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[2000] ZASCA 194
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Sunny South Canners (Pty) Ltd v Mbangxa and Others (297/99) [2000] ZASCA 194; [2001] 1 All SA 474 (A); 2001 (2) SA 49 (SCA) (28 November 2000)
REPORTABLE
IN
THE SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
Case
Number : 297 / 99
In
the matter between
SUNNY SOUTH
CANNERS (PTY) LIMITED
Appellant
and
XOLANI
MBANGXA First Respondent
MZIMTSHA
VIZIA NKONKI Second Respondent
JOHN
EDWARDS STUART
WAYMARK
NNO Third Respondent
Composition
of the Court
: HEFER ADCJ; OLIVIER, and STREICHER JJA; MELUNSKY and BRAND
AJJA
Date of
hearing
: 16 NOVEMBER 2000
Date of
delivery
: 28 NOVEMBER 2000
SUMMARY
Locus standi
of the liquidators of a corporation to launch liquidation proceedings
against a debtor company; discretion of the court to grant
a
liquidation order.
J U D G M E N T
PJJ OLIVIER
OLIVIER
JA
[1]
The
appellant is a company incorporated in 1993 and which
conducted
business in the Eastern Cape as a pineapple canner until 15 December
1995 when it closed its doors never to operate again.
[2]
The
respondents are the joint liquidators of the Ciskei Agricultural
Corporation
(“the CAC”) (in liquidation). The CAC was a juristic
person created by statute, and was liquidated by
Proclamation 248 of
1997 issued by the Premier of the Province of the Eastern Cape with
effect from 10 July 1997 (“the Proclamation”).
[3]
In
March 1999 the respondents launched an application against
the
appellant in the Eastern Cape Division of the High Court for an order
liquidating
it. The application was opposed by the appellant.
[4]
On
24 June 1999 Van Rensburg J, at the conclusion of a thorough
judgment,
placed the appellant under provisional winding-up in the hands of the
Master. On the extended return day, 12 August
1999, the rule
nisi
was made absolute by Brauns AJ.
[5]
On
the same date, Brauns AJ also granted leave to the appellant
to
appeal to this Court against the final liquidation order, but
specifically
also
issued the following orders:
“
1 The appeal does not interrupt
the liquidation.
2 The liquidators are authorised by
the respondent to realise its assets in the course of the
liquidation.”
[6]
The
background to the relationship between the appellant and
CAC
is relevant to virtually all the issues in this matter. It is as
follows:
(a) The
CAC was established by the former Ciskei Government in 1983 with the
object
inter
alia
,
of the promotion and development of the agricultural industry, in
particular the production and sale of pineapples in the area.
(b)
Prior to and during 1993 the CAC, in pursuance of its objects,
developed large scale commercial pineapple farming operations
know as
Pineapple
Development Schemes
in terms of which a number of farms in the Peddie region of the
Eastern Cape Province were administered, controlled and commercially
developed by the CAC as a unit in the cyclical planting and reaping
of pineapples.
(c) During
1993 CAC lost the main purchasers of its pineapples. If the CAC had
to cease its commercial pineapple growing and marketing
activities,
it would have resulted in large scale job losses in the area, and the
pineapple industry in the area would have suffered
irreparable harm.
It would also mean that the Ciskei Government would have had to fund
the deficit of the CAC, at that time R
14 050 000,00, if it wished to
ensure the survival of the CAC.
(d) In
1993 the appellant company was launched and negotiations were
concluded between various parties involved to ensure the continued
existence on a long term basis of the CAC’s pineapple
development scheme by securing a market for the CAC’s pineapple
crop.
(e) In
the light of the negotiations, the following agreements, relevant to
this matter, were entered into:
(1) A
Fruit Supply Agreement between the CAC and the appellant, in terms of
which the former would sell and supply the appellant
with at least
30
000 tons of pineapples per year, for a period of five years, at an
agreed price.
(2) An
Agreement of Loan between the CAC and the appellant in terms of which
the CAC lent and advanced an amount of R 3 100 000,00
to the
appellant, for the purpose of providing operating capital to finance
the production of canned fruit and extracted juices
by the appellant.
(3) A
guarantee by the CAC in favour of Appletiser South Africa (Pty) Ltd
(“Appletiser”) for the due performance by
the appellant
of its obligations in terms of a contract of sale whereby it
purchased a cannery from Appletiser.
(4) A
guarantee by the Ciskei Government in favour of the Development Bank
of South Africa for the repayment of a loan made by
the bank to the
CAC in order to facilitate the loan mentioned in paragraph 2 above.
[7]
In
its application for the liquidation of the appellant, the liquidators
of
the CAC relied on three claims, all originating from the aforesaid
agreements,
and breaches thereof by the appellant.
[8]
The
first claim is based on the
loan
agreement
.
The liquidators
allege
that the amount of R 3 100 000,00 was advanced by the CAC to the
appellant as follows:
On
24 January 1994 R 1 000 000,00
On
8 March 1994 R 2 100 000,00
They
alleged that, due to a failure by the appellant to honour the terms
of the agreement, the full amount of the loan together
with interest
thereon, became due and payable. This amount stood at R 6 100
074,00 on 31 March 1996.
[9]
The
second claim is based on the
Fruit
Supply Agreement
.
The
liquidators
alleged that during the period March to October 1994 CAC supplied
pineapples to the appellant in accordance with the
provisions of the
said agreement and at a price, calculated in accordance therewith, of
R 1 600 000,00. As the appellant was
unable to pay this amount, a
further agreement was entered into between the CAC and the appellant
in October / November 1994, in
terms whereof the said debt was
converted into a loan repayable by the appellant to the CAC on
demand. Despite due demand on
5 August 1998, the appellant failed
to pay the said amount together with the agreed interest thereon at
the rate of 14% per year
from 31 March 1996.
[10]
The
third claim is likewise based on the
Fruit
Supply Agreement
.
The
allegation is that the CAC continued to supply pineapples to the
appellant during the period September to November 1995 in accordance
with the provisions of the said contract. The purchase price,
calculated in terms of the agreement, so it is alleged, amounts
to R
789 178,93, which amount is due and payable.
[11]
The
liquidators thus averred that the appellant was indebted to the
CAC
as at 31 August 1998 in the sum of R 11 448 575,55,
i
e
the
amounts set out above together with interest thereon.
[12]
In
their application for the winding-up of the appellant, the
liquidators relied on the following grounds,
viz
12.1
that
the appellant had suspended its business as contemplated in section
344 (c) of the Companies Act 61 of 73 for a period exceeding
one
year;
12.2
more
than 75% of the appellant’s issued share capital had been lost
and become useless for its business within the meaning
of section 344
(e) of the Companies Act;
12.3
the
appellant is unable to pay its debts as envisaged in section 345 read
with section 344 (f) of the Companies Act;
12.4
it
is just and equitable within the meaning of section 344 (h) of the
Companies Act that the appellant be wound up.
[13]
The
appellant, in its opposing affidavit
13.1
admitted
that it had suspended its business operations for a period exceeding
one year, but alleged that such suspension was caused
by a breach of
contract by the CAC;
13.2
disputed
that more than 75% of its issued share capital had been lost and
become useless for its business, alternatively such loss
had been
caused by the CAC’s breach of contract;
13.3
denied
that it was unable to pay its debts. It alleged that because the
CAC breached its contract with the appellant, the appellant
is not
obliged to make any payment whatsoever to the liquidators.
Furthermore, it averred, it had a counterclaim for damages
against
the CAC (in liquidation) and the Government of the Republic of South
Africa as a consequence of the said breach of contract,
vastly
exceeding in value the claims by the liquidators. It also put
forward that at the very least it was entitled to a stay
of the
liquidation proceedings until such time as its claims had been
adjudicated upon.
13.4
disputed
that it will be just and equitable that the appellant be wound up.
[14]
The
allegations as to the breach of contract by the CAC, relied
upon
by the appellant, can be summarised as follows : The CAC was not
able
to sustain a supply of pineapples in accordance with the Fruit Supply
Agreement.
This was due mainly to its failure to apply such crop
husbandry
practices on its pineapple farms as are generally accepted,
resulting
in an unacceptable fruit mix with regard to quality, sizes and
juice
content. No fertiliser was applied to the crop and weeds and grass
were
encroaching on the pineapples. It also failed to plant new and
additional
pineapples to provide for future supply to the appellant in
accordance
with the terms of the agreement. As a result, it delivered
pineapples
of unacceptable quality and grades, and failed or refused to
deliver
during the years ended 1994 /1995 the minimum quantity of 30
000
tons of pineapples. Consequently, the appellant cancelled the Fruit
Supply
Agreement on 30 November 1995, and had to close its factory on
15
December 1995.
[15]
In
July 1996 the appellant instituted action in the Ciskei Provincial
Division
against the CAC as first defendant, the Government of the Eastern
Cape Province as second defendant (against whom the action
was not
proceeded with), and the Government of the Republic of South Africa
as the third defendant (“the Ciskei case”).
As against
the CAC, the appellant alleged the breach of the Fruit Supply
Agreement mentioned above, averred that it had suffered
damage in the
amount of R 105 011 000,00 as a consequence thereof, and claimed the
payment of the said sum as damages.
[16]
As
against the Government of the Republic of South Africa, the appellant
averred that a tacit agreement came into existence between
itself and
the Government of the Republic of Ciskei during or about October 1993
in terms of which the latter undertook that during
the subsistence of
the Fruit Supply Agreement it would provide the CAC annually with
sufficient funds to enable it to meet its
contractual obligations
towards the appellant in terms of the said agreement. According to
the provisions of section 239 (3)
of the Constitution of the Republic
of South Africa, Act 200 of 1993 (“the interim Constitution”)
the Government of
the RSA assumed the debts and liabilities of the
Government of the Ciskei, including those arising out of the alleged
tacit agreement.
Thereafter the said agreement was breached, in
that the Government of the RSA failed to provide the CAC with
sufficient funds
to enable it to fulfil its contractual obligations
towards the appellant. The CAC’s breach of contract against
the appellant,
so it was averred, was a direct and foreseeable result
of the Government’s breach of the tacit contract. As a
consequence,
the appellant suffered damage in the amount of R 105 011
000,00. In the result, payment of said sum was claimed,
in
solidum
,
from the CAC and the RSA Government.
[17]
After
the liquidation of the CAC the liquidators in their official
capacities
as such, were substituted as plaintiffs in the action. The
liquidators opposed the action, delivering a plea in which,
in
essence, the breach of contract on the part of the CAC was denied.
This plea was served and filed of record on 16 September
1998. It
will be remembered that the application by the liquidators to have
the appellant liquidated was launched early in March
1999,
i
e
approximately
5½ months after they had delivered their plea in the
appellant’s action against them. The juxtaposition
of the
action and the application gave rise to some of the major disputes in
this appeal, as will appear from what follows hereafter.
[18]
Before
I deal with the grounds advanced by the liquidators for the
winding-up
of the appellant, a preliminary point taken by the latter must be
considered. The substance of the objection is that
the application
was fatally defective in that the liquidators failed to allege that
they had the necessary authority, granted by
the creditors of the
CAC, or that they were acting on directions of the Master, in
bringing the application.
[19]
The
liquidators, in response, submitted firstly, that on a proper
interpretation,
the provisions of the Proclamation authorised the liquidators to
bring the application and, alternatively, that
they were
as
far as the appellant is concerned
entitled
to launch the winding-up proceedings without the authority given by
the creditors or by the Master.
[20]
I
will consider the relevant provisions of the Proclamation first.
The
point of departure must be that the CAC was not a company
incorporated
under the Companies Act. It was a unique entity, created
by
statute and “dissolved” by the Proclamation. The
correct approach is
that
the provisions of the Companies Act are not applicable, unless
incorporated
by the Proclamation.
[21]
In
the law relating to companies, the requirement that liquidators in
order
to litigate, must have a resolution of creditors to that effect, or
directions by the Master, arises from section 386 (3)
(a) which
provides that
“
(3) The
liquidator of a company -
(a) in a
winding-up by the Court, with the authority granted by meetings of
creditors and members or contributories or on the directions
of the
Master given under section 387; ... shall have the powers mentioned
in subsection (4).
”
Section
386 (4) (a) reads as follows:
“
(4) The
powers referred to in subsection (3) are -
(a) to bring or
defend in the name and on behalf of the company any action or other
legal proceedings of a civil nature, ...
”
[22]
Were
these provisions made applicable to the liquidators of the
CAC
(in liquidation) by the Proclamation? The Proclamation
provides
in paragraph (c) (v) that
“
... the liquidators shall exercise,
mutatis
mutandis
,
the same powers as those mentioned in section 386 of the Companies
Act, including those conferred under the
Insolvency Act, 1936
... on
like terms to those mentioned in
section 386
(4) (g) of the said Act
:
Provided
that the liquidators may dispose of the assets of the Corporation in
a manner contemplated in section 386 (4) (h) of that
Act without the
consent of the Master or body of creditors if they deem it necessary
in the interests of the Corporation.
”
[23]
It
follows, so the appellant’s argument proceeded, that the
requirement
of authorisation by the creditors or the Master spelled out in the
Companies Act was incorporated by paragraph (c) (v)
of the
Proclamation. The matter is, however, not as simple as it appears
to be.
[24]
Had
paragraph (c) (v) of the Proclamation stood alone, there might
have
been some substance in the appellant’s argument. But the
Proclamation does not end at paragraph (c) (v). Paragraph
(f)
provides that
“
... the
powers, terms, conditions and procedures set out in the Annexure
hereto
shall
apply
to the dissolution of CAC.”
(My emphasis)
[25]
Paragraph
2 of the Annexure reads as follows:
“The following general
provisions shall apply in relation to the dissolution of the
Corporation:
2.1 The liquidators are authorised
to engage the services of attorneys and / or counsel and / or
shorthand writers for the purpose
of -
(i) taking any legal actions
that may be considered necessary in the interest of the estate;
(ii) instituting or defending
any action in respect of any matter affecting the estate in any court
of law;
(iii) instituting an enquiry
into the affairs of the estate, and / or any matter relating
thereto.”
[26]
Although
paragraph 2 of the Annexure
prima
facie
relates
only to
the
employment of attorneys and counsel
etc
,
it also, by necessary implication, authorises the taking of legal
action and the institution of such action, as provided for
in the
paragraph. It follows, as was correctly conceded by counsel for the
appellant, that paragraph 2.1 of the Annexure authorises
the
liquidators to take legal action and to institute
proceedings
without any further authorisation by creditors or the Master.
[27]
But
there seems to be a conflict, therefore, between paragraphs
(c)
(v) of the Proclamation itself and 2.1 of the Annexure. The
conflict cannot be resolved so as to give full force and effect
to
both provisions. Counsel for the appellant submitted that paragraph
2.1 of the Annexure is subject to paragraph (c) (v) of
the
Proclamation. I do not agree : on a proper interpretation of both
provisions and the Proclamation in its entirety the opposite
is true.
Paragraph (c) (v) is the general provision; paragraph 2.1 of the
Annexure the special. By applying the maxim
generalia
specialibus non derogant
to this case (see
S
v Hattingh
1978 (2) SA 826
(A) at 829 A - D) one must conclude that no authority
from creditors or the Master was required for the institution of the
liquidation
application, because such authority was given in
paragraph 2.1 of the Annexure.
[28]
The
appellant’s point
in
limine
pertaining to the alleged lack of
authority
on the part of the liquidators cannot be upheld.
The
exercise of the discretion by the court
a
quo
to grant a liquidation order.
[29]
The
court
a
quo
found, on the facts as they crystallised in the
various
affidavits and annexures, that
(a) the
appellant had suspended its business as envisaged by section 344 (c)
of the Companies Act, and that such suspension was
indicative of an
inability and a lack of intention on the part of the appellant to
resume its business;
(b) it
is probable that 75% of the issued share capital of the appellant had
been lost, and if the appellant’s claim for damages
against the
CAC (in liquidation) and the Government is not taken into
consideration, it is both factually and commercially insolvent;
(c) as
at 31 August 1998 the appellant owed the CAC R 11 448 575,55. There
is a further claim against the appellant for R 801
651,76. The
appellant also failed to comply with the demand to pay its debts
served by the liquidators on it on 5 August 1998
in terms of section
345 (1) (a) of the Companies Act. The appellant, if its claim for
damages aforesaid is not taken into account,
is factually hopelessly
insolvent; it is by virtue of section 345 (1) (a) of the Companies
Act also deemed to be insolvent;
(d) it
is just and equitable that the appellant be wound-up in the hands of
the Master of the Supreme Court because it has not traded
for more
than three years; there is little or no prospect of the appellant
resuming its business in the future; it is in parlous
financial
circumstances and its plant and equipment are deteriorating all the
time.
[30]
The
court found that there were, therefore, ample grounds for the
liquidation
of the appellant. This finding was not challenged in this Court.
[31]
The
appellant’s case is simply that, notwithstanding the factual
findings
made by the court
a
quo
,
the court still had an overriding discretion under section 344 of the
Companies Act, not to grant a winding-up order. This argument
was
raised and debated in the court
a
quo
,
but as far as the appellant is concerned, with no success. It
remains the main attack on the court
a
quo
before us.
[32]
On
behalf of the appellant it is argued that the court
a
quo
erred in
the
following respects:
[32.1]
It
failed to accord proper weight to the breach by the CAC of the Fruit
Supply Agreement, and in particular its failure to supply
the agreed
quantities of pineapples to the appellant, which caused the
appellant’s financial difficulties;
[32.2]
it
failed to accord proper weight to the CAC’s conduct of the
litigation instituted by the appellant against the CAC and
also, in
that context, the launching of the liquidation proceedings, which is
described by the appellant as an abuse of the process
of the court;
[32.3]
it
failed to properly take into account the claim of the appellant
against the liquidators and the RSA Government. Had that been
done,
so it was argued, the court would not have been able to find that the
liquidation of the appellant was just and equitable.
I
will deal with these points of criticism
seriatim.
[33]
The
failure by the CAC to supply pineapples followed the
appellant’s
failure to pay for previous supplies. This in turn was the
result
of the appellant (even on its own version) being under-capitalised
from
the very start of its existence. The under-capitalisation which led
to
endemic
cash flow problems resulted in the Loan Agreement in the
amount
of R3 100 00,00; the conversion of the appellant’s debt of
R
1 600 00,00 for pineapples supplied by the CAC during March to
October
1994 to a loan, and the outstanding debt of R 789 178,93 for
pineapples
supplied during September to November 1995. The court
a
quo
took all of these factors into account in deciding the issue in
favour of
the
liquidator. I cannot fault its conclusion.
[34]
As
far as the conduct of the litigation and the abuse of the court’s
proceedings
are concerned, it was argued by the appellant, with reference to the
affidavits before the court
a
quo,
that the CAC and the liquidators had unduly and deliberately delayed
the finalisation of the appellant’s action against the
CAC and
the RSA Government. The action was instituted in July 1996. After
many delays, according to the appellant, caused by
the CAC and the
liquidators, a plea on behalf of the CAC was delivered on 15
September 1998. A trial date was then arranged.
Only then was the
application for liquidation launched. This shows, so the appellant
argues, that the purpose of the liquidation
proceedings was only to
prevent the appellant’s action against the liquidators and the
RSA Government from proceeding to
trial in the ordinary course. The
bringing of the application for liquidation, so it was submitted, was
mala
fide
and an abuse of the process of the court.
[35]
On
behalf of the liquidators it was pointed out that the reasons for
delays
in the finalisation were fully explained in the replying affidavit.
It deals
inter
alia
with changes of attorneys and advocates.
[36]
For
the purposes of this judgment it is not necessary to set out the
reasons
for the delays in detail. Suffice it to say that the appellant has
not asked leave to reply and gainsay the liquidator’s
explanations. Nor did it, in the heads of argument, argue that the
explanations were untrue or that the changes of the legal
team
employed by the CAC and the liquidators were unreasonable,
unjustified or frivolous. It must also be taken into account
that
the CAC itself was in a parlous financial position. What is more,
the appellant was the
dominus
litis
and could have prevented any undue delay by any of the defendants in
the action. In the result, one cannot reasonably find that
the
delays amounted to an abuse of the process of the court or that they
evince an improper motive.
[37]
The
institution of the liquidation proceedings after a trial date in the
action
had been obtained, is more worrisome. Reference was made by counsel
to a number of decisions dealing with similar or comparable
cases.
But in the end the question is a factual one : was the creditor who
brought the liquidation application motivated by an
improper motive?
[38]
The
court
a quo
held on the facts that the liquidators were not
motivated
by an improper motive. I agree. The liquidators had a claim
exceeding R 11 million against the appellant which could
not
bona
fide
be disputed. The appellant had closed its business three years
earlier. It had disposed of its moveable assets. Its only
asset
was a disputed claim against the liquidators and the RSA Government.
There was no reason why it would proceed with the
action for damages
against the CAC, which had already been placed in liquidation. If
the appellant were placed in liquidation,
its liquidators could
proceed with the action, if so advised. Liquidating the appellant
cannot deprive the creditors of the appellant
of any rights which
they enjoyed prior to its liquidation. In the result, I fail to see
how one can say that the liquidators
intended to stifle the
appellant’s claim or that they acted
mala
fide
or abused the process of the court.
[39]
I
finally turn to the complaint that the court
a
quo
had not given
proper
weight to the claim for damages instituted by the appellant against
the CAC and the RSA Government. The argument is that
if the claim
is successful, the appellant will be solvent and able to pay its
debts, including the claims of the liquidators.
Consequently, so it
was argued, the liquidation order should not have been granted;
alternatively, the application should have
been postponed until the
action for damages had been finalised.
[40]
If
the claim against the liquidators is successful, it will have little
effect
on the solvency of the appellant. The dividend it will receive from
the liquidators will fall far short of the liquidators’
claims
against the appellant. Had this been the only action, it was,
realistically speaking, not a factor to be taken into account
-
especially if regard is had to the fact that the appellant’s
liquidators could, if so advised, still proceed with the
action
against the respondents.
[41]
The
only claim which can have a material effect on the appellant’s
solvency,
is that against the RSA Government. The existence of that claim
does
not, in my view, stand in the way of winding up the appellant. As
stated
before,
the liquidation of the appellant does not affect the claim. If
successful,
the appellant’s members and creditors will enjoy every benefit
and
advantage
to which they would have been entitled had the appellant not been
liquidated.
The alleged existence of the claim is, therefore, at best for the
appellant,
a neutral factor.
[42]
I
am therefore not satisfied that the court
a
quo
exercised its
discretion
improperly.
[43]
In
the result the appeal fails with costs, including the costs of two
counsel.
P
J J OLIVIER JA
CONCURRING
:
HEFER
ADCJ
STREICHER
JA
MELUNSKY
AJA
BRAND
AJA