objectively, such conduct
is, in my view, reckless. It shows a
deliberate disregard for the consequences of her conduct insofar as
it may affect the
interests of the company or its creditors.
First respondent’s actions in misappropriating these funds,
fall far short
of the standard required of a reasonable director of a
company conducting the business of the company in similar
circumstances.
(
Cf. T.J. Jonck BK h/a Bothaville Vleismark v
du Plessis N.O. en ‘n Ander
1998 (1) SA 971
(O) at 985 C to E
;
Anderson and Others v Dickson and Another N.N.O. [Intermenua (Pty)
Ltd (Intervening)]
1985 (1) SA 93
(N) at 110 G
;
Ex-parte
Lebowa (
supra
) at 111; Ozinsky v Lloyd
1992 (3)
SA 396
(C) at 413 D to E)
.
Insofar as first
respondent’s endorsement of the cheque is a misrepresentation
to the bank that she was entitled to pay the
cheques to an entity
other than the payee, the most probable inference to be drawn from
her conduct, given the prejudice to the
company and her subsequent
conduct in this regard, was that she made such representation with
fraudulent intent.
tt)
The
transactions concluded from January to March 2000
.
First respondent’s
actions in selling the business of the company for a nominal sum to
an entity in which she had an interest,
yet again, in my view,
evinces a reckless disregard for the prosperity of the company and
the interests of its creditors.
uu)
The
second liquidation
.
The non-disclosure of the
true amount that the sale of the company’s only asset would
bring to the company is a misrepresentation
which could potentially
have prejudiced creditors had the first respondent succeeded in
thereby avoiding the liquidation of the
company. In my view,
the most probable inference from the facts is that the first
respondent misrepresented the true position
unlawfully and
intentionally. Her opposition to the liquidation was undertaken in
the name of the company and on its behalf.
She was carrying on
the business of the company with the intent to defraud creditors.
It
is common cause that the bond holder had a preferent claim in the
amount of between R420 000.00 and R450 000.00. The concurrent
creditors’ claims amounted to R1 067 574,99, of which R574
000.00 to R631 000.00 represent first respondent’s loan
account. The sale of the company’s sole asset to members
of first respondent’s family with a clause that deferred
payment of R550 000.00 of the purchase price for 25 years, is, in my
view, more evidence of the first respondent’s tendency
to
regard the company as her
alter ego
and to act in her own
interests to the detriment of the company’s prosperity and the
interests of its creditors.
Conclusion.
Although, it may be
correct, as submitted by Mr Mouton, that any one of these
transactions on its own would allow this court to
exercise its
discretion and visit personal liability on the first respondent, I
express no view in this regard, as I am of the
view that when the
first respondent’s conduct of the company’s business, as
from November 1999 through to the second
liquidation, as evidenced by
the transactions referred to above, is viewed cumulatively it was
either fraudulent and/or reckless
and the applicants are entitled to
a declaration removing the first respondent’s immunity from
personal liability.
Although
the transactions of the appropriation of monies to Robfar-Trust fall
within the provisions of section 423 of the Act, I
am satisfied that
they also fall within the provisions of section 424. In
Meskin:
Henochsberg on the Companies Act,
Volume I p.913, the learned
author submits that although conduct which may justify the making of
a declaration under section 424
(1), may also constitute conduct of a
kind envisaged by section 423 (1), this would not prevent the court’s
entertaining
an application against the person concerned under
section 424 (1). While I agree with the learned author that the
two sections
are not mutually exclusive, it may be that in a given
circumstance, it would be more appropriate to utilise section 423, as
opposed
to section 424. However, I express no view on this
subject as I have concluded that the transactions referred to as a
whole,
bring the first respondent squarely within the provisions of
section 424.
The
extent of liability
.
Section 424 (1) vests
this court with a discretion to declare the first respondent liable
for all the debts of the company or only
for specific debts of the
company. The applicants seek either that the declaration relate
to all debts incurred by the company
after November 1999, or only to
the debts owed to each of them.
It
has been held that the court making the declaration is not obliged to
declare the delinquent director liable for a specific amount
or
specify the debts or liabilities by naming the creditor or the
amounts owed, but may make a general declaration that the liability
will be for all the unpaid debts and liabilities of the company
incurred from a certain date. (
See Cronje N.O. v Stone en ‘n
Ander
1985 (3) SA 597
(T) at 601 I to 604 I and 615 G
).
In supplementary heads of
argument Mr Mouton submitted as follows:-
“
Applicants
would however prefer an order in the following terms:-
9.1 First
respondent is ordered to pay:
9.1.1 First or second applicant an
amount of R34 402,00;
9.1.2 Third applicant an amount of
R213 400,00.
9.2 The aforesaid
liability of first respondent to first, second and third applicants
is a charge
on any debt or obligation due from Offshore Design
Company (Pty) Ltd. (in liquidation) to first respondent;
9.3 First
respondent must pay the costs of this application on the scale as
between attorney
and own client.”
In
support of this preference, Mr Mouton has referred to the order
granted in
Philotex (Pty) Ltd v Snyman (
supra
)
at 186 G to 187 H
.
Such an order would
clearly give an advantage to the applicants, enabling them to
execute on it directly. However, I
am of the view that such an
order would be inappropriate in the circumstances of this case for
the reasons set out hereunder.
This
matter is distinguishable from the matter of
Philotex (Pty) Ltd v
Snyman (
supra
)
in that there were at least
seven creditors represented and the amounts constituting the debts
concerned in that matter were agreed
between the parties. There
was information available to the Supreme Court of Appeal regarding
actions brought by other creditors
and that the decision of liability
on appeal would apply to their cases. (See page 186 I).
The Supreme Court of Appeal
was of the opinion, under these
circumstances, that in the exercise of its discretion it should grant
an order in specific amounts
to be made payable to specific
creditors. Its reasoning was that such an order made for
greater certainty as regards the
parties’ respective rights and
obligations flowing from the court’s order. In the
instant case, however, the
amounts claimed by the three applicants
are not admitted on the papers and this court was not asked to make
findings as to this
issue, other than as are necessary to establish
the applicants’
locus standi
as creditors. No
argument was addressed to me in this regard. The applicants
have been found by me to have
locus standi
as creditors based
on their allegations in the papers as to written acknowledgments of
debt. In the case of first and/or second
applicants, this is not the
amount claimed by them.
The applicants did not
seek relief in a specific amount in their notice of motion, it was
raised for the first time in supplementary
written heads submitted by
agreement with Mr Hitchcock, after oral argument was heard. The
notice of motion contains a general
provision, in the alternative,
that this court make an order that the first respondent be declared
liable for the debts owed by
the company to the three applicants.
The second respondent did not oppose the relief sought in the notice
of motion where
no specific amounts are referred to, accordingly,
second respondent was not represented at the hearing and has had no
notice of
the relief sought referring to specific amounts.
There has not been found
to be any direct causal connection between first respondent’s
fraudulent and reckless conduct and
any prejudice that these
particular creditors in the form of the three applicants may have
suffered. In the instant case
the fraudulent/reckless conduct
of the business of the company has not been shown to have prejudiced
any particular creditors.
Although there does not have to be
any direct causal connection in order for this court to declare a
delinquent director personally
liable, in my view, however, in the
assessment of the extent of the liability a court, to properly
exercise its discretion, should
have regard to the actual prejudice
suffered due to the delinquent conduct. In the instant
case, for example, the first
respondent’s conduct in
misappropriating company funds and selling the company business for a
nominal amount, depleted the
assets of the company to the detriment
of all the creditors of the company. It would, in my view, be more
just not to single out
the applicants on the facts of the instant
case, even though they assumed the risk of litigation.
The
Supreme Court of Appeal in its judgment in the matter of
Philotex
(Pty) Ltd v Snyman (
supra
)
did not deal with
the question of whether or not, in a winding up situation, a court
should order payment to be made to the liquidator
for distribution
among all the creditors. In
Bowman N.O. v Sacks and Others
1986 (4) SA 459
(W) at 464 H to J
, Flemming J remarked as
follows:-
“It is true that the wording of the section allows the Court,
on the application of a creditor, properly to declare a director
liable to the specific creditor, in a determined amount, with a
resultant right for the creditor to exact payment from that
director...
Sometimes it will be more appropriate even then,
mero
motu
or
at the request of the liquidator, to exercise the court’s
powers to the advantage of all creditors and not only the applying
creditor. ...The object of section 424 is not to alter priorities
amongst creditors as a matter of allowing favoured treatment...
except perhaps where called for by special equitable considerations.”
In
Joubert- The Law of South Africa
the first re-issue, Volume 4
Part II p 309 - 310 paragraph 170 nl 4 & 5, on Company, Professor
Blackman submits that it is
the better view that the court should
exercise its powers to the advantage of all creditors where the
company is being wound up
because of the problems of unfair treatment
of creditors in the winding up of the company. (
Cf. In re
Gerald Cooper Chemicals Ltd
[1978] 2 All ER 49
[Ch] and the judgment
of Lord Russel in re Cyona Distributors Ltd.
[1967] 1 All ER 281
[Ch]
).
I respectfully agree with
the views expressed by Flemming J and Professor Blackman. In a
winding up it is important to consider
the interests of the general
body of creditors.
Little argument was
directed to me as to whether it was the more appropriate order to
benefit only the applicants in the instant
case.
In the ordinary course no
director is liable for the debts of the company, other than in
certain circumstances. Section 424
(1) makes provision for a
declaratory order that establishes such obligation in regard to such
debts or liabilities of the company
as are regarded by the court, in
the exercise of its discretion, to be appropriate. The persons
who are enumerated as possible
applicants in section 424, are all
people who have a direct and substantial interest in the subject
matter of the declarator.
The declarator relates to the
obligations of the delinquent director and not to the rights of any
party.
Other than the fact that
the applicants took the risk of litigation in this matter, no reasons
were given why they should be favoured
with an order in a specific
amount relevant only to the debts owed to them.
Furthermore, although,
the first respondent’s reckless/fraudulent conduct of the
company business has been shown to have commenced,
at least by
November 1999, she became the sole director of the company in June of
1999. There is nothing in this matter to
indicate that only
creditors, whose debts were incurred from November 1999, were
prejudiced by her conduct. Therefore, in
my view, in the
circumstances of the instant case, the order should not be applicable
only to debts incurred from November 1999.
Debts incurred
before November 1999 may remain unpaid and still be legally
enforceable.
Section
424 (2) deals with the steps which a court may take after the
declaration is made to give effect thereto. A court
is given
wide powers to “
give such further direction as it thinks
proper for the purpose of giving effect to the declaration
.”
Certain directions are then particularised. The
applicants have not sought any directions other than
an order that
the first respondent’s personal liability be a charge on any
debt or obligation due from the company to the
first respondent.
The allegation is that she has a substantial loan account which she
should forfeit. It is my view
that it is appropriate to grant
this relief in the instant case, particularly as first respondent is
currently a
peregrinus
. I have no information as to her
personal assets, if any, in this country, however, recovering the
relevant debts from her,
personally, might prove costly and
difficult. The purpose of section 424 is both
compensatory and punitive. In
my view, in the instant case, the
first respondent’s conduct has been such that the punitive
element comes to the fore, and
a directive that first respondent
should forfeit her loan account or any other debt or obligation due
from the company to her is
appropriate.
Such an order should, in
my view, in the circumstances of this case, have the effect of
benefiting all the company’s creditors.
No further directions
or orders have been sought and I do not propose to make any, as the
second respondent and other creditors
in liquidation have not been
able to respond thereto.
For
the above reasons, in conclusion, I am of the view, that the first
respondent’s liability should be for all the unpaid
debts and
liabilities incurred by the company between 14
th
of June
1999 and the second liquidation, and that any debt or obligation due
by the company to her should be forfeit.
Costs
.
The question of costs
remains. Mr Mouton submitted that I should order the costs of this
application to be costs in the liquidation
should I order first
respondent liable to all the creditors. He founded this
submission on the argument that they have all
benefited by this
action. The second respondent has also not opposed the matter.
Accordingly, he submitted there is no objection
to such order before
me. Mr Hitchcock, as was to be expected, raised no objection to the
order which would be to the first respondent’s
benefit.
It is precisely this
latter consideration that makes me loath to order the costs to be
costs in the liquidation. In addition, such
order will reduce the
amounts available for distribution to concurrent creditors.
Furthermore, I have no information as to which
creditors, if any,
have proved claims in the liquidation. The fact that the second
respondent does not oppose such an order, does
not indicate that
creditors, who are not parties to this application would not object
thereto. Although I am mindful of the
fact that the applicants
have borne the risk and incurred costs in this application which will
benefit all the relevant creditors,
it would seem to me that
the only proper order to be made in the instant case is that the
respondent pay the costs of the
application.
The respondent’s
denials and allegations, as indicated above, have been rejected on
the papers. Her conduct of the company,
and her conduct in
opposing this application, in my view, call for a punitive costs
order against her. It is my view thus that
she should be ordered to
pay costs on an attorney/client scale.
Accordingly the following
orders are made:-
vv)
In
terms of section 424 (1) of the Companies Act No. 61 of 1973, the
first respondent is declared to be personally responsible,
without
any limitation of liability, for all or any of the debts or other
liabilities of Offshore Design Company (Pty) Ltd (in
liquidation)
incurred as from the 14th of June 1999 to date of liquidation;
ww)
In terms of section 424 (2) (a) of the Companies
Act No. 61 of 1973, it is directed that the aforesaid personal
liability of the
first respondent be a charge on any debt or
obligation due from Offshore Design Company (Pty) Ltd (in
liquidation) to the first
respondent;
xx)
The first respondent is ordered to pay the costs
of this application on an attorney/client scale.
---------------------------
JV
KNOLL