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Exclusive Access Trading 73 (Pty) Ltd v Bouwer (3829/2009) [2009] ZAECGHC 93 (10 December 2009)

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10


In the High Court of South Africa

(Eastern Cape, Grahamstown) Case No 3829/2009


Date heard: 12 November 2009

Delivered: 10 December 2009

REPORTABLE




In the matter between


EXCLUSIVE ACCESS TRADING 73 (PTY) LTD Applicant


and


LYNNE JANET BOUWER Respondent



Summary [Application for provisional sequestration – Sequestrating creditor cannot rely on nulla bona return where judgment upon which writ of execution based has been rescinded - Whether answering affidavit to be construed as notice in terms of section 8(g) of Insolvency Act – Test for determining notice in terms of section 8(g) restated – no act of insolvency committed – applicant failing to establish de facto insolvency – application dismissed].


JUDGMENT


GOOSEN AJ


  1. This is an application for the provisional sequestration of the Respondent’s estate. The Applicant had entered into a loan agreement with the Hendrik Bouwer Family Trust (hereinafter the Trust) in terms of which it loaned and advanced to the Trust the sum of R550 000 upon certain terms and conditions. One of these conditions required the Trust to settle its indebtedness to the Applicant in full on or before 4 August 2008. In the event that the Trust failed to settle its indebtedness on that date, the Trust would be in breach of the agreement and mora interest would accrue, calculated on the outstanding balance of the loan at the rate of 10% per week until the final payment was made.


  1. The Respondent, it is common cause, is a trustee of the Trust. On 14 April 2008 she bound herself, in her personal capacity, as surety and co-principal debtor in favour of the Applicant, by way of security for the loan agreement concluded by the Trust.


  1. It is also common cause that the Trust failed to settle its indebtedness to the Applicant by 4 August 2008. In consequence of this the Applicant instituted legal action against the Trustees and against the Respondent as surety. This action was instituted in the Magistrate’s Court at East London. Default judgment was obtained against the Respondent and a warrant of execution was issued. Pursuant to the execution of the writ, a nulla bona return was obtained, service of the writ having been effected on the Respondent’s husband.


  1. The Respondent, together with the other defendants in the magistrate’s court action, brought an application for the rescission of the default judgment. This application was, it is common cause, successful and the judgment was set aside. Subsequent to the judgement being set aside the magistrate’s court action instituted by the Applicant was withdrawn, apparently to allow proceedings to be commenced in the High Court. Such proceedings have however not yet been instituted in this Court.


  1. The Applicant relies, in its application for sequestration, upon an alleged act of insolvency in terms of section 8(b) read with section 8(g) of the Insolvency Act, 24 of 1936 (hereinafter the Act) committed by the Respondent.


  1. It is of course trite that an applicant for provisional sequestration of a debtor’s estate must establish the requisites set out in section 10 of the Act. This requires that the applicant must, on a preponderance of probabilities, establish that:

    1. The debtor is indebted to the creditor in an amount of no less than R100;

    2. The debtor has committed an act of insolvency or is in fact insolvent; and

    3. It will be to the advantage of the general body of creditors to place the estate of the creditor under sequestration in the hands of the Master.


  1. For reasons which will become apparent it is convenient to deal with the second of these requirements first.


  1. Section 8(b) of the Act provides that a debtor commits an act of insolvency if a court has given judgment against him or her and, upon demand being made in execution thereof, the debtor fails to satisfy the judgment or to indicate disposable property sufficient to satisfy the debt. It also provides that an act of insolvency is committed if the officer responsible for execution of the judgment is unable after diligent search to find sufficient disposable property to satisfy the debt.


  1. Section 8(b) envisages two distinct acts of insolvency (Nedbank Ltd v Norton 1987 (3) SA 619 (N) at 621G), the first being that committed by the debtor who when served with the writ of execution fails to indicate disposable property sufficient to satisfy the debt and the second being established if the executing officer fails, after a diligent search to identify disposable property sufficient to satisfy the debt.


  1. To constitute the first act of insolvency the debtor must have been required to satisfy the judgment personally. A demand made to another person is not sufficient unless that person is the debtor’s appointed agent. In this instance service was effected upon the Respondent’s husband and he was requested to point out assets wherewith to satisfy the judgement. It is common cause that the Respondent is married to her husband out of community of property. As I understood the Applicant’s counsel, to the extent that any reliance could be placed on the alleged nulla bona return of service, it could only be relied upon in respect of the second act of insolvency envisaged by section 8(b), namely that the sheriff certified that no disposable property sufficient to satisfy the debt was found after a diligent search.


  1. Even so, the Applicant faced a more fundamental difficulty in regard to the nulla bona return. As indicated it was common cause that the judgment upon which the writ of execution was based was rescinded. Indeed, the action instituted by the Applicant against, inter alia, the Respondent has been withdrawn.


  1. Applicant’s counsel conceded in argument that the fact that the judgment had been rescinded meant that the underlying causa upon which the writ of execution was based had fallen away. Where, subsequent to a nulla bona return having been made, the debtor appeals against the judgment concerned, a sequestrating creditor may not rely upon that return as evidencing an act of insolvency (Duchen v Flax 1938 WLD 119; see also Schoeman v Nedbank Limited and Others 1989 (4) SA 812 (W)). The reason for this is that the noting of an appeal suspends the execution of a judgment. In this instance the judgment has been set aside. No reliance can therefore be placed on the alleged nulla bona return (cf. Le Roux v Yskor Landgoed (Edms) Bpk en Andere 1984 (4) SA 252 (T) at 257B ff; Standard Bank of SA Ltd v Peyper en Fourie 1924 CPD 118 at 120; Jasmat and Another v Bhana 1951 (2) Sa 496 (T) at 499H).


  1. The Applicant sought further to rely upon section 8(g) of the Act. That section provides that an act of insolvency is committed by a debtor if the debtor gives written notice to any of his or her creditors that he or she is unable to pay any of his or her debts. Such notice must be in writing (Patel v Sonday 1936 CPD 466). Mr Brooks, who appeared for the Applicant, conceded that no such notice, in writing, had been given. It was nevertheless contended that by reason of the Respondent’s deposition to the answering affidavit, in which, so the argument went, the Respondent had admitted her indebtedness to the Applicant and her inability to pay the amount due, an act of insolvency had been committed.


  1. I am not aware of any instance where the content of an answering affidavit, filed in opposition to an application for a provisional order of sequestration, has been found to constitute notice in terms of section 8(g) of the Act, nor have I been referred to any such authority. I have considerable doubt that an answering affidavit can be relied upon as constituting the written notice contemplated by section 8(g) of the Act.


  1. Notionally an affidavit filed by a debtor may, upon a proper construction thereof, contain admissions to the effect that the debtor is unable to pay any or all of his or her debts. In such circumstances such an admission may be sufficient to warrant a finding that the debtor is in fact insolvent, in which event a court considering a provisional (or indeed, a final) order of sequestration would (accepting that all of the other elements are established) be entitled to make an order based on the factual insolvency of the debtor rather than upon an act of insolvency having been committed.


  1. The Act creates statutory acts of insolvency. The very purpose of section 8 is to obviate the necessity for proof of de facto insolvency. It is, amongst other things, the very commission of an act of insolvency which entitles the creditor to apply for the winding up of a debtor’s estate. It is for this reason that the creditor’s cause of action, relying upon section 8, must necessarily set out the factual basis upon which the existence of a particular act of insolvency is to be found. This is, of course, not to suggest that reliance may not be placed upon the commission of a further and subsequent act of insolvency in appropriate circumstances.


  1. Assuming for present purposes that the answering affidavit itself may constitute a notice in terms of section 8(g), it must, in all respects comply with the requirements of the section.


  1. Mr Cole, who appeared for the Respondent, argued that even if the affidavit could be construed as constituting a notice to a creditor, the notice must be such as to allow a reasonable person in the position of the person receiving the notice to interpret the document as meaning that the debtor cannot pay his or her debts. He relied in this regard on the dictum of Vivier JA in Court v Standard Bank of SA Ltd: Court v Bester NO and Others [1995] ZASCA 39; 1995 (3) SA 123 (A) at 134 A-C, where the learned Judge said that:


Whether a particular notice is such as to constitute an act of insolvency within the meaning of s 8(g) depends on a construction of its contents, read as a whole. The question when considering the letter is not whether the debtor is in fact unable to pay or whether he is solvent or insolvent. Inability to pay must be distinguished from unwillingness to pay. If the debtor is merely saying that he is unwilling to pay, the letter does not constitute an act of insolvency. Construing the written notice involves deciding how the reasonable person in the position of the creditor receiving the notice would understand it. To such a reasonable person must be attributed the creditor's knowledge at the time of the relevant circumstances (Barlow's (Eastern Province) Ltd v Bouwer 1950 (4) SA 385 (E) at 390E-H; Optima Fertilizers (Pty) Ltd v Turner (supra at 33A-D); Du Plessis en 'n Ander v Tzerefos 1979 (4) SA 819 (O) at 834F-H and the first judgment at 291H-293E).


  1. In this instance, so the argument was developed, the Respondent’s answering affidavit evinces no more than an unwillingness to pay the debt due to the Applicant, such unwillingness being founded upon a dispute as to the quantum of Respondent’s indebtedness. In this regard the papers disclose that the Applicant claims that the outstanding balance due to the Applicant by the Trust is an amount of R1 635 498.17. The Respondent and her husband had, as previously indicated, entered into a deed of surety in favour of the Applicant in the sum of R550 000.00. Applicant relies on a statement made by the Respondent’s husband in the application for rescission to the effect that he admits indebtedness in respect of a capital sum of R250 000.00 and, based on an interpretation of the in duplum rule, an admission of liability in respect of interest in a further amount of R250 000.00. In the light of the fact that the Respondent filed a confirmatory affidavit in that application, the Applicant alleges that the Respondent is similarly indebted on her own version in the amount of R500 000.00.


  1. In her answering affidavit, the Respondent raises a number of disputes in respect of both her indebtedness and the enforceability of the Applicant’s claim. In respect of the latter she contends that the provisions of the National Credit Act, 34 of 2005 are applicable to the loan agreement concluded between the Applicant and the Trust and that the provisions of that Act have not be followed by the Applicant. In argument before me this “defence” was abandoned by the Respondent. She nevertheless persisted with disputing the basis upon which the underlying indebtedness of the Trust is calculated. In this regard it is to be noted that the loan agreement makes provision for payment of interest at the rate of 1.25% per week compounded and calculated from 14 April 2008 until date of final payment. The agreement also provides for the payment of mora interest at the rate of 10% per week. Applicant sought to suggest that this is a “typographical error” and that the agreement should read 10%per month. Notwithstanding this “typographical error” the Applicant nevertheless sought to claim an amount in excess of R14 million as interest on the judgment debt.


  1. It was argued by the Applicant’ counsel that these disputes are not germane to the question as to the Respondent’s indebtedness on her own version. That may be so. Nonetheless the fact that the Applicant has apparently abandoned efforts to enforce its claim by way of action to obtain judgement in its favour is relevant. The reason for withdrawing the action in the magistrate’s court is stated as being because the matter was complex and that it was deemed advisable to pursue the matter out of the High Court. The complexity it seems, arises precisely because of the existence of disputes regarding the very basis upon which the Trust’s indebtedness and hence the Respondent’s indebtedness is to be determined.


  1. But even if it is accepted that the facts not in dispute disclose that the Respondent is indeed indebted to the Applicant that is not the end of the enquiry. In order for the affidavit to constitute a notice to a creditor of the Respondent’s inability to pay her debts, it must, upon a reasonable construction, establish such an inability to pay.


  1. Here the Applicant relies on no more than that the Respondent has not set out in her affidavit that she is possessed of disposable property sufficient to satisfy the debt and that the Respondent suggests that in advancing the loan amount the Applicant was granting reckless credit. This, so the argument went, can only be understood to mean that the Respondent is unable to pay the debt.


  1. There is no onus which rests upon the Respondent to disprove any of the elements of the Applicant’s cause of action for sequestration. She accordingly is not required to put up facts that establish that she is in fact able to satisfy the debt (Braithwaite v Gilbert (Volkskas Intervening) 1984 (4) SA 717 (W) at 718B). As is indicated in the dictum of Vivier JA referred to above, the question as to solvency or inability to pay is not relevant in determining whether an act of insolvency in terms of section 8(g) of the Act has been committed. The question is whether the statement constitutes an admission of inability to pay.


  1. If the notice does not clearly indicate an inability to pay the debt, the fact that the creditor so understood it does not establish that the notice complies with section 8(g). The notice must be construed as it would be by a reasonable person receiving it (Mars, Law of Insolvency 9th ed p99; Barlow’s (Eastern Province) v Bouwer 1950 (4) SA 385 (E) at 390F).


  1. In my view a proper construction of the Respondent’s answering affidavit establishes no more than that the Respondent is unwilling to pay any amount to the Applicant on the basis that the underlying indebtedness is in dispute. Accordingly, the Applicant has not established that the affidavit constitutes written notice as envisaged by section 8(g) and accordingly that the Respondent has, by deposing thereto committed an act of insolvency as provided for in the section.


  1. The further ground upon which the Applicant relies is the Respondent’s alleged insolvency. The founding affidavit does not set out any factual basis upon which de facto insolvency is alleged. This bald allegation was denied by the Respondent. The deponent to the founding affidavit states that he has no knowledge of the financial affairs of the Respondent and is only able to set out facts regarding the Respondent’s membership of various corporations and shareholding in various companies.


  1. In argument before me, Mr Brooks, did not seek to urge upon me that I should find that the Respondent is de facto insolvent as a distinct and separate finding unconnected with the Respondent’s alleged inability to pay the debt due to the Applicant. The fact that the Respondent has not paid the amount claimed by the Applicant cannot, on its own conduce to a finding that the Respondent is unable to pay her debts and that she is in fact insolvent. I have already dealt with the fact that the Respondent disputes the underlying indebtedness. In the circumstances, the failure to pay amounts to no more than that. It certainly cannot give rise to an inference that the Respondent is insolvent nor can it, without more, found a basis upon which it can be said the Applicant has discharged the onus which rests upon it.


  1. It follows from what I have set out above that the Applicant has failed to establish either that the Respondent has committed an act of insolvency or that she is in fact insolvent. It is therefore not necessary to consider the other elements of the claim for provisional sequestration. In the circumstances a case for the provisional sequestration of the estate of the Respondent has not been made out and the application falls to be dismissed. There is no reason why the costs of the application should not follow the result.


  1. In the result the application is dismissed with costs.






G G GOOSEN

Acting Judge of the High Court



For the Applicant: Mr. R W N Brooks instructed by Nettletons


For the Respondent: Mr. S H Cole instructed by Wheeldon Rushmere & Cole