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[1996] ZASCA 3
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Barlows Tractor Company (Pty) Ltd. v Townsend (727/93) [1996] ZASCA 3; 1996 (2) SA 869 (SCA); [1996] 2 All SA 105 (A); (23 February 1996)
Case No 727/93
IN THE SUPREME COURT OF
SOUTH AFRICA
(APPELLATE DIVISION)
In the matter between:
BARLOWS TRACTOR COMPANY (PROPRIETARY) LIMITED Appellant
and
DAVID ARTHUR WALTER TOWNSEND
Respondent
Coram: JOUBERT, NESTADT, F H GROSSKOPF, HARMS JJA et VAN COLLER AJA
Date heard: 14 November 1995
Date delivered: 23 February 1996
JUDGMENT
NESTADT, JA
:
The appellant ("Barlows") is a creditor of Townsend
Plant Hire CC ("the corporation"). The respondent ("Townsend")
2
bound himself to Barlows as surety for the corporation's obligations.
The corporation is in liquidation. Barlows is pursuing its claim
against the insolvent estate of the corporation. Alleging that the
manner in which Barlows has done so had prejudiced him as surety,
Townsend brought an application in the Witwatersrand Local
Division against Barlows for a declarator that he has been released
from his obligations under the suretyship. For its part, Barlows, in
addition to opposing the application, counter-applied for payment of
(in round figures) R9.8m being the amount of its claim (as then
formulated) against the corporation. The matter came before Cloete
J. The learned judge granted the application and dismissed the
counter-application. His judgment is reported (see
Townsend v
Barlows Tractor Co (Pty) Ltd and Another
1995(1) SA 159(W)).
3
This is an appeal from such decision. It is brought with the leave
of the court a
quo
. The liquidator, who was cited as the second respondent in the court below, is not a party to the appeal. He
abides the decision of this Court.
As I have indicated, the dispute between the parties
arises from the way in which Barlows dealt with its claim against the
corporation. It is a close corporation and as such subject to the
provisions of the
Close Corporations Act, 69 of 1984
. Nevertheless
(by virtue of
sec 66(1)
thereof, read with
sec 339
as also secs 342(1)
and 366(1) of the Companies Act, 61 of 1973), its liquidation and in
particular the realization of its assets, the proof of claims of creditors,
the preparation and lodging of accounts by the liquidator, and the
application and distribution of its assets, is governed by the
4
Insolvency Act, 24 of 1936 (and by certain sections of the
Companies Act itself). Hence the reference, in what follows, to a
number of sections in these two Acts.
The application was a voluminous one. Nevertheless, the
salient facts may be relatively briefly stated. They are the following:
(i) Barlows's claim against the corporation is for the
balance of the purchase price of certain excavators,
tractors and loaders ("the equipment") sold and delivered
by it to the corporation from time to time prior to its
liquidation. In terms of the series of written
agreements ("the agreements") entered into between the
parties, the purchase price was in each case payable over
a period of time in successive monthly instalments;
5
ownership of the equipment remained vested in Barlows
until payment of the full purchase price; and in the
event of the corporation being placed under any order of
liquidation, Barlows would be entitled to claim payment
forthwith of the balance then outstanding.
(ii) In terms of the suretyships (there were actually two, one
dated 28 March 1988 and the other 10 August 1990), Townsend bound himself as surety and co-principal
debtor; he renounced the benefits of cession of action;
and he also indemnified Barlows "against any loss or
damage which it may sustain for any reason whatsoever,
irrespective of the validity and/or enforceability of the
cause(s) of its claim(s) against the Debtor".
6
(iii) A final winding up order (based on an inability to pay
its debts) was granted against the corporation on 28 January 1991. When this occurred the agreements were
still current and the corporation was largely up to date
with its monthly payments. Nevertheless, by reason of
the acceleration clause referred to, the full balance of the
purchase price then outstanding in terms of each
agreement became due and payable.
(iv) The agreements constituted instalment sale transactions
as defined in sec 1 of the Credit Agreements Act, 75 of
1980. Accordingly, on liquidation of the corporation
and by reason of sec 84(1) of the Insolvency Act, 24 of
1936, ("sec 84(1)"), Barlows, though losing its
7
ownership in the equipment, acquired instead a hypothec
over such equipment whereby the amount still due under
the agreements became secured. Barlows was therefore
a secured creditor.
(v) By arrangement with the liquidator, Barlows, having
recovered possession of the equipment, thereafter
proceeded to realize it. This took place by private
treaty. By the end of July 1992 Barlows had disposed
of all the equipment. On 1 April 1993 it paid over the
net proceeds to the liquidator. Whether the realization
was one in terms of
sec 83
of the
Insolvency Act
("sec
83
") and if so, what the effect of this is, are matters to
which I return later.
8
(vi) In the meantime Barlows, in terms of
sec 44(3)
of the
Insolvency Act
("
sec 44(3)
"), lodged its claim as a
secured creditor against the estate. This took place on
12 December 1991. On 24 March 1992, the Master, in
terms of sec 366(2) of the Companies Act, 61 of 1973,
fixed 14 May 1992 as the date by which creditors of the
corporation were to prove their claims. On that day a
special meeting of creditors was held but was adjourned
until 24 August 1992. Proof of Barlows's claim was
held over till then. This was to enable it and certain
other creditors to be interrogated in terms of
sec 44(7)
of the
Insolvency Act.
(vii
) On 21 August 1992, however, there took place an event
which played an important part in the reasoning of the
9
court a quo. On that date Barlows withdrew its claim
from proof. It did so in terms of a letter which, after
alleging that the proposed interrogation was an abuse of
sec 44(7)
and that creditors had no "legitimate interest"
in the interrogation, stated:
"In the circumstances, our client has been advised
to withdraw its claim from proof. Consequently,
this letter serves to inform you that our client's
claim is withdrawn from proof and that our client
proposes to institute an action against (the
corporation) in the Supreme Court of South
Africa, in which it will seek judgment in respect
of its claim."
(viii) As will be seen, Barlows thereafter instituted its
contemplated action. But before this happened,
Townsend launched his application. This was on 23
November 1992. And on 26 November 1992 the
liquidator lodged the first liquidation and distribution
10
account in the estate of the corporation with the Master.
On 21 January 1993 it was amended in certain respects
(not material for our purposes). Barlows was not
reflected as a creditor. The account (wrongly) states
that its claim was rejected (instead of withdrawn). The
proceeds of the sale of the equipment, in the sum of
R6,5m, are allocated to the free residue. (As a result of
this Townsend is, as a member of the corporation, awarded R3,15m.) As at the date of the answering
affidavit, the account had not yet lain for inspection.
(ix) On 8 December 1992 Barlows (out of the Witwatersrand
Local Division) issued summons against the liquidator. In its amended form, the corporation's indebtedness is
quantified in the (reduced) sum of R7.2m. Barlows
11
alleges that it had elected to withdraw its claim from
proof and proceed "by the instant action for the proof of
its claims" and that it is a secured creditor. Judgment
in the amount referred to is claimed, payable as to (i)
R6.8m out of the proceeds of the realization of the
equipment in accordance with sec 95(1) of the
Insolvency Act, and (ii) the balance as a concurrent
creditor in accordance with
sec 83(12)
of the
Insolvency
Act. We
were told by counsel that the liquidator
though defending the action has agreed, in the event of
this appeal succeeding, to admit Barlows's secured and
concurrent claims to proof. The action has therefore
been postponed
sine die
.
12
It has rightly never been suggested that by withdrawing
its claim from proof, Barlows abandoned it. Plainly, this was not the
case. As I read Townsend's application, his complaint against Barlows was founded on the allegation that, having acquired
possession of the equipment in terms of
sec 84(1)
, Barlows was
obliged to comply with the requirements of
sec 83
and that it had
failed to do so. The consequence of this, coupled with the
withdrawal of its claim from proof at the meeting was, so it was said,
that Barlows lost its security; it forewent its right to have its claim
satisfied from the proceeds of the sale of the equipment; such
proceeds would fall into the free residue; Barlows remained with a concurrent claim only. In the circumstances, Barlows was unable
to
cede to Townsend the benefit of its security "upon payment by me
13
under the deeds of suretyship"; there was (so it was then thought) no
likelihood of a dividend accruing to concurrent creditors; he had
therefore been prejudiced and was discharged from liability under the
suretyships. Though not so stated, the implication is that when it
came to him paying Barlows the full amount of its claim and
thereafter seeking to exercise his right of recourse against the
corporation in liquidation, he would not recover anything (as he
otherwise would have with the benefit of the security).
Though expressing the view (at 166 B of the reported
judgment) that had the procedure laid down in
sec 83
been followed, Barlows would have been able to participate "in the distribution of
the account already lodged" as a secured creditor, Cloete J does not
seem to have made a definite finding that
sec 83
applied. The
14
ground on which the learned judge upheld the contention that
Barlows had precluded itself from giving Townsend a proper cession
of actions and that he was in consequence released from his
suretyship obligations, was a more basic one. It was that Barlows
had followed what was described (at 166 C) as a "disastrous route"
(ie the withdrawal of its claim from proof and the institution of an
action instead). The reasoning was that though the proceeds of the
sale of the equipment were included in the account which had already
been lodged with the Master (165 J), Barlows could not "participate
in, and (had) irrevocably lost the right to participate in" such account
(165 H); accordingly its claim against the corporation was
"worthless, or virtually worthless" (165 H); there was "nothing left
on which a successful action establishing (Barlows's) claim...can
15
retrospectively operate" (163 G); this was (I presume) because
Barlows was left with a concurrent claim only (which would not be
satisfied).
The renunciation by a surety of the benefit of cession of
actions does not disentitle him from having cession; the renunciation
operates only to prevent the surety from delaying payment to the
creditor by a dilatory exception; but he is entitled to cession of
actions on or after full payment (Caney's The Law of Suretyship, 4th
ed, 141). When Townsend brought his application, he had not paid
Barlows. Indeed, he does not even allege that Barlows had
demanded payment from him. On the contrary, it is clear that at this
stage Barlows was looking to the corporation in liquidation for
payment. A claim against Townsend only came in the counter-
application. All that Townsend alleges in his founding affidavit is
16
that he had been told by a third party that Barlows maintained that
he (Townsend) was liable to it under the suretyships and that Barlows
"may in the future institute action against me". In these
circumstances, I am not sure that the application disclosed a cause of
action. Townsend, however, alleges that Barlows's potential claim
against him was prejudicing him; he had to advise persons with
whom he did business of it; it was like a "sword of Damocles
hanging over (him)". Even so, it may be that the application was
premature. However, in the view I take of the matter, it is not necessary to pursue this preliminary problem. I shall assume in
favour of Townsend that he was entitled to bring his application
when he did.
I have referred to
sec 83.
Broadly stated, it enables a
17
creditor himself to realize a security (in the form of movable
property) held by him. Having done so and after he has paid over
the proceeds to the trustee and proved a claim, he is entitled to
payment out of such proceeds as a preferent creditor. He must,
however, comply with certain conditions laid down in the section.
Thus the sale must be by public auction and it must take place before
the second meeting of creditors. In
casu,
this did not happen and,
as I have said, it was Townsend's case that the realization by Barlows
of the equipment having purportedly taken place pursuant to
sec 83
,
it had lost its
sec 84(1)
hypothec and with it its secured claim. That
both Barlows and the liquidator thought that the realization was in
terms of
sec 83
, is clear. The correspondence between them shows
this. Nevertheless, I think there is a lot to be said for the submission
18
advanced before us by Mr
Rubens
on behalf of Barlows that the
liquidator in particular misconceived the position and that it was secs
386(2A) and (2B) of the Companies Act that applied. These
sections empower the Master on the recommendation of the liquidator
at an early stage in the liquidation to authorise the sale of property
of the company. On this basis there was, of course, no need for
Barlows to comply with sec 83. But the point is not of importance.
Mr
Farber
for Townsend did not base his argument that Barlows had
lost its secured claim on non-compliance with sec 83. The emphasis
of the attack changed from an alleged improper realization of its
security to an alleged improper proof of its claim.
The general principle is that the surety will be discharged
if the creditor by his own act makes it impossible for himself to cede
19
his security to the surety
(Wessels
: Law of Contract in
South Africa
,
vol 2, 2nd ed, para 4339;
Caney,
op cit, 140). It may be accepted
therefore that if Barlows, by reason of the course it adopted regarding
proof of its claim, lost its security, the appeal must fail. The issue
is whether, as the court a
quo
found, Barlows did lose its security.
In particular, the issue is whether Barlows can obtain satisfaction of
its claim from the proceeds of the sale of the equipment; in other
words whether Barlows can still share (as a secured creditor) in the
first liquidation and distribution account (referred to in (viii) above).
One way of establishing its secured claim was for
Barlows to submit a claim for proof in the estate. The other was to
institute legal proceedings to enforce its claim against the corporation
in liquidation. As I have said, Barlows initially embarked on the
20
former course but then withdrew its claim from proof. The question
that arises is whether the action which it then instituted was a
competent procedure. This was not a point which appears to have
arisen in the court a
quo
. But it is one which has now been raised
on behalf of Townsend. The submission was that the action is not
competent. Sec 44(3) was relied on. Read with sec 44(1), it
provides for proof of liquidated claims against an insolvent estate, the
cause of which arose before sequestration. According to the Erst
proviso, the rejection of a claim "shall not debar the claimant from
proving that claim at a subsequent meeting of creditors or from
establishing his claim by an action at law, but subject to the
provisions of sec 75". Sec 75(2) lays down time limits within which
legal proceedings against an estate in respect of any liability which
21
arose before sequestration must be brought. The corresponding
section in the Companies Act is sec 359(2). It reads:
"(a) Every person who, having instituted legal proceedings
against a company which were suspended by a winding-up,
intends to continue the same, and every person who intends to
institute legal proceedings for the purpose of enforcing any
claim against the company which arose before the commencement of the winding-up, shall within four weeks
after the appointment of the liquidator give the liquidator not
less than three weeks' notice in writing before continuing or
commencing the proceedings.
(b) If notice is not so given the proceedings shall be
considered to be abandoned unless the Court otherwise directs."
The argument was that once Barlows had submitted a claim for proof
in terms of sec 44(3), it could not thereafter institute legal
proceedings - unless the claim had been rejected; there had been no
rejection; there had only been a withdrawal. In any event, so it was
further said, the notice required by sec 359(2)(a) had not been given
22
and the action must be considered to have been abandoned in terms
of sub-sec (b).
The basis of the argument is, of course, that Barlows's
claim arose before liquidation. It is only in respect of such claims
that sec 359(2) applies. Contrary to what Cloete J (at 162G) found,
I think the corporation's debt is a pre-sequestration one. It is true
that in the case of the majority of the agreements, instalments were
up to date when liquidation intervened, and the full balance only
became payable (pursuant to the acceleration clause) because of the liquidation itself. The claim was therefore not actually due at
the
date of liquidation. This, however, is not necessary
(Mars
: The Law
of Insolvency in
South Africa
, 8th ed, 333). The cause of action did
not have to be perfected. Nor does it matter that the security, in the
23
form of the hypothec, only arose on liquidation. The agreements
having been concluded before liquidation, the cause of the claim (as
to which see sec 44(1)) and the claim itself, on a proper
interpretation of the sections in question, must be taken to have
arisen before liquidation.
But even so, I do not think that the argument under
consideration is sound. A creditor of a liquidated company has two courses open to him to recover his debt. One is to institute legal
proceedings. The other is to prove his claim in the estate
(Umbogintwini Land and Investment Co (Pty) Ltd (In Liquidation)
v Barclays National Bank Ltd and Another
1987(4) SA 894(A) at
910A). The proviso to sec 44(3) deals with the remedies open to a
creditor where, having submitted a claim for proof, it is rejected. He
24
may attempt to prove his claim at a subsequent meeting of creditors.
Or he may institute action. But a declaration in the section that a
rejection will not bar an action does not mean that a rejection is a
prerequisite to an action. That is what the argument amounts to.
There is no warrant for construing the proviso in this way. Much
clearer language would be required to deprive a creditor, who has
withdrawn his claim from proof before it has been rejected in terms
of sec 44(3), of his common law right to enforce his claim by legal
proceedings. That such a creditor retains the right which he initially
had to sue, was, it seems to me, recognised in the
Umbogintwini
case. Under consideration was the meaning of sec 359(2). At 910
E-H Viljoen JA said:
"Section 359 deals with the institution of legal proceedings if
that is, at the stage of the initial election, the course decided
25
upon. That does not rule out the possibility that legal
proceedings other than those contemplated in s 359(2) may,
depending upon the
vicissitudes
following in the wake of the
creditor's initial election to pursue his claim by proving it in
the estate, be instituted at a later stage.
In my view s 359(2)(a) is capable of one construction only. The obligation to give notice within a period of four weeks
after the appointment of a liquidator is imposed upon the
creditor who intends to institute legal proceedings forthwith.
The creditor who intends to enforce his claim by proving it at
a meeting of creditors of that estate is not hit by the provision
at all. Had the Legislature intended to impose the obligation
on a
creditor who might at a later stage decide or be compelled
to institute civil proceedings
against the estate, it could easily
have provided therefor in clear terms." (My emphasis.)
I can see no reason why "vicissitudes" is not capable of including the
withdrawal of a claim from proof in terms of sec 44(3) in favour of
the bringing of legal proceedings. Similarly, the reference to "a
creditor who might at a later stage decide or be compelled to institute
civil proceedings" shows that a rejection is not a
sine qua non
to a
26
change of mind by the creditor.
I have quoted from the
Umbogintwini
judgment at
some length because it also bears on the second submission referred
to, viz that the action was precluded by sec 359(2)(a) because
Barlows had failed to give the liquidator the prescribed notice. In
my opinion, what was said is destructive of the submission.
Consider also what Viljoen JA goes on to say (at 910 H - 911 A)
namely:
"The provision [sec 359(2)] was designed, in my view, to
afford the liquidator an opportunity, immediately after his
appointment, to consider and assess, in the interests of the
general body of creditors, the nature and validity of the claim
or contemplated claim and how to deal with it - whether, for
instance, to dispute or settle or acknowledge it. Cf
Randfontein Extension Ltd v South Randfontein Mines Ltd and
Others
1936 WLD 1
at 3. In the case of claims sought to be
proved in the estate, the liquidator does not require such an
opportunity. If the claim is rejected by the officer presiding in
27
terms of
s 44(3)
of the
Insolvency Act, the
liquidator would be
fully apprised and if disallowed by the Master in terms of s
45(3)
he would be fully aware of the nature of the claim
concerned because the Master acts on his report.
Consequently, in neither case would he require three weeks'
time within which to consider the claim."
Equally where, as in our matter, the creditor's claim was duly
tendered for proof, the need for notice in terms of
sec 359(2)
falls
away. The withdrawal of the claim would not detract from or undo
the knowledge acquired of the claim by the liquidator (who,
incidentally, is not even taking the point). The argument, if acceded
to, would mean that in the vast majority of cases a creditor who
withdrew his claim from proof would be unable to institute legal
proceedings for by that time the four week period referred to in sec
359(2)(a) would have expired. This could not have been the
legislature's intention.
28
To sum up so far, I find Barlows's action against the
corporation in liquidation to be capable of establishing its claim. But
will a judgment retrospectively result in Barlows ranking as a creditor
in the account lodged by the liquidator on 26 November 1992? The problem, of course, stems from Barlows not having proved a claim
within the time fixed by the Master in terms of
sec 366(2)
(see (vi)
above) or by the time the account was lodged. According to sec
366(2)
the Master may, on the application of the liquidator, fix a time
or times within which creditors of the company are to prove their
claims or otherwise be excluded from the benefit of any distribution
under any account lodged with the Master before those debts are
proved.
On behalf of Barlows, Mr
Rubens,
presented a twofold
29
argument to overcome what may be called Barlows's late proof of
claim. One submission was advanced on the authority of
Trans-
Drakensbere Bank Ltd and Another v The Master. Pietermaritzburs,
and Another
1966(1) SA 821(N) (and especially, so it would seem,
the passage at 823 G). It was that the Master could, in terms of sec
366(2)
at any time prior to distribution under the account, extend the
date fixed for the proof of claims and that if on the application of
Barlows he did so, this would enable Barlows to share in an amended
first account (as a secured creditor). The
Trans-Drakensberg
case
dealt with
sec 179(2)
of the old Companies Act. This section is the
predecessor to and corresponds with sec 366(2). It is, however,
unnecessary to deal with the point. This is because of the view I
take of counsel's second point.
30
The second argument was founded on
sec 78(3)
of the
Insolvency Act. It
provides:
"If authorized thereto by the creditors or if no creditor has proved a claim against the estate, by the Master, the trustee
may compromise or admit any claim against the estate,
whether liquidated or unliquidated if proof thereof has been
duly tendered at a meeting of creditors. When a claim has
been so compromised or admitted, or when it has been settled
by a judgment of a court, it shall be deemed to have been
proved and admitted against the estate in the manner set forth
in section forty-four, unless the creditor informs the trustee in
writing within seven days of the compromise or admission or
judgment that he abandons his claim: Provided that the
preceding provisions of this sub-section shall not debar the
trustee from appealing against such judgment, if authorized
thereto by the creditors."
It was Barlows's case that in the event of it obtaining judgment, the
deeming provision would apply; this would mean that its claim
would be deemed to have been proved and admitted against the estate
on 14 May 1992 ((v) above); and it would therefore be entitled to
31
rank as a secured creditor in the first account.
Counsel for Townsend did not dispute that
sec 78(3)
applied to the liquidation of a company. He did, however, dispute
that it applied to Barlows's claim. It was submitted that even in the
case of a claim settled by a judgment,
sec 78(3)
does not effect a
retrospective deeming where no proof of claim has been tendered at
a meeting of creditors. Reliance was placed on the decision to this
effect in
Cachalia v De Klerk, NO and Benjamin, NO
1952(4) SA
672(T). In the
Umbogintwini
case (at 910 D) the correctness of
Cachalia
was queried though, so it would seem, in a limited respect
only. Before us, however, Mr
Rubens
submitted that it was
fundamentally wrong. It was said that, properly interpreted, the section did not require a creditor who obtains a judgment to have
32
tendered his claim for proof at a meeting of creditors. The argument is not without merit. But for the reasons which follow I leave
it at
that. Subject to what is said later, I assume that
Cachalia
was
correctly decided and that the deeming provision of
sec 78(3)
would
only come into operation if Barlows's claim had been duly tendered
for proof.
The second proviso to
sec 44(3)
states that if a creditor
has twenty-four or more hours before the time advertised for the
commencement of a meeting of creditors submitted to the officer who
is to preside at that meeting the affidavit and other documents
mentioned in sub-sec (4), he shall be deemed to have tendered proof
of his claim at that meeting. It will be recalled that Barlows
timeously submitted a claim against the estate ((iv) above). There
33
has been no suggestion that it was not in proper form. The deeming
provision of
sec 44(3)
therefore applied. And it would relate to the
14 May 1992 meeting. But, it was argued, the subsequent withdrawal
of the claim destroyed this. I do not agree. Nor do I agree that it
was a "disastrous route". The withdrawal was not a simple or
absolute one. Barlows did not thereby waive its right to proceed
against the estate and be paid from the proceeds of the sale of the equipment. The withdrawal was a preparatory step to the institution
of legal proceedings. In principle therefore, since the claim (though
in a different form) remained, I do not see why its withdrawal from
consideration at the special meeting should negate the fact that
Barlows had submitted its claim for proof at such meeting. Suppose
summons had been issued before the withdrawal. To have
34
maintained the claim in these circumstances would have served no
real purpose. Its enforcement had moved to a different forum.
Does it matter that in
casu
summons was issued after the withdrawal?
I do not think so. Neither the liquidator nor any creditor has
alleged that they have been misled by Barlows's actions. I am not
sure that the
sec 44(7)
and (8) powers of interrogation could not still
be used against Barlows on the basis that Barlows was a person "who
wishes to prove...a claim". In any event, interrogation is hardly
necessary seeing that the claim will (if defended) be ventilated in the
trial court. The possibility of a creditor who, having withdrawn his
claim, delays in instituting legal proceedings was raised; it was said
that the winding-up of the estate would be held up and vigilant
creditors prejudiced. But the danger would not be avoided by the
35
claim not being withdrawn. Moreover, the chances of this
happening are somewhat fanciful. Such a creditor would run the
risk of there being a distribution under the account and thus of him
being unable to obtain payment of his claim.
But Mr
Farber
further argued that the deeming provision
of
sec 78(3)
required that there should have been a rejection of the
claim. What Dowling J said (at 677 F) in the
Cachalia
case supports
counsel. I must, however, respectfully differ from the learned judge.
In contrast to the 1916
Insolvency Act, the
section in its present form
omits any reference to a rejection of the claim. I cannot agree that
this is not significant. When parliament considered it necessary to
refer to a rejection of a claim, this was done (see the first proviso to
sec 44(3)).
In this regard Rumpff JA in
Proksch v Die Meester en
36
Andere
1969(4) SA 567(A) at 589 A-B said:
"Die verwysing na 'n vonnis van 'n
hof
in art 78(3) het nie
betrekking op 'n vordering wat afgewys word luidens art 44(3) nie. In art 44(3) word uitdruklik bepaal dat die afwysing van
'n vordering die skuldeiser nie belet nie om sy vordering in 'n
regsgeding te bewys."
The promotion of the object of
sec 78(3)
(referred to by Dowling J
at 674 H) does not require that there should have been a rejection.
My conclusion is that in the event of Barlows obtaining
judgment against the corporation in liquidation, such judgment will bring about a retrospective deeming under
sec 78(3)
so that Barlows
will be entitled to rank as a secured creditor in the first account. The
liquidator should, in framing such account, have made provision for
such claim as a contingent liability. It follows that Townsend's
contention that Barlows will be unable to give him a proper cession
37
of actions and that he has been discharged from the suretyships
!
cannot be sustained. Irrespective of the effect of the indemnity to
|
which I referred at the beginning of this judgment (and which, in the
result, it is unnecessary to deal with), the application should have
been dismissed.
It was common cause that in the event of the appeal
succeeding, the order of the court a
quo
should be altered to make provision for the counter-application to be referred to trial on
appropriate conditions.
The following order is made:
(1)
The appeal succeeds with costs including the costs of two
counsel.
(2)
The order of the court a
quo
is set aside and the following
(1)
38
substituted:
"(i) The application is dismissed with costs including the
costs of two counsel.
(ii) The counter-application is referred to trial. The first
respondent's notice of motion in support of the counter-
application is to stand as summons. The applicant is to
file his plea in due course."
H H Nestadt
Judge of Appeal
Joubert, JA )
concur
Van Coller, AJA )
Case No 727/93
IN THE SUPREME COURT OF
SOUTH AFRICA
(APPELLATE DIVISION)
In the matter between:
BARLOWS TRACTOR COMPANY (PROPRIETARY) LIMITED Appellant
and
DAVID ARTHUR WALTER TOWNSEND
Respondent
CORAM:
JOUBERT, NESTADT, F H GROSSKOPF, HARMS JJA et
VAN COLLER AJA
HEARD:
14 NOVEMBER 1995
DELIVERED: 23 FEBRUARY 1996
JUDGMENT
HARMS JA/
2
HARMS JA:
I agree with the order proposed by Nestadt JA. Some
of my reasons differ from those set out in his judgment and I
wish to state them shortly.
The issue which arises for determination is whether
Barlows has, on some basis or other, lost its claim in terms
of
s 84
of the
Insolvency Act as
a secured creditor, and, in
consequence, will be unable to cede to the surety its security
after payment in full by the surety (Townsend). In support of
his case counsel for Townsend ultimately
1
relied on
s 359(2)
and s 366(2) of the Companies Act.
1.
S 359(2) of the Companies Act
: Counsel contended
that Barlows was barred from enforcing its claim against the
corporation in liquidation : The requisite notice had not been
given; consequently the proceedings are considered to have
been abandoned.
S 359(2) applies only if the purpose of the
1
It has to be noted that the argument on both sides before this
Court differed materially from that presented to Cloete J.
3
proceedings is to enforce a claim "which arose before the
commencement of the winding-up". Cloete J, in the court below,
held that Barlows's claim arose after the liquidation of the
corporation (at
1995 (1) SA 159
(W) 162 G-I) and that this
provision and the cases dealing with it are accordingly not
applicable. I assume that his reason for this conclusion was that, at the date of liquidation, all instalments due by the
close corporation were up to date (see at p 160I-161A).
Nestadt JA, on the other hand, holds that the claim arose before the relevant date, namely when the instalment sales
transactions were concluded.
It is in this limited regard that I wish to express
my respectful disagreement with both views. Barlows's claim
arose, in my judgment,
upon
the grant of the final winding-up
order, i e after "the commencement of the winding-up" (see s
348 of the Act). Prior to the final order Barlows's claim
against the corporation was one for payment of the agreed
instalments as they fall due. Upon breach Barlows could have
4
cancelled, reclaimed possession of the goods sold, and claimed
damages. The "claim" changed in character upon liquidation
—
it became a statutory claim in terms of s 84 (read with
s 83)
of the
Insolvency Act. Although
the contracts are the source of the claim against the corporation in liquidation, they do
not represent the claim. The present claim was only perfected
when the final order was granted. Barlows lost its claim as
owner and a new claim arose when it became a creditor with a
statutory hypothec.
There is yet another reason why Townsend cannot rely on
359(2). If applicable, it provides a defence in the hands
of the liquidator. The liquidator is not obliged to raise it.
The defence is also not an absolute defence because the court
may direct that the proceedings are not "considered" to have
been abandoned. Unless and until a court has finally
pronounced on this issue, Townsend cannot establish that the
security is lost, that he has been prejudiced and that his
obligations as surety are extinguished.
5
2.
S 366(2) of the Companies Act
: The second point
raised on behalf of Townsend is based upon s 366(2) of the
Companies Act. The following facts are in this connection
relevant and are restated for ease of reference:
[a} The Master, as he was entitled, fixed 14 May 1992 as the
final day on which creditors of the corporation could prove
their claims.
[b]
A special meeting of creditors was convened for that day
but was, due to the intervention of Townsend, unable to
complete its work. In particular, Barlows's claim was not
proved and in the event the meeting was adjourned to 24 August
1992 for that purpose.
[c]
On 21 August 1992 Barlows withdrew its claim (see par
(vii) of Nestadt JA's judgment).
[d]
On 23 November 1992 Townsend launched his application for
a declaratory order.
[e]
On 26 November 1992 the first liquidation and distribution
account was lodged.
[b]
6
[f]
Barlows instituted action against the corporation in liquidation on 8 December 1992.
[g]
The amended first liquidation and distribution account was
lodged on 21 January 1993.
I turn then to s 366 and, more particularly ss (2).
It states that if a creditor fails to prove his claims within
the period fixed by the Master, he is "otherwise ... excluded from the benefit of any distribution under any account lodged
with the Master before such debts are proved". The provision does not prevent a creditor from proving his claim after the
date fixed by the Master. Nor does it disentitle a creditor
of the benefit of a distribution under the next account lodged.
He is only excluded from the benefit of a distribution under
an account lodged before proof. Seeing that Townsend launched
his application before any account had been lodged, his
application was premature. As a general rule a cause of action
must exist at the stage when proceedings are instituted. At
that stage the first account had not been lodged and Barlows
7
was, in spite of the withdrawal of its claim, still entitled
to prove a claim and share in the distribution under the
account.
Apart from being premature, I am also of the view
that Townsend's claim is otherwise misconceived. No
distribution can take place in terms of the first account of
26 November 1992 since it was replaced by the amended account
of 21 January 1993. The question is then whether Barlows is
excluded from the benefit of a distribution under that account.
As presently framed, this account, in a preamble,
refers to the pending action of Barlows. It fails to reflect
that the claim is contingent and that Barlows also claims the
proceeds of the sale of the goods hypothecated. Is it under
these circumstances possible to distribute the said proceeds
amongst unsecured creditors and members of the corporation?
I think not. Such a course would be contrary to basic
accounting principles. The account had to reflect the pending
claim of Barlows as a charge against the proceeds of the sale.
8
Unless and until the action has finally been adjudicated, the
liquidator is not entitled to show the proceeds as available
for general distribution. The Master could not confirm the
account in this form (something he has not done).
To state my views slightly differently: In view of
the pending claim of Barlows, the proceeds were not available
for distribution under the amended account. Those proceeds
have to be kept available in the event of a successful action.
Once Barlows has obtained judgment it may prove the judgment
debt as a novated claim at a later meeting. (This does not
mean that I agree with the conclusion in
Cachalia
that a post-
liquidation judgment debt has still to be proved. As a matter
of fact, I have serious reservations in this regard, but it is not necessary to decide the point.) In sum : the security (the
proceeds of the sale) has not been shown to have been lost.
To reach this conclusion I find it unnecessary to express any
views on the provisions of s 78(3) and
s 44(3)
of the
Insolvency Act.
>
9
L T C HARMS JUDGE OF APPEAL
F H GROSSKOPF, JA : Agrees