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[2014] ZAWCHC 82
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Steenkamp N.O and others v Liquidators of Monoceros Trading 111 C (19265/13) [2014] ZAWCHC 82 (10 January 2014)
REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT
OF SOUTH AFRICA
(WESTERN CAPE
DIVISION, CAPE TOWN)
Case
No: 19265/13
DATE:
10 JANUARY 2014
Before: The Hon.
Mr Justice Binns-Ward
In the ex parte
application of:
JURGENS JOHANNES
STEENKAMP N.O. First Applicant
ANDREW LEHLOYO
DORCKY MOHOHLO N.O. Second Applicant
CHAVONNES
BADENHORST ST CLAIR Third Applicant
COOPER N.O.
[in their
capacities as the joint
Liquidators of
Monoceros Trading 111 CC
(in provisional
liquidation)]
For an order in
terms of section 386(5) of the Companies Act No. 61 of 1973 (as
amended), as read with Schedule 5(6) to the
Companies Act No. 71 of
2008
and section 66 of the Close Corporation Act No. 69 of 1984 (as
amended)
REASONS
DELIVERED: 10 January 2014
BINNS-WARD J:
[1] In this matter
the provisional liquidators of a close corporation applied for
authorisation in terms of s 386(5) of the Companies
Act 61 of 1973
read with
s 66
of the
Close Corporations Act 69 of 1984
to do various
things, including to institute or defend legal proceedings and to
obtain legal advice. They also sought authorisation
(i) to engage
the services of counsel and attorneys (ii) to agree upon the scale of
fees to be payable to such legal representatives
and (iii) to
conclude written agreements with the legal representatives of the
nature contemplated in
s 73(2)
of the
Insolvency Act 24 of 1936
in
regard to the applicable tariff of fees. An order granting the
substantive relief sought by the liquidators was made on 29
November
2013. The liquidators, however, also sought an order that the costs
occasioned by the filing of a report by the Master
be paid by the
Master. After hearing argument, the court reserved judgment on the
question of costs. This judgment thus deals
with the question that
was reserved for consideration.
[2] The Master filed
a report in the application for the assistance of the court. The
relevant parts are contained in para. 3,
6, 7 and 8, which read as
follows:
3. The Master
foresee (sic) conflict or potential conflict of interest from the
attorneys who are representing the liquidators in
this application,
in that the same attorneys are the attorneys who brought the
application for the liquidation of the company (sic)
in question, the
conflict of interest was clearly shown in case (sic) of Standard Bank
of South Africa v The Master of the High
Court (Eastern Cape
Division)
2010 (4) SA 405
(SCA). Therefore it is my recommendation
that the liquidators concern (sic) acquire the services of other
independent attorneys.
6. I humbly request
the Honourable Court to include in the Court order that the Master
may in terms of
section 73(5)
of the
Insolvency Act 24 of 1936
disallow any costs under
s 73(2)
if the Master is of the opinion that
any such costs are incorrect or improper or that the trustee (sic)
acted in bad faith, negligently
or unreasonably in incurring any such
costs.
7. I humbly request
the Honourable Court to include in Court order (sic) the agreement
concluded between the liquidators and the
attorneys regarding tariffs
shall be lodged with the Master and before payments is (sic) made to
the attorney(s) or counsel the
bill shall be lodged with the Master
to allow the Master to exercise oversight in terms of section 73(5)
of the Act.
8. I humbly request
the Honourable Court to include in the Court Order that the
declaration in terms of section 73(4) should be
lodge (sic) with the
Master before any payment is made to the attorney or counsel.
[3] The matter of
Standard Bank of South Africa v The Master of the High Court (Eastern
Cape Division) referred to in para 3 of
the Master’s report is
not in point. The judgment cited by the Master was concerned with a
failure by certain liquidators
to discharge their duties with
independence and impartiality. The failure occurred in the context
of a manifest conflict of interest
by one of the joint liquidators.
The conflict arose in the peculiar circumstances by reason of the
liquidator’s appointment
as co-liquidator of another company in
the same group and the existence of a contentious claim by the one
company against the other.
The case also concerned the unjustifiable
use by the liquidators of the funds of the company in the course of
winding-up to fund
their challenge to a decision of the Master to
limit their fees. This happened when it was obvious - the challenge
having been
mounted in the liquidators’ personal interest –
that the fees in question should have been paid out of their own
pockets.
[4] The Master’s
concern in the current case is a possible conflict of interest on the
part of the attorneys used by the liquidators.
The liquidators are
availing of the professional services of the same firm of attorneys
as that which represented the applicant
for the winding up order.
There is nothing inherently untoward about this. Whether a conflict
of interest presents in any matter
is dependent on the facts. A
legal practitioner, whether such be an advocate or an attorney, is
under an ethical obligation not
to represent a party in circumstances
in which, by reason of the practitioner’s involvement in or
exposure to other matters,
a potential of conflict of interest
arises.
[5] The Master has
not explained the factual basis upon which a potential conflict of
interest might arise in the current matter
if the attorneys concerned
represent the liquidators. It is not evident to me that there would
be a conflict of interest between
the winding-up applicant and the
liquidators. On the contrary, the allegations in the supporting
affidavit in the application
in terms of s 386(5) show that the
proceedings which the liquidators are minded to institute are
inspired by concerns brought to
their attention by the applicant for
the winding-up. On their face they will be to the benefit of the
company and its creditors.
This points to a coincidence of interest;
not a conflict. There is furthermore nothing on the information
before the court to
suggest that, were a situation of conflict that
is not currently apparent to emerge subsequently, the attorneys
concerned would
not comply with their ethical obligation to withdraw.
In the absence of sound reason to suspect otherwise, one must
approach matters
on the assumption that officers of the court will
act ethically.
[6] In dealing with
the issues raised in para. 6-8 of the Master’s report it would
be useful to have the provisions of
s 73
of the
Insolvency Act
readily
to hand.
Section 73
provides:
73 Trustee may
obtain legal assistance
(1) Subject to the
provisions of this section and
section 53
(4), the trustee of an
insolvent estate may with the prior written authorization of the
creditors engage the services of any attorney
or counsel to perform
the legal work specified in the authorization on behalf of the
estate: Provided that the trustee-
(a) if he or she is
unable to obtain the prior written authorization of the creditors due
to the urgency of the matter or the number
of creditors involved, may
with the prior written authorization of the Master engage the
services of any attorney or counsel to
perform the legal work
specified in the authorization on behalf of the estate; or
(b) if it is not
likely that there will be any surplus after the distribution of the
estate, may at any time before the submission
of his or her accounts
obtain written authorization from the creditors for any legal work
performed by any attorney or counsel,
and all costs
incurred by the trustee, including any costs awarded against the
estate in legal proceedings instituted on behalf
of or against the
estate, in so far as such costs result from any steps taken by the
trustee under this subsection, shall be included
in the cost of the
sequestration of the estate.
(2) Subject to the
provisions of subsection (3), costs incurred under this section,
except costs awarded against the estate in legal
proceedings, shall
not be subject to taxation by the taxing master of the court if the
trustee has entered into any written agreement
in terms of which the
fees of any attorney or counsel will be determined in accordance with
a specific tariff: Provided that no
contingency fees agreement
referred to in section 2(1) of the Contingency Fees Act, 1997 (Act 66
of 1997), shall be entered into
without the express prior written
authorization of the creditors.
(3) If-
(a) the trustee has
not entered into an agreement under subsection (2); or
(b) there is any
dispute as to the fees payable in terms of such an agreement, the
costs shall be taxed by the taxing master of
the High Court having
jurisdiction or, where the costs are not subject to taxation by the
said taxing master, such costs shall
be assessed by the law society
or bar council concerned or, where the counsel concerned is not a
member of any bar council, by
the body or person designated under
section 5 (1) of the Contingency Fees Act, 1997.
(4) No bill of costs
based upon an agreement entered into under subsection (2) shall be
accepted as cost of the sequestration of
the estate, unless such bill
is accompanied by a declaration under oath or affirmation by the
trustee stating-
(a) that he or she
had been duly authorized by either the creditors or the Master, as
the case may be, to enter into such an agreement;
(b) that any legal
work specified in such bill has been performed to the best of his or
her knowledge and belief;
(c) that any
disbursements specified in such bill have been made to the best of
his or her knowledge and belief; and
(d) that, to the
best of his or her knowledge and belief, the attorney or counsel
concerned has not overreached him or her.
(5) Notwithstanding
anything to the contrary contained in this Act, the Master may
disallow any costs incurred under this section
if the Master is of
the opinion that any such costs are incorrect or improper or that the
trustee acted in bad faith, negligently
or unreasonably in incurring
any such costs.
[7] As to the
directions which the Master recommended should be incorporated in the
order concerning the fees of legal practitioners
engaged by the
liquidators, it seems to me that these are the product of a
misapprehension by the Master of the import of
s 73
of the
Insolvency
Act and
indeed of the role and function of a liquidator. As
emphasised in the opening paragraph of the judgment in Standard Bank
of South
Africa v The Master of the High Court (Eastern Cape
Division) supra, ‘In the winding-up of companies liquidators
occupy a
position of trust, not only towards creditors but also the
companies in liquidation whose assets vests in them. Liquidators are
required to act in the best interests of creditors. A liquidator
should be wholly independent, should regard equally the interests
of
all creditors, and should carry out his or her duties without fear,
favour or prejudice.’ The provisions of
s 73
determine what
legal fees incurred by the liquidator in properly authorised legal
proceedings may be recovered as costs in the
winding-up. The
liquidator will be personally liable for payment of any fees incurred
that are not recoverable as costs in the
winding-up.
[8] The provisions
of
s 73(2)
of the
Insolvency Act, which
allow a liquidator to agree
a scale of fees for an attorney or counsel engaged to act on behalf
of the company in liquidation according
to a specific tariff, are
entirely consistent with the notion of the independent authority
vested in the office of a liquidator.
Nothing in the statutory
provisions envisages that the Master will vet such an agreement
before it is concluded, or before any
costs in authorised legal
proceedings are incurred. When the fees in question are payable in
terms of an agreement of the nature
contemplated in
s 73(
2), they may
be accepted as a cost in the winding-up only if the liquidator makes
the solemn declaration on affidavit or by affirmation
as to the
matters referred to in
s 73(4)(a)
-(d).
[9] The legislation
does not contemplate that the Master will exercise a monitoring or
closely supervisory role in relation to incurrence
of legal expenses
by the liquidator. The Master is able, of course, to exercise
oversight in terms of ss 381 and 393-3 of the
Companies Act, but will
do so with due respect to the liquidator’s independence and
statutory status.
[10] Legal fees fall
to be accounted for in the accounts that a liquidator is required to
draw up in terms of s 403 of the Companies
Act. It is in the context
of a consideration of such accounts that the Master will ordinarily,
assuming the circumstances justify
it, exercise the power in terms of
s 73(5) to disallow any of the costs. In that regard, s 73(5) falls
to be read with s 407(3)
of the Companies Act. The Master will
disallow costs if he is of the opinion that they are incorrect or
improper, or that the
trustee acted in bad faith, negligently or
unreasonably in incurring any such costs. The effect of disallowing
costs in terms
of s 73(5) is not that the fees in question do not
have to be paid, but that they are not dealt with as costs in the
winding-up.
The considerations that the Master will have regard to
in exercising the power in terms of s 73(5) are essentially
distinguishable
from those to which a taxing master gives
consideration. As Hiemstra J observed in Wulfsohn v Kearney NO and
Others
1963 (1) SA 782
(T), at 789, while a taxing master is
concerned with guarding against over charging, the Master’s
concern is whether the
costs involved ‘however proper between
attorney and client, [are] chargeable against the estate’.
(emphasis supplied)
In other words, the Master’s oversight
role in terms of s 73(5) goes to whether the costs concerned have
been incurred bona
fide in relation to the process of the winding up
of the estate.
[11] In the
circumstances I did not consider it fitting or appropriate to
incorporate the recommendations made in para. 6-8 of the
Master’s
report in the order that was made.
[12] The Master’s
report was filed very shortly before the hearing with the result that
counsel instructed to move the application
was not prepared to argue
the issues that arose from it. The matter was consequently stood
down to the following day, when the
liquidators’ attorney
appeared to deal with the report. It is the costs attendant on the
additional appearance that the
liquidators’ attorney submitted
should be awarded against the Master.
[13] The
liquidators’ attorney submitted that the Master’s
misdirections concerning the import of
s 73
of the
Insolvency Act
were
inexcusable in the context of the issues recently argued in
another matter in which the attorney and the relevant official in the
Master’s office had been involved. The attorney argued that in
the face of what had transpired in the other matter, it was
apparent
that the Master’s input in the current case was improper and
inspired by the ulterior motive of wishing to control
the appointment
of attorneys by liquidators. I am not sure that that is entirely
correct. The other matter to which Mr Katz,
the liquidators’
attorney, referred was the matter of Van Zyl N.O. and Four Others v
The Master of the High Court, Cape Town,
case no. 17175/2013. It was
argued before Le Grange J on 29 October 2013. That case involved an
application for the review and
setting aside of a decision or by the
Master not to confirm a liquidation and distribution account and for
an order by the court
confirming the account. It would appear from
the papers in that matter, which I have cursorily perused, that the
difficulty lay
in the Master’s misapprehension of the import of
s 73.
It appears from the transcript of the hearing that the
relevant official at the Master’s office, Mr Mabusela, attended
court
and, at the invitation of the presiding judge, made certain
oral submissions. These submissions included a remark that
liquidators
should not engage as attorneys practitioners who had
acted for the applicant for the winding up. That appears to me to
have been
a gratuitous statement, which had nothing to do with the
matter in hand. It does, however, indicate a personal viewpoint by
Mr
Mabusela, who is an assistant master at the Master’s Office,
Cape Town. Le Grange J did not comment on Mr Mabusela’s
view
in this regard. That viewpoint has been reiterated in the report
placed before me in the current matter. I have made it
plain that as
a general proposition it is legally unfounded.
[14] Le Grange J
granted the substantive relief sought in the matter before him. The
learned judge, however, declined to make a
costs order against the
Master, apparently on the basis of an acceptance that the Master’s
position had been inspired by
a bona fide misapprehension of the
import of the relevant provisions of
s 73
of the
Insolvency Act. The
learned judge did say in deciding the issue of costs, however, ‘that
if a similar matter comes to this Court again with a
similar problem
there’s no doubt in my mind that I, sitting as a presiding
judge, will definitely grant costs and perhaps
not only on the
ordinary scale, but costs on a punitive scale because I think the
Master now understands what it’s all about…’.
Those remarks were uttered on 29 October 2013, and the Master’s
report in the current matter was drawn up less than a month
later.
[15] It was perhaps
unfortunate that the substantive order in the Van Zyl case was made
without reasons therefor having been given.
It is clear that the
learned judge’s remarks quoted in the previous paragraph were
made in the context of his understanding
that Mr Mabusela would have
appreciated from the nature of the discussion during argument that
his apprehension of the effect of
s 73
was unsound. The tenor of the
report submitted in the current case suggests that Le Grange J’s
perception was overly optimistic.
The absence of a reasoned
judgment, however, leaves scope for the reasonable inference that Mr
Mabusela may not have been fully
aware of the bases upon which the
learned judge considered his understanding of
s 73
of the
Insolvency
Act to
have been wrong.
[16] I would be
reluctant to make a costs order against the Master unless persuaded
that his office had acted in bad faith. The
role of the Master in
the provision of reports to the Court is to be of assistance and to
make the views of the Master’s
office as an interested organ of
state known to the Court. The Master will not ordinarily attract a
costs liability simply because
his or her legal submissions are not
accepted, or because the Court does not agree with his or her views
on the matter in hand.
I am not convinced that the report in the
current matter was made in bad faith. I would in any event not have
been disposed to
make a costs order against the Master without notice
to the Master and the opportunity being afforded for submissions as
to why
an order should not be made. I do hope, however, that the
reasons provided for not accepting the Master’s recommendations
in the current matter will conduce to a better understanding in the
Master’s office of the application of
s 73
of the
Insolvency
Act and
the status and functions of liquidators, as well as the
ethical duties of attorneys. It is expected of the Master’s
office,
of course, to apply legislation consistently with the
pertinent jurisprudence.
[17] The Registrar
is directed to forward a copy of this judgment to the Master for
information.
A.G. BINNS-WARD
Judge of the High
Court