About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Western Cape High Court, Cape Town
SAFLII
>>
Databases
>>
South Africa: Western Cape High Court, Cape Town
>>
2014
>>
[2014] ZAWCHC 20
|
|
Firstrand Bank Limited v Nomic 153 (Pty) Limited (A165/2013) [2014] ZAWCHC 20 (20 February 2014)
REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT
OF SOUTH AFRICA
(WESTERN CAPE
DIVISION, CAPE TOWN)
Case
no: A165/2013
DATE:
20 FEBRUARY 2014
In the matter
between:
FIRSTRAND BANK
LIMITED
.................................................
Appellant
v
NOMIC 153 (PTY)
LIMITED
................................................
Respondent
(Registration no:
2004/028195/07)
Court: Justice
Yekiso, Justice Zondi et Justice Cloete
Heard: 29
January 2014
Delivered: 20
February 2014
JUDGMENT
CLOETE J:
Introduction
[1] This is an
appeal with the leave of the court a quo against the dismissal of an
application by the appellant (‘the bank’)
for the
provisional winding-up of the respondent company.
[2] The grounds of
appeal are as follows. First, the court a quo conflated the bank’s
locus standi with the grounds relied
upon by the latter for the
winding-up, namely s 344(f) as read with s 345(1)(a) and s 345(1)(c)
of the Companies Act 61 of 1973
(‘the Act’). Second, the
court a quo erred in finding that the so-called Badenhorst rule
applied and that the bank’s
claim was disputed on bona fide and
reasonable grounds (Badenhorst v Northern Construction Enterprises
(Pty) Ltd
1956 (2) SA 346
(TPD) at 348A-B). Third, it was wrong in
finding that the application was an abuse of the court process.
[3] For purposes of
this appeal the respondent concedes that the bank has locus standi
‘by virtue of its status as a contingent
or prospective
creditor’ in respect of monies loaned and advanced to the
respondent by the bank under a written mortgage
loan agreement (‘the
agreement’) concluded on 22 April 2005 and secured by the
registration of a first mortgage bond
over Erf 15671 Somerset West
(‘the property’).
[4] The respondent
however contends that the debt to the bank is not due and payable,
and further that the quantum of the claim
is disputed, although it is
common cause that if the respondent’s defences fail, its
indebtedness is more than R100 as envisaged
in s 345(1)(a) of the
Act. It is also common cause that the respondent has not made any
payments to the bank since January 2009.
Background
[5] On 17 March 2009
the bank issued summons against the respondent, as first defendant,
and Mark William Atkinson (‘Atkinson’
– the sole
director of the respondent, in his capacity as surety) as second
defendant (‘the defendants’), for
payment of some R2
million, being the full balance allegedly due and payable under the
agreement (‘the action’). It
was defended and the bank’s
subsequent application for summary judgment was refused on 10 June
2009, with the defendants
being granted leave to defend. There is no
indication before us of the basis of the respondent’s
opposition to the summary
judgment application since the opposing
affidavit is not part of the appeal record, nor is there any
indication why that application
was refused by the presiding judge.
[6] The defences
raised were contained in a plea and amended plea filed on 17 November
2009 and 23 July 2012 respectively.
[7] The main
defences raised in the plea were as follows. First, the bank had
failed to furnish proper notice of interest rate variations
as
required, with the domino effect that the instalments had been
incorrectly calculated, were thus not due and payable, and breach
triggering the acceleration clause as a result of non-payment could
not be relied upon by the bank. Second, in December 2008 the
bank
chose not to demand payment of the full balance owing under the bond
on the respondent’s default in payment, but instead
gave the
respondent the opportunity to bring the arrears up to date within a
four month period, that is by the end of April 2009.
The bank however
in breach thereof issued summons prematurely in March 2009 for the
full amount outstanding on the bond. Because
the bank had already
made its election, its subsequent institution of action for recovery
of the full amount within the four month
period (translating into an
election to rather call up the full amount of the bond) was not
competent. It is this latter defence
which was focussed upon during
the appeal.
[8] During the
course of 2011 the respondent found a purchaser for the property and
made an offer of settlement, but the bank accepted
it a day later
than the deadline stipulated. Because timeous acceptance by the bank
was a suspensive condition of the sale of the
property, the
settlement offer fell away.
[9] On 12 January
2012 the bank, through its attorneys, caused a letter of demand to be
delivered to the respondent in terms of
s 345(1)(a) of the Act,
claiming payment of some R2.6 million, being the full balance
allegedly due and payable under the agreement
by that stage. The
respondent contended that the letter was neither ‘competent
[nor] appropriate in the circumstances’
given that ‘the
matter is not only lis pendens but the claim itself is in dispute’.
The bank disagreed and launched
the winding-up proceedings on 4 April
2012. The action instituted in March 2009 was not withdrawn and is
still pending in this
court.
[10] Notwithstanding
the general requirement relating to the procedure in motion
proceedings as set out inter alia in Bader and
Another v Weston and
Another
1967 (1) SA 134
(C) at 136E-137C, the respondent initially
opposed the application only on certain grounds set out in a notice
in terms of rule
6(5)(d)(iii) of the uniform rules of court. The
respondent failed to file an affidavit dealing with the merits of the
application
at that stage.
[11] Instead, the
respondent delivered a short affidavit deposed to by Atkinson, which
was not an answering affidavit, the gist
of which was to complain
that the bank was abusing the process of court in persisting with the
application, given that the respondent
was engaged in negotiations to
settle the dispute with a different attorney who acted for the bank
in the action. Atkinson disclosed
that:
‘The
respondent has received a written cash offer to purchase the
property… the respondent has accepted the offer…
subject to a condition precedent that the [bank] agrees to cancel the
bond against payment of the sum of R2.1 million… I
am advised
that if agreement is reached… in regard to the sale of the
property but the [bank] is successful in liquidating
the respondent,
the result will be that the sale agreement will not be able to be
given effect to in the light of the provisions
of Section 345(2) as
read with Section 348 of the Companies Act, 61 of 1973… the
respondent is thus placed in an invidious
position by the two
contradictory stances adopted by the [bank] in instructing one firm
of attorneys to negotiate a sale of the
property while simultaneously
giving instructions to a second firm of attorneys to apply to
liquidate the respondent.’
[12] The bank’s
replying affidavit dealt with the aforementioned allegations and in
particular that it had rejected the offer
disclosed to the court by
the respondent.
[13] Without having
obtained the leave of the court, the respondent then delivered
another affidavit, purporting to respond to the
bank’s replying
affidavit, which in turn resulted in a flurry of further affidavits
being filed by the parties. During the
course of argument we were
informed that those affidavits had been accepted by the parties as
forming part of the record which
the court a quo was then expected to
deal with. This is a most unsatisfactory approach for the parties to
have adopted. There is
ample authority to the effect that a party
cannot simply elect to file further affidavits without having first
obtained the court’s
leave to do so, and it has also been held
that, if this is done, the court is entitled to regard such
affidavits as pro non scripto:
see inter alia Standard Bank of SA Ltd
v Sewpersadh
2005 (4) SA 148
(C) at paras [9] and [11]. This
undesirable state of affairs is exacerbated by the respondent’s
failure to comply with the
well-established requirements that a
deponent to an answering affidavit must admit or deny, or confess and
avoid, allegations in
the applicant’s affidavit, failing which
the court will, for purposes of the application, accept the
applicant’s allegations
as correct: Moosa v Knox
1949 (3) SA
327
(N) at 331. The result is that as a court of appeal we are bound
by a record consisting of a number of affidavits which the court
a
quo did not, in the absence of properly motivated applications for
their admission, even have to consider.
[14] The grounds set
out in the respondent’s notice in terms of rule 6(5)(d)(iii)
were that:
14.1 the deeming
provision in s 345(1)(a) of the Act cannot apply in circumstances
where the creditor’s claim referred to
in the demand is already
the subject of disputed litigation;
14.2 the defence of
lis pendens applies by virtue of the pending action; and
14.3 the application
was an abuse of process.
[15] The amended
plea (filed later on 23 July 2012) repeated the earlier defences
(albeit in an amplified manner) and raised a further
defence to the
bank’s claims in the action. The further defence was that the
respondent’s failure to pay was excused
because of the bank’s
‘wrongful and unreasonable frustration’ of its attempts
to make payment in a lesser amount
than what was owed, in full and
final settlement, as well as the bank’s breach of an ‘implied
term’ in the mortgage
bond obliging it to act reasonably, in
good faith, and with due care and diligence in relation to the
property. In the alternative
it was alleged that the bank breached a
legal duty owed to the respondent to act reasonably and with due care
in regard to the
latter’s interest in dealing with the
property, causing the respondent to sustain liquidated damages in the
form of further
interest accrued on the loan.
[16] It was only on
22 August 2012 that Atkinson, in one of his further affidavits,
confirmed the allegations contained in the amended
plea on oath, and
averred that the defences raised therein had been advanced in good
faith. He submitted that ‘… the
contents of the
pleadings in the action show that there is a dispute on bona fide and
reasonable grounds regarding firstly, whether
or not the applicant’s
claim against the respondent is due and payable and, secondly,
whether it is enforceable at all by
virtue of the doctrine of
impossibility of performance, and that a liquidation application
should not be entertained in the circumstances.’
The findings of
the court a quo
[17] The court a quo
found that the defences raised were bona fide on two grounds. First,
the respondent had spent considerable
costs in defending the action.
Second, the judge who was seized with the summary judgment
application had already pronounced on
the bona fides of the defences
raised by refusing the application and granting leave to defend
(although, as previously mentioned,
there is nothing on the papers
disclosing the grounds of opposition in that application, nor why the
order was made).
[18] The court a quo
also found that the respondent had placed sufficient facts before it
which, if proved at the trial of the action,
would successfully
defeat the bank’s claims, but did not provide reasons for this
finding.
[19] Having reached
these conclusions the court a quo found that the fact of the
pre-existing dispute precluded the bank from placing
reliance on a
neglect to pay within the meaning of s 345(1)(a) of the Act; and
that, even accepting that the bank is a contingent
creditor, the
application would in any event have to fail because the bank had
relied exclusively on its own (disputed) debt. It
had failed to
provide details or facts of any unpaid debts to other creditors to
demonstrate that the respondent is commercially
insolvent.
[20] The court
further found that no reliance could be placed on ‘without
prejudice’ communications relating to settlement
offers made by
the respondent. During argument we were informed that this appears to
have been a bona fide error by the court a
quo, given the
respondent’s concession during those proceedings that it had
itself waived privilege.
[21] Finally, the
court concluded that the winding-up application was an abuse of the
court process because the bank was aware,
in light of the pending
action, that its claims were reasonably and bona fide disputed. In
view of its findings the court a quo
did not consider it necessary to
deal with the issue of lis pendens.
The issues which
crystallised during the appeal
[22] During the
appeal it was accepted by the appellant that for the delivery of a s
345(1)(a) demand to trigger the deeming provision
of an inability to
pay, the debt which is demanded must be due. Put differently, the
only effect of a failure to comply with the
demand, if the debt is
already due, is that the deeming provision of an inability to pay
debts becomes the ground for the winding-up:
see inter alia, Absa
Bank Ltd v Tamsui Empire Park 1 CC (11151/2013)
[2013] ZAWCHC 187
(3
December 2013) at para [30].
[23] The arguments
presented thus centred on whether the debt is disputed by the
respondent on bona fide and reasonable grounds,
and indeed whether
the Badenhorst rule even applies. The unusual feature of this case is
that these fall to be determined against
the pleadings filed in the
pending action, and which have been incorporated by reference into
the respondent’s affidavit
of 22 August 2012, which affidavit
was in turn accepted by the court a quo as being properly before it.
One of the defences raised
by the respondent in the action relates
directly to the bank’s case as pleaded, namely whether it
competently exercised an
election when it instituted proceedings for
recovery of the full amount.
[24] The papers
(which incorporate the amended particulars of claim as well as the
plea and amended plea) disclose the following.
On 28 November 2008
the bank addressed a letter to the respondent, care of Atkinson, in
terms of
s 129
of the
National Credit Act 34 of 2005
. The
s 129
letter (although poorly drafted and thus confusing in certain
respects) called for payment of the arrears on the bond. The final
paragraph of the
s 129
letter reads as follows:
‘Should you
fail to reply to this notice within 10 business days of date of
delivery hereof, by either not contacting us in
order to make an
alternative repayment arrangement or by not approaching a debt
counsellor for assistance in this matter, the bank
will institute
legal proceedings for recovery of the full outstanding balance in
terms of the mortgage agreement.’
[25] On 10 December
2008 the chief financial officer of the respondent wrote to the bank,
informing it that the respondent was experiencing
financial
difficulties in maintaining the bond repayments. The bank was
requested to provide ‘some leeway until the first
quarter of
next year while we put repayment measurement [sic] in place. We will
still pay on a monthly basis as we do at this stage.
It might not be
the full amount, but we will still deposit steadily’. This was
clearly an attempt to reach an alternative
repayment arrangement as
required by the
s 129
letter. (For purposes of this appeal the only
relevance of the
s 129
letter is within the context of whether the
bank had made an election.)
[26] On 22 December
2008 the bank responded that it would only accept payment of the full
monthly instalment plus a monthly amount
equivalent to 25% of the
arrears for a four month period, that is until the end of April 2009.
During January 2009 the respondent
made two payments totalling R8
000. No further payments were made.
[27] The cause of
action pleaded by the bank in its amended particulars of claim (the
original particulars of claim do not form
part of the papers) was
that the defendants failed to pay ‘on demand one or more of the
payments they were obliged to make…
more specifically on the
following dates and in the following amounts…’. The
period of default relied upon by the
bank commenced on 31 January
2008, that is, more than a year before summons was issued, and eleven
months before the bank gave
the respondent time to pay. It was
alleged that the failure to pay ‘constitutes a default by [the
respondent] and a breach
of its obligations in terms of the bond’.
Judgment was sought for the full amount outstanding, together with
orders declaring
the property specially executable and cancellation
of the bond. Although it is common cause that the bond stipulates
that a failure
to make payment of any instalment triggers the
acceleration clause, the main issue in the action is whether, against
this background,
the bank was entitled to proceed with summons for
the full amount when it did.
[28] The bank
contends that the Badenhorst rule does not apply because the
respondent acknowledges liability for at least an amount
of R100, and
that the defence raised that the debt is not due and payable is
extraneous to the “indebtedness” within
the meaning of
the so-called rule. In support of this argument the bank relies on
the decision in Nedbank Ltd v Zonnekus Mansion
(Pty) Ltd (A378/2012)
[2013] ZAWCHC 6
(7 February 2013). That case is however
distinguishable because there the respondent had not seriously
disputed that the debt was
due and payable. It sought essentially to
place the locus standi of the appellant bank in issue by disputing
the validity of a
cession under which the bank had sued.
“Indebtedness” for purposes of the Badenhorst rule
comprises two elements namely:
(a) an admitted liability; and (b)
that the debt is due and payable. In the present matter the
respondent disputes that the debt
(although its existence is
admitted) is due and payable, which brings the dispute within the
application of the rule.
[29] In the
winding-up proceedings the bank’s case is based squarely on two
grounds, namely the deeming provisions in s 345(1)(a)
and s345(1)(c)
of the Act. As to s 345(1)(a), the respondent’s defence is that
the debt is not due. This defence cuts across
the appellant’s
argument that, even where quantum is disputed, an admitted
indebtedness of R100 or more is sufficient for
purposes of the
winding-up (as was held in Body Corporate of Fish Eagle v Group
Twelve Investments (Pty) Ltd
2003 (5) SA 414
(WLD) at para [16]). The
manner in which the bank has pleaded its case in the action, taken
together with the common cause events
that preceded the institution
of the action, have persuaded me that this leg of the respondent’s
defence constitutes a triable
issue. As previously stated, the bank
has chosen to pursue its action. As a result, the aforementioned
issue will be decided by
a trial court on a balance of probabilities
after hearing all of the evidence.
[30] The position
might well have been different if the bank had withdrawn its action
prior to launching the application for winding-up.
While it is
tempting to evaluate the respondent’s defence in the action
within the context of the winding-up proceedings,
I believe that this
would be the wrong approach. We would effectively be making findings
on the self-same merits of a defence in
circumstances where the bank
has chosen to persist in the merits being determined by a court at a
trial. In addition Atkinson’s
defences in the action are
identical to those of the respondent, and we would thus be prejudging
his defence in circumstances where
he is not a party to the
winding-up proceedings.
[31] I appreciate
that the respective purposes of the action and the winding-up
proceedings are different. The goal in the action
is to compel
payment by the respondent and/or Atkinson, while the goal in the
winding-up proceedings is, strictly speaking, to
achieve a concursus
creditorum in which payment will hopefully be recovered in due
course. However, just because the goals are
different, this does not
mean that the result will necessarily differ, particularly where it
is common cause that the bank is a
secured creditor of the
respondent.
[32] As to s
345(1)(c) of the Act, the bank contends that it has been proven to
the satisfaction of the court that the respondent
is unable to pay
its debts because of its “inability” to pay, coupled with
its offers of settlement. I have already
dealt with the triable issue
concerning the inability to pay; and I am not persuaded that the
offer of settlement was unconditional.
It was made in an attempt to
settle ‘the dispute’ between the parties. The bank
alleged that a separate property owned
by the respondent is fully
bonded in favour of Standard Bank and that ‘it is clear that if
the Respondent cannot pay the
monthly instalments to the Applicant,
then it also did not and cannot pay the instalments due to [Standard
Bank]’. However
this takes the matter no further, given that it
is not only speculative, but is also premised on an inability to pay,
rather than
an unwillingness to do so.
Findings
[33] Having regard
to the aforegoing, I am not persuaded that the court a quo conflated
the bank’s locus standi with the grounds
relied upon by it for
the winding-up. I am also not persuaded that the court a quo erred in
finding that the Badenhorst rule applied
and that the bank’s
claim was disputed on bona fide and reasonable grounds for purposes
of the winding-up. Of course, the
defences raised may be dismissed at
the trial, but that is the forum that the bank has chosen to test the
veracity of those defences.
[34] That leaves the
court a quo’s finding that the application was an abuse of the
court process. In Beinash v Wixley
[1997] ZASCA 32
;
1997 (3) SA 721
(SCA) at 734F-G
the court held that:
‘What does
constitute an abuse of the process of the Court is a matter which
needs to be determined by the circumstances of
each case. There can
be no all-encompassing definition of the concept of “abuse of
process”. It can be said in general
terms, however, that an
abuse of process takes place where the procedures permitted by the
Rules of the Court to facilitate the
pursuit of the truth are used
for a purpose extraneous to that objective.’
[35] In the
particular circumstances of this matter I do not agree that the
bank’s launching of the winding-up proceedings
constituted an
abuse of the court process. First, as I have already indicated, the
relief respectively sought in the pending action
and in the
winding-up proceedings is different, and is not based upon the same
cause of action; and the evidence advanced in the
affidavits also
covered events subsequent to the bank’s institution of the
action in March 2009. Second, the bank’s
case in the winding-up
proceedings was certainly arguable in the court a quo, particularly
having regard to the manner in which
the respondent advanced its
defence.
Conclusion
[36] In the result
the following order is made:
The appeal is
dismissed with costs, including the costs of two counsel.
J I CLOETE
YEKISO J
I agree.
N J YEKISO
ZONDI J
I agree.
D H ZONDI