Duet and Magnum Financial Services CC (in liquidation) v Koster (22665/2005) [2009] ZAGPHC 16 (4 February 2009)

/SG

IN THE HIGH COURT OF SOUTH AFRICA

(TRANSVAAL PROVINCIAL DIVISION)

DATE: 04/02/2009

CASE NO: 22665/2005

REPORTABLE

In the matter between:

DUET AND MAGNUM FINANCIAL SERVICES CC

(IN LIQUIDATION) PLAINTIFF

And

JAN HARM KOSTER DEFENDANT

JUDGMENT

PRELLER, J

The plaintiff represented by its joint liquidators sued the defendant for an order setting aside in terms of section 26(1)(b) alternatively section 30(1) read with section 66 of the Close Corporations Act further alternatively in terms of section 29(1) of the Insolvency Act certain disposition in the total amount of R459 446.71 and also an order for payment of the said sum.

Defendant raised a special plea of prescription in terms of sections 10, 11(d) and 12 of the Prescription Act in that:

(a) The disposition had been made at the latest in March 2002;

(b) The plaintiff had been wound up in 2001 and the joint liquidators appointed on 18 July 2001;

(c) Summons had been served on 12 July 2005 by which time the plaintiff had been aware of the defendant’s identity and the facts from which each of the debts arose for a period of more than three years.

By agreement between the parties the only issue before me was formulated as follows:

“In the event of the honourable court finding that the plaintiff’s claims formulated in the particulars of claim constitute a ‘debt’ as contemplated in sections 10, 11 and 12 of the Prescription Act 68 of 1969, then the parties agree that such claims have become prescribed.”

The rest of the disputes were postponed sine die in terms of rule 33(4).

What the dispute boiled down to in the end was the question whether:

(a) The preliminary step, being the order that the disposition be set aside before the claim for payment of the amount due could be instituted, was a bar to the commencement of the running of prescription of the claim for payment, or

(b) The preliminary step and the claim for payment jointly constituted a debt in respect of which the running of prescription commenced as soon as the necessary facts were known to the plaintiff.

A similar question came up for decision in this court in the matter of Barnad NO v Bezuidenhout en Andere 2004 3 SA 274 (T). In that case the preliminary hurdle that had to be cleared was an order in terms of sections 63, 64 and 65 of the Close Corporations Act that the members of the close corporation be declared personally liable for the debts of the close corporation. The respondents raised the defence of prescription in that the applicants had been, or with the exercise of reasonable care should have been, aware of the identity of their debtors and the facts from which their liability arose at a date more than three years before the issue and service of the application. Unfortunately the judgment is not clear on the question as to when exactly the applicants had sufficient knowledge of the identities of the respondents and the facts from which their claims arose, but the court did find that the liquidator could have launched his application shortly after his appointment. What is of importance, however, is that GOODEY AJ considered the question whether the preliminary order constituted a “debt” for the purposes of section 10(1) of the Prescription Act. The learned acting judge relied in particular on the following judgments:

Desai NO v Desai and Others 1996 1 SA 141 (A) 147A:

“The term ‘debt’ … has a wide and general meaning and includes an obligation to do something or to refrain from doing something.”

Nedcor Bank v Regering RSA 2001 1 SA 987 (A) 995 I:

to the effect that the Act seeks to strike a balance between the interests of the debtor and those of the creditor and that there is no compelling reason why the creditor must be fully informed of every aspect of his proposed litigation before prescription starts to run.

Naidoo and Another v Lane and Another 1997 2 SA 913 (D) 918.

In which it had been held that the reference to “debt” in the Act is intended to include a reference to an obligation co relative to the particular right of the creditor, also when that consists of an obligation to perform some Act. The court also held that the legislature intends to refer to a process by which the creditor claims performance of the particular obligation owed to him.

Inter alia the fact that with the passage of time the debtor will have lost or destroyed important documents and witnesses may have died, weighed heavily with GOODEY AJ. He found that section 63 of the Close Corporations Act creates nothing more than an obligation to perform and eventually pay the debt. The result of his judgment is that the initial hurdle, in this case declaring the members of the liquidated close corporation liable for the payment of its debts, does not prevent the commencement of the running of prescription of the debts.

I can see no distinction in principle between the hurdle dealt with by GOODEY AJ in the latter case and other similar hurdles, e.g. the one created by section 26 of the Insolvency Act read with section 66 of the Close Corporations Act and section 340(1) of the Companies Act that falls to be considered in the present case.

GOODEY AJ does not seem to have been referred to two important conflicting judgments on this very point:

In Barnard and Lynn NNO v Schoeman and Another 2000 3 SA 168 (N) NICHOLSON J dealt with claims instituted by the liquidators of a company against defendants to whom the company had paid back loans under circumstances that constituted dispositions which prefer one creditor above another in terms of section 340(1) of the Companies Act. The defendants raised prescription as a defence and the plaintiff argued that in terms of section 29(1) of the Insolvency Act the court has a discretion to set aside such a disposition. Once that discretion has been exercised, the court shall, in terms of section 32(3) declare the liquidator entitled to recover anything alienated under that disposition. It was argued

that the amount so owing was not a “debt” as contemplated in section 10 of the Prescription Act since it only became due once the court exercised the discretion referred to above. This submission was upheld and the court found that the claim had not become prescribed.

On the other hand in Burley Appliances v Grobbelaar NO and Others 2004 1 SA 602 (C), a court consisting of two judges considered a similar question. The claims were based on three causes of action:

1. Section 64 of the Close Corporation Act in terms of which the court may declare a person who was knowingly a party to the reckless or fraudulent carrying on of a business to be personally liable for the debts of the corporation.

2. Section 65 of the said Act in terms of which the court may lift the corporate veil of the corporation and in effect declare its members to be personally liable for its debts.

3. Section 34 of the Insolvency Act in terms of which the sale and transfer of a business shall under certain circumstances be void against certain of its creditors.

The Cape Court considered the judgment in the Barnard v Lynn case but differed from it on the point of the commencement of the running of prescription in circumstances where an order is necessary before the creditor can recover his debt. At 612 I and at 614C the court held that section 64 of the Act created a new remedy or “right” for the creditor. A right and a debt are merely opposite poles of one and the same obligation and the term “debt” in section 10(1) of the Prescription Act has to be given a wide and general meaning. If it appears to a creditor that a business has been carried on fraudulently or recklessly his remedy is to apply to a court for a declaration that certain persons should be held personally liable for some or all of the corporation’s debts. If I read the latter judgment correctly its effect is that prescription starts to run in respect of the entire “debt”, including the preliminary question that has to be decided, as soon as the creditor is aware or should be aware of the identity of his debtor and the facts giving rise to his claim. In this respect the judgment is exactly to the same effect as the one in the case of Barnard v Bezuidenhout (supra).

The reasoning in both the Burley and the Barnard cases appears to be sound and I cannot criticise the finding of GOODEY AJ. I am accordingly bound by his decision.

I accordingly find that the plaintiff’s claims as set out in its particulars of claim constitute a debt as contemplated in terms of sections 10, 11 and 12 of the Prescription Act, 68 of 1969 and that those claims have become prescribed. I make the following order:

Defendant’s special claim of prescription is upheld with costs.

F G PRELLER

JUDGE OF THE HIGH COURT

22665/2005

Heard on: 16/11/2007

For the Plaintiff: Adv H R Fourie

Instructed by: Messrs Brooks and Brand, Johannesburg

For the Defendant: Adv D A Preis SC

Instructed by: Ronell Hill Attorneys, Pretoria

Date of Judgment: 04/02/2009