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Last Updated: 8 June 2005
THE SUPREME COURT OF APPEAL
OF SOUTH
AFRICA
Case number : 97/04
Reportable
In the matter between :
EXPORT
HARNESS SUPPLIES (PTY) LIMITED APPELLANT
and
PASDEC AUTOMOTIVE
TECHNOLOGIES (PTY) LIMITED RESPONDENT
CORAM : MPATI DP, BRAND, CLOETE, HEHER JJA, MAYA AJA
HEARD : 10 MARCH 2005
DELIVERED : 29 MARCH 2005
Summary: Liquidation ─ final order sought ─ approach to disputes of fact ─ s 22 of the Supreme Court Act, 59 of 1959 ─ in absence of an appeal, affidavit cannot be tendered where refused by a lower court.
_________________________________________________________
JUDGMENT
CLOETE JA/
CLOETE JA:
[1] The
respondent as the applicant instituted liquidation proceedings in the High
Court, Johannesburg, against two respondents. The
appellant was the second
respondent. The application against the first respondent was abandoned when the
replying affidavit was delivered.
It would be convenient to refer to the parties
as in the court of first instance.
[2] The application against the second
respondent was dismissed by the court of first instance (Marais J) but a final
order liquidating
the second respondent was granted on appeal by a majority of
the full court (Blieden J, Goldblatt J concurring and Goldstein J dissenting).
The full order reads as follows:
‘(a) The appeal is upheld with costs,
including the costs of two counsel.
(b) The appellant is ordered to pay the
costs of the application for condonation including the respondents’ costs
of opposing
such application.
(c) The order of the court a quo is set
aside and is substituted by the following order:
“A final winding-up
order is made against the second respondent.”’
The second
respondent has appealed against the order of the full court with the special
leave of this court.
[3] The matter is complex from both a legal and a
factual point of view. It can, however, be disposed of fairly
simply.
[4] At the outset it would be convenient to refer to what this
court recently held in Paarwater v South Sahara Investments (Pty) Limited
(SCA case number 091/2004 in which judgment was handed down on 3 March 2005) and
to deal with an agreement reached between the parties
when the matter was heard
by the full court. In Paarwater this court emphasized that whereas a
prima facie case sufficed for the grant of a provisional order, the grant of a
final order required
proof on a balance of probabilities. The agreement was
recorded as follows in the judgment of the majority of the full
court:
‘The parties in this appeal were agreed that taking all the
facts into account, little purpose would be served by a provisional
order rather
than a final order being granted at this stage. If the appellant is entitled to
an order such order should be a final
order.’
The agreement obviously
cannot be construed as meaning that if the applicant discharged the onus for a
provisional order, but not
the onus for a final order, a final order should
nevertheless be granted; and the applicant’s counsel freely conceded as
much.
The agreement must be interpreted as meaning that neither party wished to
place further evidence before the court and that the appeal
should accordingly
be dealt with on the basis that the applicant was seeking a final order. In
Paarwater this court said in para 4:
‘An analysis of all of the
facts which were before the court a quo when the appellant sought a final
order reveals that there were serious disputes in regard to the essential
matters that the appellant
was required to satisfy the court upon in order to
establish that it was “just and equitable” to wind up the
respondent.
Furthermore it is important to note that the applicant, who bore the
onus, as I have previously mentioned, did not seek an order
referring such
disputes for the hearing of oral evidence as he might have done (cf Kalil
and Emphy and Another v Pacer Properties (Pty) Ltd). In the circumstances
the following test enunciated by Corbett JA in the oft referred decision of
Plascon-Evans Paints Limited v Van Riebeeck Paints (Pty) Limited is of
application:
“Secondly, the affidavits reveal certain disputes of
fact. The appellant nevertheless sought a final interdict, together with
ancillary relief, on the papers and without resort to oral evidence. In such a
case the general rule was stated by Van Wyk J (with
whom De Villiers JP and
Rosenow J concurred) in Stellenbosch Farmers’ Winery Ltd v Stellenvale
Winery (Pty) Ltd 1957 (4) SA 234 (C) at 235 E – G, to be: ‘...
where there is a dispute as to the facts a final interdict should only
be
granted in notice of motion proceedings if the facts as stated by the
respondent together with the admitted facts in the applicant’s
affidavits
justify such an order ... Where it is clear that facts, though not formally
admitted, cannot be denied, they must be
regarded as admitted.’ ... It
seems to me, however, that this formulation of the general rule, particularly
the second sentence
thereof, requires some clarification and, perhaps,
qualification. It is correct that, where in proceedings on notice of motion
disputes of fact have arisen on the affidavits, a final order, whether it be an
interdict or some other form of relief, may be granted
if those facts averred
in the applicant’s affidavits which have been admitted by the respondent,
together with the facts
alleged by the respondent, justify such an order ... In
certain instances the denial by a respondent of a fact alleged by the applicant
may not be such as to raise a real, genuine or bona fide dispute of fact
... Moreover, there may be exceptions to this general rule, as, for example,
where the allegations or denials of
the respondent are so far-fetched or
clearly untenable that the Court is justified in rejecting them merely on the
papers...”.’
In this matter, too, there are fundamental disputes
of fact which cannot be resolved on the papers.
[5] In the founding
affidavit the applicant alleged that the second respondent had not complied with
a demand made in terms of s 345(1)(a)
of the Companies Act, 61 of 1973
(‘the Act’). Section 345(1), to the extent relevant,
provides:
‘(1) A company ... shall be deemed to be unable to pay its
debts if –
(a) a creditor, by cession or otherwise, to whom the company
is indebted in a sum of not less than one hundred rand then due
–
(i) has served on the company, by leaving the same at its registered
office, a demand requiring the company to pay the sum so due...
...
and
the company ... has for two weeks thereafter neglected to pay the sum, or to
secure or compound for it to the reasonable satisfaction
of the
creditor...
...
(c) it is proved to the satisfaction of the Court that the
company is unable to pay its debts.’
The applicant also alleged that
it would be just and equitable for the second respondent to be wound up in terms
of s 344(h) of the
Act.
[6] The case based on s 345(1)(a) was doomed to
failure inasmuch as the demand contemplated in that section was not addressed to
the
second respondent. It was addressed to another company, the first
respondent. Faced with this difficulty, the applicant argued that
it had made
out a case that the second respondent was in fact unable to pay its debts as
contemplated in s 345(1)(c) of the Act.
[7] The majority of the full
court, on the urging of the applicant, had regard to what Mr Annandale, the sole
director and member
of the second respondent, had said in the answering
affidavit delivered on behalf of the second respondent. According to Annandale,
the second respondent was not indebted to the applicant; on the contrary, the
applicant was indebted to the second respondent in
an amount of
R401 135,82. In support of this allegation, Annandale annexed a schedule,
which had been prepared by an accountant,
Mr Aucamp, on the basis of information
provided to him by Annandale. In that schedule was an amount of
R1 139 196,47 which
Annandale averred was owing by the second
respondent to its customer, Delphi Packard Electric Systems
(‘Delphi’) and
for which the applicant was, according to Annandale,
in turn liable to reimburse the second respondent. No attempt was made by
Annandale
to substantiate this alleged indebtedness. If it is left out of
account the second respondent is, on its own calculations, indebted
to the
applicant in an amount of R738 060,65. That was the approach of the
majority of the full court. Accepting the correctness
of this approach, the
question arises whether the majority of the full court was correct in finding
that the applicant had established
that the second respondent was unable to pay
that amount.
[8] Of course a court may in a particular case draw an
inference as to the insolvency of a debtor if the debt claimed is not disputed
by the debtor on substantial grounds in liquidation proceedings. The crucial
question is whether this was such a case. The majority
of the full court
reasoned:
‘It is further relevant that Annandale in the answering
affidavit he deposed to on behalf of both respondents spends a great
deal of
time and effort in his attempt to attack the “debt” relied
upon by the appellant. However not one word is said by him in regard to the
second respondent’s ability to pay
any debts. Not one word is said about
the second respondent’s financial position. The only reasonable conclusion
one can therefore
come to on the papers before the court is that if a debt of
sufficient size is proved, the second respondent was not in a position
to pay
what it owed and which was due and payable.
In a case such as the present one
where a debt has been disputed by the second respondent on grounds which are
shown not to be bona fide, I am of the view that a court is entitled to
hold that section 345(1)(c) has been complied with, no proof to the contrary
having
been provided. This is a risk all companies who put up non bona
fide defences in order to avoid paying their debts face.’
There
was, however, no allegation whatever in the founding affidavit that the second
respondent was unable to pay the debt claimed
by the applicant, as Goldstein J
pointed out. A concerted attempt was made by the applicant’s counsel, who
referred to several
passages in the founding affidavit, to demonstrate the
contrary. The high water mark was the following passage:
‘I believe
that ANNANDALE has so arranged the affairs of [the second respondent] and EXPORT
HARNESS SUPPLIES INTERNATIONAL that
they will be unable to pay [the applicant]
any sums owing in that such accounts as exist will have been depleted and the
location
of the funds will not be capable of being ascertained, save in the case
of a winding-up of the companies and a full and detailed
investigation by a duly
appointed liquidator.’
This passage does not, however, contain an
allegation that the second respondent is unable to pay its debts. It amounts to
speculation
which was based on bank records of the second respondent. Annandale
gave a brief explanation of the entries in question in rebuttal
of the inference
the applicant sought to draw and the applicant did not seek a referral to
evidence to show that the second respondent
could not pay its debts
─whether because of the alleged dishonesty of Annandale or
otherwise.
[9] In fact, far from alleging that the second respondent
could not pay its debts, the applicant candidly admitted in the founding
affidavit that it was ‘unaware of the financial situation’ of the
second respondent. The only allegation made by the
applicant in its founding
affidavit in support of its main claim was, as one would expect under these
circumstances, that the second
respondent did not respond to a notice in terms
of s 345(1)(a). The applicant did claim in its founding affidavit that it was
entitled
ex debito justitiae to an order liquidating the second
respondent inasmuch as the latter had not disputed the debt claimed on
substantial grounds but
had merely denied it without giving reasons; but in
order to obtain such an order, the applicant was obliged to make out a case that
the second respondent was unable to pay its debts. It was nowhere alleged that
such an inference should be drawn from the second
respondent’s bare
denial, at that stage, of the debt claimed. The applicant expressly relied on s
345(1)(a) and not s 345(1)(c).
There was a short answer to that case, and
Annandale gave it. Annandale cannot be criticized for failing to deal with the
financial
situation of the second respondent to meet an allegation which was not
made.
[10] As I have said, the applicant relied on the second
respondent’s calculations which, if the unsubstantiated Delphi claim
is
left out of account, would leave a balance owing by the second respondent of
less than R740 000 ─ not the more than
R6 million claimed by the
applicant. There are, however, no concrete facts to suggest that the second
respondent would be unable
to pay this much smaller amount from the more than R6
million which the applicant says the second respondent should have received
from
Delphi.
[11] In all the circumstances of this particular case it would be
unsafe to infer that the second respondent is unable to pay its
debts. I
accordingly conclude that the applicant did not make out a case for the final
liquidation of the second respondent on that
basis.
[12] The alternative
basis upon which the applicant sought the liquidation of the second respondent
was that such an order would be
just and equitable. Little emphasis was placed
on this ground by the applicant’s counsel, either in the heads of argument
filed
or in oral argument.
[13] The allegations made by the applicant in
support of its case on the alternative basis were summarised in the heads of
argument
filed by the applicant’s counsel as those ‘contained in the
founding affidavit relating to the [applicant’s] status
as the beneficial
shareholder of the [second respondent], Annandale’s hijacking of the
[second respondent’s] business,
the dishonest and corrupt conduct of the
[second respondent’s] business, and the VAT fraud alleged in the replying
affidavit
in response to Aucamp’s schedule annexed to the answering
affidavit’. It is not necessary to consider whether the allegations,
if
proved, could justify an order that it would be just and equitable for the
second respondent to be wound up.
[14] The allegations contained in the
founding affidavit were disputed by Annandale and his version cannot be rejected
as so far-fetched
or clearly untenable that the court would be justified in
rejecting them merely on the papers; nor was the contrary argued on behalf
of
the applicant. Accordingly the applicant has not discharged the onus for a final
order of liquidation based on those allegations.
Indeed, Goldstein J considered
the allegations in the founding affidavit individually and came to the
conclusion that, assuming the
relevance of the contentions advanced, not even a
prima facie case was made out; and no attempt was made to demonstrate why the
learned
judge was incorrect in his analysis.
[15] The allegations in the
replying affidavit in regard to the VAT fraud were made in the context of the
indebtedness which the applicant
alleged was owed to it, not in support of the
applicant’s case that it would be just and equitable for the second
respondent
to be liquidated. The applicant’s counsel readily and correctly
conceded that in the circumstances were this court to take
these allegations
into account (assuming their legal relevance) for this latter purpose, the
second respondent could well be prejudiced,
for the obvious reason that the
second respondent may have sought to file a further affidavit to deal with them
had it been alerted
to this possibility. It follows that the second basis on
which the applicant sought the liquidation of the second respondent cannot
succeed either.
[16] There is one further matter which requires
consideration. The second respondent sought to place further evidence before
this
court in terms of s 22 of the Supreme Court Act, 59 of 1959. The evidence
was contained in an affidavit. It must be accepted that
the affidavit was
tendered to the court of first instance and that that court refused to receive
it. The second respondent’s
legal representatives aver that they have no
recollection of this, but a contemporaneous note made by an articled clerk in
the employ
of the applicant’s attorneys establishes that it did occur. In
the absence of an appeal against the decision of the court of
first instance,
this court cannot be asked to receive the affidavit in terms of s 22. The
applicant employed two counsel to argue
the appeal, which the complexity of the
appeal warranted; and because of the significance of the evidence which the
second respondent
sought to place before this court, it was a wise and
reasonable precaution for the applicant to employ two counsel to oppose the
application as well. Accordingly the fees of two counsel should be allowed for
the application, as counsel for the second respondent
conceded.
[17] Counsel for the second respondent asked for an order that
the costs of the application for special leave to appeal from the decision
of
the full court be paid by the applicant. Such an order is unnecessary. Those
costs were made costs in the appeal by the order
of this court given on 11
February 2004.
[18] The following order is made:
1. The second
respondent’s application in terms of s 22 of the Supreme Court Act is
dismissed with costs, including the costs
of two counsel.
2. The appeal is
upheld, with costs. Paragraphs (a) and (c) of the order made by the court a
quo are set aside and the following order is
substituted:
‘The appeal is dismissed, with
costs.’
______________
T D CLOETE
JUDGE OF APPEAL
Concur: Mpati DP
Brand JA
Heher JA
Maya AJA
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