Ellerine Brothers (Pty) Ltd v Vestacor (Pty) Ltd; Rubenstein v Vestacor (Pty) Ltd and Another (KNS Construction (Pty) Ltd Intervening) (2018/14040; 2018/0018922) [2019] ZAGPJHC 85 (5 February 2019)

REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA,

GAUTENG LOCAL DIVISION, JOHANNESBURG

CASE NO: 2018/14040

In the matter between:

KNS CONSTRUCTION (PTY) LTD Intervening Party

(In liquidation)

In re:

ELLERINE BROTHERS (PTY) LTD Applicant

And

VESTACOR (PTY) LTD Respondent

for the winding-up of the Respondent

and in re:

CASE NO: 2018/0018922

BRUCE RUBENSTEIN Applicant

Vs

VESTACOR (PTY) LTD First Respondent

THE COMPANIES & INTELLECTUAL Second Respondent

PROPERTY COMMISSION

(for placing the First Respondent under Supervision and commencing business rescue proceedings)

J U D G M E N T

LAMONT J:

[1] There are two applications before me. One is an application in which the applicants seek that KNS Construction (Pty) Limited in liquidation hereafter ”KNS“ pay security for costs. The other is an application KNS brought to intervene in proceedings under case number 14040/2018 and case number 18922/2018. The parties agree that I need make no order in the application for security for costs. That matter is to be, postponed sine die.

[2] KNS seeks to intervene in two separate applications. In the one application, the winding up of a company known as Vestacor is sought and in the other, the placing of Vestacor under supervision and commencing business rescue proceedings is sought.

[3] The issue to be determined is whether or not KNS has locus standi in those proceedings i.e., is KNS a creditor in the winding up proceedings and an affected party (which will include a creditor and contingent creditor) in the business rescue proceedings.

[4] A contingent creditor is a creditor for purposes of winding up and business rescue proceedings.[1]. KNS, if it is to be, given leave to intervene is required to establish prima facie that by, reason of some existing vinculum juris it has a claim against Vestacor, which may ripen into an enforceable claim on the happening of some future event on some future date.[2]

[5] A prima facie right is, established in winding up proceedings at the provisional order stage if on a balance of probabilities the evidence even if disputed shows the applicant to be a creditor.[3]

[6] At the stage of seeking leave to intervene, the applicant is required to establish that there is a purpose to allowing the intervention.

There is no purpose to allow the intervention if at the hearing the applicant will not have locus standi. The applicant must accordingly show at the time of the intervention application that he will be able to establish that he is a creditor in the winding up when the time comes. That test at the intervention stage seems to me to require a lesser burden of proof namely the establishment of a prima facie right only. This view accords with the Gillis-Mason[4] judgment, which speaks only of a prima facie right.

[7] In the present application, accordingly the applicant is required to establish prima facie that a vinculum juris exists and that it may ripen into a claim on the happening of the future event. KNS is prima facie a creditor if the facts alleged by KNS, if accepted, shows it is one. The mere fact the evidence is disputed will not disentitle KNS to relief, not even if the probabilities are against it. It will only not be established that prima facie it is not a contingent creditor if it is quite clear that it is not one.[5]

[8] KNS and Genesis, one of the partners of which was Vestacor concluded a building contract. KNS commenced building and proceeded with the construction until it was almost complete (approximately 97%). At that time the parties to the building contract were in dispute with each other and each party cancelled the contract. The parties commenced arbitration proceedings. During the proceedings, the question of liability was separated from the question of quantification of quantum. The arbitrator inter alia held that the contract had been lawfully cancelled by Genesis and that the cancellation of KNS was unlawful and of no effect. After an appeal, an award known as the combined award was, issued. That award contains orders made by the arbitrator to the extent they survived the appeal as well as fresh orders made by the appeal court.

[9] Relevant portions of the combined award are set out below: –

“1. Declaring the claimant’s [KNS] cancellation of the Agreement unlawful and the defendant’s [Genesis] cancellation of the Agreement lawful.

2. Declaring that the claimant is liable for such damages as the defendant may prove arising from completion and remedial work certified by the principal agent.

3. The contract value in terms of clause 32 of the Agreement should provide for the following:-

3.1. Builders work carried out and properly measured,

3.2. such instructions carried out by the claimant prior to the cancellation and properly measured,

3.3. provisional amounts (adjusted for actual),

3.4. to the extent that the amount deducted in terms of the performance guarantee is inconsistent with the terms of this award such amount should be credited to the claimant. In particular, where amounts were deducted but work was not actually done, the defendant is not entitled to retain same.

8. The final certificate issued by the principal agent should certify the cost of remedial word actually done.

9. The format of the final payment certificate issued by the principal agent is correct and should reflect an amount ultimately payable by KNS or Genesis”.

[10] At the time of the arbitration, the principal agent had prepared a certificate on the basis that Genesis (page 109) had lawfully cancelled the contract. That certificate determined both liability and quantum and reflected an amount of approximately R34 million due by KNS to Genesis. KNS submitted that the figures in the final certificate to the extent they survived the combined award reflected a convenient starting point to calculate the debt due on the basis of the combined award findings of liability. KNS recalculated the certificate taking into account liability, which had been determined not to exist by the combined award (calculation is to be found at p264). On this basis, pending remedial works and miscellaneous costs were deducted and the amount recovered by way of the construction guarantee were accounted for. The net effect was that an amount of some R8.4 million would be due by Genesis to KNS.

[11] It is unclear whether the combined award is a direction to the principal agent to recertify or a direction to the arbitrator to reconsider the final certificate on the basis set out. The fact that this is unclear in no way detracts from the prospect of the occurrence of a future uncertain event namely the determination of the amount due. KNS sets out in the affidavits what the history of the matter was and why the ultimate determination of the amount due would be in its favour.

[12] It appears to me that the evidence to established prima facie that KNS is a contingent creditor. The combined award directed the determination of the contract value and the provision of a final payment certificate in a format reflecting the amount ultimately payable to either KNS or Genesis. The award alone established circumstances in which if the future uncertain event occurred KNS would be a creditor. That award reflected the vinculum juris established by the contract. KNS however produced in the additional evidence (p264), establishing why prima facie on the affidavits there is an amount due to it. On the face of it, the certificate at page 109 is the final calculation reflecting all amounts due based on Genesis having lawfully cancelled the building contract and the principal agent having taken into account all amounts, which could properly be taken into account, and that there were no further amounts. The suggestion made by the respondents was that the approach of KNS and the facts on which KNS relied were erroneous. According to the respondents, there were further amounts, which could and should have been taken into account. This may be so, however, for present purposes all that needs to be decided is whether or not; on the face of it, KNS is a contingent creditor. In due course the precise amount due to or due by KNS will be calculated in the arbitration pursuant to the combined award’s implementation.

[13] I find that KNS is a contingent creditor of Genesis. The question is whether it is a contingent creditor of Vestacor. This is dependent on a finding that KNS has a claim against one of the Genesis partners. The Genesis partnership has prima facie been dissolved.[6] KNS accordingly is entitled to claim against the partner. In these circumstances, KNS is a contingent creditor of Vestacor.

[14] The opposition to the application in my view was reasonable and for that reason, the costs of the application should be costs in the cause of both the winding up and the business rescue. In the exercise of my discretion relating to costs, I allocate 50% of the costs in the intervention to each matter.

[15] I accordingly make the following order:

1. The security for costs application KNS Construction (Pty) Ltd (in liquidation), In re: Ellerine Brothers (Pty) Ltd and Vestacor (Pty) Ltd under case number 14040/2018 and in re: Bruce Rubenstein and Vestacor (Pty) Ltd and The Companies & Intellectual Property Commission under case no 0018922/2018 is, postponed sine die.

2. The applicant is, granted leave to intervene in:-

2.1. Ellerine Bros (Pty) Ltd and Vestacor Limited under case no 14040/2018 and

2.2 Bruce Rubenstein and Vestacor (Pty) Ltd and The Companies and Intellectual Property Commission under Case no 0018922/2018.

3. 50% of the costs of the intervention application are costs in the cause of each of the applications granted in paragraph 2 supra.

________________________________________

C.G. LAMONT

JUDGE OF THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

COUNSEL FOR THE INTERVENING PARTY: ADV. POTGIETER SC

INTERVENING PARTY’S ATTORNEYS: SENEKAL SIMMONDS INC

COUNSEL FOR THE RESPONDENT: ADV. COOK SC

RESPONDENTS ATTORNEYS: TAITZ & SKUKNE ATTORNEYS

DATE OF HEARING: 29 JANUARY 2019

DATE OF JUDGMENT: 5 FEBRUARY 2019

[1] See Henochsberg Henochsberg on the Companies Act 71 of 2008 Vol 1, 445 and the authors there cited.

[2] See Gillis-Mason Construction Co. (Pty) Ltd v Overvaal Crushers (Pty) Ltd 1971 (1) SA 524 (T) at 528; Shapiro v SA Recording Rights Association Ltd 2008 (4) SA 145 (W).

[3] See Kalil v Decotex (Pty) Ltd & Another 1988 (1) SA 943 (A) at 979–980.

[4] See note 2.

[5] See for example Hülse-Reutter and Others v Gődde 2001 (4) SA 1336 (SCA) para 12.

[6] See Business Rescue application para 63