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Republic of South Africa

IN THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE DIVISION, CAPE TOWN)

Case No. 11689/2018

Before: The Hon. Ms Acting Justice Mangcu-Lockwood

Date of hearing: 14 November 2019

Date of judgment: 12 December 2019

In the matter between:

NEDBANK LIMITED                                                                                                     Applicant(s)

and

THE MASTER OF THE HIGH COURT, CAPE TOWN + 6 Others                      Respondent(s)

 

JUDGMENT

 

MANGCU-LOCKWOOD AJ,

Introduction

1. The applicant has brought an application seeking an order reviewing and setting aside a decision of the Master of the High Court (Master) in which the second respondents’ objections were upheld and the third and fourth respondents (liquidators) were directed to expunge the applicant’s claim of R 9 668 873,67. Alternatively, the applicant seeks an order rectifying a deed of suretyship. In  the further alternative, an order is sought to stay the confirmation of the liquidation and distribution account of Gloucesterlaan Court CC (in liquidation) until final adjudication of a Magistrate’s Court dispute between the parties.

2. The first respondent is the Master the High Court, Cape Town. The Master’s decision under review expunged the applicant’s claim in the amount of R9 668 873, 67 in the liquidation of Gloucesterlaan Court CC (in liquidation) (Gloucesterlaan). The Master subsequently directed the third and fourth respondents, the appointed liquidators in respect of Gloucesterlaan, to expunge the applicant’s claim. The second respondents are the Trustees of Malherbe Trust for MC Lamprecht (the Malherbe Trust). The Malherbe Trust is the sole member of Gloucesterlaan Court CC (in liquidation). The fifth respondent is the wife of MC Lamprecht. The fifth and sixth respondents have already proved concurrent claims against the corporation in liquidation.

3. The applicant seeks condonation for the lateness of the founding and the replying affidavits. In terms of section 407(4)(a) of the Companies Act 61 of 1973 (old Companies Act) and section 111(2)(a) of the Insolvency Act 24 of 1936 (Insolvency Act), the review application should have been brought 14 days after the Master gave direction to the liquidators following her determination on the objections, but it was delivered three weeks out of time. Similarly, condonation is sought for the late filing of the replying affidavit, which was delivered three weeks late. I have considered the reasons given for the lateness of both affidavits, the importance of the matter and the fact that the second to fifth respondents do not oppose either condonation application, and have decided to grant the applications for condonation.

 

The facts

4. The registration history of Gloucesterlaan is central to these proceedings and is common cause. According to the records of the Companies and Intellectual Property Registration Office (CIPRO), in 1997 a close corporation called Henbase 2087 CC with the registration number 96/16873/23 changed its name to Gloucesterlaan Court CC. The members of the close corporation were Meyer Christo Lamprecht (MC Lamprecht) and Gerrit Johan Malherbe Lamprecht (GJM Lamprecht), each holding 50% share. However, the membership changed to reflect the Malherbe Testamentary Trust for MC Lamprecht (the Trust), whose members were MC Lamprecht and a Mr Jeffrey.

5. On 16 November 2000, Gloucesterlaan Court CC was converted into Gloucesterlaan Court (Pty) Ltd with registration number 2000/028866/07. The new members were the Trust. MC Lamprecht was a trustee of the Trust, together with Mr Jeffrey. MC Lamprecht is also a beneficiary of the Trust.  By law, the conversion into a company could only have taken place by a resolution taken by both members of the close corporation who each held a 50% share; and by application from all the members of the close corporation in terms of section 29C of the old Companies Act. MC Lamprecht was appointed as a director of the converted company.

6. On 8 July 2008 Gloucesterlaan Court (Pty) Ltd was converted into a close corporation called Gloucesterlaan Court CC with registration number 2008/ 144475/23 (the 2008 number). The members were AT Jeffrey and the Trust. MC Lamprecht was a trustee of the Trust.

7. On 10 December 2008 the applicant on the one hand, and MC Lamprecht on the other, signed a deed of suretyship in favour of the applicant for the indebtedness of Lamprecht & Associates Investments CC (Lamprecht & Associates). According to the resolution authorising MC Lamprecht to sign the deed of suretyship, he was acting on behalf of Gloucesterlaan Court CC 1996/016873/23 (the 1996 number). It is common cause that no close corporation with the 1996 number existed at the time of signing the deed of suretyship.

8. On 6 November 2012 Lamprecht and Associates was placed under final liquidation. During 2012 the applicant instituted action in the George Magistrate’s Court against MC Lamprecht, MR Marques and Gloucesterlaan CC 1996/ 016873/23 as sureties the repayment obligations of Lamprecht & Associates. The defendants denied that the third defendant’s registration number was the 1996 number, pleading that the third defendant’s registration number was the 2008 number. In response to this defence, on 23 November 2013 the applicant delivered a notice of intention to amend its particulars of claim by pleading the rectification of the deed of suretyship, and replacing the 1996 number with the 2008 number. The intention to amend was withdrawn and replaced by a second version on 28 November 2013 which intended to replace the 1996 number with the 2008 number, and add averments citing the CIPRO history and structural changes of Gloucesterlaan. The second intention to amend was opposed by the defendants, and was withdrawn at the commencement of trial on for December 2013. This led to a third application of an intention to amend, effectively reinstating the first intention to amend. This latest intention to amend resulted in a sine die postponement of the trial, with a costs order against the applicant. It is common cause that all attempts to effect the amendment to substitute the 1996 number with the 2008 number were opposed by the second and fifth respondents in the Magistrate’s Court.

9. In the meantime, the sixth respondent had launched an application for the provisional liquidation of Gloucesterlaan CC, which was opposed and argued on 3 December 2013. On 25 June 2014, Gloucesterlaan CC was placed under a provisional order of liquidation, which was made final on 8 July 2014.

10. The applicant proved its claim against Gloucesterlaan CC in liquidation, including for the amount of R 9 668 873,67, by submitting the prescribed form in March 2015. However, the second respondents raised certain objections to the first liquidation and distribution account, to which the liquidators responded negatively. Consequently, on 23 September 2016 the second respondents submitted objections to the first liquidation and distribution account to the Master in terms of section 111 of the Insolvency Act.

11. On 21 May 2018 the Master upheld the second respondents’ objections, and, on 25 May 2018 directed the liquidators is to expunge the applicant’s claim for R 9 668 873,67.

 

The review application

12. The decision sought to be reviewed was made by the Master in terms of section 407 of the old Companies Act, which provides as follows:

“(1) Any person having an interest in the company being wound up may, at any time before the confirmation of an account, lodge with the Master an objection to such account stating the reasons for the objection.

(2) If the Master is of opinion that any such objection ought to be sustained, he shall direct the liquidator to amend the account or give such other directions as he may think fit.

(3) If in respect of any account the Master is of the opinion that any improper charge has been made against the assets of a company or that the account is in any respect incorrect and should be amended, he may, whether or not any objection to the account has been lodged with him, direct the liquidator to amend the account, or he may give such other directions as he may think fit.

(4) (a) The liquidator or any person aggrieved by any direction of the Master under this section, or by the refusal of the Master to sustain an objection lodged thereunder, may within fourteen days after the date of the Master's direction and after notice to the liquidator apply to the Court for an order setting aside the Master's decision, and the Court may on any such application confirm the account in question or make such order as it thinks fit.

(b) If any such direction given by the Minister under this section affects the interests of a person who has not lodged an objection with the Master, such account as amended shall again lie open for inspection in the manner and with the notice as prescribed in section 406, unless the person affected consents in writing to the immediate confirmation of the account.”

13. The review ground given in the applicant’s founding papers for reviewing the Master’s decision is that the Master was wrong in holding that the corporation referred to in the 1996 number is a different legal persona from the corporation referred to in the 2008 number. This is so because, according to the applicant, the facts support only one construction, namely that ‘the corporation by the name Gloucesterlaan Court CC existed when the deed of suretyship was signed by its member’s representative, Mr Lamprecht, on 10 December 2008, despite the fact that the original registration number instead of the current registration number was indicated on the deed of suretyship’.

14. A review in terms of section 407 of the old Companies Act (and section 151 of the Insolvency Act) is a review in the very widest sense.[1] It has been characterised as being of the third type of review identified by Innes CJ in Johannesburg Consolidated Investment Co v Johannesburg Town Council  1903 TS 111, namely a proceeding in which the court may enter upon and decide the matter de novo, exercising not only the powers of a court of review in the legal sense, but also having the functions of a court of appeal, with the additional privileges of being able, after setting aside the decision arrived at by the tribunal or functionary concerned, to deal with the whole matter upon fresh evidence as if it were the decision-maker of first instance. A review in terms of these provisions therefore affords scope for the court to enter into the merits of the impugned decision in a way that would not be permissible in conventional administrative law review.

15. The objection raised was that the deed of suretyship is not binding on Gloucesterlaan because the close corporation bound in terms thereof had the registration number 1996/016873/23, which did not exist at the time of entering into the deed a suretyship. The close corporation existing at the time of conclusion of the deed of suretyship had the registration number 2008/144475/23. In this regard, reliance is placed on the case of African Life Property Holdings (Pty) Ltd v Score Food Holdings Ltd 1995 (2) SA 230 (A) at 24G-H. Furthermore, according to the objection, once a close corporation is converted to a company all its obligations are transferred in terms of sections 29C and 29D of the Companies Act. However, this principle does not operate to retrospectively, and therefore the new company cannot enter into agreements in the name of the old close corporation. In this regard, reliance is placed on Townsend Productions Pty Ltd v Leech 2001 (4) SA 33. The Master upheld the objections, holding that the applicant must claim its monies from the close corporation with registration number 1996/016873/23, and that the company with registration number 2008/ 144475/23 was not liable in terms of the surety agreement.

16. In the case of African Life Property Holdings (Pty) Limited v Score Food Holdings Limited the principal issue for determination was whether the deed of suretyship between sundry parties was legally effectual when executed. In the deed of suretyship in that case, whenever the company Ramodutoana Investments (Pty) Ltd (RI) was mentioned in the documents there was a reference to its company registration no. 68/10537/07. It was later discovered that there was in fact no company in existence bearing the name RI. The registration no. 68/10537/07 belonged to a company named Portia Moira Hairdressing Salon (Pty) Ltd ("Portia"), which was a dormant company. The Appellate Division described the factual and legal situation as follows:

‘The agreements referred to above …were all concluded in the belief that RI was the name of a company with registration no. 68/10537/07, duly controlled by Motlogeloa. If the name was right but the company registration number was wrong, no such company existed; if the name was wrong but the company registration number was right, such a company (Portia) did exist but Motlogeloa had no authority to represent it. Either way the tenant identified in the lease was not legally bound to the landlord.’

17. The applicant’s counsel seeks to distinguish African Life on two bases. Firstly, it is argued that, when the suretyship agreement was signed in 2008, a close corporation by the name of Gloucesterlaan did exist, unlike the situation in African Life where the company name identified in the suretyship agreement did not exist. The answer is that this factual distinction was catered for in the above-quoted ratio of African Life where the court stated: “If the name was right but the company registration number was wrong, no such company existed”. Thus, even if the company name identified in the suretyship agreement did exist, if the registration number identified was incorrect, the company did not exist. According to the Appellate Division’s ratio, the identity of an entity is in its registration number. The second distinguishing factor relied upon by the applicant is that the registration number mentioned in the suretyship in this case did not belong to a remote existing entity but was an ‘old and defunct registration number of a previous incarnation of the surety’. The same answer to the first distinction applies because, even on the applicant’s own admission, the registration number is defunct and is no longer applicable to the close corporation. Although a close corporation did, in fact exist, it is common cause that the one cited in the suretyship agreement, namely 1996/01687/23, no longer existed. It would be no different if a close corporation with no relation to Gloucesterlaan attempted to use the 1996 number.

18. The other basis for the Master’s decision was the case of Townsend, the facts of which are similar to the current case. In that case the close corporation, Townsend Productions CC, was converted into a company (Townsend Productions Pty Ltd) on 13 April 2000. On 15 May 2000, the second respondent signed a restraint of trade agreement with an entity identified in the agreement as Townsend Productions CC. Similar to the present case, the first argument, for the enforcement of the restraint of trade agreement against the second respondent, was that the reference to the close corporation in the agreement was in a mere misdescription. The court held that, without rectification, that could not be the meaning given to the restraint of trade agreement.

19. The second argument in Townsend placed reliance on section 29D of the old Companies Act, which provides as follows:

‘29D. Effect of conversion of close corporation into company.

(1) (a) On the registration of a company converted from a close corporation, all the assets, liabilities, rights and obligations of the corporation shall vest in the company.

(b) Any legal proceedings instituted before the registration by or against the corporation, may be continued by or against the company, and any other thing done by or in respect of the corporation, shall be deemed to have been done by or in respect of the company.

(c) The juristic person which existed as a close corporation before the conversion shall notwithstanding the conversion continue to exist as a juristic person, but in the form of a company.’

20. It was argued in Townsend that the wording in subparagraph (b) of section 29D was wide enough to cover the conclusion of the restraint agreement which took place after the conversion of the close corporation into a company. After discussing the intention of inserting section 29D into the Companies Act, the court held that the restraint agreement in the name of the close corporation after the incorporation of the company was not something that was done by or in respect of the close corporation within the contemplation of that provision. This finding is apposite to the current case, where the suretyship agreement was agreed upon into the name of the close corporation which was no longer in existence and therefore could not be bound thereby. As argued on behalf of the second to fifth respondents in this case, the provision does not apply retrospectively. The third argument made in Townsend is equally relevant to this case. It was argued that the effect of section 29C is to perpetuate the existence of the same legal entity, only under a different name. The court, relying on Morsner v Len[2] held that the argument could not be sustained. The court held that the purpose of section 29D was to provide continuity where one kind of juridical person is converted into another kind of juridical person. Thereafter, the court stated that ‘the very provision for continuity reinforces the distinctive identity of the juridical persons’. The court held therefore that, ex facie the written instrument (i.e. the restraint of trade agreement) the restraint was in favour of a legal entity which was not the applicant, and dismissed claim.

21. The above two authorities are the only authorities to which the Master’s decision refers on the issues involved in this case. In my view, the Master’s reliance on the above two authorities was not misplaced. His interpretation and application thereof was correct, and did not constitute a reviewable irregularity. There are more authorities in agreement with Townsend on the effect of section 29 of the Companies Act, which favour of the Master’s decision in this regard.

a. In the case of Morsner v Len, which was referred to in Townsend, the respondent had sold his interest in a close corporation to the appellant. The parties had previously agreed that the appellant would not have a right to alienate or pledge or cede or otherwise dispose of its interest in the close corporation, unless the respondent had agreed in writing or unless he paid the respondent (clause 10 of the agreement). The appellant converted the close corporation into a private company, and issued shares therein to himself and later to another individual. In doing so, the appellant replaced his 100% member interest in the former close corporation with a 51% shareholding in the company. It was common ground that the appellant never obtained written consent for the conversion into a company or for the issue of shares. The respondent regarded the conduct as a breach of the parties’ agreement, and urged the appellant in writing to restore the status quo ante. In stating that the conversion of the close corporation into a company was not prohibited by clause 10, the appellant relied on ss 29C (1) and 29D (1) of the Companies Act, arguing that these provisions indicate that such a conversion is not of material importance and that such a distortion is not affected by the prohibition in clause 10. The Appellate Division (AD) disagreed, stating that it was necessary for the sake of continuity to add the provisions of s 29D (1) to the Companies Act precisely because another type of juristic person a was created. The AD continued that it could therefore be said with certainty that the conversion of the close corporation into a company without permission (or payment of the purchase price) was prohibited by clause 10.

b. Similarly, the case of Brodsky Brodsky Trading 224CC v Cronimet Chrome Mining SA (Pty) Ltd and Others[3] finds application. In that case, a certificate was issued on 6 May 2005 to a company Brodsky Trading 224 (Pty) Ltd, which was valid until 31 December 2005. As from 20 March 2006, the company was converted to a close corporation. No valid certificate was issued to the company or its directors, or to the close corporation or its members, for any period during 2006. On 6 May 2007 a certificate was issued to Brodsky Trading 224 (Pty) Ltd (the non-existent company), but not to the close corporation. On the same date a certificate was issued to the director in his former capacity as a director of Brodsky Trading 224 (Pty) Ltd and similarly not in his capacity as a member of the close corporation. The Supreme Court of Appeal (SCA) held, referring to section 29B of the Companies Act, that although the juristic person that existed before the conversion, in the form of a company, continued to exist in the form of a close corporation, the company ceased to exist as at the date of conversion. Further, the SCA stated: ‘[f]or a right to be transferred from the company to the close corporation, it must have been held by the company at the time of conversion. Likewise ‘any other thing done by or in respect of the company’ would have to be done at a time when the company was in existence for it to be deemed to have been done in respect of the corporation.’ Furthermore, the SCA held that on the date of conversion, the company was not in possession of a valid certificate that could be transferred to the corporation. In addition, nothing had been done by, or in respect of the company before its conversion, with regard to an application for a certificate in terms of s 16 of the Act, which could be transferred to the close corporation.

22. There is therefore no doubt that the authorities support the Master’s decision. I therefore find that there was no irregularity with regards to the Master’s decision to uphold the objection, and to expunge Nedbank’s claim. In view of the fact that rectification is essential before a version of an agreement directly contradictory to that embodied in a written document, is admitted as evidencing the true version of the contract agreed between the parties, the objection was properly sustained. What was required at the time was an application for rectification of the suretyship agreement.

 

Rectification of the deed of suretyship

23. The determination of whether rectification of a suretyship should be ordered involves a two-staged enquiry.[4] First, it should be determined whether the formal requirements in section 6 of the General Law Amendment Act 50 of 1956 have been met. The focal point at that stage is whether the document, on its face, constitutes a valid suretyship. If it does not, the enquiry ends. If it does, the enquiry progresses to the second stage. At the second stage, the question is whether all the requirements for rectification have been met. If they have, rectification must be granted.[5]

24. Section 6 of the General Law Amendment Act provides:

" 6 Formalities in respect of contracts of suretyship

No contract of suretyship entered into after the commencement of this Act, shall be valid, unless the terms thereof are embodied in a written document signed by or on behalf of the surety: Provided that nothing in this section contained shall affect the liability of the signer of an aval under the laws relating to negotiable instruments".

25. The word "terms" in section 6 of the Act, has been interpreted to include the identification of the creditor, the principal debtor and the surety. These are the three parties which, of necessity, have to be identified in the suretyship.[6] The SCA has construed this requirement strictly.

a. In Intercontinental Exports (Pty) Ltd v Fowles, it was confirmed that it is not competent to rectify a contract that is invalid for noncompliance with statutory formalities.[7] In such instances there is no distinction between the document and the juristic act: the document constitutes the legal act.[8] The formal validity of a suretyship agreement must be determined ex facie the document embodying the suretyship undertaking;[9]

b. Where it appears conclusively from a deed of suretyship that the principal debtor and the surety are the same person or legal persona, the deed would be invalid for want of an essential term, because the person or legal persona could be either the principal debtor or the surety, but not both, as one cannot stand surety for one’s own debt. One of the necessary parties to a suretyship would therefore be lacking.[10]

c. In Intercontinental, the SCA referred with approval to Republican Press (Pty) Ltd v Martin Murray Associates CC and Others 1996(2) SA 246 (N), where the company ‘Republican Press (Pty) Ltd’ featured as both principal debtor and creditor in the deed of suretyship. The court in Republican Press held (at 251G - H) that: ‘In this case there is no question of the ‘Republican Press (Pty) Ltd’ cited as the principal debtor, being a different entity to the creditor.’ In the result it was found that the deed of suretyship lacked formal validity. The SCA in Intercontinental approved of the finding in Republican Press stating that it was ‘clearly justified as there cannot be more than one registered company with the same name’.[11]

d. The SCA in Intercontinel v Fowles distinguished the facts from Republic Press on the basis that, ex facie the suretyship, although the names were similar, they were not identical, and did not necessarily refer to the same person. The principal debtor was referred to as ‘Mr Frank Fowles’, and the name of the surety was reflected as ‘Frank Turner Fowles’.

e. Similar to Republican Press, in Nuform Formwork and Scaffolding (Pty) Ltd v Natscaff CC 2003 (2) SA 56 (D), the name of a close corporation appeared in a surety document as both surety and principal debtor. It was held that the suretyship did not comply with the formalities required by section 6. The SCA did not overturn Nuform in Inventive Labour Structuring.

f. In Inventive Labour Structuring (Pty) Ltd v Corfe, the names of the surety in the principal debtor in the suretyship were identical. In its reasoning, the SCA confirmed that, if the surety and the principal were the same person, this would lead to non-compliance with formal requirements section 6. It is pointed out in Caney’s The Law of Suretyship[12] that the distinguishing feature of Inventive Labour Structuring appears to be that the identical names were those of a natural person, which rendered the document rectifiable. According to Caney’s The Law of Suretyship, the reasoning of the SCA in Inventive Labour Structuring is that the situation would be different and the document would not have been rectifiable had the case concerned a juristic person.

26. On the other hand, academic authorities seem to suggest a lighter approach. According to Caney’s Law of Suretyship[13], rectification is still possible if the erroneous term in the document is one of the essential terms which must be included in order to ensure compliance with section 6 of the General Law Amendment Act; provided that “the unrectified document must also be one which ex facie complies with the statute, that is to say, the essential terms, even if one or more of them are erroneous, must appear in the writing”.[14]

27. In my view, from a reading of the caselaw, the determining question regarding formal validity is whether there is a possibility of construing the suretyship in a manner that does not lead to invalidity.[15] The answer in this case, is that although as a matter of form the deed of suretyship identifies a surety, namely Gloucesterlaan CC 1996, this entity was no longer in existence at the time of entering into the agreement. To adopt the reasoning employed in African Life, ‘as a matter of substance…the deed of suretyship was ineffectual since the debtor identified therein would never be indebted to the creditor and the principal debt which the deed of suretyship sought to secure would never come into existence. Guaranteeing a non-existent debt is as pointless as multiplying by nought.’ (own emphasis) In my view, this ratio is equally applicable regarding a non-existent entity which is one of the essential requirements in terms of section 6 of the General Law Amendment Act. Accordingly, on the application of the authorities, the suretyship agreement cannot be rectified since it falls foul of section 6 of the General Law Amendment Act.  Even if I am wrong in my decision  on the first enquiry, the applicant similarly does not fare better in the second leg of the enquiry, namely compliance with the requirements for rectification.

28. In order to succeed with its claim for rectification, the applicant must establish the following: (a) that an agreement was concluded between the parties and reduced to writing; (b) that the written document does not reflect the true intention of the parties – this requires that the common continuing intention of the parties, as it existed at the time when the agreement was reduced to writing, be established; (c) an intention by both parties to reduce the agreement to writing; (d) a mistake in drafting the document, which mistake could have been the result of an intentional act of the other party or a bona fide common error; and (e) the actual wording of the true agreement.[16] The onus of proving that the requirements for rectification are met is on the party who seeks it. In order to discharge the onus the party must show, on a preponderance of probability, that the deed of suretyship, because of a bona fide mutual mistake, does not reflect the common intention or antecedent agreement of the parties.

29. It is common cause that a written deed of suretyship was entered into. It is, in any event, a requirement of section 6 of the General Law Amendment Act 50 of 1956 that a deed of suretyship be embodied in a written document signed by or on behalf of the surety. It is also not in dispute that MC Lamprecht signed the deed of suretyship. The main question is on whose behalf. The factual basis for the rectification application is set out as follows in the founding affidavit:

‘49.1          It may safely be assumed as fact that both the applicant and Mr Lamprecht who signed the deed of suretyship on behalf of Gloucesterlaan Court CC on 10 December 2008 intended the said corporation to bind itself as surety as appears from the deed of suretyship.

49.2          Both parties intended that a legal persona known and registered under the name Gloucesterlaan Court CC be bound as surety.

49.3          Both parties acted bona fide and in error in allowing the deed of suretyship to contain an extinct registration number for the corporation instead of the 2008 number.’

30. In his answering affidavit, MC Lamprecht denies all the above, raising a string of legal defences, with no factual answer except for the following: ‘I as a layman was not aware of the legal consequences of the conversions that had taken place and at all times relevant to the signing of the suretyship in question I intent (sic) to bind the corporation with the 1996 registration (of which I was to be a member and as such authorised to bind the corporation), whereas I was not a member of the corporation with the 2008 registration number and had not been authorised to execute the suretyship on behalf of the latter corporation’.

31. In reply, the applicant denies that MC Lamprecht is a lay person relying on evidence contained in the papers, namely that MC Lamprecht - is a chartered accountant; fulfils duties of a trustee; was a member of the close corporation with the 1996 registration number; served as a director of the company after its conversion in 2000; signed the documents in the conversion of the close corporation into a company. On the basis of the same facts and probabilities the applicant also denies that MC Lamprecht was unaware of the legal consequences of the conversion of the entity.

32. A simple look at the evidence before the Court shows that it is highly unlikely that, in December 2008, MC Lamprecht intended to bind the 1996 close corporation which had not existed since 2000. When the close corporation was converted into a company in 2000, MC Lamprecht ceased to be a member in his personal capacity in favour of the Trust. Later, the conversion into a company could only have taken place by resolution of the members of the Trust. In terms of section 29C, the conversion from a close corporation could only be effective is upon application by all members. Thereafter, MC Lamprecht was appointed as a director of the converted company. One of the documents amongst the evidence, is a statement signed by MC Lamprecht in his capacity as a director on 23 February 2001, stating that the written consent of the directors or officers appearing in the document had been obtained. Numerous documents from the ‘Companies Registration Office’ signed by MC Lamprecht, indicating that he had full knowledge of every conversion referred to above, and was very involved therewith. Regarding MC Lamprecht’s denial of membership of the close corporation with the 2008 registration number, it is correct that, from the 2008 conversion, the Trust was a member and not him personally. However, he was one of only two members of the Trust. Furthermore, in the suretyship agreement that he signed he certified very he was authorised by members of Gloucesterlaan Court CC. The above facts appear from the evidence before the court and cannot be disputed.

33. However, the prior question is whether the applicant has discharged its onus. The high watermark of the applicant’s case appears in the replying affidavit as follows: ‘There can be no doubt that the applicant and Mr Lamprecht both intended to bind Gloucesterlaan Court CC. As there was only one such corporation in existence at the time, it follows that the mistake with the registration number was either mutual or it was deliberately concealed by Mr Lamprecht’. During argument of the applicant’s counsel this averment was watered down, and it was clarified that the applicant does not seek to rely on deliberate concealment or fraud on the part MC Lamprecht. What remains for determination is whether the applicant has discharged its onus of proving a common error by the parties.

34. At the very least, it must be accepted that there was common intention by the parties for a valid suretyship to be in existence. In terms of section 6 that requires an identifiable creditor, principle debtor and a surety.[17] In other words, it cannot be accepted that any of the parties intended for the surety agreement to be null ab initio. This brings into spotlight MC Lamprecht’s explanation that, in signing the agreement, he intended “to bind the corporation with the 1996 registration”.  This would be a legal impossibility because the 1996 corporation was no longer in existence. However, this is not sufficient for the discharge of the onus. Rectification is intended to provide an equitable remedy designed to correct the failure of a written contract to reflect the true agreement between the parties to the contract. It thereby enables effect to be given to the parties’ actual agreement.[18]A claimant for rectification of a written agreement must prove a common intention which the parties intended to express in the written contract, but which through a mistake they failed to express.[19] It is necessary that the mistake be both pleaded and proved.[20] It is not sufficient simply to allege a contemporaneous oral agreement or common intention. In Bardopoulos and Macrides v Miltiadous 1947 (4) SA 860 (W), it was stated as follows:

‘A party seeking to obtain rectification must show the facts entitling him to obtain that relief in the clearest and most satisfactory manner…and as it is pointed out in Taylor v Cape Importers 1938 CPD 362 at p368, where the common intention is to be shown not by any writing but by verbal evidence, the Courts may have great difficulty in determining whether there was a mistake in the written contract. These cases do not, I consider, require more than a balance of probability in favour of the party seeking rectification but indicate that such a claim is in fact difficult to prove’.

35. Unfortunately, this is what the applicant has done in this case. Other than placing documents from which inferences can be made, there has been no attempt to place evidence before the court establishing the allegations on which it relies for the alleged error. There is furthermore no evidence explaining why such evidence cannot be given. Instead, the founding and replying affidavits are deposed by the manager of legal recoveries from the applicant’s legal recovery centre, whose knowledge of the matter is obtained from ‘the relevant file’ which she took over from a predecessor. There is absolutely no evidence placed before the Court regarding how the suretyship agreement came about; whether there were any negotiations leading thereto; the basis on which it is claimed there was an error on any party. On the other hand, MC Lamprecht denies that there was any common intention between the parties regarding the terms of the suretyship, and there could therefore be no bona fide mutual error or common mistake regarding the contents of the suretyship.

36. In motion proceedings, as in the present case, and where the applicants seek final relief, it is now trite that where disputes of fact exist, these are to be decided in favour of the respondent taking into account the principles as set out in Plascon-Evans Ltd v Van Riebeeck Paints (Pty) Ltd. In the absence of any other evidence from the applicant, I am bound by the authorities, and am not able to come to the applicant’s assistance. There is no basis for this Court to conclude that the citation of Gloucesterlaan CC with the 1996 registration number was as a result of bona fide mutual error or common mistake.

37. What remains is a consideration of the applicant’s further alternative case.

 

Stay of liquidation process

38. In the further alternative, the applicant seeks an order staying the liquidation proceedings until the action proceedings instituted in the Magistrate’s Court are finalised.

39. Section 359(2)(a) of the Companies Act 61 of 1973 provides for stay of liquidation proceedings, and provides as follows:

‘(a) Every person who, having instituted legal proceedings against a company which were suspended by a winding-up, intends to continue the same . . . shall within four weeks after the appointment of the liquidator give the liquidator not less than three weeks’ notice in writing before continuing or commencing the proceedings.

(b) If notice is not so given the proceedings shall be considered to be abandoned unless the Court otherwise directs.’

40. It is common cause that the applicant did not give the liquidators notice in terms of s 359(2)(a) of an intention to continue the Magistrate’s Court proceedings. Consequently, the proceedings (not the claims) must be considered to have been abandoned unless a court otherwise directs. A court has an unfettered discretion to decide whether or not to direct that proceedings should not be considered to be abandoned.[21] In exercising this discretion a court should naturally have regard to the interests of all interested parties being the creditors, liquidators and members.

41. A brief chronological summary is useful in this regard. As I have already stated, Lamprecht and Associates was placed under final liquidation on 6 November 2012. The Magistrate’s Court proceedings were instituted in 2012 and, during December 2013 were postponed sine die, following opposed attempts to amend the applicant’s case to include rectification relief. On 25 June 2014 Gloucesterlaan CC 2008/144475/23 was placed under provisional liquidation, which was made final on 18 July 2014. The applicant’s claim was accepted by the liquidators, but was expunged by the Master on 21 May 2018. Thereafter, the applicant approached this Court on 2 July 2018. 

42. In explanation for its litigation strategy, the applicant states that, after the liquidation of the corporation, it ‘took the decision to prove its claim against the corporation in liquidation and to proceed with the action against the corporation only if the liquidators decided to reject the applicant’s claim’. It is clear from the pleadings that this litigation decision was not communicated to the second and fifth respondents. There is no explanation from the applicant for why a notice was not given to the liquidators in terms of section 359(2). However, it appears from correspondence from the liquidators dated June 2018, that they support the litigation decision of the applicant.

43. It also appears from the papers that, just before the launch this application, the applicant approached the parties for agreement that these proceedings be stayed pending the finalisation of the Magistrate’s Court action. Although the liquidators were in agreement, the second and fifth respondents refused to agree. Given that the Master’s decision stands until successfully challenged on review, the applicant was constrained to approach this Court to challenge that decision. In the light of the second and fifth respondents’ refusal to agree to stay the Magistrate’s Court proceedings pending the outcome of these proceedings, it opted to request this further alternative relief. At the very least, it is clear from this exchange of communication that the second and fifth respondents were aware, at least in June 2018, that the applicant had not abandoned the Magistrate’s Court proceedings. 

44. In approaching this Court, the applicant seeks not only a review of the Master’s decision, but also, rectification. I have already held that rectification is not competent relief, and to the extent that it is, or may become, part of the Magistrate’s Court action, the Magistrate’s Court claim lacks merit. It is not clear, from the papers, what the remainder of the relief sought in the Magistrate’s Court proceedings is, as a full set of summons is not attached. What is stated in the founding affidavit is that three defendants, including MC Lamprecht and Gloucesterlaan CC 1996/016873/23, are sued as sureties for the repayment obligations of Lamprecht & Associates. It therefore appears to be a case based on the suretyship agreement. Based on this, and the fact that this Court has not been placed in a position to consider the possible merits of the Magistrate’s Court action, the applicant has not succeeded in establishing a prima facie case for the interim relief sought.

45. In any event, the basis on which this relief is sought, according to the founding affidavit is firstly that it has at least a strong prima facie right to rely on the disputed suretyship and secondly that it has good prospects of success in eventually obtaining rectification. I have already decided that this is not so, and accordingly these first two grounds are not of assistance to the applicant. Thirdly, the applicant states that, should the liquidation proceedings continue, a judgment in its favour will be rendered empty. The applicant’s fourth basis for this interim relief is that, if the liquidation proceedings are stayed pending the outcome of the action, the rights of the parties and creditors will the main preserved and no material prejudice will ensue. In considering these last two grounds for this relief, the case of Olympic Passenger Service (Pty) Ltd v Ramlagan [22] bears reference, where Holmes J (as he then was) held that:

‘It thus appears that where the applicant’s right is clear, and the other requisites are present, no difficulty presents itself about granting an interdict.  At the other end of scale, where his prospects of ultimate success are nil, obviously the Court will refuse an interdict.  Between those two extremes fall the intermediate cases in which, on the papers as a whole, the applicants’ prospects of ultimate success may range all the way from strong to weak.  The expression ‘prima facie established though open to some doubt’ seems to me a brilliantly apt classification of these cases.  In such cases, upon proof of a well-grounded apprehension of irreparable harm, and there being no adequate ordinary remedy, the Court may grant an interdict – it has discretion, to be exercised judicially upon a consideration of all the facts.  Usually this will resolve itself into a nice consideration of the prospects of success and the balance of convenience – the stronger the prospects of success, the less need for such balance to favour the applicant: the weaker the prospects of success, the greater the need for the balance of convenience to favour him.  I need hardly add that by balance of convenience is meant the prejudice to the applicant if the interdict is refused, weighed against the prejudice to the respondent if it be granted.’

46. Because applicant has simply failed to establish a prima facie case, on application of Olympic Passenger Service, I am unable to come to its the assistance on the basis of considerations of balance of convenience and of prejudice. In making this decision, I am mindful of the liquidators’ stance, who are cited as third and fourth respondents that they will not be prejudiced by the relief. I am also mindful of the fact that the second to fifth respondents have been aware that the applicant has intended resuming the Magistrate’s Court proceedings. However, it must be borne in mind that, before the sine die postponement the Magistrate’s Court proceedings were not making any progress as a result of the issues raised in this judgment, most notably the issue of rectification.

47. The interim relief is therefore dismissed.

 

Costs

48. I see no reason why the costs should not follow the result. The applicant’s litigation in this matter leaves much to be desired. There has been a delay in instituting these proceedings, and a delay in delivering a replying affidavit. The legal strategy that resulted in seeking the further alternative relief similarly leaves much to be desired. In passing, also take note of the fact that the applicant’s legal strategy in the Magistrates Court resulted in a postponement sine die with an award of costs against it.

49. In the result, the following order is made:

a. The review application is dismissed;

b. The application for rectification of the deed of suretyship is dismissed;

c. The further alternative relief is dismissed; and

d. The applicant is to bear the costs of these proceedings.

 

 

                                                                                        

 N. MANGCU-LOCKWOOD

Acting Judge of the High Court

 

 

 

For Applicants:                                                        Adv C.W. Kruger

Instructed by:                                                            Van Der Spuy Attorneys

For 2^nd and 5^th Respondents:                                Adv D. Van Der Merwe

Instructed by:                                                            Le Roux Lamprecht Attorneys

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