Firstrand Bank Limited v Master of the High Court and Others (31482/2005) [2006] ZAGPHC 164 (4 April 2006)

IN THE HIGH COURT OF SOUTH AFRICA

(TRANSVAALSE PROVISIONAL DIVISION)

Case number: 31482/2005

Date: 4/4/2006

NOT REPORTABLE

In the matter between:

FIRSTRAND BANK LIMITED Applicant

and

THE MASTER OF THE HIGH COURT First Respondent

THE LAND AND AGRICULTURAL DEVELOPMENT Second Respondent

BANK OF SOUTH AFRICA t/a LANDBANK

CLOETE MURRAY N.O. Third Respondent

JUDGMENT

PRETORIUS AJ,

This is an application where the Applicant seeks relief in the following terms:

That the Master’s decision on the 23rd of August 2005 to uphold the objection by the Second Respondent against the award of a dividend to the Applicant on the encumbered

asset 1 account in the insolvent estate BG and MC Williams (Master’s Reference T1728/03) be reviewed and set aside;

That the decision by the First Respondent to reject the objection by the Second Respondent to the award of a dividend to the Applicant on the free residue account in the second amended liquidation and distribution account in the insolvent estate BG and MC Williams (Master’s Reference T1728/03) be upheld;

That the Second Respondent be ordered to pay the costs of this application;

The Second Respondent has launched a counter application wherein it cites itself as Applicant, the Master again as the First Respondent, the Third Respondent in the main application as the Second Respondent and the Applicant in the main application as Third Respondent. In such application the Second Respondent as Applicant (hereinafter referred to as “the Landbank”) seeks an order that the decision by the Master in regard to the award of a dividend to the Applicant from the free residue of the insolvent estate be set aside. Furthermore an order,purportedly in terms of Section 33(4) of the Land and Agricultural Development Bank Act, 15 of 2002 is sought entitling the Landbank attach the free residue in the estate. A further order is sought declaring that after the attachment has been effected the Applicant is entitled as a preferent creditor to the funds so attached, that the Second Respondent be ordered to amend the account filed by him to reflect the Landbank as a preferent creditor who ranks above any other concurrent creditor and that no creditor be allowed to share in the free residue of the insolvent estate until the amount owing by the insolvent estate to the Applicant has been satisfied together with interest and costs associated therewith. An order is also sought in terms whereof the free residue after payment of the outstanding amounts due to the Applicant from advances made by the Applicant to the insolvent together with interest and costs then be applied in terms of Section 34 of the Land and Agricultural Development Bank Act, 15 of 2002.

The Landbank has furthermore joined the remainder of the concurrent creditors as reflected in the account filed by the liquidator (the Second Respondent in the main application) and has joined such liquidator as Sixth Respondent in his personal capacity seeking a punitive cost order against him.

The Second Respondent in the main application abandoned the cost order against the Second and Sixth Respondent in the counter application and no argument was presented by counsel.

Both Mr Leathern for Applicant in the main application and Mr Dewrance, for the Second Respondent, in the main application agreed that the court first had to decide whether the 2002 Act applied in the present application.

The Land and Argricultural Bank of South Africa was established by the Landbank Act of 1912, an Act repealed and replaced by the Landbank Act of 1944. The latter Act has now been repealed and replaced by the Land and Agricultural Development Bank Act, Act 15 of 2002.

The question has been dealt with in several cases, which were referred to by both counsel for the Plaintiff and the Defendant. In the matter Land and Agricultural Development Bank of South Africa t/a Landbank versus The Master and Others 2005 (4) SA 81 (CPD) Davis J found that the express wording of section 33 of the 2002 Act was clear. The remedies afforded in case of default applied only in respect of advances made under the 2002 Act and did not apply to advances which were made prior to the 2002 Act coming into operation.

Mr Leathern, for the Applicant, argued that this position is correct as the date of commencement of the Act was 10 June 2002, and the monies advanced by the second Respondent were in terms of section 34 of the 1944 Act and the remainder of the loans were prior to the 2002 Act coming into operation.

The Applicant relies on sub section 30(1) and sub section 30(2) of Act 15 of 2002 which reads:

“while any person owes the bank any money by virtue of an advance in terms of this Act”

Counsel for Applicant further argued that section 33(2) only applies to money due under the 2002 Act and does not include advances made prior to the date of the operation of the Act, which was 10 June 2002.

In First National Bank of South Africa Limited versus Land and Agricultural Bank of South Africa [2000] ZACC 9; 2000 (3) SA 626 (CC) the Constitutional Court confirmed an order declaring sections 34(3)(b) to (7), (9) and (10) and section 55(2)(b) to (d) of the 1944 Act unconstitutional in terms of section 34 of the Constitution of South Africa Act 108 of 1996.

Sections 34 and 55 of the Landbank Act of 1944 provided amongst other matter, for remedies of the Landbank against defaulting debtors. These sections permitted the Bank to recover debts without recourse to a court of law and without having to follow ordinary legal procedures. These sections also conferred a statutory preference on the Bank, which allowed the Bank in some instances to recover moneys from debtors to which other creditors would ordinarily have had a prior claim.

The Constitutional Court realised that the result of this decision would leave the Bank without recourse for unsecured loans. Therefore it was ruled that the invalidity of these sections would be suspended for two years, that is until 9 June 2002. A new act was drafted, that is in line with both the Constitution and certain recommendations by the Law Reform Commission, which came into operation on 10 June 2002.

Section 90 of the insolvency Act, Act 24 of 1936 provides that the provisions of the Insolvency Act will not affect the provisions of any other law that confer powers and impose duties upon the Landbank or the Land and Agricultural Bank, in relation to any property belonging to an insolvent estate.

Section 34(1) of the 1944 Act allowed the Landbank to make unsecured advances to farmers to enable them to defray certain specified expenses related to farming.

Section 34(2) of the 1944 Act set out circumstances where the Board of the Bank could take action against the borrower, which included a debtor who became insolvent. Section 34 of the 1944 Act further provided that seven days after a demand for repayment of the unsecured advance had been made by means of a registered letter to the debtor, the Bank could, without recourse to the court require a sheriff, or any other person designated by the Bank, to attach and sell by public auction so much of the movable property of the debtor as was necessary to liquidate the amount owed.

Section 34 further provided that, if above had taken place and an amount was still owed, the Bank could, after notice to mortgagees and the Registrar of Deeds, and without recourse to a court, attach any of the debtor’s immovable property and cause it to be sold at public auction.

In First National Bank of South Africa Ltd versus Land and Argicultural Bank of South Africa and Others (supra) the Constitutional Court suspended the invalidity for two years and found that:

“the invalidity of the impungned provisions should not affect attachments and sales already completed. However, all current attachments, not yet perfected by a sale effected in terms of s 34(3)(b) as it now reads, ie without recourse to a court of law should be invalidated and all future attachments require that the Landbank proceed only by court order”

On p 633 H – 634 B (supra)

It is clear from this judgment that the Constitutional Court regarded all advances made under the 1944 Act, to be dealt with in a way that accorded with the Constitution and therefore attachments could only be made by approaching a court of law. Under these circumstances the Landbank could obtain a preferent right with regard to the property of a debtor, if a court order authorizing the Landbank to attach property of the debtor had been obtained and the property had been attached. The suspension of the invalidity of section 34 lapsed on 9 June 2002 and on 10 June 2002 the present Act came into operation.

The dispute regarding the award to the Applicant from the free residue in the main application is due to the fact that the Landbank, Second Respondent, lays claim thereto in terms of Section 33 of Act 15 of 2002.

The counter-application is an application in terms of section 33(4) of the 2002 Act. In this application it is clear that the advances granted by the Landbank was prior to the commencement of the 2002 Act on 10 June 2002.

The Third Respondent in the main application, the trustee, was given permission by the Landbank to sell the immovable property. A written undertaking, dated 23 September 2003, by the trustee, could not take the place of an application in terms of section 33(3) to a court of law.

The undertaking in clause 1 reads as follows:

“Dat die Land Bank se Preferente Statutêre Regte in terme van die Land- en Landbou- Ontwikkelingsbank Wet, 15 van 2002, erken word”

This cannot mean that Landbank does not have to comply with the provisions of section 33(3), but merely means, that if a court of law grants an application, the Landbank will have preferential rights.

Although clause 4 of the undertaking mentions section 89 of the Insolvency Act, it does not absolve the Landbank to apply to a court of law in terms of sections 33 and 34 of Act 15 of 2002.

The objection was lodged against the amended Second and Final Liquidation and Distribution Account.

The Second Respondent relied on the undertaking furnished by the Third Respondent, the trustee, that he acknowledged the Respondent’s rights.

This can, however, not be interpreted to grant the Second Respondent a preferential right. The only inference that can be made is the trustee acknowledged that if a court order should be obtained the Landbank would have a preferential right, but the undertaking alone cannot grant the preferential right. Section 33(3)(b) sets out the requirements for establishing a preferential right.

In Die Land – en Landbou Ontwikkelings Bank van Suid-Afrika h/a Die Landbank versus C Murray NO en andere TPD unreported Botha J stated on page 11:

“Natuurlik is die Bank nie verplig om ‘n hofbevel aan te vra nie, maar as hy dit nie doen nie, verbeur hy die voordeel van die voorkeur wat volgens artikel 34 (1), afhanklik gemaak word van die nakoming van die bepalings van artikel 33.”

and further:

“Dit is so dat die applikant ‘n voorkeur kan verwerf deur ‘n hofbevel aan te vra, maar dit verskaf geen regverdiging

daarvoor om hom toe te laat om ‘n kortpad te vat en weg te doen met die vereiste van die verkryging van ‘n hofbevel nie.”

It is acknowledge that according to section 33(4) of the 2002 Act read with section 90 of the Insolvency Act that the creditors right, arising from the concursus creditorum, are at all times subject to the Landbank’s rights. The only provisio to this would be that Landbank should comply with the

requirements as set out in section 33(3)(b) of the 2002 Act.

Landbank had knowledge of the decision by Botha J of this division who decided that a preferential right could only be established by the Landbank, in these circumstances, by a court order.

In the Land and Agricultural Development Bank of South Africa t/a Landbank versus Venter NO [2004] ALLSA 314 O par 24 Wright J decided that the 2002 Act did not infringe any vested rights obtained at the concursus creditorum under similar circumstances and that the 2002 Act applied. The undertaking of the trustee cannot replace the requirements of section

33(3)(b) of Act 15 of 2002, as was decided in the abovementioned matter. Wright J decided in the above mentioned matter that no

general preferential right is granted, unless a court order has been obtained. The only way it can be established is by way of an application to court in terms of section 33 and 34 of Act 15 of 2002.

These decisions were known to the Landbank on 28 January 2005 when the Landbank objected against the amended Liquidation and Distribution Account to reflect Landbank as preferent claim in the free residue.

Therefore the Master, First Respondent, correctly rejected the first objection, on the grounds that there was no court order in terms of section 33 and 34 of the 2002 Act. Botha J in case number 2758/2003 (supra) states:

“Daar bestaan andersins geen sodanige reg nie en enige uitleg met so ‘n strekking moet weerstaan word. Dit sou neerkom op ‘n inkorting van die regte van ander skuldeisers. Vir die skepping van so ‘n algemene voorkeurreg sou mens baie duideliker taal verwag het. Dit maak heeltemal sin on die frase “statutêre preferensie” te verstaan as verwysende van die voorkeur wat kragtens Artikels 33 en 34 geskep is.”

The Master’s decision to reject the second Respondent’s objection is therefore correct.

The Applicant held a fourth mortgage bond over the immovable property concerned, while the Landbank held first, second and third bonds over such property.

The dispute is whether the payments to the Landbank from the proceeds of the immovable property should be restricted by the provision of section 89(3). If there is no such restriction Landbank is entitled to payment of the full nett proceeds of the immovable property.

Section 89(3) of the Insolvency Act provides:

“(3) Any interest due on a second claim in respect of any period not exceeding two years immediately preceding the date of sequestration shall be likewise secured as if it were part of the capital sum.”

Having decided that Act 2002 applies in this matter, regard should then be had to section 33 of Act 15 of 2002. The Landbank has no higher interest or rights than any other creditor according to the Act, if it has not complied with section 33(3)(b) of the Act.

The 2002 Act does not prevent the vesting of the immovable property in the Master and thereafter the Trustee according to section 34(10)

“(10) The sequestration or liquidation of the debtor’s estate does not limit the Bank’s right to apply to court for an order in terms of subsection (4) or its rights to deal with the debtor’s property in terms of this section and section 34, despite any law which provides that the property of the debtor vests in his or her trustee or liquidator in the event of his or her sequestration or liquidation.”

The Landbank can still, after the immovable property has vested in the trustee apply to a court of law in terms of section 33 and 34.

Section 33(11) makes provision that the trustee under the present circumstances may not sell such mortgaged property without the Landbank’s consent in writing to that sale or itself had failed to sell the property within three months after receipt of a written notice requesting such a sale.

In the present application there has been no application dealing with any surplus above what has been paid to the Applicant in terms of section 89 of the Insolvency Act.

The Landbank relies on section 90 of the Insolvency Act and contends that the provisions of the Insolvency Act is not applicable at all on the Landbank.

This interpretation of section 90 of the Insolvency Act is incorrect. This section only means insofar as there are provisions of any other law conferring powers or imposing duties upon the Landbank which are applicable, these provisions will not be effected by the Insolvency Act. No provision is made in the 2002 Act to except the Landbank from the provisions of the Insolvency Act. Therefore the Landbank has to prove it’s claim.

In this instance the Landbank has not vested a preferent right, as no application has been made to this court in terms of section 33 and 34, prior to the launching of this application. A mere objection to the Master does not validate a claim which has not been proven.

The Landbank is trying to circumvent its obligations to act according to the provisions of section 33 of the 2002 Act and relying on an undertaking, although the Landbank knew that it had to apply to a Court of law for an order in terms of section 33. Therefore the decision by the First Respondent to reject the objection by the Second Respondent regarding the free residue is upheld.

The Second Respondent’s counterclaim seems to be opportunistic, as the Second Respondent was aware of the provisions of sections 33 and 34 and did not act accordingly. Landbank only launches a purported application in terms of sections 33 and 34 as a counterclaim to the main application.

The judgment of Botha J has been available since 24 October 2003 in which he states quite clearly

“Dit is so dat ‘n applikant ‘n voorkeur kan verwerf deur ‘n hofbevel aan te vra, maar dit verskaf geen regverdiging daarvoor om hom toe te laat om ‘n kort pad te vat en weg te doen met die vereiste van die verkryging van ‘n hofbevel nie.”

Page 11 (supra)

Therefore the counterclaim by the Second Respondent fails.

The following order is made:

1. The Master’s decision of 23 August 2005 to uphold the objection by the Second Respondent against the award of a dividend to the Applicant on the encumbered asset / account in the insolvent estate BG and MC Williams (Master’s Reference T1728/2003) is set aside;

2. The decision by the First Respondent to reject the objection by the Second Respondent to the award of a dividend to the Applicant on the free residue account in the second amended liquidation and distribution account in the insolvent estate BG and MC Williams (Master’s Reference T1728/2003) is upheld;

3. The counter application is dismissed;

4. The Second Respondent to pay the costs of the application and counter application.

______________________

Acting Judge Pretorius

Case number : 31482/2005

Heard on : 8 March 2006

For the Applicant / Plaintiff : Adv DM Leathern

Instructed by : Rorich Wolmarans & Luderitz

For the Respondent / Defendant : Adv MA Dewrance

Instructed by : Gildenhuys Lessing Malatji inc

Date of Judgment :