Simon NO and Others v Mitsui and Co Ltd and Others

• Jurisdiction: South Africa

Simon NO and Others v Mitsui and Co Ltd and Others
1997 (2) SA 475 (W)

1997 (2) SA p475

Citation	1997 (2) SA 475 (W)
Case No	25524/93
Court	Witwatersrand Local Division
Judge	Wunsh J
Heard	March 18, 1996; March 19, 1996; March 20, 1996; March 22, 1996; March 25, 1996; March 26, 1996; March 27, 1996; March 27, 1996
Judgment	April 15, 1996
Counsel	M D Kuper (with him JGA Krüger) for the excipient (first defendant); H Z Slomowitz (with him J M Suttner) for the respondents (plaintiffs).

Flynote : Sleutelwoorde G

Practice — Judgments and orders — Interpretation of — Court's intention to be ascertained primarily from language of order as construed according to usual rules for interpreting documents — To be read as whole by reference to its H contents and objects — If meaning clear and unambiguous, no extrinsic fact or evidence admissible.

Practice — Judgments and orders — Rescission — On the ground of fraud — Applicant not showing that false representations (including non- disclosure) could have induced Court to grant order nor alleging that fact existed of which I Court unaware but which would have precluded granting of order — No case for rescission made out.

Company — Winding-up — Liability for fraudulent or reckless conduct of company's business — Companies Act 61 of 1973, s 424(1) — Liability of juristic person — Company A having obtained Court order authorising it to take over management and control of business of company B — Company J

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B subsequently liquidated — Liability of company A under s 424(1) — Must have A knowingly participated in reckless or fraudulent conduct of company B's business — Court applying alter ego or 'directing mind' doctrine to determine whether to attribute state of mind of its directors or officers to company A itself — Test for liability of company under s 424 whether directing minds of that company had knowledge that there was no reasonable prospect of other B company's creditors being paid — Not possible to find on facts that directors of company A had requisite knowledge for order under s 424 against company A.

Company — Winding-up — Liability for fraudulent or reckless conduct of company's business — Companies Act 61 of 1973, s 424(1) — Requirement that C person sought to be held liable 'knowingly party to' fraudulent or reckless conduct of company's business — 'Party to' meaning no more than 'participation in' — Can be constituted by supine attitude amounting to concurrence in such conduct — 'Knowingly' meaning actual knowledge or knowledge in form of dolus eventualis. D

Insolvency — The insolvent — Unlawful alienations and preferences — Insolvency Act 24 of 1936, ss 29, 30, 31 — Setting aside of dispositions — Plaintiffs, liquidators and creditors of insolvent company, seeking to have certain dispositions made by it set aside — In absence of allegation of collusion or tacit agreement, failure of insolvent company to oppose application for order giving E its main creditor possession of its movable assets not meaning that granting of order amounting to disposition by insolvent company — None of transactions relied on constituting dispositions rendered voidable in terms of sections in question.

Pledge — Pledgee who takes charge of pledgor's business and conducts or manages it acts as agent for pledgor and has duty to account for everything in F good faith — If pledgor discharges debt, business to be returned — Return involving handing over of profit earned during pledgee's custodianship — Management of company's business transferred to its main creditor — Creditor having right to apply proceeds of pledged assets to payment of its claim — Creditor operating in fiduciary capacity and obliged to exercise good faith in all transactions with company — Obligation of pledgee (creditor company) in G casu having fallen away and accordingly not entitled to statement of account.

Headnote : Kopnota

The first three plaintiffs were the liquidators and the others creditors of Fastfax (Pty) H Ltd, a retailer of office equipment. The first defendant, 'Mitsui', which had from its inception supplied Fastfax with equipment and paper, excepted to plaintiffs' particulars on the grounds (1) that they were vague and embarrassing and (2) that they failed to disclose the causes of action. The following is a summary of the factual background to the case.

1.

In August 1988 Fastfax ceded its debts in securitatem debiti to one of its creditors, Punchline, the fifth plaintiff. After Punchline instituted proceedings I for the recovery of its claim, an agreement was concluded with Fastfax for payment of the outstanding amount (R2 million).

2.

In July 1989 Fastfax ceded its debtors in securitatem debiti to Mitsui, its main creditor. (This cession was subject to prior cession to Punchline.)

3.

On 24 August 1989 a notarial bond was registered by which almost all Fastfax's movable assets were hypothecated in favour of Mitsui for an J

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amount not exceeding R5 million and a further R10 million for interest and A costs.

4.

In order to perfect its security, Mitsui applied for, and on 12 October 1989 was granted, an unopposed Court order authorising it to take possession of the assets hypothecated by the notarial bond and to hold them in pledge. The order in addition authorised Mitsui to take over and conduct Fastfax's business in Fastfax's name and for its account until such time as Mitsui B received payment of the amount of R5 million mentioned above, plus interest and costs.

5.

In November 1989 Mitsui concluded an agreement with Mincorp (the second defendant) in terms of which Mincorp took over the management of Fastfax's parent group, Fastel, for a limited period in order to assess the financial viability of the group. C

6.

On 22 December 1989, when the management period had expired, a written agreement was entered into between Mitsui, Fastel, Fastfax, the owners of Fastel's share capital (one D and one V), and MEC, a subsidiary of Mincorp, in terms of which D and V sold their share capital to MEC, in return for which MEC undertook to provide Fastfax with finance of R2 million, in the first instance by purchasing the claims against Fastfax of the D Commissioner for Inland Revenue, the fourth plaintiff. MEC also undertook to cede its resultant claim against Fastfax to Mitsui as security for Fastfax's indebtedness to Mitsui in an amount of R3,2 million, payment of which was rescheduled. This claim was subordinated to Mitsui's claim against Fastfax and payment was deferred until it was discharged. Mitsui undertook to E withdraw the Court order as soon as MEC had disbursed the R2 million referred to above; and delegated to MEC its powers of management and control of Fastfax's business.

7.

At the same time MEC sold 24% of Fastel's share capital to D in terms of a shareholders' agreement to which W, the managing director of Mincorp, and Fastel were also parties. The agreement provided that D would be F responsible for the marketing and sales function and W the day-to-day management of Fastfax. Mitsui then ceased to have any participation in the management of Fastfax.

8.

In February 1990 Fastfax disposed of two divisions of its business to entities owned by Fastel. As a result these entities owed the purchase price to G Fastfax. These amounts were discharged by false entries in Fastfax's books, purporting to be in respect of work done and goods supplied by these entities for and to Fastfax.

9.

On 10 April W wrote to Mitsui indicating that Fastfax was trading at a loss and that MEC was unable to make any further investments in Fastfax.

10.

On 19 April, Mitsui, MEC, and Fastfax entered into an agreement with H Mistral (a company controlled by W and P, the sixth defendant), in terms of which Mitsui sold to MEC its claims against Fastfax. Fastfax's outstanding orders on Mitsui were cancelled and the machines sold instead to Mistral. On payment of the purchase price by MEC Mitsui was to cancel the notarial bond over Fastfax's movables or cede it to MEC.

11.

In July 1990 an agency agreement was concluded between Mistral and Fastfax in terms of which Fastfax was appointed as Mistral's agent to sell the I machines which Mistral had acquired from Mitsui. Over the next three months Fastfax became indebted to Mistral in an amount of not less than R500 000 in respect of the delivery by Mistral of such machines. This debt was repaid after August 31.

12.

On 2 August Fastfax sold its Cape Town branch and its debts which were subject to the Punchline cession to a company called Cancen. J

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Fastfax then ceded its resultant claim against Cancen to Mistral and Cancen A agreed to pay Mistral directly. Notwithstanding the cession to Mistral, Cancen on 4 September proceeded to pay R200 000 of the total purchase price to Fastfax, and on that date Fastfax paid the R200 000 to Mistral, despite the fact that an application for the liquidation of Fastfax had been received by 31 August. Cancen then realised the Fastfax debts sold to it and retained the proceeds. B

13.

On 21 August an application by MEC that it be substituted for Mitsui under the Court order of 12 October 1989 was granted (see 4 above).

14.

On 31 August Fastfax sold the goodwill and debts of its Durban branch to a company called Canatal.

15.

On 31 August 1990 Fastfax was wound up by reason of its inability to pay its debts. C

16.

Fastfax had while trading failed to pay the Receiver of Revenue moneys deducted by it from employees' salaries for the payment of their income tax (PAYE) and had become liable for penalties and interest. It was also indebted to the Receiver for unpaid sales tax and penalties and for unpaid income tax and interest. At the date of the...