Kolok (Pty) Ltd v Ahmed (05/20142) [2006] ZAGPHC 4 (24 January 2006)

IN THE HIGH COURT

OF SOUTH AFRICA

(WITWATERSRAND LOCAL DIVISION)

CASE NUMBER: 05/20142

In the matter between:

KOLOK (PTY) LTD Applicant

and

ALLY AHMED Respondent

______________

JUDGMENT

SCHWARTZMAN J:

What must be decided in this application is whether I should confirm a rule nisi that provisionally sequestrated the Respondent’s estate. The rule nisi was granted against the following factual background:

In the second half of 2002 the Applicant sold goods for R45 610 31 to a Close Corporation of which the Respondent was a member. In a credit application form dated 24 May 2002 the Respondent said that he lived in a house in Witkoppen. Incorporated in this form was a suretyship signed by the Respondent for the debts of the Close Corporation.

On 12 August 2002 Olga May Musnitzky, who says she is a conveyancer, signed a certificate recording that based on inquiries she had made, the Respondent owned the Witkoppen house that was bonded to BOE Bank Limited for R695 000. There is no affidavit proving any of these facts.

In October 2002 the Applicant issued summons in the Johannesburg Magistrates Court against the Close Corporation and the Respondent claiming payment of the R45 610.31. The action was settled by way of an acknowledgment of debt that incorporated a consent to judgment in the event of the Respondent failing to pay the debt in monthly instalments of R3 000. By February 2003, and having paid R9 000 of the amount owing, the Respondent defaulted. For nearly two years the Applicant did nothing. Then, and on 25 January 2005, judgment was entered for the balance of R36 610.31, interest and costs. Some seven months went by before the Applicant’s attorney decided to issue a writ addressed to the Respondent at the Witkoppen property. The sheriff went to the property at 06h40 on 17 August 2005. His return reads that “… the warrant of execution against property could not be served as the Defendant has left given address as informed by Mrs Sara Nkabinde, occupier. The present address of the Defendant is unknown”.

On 24 August 2005, the Applicant’s attorney received the sheriff’s return. No attempt was made to execute against the Witkoppen property. Instead and some nine days later the Applicant’s Managing Director signed the founding affidavit in the sequestration application. Four days thereafter the ex parte rule nisi was granted.

In addition to the above, what is said in the founding affidavit is that:

The Respondent has vacated the Witkoppen address. The Applicant is unaware of his current address. “The present application will accordingly be brought ex parte and the applicant will seek directions from the court as to service of the provisional order”. It is then submitted that it will be sufficient service if such an order is served “at the Witkoppen address and by publication in the Gazette and the Citizen”. The deponent does not set out any facts to support this submission. It would also appear that the Court granting the rule nisi did not question the Applicant’s failure to make any attempt to trace the Respondent.

The act of insolvency relied on is Section 8 (a) of the Act, it being alleged that “the respondent has departed from his dwelling or otherwise absented himself with the intention by so doing to evade or delay payment of his debts” and that from the circumstances set out in the affidavit the Respondent “is in fact insolvent and unable to pay his debts”. There are no facts or circumstances from which this inference can be drawn.

The benefit to creditors is said to be that the Respondent owns the Witkoppen property. This allegation is based on the unverified three year old hearsay certificate of a conveyancer recording that in August 2002 the Applicant’s property was bonded to BOE Bank in an amount of R695 000. It is then said that the Applicant is unable to ascertain the balance owing on the bond (no reason is given). It is however said that properties in the area are of a substantial value (there are no facts to support this conclusion) and “I respectfully suggest that there is at least a reasonable prospect that there is sufficient equity in the property to afford a dividend to creditors”. There are once again no facts to support this assertion.

The ex parte application was heard on 13 September 2005. On that date the Applicant obtained the order that provisionally sequestrated the Respondent’s estate. The Court granting the order directed that the rule nisi, returnable on 8 November 2005, be served by publication in the Citizen newspaper, the Government Gazette and at a house in Witkoppen, said to be owned by the Respondent, but in which he was not living. On 8 November 2005 the rule was extended to 13 December 2005.

On 7 November 2005 the Applicant’s attorney submitted an unsigned filing sheet to which he attached a tear sheet showing publication of the rule in the Government Gazette on 28 October 2005 and in the Citizen on 14 October 2005. The filing sheet to which these documents were attached records that the attorney was also filing a “Return of Service at 26 9th Avenue, Mayfair”. Written in pencil next to this notation are the words “To be handed up”. This return was not handed up.

On 30 November 2005 the Sheriff went to the Witkoppen house. This was two and a half months after the rule was granted. His return states that he did not serve the order because Mrs A Kumalo, the occupier, told him that the Respondent had left the address and that his present address was unknown.

When Counsel sought confirmation of the rule on 13 December 2005, I asked him to address me on whether an ex parte order should have been sought and whether it should have been granted. I also wanted to know whether I should, in the exercise of my discretion, confirm the rule. Counsel could not then refer me to any authority in which a Court has granted an ex parte provisional sequestration order. I then stood the matter to 14 December 2005 for further argument.

I turn to deal with the issues that this application raises.

THE COURT’S DUTY ON THE RETURN DAY

On the return day of a rule nisi in a sequestration application the Court does not, after satisfying itself that the formal requirements of the rule have been complied with, act as a rubber stamp. Because of the serious consequences that flow from the confirmation of the rule, the Court must be satisfied that the Applicant has a claim of not less that R100, that an act of insolvency has in fact been committed and that there is reason to believe that sequestration will be to the advantage of creditors.

An unanswered prima facie case on these issues will usually entitle a Court to find that on a balance of probabilities the Applicant has discharged its onus. In this context it is worth repeating the following extract from Braithwaite v Gilbert 1984 (4) 717 (W) at page 718B to D “Furthermore, the degree of proof required when application is made for a final order of sequestration is higher than that for the grant of a provisional sequestration order. In the latter case a mere prima facie case need be established whereas the Court, before it will grant a final order, must be satisfied on a balance of probabilities as to the three matters aforementioned. Even then the Court still has a discretion in terms of s 12 (1) of the Act whether or not to grant a final order. (See, for example, Trust Wholesalers and Woollens (Pty) Ltd v Mackan 1954 (2) SA 109 (N) at 113; Van den Bergh v Kyriakou 1954 (4) SA 151 (N); London Estates (Pty) Ltd v Nair 1957 (3) SA 591 (D) at 593; Provincial Building Society of South Africa v Du Bois 1966 (3) SA 76 (W) at 80-81 and Enter Centre Enterprise (Pty) Ltd v Brogneri 1972 (1) SA 117 (C) at 121.)

THE NON-SERVICE OF THE APPICATION

Before 1 January 2003, service of a sequestration application was governed by the common law. In the Transvaal (Gauteng), notice of application had to be given unless the Applicant relied on a nulla bona return that was less than six months old. In terms of an amendment to the Insolvency Act that came into operation on 1 January 2003, there must be service of the application on the Respondent “unless the court, at its discretion, dispenses with the furnishing of the copy where the court is satisfied that it would be in the interest of the debtor or of the creditor to dispense with it” (See Section 9 (4A) (a) (iv) of the Act). A sequestration order radically affects a debtors status. In this context Meskin: Insolvency Law 2.1.7 states that “the intention of the provision is to ensure that save where the Court is satisfied that such circumstances exist, the audi alteram partem rule is to be upheld by giving the debtor notice of the application”. Although there is no authority on the point, the usual or normal method of “satisfying” the Court that it should exercise its discretion and dispense with service would be by way of an ex parte application for substituted service of the application and the rule nisi, in which application the Applicant would set out the efforts it has made to find the debtor and why, in the circumstances, the Court should order substituted service.

In this matter there was no such application. Instead the Applicant brought its ex parte application that is devoid of any facts that might have persuaded a Court to exercise its discretion by hearing the application without notice to the Respondent. Furthermore, no facts are set out to suggest that the form of substituted service of the rule might come to the Respondent’s notice. Counsel who appeared for the Applicant on the return day had also appeared when the rule nisi was granted. He could not recall what he had said when the application was heard or whether Section 9 (4A) (a) (iv) of the Act was referred to. In argument before me, Counsel could not give me any reason why such an order should have been granted in the first place. He was driven to submitting that I should nevertheless find that on 13 September 2005 a Judge of this division had impliedly exercised his discretion and that I should confirm the rule. There is no merit in this submission.

On these facts alone it appears that the rule nisi was wrongly sought and wrongly granted in the absence of the Respondent entitling this Court, in terms of Rule 42 (1), to mero motu set aside the rule nisi.

To avoid the consequence referred to above, Counsel handed up an affidavit deposed to by his attorney on 14 December 2005 and a return of service that was received by his attorney on 12 December 2005.

The return of service records that on 7 December 2005 the sheriff handed the Respondent the court order of 8 November 2005. (This is the order extending the rule nisi). This service took place at the sheriff’s office. This service is not explained. In particular the Court is not told how or when the Applicant traced the Respondent and got him to go to the sheriff’s office.

In the attorney’s affidavit he stated that at about 13h10 on Thursday 13 December 2005 (which was after I had stood the matter down) he telephoned the Respondent, who confirmed that he knew of the application and was “somewhat surprised” that a final order had not been granted. What the Respondent also confirmed was that he still owned the Witkoppen property and that it was bonded to First National Bank (not BOE Bank as certified by the conveyancer). He did not know the exact amount owing on the bond. Although he was presently living in Mayfair he wanted to move back to the house “when this application is finalised”. According to the attorney, the Respondent went on to say that the house was unoccupied and that he was afraid to obtain a tenant pending the sequestration proceedings in that if he did so he might be committing a fraud. The attorney told the Respondent that he would advise him of the outcome of the “present proceedings”. The attorney’s statement contradicts the sheriff’s returns.

The most significant feature of this unusual affidavit is that it is essentially hearsay. In particular, there is no explanation for the absence of a confirmatory affidavit from the Respondent. There is similarly no explanation by the attorney for his having the Respondent’s telephone number.

The attorney’s affidavit does not meet the concerns I have expressed. It in fact raises more questions than its answers.

NO ACT OF INSOLVENCY PROVED

In addition to the Applicant’s difficulties with which I have dealt, there is the fact that the Applicant has not proved on the probabilities, let alone prima facie, that an act of insolvency has been committed. The Applicant relies on Section 8 (a) of the Act. That the Respondent has moved away from the Witkoppen property may give rise to the inference that he did so to evade or delay payment of his debt. This fact “is insufficient in itself to justify a conclusion even prima facie that an act of insolvency has been established since there may be other explanations for such conduct” (see Meskin: Insolvency Law 2.1.2.1 and the authorities there referred to).

THERE IS NO BENEFIT TO CREDITORS

What remains to be mentioned is that prima facie, and it follows on the probabilities, the Applicant has not proved any benefit to creditors. The deponent to the founding affidavit is the Managing Director of a company that appears to sell goods. He does not profess any knowledge or expertise in valuing residential property generally and, in particular, property in Witkoppen. He provides no facts at all from which even prima facie an inference can be drawn that anyone other than the bondholder will be paid anything from the trustees realisation of the property – the only known asset of the Respondent. The question that I need not answer is why, given all the facts and circumstances, the Applicant saw any commercial sense in bringing an application to sequestrate a debtor whose whereabouts were unknown and whose only asset was a bonded property having no known value. It could of course be suggested that, at worst, this application would cost the Applicant nothing in that its costs of sequestration would be a first charge against the proceeds of the sale of the Witkoppen property.

Be this as it may, I find that the Applicant has not shown on the probabilities that the Respondent’s estate should be sequestrated. In the circumstances, I dismiss the application, the costs of which are to be borne by the Applicant. I also direct that a copy of this judgment be served on the Respondent at his Mayfair address and at his Witkoppen address and that the Applicant’s attorney telephonically inform the Respondent of this Court’s judgment.

_____

I W SCHWARTZMAN

JUDGE

OF THE HIGH COURT

Attorney for the Applicant: Mr Orelowitz

Orelowitz Incorporated

Advocate for the Applicant: N Segal

Date of judgment: 24 January 2006