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[2014] ZAWCHC 27
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Firstrand Bank Limited v Consumer Guardian Services (Pty) Limited and Others (10978/2012) [2014] ZAWCHC 27 (4 March 2014)
REPUBLIC
OF SOUTH AFRICA
IN THE
HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE DIVISION, CAPE TOWN)
Case
No.: 10978/2012
DATE:
04 MARCH 2014
Before: The Hon. Mr Justice Binns-Ward
In
the application between:
FIRSTRAND
BANK
LIMITED
...........................................................................................
Applicant
And
CONSUMER
GUARDIAN SERVICES (PTY)
LIMITED
....................................................................................................................
First
Respondent
CONSUMER
VERIFICATION SERVICES (PTY)
LIMITED
................................................................................................................
Second
Respondent
SECURIBOND
(PTY)
LTD
.......................................................................................
Third
Respondent
RASCHID
APPOLES t/a Appoles
Attorneys
..........................................................
Fourth
Respondent
VERSTER
RAPP EN VAN ZYL INCORPORATED
Trading
as RAPP VAN ZYL KOTZE
ATTORNEYS
..................................................
Fifth
Respondent
THE
CHIEF MASTER OF THE HIGH
COURT
......................................................
Sixth
Respondent
THE
CHIEF EXECUTIVE OFFICER: GOVERNMENT
PRINTING
WORKS
.............................................................................................
Seventh
Respondent
ABSA
BANK
LIMITED
.........................................................................................
Eighth
Respondent
NEDBANK
LIMITED
..............................................................................................
Ninth
Respondent
STANDARD
BANK OF SOUTH AFRICA
LIMITED
...........................................
Tenth
Respondent
JUDGMENT
DELIVERED
ON 4 MARCH 2014
BINNS-WARD
J:
[1]
In this matter the applicant, which is a
bank, seeks an interdict against the first to fourth respondents
prohibiting them from
engaging in a practice or scheme of business
that entails the publication of notices of surrender in terms of
s 4(1) of the
Insolvency Act 24 of 1936 (‘the Act’)
in circumstances in which it is not intended to present an
application to court
for acceptance of the surrender. The
publication of a notice of surrender has the effect, amongst other
things, that no-one
who has knowledge of the notice may sell any
property of the estate in question that has been attached under writ
of execution
or other process. The applicant complains that the
aforementioned respondents are engaged in the business of using the
voluntary
surrender provisions of the Act for the purpose of forcing
the cancellation of advertised sales in execution of hypothecated
immovable
property in circumstances in which there is no intention to
surrender the estates in question. The conduct in question is
alleged to be prejudicial in that wasted costs, totalling tens of
millions of rands, are incurred in respect of the cancelled sales
and
the delay in obtaining execution of the judgments after the notices
lapse when no application for the acceptance of the surrender
follows. It goes without saying that this would also have an
adverse effect on the ratio of the extent of the debtor’s
liability to the value of the bank’s security.
[2]
The first, second and third respondents are
three private companies of which the sole member is one Johannes
Tobias Muller.
Mr Muller is also the sole and managing
director of each of the companies. He deposed to the principal
answering affidavit
on behalf of these three respondents. It is
evident from his testimony that the conduct in issue in this case is
predicated
on a misconceived understanding by Muller and an attorney
engaged by him for the purposes of the business of the first, second
and third respondents (the fourth respondent) of the import of the
pertinent provisions of the Act.
[3]
The pertinent provisions of the Act are
sections 3 to 7. They provide as follows in relevant part:
3
Petition for acceptance of surrender of estate
(1)
An insolvent debtor or his agent or a person entrusted with the
administration of the estate of a deceased insolvent debtor or of an
insolvent debtor who is incapable of managing his own affairs,
may
petition the court for the acceptance of the surrender of the
debtor's estate for the benefit of his creditors.
(2)
[applicable to partnerships]
(3)
Before accepting or declining the surrender, the court may direct
the
petitioner or any other person to appear and be examined before the
court.
4
Notice of surrender and lodging at Master's office of statement of
debtor's affairs
(1)
Before presenting a
petition mentioned in section three the person who intends to present
the petition (in this section referred
to as the petitioner) shall
cause to be published in the Gazette and in a newspaper circulating
in the district in which the debtor
resides, or, if the debtor is a
trader, in the district in which his principal place of business is
situate, a notice of surrender
in a form corresponding substantially
with Form A in the First Schedule to this Act. The said notice shall
be published not more
than thirty days and not less than fourteen
days before the date stated in the notice of surrender as the date
upon which application
will be made to the court for acceptance of
the surrender of the estate of the debtor.
(2)
(a) Within a period of seven days as from the date of publication
of
the said notice in the Gazette, the petitioner must deliver or post a
copy of the said notice to every one of the creditors
of the debtor
in question whose address he or she knows or can ascertain.
(b)
The petitioner must further, within the period referred to in
paragraph (a), furnish a copy of the notice-
(i)
by post to every registered trade union that, to the petitioner's
knowledge, represents any of the debtor's employees; and
(ii)
to the employees themselves-
(aa)
by affixing a copy of the notice to any notice board to which the
employees
have access inside the debtor's premises; or
(bb)
if there is no access to the premises by the employees, by affixing a
copy
of the notice to the front gate of the premises, where
applicable, failing which to the front door of the premises from
which the
debtor conducted any business immediately prior to the
surrender; and
(iii)
by post to the South African Revenue Service.
(3)
The petitioner shall lodge at the office of the Master a statement
in
duplicate of the debtor's affairs, framed in a form corresponding
substantially with Form B in the First Schedule to this Act.
That
statement shall contain the particulars for which provision is made
in the said Form, shall comply with any requirements contained
therein and shall be verified by an affidavit (which shall be free
from stamp duty) in the form set forth therein.
(4)
Upon receiving the said statement, the Master may direct the
petitioner
to cause any property set forth therein to be valued by a
sworn appraiser or by any person designated by the Master for the
purpose.
(5)
If the debtor resides or carries on business as a trader in any
district (other than the district of Wynberg, Simonstown or Bellville
in the Province of the Cape of Good Hope) wherein there is
no
Master's office, the petitioner shall also lodge a copy of the said
statement at the office of the magistrate of the district,
or, if the
debtor resides or so carries on business in a portion of such
district in respect of which an additional or assistant
magistrate
permanently carries out the functions of the magistrate of the
district at a place other than the seat of magistracy
of that
district, at the office of such additional or assistant magistrate.
(6)
The said statement shall be open to the inspection of any creditor
of
the debtor during office hours for a period of fourteen days from a
date to be mentioned in the notice of surrender.
5
Prohibition of sale in execution of property of estate after
publication of notice of surrender and appointment of curator
bonis
(1)
After the publication
of a notice of surrender in the Gazette in terms of section four, it
shall not be lawful to sell any property
of the estate in question,
which has been attached under writ of execution or other process,
unless the person charged with the
execution of the writ or other
process could not have known of the publication: Provided that the
Master, if in his opinion the
value of any such property does not
exceed R5 000, or the Court, if it exceeds that amount, may order the
sale of the property
attached and direct how the proceeds of the sale
shall be applied.
(2)
[power of the Master to
a curator
bonis
to the estate being surrendered in certain circumstances]
6
Acceptance by court of surrender of estate
(1)
If the court is satisfied that the provisions of section four have
been complied with, that the estate of the debtor in question is
insolvent, that he owns realizable property of a sufficient value
to
defray all costs of the sequestration which will in terms of this Act
be payable out of the free residue of his estate and that
it will be
to the advantage of creditors of the debtor if his estate is
sequestrated, it may accept the surrender of the debtor's
estate and
make an order sequestrating that estate.
(2)
If the court does not accept the surrender or if the notice of
surrender
is withdrawn in terms of section seven, or if the
petitioner fails to make the application for the acceptance of the
surrender
of the debtor's estate before the expiration of a period of
fourteen days as from the date specified in the notice of surrender,
as the date upon which application will be made to the court for the
acceptance of the surrender of the debtor's estate, the notice
of
surrender shall lapse and if a curator
bonis
was appointed,
the estate shall be restored to the debtor as soon as the Master is
satisfied that sufficient provision has been
made for the payment of
all costs incurred under subsection (2) of section five.
7
Withdrawal of notice of surrender
(1)
A notice of surrender published in the Gazette may not be withdrawn
without the written consent of the Master.
(2)
A person who has published a notice of surrender in the Gazette may
apply to the Master for his consent to the withdrawal of the notice,
and if it appears to the Master that the notice was published
in good
faith and that there is good cause for its withdrawal, he shall give
his written consent thereto. Upon the publication,
at the expense of
the applicant, of a notice of withdrawal and of the Master's consent
thereto, in the Gazette and in the newspaper
in which the notice of
surrender appeared, the notice of surrender shall be deemed to have
been withdrawn.
It should also be mentioned
that in terms of s 8(f) of the Act a debtor commits an act of
insolvency ‘
if, after having published a notice of surrender
of his estate which has not lapsed or been withdrawn in terms of
section six or
seven, he fails to comply with the requirements of
subsection (3) of section four or lodges, in terms of that
subsection, a statement
which is incorrect or incomplete in any
material respect or fails to apply for the acceptance of the
surrender of his estate on
the date mentioned in the aforesaid notice
as the date on which such application is to be made
’.
[4]
It is evident upon a proper reading of the
provisions of the Act quoted in the preceding paragraph that they
fall to be read and
applied integrally. Thus the decision to
publish a notice of surrender occurs in the context of an intention
formed by the
debtor to apply to court for the acceptance of
the surrender and entails a commitment to carrying out the further
steps provided
in terms of s 4 with regard to making that
application. That follows, not only upon a contextual reading
of the relevant
provisions as a whole, but also, in particular, from
the express wording in s 4(1) that ‘
the
person who intends to present the petition … shall cause to be
published in the Gazette … a notice of surrender
’.
[5]
The only manner in which the commitment can
validly be recalled is by withdrawing the notice of surrender in the
manner provided
in terms of s 7; that is with the leave of
the Master, on good cause shown. It is true that the debtor
cannot
be compelled to present the application for the acceptance of
his surrender to court, and that if he does not do so the notice of
surrender lapses, but it is clear that the lapsing provision is
intended for the benefit of the debtor’s creditors and not
that
of the debtor. The effect of a lapsing of the notice of
surrender is that the suspension, in terms of s 5(1), of
the
right of creditors to execute any judgment in their favour against
the property of the debtor is lifted and, if an application
for
acceptance of the surrender has not been made in accordance with the
tenor of the notice, the creditors are afforded the right
to rely on
s 8(f) of the Act to apply for the compulsory sequestration of
the debtor’s estate.
[6]
The provisions of s 6(1) of the Act
make it clear that no legitimate purpose can be served by the
publication of a notice of
surrender if the estate concerned is not
actually insolvent and if it cannot be shown that the estate
comprises of realisable property
of sufficient value to defray the
costs of sequestration payable in terms of the Act out of the free
residue of the estate and
that sequestration will be to the advantage
of creditors. Thus, for example, in a case in which the major
asset in the estate
is an hypothecated immovable property that is
subject of a pending sale in execution in which it is expected that
the property
will be realised for considerably less than the amount
of the secured claim it will be difficult, if not impossible, for the
debtor
to satisfy the substantive requirements of voluntary
surrender, and it is difficult to conceive that the debtor, acting in
a
bona fide
manner, would be able to give notice of surrender conformably with
the statutory scheme.
[1]
(The reason I have cited this example of a situation in which a
debtor could not avail of the process in a
bona
fide
manner will be apparent when the
terms of a proposal letter by the first respondent to a debtor quoted
later in this judgment are
considered.
[2]
)
[7]
Nothing in the relevant provisions of the
Act supports the notion that a notice of surrender may, or can,
legitimately be given
with the primary object of frustrating sales in
execution, or to provide a debtor with a moratorium against the sale
in execution
of his property while he considers his position and
decides whether or not he should proceed with the presentation of an
application
for the acceptance of his surrender. Compare
Ex
parte Stepney
,
[3]
in which even the postponement of an application for voluntary
surrender brought
bona fide
was refused because such a course would in substance ‘
sanction
the device of putting a notice in the Gazette without a real
intention to surrender, and thus locking up the assets, while
the
estate is left in the hands of the insolvent
’
- something which a court could not be seen to countenance.
[8]
The submission by counsel for the first to
third respondents that the ‘opportunity’ of a moratorium
was an ‘incidental
effect’ of the relevant provisions is
without merit because it fails to acknowledge the legal commitment to
present the application
that is bound up in the very act of causing a
notice of surrender to be published. That commitment is
confirmed not only
upon a proper reading of the relevant provisions
in the manner discussed, but also by the prescribed content of the
notice which
commits the debtor to disclosing the date on which his
application will be made, and which obliges him within a very short
period
of the publication of the notice also to arrange for a
statement of his affairs in the prescribed form to lie for inspection
for
fourteen days in the manner required by s 4(3), read with
Form B in the First Schedule to the Act. The notice of
surrender
tells the world, the debtors’ creditors and his
employees that he will be applying for the acceptance of the
surrender of
his estate. It does not inform them that he is
taking time to consider his options. To use the notice
procedure for
a purpose for which it is not intended is to
misrepresent the debtor’s position to the legally interested
third parties and,
when there are pending sales in execution
involved, to cause s 5(1) of the Act to operate in circumstances
in which it clearly
was not intended to apply; in other words to act
not only
contra legem
,
but also
in fraudem legis
.
[4]
The misrepresentation is plainly
mala
fide
when it occurs in the context of a
deliberate misuse of the statutory provisions.
[5]
[9]
The prohibition against the sale in
execution of a debtor’s property in terms of s 5(1) of the
Act has to be understood
in the context of the relevant provisions as
a whole. It does not operate in a vacuum. Moreover, it is
also not a prohibition
for the benefit of the debtor. On the
contrary, when considered in its statutory context, its only purpose
is plainly recognisable
as one intended for the benefit of the
concursus creditorum
,
which will be instituted upon the contemplated acceptance by the
court of the surrender. It is a provision that is directed
at
avoiding, as far as possible, certain creditors being advantaged over
others by a realisation of the debtor’s property
for their
exclusive benefit at a time when a sequestration of the debtor’s
estate may be expected within a month or less.
[10]
The practice or scheme of business that the
applicant seeks to interdict operates in the following way. The
first to third
respondents’ employees scan what is referred to
as the ‘Green Gazette’ every week for advertisements of
sales
in execution of residential property. The respondents
employ consultants throughout the country. The consultants in
the various areas are advised of the particulars of persons whose
homes have been advertised for sale in execution in their respective
purlieux. The consultants then canvas the business of the
execution debtors concerned. It is explained to the debtor
that
a cancellation of the sale in execution can be achieved by availing
of the provisions of the
Insolvency Act. The
respondent offers
to arrange the publication of a notice of surrender in terms of
s 4(1) of the Act against payment of a fee
- generally
indicated to be in the sum of R5000. It is also indicated that
the publication of the notice of surrender
does not result in the
sequestration of the debtor’s estate and that there will be no
consequences if an application to court
does not follow. The
debtor is advised that in such circumstances the notice will simply
lapse, with the consequence that
the property may be re-advertised
for sale in execution. The debtor is further advised that
against payment of an additional
fee the respondent concerned will
conduct a forensic audit, which will in all probability demonstrate
that the execution creditor
has miscalculated its claim and will
afford the debtor the opportunity to reach a compromise with the
execution creditor and avoid
the sale of his property. The
service of arranging for the application to court for the acceptance
of the surrender is, however,
also offered – again against
payment of an additional fee.
[11]
The respondents use a pro forma contract
document (which was referred to in the papers and in correspondence
as the ‘Homeowner
Agreement’) for their transactions with
execution debtors. The provisions pertaining to the option of
engaging the
respondents for assistance in presenting a voluntary
surrender application to court are contained in clause 5.2 of the pro
forma
contract document.
[12]
The first to third respondent’s
modus
operandi
is graphically illustrated by
quoting an example of a proposal letter sent to a debtor in full:
Good Day Mr Du
Pisanie
We are
locating you (sic) folder at this moment, I checked with our debtors
department and all your old debt has been paid so that
is good, the
Forensic Department said that it is done, I will get it on Monday
morning, I will scan and email a copy of the amount
and front page to
you.
As
explained the 2
nd
Auction will come up on the 27
th
January 2012, we need to stop it again for you with the same
INTENTION TO SEQUESTRATE, this service will cost you R4000.00
,
I’ve attached the contract which you need to sign, initial each
page and fax or email this back to me ASAP. We will
use the
Forensic Audit as a strong factor for the second Auction when we send
it to the bank’s attorney and the sheriff.
The next
step after this is to do the Commerce (Financial Assistance) we need
to see if you are going to afford this property in
the future, we
will need all of your liabilities and assets (I will help you with
info on what you need to send me) We then get
the submit the Rapport
(sic) with the Forensic Audit Report to the bank for a lower
instalment so that you can afford this property
in the future.
Please call
the bank and find out what is your arrears amount, its better we both
know so we can work around that.
I’ve
attached some Newspaper Clipping for you to read.
Many thanks
Shereen
Herewith more
information on the process Consumer Guardian Services follow in order
to assist you to stop the bank from auctioning
off your above
mentioned property.
Consumer
Guardian Services (Pty) Ltd is a privately owned company that
represents the rights of the homeowner when the banks want
to sell
their properties on auction.
We work with the insolvency
act
(sic)
but please note that we do not, under any
circumstances intend to sequestrate or declare you insolvent.
The only reason we
use this law is because of the time period of 30
days it offers you, during which period neither the bank nor any
other institution
or company or creditor may touch any of your
property.
The notice we place in the Government Gazette is
called a notice of voluntary surrender. It is not an official
application
for sequestration (insolvency).
The law
stipulates that in the event that you publish a notice of voluntary
surrender in the Government Gazette, from the day of
publication you
have a period of 30 days from said notice being published that you
can then basically re-evaluate your financial
situation.
If
you do not go to court during this time to lodge an official
application for sequestration during this 30 day period, the notice
will just expire.
Nothing stays against your name or goes
down on your record. But the bank will have the right again to place
your property
on auction. And this we want to prevent from
happening.
Once
the auction is stopped we will then proceed with a forensic audit.
When you default on your bond
agreement, the bank gives instruction to their attorneys to take
action against you. The attorneys
in turn send the bank an
account for their legal fees for the service they rendered to the
bank. The bank is more than within
their rights to retrieve
those funds from you. But they have to invoice you on a
different account with different interest
rates and a different
payment plan. Now this is where the problem comes in. The
banks take those fees and adds it to
the balance of your bond in
order to inflate your bond so that they can charge you more
interest. This is fraud! Your
bond account is not an
expense account for the bank. The only entries that may be on
your bond statements are entries pertaining
to your bond account.
The banks also charge you a higher interest rate than what you agreed
to on your bond agreement, they
charge you compound interest and they
even go so far as to charge you interest on your insurance that’s
in arrears.
This constitutes fraud which puts the bank in
breach of contract.
To
cover the further action from the bank and to afford you the chance
to recover financially, once your notice of voluntary surrender
has
been published we start doing a forensic audit on your bond account.
By doing this exercise we can then establish what
the discrepancy on
your bond account amounts to. Once this has been done, we can
prove that the bank is also in breach of
contract. Then we have
ammunition to fight the bank on your behalf.
The bank then either has to deduct
the discrepancy amount from your bond account against the arrears, or
they have to pay you out
in cash. I would advise that while we
are busy with this whole process, you don’t pay the bank BUT
you have to save
the money for a balloon payment for the bank.
When
a property goes on auction it goes up without reserve. And that
means if the highest bid is R350 000 for a property
worth R1,3
mil, the auctioneer and the bank will accept it and would still hold
you responsible for the outstanding balance of
the bond. The
fact that your property was sold on auction will also stay against
your name for 30 years, as will the default
judgement they got
against your name. What we want to do at the end of the day is
to go to court with the results of the
forensic audit and apply for
the bank to remove the judgement against your name. Seeing that
the bank is also in breach of
contract and not just you. The
constitutional court (sic) brought out a new law in April that
stipulates that the registrar of
the court, who is just a clerk, does
NOT have the right of knowledge or expertise or qualifications to
decide whether something
as valuable as your property should go up
for auction. Please understand that our main goal here is to
successfully assist
you in sorting out your problem where the bank is
concerned
.
I would like
to mention that in event the bank’s attorneys decide to
disregard the law and proceed with the auction, it will
remain an
illegal auction. You would then have to pay legal fees to apply
for a court interdict at the Supreme court in order
to reverse the
auction and to keep the transfer from going through. We will
apply for an immediate cost order against the
bank for damages and
costs. These funds have to be paid directly into your personal
banking account.
The charges
are as follows”
Stop of
Auction
R4000
The Auction
has to be stopped first that’s our Main priority.
Thereafter we can take further steps if required.
Forensic
Audit
R3500
The Forensic
Audit. This will minimize your bond arrears amount.
R5000
The commence
(Financial Assistance) to negotiate with the bank on your behalf
At the bottom
of the email I have included a link to YouTube for an overview of our
company and referrals.
Please
take note that point 5.2 of the Homeowner Agreement is not applicable
to you as we are not going to proceed with sequestration
and you may
cross it out and initial the charge
.
[6]
Please also initial page 1 & 2 at the bottom of the pages of the
agreement. Try and complete all forms as thoroughly
as possible
and if you have any problems or questions, you are more than welcome
to give me a call and I will assist you with any
problems you may
have. All forms and proof of deposit has to be faxed through to
me ASAP to the fax number mentioned below.
We
have till Friday 10 o’clock (am) to get these publication
through to the printers of the Government Gazette, and if we
miss it
there is nothing to be done to stop this auction.
If you are unsure or uncertain about anything, please do not hesitate
to contact me.
I’m
attaching all documents that you have to complete. We will need
statement and at least the agreed upon interest
rate with the bank
when the bond was registered on your name. If your bond is not
at Standard Bank, you would need to get
all necessary statements for
us.
Kind regards
Shereen
Karriem
(emphasis supplied)
[13]
Analysis of the content of the letter bears
out the applicant’s complaint about the use by the respondents
of the provisions
of the statute
in
fraudem legis
. Those portions
that I have marked in bold confirm that the respondent’
practice is to canvas business by persuading
execution creditors to
engage the respondents at a fee to publish notices of surrender for
the purposes of stopping sales in execution
so as to create an
opportunity to audit the judgment debt and impugn the claim.
The respondents go so far as to expressly
point out that no actual
sequestration will follow and the terms of the letter unambiguously
convey that publication of a notice
of surrender does not imply a
duty on the execution debtor to apply to court for acceptance of the
surrender. In other words
it is misrepresented to the potential
client that publication of a notice of surrender gives certain rights
or advantages without
any attendant obligations or liabilities.
[14]
The fourth respondent was engaged by the
first, second or third respondent, as the case might be, to send
letters to the applicant
advising it of the notice of surrender and
drawing attention to the prohibition, in terms of s 5(1) of the
Act, against the
advertised sale in execution proceeding. These
letters were generally sent to the applicant on the afternoon before
or the
very morning of the sale concerned. The fourth
respondent admits that he undertook this work at a fraction of his
normal
fee, which suggests that his arrangement with the first to
third respondents was such that the volume of work would compensate
for the discount. During the twelve-month period preceding the
institution of this application there were at least 166 instances
of
sales in execution being stopped at the instance of the respondents
in this manner.
[7]
[15]
The uncontested evidence is that in
virtually all of the sales in execution at the instance of the
applicant bank that have been
stopped in the context of the
respondents’ aforementioned practice an application to court
for acceptance of the surrender
did not follow. Indeed, in
several cases a subsequently re-advertised sale in execution had also
to be cancelled because
of a fresh publication of notice to
surrender. (Indeed, the proposal letter quoted above evidences
an example of such a case,
with its reference to stopping a second
auction.) The first to third respondents purported to challenge
the evidence put
up by the applicants to this effect by setting out
what Muller maintained was a list of matters in which applications
for the acceptance
of surrender had followed. The list was,
however, singularly lacking in particularity. It gave no court
case numbers
or hearing dates and gave the only the surnames of some
of the alleged applicants several of which were of so commonly
occurring
that it would be almost impossible for the applicant to
isolate and identify on a computer search with the meagre information
provided.
Documented records in respect of the names given on
the list that could be identified refuted the allegation that
applications
for voluntary surrender had been made to court. In
the circumstances Muller’s averments in this regard do not give
rise to what might properly be considered a real dispute of fact; cf.
Wightman t/a J W Construction v Headfour (Pty) Ltd and
Another
[2008] ZASCA 6
;
2008 (3) SA 371
(SCA) at para 13.
[16]
The respondents contend that there is
nothing untoward in their practice because it has to be assumed that
their clients have the
intention, when instructions are given and
accepted to place a notice of surrender, to proceed with the process
and make the necessary
application to court for the acceptance of the
surrender. I do not agree. The facts show the opposite,
and hardly surprisingly,
having regard to how the respondents go
about canvassing business. The suggestion that the respondents
cannot be held responsible
for their clients’ failure to apply
to court for the acceptance of the surrender imposes too much on the
court’s credulity.
It is quite evident from the
correspondence quoted above (and indeed also the terms of an
affidavit made by Muller in support of
an application by the first
respondent in case no. 8964/12 to interdict former employees
from competing with the business
of the respondent, in which he sets
out the respondent’s ‘
modus
operandi
’) that the respondents
canvas business by representing that the voluntary surrender
provisions of the Act can be used to
ward off sales in execution
without any attendant commitment to see the process through to a
sequestration order. The very
representation by the respondents
to potential clients that the giving of notice of surrender and the
application to court can
be approached and dealt with discretely,
rather than integrally – this much is underscored by their
approach of marketing
and charging for the services of arranging the
publication of the notice of surrender and the making of an
application to court
separately - gives the game away. For the
reasons explained earlier, a notice of surrender is not an acceptable
device for
gaining time to undertake forensic audits of clients’
accounts with the execution creditor, or to find a basis to apply for
the rescission of the judgment that is in the process of being
executed.
[17]
What is also striking is that the
respondents’ approach to potential clients whose property is
subject to pending sales in
execution does not involve any exercise
directed to establish whether their proprietary status would render
an application to court
for the surrender of the estates in question
feasible. Nothing in the approach is directed at establishing
whether the prospective
client would be able to satisfy the
requirements of s 6(1) of the Act. That is no cause for
surprise if the object is
in fact not to achieve the voluntary
surrender of the potential client’s estate. To my mind this
further highlights what
is in any event glaringly apparent on the
evidence that the respondents are unable to dispute; namely the
resort by the respondents
for the purpose of their businesses to the
voluntary surrender provisions of the statute for purposes for which
they are not intended.
[18]
It is thus plain that the practice of the
first to third respondents is in conflict with the scheme of the
voluntary surrender provisions
of the Act, and unlawful. It is
equally apparent that it prejudicially affects the applicant.
The requirements for
final interdictory relief are well established:
they are (a) the existence of a clear right by the applicant,
(b)
that an infringement of that right has actually been
committed or is reasonably apprehended and (c) the absence of a
satisfactory
alternative remedy; see
Setlogelo v Setlogelo
.
[8]
The applicant has a clear right not to have the provisions of the
Insolvency Act misused
to thwart the execution of judgments that it
has obtained against execution debtors. The practice or
business scheme of the
first to third respondents described above
infringes that right and it is evident by virtue of the opposition to
the application
that unless the conduct in question is made subject
of a prohibitory interdict it will continue.
[19]
The respondents have contended that the applicant has
alternative remedies. It is suggested that the applicant could
apply
to court in terms of
s 5(1)
for authorisation for the
sales in execution to proceed. Apart from the practical
difficulty of doing so within the short
time afforded between the
giving of notice and the scheduled holding of the advertised sales,
which makes the suggested alternative
impractical in most cases,
there is also the point that the remedy made available to the
execution creditor in terms of
s 5(1)
is intended to be
available in the context of
bona fide
voluntary surrender
applications. It was not provided to address circumstances in
which notices of surrender are published
in fraudem legis
and
thus the respondents’ suggestion that the applicant should be
required to avail of it in the circumstances is in any event
legally
misconceived. It was also contended that the applicant could
avail of s 8(f) of the Act and apply for the compulsory
sequestration of the execution debtors who did not apply to court for
the acceptance of their surrenders. That remedy is
indeed
available, but it does not fall properly to be considered as an
alternative to the remedy of obtaining an order prohibiting
the
further abuse of the relevant provisions of the Act. (Ironically,
the evidence suggests that in the instances in which
the applicant
has applied for the compulsory sequestration of debtors relying on
s 8(f) of the Act, the debtors have opposed
the applications.)
[20]
The further contention that the applicant could avoid the
consequence of the statutory prohibition against proceeding with a
sale
in execution of a debtor’s property when the debtor has
given notice to surrender his estate by proceeding with the sale and
attaching a condition ‘
making it “
subject
to the clients not proceeding with the voluntary surrender
”
is completely without merit. The statutory prohibition is
expressed in absolute terms in s 5(1), and the only
manner in
which its effect can be avoided is expressly provided in the
subsection, that is, when the sale in execution of property
exceeding
R5 000 is concerned, by applying to court for exemption from the
prohibition.
[21]
There is furthermore no warrant for the implication that
tacitly underlies all of the aforementioned adequate alternative
remedy
arguments: that is that the applicant should be required
to be forbearing of the abuse of the statutory procedures and deal
with the consequences reactively.
[22]
Over and above what has already been said,
I am of the
prima facie
view that the activities of the first to third respondents may also
be unlawful in that they appear to constitute an offence in
terms of
s 83(2) of the Attorneys Act 53 of 1979.
[9]
This was raised in passing on the papers, but not argued with any
enthusiasm by the applicant’s counsel. The
definitive
answer depends on how widely or narrowly the words ‘
any
work… in connection with… the administration or
liquidation or distribution of the estate of any…insolvent
person
’ in that provision should
be interpreted. It is certainly arguable that they include work
involving the institution
and prosecution of a voluntary surrender of
an insolvent’s estate. In view of the findings that I
have already made
it is unnecessary, however, for me to reach any
firm conclusion in this regard for the purpose of determining the
applicant’s
entitlement to interdictory relief.
[23]
As already mentioned, and by his own
account, the fourth respondent accepted instructions from the first
respondent mainly to communicate
the notices of surrender to the
sheriff and the execution creditor for the purposes of ensuring that
pending sales in execution
did not proceed at a greatly discounted
rate. He was also engaged in some cases to attend to the
publication of the notices
of surrender. The volume of this
type of work in which the fourth respondent was engaged was such that
he must have been
aware of the
modus
operandi
described above. Indeed,
he admitted in correspondence to the Law Society, in response to a
complaint lodged against him
by attorneys representing another
commercial bank, that the object of the notices of surrender was to
stop sales in execution as
‘a pre-emptive step’ preceding
forensic audits of the judgment debts concerned. He also
admitted in his letter
to the Law Society, which he misguidedly –
apparently through a lack of understanding of the distinction between
confidentiality
and private privilege - claimed was privileged, that
he engaged, amongst other things, in facilitating the sale of
properties of
execution creditors by private treaty after the sales
in execution had been stopped. The out of hand sale by a debtor
of
his major assets is conduct quite inconsistent with a surrender of
his estate. Once a notice of surrender is given it behoves
a
debtor, consistently with the effect of such a notice, to conserve
his estate to be handed over, upon the acceptance of such
surrender
by a court, to a trustee to be liquidated for the benefit of the
general body of creditors. It must have been evident
to the
fourth respondent from the fact that no applications to court for
acceptance of the surrenders concerned followed that he
was lending
his services in furtherance of a scheme that entailed misuse of the
provisions of the Act. His claim that the
majority of clients
referred to him by the first respondent had the
bona
fide
intention to proceed with
applications for the acceptance of the surrender at the time he
arranged for the publication of the relevant
notices of surrender was
fatuous, and roundly refuted by the fact that, without exception,
they failed to do so.
In his
answering affidavit he averred that he had acted ‘
in
line with the specific instructions of the debtors in issue
’.
Having regard to the background sketched earlier concerning the first
respondent’s canvassing of business,
the volume of instructions
accepted, and the fact that the debtors invariably did not proceed to
carry through the advertised surrender
of their estates, this
averment falls to be seen as a confession of the fourth respondent’s
witting involvement in the unlawful
practice. When given the
opportunity to give an undertaking that he would have no further part
in this unlawful conduct he
failed to provide it.
[24]
The fourth respondent averred in his
answering affidavit that his mandate from the first to third
respondents had been terminated.
This averment was demonstrated
to be incorrect. I was informed by the fourth respondent’s
counsel from the bar that
the respondent had made a mistake in his
answering affidavit and that he had made a subsequent affidavit
giving a later date of
termination than the one that the applicant
had refuted in its replying papers. No application was made,
however, for the
admission of this subsequently made affidavit; and
its content, whatever it might be, is therefore not in evidence
before me.
I agree with the submission by the applicant’s
counsel that the easiest thing for the fourth respondent to have done
to avoid
interdictal relief would have been to give an unequivocal
undertaking no longer to be engaged in the practice of which the
applicant
complains. He had the opportunity to do that when he
wrote the letter, dated 23 May 2012, to the applicant’s
attorneys
annexed as annexure ‘CGS 1A’ to his answering
affidavit. The tenor of that letter, which concluded ‘
We
accordingly
request
that you desist of any further correspondence with our offices in
this respect
[i.e. correspondence
articulating the applicant’s complaints about the abuse of the
voluntary surrender provisions in the
Act]
unless
you have verified (from your client and your files) that such matters
are indeed being dealt with by our offices, failing
which…
’,
certainly did not intimate that the fourth respondent would not be
taking instructions from the first respondent in such
matters in the
future.
[25]
In the circumstances I am satisfied that
the applicant has made out a case for interdictal relief also against
the fourth respondent.
[26]
The terms of the interdict sought by the
applicant were framed as follows in the notice of motion:
That the 1
st
Respondent and/or 2
nd
Respondent and /or 3
rd
Respondent and/or 4
th
Respondent…be interdicted,
prohibited and restrained from the publishing and/or causing to be
published Notices of Intention
to Surrender in the
Government
Gazette
as envisaged in
Section 4(1)
of the
Insolvency Act, No 24
of 1936
on behalf of any persons with the intention of delaying or
causing the cancellation of sales in execution of immovable property
where the Applicant is the creditor.
The respondents contended
that an interdict in the terms sought would be impossible to enforce
and amount to a
brutum fulmen
because of the difficulty of
establishing the relevant intention referred to. It was pointed
out that the intention concerned
in the decision to publish a notice
of surrender in the context of the case is primarily that of the
execution debtor. The
respondents contended that the
application should be dismissed because it would thus be
inappropriate, if not ineffectual, to grant
an order in the terms
sought by the applicant.
[27]
In my view there is some merit in the
respondents’ criticism of the wording of the interdictal relief
sought by the applicant;
it leaves it unclear whose ‘intention’
is entailed. On a fair and proper reading of the papers it is
evident
that what the applicant seeks to have interdicted is a
continuance of the respondents’ mode of canvassing and
conducting
business. That is clearly the nature of the
substantive relief sought in the application. That object can
be achieved
by recasting the formulation of the interdict in a manner
that avoids any reference to intention and in a way which would
facilitate
the provision of an objective basis for compliance and,
also, if necessary, for the determination of any non-compliance with
the
order. It is plain that the real cause for complaint by the
applicant is the nature of the representations made by and on
behalf
of the respondents to prospective clients as to the nature and effect
of the giving of a notice of surrender. The
nature of those
representations was such as to disclose or establish that the
predominant object of the contemplated publication
of the notices of
surrender was to stop the advertised sales in execution, and not to
achieve the sequestration of the execution
debtors’ estates.
The suggestion that the application should be dismissed because of
the shortcomings in the formulation
by the applicant of the
interdictal relief is opportunistic and wholly lacking in merit.
It is open to the court in such
circumstances to grant the
substantive relief sought by the applicant by choosing its own
wording to express the terms of the relief.
That is the course
I intend to follow in the orders to be made.
[28]
The improved wording will not confront the
respondents with a result that was not foreseeable in the context of
the case they were
brought to court to meet. I also see no
reason why the relief should be framed to confine the restraint to
the respondent’s
conduct only insofar as it affects persons
against whom
the applicant
has obtained judgments. To formulate the relief in that manner
might be misconstrued to imply that the respondents might
be
permitted to continue to misuse the statutory provisions against
other judgment creditors. Such a situation plainly cannot
be
countenanced.
[29]
I should mention that an application was
moved at the commencement of the hearing on behalf of one Nothnagel
for leave to intervene
in the proceedings. The application for
leave to intervene also incorporated an application by Nothnagel for
the rescission
of a judgment granted against him in favour of the
applicant bank. Nothnagel’s application was moved by the
counsel
who appeared on behalf of the first to third respondents.
The application was dismissed with costs, including the costs of
two
counsel. The reasons for the dismissal of the application to
intervene were firstly, that no relief is sought by the
applicant
against Nothnagel and secondly, the relief that is sought against the
first to fourth respondents would, if granted,
not affect any of
Nothnagel’s legal interests. The affidavit made by
Nothnagel was in any event incorporated as part
of the first to third
respondents’ answering papers and his averments have thus been
taken into account, to the extent that
they were relevant, on the
basis of their having been incorporated in what fell to be treated as
a supporting answering affidavit.
(I should perhaps make it
clear that the dismissal of the application for leave to intervene
does not affect Nothnagel’s
right, if so advised, to seek to
pursue his application for rescission of judgement in separate
proceedings.)
[30]
There was also an application for leave to
intervene as a respondent by one Thilothabal Reddy. The
application was delivered
by the same firm of attorneys as that which
represented the first to third respondents, but, unlike that of
Nothnagel, it was not
moved at the hearing. When I indicated
that it appeared to me that the appropriate course in the
circumstances appeared to
be to strike the application from the roll
with costs, counsel for the applicant submitted that an order in such
bald terms might
leave the applicant out of pocket because it
arguably would not cover the costs incurred by the applicant in
respect of the papers
it had drawn for the purposes of opposing the
application. There is no prospect in the circumstances - the
opportunity for
intervention having passed - that the struck off
application for leave to intervene could be moved later.
Striking it from
the roll when it cannot be re-enrolled is
effectively as good as a dismissal in the given situation. I
shall therefore amplify
the costs order to be given in this respect
to make it clear that it includes the applicant’s costs in
respect of drawing
papers to oppose the intervention application.
[31]
The papers in this application were prolix;
they ran, literally, to thousands of pages. To some extent
their prolixity was
understandable. The applicant justifiably
set out to put up sufficient detail in order to make it difficult for
the respondents
to contrive spurious disputes of fact. The
replying affidavit, however, was everything that a replying affidavit
is not meant
to be. It was 144 pages long (without annexures)
and it was tediously repetitive and argumentative beyond toleration.
This type of abuse of the reply procedure in motion proceedings is
all too frequently a cause for judicial lament. In
Minister
of Environmental Affairs & Tourism v Phambili Fisheries (Pty)
Ltd; Minister of Environmental Affairs & Tourism
v Bato Star
Fishing (Pty) Ltd
,
[10]
Schutz JA trenchantly observed:
In the great
majority of cases the replying affidavit should be by far the
shortest. But in practice it is very often by far the
longest - and
the most valueless. It was so in these reviews. The respondents, who
were the applicants below, filed replying affidavits
of inordinate
length. Being forced to wade through their almost endless repetition
when the pleading of the case is all but over
brings about
irritation, not persuasion. It is time that the Courts declare war on
unnecessarily prolix replying affidavits and
upon those who inflate
them.
In the circumstances I
consider that it would be appropriate, as mark of the court’s
displeasure, to disallow a substantial
portion of the fee that might
otherwise be recoverable in respect of the drafting of the
applicant’s replying papers.
[32]
The following order is made:
1.
The first, second, third and fourth
respondents are hereby interdicted, prohibited and restrained from in
any manner, whether directly
or indirectly, canvassing business from
or carrying out instructions obtained from any execution debtor or
any person acting on
behalf of an execution debtor entailing the
publication of notices of surrender in terms of
s 4(1)
of the
Insolvency Act for
the purposes of stopping or delaying sales in
execution of property in circumstances in which the predominant
object of the publication
of the notice is to frustrate the sale
rather than to achieve the voluntary sequestration of the execution
debtor’s estate.
2.
In particular, but without derogating from
the generality of paragraph 1 of this order, the respondents are
interdicted from in
any manner representing to execution debtors,
whether expressly or by implication, that:
1.
The publication of a notice of surrender by
or on behalf of the execution debtor does not result in a legal
commitment by the execution
debtor to present an application to court
for the acceptance of the surrender and to do everything prescribed
in terms of
s 4
of the
Insolvency Act 24 of 1936
to that end;
2.
That the publication of a notice of
surrender in terms of the said Act affords a moratorium for execution
creditors to review their
financial affairs and commission an audit
or review of their indebtedness in terms of the judgment debt;
3.
That the presentation of an application to
court for the acceptance of the advertised surrender is a discrete
and severable process
as opposed to being integrally bound up in a
decision by any person in terms of s 4 of the said Act to give
notice to surrender
an estate.
4.
That the publication of a notice of
surrender does not constitute a confession of actual insolvency.
5.
That the giving of a notice of surrender
may legitimately be used to stop a sale in execution when there is no
fixed intention by
the execution debtor at the time of the
publication of the notice to apply promptly to a competent court for
the acceptance of
the surrender.
3.
The first, second, third and fourth
respondents shall pay the applicant’s costs of suit in the
application, including the
costs of two counsel; save that the
applicant shall be entitled to recover only 60% of its taxed costs in
respect of the drafting
of its replying papers.
4.
The application of Thilothabal Reddy for
leave to intervene is struck from the roll with costs for lack of
prosecution. The
costs shall include the costs incurred by the
applicant in drawing papers in opposition or response to the
intervention application.
A.G. BINNS-WARD
Judge of the High Court
[1]
Cf.
Ex parte Stepney
1905 TS 27
, in which Mason J observed ‘
I
think, however, that such notice
[of
surrender]
should only be given when
the facts of the case would support a petition for voluntary
sequestration.
’
[2]
The letter gives as an example that a sale in execution might result
in a property worth R1,3m being realised for only R350 000.
See para [12], below.
[3]
See note 1.
[4]
Compare the dictum of the late Appellate Division
in
Van Eck NO and Van Rensburg NO v
Etna Stores
1947 (2) SA 984
(A) at
998:
For to profess to make use
of a power which has been given by statute for one purpose only,
while in fact using it for a different
purpose, is to act
in
fraudem legis
, construing that term in the more restricted
manner adopted by the majority of this Court in the case of
Dadoo
Ltd v Krugersdorp Municipal Council
(1920 AD 530)
(see also
Commissioner of Customs & Excise v Randles Bros & Hudson
Ltd
(1941 AD 369)).
Such a use is a mere
simulatio
or
pretext. . . . And I should add that, of course, if the person
exercising the power avowedly uses it for some purpose other
than
that for which alone it has been given, he acts simply
contra
legem
: where, however, he professes to use it for its legitimate
purpose, while in fact using it for another, he acts
in fraudem
legis
(D.1.3.29, as explained in
Dadoo
's case, and
compare
In re Marsden's Trust
(supra)).
The dictum is applicable
in the current context
mutatis mutandis
if the word ‘power’
is read as ‘statutory procedure’.
[5]
See
Brummer v Gorvil
Bros Investments (Pty) Ltd
1999 (3) SA
389
(HHA) at 414 I – J.
[6]
See para [11], above concerning the significance of the
reference to ‘point 5.2 of the Homeowner Agreement’.
[7]
Averments in the supporting affidavit in an
application brought by the first respondent to prevent former
employees allegedly
competing with it, a copy of which was put in
evidence, suggest that a far higher number of matters might be
involved.
[8]
1914 AD 221
at 227.
[9]
Subsection 83(2) provides:
No person shall orally
or by means of any written or printed matter or in any other manner,
directly or indirectly, either for
himself or for any other person,
canvass, advertise or tout for, or make known his preparedness or
that of such other person
to undertake any work, whether for or
without remuneration, in connection with the drawing up of a will or
other testamentary
writing, the administration or liquidation or
distribution of the estate of any deceased or insolvent person,
mentally ill person,
or any person under any other legal disability,
or the judicial management or the liquidation of a company.
[10]
2003 (6) SA 407
(SCA) at para 80.