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IN THE HIGH COURT OF SOUTH AFRICA

KWAZULU-NATAL, PIETERMARITZBURG

Case No. 3102/07

In the matter between:

B P SOUTHERN AFRICA (PTY) LTD APPLICANT

and

GASKELL, GRAHAM WILLIAM RESPONDENT

______________________________________________________________

JUDGMENT

MNGUNI, J

[1] The estate of the respondent was provisionally sequestrated by an order of this court on 11 December 2006, and the applicant now seeks confirmation of that order

[2] The indebtedness of the respondent to the applicant is founded on a deed of suretyship signed by him in terms of which he bound himself jointly and severally as surety and co-principal debtor to and in favour of the applicant for the debts and obligations of LTI freight lines (Pty) Ltd (LTI) and Gaskell Holdings (Pty) Ltd. There is no dispute that the deed of suretyship signed by the parties became valid and binding upon the respondent.

[3] In April 1991 LTI, a company that carried on business as a haulage operator, entered into a written agreement with the applicant in terms of which the applicant supplied it with diesel and lubricant products on credit.

[4] On 20 April 2004 LTI was placed under final liquidation by an order of the High Court of South Africa, Witwatersrand Local Division, on the basis that it was unable to pay its debts.

[5] On 9 September 2005 the applicant proved a claim against LTI for R42 585 869 in terms of section 44 of the Insolvency Act 24 of 1936 (the Act), and because LTI is unable to make payment of the amount, the respondent, in his capacity as surety, is allegedly indebted to the applicant in the said amount.

[6] Whilst the applicant contends that the respondent does not possess sufficient assets to satisfy his debts and is factually insolvent, it, however, does not accept that he has no assets whatsoever.

[7] The application is resisted by the respondent on three grounds, firstly that the amount of indebtedness of LTI to the applicant has not been established, secondly that he is discharged from performing his obligations under and in terms of the deed of suretyship, as the applicant acted to the prejudice of the respondent in the applicant’s relationship with LTI, the principal debtor, and finally that there will be no advantage to creditors should his estate be wound up.

[8] Before the court can grant a final sequestration order, it must be satisfied that the applicant has established a claim which entitles it, in terms of section 9(1), to apply for the sequestration of the respondent, that the respondent has either committed an act of insolvency or is insolvent and that there is reason to believe that it will be to the advantage of creditors of the respondent if his estate is sequestrated. The onus of satisfying the court, of these three requirements is on the applicant and there is no onus on the respondent to disprove any of these requirements. Unlike in the provisional sequestration proceedings where a mere prima facie case need be established, when the final order is sought the Court must be satisfied on a balance of probabilities of the aforementioned three requirements.

[9] In this judgement, I propose to deal with the three grounds in the sequence in which they were argued by counsel before me. As to the first ground, it was argued on behalf of the respondent that it was improper for an applicant to seek to recover a debt, the existence of which was disputed on bona fide and reasonable grounds, by sequestration proceedings rather than by the usual action procedure. For this contention, counsel for the respondent prayed in aid the well known dictum of the Appellate Division case of Kalil v Decotex (Pty) Ltd and Another 1988(1) SA 943 (A) at 980 B-D where Corbett JA stated:

‘In regard to locus standi as a creditor, it has been held, following certain English authority, that an application for liquidation should not be resorted to in order to enforce a claim which is bona fide disputed by the company. Consequently, where the respondent shows on a balance of probability that its indebtedness to the applicant is disputed on bona fide and reasonable grounds, the Court will refuse a winding up order. The onus on the respondent is not to show that it is not indebted to the applicant: it is merely to show that the indebtedness is disputed on bona fide and reasonable grounds’.

On this rule, in Investec Bank Ltd v Lewis 2002 (2) SA 111 (C) at 116 F – G Griesel J stated:

‘The above dictum (as well as other cases referred to in Kalil’s case at 980 D – F) arose in the context of an application for winding-up of a company, and not for sequestration. I accept, however, both on principle and authority that the same principle applies in relation to sequestration applications’.

The respondent denies that LTI and/or his indebtedness to the applicant is in the amount of R42 585 869.74. In support of this denial he avers that the applicant had, in a letter of demand addressed to the respondent and dated 01 October 2004, stated that the respondent was indebted to it in the amount of R54 002 159.66. However, on or about 21 October 2004 Faizel Moosajee stated, on behalf of the applicant in paragraph 14 of his affidavit for the proof of its claim in the insolvent estate of LTI, that LTI remained indebted to the applicant in the amount of R42 585 869.74. It was submitted on behalf of the respondent that no explanation was given for this discrepancy by the applicant, save what is stated in paragraph 16 of Williams who deposed to the applicant’s founding affidavit.

[10] Not so contended Mr Daniels, on behalf of the applicant. He submitted that LTI held six accounts with the applicant as at the date of sequestration and the applicant provided a detailed explanation of the breakdown of the indebtedness of LTI to it on each account which it held with the applicant in its replying affidavit. He argued that there was no reason to believe that the figures were not accurate and submitted that the claim which was submitted for proof by the applicant in the estate of LTI was not challenged by the respondent, any of the other creditors of LTI, the trustee or the master.

[11] It is not disputed that LTI held six accounts with the applicant as at the date of its sequestration. The indebtedness of LTI on each of these accounts appears in paragraph 6.3.3 of the applicant’s replying affidavit. When the amounts on these accounts are added up, they make a total amount of R54 002 159.66. The applicant, in its founding as well as replying affidavits, clearly stated that when it initiated these proceedings, it relied on the amount of indebtedness which had been proved against LTI in respect of one account only. It is so that in the application proceedings the affidavits constitute not only the pleadings but also evidence (see Kleynhans v Van der Westhuizen N.O. 1970 (1) SA 565 (0) at 568 E-I). Hence, the applicant should in his or her founding affidavit set out sufficient facts to entitle him or her to the relief sought. It is generally accepted that the court will not permit the applicant to insert facts in his or her replying affidavit which should have been set out in his or her founding affidavit. This rule, like all general rules, is not without limitation. In this regard Nestadt J in Shephard v Tuckers Land and Development Corporation (Pty) Ltd 1978 (1) SA 173 (W) at 177H – 178A stated:

‘This is not however an absolute rule. It is not a law of Medes and Persians. The Court has a discretion to allow new matter to remain in a replying affidavit…. .This indulgence, however, will only be allowed in special or exceptional circumstances’.

A variety of factors can be taken into consideration by the court when exercising such a discretion. Of importance in the consideration of those factors is that the applicant should not be permitted to make a case in reply when no case at all was made out in the original application (see Poseidon Ships Agencies (Pty) Ltd v African Coaling and Exporting Co (Durban) (Pty) Ltd and Another 1980 (1) SA 3131 (D) at 315 – 316. One of the factors which are usually found to be compelling in exercising the discretion in applicant’s favour in these matters is lack of prejudice. I have perused and carefully considered the papers before me, and I could find no prejudice against the respondent and counsel could not direct me to any. It is common cause that the respondent deposed to an affidavit under case number A986/05 in the Transvaal Provincial Division in the proceedings between the applicant and LTI in which the applicant in its founding affidavit stated:

‘It is common cause that the second respondent (referring to the applicant) is a major creditor of LTI and is owed an amount of some R54 million by LTI for fuel sold and delivered to LTI’

The respondent answered to this allegation in his answering affidavit as follows:

‘…save to point out that an amount of R40 million was provisionally written off by the second respondent, I admit the contents of this paragraph’.

[12] I have carefully considered the applicant’s founding affidavit, the detailed explanation of the breakdown of indebtedness of LTI to the applicant on each account held by LTI with the applicant as set out in the applicant’s replying affidavit and the respondent’s response to the applicant’s founding affidavit in the proceedings in the Transvaal Provincial Division on this issue, and I am satisfied that the applicant has locus standi to launch these proceedings.

[13] I now turn to the second line of the respondent’s defence, which is that he is discharged from performing his obligations under and in terms of the deed of suretyship, as the applicant acted to the prejudice of the respondent in the applicant’s relationship with LTI, the principal debtor. Before dealing with the merits of this defence, it is necessary to examine the legal requirements for the prejudice raised by the respondent. The relevant legal principle on the question whether or not a surety has been released as a result of prejudice caused by the applicant to him was formulated by Olivier JA in ABSA Bank Ltd v Davidson 2000 (1) SA 1117 at para 19 as follows:

‘as a general proposition prejudice caused to the surety can only release the surety (whether totally or partially) if the prejudice is the result of a breach of some or other legal duty or obligation. The prime sources of a creditor’s rights, duties and obligations are the principal agreement and the deed of suretyship. If, as is the case here, the alleged prejudice was caused by conduct falling within the terms of the principal agreement or the deed of suretyship, the prejudice suffered was one which the surety undertook to suffer. Counsel who drafted the plea was therefore on the right track when he sought to base his case upon prejudice which flowed from the breach of an obligation contractual in the present circumstances’.

Therefore, in assessing the conduct complained of, the court is enjoined to consider the principal agreement or the deed of suretyship or both. The Fuelcard agreement which was concluded between the applicant and LTI which is also the subject matter of this application contains the following relevant material terms:

6.1 ‘Subject to any existing credit terms afforded the user payment for diesel, lubricants, miscellaneous purchases and the services provided to the user against a BP Fuelcard shall be due immediately upon BP receiving a properly completed voucher (an example of such voucher is attached hereto for reference purposes only and is marked ‘A’) from the supplier and payable immediately upon receipt of invoice. Credit terms, where given will only apply in respect of diesel and lubricants. Any extended credit terms that may be granted by BP for payments due by the user, arising out of the use of the BP Fuelcard, may be withdrawn by BP, at its sole discretion and without notice, in the event of default in payment by the user.

6.3 If at any time any payment by the user to BP is overdue then without prejudice to any other legal remedy, BP may refuse to supply any further diesel, lubricants or the services until guaranteed payment is made.

[7] The Fuelcards:

In the case of the Fuelcards the following conditions shall apply:

7.1 ‘BP shall be entitled to terminate this agreement in the event of the user exceeding any set credit limit, and the user hereby indemnifies BP for all charges and/or claims arising through the use of such Fuelcards after termination’.

[7.2] No relaxation or indulgence granted by BP to the user from time to time shall be deemed to be a waiver of BP’s rights in terms hereof, nor shall any such relaxation or indulgence be deemed to be a novation or waiver of the terms and conditions of this agreement’.

[14] The material express provisions of the deed of suretyship which are relevant to the defence of the respondent are:

‘I agree that:

‘BP shall in its sole discretion be entitled always:

1. to determine the extent, nature and duration of the supply and credit facilities (if any) to be allowed to the debtor,

2. be at liberty to release securities, or other sureties for the debtor, or to grant any indulgence or extension of time to, or compound or make other arrangements with, the debtor or myself or any other surety or sureties for the debtor, and no such action on the part of BP shall in any way affect or be construed or operate as a waiver or abandonment of any of BP’s rights or claims against me in terms of this suretyship’.

[15] And, it also expressly provides that the respondent bound himself in favour of the applicant:

‘for the payment on demand of all sums of money and/or for the due and punctual performance of all obligations, however arising, which, 1. Gaskell Holdings (Pty) Ltd t/a, Gaskells Chainsaw Fuel Mix t/a Gaskells Lubricants, 2. LTI Freight Lines (Pty) Ltd t/a Gaskells Haulage (hereinafter referred to as “the debtor/s) may now and from time to time hereafter owe or be indebted in to BP from whatsoever cause arising, together with any interest and/or other charges and cost which the debtor may be or may become liable for from time to time’.

[16] In support of his contention on this line of defence, the respondent relies on a breach of three separate agreements, which were allegedly entered into between the applicant and the principal debtor, LTI Freight Lines (Pty) Ltd, namely, the revised terms of trade, dated 29 August 2002 in terms of which it was agreed that LTI would make payment of the amount of R2, 25 million by no later than 12.00 on 30 August 2002. On receipt of such amount, the applicant would immediately reinstate the supply of diesel, LTI’s account would be capped at R53 million and should the limit of R53 million be reached, supply of diesel would be suspended until further payment. The second agreement on which the respondent relies is an agreement between the applicant, Scania South Africa (Pty) Ltd and LTI on 28 March 2003 in terms of which it was agreed that the applicant would not insist upon Interactive Trading 201 (Pty) Ltd entering into a suretyship agreement. The third and final agreement on which the respondent relies is an agreement in terms of the interim agreement which had been negotiated and agreed upon between the applicant, Scania and LTI on 2 July 2003.

[17] It was argued on behalf of the respondent that as at 29 August 2002, LTI did not owe the applicant an amount in access of R53 million. It was argued further that the respondent, at a meeting which was, inter alia, attended by the representative of the applicant, pointed out to the applicant that the extent of LTI’s account indebtedness towards the applicant was incorrect. The respondent asserted that the applicant had failed to credit LTI’s account with payments of approximately R8 million. He asserted further that, in certain instances, the applicant had debited LTI’s account with the retail price as opposed to the agreed wholesale price of diesel with the result that LTI was entitled to a credit of approximately R1 600.00. It was also asserted that the applicant had, in certain instances, failed to grant LTI the agreed discount of 9,3 cents per litre on the wholesale price of diesel which was R0,16 per litre with the result that LTI was entitled to a credit of approximately R1,7 million. From these assertions, Mr Swart, on behalf of the respondent, contended that there was no basis to reject the respondent’s contention that LTI owed approximately R40 million to the applicant after the receipt of the amount of R2 260 00000, being approximately R13 million less than the agreed credit limit, which, in his view, implies that the applicant clearly breached the terms of the 29 August 2002 agreement by failing to provide any further credit agreement to LTI post this agreement.

[18] He continued to contend that the applicant’s failure to provide further credit to LTI during a crucial period of its restructuring process necessitated LTI to pay cash for its diesel requirements during the last three months of 2002, thus depleting cash reserves that would have been sufficient to convince its creditors on 13 January 2003 to enter into the assistance agreement that would have, as indicated in the due diligent report, saved LTI from its eventual demise, thus resulting in LTI discharging its payment obligations to the applicant. In support of his conclusion, he placed reliance on the due diligent report prepared by Izak De Villiers (De Villiers) in which he opined that, provided certain key assumptions were met, it was clear that LTI was profitable and therefore a viable trading concern and that it will improve its solvency over a period of five years, and only becoming technically solvent in 2007.

[19] The applicant’s counsel contends that the South African law of suretyship does not recognise a so-called “prejudice principle”, to the effect that if a creditor should do anything in his dealings with the principal debtor which has the effect of prejudicing the surety, the latter is fully released. For this contention he found comfort in Davidson’s case (supra). He argued that it is also quite clear that the applicant never waived its entitlement to act in terms of the provisions of the supply agreement. The applicant, at all times, persisted that it was entitled to refuse to supply further diesel, lubricants or other services to LTI, until payment was made. The applicant did not waive its right to withdraw any extended credit terms at its sole discretion and without notice as provided for in the supply agreement.

[20] At the heart of the respondent’s defence on this issue is that the applicant undertook, in terms of an oral agreement entered into on 29 August 2002, to advance further credit to LTI for the purchase of fuel in an amount of about R3, 6 million. This agreement is denied by the applicant. Accordingly, the respondent bore the onus not only to establish the terms of such agreement but also to prove the alleged breach, and that such breach resulted in prejudice as contemplated in Davidson’s (supra) case. It was contended, on behalf of the respondent, that the applicant’s failure to provide such credit to LTI resulted in it being unable to trade itself out of its financial difficulties which existed at the time, and as a consequence of which it eventually was wound up.

[21] It is common cause that De Villiers conducted a due diligence investigation on LTI in order to present to the major creditors of the company a clear and comprehensive statement and analysis of the financial and general affairs and position of it as a trading concern. In his report he identified as the causes of the business’s failure, the following: rapid expansion, lack of capital, poor quality of business, insolvency of key clients, inadequate financial administration and inadequate maintenance of fleet. From the report it is evident that the factors which caused the financial difficulty in which LTI traded itself into arose as a consequence of the manner in which LTI was managed by the respondent during the period prior to the due diligence investigation. It is clear from his report that when he made those assumptions, he was mindful of the fact that the applicant was not the sole player in the continued negotiations between the parties and that the aspect of the applicant’s advance or facility of R3, 6 million was one of the matters being investigated by the parties in an attempt to salvage LTI.

[22] From the perusal and consideration of the papers before me, it can be gleaned that there were numerous other issues and difficulties to be overcome between the parties. Accordingly, I am driven to conclude that no final agreement had been concluded in terms of which the applicant became liable or incurred a duty towards LTI to provide it with further financial assistance as the respondent seems to suggest.

[23] To my mind, when the respondent signed the deed of suretyship, he accepted that he was committing himself on behalf of LTI in circumstances where the applicant, in its sole discretion, could determine the extent, nature and duration of the supply and credit facilities to be allowed to LTI and, in my view, the conduct complained of bears no relation to the surety’s obligations in terms of the agreements. This finding is in consonant with what was stated by

Olivier JA at para B-C in Davidson’s (supra) case where he expressed the same principle as follows:

‘Having agreed to these terms, it does not lie in the mouth of Davidson to plead prejudice in respect of something which Trust Bank could legally do’

It is also consisted with the following remarks of Jones J in Bilsbury v Standard Bank of SA Ltd (Stannic Division) 2006 (3) SA 60 at 64 A-B.

‘[The Bank] is not required to enter into additional contracts with the surety, or to subject itself to additional conditions, or to agree not to exercise its ordinary rights. It’s duty to a surety does not require it to agree to confer upon the surety additional advantages for which the principal agreement or the deed of suretyship do not provide’.

[24] I am unable to find any traces of prejudice in the respondent’s version that constitute real and substantial prejudice which has the effect of unduly increasing his contractual burden. There is no evidence before me suggesting that the applicant caused the financial demise of LTI. From annexure “GG.19” of the respondent’s answering affidavit it is clear that the shortage of vehicles and the amount of vehicles under repair were the major contributors to the problems facing LTI and no mention is made of the prejudicial conduct on the part of the applicant.

[25] Annexure “ZW.26” of the applicant’s founding affidavit makes it clear that the real reason for the financial demise of LTI was not the fact that the applicant did not grant it sufficient credit to obtain fuel, but rather because the fleet was “useless”, according to LTI and the respondent.

[26] In my view, the respondent has failed to discharge the onus placed upon him. The impression which the respondent sought to create that LTI failed as a company because of the refusal of the applicant to advance additional credit to LTI to purchase fuel is without merit and it is rejected.

[27] Finally, I turn to the third and final defence raised by the respondent, namely, that there will be no advantage to creditors should his estate be wound up. This requirement was formulated as follows by Selke J in Trust Wholesalers and Woollens (Pty) Ltd v Mackan 1954 (2) SA 109 at 111.

‘In the second place it seems clear that it is for the petitioner to satisfy the Court that there is reason to believe that creditors will derive advantage from the sequestration, and I venture to think that what the petitioner has thus to show is that on the facts before the Court there is a reasonable likelihood that sequestration will yield, at least, a not negligible dividend’.

It was later refined by Leveson J in Hillhouse v Stott; Freban Investments (Pty) Ltd v Itzkin; Botha v Botha 1990 (4) SA 580 at 585 as follows:

‘the Court need not be satisfied that there will be advantage to creditors, only that there is reason to believe that that will be so. That in turn, in my opinion, leads to the conclusion that the expression “reason to believe” means “good reason to believe”. The following factors which appear in the applicant’s founding affidavit are, in my view important in deciding whether this requirement has been satisfied’.

[28] The applicant’s counsel contended that the following factors militate against the respondent’s defence that there will be no advantage to creditors should his estate be wound up:

(1) The respondent furnished the applicant with his personal balance sheet as at 30 June 2000, which is annexure “ZW 5” in its founding affidavit, reflecting assets in his investment in Gaskell Holdings in the amount of R4 495 477, 00 which is now denied by the respondent.

(2) The relationship between the respondent and Gaskell Group of Companies suggests that there are reasonable grounds for concluding that upon a proper investigation of the affairs of the respondent, a trustee may discover and recover assets for disposal for the benefit of creditors and there is a reasonable prospect of an actual payment being made to each creditor who proves a claim in the insolvent estate of the respondent.

(3) The fact that the respondent has been involved in one of the largest privately owned transport companies in the country for over 44 years and yet he alleges that he did not accumulate a single asset.

(4) The claim which the respondent may have against LTI for repayment or return of such assets as he invested in LTI to keep it afloat, and any claim of the respondent against LTI is an asset in his estate.

(5) The denial by the respondent of the value of his shareholding in Gaskell Holdings which denial is incompatible with the allegations contained in paragraph 26 of the applicant’s founding affidavit, which are admitted by the respondent and which are to the effect that Gaskell Holdings owned substantial immovable properties.

(6) The fact that Gaskell Holdings sold valuable assets to Breakers Trading, of which the respondent is a Director together with his mother and two brothers.

(7) The fact that the records of the Registrar of Companies, reveal that the respondent is a director of the following companies in addition to LTI and interactive:

7.1 Star Choice Trading 19 (Pty) Ltd. Bruce Gaskell, Kevin Gaskell (his brothers) and Schefermann are also directors of this company,

7.2 Validtrade 113 (Pty) Limited (“Validtrade”). Bruce Gaskell, Kevin Gaskell and Schefermann are also Directors of this company,

7.3 Sharp Move Trading 28 (Pty) Limited (“Sharp Move”). Bruce Gaskell, Kevin Gaskell and Schefermann are also Directors of this company,

7.4 Gemini Moon Trading 17 (Pty) Limited (“Gemini Moon”) Bruce Gaskell, Kevin Gaskell and Schefermann are also Directors of this company,

7.5 Gaskell Trading 18 (Pty) Limited (“Gaskell Properties”). Bruce Gaskell, Kevin Gaskell and Schefermann are also Directors of this company,

7.6 Breakers Trading 18 (Pty) Limited (“Breakers Trading”). Bruce Gaskell, Kevin Gaskell and Schefermann are also Directors of the company.

[29] I am in agreement with the applicant’s counsel that, in order to actually determine whether the value of the respondent’s shareholding in Gaskell Holdings is nil as he suggests, it is necessary that a complete enquiry be conducted into the inter-relationship between Gaskell Holdings, Interactive, LTI and other entities in the Gaskell group. In my view, it is not sufficient for the respondent to merely say that his shares in Gaskell Holdings, which were previously worth R4 million, are now worth nothing. The trustee will be well equiped to properly conduct investigation on the respondent’s version on this issue. I am further of the view that the granting of the application would source some useful purpose.

[30] In all these circumstances, I am satisfied that the defences raised by the respondent to the application are unsustainable. I am further satisfied that the applicant has established, on the balance of probabilities, the three requirements set forth in section 12 (1) of the Act.

In the result, the provisional order is made final.

Date of Hearing : 14 September 2009

Date of Judgment : 5 May 2010

Counsel for the Applicant : Adv. Daniels

Instructed by : Edward Nathan Sonnenburg Attorneys

Counsel for the Respondent : Adv. Swart (SC) and Oosthuizen

Instructed by : Burt Meaden Attorneys

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