Ellerine Brothers (Pty) Ltd v McCarthy Ltd

• Jurisdiction: South Africa
• Judge: Navsa JA, Mhlantla JA, Leach JA, Petse JA and Van Zyl AJA
• Judgment Date: 01 April 2014
• Citation: 2014 (4) SA 22 (SCA)
• Docket Number: 245/13 [2014] ZASCA 46
• Hearing Date: 19 March 2014
• Counsel: S du Toit SC (with MA Jonker) for the appellant. KJ Kemp SC (with LK Olsen) for the respondent.
• Court: Supreme Court of Appeal

Van Zyl AJA (Navsa JA, Mhlantla JA, Leach JA and Petse JA concurring):

[1] The appeal concerns the validity of a cancellation of a lease agreement. The problem presenting itself is the following: Notice of cancellation D was given before the commencement of legal proceedings for the winding-up of the lessee, but the period provided for had not yet expired when those proceedings commenced and cancellation followed thereafter. Put simply, the question is whether the right to cancel was lost because of a concursus creditorum. This issue was placed before the high court for decision pursuant to an agreement between the parties that it E be decided on an agreed statement of facts as envisaged in rule 33 of the Uniform Rules of Court. The high court decided the issue in favour of the respondent and dismissed the appellant's claims with costs. The appeal is with the leave of the high court.

[2] The agreed facts are the following. In 2006 the appellant, F Ellerine Brothers (Pty) Ltd (Ellerine), concluded a lease agreement with a company called Toits Motor Group (Pty) Ltd (the insolvent) in terms of which it let to it certain business premises. In the same year the insolvent entered into a sub-lease agreement with the respondent, McCarthy Ltd (McCarthy), in respect of a portion of the property. The events which G follow took place in 2009. The insolvent failed to timeously pay the agreed rental. Ellerine notified it in writing on 16 January that should it fail to remedy its breach of the lease within seven days of receipt of the letter, Ellerine would take steps to cancel the agreement. The letter was received by the insolvent on the same day.

[3] The insolvent did not comply with this demand. On 27 H January Ellerine delivered a letter cancelling the lease with immediate effect. Shortly before this, on 21 January, an application for the liquidation of the insolvent had been lodged by a creditor with the registrar of the high court. The application was enrolled for hearing on 27 January but was postponed to 27 February for the filing of answering and replying I affidavits. On the latter date a final order was issued for the winding-up of the insolvent.

[4] In June, Ellerine and the liquidators of the insolvent entered into a cession agreement. As consideration for the rental payable by the insolvent to Ellerine under the lease, the liquidator ceded to Ellerine the J

Van Zyl AJA (Navsa JA, Mhlantla JA, Leach JA and Petse JA concurring)

A insolvent's rights to the rental payable by McCarthy under the sub-lease. It was recorded in the deed of cession that the lease was still in existence; that Ellerine was not entitled to cancel the lease from the date of the presentation to court of the application for the liquidation of the insolvent; and that the liquidator had exercised an election to continue B the lease.

[5] In October, relying on the cession Ellerine issued summons against McCarthy in the high court claiming the rental and other amounts allegedly due in terms of the sub-lease. McCarthy denied liability for the amounts claimed and defended the action. At the hearing of the matter C the parties agreed that the only issue in dispute was whether Ellerine could validly cancel the lease after the commencement of the proceedings for the winding-up of the insolvent. The high court was asked to determine this issue on the stated case. The legal submissions of the parties recorded in the statement of agreed facts were premised on their D pleadings. In its plea, McCarthy did not place the existence of the cession agreement in dispute. Instead, it alleged that the sub-lease was terminated when Ellerine, on 27 January, advised the insolvent that it had elected to cancel the lease, and that there were no rights in existence which the liquidator could cede to it. McCarthy's defence is consistent with the legal nature of a sub-lease. [1] As the sub-lessee's rights to the E leased property are subject to those of the lessee, determination of the lease ipso jure also brings the sub-lease to an end. [2] Put differently, a sub-lessee cannot acquire more rights from the lessee than what the lessee himself has.

[6] Ellerine's response in its replication was that by reason of the F winding-up of the insolvent, it could not validly cancel the lease when it purported to do so on 27 January. This contention has as its basis the provisions of s 348 of the Companies Act 61 of 1973. [3] It reads as follows:

'A winding-up of a company by the Court shall be deemed to commence at the time of the presentation to the Court of the application for the winding-up.' G

An application for the winding-up of a company is presented to the court when it is lodged with the registrar. [4] In this matter that date was 21 January 2009. The case advanced by Ellerine in this court and in the high court was in essence that as a result of the retroactive commencement of the insolvent's liquidation the right of Ellerine as the sub-lessor H to cancel the lease had been lost. It was submitted that the estate of the

Van Zyl AJA (Navsa JA, Mhlantla JA, Leach JA and Petse JA concurring)

insolvent had been frozen on 21 January when an application for the A liquidation of the insolvent was lodged with the registrar.

[7] This contention is premised on the creation of a concursus creditorum on that date. [5] The argument is that the concursus interposed between the giving of notice on 16 January and the expiry of the B seven-day period therein. The interruption of the required time period by the concursus...