Shorie's Investments CC v TGR Construction CC

• Jurisdiction: South Africa
• Judge: Madondo J
• Judgment Date: 10 November 2008
• Docket Number: 1435/08
• Court: Natal Provincial Division
• Hearing Date: 11 August 2008
• Citation: 2008 JDR 1453 (N)

Madondo J:

INTRODUCTION

[1] The applicant seeks an order for the provisional winding up of the respondent on the grounds that it is unable to pay its debts, as envisaged in section 68 (c) of the Close corporation Act, 69 of 1984 (the Act), alternatively, that it is just and equitable in terms of section 68(d) read with section 69 of the Act that the respondent be wound up.

[2] The applicant is Shorie's Investments CC, a close corporation duly incorporated as such in accordance with the Close Corporation Laws of the Republic of South Africa and having its principal place of business at 40 Main Road , Dannhauser, Newcastle, KwaZulu-Natal.

[3] The respondent is TGR Construction CC, a close corporation duly incorporated as such in accordance with the Close Corporation Laws of the

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Republic of South Africa and having its registered address at 21 Auburn Place, Bellevue, Pietermaritzburg, KwaZulu-Natal and its principal place at 8 Posselt Road, New Germany, KwaZulu-Natal.

BACKGROUND

[4] The applicant alleges that the respondent is indebted to it in the sum of at least R1, 756, 954.34, being the balance outstanding on account of goods sold and delivered by the applicant to the respondent at the latter's special instance and request, during the period May 2007 to September 2007. On 17 October 2007, the respondent prepared and forwarded to the applicant a reconciliation of account, [1] showing that the respondent owed the applicant the sum of R1, 780, 254.09. However, reconciliation did not include the applicant's final invoice in the amount of R23, 196.85, which raised the total outstanding to R1, 803,450.94.

[5] On 29 November 2007 the applicant's member, Prithraj, and the respondent's member met and agreed upon a final credit of R 46,496.60 which brought the total amount outstanding to R1, 756,954.34. On 1 November 2007 the applicant received a written offer from the respondent to repay its debt in varying instalments [2] . On 10 December 2007 the applicant accepted payment by way of monthly instalments provided that the members of the respondent would stand as surety for the debt. Mr Holing, an attorney for the respondent, informed the applicant that he would not advise the members of his client to stand as surety and that Masakane Hardware is another larger creditor of the respondent. The respondent owed the said hardware in the region of R 1300 000-00.

[6] The applicant then wrote the respondent a letter threatening to issue liquidation papers should the respondent and its members fail to sign the agreement as surety by 20 December 2007. The respondent did not respond to

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the said letter. On 25 January 2008 the applicant then brought this application against the respondent. The application for the provisional order liquidating the respondent was set down for hearing on 6 February 2008. The respondent opposed the application and filed its Answering Affidavit a day before the hearing, 5 February 2008. The applicant filed its replying affidavit on 26 February 2008. Thereafter the matter was set down for hearing on 11 August 2008 and it came before me.

FACTS

[7] During the period between May 2007 and September 2007 the applicant and the respondent entered into various sale agreements and in terms of which the applicant would supply various materials and labour to the respondent. At the time the respondent was a contractor in respect of a development for its client, MDV Developments. According to the respondent it was a term of each agreement that the respondent would make payment to the applicant as and when its client made periodical payments to it .The labour payments would be made as and when the wages of labourers became due. However, according to the applicant its terms of trade with the respondent were that payment was to be made within 30 days from the date of invoice.

[8] The respondent alleges that during the course of its relationship with the applicant, it became apparent that there were a number of significant problems relating to the services and materials the applicant supplied:

(i)

The prices being charged for the same materials varied significantly between the quotations and the invoices and also between voices rendered at different times;

(ii)

The prices being charged were substantially higher than the general trade prices;

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(iii)

The materials specified on certain invoices were not the same as the materials delivered and were frequently of a sub-standard quality;

(iv)

Many of the materials delivered were latently defective;

(v)

The invoices did not tally with the amount in fact required and/or delivered;

(vi)

The workmanship of the labourers was of an extremely poor quality to the extent that much of the work had to be redone by other third parties, at the expense of the respondent;

(vii)

The applicant's workers were responsible for numerous damages on site due to carelessness and a lack of supervision; The client in fact evicted the applicant from the site towards the end of October or in early November 2007, being totally frustrated and disillusioned with the applicant's inability to deliver the agreed services and/or materials.

The respondent alleges that the negotiations then commenced between the parties with regard to what amount the respondent was indebted to the applicant, if in fact, it was so indebted at all.

[9] The respondent claims that it is entitled to levy penalties against the respondent because the project was delayed through the problems referred to above. Because of the poor workmanship and often latently defective products, third parties had to be contracted to complete the work properly at a substantial expense, adding to the respondent's damages. The respondent contends that it is entitled to recover such expenses from any amount it may owe the applicant either by way of set off (once quantified), alternatively, by way of damages.

[10] On the other hand, the applicant contends that the respondent is indebted to it in the sum of R1, 756,954.34, being the balance outstanding on account of goods sold and the applicant delivered to the respondent during the period May

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2007 to September 2007. There has been correspondence between the parties wherein the respondent unconditionally undertook to pay the amount it owed to the applicant in instalments. However; such an undertaking was not honoured. In the premises, the applicant alleges that the respondent is unable to pay its debt.

[11] Further, the respondent informed the applicant that it was due to receive retention of approximately R1, 600.000.00 in February or March 2008. The respondent has fear that if the retention monies were to be released to the respondent, it may use such monies to settle the claims of certain creditors over others, thereby creating preferences. The applicant therefore claims that it is also just and equitable that the respondent be wound up. The respondent denies that it is indebted to the applicant and that it is unable to pay its debt.

ISSUES

[12] The issues in this matter are:

(i)

Whether the respondent is indebted to the applicant and, if the answer is in the affirmative, whether the respondent is unable to pay its debts;

(ii)

Whether the respondent's dispute to its indebtedness to the applicant is bona fide and based on reasonable grounds;

(iii)

Whether it is just and equitable to wind up the respondent on the basis that it may utilize the retention money to pay other creditors, thereby preferring those creditors over the applicant.

SUBMISSIONS

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[13] The respondent has raised a point in limine relating to the admissibility in evidence of facts contained in the founding affidavit derived from "without prejudice settlement negotiations" conducted between the respondent and the applicant's attorney. The respondent contends that as the offer was marked without prejudice, it constituted a privilege communication which is inadmissible in evidence in legal proceedings between the parties. Mr Van Rooyen for the applicant has argued that there is no conclusive legal significance attached to the phrase "without prejudice." He went on to argue that the mere fact that a communication carries such phrase does not per se confer upon it the privilege against disclosure. In order to render a "privileged" admissible, the following requirements must be met...