Electrolux South Africa (Pty) Ltd v Rentek Consulting (Pty) Ltd
| Jurisdiction | http://justis.com/jurisdiction/166,South Africa |
| Judge | Francis J |
| Judgment Date | 10 August 2023 |
| Citation | 2023 JDR 2981 (WCC) |
| Hearing Date | 10 August 2023 |
| Docket Number | 19664/2022 |
Francis J:
This is an application for the final liquidation of the respondent on the basis that it is unable to pay its debts.
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The applicant is in the business of selling solar and electrical geysers and related products to the public.
During 2019, the parties entered into an agreement in terms of which the applicant agreed to deliver various products and materials to the respondent. Goods were subsequently provided to the respondent in the amount of R3 384 885.36 during the period 28 March 2019 to 1 October 2020.
The applicant failed to make payment for the goods sold and delivered to it, and admitted both its liability and its inability to pay the amount due in e-mail correspondence sent to the applicant on 25 May 2021. Thereafter, the respondent sent an acknowledgement of debt, dated 27 May 2021, to the applicant in which it once again admitted that it was “truly and (awfully” indebted to the applicant in the amount of R3 384 885.36. The respondent proposed making payments of R10 000 per month from 30 June 2021 until the full amount was settled. The acknowledgement of debt was signed by one of the directors of the respondent, Mr Ashaan Pillay.
Due to the failure of the respondent to make payment in full, or at all, the applicant delivered a letter of demand in terms of section 345(1)(a)(i) of the old Companies Act, 61 of 1973 (“the Companies Act”) [1] . The respondent failed to respond to the statutory letter of demand and, according to the applicant, the
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respondent was thus deemed commercially insolvent as it could not pay its debts as and when they fell due and payable and thus ought to be liquidated.
The respondent opposed the liquidation application on two grounds: firstly, it raised a point in limine, arguing that the defence of lis alibi pendens was applicable because the appellant had issued summons prior to the institution of liquidation proceedings for the same debt which the applicant now seeks to use as the basis for the liquidation application; and, secondly, the respondent argued that the applicant failed to prove that it (the respondent) is commercially insolvent because there is a bona fide dispute whether or not the debt is due and payable. I now consider each of these defences in turn.
LIS ALIBI PENDENS
It is common cause that the applicant issued a combined summons in this court under case number 10297/2021 on 18 June 2021 in which it cited the respondent as the second defendant and in which the applicant claimed an amount of R3 384 885.36 (“the action proceedings”). The action was defended, and a plea filed by the respondent. The applicant did not elect to apply for summary judgment and the action proceedings remain unresolved.
In essence, the respondent submitted that there is pending litigation between the same parties based on the same cause of action and in respect of the same subject matter in that the amount of R3 384 885.36 claimed in the action proceedings is the same amount in respect of which the applicant issued the statutory demand as a precursor to the liquidation proceedings. According to
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the respondent, the liquidation application should be struck off the roll or be stayed pending the finalisation of the action proceedings.
The applicant countered by arguing that the defence of lis alibi pendens is unsustainable. While the action proceedings and the liquidation application involve the same parties and the same underlying debt, the cause of action and the relief sought are different. The cause of action in the liquidation application relates to the failure of the respondent to comply with a statutory demand for payment and the relief sought is the liquidation of the respondent in terms of the Companies Act. On the other hand, the action proceedings relate solely to the payment of a monetary debt.
There are three requirements for a successful reliance on the defence of lis alibi pendens: the litigation is between the same parties, the cause of action is the same, and the same relief is sought in both sets of proceedings.
A plea of lis alibi pendens is based on the proposition that the dispute between the parties is being litigated elsewhere and, therefore, it is inappropriate for the dispute to be litigated in the court in which the plea is raised. Once a suit has been instituted, it should ideally be finalised before that court before another suit can be instituted by the same parties relating to the same cause of action [2] . The policy consideration underpinning the lis alibi pendens doctrine is that there should be a limit to the extent to which the same issue is litigated between the
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parties as it is desirable that there be finality in litigation [3] . Also, a situation should be avoided where different courts pronounce on the same issue with the risk that they may reach different conclusions.
In this matter, it is not disputed that the litigation in the action proceedings and the liquidation application relate to the same parties and that the amount claimed in the action proceedings is the same amount which remains unpaid in terms of the statutory demand. The crisp issue before this Court is whether the two legal proceedings instituted can be categorised as being based on the same cause of action.
Mr Heunis, who appeared on behalf of the respondent, indicated during the hearing of this matter that there was a judgment in this court that previously upheld a plea of lis alibi pendens in circumstances where an action was launched prior to the institution of liquidation proceedings. Despite diligent search, Mr Heunis was unable to produce this judgement. I thus proceed on the basis that there is no binding precedent on this Court on the issue.
As noted, the determination of the point in limine in this matter rests on the meaning of the term “cause of action”. In McKenzie v Farmers’ Co-operative Meat Industries Ltd [4] , Maasdorp JA approved the definition provided in the English case of Cook v Gill L.R 8 CP.107 which defined the phase “cause of action arising in the City” as, “every fact which it would be necessary for the
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plaintiff to prove, if traversed, in order to support his right to the judgment of the court”. Later, in the case of Abrahmse & Sons v SA Railways and Harbours [5] , the court defined the expression “cause of action” as follows:
“The proper legal meaning of this expression ‘cause of action’ is the entire set of facts which give rise to an enforceable claim and includes every fact which is material to be proved to entitle a plaintiff to succeed in his claim. It includes all that a plaintiff must set out in his declaration to disclose a cause of action”.
From these definitions, it is apparent that the cause of action for the recovery of a liquidated debt from the respondent is different from the set of facts which give rise to an enforceable claim for the liquidation of the respondent [6] . In addition, the nature of the relief sought in the action proceedings are without doubt different from the type of relief sought in the application for the liquidation of the respondent. In the action proceedings, a creditor seeks to enforce a claim against a debtor. On the other hand, liquidation proceedings are designed to set the machinery of the law in motion to declare a debtor insolvent and the estate of the debtor is then taken over for the benefit of third parties and not only the creditor who instituted liquidation proceedings against the debtor. Thus, the liquidation of the company does not only affect the rights of the applicant and the respondent but also that of third parties and involves the
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distribution of the liquidated estate to various...
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