Alton Coach Africa CC v Datcentre Motors (Pty) Ltd t/a CMH Commercial (8908/2005) [2006] ZAKZHC 16; 2007 (6) SA 154 (D); [2008] 2 All SA 635 (D) (22 December 2006)

IN THE HIGH COURT OF

SOUTH AFRICA

DURBAN

AND COAST LOCAL DIVISION

CASE NO. 8908/2005

In the matter between:-

ALTON

COACH AFRICA CC …............................................................

APPLICANT

and

DATCENTRE MOTORS (PTY) LTD

T/A CMH COMMERCIAL …............................................................

RESPONDENT

JUDGMENT

NDLOVU J

[1] On the return day in this matter the applicant sought confirmation of the rule nisi (which incorporated interim relief) granted by the Court on 29 June 2005 in favour of the applicant against the respondent.

[2] The rule, which was sought to be confirmed, was granted in the following terms:-

“1.

(a) That the Respondent be and is hereby interdicted from instituting proceedings for the winding up of the Applicant on the grounds set out in the Notice dated the 13th June 2005 from the Respondent’s attorney of record to the Applicant pending the determination by a Court of competent jurisdiction as to:

whether there is a bona fide dispute between the parties as to the existence of an alleged debt of R1 118 910,00 for loss of profits referred to in the said Notice;

whether the alleged debt referred to in the Notice is due, owing and payable.

That the Respondent pay the costs of this application on the scale as between attorney and client.

2.

That paragraph 1(a) above of the rule nisi operate as an interim order pending the return date.”

[3] The present litigation was precipitated by the respondent’s notice of 13 June 2005 referred to in paragraph 1(a) of the rule, which notice was issued in terms of section 69(1)(a) of the Close Corporation Act 1984 (Act No. 69 of 1984) (“the Act”), hereinafter referred to as “the section 69 notice”. Thereafter the respondent applied for and obtained a bond of security against the applicant from the Master, a process which was aimed at setting in motion the liquidation proceedings against the applicant at the instance of the respondent. The section 69 notice was crucial and fundamental to the applicant’s case and it therefore seems appropriate to make full reference to the contents thereof at the outset. It contained the following information:-

“Please take notice that you are indebted to the abovenamed Applicant in the total sum of R1 118 910.00 being the amount due owing and payable by you to the Applicant in respect of loss of profit arising from the cancellation of your orders No. ACD 05/0089 and ACD 05/0090.

PLEASE TAKE NOTICE FURTHER that this notice constitutes a demand, in terms of Section 69 (1) (a) of the Close Corporations Act that you pay the said sum of R1 118 910.00 directly to us on behalf of our client within TWENTY ONE (21) days of the date of service hereof.

PLEASE TAKE NOTICE FURTHER that should you fail to comply with this demand then in terms of Section 69 (1) (a) of the Close Corporations Act you will be deemed to be unable to pay your debts in which event the Applicant will proceed with its Application to court for your liquidation.

Dated at Durban this 13 day of June 2005.”

The notice was duly signed by the respondent’s attorneys and addressed to the applicant at their address: 44 Steel Road, Windermere, Durban, 4001. According to the applicant this was the address of its former accounting officer and the previous registered address of the applicant.

[4] The facts of the case were briefly as follows. The applicant was a close corporation engaged in the business of a bus passenger service which, among other things, operated three routes in the Empangeni/Richards Bay area in northern KwaZulu-Natal. It had its principal place of business at 5 Premier Place, Phoenix Industrial Park, Phoenix, KwaZulu-Natal. The respondent was a company involved in the business of manufacturing and supplying bus chassis, with its principal place of business at 1 Westmead Road, Westmead, KwaZulu-Natal.

[5] The three routes aforesaid together with a certain number of buses operating thereon were sold by the applicant to a corporate entity known as Masithembe Transport (Pty) Ltd (“Masithembe Transport”) for a consideration of some R62,5 million. Indeed, it was this purchase and sale transaction which became a worrying issue from the perspective of the respondent and which apparently prompted the respondent to take the steps which it did against the applicant, namely its delivery upon the applicant of the section 69 notice on 14 June 2005 and the subsequent issue by the Master of a bond of security, at the respondent’s instance, on 28 June 2005.

[6] The parties had previously been engaged in what was seemingly a cordial business relationship until the occurrence which brought about the present dispute between them. On or about 26 May 2004 the applicant placed two orders with the respondent, being order numbers ACD 05/0089 and ACD 05/0090 for the delivery of a total of 30 Nissan CB31 bus chassis for the amount of R410 000,00 per unit. According to the applicant it placed these orders on behalf of Washesha Bus Company (Pty) Ltd (“Washesha”), a company which operated a bus passenger carrier business and based in Eshowe. Washesha had, in turn, placed an order with Busaf, a bus body builder, to manufacture and supply 30 buses using the same chassis to install the bus bodies on. The applicant contended that

it had merely acted as an agent of Washesha when placing the orders for the chassis with the respondent which, the applicant further

contended, was convenient to have done because the applicant was based in Durban whilst Washesha was based in Eshowe. Furthermore,

Washesha had no working relationship with the respondent, which the applicant had.

[6] Upon completion of six of the buses built by Busaf on the aforesaid chassis, Washesha was not satisfied, firstly, with the alleged inferior quality of the chassis supplied by the respondent and, secondly, the alleged inferior quality of the workmanship rendered by Busaf. Accordingly, Washesha rejected the buses and cancelled the entire order with Busaf. As a result, the respondent was stuck with the bus chassis which had been ordered by the applicant but which were rejected by Washesha.

[7] The respondent disputed the applicant’s averment that the applicant acted on behalf of Washesha. According to the respondent it was never mentioned to it that the applicant was acting on behalf of Washesha or anyone else other than for the applicant itself.

[8] It was also the respondent’s contention that the conduct of the applicant in relation to the delivery of the 30 chassis aforesaid constituted a repudiation on the part of the applicant of the sale agreement between the parties founded on the two orders placed with the respondent by the applicant. The respondent also alleged that by its notice dated 31 May 2005 it had elected to accept the applicant’s repudiation aforesaid and to cancel the sale agreement. The applicant denied receipt of the alleged notice and further pointed out that the respondent could, after all, not furnish proof that such notice was indeed delivered to the applicant.

[9] The respondent submitted that, as a result of the cancellation, it had suffered damages in the sum of R1 118 910,00 being loss of profits. It further submitted that the computation of the loss of profit so claimed was “easily determinable by deducting from the amount which the applicant agreed to pay for each chassis the cost which the respondent incur[red] in acquiring the chassis from the Nissan manufacturer” (see paragraph 4 of the respondent’s answering affidavit). The computation was reflected as follows:-

“Agreed purchase price of each unit R410 000,00

Less cost of sale R372 703,00

Loss of profit per unit R 37 297,00

Therefore total loss of profit equals R37 279,00 x 30 = R1 118 910,00.”

[10] According to the respondent, as there was no response from the applicant in relation to the respondent’s alleged notice of 31 May 2005, the respondent’s attorneys had then delivered the section 69 notice to the applicant at the applicant’s registered address on 14 June 2005. However, according to the respondent, prior to the expiration of the 21 day period referred to in the section 69 notice, it came to the respondent’s attention that the applicant had sold its main business, that is, the three routes operating in the Empangeni/Richards Bay area and the buses operating in those routes, to Masithembe Transport for the sum of R62,5 million.

[11] The applicant vehemently denied the existence of any debt between it and the respondent and, as stated already, averred that the applicant had only acted as agent on behalf of Washesha when it placed the orders with the respondent. If anything, according to the applicant, the respondent would, at best, have been entitled to institute a claim for damages against the applicant. Further, whilst the applicant admitted the sale of the three routes and buses to Masithembe Transport for R62,5 million, it contended that the transaction was in the best commercial interest of the applicant. Moreover the sale would not have been to the prejudice or detriment of the applicant’s creditors.

[12] Mr Aboobaker SC (for the applicant) argued, in limine, that the respondent did not have locus standi to oppose this application because the deponent to the answering affidavit filed on behalf of the respondent did not allege or prove

that he had authority to represent the respondent in these proceedings. He further submitted that the respondent’s application

for the bond of security against the applicant was premature since the alleged debt in question was, in any event, not due and payable by virtue of the fact that the 21 day period referred to in the section 69 notice had not yet expired when the respondent applied for the bond of security.

[13] Indeed, Mr Aboobaker contended that the provisions of section 69(1)(a) of the Act made it clear that the debt in question must be “then due” in order for the provisions of that section to apply. He pointed out that the words “then due” in section 69(1)(a) meant, in terms of the decision in GAXT Fuller v Shepherd and Shepherd 1984 (3) SA 48 (WLD), “due and payable”, which, he submitted, could only be the case in respect of a claim of a liquid nature or liquidated amount in money, being the claims envisaged in section 68(c) of the Act. A claim for loss of profit did not qualify under section 68(c) and, so Mr Aboobaker submitted, the respondent’s claim could, at best, qualify as a claim for damages, which was an illiquid claim.

[14] Concerning the timing of the application for the bond of security Mr Aboobaker argued that in terms of section 69(1)(a) no further step ought to have been taken prior to the expiration of the 21 day period. In the present instance the section 69 notice was received by the applicant on 14 June 2005 and the bond of security applied for by the respondent on 28 June 2005. The 21 day period would have expired on or about 4 July 2005. Mr Aboobaker further argued that, on this basis, the respondent’s application for the bond of security was therefore premature. He placed on record that the applicant had then called upon the respondent to withdraw the bond of security forthwith and suggested to the

respondent only to proceed, if it so desired, by way of an action for damages for the amount the respondent alleged was due to it by the applicant. This communication by the applicant’s attorneys took place on 28 June 2005, being the same day that the bond of security was applied for by the respondent. This was done firstly by telephone and secondly by letter, marked Annexure “D” accompanying the applicant’s founding papers. However, the respondent did not oblige.

[15] Mr Harrison (for the respondent) submitted that besides the claim for R1 118 910,00 aforesaid, it was common cause that the applicant had also been indebted to the respondent for a further sum of R85 422,36 being the amount which was due, owing and payable by the applicant to the respondent in respect of work done and parts supplied through the respondent’s workshop, which was all at the applicant’s instance and request. Mr Harrison argued that this debt alone entitled the respondent to issue the section 69 notice and obtain the bond of security in preparation for its launch of liquidation proceedings against the applicant. He submitted that the fact that the debt of R85 422,36 was subsequently

paid by the applicant on 30 June 2005 did not affect the respondent’s entitlement as such because when the section 69 notice was issued on 13 June 2005 the debt had not yet been settled.

[16] The first question to be answered: Did the respondent lack locus standi to oppose this application on the basis that the deponent to the respondent’s answering affidavit did not allege or prove that he had authority to depose to the affidavit on behalf of the respondent? The respondent’s answering affidavit was deposed to by one Glen Spencer who, in the opening paragraph, stated:-

“I am an employee of the Respondent at its Westmead Branch which trades as CMH Commercial. My duties are to investigate and consider the financial aspects of transactions concluded by the Applicant. I was involved with the sale of the bus chassis’s to the Respondent from the outset and the facts herein contained are within my own personal knowledge and belief.”

[17] The authority to act on behalf of a corporate entity which is a party in judicial proceedings and the entitlement of the other party to challenge such authority is governed by Rule 7(1) of the Uniform Rules of Court, which provides among other things, as follows:

“… the authority of anyone acting on behalf of a party may, within 10 days after it has come to the notice of a party that such person is so acting, or with the leave of the court on good cause shown at any time before judgment, be disputed, whereafter such person may no longer act unless he satisfied the court that he is authorized so to act, and to enable him to do so the court may postpone the hearing of the action or application.”

[18] Mr Aboobaker conceded that the applicant never raised the issue of Spencer’s alleged lack of authority at any stage and that this allegation appeared for the first time in the applicant’s supplementary heads of argument. He submitted, however, that since this was a legal point the applicant was entitled to raise it at any stage of the proceedings. Indeed whilst generally that may be the position I do not think that this argument is sound in the present instance as Rule 7(1) clearly contemplated that the person whose authority was being challenged be accorded an opportunity to rectify the deficit or to respond to the challenge in some other way.

[19] Indeed, Spencer did not submit any proof, such as in the form of a resolution by the respondent to the effect that he was indeed authorized to depose to the affidavit on behalf of the respondent company. Nor did he allege that he was so authorized. As a matter of fact he did not even state what his position was in the respondent. It seems that the rationale behind Rule 7(1) was, among other things, to safeguard and protect corporate entities against unscrupulous and opportunistic employees or persons who could well conduct dealings on behalf of an entity but against the wishes of the entity concerned. In the present case however it was clear from Spencer’s unchallenged averments that, in the light of his stated duties, he certainly occupied a position at some senior level of the respondent’s management or operation. Further, not only did he occupy such senior position he was, as he put it, the person who had been “involved with the sale of the bus chassis to the Respondent from the outset …”. Indeed, it does not seem, from the respondent’s perspective, that there would have been any better and more knowledgeable person from the respondent who would have dealt with the matter more appropriately than Spencer. After all, if Spencer was not duly authorized the respondent would obviously have intervened and brought it to the Court’s attention that such was the position.

[20] However, as pointed out earlier, this issue should have been brought up some time prior to the hearing of the application in a way which would have allowed the respondent an opportunity to respond accordingly. In Fourways Mall v SA Commercial Catering and Allied Workers Union 1999 (3) SA 752 (WLD) at 758C-H the Court held that the applicant was possessed of the locus standi where proof of authority was only filed with the replying affidavit. (See also Moosa and Cassim NNO v Community Development Board 1990 (3) SA 175 (A) at 180H-181C.) In the present instance the respondent was not afforded the opportunity either to file the necessary authority or to respond in a manner it deemed appropriate. I am satisfied, in the light of Spencer’s position in the respondent aforesaid, that he was indeed authorized by the respondent to depose to the answering affidavit. The applicant’s objection in limine on this point must therefore fail.

[21] The issue of a bond of security was a formal procedural requirement which, as Mr Aboobaker appropriately submitted, was a precursor to a liquidation application. It is provided for in section 346(3) of the Companies Act 1973 (Act No. 61 of 1973) (“the Companies Act”). The section reads:

“Every application to the Court referred to in subsection (1), except an application by the Master in terms of paragraph (e) of that subsection, shall be accompanied by a certificate by the master, issued not more than ten days before the date of the application, to the effect that sufficient security has been given for the payment of all fees and charges necessary for the prosecution of all winding-up proceedings and of all costs of administering the company in liquidation until a provisional liquidator has been appointed, or, if no provisional liquidator is appointed, of all fees and charges necessary for the discharge of the company from the winding-up.”

It was the Master’s certificate referred to in this section that was commonly referred to as a bond of security or security bond.

[22] The provisions of section 346(3), above, are applicable herein in the light of the provisions of section 66 of the Act which read, among others, thus:

“66. Application of Companies Act, 1973. – (1) The provisions of the Companies Act which relate to the winding-up of a company, including the regulations made thereunder,

(except sections 311, 312, 313, 337, 338, 344, 345, 346(2), 347(3), 349, 364, 365(2), 367 to 370, inclusive, 377, 387, 389, 390, 395 to 399, inclusive, 400(1)(b), 401, 402, 417, 418, 419(4), 421, 423 and 424), shall apply mutatis mutandis and in so far as they can be applied to the liquidation of a corporation in respect of any matter not specifically provided for in this Part or in any other provision of this Act.

(2) For the purposes of subsection (1) –

(a) any reference in a relevant provision of the Companies Act, and in any provision of the Insolvency Act, 1936 (Act No. 24 of 1936), made applicable by any such provision –

(i) to a company, shall be construed as a reference to a corporation;

(ix) to the Companies Act or the regulations made thereunder, or to any provision thereof, shall be construed as including a reference to this Act or the regulations made thereunder, or to any corresponding provision thereof, as the case may be;

(xi) to a provisional liquidator of a company, or to a liquidator of a company or a trustee of an insolvent estate, shall be construed as a reference to a provisional liquidator and to a liquidator of a corporation, respectively;”

[23] The respondent alleged that the applicant owed to the respondent the sum of R1 118 910,00, which debt the applicant disputed. Regardless of whether the debt existed or not, the applicant contended that the alleged debt was, in any event, not yet due and payable in terms of the section 69 notice issued by the respondent and in terms of section 69(1)(a) of the Act.

[24] Section 69 of the Act provides as follows:

“ (1) For the purposes of section 68(c) a corporation shall be deemed to be unable to pay its debts, if –

(a) a creditor, by cession or otherwise, to whom the corporation is indebted in a sum of not less than two hundred rand then due has served on the corporation, by delivering it at its registered office, a demand requiring the corporation to pay the sum so due, and the corporation has for 21 days thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; or

(b) any process issued on a judgment, decree or order of any court in favour of a creditor of the corporation is returned by a sheriff, or a messenger of a magistrate’s court, with an endorsement that he has not found sufficient disposable property to satisfy the judgment, decree or order, or that any disposable property found did not upon sale satisfy such process; or

(c) it is proved to the satisfaction of the Court that the corporation is unable to pay its debts.

(2) In determining for the purposes of subsection (1) whether a corporation is unable to pay its debts, the Court shall also take into account the contingent and prospective liabilities of the corporation.”

[25] In terms of section 68(c) “[a] corporation may be wound up by a Court, if the corporation is unable to pay its debts”. Section 345 of the Companies Act contains corresponding and virtually identical provisions with those in section 69 of the Act.

[26] In GATX-Fuller v Shepherd and Shepherd 1984 (3) SA 48 (WLD) the Court dealt with the phrase “then due” referred to in section 345 of the Companies Act. In that case the Court (per Kirk-Cohen J) stated, among other things, at page 52F-I as follows:

“It is trite that a contingent or prospective creditor has locus standi to apply to Court for the winding-up of a debtor company but not on the grounds of non-compliance with a demand for payment made by such creditor in terms of the provisions of s 345 (1) (a) (i) of the Act. This subsection deems a company to be unable to pay its debts if:

‘…a creditor … to whom the company is indebted in a sum not less than R100 then due:

(i) has served on the company, by leaving the same at its registered office, a demand requiring the company to pay the sum so due’

and the company has for three weeks neglected to pay the said sum. This procedure can only be relied upon by a creditor who has a claim of R100 or more ‘then due’. The words ‘then due’ mean then ‘due and payable’; see Barclays Bank (DC & O) and Another v Riverside Dried Fruit Co (Pty) Ltd 1949 (1) SA 937 (C). In this case Newton-Thompson J dealt with the corresponding provision in s 112 (a) of Act 46 of 1926 and held that the words ‘then due’ in that statute meant, in the context, ‘due and payable’. In my view the same interpretation must be placed

upon the similar wording of s 345 (a) (a) (i). As pointed out by Mr Doctor, who replied on behalf of the applicant, the same interpretation has been applied in England to the comparable wording of the British

Companies Act …”

[27] It follows, accordingly, that the words “then due” in section 69(1)(a) of the Act must also be understood to mean “due and payable”, in terms of the interpretation of these words in GATX-Fuller v Shepherd and Shepherd (supra). The point raised by the applicant was, therefore, that the amount of R1 118 910,00 claimed by the respondent was, as at the time the section 69 notice was issued, not due and payable by the applicant to the respondent, in any event.

[28] In its short heads of argument the respondent raised the following argument at paragraphs 13 and 14:-

“13. It is suggested both in the papers and in the applicant’s heads of argument that the respondent as a contingent or prospective creditor with an illiquid claim is not entitled to apply for the applicant’s liquidation.

14. Unfortunately this contention is bad in law by virtue of the provisions of section 66 of the Close Corporations Act, Act 69 of 1984 read with section 346(1) of the Companies Act in terms of which, a contingent or prospective creditor is possessed with the necessary locus standi to bring such an application.”

[29] The bond of security sought and obtained by the respondent, in contemplation of liquidation proceedings against the applicant, was based on the specific allegation that the applicant was unable to pay its debts in circumstances as envisaged in section 69(1)(a) of the Act. This allegation was clearly stated in the section 69 notice. Further, the alleged debt in respect of which the bond of security was sought, was the sum of R1 118 910,00 and no other. It was therefore difficult to comprehend on what basis Mr Harrison contended that the debt of R85 422,36 was part of the respondent’s averments when the respondent applied for the bond of security. If it was so, then why was this debt of R85 422,36 not mentioned in the section 69 notice? It seems to me, therefore, that the allegation of the latter debt being a further ground of obtaining the bond of security was only an afterthought on the part of the respondent.

[30] By virtue of the respondent having sought the bond of security under section 69(1)(a) such process would preclude it from further relying on the provisions of section 69(2) in its intended liquidation application. Section 69(2) makes provision for contingent and prospective liabilities of a close corporation to be taken into account, and was intended to apply in situations where a close corporation “was deemed to be unable to pay its debt” as envisaged in section 69(1)(c) if it was “proved to the satisfaction of the court that” it was indeed the case. This position was confirmed in Taylor and Steyn NNO v Koekemoer 1982(1) SA 374 (T) at 380A-C where the Court stated that:

“… according to the language of the Act, the extended meaning provided by s 345 (2) is linked only to the situation defined in s 345 (1) (c), namely when the question of a company’s inability to pay its debts is decided by the Court. It is only for the purpose of such a decision by the Court that s 345 (2) directs that contingent and prospective liabilities shall also be taken into account. Section 345 (1) (c) is merely a deeming provision, which does not extend beyond the circumstances referred to therein. By contrast, the other deeming provisions in s 345 (1) (see paras (a) and (b) thereof) clearly relate only to debts which have

become due and payable.”

[31] It follows, accordingly, that in the light of the provisions of section 66 of the Act, the word “debt” in section 69(1), to the extent of its application to paragraphs (a) and (b) of that subsection, relates only to those debts which have become due and payable. That would therefore, in turn, relate to claims for liquid debts or liquidated amounts in money. There is no suggestion in the present instance that the amount of R1 118 910,00 claimed by the respondent from the applicant was either a liquid claim or a claim based on a liquid document. However, the respondent contended that the claim was in respect of a liquidated amount in money. I do not agree. In Lester Investments (Pty) Ltd v Narshi 1951 (2) SA 464 (C) at 469F the Court determined that a liquidated debt sounding in money was one which was either “admitted or its money value has been ascertained or in the sense that it is capable of prompt ascertainment”. (See also Commercial Bank of Namibia Ltd v Trans Continental Trading 1992 (2) SA 66 (Nm HC) at 72-73.) The respondent alleged in its answering affidavit (at paragraph 4) that the amount of R1 118 910,00 was “easily determinable by deducting from the amount which the applicant agreed to pay for each chassis the costs which the respondent incurs in acquiring the chassis from the Nissan Manufacturer”. Was it indeed so easily determinable? Again, I do

not think so. I agree with the applicant’s submission, in its replying affidavit, that the respondent’s approach in this regard was a rather simplistic one. This calculation formula did not take into account, as the applicant correctly pointed out, “handling costs; costs of transportation of the chassis’s to the bus body builder; the costs of registration and licensing of the chassis’s with the licensing authorities; costs of obtaining SABS approvals on the chassis; holding and financing costs on the chassis for the period between paying the supplier and receiving payment from the purchaser; commissions to the sales representatives that concluded the transaction; value added tax …. and income tax on the gross profit … “

[32] In the light of the aforegoing, the respondent’s claim was not, in my view, “easily determinable” as contended by the respondent and therefore not a claim for a liquidated amount sounding in money. It was, to my mind, clearly an illiquid claim for damages. Indeed, at some point the respondent itself alleged that “as a result of the cancellation, the respondent has suffered damages in the sum of R1 118 910,00 being loss of profits”. (See paragraph 4 of the answering affidavit.)

[33] Nevertheless Mr Harrison argued that, as a creditor, the respondent was, in any event, entitled to institute liquidation proceedings on the basis of an

illiquid claim and he referred me to the decision of Gillis-Mason Construction Company (Pty) Ltd v Overvaal Crushers (Pty) Ltd 1971 (1) SA 524 (T). In that case the Court stated, in a dictum, as follows:

“Similarly a person who has a valid claim for damages for breach of contract against a company also has a claim which arises from an existing vinculum juris and this claim is prospective or contingent in the sense that the exact extent of the loss still has to be determined. The mere fact that the claim may still be unliquidated, at the time of the filing of a winding up petition, should not in itself disqualify such an applicant from petitioning for winding up.”

[34] In my view, the facts in Gillis-Mason’s case are clearly distinguished from the present case. The respondent relied specifically on section 69(1)(a) and not section 69(1)(c) of the Act. It was only in terms of section 69(1)(c) that the consideration for contingent and prospective liabilities was applicable. Nor did the respondent allege contingent or prospective liability (on the part of the applicant) as an alternative, in the section 69 notice, which would then have accorded the applicant the opportunity to respond thereto accordingly. The respondent was thus

strictly limited by its allegations as appearing in the section 69 notice. I am therefore satisfied, on the papers, that there was, as at the time the respondent issued the section 69 notice, no debt owing by the applicant to the respondent. Further, that even if there was such a debt it was not yet due and payable at the time the bond of security was issued, by virtue of the fact that the 21 day period referred to in the section 69 notice had not yet expired.

[35] As stated earlier, the bond of security was an integral part of the formal procedural requirements in the institution of liquidation proceedings. In other words, without it an application for liquidation was a non-starter. Even though the actual institution of liquidation proceedings only commenced with the issue by the Registrar of motion application papers, the fact of the matter was that the issue of the bond of security was one of the important initial steps taken in the liquidation application process. Therefore the applicant was entitled, in my opinion, to institute the current interdictory proceedings against the respondent with a view to prohibiting the already initiated liquidation process, which was clearly unjustified, from proceeding any further.

[36] The applicant sought a costs order against the respondent on attorney and client scale. Mr Aboobaker submitted that by its conduct the respondent was only employing a tactical device to compel the applicant to pay the alleged debt and that the respondent thereby abused the court process. On this basis, he submitted, the applicant was entitled to a costs order on the special scale. It seems to me that the decision in Kalley Flooring Co. (Pty) Ltd v President Carpeting Manufacturers Ltd 1982 (4) SA 681 (C) is apposite to this case. In that case, despite Kalley Flooring Company having filed its audited balance sheet for the period immediately preceding the application from which it was apparent that it was in a sound financial position, and that there could be no question of its ability to pay the amount claimed by President Carpeting Manufacturers, the latter company persisted in its application for the liquidation of Kalley Flooring Company. The Court (per Burger J) stated, among other things:

“After the affidavit setting out the financial position of Kalley Flooring was filed, it is clear that President Carpet Manufacturers Ltd persisted when it knew or ought to have known that Kalley Flooring was not insolvent and that the application for liquidation would not be granted. If thereafter it persisted because it merely wanted to recover its costs, then it was a simple matter to say so and it would have limited the relief prayed accordingly. In that event I might have had a certain amount of sympathy. But it persisted with the main application and it seems to me that it persisted solely to embarrass Kalley Flooring and, in doing so, it was abusing the process of court.” (at 683H-684A)

“It is inevitably so that under today’s circumstances the moment a company’s name is mentioned in court as respondent in liquidation proceedings, or even when its name appears as such on the roll published in a newspaper, that fact casts a shadow over its ability to pay its creditors. Hence liquidation proceedings should not be launched merely as an instrument to embarrass a solvent company when disputed questions of fact are involved.” (at 684C-D)

[37] Indeed, it does appear in the present instance that the respondent’s setting in motion of a process aimed at the institution of the liquidation proceedings against the applicant was only a tactical device to compel the applicant, willy nilly, to pay the alleged debt. For instance, on the same day the respondent applied for the bond of security (that is, 28 June 2005) the news had dissipated through to the applicant’s creditors including one of the applicant’s major creditors Investec. This fact was reflected in the e-mail dated 28 June 2005 addressed to Mr P.S. Pearce (the respondent’s attorney of record) by one Angela who was said to be employed by a firm of liquidators (appearing at page 126 of the indexed bundle) which reads as follows:

“From : Angela [angela@skinc.co.za]

Sent : 28 June 2005 09:39 AM

To : Tim Pearce

Subject : ALTON COACH AFRICA CC

Good morning Mr Pearce,

The above company owes Investec R84 m – they have asked me to get some info from you with regard to the above application and also a copy of the application papers.

Would you kindly give me the following info:

Case no

Set down date

Amount of Datcentres claim

Do they have judgement or is this a tactical application?

I have also enclosed our nomination for your clients support and we would really appreciate your support in this matter.

Regards

Angela”

[38] There was no document presented which purported to have been the respondent’s response to Angela’s e-mail. In other words, it remained unknown what the respondent’s reply, if any, was to the e-mail. However, it was common cause that there was no judgment in favour of the respondent against the applicant. It therefore followed that, in relation to Angela’s e-mail, the liquidation application could only have been a tactical device, as also indicated above. In any event, the prematurity of the respondent’s application for the bond of security on the basis that the 21 day period envisaged in section 69(1)(a) had not yet expired was, in my view, such a simple matter that no reasonable person would have expected that a law firm of long standing and reputation as the respondent’s attorneys would blunder about. The averment by the respondent that it became fearful when it received information that the applicant was disposing of its assets to the respondent’s detriment was neither here nor there. In my view it was only a lame excuse. If there was such legitimate fear it was unclear why the respondent would not have opted for an interdict against the applicant stopping or staying the sale of the applicant’s assets. The letter dated 28 June 2005 (the same day the respondent

applied for the bond of security) addressed by the applicant’s attorneys to the respondent’s attorneys removed whatever sympathy I might have had in favour of the respondent on the question of costs. The advice and warning conveyed in the letter was simply ignored. I propose to recite the entire contents of the letter:-

“28 June 2005

PIERCE

LISTER AND COMPANY

PER

FACSIMILE TRANSMISSION

SIRS

RE: ALTON COACH AFRICA CC/YOUR CLIENT: DATCENTRE MOTORS (PTY) LTD

We have been consulted by Alton Coach Africa CC.

We have been instructed that your firm caused a bond of security to be issued at the offices of the Master of the High Court, on behalf of your abovementioned client for the liquidation of our client based on an alleged claim of R1 118 910-00, being in respect of a certain loss of profit arising from the cancellation of an order by our client.

We respectfully draw your attention to the following:-

1 on the 13th of June 2005 you purported to issue a notice in terms of Section 69 of the Close Corporation Act and posted it to an address at 44 Steele Road, Windermere Durban;

2 in terms of the said notice you called upon our client to make payment within 21 days of receipt of the letter;

3 from our rough calculations, the 21 days only expire on the 4th of July 2005;

4 without admitting your client’s right to issue a Section 69 notice in circumstances where your client’s claim is one for damages, you now prematurely issued a bond of security prior to the 21 day period expiring;

5 dealing with your client’s right to proceed in terms of Section 69, we respectfully point out that the Close Corporation Act contemplates claims which are of a liquid nature or a liquidated amount in money;

6 the loss of profit claim which you refer to in the Section 69 notice is certainly not a liquid claim or a liquidated amount in money. In any event our client disputes the claim by your client and would oppose any action for recovery thereof;

7 on the contrary, it is clearly established and trite law that your client must first prove a damages claim before it has any entitlement

to recovery, particularly by way of liquidation proceedings;

8 as such, we dispute your client’s right and entitlement to proceed in terms of Section 69 and to proceed with any application for our client’s liquidation based on a loss of profit claim;

9 as a direct result of your actions, alternatively your clients instruction to you to issue the bond of security, various liquidators

nationally have come to know of the intended application for the liquidation of our client and have been in contact with our client’s

creditors to secure support for their appointment as liquidator in the event of the application being successful;

10 your conduct, alternatively your client’s instruction to you smacks of mischievous conduct, alternatively irresponsible action, alternatively negligence, and is an abuse of the process of law. It would seem that this sort of conduct is becoming the order of the day where creditors are issuing bonds of security for liquidation to force debtors to pay, without issuing summons and taking the ordinary course of litigation as they are aware of the pressure that is brought to bear on debtors by the other creditors when there is talk of liquidation, thereby forcing a debtor to pay to take the pressure off, even when there is a dispute regarding the amount due. Your client is guilty of this very same conduct;

11 our client is suffering extreme prejudice as a result of your client’s actions. There is no basis for this conduct. All of our client’s rights to proceed against your client with an action for damages are reserved.

We now call upon your client to immediately withdraw the bond of security and we invite your client to proceed by way of action for the amount it alleges is due.

Should you not withdraw the bond of security and advise creditors that you are not proceeding with the application for liquidation, by 16H00 today, we advise that we are instructed to bring an urgent application in the High Court tomorrow to interdict and restrain your client and your offices from proceeding further with this application. We have already briefed Adv T N Aboobaker SC in that

regard and we are presently drafting our papers.

All of our client’s rights are reserved.”

[39] The respondent neither withdrew the bond of security nor advised the applicant’s creditors that it (the respondent) was not proceeding with the intended liquidation proceedings. Nor did it heed the warning or threat by the applicant that failure by the respondent to withdraw the bond of security and to advise the applicant’s creditors aforesaid, the applicant would approach the Court for an interdict. When the present application was subsequently lodged (as undertaken by the applicant’s attorneys) the respondent still did not consider it appropriate to withdraw the bond of security and advise the applicant’s creditors that the liquidation application would no longer be proceeded with. Instead, the respondent filed an opposing affidavit which, together

with annexures thereto, ran from pages 33 to 132 of the indexed bundle. In my view, this was an absolute abuse of the court process

which warranted punitive costs against the respondent.

[40] Accordingly, the rule nisi granted by the Court on 29 June 2005 is confirmed with costs on the scale as between attorney and client.

………………………………………….

Counsel for the applicant : Mr T.N. Aboobaker SC

Instructed by : Naidoo & Company

Counsel for the respondent : Mr G.M. Harrison

Instructed by : Pearce Lister & Company

Judgment handed down on : 22 December 2006