UDC Bank Ltd v Lipschitz, NO

• Jurisdiction: South Africa
• Judge: Franklin J
• Judgment Date: 18 October 1976
• Citation: 1977 (1) SA 275 (W)
• Hearing Date: 15 September 1976
• Court: Witwatersrand Local Division

Franklin, J.:

As appears from the heading to this judgment, G there are three applications before the Court in respect of the claims which the applicant has made against three companies of which the respondent is the receiver. I shall, for convenience, refer to the three companies respectively as "Ubco", "Oreon" and "Kruben". For the sake of convenience and in order to save costs the annexures relating to the three H applications have been collected into one volume. Although the facts and the legal issues relating to each of the three applications overlap to a considerable extent, I shall in due course deal separately in this judgment with the position of the applicant in so far as its claims against the three companies are concerned.

The facts which led up to the launching of the three applications may be briefly summarized as follows:

Final liquidation orders were made in respect of each of the three companies on 22 October 1974. One Kurland, in his capacity as trustee

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and agent for a company in the course of formation, submitted an offer of compromise in respect of each of the three companies to the present respondent, who was a joint liquidator of each of them; and on 25 November 1975 this A Court sanctioned each of the offers of compromise and appointed the respondent as receiver for the creditors of each company to give effect to the offer.

Each of the offers made provision for the lodging of creditors' claims with the respondent and provided that in the event of the respondent rejecting any claim or any preference or security claimed thereunder, the creditor might take the B respondent's decision on review to the Court. The applicant lodged claims against each of the three companies. The respondent rejected these claims on the ground that the transactions on which they were based contravened the provisions of sec. 86 bis (2) of the Companies Act, 46 of 1926, and that the claims and the security conferred by surety C mortgage bonds which had been passed by Oreon and Kruben over their immovable property were "invalid, void and unenforceable".

The test to be applied

I think that the logical starting point from which to approach this somewhat involved and difficult matter is to consider the powers of the receiver and the test to be applied in the D present proceedings.

The receiver's functions and powers in relation to the rejection of claims are derived from, and circumscribed by, the terms of the offer of compromise which, having been sanctioned by the Court, are binding on all parties thereto. In South African Fabrics Ltd. v Hillman, N.O. and Another, 1972 (4) SA 592 (AD) at p. 599F - G, OGILVIE THOMPSON, E C.J., expressed this proposition as follows:

"Upon the Court's confirmation of the compromise, not only did the judicial management terminate and Gurlee become reinvested with its assets and the management of its own affairs, but first respondent's function was thereupon changed from judicial manager to that of receiver circumscribed by the provisions of the compromise. Thereunder the receiver was required... to distribute among Gurlee's concurrent creditors the balance of R390 000 remaining after discharge of the costs, fees, and F preferment claims listed in clauses 2 (a) and (b) of the compromise. As a necessary preliminary to such distribution, all creditors were of course required to prove their claims, and clause 3 (a) plainly confers upon the receiver the right to reject any such claim. In this context, the right to reject obviously connotes the obligation to consider possible grounds for rejection should such present themselves, or be presented to, the receiver."

See also Metal Box Co. of SA Ltd. v A. S. Dunstan (Pty.) G Ltd., 1974 (2) SA 208 (T) at p. 212A - C; Olbrich, K. G. v Cohen, N.O., 1975 (4) SA 621 (W) at pp. 623H - 624A. In the South African Fabrics case the learned CHIEF JUSTICE added (at p. 600H) that:

"... it is, in my view, entirely in keeping with the concept of the compromise that the receiver should be vested with plenary powers regarding the admission or rejection of claims. The compromise appoints him as the arbiter in that regard...".

The relevant provisions of the compromise in the present matter H read as follows:

Para. B3:

"this offer is conditional upon: Charles Lipschitz being appointed receiver for creditors, and whose duties shall include, but shall not be limited to, examining, and if necessary, pronouncing upon the genuineness, legality or validity of all or any claims submitted to him for proof in terms of all the rights and powers conferred upon him in the offer, and to make a distribution to all proved creditors as hereinafter provided for in respect of their legally valid approved claims...".

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Para. B4 (a):

"All claims against the company (preferment, secured, concurrent and contingent) are to be lodged with the receiver within 60 days from date of sanction and are to be proved with the receiver to his satisfaction, as if he were an officer presiding over a meeting of creditors in terms of sec. 44 of A the Insolvency Act... In the event of the receiver rejecting any claims either in whole or in part, or rejecting in whole or in part the preference and/or security claimed in respect of any claim, he shall notify the creditor in writing... that the said claim or any preference or security claimed thereunder, has been rejected, and such creditor shall, within 14 days of dispatch of the said notice, take the receiver's decision on review to Court, if such creditor desires to do so. Should the receiver reject any claim, either in whole or in B part, or reject any preference or security in whole or in part claimed in respect of any claim, the affected creditor, if he disputes the decision of the receiver, shall be entitled to institute review proceedings to Court within 14 days of being advised of such rejection...".

Paras. B4 (c) and (d) refer to the power of the receiver to "adjudicate upon" the legal validity of any claim and to reject it in whole or in part, and to reject any preference or C security in whole or in part in respect of any claim; and para. B4 (e) gives him the power to investigate and take any action for the purpose of "pronouncing on" the legal validity of certain debts referred to in that paragraph.

Although the compromise refers to "review proceedings" and "taking the receiver's decision on review to Court", the D paragraphs referred to above afford no guidance as to the test to be applied by the Court hearing the review proceedings. Nor do the cases to which I have referred dealing with the functions and the powers of a receiver (nor any decided case to which counsel were able to refer me) afford any such guidance. It is trite law that the word "review" is used in wide and in E restricted senses. One has only to refer in this connection to the well-known case of Johannesburg Consolidated Investment Co. Ltd. v Johannesburg Town Council, 1903 T.S. 111, for the proposition that the expression is capable of three distinct and separate meanings, all of which differ widely from one another as to the grounds upon which a decision of the person or body or tribunal whose decision is under attack may be set F aside on review. The procedural aspect raises no difficulty. It is governed by the provisions of Rule 53 of the Uniform Rules of Court; and that is the procedure which the parties have correctly followed in the three applications before me.

In the South African Fabrics case, supra, the Court of Appeal made an order declaring that the receiver, in deciding whether G to admit or reject a creditor's claim tendered to him for proof, was obliged, inter alia, to take into consideration and to have regard to the provisions of sec. 26 (2) of the Insolvency Act, which he had not done. This was equivalent to a decision, on review, that the receiver had gone wrong in law. That is, in my view, one ground upon which the present H respondent's decision may be set aside on review. And if the decision of the respondent had been upon a pure question of law based on facts which are common cause, there would, so it seems to me, be no onus either way. It would be for this Court merely to decide whether the respondent was right or wrong in law. The respondent's decision that the applicant's claims were all hit by the provisions of sec. 86 bis (2) of the Companies Act was, however, based upon his construction of a complex of facts emerging from documents placed before him. What is the legal position in such a case? I do not think that the matter can be approached on the basis that the respondent had a discretion which is

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reviewable only on the very limited grounds applicable to the decisions of certain domestic tribunals (contrast the use of the phrase "in his sole discretion" in para. B (I) (c) regarding the withholding of certain amounts payable to concurrent creditors). In my view the proper approach for this Court to adopt on review is that, where the facts are common A cause and the documents are plain and unambiguous, it is simply for the Court to decide whether the respondent's decision as to the inferences to be drawn therefrom was right or wrong; but that where any facts are in dispute or any documents are ambiguous, the onus is on the applicant to show that its version of the facts or its construction of the B documents is the right one. It is with this approach in mind that I turn now to a consideration of the disputes between the parties.

The claims

(A) Ubco

The applicant's claims against Ubco arise primarily out of C loans of money made by the applicant to Ubco in order to enable Ubco to purchase the shares in and loan accounts against Oreon and Kruben. In connection with those loans, Ubco granted options to the applicant to subscribe for shares in Oreon and Kruben or, at the option of the applicant, to receive money payments.

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