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[1995] ZASCA 156
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Venter NO v Avfin (Pty) Ltd. (193/94) [1995] ZASCA 156; 1996 (1) SA 826 (SCA); [1996] 1 All SA 173 (A); [1996] 1 All SA 173 (A) (29 November 1995)
Case No 193/94
/mb
IN THE SUPREME COURT OF SOUTH AFRICA
(APPELLATE DIVISION)
In the matter of:
GERT HENDRIK JOHAN VENTER, NO.
APPELLANT
and
AVFIN (PROPRIETARY) LIMITED
RESPONDENT
CORAM
: JOUBERT, NESTADT, HARMS, EKSTEEN JJA et
SCOTT AJA
HEARD
: 3 NOVEMBER 1995
DELIVERED
: 29 NOVEMBER 1995
JUDGMENT
SCOTT AJA/
...
SCOTT AJA
:
The appellant, in bis capacity as the duly appointed liquidator of Townsend
Plant Hire CC ("the corporation"), sought an order in
the Witwatersrand Local
Division directing the respondent, a creditor of the corporation, to pay the
appellant the proceeds derived
from the realisation of certain earthmoving
equipment which the respondent had held as security. The relief claimed was
founded on
s 83
(10) of the
Insolvency Act 24 of 1936
("the
Act") which
is
applicable to the administration of an insolvent close corporation (see
s 66
of
the
Close Corporations Act 69 of 1984
read with s 339 of the Companies Act 61 of
1973). Various defences were raised in the answering papers but Roux J who heard
the application
found it unnecessary to deal with these and instead upheld a
point in
limine
that the applicant had failed to make out a case in the
founding papers for the relief claimed. Shortly stated, the conclusion to
which
the learned judge
3
came was that the appellant was not entitled in terms of s 83 (10) of
the Act to recover the proceeds derived from the realisation
of the equipment as
the respondent had failed to effect the realisation in accordance with the
preceding subsections of s 83. Accordingly,
and because the appellant had
formulated his claim in terms of s 83 (10) as opposed to a claim at common law
for the value of the
property realised, it was held that the claim had to be
dismissed. The appellant, with the necessary leave, now appeals to this court
against the judgment and order of Roux J.
Shortly before the hearing in this Court the respondent's attorneys withdrew
as attorneys of record and wrote to the registrar advising
that the respondent,
which was no longer trading, had decided not to incur the costs of engaging an
attorney and briefing counsel
to appear to oppose the appeal. By this time,
however, heads of argument had been filed on behalf of the respondent in which
submissions
were made with regard to
4
the other defences raised in the papers as well as the point on which the
judgment of the Court a
quo
was based. I shall deal with these defences
later in this judgment and after first considering the basis upon which the
claim was
dismissed.
Before dealing with any of these issues, it is necessary, however, first to
set out as briefly as the circumstances permit the principal
events leading up
to the appellant instituting proceedings against the respondent for the relief
claimed.
On 10 December 1990 the corporation, which carried on business as the lessors
of earthmoving equipment, entered into three separate
instalment sale agreements
with the respondent for the purchase of three items of earthmoving equipment. In
each instance ownership
remained vested in the respondent pending payment of the
purchase price which was to be effected in monthly instalments over a period
of
thirty-six
5
months. It is not disputed that each transaction constituted an "instalment
sale transaction" as defined in s 1 of the Credit Agreements
Act 75 of 1980. On
18 January 1991 a provisional winding up order was granted against the
corporation. By this time it had taken
delivery of the equipment from the
respondent and had let two of the items to clients but still had the third item
on its premises.
It remained, of course, substantially indebted to the
respondent in terms of the agreements. The appellant was appointed liquidator
of
the corporation on 1 February 1991.
On 4 February 1991 the appellant held an informal meeting with creditors who
had concluded instalment sale agreements with the corporation,
including the
respondent. It was agreed that each creditor would repossess the subject matter
of each instalment sale agreement in
respect of which it had a claim and hold
the property as security for such claim. Although not expressly stated in the
papers, it
would seem that in
6
arriving at this agreement the parties had in mind the provisions of s 84
of
the Act in terms of which (subject to the defence considered below)
the
creditors would have lost their ownership in the subject matter of each
transaction and acquired a hypothec in its stead.
The following day, ie 5 February 1991, the appellant wrote to
the respondent confirming the arrangement that the latter was to take
possession of the equipment and hold it as security for its claim. The
letter
concluded:
"1 now wish to deal with the realization of your security which is set out in
Section 83
of the
Insolvency Act, a
copy of which is attached hereto for your
information with particular reference to subparagraphs 8, 9, 10 and 11.
Claim documents will be forwarded to you under cover of a separate letter.
Please have these completed and returned to me in order
that a decision
regarding the realization of your security can be made." The respondent took
possession of the equipment and the
winding up order
7
was in due course made final.
The second meeting of creditors was held on 6 June
1991.
Despite a reminder from the appellant, the
respondent failed to submit its
claim which was accordingly not proved at the meeting. The respondent
had also by that date not given notice in writing to the Master and to
the
appellant of the fact that it held the equipment as security for its claim
as
required by
s 83
(1); nor had it realised the equipment. On 13 June 1991
and in terms of
s 83
(6), the appellant wrote to the respondent demanding
that the equipment immediately be delivered to him. The subsection
provides as follows:
"(6) If he has not so realized such property before the second meeting of
creditors, he shall as soon as possible after the commencement
of that meeting
deliver the property to the trustee, for the benefit of the insolvent estate and
if the creditor has not delivered
the said property to the trustee within a
period of three days as from the commencement of the said meeting the trustee
may demand
from
8
him delivery of such property. If the creditor fails to comply with such demand
of the trustee, the Master, at the request of the
trustee and after notice to
the creditor shall direct the deputy-sheriff within whose area of jurisdiction
the property is situate
to attach the property and to deliver it to the trustee,
and in that case the creditor shall be liable for the deputy-sheriff's costs,
as
taxed and allowed by the Master. If those costs cannot be recovered from the
creditor, they shall be paid out of the estate as
part of the costs of the
sequestration."
The respondent simply ignored the demand and on
14 June 1991 submitted its claim. Instead of taking the steps detailed in
s 86
(6) for the recovery of the property, the appellant made arrangements for a
special meeting of creditors for proof of claims to be
held on 5 September
1991.
In the meantime and on 19 July 1991, the respondent realised a part of the
equipment for R140 955,00. Although not stated expressly
in the papers, it is
clear that the realisation was not effected in the manner provided for in ss 83
(8) and (9) of the Act. Indeed,
the appellant became
9
aware of the sale only some considerable time thereafter. The relevant
portion of these subsections reads:
"(8) The creditor may realize such property in the manner and on the conditions
following, that is to say -
(a) ...
(b)...
(c) ...
(d) if it is any other property, the creditor may sell it by public auction
after affording the trustee a reasonable opportunity
to inspect it and after
giving such notice of the time and place of the sale as the trustee
directed.
(9) As soon as the trustee has directed a
creditor in terms of paragraph (d) of sub-section (8) to give notice of a sale
by public
auction, the trustee shall give notice in writing to all the other
creditors of the estate in question of the time and place of the
proposed
sale."
At the meeting on 5 September 1991 the respondent's claim was rejected on
technical grounds.
On 8 November 1991 the respondent sold the remaining items of equipment for
R243 524,23. Once again the sale was not effected in
10
accordance with the provisions of subsections (8) and (9).
Some months
thereafter and in pursuance of s 366 (2) of the Companies Act the Master fixed
14 May 1992 as the final date for the proof
of claims. At the meeting of
creditors held on that day the respondent's claim was again rejected. The
meeting was postponed to 24
August 1992 on which day the claim was yet again
rejected, apparently because of some defect of a technical nature.
The appellant then adopted a new approach. On 8 December 1992 and for some
inexplicable reason he wrote to the respondent demanding
payment of the sum of
R160 000,00 being the amount at which the respondent in its claim lodged on 14
June 1991 had valued its security.
The demand was ignored by the respondent as
were a number of similar demands which the appellant was content to make.
Eventually
a further meeting of creditors for the proof of claims was convened
for 20 April
11
1993. On that day the meeting was postponed to 17 May 1993. In the meantime
and on 28 April 1993, the respondent submitted a fresh
claim which contained the
details concerning the realisation of the equipment to which reference has been
made above. The respondent's
fresh claim was submitted for proof but still not
accepted. The meeting was then adjourned to 16 August 1993 when the claim was
finally
proved.
But by 5 August 1993 and after having done virtually nothing for a period of
more than two years other than write a few letters, the
appellant was finally
galvanised into action. On that day he caused the proceedings to be instituted
which have led to the present
appeal.
Before finally turning to the reasoning of Roux J it is necessary to observe
that from the aforegoing it is apparent that the respondent
failed to comply
with the provisions of s 83 in the following respects: (i) it did not before the
second meeting of creditors give
notice in writing to the
12
Master and to the appellant of the fact that it held the equipment as
security
(s 83 (1)); (ii) it did not realise the equipment before the second
meeting
of creditors; (iii) when it did realise the equipment, it did so in a
manner
other than as provided for in ss 83 (8) and (9); (iv) it did not prove
its
claim. Section 83 (10), being the section on which the appellant's claim
is
founded, reads:
"Whenever a creditor has realized his security as hereinbefore provided he shall
forthwith pay the net proceeds of the realization
to the trustee, or if there is
no trustee, to the Master and thereafter the creditor shall be entitled to
payment, out of such proceeds,
of his preferent claim if such claim was proved
and admitted as provided by section
forty-four
and the trustee or the
Master is satisfied that the claim was in fact secured by the property so
realized. If the trustee disputes
the preference, the creditor may either lay
before the Master an objection under section
one hundred and eleven
to
the trustee's account, or apply to court, after notice of motion to the trustee,
for an order compelling the trustee to pay him
forthwith. Upon such application
the court may make such order as to it seems just."
The learned
judge held in effect that the consequence of the respondent's
failure to adhere to the provisions of s 83 was to deprive the appellant
of
13
his right in terms of s 83 (10) to recover from the respondent the proceeds
from the realisation of the equipment. This somewhat startling
result was based
on an interpretation of the phrase "as hereinbefore provided" in the subsection
as requiring strict compliance with
all the procedural steps set out in the
earlier subsections of s 83, failing which s 83 (10) would have no application
and the trustee
would be left with no more than the common law remedies to
vindicate the property from whoever possessed it or to recover its value
from
the creditor. I use the word "startling" because the construction results in the
anomaly that a creditor would be able to obtain
his release from his statutory
obligation to pay over to the trustee the proceeds of the realisation by the
expedient of failing
to comply, whether deliberately or otherwise, with one or
other of the procedural steps set out in the section.
In
Bowman NO v De Souza Roldao
1988 (4) SA 326
(T)
the
14
question arose whether the liquidator of a company was entitled to
recover
in terms of s 83 (10) of the Act certain debts which had been
collected after
the liquidation by a creditor who purported to hold the money
in pursuance
of a cession of book debts and in circumstances where the creditor, as in
the present case, had not complied with the preceding subsections of s
83.
Kirk-Cohen J dealt with counsel's argument, at 330 H - J, as follows:
"Mr Zar submitted that should a creditor, who is given permission to realise an
asset, not pay over the proceeds, the trustee may
sue him for the amount
realised. I agree that such right is conferred upon the trustee by the
provisions of s 83. Mr Zar argued further
that, should a creditor not seek
permission to realise a security, do so, and fail to pay over the proceeds in
terms of ss (10),
a
fortiori
the trustee has the same right of recovery.
I find this latter portion of Mr
Zar
's argument logical and in consonance
with the object and wording of the Act. To hold otherwise would stultify the
powers of the trustee
I have referred to. It would place a creditor who has
ignored the provisions of the subsection in a better position than one who
has
obtained the required consent to realise the security. The Legislature could
surely not have so intended."
After observing that the argument
advanced by counsel was "cogent" the
15
learned judge, however, found it unnecessary to have to decide the
point.
Roux J in the present case referred to the passage quoted above
and
dismissed what was said as follows:
"Had I heard such an argument I would with respect have rejected it as illogical
and not founded on any provision in the statute
..."
This
observation was based, however, on the literal interpretation placed by the
learned judge on the phrase "as hereinbefore provided"
and which Kirk-Cohen J
felt could not have been what was intended by the legislature. Roux J himself
made no attempt to resolve the
obvious anomaly to which his interpretation would
give rise.
The phrase in question cannot, of course, be considered in
vacuo
. On
its own it is meaningless. It must be read both in the context of the provision
in which it occurs and together with the preceding
provisions to which it
refers. In the sentence in which it occurs the legislature is there dealing
primarily with what is to be done
when a
16
creditor has realised his security. There is no reference in that sentence or
elsewhere in the subsection to the failure on the part
of the creditor to comply
with any of the procedural steps detailed in the preceding subsections or the
consequences of such a failure.
What immediately strikes one is that had the
legislature intended the meaning which the court a quo attributed to the phrase,
it
would be surprising having regard to the far-reaching consequences of such a
meaning that the legislature should have expressed itself
in such an indirect
and indefinite manner. Had this been the intention one would ordinarily have
expected an express provision dealing
with the consequences of non-compliance by
the creditor with specified procedural steps, rather than a general reference to
earlier
provisions.
The interpretation, 1 think, becomes all the more unlikely when the phrase is
considered in the broader context of the Act. The trustee
is
17
the person burdened with the task of administering and winding up the
insolvent estate. In terms of s 20 of the Act the effect of
insolvency is to
divest the insolvent of his estate and to vest it in the trustee upon the
latter's appointment. The trustee, in
turn, is required in terms of s 69 to take
into his possession or under his control all movable property, books and
documents belonging
to the insolvent. At common law a creditor who held movable
property as security for his claim could not realise it himself. He had
to
deliver it to the trustee who had the right to administer it subject to the
preference of the creditor in relation to the proceeds
derived from its
realization (see
National Bank of South Africa Ltd v Cohen's Trustee
1911
AD 235
at 250). Section 83, however, permits a creditor who holds movable
property as security for his claim, subject to certain limitations,
to retain
possession of such property and to realise it himself. But once the property is
realised he must pay the proceeds to the
trustee. The provisions
18
in s 83 (10) requiring him to do so are consistent with the general scheme of
the Act and, to the extent that the trustee is entitled
to receive such
proceeds, with the common law.
Viewed against this background it could not, I
think, have been intended that a creditor by his own non-compliance with the
provisions
of the Act could notionally place himself in a more favourable
position vis-àvis the trustee and avoid his statutory obligation
to pay
over the proceeds to the trustee. That the trustee may himself have failed
earlier to recover the property in terms of s 83
(6) does not detract from the
obvious anomaly which would result from such a construction. Indeed, the
non-compliance by the creditor
may occur prior to the second meeting of
creditors.
In my view, therefore, the reference in the phrase in question to the
preceding provisions was intended to be no more than a general
reference to the
realisation of securities as contemplated in the earlier
19
subsections of s 83. It was not intended to import into s 83 (10) a
requirement of compliance with those subsections as a precondition
to the
obligation of the creditor to pay over the proceeds of his security to the
trustee.
It follows that in my view the court a
quo
erred in upholding the
point in
limine
.
I turn now to the two other defences raised in the respondent's answering
papers and advanced in the heads of argument filed on its
behalf. The first was
that because certain of the items of earthmoving equipment were never in the
possession of the appellant the
provisions of s 84 (1) did not apply and
consequently ownership in respect of those items did not pass to the appellant
and the provisions
of s 83 were similarly not applicable. The contention was no
doubt inspired by the decision of the Full Court of the Transvaal Provincial
Division in
UPC Bank Ltd v Seacat Leasing and
20
Finance Co (Pty) Ltd and Another
1979(4) SA 682 (T) in which it
was
held that the provisions of s 84 (1) apply only in cases where the
trustee of
an insolvent estate or the liquidator of a company being wound up
was in
possession of the goods referred to in the section.
Section 84 (1) reads:
"If any property was delivered to a person (hereinafter referred to as the
debtor) under a transaction which is an instalment sale
transaction contemplated
in paragraphs (a) and (b) of the definition of 'instalment sale transaction' in
section 1 of the Credit
Agreements Act, 1980, such a transaction shall be
regarded on the sequestration of the debtor's estate as creating in favour of
the
other party to the transaction (hereinafter referred to as the creditor) a
hypothec over that property whereby the amount still due
to him under the
transaction is secured. The trustee of the debtor's insolvent estate shall, if
required by the creditor, deliver
the property to him, and thereupon the
creditor shall be deemed to be holding that property as security for his claim
and the provisions
of section 83 shall apply."
In
the
UPC Bank
case Human J who delivered the judgment
of the court stated at 694 B - D:
"Section 84 (1) contemplates that any steps taken by the creditor
21
under the section shall be taken against the trustee, because the section
assumes that the trustee is in possession of all the assets,
or at least
possibly in the possession of the insolvent.
Section 84 (1), in my opinion, can only apply in a case where the trustee is in
possession and then only does the creditor lose his
rights of ownership. It
could never have been in contemplation that he loses both his rights of
ownership as well as his rights in
terms of s 84 (1) if the trustee is not in
possession."
It was accordingly held that because the property in
question was not in the
possession of the company when it was placed in liquidation, ownership
had not passed from the creditor to the liquidator.
In
Hubert Davies Water Engineering (Pty) Ltd v The
Body
Corporate of "The Village" and Others
1981 (3) SA 97
(D) Hefer J
declined
to adopt this interpretation of s 84 (1). At 101 G - H the learned judge
explained:
"A trustee who does not have possession of the assets of the estate has not
exercised the right nor indeed carried out the duty which
he has in terms of s
69 (1) of the Act to reduce all the movable property belonging to the estate
into his possession or under his
control. He
22
may exercise that right against anyone in respect of any movable property
belonging to the estate, and he may do so specifically
for the purpose of being
able to comply with a demand for delivery of hire-purchase goods in terms of s
84 (1). There is thus no
question of not being able to comply with such a
demand: if the trustee does not have possession, he can and must obtain
it."
I respectfully agree with the above statement.
It is true that s 84 (1) assumes the trustee to be in
possession.
But, as pointed out by Hefer J at 102 E, after referring to a passage in
the
judgment of Solomon J in
Haak's Garage v Simpson
1928 (WLD) 185
at
187;
"... in an insolvency which proceeds normally, the trustee will obviously carry
out the elementary task of taking possession or control
of the assets; that he
will do so is assumed and that is why, for the purposes of s 84 (1), it is
assumed that he is in possession
of the hire-purchase
goods."
With regard to the situation that may arise where the
trustee is not in
possession of the property, the learned judge at
102 F - G posed and answered the obvious question:
23
"Can he (the trustee), eg, when faced with a demand for delivery in terms of
that section (s 84 (1)), in the light of his duty to
reduce the assets of the
estate into his possession or control, ever be heard to say simply that he does
not possess the property
which the creditor wants him to deliver? Obviously not,
because he will be obliged to carry out his duty, to obtain possession and
to
deliver the property to the creditor."
In my view the reasoning
of the learned judge cannot be faulted. I accordingly adopt the decision in the
Hubert Davies
case in preference to that in the
UPC Bank
case (see
also
Morgan en 'n Ander v Wessels NO
1990 (3) SA 57
(O) at 65 D - G where
the
Hubert Davies
case was similarly followed in preference to the
UPC
Bank
case).
It follows that this defence raised on behalf of the respondent must
fail.
The remaining defence can be disposed of shortly. On behalf of the respondent
it was contended that in terms of s 83 (10) the obligation
imposed on a creditor
to pay over the proceeds of his realised security and
24
the obligation of the trustee to pay the creditor his preferent claim out of
such proceeds were reciprocal obligations; that the respondent
had tendered
payment of the proceeds subject to the applicant undertaking to make reciprocal
payment, and because such undertaking
had not been forthcoming it had been
entitled to refuse to pay the proceeds to the appellant.
In my view, there is no substance in the contention. One need go no further
than the provisions of s 83 (10) to see that the respective
obligations of the
appellant and the respondent are not reciprocal. The section imposes on the
creditor an obligation to pay the
trustee the proceeds "forthwith" whenever he
has realised his security. His entitlement to receive payment out of the
proceeds arises
"thereafter" and only if certain requirements have been met.
It follows that the appeal must succeed.
Counsel for the appellant drew our attention to the fact that
the
25
information regarding the actual dates upon which the various items of
earthmoving equipment had been sold, were obtained from annexures
to the
respondent's claim which had not formed part of the papers placed before the
Court a quo. He accordingly did not ask for interest
to run from those dates and
suggested instead that it run from 1 December 1991 in view of the allegation
made in the respondent's
answering affidavit that the equipment had been sold
during the period July to November 1991. In the result the following orders
are
made:
1. The appeal succeeds with costs, such costs to include the costs
of two
counsel.
2. The order of the Court a
quo
is set aside and the
following
order is substituted:
"(a) The respondent is directed to pay the applicant (i) the sum of R384
479,23;
26
(ii) interest thereon at the rate of 18.5 per cent per annum
from 1 December 1991 to date of payment.
(b) The respondent is directed to pay the costs of the application, such costs
to include the costs of two
counsel."
D G SCOTT
JOUBERT JA
NESTADT JA - Concur
HARMS JA
EKSTEEN JA