Ellerine Brothers (Pty) Ltd v McCarthy Ltd

• Jurisdiction: South Africa
• Citation: 2014 (4) SA 22 (SCA)

Ellerine Brothers (Pty) Ltd v McCarthy Ltd
2014 (4) SA 22 (SCA)

2014 (4) SA p22

Citation	2014 (4) SA 22 (SCA)
Case No	245/13; [2014] ZASCA 46
Court	Supreme Court of Appeal
Judge	Navsa JA, Mhlantla JA, Leach JA, Petse JA and Van Zyl AJA
Heard	March 19, 2014
Judgment	April 1, 2014
Counsel	S du Toit SC (with MA Jonker) for the appellant.; KJ Kemp SC (with LK Olsen) for the respondent.

Flynote : Sleutelwoorde B

Insolvency — Effect — On uncompleted contracts — Lease — Impact of concursus creditorum on right to cancel lease.

Headnote : Kopnota

C In this case E leased premises to company T. Ultimately T failed to pay the rent and E gave it notice to pay within seven days, failing which E would have the right to cancel the agreement. Five days later a third party lodged an application with the registrar of the high court for the liquidation of T, so establishing a concursus creditorum. Six days afterwards E gave T a letter cancelling the lease. In issue was the effect of the concursus on the lease, specifically on the right to cancel it.

D Held, that the concursus creditorum neither altered nor suspended the rights of the parties under the contract, and that the right to cancel, which arose after the creation of the concursus, had been validly exercised by E. (Paragraphs [1], [10], [12] – [13] and [15] at 23C – E, 26D – G, 27E – G, 28A – C, 28H and 29A.)

Cases Considered

Annotations E

Case law

Bryant & Flanagan (Pty) Ltd v Muller and Another NNO1978 (2) SA 807 (A): referred to

De Wet NO v Uys NO en Andere1998 (4) SA 694 (T): not followed F

Du Plessis and Another NNO v Rolfes Ltd1997 (2) SA 354 (A) ([1996] 2 All SA 390): referred to

Fey NO and Whiteford NO v Serfontein and Another1993 (2) SA 605 (A): referred to

Friedman's Estate v Katzeff 1924 WLD 298: referred to

Goldberg v Buytendag Boerdery Beleggings (Edms) Bpk1980 (4) SA 775 (A): referred to G

Goodricke & Son v Auto Protection Insurance Co Ltd (in Liquidation)1968 (1) SA 717 (A): dictum at 723G applied

Millman NO v Twiggs and Another1995 (3) SA 674 (A): referred to

Mitchell v Sotiralis' Trustee 1936 TPD 252: referred to

Nel v Cloete1972 (2) SA 150 (A): referred to

Norex Industrial Properties (Pty) Ltd v Monarch South Africa Insurance Co Ltd1987 (1) SA 827 (A): dictum at 838H applied H

Ntai and Others v Vereeniging Town Council and Another1953 (4) SA 579 (A): referred to

Porteous v Strydom NO1984 (2) SA 489 (D): dictum at 494G approved

Richter NO v Riverside Estates (Pty) Ltd 1946 CPD 209: referred to

Roering and Others NNO v Nedbank Ltd2013 (3) SA 160 (GSJ): not followed I

Sewpersadh and Another v Dookie2009 (6) SA 611 (SCA): referred to

Smith and Another v Parton NO1980 (3) SA 724 (D): dictum at 728H – 729A approved

Spies v Lombard1950 (3) SA 469 (A): referred to

Tangney and Others v Zive's Trustee1961 (1) SA 449 (W): referred to J

2014 (4) SA p23

Thomas Construction (Pty) Ltd (in Liquidation) v Grafton Furniture Manufacturers (Pty) Ltd A 1988 (2) SA 546 (A): dictum at 568C applied

Ward v Barrett, NO and Another, NO1963 (2) SA 546 (A): referred to.

Case Information

S du Toit SC (with MA Jonker) for the appellant.

KJ Kemp SC (with LK Olsen) for the respondent. B

An appeal from the Gauteng Division, Pretoria (De Vos J). The order is in para [16].

Order

The appeal is dismissed with costs, including the costs of two counsel. C

Judgment

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

2014 (4) SA p24

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...