Mofomo Construction CC v All Star Industries CC (2930/2019) [2020] ZAFSHC 259 (26 March 2020)

IN THE HIGH COURT OF SOUTH AFRICA,

FREE STATE DIVISI0N, BLOEMFONTEIN

Case no:.2930/2019

In the matter between:

MOFOMO CONSTRUCTION CC

REGISTRATION NUMNER 1993/017739/23

Applicant

and

ALL STAR INDUSTRIES CC

REGISTRATION NUMBER: 2010/0018683/23

Respondent

CORAM: R MATTHEWS, AJ

HEARD ON: 27 FEBRUARY 2020

JUDGMENT BY: R MATTHEWS, AJ

DELIVERED ON: 26 March 2020

[1] This is an opposed application for the provisional liquidation of a close corporation on the basis that the applicant has repeatedly

demanded payment for work done and the respondent has disputed the. claims· for payment. The primary issue at hand is whether the dispute raised by the respondent is bona fide and on reasonable grounds.

FACTUAL MATRIX

[2] The following are the undisputed facts:

[2.1] That the respondent is All Star Industries CC, a Close Corporation that works exclusively for Government and in particular with municipalities. Mangaung Metropolitan Municipality is one of their biggest clients.

[2.2] That the respondent has several contracts with the Mangaung Metropolitan Municipality. The respondent subcontracted to the applicant.

[2.3] The applicant is Mofomo Construction CC, a close corporation that built, tarred and fixed specified roads stated in the main and sub agreement with the respondent. The applicant invoiced the respondent for work done for which two payments of R 472 524.25 and R600 000.00 were made on the 19th March 2019 arid 15 May 2019 respectively by the respondent.

[2.4] The applicant, represented by Mr. Raymond Phoofolo Seboko sent a letter of demand to the respondent on 20 March 2019. The letter attempted to recover payment from the respondent to the applicant in the amount of R1 617 548.30 (one million, six hundred and seventeen thousand, five hundred and forty eight rand and thirty cents), which the applicant claimed was due and payable.

[2.5] On 28 May 2019 the parties entered into a telephonic agreement, that the applicant would give the respondent a discount of R430 150.81 if the balance due was paid. Despite assurances no payments had to date been made.

[3] On the 18th day of September 2019 Mr. R Africa, on behalf of the respondent deposed of an opposing affidavit, wherein the respondent agreed that he was indebted to the applicant in the- amount of R677 351.16. That a letter of demand was received from the applicant but that the respondent was at present not in a position to satisfy the claim of the applicant. Mr. Africa stated that the respondent's biggest client, Mangaung Metropolitan Municipality failed to pay him but that he expects this problem to be resolved in the near future.

[4] Mr. Africa also stated that the respondent has creditors that owe it R 2 653 359.16 and that the respondent Was not insolvent. The respondent added in paragraph 17 of his affidavit, that he did enter into a telephonic arrangement with the applicant.to pay the outstanding debt on or before 28 May 2019. However, he was not able to make such payment as the Mangaung Metropolitan Municipality failed to honour their debts to him.

[5] In reply to the respondent's affidavit, the applicant represented by Mr Raymond Phoofolo Seboko stated that' up until the making of his affidavit on the 29 October 2019, the respondent had not made ·any payment towards the outstanding debt. He further stated that the respondent had taken no steps to solicit the outstanding debts due to him.

[6] The applicant stated that the respondent has had sufficient time pay the claims submitted and his failure to do so is an indication that he is unable to do so. He stated further that the respondent has admitted that the payment of his debts is contingent upon being paid by some of its debtors and it is clear, that the applicant will not be paid anytime soon.

[7] The applicant stated that the respondent's current financial position is unknown as he has only attached his financial statements for the year ending Feb 2019 and that the court should make a negative inference from his failure to disclose his current financial statement.

[8] With leave of the court, the respondent filed a further affidavits dated 22 November 2019 wherein he states that he had consulted with his client, the Mangaung Metropolitain Municipality, and two engineers who advised him to reconcile the invoices.

[9] In this further affidavit, the respondent raised a new defence: which was that the respondent has actually overpaid the applicant in the amount of R 342 700.13, which arose out of three incidents.

[9.1] The respondents' contract manager discovered the overpayment of R342 700.13, after consultation with the two engineers when they recalculated the quotations made for the work done and the materials used.

[9.1.1] The Contracts Manager of the respondent, Mr. Thabo .Mosia, lodged affidavit wherein he states that the subcontract between the parties, required the applicant to have submitted his monthly claims due to the engineer on site. The engineer in turn have had considered the work done and the materials used in order to confirm or adjust the claim before issuing a 'payment certificate'. Without the payment certificate, the applicant was not entitled to receive any payments. In particular he blames the former Contracts Manager, Mr. Kurasan Mathonsi, former contracts manager of the respondent for not insisting that the applicant submit valuation certificates with his claims ( How convenient to absolve the respondent, who bears the ultimate responsibility)

[9.1.2] He states further that the current engineer Mr. Bakkes has provided him with a detailed schematic diagram and a schedule with approved works setting out the work completed and the dates of completion. He states that the applicant started the work on 4 February 2019 and was required to complete the work on 13 November 2019. He abandoned work on the 15 May 2019, which amounted to a 44% duration of the contract completed. He states further that the applicant should accordingly only be entitled to 44% of the contractual obligations.

[9.1.3] He states further that in terms of the value of the works completed, the only amounts approved by the engineer amounts to R849 824.13. Mr. Bakkes, the engineer deposed an affidavit in respect of the material and work done and I will deal with his affidavit later in this judgment.

[9.2] The second point raised by Mr. Thabo Mosia, arises out of financial penalties imposed due to the applicants breach of contract, through abandoning the work prior to completion.

[9.2.1] Mr. Thabo Mesia further raised the third point based on claims lodged against the respondent under the Occupational Health and Safety Clause due to their subcontract agreement, which grants the respondent indemnity against such claims lodged.

[10] Council for the respondent, Advocate Zietsman, argued that several facts have been raised that presents a bona fide defence against the applicants' demands. In particular, he referred to i) the applicant's failure to allow for a 30 day period between invoices; and ii) their failure to provide the required valuation certificates as provided by the. subcontract agreement.

[11] Advocate Zietsman, argued further that it is common cause that the quantity of work done by the applicant was not certified by an engineer as required in the subcontract and that the uncertified invoices contained erroneous values which itself raised a bona fide dispute. He said that the applicant concedes in his supplementary replying affidavit that higher amounts of gravel were in fact, signed off by the employer's engineer for payment, as opposed to the amount of gravel that was in fact, used. That this admission presents a fact to be defended in good faith.

[12] Advocate Zietsman referred to a dictum in Hulse-Reuter v Heg Consulting Enterprises (Pty) (Ltd)[1], Thring J said the respondent does not have to prove that they have a bona defence on a balance of probabilities. All that they have to satisfy the court is that the dispute that they are advancing is not unreasonable. That further, it seemed sufficient to him for the respondents:

".. .to allege facts which if proved at trial, would constitute a good defence to the claims made against the company."[2]

[13] On behalf of the applicant, the Adv. Sander submitted that the defences raised by the respondent are not in good faith. He submitted that the assertion that the applicant was overpaid was based on false information as the affidavit of the respondents' engineer Mr. Bakkes, did not quantify the value of work done on item 34.15(a)(i) and materials used in Annexure AS(b). The amounts listed in Annexure AS (b) did not reflect the quantity of material used but rather reflected the geotechnical test results. The result is that the contracts manager who calculated an overpayment is clearly wrong. He pointed out that Mr. Bakkes confirmed having certified claims 4, 5 and 6 as correct.

[14] He submitted further that the applicant only moved off the work site, after the respondent failed to pay him and he received an email from the respondents' Mr. Africa that he may move off the site. He added that any penalties that the respondent claims, due to the abandonment of the work site was due to the respondent's non-payments.

[15] In respect of the respondents claim under the Occupational Health and Safety of the Employers clause, he submitted that their calculation is unsupported and far less than the applicants claim.

[16] Further, that the respondent tacitly accepted the difference referred to in the calculations based on the uncompact and compact gravel by when he made payment. He referred to the affidavit of Mr. Bakkes where he confirmed that he certified three payments as correct. He added that any difference in the value gravel used was way less than the applicant had claimed for and further discounted by the reduced claim that the applicant and the respondent agreed to per telephone.

THE LAW

[17] According to the principles laid down in the Appellate Division in Kalil v Decotex (Pty) Ltd and Another[3], the test is whether the balance of probabilities favours the applicant's version on the papers, or that respondent on reasonable

and bona fide grounds to dispute the applicant's claim.

[18] In Investec Bank Ltd and Another v Mutemeri and Another[4], Trengove AJ pointed out that while the creditor's underlying motive may be to obtain payment of his debt; an application for sequestration in fact does not constitute proceedings for the recovery of a debt, but rather:

"Its purpose and effect are merely to bring· about a convergence of the claims in an insolvent estate to ensure that it is wound up in an orderly fashion and that creditors are treated equally."[5]

[19] The making of an offer by the debtor, is an act of insolvency provided it involves expressly or impliedly an acknowledgment by the debtor that he is unable to pay such debts in full.[6] The test of the debtor's intention is a subjective one. However, such intention is established:

"by a process of inferential reasoning and is not dependant on the mere ipse dixit of the debtor". In determining whether the requisite intention existed the Court must "weigh up all the relevant facts and circumstances in order to determine what, on a balance of probabilities, was the 'dominant, operative or effectual intention in substance and in truth' of the debtor.”[7]

[20] The common facts on the papers show quite clearly that the respondent has raised a number of defences at various times. His first defence was solvency coupled with a temporary cash flow problem. Thereafter he raised the absence of engineering certificates, which he had condoned by making the two payments. In realisation of his dire position, he consulted his main client the Mangaung Metropolitan Municipality who referred him to the two engineers. After further consultation, he claimed that the applicant's claims were erroneously calculated. His calculations are however undermined by his engineer, Mr. Bakkes, who stated that the report used by the respondent's manager, Mr. Mosia did not refer to quantity of materials but was instead a reference to geo test results.[8]

[21] The next defence was for damages for breach of contract by the applicant who abandoned the work site. An e-mail sent by the respondent however concedes that the respondent agreed to the abandonment of the work site after he had not paid the respondent for claims made.

[22] The last defence was for claims the respondent faces under the Workmen's compensation clause in their contract, which arose after the applicant abandoned the work site. The alleged claims are unsubstantiated. I do not know if the respondent has been citied in any actions or have made any payments in claims under this section.

[23] A bona fide defence must be real and one cannot grab onto theoretical possibilities without any tangible or substantial foundations. Where the foundations of the bona fide defences are, disproved or have been shown to be far less than the outstanding debts, the good faith of the defence is absent.

[24] It is worth repeating the dictum of Innes CJ in De Waardt v Andrew & Thienhaus Ltd[9]

"I always look with great suspicion upon, and examine very narrowly, the position of a debtor who says, "I am sorry that I cannot pay my creditor, but my assets far exceeds my liabilities." To my mind the best proof of solvency is that a man should pay his debts..."[10]

[25] The balance of convenience shows that the respondent is unable to pay his debt and his unpersuasive defences is an indication that he is facto insolvent and that he has no bona fide defence.

ORDER

1. The respondent company is, hereby placed under PROVISIONAL LIQUIDATION in the hands of the Master of the High Court.

2. A PROVISIONAL LIQUIDATION ORDER is, hereby issued calling upon all interested parties to show cause, if any, to the court on the 14th day of MAY 2020 at 09h30 why a FINAL ORDER OF LIQUIDATION should not, be granted against respondent company.

3. Service of this rule nisi and a copy of the notice of motion and annexures shall be, effected on the respondent company at its registered office or its principal place of business within the court's jurisdiction.

4. This order shall without delay be published in DIE VOLKSBLAD and THE GOVERNMENT GAZETTE.

5. The sheriff shall ascertain whether a trade union represents the employees of the respondent and further if there is a notice board on the premises to which the employees have access.

6. A copy of the provisional liquidation order shall be, served on:

6.1. Every registered trade union that as far as the Sheriff can reasonably ascertain represents any of the employees of the respondent company.

6.2. The employees of the respondent company by affixing a copy of the application and provisional liquidation order on any notice board to which the employees have access to inside the respondent company's premises or if there is no access to the premises by the employees, by affixing a copy to the front gate or front door of the premises from which the respondent company conducted any business.

6.3. The South African Revenue Services.

_____________________

R MATTHEWS, AJ

For the applicant: Adv. A Sander

Instructed by: V Graham Attorneys Bloemfontein

For the respondent: Adv J Zietsman

Instructed by: Kramer Wheiman & Joubert Attorneys Bloemfontein

[1] Hulse-Reuter v Heg Consulting Enterprises (Pty) (Ltd) 1998 (2) SA 208

[2] Ibid at 220A

[3] Kalil v Decotex (Pty) Ltd and Another 1988(1) SA 943 (A)

[4] Investec Bank Ltd and Another v Mutemeri and Another 2010 (1) SA 265 (GSJ)

[5] Ibid at 274H. See also Naidoo v ABSA Bank Ltd 2010 (4) SA 597 (SCA) para [7].

[6] Laeveldse Kooperasie Bpk v Joubert 1980 (3) SA l 117 (T) at 1125-1126 and cases therein cited

[7] Hassan and Another v Berrange 2012 (6) SA 329 (SCA) para [37]

[8] See Annexure AS 12b of Mr Mosia's affidavit

[9] De Waard v Andrew & Thienhaus, Ltd. 1907 TS 727

[10] Ibid at 733