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REPUBLIC OF SOUTH AFRICA

 

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

 

CASE NO: 19015/2015

 

REPORTABLE: YES

OF INYEREST TO OTHER JUDGES: YES

REVISED.

19/08/2018

 

In the matter between -

 

ABSA BANK LIMITED                                                                         Applicant

 

and

 

HEIDI VAN DER MERWE                                                                   Respondent

 

 

JUDGMENT

 

 

STRYDOM AJ

 

[1]          This is an application for the provisional sequestration of the respondent. The respondent filed a counter-application for the following relief:

 

[1.1]  That it be declared that clause 5 bis of a settlement agreement entered into between the applicant and the respondent dated 7 June 2014, be declared null and void, alternative unenforceable as between the parties;

 

[1.2] That it be declared that payment made by the respondent to the applicant in an amount of R120 000 on 26 September 2014 be a payment made in terms of section 126 of the National Credit Act 3 of 2005;

 

[1.3] Cumulatively with the aforesaid, alternatively, in the alternative thereto:

 

1.3.1 that it be declared that the loan agreement entered into between the parties is reckless as contemplated in terms of section 80 read with section 83 of the Act;

 

alternatively

 

1.3.2 that the respondent is declared to be over-indebted in terms of the provisions of the Act;

 

1.3.3 that the credit agreement between the parties be suspended in terms of the provisions of section 83 of the Act.

 

[2]          The parties filed further affidavits beyond the usual set of affidavits. This was occasioned by a counterclaim and new facts alleged. At the hearing of the matter the court ruled that the further affidavits filed, which to a large extend dealt with the counter-application, would be received as evidence in this matter.

 

[3]          In what follows I will provide a short summary of the common cause facts in this matter.

 

[4]          During or about 2006, the respondent purchased and became the owner of an immovable property described as Portion 19 of the Farm Cyferfontein No. 35 ("the property").

 

[5]          The respondent farmed on the property to realise profit. To finance her farming activities respondent entered into loan agreements with an entity known as Statusfin. At some stage respondent needed further financing and undertook to consolidate her indebtedness. She then applied for a loan from the applicant. She wished to increase her sheep numbers to mitigate the cash crop risks by farming with livestock. The applicant thereafter took steps to evaluate the respondent's financial position which culminated in a so called Agri-report recommending the loan applied for after a risk assessment was conducted.

 

[6]          The applicant and the respondent concluded a loan agreement whereby the applicant advanced a loan of R1 million to the respondent repayable in instalments over a period of 240 months.

 

[7]          The respondent caused to be registered in favour of the applicant a first mortgage bond over the property.

 

[8]          During October 2013 to February 2014, the farming activities suffered a setback as a result of a crop failure placing respondent under financial pressure. As a consequence the respondent's defaulted in paying her instalments to the applicant.

 

[9]        The applicant issued a summons against the respondent seeking orders for the repayment of the debt and to declare the property executable.

 

[10       During or about June 2014, the applicant and the respondent reached a settlement and the respondent signed a written settlement agreement in terms of which the repayments were restructure. It was specifically stated that this agreement was not a novation of the original cause of action. As part of the agreement the respondent also signed a power of attorney in accordance with clause 5 of the settlement agreement, granting applicant permission, as the respondent's agent, to sell the property by way of public auction in the event of default.

 

[11]      By September 2014 the respondent did not pay the instalments as per the settlement agreement as a result whereof the applicant proceeded to arrange an auction of the property. The respondent however withdrew the power of attorney which was provided in terms of the settlement agreement.

 

[12]      On 29 September 2014 the respondent's attorneys sent an email to the applicant's attorneys stating that the respondent made a payment of R120 000 to the applicant and that she was in the process of making arrangements for payment of the balance of the arrears by 30 September 2014. Negotiations followed and the withdrawal of the power of attorney was revoked.

 

[13]       The respondent again failed to make payment to the applicant and the applicant appointed auctioneers to sell the property by way of public auction arranged for 10 February 2015. The power of attorney was then finally withdrawn and the applicant decided to apply for the provisional sequestration of the respondent.

 

[14]       At this stage the respondent was substantially in arrears of the loan agreement and the applicant called up the respondent's credit facility. This application was then filed by the applicant.

 

[15]       This sequestration application was met with a counter-application in the terms set out hereinabove.

 

[16]   In the respondent's opposing affidavit she raised various points in limine as part of her opposition to the application. Before this Court, the respondent only persisted with two of these points, to wit, an authority challenge and a lis alibi pendens point.

 

[17]       I will deal with these points before dealing with the merits of the applications.

 

Authority

 

[18]       On behalf of the respondent it was argued that the applicant failed to make out a case that the persons acting on its behalf were properly authorised to institute the proceedings.

 

[19]       In the applicant's founding affidavit, the deponent alleges that she is "duly authorised to depose to this affidavit on the applicant's behalf'. Apart from this statement, the applicant did not attach a resolution to the founding papers indicating that applicant authorised a person to instruct an attorney to institute the proceedings. The applicant's attorney signed the notice of motion.

 

[20]  It was further argued that where motion proceedings are brought in the name of a legal person, such as the applicant, evidence must be placed before the court that the applicant has duly resolved to institute the proceedings and that the proceedings are instituted at its instance. For this proposition, the respondent relied on the matter of Mall (Cape) (Pty) Ltd v Marino Ko-operasie Bpk 1957 (2) SA 347 (C) at 351H.

 

[21]      On behalf of the applicant, it was contended that the respondent should have followed the procedure set out in Uniform Rule 7 if she wanted to place authority to institute the proceedings in issue.

 

[22]      It was argued on behalf of the respondent that a distinction should be drawn between (a) the authority of a person within a legal entity to act on behalf of such legal entity to institute legal proceedings. It was argued that this would normally be provided by way of company resolution stating the decision to institute legal proceedings against a third party and/or parties and authorising a person to act on behalf of the legal entity ; (b) the authority of an attorney to act on behalf of a client, which is a legal entity. This would normally be provided by way of a power of attorney signed by a person authorised as envisaged in paragraph (a) above or by way of a signed resolution in which the attorney is directly authorised by the legal entity in its resolution to institute legal proceedings; and (c) the authority of a deponent to depose to an affidavit and to place evidence before court on behalf of the legal entity.

 

[23]      It was argued on behalf of the respondent, and accepted by the applicant, that as far as the authority described in (c) above was concerned, the allegation of the deponent, Ophelia Theron, contained ih the founding affidavit that she was duly authorised to depose to the affidavit would be sufficient to establish authority that she may place evidence on behalf of the applicant before court. It was in fact correctly conceded that the witness need not to be authorised at all. See: Ganes and Another v Telecom Namibia Ltd 2004 (3) SA 615 SCA at para [19] where it was found as follows: "The deponent to an affidavit in motion proceedings need not be authorised by the party concerned. to depose to the affidavit. It is the institution of the proceedings and the prosecution thereof that must be authorised."

 

[24]      With reference to Rule 7(1) of the Rules of this Court, it was argued on behalf of respondent that the rule only deals with the authority in (b) above, i.e. the power of attorney, provided to an attorney, to act on behalf of the applicant. It was further argued that as far as the authority envisaged in (a) is concerned, i.e. the authority to institute proceedings by the applicant, had to be dealt with in the affidavits. Therefore the applicant was obliged to attach a company resolution to the founding affidavit or at least to its replying affidavit after the authority was challenged in the respondent's answering affidavit. Apart from relying on the Mall decision, the respondent also relied on South African Allied Workers' Union v De Klerk NO 1990 (3) SA 425 E at 435 1-J and 4360 - 437C. In this matter, it was also contended that the Rule 7(1) procedure had to be followed before a challenge is made pertaining to the authority to institute the proceedings. The Court found in this matter that the question of disputed authority, like any other disputed allegation in a founding affidavit, is intended to be dealt with in the opposing affidavit. The Court then found at 436H - 437B as follows:

 

"I am of the view that rule 7(1) was no bar to Hooper to challenge the authority of Dikomolo to institute the proceedings in this court."

 

[25]       The applicant argued that there is no merit in this contention and if the authority of the attorney acting on behalf of the applicant or of anyone acting on behalf of the applicant to institute legal proceedings is disputed this challenge should have been made by notice provided in Rule 7(1). The rule provides that once such notice is delivered then the person may no longer act unless he satisfied the court this he is so authorised to act. This would not only entail the provision of a power of attorney provided by the applicant but also by providing the resolution indicating the authority to a person within the applicant to instruct the attorney to institute the legal proceedings. For this proposition the applicant relied on the full court decision in ANG Umvoti Council Caucus v Umvoti Municipality 201O (3) SA 31 (KZP).

 

[26]       In this decision, the Full Court in Kwa-Zula Natal pointed out that the Mall decision is no longer authority for the proposition that Rule 7(1) cannot be used in a case where the authority to institute the proceedings are challenged, as this judgment was delivered before the amendment of Rule 7(1) in its present form. The Court further pointed out that the decision in South African Allied Workers Union, is distinguishable as ii deals with a case involving multiple applicants where one of them represent the others. In this case it was required that confirmatory affidavits by those applicants on whose behalf the applicant acted was necessary to associate themselves with the deponent of the founding affidavit.

 

[27]       With reliance on the decisions in Ganes v Telekom Namibia Ltd 2004 (3) SA 614 (SCA); Eskom v Soweto City Council 1992 (2) SA 703 (W) at 705C-J and Unlawful Occupiers, School Site v City of Johannesburg 2005 (4) SA 199 (SCA) the Court in ANG v Umvoti Council then found as follows at paragraph 27:

 

"Whether or not the litigation has been properly authorised by the artificial person named as the litigant should not be dealt with by means of evidence led in the application. If clarity is required, it should be obtained by means of rule 7(1), since this is a procedure which safeguards the interests of both parties."

 

[28]   And further, in paragraph 28:

 

"It is further my view that the application papers are not the correct context in which to determine whether an applicant which is an artificial person has authorised the initiation of application proceedings. Rule 7(1) must be used."

 

[29]   And further in paragraph 29:

 

"There was no challenge in terms of rule 7(1) in the application which is the subject of this appeal. The appropriate procedure was therefore not used by the appellants. It was accordingly not necessary for the applicant to prove the authority to initiate the application, nor appropriate to attempt to do so in the papers."

 

[30]       It is clear that the court in ANG v Umvoti found that a challenge against the authority to institute legal proceedings by a legal entity should also be challenged by way of Rule 7(1).

 

[31]       This was also the finding in Eskom v Soweto City Council, supra, in the WLD where Flemming DJP found as follows at page 705 H:

 

"As to when and how the attorney's authority should be proved, the Rule-maker made a policy decision. Perhaps the risk is minimal that an attorney will act for a person without authority to do so, proof is dispensed with except only if the other party challenges the authority. See Rule 7(1). Courts should honour that approach. Properly applied, that should lead to the elimination of many pages of resolutions. delegations and substitutions still attached to applications by some litigants, especially financial institutions." (my underlining)

 

(32)           I followed the decision of ANC v Umvoti in the matter of Wide Open Platform v Municipality of Johannesburg, an unreported judgment under case number 201118896 delivered on 3 June 2013 in the South Gauteng High Court, Johannesburg. I found that, if the authority of a legal entity is challenged to institute legal proceeding then rule 7(1) must be invoked. I am of the view that the respondent should have followed this route and her challenge aimed at the authority of applicant to institute the application for her sequestration misplaced.

 

(33)           Moreover, ii is my view that if Rule 7(1) [1] is read with Rule 7(4)[2] then there can be no doubt that this Rule not only covers the authority of an attorney to institute legal proceedings but also the authority of a person, within a legal entity, acting on behalf of a legal entity to institute legal proceedings.

 

(34)           The reference to "anyone acting on behalf of a party" in Rule 7(1) is already an indication that it is not only a reference to an attorney acting on behalf of a party but also a reference to a person within the legal entity acting on its behalf. If clause 7(1) is then read with clause 7(4), it becomes clear that the authority referred to in these rules, also relate to the authority to institute legal proceedings. In my view this is the position as when an attorney, after he received a notice in terms of Rule 7(1), file its power of attorney it is required that this power of attorney should be signed by or on behalf of the party giving it. The legal entity cannot sign itself but some person will have to sign it on its behalf. Rule 7(4) then provides that where a power of attorney is signed on behalf of the party giving it, proof of authority to sign on behalf of such a party shall be produced to the Registrar, who shall note that fact on the said power. What is envisaged is therefore (1) that the power of attorney must be signed by or on behalf of the party giving ii. If it is not a natural person giving the authority on his or her behalf it will be, in the case of a legal entity, a natural person within the legal entity. The rule then requires that this person who signed the power of attorney must deliver proof of authority to sign on behalf of such party. This proof must be produced to the Registrar. I read this to mean that if a person within a legal entity signs a power of attorney on behalf of the entity in terms of which the legal entity instructs an attorney to institute legal proceedings, the person that signed such document must produce to the Registrar its authority to sign on behalf of the party wishing to institute legal proceedings.

 

[35]   This proof of authority in the case of a legal entity will be by way of a resolution authorising a person within the legal entity to institute legal proceedings against a respondent. Accordingly, I am of the view that the procedure prescribed in Rule 7 should have been followed and that there is no need for this court to deal with the contested authority. This point in limine should be dismissed.

 

The lis alibi pendens

 

[36]       It was argued on behalf of the respondent that the applicant could not institute proceedings for the sequestration of the respondent as there is pending litigation, by way of an action, in which the applicant is seeking a monetary judgment pursuant to the terms of the loan agreement and for a declaration of executability of the immovable property.

 

[37]       The respondent's counsel referred me to the requisites for a plea of lis alibi pendens to be successfully raised. The requisites are (a) pending litigation; (b) between the same parties or their privies; (c) based on the same cause of action (the requirement of the same cause of action is satisfied if the other proceedings involve the determination of a question that is necessary for the determination of the case in which the plea is raised and substantially determinative of the outcome of the latter case); and (d) in respect of the same subject matter. This does not mean that the form of relief claimed in both proceedings must be identical.

 

[38]       It is not in dispute that there are pending litigation between the same parties with reference to the action which was instituted by the applicant. The action proceedings are not based on the same cause of action as the sequestration proceedings, the subject matter of this application. In the action, the applicant is endeavouring to enforce a right against the respondent and for that purpose have to prove a contract, its breach and its entitlement to claim a specific amount of money from respondent. A sequestration application is sanctioned by the Insolvency Act. This act prescribes the requirements which must be met before such order shall be made. Apart from showing that the respondent is indebted to the applicant in a prescribed minimum amount the other requirements are totally different from the cause of action in the action proceedings. For instance the applicant must prove a deed of insolvency or actual insolvency. This is totally different from what must be proven in the action. This is because an application for sequestration is not an application for an order for a debt due by the debtor to the creditor. Sequestration proceedings are instituted by a creditor against a debtor not for the purpose of claiming something from the latter, but for the purpose of setting the machinery of law in motion to have the debtor declared insolvent. In this regard see Hassan v Berrange NO 2012 (6) SA 329 (SCA) at para 19:

“An order of sequestration is not an ordinary judgment of the court, but is rather a species of arrest or execution, affecting not only the rights of the two litigants but also third parties, and involves the distribution of the insolvent's property to various creditors, while restricting those creditors' remedies and opposing disability on the insolvent. (Ex parte BZ and Stegmann)."

 

[39]       Consequently the plea of fis alibi pendens is dismissed on the basis that the action that was instituted and the sequestration proceedings are not based on the same cause of action.

 

Requirements for a provisional sequestration order

 

[40]       Section 10 of the Insolvency Act 24 of 1926 (the Insolvency Act) provides:

 

"If the court to which the petition for the sequestration of the estate of a debtor has been presented is of the opinion that prima facie -

(a)       the petitioning creditor has established against the debtor a claim such as is mentioned in subsection (1) of section 9; and

(b)       the debtor has committed an act of insolvency or is insolvent; and

(c)       there is reason to believe that it will be to the advantage of creditors of the debtor if his estate is sequestrated;

it may make an order sequestrating the estate of the debtor provisionally."

 

[41]       The applicant has to establish the aforementioned requirements on a prima facie basis.

 

[42]       It has been proven on a preponderance of probabilities that the applicant has a liquidated claim against the respondent. A liquidated claim means simply a claim of which the amount has been determined either by agreement, or which is capable of speedy and prompt ascertainment. All that is required of the applicant is to show that the debt owing to it exceeds R100 and it is not necessary for sequestration purposes to decide the exact amount of the debt.

 

[43]       The respondent admitted the conclusion of the loan agreement, its terms and that a mortgage bond was registered over the property and that the applicant advanced the funds to her. The respondent admitted that she breached the loan agreement in failing to pay the instalments as required. The respondent noted the certificate of balance certifying her indebtedness in the sum of R1 052 996,98 together with interest thereon. By noting this certificate of balance, the respondent has for purposes of this application admitted same. The certificate of balance constitutes prima facie evidence of the debt.

 

[44]       The applicant has shown that it has a liquid claim against respondent as required in section 9(1) of the Insolvency Act.

 

[45]       The applicant also had to establish on a prima facie basis that there is reason to believe that it will be to the advantage of creditors of the debtor if her estate is sequestrated. "Reason to believe that it will be to the advantage to creditors" has been interpreted to have a wide meaning in involuntary sequestration proceedings but there is no need for this court to enter the debate how this requirement should be interpreted as the immovable property against which the mortgage bond was registered was, according to the evidence valued at R 2 400 000 during 2014. Although the applicant is not aware of the other debts of the respondent, there is on a prima facie basis sufficient evidence to conclude that it would be to the advantage of creditors if the respondent is sequestrated.

 

[46]       What remains now is to establish whether the respondent has committed an act of insolvency or that she is factually insolvent.

 

[47]       On the respondent's own version she committed acts of insolvency and admitted that she could not pay her debts to the applicant when these debts became due. The respondent admitted that she sent correspondence to the applicant endeavouring to rectify the arrears by paying reduced instalments of R5 000 and/or R10 000 which were not even sufficient to satisfy the accruing interest. The respondent admitted that she signed the agreement of settlement and failed to pay in terms thereof.

 

[48]       Section S(g) of the Insolvency Act provides:

 

''.A debtor commits an act of insolvency if he gives notice in writing to any one of his creditors that he is unable to pay any of his debts".

 

[49]      The principles applicable in section 8(g) are: (i) to determine whether a letter constitutes an act of insolvency is to determine how it is understood by a reasonable person in the position of the creditor receiving the letter. (ii) such letter must stand or fall as an act of insolvency on its own terms and cannot be subjected to an interpretation by reference to events which occurred subsequent to its writing; (iii) the notice or letter need not relate to all the debtor's liabilities but need only relate to an inability to pay any single one or more of the debtor's debts and the intention with which such letter is written is irrelevant; (iv) the willingness of a debtor to attempt to pay her debts in future is irrelevant and if the reasonable reader will draw the inference that a debtor is unable to pay her debts and not merely unwilling to do so, the letter will constitute an act of insolvency in terms of section 8(9).[3]

 

[50]                   The respondent has committed various acts of insolvency in terms of section 8(g) by intimating, inter alia, that she is unable to pay the arrears and consequently sought to pay arrears by ever reducing instalments which were not even able to cover the interest accruing. In addition, she also alleges that she is over-indebted. This she stated in her email of 2 June 2014. In this email she stated that she will pay the arrears in instalments of R5 000 per month and further confirmed that she will pay more as soon as she could afford to pay the arrears. The mere fact that the applicant instituted a counterclaim stating that when the loan was granted to her she was over­ indebted is indicative of the fact that she informed her creditor, the applicant, that she is unable to pay her debts.

 

[51]       The conclusion is inevitable that the respondent committed acts of insolvency and that the requirements for a provisional sequestration order has been met.

 

[52]       It is not necessary for this court to deal with the factual insolvency of the respondent. Section 9 and 12 of the Insolvency Act provide that a debtor may be provisionally or finally sequestrated on the basis of either an act of insolvency or factual insolvency.

 

[53]       On behalf of respondent it was argued that despite the requirements being met for a provisional sequestration order the court must exercise its discretion not to order sequestration. Where the conditions prescribed for the grant of a provisional order of sequestration are satisfied, then, in the absence of some special circumstances, the court should ordinarily grant the order. It is for the respondent to establish the special or unusual circumstances that warrant the exercise of the court's discretion in his or her favour.[4]

 

[54]       It was argued that the fact that respondent was never afforded the opportunity to enter into debt-rearrangement proceedings constitute special circumstances. I cannot agree. First, it was for the respondent to initiate debt­ rearrangement. She did not. She instead entered into settlement agreements re-arranging repayment schedules. She failed to make the payments she agreed too and when the applicant wanted to sell her immovable property she on two occasions caused the power of attorney to be withdrawn. Second, a debt re-arrangement order is not a bar to a sequestration order. Third, after certain lump sums were paid she all together stopped payments to the applicant and her debt is on the increase.[5] Fifth, it is the respondent's own case that she is over-indebted. She advances this as part of her counterclaim but on the other hand she wants to avoid sequestration.

 

[55]       This court is not inclined to exercise its discretion in favour of the respondent not to order provisional sequestration. The court is satisfied that the applicant has proven on a preponderance of probabilities that the respondent should be provisionally sequestrated.

 

Counterclaim

 

[56]       All the prayers in the counterclaim were not fully argued before me but I will briefly deal with all the prayers.

 

[57]       Prayer 1 relates to clause 5 bis of the Agreement of Settlement which allegedly is null and void, alternatively, unenforceable. The respondent withdrew the power of attorney which would have entitled applicant to sell the immoveable property on behalf of respondent. Accordingly, the relief sought became moot. Respondent is not entitled to this relief.

 

[58]       In prayer 2 the respondent seeks an order that the payment of R120 000 on 26 September 2015, be declared to be "a payment made in terms of Section 126 of the National Credit Act, No 34 of 2005". The respondent failed to prove that this payment was in fact paid. She admits this. Further section 126 of the NCA pertains to pre-payments and not to arrear payments made. The respondent failed to make out a case for the relief sought in prayer 2.

 

[59]       In prayer 3 the respondent seeks an order that the Loan Agreement be declared reckless, that she be found to be over-indebted and consequently that the Loan Agreement be suspended in terms of the provisions of Section 83 of the NCA.

 

[60]       The loan was made to respondent at her request to consolidate her existing debt and to provide her finance to continue with her farming activities to make money, which would have been additional income to her lncome earned from being employed. She had immovable property to secure her loan. The applicant conducted a full assessment of her credit worthiness and her prospective ability to repay the loan. The loan was not merely advanced on strength of her salary but also after a cash flow projection was made taking into consideration the potential income from her farming activities. The loan only added a further approximate R300 000 to her total debt exposure as existing debt was paid off. The respondent failed to place any evidence before court indicating what her income out of farming activities was or what her projections were when the loan was applied for. I am of the view that the applicant did not provide credit recklessly as contemplated in sections 80 and 81 of the NCA.

 

[61]       It was not the loan which made the respondent over-indebted but rather crop failures during the planting season of 2013/2014. When limited income was derived from farming activities she became over-indebted.

 

respondent's sequestrated estate.

 

 

Date of hearing: 31 July 2018

 

Date of Judgment: August 2018

 

For the Applicant: Adv L Meintjies

 

For the Respondent: Adv S Kroeze

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