Ekosto 1038 Investments (Pty) Ltd (In Liquidation) v Nedbank Limited and Others (26291/2005) [2008] ZAGPHC 68 (15 February 2008)

IN THE HIGH COURT OF SOUTH AFRICA

(TRANSVAAL PROVINCIAL DIVISION)

DATE: 15 February 2008

CASE NO: 26291/2005

UNREPORTABLE

In the matter between:

EKOSTO 1038 INVESTMENTS (PTY) LTD

[IN LIQUIDATION] PLAINTIFF

And

NEDBANK LIMITED FIRST DEFENDANT

MNDENI MEATS (PTY) LTD SECOND DEFENDANT

LEYLAND G STODDARD THIRD DEFENDANT

JUDGMENT

BOTHA J:

The plaintiff, Ekosto 1038 Investments (Pty) Ltd in liquidation (Ekosto), as represented by its liquidator, Ms E Wagner, claims an amount of R1 339 585.01 from the three defendants jointly and severally.

The first defendant is Nedbank Ltd.

The second defendant is Mndeni Meats (Pty) Ltd.

The third defendant is Mr L.G Stoddard.

It is alleged that after the commencement of the liquidation of the plaintiff the third defendant drew cheques on the first defendant to a total value of R1 339 585.01. It is alleged that the cheques were paid to the second defendant and other entities listed in annexure A to first defendant's plea.

The plaintiff's case is that the payments of the said cheques were disposals that were void by virtue section 341 (2) of the Companies Act, 1973 (Act 61 of 1973) and by reason of the third defendant's lack of authority.

The first defendant contends in his plea that the cheques were signed according to the signing authority pertaining to the plaintiff's account, that they were regular and that they were regularly presented and honoured. It is further pleaded that in the absence of notice in terms of section 73 (c) of the Bills of Exchange Act, 1964 (Act 34 of 1964) the first defendant was obliged to pay the cheques.

In the alternative the first defendant pleaded that if the payment of the cheques constituted void dispositions, the payments could only be recovered from the recipients.

Further in the alternative the first defendant contended that such void dispositions could not be recovered from the first defendant because at the time of the payment it was not aware of the winding up, acted in good faith and had no reason that to suspect that the payments were not made in the ordinary course of plaintiff's business.

The second defendant, being non-existent, did not feature in the trial.

The third defendant admitted that he was authorized to sign cheques drawn by the plaintiff on the plaintiff's account at the first defendant. He admitted that he signed cheques from 1 August 2002 to 3 September 2002 for a total value of R1 314 372.32 in the ordinary conduct of the plaintiff's business.

He denied that the payments were void. If the payments were affected. by section 341(2) of Act 61 of 1973 he pleaded that the plaintiff's claim lay against the recipients.

He also alleged that the liquidator of the plaintiff knew of the payments by cheque and approved thereof.

The plaintiff was asked in a request for further particulars for trial when the first defendant acquired knowledge that the winding­ up had commenced and who on behalf of the first defendant acquired that knowledge.

The answer to the request was that the first defendant acquired that knowledge at the end of July 2002 or the beginning of August 2002. The full answer reads as follows:

"The first defendant acquired knowledge during or about the end of July/beginning of August 2002 that an application for the winding up of plaintiff would be brought. On or about the 29th July 2002 the liquidator sent a letter to inter alia the first defendant in the erroneous belief that the latter was a creditor and in which she sought the first defendant's support for her appointment as liquidator. After receipt of the said letter an employee of the first defendant, the identity of whom the liquidator has forgotten, phoned the liquidator informing her that the first defendant was not a creditor of the plaintiff. During this conversation the liquidator enquired as to whether it would be possible to freeze the plaintiff's account in the interim. She was then advised by the said employee that this could only be done at the branch where the account was held and the person referred her to a certain Mr. Tucker (Tel.: 031 3040216) at the Pinetown branch of the first defendant. The liquidator then phoned Mr. Tucker who informed her that he could only freeze the said account after receipt of a written request. Due to an oversight in the plaintiff's attorney's office the said request was only sent on 17 September 2007."

The reply prompted a notice of exception dated 11 February 2008 (the first day of the trial). The basis of the exception is that where it is alleged that the revocation of the first defendant's authority to pay cheques was only sent to the first defendant on 17 September 2002, the first defendant in terms of section 73 of Act 534 of 1964 remained obliged until 17 September 2002 to pay all the cheques drawn by the plaintiff.

At the pre-trial conference the following was recorded to be common cause:

(a) that the winding-up of the plaintiff commenced on 30 July 2002;

(b) that a provisional winding-up order was granted on 20 August 2002;

(c) that a final winding-up order was granted on 17 September 2002;

(d) the contents of annexure "A" to the third defendant's plea;

(e) that the second defendant does not exist,

(f) that the plaintiff is unable to pay its debts;

(g) that the plaintiff had a. cheque account with number 149046448 at first defendant's Pinetown branch;

(h) that after the commencement of the winding-up and until 17 September 2002 the third defendant drew cheques for the plaintiff on the first defendant and payable to the persons listed in annexure "A" to third defendant's plea in a total amount of R1 318532.87;

(i) that the first defendant paid the said cheques upon presentation; and

(j) that between 2 August 2002 and 13 August 2002 amounts totalling R1 264 690.86 were received from entities named in annexure E4 to the particulars of the plaintiff's claim.

At the beginning of the trial Mr Rood, who appeared for the third defendant, asked the court to adjudicate the exception first and separately. When I pointed out that that could lead to a piece meal process Mr Rood abandoned his request.

Thereupon Mr Rossouw, who, with Ms Janse van Rensburg, appeared for the plaintiff, called Ms Wagner, the liquidator of the 'plaintiff as his only witness.

She confirmed that the application for the winding-up of the plaintiff was presented on 30 July 2002.

She was aware of the impending application at the time and started approaching creditors with a view to obtaining their support for her appointment as liquidator.

She sent a standard letter to all creditors. The letter on p54 of the Index Notice bundle is an example of the letter. It contained the following sentence: "We confirm that an application for liquidation of the abovementioned company will be brought on the 13th of August 2002". Such a letter was sent to Nedbank. The response was a telephone call from the first defendant's business unit in Johannesburg informing her that the plaintiff had an account with the first defendant but that the account had a credit balance. She was asked what she wanted them to do. She answered that she could not ask them to freeze the account. She was told that she should rather come into contact with the branch, the Pinetown branch. She was referred to a Mr Tucker. She telephoned Mr Tucker. She realized that she had no locus standi but asked him what she should do to freeze the account. He told her that a letter or some document was required. She then told her attorney that he should send such a document. She assumed that a letter was sent, but it turned out that it was not done.

She was referred to the affidavit of the third defendant in the summary judgment proceedings where he said that she told him in a conversation of on 7 August 2002 that he could continue trading until told otherwise. She remembered such a conversation which took place before the liquidation. She received the call on her cell phone. She told the third defendant that she had not yet been appointed as provisional liquidator. She had no locus standi and could not give him a mandate.

She was referred to paragraphs 18 of the third defendant's affidavit in the summary judgment proceedings where he said that she informed him on 18 September 2002 that a final winding-up order had been granted and that he should stop trading activities. She confirmed it and explained that she discovered on 17 September 2002 that the account had not been freezed. On that day a letter was sent to the first defendant, asking that the account be freezed.

She did not agree that the first notification of the liquidation was given on 17 September 2002. On 29 July 2002 the first defendant was informed that a liquidation would follow.

The first defendant was sent a letter similar to the one on p56. She agreed that the provisional order was only granted on 20 August 2002.

In her view the first defendant had knowledge of the winding-up process.

She regarded the letter to the first defendant at the end of July 2002 as an early warning. She argued that the written notification to freeze the account was only sent on 17 September 2002. See D27. On 18 September 2002 the first defendant confirmed the blocked status of the account. See D18.

She agreed that after 17 September 2002 no cheques were paid.

She confirmed that a letter dated 12 September 2005 (019) was sent by her attorney with a view to instituting actions against the payees of the cheques. Some of them have been sued.

She agreed that there were no funds in the estate of the plaintiff.

She denied that she presented herself to the third defendant as the liquidator.

She denied that she told him that he could carry on. She would not have given him advice. He did ask her questions.

She explained what she did to take control of the plaintiff. There was no urgency because the major assets were safe. She agreed that she was shocked when she heard that the bank account had not been frozen.

She was referred to a letter dated 12 September 2005 in which her attorney asked addresses of creditors. See D19. She was asked why it took so long to make that enquiry. She explained that they had the names of the creditors and that the normal steps were taken.

She agreed that she had arranged to meet the third defendant on 5 September 2002, but that the meeting was cancelled. The meeting was to be re.-scheduled, but it never took place.

She was referred to a letter by the third defendant dated 20 September 2002 to her. In it the third defendant promised to furnish certain documents to her. See D26. She agreed that she received those documents through one Roering, who was her co-liquidator in another matter.

She was asked why she never consulted the third defendant about the validity of the proved claims. She answered that she did not considered it necessary.

That concluded the evidence on behalf of the plaintiff.

The first defendant closed its case without calling any witnesses.

The third defendant testified that he is a chartered accountant. Until 2005 he was associated with the Mdeni Meat group. The group consisted of 16 partnerships with 23 partners. The partnerships were retailers and manufacturers of meat products. He would sign cheques for the group and withdraw the necessary funds from partnership accounts.

He explained the involvement of one Lombard in the Mdeni group. The plaintiff was formed as the vehicle to buy and sell offal from its base in Harrismith. Lombard's Family Trust had a 60% shareholding in the plaintiff. Trigger 1000 Investments in which some Mdeni partners had shares, had the remaining 40%. A separate company, Acqui owned the premises from which the plaintiff operated.

Mr Lombard managed the plaintiff.

On 7 June 2002 Mr Lombard resigned after it was­ discovered that he had been operating a kite flying scheme through the plaintiff and other companies. He then obtained sole signing powers on the plaintiff's bank account.

The plaintiff prepared an application to wind up the plaintiff in Bloemfontein but it was abandoned in favour of a competing application in Pretoria.

He acted in the best interests of creditors by collecting debts and paying creditors. The plaintiff sold its offal within short periods.

When he spoke to Ms Wagner over the telephone she said that he could carry on till they met.

He had no interest in the trade going on. The plaintiff's terms of credit were short, 14 days at most.

He had an appointment to meet Ms Wagner on 5 September 2002. It was called off. He was told that a new date would be arranged later.

The last payment he made was on 13 September 2002.

The documents mentioned in the letter dated 20 September 2002 were given to Mr Roering, Ms Wagner's co liquidator in the liquidation of Acqui.

If the liquidator had asked him for source documents, he would have given them to her.

He confirmed D25 which, reflects cheques to a total value of R1 318 529.87. Cheques relating to pre 30 July 2002 invoices amounted to R265 917.64. Two cheques were for wages - R41 364.03 and R49 336.47.

All the sales were at market related prices. All the transactions were done in the ordinary course of trade.

Referring to the liquidation and distribution account, he questioned the claims of Makeshift and Shell because those creditors also featured in Mr Lombard's other businesses.

The investors in the plaintiff lost about R700 000.00. He had never been involved in a liquidation before.

He agreed that he did not think that Ms Wagner was a liquidator when he spoke to her. He only spoke to her on 7 August 2002. He did not think that Ms Wagner could give him authority to trade. He did not ask her to authorize him. He asked her what he had to do. He accepted her evidence that she would never have told him to trade.

His position at the plaintiff could be described as that of a financial director.

He agreed that by the end of July 2002 he knew that the plaintiff was going to be liquidated. It was a matter of time.

He still went on for the benefit of the staff and creditors.

The partnerships would benefit from the plaintiff's continued trading to the extent that they bought from the plaintiff. If the plaintiff stopped trading the partnerships could buy from other wholesalers.

That concludes the summary of the evidence.

I wish to deal with the claim against the first defendant first.

Mr Rossouw accepted that the first defendant was entitled to rely on section 73 of Act 34 of 1964 in respect of cheques drawn before the granting of the provisional liquidation order (the 20th August 2002). He accepted that section 341 (2) of Act 61 of 1973 was not applicable to such cheques because even though the winding-up commenced on 30 July 2002, the presentation of the application did not have the effect of creating a moratorium. In this regard he referred to Prudential Shippers SA Ltd v Tempest Clothing Co Ltd 1976(4) SA 75 WLD at 83 A-B. He argued that when the provisional order was granted the third defendant's authority to sign cheques on behalf of the plaintiff lapsed, and therefore all the cheques signed by him after 20 August 2002 were not bills of exchange by virtue of section 22 of Act 34 of 1964. In the alternative, if section 73­ of Act 34 of 1964 was applicable, he argued that the first defendant was liable in respect of all cheques drawn after 6 September 2002. The notice of the granting of the provisional order was published in the Government Gazette on that day. The argument was that the first defendant at least then had constructive notice of the termination of the third defendant's authority.

Section 73 of Act 34 of 1934 reads as follows:

"73 Revocation of a bank's authority - The duty and authority of a bank to pay a cheque drawn on it by its customer are terminated by receipt of

(a) countermand of payment;

(b) notice of the customer's death or incapacity;

(c) notice of the customer having been sequestrated or wound-up or placed under judicial management or declared a prodigal …”

In my view it is clear from section 73 that the bank must receive actual knowledge of the sequestration or liquidation of a customer. The objective fact of sequestration or liquidation is not enough. Nor is constructive knowledge such as can be derived from a publication in the Government Gazette enough. The bank must receive actual notice of the revocation or lapse of authority. Until then it is obliged to pay a cheque upon presentation.

Mr Rossouw did not rely on the letter sent by Ms Wagner to canvas support for her appointment as liquidator as a notice in terms of section 73(c) to the first defendant. Clearly such a letter could not have been such a notice.

For these reasons the claim against the first defendant cannot be allowed on the basis argued by Mr Rossouw.

Mr Rossouw did not rely on section 341 (2) of Act 61 of 1973 against either the first or the third defendant. He accepted that dispositions could only be recovered from their recipients. I agree that that is the correct view. Section 341 (2) does not create a delict in respect of which joint wrongdoers can be sued. It merely declares certain dispositions void. The only consequence is that the dispositions can be recovered from the recipients.

Mr Rood, who appeared for the first defendant, accepted that section 341 (2) of Act 61 of 1973 may be applicable but argued that section 73 of Act 34 of 1964, being special legislation or later legislation, should enjoy preference.

Section 341 (2) reads as follows:

"(2) Every disposition of its property (including rights of action) by any company being wound-up and unable to pay its debts made after the commencement of the winding-up, shall be void unless the Court otherwise orders."

Mr Rood perceived a conflict between section 73 of Act 34 of 1964 and section 341 (2) of Act 61 of 1973.1 do not see such a conflict because section 73 clearly envisages a situation where a bank may be obliged and authorized to pay a cheque even though the authority to draw it has lapsed. The point is that section 73 was enacted to protect the bank in a situation where it has not received notice of the lapse of authority. That is irrespective of what effect the lapse of authority may have on other parties.

If I am wrong, I would agree with Mr Rood that section 73 should take precedence. It provides for a special situation and, in its present form, having been substituted by section 30 of Act 56 of 2000, it represents later legislation.

For all these reasons the claim against the first defendant cannot succeed.

The basis of the claim against the first defendant is set out in paragraphs 13 and 14 of the particulars of claim. Paragraphs 13 and 14 reads as follows:

"13. In the premises all the aforementioned disposals of the plaintiff's incorporeal movable property are void by reason of the provisions contained section 341(2) of the Companies Act 61 of 1973 and by reason of the third defendants lack of authority.

14. At all relevant times hereto, the defendant's knew that the said winding-up had commenced and that, consequently, the third defendant had no authority to sign cheques on behalf of the plaintiff."

As I have indicated, Mr Rossouw in argument disavowed any reliance on section 341 (2). He accepted that a claim in terms of section 341 (2) can only be instituted against the recipient of a disposition.

He confined his argument to the fact that after 20 August 2005 the first defendant lacked the authority to sign cheques on behalf of the plaintiff. He argued that the third defendant was aware of the pending application and that he should have foreseen that a provisional order would be granted.

I agree with Mr Thatcher, who appeared for the third defendant, that the case presented against the third defendant in argument is not the case set out in the pleadings. Lack of authority is only mentioned in the particulars of claim in the context of the voidness of the disposition. The particulars of claim do not set out a claim for breach of a warranty of authority.

The reference in argument to negligence on the part of the third defendant is an indication that the plaintiff attempts to rely on delict, as Mr Rossouw indeed confirmed. All this lends validity to Mr Thatcher's complaint that the third defendant now has to meet a case that was not pleaded.

If the plaintiff's claim against the third defendant is based on delict the damages cannot necessarily be equal to the total amount of the cheques. The plaintiff has presented no evidence on which delictual damages can be calculated.

Even if one can construe a case based on a breach of warranty of authority, there is a lack of evidence on which damages can be calculated.

The reason why the plaintiff never alleged that it suffered damages and never produced evidence of damages is that it relied exclusively in its pleadings on section 341 (2). It simply claimed back the amount of the alleged disposition.

It is clear to me that the third defendant's defence as articulated in his plea and supported by his evidence was focused on section 341 (2). Hence all the evidence and argument to persuade the court to exercise its discretion and order the disposition to be valid. It cannot be said that the issue of a claim based on delict or a breach of warrenty of authority was canvassed sufficiently so as to entitle the plaintiff to rely on it.

The plaintiff cannot without a formal amendment change the basis of its claim. The prejudice to the third defendant is obvious. There are many relevant issues that were not addressed in evidence such as until when it was reasonable for the third defendant to keep on trading and to what extent monies received after 30 July 2002 had been generated by goods in respect of which payment was effected after that date. If a formal amendment was sought, I have no doubt that it would have been opposed on the basis that it introduced a new cause of action that had become prescribed.

For all these reasons the plaintiff cannot be permitted to rely on a cause of action based on the third defendant's negligence.

In my view, if the plaintiff cannot rely on section 341 (2), its claim against the third defendant must fail.

For all these reasons the claim must be dismissed in respect of both the first and third defendants.

I was asked to order punitive costs against the plaintiff. I am not convinced that this is a proper case for such an order. The claim may have been misconceived but there was no reprehensibility about the conduct of the case that would justify such an order.

The following order is made:

The claim against the first and third defendants is dismissed with costs.

C.BOTHA

JUDGE OF THE HIGH COURT