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[2014] ZAWCHC 218
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Abrahams v Shargey NO and Others (A130/14) [2014] ZAWCHC 218 (18 December 2014)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
No: A130/14
DATE:
18 DECEMBER 2014
In
the matter between:
JILL
ABRAHAMS
Appellant
And
NORMAN
WOOLF SHARGEY
N.O
First
Respondent
(In
his capacity of Administrator of the estate of the
Appellant,
in terms of
section 74
of the
Magistrates’
Courts
Act 32 of 1944
)
VARIOUS
CREDITORS
Second
Respondents
Before:
BINNS-WARD et BOQWANA JJ
JUDGMENT
DELIVERED: 18 DECEMBER 2014
BOQWANA,
J
[1]
The
appellant was placed under administration by the Paarl Magistrates’
Court in terms of section 74 of the Magistrates’
Courts Act 32
of 1944 (‘the Act’) on 12 September 2007 and the first
respondent appointed as the administrator of here
state. The
appellant was ordered to pay an amount of R250.00 per month to the
first respondent for distribution to her creditors.
The first payment
was to be made on or before the last day of September 2007 and
thereafter before the last day of every subsequent
month for
pro
rata
distribution to the creditors.
[2]
The
appellant brought an application to the Paarl Magistrates’
Court seeking, amongst others, the removal of the first respondent
as
administrator. The application came about as a result of her
professed displeasure with the manner in which the first respondent
administered her estate, which, she alleged made him unfit to act as
administrator of her estate. She alleges in her application
that: the
first respondent deducted fees and expenses in excess of the limit of
12.5% plus VAT provided for in the Act; he made
payments without the
necessary accounts being taxed; he made payments that were not due
and owing; he failed to account to her
regarding attorney’s
fees or legal costs reflected in the distribution accounts; he held
back more monies for security purposes
than required by the Act and
did not respond to her queries. She accordingly did not trust him to
handle her estate.
[3]
It
appears from the judgment in the court
a
quo
that points
in
limine
were raised on behalf of the first respondent regarding the
competence of the orders sought by the appellant in her application.
It was submitted on behalf of the first respondent that prayer 3 was
not sought as an alternative to prayer 2 and that prayers
1 and 3
were irreconcilable. Secondly, prayers 3(a)(ii) and (iii) were
ultra
vires
the powers of the magistrate in that the court was asked to order
that creditors who were willing to write off 50% of their claim
would
have the balance of their claim treated preferentially, which a
magistrate could not do if one had regard to the provisions
of
section 74J of the Act. The third issue was that an assumption was
made that excessive costs were deducted without any taxation
having
been done.
[4]
The
magistrate gave a judgment upholding the points
in
limine
and did not deal with the merits of the application. He further found
that the allegation that the first respondent charged excessive
costs
was premature in that no taxation had been done of the costs. He held
that the appellant could still approach the Court once
taxation had
been carried out.
[5]
It
was submitted on behalf of the appellant that the magistrate failed
to apply his mind to the seriousness of the allegations made
by the
appellant against the first respondent. The magistrate was further
criticised for expressing a view that taxation should
be pursued as a
remedy before an application is brought to court for the removal and
replacement of the first respondent as an
administrator. Ms Williams
SC, who appeared on behalf of the appellant, argued that the
magistrate’s view was disquieting
in circumstances where the
first respondent simply took fees without the appellant’s
knowledge and consent, and without having
produced a single bill, let
alone a taxed bill. She submitted that there was no requirement that
an application for the removal
of an administrator can only be made
after a bill has been taxed and that the court
a
quo
had incorrectly side-stepped the merits in this matter. Ms Williams
further argued that the first respondent offered no explanation
in
his papers to account for the discrepancy between monies received by
the first respondent and those reflected in the distribution
account.
[6]
It
is perhaps appropriate to outline the relevant orders sought by the
appellant in the court
a
quo
at this stage as the judgment of the magistrate centred around them.
The relief sought by the appellant was,
inter
alia
,
the following:
1.
That the first respondent be removed from his appointment as
administrator in the estate in terms of section 74E(2) of the Act;
2.
That the court appoints another person in the place of the first
respondent as administrator of the estate;
3.
That the administration order granted by the Magistrates’ Court
be re-opened on terms of section 74Q(1) of the Act;
a)
That the administration order be amended as follows:
(i)
The first respondent’s appointment as administrator of the
estate in terms of section 74E(2), alternatively section 74Q(1),
further alternatively section 74J(11) of the Act, in terms of the
Court order be suspended;
(ii)
That the administrator be authorised to redeem the indebtedness of
any creditor where the debt is less than the amount paid
over to him
by the appellant;
(iii)
That any creditor willing to write off 50% of his debt, be listed as
a preferent creditor and that such creditor’s debt,
be paid
prior to those of other creditors.
[7]
I
start with the points
in
limine
relating to insolvency laws. Section 74J(1) requires the
administrator to distribute payments
pro
rata
among the creditors at least once every three months, unless all the
creditors otherwise agree or the court otherwise orders in
any
particular case. The appellant’s counsel argued that the
magistrates’ court had powers to order preference of creditors
based on the provisions of sections 74J(1) and 74C(1)(v). The
submission made on behalf of the appellant is in conflict with the
provisions of section 74J(3) which prescribes that a scheme of
preference is to be followed in accordance with the insolvency laws.
That provision specifically stipulates that -
‘
Claims
that would enjoy preference under the laws relating to insolvency
shall be paid out in the order prescribed by those laws.’
[8]
Therefore
the scheme of preference provided for in the Insolvency Act is the
scheme that the administrator must follow. Furthermore
in terms of
section 74J (2) a claim may only be paid in full if the balance
thereof is less than R10.00. The magistrate was therefore
correct
that preference to creditors had to be given as prescribed by the
insolvency laws and not by way of a
mandamus
inviting creditors to agree to a scheme in terms of which they would
be given preference, if they were willing to give up 50% of
their
claim. The relief sought on that basis was correctly held to be
ultra
vires
the magistrate’s powers.
[9]
As
regards the second point
in
limine
,
section 74Q of the Act deals with suspension, amendment or rescission
of an administration order. The difficulty that the magistrate
had
was that the relief sought in terms of that section had not been
sought in the alternative to the removal of the first respondent
in
terms of section 74E and appointment of a new administrator. He found
prayers 1 and 3 to be irreconcilable and not capable of
being granted
at the same time. That finding seems to be in order in my view. That,
however, does not mean that prayers 1 and 2
could not be considered
on their own.
[10]
Turning
to the third issue, which was central to the application before the
magistrate. The allegation against the first respondent
is that he
deducted excessive costs to which he was not entitled. The issue is
whether the magistrate was wrong to have held that
taxation ought to
have been done before an application for the removal of the first
respondent was brought to court.
[11]
Section
74L of the Act deals with the remuneration and expenses of the
administrator. It provides as follows:
‘
74L.
Remuneration and expenses of administrator
.—(1)
An administrator may, before making a distribution—
(a)
deduct
from the money collected his necessary expenses and a remuneration
determined in accordance with a tariff prescribed in the
rules;
(b)
retain
a portion of the money collected, in the manner and up to an amount
prescribed in the rules, to cover the costs that he may
have to incur
if the debtor is in default or disappears.
(2)
The
expenses and remuneration mentioned in subsection (1) (a) shall not
exceed 12½ per cent of the amount of collected moneys
received
and such expenses and remuneration shall, upon application by any
interested party, be subject to taxation by the clerk
of the court
and review by any judicial officer
.
(Own emphasis)
[12]
The
appellant alleges that the first respondent has taken fees amounting
to R5 413.82 whereas he was entitled to only 12.5% plus
VAT which
amounts to R2 072.50. It is alleged that he has taken R 3 341.62 more
than he had been permitted to in terms of the Act.
The administrator
is also criticised for deducting an amount of R1000.00 to bring an
application for administration without sending
the appellant notice
of such an account and subjecting it to taxation so she could
ascertain how the amount was calculated. Furthermore
in distribution
accounts numbers 1 to 4 under the heading
‘Attorneys’
charges in terms of section 65’
no
indication was given as to what the payments referred to related and
to whom they were paid. Similarly with distribution accounts
5 to 16
under heading
‘Legal
costs’
no indication is given as to what these payments were for and to whom
they were paid.
[13]
The
first respondent’s response to these allegations is that an
administrator who does legal work himself for an estate under
his
administration is entitled to charge recoverable legal costs and
those are not capped by 12.5%.
[14]
Both counsel referred to the Supreme Court of Appeal decision in
African
Bank Ltd v Weiner and Others
2005
(4) SA 363
(SCA).
At
paragraph 46 of that judgment Cameron JA held as follows:
‘
46.1
The
‘costs’ the administrator may have to incur in terms of s
74L (1) (b) are separate and distinct from the ordinary
expenses of
an administration. They are not included under ‘necessary
expenses and remuneration’. The 12.5% cap does
not apply to
them. They can be separately re recovered.
46.2
The
R30 retention permitted in terms of s 74L (1) (b) does not limit the
costs that can be recovered under that provision.
46.3
Where
a debtor defaults
or disappears, and the administrator employs an attorney, the
latter’s reasonable charges for the authorised steps,
duly
taxed and scrutinised, will be ‘costs’ under s 74L(1)(b)
.
46.4
An
attorney who is appointed as an administrator in terms of s 74E (1)
acts in the capacity of an attorney throughout: he or she
does not
dispense with professional functions or duties at any point in the
administration. He or she takes both the benefits and
the burdens of
an attorney’s professional position and responsibilities.
46.5
For
the purposes of s 74L(1)(b) this means an attorney-administrator can
carry out the legal work required by the section, and charge
the
reasonable costs so incurred to the administration...’ (Own
emphasis)
[15]
It
is quite clear from the
African
Bank
decision above that the first respondent, who is also a practising
attorney, is permitted to charge reasonable amounts as fees
over and
above the 12.5% cap allowed in the Act, for work performed as an
attorney. On perusal of the distribution accounts remuneration
and
expenses are listed separately from legal costs. On the face of it,
it seems that the appellant has combined the two items
dealing with
the amounts paid to the administrator, in her calculations, in coming
to the conclusion that there has been an overreach.
If the item on
remuneration and expenses is looked at separately from the item on
legal costs, it may well be that there is no
breach of section 74L,
as the bulk of the ‘contested’ fee appears to be under
‘legal costs’.
[16]
The
appellant’s contention is that the first respondent should have
given an explanation as to what legal work he actually
did as the
appellant has no knowledge of it and never consented to such legal
work. According to her, the first respondent is not
entitled to
simply take an amount as fees. Whether or not the first respondent
did any legal work or whether the amount charged
for that legal work
is excessive is a separate issue which does not fall under section
74L in my view. It is an issue that ought
to be resolved by utilising
section 74J (6). That section states that -
‘
(6)
A
distribution account referred to in subsection (5) shall at the
request of any interested party be subject to review free of charge
by any judicial officer
.(Own
emphasis)
[17]
Section
74J(6) provides a mechanism that is free of charge, which is aimed at
avoiding unnecessary expenses when an interested party,
such as the
appellant, has queries with the distribution account having inspected
it. Furthermore, such inspection is also free
of charge as provided
for in section 74J (5). The appellant did not utilise section 74J (6)
and her reasons for not doing so are
not very clear apart from the
submission that there was no taxed bill of costs and that it was the
responsibility of the first
respondent to provide invoices and to tax
the bill for the legal work that he did (seemingly before any
deductions could be made).
[18]
There
is no legal requirement for the administrator to provide a taxed bill
before deductions are made, nor is it required of an
attorney to tax
an invoice before he or she can charge a client. Section 80(3),which
the appellant’s counsel relied on, does
not apply in this case
as costs were not awarded by a court. In
Chapman
Dyer Miles v Moorhead Inc v Highmark Investment Holdings CC and
Others1998 (3) SA 608 (D) at 610 D - E
,
the Court held that:
‘
It
is settled law that taxation is not a prerequisite for the
institution of action on a bill of costs but that,
if
a client insists on taxation, the action cannot proceed until the
bill has been taxed
,
and that this applies in cases in which fees were not agreed between
the parties.’(Own emphasis)
[19]
We
know in this present matter that the appellant did not request
taxation of the costs. She was well within her rights to have
required taxation of the ‘disputed’ costs but she failed
to do so. In the absence of taxation how was it expected of
the
magistrate to determine that costs charged by the first respondent
were excessive, warranting his removal? The request for
taxation
would trigger an obligation from the first respondent to produce a
bill. The submission that the appellant was prevented
from requesting
for taxation because there was no bill of costs is not sustainable.
[20]
I
am in agreement with the magistrate that the appellant should have
first followed the taxation route followed by a review, I should
add,
before bringing an application for removal of the administrator. This
would have been beneficial not only because it is cheaper
but also
because the court on review would be able to ascertain whether or not
there was an overreach. Once that had been established,
the appellant
would have objective grounds of bringing the application for the
first respondent’s removal as the administrator.
[21]
It
was submitted on behalf of the appellant that an amount of
approximately R1000 is unaccounted for. A schedule prepared by the
appellant’s attorney, Mr Matthee, was attached to the founding
affidavit. It is alleged by the appellant that the administrator
received an amount of R 14 541.75 from the appellant, but only
accounted for R13 431.25 in his distribution account as the amount
received. From my own calculation of amounts received in the
distribution account I get a total figure of R13 411.25. That is not
material in that I read the amount for 31 October 2011 to be R965.75
whereas Matthee recorded it as R985.75.
[22]
The
first respondent alleges in his answering affidavit that the total
received was R14 781.25. He attaches a list of payments received
by
him in terms of section 74J (1) which reflects amounts received from
the period of 28 September 2007 to 7 August 2013. In terms
of that
list, the total received for that period is R16 881.25, of which R
2100.00 comprised payments returned unpaid, leaving
the net amount
actually received as 14 781.25. A similar list ending 27 May 2013 was
received by the appellant from the first respondent
and attached to
the founding affidavit (JA 4.1 and JA 4.2). The net received
according to the first respondent in that list of
payments as at 27
May 2013 was R14 531.25. An amount of
R850
is added in handwriting (presumably by the appellant or her attorney)
next to the date of 27 May 2013. The same amount of R850
appears on
Matthee’s schedule as part of what adds up to the total of the
alleged R14 541.75 paid to the first respondent.
The list of payments
schedule attached to the founding papers reflects a net amount of
R1100.00 as an amount received between the
periods of 28 September
2012 to 27 May 2013, leading to the total of R14 531.25.
[23]
It
is important to note that the last distribution account attached in
the founding papers
is
for the distribution period ending on 31 July 2012
whereas the list of payments both in the founding and answering
papers end in May and August 2013 respectively. The total payments
received in terms of the list of payments received and the
distribution account schedule compiled by Matthee do not correlate.
Firstly, because the last distribution account is as at 31 July 2012
whilst the list of payments goes to payments made up to May
2013.
Secondly there are a number of payments returned after July 2012
which, understandably, are not reflected in the distribution
accounts. The appellant did not disclose the non-payment periods in
her founding papers. It also appears that an application to
rescind
the administration order was issued due to the appellant’s
alleged default.
[24]
The
allegation that an amount of approximately R1000 of payments received
is unaccounted for may or may not be correct. Whilst an
amount of
R1100 is disclosed in the payments received schedule compiled in
terms of section 74J(1) in respect of the period post
31 July 2012,
it is not clear whether or not it was distributed and whether a
distribution account was prepared. Be that as it
may, it seems to me
that the most sensible route of dealing with this would be for the
appellant to apply to the magistrate for
an order in terms of section
74J (11) directing the administrator to produce the distribution
account to the clerk of the court
before taxation of costs and/or
review of the distribution account whichever route the appellant
chooses to follow. If an amount
which should have been distributed
has not been, the first respondent must give reasons why. The actual
position is not clear enough
on the papers to have warranted the
court
a quo
drawing an adverse inference against the first respondent on the
papers such as to justify relieving him of his office as
administrator.
[25]
The
appellant’s counsel referred us to the unreported decision of
Coetzee v Erasmus
N.O. & Others, case number A682/10
in
which a similar application was brought. In that matter Le Grange J
(Zondi J concurring) upheld the appeal against the dismissal
of an
application for the removal of an administrator and ordered costs to
be paid by the delinquent administrator
de
bonis propriis
.
Although the court in
Coetzee
took a dim view of the inconsistencies appearing in the distribution
accounts, the issue that seemed to have particularly troubled
it was
the breakdown that had occurred in the relationship between the
parties borne out by the scathing remarks reflected in the
first
respondent’s answering papers and the conflict of interest
between first respondent and a certain creditor by the name
of
Omnifin. The distribution account and Omnifin’s account both
had the same reference numbers. It appeared that Omnifin
charged the
appellant for preparing papers in the application for administration.
There was nothing to suggest that Omnifin was
entitled to do legal
work. The court found it untenable that both the administrator and
Omnifin could charge for the same work.
The administrator’s
impartiality and independence were highly questionable. The facts in
this case are distinguishable.
[26]
For
these reasons, I find no basis to interfere with the magistrate’s
judgment.
[27]
I
therefore propose an order in the following terms:
1.
The
appeal is dismissed with costs.
N
P BOQWANA
Judge
of the High Court
I
agree, and it is so ordered
A
G BINNS-WARD
Judge
of the High Court
APPEARANCES
FOR
THE APPELLANT:
Advocate
RT Williams SC
Instructed
by:
Matthee
Attorneys, Somerset West C/O MacRoberts Inc., Cape Town
FOR
THE FIRST RESPONDENT:
Advocate
J De Pontes
Instructed
by:
Van
Eeden Beirowski Inc., Goodwood