WITWATERSRAND LOCAL DIVISION
TPD:   30099/2007
	WLD: 2008/12359
In the matter between:
Mohammed Abdulmohsin 
Al-Kharafi & Sons for General Trading,
General Contracting and Industrial Structures WLL                 	      First Applicant
MAK (Pty) Limited	Second Applicant
and
Pema, Jayant Daji N.O.	First Respondent
Motala, Enver Mohammed N.O.	Second Respondent
Berman, Philip David N.O.	Third Respondent
Bekker, Vanessa N.O.	Fourth Respondent
Beginsel, Mark Bradley N.O.	Fifth Respondent
Beaucamp, Sandile Osborn N.O.	Sixth Respondent
The Master of the High Court
(Transvaal Provincial Division) 	Seventh Respondent
Judgment

Malan J:

[1]	The first applicant (‘Kharafi’) is a construction company based in Kuwait. All of its shares are alleged to be held by members of the Al Kharafi family. The second applicant (‘MAK’) is a Botswana based corporation responsible for conducting the construction activities of Kharafi in Botswana. The first to sixth respondents (‘the Liquidators’) are the joint liquidators of Big Dig Construction (Pty) Limited (in liquidation) formerly known as Protech Projects Construction (Pty) Limited (‘Protech’).
[2]	In this application, the applicants seek to review and set aside, under section 151 of the Insolvency Act 24 of 1936 a decision of the Master of the High Court  under section 46 of the Insolvency Act to disregard a pre-liquidation set-off that occurred when Kharafi set off a claim for an amount of US$ 1 868 140,00 which it owed to Protech following an arbitration award, the ‘second arbitration award’ of 10 February 2004, against a claim for an amount of Botswana Pula 8 597 054,76 owed by Protech to MAK which the latter ceded to Kharafi. For the purposes of the application to the Master the Liquidators assumed that the claim alleged by MAK existed, was ceded and was due to be set off against the amount of the second arbitration award. In the alternative, the applicants seek to review and set aside the decision of the Master, inter alia, under section 3(2) of the Promotion of Administration Justice Act 3 of 2000 read with section 6(2)(c) on the basis that the Master’s decision was procedurally unfair in that he did not accede to the applicants’ request to hear oral argument before making his ruling.
[3]	The Master’s decision was handed down on 2 March 2007:
‘I came to the conclusion that the set-off … was not done in the ordinary course of business. Therefore the Liquidators should disregard the set-off in terms of Section 46 of Act 24 of 1936.’
His reasons were mainly that the shareholdings in MAK and Kharafi were not the same and that they were two separate entities there being a deliberate and conscious election by Kharafi to create a separate legal person. There was therefore no basis for lifting the corporate veil and treating the companies as a single economic entity. Moreover, he said that he could not ignore the cession between MAK and Kharafi which occurred between two separate business entities.
[4]	Two construction contracts, one to be performed in Ethiopia and the other in Botswana are the source of the disputes in this matter. During 1998, Kharafi concluded a subcontract with Protech to effect certain engineering work in Ethiopia. The main contractor was Kharafi itself. Thereafter, and in Botswana, MAK concluded a construction contract as principal contractor with the Botswana government. MAK sub-contracted certain of the work to Protech. 
[5]	The parties are no strangers to litigation. Between 20 January 2003 and 4 May 2005 the arbitrator, Mr Brian Eggleston, in arbitration proceedings in London between them relating to the Ethiopian subcontract made five arbitration awards against Kharafi, establishing the latter’s liability to Protech in several millions of US Dollars.  All of Kharafi’s counterclaims were dismissed by the arbitrator, and Kharafi was ordered to pay interest on the arbitration awards, amounting to $US 1 868 140, $US 452 626,43, Ethiopian Birr 173 896,97, $US 120 000, £ 1 413 605,33 and R 661 22,76 respectively and costs. 
	In the Pretoria proceedings, initiated in 2002 and necessitated as a consequence of MAK and Kharafi seeking to invoke a performance guarantee under the Botswana subcontract, Protech successfully applied for an interdict against Kharafi and MAK, and the latter’s applications against Protech were dismissed. 
	In 2004 MAK and Kharafi instituted proceedings for relief against Protech in the Botswana proceedings. They were unsuccessful and were ordered to pay the costs of those proceedings. Their appeal was dismissed with costs in July 2007. 
	On 6 August 2004 MAK and Kharafi instituted action in Johannesburg against Protech, seeking payment of monies owing under a loan agreement.  Their claim is that Protech owed MAK an amount in excess of the amounts due under the second arbitration award and that MAK had ceded its claim, the loan claim, to Kharafi on 8 April 2004. Judgment is sought against Protech for the balance owing after set-off of the claims. Protech has filed a plea and counterclaim in those proceedings, denying indebtedness to MAK, and counterclaiming for payment in respect of monies owing under the Botswana contract.  The Johannesburg proceedings are pending.  
	In London proceedings before Mr Justice Langley Protech sought an order compelling Kharafi to pay the various amounts owing under the arbitration awards.  Kharafi counter applied for the discharge of certain assets from attachment.  Kharafi also applied for the setting aside of the arbitration awards.  Protech was successful, in that Langley J on 14 October 2005 ordered payment, within 14 days of an amount of US$ 2,8 million, and dismissed Kharafi’s counter application. That amount with costs was duly paid. 
	That payment by Kharafi, however, still left open the balance of the indebtedness owing under the arbitration awards. Protech contended that a balance of at least R15 436 414.00 was owing under the arbitration awards, which had not been paid and remains outstanding. Kharafi in turn contended that it took cession of MAK's claim under the Botswana contract against Protech, with the result that it became a creditor of Protech for the sums that were owed to MAK.  Having become the cessionary, the amount of that indebtedness was set off against the indebtedness owing under the second arbitration award. Hence the application to the Master, by the Liquidators, for approval to disregard the alleged set-off, under section 46. The hearing of Protech’s claims in respect of the balance of the arbitration awards was deferred, pending the outcome of the section 46 proceedings before the Master.   
[6]	Once the Master ruled in Protech’s favour in terms of its application under section 46 of the Insolvency Act, 24 of 1936 ("the Act"), Protech re-applied to Langley J for payment of further sums owing under the arbitration awards. MAK and Kharafi thereafter instituted these review proceedings.  On 13 July 2007 Langley J ordered Kharafi to pay the established indebtedness of $200 000.00, but deferred the hearing in respect of the balance pending the outcome of these review proceedings.
 [7]	The Ethiopian contract was cancelled and Kharafi and Protech made competing claims against one another. These claims were resolved in arbitration proceedings in the United Kingdom. The English arbitrator made various awards, inter alia, one requiring Kharafi to pay Protech an amount of US$ 1 868 140 (‘the second arbitration award’). In Botswana, Protech, as a consequence of cash flow problems, was unable to pay its suppliers and workers. In order to ensure that the Botswana project was completed timeously and that MAK did not incur penalties under the main contract with the Botswana Government, MAK advanced substantial amounts of money to Protech. At 8 April 2004 Protech was allegedly indebted to MAK (after set-off of all amounts that had become due to Protech under the subcontract) in an amount of Pula 9 693 465,51. 
[8]	On 8 April 2004, and in writing, MAK ceded to Kharafi its claim arising out of Protech’s indebtedness. The consequent set-off of the Protech’s indebtedness against the arbitration award occurred as a matter of law. In any event, Kharafi expressly invoked set-off in a summons in a subsequent action that Kharafi and MAK initiated in Johannesburg.
[9]	On behalf of the applicants it was submitted that the Master wrongly held that the set-off was affected by section 46 of the Insolvency Act. First, the applicants contend that section 46 can be invoked only where there has been collusive action or, at the very least, active participation, by the insolvent in the transaction resulting in the set-off. In the present case, the insolvent company, Protech, did not participate or collude in the transaction. The invocation of section 46, it was submitted, was therefore inappropriate. Second, in attacking the set-off, the Master and the Liquidators have focused on whether the cession, not the set-off, occurred in the ordinary course of business. Third, for all intents and purposes, in relation to this particular transaction, MAK and Kharafi operated as a single economic entity. Protech also treated MAK and Kharafi in this way. Based on the observation of the Botswana Court for Appeal that Kharafi (not MAK) contracted with Protech in relation to the Botswana contract (which the applicants submitted, is binding on the parties), it was argued that the inference is that the parties routinely ‘set-off’ amounts owing by Kharafi to Protech against amounts owing by Protech to MAK. Accordingly, even if it is the cession (not the set-off), that is subjected to scrutiny, the transaction occurred in the ordinary course of business. Fourth, the Liquidators who, it was argued, bear the burden of proof, have introduced no evidence concerning the manner in which similarly related entities in the construction industry would have conducted themselves in a similar situation. The Liquidators have also provided no evidence concerning the manner in which Protech ordinarily did business. The failure to lead this evidence, it was submitted, is fatal to the Liquidators’ contention that either the cession or the set-off occurred outside of the ordinary course of business.
[10]	In Nel and Another NNO v The Master (ABSA Bank Ltd and Others Intervening) the court said:
‘[22] In terms of s 151 of the Insolvency Act, read together with s 339 of the Companies Act 
“. . . any person aggrieved by any decision, ruling, order or taxation of the Master. . . may bring it under review by the Court . . .”. 
South African Courts have long accepted that the review envisaged by s 151 of the Insolvency Act is the “third type of review” identified more than a hundred years ago in Johannesburg Consolidated Investment Co v Johannesburg Town Council, ie where Parliament confers a statutory power of review upon the Court. In the Johannesburg Consolidated Investment Co case, Innes CJ stated, [1903 TS 111 at 117] with reference to this kind of review, that a Court could 
“. . .enter upon and decide the matter de novo. It possesses not only the powers of a Court of review in the legal sense,  but it has the functions of a Court of appeal with the additional privileges of being able, after setting aside the decision arrived at . . . to deal with the matter upon fresh evidence . . .”   (own emphasis).
[23] Thus, when engaged in this third kind of review, the Court has powers of both appeal and review with the additional power, if required, of receiving new evidence and of entering into and deciding the whole matter afresh. It is not restricted in exercising its powers to cases where some irregularity or illegality has occurred. However, while it is sometimes stated that the Court's powers under this kind of review are “unlimited” or “unrestricted”, this is not entirely correct. The precise extent of any “statutory review type power” must always depend on the particular statutory provision concerned and the nature and extent of the functions entrusted to the person or body making the decision under review. A statutory power of review may be wider than the “ordinary” judicial review of administrative action ... so that it combines aspects of both review and appeal, but it may also be narrower, “with the court being confined to particular grounds of review or particular remedies.”’	
[11]	A court hearing a review application under s 151 sits both as a court of review and a court of appeal to reconsider the ruling or decision of the Master.  That does not mean that the court may disregard the factual material before the Master or the Master’s reasoning.  It is only where the Master, in granting his approval, has erred or misdirected himself based on the material placed before him that the court can, on review and or appeal, go further and decide the matter de novo.  It is by reference to what was placed before the Master that the correctness or otherwise of the Master’s decision is to be judged.  If, based on what was before the Master, there was no error or misdirection on the Master’s part, then that is the end of the matter.  It is not open to the parties to introduce the new material that they seek to place before this court, and argue on the basis of what was not before the Master that the Master erred or misdirected himself. The approach is to consider the factual material placed before the Master, together with the Master’s decision and his report, and to consider whether in the light of that material, the Master erred or misdirected himself in any material respect.  If any basis for interfering with the Master’s decision does appear ex facie the documents before the Master as read with his decision and rulings, then the reviewing court may reconsider the matter based on the material before it.
[12]	The Liquidators assumed without admitting and the Master was invited to assume for the purposes of the application before him that a loan claim as alleged by MAK did exist, in terms of which monies were owing by Protech to MAK, was ceded by MAK to Kharafi (on 8 April 2004) and was set off against the amount owing under the second arbitration award.  The terms of the cession record that MAK
‘cedes, transfers and makes over onto and in favour of [Kharafi] ... all [MAK’s] right title and interest in and to any and all monies, and payment thereof, which are or may become payable to [MAK] by [Protech] arising out of, inter alia, monies loaned and advanced by [MAK] to [Protech] and payments made by [MAK] for and on behalf of [Protech].’
On 13 March 2005 the shareholders of Protech resolved to wind Protech up voluntarily, in terms of s 349, read with s 351, of the Companies Act, 61 of 1973, as amended.  That special resolution was registered on 5 April 2005.  Protech is unable to pay its debts. 	As the special resolution was registered on 5 April 2005, the cession alleged by Kharafi, and the set-off relied upon, occurred less than one year prior to the liquidation of Protech.
[13]	Section 46 of the Insolvency Act provides:
‘46	Set-off
If two persons have entered into a transaction the result whereof is a set-off, wholly or in part, which they owe one another and the estate of one of them is sequestrated within a period of six months after the taking place of the set-off, or if a person who had a claim against another person (hereinafter in this section referred to as the debtor) has ceded that claim to a third person against whom the debtor had a claim at the time of the cession, with the result that the one claim has been set-off, wholly or in part, against the other, and within a period of one year after the cession the estate of the debtor is sequestrated;  then the trustee of the sequestrated estate may in either case abide by the set-off or he may, if the set-off was not effected in the ordinary course of business, with the approval of the Master disregard it and call upon the person concerned to pay to the estate the debt which he would owe it but for the set-off, and thereupon that person shall be obliged to pay that debt and may prove his claim against the estate as if no set-off had taken place … ‘ (my emphasis).
[14]	The disputes between the parties were whether the set-off alleged by Kharafi, was effected in the ordinary course of business; and, if it was not, how the Master should exercise his discretion under s 46.
[15]	It appears from the letter of 24 April 2003 in which MAK threatened to apply for the winding up of Protech that Kharafi had knowledge of Protech’s inability to pay its debts. That knowledge pre-dates the cession by about a year, and probably longer. The object of the cession and the set-off was thus to escape the consequences of a concursus. Kharafi must have known that creditors of Protech would be prejudiced by the cession and set-off. On behalf of the Liquidators it was submitted that that fact on its own makes the transaction one in fraudem creditorum: In Trustees, Estate Chin v National Bank of South Africa Limited it was stated:
‘[I]t would ... be sufficient to constitute mala fides if the transaction were one in fraudem creditorum, as that expression is usually understood in insolvency matters. If, eg, the object of the transaction were to give one creditor an advantage over other creditors in case of insolvency, that would not necessarily be a fraud in the criminal sense of the word, but it would certainly constitute a fraud upon the other creditors ...’.
I agree. A disposition made in these circumstances amounting to a fraud on third parties cannot be in the ordinary course of business. Even at common law in the analogous case of a cession made with the intention of depriving the debtor of a right to set-off the transaction is frowned upon, and could well be invalid.

[16]	Moreover, the cession and set-off were effected against the background of a litigious relationship between the parties litigation that commenced in 2002, some two years prior to the cession. It seems to follow that MAK and Kharafi must have intended to obtain satisfaction other than by the formal adjudication of their alleged rights in court proceedings. Kharafi alleged that payment of its indebtedness under the Ethiopian contract (fortified by the second arbitration award) was effected by the acquisition of a claim against Protech and the setting off of that claim against the second arbitration award.  This manner of payment was substituted for the mode of payment provided for by the Ethiopian contract. It is a principle of ‘business’ that debts should be paid according to the tenor of the underlying contract.  
[17]	The cession was preceded by a resolution of the board of directors of MAK, on 5 April 2004 and the cession, headed Deed of Cession of Debt, is dated 8 April 2004.  In the introduction to the cession the following is recorded:
(a) I confirm that [Protech] ... is truly and lawfully  indebted to [MAK] in the sum of P 15, 103, 452.18 ... being  in respect of monies loaned and advanced by [MAK] to [Protech] and/or payments made by [MAK] for and on behalf of [Protech], and at its special instance and request.
 (b) I confirm that [Protech] has not repaid its indebtedness to [MAK] and [MAK] has reason to believe that [Protech] has been and will remain unable to repay its said indebtedness unless it utilizes for that purpose certain sums (hereinafter referred to as “the award monies”) which it may receive from [Kharafi] …
(c) I confirm that [MAK] trades with the continuing support of [Kharafi] including particularly on-going support which has enabled it to continue trading notwithstanding [Protech’s] continued said indebtedness.
(d) I confirm that [MAK] considers it to be in its interest to cede the debt owed by [Protech] to [MAK] to [Kharafi] in order that simultaneous payments may be made of the sums owed by and due to [Protech] (viz the said sum of P 15,103,452.18 and the award monies)’ (my emphasis).
Ex facie paragraph (d) the purpose for effecting the cession was to assist Kharafi in avoiding payment of the arbitration indebtedness to Protech arising from the arbitrator’s awards in London, some of which predated the cession. After the cession had been effected, and on 19 April 2004, Kharafi wrote a letter to Protech advising it of the cession:
‘As you are no doubt aware, a payment may be made in a number of ways; one way is to make an appropriate adjustment in relation to outstanding accounts. Protech is, and has for some time been, indebted to MAK ... in the sum of 15,103,452.18 Pula which, when converted to US Dollars and Ethiopian Birr in the appropriate proportions, exceeds the payment which falls to be made on the basis of the Partial Award ... [Kharafi] is prepared to adopt a pragmatic and commercial attitude and allow Protech full credit for the sums which the Arbitrator has awarded.  With the consent of [MAK], [Kharafi] elect to make payment of the sums awarded by appropriately adjusting that outstanding debt.  The adjustment is made with effect from 28 days after the date of the Partial Award.  In order that Protech may be effectively relieved of its equivalent liabilities to that company, that amount of the indebtedness has been ceded to us’ (my emphasis).
That letter stated in unequivocal terms that the object of the cession was to achieve a set-off of obligations, and accordingly the avoidance by Kharafi of its arbitration indebtedness to Protech. They said so in so many words:
‘Any prudent businessman dealing with a solvent entity would have done precisely what the Kharafi Group did in the circumstances.  It simply “ceded” a large claim from one company within the group to another in order to avoid exposing the Kharafi Group to the financial risk of making payment of a substantial amount of money to a litigious company (Protech) which was located in another country. No prudent solvent businessman would have simply paid the English arbitration award thereby condemning the Kharafi Group to years of litigation in yet another jurisdiction in order to recover the loan that the Kharafi Group had in good faith advanced to Protech.’
[18]	The consideration that MAK was to receive for the cession is recorded in MAK’s resolution of 5 April 2004.  It states that:
‘In consideration for the company ceding its claim against Protech ... to [Kharafi] [MAK] accepts from [Kharafi] finance, to be provided in the future, for the funding of new construction and/or Civil Engineering Contracts for which the Company has tendered and/or is to tender in the future.’
It follows that no money flowed between Kharafi and MAK; no quantification of the consideration was agreed to or provided for as the appropriate amount for the cession; no finance was supplied by Kharafi to MAK.  Any finance which flowed or would flow would only flow in the future. No date was specified for the performance by Kharafi of its obligations to MAK. In short, ex facie the documents available, no credit was agreed to or given by Kharafi to MAK as consideration for the cession. 
[19]	MAK and Kharafi disputed that no consideration was given, alleging that book entries were effected in the books of Kharafi, MAK and Kharafi Construction Company WLL (‘Construction’), with the result that MAK's aggregate indebtedness to Kharafi and Construction was reduced by P 15 131 686.02.  MAK and Kharafi annexed to their papers the group financial statements of MAK as at 31 December 2004 as well as the detailed ledger print-out in respect of MAK's loan account for various years, from 2001 to 2005.  Those documents, it was submitted, do not support the position of MAK and Kharafi. I agree. Note 16 of Annexure K2 to the Answering Memorandum of the group financial statements of MAK as at 31 December 2004, the year in which the cession was effected, deals with ‘related party balances’. The second section concerns amounts due to related parties.  The company listed last (‘MAK Kharafi & Sons’) would appear to be the only company fitting the description of Kharafi.  The two columns on the right hand of the page compare the loan account for the years ended 2003 and 2004 and show that the loan account of MAK reflecting the amount owed to Kharafi increased from P 1 429 in 2003 to P 4 421 499 in 2004. Had any credit been given for the cession of the loan account, one would have expected that loan balance to be reduced, not increased. Immediately above Kharafi, the relevant figures for Kharafi Construction Company appear showing the loan account of MAK owing to Construction had increased from P 14 198 608 in 2003 to P 16 234 960 in 2004. Equally, had any benefit been given to MAK in respect of the cession of the loan claims, then a loan obligation by MAK to Construction would have decreased, not increased. If one has regard to annexure K3, the detailed ledger printout in respect of MAK’s loan account, the relevant journal entries for 2004 do not reflect any entry in respect of the cession. It is only in the 2005 statements that an entry, JV 049/01, reflecting an amount of P 15 103 452.18 under Al-Kharafi & Sons can be found. If this indeed relates to the consideration for the cession, then the lateness and the amount of that entry reveal these extraordinary aspects: First, it is clear that the journal was processed only in the 2005 year, and not in 2004. Secondly, the journal entry, to the credit of MAK, is in the sum of P 15 103 452.18. However, by then MAK and Kharafi had admitted in litigation that Protech’s debt had been reduced by the sum of P 5 438 220,50. In other words, on the version of MAK and Kharafi, that journal entry is wrong. 
[20]	Annexure K3 to MAK and Kharafi's answering memorandum is the detailed ledger print-out of the loan account of MAK to various other companies, for the years from 2001 to 2005. On analysis of the transactions over that five-year period the following emerges: After this particular transaction involving P 15 103 452.18 the next largest transaction over that five-year period is one in the amount of P 1 858 534.81.  In other words, the next largest transaction after the one under consideration is almost one-tenth the amount of the claim ceded. The other transactions in the five-year period are substantially smaller, and the average value of transactions over the five-year period is less than one-twentieth of the value of the cession. The size of the transaction was accordingly very substantially greater than any other transaction effected by the two companies in the five-year period surrounding the particular transaction concerned.
[21]	Even if, as Kharafi alleged, the entry in MAK's loan account in the 2005 year was intended to reflect consideration for the cession, that entry does not fall into the year in which the transaction was effected.  The transaction was effected on 8 April 2004. The loan account entry appears in the 2005 year.  It was accordingly only in 2005 that the audit procedures noticed the need for the entry. On the face of it one can infer that neither MAK and Kharafi's internal bookkeepers nor their auditors were accustomed to cessions of this nature.  Had they been accustomed to them, they would have picked them up in the year in which they were effected. 
[22]	In the Answering Memorandum MAK and Kharafi stated that it was the practice among the companies for parent companies to provide funding to subsidiary companies to enable the subsidiary companies to trade.  The parent companies would accordingly receive dividends in return. As will be shown, MAK is not a subsidiary company, directly or indirectly, of Kharafi.  Even if, however, it were to be so that funding is normally provided ‘downwards’ to subsidiary companies, the Liquidators pointed out that this transaction does not fall into that category of providing funding: First, Kharafi is not a shareholder in MAK.  At best, Construction is the parent of MAK.  Second, since the cession was effected by MAK in favour of Kharafi, the financial assistance flowed ‘upwards’, and not in the opposite ordinary direction.  That on its own takes this transaction out of the ordinary.
[23]	There is no evidence of another transaction of a similar nature effected between the companies despite the MAK and Kharafi being challenged to provide such evidence. MAK and Kharafi did not supply evidence of any similar transaction. In their Founding Memorandum the Liquidators explained that in the London proceedings evidence was introduced that Kharafi itself regarded the circumstances of this case as not ‘normal’. The witness statement of Mr Ken Forsyth filed on Kharafi's behalf reads that 
‘[Kharafi] accepts that ordinarily, the fact that party A might have a substantial unliquidated claim against party B which party A considers is very likely to succeed would not, by itself, be a sufficient reason to entitle Party A to withhold payment of amounts due from party A to Party B under ICC arbitral awards. However, Kharafi believes that having regard to [Protech’s] current financial position, the circumstances of the present case are not ‘ordinary’ and that in this case, the interests of justice would best be served by allowing “mutual set-off” on the same basis as if [Protech] was already declared insolvent.’
[24]	The Liquidators explained that the set-off would, if allowed to stand, result in a substantial disturbance of the normal distribution of proceeds of assets of Protech: If the alleged set-off is to be allowed (this assumes that MAK had a claim against Protech in Botswana as pleaded in the Johannesburg proceedings), a dividend of 36 cents in the Rand will accrue to concurrent creditors (as opposed to Kharafi’s 90 cents in the Rand received).  To illustrate this, the Liquidators annexed a pro-forma liquidation and distribution account setting out this dividend calculation.  If the set-off is disallowed and Kharafi is successful in proving a claim as alleged in the Johannesburg proceedings, concurrent creditors and Kharafi will receive dividends of 52 cents in the Rand. To illustrate this, the Liquidators annexed a pro-forma liquidation and distribution account setting out this dividend calculation. If the set-off is disallowed and Kharafi is unsuccessful to prove its alleged claim in the Johannesburg proceedings, creditors will receive a dividend of 76 cents in the Rand.  To illustrate this, the Liquidators provided a pro-forma liquidation and distribution account setting out this dividend calculation. 
[25]	In Van Zyl & Others NNO v Turner & Another NNO the court formulated the approach to determine whether a transaction is ‘in the ordinary course of business’: 
‘One of these principles is that the test is an objective one. The Court must ask itself whether, given all the circumstances under which the deposition was made, it is in accordance with ordinary business methods obtaining amongst solvent men of business. Regard must therefore be had to all the circumstances, including the actions of both parties to the transaction. As appears from the formulation of the principle, the fact that one of the parties to the transaction was insolvent at the time is, however, to be excluded from the circumstances which are relevant.’
Relatively few decisions concern the meaning of the phrase in s 46 and recourse to decisions relating to other sections where this expression occurs is called for. The enquiry is not limited to the terms of the particular transaction.  The Master could, and was obliged to, consider all of the relevant circumstances pertaining to the transaction. 
[26]	If a transaction was not effected in the ordinary course of business and has, as a result the substantial disturbance of the distribution of the proceeds of the assets, then the Master should approve of the set-off being disregarded. The cession and the set-off were effected as an unique arrangement.  It was a ‘special course of dealing’, ‘and not ‘the usual and ordinary course of trade or business [which] must be taken to mean transactions in the usual and ordinary every-day course of mercantile dealing, not any special course of dealing between individuals, or even the practice of traders in some small community.’ The purpose of the cession and set-off was to obtain payment of a disputed debt, in circumstances where litigation had commenced. The normal course would have been to await a court’s judgment on the claim or (if Protech conceded the claim) for Protech to have paid the debt by cheque or transfer. MAK and Kharafi did neither. They sought to secure payment of the debt in a roundabout way. As was stated in Gore NO & Others v Shell South Africa (Pty) Ltd:
‘[21] A further consideration, pointing to the same conclusion, is the fact that the disposition in question was made in a roundabout way.  As it was put in Van Zyl and Others NNO v Turner and Another NNO [1998 (2) SA 236 (C) para [39] at 246 F-G]:
“The businesslike manner of making payment would obviously have been for (the debtor) to give (the creditor) a cheque drawn by him (the debtor) on his own bank account.” 
[22] The fact that the payment in question was not made by the debtor from its 'ordinary' current account does not, of course, per se take such payment out of the 'ordinary course of business'. Seen against the background of the evidence as a whole, however, this is a further indication that the disposition was not one which solvent persons acting in the normal course of business would make.’
[27]	The question is whether businessmen would regard the transaction, with all of its particular facets, as unusual or anomalous. It was submitted that transaction was odd in almost every respect. I agree with this submission. As was said in Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd,  the expression ‘does suppose that according to the ordinary and common flow of transactions in affairs of business there is a course, an ordinary course. It means that the transaction must fall into place as part of the undistinguished common flow of business of business done, so that it should form part of the ordinary course of business as carried on, calling for no remark and arising out of no special situation.’ In addition to the considerations referred to the fact that no consideration was then and there agreed to or given for the cession, and when it was finally processed, a year later and after the fact, the amount was wrong. The extraordinary size of the transaction, seen against the other transactions on the loan account, raises a suspicion that it was not in the ordinary course. The fact that the cession was effected contrary to ordinary funding arrangements between the companies adds to this as does the strange accounting aspects of the matter and the fact that there does not appear to have been any similar transaction between MAK and Kharafi. 
[28]	In their heads of argument the applicants submitted that the cession that preceded the set-off that was entered into with the object of procuring the set-off, is irrelevant and falls to be ignored. This argument was not proceeded with, and rightly so. It is trite that the expression ‘ordinary course of business’, when used in the context of voidable dispositions carries with it an enquiry into ‘all the circumstances under which the disposition was made’. There is no reason why the same approach should not be followed where that expression is used in the context of section 46. Set-off operates as a matter of law, and it seems to follow that the circumstances surrounding the set-off must be considered. The cession, in this case, giving rise to the set-off is necessarily a relevant circumstance. That it is indeed relevant is supported by the provisions of section 46 themselves – in the case of a cession the period within which any set-off would be affected by s 46 is extended by six months to a year. Parliament considered set-offs that were preceded by a cession to merit a lengthier period. That stipulation in section 46 suggests that Parliament regarded the existence of a cession as a relevant factor in the application of section 46. The operative expression is ‘if the set-off was not effected in the ordinary course of business’. The word ‘effect’ means ‘bring about, accomplish’ and ‘cause to exist or occur’. Thus, far from section 46 focusing on whether the set-off occurred in the ordinary course of business, the section expressly requires an analysis of whether it was ‘brought about’ or ‘accomplished’ in the ordinary course of business. That necessarily casts the net wider. To my mind it has been shown that the set-off did not occur in the ordinary course of business.
[29]	In the answering memorandum before the Master MAK and Kharafi advanced the further contention that MAK and Kharafi were companies within a ‘single economic entity’.  In those circumstances, they argued, the Master should ‘pierce the corporate veil’, look behind the formality of the companies, and treat the two as one entity.  Being one entity (so the argument went), no cession was necessary.  The argument ended with the contention that because no cession was necessary, no cession was indeed effected.  There having been no cession in the first place, section 46 is not applicable. This contention reminds one of the words in Pioneer Concrete Services Ltd v Yelnah Pty Ltd & Ors emphasised below: 
‘In their written submissions, counsel for the plaintiff have emphasized the unreality of treating the Hi-Quality companies as otherwise  being a group that acts and thinks as one. In the submissions in chief it was put with reference to a remark I had made … that some directors took the view that the company “C’est moi”, the family motto of the Ward, Hargreaves and Armstrong companies should be “les compagnies ces sont nous et nous sommes les compagnies”. … Their companies in the group are puppets dancing at the bidding of their directors. … In reply it put that the doctrine of the corporate veil is “out of place in the world of Hi-Quality, a world in which the doctrine of Salomons case [1897] AC 22 is unknown. In that world human realities, not corporate realities, reign”.’
[30]	What the applicants are relying upon is what they have referred to as ‘reverse piercing of the veil’.  They contend, in other words, that the separate existence of MAK and Kharafi be ignored and that the group or the holding company, in this case, Kharafi, be treated as if it were the only one. It is thus not a case of the veil being lifted to hold the shareholders liable but the reverse: the veil is to be lifted to treat the holding company as the only one entitled to the claim ostensibly belonging to MAK. It was remarked that particularly in the case of ‘reverse veil piercing’ the identity of the persons seeking this relief is relevant ‘for then the person seeking the veil piercing has himself created the very situation from which he now seeks to escape. In such a case there must be some factor which justifies the plaintiff’s claim to be relieved of the legal consequences he himself has created.’ 
[31]	In paragraph 5 to 7 of the Replying Memorandum the Liquidators analysed the organogram that is annexed as K1 to the Answering Memorandum: 10% of the shares in MAK are not owned or controlled by entities in any of the Kharafi companies.  They are owned and controlled by a local Botswana businessman. As the organogram clearly reflects, there is not one, but at least two groups with economic interests that are quite separate from each other. The ‘Al-Kharafi family’ (as that expression is defined on ‘KR1’ to exclude the two individuals separately mentioned at the head of the organogram) owns and controls 70% of the shares in Kharafi (the Kuwaiti company at the left of the organogram), which in turn holds 26% of the shares in Costain Plc, a public company listed in London. The two individuals at the head of the organogram (Nasser Mohamed Abdul Moheson Al-Kharafi (‘Nasser’) and Fawzyn Mohamed Abdul Moheson Al-Kharafi (‘Fawzyn’)) are not represented on annexure ‘KR1’ to be part of the Al-Kharafi family. They each control and own only 15% of the shares in the Kuwaiti company Kharafi.  They are accordingly minority shareholders with no power (even collectively) to control Kharafi. The two individuals, Nasser and Fawzyn, each controls and owns 50% of the shares in Kharafi Construction WLL.  The Al-Kharafi family owns no shares in that company and exercise no control over that company at all. MAK is entirely owned and controlled (directly or indirectly) by Nasser and Fawzyn.  The Al-Kharafi family (as defined on annexure ‘K1’) owns no shares, directly or indirectly in MAK, nor do they control that company. The directors of MAK are Nasser, Fawzym, a local Botswana businessman and Mr Shehata and Mr Nagaty. Mr Shehata and Mr Negaty are not alleged to be directors of Kharafi. The voting power on the board of MAK accordingly rests outside the Al-Kharafi family, as defined on ‘KR1’. Kharafi owns no shares in MAK, nor does it control MAK in any other way.
[32]	In the Answering Memorandum of MAK and Kharafi it was suggested that in the dealings between Protech and MAK and Kharafi, Protech treated them as one entity.  An analysis of the facts, however, reveals this argument to be incorrect. In paragraph 36 of the Replying Memorandum the following is explained:
‘36.2 	With regard to the use of the trade name ‘M A Kharafi and Sons’ in relation to MAK specifically:
36.2.1	When Protech entered into the Ethiopian contract, it did so with Kharafi. There Kharafi called itself ‘M A Kharafi and Sons’, and Mr Dovey believed that to be the trade name of Kharafi. When Protech (represented by Mr Dovey) entered into the subcontract in Botswana, Mr Dovey was led to believe by representatives of MAK that MAK was the principal contractor in Botswana. Protech dealt with MAK on that basis.
36.2.2	The liquidators deal with the manner in which the terms of the performance guarantee was settled in paragraph 78.1.3 below. MAK or Kharafi had provided the text of the guarantee to St Pauls.
36.2.3	When the St Pauls guarantee was called upon for the first time, Kharafi did so in terms of its letter of 21 February 2002. A copy of that letter is annexed as R4. Its text, insofar as relevant, reads:
“We [i.e. Kharafi] refer to the Performance Bond issued by the St Paul Insurance Company SA Limited (‘the Surety’) dated 4th August 2000 … being a Performance Bond issued on behalf of Protech Projects Construction (Pty) Ltd (‘the Sub-Contractor’) in favour of M A Kharafi & Sons (‘the Contractor’) and issued pursuant to contract No … for the construction of Kudumatse Drive, Gaborone ...
This letter serves as written notice and order from the Contractor (M A Kharafi & Sons) to yourselves as Surety to pay the Contractor …
In the premises, we, the Contractor hereby give written notice and order for payment by St Paul Insurance Company S A Limited to ourselves, the Contractor,  of the sum of P2 903 876.30 …”   
36.2.4	Ex facie that letter, it was not MAK, but Kharafi, that held itself out as M A Kharafi & Sons, and in whose favour the guarantee had been issued. That was as Mr Dovey had believed the position to be. What was surprising to Mr Dovey was the assertion by Kharafi that it, and not MAK, had been the contractor in Botswana. As stated above, Mr Dovey had believed MAK to have been the main contractor. (Mr Dovey had never seen the main contract. Protech had not been a party to it.)’
[33]	Kharafi holds no shares, directly or indirectly, in MAK, does not control MAK, and does not have the same directors as MAK.  Different entities own the shares in MAK and Kharafi, and the organogram annexed as ‘K1’ to the Answering Memorandum reveals clearly that MAK and Kharafi form part of different economic and financial structures.
[34]	As part of their legal argument, MAK and Kharafi relied on the decision in DHN Food Distributors Ltd v Tower Hamlets London Borough Council where Lord Denning MR said: 
‘We all know that in many respects a group of companies are treated together for the purpose of general accounts, balance sheet, profit and loss account. They are treated as one concern. Professor Gower in Modern Company Law, 3rd ed (1969), p 216 says: 
“there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group.”  
This is especially the case when a parent company owns all the shares of the subsidiaries – so much so that it can control every movement of the subsidiaries. These subsidiaries are bound hand and foot to the parent company and must do just what the parent company says. … So here. This group is virtually the same as a partnership in which all the three companies are partners. They should not be treated separately so as to be defeated on a technical point. They should not be deprived of the compensation which should justly be payable for disturbance.’  
It was argued that there was a tendency by the English courts to ignore the separate corporate personality of entities in the group where the group is in truth the party interested and injured. Moreover, the applicants submitted that the general principle is that the corporate veil will be pierced ‘where the interests of justice require it.’ They relied on the 1979 edition of Gower's Principles of Modern Company Law to argue that ‘[m]odern commerce is hampered and not helped by the two rigid adherents to the basic principle [of the separate existence of companies].’ They quoted from paragraph 47 of LAWSA and submitted that ‘[t]here is, however, authority for treating as a single company a group of companies that in fact forms a single economic unit’. Most of these submissions were repeated during the application before me. 
[35]	DHN Food Distributors Ltd v Tower Hamlets London Borough Council concerned a situation where land was expropriated from a company. The land had been owned by one company in the group, but the business conducted on the land the business of another company in the group. The companies were wholly-owned within the group. The question was whether the operating company would be entitled under that particular expropriation statute to compensation for the disturbance of his business, even though a formal long-term lease did not exist between the companies.  DHN was the holding company of three wholly-owned subsidiaries.  One wholly-owned subsidiary, Bronze, owned the land, but Bronze did not itself carry on the business.  Another subsidiary owned the vehicles used in the business. Lord Denning's judgment attracted wide-ranging criticism.  In a subsequent decision of the House of Lords, Woolfson v Strathclyde Regional Council, Lord Keith expressed ‘some doubts’ whether Lord Denning had in the DHN case ‘properly applied the principle that it is appropriate to pierce the corporate veil only where special circumstances exist  indicating that it is a mere façade concealing the true facts.’ The grounds of the decision in DHN were that DHN was controlling the subsidiaries in every respect and it was hence proper to treat the group as a single economic entity; that DNH had by implication a licence to occupy the property and thus a sufficient interest to be compensated for; and that Bronze held the legal title to the property in trust for DHN entitling the latter to compensation. The main criticism against Lord Denning is his apparent willingness to pierce the veil simply because the group of companies constituted a single enterprise. In Pioneer Concrete Services Ltd v Yelnah Pty Ltd & Ors  Young J said of the DHN case that ‘it gives the impression that it is one of those “too hard” cases in which judges have for policy reasons justified the lifting of the corporate veil in that particular case rather than a case which lays down any great new principle.’ He further limited its scope, ‘and it is only if the court can see that there is in fact or in law a partnership between companies in a group, or alternatively where there is  a mere sham or façade that one lifts the veil. The principle does not apply in the instant case where it would appear that there was a good commercial purpose for having separate companies in the group performing different functions even though the ultimate controllers would very naturally lapse into speaking of the group as “us”.’ More recently, the Court of Appeal in England stated that to simply look at an economic unit and then make shareholders liable where the company cannot pay ‘is radically at odds with the whole concept of corporate personality’. In the same case the doubts about the correctness of DHN were repeated. This approach was endorsed by the Appellate Division, albeit indirectly, in The Shipping Corporation of India Ltd v Evdomon Corporation and Another: 
‘[I]t is of cardinal importance to keep distinct the property rights of a company and those of its shareholders, even where the latter is a single entity, and that the only permissible deviation from this rule known to our law occurs in those… rare cases where the circumstances justify “piercing” or “lifting” the corporate veil. … I do not find it necessary to consider, attempt or define, the circumstances under which the Court will pierce the corporate veil. Suffice it to say that they would generally have to include an element of fraud or other improper conduct in the establishment or use of the company or the conduct of its affairs. In this connection the words “device”, ‘stratagem”, “cloak” and “sham” have been used …’
Gower and Davies’ Principles of Modern Company Law in their most recent edition state that ‘there is no general principle that all companies in a group of companies are to be regarded as one; on the contrary, the fundamental principle is unquestionably that “each company in a group of companies ... is a separate legal entity possessed of separate rights and liabilities”‘. 
LAWSA is no different: 
‘47.	Group enterprises The courts have insisted (albeit somewhat reluctantly) upon the separate identities of companies within groups.  There is, however, authority for treating as a single company a group of companies that in fact forms a single economic unit.  It has been said that there is a general tendency, evidenced by the statutory requirement for group accounts, more readily to ignore the separate legal entities of companies within a group, especially in the case of wholly owned subsidiaries; and that where 'a group is in truth the party interested and injured, the law should not be too astute not to recognize the realities of the position'.  But the better view is that the statutory requirement for group accounts is not evidence of any such general tendency; and, except where the wording or purpose of a particular statute or contract justifies the treatment of parent and subsidiary as one unit or undertaking, the mere fact that a group of companies constitutes a single economic unit (even where it consists of a holding company and wholly owned subsidiaries) does not in itself justify the treatment of the group as a single company.  The position is of course otherwise where a subsidiary is a mere facade or sham’ (my emphasis).
[36]	With regard to the ‘general principle’ that ‘courts will pierce the corporate veil where the interests of justice require it’, the law is in fact the contrary.  As was stated by the Court of Appeal in Adams and Others v Cape Industries plc and Another: ‘The relevant parts of the judgments in [DHN] must, we think, likewise be regarded as decisions on the relevant statutory provisions for compensation, even though these parts were somewhat broadly expressed …’ With regard to the argument that ‘where legal technicalities would produce injustice involving members of a group of companies, such technicalities should not be allowed to prevail’ Slade LJ expressed the following: 
‘[S]ave in cases which turn on the wording of particular statutes or contracts, the court is not free to disregard the principle of Salomon v A Salomon & Co Ltd [1897] AC 22 merely because it considers that justice so requires. Our law, for better or for worse, recognizes the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to such separate legal entities.’
[37]	In Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd and Others  the court considered the variety of circumstances in which courts might pierce the corporate veil and concluded: 
‘Whatever the position, it is probably fair to say that a court has no general discretion simply to disregard a company's separate legal personality whenever it considers it just to do so.’ 
and: 
‘First, reference is made to “those (in practice) rare cases where the circumstances justify “piercing” or “lifting” the corporate veil. It is undoubtedly a salutary principle that our Courts should not lightly disregard a company’s separate personality, but should strive to give effect to and uphold it. To do otherwise would negate or undermine the policy and principles that underpin the concept of separate corporate personality and the legal consequences that attach to it. But where fraud, dishonesty or other improper conduct … is found to be present, other considerations will come into play. The need to preserve the separate corporate identity would in such circumstances have to be balanced against policy considerations which arise in favour of piercing the corporate veil …’
[38]	As is revealed by annexure ‘K1’ to the Answering Memorandum of MAK and Kharafi, Kharafi is not a shareholder, directly or indirectly, in MAK.  It is trite that when a court pierces the corporate veil it treats the assets and liabilities of the company as assets and liabilities of the shareholder. 
[39]	Since Kharafi is not a shareholder in MAK it cannot claim to have acquired the assets of MAK.  That proposition is foundational to any argument based on piercing the corporate veil. The matter goes further: the Liquidators referred to a Kharafi subsidiary, Kharafi Holdings (Pty) Ltd liquidating one of its subsidiaries, Makhosi Projects (Pty) Ltd, leaving the latter's creditors looking to the proceeds on liquidation.  That conduct is inconsistent with the argument that Kharafi companies regard the assets and liabilities of subsidiaries as their own. Perhaps most fundamentally, MAK and Kharafi were unable to explain why, if it is so that the assets and liabilities of subsidiary companies are to be treated as assets and liabilities of the holding company, they entered into the deed of cession at all. On the contrary, they treated the two companies as distinct entities and entered into a formal deed of cession.  That conduct is entirely inconsistent with the argument advanced.
[40]	On behalf of the applicants it was submitted that Kharafi, MAK and Protech exhibited considerable confusion in their dealings with each other in Botswana concerning whether the party with whom Protech was dealing  was MAK or Kharafi. Counsel for the applicants referred to the judgment of the Court of Appeal for Botswana dismissing the applicants application against St Paul Insurance Company SA Limited in which they sought to call up a performance bond issued by St Paul, ostensibly to Kharafi, for the due performance by Protech of its obligations under the Botswana sub-contract. The two applicants in this application were the two applicants in the Botswana proceeding. The Liquidators were respondents in the Botswana proceedings, along with St Paul, the issuer of the performance bond. The applicants submitted that the judgment is binding on the parties in this matter particularly the finding that Kharafi was the ‘contractor’ in terms of the ‘main contract’ (not MAK) and Kharafi entered into the subcontract with Protech as subcontractor.
The applicants analyse certain documents to conclude that that Kharafi was the main contractor who contracted with both the Botswana Government and Protech. In particular the performance bond that defines ‘M A Kharafi and Sons’ as the contractor and as the entity that contracted with Protech as subcontractor. The applicants contended that this finding is res judicata and binding on the parties and that the matter should be dealt with on the basis that the party that contracted with the Botswana Government and with Protech was Kharafi and not MAK. On this basis the applicants contended that, because Kharafi contracted with Protech, ‘the inference is that the parties routinely ‘set-off’ amounts owing by Kharafi to Protech against amounts owing by Protech to MAK.’
[41]	There is no evidence to support this contention. Moreover, this argument was not advanced before the Master, and could not have been, since the judgment of the Court of Appeal for Botswana was delivered subsequent to the Master’s decision. In addition, this application is based not on the allegation that Kharafi was the contractor but indeed that it was MAK. That was the basis of the proceedings before the Master and in this court. The applicants have not seen fit to amend their pleadings despite the judgment having been delivered on 26 July 2007. It is not entirely clear what the argument is directed at, apparently at both the single economic unit and the ‘confusion’ submissions. But even if I am free to consider and the applicants to raise this contention it seems to me that there is no basis to uphold it. The exceptio rei iudicatae is competent where the judgment pleaded is a final and definitive decision resolving the dispute (lis) between the parties. It presupposes a final and definitive judgment and order on the merits in litigation between the same parties where the cause of action is the same or the same thing may have been claimed (idem actor, idem reus, eadem res and eadem causa petendi). In Custom Credit Corporation (Pty) Ltd v Shembe it was said that 
‘if a cause of action has been finally litigated between the parties, then a subsequent attempt by one to proceed against the other on the same cause for the same relief can be met by an exceptio rei iudicatae.’
[42]	However, the requirement that the same thing must be demanded has been decided in Kommissaris van Binnelandse Inkomste v ABSA Bank Bpk not to be immutable. No view was expressed on whether the English law doctrine of issue estoppel formed part of South African law. The court, after reviewing the developments in South African law, said that 
‘die streng gemeenregtelike vereistes vir ‘n verweer van res iudicata (in die besonder: eadem res en eadem petendi causa) nie in alle omstandighede letterlik verstaan moet word en as onwrikbare reëls toegepas moet word nie, maar dat daar ruimte is vir aanpassing en uitbreiding, aan die hand van die onderliggende vereiste van eadem quaestio en die ratio van die verweer.’ 
The court continued
‘Die gemeenregtelike vereistes vir ‘n verweer van res judicata was streng omskryf, juis om onreg te voorkom … Billikheidsoorwegings is ook van deurslaggewende belang by die aanwending van geskilpunt-estoppel in die Engelse regspraak … Gevolglik moet die moontlikheid om die beginsels van res iudicata tot enige bepaalde geval van geskilpunt-estoppel uit te brei, met groot omsigtigheid behandel word.’
However, it is clear that both res iudicata and issue estoppel require for their operation that the same issue should have been adjudicated upon. 
[43]	To determine whether a matter is res iudicata the judgment, order and pleadings must be examined to determine whether a final decision has been made. It is only when the same issue has been decided that it can be said that the matter is res iudicata. An ‘issue’ can only be said to have been finally and definitively determined when it has been fully canvassed by both parties in the expectation of the court pronouncing upon it. The issue in the Botswana proceedings was whether the performance bond was a demand bond, not which party was entitled to call it up. 
[44]	The applicants contend that they were not given the opportunity to present oral argument to the Master and that this ruling conflicts with their rights under s 3(2) of the Promotion of Administrative Justice Act 3 of 2000. I have not been persuaded that s 3(2) entitles a party to an oral hearing or that the applicants were not afforded adequate opportunity to present and advance their contentions in writing to the Master. In fact, they had ample and fair opportunity to do so both in the proceedings before the Master and in this court.
[45]	The Liquidators have urged me to make a special costs award. I have considered the submissions made but do not consider a special order appropriate.
The application is dismissed with costs including the costs of two counsel.

Malan J
Judge of the High Court
Counsel for applicants: PN Levenberg SC and HJ Smith
Applicants’ attorneys: Werksmans Inc
Counsel for respondents: LS Kuschke SC and JC Butler
Respondents’ attorneys: Cuzen Randaree
Date or hearing: 9-11 June 2008
Date of judgment: 27 August 2008