Durban City Council v Liquidators, Durban Icedromes, Ltd, and Another

• Jurisdiction: South Africa
• Citation: 1965 (1) SA 600 (A)

Durban City Council v Liquidators, Durban Icedromes, Ltd, and Another
1965 (1) SA 600 (A)

1965 (1) SA p600

Citation	1965 (1) SA 600 (A)
Court	Appellate Division
Judge	Steyn CJ, Van Blerk JA, Rumpff JA, Wessels JA and Van Winsen AJA
Heard	September 9, 1964
Judgment	November 6, 1964

Flynote : Sleutelwoorde A

Insolvency — The trustee — Lease — Power to continue — B Trustee bound by clause prohibiting assignment of lease — Company — Liquidator — Lease — Power to continue — Liquidator bound by clause prohibiting assignment of lease — Act 24 of 1936, sec. 37 (1) (2) — Act 46 of 1926, sec. 130 (2) (1) — Landlord and tenant — Lease — Cancellation — Breaches of C conditions of lease relied on — Failure to prove such breaches — Costs.

Headnote : Kopnota

Section 37 (1) and (2) of the Insolvency Act, 24 of 1936, as amended, read with section 130 (2) (f) of the Companies Act, 46 of 1926, as amended, in effect confer the power upon a trustee to continue a lease, with the added 'term' or 'condition' that, if he does so, he is bound by a stipulation which restricts or prohibits the transfer of any right D under the lease. It accordingly applies also where the power is exercised by a liquidator in pursuance of the provision of section 130 (2) (f) of the Companies Act.

First respondents, the liquidators of a company had in a Local Division obtained an order declaring that the purported cancellation by the appellant Council, as lessor of a lease of immovable property to the company was of no force and effect, that a provision in the lease that the lessee should not assign it without the consent in writing of the Council was not binding upon the liquidators, and that the Council was E not entitled by virtue of that provision to prevent the cession or assignment of the lease by the liquidators to the second respondent. In an appeal,

Held, as the appellants had failed to prove the breaches of conditions of the lease relied on, that the appeal failed in so far as it concerned the order declaring the purported cancellation of the lease of no force or effect.

Held, further, however, that the liquidators were bound by the clause precluding assignment of the lease without the consent of the Council and giving the Council an unfettered discretion to grant or refuse such consent.

F The decision in the Durban and Coast Local Division in Jones and Druker, NN.O., and Another v Durban City Council and Another, 1964 (2) SA 354, in part confirmed and in part reversed. G

Case Information

Appeal from a decision in the Durban and Coast Local Division (CANEY, J.). The facts appear from the reasons for judgment.

D. J. Shaw, Q.C., (with him J. M. Didcott), for the appellant: Clause 23 of the lease was not intended to provide that the tenant's right to the possession of the leased property would terminate only after the landlord's forcible seizure of the possession. To interpret clause 23 as H if it were inspired by that intention would result in the conclusions that it was contemplated that the landlord and the tenant would simultaneously be entitled to the possession of the leased property and that it was intended to authorise an act of spoliation by the landlord, which is to say, an illegality. Such conclusions would be so absurd that an interpretation occasioning them must be rejected; see Gravenor v Dunswart Iron Works, 1929 AD at p. 303; Halsbury, Laws of England, 3rd ed., vol. 23, para. 1392. Because such an interpretation would also involve the conclusion that no legal or enforceable

1965 (1) SA p601

cancellation clause had been incorporated in the lease, it must be construed otherwise ut res magis valeat quam pereat; see Kotze v Frenkel & Co., 1929 AD at p. 423. The correct interpretation of clause 23 is that it provides for the termination of the tenant's right to the possession of the leased property upon the landlord's unequivocal A decision, evidenced by some positive act, to terminate it, such conduct by the landlord constituting a fictional re-entry; see Eberhard v Karras and Others, 29 N.L.R. at pp. 745, 749; Edwick v Hawkes, 18 Ch. at p. 208; Serjeant v Nash Field & Co. and Another, (1903) 2 K.B. at p. 310; Commissioners of Works v Hull, (1922) 1 K.B. at p. 208; Edward B H. Lewis & Son, Ltd v Morelli and Another, (1948) 1 All E.R. at p. 433; Halsbury, op. cit. paras. 1389, 1395; Hill & Redman, Landlord and Tenant, 11th ed., paras. 348, 353; Woodfall, Landlord and Tenant, 25th ed., para. 2122. The effect of the termination, in that manner, of the tenant's right to the possession of the leased property, would be C the substitution therefor of the landlord's right to possess it, whereupon the lease would necessarily be terminated. Clause 23 therefore provided the landlord with an effective and legal right to cancel the lease. As to issue (B), at no time have the liquidators or the sublessees or the Council regarded the payments by the sub-lessees to the Council as payments made on behalf of the liquidators, or as D anything other than payments made by the sub-lessees for their own account and in discharge of their own liability. The obligations of a debtor are capable of discharge by a third party, even against the debtor's will and without his authority, but only if, (a) the obligation is that of the debtor, and not the third party, and (b) the payment is E made on the debtor's behalf, and not on behalf of the third party; see Rossler v Kemsley Millbourn Acceptance Corporation (Pty.), Ltd., 1931 NPD at pp. 344 - 5; C.I.R v Visser, 1959 (1) SA at p. 458. The liquidators may not therefore rely upon the payments to the Council by the sub-lessees. If the sub-lease was invalid, no rental was owing by F the sub-lessees to the Council, and the amounts which were paid could be reclaimed by them from it; see Pothier, Obligations, Pt. 3, Chap. 1, para. 463; Flanagan v National Trading Co. Ltd., 1955 (2) P.H. A.58. The principle upon which the Council relied was that a creditor, who by his conduct induces his debtor to believe that his rights would not be immediately enforced, cannot thereafter enforce them, except after G notice to the debtor of his intention to do so; see Garlick Ltd v Phillips, 1949 (1) SA at p. 132; Myerson v Osmond Ltd., 1950 (1) SA at p. 724. The conditions were not terms of the lease, but their fulfilment was a collateral obligation which was fundamental to the continuance of the lease, because they had been substituted for a H condition precedent. Their non-fulfilment therefore gave rise to a right to cancel the lease. The provisional liquidation of Icedromes rendered it a practical impossibility to fulfil the conditions, and was tantamount to their repudiation by Icedromes; see Chadwick v Henochsberg, 1924 T.P.D. 703. Although it may be notionally and procedurally possible for a company in provisional liquidation to pass the requisite resolutions to increase its share capital and to issue an allotment of shares, it is inconceivable that B.B.I. could be persuaded

1965 (1) SA p602

now to abandon an asset in return for shares in a company in provisional liquidation. There was no need to place the liquidators in mora. The purpose of placing a debtor in mora is to provide him with an A opportunity to purge his default. If he cannot do so, it serves no purpose to place him in mora. The Council was therefore entitled to cancel the lease on the ground that Icedromes had failed to arrange for the conversion of B.B.I.'s loan account into share capital. The Council was also entitled, in terms of clause 23 (c) of the lease, to cancel it B on the grounds of the provisional liquidation of Icedromes. As to issue (C), on the facts, the Council arrived at an unequivocal decision, which was evidenced by a positive act, to terminate Icedromes' right to the possession of the leased property. The Council therefore effectively exercised its right to cancel the lease. Clause 19 of the lease prohibited the tenant from ceding his rights as such to anyone else, C without the landlord's written consent. The appeal against para. 2 of the order involves the issues (D), whether clause 19 of the lease was binding upon the liquidators (E), if so, whether the Council could be compelled to consent to the proposed cession of Icedromes' rights in terms of the lease from it to Keidur. As to issue (D), before 1943 it D was clear at common law that a term in a lease, prohibiting a tenant from ceding his rights without the landlord's consent, was not binding upon the trustee of the tenant's insolvent estate, or upon the liquidator of a tenant company; see Heimann v Klempman and Jaspan, 1922 W.L.D. at p. 116; Moseley Buildings, Ltd v Bioscope Cafés, Ltd., 1923 W.L.D. at p. 202; Himmelhoch v Liquidators Fresh Milk & Butter Supply E Co., Ltd. and Others, 1925 T.P.D. 958. The rule was applied to liquidations because of the view that the powers and duties of a liquidator were substantially the same as those of a trustee, each being required to perform the same statutory duty of realising the assets for the benefit of creditors; see Moseley Buildings case, supra, at pp. 199, F 200 - 1. The common law rule was abrogated by sec. 14 of Act 16 of 1943, which introduced into the Insolvency Act the present sec. 37 (5), and thereby provided that a trustee would be bound by a prohibition against a cession without the landlords' consent. It has, however, been held that a liquidator remains free from the effect of such a G prohibition; see Ex parte Mallac, 1960 (2) SA at pp. 193 - 4. The decisions to that effect in Mallac's case and in the Court a quo were wrong because (a) sec. 130 (2) (f) of the Companies Act confers on liquidators the powers conferred on trustees by sec. 37 of the Insolvency Act, 'upon the like terms and conditions as are therein mentioned'; (b) sec. 37 of the Insolvency Act confers on trustees the H power...