Lundy v Beck (45027/2014) [2019] ZAGPJHC 191; 2019 (5) SA 503 (GJ) (22 May 2019)

IN

THE HIGH COURT OF SOUTH AFRICA

(GAUTENG LOCAL DIVISION, JOHANNESBURG)

CASE NO. 45027/2014

In the matter between –

LUNDY,

SHAUN

RYAN

Applicant

And

BECK , CARL

LUDWIG

Respondent

JUDGMENT

Application for final order of compulsory sequestration invoking act of insolvency of nulla bona return under s8(b) of the Insolvency Act 36 of 1924

Lundy had purchased Beck’s house under a sale in execution which arose from Beck’s indebtedness to a bank. Beck had

unsuccessfully instituted various proceedings to challenge the execution, and was then successful in setting aside the bank’s

money judgment, after which he launched further proceedings once again challenging the sale and transfer in execution. Beck and Lundy had in the meantime executed various agreements in relation to the property, and these led to disputes. Beck continued to occupy the property throughout.

Eventually, Lundy obtained a nulla bona return in relation to a cost order in his favour and invoked this as an act of insolvency under s8(b) to seek the sequestration of Beck’s estate.

After the launch of the sequestration proceedings, Beck’s application to challenge the sale and transfer of the property failed and he was evicted. During the exchange of papers, and after a provisional order was granted, Beck paid the capital amount on which the writ had been obtained. Lundy persisted with the application on the basis that interest and costs had not been paid. Beck then tendered to pay the whole accrued interest amount once banking details were provided, yet these were not provided and Lundy persisted with the sequestration application.

Held – payment, after sequestration proceedings were launched, and a provisional order obtained, of the debt amount on which a s8(b) act of insolvency was founded precluded further reliance on that act of insolvency

Held – only such interest as had accrued as at the date of the nulla bona return could form part of the debt for purposes of the relevant act of insolvency under s8(b); interest accruing subsequent to such date could not be invoked as part of the debt on which the act of insolvency was founded; the costs of the sequestration proceedings could never form part of the debt on which the act of insolvency was founded

Held – in the circumstances the application was brought for an ulterior purpose to achieve an eviction and then a settlement in the dispute about the property, and should certainly not have been persisted with after payment of the full interest amount was tendered

The application was dismissed with a special cost order

SNYCKERS AJ: (heard 21 May 2019; judgment 22 May 2019)

A. Introduction and background

1. This is the return day in relation to a provisional order for the compulsory sequestration of the estate of the respondent (Beck), granted on 17 October 2017, the rule nisi having been extended on at least three occasions. A final order of sequestration is sought.

2. The applicant, Lundy, founds his application on section 8(b) of the Insolvency Act 36 of 1924. The alleged act of insolvency invoked is an inadequately fruitful sheriff’s return dated 26 April 2014, issued upon execution of a writ dated 1 April 2014 and date stamped 10 April 2014. The writ (“warrant of execution”) is in respect of the sum of R78, 123 (seventy eight thousand one hundred and twenty three rand) “pursuant to an order by the abovementioned honourable Court on the 25th March 2014, a copy of which is attached hereto, together with interest thereon at the rate if 15,5% per annum calculated from the

25th of March 2014 to date of final payment, and all further legal costs and charges on a scale as between attorney and client, together with the costs of this warrant in the amount of R425”.

3. The return refers to personal service on the respondent (variably referred to as the defendant) and states as follows:

“Payment was demanded from the Defendant in terms of Rule 45(3) and failing satisfaction, the disposable property inventorised in Annexure A was pointed out by RESPONDENT and Attached in terms of Rule 45(3)(b).”

…

“The approximate value of the property attached is R+-20000 00”.

4. On the second page of the return, one of the standard form options filled in by the sheriff was item 7, which read (with the amount filled in in manuscript):

“The approximate value of the disposable property are (sic) R20,000 and the Defendant declined to disclose any further disposable property when requested to do so.”

5. The inventory sets out sundry home and office goods and equipment.

6. The writ was obtained on a taxed bill of costs. The taxation of the bill occurred on 24 March 2014. The writ is accordingly inaccurate in referring to a court order dated 25 March 2014. The taxed bill was the result of three cost orders awarded in different stages of an application that Lundy had brought against Beck under case number 03304/2013 (the case number on the writ), granted on 30 May 2013, 11 June 2013, and 10 September 2013. One of the cost orders was on an attorney and client scale. The confusion in the writ between the court order and the taxed bill of costs is responsible for confusion as to what is meant by the reference to costs on a scale between attorney and client when it comes to the subject-matter of the writ. More about that below.

7. The context of the taxed bill that formed the basis of the sequestration application is important in this application.

8. Lundy purchased a house under a sale in execution. The house had belonged to Beck. It was sold in execution pursuant to a judgment obtained by a bank against Beck. This unleashed five applications by Beck attacking the judgment in various ways. The first four applications failed. The fifth application resulted in the setting aside of the money judgment against Beck. In that application, however, Beck specifically disavowed any challenge to the order rendering his house executable (Lundy was not cited in that application). Earlier judgments in the saga appeared to have determined this issue against Beck, and Beck accepted that Lundy had already purchased the property.

9. Indeed, Lundy and Beck (at times acting for a family trust) had concluded lease and sale agreements in respect of the property, with Lundy as lessor and seller and Beck or the trust as tenant and purchaser. Beck remained in occupation of the property. Disputes arose between Lundy and Beck relating to their agreements about the property. The upshot was that Beck remained in the property and Lundy was receiving no value in relation to the property he had purchased, and so Lundy instituted proceedings for, as he calls it “access to the property”. These proceedings resulted in judgments in Lundy’s favour, including the cost awards that led to the taxed bill in question.

10. Beck was emboldened by the judgment in the fifth application setting aside the money judgment in favour of the bank and proceeded to launch a sixth application, challenging the sale in execution and transfer of his property and essentially seeking to have the property returned to him. Lundy was cited as first respondent (this he says in the founding affidavit, yet in a supplementary affidavit he says he was not cited as a party; unfortunately Mr Dreyer, who appeared for Lundy, could not clear this up for me at the hearing of the application).

11. Lundy saw the sixth application as a vexatious ruse on the part of Beck to prolong his occupation of the property without paying for it. The result was the sequestration application, based on the unsatisfied writ for the taxed bill of costs flowing from the earlier proceedings.

12. In the answering papers, Beck took issue with the validity of the writ (given its inaccurate reference to a court order). Beck also alleged that the amount at issue in the writ, together with the interest and costs claimed by the sheriff in it, had been paid by his attorneys, and attached documents ostensibly demonstrating this, which Lundy in reply pointed out did nothing of the sort. These statements reflected payments out of the attorneys’ trust account of R2990 and R17932 to Sheriff Johannesburg North. Subsequent events are entirely irreconcilable with these payments in any way serving as payments towards discharging the debt on the taxed bill, and Mr Peter, who appeared for Beck, did not seek to contend otherwise.

13. In the answering papers, Beck’s main response relied on the anticipated outcome of the sixth application before Wendell J, which was said to have been argued in March 2015, with judgment awaited. Beck’s attitude was that if the judgment went in his favour, then the deposit of some R250,000 that had been paid to Lundy by the family trust fell to be repaid, a claim that the trust had ceded to Beck. This would then extinguish the debt on the taxed bill. As for the alleged liability arising from occupation of the property, there would, so he said, be no liability if the property ought never to have been transferred.

14. The response to this in reply was that the sixth application was a vexatious abuse of process, seeking to overturn findings that were res judicata, and with no prospects of success. It was also said that set-off could not apply.

B.

PAYMENT

15. Further affidavits were filed, both parties being content before me for me to receive these. Given that they related to payment of the debt to which the taxed bill related, occurring subsequent to the institution of proceedings, and given that neither party asserted prejudice in relation to the further affidavits, I allowed their reception.

16. The first two further affidavits record that the amount of R78, 123 (the taxed bill amount in the writ) was paid to Lundy’s attorneys’ correspondent attorneys, on 17 June 2016.

17. Lundy’s response to this was that this did not satisfy the writ, as the writ also referred to interest and costs. The costs that Lundy demanded were the costs to date in the protracted sequestration proceedings.

18. This elicited a further affidavit from Beck, dated 22 March 2019. This affidavit referred to the payment of the capital amount and that Beck had been under the impression that no interest was payable as the taxed bill made no reference to interest, but had since been advised that interest accrued ex lege. The affidavit then calculated two alternative interest amounts, the one altering the applicable rate from 15.5% to 9% as and when the legal rate changed, and the other retaining the interest rate at 15.5% given the reference in the writ to a rate of 15.5%. The higher amount (using 15.5%) yielded a calculation to date of payment of R27 245.66.

19. It was alleged that this amount had been tendered to Lundy’s attorneys. The affidavit continues:

This amount is obviously based on my attorney’s calculation and the applicant is invited to rebut and provide its own calculation. Upon receipt of the applicant’s attorneys banking details, such funds will be transferred immediately.”

20. It was common cause before me that this was an unconditional tender.

21. As for the costs of the sequestration application, Beck’s affidavit states that the costs of the application have not been determined or taxed and that it is a “bizarre proposition” to assert that he should be sequestrated because he has not tendered the costs of the application in which his sequestration is sought.

22. Lundy’s supplementary affidavit asserts other causes of action upon which Beck is said to be indebted to him, arising out of the continued occupation of the property, including a claim for unlawful holding over (a damages claim), and a damages claim for having paid the municipal account to secure transfer. The claims were the subject of summonses attached to the supplementary affidavit. Apart from an alleged failure to pay one month’s rental (R30,000) under the cancelled lease agreement, none of the claims appears to be liquidated. The summonses suggest that Beck was eventually successfully evicted in July 2015.

23. It is not clear what the supplementary affidavit seeks to make of these additional claims. They are said to confirm Lundy’s locus standi (as creditor). Presumably this is because the debt on which the application was brought had been paid (at least as to its capital

amount by the time the affidavit was deposed to).

C.

ISSUES

AND ASSESSMENT

24. I pressed Mr Dreyer on what Lundy sought to make of the additional claims referred to in the supplementary affidavit. The claims are not, and cannot be, set out to seek to make out a case for actual (factual) insolvency on the part of Beck. They are not sought to be relied on as other acts of insolvency. They appear therefore to relate merely to Lundy’s locus standi to the extent that they are not affected by the rule against relying on debts that are bona fide disputed for this purpose. Mr Dreyer disavowed any direct reliance on these debts as a basis for his sequestration application.

25. What happened in the sixth application is a mystery. Neither party could enlighten me. It does not help that Lundy’s replying affidavit, dated August 2015, already states that Lundy was not cited as a party in that application whilst his founding affidavit states that he was first respondent. Mr Peter fairly conceded that it would be reasonable to infer that, had anything favourable to Beck issued forth from that application, this would have featured in the supplementary affidavit. Against this, I suppose, one could say that had the sixth application been dismissed, one would have expected this to have featured in Lundy’s supplementary affidavit. The fact that the summonses suggest eviction was secured in July 2015 suggests strongly that the sixth application was unsuccessful. I found it difficult to understand how this matter, that played such a prominent part in the answer and reply, simply fell into a black hole.

26. It was common cause before me that, if a respondent pays the full debt on which a writ was issued that yielded the nulla bona return which is invoked as a s8(b) act of insolvency, then the act of insolvency can no longer be relied on as a basis for sequestration. I pressed the parties on this, as it did not appear to me to be necessarily so, given that an act of insolvency is a proxy for actual insolvency, and its subsequent “cure” does not necessarily undo its effects for the purposes of what it is deemed to prove. I asked counsel to research the question further over the tea and lunch adjournments and Mr Peter helpfully referred me to the full court decision in Sithole NO v Mahlangu 2017 JDR 0954 (GJ), which endorsed the proposition espoused in Duchen v Flax 1938 WLD 119, to the following effect:

“If, for instance, after a return of nulla bona the debtor pays the judgment debt there would on the literal meaning of the sections have been an act of insolvency. Yet the act of insolvency would not, to employ the language of the English law of bankruptcy, be ‘available’; it could not found

sequestration proceedings” (Duchen at 125).

27. In Sithole, the payment was made after a provisional order had been granted, and the Beck principle was held on appeal to apply.

28. The question then arises what comprised the debt embodied in the writ which yielded the nulla bona return (the inadequate goods return) in the instant case.

29. First, as to interest, the relevant act of insolvency appears to me to be captured when the writ is executed. This means that it is difficult to see how a creditor relying solely on an act of insolvency under s8(b) can invoke interest accruing after the date of the act of insolvency as part of the failure that comprises the act of insolvency. That would mean that only an amount of approximately

R1000 in interest would have been payable as part of the writ in full satisfaction, given its execution on 26 April on a debt said to attract interest at an annual rate of 15.5% from 25 March.

30. But Beck tendered payment of the full interest amount up to the date of payment of the capital amount, far beyond the date of the return, assuming interest to remain fixed at the higher 15.5%. I leave aside here complications arising from the fact that the Beck tender leaves out of account that an amount of unpaid interest remained unpaid and untendered for the period of almost three years, from June 2016 to March 2019, which may itself have attracted further interest.

31. Mr Dreyer said that one could not trust the tender, judging from what Mr Peter had to concede appeared to have been a dishonest attempt in the original answering affidavit to suggest the amount had been paid on an earlier occasion. But the tender is unconditional, and made on oath, and for some reason it did not elicit production of the requested banking details for payment to be made.

32. What about costs? This is where the confusion in the writ is relevant. Mr Peter quite properly did not wish to take the point that the writ was invalid for referring to a court order instead of a bill of costs, when it was quite clear to all concerned what the subject-matter of the writ was. This would presumably be the kind of formal defect that section 157(7) of the Insolvency Act would permit being overlooked. But the writ refers to costs on an attorney and client scale, which is something that seems entirely out of place as tacked onto a taxed bill of costs. Mr Dreyer submitted this must include the costs of enforcement of the writ, which in the present proceedings would entail the costs of this sequestration application. But here I share the view expressed in Beck’s supplementary affidavit that this would be bizarre. For a start, it is by no means clear which costs would be the costs of this application to be borne by Beck; after all, no such order has yet been made, and the writ can hardly prescribe the scale of such costs in advance. Furthermore, it is difficult to see how it can ever be contended that this is liquidated enough to serve as a foundation of a writ for purposes of a nulla bona return to found an act of insolvency.

33. I remain in any event of the view that the act of insolvency must be determined with reference to the debt stated to be due as and when due on the day execution is sought, and not with reference to debts that could accrue subsequent to that day.

34. That should put paid to the sequestration application.

35. But even if this were wrong, and even if one ignored the interest tender altogether, and ignored the fact that the only relevant interest for purposes of the act of insolvency would probably have been the R1000 or so accruing from 25 March to 26 April, it is difficult to see how the requirement of advantage to creditors could be established in this application.

36. The advertisements yielded no other creditors. Mr Dreyer at first sought to rely on the fact that Lundy was the sole creditor, and then submitted that he ought not to be treated as the sole creditor, although there was no indication on the papers of other creditors (the bank’s money judgment having been set aside).

37. On the papers, the only creditor that featured was Lundy. It seems to me that the principle enunciated by Didcott J in Gardee v Dhanmanta Holdings and Others 1978 (1) SA 1066 (N) is applicable, namely where execution is cheaper and more expeditious than sequestration and the sole creditor already has a judgment, generally there is no reason to believe that sequestration will be of advantage to creditors. Mr Peter referred me to the following statement in Realizations Ltd v Ager 1961 (4) SA 10 (D) at 11D-E: (my emphasis)

“An advantage to creditors is shown generally when the petitioning creditor establishes that the debtor has a substantial estate to sequestrate and that the creditors cannot get payment except through sequestration.”

38. It should be pointed out that Williamson JP in Ager went on to say:

“In considering whether it is to the advantage of creditors the Court does not consider whether other alternative methods of obtaining

payment might not bring better results.”

39. Nevertheless, in the instant case, Lundy alleged in his founding affidavit, without substantiation or elaboration, that Beck owned three immovable properties. Beck alleged, without substantiation or elaboration, that he owned motor vehicles worth R300,000. These facts, if correct, would certainly yield rich pickings in a sequestration, but they also tend to show that Beck is not actually insolvent, and that attempts to execute on property to satisfy whatever was left of the cost debt would likely have met success, or at least that sequestration is a strange way of going about obtaining satisfaction of this debt.

40. And why would Lundy refrain from putting the interest tender to the test by providing the requested bank details? Mr Dreyer at first submitted that the interest calculation in the Beck supplementary affidavit was not correct, although he could not say in what respect, but after taking instructions submitted that the calculation was indeed correct.

41. The reason for not taking up the tender appears to me to be relatively clear. This sequestration started off as a frustrated eviction. I have no doubt that, had it not been for Lundy’s grievances, which appear to be fully justified, with respect to Beck’s occupation of the property for years without payment, Lundy would not have brought a sequestration application based on a taxed bill of costs. Lundy comes close to conceding what the application is really about in paragraph 17.4 of the replying affidavit:

“The application was launched as a consequence of the Respondent’s abuse of the Court proceedings for years, his insolvency and the fact that he was successful of securing his unlawfully occupancy, a property of which I am the owner” (sic).

42. By then, if the summonses attached to the supplementary affidavit are to be believed, Beck had been evicted. The battle had moved on to compensation for the unlawful occupation of the property and breaches of the agreements concluded with Beck and his trust. Mr Lundy’s frustrations are readily understandable. But, as Mr Peter correctly pointed out, frustration is not a ground for sequestration.

43. It appears to me that the process of sequestration was employed for an ulterior purpose, to use as a tool to procure the vacation of the property by Beck, and then to secure a settlement of the holding over charges Lundy wishes to visit upon him. It was not brought to secure payment of the cost award debt by the process of sequestration. This brings the sequestration application within the category of cases of ulterior purpose such as envisaged in Wackrill v Sandton International Removals (Pty) Ltd and Others 1984 (1) SA 282 (W) at 293 and cases considered there.

44. I do not know what the precise status is of the war about the property, and whether the summonses have yielded any further pleadings or progress. They are dated July 2015, soon after the alleged conviction. That is now almost four years ago. Be that as it may, a sequestration application should not be a front in an eviction and damages war.

45. For his part, Beck had no reason whatsoever to decline to pay the taxed bill. He committed an act of insolvency. He invited these proceedings. He paid only the capital amount, more than two years after the writ was taken out, and tendered payment of interest five years after the writ. He was apparently dishonest in averring in the original answering affidavit that the debt had been paid.

46. It would seem in the circumstances just not to order costs against Lundy, up to the date that the capital amount of the debt was paid, namely 17 June 2016.

47. But once the capital amount was paid, on 17 June 2016, the sequestration proceedings, already inappropriate as a weapon in waging the war about the property, ought not to have continued sucking up further resources. From that date onwards, Lundy should pay the costs of this application. And from the date of receipt of the supplementary affidavit making an unqualified tender to pay the full interest amount, namely 22 March 2019, any further persistence in the application was vexatious. A cost award on an attorney client scale from that day onwards is appropriate.

D.

ORDER

a. The application is dismissed.

b. The provisional order and rule nisi issued on 17 October 2017 are discharged.

c. All costs of the application incurred up to immediately before 17 June 2016 are to be borne by each party his own.

d. The applicant is directed to pay the costs of the application incurred from 17 June 2016 to 21 March 2019 on a party and party scale.

e. The applicant is directed to pay the costs of the application incurred from 22 March 2019 on the scale as between attorney and client.

_________

Snyckers AJ 22 May 2019