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1989
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[1989] ZASCA 171
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Moolman v Builders & Developers (Pty) Ltd. (in Provisional Liquidation) (170/89) [1989] ZASCA 171; [1990] 2 All SA 77 (A) (1 December 1989)
IN THE SUPREME COURT OF SOUTH AFRïCA
APPELLATE DIVISION
ín the matter between
WYNAND THEUNIS JACOBUS MOOLMAN APPELLANT
and
BUILDERS & DEVELOPERS (PTY) LIMITED
(in provisional liquidation) RESPONDENT
ANDREW JOOSTE INTERVENING
PARTY
CORAM : JOUBERT, HEFER, STEYN, KUMLEBEN JJA et FRIEDMAN AJA.
HEARD : 24 NOVEMBER 1989.
DELIVERED : 1 DESEMBER 1989.
JUDGMENT BY J J F HEFER JA
1
HEFER JA :
This appeal is directed at an order made by MUL-LINS J In
the South Eastern Cape Local Division discharg-ing a rule nisi which he
had
earlier granted at the in-stance of the present appelíant. How this came
about appears from what follows.
During October 1987 Builders &
Developers (Pty) Ltd, a company incorporated in the Republic of Transkei, was
placed under provisional
liquidation by order of the General Division of the
Supreme Court of that country. The appellant was appointed as provísional
liquidator. Shortly after his appointment he obtained an order from the same
court authorising an examination in terms of
/2
2.
sec 417 and appointing a commissioner in terms of sec
418 of the Transkeian Companies Act 61 of 1973. The examina-tion commenced in
Transkei and the commission then convened in Port Elizabeth for the purpose of
interrogating certain persons residing in that city.
Among them were Mr A Jooste
(the sole director and major shareholder of the company) and Mr G H Visser and
Mrs Scott (to whom Jooste
had paid large amounts of money shortly before the
provisional liqui-dation of the company by means of cheques drawn on its bank
account). Jooste and Viiser objected to the inter-rogation on the grounds that
the commissioner had no juris-diction in South Africa
and that they were not
compelléd to appear and were not obliged to submit to interrogation.
/3
3.
The result of the objection was an ex parte ap-
plication which the appellant brought in the court a quo
for an order recognising (I) his appointment as provi-
sional liquidator and (2) the order of the Transkeian
court relating to the appointment of the commissioner.
MULLINS J, before
whom the application came, granted
a rule nisi calling upon "the Respondent" (although no
respondent was cited) to show cause, if any, why there
should not be an order:
" (a) Recognising the appointment of the appli-cant (in terms of the laws of
the Republic of Transkei)as provisional Liquidator in
the insolvent estate
Builders and Developers (Pty) Ltd (in Liquidation) on the terms set out herein,
within the Republic of South
Africa until such recognition is withdrawn
/4
4.
by order of this Court.
(b) Directing that the applicant provide secu-
ríty to the
satisfaction of the Master of
this Honourable Court for the proper
perfor-
mance of his administration by virtue of
this order and for the
hereinmentioned Mas-
ter's costs and charges;
(c) Declaring that thereafter the applicant
shall by virtue of this
recognition be em-
powered to administer the said estate in
respect of all
assets of the said estate
which are situated within the Republic of
South
Africa;
(d) The rights defined by the Insolvency Act
24 of 1936 read together with the Companies Act 61 of 1973 as amended in
favour of the Master, a creditor, and a company being wound
up, in regard to
meetings of credit-ors, proof, admission and rejection of claims, sale of
assets, plans of distribu-tion of proceeds,and
the rights and duties of a
liquidator in regard to those matters
/5
5.
as defined in the Acts as aforesaid shall, until this order is amended,
mutatis mutan-dis, exist in relation to the said adminis-tration
as if the said
Acts applied thereto pursuant to a provisional winding up order gran-ted by this
Court on 8 October 1987 provided
that:
(i) The rights and duties relating to the election and appointment of a
iiquida-tor will not apply;
(ii) The requirements relating to the filing of inventories shall not
apply;
(iii) The costs of this application taxed on the scale as between attorney
and
client and such amounts as would have
been payable to the Master under the law of the Republic of South Africa if
the Company had been wound up un-der such law and any
additional costs and
charges of the Master for giving effect to this order will be costs of
administration;
6.
(iv) The rights and duties defined by Sec-tion 70 of the
Insolvency Act 24 of
1936
, read with section 394 of the Companies Act No. 16 of 1973 shall exist in
relation to the administra-tion;
(v) Any assets and furthermore any funds remaining after the payment of all
amounts due in respect of the afore-mentioned charges,
costs and proved claims,
may be transferred from the Republic of South Africa to the Re-public of
Transkei only with the writ-ten
permission of the Master of this Court . "
(It will be noticed that no provision is made in the rule
for the
recognition of the commissioner. MULLINS J was
apparently not prepared to
include such a provision. He
did, however, grant the appellant leave to apply
on the
/7
7.
return date for the other relief sought in the notice of
motion).
On the extended return date Jooste sought,and was apparently
granted,jeave to intervene in the proceedings and opposed the confirmation
of
the rule mainly on the grounds which he and Visser had earlier raised before the
commissioner. His opposition was successful:
MUL-LINS J discharged the rule and
directed the appellant to pay Jooste's costs. Subsequently he granted the
appel-lant leave to
appeal to this court.
The court a guo's reasons for discharging the rule may briefly be stated as
follows:
1. The sole purpose of the application was "to enable
8
the said enquiry to continue its work in Port Elizabeth, and to enable the
commissioner to in-terrogate persons who are subject to
the juris-diction of
this court". 2. Although it was necessary to interrogate Jooste and the other
persons referred to earlier since
it was clear to the court "that payments were
made to them which might be voidable díspositions, and that they could
provide
useful and indeed vital information regardíng the affairs of the
respondent company", the court has no power to grant recognition
to a foreign
liquidator merely for the purpose of enabling him to enquíre locally
/9
9.
into the affairs of the company. In his judg-
ment MULLINS J said:
"As I understand the position therefore, while comity extends to affording a
foreign trustee or liquidator the opportunity of
recovering assets within our jurisdiction, there is no basis for
afford.íng him other powers or functions which he may have
with-in the
area of jurisdiction of the country in which he was appointed. There may be
sound arguments in favour of granting an
application such as the present one,
but there must be some authoríty therefor. Such authority is not to be
found either in
our statute law, or in our corrmon law either directly or as an
extension of recognition orders which have been granted in the past."
The argument presented to this court on Jooste's
behalf followed mainly
the lines of the court a guo's
judgment. On appellant's behalf it was contended that
/10
10.
the absence from the court's jurisdiction of property
falling to be recovered and dealt with m the process of liquidation does not
preciude a court from granting a recognition order. Enquiring into the affairs
of a com-pany with a view to the possible discovery
of assets and impeachable
transactions - so the argument went - forms part of the functions of a
liquidator just as much as the actual
recovery of assets does; there i s no
reason to withhol.d, in connection with the former part of his func-tions,
recognition which
can be, and has often in the past been, granted to foreign
liquidators in connection with the latter part.
Before considering the merits of these contentions
/11
11. it is necessary to state that the company to which the
appeal relates, has no established place of business in
South Africa and is
not an "external company" as defined in sec 1 of the South African Oompanies Act
61 of 1973. The provisions of
the South African Act regulating the winding-up of
companies in this country do accordingly not apply and do not assist the
appellant
in the perfor-mance of his functions. He derives his authority
en-tirely/ from his appointment in a foreign country and is precluded
from
exercising the statutory powers of a loc-ally appoínted provisional
liquidator. The corrmissioner appointed by the Transkeian
court is in the same
position; although he is at liberty to conduct the examination at
/12
12.
a venue in South Africa and to examine witnesses who
are
prepared to submit to interrogation, there is no means by
which he, or
any one else, can compel their attendance
or oblige them to submit to
interrogation if they are not
prepared to do so. It is clear therefore that
neither
the appellant nor the commissioner will be able to perform
their
functions in South Africa without the "active assis-
tance óf the
court" which is what a recognition order en-
tails (Re African Farms Ltd
1906
TS 373
at 377).
Apart from the practical frustration of their functions that
the lack of recognition brings about, it must be borne in mind/that it
is a
well-recognised prin-ciple that
/13
13.
"where a foreign representative, such as an exe-cutor,
liquidator, or receiver, wishes to deal with assets in this country in his
representa-tive capacíty and by virtue of his foreign au-thorisation he
must first be recognised in his appointment by a Court
of Law or person of
com-petent jurisdiction in South Africa before he is entitled to act" (per
WATERMEYER J in Liquida-
tor Rhodesian Plastics (Pvt) Ltd v Elvinco Plas-tic Products (Pty) Ltd
1959(1) S A (C) at 869
C-D).
The operation of this principle is illustrated by the case of Zinn, N O v
Westminister Bank, Ltd
1936 A D 89
in which this court held that an English
administrator was not entitled to issue summons for the payment of money in a
South Afrícan
court without first obtaining recognition. As STRATFORD JA
said at 99,
".... when a foreign representative, whatever name he may be given elsewhere,
claims
/14
14.
property in thís country, by virtue of his foreign authorization, he
requires recognitíon by a Court of law 'or person
of competent
jurisdiction in South Africa'. "
It is for this reason that recognition orders have been sought and granted,
not only in respect of locally situ-ated immovables (where
the practical need
for recognition is obvious), but in many cases also in respect of mov-ables (see
eg Leslie's Trustee v Leslie
1903 TS 839
; Ex parte Sewell's Curator
1906 TS 195
;
In Re Melliar, Smith & Co,Ex parte Hooper
1922 C P D 116)
, and even in
respect of incorporeals (see eg Re Estate Campbell
1905 TS 28
where recognition was granted to an English receiver whose sole
duty it was to collect outstanding debts in South Africa).
/15
15
From this it follows (1) that the appellant re-quires recognition before he
is entitled to deal with any property of the company in
this country, and (2)
that, without recognition, any claim that he may decide to bring in respect of
the payments to Mr Visser and
Mrs Scott will not be entertained by a South
African court.
The complicating features of the present case are that, apart from a possible
claim in respect of these payments or other property
that may be discovered as a
result of the enquiry, the company has no property in South Africa; and that the
immediate purpose for
whích recognition was sought from the court a guo
was to enable the commissioner to continue the enquiry here. In the
/16
16.
African Farms case (supra) at 377 INNES CJ said that the
recognition of a liquidator is in effect a declaration that he is entitled
to
deal with local assets in the same way as if they were within the jurisdiction
of the courts of the country where he was appointed
(subject, of course, to the
requirements of the local law). Relying on this dictum Jooste's counsel
submitted that a recognition
or -der can be granted for no other purpose than to
enable a foreign representative to deal with assets within the court's
jurisdiction
and, in particular, that it cannot in the present case be granted
for the purpose of enabling the commissioner to continue his work.
For the
reasons which follow I do not agree.
/17
17.
Appellant's counsel is plainly correct in his submission that
to enquire into the company's affairs forms part of a liquidator's functions
just as much as reducing the assets of the company into his possession and
dealing with them in the prescribed manner does. In performing
the former part
of his functions he exerci-ses an ancillary power wíthout which the
second part can-not properly be performed.
It is only by enquiring that he
ís able to determine what is and what is not the pro-perty of the
company, or who is and who
is not a creditor or contributory. It is, moreover,
obviously in the in-terest of creditors that doubtful claims which the com-pany
may have against outsiders be properly investigated
/18
18.
before being pursued and that claims against the company also
be properly investigated before they are admitted or re-jected. It is
for such
reasons that both the South African and the Transkeian Companies Act contain
elaborate provisions relating to the interrogation
of directors and other
persons at meetings of creditors or by a commissioner (of the remarks in
Pretorius and Others v Marias and Others
1981(1) S A 1051 (A) at
1063H-1064A). A liquidator would be failing in his duty if he were to neglect
making use , whenever the need
to do so arises, of the machinery provided by the
Acts.
In any event 1 consider ít entirely unrealistic to take account of the
ímmediate but not of the ultimate
/19
19
purpose for which recognition is being sought. In his
supporting and replying affidavíts the appellant made it
clear that his sights were trained on the amounts paid to
Mr Visser and
Mrs Scott, which in total amount to more
than R400 000. Appellant's ultimate aim being the re-
covery of the company's assets(for which purpose
the enquiry is a preliminary but well-advised step),there
can in my view be no question about the court's power
to grant the appellant and the commissioner recogní-
tion.
The grant or refusal of recognition to a foreign representative is a matter
for the court's discretion (Ex parte B Z Stegmann
1902 TS 40
at 48, 53). But,
by
/20
20.
adopting the attitude that he had no power to grant
re-cognition in a case like the present one, MULLINS J pre-cluded himself from
exercising his discretion. We have not been asked to remit the matter in order
to allow him to do so and what remains , is to consider
whether it should have
been exercised in appellant's favour and, if so, whether any conditions should
be attached to prevent prejudice
to local interested parties (Re African Farms,
Ltd (supra) at 377).
As explained in the Stegmann case (supra) at 52
recognition is granted solely on grounds of comity and convenience. What counts
in
the appellant's favour is, firstly, that the Transkeian and South African
law
/21
21.
relating to the winding up of companies i s practically
identical; secondly, that there i s an historic bond and a large measure of
interdependence and co-operation be-tween the two countries which comity
requires be re-cognised; thirdly, that the matters to be
investigated by the
corrmissioner are of such a nature that they píainly require to be
examined; fourthíy, that it
appears to be in the interests of all
concerned that there should be an enquiry before the costly procedure of
resorting to the courts
is adopted. Jooste's counsel pressed upon us the
inconvenience and expense that an enquiry will en-volve. He also submitted that
ít would constitute an unfair advantage to the appellant as a
prospective
22.
litigant if he were in effect to be enabled to gather
in-formation from and to interrogate the very people against whom action is
contemplated . Considering,however, that Jooste alleges in his opposing
affidavit that the payments to Mr Visser and Mrs Scott are
not impeachable the
enquiry may well induce the appellant not to proceed agaínst them. It
will, therefore, not necessarily
be a disadvantage. But even if it is, it is
clear that, had the appellant been appointed in South Africa and had the company
been
incor-porated and placed under liquidation in this country,
Jooste and
the other persons concerned would have suf-
fered the same disadvantage by vírtue of our own lêgisla-
tion. The parties should not, in my judgment, be treated differently merely
because the appellant happens to be a foreigner. In my
view , his application
for recognition should have been granted. I do not consider it neces-sary to
attach any conditions to the
recognition apart from those mentioned in the
rule
/23
23.
nisi and paragraph 6 of the notice of motion.
Before the appropriate order
is made, it is necessary to revert to the rule nisi. I mentioned ear-lier that
it contains no provision
for the recognition of the conrmissioner's appointment
and that leave was granted to the appellant to apply on the return date for
the
relief sought in this regard ín paragraph 6 of the notice of motion. On
the extended return date the appeilant in fact
did so apply and, had the rule
been confirmed (as it should), the further relief should also have been granted.
This explains the
form of the order that I am about to make.
The result is that the appeal ís upheld with
/24
24
costs, including the costs of two counsel. The order
of the court a quo is set aside. Substituted for it is
the following order:
"1. Paragraph 1 of the rule nisi dated 6 Janu-ary 1988 is confirmed.
2. A further order is granted in terms of para-graph 6 of the notice of
motion.
3(a). The costs of the application shall be paid by the applicant on the
basis of an unop-posed application.
(b). Applicant's costs occasioned by the oppo-sítion to the
application and those per-taining to the application for leave
to intervene
shall be paid by Andrew Jooste, the intervening party."
J J F HEFER JA. JOUBERT JA )
STEYN JA ) CONCUR.
KUMLEBEN JA )
FRIEDMAN AJA )