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[2014] ZAWCHC 53
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Gap Merchant Recycling CC v Goal Reach Trading 55 CC (2480/2014) [2014] ZAWCHC 53; 2016 (1) SA 261 (WCC) (15 April 2014)
THE HIGH COURT OF SOUTH
AFRICA
(WESTERN CAPE DIVISION,
CAPE TOWN)
Case No: 2480/2014
DATE: 15 APRIL 2014
In the matter between:
GAP MERCHANT RECYCLING
CC
........................................
APPLICANT
And
GOAL REACH TRADING 55
CC
........................................
RESPONDENT
Coram:
ROGERS J
Heard:
27 MARCH 2014
Delivered:
15 APRIL 2014
JUDGMENT
ROGERS
J:
Introduction
[1]
This is an opposed
application for the provisional liquidation of a close corporation.
Mr R Randall appeared for the applicant and
Mr T du Preez for the
respondent.
[2]
The applicant bases its
standing on an alleged claim against the respondent of R668 553,42
for goods sold and delivered. The
principal question is whether this
claim is
bona fide
disputed on
reasonable grounds.
[3]
I record that on
completion of argument on 27 March 2014 I informed counsel that I
would give judgment at 11h30 the next day (28
March 2014). I was
ready to hand down this judgment by that time. However, on the
morning of 28 March 2014 I was notified by counsel
that the parties
were in discussions and on this basis I was asked to defer judgment.
On 14 April 2014 counsel requested that I
proceed to deliver
judgment.
Factual
background
[4]
In the latter part of
2011 the applicant began supplying waste plastic material to the
respondent for recycling. The applicant would
source waste material
from various customers and on-sell the material to the respondent.
The respondent collected the material
either from the applicant’s
premises or directly from the applicant’s customers.
[5]
The email
correspondence between the parties in 2012 reflects that the
respondent sometimes battled to make timeous payment to the
applicant. For example, in an email of 14 June 2012 the respondent’s
Mr Muller told the applicant’s Mr Paterson that
he did not
expect the applicant to act as the respondent’s bank and would
make payment as his cash flow allowed but was not
going to
over-extend himself. Muller’s email of 9 October 2012 also
reflects that the respondent was experiencing cash flow
difficulties
though Muller attributed this to inconsistent and contaminated
material supplied by the applicant.
[6]
Paterson said in the
applicant’s founding papers that during the latter part of 2012
he had become increasingly concerned
about the respondent’s
failure to settle its outstanding debt. Muller provided him with two
blank cheques (which were annexed
to the founding affidavit) as
security but later pleaded with Paterson not to bank the cheques as
they would bounce due to an insufficiency
of funds.
[7]
Initially the
respondent did not have any formally approved credit facilities with
the applicant. However, on 18 April 2013 the
respondent (in the
person of Muller) signed a credit application. The credit application
consisted of eight parts, of which part
7 comprised the applicant’s
standard terms and conditions of trade. Part 3 of the credit
application stated that the respondent
required maximum credit of
R300 000 per month with a total credit limit of R600 000.
Clause 3 of the standard terms and
conditions embodied a standard
suretyship to be signed by the shareholder or member if the customer
was a company or close corporation.
Muller initialled this clause in
the space provided for that purpose. He also signed at the end of the
document (part 8).
[8]
Paterson stated in the
founding affidavit that he told Muller during March 2013 that the
respondent would have to make a credit
application in the prescribed
form if the respondent wished the applicant to continue supplying
material to it on credit. Paterson
said in the replying affidavit
that the applicant had become concerned by the increasing
indebtedness of the respondent and by
emails suggesting that the
respondent was commercially insolvent. He said that Muller was
initially reluctant to sign the credit
application but subsequently
did so after a meeting between the two of them in which Paterson made
it clear to Muller that the
applicant would not supply any further
material unless the credit application was submitted and accepted.
[9]
The standard terms and
conditions, which comprised part 7 of the credit application,
included the following:
[a] The
purchase price for goods supplied would be due, in the case of an
account approved customer, within the credit period
specified in the
account application or not later than the end of the month in which a
tax invoice was issued by the supplier (clause
34). No different
period for payment was specified in the respondent’s credit
application.
[b] The
customer had ‘no right to withhold payment for any reason
whatsoever’ and was ‘not entitled to set
off any amounts
due to the Customer by the Supplier against its indebtedness to the
Supplier’ (clauses 37 and 38).
[c] The
supplier gave no warranty concerning the suitability of the products
for any particular purpose (clause 11). The products
were sold
‘voetstoots with no warranty against latent defects’
(clause 13). The customer agreed to establish, immediately
upon
delivery, that the products on the delivery note, tax invoice or
other documentation correctly represented the products and
prices
agreed to and were free of defects (clause 24). Any defective product
was to be returned to the supplier by the customer
at the latter’s
cost (clause 28). Claims under the agreement would only be valid if
the customer, within three days of the
alleged breach or defect, gave
the supplier 30 days’ written notice by prepaid registered post
to rectify the defect or breach
(clause 29).
[10]
The applicant continued
to supply material to the respondent until November 2013. The
applicant annexed to its founding affidavit
an account reconciliation
covering the period March to November 2013. This reconciliation
reflected that over that period the applicant
supplied material to
the respondent at a total price (inclusive of VAT) of R2 075 568,87,
of which R1 047 015,45
was settled either by payment or by
the setting-off of the purchase price of recycled material purchased
back by the applicant
from the respondent. The shortfall of
R668 553,42 is the applicant’s claim.
[11]
Some of the email
correspondence between the parties during this period was annexed to
the founding and answering papers. On 25
April 2013 Muller complained
to Paterson about the non-supply of material from Blackbird, which
was apparently one of the customers
from whom the applicant sourced
material for the respondent. It appears that Muller was at this stage
wanting waste material for
the purpose of producing recycled product
for sale back to the applicant. He said that unless he received more
raw waste material,
he would have to sell the recycled product to
another customer. In his reply of the same day, Paterson expressed
understanding
and agreed that Blackbird was very inconsistent. He
assured Muller that he was doing everything he could from his side.
[12]
Later that same
day Muller wrote to Paterson to say that he had ‘a problem with
material landing at month end’ because
the applicant wanted
prompt payment but the respondent did not have enough time to recycle
and on-sell the material. This seems
to have been a reference to the
requirement in clause 34 of the standard terms and conditions that
the price of goods supplied
should be paid by not later than the end
of the month in which a tax invoice was issued by the supplier.
Muller’s complaint
was that he could not be expected to
generate turnover for purposes of paying the applicant if he had to
pay for the material within
only a few days of receiving it towards
the end of the month. He concluded the email by stating that ‘we
have to turn the
cycle around or cut off on the 25 [sic] of each
month as the material I sell after the 25 [sic] is normally only paid
the next
month’.
[13]
On 3 July 2013 Muller
wrote to Paterson in response to the applicant’s insistence
that the then outstanding amount be paid.
He said that he was trying
his utmost to repay the outstanding amount but that his situation was
‘unfortunately not as easy
as it seems’. He said that his
recycling plant processed on average four tons per day and that if he
did not have enough
raw material he could not fill his orders and
repayment then became difficult. Also, most of his customers were not
paying him
on time. He said the position would probably only rectify
itself in August or September when business picked up again. He also
complained that he was getting material too late and had to
carry it over to the next month, and ‘thus I never catch
up’.
Another complaint was that the material from some of the applicant’s
sources was unusable. He concluded:
‘
As
I am a man of my word I also cannot tell the landlord that I am
vacating as I made a commitment to him. I also made a commitment
towards you and will keep to it, but you have to understand that I am
in survival mode at the moment as I do not get enough material
that I
need to make money off.
I trust you understand my
situation.’
[14]
As already mentioned,
the outstanding balance by the end of November 2013 was, according to
the applicant, R668 553,42. The
applicant then stopped supplying
the respondent. On 6 December 2013 the applicant’s attorneys
(Marlon Shevelew & Associates
– ‘MSA’) wrote to
the respondent concerning the outstanding amount. In this letter MSA
gave notice to the respondent
in terms of
s 68(c)
of the
Close
Corporations Act 69 of 1984
read with
s 69(1)(a)
that, if the
respondent failed to pay the outstanding amount within 21 days of
delivery of the letter, the applicant would bring
an application for
the respondent’s winding-up on the grounds that it was deemed
to be unable to pay its debts.
[15]
On 20 December 2013 and
8 January 2014 the respondent’s attorneys wrote
without-prejudice letters to MSA. The applicant did
not annex the
letters to its founding affidavit but quoted extracts. Although no
objection was taken in the answering papers, I
doubt whether it was
permissible for the applicant to place the reliance it did on the two
letters in question and I shall thus
disregard the quoted extracts.
[16]
On 14 January 2014 the
respondent’s attorneys wrote an open email to MSA, stating that
they had consulted with counsel and
with their client and that their
instructions were the following:
‘
1. Our
client disputes that he is indebted to your client. Our instructions
are to request a detailed calculation from
your client as to how he
came to the amount of R668 553,54, alternatively the balance
referred to in your letter dated 6 January
2014.
2. Our instructions
are further that your client was paid in advance for certain products
which were contaminated and/or
and unsuitable for use and our client
is in the process of calculating the amount due to him in damages by
your client as a result
hereof.
3. We confirm our
instruction to defend/oppose any application/action brought by your
client.’
[17]
The present application
was launched on 13 February 2014.
The
parties’ contentions in summary
[18]
The applicant’s
case is that its claim of R668 553,42 is not
bona
fide
disputed on
reasonable grounds. The applicant, apart from disputing the
correctness and
bona
fides
of the
respondent’s complaints regarding the applicant’s
performance, relies on the provisions of clauses 34, 37 and
38 of the
standard terms and conditions forming part of the credit application.
The applicant contends, further, that in terms
of
s 69(1)(c)
of
the
Close Corporations Act the
respondent is deemed to be unable to
pay its debts; and that on the facts the respondent is in any event
commercially insolvent.
[19]
The respondent’s
case is that the claim is indeed
bona
fide
disputed on
reasonable grounds. The respondent denies that its contract with the
applicant is on the terms set out in the credit
application dated 18
April 2013: Muller says that the document was blank when he signed it
and that the applicant in any event
did not accept the credit
application. The respondent adds that the applicant is not, to the
best of its knowledge, registered
as a credit provider in compliance
with the
National Credit Act 34 of 2005
. The respondent, with
reference to an email of 27 August 2012, claims that the agreement
between the parties was that the applicant
would supply the
respondent approximately 60 tons of material per month, comprising
approximately 45-50 tons of a product described
as HD and 10 to 15
tons of a product described as PP. The respondent asserts that it has
paid for all the usable material supplied
by the applicant (ie that
the amount allegedly outstanding relates to contaminated or unusable
material for which the respondent
is not obliged to pay); and that
the respondent has a counter-claim for damages exceeding R1 million
because of the applicant’s
failure to deliver 60 tons of usable
material per month. (I phrase the defence in this way, though it is
unclear from the answering
affidavit to what extent the respondent
relies on the fact that the alleged outstanding amount is not owing
because of defective
performance and to what extent the respondent
excuses its non-payment by virtue of the alleged counter-claim.) The
respondent also
denies that it is commercially insolvent, stating
that it ‘has a number of contracts in place and is a profitable
business
and in no way insolvent’.
Claim
bona
fide
disputed on reasonable grounds?
The legal
test – disputed claims
[20]
The rule that
winding-up proceedings should not be resorted to as a means of
enforcing payment of a debt the existence of which
is
bona
fide
disputed on
reasonable grounds is part of the broader principle that the court’s
processes should not be abused. Liquidation
proceedings are not
intended as a means of deciding claims which are genuinely and
reasonably disputed. The rule is generally known
as the ‘Badenhorst
rule’, after one of the leading cases on the subject,
Badenhorst v
Northern Construction Enterprises (Pty) Ltd
1956 (2) SA 346
(T) at 347H-348C. A distinction is thus drawn between
factual disputes relating to the respondent’s liability to the
applicant
and disputes relating to the other requirements for
liquidation. At the provisional stage, the other requirements must be
satisfied
on a balance of probabilities with reference to the
affidavits. In relation to the respondent’s liability, on the
other hand,
the question is whether the applicant’s claim is
disputed on reasonable and
bona
fide
grounds; a
court may reach this conclusion even though on a balance of
probabilities (based on the papers) the applicant’s
claim has
been made out (
Payslip
Investment Holdings CC v Y2K Tec Ltd
2001
(4) SA 781
(C) at 783G-I). However, where the applicant at the
provisional stage shows that the debt
prima
facie
exists, the
onus is on the company to show that it is
bona
fide
disputed on
reasonable grounds (
Hülse-Reutter
& Another v HEG Consulting Enterprises (Pty) Ltd
1998
(2) SA 208
(C) at 218D-219C).
[21]
There was some debate
before me as to how far a respondent need go in order to discharge
the burden of proving that a debt which
is
prima
facie
due and
payable is
bona fide
disputed on reasonable grounds. Both parties referred me to
statements made by Thring J in
Hülse-Reutter
supra
. It is
desirable that I quote fully what the learned judge said at
219F-220C:
‘
I
think that it is important to bear in mind exactly what it is that
the trustees have to establish in order to resist this application
with success. Apart from the fact that they dispute the applicants’
claims, and do so
bona
fide
,
which is now common cause, what they must establish is no more and no
less than that the grounds on which they do so are reasonable.
They
do not have to establish, even on the probabilities, that the
company, under their direction, will, as a matter of fact, succeed
in
any action which might be brought against it by the applicants to
enforce their disputed claims. They do not, in this matter,
have to
prove the company’s defence in any such proceedings. All they
have to satisfy me of is that the grounds which they
advance for
their and their company’s disputing these claims are not
unreasonable. To do that, I do not think that it is
necessary for
them to adduce on affidavit, or otherwise, the actual evidence on
which they would rely at such a trial. This is
not an application for
summary judgment in which, in terms of Supreme Court
Rule 32(3)
, a
defendant who resists such an application by delivering an affidavit
or affidavits must not only satisfy the Court that he has
a
bona
fide
defence to the action, but in terms of the Rule must also disclose
fully in his affidavit or affidavits “the material facts
relied
upon therefor”…. It seems to me to be sufficient for the
trustees in the present application, as long as they
do so
bona
fide
,
and I must emphasise again that their
bona
fides
are
not here disputed, to allege facts which, if approved at a trial,
would constitute a good defence to the claims made against
the
company. Where such facts are not within their personal knowledge, it
is enough, in my view, for them to set out in the affidavit
the basis
on which they make such allegations of fact, provided that they do so
not baldly, but with adequate particularity. This
being the case,
they may, in my judgment, refer to documents and to statements made
by other persons without annexing to their
affidavits such documents
or affidavits deposed to by such persons, subject of course to the
qualifications which I have mentioned
and, in particular, to the
Court being satisfied, as it is in this case, of their
bona
fides
.’
[22]
As Mr Randall for the
applicant emphasised, Thring J made it clear in this passage that
bona fides
was
not in issue and that what he was discussing was the test for
determining whether a respondent who has
bona
fide
disputed the
applicant’s claim is doing so on reasonable grounds. Even in
regard to reasonable grounds, the learned judge
warned that it would
not suffice to make bald allegations lacking in adequate
particularity. His reference to hearsay evidence
is not germane to
the present case, because such facts as are relevant to the
respondent’s defence are within the personal
knowledge of its
deponent Muller.
[23]
Mr Randall reminded me
that in the present case the applicant did not accept the
bona
fides
of the
respondent in raising its defence. Both
bona
fides
and
reasonableness were in issue. With regard to the requirement of
bona
fides
, Mr Randall
referred me to the judgment of Marais J in
Standard
Bank of SA Ltd v El-Naddaf & Another
1999
(4) SA 779
(W). That case concerned an application for rescission.
One of the requirements for successful rescission was that the
defendant
had to demonstrate the existence of a
bona
fide
defence.
Marais J referred to the well-known judgment of Colman J in
Breitenbach v Fiat
SA (Edms) Bpk
1976
(2) SA 226
(T) concerning summary judgment. He pointed out that in
Breitenbach
Colman
J held that the requirement of
bona
fides
was separate
from the requirement that the defendant satisfy the court that he has
a defence and separate from the requirement that
the defendant
‘disclose fully the nature and grounds of the defence and the
material facts relied upon therefor’.
Bona
fides
has to do
with the belief on the part of the litigant as to the truth or
falsity of his factual statements; it is a separate element
relating
to the state of the defendant’s mind (
El-Naddaf
at 784G-785B,
quoting from
Breitenbach
).
[24]
Marais J then quoted
(at 785D-F) the passage in
Breitenbach
appearing at
228B-E. In that passage Colman J said, with reference to
rule 32(3)
,
that the duty ‘fully’ to disclose the nature and grounds
of the defence was not to be taken literally and that the
statement
of material facts should simply be sufficiently full to persuade the
court that what the defendant has alleged, if it
is proved at the
trial, will constitute a defence to the plaintiff’s claim.
Importantly, Colman J added the following (and
it was this passage in
particular which Marais J in
El-Naddaf
highlighted):
‘
What
I should add, however, is that if the defence is averred in a manner
which appears in all the circumstances to be needlessly
bald, vague
or sketchy, that will constitute material for the Court to consider
in relation to the requirement of
bona
fides
.’
[25]
Marais J said that this
explanation regarding the requirement of
bona
fides
applied with
equal force to the requirement in rescission proceedings that the
defendant demonstrate a
bona
fide
defence,
emphasising in particular that
bona
fides
cannot be
demonstrated by making bald averments lacking in any detail [785H-I).
[26]
I see no reason for
adopting a different approach when considering, in liquidation
proceedings, whether the applicant’s claim
is
bona
fide
disputed on
reasonable grounds.
Bona
fides
relates to
the respondent’s subjective state of mind while reasonableness
has to do with whether, objectively speaking, the
facts alleged by
the respondent constitute in law a defence. The two elements are
nevertheless inter-related because inadequacies
in the statement of
the facts underlying the alleged defence may indicate that the
respondent is not
bona
fide
in asserting
those facts. As
Hülse-Reutter
makes clear, the
objective requirement of reasonable grounds for a defence is not met
by bald allegations lacking in particularity;
and, as appears from
Breitenbach
and
El-Naddaf
,
bald allegations lacking in particularity are unlikely to be
sufficient to persuade a court that the respondent is
bona
fide
.
[27]
The foregoing
discussion treats the
Badenhorst
rule as laying down a rigid legal test: if the application is
bona
fide
disputed on
reasonable grounds, the application must as a rule of law be
dismissed. That is far from being settled in our law. In
Kalil
v Decotex (Pty) Ltd & Another
1988
(1) SA 943
(A) Corbett JA, after listing a number of decisions in
which the rule in slightly varying formulations had been adopted,
said the
following (at 980F-I):
‘
This
rule would tend to cut across the general approach to applications
for a provisional order for winding-up which I have outlined
above as
it is conceivable that the situation might arise that the applicant
could show a balance of probabilities in his favour
on the
affidavits, while at the same time the respondent established that
its indebtedness to the applicant was disputed on
bona
fide
and reasonable grounds. Whether the
Badenhorst
rule
should be accepted then as an exception to the general approach
relating specifically to the
locus
standi
of
the applicant as a creditor, and the further question as to whether
it should be applied inflexibly or only when it appears that
the
applicant is in effect abusing the winding-up procedure by using it
as a means of putting pressure on the company to pay a
debt which is
bona
fide
disputed
(see the English case of
Mann
& Another v Goldstein & Another
[1968]
2 All ER 769
at 775C-D) need not, however, be decided in this case.
The point was not argued before us and, as I shall show, it seems to
me
that for various reasons the
Badenhorst
rule
should not be applied here
.’
[28]
In
Absa
Bank Ltd v Erf 1252 Marine Drive Pty Ltd & Another
[2012]
ZAWCHC 43
, which was the return day of a provisional liquidation,
Binns-Ward J said the following in para 15 (footnote omitted):
‘
I
am hesitant to accept the notion that the
Badenhorst
rule
goes to standing. After all, as Corbett JA observed in
Kalil
v Decotex supra
,
at 980, it is conceivable that a creditor could establish on a
balance of probabilities that it had a claim against the respondent
company in winding-up proceedings, while the respondent at the same
time was able to establish that the claim was disputed on
bona
fide
and reasonable grounds. The applicant in such a case would have
established its standing, while the respondent would have
established,
irrespective of the merits of the claim or its defence
to it, that the remedy sought by the applicant should not be granted.
The
Badenhorst
rule would thus seem to constitute a self-standing (and possibly
flexible) principle that winding-up proceedings are not an
appropriate
procedure for a creditor to use when the debt is
bona
fide
disputed. Availment of the procedure in circumstances in which the
Badenhorst
rule applies can be an abuse of process. It is so, however, only when
the creditor knew, or should reasonably have foreseen, that
the debt
was disputed on
bona
fide
and
reasonable grounds at the time of the institution of the
proceedings…’.
The expression of opinion in this passage, to the effect
that the
Badenhorst
rule may not go to standing and that it is
rather a self-standing and possibly flexible principle, received
support by the full
bench in
Nedbank Ltd v Zonnekus Mansions (Pty)
Ltd
[2013] ZAWCHC 6
para 43. A flexible approach, particularly at
the provisional stage, also seems to have found favour with a full
bench in Gauteng
in
Total Auctioneering Services and Sales CC t/a
Consolidated Auctioneers v Norfolk Freightways CC
[2012] ZAGPJHC
211 paras 13-15.
[29]
The decisions in
Erf
1252 Marine
,
Zonnekus Mansions
and
Total
Auctioneering
were
not mentioned in argument. I do not find it necessary, for purposes
of the present case, to determine [a] what flexibility
there is
(if any) in the
Badenhorst
rule; [b] whether it applies only where one can conclude that
the launching of the application was an abuse of the liquidation
process; and [c] whether, in the latter event, it is necessary
for the respondent company to show that at the time the liquidation
application was launched the applicant was aware that the
indebtedness was
bona
fide
disputed on
reasonable grounds or whether it suffices for the reasonable and
bona
fide
dispute to
emerge for the first time in answering papers. I shall assume in
favour of the respondent, without deciding, that the
application must
be dismissed if, on an assessment of all the affidavits, I conclude
that the applicant’s claim is now disputed
bona
fide
on reasonable
grounds.
The legal
test – disputed counterclaim for damages
[30]
I have thus far been
considering the case where the petitioning creditor’s claim is
disputed. Although that is one of the
matters which arises in the
present case, there is also an allegation by the respondent that it
has a substantial claim for damages
against the applicant. Counsel
appear to have assumed that essentially the same test applied, namely
that the court would ordinarily
dismiss a liquidation application if
the respondent company
bona
fide
asserts a
counterclaim for damages on reasonable grounds, at least where such
counterclaim exceeds the amount of the applicant’s
claim. That
does not appear to be the legal position.
[31]
In
Ter
Beek v United Resources CC
1997
(3) SA 315
(C) Van Reenen J considered that South Africa should
follow the English practice, which he understood to be that the court
has
a general discretion to refuse a liquidation order where the
respondent asserts a genuine and serious counterclaim equal to or
exceeding the amount of the applicant’s claim. This general
discretion would be more flexible than the
Badenhorst
rule is often assumed to be, because the liquidation application
would not have to be dismissed merely because the respondent asserted
a
bona fide
counterclaim on reasonable grounds.
[32]
Be that as it may, in
Erf 1252 Marine
Drive, supra,
Binns-Ward
J subjected
Ter Beek
to trenchant criticism. He pointed out that the English cases did not
appear to confer the wide discretion assumed by Van Reenen
J. The
English cases in effect applied our
Badenhorst
rule (which we adopted under the influence of English decisions) by
holding that, save in exceptional circumstances, a liquidation
application should be refused where the respondent
bona
fide
asserts on
reasonable grounds a counterclaim for damages equal to or exceeding
the applicant’s claim. Binns-Ward J considered
that there was
no reason to adopt this approach in South Africa. He concluded that
the
Badenhorst
rule did not apply to an illiquid counterclaim. He held that a
respondent is not entitled to have a liquidation application
dismissed
merely because it
bona
fide
asserts on
reasonable grounds a counterclaim for damages exceeding the amount of
the applicant’s claim (para 14):
‘
In
my view reliance by a respondent on a “genuine and serious”
unliquidated counterclaim to oppose an application for
its
liquidation is a quite distinguishable basis for resisting winding-up
from that premised on a
bona
fide
and reasonable dispute of an alleged indebtedness to a
creditor-applicant. As pointed out by Van Reenen J in
Ter
Beek
,
reliance by a respondent company on a counterclaim to avert a
winding-up order actually entails an admission by it of the alleged
indebtedness to the applicant relied upon by the creditor applicant.
The allegation of the existence of an unliquidated counterclaim
is
nothing more than the putting up by the respondent of a basis upon
which it is able to ask the court to exercise its discretion
against
making a winding-up order, notwithstanding that the applicant may
have satisfied the technical requirements to achieve
the remedy.
There is accordingly no basis in our law in such circumstances to
treat the application for winding-up as an inappropriate
procedure,
as a court would, applying the
Badenhorst
rule, in the circumstances of a claim for winding-up by a creditor
when the existence of the debt in question is reasonably and
bona
fide
disputed. For the same reason there is no reason in our law for a
court, as a matter of principle, to adopt a general disposition
against the granting of the remedy just because the existence of an
unliquidated counterclaim is alleged by the respondent.’
[33]
Since counsel did
not refer me to and argue the competing merits of the decisions in
Ter Beek
and
Erf 1252 Marine
Drive
, I shall
assume in favour of the respondent, without deciding, that the
application in the present case should be dismissed if
I find on an
assessment of all the affidavits that the respondent is
bona
fide
asserting on
reasonable grounds a counterclaim for damages which exceeds the
amount of the applicant’s claim.
Applying
the legal test to the facts of this case
[34]
In the present case I
consider that the applicant has shown that the debt
prima
facie
exists (ie
that the balance of probabilities on the papers is in its favour on
that point) and that the respondent has not demonstrated
that the
debt is
bona fide
disputed on reasonable grounds or that it
bona
fide
asserts on
reasonable grounds a counterclaim exceeding the amount of the
applicant’s claim.
[35]
The first point to
address is the contract between the parties. The applicant annexed to
its founding affidavit the credit application
signed on the
respondent’s behalf by Muller. Muller did not deny his
signature. He nevertheless attempted to escape the terms
embodied in
the credit application by contending [a] that the credit
application was a blank form when he signed it; [b] that
the
credit application was never accepted by the applicant; [c] that
the applicant was not registered as a credit provider
in terms of the
National Credit Act.
[36
]
All three points are
manifestly without merit. As to the first, Muller said the following
in para 8.2 of his affidavit: ‘At
the time I signed “GAP3”,
it was not completed and lacked certain critical information. It was
expected from me to
sign a “blank document”.’ The
natural reading of this assertion is that none of the handwriting
that appears
on the first three pages of the credit application form
or on the last page (apart from Muller’s signature) was the
writing
of Muller or anyone else on behalf of the respondent. Mr du
Preez, when he addressed this aspect in oral argument, indicated in
response to a question from me that he indeed understood that none of
the writing was that of Muller. This appeared somewhat implausible
to
me, given the nature of some of the handwritten information and also
the style of writing and signature on the last page. It
seemed to me
that it ought to be possible to resolve without difficulty whose
writing was on the document. I suggested that during
the tea
adjournment counsel take instructions from their respective clients’
principals (Paterson and Muller). I also indicated
that I might
require short affidavits from each of them if there was a dispute on
the point.
[37]
After the tea
adjournment I was informed by Mr du Preez, with Mr Randall’s
consent, that upon further enquiry it appeared
that all the
handwriting on the credit application form was indeed Muller’s.
The blank credit application form had been handed
to him at a meeting
at Paterson’s home. Muller had taken it away with him, filled
it out in his own hand, signed it (this
was at his business premises
in Blackheath) and then returned it to Paterson. Mr Randall confirmed
that his instructions were that
the writing of the document was
certainly not that of Paterson or anyone else on behalf of the
applicant.
[38]
This turn of events
demonstrates why courts are not readily persuaded by bald allegations
that a good defence in law exists and
that it is advanced in good
faith. Muller’s allegation in para 8.2 of his affidavit was
sparse. It was possible for him,
when he made his affidavit, to
identify the handwriting on the document and to say at what point it
was inserted on the document.
This particular basis for denying a
contract on the terms contained in the credit application form
disintegrated as soon as Muller
was required to be more specific.
[39]
In the light of the
fact that Muller filled out the document and then signed it, it is
unnecessary to consider what the position
would have been if he had
signed it in blank and it had then been completed by the applicant.
[40]
As to the second point
(alleged non-acceptance by the applicant), the respondent did not
dispute that it was the applicant which
insisted that a credit
application be submitted in order for further supplies to be made.
The credit application incorporated a
suretyship by Muller. The
application form did not specify a form of acceptance by the
applicant. There was a box at the end of
the document marked ‘For
office use only’, which made provision for details regarding
the checking of the customer’s
references, the approval of the
account and so forth. In the copy of the document annexed to the
founding affidavit, this box was
not completed. However, this was a
matter of internal administration. Paterson stated in reply that the
applicant had most certainly
accepted the credit application and that
it was only on that basis that the applicant had continued to supply
material to the respondent.
[41]
There was no
correspondence after 18 April 2013 to suggest that the credit
application had been rejected or that the standard terms
and
conditions incorporated therein were not part of the contract between
the parties. Muller’s emails of 25 April and 3
July 2013
recognise that the current terms required payment by the end of the
month in which the relevant invoice was issued. This
was the term of
credit contained in clause 34 of the standard terms and conditions.
[42]
As to the third point
(alleged non-registration as a credit provider), the respondent did
not attempt to explain in its answering
affidavit why the
National
Credit Act should
be held to apply to the credit agreement between
the parties and Mr du Preez made no submissions on the point in his
heads of argument.
The respondent is a juristic person. Muller did
not say that its annual turnover was less than the threshold
determined in terms
of
s 7(1)(a)
of the Act, namely R1 million.
Since the respondent sought a monthly credit facility of R300 000
from the applicant, and since
over the period March to November 2013
the applicant supplied goods to the respondent with a total price of
more than R2 million,
it is probable that as at April 2013 the
respondent’s annual turnover exceeded R1 million. In terms of
s 4(1)(a)(i)
the Act would thus not apply. In any event, the
credit agreement between the parties was a ‘large agreement’
as described
in
s 9(4)(b)
of the Act, because the credit made
available thereunder exceeded the amount of R250 000, being the
higher of the thresholds
established in terms of
s 7(1)(b
). For
this reason also, and in terms of
s 4(1)(b)
, the Act did not
apply. (I mention in passing that it has recently been held by
the Supreme Court of Appeal that a credit
agreement to which, by
virtue of provisions such as the aforesaid, the Act does not apply is
not rendered invalid because, in respect
of other transactions, the
credit provider should be registered – see
Paulsen
v Slip Knot Investments
[2014]
ZASCA paras 4-13.)
[43]
Once it is concluded
that there is no reasonable and
bona
fide
dispute that
the contract between the parties incorporated the standard terms and
conditions contained in the credit application
form, the respondent’s
assertion that it is not obliged to pay for certain of the material
because it was contaminated or
unusable is rendered untenable. The
respondent does not allege that it gave timeous notice of any breach
or defect in the manner
required by clause 29 of the standard terms
and conditions. On the face of it, the respondent accepted material
supplied to it
and only afterwards complained about quality when it
was pressed for payment.
[44]
The respondent has
failed, furthermore, to give particulars of the consignments which
were ‘contaminated’ or ‘unusable’
and the
respects in which they were defective or to spell out the quality
terms supposedly forming part of the contract between
the parties and
how those quality terms came to be incorporated into the contract. As
Paterson pointed out in reply, the applicant
was supplying the
respondent with raw waste material for recycling. Part of the
respondent’s operation was to separate recyclable
plastic from
extraneous material. Moreover, the respondent does not say in the
answering affidavit what was done with the supposedly
contaminated or
unusable material. The respondent does not allege that it was
rejected upon delivery or returned to the applicant.
[45]
Moreover, sporadic
complaints by Muller about unusable material date back, according to
the email correspondence, to at least 9
October 2012. There was
another grumble in the email of 3 July 2013. Muller did not allege in
either of these emails that the applicant
was in breach of contract
and did not say that the respondent was not liable to pay any
particular invoices or that it would be
bringing a claim for damages
against the applicant. The first mention of a claim for damages was
in the respondent’s attorney’s
letter of 14 January 2014
in response to the statutory demand for payment. If the respondent
bona fide
believed it had a claim for damages, I would have expected this to
have surfaced much earlier. As it is, the assertion of a damages
claim appears to have been an afterthought to ward off a liquidation
application.
[46]
The respondent has thus
failed to discharge the onus of showing that its contention, to the
effect that the alleged outstanding
indebtedness represents the price
of material for which it was not contractually obliged to pay, is
raised
bona fide
and
on reasonable grounds.
[47]
Regarding the proposed
claim for damages arising from the applicant’s alleged failure
to deliver 60 tons of usable material
per month, clauses 37 and 38 of
the standard terms and conditions, which the respondent has
unsuccessfully sought to evade, stipulate
that the respondent has no
right to withhold payment on the basis of an alleged counterclaim.
Naturally a counterclaim for damages,
even if it had
prima
facie
merit, would
not constitute a defence as such to the claim for payment, because an
illiquid claim for damages cannot be set off
against a liquidated
claim (
LAWSA
2
nd
ed Vol 19 para 244(d); Christie & Bradfield
Christie’s
The Law of Contract in South Africa
6
th
ed at 495-6). In such a case, a court in action proceedings might
nevertheless in terms of
rule 22(4)
postpone the giving of judgment
on the main claim until the determination of the counterclaim.
However, a court would be unlikely
to adopt this course in the face
of contractual provisions such as clauses 37 and 38.
[48]
It is thus not strictly
necessary to comment on the
prima
facie
merits of the
alleged counterclaim because the counterclaim is not, in the light of
the contract between the parties, an objectively
reasonable ground
for resisting payment of the applicant’s claim. I nevertheless
observe that at the time of the filing of
the answering affidavit
Muller said that the counterclaim was still in the process of being
quantified. Furthermore, the counterclaim
rests on a contention that
the applicant was obliged to supply approximately 60 tons of material
per month. The existence of such
an obligation was denied by the
applicant in reply. Paterson pointed out that the applicant was
dependent on third party suppliers
and could thus not guarantee any
particular quantity. Clause 8 of the standard terms and conditions
states that all quotations
are ‘subject to the availability of
input goods or services’.
[49]
The email of 27 August
2012 on which the respondent relies for the alleged term was not
framed as a contractual provision. In that
email Muller confirmed,
with reference to an earlier discussion with Paterson, that he needed
about 60 tons of material per month,
which would be ‘ongoing
monthly at this stage’. This reads as a factual intimation by
the respondent to the applicant
of the amount of material it could
use and would thus like to receive. I doubt, if the boot were on the
other foot, that the respondent
would have accepted that by virtue of
the email it was obliged to buy 60 tons per month, even if it did not
need that much material
or could not afford to pay for it. What the
email contemplated were monthly orders.
[50]
Moreover, one must
again question why the alleged damages claim, if it is
bona
fide
, first finds
expression in the respondent’s attorney’s response to the
statutory letter of demand. The applicant supplied
material to the
respondent for about 15 months after the date of the email of 27
August 2012. There is no correspondence during
that period in which
Muller claimed that the applicant was in breach of contract by
failing to deliver 60 tons per month. There
were complaints about
insufficient quantities to run the respondent’s plant
efficiently but those were not framed as allegations
of breach of
contract; they were offered rather in explanation for why the
respondent was battling to make timeous payment. It
is also
noteworthy that, even in the respondent’s attorney’s
reply to the statutory demand, the claim for damages appears
to have
been linked to the delivery of contaminated material; there was no
allegation at that stage that the applicant had breached
a
contractual obligation to deliver 60 tons of material per month. As
far as I can see, the assertion of such a contractual term
and its
breach was first made in the answering papers.
[51]
Although the respondent
has not explained the precise nature of the alleged damages, one can
assume that the claim will essentially
be for alleged loss of profit.
Prima facie
such
a claim is excluded by clause 69 of the standard terms and
conditions, which states that the applicant shall not be liable
‘for
any consequential damages including loss of profit or for any
delictual liability of any nature whatsoever’.
[52]
For all these reasons,
my conclusion is that the respondent has not shown that the
applicant’s claim is disputed either
bona
fide
or on
reasonable grounds or that the respondent is
bona
fide
asserting on
reasonable grounds a counterclaim for damages.
Inability
to pay debts
[53]
The rejection of the
respondent’s assertion that the applicant’s claim is
bona
fide
disputed on
reasonable grounds largely disposes of the question whether the
applicant has shown that
prima
facie
the
respondent is unable to pay its debts within the meaning of
s 69
of the
Close Corporations Act. The
respondent does not, as I read the
answering papers, allege that it could forthwith pay the amount of
R668 553,42 if it is
indeed due and payable. The statement in
the answering affidavit that the respondent is commercially solvent
and that it has a
number of contracts in place and is a profitable
business is not, without more, sufficient to rebut the
prima
facie
inference
from the respondent’s failure to pay a claim which has not been
shown to be
bona
fide
disputed on
reasonable grounds (see
Rosenbach
& Co (Pty) Ltd v Singh’s Bazaars (Pty) Ltd
1962
(4) SA 593
(D) at 597G-598C; cf
De
Villiers NO v Maursen Properties Pty Ltd
1983
(4) SA 670
(T) at 677E-F). Muller has provided no details of the
respondent’s available liquid resources. He has not annexed the
respondent’s
most recent financial statements. The
correspondence to which I have referred indicates that the respondent
has often battled to
meet its cash flow requirements.
Prima
facie
, therefore,
the respondent is unable to pay its debts as they fall due, and this
is the test for commercial insolvency (see
Absa
Bank Ltd v Rhebokskloof (Pty) Ltd & Others
1993
(4) SA 436
(C) at 440F-J). The applicant has thus established on a
prima facie
basis
the ground of liquidation stated in
s 69(1)(c)
of the
Close
Corporations Act.
[54
]
In addition, the
applicant is armed with the presumption of an inability to pay debts
which arises by virtue of
s 69(1)(a).
Although
s 69
refers
back to
s 68(c)
of the Act, a provision repealed with effect
from 1 May 2011 by Schedule 3 of the
Companies Act 71 of 2008
, it has
been held in this court that the cross-reference in
s 69
to
s 68(c)
should now be read as a reference to the provisions of
s 344(f) of the Companies Act 61 of 1973. This is so because
s 344(f)
is one of the provisions of the old Companies Act
which, by virtue of item 9 of Schedule 5 of the new Companies Act,
remains applicable
to companies and which, by virtue of the amended
s 66
of the
Close Corporations Act, also
applies in the
liquidation of close corporations (
Absa
Bank Ltd v Samsui Empire Park 1 CC
[2013]
ZAWCHC 187
paras 22-29 and authorities there mentioned).
Discretion
[55]
I have a residual
discretion to refuse a provisional liquidation order but see no
grounds for exercising that discretion in favour
of the respondent.
Order
[56]
Mr Randall submitted
that because the respondent received notice of the application and
has had sufficient opportunity, in accordance
with an agreed
timetable, to place its opposition before the court, there is no
reason not to grant an immediate order of final
liquidation. He
referred me to
Ex
parte Beach Amanzimtoti Hotel (Pty) Ltd
1988
(3) SA 435
(W) as authority for the proposition that a provisional
winding-up is not indispensable to the granting of a final winding-up
order.
[57]
It is so that the
relevant provisions of the
Close Corporations Act as
read with the
provisions of Chapter XIV of the Companies Act 61 of 1973 do not, as
in the case of sequestrations, insist on or
even expressly mention
the grant of provisional liquidation orders. It has nevertheless been
the common practice, at least in this
division, for provisional
orders to be granted as a precursor to final liquidation, even where
applications are opposed at the
provisional stage. Although I do not
doubt that a court in an appropriate case may dispense with a
provisional order, the circumstances
bearing on the court’s
discretion in that respect have changed since Flemming J gave his
judgment in
Beach
Hotel supra
. The
lawmaker has inserted provisions requiring notice of liquidation
applications to, and service of liquidation orders upon,
employees,
trade unions and the South African Revenue Service (see ss 346(4A)
and 346A of the 1973 Companies Act) . Creditors
also have an
interest in the matter. It is the usual practice to require
provisional orders to be published in suitable newspapers
so that
creditors and other interested parties, who would not have received
notice of the application, may be heard on the return
day. The remedy
of business rescue introduced by the
Companies Act 71 of 2008
adds a
further dimension. Those provisions recognise that shareholders,
creditors, trade unions and employees all have an interest
in the
fate of a financially distressed company, and the lawmaker has, by
way of the new remedy, sought to place a higher premium
on attempts
to rescue ailing companies (see, further, Meskin
Henochsberg
on the
Companies Act
at
725-6).
[58]
In the present case the
applicant’s notice of motion sought a provisional order, not a
final order. There has not been notice
of the application to
creditors; instead, the notice of motion provides for such notice by
way of publication of a provisional
order in the usual newspapers.
The application was, as between the applicant and the respondent,
conducted on an expedited timetable.
As far as I can tell from the
affidavits, the respondent is still in operation and probably still
has employees. Apart from the
fact that other sources of opposition
may emerge from the publication of a rule nisi, the respondent
itself, given more time, might
(by way of further papers) be able to
persuade a court, contrary to the view I have reached, that it does
bona fide
dispute
the applicant’s claim on reasonable grounds. In the
circumstances, I am not persuaded that I should depart from the
usual
practice of granting a provisional order. Indeed that is the basis on
which I have, in my earlier reasoning, assessed the
merits of the
application.
[59]
I thus make the
following order:
[a] The
respondent is placed in provisional liquidation in the hands of the
Master of this court.
[b] A
rule nisi is issued calling upon the respondent and all persons
concerned to appear and show cause, if any, on Monday
19 May 2014,
why:
(i) the
respondent should not be placed in final liquidation;
(ii) the
costs of this application should not be costs in the liquidation.
[c] Service
of this order shall be effected as follows:
(i) by
the sheriff of this court, or by his lawfully appointed deputy, on
the respondent at its registered address;
(ii) by
the sheriff of this court, or by his lawfully appointed deputy, on
the employees of the respondent;
(iii) by
the sheriff of this court, or by his lawfully appointed deputy, on
the trade unions of the respondent’s employees;
(iv) on
the South African Revenue Service; and
(v) by
publication in one edition of
The Cape Times
and
Die Burger
newspapers.
ROGERS
J
APPEARANCES
For Applicant:
Mr R Randall
Instructed by:
Marlon Shevelew & Associates
9
th
Floor Zeeland House
7-9 Heerengracht
Cape Town
For Respondent:
Mr T du Preez
Instructed by:
Pieter Fourie Attorneys
34 Middel Street
Bellville
c/o Van der Spuy Cape Town
4
th
Floor 14 Long Street
Cape
Town