Jackson v Louw NO

• Jurisdiction: South Africa
• Judge: D Van Zyl DJP
• Judgment Date: 13 December 2018
• Docket Number: CA&R 149/17
• Court: Eastern Cape Division
• Hearing Date: 10 September 2018
• Citation: 2019 JDR 0015 (ECG)

Van Zyl DJP:

Introduction

1)

This appeal concerns the application of sections 29, 30 and 31 of the Insolvency Act [1] (the Act). The three sections are aimed at safeguarding the interests of the creditors in an insolvent estate, and to ensure an equitable

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distribution of the assets of the insolvent amongst all the creditors in general. To achieve this they create a mechanism for the impeachment of certain categories of transactions entered into by the insolvent pre-sequestration. [2] Section 32 invests the trustee in insolvency (or the liquidator of a company in liquidation) with the right to institute legal proceedings for the setting aside of impeachable transactions, or for the recovery of compensation equal to the value of the property disposed of, or for the payment of a penalty. [3]

2)

Acting in accordance with their authority in terms of section 32 of the Act, the joint trustees of the insolvent estate of an inter vivos trust known as the Greenacres Trust (the Trust) instituted an action in the Grahamstown High Court (the trial court) against Mr DGD Jackson, cited as the sixth defendant, for the setting aside of two agreements entered into between the Trust and Mr Jackson, and for the return of 163 head of livestock and certain movable goods consisting of farming machinery and equipment (the equipment), alternatively the payment of its value, and in addition, the payment of a penalty.

3)

The trial Court found that the two agreements were impeachable transactions as envisaged in sections 29 to 31 and set them aside. It further ordered Mr Jackson to return to the joint trustees of the insolvent estate the

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livestock and the equipment, and in the event that he could not do so, to pay to the Trust the amounts of R660 000,00, being the value of the livestock, and R310 000,00, being the value of the equipment. The amounts represented what the parties agreed to be the value of the livestock and the equipment. Mr Jackson was further ordered to pay a penalty equal to the amounts representing the value of the livestock and the equipment, and any claim which he may have against the insolvent estate was declared forfeit. [4]

4)

Mr Jackson, with the leave of the Supreme Court of Appeal, appealed the judgment. The appeal lies against the whole of the judgment. For the sake of convenience I shall hereafter refer to the parties as the appellant and the respondents respectively.

The factual background

5)

The two agreements (the agreements) which formed the subject matter of the action were concluded shortly before the Trust was placed in provisional liquidation. On both occasions the Trust was represented by one of its trustees, Mr A H Winfield (Winfield). The first agreement dealt with the livestock in the possession of the Trust at the time, and was concluded with a number of the creditors of the Trust of which the appellant was one. The second agreement was with the appellant alone. It dealt with certain specified farming equipment which

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the Trust hypothecated in favour of the appellant in terms of a registered notarial bond.

6)

The Trust conducted business as a producer of milk and livestock on the farm Dieprivier. In order to conduct its business it entered into a number of agreements for the lease of dairy cows, consisting at the commencement of the lease of pregnant heifers. The Trust's indebtedness to the appellant arose from a lease agreement which it concluded with him on 28 July 2009. In terms of this agreement (the lease), the appellant leased to the Trust 244 head of dairy cows against payment of a monthly rental. The leased animals comprised cows that were previously leased to Winfield, and an additional number that were identified in a schedule to the agreement. The lease was until 30 June 2012 with the option to renew it for a further period of 24 months. Ownership of the cattle, or the "herd" as it is referred to in the agreement, at all times remained vested in the appellant. Upon the termination of the lease the Trust had to return the herd to the appellant "augmented where necessary", and to repurchase the herd at a pre-determined and agreed price. In terms of clause 14 of the lease the Trust was obligated to augment the herd when any of the dairy cows either died or had to be sold off for any reason "by substituting such animal with a pregnant heifer of a similar race."

7)

A further term in the lease which is relevant to the issues raised in this matter is the suspensive condition in clause 3. In addition to Winfield binding

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himself as a surety for the indebtedness of the Trust, the Trust was obliged to enter into, and register a special notarial bond in favour of the appellant in accordance with clause 13 of the lease. Clause 13 provided as follows: "As security for the obligations owing by the TRUST to DONALD in terms of this Agreement, the TRUST agrees to register the BOND, securing all obligations owing by the TRUST to DONALD in terms of this Agreement, over the movable property reflected in Schedule 2 ("the SECURITY") on the terms and conditions reflected in Schedule 3."

8)

The movable property in Schedule 2 was identified as consisting of 3 tractors, a planter, a fertilizer spreader and a trailer. In compliance with Clause 3 of the lease a special notarial bond was registered over the movables on 4 August 2009 in favour of the appellant. In the notarial bond agreement the Trust acknowledged its indebtedness to the appellant in two amounts; it agreed that the security was intended to cover "existing, future and contingent indebtedness"; and the equipment was identified as property hypothecated in terms of section 1(1) of the Security by Means of Movable Property Act. [5]

9)

Important in the context of the issues raised in this matter is Clause 10 of the bond agreement. It determined the rights of the appellant in the event of the termination of the lease, or the Trust's refusal or neglect to comply with its obligations under the bond agreement. It reads as follows: "Upon the happening of

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an event of default referred to in 10 above, [6] the MORTGAGEE shall, without prejudice to any other right which it has in terms hereof or at law, be entitled -

Notwithstanding the terms and conditions of any indebtedness of the MORTGAGOR to the MORTGAGEE arising before, simultaneously with or after the execution of this bond to declare the full amount of the MORTGAGOR's indebtedness to the MORTGAGEE from the DEBT or whatsoever cause arising to be due and payable forthwith and to claim and recover the same from the MORTGAGOR forthwith on demand;

To have the ASSETS excussed and / or attached by legal process;

To execute upon all or any of the ASSETS;

To employ such other remedies and to take such other steps against the MORTGAGOR as are allowed in law."

10)

Clause 11.1 of the bond agreement permitted the appellant to exercise his rights in terms of the bond, "either separately or jointly or in such order and combination and at such times" as he may think fit. Clause 11.3 provided that "If the MORTGAGOR shall refuse to give possession of the ASSETS on demand, to apply to any competent Court for an Order for delivery of such ASSETS."

The pleadings

11)

The essence of the respondents' pleaded case was that in August 2011, and at a time when the liabilities of the Trust exceeded the value of its assets, the appellant and a number of other creditors of the Trust who were defendants in the

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action, with the knowledge of each other, resolved and colluded with Winfield to jointly take possession of all the cattle in the possession of the Trust, and to divide and distribute it between them as they saw fit. It was alleged that this was not an appropriation and distribution by the creditors of livestock owned by them, "but included livestock owned by the Trust in that none of the livestock appropriated and distributed was identified, or capable of being identified as the livestock leased by the various Defendants to the Trust."

12)

The respondents further pleaded that when the distribution of the livestock took place, the appellant and the other defendants knew that the Trust was indebted to another creditor, namely the Humansdorp Co-operative (the co-operative); that the Trust was insolvent; that the co-operative held a statutory pledge in terms of the Co-operatives Act [7] (the Co-operatives Act) over all of the livestock owned by the Trust, and a special notarial bond over 150 dairy cows owned by the Trust; that the defendants were aware that proceedings for the sequestration of the Trust were imminent; and that the livestock in the possession of the Trust included livestock "which was the progeny of livestock leased from Defendants and owned by the Trust." The appropriation and distribution of the livestock were on these facts alleged to have constituted an impeachable disposition as envisaged in sections 29 to 31 of the Act.

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13)

The distribution is alleged to have had the effect of preferring the appellant and the other defendants as creditors above other creditors of the Trust; were made with the intention of preferring the defendants above other creditors; and consequent upon collusion between the Trust and the appellant and the remaining defendants, other creditors were prejudiced.

14)

In respect of the farming equipment, the respondents' case was that the agreement between the Trust and the appellant constituted an agreement of sale in part settlement of the Trust's indebtedness to the appellant, and was similarly an impeachable transaction as envisaged by sections 29 to 31.

15)

The appellant's defence on the pleadings with regard to the delivery and division of the livestock was that, in...