Venter and Others v Credit Guarantee Insurance Corporation of Africa Ltd and Another

JurisdictionSouth Africa
Citation1996 (3) SA 966 (A)

Venter and Others v Credit Guarantee Insurance Corporation of Africa Ltd and Another
1996 (3) SA 966 (A)

1996 (3) SA p966


Citation

1996 (3) SA 966 (A)

Case No

88/94

Court

Appellate Division

Judge

Hefer JA, F H Grosskopf JA, Nienaber JA, Schutz JA and Zulman AJA

Heard

February 26, 1996

Judgment

May 13, 1996

Counsel

A R Sholto-Douglas for the first appellant.
C W Rosenthal for the second and third appellants.
R G Buchanan SC for the respondents.

Flynote : Sleutelwoorde B

Contract — Legality of — Contracts contrary to public policy — Agreement providing C that payment be made to insurer of creditor of company in liquidation and that creditor would withdraw objection to offer of compromise made in terms of s 311 of Companies Act 61 of 1973 — Other creditors and Court not informed of agreement — Whether such agreement contra bonos mores — Agreement concluded D after meeting of creditors in terms of s 311 — Full disclosure made of all relevant facts at meetings — Majority of creditors satisfied with offer of compromise — Payment to insurer in terms of agreement to be made from outside sources to which creditors having no claim — Agreement not affecting rights of creditors — Agreement not contra bonos mores.

Headnote : Kopnota

E During 1987 a company known as Contour Engineering (Pty) Ltd ('Contour') became indebted to the second respondent in the sum of R65 057 in respect of goods sold and delivered by the second respondent to Contour. In consideration of credit facilities granted to it by the second respondent Contour had signed a cession of book debts in favour of the second respondent. Towards the end of 1987 Contour was placed in liquidation and the second respondent duly proved a secured claim against the company. F The second respondent was covered by a policy of insurance in terms whereof the first respondent had indemnified it against loss in respect of bad debts, including those of Contour. When the second respondent submitted its claim to the first respondent in terms of the insurance policy, it signed a cession of dividends form whereby it ceded to the first respondent its right to any dividend which might accrue to it arising from the liquidation of Contour. Notwithstanding the cession of dividend, the second respondent retained its claim against Contour and remained the creditor who could vote at meetings of creditors G of Contour. The Court granted an order in terms whereof meetings of creditors had to be held for the purpose of considering an offer of compromise in terms of s 311 of the Companies Act 61 of 1973 proposed by the third appellant. In terms of the offer of compromise the second respondent would have received an amount of R30 000. It had, however, been convinced that the full amount due to it would be recovered and, with the consent of the first respondent, voted against the acceptance of the offer of compromise. H Notwithstanding the opposition the offer was accepted at a meeting of creditors. However, the first appellant was concerned that the dissenting vote of the second respondent might cause the Court to refuse to sanction the proposed arrangement and, together with V, the liquidator of Contour, approached M, an attorney, to negotiate with the first respondent to reconsider its rejection of the offer of compromise. The second I appellant had been in Israel at the time. An agreement was reached between W, a manager employed by the first respondent, and M in terms of which the appellants undertook jointly and severally to make up any shortfall should the collection of book debts not realise R65 000 within six months after the date of the meeting of creditors; the first respondent undertook to withdraw its opposition to the acceptance of the offer. The first respondent later instituted an action in a Local Division claiming payment of the sum of R65 000 from the three appellants based on the undertaking given by M. The second respondent intervened during the course of the trial, claiming that the undertaking had J been given in its favour.

1996 (3) SA p967

A The Court a quo gave judgment for the first respondent against the second and third appellants but dismissed the first respondent's claim against the first appellant on the ground that the first respondent had failed to show that M had been authorised to bind the first appellant. The claim of the second respondent was dismissed.

In an appeal the second and third appellants submitted that the appeal should succeed on any of three alternative bases: (i) on the ground that the first respondent had failed to B discharge the onus of proving the amount of the shortfall which was due to it in terms of the undertaking; (ii) on the basis that M and W had not been ad idem as to whom W was representing when he and M had entered into the agreement; (iii) that the agreement was a secret agreement which was contra bonis mores, and that its concealment was contrary to public policy.

As to (i), the Court held that the undertaking should be construed in its context, and with a view to what the parties intended to achieve and that, insofar as the words used in the C undertaking were capable of bearing different meanings, a 'purposive construction' could be applied: the wording of the undertaking showed that the parties had intended that the debt of R65 000 should, in the first instance, be reduced by means of payments derived from the collection of book debts and that the appellants would then be liable for any shortfall. It was further held that it was far more likely that the parties had intended the shortfall to mean the deficit which remained after the money from the book debts had been paid over and, since no payments had been made in that regard, the first respondent D had proved a shortfall of R65 000 and discharged the onus. (At 973C/D, read with 973G/H-H/I and 974H/I.)

As to (ii), the Court found that the objective facts led to the conclusion that W had been correct when he had testified that, in entering into the agreement, he had been acting on behalf of the first respondent as principal. If the second respondent had been the real principal there was no reason why W would not have disclosed that to M. A further E factor which had to be borne in mind was that W had never even discussed the proposed agreement with the second respondent. There was no evidence that the first respondent, or anybody on its behalf, had been given a mandate to represent the second respondent in concluding the agreement with M and any belief on the part of W that he was acting on behalf of the second respondent in concluding the agreement with M would therefore have been mistaken, inasmuch as he had had no authority to represent the second respondent. The Court accordingly agreed with the conclusion of the Court a quo that there had been consensus and that it had been the common intention of all the F contracting parties that the undertaking would be in favour of the first respondent. (At 975I-976D.)

As to (iii), the Court held that it was ironic that the second and third appellants sought to escape liability on the basis that they had concealed the agreement from the creditors and the Court. If anybody had had a duty to disclose the existence of the agreement and its terms it would have to have been the third appellant, who had proposed the s 311 G arrangement, and who had been party to the agreement. The first respondent had not been a creditor and had had no duty to inform the Court or creditors, while the liquidator, chairman of meetings and receiver had known of the agreement but had not deemed it necessary to mention it to the Court because it had no effect on the offer of compromise and did not concern the creditors. It was further held that, in considering whether the agreement was against public policy or contrary to good morals, the following considerations had to be borne in mind. The agreement had been concluded after the H meetings in terms of s 311 of the Companies Act had been held; there had been full disclosure of all the relevant facts at the meetings; the majority of creditors had been satisfied with the terms of the offer and had voted in favour thereof; the subsequent agreement provided for the eventual payment of any shortfall to the first respondent, who was not a creditor of Contour; payment of any shortfall under the agreement would have I been made from outside sources to which the creditors had no claim; and the agreement had not affected the rights of creditors, or caused them actual or potential prejudice. The Court accordingly held that there had been nothing improper or immoral about the agreement and that failure to disclose its terms to creditors and the Court was not contrary to public policy. (At 976F-H, read with 976J-977B/C and 977D-E.)

With regard to the cross-appeal instituted by the first respondent against the dismissal of its claim against the first appellant, the Court held that the first appellant had failed to J testify, although he would have been able to give decisive evidence relating to his

1996 (3) SA p968

A involvement in the third appellant, his interest in the sanctioning of the compromise and his instructions to the attorney; and, because those matters had been peculiarly within his knowledge, less evidence than otherwise would suffice to establish a prima facie case. The question whether an adverse inference should be drawn depended to a large extent upon the particular circumstances of the case. No general rule could be laid down, but one of the circumstances that had to be taken into account and given due weight was the B strength of the case which the first respondent had to meet. (At 977H-978A.)

Held, that the first respondent could not rely upon extra-judicial statements, conduct and admissions of the 'agent' himself to establish his...

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