Millman and Another NNO v Masterbond Participation Bond Trust Managers (Pty) Ltd (Under Curatorship) and Others

• Jurisdiction: South Africa
• Court: Cape Provincial Division
• Judge: Friedman JP et Farlam J
• Judgment Date: 19 August 1996
• Citation: 1997 (1) SA 113 (C)
• Hearing Date: 05 August 1996
• Docket Number: 14704/95
• Counsel: R S van Riet SC (with him L M Olivier) for the plaintiffs (respondents) L S Kuschke SC (with him R G Goodman) for the defendants (excipients)

A Friedman JP et Farlam J:

This is an exception taken by defendants to plaintiffs' amended particulars of claim. Plaintiffs are the liquidators of Fancourt Properties (Pty) Ltd ('Properties'). Defendants are three companies in the Masterbond Group of companies.

B First defendant is Masterbond Participation Bond Trust Managers (Pty) Ltd, second defendant is Masterbond Participation Bond Trust Nominees (Pty) Ltd and third defendant is Masterbond Trust Investment Managers (Pty) Ltd. The three defendants are all under curatorship in terms of s 6(5) of the Financial Institutions (Investment of Funds) Act 39 of 1984. The claim is for an order setting aside a transaction, as a C disposition without value, in terms of s 26 of the Insolvency Act 24 of 1936 ('the Act'), alternatively as a voidable preference in terms of s 29 of the Act or, in the further alternative, as an undue preference in terms of s 30 of the Act. The liquidators are nominal plaintiffs in terms of s 32(1) of the Act, two proved creditors of Properties having indemnified them against all costs.

D The action arises out of a written agreement entered into in January 1992 ('the agreement'). The parties to the agreement were the curators of the Masterbond Group of companies (which include the three defendants) in their capacities as such; Group Five Construction (Pty) Ltd ('Group Five'); Fancourt Holdings (Pty) Ltd ('Holdings'); Properties and one André Pieterse. E

Group Five was involved in construction work in connection with the development of a golf park and resort at George for Holdings. The development was financed by loans obtained by Holdings from defendants. These loans were secured by mortgage bonds F registered by companies in the Fancourt Group in favour of companies in the Masterbond Group.

Clause 5.1 of the agreement reads as follows:

'Properties hereby binds itself jointly and severally as surety for and co-principal G debtor with Holdings in favour of the Masterbond Group for the due performance of all obligations and for the due payment of all amounts due or which may become due by Holdings to the Masterbond Group including, inter alia, under the bonds.'

In terms of clause 5.2 of the agreement, as security for its obligations under clause 5.1, H Properties agreed to pass a covering security bond over all its immovable property except for certain portions still to be surveyed, subdivided and transferred.

In para 9 of the particulars of claim, as amended, plaintiffs allege that:

'Die verpligtinge van Holdings wat Properties ingevolge die ooreenkoms aanvaar I het, het ongeveer R83 miljoen, tesame met verdere rente daarop, beloop wat tot gevolg gehad het dat Properties se skulde sy bates te bowe gegaan het, meer bepaald inaggenome:

9.1

die gebrek aan teenwaarde wat Properties ingevolge die ooreenkoms ontvang het; en

9.2

J die beperkte omvang van die bedrag wat Properties ingevolge sy regresreg van Holdings sou kon verhaal.'

Friedman JP et Farlam J

A Plaintiffs allege further that, in terms of the agreement and on 18 August 1992, Properties registered mortgage bonds over its immovable properties totalling, according to a schedule annexed to the particulars, some R24,9 million.

On 2 December 1992, Properties was placed under provisional liquidation on the B application of the curators. A final order of liquidation was granted on 5 March 1993.

The defendants are all proven creditors of Properties (in liquidation).

Plaintiffs allege that the acceptance by Properties of the obligations undertaken in terms of clause 5(1) of the agreement was a disposition by Properties of property for which it received no value. The disposition is, accordingly, liable to be set aside in terms of s C 26 of the Act. This is the first claim.

In the second claim, which is an alternative to the first claim, plaintiffs allege that the passing of the mortgage bonds by Properties over its immovable properties was a disposition which had the effect of preferring defendants above other creditors. D Plaintiffs allege (in para 18 of the particulars of claim, as amended) that the effect of the passing of the bonds by Properties resulted in defendants' obtaining a preference above other creditors. Plaintiffs accordingly allege that the passing of the bonds amounted to a voidable preference in terms of s 29 of the Act.

In the third claim as amended, which is in the alternative to claims 1 and 2, plaintiffs E allege that the aforesaid registration of the mortgage bonds by Properties was made at a time when Properties' liabilities exceeded its assets and that the bonds were registered by Properties in favour of defendants with the intention of preferring them above other creditors.

F Plaintiffs accordingly claim an order that the disposition, ie the obligations undertaken by Properties in terms of clause 5(1) of the agreement, be set aside in terms of s 26 of the Act, alternatively that the bonds be set aside in terms of s 29 or, in the further alternative, in terms of s 30 of the Act.

To the particulars of claim, as originally framed, the defendants took two exceptions. G The first was that the plaintiffs did not plead facts which support the allegation that the liabilities of Properties exceeded the value of its assets as required by ss 26 and 29 of the Act. The second, which related to a claim which was withdrawn following on the exception, was in respect of another claim in terms of s 30 of the Act. Plaintiffs' counsel submitted that plaintiffs were entitled to their costs in respect of that exception. H

Defendants persist in the exception to all three claims, the contention being that the first ground of exception is applicable to all three claims, notwithstanding the amendments to certain paragraphs which were effected at the same time as the other claim under I clause 30 was withdrawn. Defendants' exceptions to plaintiffs' claims are all based on the assertion made in para 1.2 and repeated in para 3.2 of the notice of exception that the liability incurred by Properties in terms of the agreement was a contingent liability, which, so it is contended, is not a 'liability' within the meaning of ss 26, 29 and 30 of the Act.

J Mr Van Riet, who appeared with Mr L M Olivier on behalf of the

Friedman JP et Farlam J

A plaintiffs, contended that the liability incurred by Properties 'jointly and severally as surety for and co-principal debtor with Holdings in favour of the Masterbond Group' was not a contingent liability. In order to consider the correctness of this submission, it is necessary to have regard to certain aspects of the history of suretyship.

B In Roman law - as Professor R Zimmermann explains in The Law of Obligations, Roman Foundations of the Civilian Tradition at 130:

'(T)hroughout the classical period and up to the time of Justinian, the debtor and his surety were liable on an equal footing and not the one only if satisfaction could not be obtained from the other: in other words, the creditor was free to choose C whom of the two he wanted to sue first. And yet, this statement has to be qualified to a certain extent: it is correct, as far as the strictly legal side of things was concerned; in actual practice, however, the surety was what he was (arguably) only intended to be, namely a subsidiary debtor.'

The Emperor Hadrian had already, some centuries before Justinian's time, relieved the position of co-sureties to some extent by issuing a rescript in terms of which the D so-called benefit of division (beneficium divisionis) was introduced, which gave one or more of co-sureties the right, if the creditor claimed payment of the whole debt or more than his aliquot share of it from one of them, to demand that the debt be divided between all the co-sureties who were solvent, so each of them ended up paying only his aliquot share: see Zimmermann (op cit at 131-2).

E The Emperor Justinian went further and, by an enactment contained in Novellae 4,1 introduced the so-called benefit of excussion, or order (beneficium excussionis vel ordinis), which enabled a surety to insist that the creditor sue the principal debtor first before seeking to recover from him. As Professor Zimmermann (op cit at 129) points F out, 'with this enactment the liability of the surety became subsidiary'. Roman law appears to have recognised the power of a surety, by pact, to renounce the benefits to which he was entitled: see Van der Vyver v De Wayer and Others (1861-1863) 4 Searle 27 at 29.

As Watermeyer J pointed out in Van der Vyver's cas...