Lynn & Main Inc v Naidoo and Another

• Jurisdiction: South Africa
• Court: Natal Provincial Division
• Judge: Tshabalala JP
• Judgment Date: 12 August 2005
• Citation: 2006 (1) SA 59 (N)
• Hearing Date: 20 May 2005
• Docket Number: 10259/04
• Counsel: A W M Harcourt for the applicants. S K Dayal for the respondents.

Tshabalala JP: D

Introduction

[1] This is an application for placing the first and second respondents under provisional sequestration.

[2] There are two issues which arise in this application and both counsel were ad idem on the crisp questions that have E to be answered. First, whether the applicant has prima facie shown that the letter by the respondents' attorney, dated 28 January 2003, is admissible in evidence as an act of insolvency, regard being had to the fact that it is written 'strictly without prejudice' and states that it 'may not be used to prove any act of compromise as F envisaged by the provisions of the Insolvency Act'.

[3] Second: whether the applicant has shown that there is 'reason to believe' that sequestration will be to the advantage of creditors. Another question which was submitted by counsel for the respondents is whether the overdraft facility granted by Citibank G to the close corporation was prematurely terminated and, accordingly, whether the applicant is relying upon a bona fide, undisputed debt.

[4] That said, to my mind, answers to all the above mentioned questions hinge on the answering of the first question regarding admissibility of the letter by the respondents' attorneys. H

Salient facts

[5] The applicant is Lynn and Main Inc, a company of attorneys duly incorporated according to the company laws of the Republic of South Africa, having its registered office in Pietermaritzburg. It should be I mentioned here that the applicant's title to sue arises from the cession of claim to the applicant by Citibank NA, concluded on 24 April 2004. Included in the debts ceded to the applicant was the claim against the close corporation for which the first and second respondents stood surety. J

Tshabalala JP

[6] The first respondent is Mr Poobalan Naidoo and the second respondent is Priscilla Naidoo. The respondents are A married to each other in community of property. The claim arises from the relationship that existed between the first respondent and Citibank NA. On or about August 2001, the first respondent approached Citibank to obtain an overdraft facility to start a business venture. He avers that he applied for the account in the name of Big B City Trading CC, trading as Trek Wholesalers (Big City).

[7] In terms of the letter dated 11 February 2002, Citibank extended to the Big City 'close corporation' overdraft facilities up to the maximum of R2 400 000 (two million four hundred thousand rands). The letter further provided that the overdraft would be offered C at the 'prime overdraft interest rate (as set from time to time, currently 14%) plus 1%'. Prior to the agreement that culminated in the overdraft facility on 17 September 2001, the first respondent executed a deed of suretyship. The first respondent bound himself to Citibank NA as a surety for and D co-principal debtor with Big City Trading CC (the close corporation). On the same date, the second respondent signed consent, consenting to the execution of the suretyship by the first respondent. She also signed as surety and co-principal debtor with the close corporation and the first respondent signed consent, consenting to the execution by the second respondent of the suretyship. E

[8] It appears that, at the commencement of the agreement, the first and second respondents and their daughter, one Karmini, ceded certain insurance policies to Citibank as security for the overdraft of the close corporation. It is also not disputed that, with consent of those three parties, such insurance policies were surrendered and the F net profits thereof paid to Citibank in reduction of the indebtedness of the close corporation to Citibank.

[9] Now, the outstanding amount claimed by the applicant in this case is R2 147 464,03, being a capital amount of R2 005 306,99, being the amount of the overdraft extended by Citibank to the close G corporation as at the date that the overdraft facilities were cancelled in June 2003, together with interest of R142 157,04 from June 2003 to 29 July 2004.

[10] The applicant holds no security for its claim against the respondents. In the founding affidavit it is alleged that, as H against the principal debtor, the close corporation, the only remaining security which the applicant holds is a cession of book debts which may be worthless.

[11] On 29 July 2002, the respondents' attorneys wrote a letter to Citibank, raising, among other things, that the close corporation persists with its dispute that a medium-term loan was I granted; that the foreclosure was, in fact, premature. The interest levied by Citibank was also disputed. The applicant alleges that the aforementioned letter was the admission of liability by the respondents. Attention was drawn to the contents of the letter where it provides thus: J

Tshabalala JP

'4. Our clients however do concede that the amount of their indebtedness, which amount they are unable to quantify, does exceed the A amount of your securities. . . .'

It should be pointed out at this juncture that the letter granting the overdraft facilities provided that 'the right to alter or cancel the facilities without prior notice. As is normal with facilities of this nature, they are repayable on demand.' B

[12] Relying on the letter written by the respondents on 1 March 2004, the applicant submits that, by that date, the respondents must be taken to have conceded that, whatever period the respondents contended was 'a medium term', that period had expired for the first respondent wrote (signing on behalf of the C close corporation) to one Mr W L Groenewald (a legal advisor of Citibank):

'Thank you for the letter I received on 23 January. I am trying to convince my wife for the sale of the house. I am also arranging a meeting with my in-laws on 10 March, when they arrive from their holiday, which they will speak to my wife on my behalf and also try to raise finance from their estates. I will revert to you soon D after.'

It was submited that the aforementioned letter is consistent with an admission of liability and that such liability is due.

[13] The letter which is the centre of disagreement is the letter written by the respondents' attorneys on 28 January E 2003. The letter is marked 'strictly without prejudice' and further provides:

'2.

We categorically record that the contents of this letter are strictly without prejudice and are advanced in an endeavour to settle the above matter.

3.

We further record that the contents of this letter must be handled with the strictest of confidentiality and may not be used to prove any act of compromise as envisaged by the provisions of the F Insolvency Act.'

[14] On one hand, the applicant contends that the aforementioned letter is an act of insolvency as contemplated in s 8 of the Insolvency Act (the Act). [1] On the other hand, the respondents submit that the contents of the letter (annexure I) should be struck from the papers and excluded on the basis that it is G privileged.

Admissibility

[15] At the beginning of the argument, Mr Dayal, for the respondents, submitted that if this Court finds that annexure I is admissible and that the debt is not a disputed debt, then he was not H going to argue the question of the 'advantage to creditors' or any other point to oppose the application...