Kruger Van Rensburg (Pty) Ltd t/a Bureau Trust Insolvensie Praktisyns and Another v Grand Palace Trading 47 (Pty) Ltd (20816/2006) [2007] ZAGPHC 97 (14 June 2007)

reportable

Delivered 14 June 2007

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IN THE HIGH COURT OF SOUTH AFRICA

(TRANSVAAL PROVINCIAL DIVISION)

20816/2006

In the matter between

KRUGER VAN RENSBURG (PTY) LTD.

t/a BUREAU TRUST

INSOL VENSIEPRAKTISYNS FIRST EXCIPIENT/DEFENDANT NEGOTA-BUREAU TRUST (PTY) LTD. SECOND EXCIPIENT/DEFENDANT

and

GRAND PALACE TRADING 47 (PTY) LTD RESPONDENT/PLAINTIFF

CORAM: EBERSOHN AJ

"

DATE HEARD 27th February 2007

JUDGMENT HANDED DOWN ON

14 JUNE 2007

Reportable:

Practice - Exceptions - Liquidator of company in employ of the two defendants - Liquidator appointed by Master to liquidate estate of an insolvent company ­Liquidator negligently in breach of contract entered into with plaintiff who purchased estate assets and was thereafter evicted resulting in damages for plaintiff - Claim by Plaintiff against the two defendants as employers of liquidator to recover damages and payment in terms of the agreement ­Defendants excepting on the ground that no such claim lies against the employer of such a liquidator - Principles of exceptions discussed and restated - Respondents' remedy a special plea and not an exception.

JUDGMENT

EBERSOHN AJ.

[1] For the sake of convenience the first and second excipients will be referred to in this judgment as first and second defendants and the respondent will be referred to as the plaintiff.

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[2] The first and second defendants are companies which do business as insolvency practitioners and they administer insolvent estates. In terms of the provisions of the Administration of Estates Act, No. 65 of 1966, read with the Insolvency Act, No. 24 of 1936, and section 339 of the Companies Act, No. 61 van 1973, only natural persons can be appointed by the Master of the High Court to administer estates and a legal entity is precluded from being appointed as such. A practice therefore, inevitably, evolved (Grove v Marico Board of Executors Ltd. 1908 T.S. 11; Bekker v Republiek Trustees (Edms) Bpk. en In Ander 1988(2) SA 250 (T)), in terms whereof companies, such as the defendants, make use of "fronts" i.e. natural persons who are employed by them to be formally appointed by the Master in compliance with the various legal provisions. The companies then administer the estates on behalf of their employees whom the Master appointed and later benefit from the estates through the payment of the fees allowed by the regulations out of the estates to the persons appointed to administer the estates.

[3] In Re Estate McKenny 4 EDC 41 the court, consisting of Barry and Buchanan JJ, explained the ratio for appointing private persons as liquidators as follows:

" .... the law does not allow, nor is it customary, to appoint officers of a company p-y nffidn, but to name the trustees in their individual name so that there could be someone to attach if they did not do their duty."

On page 42 of the report the court also stated the following:

"It is useful to appoint persons who are officers of a public company because by doing so the company guaranteed the due performance of the trust, as they get the remuneration and pay their officers a salary, but the court also looks to the individual to whom the trust is confided."

[4] One P.J. Kilian was appointed as liquidator of a company Hygienik Dairies (pty) Ltd ..

[5] The plaintiff purchased from Kilian in his capacity as liquidator of the company a dairy operated by the insolvent company, as a going concern with its movable assets included. It appears that another party laid claim as lessor under an alleged hypothec to the movables. Kilian addressed a letter on the letterhead of the first respondent dated 17th July 2003, annexure "B" to the particulars of claim, to the plaintiff wherein he gave an unqualified undertaking to the plaintiff that in the event of

the plaintiff not being successful in opposing the claim of the lessor who attached the movables of the insolvent company, he immediately would refund the purchase price of the attached movables to the plaintiff. On the letterhead Kilian's name appears as a director of the first defendant. The opposition to the claim was not successful and the movables were sold in execution.

[6] The plaintiff alleged in the particulars of claim:

Kilian at all relevant times was in the employ of the first, alternatively the second defendant, and that he as representative of the first, alternatively the second defendant, was appointed as the liquidator of the insolvent estate of Hygienik Dairies (Pty) Ltd. the liquidated company;

Kilian was negligent in the performance of his duties as liquidator of the insolvent company and as a consequence thereof the plaintiff suffered damages and that the first, alternatively the second, alternatively the first and second respondents together, were liable to the plaintiff on account thereof;

c) Kilian's negligence appears from the following:

(i) he, in his capacity as liquidator, entered into a written agreement with

the plaintiff in terms whereof the plaintiff purchased the dairy as a going concern with its movable assets included and the plaintiff paid the full purchase price thereof to Kilian in his capacity as the liquidator;

(ii) that the movable assets of the dairy were encumbered by a hypothec

in favour of the lessor thereof which lessor caused the movable assets to be attached in terms of the hypothec which attachment the plaintiff opposed;

(iii) the magistrate's court ruled in favour of the lessor whereafter Kilian

noted an appeal which he, however, did not prosecute, and the movable assets were thereafter sold in execution;

(v) Kilian, with the knowledge that the movables he sold to the plaintiff

were in fact sold in execution by the lessor and that he had to refund the plaintiff in terms of his written undertaking, instead of refunding the

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plaintiff, he, without the knowledge of the plaintiff, paid the amount due to the plaintiff to the other creditors of the insolvent estate;

[vi) he also received payments from various parties which payments were

in fact due to the plaintiff in terms of the contract with the plaintiff and instead of paying it over to the plaintiff paid it to the other creditors of the insolvent estate.

[7] In the particulars of claim four claims were set out against the two defendants wherein the plaintiff claims repayment of certain amounts and damages.

[8] The defendants noted the following exception to the plaintiff's particulars of claim:

"2.1 'n Likwidateur van 'n maatskappy in likwidasie word aangestel deur die Meester van die Hooggeregshof en kleef so 'n aanstelling aan horn persoonlik.

2.2 Ingevolge art 55(h) van die Insolvensiewet, Wet 24 van 1936, gelees met artikel 339 van die Maatskappyewet (Wet 61 van 1973) kan slegs privaat persone aangestel word en is 'n regspersoon onbevoeg of aldus aangestel te word.

2.3 Regtens voer 'n Iikwidateur van 'n maatskappy in likwidasie sy verpligtinge uit onafhanklik van en nie onderhewig aan sy diensbestek met enige werkgewer nie.

Sien: Re Estate McKenny 4 EDC 41

Bekker v Republiek Trustees (Edms) Bpk. 1988 (2) SA 250(T)

Mars: The Law of Insolvency in South Africa (8ste Uitgawe) op 245.

2.4 Kragtens artikel 56 van die Insolvensiewet gelees met artikel 339 van die Maatskappyewet vereis die Meester van die Hooggeregshof dat sodanige Iikwidateur persoonlik sekuriteit stel dat hy sy werksaamhede behoorlik sal verrig waarna sy verkiesing bekragtig word en sy aanstelling volg deur oorhandiging aan horn van 'n sertifikaat van aanstelling wat regsgeldig is in die RSA.

Eiser se besonderhede van vordering openbaar derhalwe nie 'n skuldoorsaak nie aangesien 'n werkgewer nie regtens middelik aanspreeklik is vir die versuim van 'n Iikwidateur of kurator van 'n insolvente boedel of sy pligte stiptelik uit te voer."

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[9] Mr. Shepherd, who appeared for the defendants, argued that this court should already at this stage of the proceedings rule finally that the plaintiff did not have any claim against the defendants. Mr. Wessels, who appeared for the plaintiff, argued that this court could not do so. Both counsel, submitted that the matter was res nova and a decision was required in that regard from this Court. It appears that both counsel misinterpreted the function of an exception ..

[10] The nature and purpose of an exception must thus be restated to clear up any misunderstanding about it:

The only exceptions that may basicallty be raised by a defendant are the following:

i) that the summons does not disclose a cause of action;

ii) that the summons is vague and embarassing;

iii) that the summons does not comply with the rules of court;

iv) that the summons has not been properly served, and

that the copy of the summons served upon defendant differs materially from the original.

Other objections against the particulars of claim like misjoinder, nonjoinder, jurisdiction, non locus standi in iudicio etc. must be raised by way of a special plea.

The learned authors of Jones & Buckle: The Civil Practice of the Magistrates' Courts in South Africa, dealt with exceptions in so far as Rule 17 of the Magistrates Court, the principles whereof do not differ from that of the High Court, concerned and the following broad principles were regularly repeated in the various editions of the work and which principles were regularly endorsed by the courts:

"Even in those cases where exceptions can be taken the court cannot uphold the exception unless it is satisfied that the defendant would otherwise be prejudiced in the conduct of his defence and effectively limits the scope of technical defences (See Dusheiko v Milburn 1964 (4) SA 648 (A) at 655; Barclays

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Bank International Ltd. v African Diamond Exporters (Pty) Ltd. 1976 (1) SA 100 (W) at 107; Van Eck Bros v Van der Merwe 1940 CPD 357 at 360).

An exception is a legal objection to the opponent;s pleading. It complains of a defect inherent in the pleading; admitting for the moment that all the allegations in a summons or plea are true, it asserts that even with such admission the pleading does not either disclose a cause of action or a defendant, as the case may be. It follows that where an exception is taken, the court must look at the pleading excepted to as it stands; no facts outside those stated in the pleading can be brought into issue - except in the case of inconsistencies (See Cassim's Estate v Bayatt and Jadwat 1930 (2) PH F81(N); Sarna v Morulane NO 1975 (3) SA 53 (T)) and no reference may be made to any other document (SA Railways and Harbours v Pepeta 1926 CPD 45; Umpelea v Witbooi NO 1926 OPD 251; Amalgamated Footwear & Leather Industries v Jordan & Co. Ltd 1948 (2) SA 891 (C)".

In Makgae v Sentraboer (Ko-operatief) Bpk. 1981 (4) SA 239 (T) at 244H­245A Ackermann J. pointed out that where an exception is noted against a summons "[word] die korrektheid van die feite in die besonderhede van vordering aanvaar maar die regskonklusie word betwis" (English: "the correctness of the facts set out therein is accepted for the purposes of the exception but the correctness of the legal conclusion is placed in dispute") (my translation).

The alleged offending pleading must be looked at as a whole and no paragraph must be read in isolation (Nel and Others NNO v McArthur 2003 (4) SA 142 (T) at 149F).

In order for the exception to succeed the excipient must prove that in whichever way the contents of the pleading is interpreted it would still be excipiable (Theunissen v Transvaalse Lewendehawe Koop. Bpk. 1988(2) SA 493 (A) at 500E-F; Lewis v Oneanate (Pty) Ltd. [1992] ZASCA 174; 1992 (4) SA 811 (a) at 817F; Sun Packaging (Pty) Ltd. v Vreulink 1996(4) SA 176 (A) at 183E; Shell Auto Care (Pty) Ltd. v Laggar 2005 (1) SA 162 (0) at 168E-F).

[11] The question before the court is thus whether the allegation that the defendants as employers of Kilian are liable for the damages caused by his negligence and breach of contract, suffices as a cause of action against the defendants and not the

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question whether the appointment of a liquidator in an insolvent estate absolves the liquidator's employer from any liability for the delicts committed by the liquidator even for fraud perpetrated by him and also for breach of contract in the winding up of the estate.

[12] It is so that under certain circumstances a liquidator can be held personally liable for wrongs committed in his capacity as liquidator and ultimately his employers, if any, may be held liable on the basis set out in the judgment of Centlivres J, referred to in paragraph [14] infra. See in this regard Kerbels Flooring & Carpeting (Pty) Ltd. v Shrosbree and Another 1994 (1) SA 655 (SE) where Mullins J stated the following at 657 F:

"Liquidators make personal decisions. They do not in their capacity as liquidators have a separate mental decision-making process to that in their personal capacities as individuals. Logic suggests that in making such decisions they should not be in any more favourable position in law than other individuals.

See also in this regard Bryant & Flanagan (Pty) Ltd. v Muller and Another NNO 1978 (2) SA 807 (A) at 812G-813B.

113] It· is trite that employers may in certain circumstances be liable for delicts committed by theior employees. In the 1894 Transvaal case of Strange NO v The Liquidators of the Republican and Colonial Loan Agency and Trust Company 1 Off. Rep. 360, the Court ,consisting of Kotze CJ, Dekorte and Morice JJ, , stated the following:

"The company announced by advertisements that it undertook the administration of estates, which was also one of the objects in its articles of association. Now it is well known that it is not the custom of a court to appoint companies to administer an insolvent estate. The meaning of such advertisements must therefore have been that the company administered estates through its officials and that it made itself responsible for their actions."

[14] IThe reason for the employer's vicarious liability was discussed in Barkett v SA Mutual Trust & Assurance Co Ltd. 1951 (2) SA 353 (A). Centlivres CJ stated, p. 360 of the report, :

"The question as to the real reason why a master, who is not in any way at fault, should be held responsible for the harm done by his servant in

the execution of his work was discussed by WA TERM EYER, C.J.in Feldman (Pty.) Ltd v Mall, 1945 AD 733 and at p. 738 he points out that the E reason why masters should be held to be responsible eludes most of the writers on Roman-Dutch Law. The learned CHIEF JUSTICE, after referring to writers on English Law and decided cases in South Africa and England, said at p. 741:

'I have gone into this question more fully than seems necessary, in the hope that the reasons which have been advanced for the imposition of vicarious liability upon a master may give some indication of the limits of a master's legal responsibility, and the reasons are to some extent helpful. It appears from them that a master who does his work by the hand of a servant creates a risk of harm to others if the servant should prove to be negligent or inefficient or untrustworthy; that, because he has created this risk for his own ends he is under a duty to ensure that no one is injured by the servant's improper conduct or negligence in carrying on his work and that the mere giving by him of directions or orders to his servant is not a sufficient performance of that duty. It follows that if the servant's acts in doing his master's work or his activities incidental to or connected with it are carried out in a negligent or improper manner so as to cause harm to a third party the master is responsible for that harm.'

Whatever the real reason may be for holding a master responsible for the harm done by a servant in the execution of his work it is clear that in modem South African Law it is not because the master himself has been at fault: whether he was at fault or not is irrelevant: all that has to be proved is that the harm was done by the servant in the execution of his master's work."

Centlivres CJ also stated, p. 361:

"The maxim qui far-it p~r alium far-it p~r ~~ or as it is sometimes put~ per alium facit per se ipsum facere videtur seems to be primarily a maxim which enunciates the general doctrine on which the law relative to the rights and liabilities of principal and agent depends. Cf. Broom's Legal Maxims (9th ed., p. 530). The principal authorises his agent to do a particular act and having used his agent as his instrument for that purpose he is bound by the act of his agent as if he had done the act himself. Where, however, a master is held liable for the damage caused by the negligent act of his servant in the exercise of his duties, he is held liable not because he has specifically authorised his servant to do that negligent act but because of the now well established axiom that a master is liable for the delicts of his servant committed in the execution of his duties. So much is this the case that the master is held liable even if the servant has disregarded his express instructions. See Estate van der Byl v Swanepoel, 1927 AD 141."

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See also in this regard Neethling, Potgieter, Visser: Deliktereg (Fourth Edition) pA07; W.E Scott: Middelike Aanspreeklikheid in die Suid-Afrikaanse Reg (1983) p.254 et seq.; J.e. van der Merwe and P.J.J. Olivier: Die Onregmatige Daad in die Suid-Afrikaanse Reg (1989) on 520; J.C. van der Walt and J.R. Midgley Delict: Principles and Cases (1997) on p. 25; H. Wicke Vicarous Liability in Modern South Africa Law (1997) p.155 et seq.; 1998 THRHR 609 et seq ..

[15] The allegations made in the particulars of claim by the plaintiff are clear and to the point and establish causes of action.

[16] It is noted from annexure "B" to which reference has already been made supra that Kilian is a director of the first defendant and with regard to the facts it may well be that the plaintiff at the trial may succeed in proving a contractual relationship between Kilian and the defendants be it one of employer/employee or some other relationship in terms whereof Kilian was the agent of the defendants including how and on which basis Kilian got appointed as liquidator.

[17] The exception therefore cannot succeed and must be dismissed.

[18] The fact that the exception is dismissed does not mean that this court endorses the manner in which the plaintiffs particulars of claim was drafted. The reason why Kilian was not joined as a defendant in the action is also not clear either as he clearly has an interest in the matter.

[19] The following order is made:

1 . The exception is dismissed.

The first and second excipients must pay the costs of the exception

jointly and severally, the one paying the other to be absolved.

Q~N

UDGE OF THE HIGH COURT

Excipients'/Defendants' counsel

Adv. M.T. Shepherd

Excipients'/Defendants' attorneys Respondent's/Plaintitrs counsel Respondent's/Plaintitrs attorneys

10 Schabort & Inc.

Adv. J.K. Wessels Van Heerden &