SMITH NO AND ANOTHER v HATTINGH 1984 (2) SA 660 (C)
1984 (2) SA p660
1984 (2) SA 660 (C)
Cape Provincial Division
November 11, 1982 ; November 12, 1982
January 14, 1983
Link to Case Annotations
[zFNz] Flynote : Sleutelwoorde
Company - Winding up - The liquidator - Proceedings by and against - Provisional liquidator - Institution of action by - Liquidator who litigates without the necessary B authority not to be non-suited - But he runs the risk of having to pay the costs personally.
[zHNz] Headnote : Kopnota
A liquidator who litigates without the necessary authority only runs the risk of having to pay costs personally, but should not be summarily non-suited.
Waisbrod v Potgieter and Others 1953 (4) SA 502 (W) followed. C
[zCIz] Case Information
Application to set aside a cession of costs as an undue preference. The facts appear from the reasons for judgment.
D Irish for the applicants.
W G Thring for the respondent.
D Cur adv vult .
Postea (January 14).
VOS J: This is an application by a provisional liquidator of a company and another against respondent to set aside a cession E of costs as an undue preference. The provisional liquidator has come to Court without the authority of this Court, the Master or the creditors and the point is taken that he should be non-suited on that account. I shall deal with this question first as it goes to the root of the matter.
On this there are two views; the one is that such a liquidator F should be non-suited and the other is that he may litigate personally and if he loses he would be personally liable for costs.
Counsel for the respondent, Mr Thring , relied particularly on Ex parte Venter and Spain NNO: Fordom Factoring Ltd and Others Intervening; Venter and Spain v Povey and Others 1982 (2) SA 94 (D) at 102F - 103D and on Toubkin NO v Dönges NO 1951 (3) SA 72 (T) G , while applicant's counsel, Mr Irish , relied on Waisbrod v Potgieter and Others 1953 (4) SA 502 (W) at 507F - 508G and the authorities there cited. Reference was also made to Henochsberg on the Companies Act at 672 and 677.
On consideration I am persuaded that the reasoning and the H authorities in the Waisbrod case should be followed and that a liquidator who litigates without the necessary authority only runs the risk of having to pay costs personally, but should not summarily be nonsuited. My reasons follow. There is support for my view in Patel v Paruk's Trustee 1944 AD 469. True, that decision dealt with a trustee and not a liquidator. On this Mr Thring submitted that there was an important difference between a trustee and a liquidator but I am of opinion that in the present inquiry that difference is not important. Cf,
1984 (2) SA p661
for example, Liquidator Mr Spares (Pty) Ltd v Goldie's Motors Supplies (Pty) Ltd 1982 (4) SA 607 (W) at 611B, a case which is admittedly only slightly relevant to the present inquiry. I should also point out that in the Ex parte Venter and Spain case supra at 103B - D the Court held not that the A unauthorised liquidators had to be non-suited, but that they were personally before the Court. Also, as I have indicated, the reasoning and the authorities in the Waisbrod case are more persuasive to me than those mentioned in the Toubkin case. Hence the liquidator in the present case may litigate but runs B the risk of having to pay costs personally.
I now turn to the main issues. I would summarise the facts and the issues thus. On 12 March 1982 this Court awarded judgment in favour of Space Metal Works (Pty) Ltd (hereafter referred to as "the company") against second applicant, together with an order for costs. Thereafter, on 18 March 1982 one Guillot, representing the company, ceded, assigned and transferred the C company's right and interest in the said costs order to respondent in payment of "services rendered, disbursements made and/or still to be rendered". Respondent had acted for the company in his professional capacity as an attorney. On 14 May 1982 the company was provisionally liquidated and first D applicant appointed provisional liquidator thereof.
Applicants seek an order setting aside the cession together with certain ancillary relief. It was contended that the cession constitutes a disposition of property within the meaning of s 340 of the Companies Act; vide also s 2 of the Insolvency Act 24 of 1936.
It was not in issue that s 29 of the Insolvency Act applies in the instant matter. In this regard applicants are required to E show:
(a) a disposition of property in terms of s 2 of the Act;
(b) that the disposition occurred within six months of the sequestration or liquidation;
(c) that the person favoured by the disposition was an F existing creditor of the debtor (the company);
(d) that the disposition had the effect of preferring one creditor of the debtor above the other;
(e) that, immediately after making such disposition, the debtor's liabilities exceeded its assets; and
(f) that, in the case of a company, it is unable to pay all its debts.
Applicants contend that, if the above six factors are G established on a predonderance of probability, the onus shifts to the "person benefited" to show:
(a) that the disposition was made in the ordinary course of business; and
(b) that it was not intended to prefer one creditor above H another. (See Pretorius' Trustee v Van Blommenstein 1949 (1) SA 267 (O) at 269 and 275.)
As I understood Mr Thring , for the respondent, he did not challenge these broad legal contentions of Mr Irish , for applicants, relating to the onus of proof.
As to the factual requirements which applicants had to prove the main issue was whether there has been a preference.
1984 (2) SA p662
As to the factual requirements which respondent had to prove both were in issue.
Accordingly, if applicants were to succeed in discharging the onus resting on them it would follow that respondent would have A to prove both that the cession was made in the ordinary course of business and that there was no intention to prefer.
I proceed to deal with the question whether there was a preference. Applicants' counsel contended that the cession of costs constituted a preference and respondent's counsel B submitted that there was nothing on the papers to prove this. The argument was that, if Francis (second applicant), the person who had to pay those costs, were insolvent and paid less than a rand in the rand, then respondent (the cessionary) may be worse off than if he simply looked to the company in liquidation for payment of those costs.
C In my view the answer to this argument lies in the question whether the cession was made in full settlement or not. If it was in full settlement respondent's argument may be valid. If it was not, respondent would, while obtaining certain benefits from the cession, retain the right to claim the remaining balance from the company.
D What does the cession say? Simply, that it is made "in payment for services rendered". There is nothing to indicate that it is in full settlement and I am of the view that it is not.
Mr Thring contended that it was and pointed out that there was nothing in the cession to suggest a possible further or subsequent reckoning. This is, in my view, only of minor E importance because normally payment is payment not in full settlement and the absence of words indicating a possible further reckoning does not mean that there is to be no such further reckoning. I agree with Mr Irish who contended that the cession transferred a right and that that transfer had the effect of preferring.
F Hence I conclude that applicants have shown that the disposition, that is the cession, had the effect of preferring respondent.
Further, on the probabilities I am of opinion that immediately after making such disposition the company's liabilities exceeded its assets and that the company was unable to pay all G its debts. It therefore follows that the onus shifts to respondent to prove:
(a) that the disposition was made in the ordinary course of business; and
(b) that there was no intention to prefer.
On this the main difficulty I have is a dispute of fact. H Respondent avers:
"6.1 Respondent humbly avers that by entering into the agreement with the company and taking cession of the order for costs respondent merely followed the usual and customary steps in the ordinary course of business practice whereby respondent was to recover the costs of the action and which included substantial cash disbursements made by respondent for and on behalf of the company client, directly associated and in connection with the litigation. These costs and disbursements were in any case due and payable to respondent and in respect whereof respondent has a perfectly valid lien.
1984 (2) SA p663
6.3 In this instance there was never at any time the slightest intention to obtain any preference above other creditors, the existence of which respondent was in any case totally unaware, but merely to enable respondent to recover what was validly due to him."
The director of the company in liquidation at the relevant time A was one Guillot; he avers:
"5. I never contemplated liquidation of the company of which I am a major creditor.
6. The agreement and cession of the order of costs was bona fide entered into with attorney Hattingh when immediately after the judgment was delivered he wanted to recover his costs and disbursements incurred on behalf of and at the B request and instance of myself, acting for and on behalf of the company.
7. I admit that the party-and-party bill of costs was not an ordinary asset of the company, but of a peculiar nature, same being an award to the company as part of the payment due to its attorney for professional services and a refund of disbursements solely made in connection with litigation.
8. I have read applicant's notice of motion and affidavits, including respondent's opposing affidavit, and confirm C those facts whereof I have knowledge.
9. On 23 March 1982 I resigned as sole director of the company, Space Metal Works (Pty) Ltd, now in liquidation.
10. At the end of May 1982 I heard for the first time from De Mezieres l'Epervanche that he was liquidating the company. He also stated that he will be making an offer of D compromise. During the last week in July 1982 I informed respondent thereof."
Most of these averments are in dispute. Counsel for applicants contended that the probabilities demonstrated the incorrectness of respondent's averments and, in fact, gave a circumstantial guarantee that applicants' version of the facts was correct. The argument is attractive but, in my opinion, inconclusive. E The law as to the Court's approach to motion proceedings and which facts should carry the day is well set out in Stellenbosch Farmers' Winery Ltd v Stellenvale Winery (Pty) Ltd 1957 (4) SA 234 (C) at 235E. In summary, the rule is that where a final order is sought the respondent's version, that is his averments and his admissions of applicant's averments, carries F the day. If there is a dispute of fact the Court has a discretion, for instance, to dismiss the application or to refer it to trial or oral evidence. Of course, the dispute of fact must be genuine. See Room Hire Co (Pty) Ltd v Jeppe Street Mansions (Pty) Ltd 1949 (3) SA 1155 (T) at 1163F where the various kinds of dispute are set out and where it is shown that G certain apparent disputes are not real disputes.
Despite Mr Irish's contention I am of opinion that in the instant case there exists a genuine dispute of fact, especially as to whether there was an intention to prefer. While the averments of attorney Hattingh and Guillot stand it is impossible for me to say that the onus which respondent bears, H that is to prove an absence of intent to prefer, has not been discharged. Per contra , these allegations are in dispute and there are circumstances and probabilities pointing the other way. Hence it is my opinion that there is a genuine dispute of fact and that this issue should be referred to trial.
The other leg on which respondent bears the onus of proof is whether the cession was effected in the ordinary course of business. This question resolved itself largely into an argument on the law.
1984 (2) SA p664
There are a large number of decisions showing that a cession of costs in favour of an attorney is a normal procedure. See, for instance, Kader v Frank & Warshaw and Another 1926 AD 344 at 349; Baskin & Barnett v Barnard 1928 CPD 58 at 59; Bezuidenhout A v Van Graan 1938 TPD 331 at 332; Allen and Others v Duke 1954 (1) SA 213 (N) ; Van Aswegen v Pienaar en Andere 1967 (3) SA 677 (O) ; National Bank v Marks and Aaronson 1923 TPD 69; Schoeman v Thompson 1927 WLD 298; Industrial Finance & Trust Co Ltd v Schneier & London and Others 1925 WLD 92; Lovell v Paxinos and B Plotkin: In re Union Shopfitters v Hansen 1937 WLD 84; Clark v Van Rensburg and Another 1964 (4) SA 153 (O) and Agricultural & Industrial Mechanisation (Vereeniging) (Edms) Bpk v Lombard en Andere 1974 (3) SA 485 (O) . But there are also two decisions pointing the other way, namely LTA Engineering Co Ltd v Seacat Investments (Pty) Ltd 1974 (1) SA 747 (A) at 770G - H and Pitluk v Law Society of Rhodesia 1975 (2) SA 21 (RA) C at 30G - 31. I have been tempted to decide this point on motion, especially since it is basically a law point but, on balance, I am of opinion that the right course would be to send it to trial as well. In my opinion there is merit in Mr Thring's contention that respondent could testify as to what D his perception of the Pitluk and Seacat judgments was and whether they overruled all the earlier South African decisions which gave their blessing to a cession of costs.
I would point out that I have come to this conclusion, namely to send the matter to trial, with reluctance. Neither counsel asked for such an order; both rather took the line that it was for the other side to ask for it. The argument before me lasted E three days, that is considerable costs have already been incurred. There is some weight in Mr Irish's contentions that some of the averments of Guillot are thin and run counter to the probabilities. However, in the final result I do not think that in all the circumstances and on motion the probabilities can outweigh the factual averments.
F There remains the attachment of second applicant's Audi motor car. The averment was that respondent had no right or authority to have it attached as the company had previously been liquidated. Respondent's counsel contended that respondent was entitled to act for his own benefit and account but in the name of the company and, therefore, the attachment was in order. As G I understood Mr Irish , he did not seriously contest that submission and, accordingly, I am of opinion that respondent acted lawfully and within his rights. Hence the prayer to have the attachment set aside cannot succeed at this stage.
Accordingly, the order is:
(a) The matter is referred to trial on the two issues, namely:
H (1) whether the disposition, ie the cession, was made in the ordinary course of business, and
(2) whether or not it was intended to prefer respondent above other creditors.
(b) The present papers are to stand as the pleadings, which are regarded as closed.
(c) Hence the matter may simply be set down for trial.
(d) The costs of these proceedings are to be determined at the trial.
1984 (2) SA p665
(e) The Registrar is directed to afford the trial preference on the roll.
Applicant's Attorneys: Groenewald & Pollard , Somerset West. A Respondent's Attorneys: Herold, Gie & Broadhead , Cape Town.