Nedbank Limited v Migolie Investments CC (37161/2005) [2007] ZAGPHC 6 (12 February 2007)

IN THE HIGH COURT OF SOUTH AFRICA /ES

(TRANSVAAL PROVINCIAL DIVISION)

CASE NO: 37161/2005

DATE: 12/2/2007

NOT REPORTABLE

IN THE MATTER BETWEEN

NEDBANK LIMITED APPLICANT

AND

MIGOLIE INVESTMENTS CC RESPONDENT

JUDGMENT

MYNHARDT, J

INTRODUCTION

[1] This is the return day of a provisional winding-up order that was granted by VAN ROOYEN, AJ on 7 July 2006. The return day set by VAN ROOYEN, AJ was 17 August 2006. The parties, by agreement, extended the date to 17 0ctober 2006. 0n that day the respondent applied, on notice of motion, for a further extension, which was granted. The new return day was 5 December 2006. 0n that day I heard the matter and reserved judgment. The return day was again extended to 12 February 2007.

[2] The respondent opposed the matter right from the start. It delivered an answering affidavit in response to which the applicant delivered a replying affidavit. After the judgment of VAN ROOYEN, AJ the respondent delivered an "opposing affidavit" whereafter the applicant delivered an "answering affidavit" in which it dealt with the allegations contained in the respondent's "opposing affidavit". The respondent thereafter delivered a supplementary opposing affidavit and, in response thereto, the applicant delivered a further replying affidavit.

The papers are, therefore, fairly voluminous. The application presently comprises 732 pages.

[3] The applicant still seeks an order winding-up the respondent. The respondent seeks an order discharging the provisional liquidation order or, in the alternative, an order postponing the application sine die with leave to supplement the papers after the conclusion of the pending trial between the parties on 14 March 2007.

[4] 0n 23 December 2003, and in this court, the applicant instituted an action against the respondent and two other parties, under case no 36030/2003. That action is still pending. It was enrolled for hearing on 25 August 2005. 0n that day the matter was postponed sine die at the instance of the respondent. The deponent to the affidavits filed of record in the application for the winding-up of the respondent, Mr Miguel Carreira ("Carreira") was indisposed because he was admitted to hospital. The action has now been set down for hearing on 14 March 2007.

The present respondent in the application is the first defendant in the action and Carreira is the second defendant. The third defendant is Rebel Wholesale Meat (Pty) Ltd ("Rebel"), a company of which Carreira is a director. Carreira and Rebel have been sued as defendants pursuant to deeds of suretyship that they have signed as sureties for the debts of the respondent.

[5] In the papers Carreira has described himself as "the sole member of the respondent". That allegation has been put in issue by the applicant who has put a certificate before the court which was issued by the Registrar of Companies and Close Corporations ("the Registrar") on 17 May 2006, to the effect that one Kim Carreira is the sole member of the respondent. Prima facie, therefore, Carreira does not seem to have the necessary locus standi to represent the respondent. He does not rely on authority to do so because he was authorised to do so by Kim Carreira.

The applicant, however, apart from mentioning this aspect also in its latest replying affidavit, did not make a point of it at the hearing of the application. I shall, therefore, assume, without deciding so, that Carreira was properly authorised to depose to the affidavits filed of record on behalf of the respondent in this matter.

THE APPLICANT'S CASE

[6] The applicant's case, generally speaking, is that the respondent is presently indebted to it in an amount of R6 319 001,59, as at 1 0ctober 2006, plus interest thereon at the rate of 13% per annum as from that date to the date of payment thereof. This indebtedness arose from an agreement of loan in terms of which an amount of R5,5 million was lent to the respondent in July 2001. By virtue of a covering mortgage bond which was registered in favour of the applicant by the respondent over its immovable property, a commercial building comprising of shops and offices that are letable, the applicant is a secured creditor of the respondent.

According to the applicant the respondent is not only factually insolvent, in that its liabilities exceed its assets, but it is also commercially insolvent in that the respondent is unable to pay its current liabilities as and when they fall due.

The respondent has, at present, no income. According to the papers there are presently only three tenants in the respondent's building which occupy premises pursuant to agreements of lease which they have concluded with the respondent. The monthly rentals payable by two of these tenants, namely the lessee who conducts a dairy, and the lessee who carries on business as a nursery, are collected by the applicant by virtue of a cession of rentals by the respondent in favour of the applicant. The third lessee, a company which conducts a fast food outlet under the name and style of Kentucky Fried Chicken ("KFC") does not factually pay any rental at present because of set off of its monthly rentals against the instalment payable to it by the respondent on a loan granted to the respondent by the lessee.

THE RESPONDENT'S CASE

[7] The respondent contends that there is a dispute between it and the applicant over the question whether it fell in arrear with the payment of the monthly instalments under the loan agreement. Because of that there is also a dispute about the question whether the applicant was entitled to accelerate the payment of the instalments that had to be paid in the future and to claim payment of the full outstanding balance of the loan.

[8] The respondent also denies that it is factually insolvent. It alleges, in the main, that the property that it owns, is worth far more than that the applicant alleges. As a matter of fact, alleges the respondent, the property can be disposed of at a price far in excess of what it owes the applicant and the respondent can then still pursue its business or the balance can be utilised for the benefit of its members. There is, therefore, no need to liquidate the respondent.

[9] The respondent also relies on at least three counter-claims that it allegedly has against the applicant. These counter-claims will be discussed later in the judgment. There are allegations in the papers that the third counter-claim is for an amount of R7,5 million which in itself exceeds, and would extinguish, the applicant's claim.

[10] Lastly, the respondent alleges that the applicant is mala fide and vexatious because it does not want the respondent to sell its immovable property nor does it want to bide its time to await the outcome of the pending trial which will bring finality to all the disputes between the parties, including the three counter-claims.

The applicant is therefore guilty of an abuse of the process of the court, alleges the respondent. 0n this ground alone, contends the respondent, ought the present application to be dismissed with costs.

THE OVERLAPPING OF ISSUES

[11] The applicant has instituted the action, as I have said, for payment of the full balance outstanding on the loan. Its case is that the respondent fell in arrear with the payment of the monthly instalments under the loan and that that entitled it to claim payment of the outstanding balance. It also seeks an order declaring the mortgaged property executable.

The two sureties are liable, according to the applicant, for payment of the same amount as the present respondent, the first defendant in the action.

[12] The respondent has also put in issue the allegation that it has defaulted with the payment of the instalments and the applicant's entitlement to claim the full balance outstanding under the loan.

The issues in the present application and the action thus overlap in this respect.

The third counter-claim for payment of, presumably, R7,5 million or a lesser amount of R1,6 million, as will become clear later on, has not yet been incorporated into the pleadings in the action.

In regard to the other two counter-claims the merits and quantum thereof are also in issue in the pleadings. In this respect the issues in the action and the present application also overlap.

[13] A separate issue in the action is whether or not Carreira has been released as a surety. That issue is irrelevant in the present application.

DISCUSSION OF THE ISSUES

I Did the respondent default in making payment of monthly instalments?

[14] It is common cause that the applicant and the respondent concluded a written agreement of loan on 26 July 2001. In terms thereof the applicant lent R5,5 million to the respondent. The capital, and interest, had to be repaid by the respondent over a period of ninety six months "reckoned from the last day of the month in which the capital or any part thereof is advanced to or on behalf of the borrower".

Clause 4 of the agreement provides for repayment of the loan. Clause 4.1 reads as follows:

"4.1 The capital and finance charges shall be repaid by the borrower to the bank as follows:

4.1.1 The capital, together with finance charges, will be repaid by the borrower in regular monthly instalments, calculated over the loan amortisation period, subject to the provisions below. The amount of each instalment is R95 543,26 (ninety five thousand five hundred and forty three rand and twenty six cents), and is subject to alteration as herein set out.

4.1.2 The monthly instalments will commence on the last day of the month following that during which the capital or part thereof is advanced to or on behalf of the borrower and will thereafter be payable on the last day of each succeeding month and continue to be so paid subject to the provisions below until all amounts owing to or claimable by the bank in terms of this agreement have been paid in full.

4.1.3 Notwithstanding the provisions of this clause, the borrower shall repay the capital or the balance thereof outstanding, together with finance charges and all other amounts owing to or claimable by the bank in terms of this agreement on or before the loan expiry period."

In terms of clause 11.3 of the loan all payments had to be done by means of a debit order.

Clause 9.1 of the standard terms and conditions of the loan provides that in the event of the borrower, the respondent, breaching "any condition contained in this agreement" the applicant "will have the right to claim repayment of all amounts owing to or claimable by the bank (the applicant) in terms of this agreement, together with finance charges thereon and have the property declared executable".

[15] Clause 7 of the loan agreement provides for the registration of a mortgage bond by the respondent in favour of the applicant as security "for the due payment by the borrower (the respondent) of the capital together with finance charges and all other amounts owing to or claimable by the bank (the applicant) in terms of this agreement, …"

The respondent did register a covering mortgage bond over the immovable property in favour of the applicant. The bond was registered in the Deeds office on 27 July 2001.

[16] It appears from the papers that the full amount of the loan was advanced to the respondent on 30 July 2001. It follows that the first instalment had to be paid by the respondent on 31 August 2001. The papers show that the respondent paid that instalment on 5 September 2001. That, in itself, entitled the applicant to claim payment of the full outstanding balance of the loan.

[17] Be that as it may, the aforesaid action was instituted by the applicant because the respondent had fallen in arrears with its payments in an amount of R243 091,96 as at 30 November 2003. This was denied by the respondent in its pleadings.

[18] At a pre trial conference which was held on 15 August 2005 the respondent's legal representative was asked whether the respondent admits that it had not made payment of the monthly instalments on 1 0ctober 2003 and 1 November 2003 and 1 December 2003 respectively. The representative refused to make the admission. The applicant's counsel then requested further clarification and requested the respondent's representative to indicate when, where and how the payments allegedly made by the respondent on 1 0ctober 2003 and 1 November 2003 were made. No clarification was provided.

[19] If one bears in mind that the onus to prove payment of a debt is on the defendant/respondent in an action/application, it is clear that the respondent was playing cat and mouse with the applicant at the pre trial conference. This would justify the inference that those instalments had not been paid which is precisely what the applicant alleged and still alleges. The respondent still tries its best to obfuscate matters by denying the applicant's allegations but does not offer any concrete proof of payment.

[20] The issue was, in my view, laid at rest when Carreira deposed to an affidavit in support of an application for the postponement of the trial on 25 August 2005, wherein he stated that "no bond payments were made during 0ctober to December 2003". The deponent referred to "the previous arrangement to hold over full bond payments" as justification for the non-payment of the instalments. The deponent to the affidavits filed of record on behalf of the applicant, denies that such an arrangement was made and says that such an arrangement would, in any event, fall foul of the provisions of the loan agreement if it was not reduced to writing. It is further alleged that no such documents exist.

[21] The respondent has not, in my view, refuted the allegations in the applicant's papers. This issue was also dealt with by VAN ROOYEN, AJ in his judgment. The learned acting judge concluded that the applicant had succeeded in showing that the respondent had defaulted with its monthly payments. I agree with that finding.

It follows, therefore, that the applicant was entitled to accelerate the payment of the future instalments and to claim the full balance of the loan outstanding as it had done in the action.

[22] The applicant's case is that the respondent has not made payment of any monthly instalments since the action was instituted in December 2003. Because of that, says the deponent to the founding affidavit, which was deposed to on 7 November 2005, the respondent is indebted to it in an amount of R5 610 537,47 together with interest thereon at the rate of 12% per annum calculated from 4 0ctober 2005 to date of payment thereof.

The applicant relies on a certificate that was issued by a manager to the effect that the respondent owed it R5 610 537,47 as at 3 0ctober 2005 together with interest as aforesaid. In terms of clause 8 of the loan agreement this certificate provides prima facie proof of the respondent's indebtedness and of the fact that such amount is due and payable.

According to the latest replying affidavit that was delivered by the applicant, the respondent was indebted to it as at 1 0ctober 2006, in an amount of R6 319 001,59 together with interest thereon at 13% per annum as from that date to date of payment thereof.

[23] The respondent has not, in my view, adduced any credible evidence to cast doubt on the applicant's allegations and proof of the indebtedness.

I therefore find that the respondent is indeed indebted to the applicant in the amount mentioned in the certificate together with interest thereon as aforesaid.

II The counter-claims

[24] The respondent relies on three counter-claims that it allegedly has against the applicant. The first one for an amount of R107 729,49 is based on the contention that the applicant unlawfully debited the respondent's account with insurance premiums in that amount. The second one for an amount of R172 000,00 is based on an alleged misrepresentation by some unknown employees of the applicant that the respondent is not insured against damage caused by water or rain to the aforesaid building. It is alleged that the reasonable cost of repair of the damage suffered by the respondent amounts to R172 000,00 for which the applicant is liable. It is alleged, in this regard, that the respondent had not instituted action against the insurer because of the misrepresentation and that the applicant is therefore liable to compensate the respondent for the costs of repairing the premises which costs would have been borne by the insurer concerned.

The third counter-claim, broadly stated, is for payment of an amount of R7,5 million, or, at least R1,6 million. This amount, it is alleged, represents the loss of rental income that the respondent has suffered since February 2004 when the premises were damaged by rain and hail. It is alleged that the applicant had failed to repair the premises as it was obliged to do as a result whereof the respondent suffered the aforesaid damages. This counter-claim has not yet been incorporated into the pleadings in the pending action but the other two have been raised in those pleadings.

[25] VAN ROOYEN, AJ found that none of the counter-claims can be said to amount to a defence which constitutes a ground for a bona fide dispute in regard to the claim of the applicant.

I shall discuss these counter-claims seriatim.

THE COUNTER-CLAIM FOR R107 729,45

[26] The respondent alleges that the applicant unlawfully debited its account with premiums for insurance in an amount of R107 729,45.

The respondent alleges further that it had arranged insurance with the Dimension Insurance Group (Pty) Ltd ("Dimension") and that the applicant was not entitled to arrange insurance for it and to debit its bond account with the amount of any premiums that were paid on its behalf.

[27] It appears from the affidavit of Mr Gore, annexure "J10" to the applicant's answering affidavit to the respondent's opposing affidavit, that the respondent did indeed arrange insurance through Dimension with SA Eagle Insurance Co ("SA Eagle"). The policy was effective from 1 December 2001 and it was cancelled on 1 December 2003 "by stop payment". Thereafter the respondent had no insurance cover from SA Eagle.

A copy of the policy has not been annexed to the papers. I do not, therefore, know against which risks the respondent was insured. In its papers the respondent has not given details of the risk insured against.

[28] In terms of clause 1 of the standard terms and conditions of the loan agreement, all improvements on the property, ie the building which is owned by the respondent, will be kept insured "in the name of the borrower", the respondent, for such minimum replacement value as the applicant from time to time requires. This insurance "will be arranged and taken out" by the applicant with an insurer nominated by the applicant and will, unless otherwise agreed in writing, be effective from the date on which the loan or any part thereof, is advanced to the respondent.

The policy of insurance "shall be issued in the name and at the cost of the borrower (the respondent) and ceded to the bank as security for the indebtedness of the borrower". The clause further provides that all premiums, etc "paid by the bank (the applicant) on behalf of the borrower (the respondent) in connection with" the insurance "shall forthwith be refunded to the bank (the applicant)". If the moneys are not refunded to the applicant it "will be included in the principal debt" and would also bear interest.

In the event of the insurer paying any moneys to the applicant in terms of the policy, such moneys will, in the sole discretion of the applicant, be applied either in partial or full repayment of the indebtedness of the respondent or in the restoration, under such conditions as the applicant may lay down, "of that which has been damaged or destroyed by any causes covered by such insurance".

[29] It is clear from the applicant's papers that it has arranged insurance for the respondent, as it was entitled to do, through its division which does business as insurance brokers, with Mutual & Federal Insurance Co Ltd ("Mutual & Federal"). This was done pursuant to a written document, annexure "J6" to the applicant's aforesaid answering affidavit, wherein the respondent consented to the applicant arranging insurance through the medium of its brokers.

A copy of this policy has also not been annexed to the papers. It would appear from the papers that the building was insured against fire and damage caused by water.

According to a document which was issued by Mutual & Federal on 19 July 2002, a copy of which is annexed to the applicant's replying affidavit as annexure "O", the policy was effective from 1 August 2001 to, at least, 31 July 2003.

Mutual & Federal was, according to its letter of 2 August 2005 which was addressed to the respondent and a copy of which is annexed to applicant's aforesaid answering affidavit as annexure "J14" thereto, "the official claims administrators" for the respondent's insurer, Ned Insurance Co Ltd ("Ned Insurance"). This would explain why copies of letters that were addressed to the loss adjustors, Jenkinson-Whittle Loss Adjustors (Pty) Ltd ("Jenkinson-Whittle") in 2004 by the respondent's erstwhile attorneys about the damage that the respondent allegedly suffered as a result of water and hail that damaged the building, were forwarded to Ned Insurance. This claim, incidentally, was repudiated by the insurer because, according to it, the respondent had not furnished documents that were requested to substantiate the claim.

For purposes hereof it must then be accepted that the applicant, as it was entitled to do, arranged insurance for the respondent and debited its bond account with the premiums that were payable by the respondent.

[30] The premiums that were payable initially were substantial amounts. The first premium, according to the respondent's further particulars for trial in the aforesaid action, was an amount of R38 146,11 that was debited to the bond account on 1 September 2001. Thereafter the amount of R42 010,72 was debited between 1 August and 6 September 2002 and an amount in respect of the third premium, of R27 572,62 was debited on 1 November 2002. These three amounts give a total of R107 729,45.

During 2002 the applicant's broker division succeeded in negotiating a lower premium for the respondent. The premium which was payable in 2002 was, according to Mutual & Federal, an amount of R42 010,72. The applicant succeeded in negotiating an annual premium of R27 572,62 or a monthly premium of R2 297,72. The respondent accepted this in writing in terms of a letter dated 1 September 2002, annexure "J9" to the applicant's answering affidavit.

[31] The deponent to the applicant's answering affidavit, Ms Venter, states in paragraphs 12.9, 15.4, 19.5 and 19.6 thereof, that the annual premium for 2001 which was debited to the respondent's bond account was R38 146,11. The reduced premium for 2002 was R27 572,62 which was also debited to the account despite the respondent's request to pay it in monthly instalments. The third premium for 2003 was R32 357,05 which was also debited to the bond account. The total amount of the premiums that were thus debited was R98 075,78 for the period of three years.

In paragraph 19.7 of the aforesaid affidavit Ms Venter states that the respondent had added to the first premium of R38 146,11 a second premium of R42 010,72 despite its reduction to R27 572,62, and the reduced premium of R27 572,62 in order to allege that there was "an unauthorised double deduction" in the sum of R107 729,45.

[32] The respondent has not adduced any evidence to refute what Ms Venter has stated. In my view there is no substance in the first counter-claim on which the respondent relies. It does not afford a ground for contending that the respondent's indebtedness is disputed bona fide and on reasonable grounds.

THE COUNTER-CLAIM FOR R172 000,00

[33] This is a claim for payment of damages that the respondent allegedly suffered.

In its pleadings in the action the respondent alleged that the aforesaid building which was bonded in favour of the applicant, was extensively damaged by water over a period of several days in September 2001. The respondent wanted to institute "an insurance claim" against the insurer but was told by unknown and unidentified employees of the applicant that it had had no insurance cover. This information was incorrect. As a result of this misrepresentation, alleged the respondent, it did not institute an insurance claim "through Nedbank Insurance Brokers against Mutual & Federal Insurance Co Ltd". The property was, at all material times, insured through the aforesaid brokers with Mutual & Federal, alleged the respondent.

The aforesaid misrepresentation caused the respondent, so it was alleged, damages in the amount of R172 000,00 "being the fair and reasonable costs of repair to restore the immovable property (to its previous condition) …"

The claim was incorporated in April 2004 in the respondent's pleadings. 0n 21 July 2005 the respondent's further particulars for trial were settled and finalised by counsel and the respondent's erstwhile attorneys. At that stage, approximately a month before the trial was due to take place, the respondent could still not particularise its claim as to what amounts had been spent, or had to be spent, on the cost of the material that was used or had to be used and the cost of labour, or how the amount of R172 000,00 is arrived at. The further particulars merely allege that the respondent had "not done a complete reconciliation as yet".

[34] The applicant's witnesses question the fact that the respondent would have been told that it has no insurance cover. It is pointed out that the building was in fact insured at the time and that the premium had been debited to the bond account, copies of which were sent regularly to the respondent. The respondent seems to suggest that it did not receive those statements because they were sent to the wrong address. That is an untruth. Copies of the monthly statements were sent to the postal address of the respondent which was supplied by it in clause 9.2 of the loan agreement as its domicilium citandi et executandi.

In any event, the respondent did receive the letter of the brokers of 7 August 2002 which was faxed to it, annexure "J8" to the applicant's answering affidavit, which informed it about the reduced premium for 2002, which it accepted on 1 September 2002, annexure "J9" to the said affidavit. The reduction of the premium was negotiated at the request of the respondent after it had received the notification from Mutual & Federal, annexure "O" to the applicant's replying affidavit, which was sent to it under cover of a letter, annexures "J7" to the applicant's answering affidavit and "N" to the applicant's replying affidavit. The policy schedule reflected an annual premium of R42 010,72. This premium was reduced to R27 572,62.

The respondent does not explain in its papers why it did not raise the question of insurance cover in July or August 2002 with either the applicant's brokerage division or with Mutual & Federal. It is stated clearly on the policy schedule that the period of insurance was from 1 August 2001 to 31 July 2003.

[35] In the light of the fact that the respondent was, and still is, not able, after the lapse of five years, to substantiate the claim for R172 000,00, I am not prepared to find that this counterclaim constitutes a ground for disputing the applicant's claim on bona fide and reasonable grounds.

THE PROPOSED COUNTER-CLAIM FOR R7,5 MILLION (OR R1,6 MILLION)

[36] This claim was raised for the first time in the respondent's application to have the trial postponed on 25 August 2005. A copy of the application is annexed to the applicant's replying affidavit as annexure "P" thereto. In paragraph 4.7 of the supporting affidavit in that application, Carreira said the following about the counter-claim which was contemplated at that stage:

"4.7 It needs further be pointed out that the further counterclaim against the defendant is based on damages suffered as a result of a loss of certain business contracts to the total value of R7,5 million. This was primarily as a result of the plaintiff having unlawfully and, in breach of its duties in terms of the banker/client relationship with the defendant, having blacklisted the defendant and/or having labelled them with bad credit ratings and/or having forwarded these and/or other adverse reports to other financial institutions and respective business partners. The documents contained in the file requested by way of the rule 35(3) notice all have a bearing on both the banker/client relationship, the breaches thereof and the extent of the breaches including messages, ratings, postings and correspondence in this regard."

In paragraphs 4.17 to 4.23 of that affidavit Carreira explained why the pleadings have not yet been amended to incorporate this counter-claim. He said, in essence, that he only became aware of the unlawful conduct of the applicant at a late stage and that the respondent has also terminated the mandate of its previous attorneys, Messrs Buitendag's Inc. He also says that he has instructed his new attorneys of record, who still are the respondent's attorneys, "to attend to the amendment of defendants' counter-claim".

That affidavit was deposed to by Carreira on 24 August 2005. The counter-claim has not yet been incorporated into the respondent's pleadings in the action.

In paragraphs 6.27 to 6.29 and 11.4 to 11.5 of the applicant's replying affidavit, Ms Venter, the deponent to the affidavit, pointed out that no amendments to the pleadings had been effected by 18 May 2006 although the hearing of the action is taking place on 4 March 2007 and that the respondent "still does not give any evidence or particulars regarding the alleged additional claim".

It is therefore not surprising that VAN ROOYEN, AJ was not impressed with the respondent's version of this counter-claim and concluded that it did not assist the respondent in warding off a provisional liquidation order.

0n the papers as they stand, VAN ROOYEN, AJ, in my view, came to the correct conclusion.

[37] The respondent's counsel, Mr Davis SC, submitted that the respondent, in the further affidavits filed of record on its behalf and which were deposed to by Carreira, "has now risen to the challenge and fully formulated its said counter-claim".

(I quote from paragraph 2.15 of counsel's written heads of argument.)

This, in my view, is a simplistic and over-optimistic view on counsel's part as will appear from what now follows.

To understand properly what the respondent alleges now in respect of this counter-claim it is necessary to begin with a claim that has been dealt with by Carreira in paragraph 6 of the respondent's opposing affidavit which was delivered on 14 August 2006.

In that paragraph of the affidavit Carreira dealt at length with damage to the building that was caused by rain and hail during the first half of 2004. It appears from the papers that the respondent had insisted that the insurer repair the building. The insurer ultimately repudiated the claim in August 2005 as appears from annexures "J13" and "J14" to the applicant's answering affidavit of 0ctober 2006. The respondent then instructed its attorneys to institute action against the insurer. Counsel settled the particulars of claim, annexure "MCG1 6" to the respondent's opposing affidavit, in 0ctober 2005. It does not appear from the papers whether an action was indeed instituted.

Be that as it may, the claim, according to the draft particulars, is against Mutual & Federal. The cause of action is that the repairs which were affected by the insurer were "inadequate, defective, unprofessional and unworkman like" and that the building has not been restored "to the position it was prior to the rain and hale (sic) damage". It is further alleged that the respondent had suffered damages, as at the end of August 2005, in an amount of R1 611 128,15, for which the insurer is held liable, because tenants have cancelled their leases and the respondent had consequently suffered a "loss of income caused by the loss of the various lease agreements".

[38] In paragraph 7 of the same affidavit Carreira deals with the counter-claim of R7,5 million against the applicant.

It suffices for present purposes to say that Carreira alleged that the applicant was duty bound to "have the property repaired" as a result of which the respondent "suffered the rental loss of income as set out in the draft particulars of claim …"

I have already dealt with the draft particulars of claim. He alleges further that because of "the applicant's aforesaid failure" the respondent tried to obtain "alternative finance in order to have the building repaired". That, he said, could not be achieved because the applicant had notified "all relevant credit bureaux (sic)" of the respondent's default in making payment of the monthly bond instalments and insisted "that the respondent be noted as a defaulting debtor and being uncreditworthy (despite the huge value of the premises and the amounts involved).

Carreira also complains about the applicant retaining the present income from the building and doing nothing "to repair the building and to regenerate the prior rental income". The high water mark of Carreira's complaints is to be found in paragraph 7.7 of the affidavit which reads as follows:

"7.7 Had the building been properly repaired the respondent would have been able to obtain alternative tenants and would thereby (having regard to the detail already supplied as submitted supra), been able to generate rental income in an amount of no less than R7,5 million, particularly if regard is had to the potential income stated in the present valuation (annexure MCB hereto)."

In paragraph 8.4 of the affidavit Carreira alleged that the respondent therefore has "valid counter-claims against the applicant in the sums of R107 792,00, R1 611 286,15 and in an amount in excess of R7,5 million".

I have already dealt with the claim of R107 792,00.

In regard to the alleged counter-claim of R1 611 286,15 I must confess that I do not understand on what basis, in law, a loss of rental income can be claimed from the applicant. In my view the applicant has no duty or obligation in law to have ensured, or arranged, for the repair of the building after it was damaged by water and hail in February 2004. As a matter of fact, and this appears from the draft particulars of claim, it is the respondent's case that the insurer, possibly Ned Insurance and not Mutual & Federal, was obliged to repair the building properly! Nowhere in the respondent's papers is it explained why the applicant was obliged to effect the necessary repairs, or to arrange for that to be done. I, therefore, ignore that possible counter-claim, assuming Carreira was serious in making those allegations, for purposes hereof.

In regard to the complaint that the applicant is retaining the present income that the building generates, it is clear from the papers that the applicant as cessionary, is collecting the rentals that the present tenants are paying. Those amounts are utilised in reducing the outstanding balance of the loan that the respondent still owes. Clause 8 of the bond provides for a cession by the respondent to the applicant of the respondent's rights "in and to all rentals … which may accrue from the mortgage property …" Pursuant to this clause the applicant's attorneys of record notified the tenants by letter dated 17 December 2003, annexure "E" to the founding affidavit, that the applicant had taken cession of the rentals and that the rentals should "with immediate effect" be paid to the applicant.

The applicant is therefore entitled to collect the rentals and to retain the moneys that it receives.

As far as the (possible) counter-claim of R7,5 million is concerned, I have come to the conclusion that there is no merit in it and that the respondent's papers still lack particularity about it.

I have already stated that there was no obligation, in law, on the applicant to have the building repaired.

The applicant denies that it notified any credit bureaus of the respondent's default. In paragraph 23.1 of its answering affidavit it is stated that the applicant "does not send information to credit bureaus" and that the bureaus obtain information from court files. In this regard it is important to bear in mind that summary judgment was granted against the respondent in this court under case no 19218/2003 on 6 0ctober 2003 in an amount of R84 326,11 (annexure "Q" to the applicant's replying affidavit). That judgment has not been set aside nor has the amount been paid by the respondent. If the credit bureaus had listed the respondent as a defaulting debtor it would, on the probabilities, have occurred because of this judgment against it and not because the applicant had furnished them with any information.

The respondent has not seen fit to enlighten the court about the endeavours to obtain "alternative finance" in order to repair the building. The respondent has also failed dismally to explain how it would have been possible for it "to generate rental income in an amount of no less than R7,5 million" between February 2004 when the building was damaged, or perhaps more accurately stated, after the lapse of a reasonable time to have the building repaired, and 24 August 2005, when Carreira deposed to the affidavit for purposes of having the trial of the action postponed, or, for that matter, 14 August 2006 being the date of attestation of the opposing affidavit. In this regard I would have expected him to explain to the court why an amount of only R1 611 128,15 was claimed in the draft particulars of claim from the insurer in respect of "loss of income caused by the loss of various lease agreements" over the period February 2004 to the end of August 2005.

In my view the respondent's allegations and statements about this counter-claim is nothing but generalisations without any foundation, whether in fact or in law, and they certainly do not pass muster to convince me that the claim is disputed bona fide and on reasonable grounds.

In conclusion I need only state that if the respondent was indeed listed as a defaulting debtor in 2004 or 2005, that would have been the truth. The respondent was in fact a defaulting debtor; the judgment of this court for R84 326,11 is proof of that. 0n what basis the respondent wants to claim damages from the applicant under such circumstances is beyond me.

[39] In paragraph 5.5 of the respondent's supplementary opposing affidavit, which was delivered on 24 November 2006, the deponent, Carreira, once again dealt with the alleged damages caused by loss of rentals. He alleges that he has calculated a (further?) loss of rentals in the amount of R3 066 258,70. This amount "should be added to the counter-claim …" It is alleged that this loss was suffered "in respect of the portion of the property which could not have been repaired as a result of the applicant's default regarding the payment and/or repairs of the rain and hail damage to the property as already referred to in prior affidavits".

These allegations add nothing to what has been alleged already. They do not further the respondent's case.

III Is the respondent commercially insolvent?

[40] The applicant's counsel, Mr Robinson SC, submitted "that this is a classic case of commercial insolvency. The respondent's indebtedness to the applicant is presently due and payable and it is unable to meet such demand". (I quote from paragraph 34 of counsel's written heads of argument.)

It is factually and legally correct that applicant is entitled to demand payment of the respondent's indebtedness in the amount previously mentioned. It is also correct that respondent is unable to pay that amount. I shall deal later herein with the question whether respondent is also factually insolvent.

In addition to its indebtedness to applicant, the respondent is also indebted to the City of Tshwane Metropolitan Municipality in at least the amount of R84 326,11 for which summary judgment was granted as previously mentioned. There is a dispute on the papers about the amount of respondent's present indebtedness to the Tshwane Municipality. According to the affidavit of Ferreira, an employee of the Municipality, the respondent was, as at 26 September 2006, indebted to the Municipality in an amount of R1 301 554,35. Ferreira alleges that the respondent "has neither made arrangements to pay the indebtedness nor raised any dispute (other than the dispute regarding the first amount) in relation to its indebtedness to the … Municipality".

The "first amount" that Ferreira refers to is the amount of R312 305,55 in respect of which the court granted the respondent leave to defend at the hearing of the summary judgment application.

The respondent, in its supplementary opposing affidavit, has disputed its indebtedness to the Municipality in the amount alleged by Ferreira. In paragraph 6.3 of that affidavit Carreira says that despite the passage of three years since the date of the summary judgment, the Municipality has not pursued the remaining part of the claim "nor have they pursued the judgment itself".

I do not intend to deal with the dispute about the alleged indebtedness of R1,3 million. I only wish to point out that Carreira has not explained why the respondent has not made payments of at least those amounts which it accepts that it would be liable for. Carreira also did not explain why the respondent has not made payment of the amounts of the judgment debt despite the lapse of three years. That debt was, according to Ferreira, still not paid on 5 0ctober 2006, the day on which the affidavit was attested.

The inference is irresistible that the respondent does not have the means to satisfy the judgment debt.

[41] The point has also been made in the applicant's papers that the respondent presently derives no income from the building because the applicant, as cessionary, collects all the rentals, except that payable by KFC and which, in any event, is not presently payable to the respondent. Those allegations are correct. The further point has also been made that the respondent is, therefore, unable at present to meet its running expenses as and when they fall due. I agree with that. Carreira has not explained, or mentioned, what additional, if any, sources of income the respondent has out of which it could meet its current liabilities.

[42] In Absa Bank Ltd v Rhebokskloof (Pty) Ltd and 0thers 1993 4 SA 436 (C) BERMAN, J at 440F 441A described the relevance and significance of the concept "commercial insolvency" as follows:

"The concept of commercial insolvency as a ground for winding-up a company is eminently practical and commercially sensible. The primary question which a court is called upon to answer in deciding whether or not a company carrying on business should be wound-up as commercially insolvent is whether or not it has liquid assets or readily realisable assets available to meet its liabilities as they fall due to be met in the ordinary course of business and thereafter to be in a position to carry on normal trading – in other words, can the company meet current demands on it and remain buoyant? It matters not that the company's assets, fairly valued, far exceed its liabilities: once the court finds that it cannot do this, it follows that it is entitled to, and should, hold that the company is unable to pay its debts within the meaning of s 345(1)(c) as read with s 344(f) of the Companies Act 61 of 1973 and is accordingly liable to be wound-up. As CANEY J said in Rosenbach & Co (Pty) Ltd v Singh's Bazaar (Pty) Ltd 1962 4 SA 593 (D) at 597E F:

'If the company is in fact solvent, in the sense of its assets exceeding its liabilities, this may or may not, depending upon the circumstances, lead to a refusal of a winding-up order; the circumstances particularly to be taken into consideration against the making of an order are such as show that there are liquid assets or readily realisable assets available out of which, or the proceeds of which, the company is in fact able to pay its debts.'

Notwithstanding this the court has a discretion to refuse a winding-up order in these circumstances but it is one which is limited where a creditor has a debt which the company cannot pay; in such a case the creditor is entitled, ex debito justitiae, to a winding-up order …"

If these principles are applied to the facts of the present case then it is indeed "a classic case of commercial insolvency" as applicant's counsel has submitted.

IV Is the respondent factually insolvent?

[43] A great deal of time and effort has been devoted to this aspect in the affidavits filed of record by both parties.

The importance and significance, of factual insolvency, has been explained by MELUNSKY, AJA in Johnson v Hirotec (Pty) Ltd [2000] ZASCA 131; 2000 4 SA 930 (SCA) at 933H 934B as follows:

"[6] What should be made of the fact that the respondent's liabilities exceeded the value of its assets as at 28 February 1997? This appeal is of course, concerned with what is often referred to as 'commercial insolvency', ie a company's inability to pay its debts in the sense of being unable to meet current demands … This is not to say that factual insolvency is irrelevant in deciding whether a company should be wound-up in terms of s 344(f) of the Act. Factual insolvency may, in an appropriate case, be indicative of the company's inability to pay its debts and, as GOLDSTONE JA pointed out in Ex parte De Villiers at 502E, it would clearly be a relevant and material factor in deciding whether a court should exercise its discretion to grant a winding-up order. The significance to be attached to a company's factual insolvency obviously depends upon the circumstances of the particular case. There are many variables and it is not necessary, or even possible, to list them all."

[44] In its founding papers the applicant relied on a valuation of the immovable property of the respondent. The valuation was done by a professional, and qualified valuer, Mr Ansara, in September 2005. He concluded that the property was worth R3,4 million and that on a forced sale it would fetch R2,8 million. The method that was employed to value the property was "the Income Capitalisation Approach" ie to determine the value of the property with reference to its income producing potential.

This valuation was not disputed by the respondent in its answering affidavit. The value of R3,4 million was accordingly accepted by VAN ROOYEN, AJ as proved.

[45] In its opposing affidavit the respondent relied on a valuation of the property by Mr Pein of Vered Estates. He valued the property as at 6 August 2006 to have a market value of R12 million. Based on that, the respondent alleged that it is solvent even if the counter-claim for R7,5 million is disregarded.

[46] In paragraphs 7, 8 and 9 of its answering affidavit the applicant dealt with the criticisms levelled at Ansara's valuation by the respondent. In paragraph 10 of the affidavit it is pointed out that Pein's valuation is based on incorrect facts and the respects in which incorrect facts were used to do the valuation were dealt with in detail.

[47] The respondent once again dealt with the valuation in its supplementary opposing affidavit.

In paragraph 6 of the applicant's (second) replying affidavit the valuation of Pein was again dealt with. It appears from this affidavit that Pein is, in any event, not properly qualified to have done the valuation on which the respondent relied and last, but not the least, he did not even visit the premises but based his valuation solely on the information that was provided to him by Carreira and that he was unaware of what the purpose was for which his valuation was required. Pein was of the view "that the valuation should not be used for the purposes that it had been".

In the light of the contents of this affidavit I am of the view that Pein's valuation is not even worth the paper on which it was written and I disregard it completely for purposes hereof.

[48] The respondent also relies on the fact that in 2001 the applicant itself valued the property at R7 540 000,00 as being its "market Capitalised Value" and R11 million as being its "Projected Lease Cap. Value". The property is therefore still worth more than R3,5 million contends the respondent.

The valuation of 2001 was done on the basis, as was pointed out in the applicant's affidavits, of there being at least three tenants which had long leases. In this regard it is also important to bear in mind that clause 11.8 of the loan agreement required of the respondent to furnish the applicant with copies of the lease agreements of two tenants who had five year leases. Those two tenants, according to the 2001 valuation, paid monthly rentals of R50 820,00 and R12 880,00 respectively in terms of their leases. The 2001 valuation is therefore distinguishable from the present state of affairs. The building has now been damaged and there are only three tenants apart from KFC. The present value would, logically speaking, differ substantially from the value in 2001.

[49] It is a fact that the building has been insured since 2001 for substantial amounts against the risk of fire. The respondent also relies on this and has pointed out that for the period 1 August 2005 to 31 July 2006 the building was insured with Ned Insurance for R41 714 980,00. The premium was R41 883,46.

It was rightly pointed out in the applicant's affidavit that the sum for which the building was insured does not prove what the market value thereof is.

[50] The respondent also relies on an (oral) offer which it had received from a prospective purchaser to buy the property for R10 million.

That, according to the respondent, is a more realistic indication of the value of the property than Ansara's valuation.

The prospective purchaser, Mr Werner, also deposed to an affidavit. He confirmed that he "was in the process of making an offer to purchase the property" of the respondent. He made an oral offer to Carreira to purchase the property for R10 million. He said that Absa Bank Ltd ("Absa") had given him "an indication" that it would grant a bond of R6,5 million and he would have to pay the balance. He then received a phone call from Mr Wilsenach who told him that he could not make an offer to Carreira. Carreira then told him, Werner, that Wilsenach was wrong. Werner confirms that he is still prepared to purchase the property "for a price in the region of R10 000 000,00".

Mr Wilsenach also deposed to an affidavit, annexure "SRA3" to the applicant's (second) replying affidavit. He is an attorney of this court and was appointed by the Master as a joint provisional liquidator of the respondent. He says that Werner had told him that he had made an offer of R8 million for the property in 0ctober 2006. He had applied for a bond of R5,5 million to "Absa" of which R1,5 million would have been used to repair the shopping centre. Werner was prepared to pay the balance of R4 million by means of an offer of exchange of an immovable property which was registered in his name. He also told Werner that the offer to purchase the property had to be submitted to him. Werner then said that he had no knowledge of the liquidation of the respondent. He had not heard from Werner again.

There are obvious differences between these two versions. Wilsenach being an independent witness and having regard to the detail which he mentions about, for instance, the manner of payment of the balance of the purchase price of approximately R4 million, which details Werner, incidentally, does not give, convinced me that I can safely accept Wilsenach's evidence where it differs from Werner's evidence.

I do not think that Werner's evidence assists the respondent. 0ne does not know, for instance, on what basis Werner concluded that the property was worth either R8 million or R10 million. If it was necessary to spend approximately R1,5 million to repair the building, it means, logically speaking, that the building properly restored and repaired, would have been worth approximately R11,5 million, on Werner's version or R9,5 million on Wilsenach.'s version. I would have liked to know on what basis Werner had come to that conclusion. In the absence of evidence explaining that to the court I do not think that the necessary primary facts had been put before the court which should have been put before the court to counter the evidence of Ansara. See Swissborough Diamond Mines v Government of the RSA 1999 2 SA 279 (T) at 323F 324F.

0ne also does not know what role, if any, the immovable property which would have been offered in exchange, had played in motivating Werner to contemplate making an offer to purchase the respondent's property and how and why he was of the view that the property was worth approximately R4 million. 0ne also does not know what Carreira would have thought about the property that was to be offered in exchange.

Furthermore, for Werner to say that Absa had given him an "indication" that it would grant a bond of R6,5 million, is meaningless. I do not know, for instance, who gave such an indication, and secondly, on what basis such an indication was given.

In my view no weight can therefore be attached to the "offer" by Werner. If he was serious about purchasing the property the question arises why he did not take the matter up with Wilsenach.

[51] In the light of the aforegoing I cannot, therefore, agree with the respondent, and its counsel's submissions, that the respondent's assets exceed its liabilities and that the respondent is solvent. In my view the applicant has succeeded in showing on a balance of probabilities, that the respondent is indeed factually insolvent. The aforesaid immovable property is the only asset of the respondent.

V Has the applicant been vexatious or has it acted mala fide?

[52] The respondent has accused the applicant time and again of vexatiousness and mala fides and of abusing the process of the court. So, for instance, was the applicant accused of vexatiousness and mala fides because the applicant was aware of the fact that the respondent had disputed its indebtedness to the applicant and that the same dispute was raised in the action. It was alleged in the respondent's (first) answering affidavit that the applicant was barred from having the same issues decided in the present application as had to be decided in the action because of the principle of lis pendens. It was furthermore alleged in paragraph 3.14 of that affidavit that the applicant and its attorneys "should have been aware of the extent of the lis pendens issue and the authorities which have ruled that the resort to a liquidation application in order to enforce a disputed claim, is vexatious and improper".

Later on in the affidavits filed of record, the respondent repeated its accusations of improper conduct on the part of the applicant.

The respondent's counsel has also argued that the applicant is vexatious and "is clearly not acting with bona fide intent regarding the winding-up for the sake thereof but for some other purpose".

[53] I think that the respondent, and its counsel, have overlooked the fact that in a case where the winding-up of a debtor is sought ex debito justitiae, like in the present case, not even the court has much of a discretion to refuse to grant a liquidation order if the debtor cannot pay the debt.

In the present case it is a fact, according to the respondent, that the building has been damaged in February 2004. It has not been repaired properly according to the respondent. It must, logically, deteriorate as time goes by. The respondent has been proven to have no valid defence to the applicant's claims and it does not have the means to pay the applicant, or, for that matter, the Tshwane Municipality's judgment debt.

I do not think that under these circumstances can it be said that the applicant has been vexatious or mala fide.

[54] 0n the facts found by me there is also no ground upon which I may refuse to grant a final winding-up order. As a matter of fact, I am respectfully of the view that VAN ROOYEN, AJ ought to have granted a final winding-up order instead of a provisional order. See Johnson v Hirotec (Pty) Ltd, supra, at 934H 935B.

ORDER

1. The provisional order of liquidation is confirmed and a final winding-up order is granted.

2. The applicant's costs of the application are to be costs in the winding-up.

S J MYNHARDT

JUDGE OF THE HIGH COURT

37161

HEARD ON: 5/12/2006

FOR THE APPLICANT: ADV P G ROBINSON SC

INSTRUCTED BY: SAVAGE, JOOSTE & ADAMS INC

FOR THE RESPONDENT: ADV N DAVIS SC

INSTRUCTED BY: SNYMANS ATTORNEYS