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The Law Publisher CC CK92/26137/23

Part 5 (2017)

Commercial Law Reports

Consulting Editorial Board:The Honourable RH Zulman BCom LLB LLM, Former Judge of theSupreme Court of Appeal, The Honourable FR Malan BA LLD,Judge of the Supreme Court of Appeal, The Honourable P LevinsohnBA LLB, Former Deputy Judge President of the Kwazulu NatalProvincial Division, The Honourable S Selikowitz BA LLB, FormerJudge of the High CourtEditor:M Stranex BA LLB, Advocate of the High Court of South AfricaCONTENTSURBAN HIP HOTELS (PTY) LTD v K CARRIM COMMERCIALPROPERTIES (PTY) LTD (SCA) . . . . . . . . . . . . . . . . . . . . . . . . . 237The clear terms of an agreement containing a method of determination of thenet amount payable not to be substituted with other termsARABELLA INVESTMENTS (PTY) LTD v COBOW (PTY) LTD (WC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246A court exercising its discretion against granting a provisional winding uporder when it is shown that dispute with the claims of the applicant creditor isbased on objectively reasonable grounds.AL MAYYA INTERNATIONAL LIMITED (BVI) v VALLEY OF THEKINGS THABA MOTSWERE (PTY) LTD (EC) . . . . . . . . . . . . . . 259A company which is financially distressed, and a reasonable prospect forrescuing the company as a basis for business rescueSTEYN LYELL MAEYANE ATTORNEYS v OELOFSE (SCA) . . 280An undertaking by a third party to make payment as required in terms of anagreement between two parties not constituting a guarantee

Business rescue - grounds for Contract -

interpretation of - subsequent conduct, variation ofterms Guarantee - meaning of Insolvency -

business rescue - commercial insolvency Liquidation- company unable to pay its debts Words andphrases - guarantee

In this issue

URBAN HIP HOTELS (PTY) LTD v K CARRIMCOMMERCIAL PROPERTIES (PTY) LTD

The clear terms of an agreement containing a method of determination of thenet amount payable not to be substituted with other terms

Judgment given in the Supreme Court of Appeal on 25 November 2016 by Vander Merwe JA (Lewis JA, Shongwe JA, Petse JA and Willis JA concurring)

Urban Hip Hotels (Pty) Ltd managed a hotel rental pool at various buildings,one of which was the Icon building in Cape Town. Approximately 36residential units in the Icon formed part of its rental pool. K CarrimCommercial Properties (Pty) Ltd owned 50 residential units and 12 corporateand retail units in the Icon. Its residential units were managed by VIP Living.

Urban entered into negotiations with Carrim with a view to taking over themanagement of its residential units. The negotiations resulted in the conclusionof a written agreement between the parties entitled Memorandum ofUnderstanding (MOU). The MOU was to serve as an interim arrangement forthe period from 1 April 2011 to 31 January 2012, in anticipation of enteringinto a more comprehensive and lasting agreement.

In terms of clause 4.3 of the MOU, the parties agreed that a levy rate ofR1,250.00 per rentable unit would apply for the duration of the initial term ofthe arrangement based on the number of units made available by Carrim. Noother expense or payment would be allowed. In terms of clause 4.4, a monthlymanagement fee payable to Urban Hip would be calculated on a rate of 14%of the turnover. Clause 4.7 of the MOU provided that the parties agreed tohonour and respect the recorded terms, business standards and practises untilit would be replaced or confirmed by an Agreement of which the final termswould be defined and agreed.

In the implementation of the MOU, Urban deducted from the amountspayable to Carrim operating costs in the sum of R2 248 156,29. It furnishedCarrim with monthly accounts that reflected deductions of operating costs.During the contract period, Carrim did not object to the accounts on the groundthat the deduction of operating costs was impermissible.

Carrim applied for an order that the sum of R2 248 156,29 be repaid to it.

Held—Urban contended that because clause 4.4 dealt with the payment of

management fees, the phrase ‘no other expense or payment would be allowed’in clause 4.3, could not be understood literally. Clause 4.3 dealt only with therental pool levy for fixed costs. As the MOU therefore contained nomechanism for determination of the net rental income, it must have been

238 URBAN HIP HOTELS v K CARRIM COMMERCIAL PROPERTIESVAN DER MERWE JA 2017 SACLR 237 (A)

intended that the appellant’s normal practice in respect of both allocating rentalincome and deducting operating costs applied.

There was no merit in this argument. The MOU had to be read as a whole.The subject of clause 4.3 was contribution to expenses and that of clause 4.4was the management fee. The wording of clause 4.3 made it abundantly clearthat, apart from the levy rate of R1 250.00 per unit, Carrim would not be liablefor any other expense or payment unless otherwise agreed in writing andsigned by both parties. Seen thus, the MOU indeed contained a method ofdetermination of the net amount payable to Carrim, ie its proportionate grossrental income less the expense contribution and the management fee.

Urban also contended that the subsequent conduct of Carrim in not objectingto the accounts indicated that it had agreed to the deductions.

However, the evidence did not establish that the conduct of Carrim wasconsistent only with acceptance of liability for operating costs in terms of theMOU. Its failure to raise the question of operating costs could simply beascribed to a mistake or misunderstanding.

Urban had not been entitled to deduct the operating expenses that it did.Carrim was entitled to payment of the sum underpaid.

Advocate B H Swart SC instructed by Joubert Swart Attorneys, Randburg,appeared for the appellantAdvocate A Gautschi SC and Advocate J Myburgh instructed by Errol GossAttorneys, Pretoria, appeared for the respondent

Van der Merwe JA:[1] The issue in this appeal is whether the appellant, Urban Hip Hotels(Pty) Ltd, was entitled to deduct certain operating costs from rentalincome payable to the respondent, KCarrim Commercial Properties(Pty) Ltd, in terms of an agreement between them. The appellant hadin fact made such deductions and when it discovered this, therespondent applied for an order in the Gauteng Division of the HighCourt, Pretoria that the appellant pay it the sum that had been deductedplus interest. Ismail J in the court a quo ordered the appellant to pay theamount of R2 248 156,29 plus interest and costs to the respondent. Itgranted leave to the appellant to appeal to this court. The quantum ofthe respondent’s claim is not in issue. The issue is whether, on a properinterpretation of the contract between the parties, the appellant was

URBAN HIP HOTELS v K CARRIM COMMERCIAL PROPERTIES 239VAN DER MERWE JA 2017 SACLR 237 (A)

entitled to make the deductions that it did.[2] The appellant operates a number of hotels in sectional titlecomplexes. In terms of its standard business model, a rental pool isestablished in which the owners of sectional title units in the particularcomplex participate. The units in the rental pool are marketed andadministered by the appellant.[3] A participating owner becomes a member of the particular rentalpool and is liable to pay an annual membership fee. The owner isgenerally required to enter into the appellant’s standard memorandumof agreement (standard agreement). In terms of the standard agreementthe participating owners share in the total net rental income of all theunits in the pool, in proportion to the percentage of interest that theyhave in the rental pool, as determined by the surface area of therespective units.[4] The net rental income is determined by the deduction of expensesspecified in the standard agreement from the gross rental income of theunits in the pool. These expenses are a monthly rental pool levy perunit, a monthly management fee payable to the appellant calculated at20 per cent of the gross income derived from the letting of the unit anda proportion of the operating costs of the pool determined by thepercentage interest of the unit in the pool. The rental pool levy isintended to cover what the appellant terms fixed costs. The fixed costsinclude only the costs of provision of DSTV to a unit and aproportionate share of the salaries of the appellant’s staff in theparticular complex. The amount of the levy would fluctuate inaccordance with the costs of the fixed cost items. The operating costsare regarded by the appellant as variable costs and include expenses inrespect of cleaning of units, repairs and maintenance, electricity andadministration costs. In short, the owner of a participating unit receivesa monthly amount consisting of its proportionate share of the totalrental pool income, less the rental pool levy, the management fee anda proportionate portion of operating costs.[5] The appellant managed such a hotel rental pool at the ICONbuilding in Cape Town (ICON). By March 2011 approximately 36residential units in the ICON formed part of the appellant’s rental pool.Its offices were situated on the fourth floor of the building and it hadonly a reception desk at the entrance to the residential units. The


respondent owned 50 residential units and 12 corporate and retail units(for offices and shops) in the ICON. Its residential units were managedby an entity called VIP Living. The respondent had an attractivereception area at the entrance to the residential units in the ICON. Asa result there were effectively two competing hotels in the ICON,namely the appellant’s operation and the respondent’s units managedby VIP Living.[6] It is common cause that the appellant was keen to obtain therespondent’s residential units and superior reception area at the ICONfor its rental pool. It accordingly entered into negotiations with therespondent. During the negotiations the appellant was represented byits managing director, Mr Kobus Botha. Mr Zaheed Carrim, the directorand chief executive officer of the respondent, acted for the respondent,assisted by its operations manager, Mr Dick Putter. There can be nodoubt that during these negotiations the respondent was in a strongbargaining position.[7] On or about 31 March 2011 the negotiations resulted in theconclusion of a written agreement between the parties entitledMemorandum of Understanding (MOU). The MOU was to serve as aninterim arrangement for the period from 1 April 2011 to 31 January2012, in anticipation of entering into a more comprehensive and lastingagreement.[8] In terms of the MOU the respondent placed 48 of its residentialunits in the appellant’s rental pool at the ICON and the respondent letits reception area to the appellant. The respondent thus became entitledto a proportionate share of the rental pool income. Clause 3.4 of theMOU provided that the repairs and maintenance in respect of normalwear and tear of the units would be for the account of the appellant. Inrespect of the financial obligations of the respondent the MOUprovided as follows:

‘4.3 Expense ContributionThe parties agreed that a levy rate of R1,250.00 per rentable unit willapply for the duration of the agreed initial term of the arrangementbased on the number of units made available by KCarrimCommercial Properties and defined in the monthly Residential list tobe supplied by Carrim for the month in advance. No other expense orpayment would be allowed and any deviation or adjustment hereof


must be recorded in writing with a reference to this provision, datedand signed by both parties.4.4 Management FeeThe parties agreed that the monthly management fee payable toUrban Hip will be calculated on a rate of 14% of the turnover,excluding VAT and will be recorded on a VAT Invoice submitted toCarrim for payment not later at the 25th of each month of operation.’

[9] Clause 4.7 of the MOU read:‘Final AgreementThe parties agreed to honour and respect these recorded terms,business standards and practises until it would be replaced orconfirmed by an Agreement of which the final terms would bedefined and agreed to not later than 20 January 2012 and that theobjective of the arrangement would be to establish a profitablearrangement as the basis thereof. The final implementation date isagreed and set for 1 February 2012.’

Clause 6.2 provided as follows:‘VariationNo variation or consensual cancellation of this MOU shall be of anyforce or effect unless reduced to writing and agreed by all parties.’

The MOU was amended by two written agreements entered into on 31May 2011, but it is not necessary to refer to their provisions.[10] The MOU was thus very different from the standard agreementused by the appellant. A fixed and not variable levy rate and a reducedmanagement fee were agreed upon. Importantly, according to therespondent it was, in terms of clause 4.3 of the MOU, also not liable foroperating costs in respect of the rental pool.[11] The envisaged comprehensive agreement did not materialise. It iscommon cause that the MOU was terminated on 29 February 2012. Therespondent said that during March 2012, Mr Putter ascertained thatover the period from 1 April 2011 to 29 February 2012, the appellanthad deducted operating costs from income due to the respondent, overand above the expense contributions/levy rate in terms of clause 4.3 andthe management fee. As a result the accounts of the appellant wereanalysed with greater care by the respondent. It determined that thedeductions in respect of operating costs for the duration of the MOU


amounted to R2 248 156,29 – hence the application against theappellant for payment of this sum, interest thereon from date of demandand costs.[12] As I have said, the correctness of the amount is not in dispute. Theappellant opposed the application essentially on the ground that thestandard agreement formed part of the agreement between the parties.Its case was that the relationship between the parties was governed bythe standard agreement save as otherwise provided for in the MOU.Therefore, so the appellant averred, the respondent was in fact liable foroperating costs and the appellant was entitled to deduct the amount ofR2 248 156,29.[13] The application was referred for the hearing of oral evidence onthe following questions:

‘1.1 Did the Respondent’s standard memorandum of agreement . .. form part of the contract between the parties?1.2 Did the three MOU’s constitute the exclusive memorial of whatwas agreed between the parties?’

Only Mr Carrim and Mr Botha testified in the court a quo. It found forthe respondent in the following terms:

‘I am therefore of the view that the MOU was the sole memorialbetween the parties for the period that it existed, albeit for a shortduration of time, and that the respondent’s standard pool agreementdid not form part of the agreement between the parties.’

It granted the relief claimed in the notice of motion.[14] Before us, the appellant did not challenge the finding that thestandard agreement did not form part of the agreement between theparties. This stance is no doubt correct. Although the standardagreement had been sent to the respondent at the initial stage of thenegotiations, it was never referred to again. It is clear from the evidencethat Mr Carrim would under no circumstances have bound therespondent to the standard agreement. For this reason the respondentprepared the MOU, which after the signature thereof by Mr Botha,constituted the only document evidencing the contract between theparties.[15] The argument before us was that on an interpretation of the MOU,the appellant was entitled to deduct operating costs. It was submittedthat the appellant’s normal practice in respect of deduction of operating


costs applied to the MOU as did its standard practice of allocatingrental income. (The respondent has no quarrel with the way in whichrental income was determined.) For this argument the appellant reliedon an interpretation of clause 4.3 read with clause 4.4, together withclause 4.7 and on the alleged conduct of the respondent subsequent tothe MOU.[16] As I understood it, the argument went along the following lines.

[18] In the final analysis the appellant relies on nothing other than atacit term of the MOU to the effect that the appellant’s normal practicein respect to operating costs would apply. Reliance on such a tacit termis unfounded for a variety of reasons. It was not pleaded nor raised inthe court a quo. As I have pointed out, the MOU is complete andefficacious. The parties applied their minds to the subject of operatingcosts. They excluded liability for operating costs on the part of therespondent by the express provisions of clause 4.3 and the deliberateexclusion of the standard agreement from their agreement. In thesecircumstances there is no room for this tacit term. See Robin vGuarantee Life Assurance Co Ltd 1984 (4) SA 558 (A) at 567B-F. Inany event, on the evidence it can be stated with confidence that had the


officious bystander during the negotiations raised the question as towhether the respondent would be liable for operating costs, Mr Carrimwould have firmly answered in the negative.[19] On a proper interpretation of clause 4.7, the words ‘terms, businessstandards and practices’ are all qualified by the words ‘these recorded’.Clause 4.2 for instance provides as follows:

‘Service Delivery StandardThe parties agreed that the operational co-operation standard to beapplied would be similar to those standards that make up the totalbusiness of Urban as exercised in all its rental pool premises.’

The submission that clause 4.7 refers to extraneous business standardsand practices can therefore not be accepted. The appellant’sinterpretation in any event takes its case no further. The allegedextraneous business standards and practices are unidentified, but cancertainly not refer to the standard agreement.[20] It remains to deal with the appellant’s submission in respect of thealleged subsequent conduct of the respondent. The appellant reliedupon the evidence that for the duration of the MOU, the appellantfurnished the respondent with monthly accounts that reflecteddeductions of operating costs. It is undisputed that despite discussionsof these accounts by Mr Putter with the appellant, the respondent didnot, during the contract period, object to the accounts on the groundthat the deduction of operating costs was impermissible.[21] It is now well established that the meaning of a contract must beascertained by consideration of the words used, the contract as a wholeand the context or factual matrix in which the contract was concluded,irrespective of whether there is an ambiguity in the meaning thereof.See Novartis SA (Pty) Ltd v Maphil Trading (Pty) Ltd [2015] ZASCA111; 2016 1 SA 518 (SCA) para 28. I accept that in an appropriate casethe manner in which the parties to a contract carried out theiragreement, may be considered as part of the contextual setting in whichthe terms of the contract are to be determined. See Unica Iron and Steel(Pty) Ltd & another v Mirchandani [2015] ZASCA 150; 2016 (2) SA307 (SCA) para 21 and G B Bradfield Christie’s Law of Contract inSouth Africa, 7 ed, at 254. The use of such evidence is, however,subject to three provisos. First, the evidence must be indicative of acommon understanding of the terms and meaning of the contract.


Second, as pointed out by Bradfield, (supra) at 254, the evidence maybe used as an aid to interpretation and not to alter the words used by theparties. See also Comwezi Security Services (Pty) Ltd & another v CapeEmpowerment Trust Ltd (759/2011) [2012] ZASCA 126 (21 September2012). Third, as Harms JA cautioned in KPMG Chartered Accountants(SA) v Securefin Ltd & another [2009] ZASCA 7; 2009 (4) SA 399(SCA) para 39, the evidence must be used ‘as conservatively aspossible’.[22]

This appears to be supported by the factthat the impermissible deduction by the appellant of operating costs inrespect of repairs and maintenance, was also not picked up. It is clearthat Mr Carrim was the directing mind of the respondent. His evidencethat he was not furnished with the appellant’s accounts and that he wastherefore unaware of the deduction of operating costs before March2012, cannot be rejected, to say the least. In any event, as I have said,the clear meaning of clause 4.3 of the MOU cannot in thecircumstances be varied by evidence of conduct subsequent to theentering into of the MOU.[23] Accordingly, as the court a quo found, the appellant was notentitled to deduct the operating expenses that it did and the respondentis entitled to payment of the sum underpaid.[24] The appeal is dismissed with costs including the costs of twocounsel.

ARABELLA INVESTMENTS (PTY) LTD v COBOW (PTY)LTD

A court exercising its discretion against granting a provisional winding uporder when it is shown that dispute with the claims of the applicant creditor isbased on objectively reasonable grounds.

Judgment given in the Western Cape Division, Cape Town, on 28 June 2017by Le Grange J

Arabella Investments Pty (Ltd) sought the provisional winding up of Cobow(Pty) Ltd. Arabella contended that Cobow should be wound up on the basisthat it was unable to pay its debts, as envisaged in section 344(f) as read withs 345(1)(c) of the Companies Act (no 71 of 1973).

Arabella claimed that Cobow was indebted to it in the sum of R735 000.Cobow alleged that Korver, the sole director of Arabella, falsified thesignatures of the other two directors on the resolution of Cobow authorisingthe conclusion of a guarantee given by Cobow and the registration of amortgage bond. Korver disputed this, and alleged that he was duly authorisedto sign all necessary documentation on behalf of Cobow. Cobow asserted thatthe loan and subsequent mortgage bond were unauthorised.

Cobow opposed the application on the grounds that Arabella lacked locusstandi as a creditor, that Korver had perpetrated a fraud on Cobow and InvestecLtd, a creditor, by fraudulently misrepresenting his authority to have concludedloan with Investec, and as such could not rely on his own wrongdoing as thecausa for the winding up of Cobow. Cobow also contended that it had a gooddefence to the claims of Investec on the grounds that Korver allegedlycommitted a fraud and lacked authority to have concluded a loan agreementbetween Korevest Leisure Group (Pty) Ltd, the sole shareholder of Cobow,and Investec, to execute a guarantee by Cobow in favour of Investec and topass a covering mortgage bond over Cobow’s immovable property in favourof Investec. Cobow denied that it was commercially insolvent and unable topay its debts.

Held—On a conspectus of all the evidence, and in view of the low threshold test

that a respondent had to satisfy to discharge its onus, the grounds Cobow hadadvanced for disputing Arabella’s claims were objectively not unreasonable.

With regard to the requirement of bona fides, in the context of the ruleestablished in Badenhorst v Northen Construction Enterprises (Pty) Ltd 1956(2) SA 346 (T), Cobow did not need to hold the belief that at trial, its defenceto the claim would definitely succeed. What was required was that it genuinely

ARABELLA INVESTMENTS (PTY) LTD v COBOW (PTY) LTD 247LE GRANGE J 2017 SACLR 246 (WC)

wished to contest the claim and genuinely believed it had a reasonable prospectof success that the alleged facts which, if proved at a trial, would constitute agood defence to the claims made against it.

Cobow had further demonstrated that despite refusing to pay Arabella’sdisputed claim, it had assets or readily realizable assets available to meet itsliabilities as they fell due in the ordinary course of business. On these facts, thecourt’s residual discretion should be exercised in favour of Cobow.

The application was dismissed.

Advocate RG Goodman SC and Advocate DM Davis instructed by KorbersInc, Cape Town, appeared for the applicantsAdvocate G Woodland and Advocate B Cutler instructed by Gillan &Veldhuizen Inc, Cape Town, appeared for the respondents

Le Grange J:[1] In this matter there are two opposed applications for the provisionalliquidation of associated companies. I have prepared one judgment thatcovers both cases.[2] In the first case, Arabella Investments Pty (Ltd) (‘Arabella’) seeksthe provisional winding up of the holding company Cobow (Pty) Ltd(‘Cobow’). Arabella contends that Cobow should be wound up on thebasis that it is unable to pay its debts, as envisaged in s 344(f) as readwith s 345(1)(c) of the 1973 Companies Act. [3] In the second case, Korevest Leisure Group BV (Pty) Ltd (‘KLG”)seeks the provisional winding up of Korevest Leisure Group (Pty) Ltd.The issue in the second case is whether or not the Respondent(‘Korevest”) has lost its substratum. KLG alleges that because Korevestowns 100% of the issued shares in Cobow, Korevest fate is inextricablywound up with that of Cobow and the latter’s liquidation will inevitablyresult in the liquidation of Korevest. Accordingly, it was accepted byall the parties that if the Cobow application fails, then the Korevestapplication should also fail, and vice versa. [4] There are numerous factual disputes on the papers filed of record.The salient background facts which are largely uncontroversial can besummarised as follows: Cobow is currently carrying on business as aguesthouse under the name of Albourne Boutique Lodge in SomersetWest, Cape Town. Cobow owns the immovable property on which the

248 ARABELLA INVESTMENTS (PTY) LTD v COBOW (PTY) LTDLE GRANGE J 2017 SACLR 246 (WC)

guesthouse is conducted. The immovable property, according to Cobowwas valued at an amount of approximately R17 million, and togetherwith its business, has a market value of approximately R22 million. [5] The sole shareholder of Cobow is Korevest. Cobow currently hastwo directors, Gustav Schaefer (Schaefer) and Jan EberhardSchliemann (Schliemann). Martin Lennard Korver (Korver) was alsoa director of Cobow until he resigned in August 2016. Korver is thesole director of Arabella and controls KLG[6] Korevest has three shareholders namely, KLG which owns 47 %.The Schliemann Family Trust which owns 28% of the shares and theFinserf Foundation which owns 25% of the shares.[7] In March 2017, Investec Bank (Mauritius) Limited (‘Investec’)issued summons against Korevest, Cobow and Korver under case no5690/2017 (‘the action’) in which it claims; payment from Korevest,Cobow and Korver, jointly and severally, of the amount of Euro442,602.94 or the Rand equivalent thereof which is roughly about R6.8 Million, (plus the interest as agreed upon contractually); an orderdeclaring the immovable property (owned by Cobow) to be speciallyexecutable and costs on an attorney and own client scale.[8] The claim by Investec is based on a loan agreement concluded inMay 2015 between Investec and Korevest, represented by Korver, interms whereof Investec loaned Korevest the Euro equivalent of theamount of R6.8 Million (‘the Investec Loan’). [9] Investec’s claim for an order declaring the immovable propertyspecially executable is based on a covering mortgage bond registeredby Cobow in favour of Investec over the immovable property assecurity for the monies loaned to Korevest. [10] Cobow in opposing the relief sought raised the following defences.Firstly, that Arabella lacks locus standi as a creditor. Secondly, thatKorver has allegedly perpetrated a fraud on Cobow and Investec byfraudulently misrepresenting his authority to have concluded theInvestec loan and as such cannot rely on his own wrongdoing as thecausa for the winding up of Cobow. Thirdly, Cobow has a good defenceto the claims of Investec on the grounds that Korver allegedlycommitted a fraud and lacked authority to have concluded a loanagreement between Korevest and Investec, to execute a guarantee by


Cobow in favour of Investec and to pass a covering mortgage bondover Cobow’s immovable property in favour of Investec. Lastly, thatCobow denies it is commercially insolvent and or unable to pay itsdebts.[11] Mr. RG Goodman, SC assisted by Ms. DM Davis appeared for theApplicants. Mr. WG Woodland assisted by Mr. C Cutler appeared forCobow.[12] At the start of the hearing, leave was sought by Cobow andArabella to file additional affidavits. Having heard counsel and havingregard to the relevance of the matter contained in the affidavits, suchleave was granted and the affidavits admitted as forming part of thefactual matrix underpinning the two cases. [13] Arabella also at the outset launched and application in terms of theUniform Court Rules 6(5)(g) for the referral of certain issues to oralevidence. The issues Arabella wants to have resolve at such hearingwas as follows:

13.1 whether or not there was an agreement as alleged at paragraph22 of the answering affidavit that Korevest would discharge Cobow’sindebtedness to the applicant from funds paid by Cobow to Korevest;13.2 whether or not the admitted liability of R570 000 was paid bythe respondent to the applicant;13.3 whether or not Schaefer and or Schliemann had knowledge,prior to the execution thereof, of the loan agreement betweenKorevest and Investec Bank Limited (Mauritius) (‘InvestecMauritius’) (‘the Investec loan’), the ancillary Cobow guarantee andthe Cobow mortgage bond;13.4 whether or not Schaefer and or Schliemann authorized Korverto negotiate with Investec Bank Limited (Cape Town) and InvestecMauritius to conclude the Investec loan and Cobow guarantee and toregister the mortgage bond in favour of Investec Mauritius;13.5 whether or not the respondent is able to pay its debts.

[14] Arabella premised their application for referral to oral evidence onthe dictum in Lombaard v Dropop 2010 (5) SA 1 at para [53] whereinit was held that such applications be made from the outset and beforeargument, unless there are exceptional circumstances present to departfrom it. Despite the request up front for the referral to oral evidence,


Arabella was confident that on the papers as it stands a case had beenmade out for the primary relief sought. [15] Arabella’s locus standi is underpinned on the allegation that it isa creditor of Cobow. In this regard, Arabella placed reliance on thefollowing: first, an extract from the management accounts of Cobowwhich at 3 February 2017 reflects the amounts of R235 000; R250 000and R250 000 totalling an amount of R735 000. Secondly, a taxinvoice dated 8 January 2015 for R570 000.00 (being R570 000.00 plusVAT) for the four quarters of 2014 (in respect of the 2015 tax year).According to Arabella the amount of R 735 000 is due and payable butremains unpaid either in whole or in part. [16] On the papers filed of record, Cobow admitted liability to Arabellain the amount of R 570 000.00 as at year end February 2015, but claimsit has paid the said amount. It disputes liability for the balance ofArabella’s claim. According to Cobow in terms of an agreementbetween Cobow and Korevest, Korver caused Korevest to makepayments totalling R843 500.00 to Arabella in discharge of Cobow’sliability to it.[17] Korver disputes that there was such an agreement betweenKorevest and Cobow to make these payments to Arabella. Accordingto Korver the payments made by Korevest to Arabella were repaymentson his loan account in Korevest and certain amounts he borrowed fromit. [18] Counsel for Arabella in the main contended that the defencesraised by Cobow is contrived and must fail even on the lower thresholdrequired to stave off a liquidation application as the debt was notdisputed on bona fide and reasonable grounds. According to Arabella’scounsel, Cobow simply failed to allege facts which, if proven at thetrial, would make out a good defence of payment.[19] The principal argument by Counsel for Cobow was that thegrounds advanced by the company in disputing the claims against itwere not unreasonable. It was contended that the grounds as alleged byCobow were also made bona fide and if proven at a trial wouldconstitute a good defence. [20] Arabella is adamant that the version advanced by Cobow of analleged agreement to discharge the liability to Arabella is contrived. It


was argued that the alleged agreement was contradicted by Cobow’sown answering papers. According to Arabella the payments listed byCobow’s are described in the books of Korevest as ‘misappropriatedfunds Arabella’, and not as payments to Arabella on behalf of Cobow.It was further contended that if indeed as alleged payments were madefrom Korevest to Arabella on behalf of Cobow for management fees interms of an agreement, then it is highly improbable that it would havebeen described as ‘misappropriated’ in the books of Korevest.Moreover, the payments underlined on the Korevest bank statementsdo not reflect a payment for an invoiced amount of R570 000.00 toArabella but rather payments for different amounts ranging from R1000.00 to R175 000.00 between the period May 2015 to March 2016. [21] It was further argued that the recorded payments in the creditor’sledger account of Arabella in the books of Cobow, shows paymentsbeing made directly to Arabella by cheque and that these recordedpayments must negate the version of any agreement that Korevestwould discharge Cobow’s liability to Arabella from money transferredby Cobow to Korevest. [22] Furthermore, according to Arabella, the alleged payment ofR843 500.00, on which Cobow placed reliance, is based on a journalentry dated 29 February 2016 in the books of account of both Korevestand Cobow and as such are only a journal entry in both sets ofaccounts. The argument was advanced that the relevant journals andopposite entries in the books of account were not disclosed, as onewould have expected, and that Cobow’s defence of payment rests noton the physical payment of the R570 000.00 but on dubious journalentries, the effect whereof is purportedly to set off amounts owed byArabella to Korevest against amounts owed by Cobow to Arabella.[23] Cobow on the other hand contended there is no duty on them toestablish as a matter of fact that the defences raised will succeed in anyaction which may be brought against them. It was contented that all thatwas required were the grounds advanced by Cobow upon which it relyto dispute the claims were reasonable and bona fide. According toCobow, they have a reasonable prospect of successfully defending theInvestec Bank Mauritius action and in doing so will cause the mortgagebond and loan agreement to be set aside.


[24] Cobow in this regard has alleged that Korver falsified thesignatures of Schaeffer and Schliemann on the resolution of Cobowauthorising the conclusion of the Cobow guarantee and the registrationof the mortgage bond. Furthermore, Korver falsely misrepresentedKLG as owning 100% of the shares of Korevest, whereas it only owned47% of the shares, and Korver was the only director of Korevest whosigned the Korevest resolution authorising the conclusion of theInvestec loan whereas Schaefer and Schliemann, as directors ofKorevest, should also have signed the resolution. Moreover, Schaeferand Schliemann have alleged that they had no knowledge of, did notagree to, and did not sign any documents authorising the conclusion ofthe Investec loan or the passing of the mortgage bond. It was thereforedenied by both that they had authorised Korver to engage in anydealings with Investec on behalf of Cobow.[25] The version advanced on behalf of Cobow was that Korevest hadborrowed funds in foreign currency from a foreign entity calledCloetenberg Management (‘Cloetenberg’) to pay out the previousshareholders’ loans in Cobow, and that it was agreed between Korver,Schaefer and Schliemann that Korevest’s debt to Cloetenberg would besecured by a bond over the immovable property in favour ofCloetenberg. However, nothing came of this and it is alleged thatKorver instead suggested that it would be better to have a bondregistered over the immovable property in favour of Investec assecurity for a guarantee which Investec would provide to Cloetenbergto secure Korevest’s debt to Cloetenberg.[26] Korver on behalf of Arabella disputes this version, in particular theprofessed ignorance of Schliemann and Schaefer of the fact of theInvestec loan and the mortgage bond. According to Korver, Schaeferand Schliemann were well aware of the fact of the loan and of themortgage bond. To this extent reliance was placed on the followingdocuments:

26.1 A letter dated 8 April 2015 from Investec to Korevest settingout full details of the terms of the loan and the security therefor(including the Cobow guarantee and the mortgage bond) which wassent to the address of the offices of Schliemann Incorporated;26.2 A letter dated 27 May 2015 written by Schliemann to the


Registrar of Deeds, Cape Town, in which he made reference to thefact that Cobow had been granted a bond through Investec and wasmerely waiting for delivery of the title deed before the bond could belodged and funds released to Cobow.26.3 A WhatsApp message sent by Korver to Schaefer on 15 May2015 in which Korver refers to two resolutions in connection withInvestec (to be signed on behalf of Korevest and Cobow) and asksSchaefer to sign them and scan them back to him and Schaefer repliesstating ‘Check email’.26.4 One of the two documents signed by Schaefer on 15 May 2015,being a resolution signed on behalf of Korevest in which it ispertinently stated that Korver is authorised on behalf of Korevest tonegotiate with Investec, to conclude documents and to ‘consummateany transaction’.

[27] According to Korver, Schaefer signed a similar resolution forCobow on 15 May 2015, and that on 18 May 2015 Schliemann wasmeant to meet with him and Schaefer to sign the two resolutions, butdid not arrive for the meeting. He accordingly signed Schliemann’sname on the resolutions in the presence of Schaefer in the knowledgeand belief that Schliemann would in due course sign the resolutions,which according to Korver in fact happened a few days later but wasunable to produce these signed resolutions as they were apparentlyremoved from his files. [28] According to Korver, much was made by Schaefer and Schliemannof the fact that he supposedly ‘falsified’ their signatures on theresolution. Korver was however adamant that he was duly authorisedto sign all necessary documentation on behalf of Cobow and Korevestin relation to the Investec transaction, and therefore there could nothave been an objection if he had signed his own name ‘pp’ for Schaeferand Schliemann instead of signing Schaefer’s and Schliemann’s names.[29] It was argued that Schaefer and Schliemann’s denial ofknowledge of the transaction and of Korver’s authority is opportunisticand falsely contrived to escape liability to Investec in terms of theCobow guarantee and the mortgage bond.[30] Cobow further contended that the present applications are an abuseof the Court’s process. To this end it was contended that it is


opportunistic for Korver to rely on his own wrongdoing as a causa forwinding up Cobow where he allegedly unlawfully caused Cobow toencumber its immovable property and having allegedly stolen asubstantial part of the funds loaned by Korevest from Investec. [31] According to Korver, this argument loses much of its force if it isaccepted that Schaefer and Schliemann were well aware of andacquiesced in the Investec loan, the Cobow guarantee and the mortgagebond. Korver also denied that he stole a substantial part of the loanfunds received from Investec.[32] It was further contended that Cobow is commercially insolvent.According to Arabella, the financial statements of Cobow as at 29February 2016 reflected a total loss of R179 703 as opposed to a profitof R1 524 347 the previous financial year. Furthermore, Cobow’smanagement accounts, profit and loss statement for the 6 months periodof March to October 2016 also reflected a loss for that period of R349138, 11. It was further contended that Cobow has no readily realisableassets which can be liquidated to fund its liabilities while it continuestrading, since its main asset is the immovable property and guesthousebusiness. Furthermore, if Investec does take judgment against Cobowin the action, Cobow does not have the funds to settle the judgmentdebt without the sale of the immovable property, which would mean theend of its trading activities. [33] Cobow has denied it is commercially insolvent. On the papers filedof record, Cobow is adamant that the loan and subsequent mortgagebond was unauthorised. According to Cobow, Korver thenmisappropriated most of the funds loaned and advanced by Investec inthe amount of approximately R6 001 596. 00. In addition, he apparentlyunlawfully took an aggregate amount of at least R3 150 500.00 fromKorevest and Cobow. Unauthorised personal expenses of at least R306164.19 were also apparently paid out of the bank accounts of Korevestand Cobow to Korver. [34] According to Cobow, it is the consequence of this fraudulentconduct of Korver that Arabella now contends that Cobow should bewound up because Investec has foreclosed on the mortgage bond andas a result issued summons against both Cobow and Korevest.According to Cobow, if the current assets were to be calculated to


include the funds misappropriated by Korver, which are due andpayable, then Cobow’s assets exceeds its total liability significantly andArabella’s relief for provisional winding up must fail. [35] Cobow has also taken issue with the contention by Arabella thatthere will be an imminent sale in execution of its only asset being theguesthouse, to defray the indebtedness of Korevest to Investec. It is notin issue that Korver, Cobow and Korevest have entered an appearanceto defend the summons instituted by Investec. Cobow and Korevest areopposing the claims of Investec on the basis inter alia that the loan andthe mortgage bond are void and unenforceable for want of authority.Korver also as the Third Defendant in the matter, filed an affidavitresisting summary judgment. [36] Guidelines as to how factual disputes should be approached in anapplication such as the present were laid down by the AppellateDivision in Kalil v Decotex (Pty) Ltd and Another 1988 (1) SA 943 (A)and restated in Payslip Investment Holdings CC v Y2K Tec Limited2001 (4) SA 781 (C) at 783 H-I where the following was held:

‘According to these guidelines a distinction is to be drawn betweendisputes regarding the respondents liability to the applicant and otherdisputes. Regarding the latter, the test is whether the balance ofprobabilities favour the applicant’s version on the papers. If so, aprovisional order will usually be granted. If not, the application willeither be refused or the dispute referred for the hearing of oralevidence, depending on, inter alia, the strength of the respondent’scase and the prospects of viva voce evidence tipping the scales infavour of the applicant. With reference to disputes regarding therespondent’s indebtedness, the test is whether it appeared on thepapers filed of record that the applicant’s claim is disputed onreasonable and bona fide grounds. In this event it is not sufficient thatthe applicant has made out a case on the probabilities. The statedexception regarding disputes about an applicant’s claim thus cutsacross the approach to factual disputes in general.’

[37] In Hülse-Reutter & another v HEG Consulting Enterprises (Pty)Ltd (Lane and Fey NNO intervening) 1998 (2) SA 208 (C) at 219E-220A, the Court commented as follows on the nature and the extent ofthis onus:


‘I think that it is important to bear in mind exactly what it is that thetrustees have to establish in order to resist this application withsuccess. Apart from the fact that they dispute the applicants’ claims,and do so bona fide, … what they must establish is no more and noless than the grounds on which they do so are reasonable. They do nothave to establish, even on the probabilities, that the company, undertheir direction, will, as a matter of fact, succeed in any action whichmight be brought against it by the applicants to enforce their disputedclaims. They do not, … have to prove the company’s defence in anysuch proceedings. All that they have to satisfy me of is that thegrounds which they advance for their and the company’s disputingthese claims are not unreasonable… It seems to me to be sufficientfor the trustees in the present application, as long as they do so bonafide,… to allege facts which, if proved at a trial, would constitute agood defence to the claims made against the company.’

[38] Applying these stated principles and guidelines a distinction is tobe drawn between disputes regarding Cobow’s liability to Arabella andother disputes. With reference to disputes regarding Cobow’sindebtedness, the test is and remains whether on the papers filed ofrecord, Arabella’s claim is disputed on reasonable and bona fidegrounds. In this instance it is not sufficient that Arabella may havemade out a case on the probabilities regarding the other disputes. Thestated exception regarding disputes about an applicant’s case in mattersof this nature cuts across the approach to factual disputes. [39] On Cobow’s own version it has admitted liability to Arabella inthe amount of R570 000.00 as at year end February 2015, but claims ithas paid the said amount. It disputes liability for the balance ofArabella’s claim. According to Cobow, Korver caused Korevest tomake payments totalling R843 500.00 to Arabella in discharge ofCobow’s liability to it in terms of an agreement between Cobow andKorevest. In fact Cobow avers that an overpayment occurred and isentitled to reclaim it. Moreover, it appears on the papers filed of recordthat there is no longer an imminent threat of a sale in execution ofCobow’s only asset. It is common cause that Korver, Cobow andKorevest have entered an appearance to defend the summons institutedby Investec. Cobow and Korevest are opposing the claims of Investec


on the basis inter alia that the loan and the mortgage bond are void andunenforceable for want of authority. Korver has also as the ThirdDefendant in the matter filed an affidavit resisting summary judgment[40]

[42]

[43] Since Cobow has discharged its onus that the claim(s) against itare disputed bona fide and on reasonable grounds it is unnecessary torefer the matter for viva voce evidence on the disputed issues. In thisregard see Freshvest Investments (Proprietary) Limited v Marabeng(Proprietary) Limited [2016] JOL 36911 (SCA) at para [7].[44] For these stated reasons it follows that the Application forprovisional winding up of the Respondent (Cobow) cannot succeed andfalls to be dismissed. Korevest fate, in the second case is inextricablywound up with that of Cobow and it follows that if the Cobowapplication has failed, then the Korevest application also falls to be


dismissed. [45] In the result the following order is made.

The Application for the provisional winding up of Cobow (Pty) Ltdt/a Albourne Boutique Lodge Somerset West in case no. 4956/17 andthe Application for the provisional winding up of KorevestInvestment Group Proprietary Limited (Registration no.2013/023166/07) in case no 4957/17, are dismissed with costs. Suchcosts to include the costs occasioned by the employment of twocounsel.

AL MAYYA INTERNATIONAL LIMITED (BVI) v VALLEYOF THE KINGS THABA MOTSWERE (PTY) LTD (1)

A company which is financially distressed, and a reasonable prospect forrescuing the company as a basis for business rescue

Judgment given in the Eastern Cape Division, East London, on 23 August2016 by Smith J

Al Mayya International Limited (Bvi) owned 55% of the shares in Valley ofthe Kings Thaba Motswere.(Pty) Ltd (the company). During 2015 thecompany ran into financial difficulties. It stated that it was struggling to makeends meet and was not in a position to pay its employees.

The company attempted to address its cash flow problems by borrowing anamount of US$500 000 from the Government of Jumairah. The loan wassecured by way of a notarial security bond over all the buffaloes owned by thecompany. The loan amount was advanced to the company on 30 September2015 and was due to be repaid by 30 April 2016.

In June 2016, the parties held a meeting in an attempt to reach anaccommodation regarding the company’s financial affairs. At the meeting,company representatives explained that the company was experiencing cashflow problems and as part of its strategy to address those problems had enteredinto a joint venture agreement with Gamevest Gamebreeders (Pty) Ltd, interms of which the company would accommodate and feed game owned bythird parties in exchange for half of the progeny. The company would beresponsible for all costs in respect of the accommodation, maintenance andfeeding of the game.

The company failed to comply with its obligations in terms of the loanagreement. The government of Jumairah demanded payment in terms ofsection 345 of the Companies Act (no 71 of 1973). The loan was not repaid.

Al Mayya sought an order placing the company under supervision,commencing business rescue proceedings in terms of sections 131 (1) and (4)of the Companies Act (no 71 of 2008) and appointing business rescuepractitioners.

Held—In terms of sections 131 (1) of the Act a court may make an order placing a

company under supervision and business rescue if it is satisfied that (a) thecompany is financially distressed, or (b) the company has failed to pay overany amount in terms of an obligation under or in terms of a public regulation,with respect to employment related matters, or (c)it is otherwise just and

260 AL MAYYA INTERNATIONAL v VALLEY OF THE KINGS T MOTSWERE (1)SMITH J 2017 SACLR 259 (EC)

equitable to do so for financial reasons, and (d) there is a reasonable prospectfor rescuing the company

The prospect of rescue must be considered in the light of the objectives ofbusiness rescue proceedings contemplated by the definition in terms of section128 (1) (b) of the Act. These are: to facilitate rehabilitation of the company inorder to (a) return the company to solvency, or (b) provide a better return forcreditors and shareholders than what they would achieve through liquidation.An applicant for business rescue proceedings must thus place before court afactual foundation for its contention that there are reasonable prospects that theaforementioned objectives can be achieved. However, he or she is not requiredto establish that a business plan is already in existence, or to providecomprehensive details of the costs or resources available to the company toreturn it to solvency.

There were two grounds for concluding that the company was in factfinancially distressed. First, the company had defaulted on its paymentobligations in respect of the loan advanced by the government of Jumairah.There could be little doubt that the company was in fact commerciallyinsolvent, and thus ‘financially distressed’ within the meaning of section 131of the Act, and liable to be wound up, should the government of Jumairahdecide to launch liquidation proceedings.

Second, the company had been experiencing cash flow problems and hadstruggled to keep its head above water for some time. The government ofJumairah would launch proceedings for the winding up of the company, ifbusiness rescue was not commenced. On the established facts, there caould belittle doubt that the winding up of the company would virtually be a foregoneconclusion if such proceedings were launched. The commencement of businessrescue would consequently allow the company the crucial breathing spacewhich it required to return to solvency.

The application was granted.

Advocate G.W. Woodland SC and Advocate C Cutler instructed by SquiresSmith & Laurie Inc, East London, appeared for the applicantAdvocate A.J. Murphy instructed by Gravett Schoeman Inc, Beacon Bay,appeared for the first, fourth and fifth respondentsAdvocate A Liversage and Advocate M Coetzee instructed by Gray BurmeisterInc, East London, appeared for the second respondent

AL MAYYA INTERNATIONAL v VALLEY OF THE KINGS T MOTSWERE (1) 261SMITH J 2017 SACLR 259 (EC)

Smith J:Introduction[1] The applicant seeks an order placing the first respondent undersupervision; commencing business rescue proceedings in terms ofsections 131 (1) and (4) of the Companies Act, 71 of 2008 (‘the Act’);and appointing the business rescue practitioners mentioned in the noticeof motion. [2] The applicant is a company registered in accordance with the lawsof the British Virgin Island. It owns 55% of the issued shares in the firstrespondent. [3] The first respondent is Valley of the Kings Thaba Motswere (Pty)Ltd, a duly incorporated company (‘the company’). The companycarries on business as a game farm in the Thabazimbi region. Its mainobject is to breed and sell game for commercial gain. It also conductsa safari and hunting lodge on the farm. [4] The second respondent is Thaba Motswere Game Farm (Pty) Ltd,a duly registered company with its registered head office in EastLondon. The second respondent owns the remaining 45% of the issuedshares in the company. [5] The applicant also cited various other parties against whom nosubstantive relief is sought. The seventh respondent, in particular, is theGovernment of Fujairah, a constituent state of the United ArabEmirates. The applicant’s controlling shareholder, namely Prince SheikMohamed bin Hamad Al Sharqi, is also the Crown Prince of theGovernment of Fujairah. [6] There can be little doubt that the applicant has the necessary locusstandi to bring these proceedings since it is an ‘affected person’ withinthe meaning of section 130(1) of the Act. In addition to being ashareholder, it is also a creditor of the company. The company’s annualfinancial statements for the period ending 31 December 2014 show thatit owes the applicant the sum of some R4.05 million, which bearsinterest on the outstanding monthly balance at the rate of 10.5% perannum and is repayable from future profits. [7] The fourth respondent, Phillipus Jacobus Mostert (‘Mostert’), is thecompany’s only director. In terms of the shareholders’ agreement theapplicant and the second respondent were each entitled to appoint one


director. The applicant initially appointed one Sanjay Gupta and thesecond respondent appointed Mostert. Gupta has, however, sinceresigned and the applicant’s new nominee, one Mustafa Thanikkal, isyet to be formally appointed. [8] Mostert has deposed to the answering affidavit on behalf of thecompany. He avers that he has been duly authorised to oppose theproceedings on its behalf. The applicant contests his authority to act onbehalf of the company and contends in this regard that the defence oflegal proceedings (other than those arising in the ordinary course ofbusiness) constitute reserved matters which require approval by way ofspecial resolution of the ordinary shareholders. The applicant, asmajority shareholder, would have been party to such a resolution if ithad indeed been adopted. However, no meeting was called for thatpurpose, and there can accordingly be no special resolution to thateffect. However, for reasons which will become clear later, I do notbelieve that it is necessary for me to pronounce on this issue. [9] The second respondent did not file an answering affidavit, butinstead filed a notice in terms of Uniform Court Rule Rule 6 (5)(d)(iii)wherein the following legal points are raised:

‘1. The applicant failed to make out a case in terms of section131(4)(a) of the Companies Act 71 of 2008 (the Companies Act); 2.The application seeks to achieve objectives not recognised insection 128 (1)(b) of the Companies Act, constituting an abuse ofprocess;3.The applicant failed to establish that the company is financiallydistressed as is required by section 128 (1)(f), read with section 131(4)(a) of the Companies Act; 4.The applicant failed to comply with section 131 (2) of theCompanies Act; 5.The applicant failed to establish grounds of urgency; and 6.The applicant failed to address the requirements of Rule 6(12)(b)of the Uniform Rules of Court in that it failed to advance any reasonswhy it could not be afforded substantial redress at a hearing in duecourse.’

Factual background[10] The applicant purchased shares through a subscription agreement


and invested approximately R100 million in the company during 2012.[11] Mostert is responsible for the management of the company interms of a management agreement concluded during 2012. In terms ofthat agreement Mostert is required to carry out the managementservices:

‘3.3.1 In a transparent, faithful and diligent manner:3.3.2 In accordance with the reasonable standards of a business,carrying on a similar business to that of the company; 3.3.3 In accordance with the business plan; and 3.3.4 In a way that will not through his intentional actions/omissionsor through negligence, cause damage to the property of thecompany.’

In addition, Mostert is accountable to the board and responsible for,inter alia, the preparation of monthly management accounts; paying thecompany’s day to day running expenses timeously; ensuring that properbooks of account are kept, and notifying the company of any legalclaims exceeding the sum of R5 000 within 7 days of him becomingaware of it. [12] During 2015 the company ran into financial difficulties, and inan exchange of emails between it and the applicant during August andSeptember 2015, one Morrison Smit, representing the company,declared that it was struggling to make ends meet and was not in aposition to pay its employees.[13] The company sought to address its cash flow problems byborrowing an amount of USD 500 000 (R7.5 million) from the seventhrespondent (the Government of Jumairah). The loan was secured byway of a notarial security bond over all the buffaloes owned by thecompany. The loan amount was advanced to the company on 30September 2015 and was due to be repaid by 30 April 2016. [14] During January 2016, Thanikkal, acting on behalf of theapplicant, informed Mostert of the applicant’s intention to sell itsshares in the company. Mostert replied to Thanikkal’s e-maileffectively trying to dissuade the applicant from divesting. It appearsthat the parties did not pursue further discussions in this regard. [15] The parties thereafter held a meeting in Pretoria during June2016 where the applicant was represented by one Alexander George


McDonald, who is also the deponent to the main founding affidavit.Also present at that meeting was one Veldhuisen, the applicant’sattorney, and Neil Michael Hobbs, one of the proposed business rescuepractitioners. The company was represented by Morrison Smit andAdvocate Murphy. At that meeting Morrison and Murphy explainedthat the company was experiencing cash flow problems and as part ofits strategy to address those problems had entered into a joint ventureagreement with Gamevest Gamebreeders (Pty) Ltd, in terms of whichthe company would accommodate and feed game owned by thirdparties in exchange for half of the progeny. The company would beresponsible for all costs in respect of the accommodation, maintenanceand feeding of the game. [16] It is common cause that the company has failed to comply withits obligations in terms of the loan agreement and that the seventhrespondent consequently demanded payment in terms of section 345 ofthe Act, by virtue of an email dated 20 July 2016. That loan has still notbeen paid. Applicant’s contentions[17] Mr Woodland SC, who appeared for the applicant, argued that ithas established that the company is financially distressed within themeaning of section 131 of the Act, and that there are reasonableprospects that it can be rescued. He submitted in particular that:

(a) Mostert has failed to manage the company properly and toaccount to the applicant, despite repeated requests in this regard. Thearrangement with Gamevest, apart from being unauthorised, is ofquestionable benefit to the company and has instead placed additionalfinancial burden on it, since it is now also liable for expenses inrespect of game owned by third parties. The fact that Mostert is adirector of Gamevest, further casts doubt on his bona fides and callsinto question whether he had the company’s best interests at heartwhen negotiating the deal. This is an issue which should beinvestigated by a business rescue practitioner; (b) in addition, the company is in ‘financial distress’ within themeaning of section 128(g) of the Act. The company has beenstruggling to make ends meet. In support of this contention hepointed to the exchange of e-mails between the applicant and Mostert


wherein it was stated that the company was ‘struggling to make endsmeet’ and concern was expressed that it would not be in a position topay employees’ wages. The cash flow problems have also beenfurther exacerbated by the Gamevest venture and the prolongeddrought; (c) the company has defaulted on its loan obligations to the seventhrespondent, and despite the section 345 demand, the money has notbeen repaid. Mostert has admitted that the company has defaulted,but stated that he has already selected buffaloes to sell in order torepay the loan. Although he has valued the buffaloes at about R13.5million, he is still waiting for the results of blood tests and does notyet have prospective buyers. On his own version it would take at leastanother two months to sell the buffaloes. In the event, Mostert hadlost sight of the fact that the company cannot sell the buffaloes sincethey are subject to a notarial security bond. The company is thusunable to pay its debts as they become due, and is consequentlycommercially insolvent;(d) at the meeting on 23 June, Mostert had shown the applicant’srepresentative a demand by FirstRand Bank in terms of section 345of the Act, and indicated that the three week period for payment ofthat debt had elapsed. In order to deal with that indebtedness he hadobtained an unauthorised loan from one Henrieta Oosthuisen andpledged the company’s game to her as security. He was, however,required to obtain a special resolution since the transactionconstituted a ‘reserved matter’ within the meaning of theMemorandum of Incorporation. He has in any event not improved thecompany’s financial situation and has effectively only swopped oneliability for another;(e) the cash flow projections put up by Mostert in the managementaccounts are unrealistic and unlikely to be achieved. By way ofexample, the accounts forecast sales in the amount of R10 million forAugust 2016. Apart from the fact that Mostert has admitted that nosales are likely for the next two months, the company has onlyachieved some R1.1 million in sales for the entire year. Thedifference between the year-to-date sales and the expenses mean thatthe company will suffer a loss (before tax) in the sum of some R8.2


million; (f) Mostert has also encumbered the farm with a R20 millionmortgage bond without being properly authorised to do so; and(g) in addition, during 2015 he repaid a loan amount in the amountof R5.8 million to one of his related companies, namely ConsortioManagement Company (Pty) Ltd. These unauthorised transactionsmust also be investigated by the business rescue practitioners.

The second respondent’s contentions [18] Mr Liversage, who appeared for the second respondent, correctlysubmitted that in order to adjudicate the points raised by secondrespondent, the court should ignore the answering and replyingaffidavits, treat the facts averred by the applicant in its founding papersas having been established, and determine whether those facts entitlethe applicant to the relief it seeks in its notice of motion. [19] He argued that when regard is had to those facts, certainsolutions, other than business rescue proceedings present themselves.These are:

(a) the management agreement clearly defines the type of conductwhich will constitute a breach thereof. The company will thus beentitled to demand specific performance or cancel the agreement. Thesimple effective remedy is thus a contractual one and not businessrescue proceedings; (b) the cash flow problem can be relatively easily alleviated byselling game in the normal course of business; the applicant raisingfurther cash from its shareholders; or raising a further mortgage bondon the property (which it is common cause has substantial value); (c) the applicant’s real motives appear to be to dispose of itsshareholding, alternatively to increase its shareholding in thecompany. It thus requires the moratorium provided by businessrescue proceedings only to afford itself sufficient time to implementthat strategy; (d) since the primary objective of the business rescue proceedings isto ensure the likelihood of the company continuing in existence on asolvent basis, or to ensure maximum return for creditors, theapplication is thus not bona fide and falls to be dismissed for thatreasons alone;


(e) the applicant failed to serve the papers properly on the affectedpersons mentioned in section 131(2) of the Act through the sheriff;and(f) the application was premature. The applicant should have waiteduntil after the seventh respondent has launched winding upproceeding. It has failed to establish that those proceedings areimminent and the matter was thus not sufficiently urgent to justify thetruncation of the time limits provided for by the Uniform Rules ofCourt.

Contentions advanced on behalf of the first, fourth and fifthrespondents[20] Mr Murphy, who appeared for the company, as well as for thefourth and fifth respondents, made the following submissions insupport of their assertions that the company is being properly managed;that it is solvent; and will be able to trade out of its difficulties in theordinary course of business:

(a) while the respondents admit that the loan by the seventhrespondent was due and payable by 30 April 2016 and that nopayment had been made, they have shown that they have caught andselected a number of buffalo which can be sold to meet thatobligation. The only obstacle being that they are awaiting the resultsof blood test so that the buffalo can be given a certificate of goodhealth, whereafter they can be sold. The company will thus be able torepay the loan within the six months period as required by the Act;(b) the purported section 345 notice, which was sent on 20 July2016, does not comply with the Act. The applicant launched theseproceedings the 22nd of July 2016, scarcely two days after the noticewas sent. The notice is accordingly not a proper one in terms ofsection 345 of the Act, but merely a demand for payment; (c) in terms of the business plan, which was agreed to at theinception of the business, the shareholders were expected tocontribute financially over a period of ten years. The applicant, inparticular, was supposed to contribute some R11.1 million. It has,however, failed to comply with those obligations, stating that royaltydo not concern themselves with budgets. The respondents thus havea counter-claim against the applicant for not honouring its obligations


in terms of that agreement;(d) the respondents have shown that the company has paid itsemployees, and has in this regard produced a letter from thecompany’s auditors stating that it is solvent. There is thus no basisfor the applicant’s contention that the company cannot meet itscurrent financial obligations, or those that will become due andpayable within the next six months;(e) when the buffalo are sold, there will be more than sufficientfunds available to settle the seventh respondent’s loan. For thisreason the company does not require the intervention of businessrescue practitioners since the sale of game is something that occurswithin the normal course of business;(f) the company’s financial statements evince that the company hasgrown from a R189 million business to one which is now worthR256.6 million. The financials also indicate that the company hassubstantial assets and is properly managed. Mostert has maintainedcomprehensive records of all the animals, inter alia, in respect of theirownership, weight, length and DNA, and is thus able to account foreach and every animal on the farm; (g) Mostert has attempted to provide the applicant with regularreports concerning the management of the business, but wasdiscouraged by the applicant’s representative who made it clear thatthe Crown Prince did not want to be bothered with details andreports. It accordingly does not lie in the mouth of the applicant tocomplain that it did not receive regular reports; and(h) the joint venture with Gamevest was not a clandestine affair, asthe applicant is trying to make it out to be, but a bona fide andprofitable business venture which was undertaken with theapplicant’s knowledge and acquiescence, and which has resulted insignificant growth for the company.

The Law[21] In terms of sections 131 (1) and (4) of the Act the court maymake an order placing a company under supervision and businessrescue if it is satisfied that:

(a) the company is financially distressed; or(b) the company has failed to pay over any amount in terms of an


obligation under or in terms of a public regulation, with respect toemployment related matters; or (c) it is otherwise just and equitable to do so for financial reasons;and(d) there is a reasonable prospect for rescuing the company.

[22] The term ‘financially distressed’ means: ‘(i) it appears to be reasonably unlikely that the company will be ableto pay all of its debts as they become due and payable within theimmediately ensuing six months or(ii) it appears to be reasonably likely that the company will becomeinsolvent within the immediately ensuing six months’

[23] The meaning of the phrase ‘a reasonable prospect for rescuing’,was explained as follows by Brandt JA in Oakdene Square Properties(Pty) Ltd and Others v Farm Bothasfontein (Kayalami) (Pty) Ltd andOthers:

‘As a starting point, it is generally accepted that it is a lesserrequirement than the 'reasonable probability' which was the yardstickfor placing a company under judicial management in terms of s427(1) of the 1973 Companies Act (see eg Southern PalaceInvestments 265 (Pty) Ltd v Midnight Storm Investments 386Ltd 2012 (2) SA 423 (WCC) para 21). On the other hand, I believe itrequires more than a mere prima facie case or an arguable possibility.Of even greater significance, I think, is that it must be a reasonableprospect — with the emphasis on 'reasonable' — which means thatit must be a prospect based on reasonable grounds. A merespeculative suggestion is not enough. Moreover, because it is theapplicant who seeks to satisfy the court of the prospect, it mustestablish these reasonable grounds in accordance with the rules ofmotion proceedings which, generally speaking, require that it must doso in its founding papers.’

[24]


. InPropspec Investments (Pty) Ltd v Pacific Coast Investments 97 Ltd andAnother Van der Merwe J held that to require proof of those factualdetails would be tantamount to requiring proof of a more exactingnature, namely a ‘reasonable probability’. The learned judge said thefollowing in this regard:

‘In my judgment it is not appropriate to attempt to set outgeneral minimum particulars of what would constitute a reasonableprospect in this regard. It also seems to me that to require, as aminimum, concrete and objectively ascertainable details of the likelycosts of rendering the company able to commence or resume itsbusiness, and the likely availability of the necessary cash resource inorder to enable the company to meet its day-to-day expenditure, orconcrete factual details of the source, nature and extent of theresources that are likely to be available to the company, as well as thebasis and terms on which such resources will be available, istantamount to requiring proof of a probability, and unjustifiablylimits the availability of business rescue proceedings.’

These comments were cited with approval by Brandt JA in OakdeneSquare Properties (supra).[25] There can also be little doubt that

Binns-Ward J explained the rationale for this preference as follows in Koenand Another v Wedgewood Village Golf and Country Estate (Pty) Ltdand Others:

‘The requirements for a supervision order for business rescuepurposes are materially different from those which pertain to judicialmanagement. It is clear that the legislature has recognised that theliquidation of companies more frequently than not occasion


significant collateral damage, both economically and socially, withattendant destruction of wealth and livelihoods. It is obvious that isin the public interest that the incidence of such adverse socialeconomic consequences should be avoided where reasonablypossible. Business rescue is intended to serve that public interest byproviding a remedy at avoiding the deleterious consequences ofliquidations in cases in which there is a reasonable prospects ofsalvaging the business of a company in financial distress, or ofsecuring a better return to creditors than would probably be achievedin an immediate liquidation.’

Discussion[26] The respondents’ contentions regard urgency and the manner ofservice cannot be upheld. In my view the applicant was justified, in theface of imminent liquidation proceedings, to take urgent steps to protectits substantial investment in the company. The extent to which theprescribed time limits had been truncated was accordingly justifiedunder the circumstances. I am also satisfied that all affected personshave received due notice of the application. [27] I now turn to consider whether the applicant has successfullyestablished the abovementioned legal requisites.[28]

As mentionedbefore, the company owes some R7.5 million which was due andpayable on or before 30 April 2016.[29] Mr Woodland has accordingly correctly submitted that thecompany is commercially insolvent. The test for commercialinsolvency was explained as follows by Berman J in Absa Bank Ltd vRhebokskloof (Pty) Ltd and Others

‘The concept of commercial insolvency as a ground for winding upa company is eminently practical and commercially sensible. Theprimary question which a Court is called upon to answer in decidingwhether or not a company carrying on business should be wound upas commercially insolvent is whether or not it has liquid assets orreadily realisable assets available to meet its liabilities as they


fall due to be met in the ordinary course of business and thereafter tobe in a position to carry on normal trading - in other words, can thecompany meet current demands on it and remain buoyant? It mattersnot 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 entitledto, and should, hold that the company is unable to pay its debts withinthe meaning of s 345(1)(c) as read with s 344(f) of the CompaniesAct 61 of 1973 and is accordingly liable to be wound up.’

[30] And in Oakdene Square Properties Brandt JA held that althoughthe company was factually solvent, in that the value of its assetsexceeded its debts, it was unable to satisfy the judgment debt and wasaccordingly commercially insolvent for liquidation purposes, and thus‘financially distressed’ within the meaning of the Act. Furthermore,although the court has a discretion to refuse a winding up order, suchdiscretion is limited where a creditor has a debt which a companycannot pay. In such a case the creditor is entitled, ex debito justitiae, toa winding up order. [31] Mr Woodland has also correctly argued that Mostert’s assertionsthat he has already selected buffaloes for sale and that the realisableassets would accordingly be sufficient to satisfy the debt, cannot availthe company. Mostert acknowledges that he does not have anyprospective buyers, and it appears in any event that before the buffaloescould be sold he would have to wait for the results of blood tests, whichis a prerequisite for the sale of the animals. But there is yet anotherinsurmountable to this suggested quick fix solution: the companycannot legitimately sell the buffaloes since they are subject to a notarialsecurity bond.[32]


.[33] Mostert’s reliance on a counter-claim, which he appears tosuggest would be sufficient to stymie the seventh respondent’s claim,is also misplaced. Even if the company does have a claim against theapplicant for defaulting on its financial obligations arising out of thebusiness plan, it is obvious that that claim cannot be enforced againstthe seventh respondent, despite the fact that the sole controllingshareholder of the applicant is also the Crown Prince of the seventhrespondent. These are different legal entities and the applicant has notmade out a case for the piercing of the corporate veil. [34]

. It has been unable to meet creditors’demands out of funds generated in the ordinary course of business andwas reliant on shareholders’ loans to service its debts. And, as mentionbefore, the fact that the company has only been able to achieve someR1.1 million in sales for the entire year so far, renders Mostert’s salesprojections for the month of August 2016 manifestly unrealistic. [35] Mostert’s contentions regarding the validity of the section 345notice issued by the seventh respondent is also inconsequential. MrWoodland has correctly submitted that the only effect of such a noticeis to bring into operation a deeming provision to the effect that thecompany is unable to pay its debts. In this case it is manifest that thecompany is currently unable to pay its debts. [36] Under these circumstances the applicant’s concern about theincreased risk jeopardizing its investment is understandable, and in myview its decision to institute these proceedings is fully justified. Therespondents’ contentions regarding the applicant’s bona fides and thelegal points set out in the second respondent’s Rule 6(5)(d)(iii) noticecan accordingly also not be upheld.Reasonable prospects of rescue[37] The only question that then remains to be answered is whetherthere is a reasonable prospect that the company could be rescued, inother words, if it can be returned to solvency; or a better return forcreditors and shareholders can be achieved than what they would


receive through liquidation. [38] As mentioned above, while the applicant is not at this stagerequired to put up a comprehensive plan showing the prospects ofrescue, it must establish a factual foundation for the existence of sucha reasonable prospect. [39] In this regard one of the proposed business rescue practitioners,namely Neil Micheal Hobbs, has averred that it would be relativelyeasy to restore the company to solvency by realising assets and usingthose proceeds to pay third party debts; alternatively, to canvassshareholders to recapitalise the company. Mostert has also asserted thatthe company would be able to trade out of its difficulties by sellinggame. It is also significant in this regard that the applicant’s controllingshareholders indicated their willingness to provide finance once anapproved business rescue plan has been implemented. It is thusreasonable to conclude, on the basis of the established facts, that thereis indeed a reasonable prospect that the company can be rescued. Thisoption should, for the reasons which I have already stated, be preferredto liquidation. [40] Mr Woodland has correctly submitted that it appears almostcertain that the seventh respondent will launch proceedings for thewinding up of the company, if business rescue is not commenced. Onthe established facts before me there can be little doubt that the windingup of the company would virtually be a foregone conclusion if suchproceedings are launched. The commencement of business rescuewould, in my view, consequently allow the company the crucialbreathing space which it requires to return to solvency. And I do notbelieve that these objectives are achievable under the currentmanagement. Mr Woodland has correctly submitted that there arevarious questionable transactions which should be investigated by thebusiness rescue practitioners, not least of which is the repayment of asubstantial loan to a company of which Mostert is a shareholder.Order[41] I am thus satisfied that the applicant has made out a case for therelief it seeks in the notice of motion, and the following orderaccordingly issues:

(a) The first respondent (‘the company’) is hereby placed under


supervision and business rescue proceedings shall commence interms of section 131(1) and (4) of the Companies Act 71 of 2008.(‘the Companies Act’).(b) In terms of section 131 (5), Neil Michael Hobbs (senior businessrescue practitioner) and Stephanus Johannes Martinus Steyn (seniorbusiness rescue practitioner) are hereby appointed to act as the jointinterim business rescue practitioners of the company, subject toratification by the holders of a majority of the independent creditors’voting interest at the first meeting of creditors, as contemplated insection 174 of the Companies Act.(c) The company is ordered to notify each affected person of thisorder 5 business days of the date hereof, in terms of section 131 (8)(b) of the Companies Act. (d) The first, second, fourth and fifth respondents shall (jointly andseverally, the one paying the other to be absolved) pay the applicant’scosts of suit, including the costs of two counsel where employed.

AL MAYYA INTERNATIONAL LIMITED (BVI) v VALLEYOF THE KINGS THABA MOTSWERE (2)

Judgment given in the Eastern Cape Division, East London, on 15 September2016 by Smith J

Smith J:[1] The applicant brought an urgent application on 31 August 2016 foran order in terms of section 18 (3) of the Superior Courts Acts, 10 of2013 (‘the Act’), directing that paragraphs (a), (b) and (c) of my order,delivered on 23 August 2016, are not suspended pending the decisionof the application for leave to appeal filed by the first and fourthrespondents, or any subsequent appeal.[2] The application was, as a result of a directive issued by me, heardin the Grahamstown High Court. The respondents were not representedat the hearing despite the fact that they had been given due notice.[3] After hearing argument by Mr Woodland SC, who appeared for theapplicant, I granted the order on 1 September 2016 and indicated thatmy reasons would follow. I now provide the following brief reasons formy decision. [4] The applicant contended that if the business rescue order were notcarried into effect, it would in all probability result in the winding upof the company at the instance of the Government of Fujairah. Sincethere is no conceivable defence to such an application, and themoratorium provided for in Chapter 6 of the Companies Act, 71 of2008 (‘the Companies Act’) would not avail the company any longer,the interests of all the stakeholders, including shareholders andcreditors, would be undermined. [5] Section 18 of the Act provides as follows:‘18. Suspension of decision pending appeal‘(1) Subject to subsections (2) and (3), and unless the court underexceptional circumstances orders otherwise, the operation andexecution of a decision which is the subject of an application for leaveto appeal or of an appeal, is suspended pending the decision of theapplication or appeal.(2) Subject to subsection (3), unless the court under exceptionalcircumstances orders otherwise, the operation and execution of adecision that is an interlocutory order not having the effect of a final


judgment, which is the subject of an application for leave to appeal orof an appeal, is not suspended pending the decision of the applicationor appeal.(3) A court may only order otherwise as contemplated in subsection (1)or (2), if the party who applied to the court to order otherwise, in additionproves on a balance of probabilities that he or she will sufferirreparable harm if the court does not so order and that the other partywill not suffer irreparable harm if the court so orders.’[6] The applicant was accordingly required to establish that:(a) there were exceptional circumstances present; and (b) there is no likelihood that the respondents will suffer irreparableharm if the application is granted; and (c) there is likelihood that the applicant will suffer irreparable harm ifthe relief is not granted. (Minister of Social Development Western Capeand Others v Justice Alliance of South Africa and Another 20806/2013[2016] delivered on 1 April 2016)[7] During business rescue proceedings a financially distressedcompany is accorded wide-ranging protection. By way of example, interms of section 133 of the Companies Act no legal proceedings(including enforcement actions) in relation to any property belongingto the company or in its lawful possession, may be commenced orproceeded with except, inter alia, with the written consent of thebusiness rescue practitioner or the leave of the court. In addition, anysurety or guarantee in favour of any other person may not be enforcedby any person against the company except with the leave of the court.One of the objectives of the Companies Act is ‘to provide for theefficient rescue and recovery of financially distressed companies, in amanner that balances the rights and interests of all relevantstakeholders.’ (Section 7(k) of the Companies Act)[8] The noting of the application for leave to appeal has, in terms ofsection 18 of the Act, suspended the commencement of the businessrescue proceedings and the protections accorded to the company interms of Chapter 6 of the Companies Act. The company is thus leftvulnerable and at the mercy of the Government of Fujairah (and othercreditors), and its liquidation appears imminent. This state of affairs


can by no stretch of the imagination be in any of the stakeholders’interests. [9] Mr Woodland has correctly submitted that if the applicant hadinstead instituted liquidation proceedings, a provisional order would nothave been appealable and the noting of an application for leave toappeal against a final order would not have suspended the operation ofthe order. (Section 339 of the 1973 Companies Act, read with section150 (3) of the Insolvency Act 24 of 1936)[10] There can be little doubt that the policy considerations whichunderpin the abovementioned legal provisions in respect of aliquidation order are equally apposite to business recue proceedings.The fact that an aggrieved party can, by virtue of the mere filing of anapplication for leave to appeal, suspend the implementation of businessrescue proceedings and thereby nullify the wide-ranging protectionaccorded to a financially distressed company, must self-evidentlyweigh heavily with a court when considering whether exceptionalcircumstances as contemplated by section 18 (1) of the Act exist in aparticular case. For the reasons that I have stated in my judgment in themain application, there are reasonable prospects that theimplementation of a business rescue plan will not only result in fullsettlement of creditors’ claims, but will also ensure that the companycontinues to trade profitably. It can thus hardly be contended that toallow the alternative, namely liquidation, can conceivably benefit anyof the stakeholders. I was accordingly satisfied that exceptionalcircumstances existed for the granting of the order. [11] It is also self-evident from the foregoing that the applicant, thecompany and its creditors will suffer irreparable harm if the relief is notgranted. It is manifest that the company is presently unable to pay itsdebts. For the reasons that I have stated in my main judgment, it is thuscommercially insolvent and liable to be wound up should theGovernment of Fujairah proceed with its declared intention to instituteliquidation proceedings. The latter has already delivered a notice interms section 345 of the 1973 Companies Act, and I am constrained toaccept that its threat to institute liquidation proceedings is indeed aserious one. As I have mentioned earlier, the company will have nodefence against such an application. The resultant winding up of the


company will no doubt have deleterious consequences for shareholders,creditors and employees alike. [12] It is also manifest, for the same reasons, that there is no likelihoodthat the respondents will suffer irreparable harm if the relief is granted.The parties were ad idem that there are reasonable prospects that thecompany can be rescued, albeit that the respondents contended that thecurrent management are quite capable of achieving those objectivesthemselves. There was even substantial agreement as to how that canbe achieved, namely through the responsible sale of selected animals,without compromising the company’s core business. [13] For the reasons which I have stated in my main judgment, I do notbelieve that the objectives of the business rescue can be achieved underthe present management. In addition, in terms of section 137 of theCompanies Act, Mostert will continue to exercise the functions of adirector, albeit subject to the authority of the business rescuepractitioner. [14] I was accordingly satisfied that the applicant had made out a casefor the relief sought in terms of section 18 of the Act and consequentlygranted the order.

STEYN LYELL MAEYANE ATTORNEYS v OELOFSE

An undertaking by a third party to make payment as required in terms of anagreement between two parties not constituting a guarantee

Judgment given in the Supreme Court of Appeal on 23 March 2017 by FourieAJA (Leach JA, Tshiqi JA, Wallis JA and Mbha JA concurring)

On 1 April 2008, Steyn Lyell Maeyane Attorneys issued a guarantee infavour of Oelofse. The guarantee was contained in a letter which stated that oninstructions of Abrina 2537 (Pty) Limited, Oelofse had a 10 % interest in aproperty development known as the Drakensberg Gardens Development in theform of a profit sharing agreement to be implemented on or before 11th April2008. Oelofse’s 10 % shareholding amounted to R1m, which would be paidto him as agreed. The letter requested Oelofse’s attorney to provide hisbanking account details in order for it to make the payment directly into hisaccount for the sum of R1m.

Due to a failure to complete the development during April 2008, thedeveloper did not pay the sum of R1m, but a year later paid an amount ofR600 000 to Oelofse as part of his share of the profit. The delay resulted inOelofse being unable to timeously furnish guarantees due in terms of anothersale agreement. This resulted in the cancellation of that agreement, and theforfeiture of a deposit of R200 000 paid as rouwkoop.

On 21 May 2008, on the instructions of Abrina, Steyn withdrew theundertaking. Oelofse took the view that, in terms of the undertaking, Steyn wasitself liable to him for payment of the sum of R1m and instituted action for thepayment thereof. Due to the subsequent payment of R600 000 made byAbrina, Oelofse reduced his claim to R400 000, and claimed damages ofR200 000 consequent upon the forfeiture of the deposit.

Held—It was clear from the plain wording of the undertaking that it did not

constitute an undertaking or guarantee by Steyn as principal debtor, to makepayment of the amount of R1m to Oelofse. The undertaking amounted to nomore than a confirmation by Steyn on behalf of its client, Abrina, of the termsof the profit sharing agreement between Abrina and Oelofse, ie that Oelofsehad a ten per cent interest in the Drakensberg Gardens development, whichwould amount to R1m and be paid to him on or before 11 April 2008. Thedocument could not be construed as an undertaking or guarantee by Steyn tomake payment of the sum of R1m to Oelofse, irrespective of whether or notprofit sharing in accordance with the agreement between him and Abrina tookplace and irrespective of whether it had been put in funds to make payment.

STEYN LYELL MAEYANE ATTORNEYS v OELOFSE 281FOURIE AJA 2017 SACLR 280 (A)

The profit sharing did not take place on or before 11 April 2008. It only tookplace upon the completion of the development in April 2009. At the time whenthe undertaking was issued by Steyn on 1 April 2008, it did not hold any fundsin trust on behalf of Abrina from which any payment could have been madeto Oelofse in terms of the undertaking. It was therefore improbable in theextreme that Steyn would have bound itself unconditionally to make paymentof an amount of R1m to Oelofse on or before 11 April 2008.

Oelofse’s claim was dismissed.

Advocate J S Griessel instructed by Gildenhuys Malatji Inc, Pretoria, appearedfor the appellantAdvocate I Joubert instructed by Van Zyl’s Inc, Centurion, appeared for therespondent

Fourie AJA:[1] The main issue in this appeal is whether a written undertaking (theundertaking) given by the appellant, a firm of practising attorneys,constituted an unconditional guarantee by the appellant itself to pay anamount of R1 million to the respondent. The respondent contended thatit did and instituted action against the appellant in the High Court,Gauteng Division, Pretoria, for the payment of R1 million, as well asdamages in an amount of R200 000, allegedly suffered as aconsequence of the appellant’s failure to honour the undertaking. Theappellant opposed the action.[2] In the event, the trial proceeded before Prinsloo J who dismissedboth claims with costs. The trial judge, however, granted therespondent leave to appeal to the full court of the Gauteng Division,Pretoria. The full court (per Legodi J, Molopa-Sethosa and Tuchten JJconcurring) upheld the appeal and granted both claims with costs. Thepresent appeal is with the special leave of this court.[3] The undertaking was given by the appellant in the following termsin a letter dated 1 April 2008, addressed to Messrs Gary JanksAttorneys:

‘RE: PROFIT SHARING: DRAKENSBERG GARDENSDEVELOPMENTOUR CLIENT: ABRINA 2537 (PTY) LIMITED

282 STEYN LYELL MAEYANE ATTORNEYS v OELOFSEFOURIE AJA 2017 SACLR 280 (A)

1 See also: Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport(Edms) Bpk 2014 (2) SA 494 (SCA); [2013] ZASCA 176 para 12; Dexgroup (Pty) Ltdv Trustco Group International (Pty) Ltd [2014] 1 All SA 375 (SCA); 2013 (6) SA 520(SCA); [2013] ZASCA 120 paras 10-17; Kingswood Golf Estate (Pty) Ltd vWitts-Hewinson & another [2014] 2 All SA 35 (SCA); [2013] ZASCA 187 para 19.

This letter serves as a guarantee for funding required by Dr JohanOelofse to assist in the purchase of Wiesenhof Business Park,Heidelberg in the name of Plenty Properties. On instructions of our client, ABRINA 2537 (PTY) LIMITED, weconfirm that Dr Johan Oelofse has a 10 % interest in theabovementioned development, which profit sharing will take place onor before 11th April 2008.The 10 % shareholding amounts to R1,000,000 (one million Rand),which remuneration will be paid to him as agreed.Please provide us with your banking account details in order for usto make the payment directly into your account for the sum ofR1,000,000.’

[4] The undertaking has to be construed against the backdrop of thefactual matrix providing the context in, and the purpose for which, itwas given. As emphasised in Natal Joint Municipal Pension Fund vEndumeni Municipality [2012] ZASCA 13; 2012 (4) SA 593 (SCA)para 18:

‘The “inevitable point of departure is the language of the provisionitself”, read in context and having regard to the purpose of theprovision and the background to the preparation and production ofthe document.’ 1

[5] In Frans Jacobus Kruger h/a Kruger Attorneys v Property LawyerServices (Edms) Bpk [2011] ZASCA 80 para 8, this court too wasconcerned with the interpretation of a written undertaking given by afirm of attorneys. The following was said regarding the interpretationof the undertaking:‘The letter of undertaking was issued pursuant to the bridging loanmade by the respondent to Mr Bell and the trust. It must be construedin that context, the factual matrix in which the parties operated, so asto give it a commercially sensible meaning. It is clear from the wordingof the undertaking that the appellant undertook to pay the amounts


stipulated against registration of transfer of the properties . . . The realquestion, however, is not whether the appellant undertook to pay butwhat the content of this undertaking was.’ And further at para 10:

‘The undertaking is not to pay “regardless” but to effect paymentfrom the receipt of the proceeds of the sales. Nor was it envisagedthat the proceeds would vest in the appellant: by virtue of the“cession” the proceeds in the agreed amount had to be paid to therespondent. It would have been absurd for the appellant to have givenan unconditional, independent undertaking in these circumstances .. . Seen in this context, the undertaking amounts to no more than anundertaking to make payment from the proceeds of the sales.’

[6] It appears from our jurisprudence that the word ‘guarantee’ iscapable of bearing different meanings depending upon the context inwhich it is used. In List v Jungers 1979 (3) SA 106 (A) at 118D thefollowing was said:

‘[It is] an unrewarding and misleading exercise to seize on one wordin a document, determine its more usual or ordinary meaning, andthen, having done so, to seek to interpret the document in the light ofthe meaning so ascribed to that word.’

And at 118E-G the court emphasized that the context in which the wordis used is of prime importance and referred with approval to thefollowing dictum in Hermes Ship Chandlers (Pty) Ltd v Caltex Oil SALtd 1973 (3) SA 263 (D) at 267:

‘The passages from the various judgments I have mentioned dealwith popular or ordinary meanings of the word ‘guarantee’, but itseems to me that they demonstrate only that the word is capable ofbearing different meanings depending upon the context in which it isused. It seems to me also that when the meaning of a word in aparticular document is being considered, it is undesirable tocommence the enquiry on the basis that any one of its possiblemeanings predominates, and that the proper approach to the questionis to be alive to the various meanings which it can bear and by aconsideration of the context in which it is used (together with suchother circumstances as may be permissible) to decide which meaningmust be attributed to it in that context.’

[7] In the instant matter the relevant factual matrix is, fortunately,


largely common cause or at least not seriously disputed. It may besuccinctly summarised as follows: Abrina 2537 (Pty) Ltd (Abrina) wasinvolved in a development in Vanderbijlpark, known as DrakensbergGardens. In March 2007, the respondent advanced financing to Abrinawhich, it was agreed, would entitle him to ten per cent of the net profitto be made upon the completion of the development. It was anticipatedthat the respondent’s share of the profit would be approximately R1.2million to R1.5 million and the estimated completion date wasJanuary/February 2008. [8] On 26 February 2008, the respondent, acting on behalf of a specialpurpose vehicle, Plenty Properties (Pty) Ltd (Plenty Properties),concluded an agreement with one Wiese in terms of which theWiesenhof Business Park in Heidelberg, Gauteng, was sold to PlentyProperties for R3.265 million. The respondent depended on his profitsharing in the Drakensberg Gardens development to finance part of thepurchase consideration due to Wiese. A deposit of R200 000 had to bepaid on 26 February 2008, but as the respondent had not yet receivedhis share of the profit in the Drakensberg Gardens development, hisfather, a co-shareholder in Plenty Properties, advanced the depositwhich was paid to Wiese on behalf of Plenty Properties. In terms of thisagreement of sale, the deposit would be forfeited to Wiese as rouwkoopin the event of the balance of the purchase price not being paidtimeously resulting in the cancellation of the agreement. The balanceof the purchase price was payable in cash on registration of transfer ofthe property, and had to be secured by Plenty Properties by means ofapproved guarantees on or before 31 March 2008.[9] Due to Abrina’s failure to complete the Drakensberg Gardensdevelopment timeously, payment of the respondent’s share of the profitin the development was not forthcoming. This resulted in therespondent negotiating an extension for the provision of guarantees byPlenty Properties to Wiese, until 4 April 2008. The respondent,however, had by then lost faith in Abrina and insisted that he beprovided with a written undertaking as to the payment of the profitshare due to him by Abrina. This, the respondent believed, wouldprovide him with a form of guarantee that would satisfy Wiese as to theability of Plenty Properties to honour its obligations in terms of theWiesenhof agreement of sale.


[10] The appellant, acting on the instructions of Abrina, then providedthe respondent with the following document on 1 April 2008:

‘RE: PROFIT SHARING: DRAKENSBERG GARDENSDEVELOPMENTOUR CLIENT: ABRINA 2537 (PTY) LIMITEDOn instruction of our client, ABRINA 2537 (PTY) LIMITED, weconfirm that Dr Johan Oelofse has a 10% interest in theabovementioned development, which profit sharing will take place onor before 11th April 2008.The 10% interest amounts to approximately R1 000 000 (one millionrand), which remuneration will be paid to him as agreed.’

[11] The respondent was not satisfied with the contents of thisdocument, and after consulting his attorney, he suggested certainamendments. In response thereto, the appellant, on the same day,provided the undertaking addressed to Gary Janks, the attorney actingon behalf of Wiese.[12] As appears from the undertaking, it was anticipated that the profitsharing resulting from the completion of the Drakensberg Gardensdevelopment, would take place on or before 11 April 2008. However,Abrina failed to complete the development during April 2008. In fact,it was only completed during April 2009 when the nett profit madefrom the project was finally determined in the amount of R6 022 608.Abrina then paid an amount of R600 000 to the respondent as part ofhis share of the profit. [13] This delay resulted in Plenty Properties being unable to timeouslyfurnish the guarantees due in terms of the Wiesenhof sale agreement.A further extension for the delivery of the guarantees was negotiated,and on 1 May 2008 the respondent requested the appellant to honourthe undertaking by paying the amount of R1 million to Mr Janks. Theappellant advised the respondent that the funds for the profit sharinghad not yet been made available to it by Abrina, and therefore it wasnot able to transfer any funds to Mr Janks. This resulted in Wiesecancelling the Wiesenhof sale agreement on 5 June 2008, whilstretaining Plenty Properties’ deposit of R200 000 as rouwkoop. [14] Meanwhile, on 21 May 2008, the appellant, on the instructions ofAbrina, withdrew the undertaking. The respondent took the view that,in terms of the undertaking, the appellant was itself liable to him for


payment of the sum of R1 million and instituted action for the paymentthereof. I should add that, due to the subsequent payment of R600 000made by Abrina, the respondent reduced its claim to R400 000,although no formal amendment of its pleadings was effected. Inaddition, damages of R200 000 were claimed by the respondentconsequent upon the forfeiture of the deposit of R200 000 in terms ofthe Wiesenhof sale agreement.[15] When the wording of the undertaking is considered against thebackdrop of this factual matrix, the following is immediately apparent:(a) It is addressed to Mr Gary Janks, the attorney attending to theWiesenhof transaction.(b) The preamble declares that the undertaking concerns the profitsharing in the Drakensberg Gardens development, and that Abrina isthe appellant’s client. (c) It confirms that the undertaking serves as a ‘guarantee’ for fundingrequired by the respondent to assist in the purchase of the Wiesenhofproperty.(d) It confirms that as per the instructions of the appellant’s client,Abrina, the respondent has a ten per cent profit sharing interest in theDrakensberg Gardens development, amounting to R1 million, whichwill be paid to him ‘as agreed’, on or before 11 April 2008. It iscommon cause that the words ‘as agreed’ refer to the profit sharingagreement concluded by Abrina and the respondent.(e) Finally, it requests Mr Janks to provide his banking account detailsin order for the appellant to make ‘the payment’ directly into suchaccount. In context, ‘the payment’ refers to the amount that therespondent is to be paid ‘as agreed’, ie in terms of the profit sharingagreement concluded by Abrina and the respondent. In terms thereof,the respondent’s share of the profit would be paid upon the completionof the Drakensberg Gardens development. [16]


2 See also Coopers & Lybrand & others v Bryant 1995 (3) SA 761 (A) at 768D-E andKPMG Chartered Accountants (SA) v Securefin Ltd & another 2009 (4) SA 399(SCA) para 39.

[17] As recorded above, the profit sharing did not take place on orbefore 11 April 2008. In fact, it only took place upon the completion ofthe development in April 2009. It is further undisputed that, at the timewhen the undertaking was issued by the appellant on 1 April 2008, itdid not hold any funds in trust on behalf of Abrina from which anypayment could have been made to the respondent in terms of theundertaking. It is therefore improbable in the extreme that the appellantwould have bound itself unconditionally to make payment of an amountof R1 million to the respondent on or before 11 April 2008. No reasonhas been suggested why it would have agreed to do so. In any event,that is simply not the content of the undertaking given by the appellant.[18] In the course of her argument, counsel for the respondent placedreliance on the evidence tendered by the respondent at the trialpertaining to his intention in regard to the required undertaking. Shealso criticised the appellant for failing to produce any witness to testify‘as to the appellant’s intention in writing [the undertaking]’. Thisevidence of the respondent was clearly inadmissible – as would havebeen the case had the appellant tendered such evidence. It is trite that,in construing a document which was intended to be the sole memorialof the agreement between the parties, direct evidence by the parties oftheir intentions before or at the time of the formation of the writtencontract is inadmissible. As emphasised in Van Aardt v Galway [2011]ZASCA 201; 2012 (2) SA 312 (SCA) para 9, such evidence is alsoirrelevant and therefore inadmissible as ‘context’ in relation to theinterpretation of the written document.2


[19] For the above reasons, I conclude that the full court erred infinding that the undertaking constituted an unconditional guarantee bythe appellant. I should add that the full court in any event erred ingranting judgment against the appellant for payment of the sum of R1million, as the respondent had reduced this claim to R400 000. Be thatas it may, the claim ought to have failed and, as the second claim forthe payment of damages in an amount of R200 000 was dependent onthe validity of the claim based on the undertaking, it similarly ought tohave been dismissed. [20] Further, and in any event, I do not believe that the respondent hadproved that he had suffered any loss entitling him to claim damagesfrom the appellant. As recorded earlier, the sum of R200 000 formingthe subject of this claim was paid by his father on behalf of PlentyProperties. It was Plenty Properties, and not the respondent, thatforfeited this amount when the Wiesenhof sale agreement wascancelled. The respondent testified that he had undertaken to repay theamount of R200 000 advanced by his father to Plenty Properties, butthis was a matter between him and his father, and the appellant couldcertainly not have foreseen that the respondent would have suffered anindirect loss of this nature as a consequence of the cancellation of theWiesenhof sale agreement. It follows that the appeal against the orderof the full court should succeed. [21] In the result the following order is made:1 The appeal succeeds with costs.2 The order of the full court is set aside and substituted with an orderin the following terms:‘The appeal is dismissed with costs.’

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