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[2014] ZAWCHC 88
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Hauser v Qazi (17496/2013) [2014] ZAWCHC 88 (9 June 2014)
THE REPUBLIC OF
SOUTH AFRICA
IN THE HIGH COURT
OF SOUTH AFRICA
(WESTERN CAPE
DIVISION, CAPE TOWN)
CASE
NO: 17496/2013
DATE:
09 JUNE 2014
In the matter
between:
MILA HAUSER
Applicant
Versus
MAUREEN QAZI
Respondent
JUDGMENT: 9 JUNE
2014
BOZALEK, J
[1] Applicant seeks
a provisional order of sequestration against Respondent. In doing so
she relies upon a claim in the amount of
R1 661 485.00 which is
partly evidenced by an annexed agreement of sale in which
Respondent’s former partner, a Mr Wayne
Lee-Warden
(‘Lee-Warden’), sold to Respondent his 50% membership in
the business conducted by Lyness Algemene Handel
7 cc which traded as
The Orchard Farmstall and Restaurant in Grabouw.
[2] Clause 2 of the
agreement provided that the purchase price would be the sum of R1 730
075.00 payable as follows:
‘2.1.1 The
purchaser shall repay the bond of R1 733 075.00 (one million seven
hundred and thirty three thousand and seventy
five rand) registered
on Erf 603 Pringle Bay which is registered under the name of (Mila
Hauser) … at the monthly instalments
as supplied by Standard
Bank.’
[3] The agreement
was signed by the seller (‘Lee-Warden’) and Respondent in
her capacity as purchaser and concluded
with the signature of
Applicant under the phrase ‘I accept the benefits and
responsibilities conferred upon me in terms of
this agreement’.
Applicant testified that she had subsequently been paid the amount
of R111 590.00 but only in irregular
payments which, she added, was
clearly the result of financial difficulties in which Respondent (and
her business) found themselves.
[4] In January 2013
Applicant’s representatives made written demand of Respondent
to pay the arrear bond instalments in the
amount of R64 772.88 within
14 days failing which the full outstanding balance would become due
and payable. This was presumably
sent pursuant to the default clause
in the agreement which provided that all amounts owing by Respondent
to Applicant covered by
the bond over the property in question would
immediately become due and payable inter alia in the event of her
committing any breach
of the provisions and failing to remedy same
within 14 days of date of written notice handed to her.
[5] Applicant’s
case is further that Respondent is either insolvent or has committed
an act of insolvency in that she was
indebted to Applicant in the
amount of her claim and her business, The Orchard Farmstall, is in
serious financial difficulties.
These difficulties are also evidenced
by the fact that Respondent had borrowed further monies from her in
March 2013 in order to
prevent a sale in execution in respect of
outstanding rental owing by Lyness and the fact that in January 2013
the close corporation
had filed for business rescue in terms of
section 129(3)(a)
of the
Companies Act, 71 of 2008
.
[6] It is trite that
in order to secure a provisional sequestration order an applicant has
to establish against the estate of the
debtor a claim in excess of
R100.00, that the debtor has committed an act of insolvency and/or is
in fact insolvent and thirdly,
that there is reason to believe it
would be to the advantage of creditors if Respondent’s estate
is sequestrated. As was
stated in Kalil v Decotex (Pty) Ltd and
Another
1988 (1) SA 943
in the context of a provisional winding up
order, where on the affidavits there is a prima facie case (used in
the sense of a ‘balance
of probabilities’) in favour of
Applicant, then a provisional order of winding up should be granted.
[7] That case quoted
with approval a line of cases establishing the above mentioned
principle in liquidation and sequestration matters,
principally
Provincial Building Society of South Africa v Du Bois
1966 (3) SA
76W.
[8] As far as the
advantage to creditors is concerned Applicant referred to material in
the affidavits which suggested that some
R200 000.00 worth of
restaurant or dining equipment once owned by Respondent appeared to
have been disposed of by her.
[9] Respondent
opposes the provisional order of sequestration. However, her opposing
affidavit is an extremely terse document consisting
largely of bald
denials of the various allegations and averments made by Applicant.
Amongst the points made by Respondent are the
contentions that
Applicant was not a creditor inter alia in that she had failed to
submit proof of having made any payments to
Respondent; that
Applicant was lying about her claim and that in proceeding with the
application she was just being vindictive
in that she is a close
friend of Respondent’s former partner, Lee-Warden, with whom
Respondent had fallen out.
[10] In regard to
the sale agreement evidencing Applicant’s claim Respondent
submits that it constitutes a credit agreement
and is void in that
should Applicant indeed have loaned the amounts she alleged,
Applicant was not registered with the National
Credit Regulator and
her alleged loans and claims exceed R500 000.00. Furthermore,
contends Respondent, Applicant had failed to
comply with the
provisions of section 129 of the National Credit Act.
[11] Respondent
admits, however, that she and Lee-Warden had purchased the business
of Lyness during June 2011 and that she had
concluded the agreement
of sale relied upon by Applicant. Respondent also confirmed that she
had 100% of the interest in Lyness
and that she was no longer in
possession of the R200 000.00 worth of movables referred to earlier.
[12] In argument on
behalf of Respondent, Mr le Roux submitted that Applicant had made
out none of the three requirements for a
provisional sequestration
order. His main point was, however, that Applicant was not a
registered credit provider in terms of National
Credit Act (‘the
NCA’) and therefore her claim, even if accepted, did not serve
to establish her locus standi. It is
to this point that I turn first.
[13] It is common
cause that the monies advanced by Applicant exceeded the statutorily
imposed limit of R500 000.00 stipulated by
the NCA and that Applicant
was not a registered credit provider. Mr Benade, on behalf of
Applicant contended, however, that the
provisions of the NCA were not
applicable to the debt or the claim inasmuch as the credit agreement
was not hit by the Act by virtue
of an exemption created in section 4
for dealings between parties which were not at arm’s length.
[14] Insofar as it
is relevant, section 4 provides that the NCA applies to every credit
agreement between parties dealing at arm’s
length. Sub-section
4(2)(b) expands on the meaning of arrangements between parties who
are not dealing at arm’s length and
includes under (iv) any
other arrangement – ‘(aa) in which each party is not
independent of the other and consequently
does not necessarily strive
to obtain the utmost possible advantage out of the transaction’.
[15] It is within
this particular niche of the exemption that Applicant’s seeks
to place her credit agreement. In support
thereof Applicant relies on
the previous close personal relationship between her and Respondent
both of whom are Dutch speaking
and who became friends, a friendship
which included Lee Warden, Respondent’s former life and
business partner. In further
support of her case Applicant testified
that Respondent often spent weekends with her at her home in Pringle
Bay, that Respondent’s
mother stayed over at Applicant’s
house on some occasions when she visited Respondent from abroad and
that she (Applicant)
and Respondent had even spent a short holiday
together during April 2011. Applicant annexed photographs of her and
Respondent
together on social occasions and testified that after
Respondent and Lee-Warden purchased The Orchard Farmstall business
during
June 2011 and needed money to set up the business, purchase
furniture and equipment and do renovations, she made loans to them
and then continued doing so until they totalled an amount of R1
773mil. As Applicant stated ‘this loan was always meant to
be a
transaction between two friends, as I was never part of the
business’. Applicant withdrew the monies which she loaned
to
Respondent for the business from her personal bond account. In the
course of time the working and personal relationship between
Respondent and Lee-Warden deteriorated which led to the agreement
whereby Respondent purchased Lee-Warden’s membership interest
in the close corporation and concluded the sale agreement referred to
earlier.
[16] That agreement,
as described, clearly invests liability in Respondent for the
repayment to applicant of the monies which she
had previously loaned
to the business and/or Respondent and/or Lee-Warden. It bears out
Applicant’s case in all material
respects. Mr le Roux pointed
to the fact that the agreement requires Respondent to pay the bond
instalments on Applicant’s
property and argued that the Court
could take judicial notice that such instalments contain an interest
component. This may well
be so and I am prepared to make that
assumption but in my view that does not change the essential nature
of the credit agreement
as being that of dealings which were not at
arm’s length. Even though interest may well have been included
in the instalments
that was interest charged by and payable to the
financial institution which granted the bond finance and in no way
did it represent
a profit or an improvement in the nett position of
Applicant. Similarly, there is no dispute that Applicant had no share
in the
business and all that she stood to recover was the repayments
of the loan which she initially made to Respondent and/or Warden
and/or the business albeit that these repayments included interest
levied on these monies by the bank from whom Applicant was borrowing
the money at first instance.
[17] Respondent’s
affidavit, brief as it is, does not take serious issue with
Applicant’s version of the initial friendship
and the basis
upon which these monies were loaned. In the circumstances I have no
difficulty in concluding that the agreement,
a one-off agreement at
that, was not an arm’s length transaction and certainly not one
in which the parties can be described
as being independent of the
other or of concluding an agreement in which both parties were
striving to obtain the utmost possible
advantage out of the
transaction.
[18] In the result I
find that the credit agreement was exempt from the provisions of the
NCA and that what in effect was a point
in limine raised by
Respondent must fail. Respondent did not seriously dispute the
existence of the debt or claim and indeed could
not do so. It stands
in black and white in the agreement of sale and Applicant’s
allegation that only a small number of Respondent’s
repayments,
which instalments soon ceased, were made cannot be seriously
disputed. The provisions of the agreement’s breach
clause were
invoked and it is clear that Respondent is unable or unwilling to
make any further payments of the instalments. For
good measure
Respondent’s business rescue application lists one of the
liabilities of the close corporation as ‘loan
account M Hauser
– R1, 7mil’.
[19] This not being
a friendly sequestration Applicant was not able to place much before
the Court by way of a setting out Respondent’s
financial
position. What is clear that Respondent has a liability of at least
R1,6mil odd and an apparent inability to meet even
monthly
instalments of some R15 000.00 in reduction of this sum. Her
principal asset appears to be her share in the business but,
as set
out above, that business appears to have been in financial difficulty
for at least six months so much so that a business
rescue application
was launched at the beginning of the year. Evidence from Applicant
regarding sales in execution involving the
business being stopped at
the last moment, and further smaller loans being made by her to
Respondent, contribute to the general
picture of the latter
experiencing a financial crisis. Most significantly, there is no
explanation from Respondent as to why the
payments by her of
Applicant’s bond instalments have ceased resulting in
substantial arrears.
[20] Faced with the
general picture of financial difficulties and a failure on her part
to meet her financial obligations there
is a complete silence from
Respondent. She makes out no case that her business is in a healthy
state, explains why she has ceased
to make repayments to Applicant or
states in detail or even general terms that she is financially
solvent in that she can meet
her obligations or that her assets
exceed her liabilities. In these circumstances the approach approved
in Kalil v Decotex (supra)
and initially established in Provincial
Building Society of South Africa v Du Bois (supra) finds application.
[21] With regard to
the third requirement, namely, that there will be an advantage to
creditors, apart from the evidence relating
to the R200 000.00 worth
of restaurant/kitchen equipment previously owned by Respondent but
which she now states is no longer in
her possession, a matter which
could profitably be investigated by a trustee, it must be in the
interests of Applicant and other
creditors that a trustee take over
the administration of Respondent’s case. The facts proved by
Applicant relating to Respondent’s
assets, namely her 100%
interest in Lyness and the other material assets which she holds, or
recently held, indicate there is a
prospect, and one not to remote,
that some pecuniary benefit would result to creditors on
sequestration. In this regard see the
approach of Watermeyer J in
Hill and Co and Others v Ganie 1925 (CPD) 242 at page 245.
Furthermore, given the secrecy with which
Respondent appears to be
conducting her affairs, notwithstanding Applicant’s material
interest in them, the machinery which
will come into play on
insolvency will be beneficial to all creditors. This factor was
discussed by Horwitz J in Chenille Industries
v Vorster as follows:
‘the Court
must have regard, inter alia to the superior legal machinery which
creditors acquire by sequestration, the right
to control the
collection, custody and disposal of all assets through their nominee,
the trustee, the right to control similarly
the sale of assets, the
certainty that the insolvent cannot contract further debts and
diminish the estate and the assurance that
all creditors will be
accorded the treatment prescribed by law in the division of the
proceeds’
[22] The trustee
will be in a position to liquidate Respondent’s membership
interest in the business and investigate whether
she has dissipated
any of her assets. Although Respondent disputes that the
sequestration of her estate would be to the advantage
of creditors,
she advances no reasons for this submission.
[23] For these
reasons I am satisfied that Applicant has made out at least a prima
facie case for the granting of a sequestration
order and for these
reasons the following order is made:
1. Respondent’s
estate is placed under provisional sequestration order in the hands
of the Master of this Honourable Court;
2. A Rule Nisi is
issued calling upon all interested parties to show cause on Tuesday,
8 July 2014, if any, to the above Honourable
Court, as to why:
2.1 Respondent’s
estate should not be placed under final a sequestration order and,
2.2 Why the costs of
this application should not be costs in the insolvent estate of
Respondent
3. That service of
the this order be effected by:
3.1 By the sheriff
of this Honourable Court, or his duly appointed deputy, on
respondent;
3.2 Prepaid
certified mail on all known creditors of respondent with claims
exceeding R25 000.00;
3.3 Applicant’s
attorneys of record on the South African Revenue Services.
L J BOZALEK
JUDGE OF THE HIGH
COURT