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REPORTABLE
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case No. 177/97
In the matter
between:
WELTMANS CUSTOM OFFICE FURNITURE
(PTY) LTD (IN LIQUIDATION)
Appellant
and
WHISTLERS CC
Respondent
Coram: HEFER, NIENABER, SCHUTZ JJA, MELUNSKY and MADLANGA AJJA
Heard: 6 MAY
1999
Delivered: 1 JUNE 1999
Section 34(3) of
Insolvency Act 24 of 1936 - compromise of creditor's claim after the institution
of legal proceedings held not to
affect the voidness of transfer of trader's
business. Prior to transfer of business legal proceedings instituted for
portion of
claim then due - transfer void to that extent
only
________________________________________________________
JUDGMENT
_________________________________________________
MELUNSKY AJA:
[1] The issue in this appeal is whether the transfer of a
business from Ivan Weltman ("Weltman") to Weltman's Custom Office Furniture
(Pty) Limited ("the company") is void as against the respondent in terms of s
34(3) of the Insolvency Act 24 of 1936 ("the Act").
[2] Weltman carried on
business as a furniture manufacturer in Cape Town. On 25 February 1994 and
pursuant to a written agreement
("the original agreement") he purchased a
business known as DMS Woodcraft from the respondent, a close corporation, for
R140 000
payable at the rate of R5 000 per month with effect from 1 May. No
provision was made for the acceleration of payments in the event
of the
purchaser's default. Weltman failed to make any payment in reduction of the
purchase price and the respondent instituted
proceedings against him in the Cape
Town Magistrates' Court in which the following amounts were claimed:
R12 188,57 for the May and June instalments and R2 188,57 for rentals
in respect of certain motor vehicles which were leased
under the same agreement
(case 17167/94, summons served on 20 June 1994);
R5 000 for the July
instalment (case 20803/94, summons served on 27 July 1994);
R5 000 for the
August instalment (case 24686, summons served on 29 August 1994);
R20
000 for the September, October, November and December instalments (case
37631/94, summons served on 3 January 1995).
[3] The debts remained
unsatisfied and during January 1995 the respondent obtained judgments against
Weltman for R37 188,57 in terms
of the summonses in cases 17167/94, 24686/94 and
37631/94. For reasons which are not apparent, judgment was not granted in case
20803/94. On 16 January 1995 the respondent caused a warrant of execution to be
issued pursuant to the judgments but, as far as
I am able to judge, no
attachments were made at that stage.
[4] On 18 August 1995 Weltman and the
respondent concluded a further agreement which was designated "Deed of
Settlement" ("the settlement
agreement"). This recorded, inter alia,
that in settlement of a dispute between the parties relating to the purchase
price payable for DMS Woodcraft, Weltman would pay
the respondent a reduced
price of R114 000 in monthly instalments of R8 000 together with interest on the
balance of the capital
sum. The agreement provided that failure to make any one
payment would result in the full balance becoming due and payable. It
was also
agreed that Weltman would sign a consent to judgment in terms of s 58 of the
Magistrates' Court Act 32 of 1944. This he
duly did.
[5] Weltman made only
two payments under the settlement agreement and on 27 November 1995 the
respondent obtained judgment against
him in the Cape Town Magistrates' Court in
terms of the consent. The amount of the judgment - R105 520,09 - included the
balance
of the capital, interest and costs. Thereafter a warrant of execution
was issued. The case numbers reflected on the warrant were
17167/1994,
20303/1994, 24686/1994 and 37631/1994. (The reference to case 20303/1994
instead of 20803/1994 appears to be nothing
more than a typographical error.)
On 6 December 1995 and pursuant to the warrant the sheriff made an attachment of
movable property,
consisting in the main of woodworking machinery and
equipment.
[6] On 26 September 1994, some eleven months before the
settlement agreement, Weltman had sold his furniture manufacturing business
as a
going concern to the company in terms of a written agreement. Included in the
sale were the stock, furniture, fixtures, fittings,
vehicles, appliances and
equipment of the business. It was a term of the agreement that the sale would
not be advertised in terms
of s 34 of the Act. The property attached at the
instance of the respondent on 6 December 1995 had been transferred by Weltman to
the company pursuant to the sale. This led to the present dispute. The
company, relying on the sale, claimed ownership of the goods
under attachment.
As a result an interpleader summons was issued at the instance of the sheriff on
2 January 1996 in terms of s
69 of the Magistrates' Court Act. On 16 January
1996 the company was placed under a provisional winding-up order which was made
final on 20 February 1996. The provisional liquidators of the company proceeded
with the interpleader proceedings on the company's
behalf. We were informed
from the Bar that liquidators have since been appointed. They persist in
claiming ownership of the property
under attachment.
[7] The present dispute
is, therefore, between the liquidators and the respondent. The resolution of
the dispute is dependent upon
a proper construction of s 34(3) of the
Act.
[8] Section 34 reads:
"(1) If a trader transfers in terms of a contract any business belonging to him, or the goodwill of such business, or any goods or property forming part thereof (except in the ordinary course of that business or for securing the payment of a debt), and such trader has not published a notice of such intended transfer in the Gazette, and in two issues of an Afrikaans and two issues of an English newspaper circulating in the district in which that business is carried on, within a period not less than thirty days and not more than sixty days before the date of such transfer, the said transfer shall be void as against his creditors for a period of six months after such transfer, and shall be void against the trustee of his estate, if his estate is sequestrated at any time within the said period.
(2) As soon as any such notice is published, every liquidated liability of the said trader in connection with the said business, which would become due at some future date, shall fall due forthwith, if the creditor concerned demands payment of such liability: Provided that if such liability bears no interest, the amount of such liability which would have been payable at such future date if such demand had not been made, shall be reduced at the rate of eight per cent per annum of that amount, over the period between the date when payment is made and that future date.
(3) If any person who has any claim against the said trader in connection with the said business, has before such transfer, for the purpose of enforcing his claim, instituted proceedings against the said trader -
(a) in any court of law, and the person to whom the said business was transferred knew at the time of the transfer that those proceedings had been instituted;
or
(b) in a Division of the Supreme Court having jurisdiction in the district in which the said business is carried on or in the magistrate's court of that district,
the transfer shall be void as against him for the purpose of such enforcement.
(4) For the purposes of this section 'transfer', when used as a noun, includes actual or constructive transfer of possession, and, when used as a verb, has a corresponding meaning."
It is not in dispute that
Weltman was a trader within the meaning of the section; that the respondent's
claim was in connection
with Weltman's business; that the property subsequently
attached was transferred by Weltman to the company; that the transfer was
not in
the ordinary course of business or for securing the payment of the debt; that
the sale was not advertised in terms of s 34(1)
of the Act; and that both
Weltman and the company knew at the time of transfer that the respondent had
instituted actions against
Weltman by means of the summonses in cases 17167/94,
20803/94 and 24686/94 in the Cape Town Magistrates' Court.
[9] The
liquidators' contentions, in short, are that the goods under attachment became
the property of the company pursuant to the
sale of 26 September 1994 and that s
34(3) of the Act has no application to this case as the legal proceedings
instituted by the
respondent against Weltman were for the purpose of enforcing
the original agreement and not the settlement agreement. Moreover
the
attachment was effected pursuant to a consent to judgment given by Weltman under
the settlement agreement.
[10] The respondent contends that the
proceedings taken against Weltman before the transfer of the business to the
company resulted
in the settlement agreement and that the proceedings were in
fact enforced by means of the settlement and the consent to judgment
which
formed part of it. Consequently, according to the argument, s 34(3) applied and
the transfer of all of the property by Weltman
to the company was void as
against the respondent.
[11] The magistrate who heard the interpleader
proceedings found in the respondent's favour and ordered that the liquidators'
claim
be dismissed with costs. An appeal to the Cape Provincial Division (Van
Zyl J and S F Burger AJ) was dismissed with costs but leave
to appeal to this
Court was subsequently granted.
[12] This brings me to consider whether the
institution of proceedings during June to August 1994 can properly be said to
relate
to the settlement agreement for the purposes of s 34(3). Counsel for the
liquidators submitted that the deed of settlement, being
an unconditional
compromise, had the effect of terminating the original agreement. According to
the submission, the claims in respect
of which the respondent had instituted
proceedings arose out of the original agreement but this agreement could not be
enforced once
the compromise became effectual. Accordingly the judgment granted
on 27 November 1995 was an enforcement of the settlement agreement,
for the
respondent did not - and could not - rely on the earlier proceedings or the
original agreement.
[13] The resolution of the dispute, however, is
dependent upon a proper construction of s 34(3) and not only on whether at
common
law a compromise ordinarily precludes the creditor from enforcing the
original debt. What is necessary to decide is whether the
creditor loses his
protection under the subsection if, after the institution of proceedings, the
contract on which the claim is based
is amended or superseded by a subsequent
agreement. The determining factor in each case is the closeness of the
connection between
the original agreement and the amending or subsequent
agreement. It is, for instance, unthinkable that the mere reduction of the
original contract price after the institution of proceedings to enforce the debt
would result in the removal of the protection that
a creditor had acquired
under the subsection. Section 34(3) was intended, inter alia, to benefit
a vigilant creditor and not to penalise him for reducing his claim in order to
resolve a festering dispute. Moreover
it is clear that it is not necessary for
the creditor to take judgment against the transferee in order to obtain the
benefit of the
sub-section. All that is required is that the proceedings should
have been instituted prior to the transfer.
[14] It now becomes necessary
to decide whether, on the facts of the present case, the proceedings instituted
before the transfer
are sufficiently closely connected to the settlement
agreement to entitle the respondent to contend that the transfer is void in
terms of s 34(3). The recital to the settlement agreement recorded that a
dispute which had arisen relating to the sale of DMS
Woodcraft had been settled.
Clause 10 provided that the agreement
"constitutes a full and final settlement of differences and disputes between [Weltman and the respondent] arising from and relating to the purchase of the business known as DMS Woodcraft in terms of the Agreement and arising from and relating to the various actions in the Cape Town Magistrate's Court under case numbers 17167/94, 20803/94, 24686/94, 37631/94."
In terms of
the agreement the respondent undertook to consent to the rescission of the three
default judgments that had been granted
against Weltman and to withdraw the
other action (case 20803/94) with no order as to costs. In due course the
judgments were rescinded
and case 20803/94 withdrawn.
[15] Clearly,
therefore, the settlement agreement was a compromise of the dispute that had
arisen out of the original agreement.
As part of the settlement Weltman's
liability was reduced, the monthly instalments were increased and an
acceleration clause was
inserted. Significantly the sale of DMS Woodcraft
remained effectual to the extent that Weltman retained the business. The
consent
to judgment that Weltman signed was akin to an acknowledgment of debt.
It made provision for judgment to be granted against him
for the capital sum,
interest and costs if he failed to pay any one instalment in terms of the
settlement agreement.
[16] Counsel for the appellant was undoubtedly correct
in arguing that after the compromise the respondent was not entitled to fall
back on the original agreement as the settlement agreement made no express or
implied provision for this. That submission, as I
have pointed out, does not
take into account the statutory provisions which have to be construed. On the
facts of this case it is
clear that the compromise did not change the essential
nature of the respondent's claim against Weltman for the purposes of the
sub-section.
Both the original and the settlement agreements related to the
sale of the same business and the respondent's claim, under each
agreement, was
for payment of the purchase price. The compromise differed from the original
agreement in relation to the amount
payable and the method of payment but it did
not alter the essence of the respondent's claim or the debtor's obligation. Nor
does
anything turn on the rescission of the judgments and the withdrawal of the
action in case 20803/94. These steps were taken to implement
the settlement and
not to negate it. The result is that the proceedings instituted by the
respondent before the transfer are sufficiently
closely connected to its claim
under the settlement agreement to entitle this Court to hold the transfer to be
void for the purposes
of s 34(3).
[17] That conclusion does not dispose of
the appeal. The proceedings instituted before the transfer of the property to
the company
were for claims which totalled R22 188,57. It may be observed that
when the transfer was effected on 26 September 1994 only a further
R5 000 had
become due in terms of the original agreement. The question raised in this
Court was whether the transfer is void only
to the extent of R22 188,57. This
issue was not dealt with in the Magistrates' court but it was alluded to in the
court a quo as follows:
"The fact that the amount of such claims totalled only R22 188,57 is irrelevant for purposes of the applicability of the said section, which merely requires 'any claim' which has been enforced by the institution of proceedings before transfer of the business. The respondent in fact had three claims which it enforced by instituting proceedings prior to such transfer and which proceedings culminated in the settlement agreement which immediately rendered them res judicata."
[18] The expression "any claim"
which was relied upon by the Provincial Division, is qualified by the words
which precede and follow
it. Stripped of its inessentials, for present
purposes, s 34(3) reads:
"If any person who has any claim against the said trader ... has before such transfer, for the purposes of enforcing his claim, instituted proceedings against the said trader ... the transfer shall be void as against him for the purpose of such enforcement."
The relevant portions of the
sub-section show that there is a direct relationship between the creditor's
claim and the proceedings
for enforcing it. Secondly the transfer is said to be
void for the purpose of the enforcement. There is, therefore, also a clear
correlation between the enforcement of the claim and the extent to which the
transfer is void.
[19] It may be noted that the Afrikaans version of the
sub-section differs somewhat from the English version. The relevant parts
of
the former version provide:
"As iemand wat 'n vordering teen bedoelde handelaar ..., voor daardie oordrag, ten einde betaling van sy vordering te verkry, 'n regsgeding teen bedoelde handelaar ingestel het ... dan is die oordrag teenoor hom nietig sover as nodig is om sy vordering te laat geld."
Significantly in the
Afrikaans version, which is the signed text, the words used are "'n vordering".
Moreover what is provided for
in this version is the institution of proceedings
for the purpose of obtaining payment of the creditor's claim and the transfer is
said to be void so far as it is necessary to enable the creditor to maintain his
claim. The Afrikaans version, too, clearly envisages
a relationship between the
claim and the legal proceedings and between the voidness and the recovery of
the claim. It follows from
the grammatical construction of the section that the
transfer is void only to the extent to which the creditor had previously
instituted
proceedings. This construction also avoids the incongruous results
that would follow if the court a quo's interpretation is to be applied.
On that construction the transfer would be void in respect of claims which were
not due or legally
enforceable at the time of the transfer. This in turn would
result in an unwarranted windfall to the claimant but prejudice to a
bona
fide transferee and, possibly, his creditors. These consequences could not
have been intended. In my view it follows that the transfer
from Weltman to the
company is void as against the respondent only to the extent of property having
the value of R22 188,57. To
this extent the appeal succeeds.
[20] It
remains to consider the question of costs and the form of the order. In the
interpleader proceedings before the Magistrate
the parties were agreed that the
matter should be dealt with on the basis of affidavits before the court, the
contents of which do
not need to be set out in this judgment. Accordingly no
oral evidence was led and the value of the goods under attachment was not
established. It is therefore not possible to say whether the liquidators will
ultimately benefit from the finding that the transfer
is void only to the extent
of R22 188,57. It follows from this that it cannot be decided whether either
party will achieve substantial
success in the litigation. The fairest way in
dealing with this conclusion is to make no order as to costs in respect of the
proceedings
in all courts.
[21] It is a matter of concern that the record on
appeal, relatively short as it was, contained a considerable number of
duplicated
documents, the effect of which was to increase the length of the
record unnecessarily. To make allowance for this counsel for the
liquidators
conceded that it would be fair if his attorneys were directed to recover no
costs relating to the preparation and perusal
of the whole of volume 1 of the
record. We were informed that the attorneys concerned had, commendably enough,
offered to accept
such a direction without the need for an order. This being
the case no special order will be made.
[22] In the absence of evidence
concerning the value of each item under attachment, the order should make
provision for the sheriff,
after the sale in execution of sufficient goods under
attachment to cover R22 188,57 together with the costs of execution, to deliver
the remaining goods, if any, to the liquidators.
[23] I would therefore
order:
1. The appeal is allowed;
2. The order of the magistrate is altered to read:
"The sheriff is authorised to sell property under attachment in execution to an amount of R22 188,57 for the benefit of the judgment creditor, together with the costs of execution. The remaining goods under attachment, if any, are to be delivered to the claimant after the sale in execution. There will be no order as to costs."
3. There will be no order in respect of the costs on appeal to the court a quo or on appeal to this Court.
_________________________
L S MELUNSKY
ACTING JUDGE OF APPEAL
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