Du Plessis and Another NNO v Rolfes Ltd

• Jurisdiction: South Africa
• Judge: Zulman AJA, Botha JA, Hefer JA, Nestadt JA, Harms JA
• Judgment Date: 29 March 1996
• Citation: 1997 (2) SA 354 (A)
• Docket Number: 500/94
• Hearing Date: 05 March 1996
• Counsel: P A Solomon (with him A Subel) for the appellants R C Van Deventer (with him LJ Van Der Merwe) for the respondents
• Court: Appellate Division

Zulman AJA:

The appellants, to whom I will hereafter refer as 'the J

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liquidators', are the joint liquidators of R McCarthy (Pty) Ltd ('McCarthy'). On 17 A June 1988 McCarthy entered into a written contract ('the main contract') with the City Council of Johannesburg ('the City Council'). In terms of the main contract McCarthy undertook to refurbish and extend the Johannesburg Civic Theatre. Clause 15 of the main contract deals with the employment of nominated subcontractors for the B execution of specialist work and includes a provision for the conclusion of subcontracts between McCarthy and each subcontractor upon specific terms.

In a letter dated 2 November 1990 the respondent, to whom I will hereinafter refer as 'Rolfes' (being a member of a consortium), was nominated by the City Council as a C subcontractor to execute a substantial portion of the contract work. Pursuant thereto two contracts were concluded between McCarthy and Rolfes ('the subcontracts') - one for the upper and the other for the lower mechanical stage installation at the theatre.

Rolfes thereafter executed certain work pursuant to the subcontracts. On 17 D November 1992 a certificate of practical completion was issued by the City Council's engineer for the lower mechanical stage installation, recording that same had been handed over to the City Council on 8 November 1992 and that the guarantee and maintenance periods under the subcontract had commenced on 3 September 1992.

On 6 May 1993 McCarthy was provisionally wound up by an order of Court and the E liquidators were appointed joint provisional liquidators.

As at the date of McCarthy's provisional winding-up, the final testing and commissioning of the installations, as well as certain uncompleted work, maintenance and repairs were still outstanding. Retention moneys under the two subcontracts F amounting to R885 708,69 were not yet due to either McCarthy or Rolfes and architect's certificates amounting to R605 985,21 had not been paid out by McCarthy to Rolfes, notwithstanding the fact that McCarthy had already received that money from the City Council.

On 11 November 1993 Rolfes, having failed to obtain payment from the liquidators of the said sum of R605 985,21, brought an application in the Witwatersrand Local G Division claiming, inter alia, a declaratory order that the liquidators had elected to proceed with the subcontracts and for an order directing the liquidators to pay Rolfes the said sum of R605 985,21. The application was opposed by the liquidators who filed detailed answering affidavits. These were replied to by Rolfes. H

On 30 March 1994 the Court a quo (Duke AJ) made an order in favour of Rolfes, declaring that the liquidators had elected to proceed with the subcontracts and directing the liquidators to pay Rolfes the said sum of R605 985,21, as also various amounts of interest and costs, including costs of senior and junior counsel in the application. I

Although there is no order or judgment in the record before this Court of the Court a quo specifically granting leave to appeal, it was common cause that such leave had indeed been granted.

On 11 September 1994 Rolfes gave notice of a cross-appeal and thereafter on 20 September 1994 filed a 'Supplementary Notice of Cross-Appeal'. However, at the outset of the proceedings before this J

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Court, it was conceded by counsel for Rolfes that the cross-appeal could not be A proceeded with since no leave to cross-appeal had been sought.

The essential issue in the appeal before this Court is whether the finding of the Court a quo that the liquidators had elected to carry on with the subcontracts concluded between McCarthy and Rolfes was correct. If indeed there had been an election, the B necessary consequence thereof would be to render the claims which Rolfes has against the liquidators, costs of administration. These claims would, subject to available funds, be payable in full and Rolfes would not be merely a concurrent creditor in respect thereof.

It is Rolfes's case that such an election took place either on 2 July 1993 or was a C necessary consequence of an admitted election by the liquidators made in August 1993 to carry on with the main contract with the City Council. It will be convenient to describe the first election contended for as 'the direct election' and to describe the second election as 'the indirect election'. D

As regards the direct election, it was submitted by Rolfes, both in the Court a quo and in this Court, that such an election was evidenced by the conduct of the liquidators in writing a letter dated 2 July 1993 and upon certain correspondence which preceded this letter. It therefore becomes necessary to examine this correspondence in some detail.

In a letter dated 7 June 1993 the liquidators, represented by one Bryden, advised all E creditors of McCarthy, including Rolfes, of their appointment as provisional liquidators and the need for the provisional liquidators to decide whether or not to call for completion of a number of executory contracts that McCarthy had entered into. The letter recorded, inter alia, that since their appointment the liquidators had been 'gathering information' on contracts entered into by McCarthy 'with the view to F making decisions on whether to complete certain or all of the contracts'. The letter furthermore pointed out that 'not all of the required information has come to hand as at the date hereof and as a result no binding decisions have been made with regard to these contracts. It is expected that final decisions will be made in the next plus minus G ten (10) days'. The letter was replied to by Rolfes in a letter dated 21 June 1993. In its letter, Rolfes referred to the fact that it was involved as nominated subcontractors with McCarthy as the main contractor in alterations to the theatre. Reference was then made to the two subcontracts which had been forwarded to the liquidators under H separate cover and to the fact that in terms of these contracts 'the guarantee period which extends for a period of 12 months after the date of practical completion has not yet expired, but will expire on 2 September 1993, and until such time as we are liable to back-up the guarantee in question insofar as defects are concerned and the like'. The letter furthermore expressed concern on the part of Rolfes 'that substantial defect I and maintenance items are still requiring attention and we have been requested to attend to these during the period 3 to 8 July, and at other times when the theatre is available to us for maintenance work'. The letter then concludes in these terms:

'To enable us to comply with our defect and maintenance obligations, we need your go-ahead to continue the contract to enable us to return to site. Maintenance J

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can only be effected while no productions are being staged at the Civic A Theatre. We have been advised by the Consulting Engineer that during the period 3 to 8 July no productions are taking place. It is therefore crucial that these dates be met and that we know our position immediately to enable us to programme the work.'

On 30 June 1993 Rolfes sent a telefax to the liquidators noting that to date it had B received 'no response from you and would now urgently request your go-ahead in this matter'. This telefax was followed by a further telefax dated 2 July 1993, pointing out that Rolfes had heard nothing from the liquidators and that

'(a)s it is critical to the entire project that the work referred to is undertaken, we will proceed with this work on the basis that you have decided to continue C with the contract, unless we hear from you, to the contrary, by close of business today, Friday, 2 July 1993. Would you please advise us as a matter of urgency, if you wish us to proceed.'

Bryden responded to this telefax on behalf of the liquidators in a telefax dated 2 July 1993. The body of this telefax consists of one sentence reading as follows: 'I am in D receipt of your telefax dated 2 July 1993 and advise that I am awaiting confirmation from the architect.' It is this communication of the liquidators which forms the main basis for Rolfes' contention that the direct election took place then.

Rolfes' telefax of 2 July wrongly seeks to impose an election upon the liquidators and, furthermore, the concluding sentence thereof detracts from the first part of it. E Moreover, the communication from the liquidators of the same date does not evince an election to proceed with the subcontracts.

On the basis simply of the correspondence thus far I am of the view that the Court a quo was plainly correct in its judgment when it concluded that the liquidators had made no election on 2 July 1993 in respect of the subcontracts. F

There is substance in the view of the learned Judge a quo to the effect that, without an election to proceed with the main contract, which, as I will indicate presently, only took place in August 1993, an election to proceed with the subcontracts would offer G no benefit at all to the general body of creditors of McCarthy. On the contrary, there would be prejudice to the...