Bester N.O and Others v CTS Trailers (Pty) Limited and Another (4372/2020) [2020] ZAWCHC 191; 2021 (4) SA 180 (WCC) (15 December 2020)

IN THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE DIVI SI ON, CAPE TOWN)

CASE NO: 4372/2020

DATE: 2020/12/15

In the matter between

CHRISTIAN FINDLAY BESTER N.O.

1st Applicant

CHAVONNES BADENHORST SINCLAIR

COOPER N.O.

2nd Applicant

IMRAN DINATH N. O.

3rd Applicant

ELITE FIBRE (PTY) LTD (IN LIQUIDATION)

4th Applicant

And

CTS TRAILERS (PTY) LIMITED

1st RespondentAFRIT (PTY) LIMITED

2nd Respondent

JUDGMENT(Applicant for Leave to Appeal)

DAVIS, J:

[1] This is an application for leave to appeal against the judgment of this Court of 16 November 2020.

[2] The effect of the order of the court was to grant judgment against the first respondent, the basis being that the first respondent was directed to pay to the applicants the amount of R1 941 696,80, together with interest. There were other orders granted in this court which affect both first and second respondents, but they are not subject to the appeal.

[3] I should also place on record that there was an application brought in terms of Rule 42(1)(b) of the Uniform Rules of Court by the applicants to rectify certain portions of the order. This was caused

by virtue of the fact that matters had changed slightly since the notice of motion had been prepared and I had not been afforded the benefit of a draft order when I drafted my order.

[4] To the extent that errors were made, they were clearly ones which were justified to be altered in terms of Rule 42(1)(b) and sensibly first respondent did not take issue therewith. Accordingly the judgment, which is now the judgment of the Court, reflects these amendments. The essence of the application for leave to appeal turned on the substance of the order to which I have made reference .

[5] Mr Melunsky, who appeared on behalf of first respondent (I shall continue to employ these titles notwithstanding that the first respondent is the applicant for leave to appeal), submitted that little had changed insofar as the standard governing the ground of leave to appeal was concerned pursuant to Section 17(1)(a)(i) of the Superior Courts Act 10 of 2013 which now provides that leave to appeal may only be given where the judge or judges concerned are of the opinion that the appeal would have a reasonable prospect of success. The debate, of course, concerned the insertion of the word "would ".

[6] Whatever the merits of Mr Melunsky's argument, it remains, in my view, the law subsequent to the Superior Courts Act, that there must be a sound, rational basis for the conclusion that there are prospects of success on appeal. See in this connection Smith v S 2012 (1) SACR 567 (SCA) at para 7. There is, of course, the alternative route, namely does the case rise to the test of an issue of significant public importance.

[7] Mr Melunsky submitted on behalf of the first respondent that there were two essential points to be considered in support of the application for leave to appeal:

1. The applicants had initially accepted the concept of set­ off in the factual matrix of the dispute and that the actions of the

applicants, based on their conduct, evidenced an acceptance of set-off which had been ignored by this Court in the judgment

2. An improper construction had been given to Section 46 of the Insolvency Act of 1936 by this Court.

[8] Mr Melunsky's point, insofar as the first issue is concerned, was that the liquidators can only disregard a set­ off if they have not abided by it . Section 46, to the extent relevant, reads thus :

"If two persons have entered into a transaction, the result whereof it is a set-off wholly or in part of debts which they owe one another and the estate of one of them is sequestrated within a period of six months after the taking place of the set-off ..., then the trustee of the sequestrated estate may ... abide by the set-off or he may, if the set-off was not effected in the ordinary course of business, with the approval of the Master, disregard and call upon the person concerned to pay to the estate the debt which he wouId owe it but for the set-off, and thereupon that person shall be obliged to pay that debt and may prove his claim against the estate as if no set-off had taken place."

[9] In short, Mr Melunsky's submission is that Section 46 envisages a choice in that either the trustee of the sequestrated estate abides by the set-off or, if a certain condition is met, namely that the set-off was not effected in the ordinary course of business then, with the approval of the Master, he or she may disregard it. In this case his submission was that the liquidators had, in fact, accepted the decision to set-off and had chosen to disregard it only later in the sequence of events.

[10] Accordingly the well established principle that the liquidators and the applicants could not both approbate and reprobate was relevant in this particular case. In Mr Melunsky's view, the liquidators, being the applicants, had led no evidence to contradict the first respondent's evidence relevant to having abided by the set-off nor did they make any attempt to dispute any of the first respondent's evidence in this regard. In Mr Melunsky's view, the facts unambiguously demonstrated that the applicants initially, and for about two years, abided by, accepted and relied upon set-off.

[11] Insofar as this component of the case is concerned, the submission made is not entirely correct. There was considerable evidence given by the applicants which disputed the basis of this particular submission that the applicants had abided by the concept of set-off. There were significant passages in the applicants' evidence which was based on the argument that no practice of set-off

had existed for some seven years until 25 August 2017.

[12] There was further evidence which was provided by the applicants from Ms Van Rhyn that Mr Walters was "furious" when he received an email in which Mr Prinsloo claimed that there was a set-off agreement. In other words, it is not entirely accurate to

suggest that this was an undisputed set of circumstances until much later when suddenly the liquidators decided to invoke powers under Section 46 of the Insolvency Act.

[14] That, therefore, led to what in my view is the essence of this case, namely the proper construction of Section 46. In other words, if one starts the evaluation from what is required for Section 46 to be invoked, that is the certificate issued by the Master, and then to follow that inquiry by asking the second question as to what the effect of the Master's certificate is in a dispute such as the present, then one can arrive at the correct answer to the fundamental question.

[15] And it is to that issue that I must turn, even in a decision dealing with an application for leave to appeal so hotly contested with this issue and so extensive and careful with the submissions which were made by Mr Melunsky on behalf of the first respondent and Mr Van der Merwe, who appeared together with Mr Olivier on behalf of the applicants. Their industry deserves a proper answer.

The Proper Interpret at ion of Section 46 of the Insolvency Act

[17] In short, he contended that the applicants' argument was that the Master's decision is the cause of action, a self-serving construction of Section 46 and one which is exceedingly unfair to persons in the position of first respondent. In other words the proper construction to be given to Section 46 is to determine the answer to these conditions:

1. The estate is sequestrated within a period of six months after the taking place of the set-off.

2. The set-off was not effected in the ordinary course of business.

3. The Master approved the liquidators' decision to disregard the set-off.

[18] Thus Mr Melunsky's submission, reduced to its essence, is that this Court had disregarded the first two requirements and had conflated all three into the decision of the Master. Expressed differently, what this Court should have considered was whether a six month period had been met (that was not in dispute) and then whether the set-off had taken place in the ordinary course of business, which was hotly disputed. Only then could the Court turn to the effect of the Master's certificate.

[19] In support of this argument, Mr Melunsky referred to two authorities. In Meskin's Insolvency Law at para 973 the following appears:

"Where the trustee institutes proceedings against X to obtain the payment, the Master's approval of disregard to the set-off is part of the cause of action and accordingly such approval must exist before the institution of such proceedings."

[20] In other words the Master's approval is only part of the cause of action and not the cause of action per se. He then Referred to a second authority, namely the decision in Geanutsos v Estate Geanutsos 1941 WLD 135 at 136 :

"In the event of this Honourable Court finding that the insolvent was indebted to the plaintiff in the sum of £275 or

any lesser sum, the plaintiff says that the defendant is not entitled to the benefit of set-off by reason of the following:

(i) The estate of the insolvent was sequestrated within the period of six months after the taking place of the set-off.

(ii) The set-off was not effected in the ordinary course of busine ss.

(iii) The plaintiff has, with the approval of the Master of the Supreme Court Transvaal Provincial Division,

disregarded the set-off.

(iv) In terms of Section 46 of the Insolvency Act of 1936, the defendant is obliged to pay the said sum set-off to the plaintiff ."

[21] Perhaps it is also important to re-read a passage of a judgment delivered by Grindley-Ferris, J at 138 which was cited by this Court:

"It is also contended on behalf of the excipient that the effect of sec 46 is to create a new obligation on the part of the person concerned, that is, the debtor of the estate. That contention can, I think, be disposed of in a few words. The section does not create a new cause of action, it merely casts on the debtor the obligation to

pay a debt due to the estate which, but for the presence of certain circumstances, he is not obliged to pay. The debt is the same and the cause of action is the same. (My emphasis) .

[22] In short, the certificate issued under Section 46 is not a new cause of action. The judgment in Geanutsos makes it very clear: the cause of action is a debt owing. The question remains: is Section 46 to be read to mean that there are three separate requirements . It is clear that the cause of action in this particular case was the debt which, in effect, given the nature of the dispute of R1 941 696,80, which was claimed by the applicants and which this Court ordered the first respondent to pay.

[23] The cause of action is, based on the first respondent owing the applicant that sum of money. Then the question arises as to whether, in fact, set-off would be allowed in such a case and if it does not, the amount claimed must be owed, absent any other defence. The cause of action is not the actual certificate; it is the underlying debt. The certificate merely provides the justification for the applicants in this particular case to disregard set-off and claim the amount due .

[24] So this analysis then raises the further point which is not covered by any of the authorities upon which Mr Melunsky relied; is Section 46 to be read to mean that there are three separate requirements, being the six month rule, whether the set-off was in the ordinary cause of business and finally the provision of the Master's certificate. Mr Melunsky accepts that if the first two requirements a re properly independently established, then and only then does the authority of the Master's certificate apply. Then and only then would the first respondent be in a position where it would be obliged to review the issuing of that certificate, have it set aside in order to justify its argument that set-off could be disregarded.

[25] As I indicated in neither Geanutsos or in Engelbrecht v Engelbrecht 1957 (3) SA 83 (N), another judgment which Mr Melunsky also referred, was this particular question canvassed. Indeed first respondent's attorney, in letters written to the Master on 20 November 2019 and again on 18 December 2019, took the view that the Master was required to take account of the entire section and to ask herself whether the six month requirement had been met, whether the set-off was in the ordinary course of business and then finally, to decide whether to issue the certificate. The correspondence generated by first respondent's attorney was to the effect that he wished to persuade the Master that these requirements had not been met and, therefore, the Master should not issue the certificate.

[26] One wonders what other purpose could be served by this provision. One could ask rhetorically. Would the Master then not have an independent power to examine these two requirements before issuing the certificate and on what other basis would the Master issue the certificate one asks rhetorically.

[27] In summary, the question facing this Court, insofar as the application for leave to appeal is concerned, turns less on the question of the reasonable prospects of success. If the analysis which I have provided which supplements that which is in the principal judgment and which was only offered in response of the arguments put forward by Mr Melunsky, is correct, then no court would come to a conclusion different to this Court.

[28] But as I indicated there is a further leg to the question of leave to appeal: is the matter of significant importance that it requires ventilation by the Supreme Court of Appeal. Mr Melunsky correctly pointed out to this Court that there is a paucity of authority with regard to Section 46. It is an important question, because it goes to the heart of many issues with regard to insolvency and, therefore, the power inherent in Section 46 and the requirements which are needed in order to trigger it off .

[29] In short, I consider upon a careful reflection that I cannot discount the interpretation which was provided by Mr Melunsky as implausible . Therefore, I consider that it would be proper for the Supreme Court of Appeal to finally provide guidance to all courts in this country as to the meaning and scope of Section 46 of the Insolvency Act. For this reason, therefore, the application for leave to appeal to the Supreme Court of Appeal against:

1. The order of this Court on 16 November 2020 is granted .

2. Costs to stand over.

D M DAVIS, J

JUDGE OF THE HIGH COURT

DATE: