THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case No: 165/21

In the matter between:

ALERT STEEL (PTY) LTD                                                         APPELLANT
(in liquidation)

and

MERCANTILE BANK LIMITED                                            RESPONDENT

Neutral citation: Alert Steel (Pty) Ltd v Mercantile Bank Ltd (case no 165/21)
[2022] ZASCA 96 (21 June 2022)
Coram:
VAN DER MERWE, MOLEMELA and SCHIPPERS JJA
and MUSI and MATOJANE AJJA
Heard:

20 May 2022
Delivered:
21 June 2022
Summary: Enrichment – condictio indebiti and condictio sine causa – company
in liquidation – sale of assets – claim for repayment of amount received by
secured creditor – on the basis that receipt ultra vires – enrichment of creditor
and impoverishment of company not proved – appeal dismissed.

________________________________________________________________
ORDER
________________________________________________________________

On appeal from: Gauteng Division of the High Court, Johannesburg
(Dippenaar J sitting as court of first instance):

The appeal is dismissed with costs, including the costs of two counsel.

________________________________________________________________
JUDGMENT
________________________________________________________________
Schippers JA (Van der Merwe and Molemela JJA and Musi and Matojane
AJJA concurring)

[1] The issue in this appeal, which is before us with the leave of the court
below, is whether the appellant, Alert Steel (Pty) Ltd (in liquidation) (the
company), is entitled to repayment of an amount of R105 226 381.17, together
with interest and costs, based on the condictio indebiti, alternatively the condictio
sine causa. The respondent, Mercantile Bank Limited (the bank), a creditor of the
company, received the bulk of this amount (R100 million) pursuant to a sale of
the company’s assets.

[2] The facts are largely common ground. The company formerly traded as a
wholesaler and retailer of steel and hardware products. In March 2014 the bank
granted the company overdraft facilities in the sum of R104 million against
certain securities, including a registered notarial bond over the company’s stock

and movable assets, cession of its present and future book debts and cession of
its insurance cover with Credit Guarantee Insurance Company Ltd (CGIC).

[3] On 9 May 2014 the company was placed in voluntary business rescue in
terms of a board resolution. On the same day, the bank cancelled the overdraft
facilities, demanded repayment of R104 million plus interest, and informed the
company that it would exercise its rights under the securities it held.

[4] On 10 July 2014 a creditor of the company launched an urgent application
in the Gauteng Division of the High Court, Johannesburg (the high court), to set
aside the resolution placing it in business rescue. CGIC was cited as a respondent
in that application. Subsequently, CGIC applied to the high court for the
provisional winding-up of the company, which was enrolled for hearing on
15 July 2014. CGIC provided the bank with an unsigned copy of the winding-up
application on 14 July 2014, whereupon the bank perfected its notarial bond.

[5] On 17 July 2014 the high court granted an order that the company be
provisionally wound-up as it was unable to pay its debts. A final winding-up order
was made on 19 February 2015.

[6] The provisional liquidators (the liquidators) were appointed on 22 July
2014. That day, West Lake Trade and Investments (Pty) Ltd (West Lake) made a
written offer to purchase all the company’s assets for R100 million. The assets
included stock in trade, fixtures and fittings, and receivable and recoverable debts
of the company. All of these assets were subject to the bank’s security mentioned
above. The next day the liquidators informed the bank of the offer and encouraged
the bank to accept it.

[7] On 31 July 2014 the bank informed the liquidators that it supported West
Lake’s offer, subject to the condition that should the bank fund the West Lake
transaction, there would be no flow of funds to the insolvent estate and the
purchase price would be applied to reduce the company’s indebtedness to the
bank. The bank also imposed a condition that it would retain the cash and funds
it had collected from debtors and in the perfection of its notarial bond, to reduce
its exposure to the company. The liquidators expressly accepted these conditions.

[8] On 5 August 2014 the liquidators applied to the Master for an extension of
their powers in order to accept the West Lake offer of R100 million. They
informed the Master that the bank was the only secured creditor; that it had the
right, prior to the second meeting of creditors, to dictate the manner in which its
security should be dealt with; and that it was willing to accept the offer. The
Master granted the application and extended the liquidators’ powers to effect the
sale of the assets, and the West Lake offer was accepted. The written agreement
that was thus concluded, inter alia, provided:
‘3.1
The Offeror [West Lake] will purchase the Items of Sale for the sum of
R100 000 000.00 (ONE HUNDRED MILLION RAND) on acceptance of this Offer to
Purchase by the Offeree [the liquidators].
3.2
It is agreed between the Offeror and the Offeree that payment as contemplated in 3.1
above shall be effected directly to Mercantile by the Offeror or any of its assigns or affiliates,
wherein after the Offeror shall procure that Mercantile forthwith reduces any claims that it may
have against the insolvent estate of Alert by the amount contemplated in 3.1 above.’

[9] Subsequently, the bank financed the purchase by West Lake by lending the
R100 million to its nominee. The company’s account was credited in the sum of
R100 million. Consequently, the company’s debt to the bank was reduced from
R106 138 295.35 (the initial loan of R104 million plus interest) to R6 138 295.35.
The bank released the company’s assets from its perfected notarial bond, and the
assets were transferred to West Lake.

[10] The balance of R106 138 295.35 was further reduced by R5 226 381.17,
comprising amounts of R3.1 million paid to the bank by the liquidators in respect
of book debts collected by them, and R2 126 381.17, collected by the bank
pursuant to the perfection of its notarial bond. The sum of R100 million therefore
represented the proceeds of the sale of the company’s assets, and in effect and in
law the company made payment thereof to the bank. In argument in the high court
and before us, the parties dealt with the amounts of R3.1 million and
R2 126 381.17 on the same basis as the R100 million, and I shall do the same.

[11] The first meeting of creditors in the company’s insolvent estate took place
on 1 and 9 December 2015. The second meeting of creditors took place over an
extended period of time and closed on 21 February 2017. The bank did not prove
a claim against the estate at any of these meetings.

[12] In June 2017 the bank submitted a claim against the company’s insolvent
estate, in terms of s 44(4) of the Insolvency Act 24 of 1936 (the Insolvency Act).
The affidavit in support of the claim stated that the bank was a secured creditor
of the company in the sum of R106 138 295.17 as at 15 July 2014. The bank’s
attorney requested the liquidators to convene a special meeting, at its cost, for
proof of its claim.

[13] The special meeting of creditors was held on 14 February 2018 at the
Master’s office in Pretoria. However, at this meeting the bank withdrew its claim.
According to the answering affidavit, this was done to preserve the bank’s
position that its claim against the company had been reduced by R100 million,
following West Lake’s acquisition of the company’s assets, and therefore it was
unnecessary to prove a claim in that amount. Had the bank proved a claim in the
whole amount (R106 138 295.17), that would have been contrary to its stated
position.

[14] The company’s case in the founding affidavit was founded on the
following allegations. The bank had directly and indirectly collected amounts
totalling R105 226 381.17, in respect of the company’s estate (the collected
amount). The bank did not prove a claim in the company’s estate. The second
meeting of creditors closed on 21 February 2017 and three months had passed
since the closing of that meeting. Despite demand, the bank failed to pay the
company the collected amount or any portion of it.

[15] The liquidators, with the bank’s knowledge, had taken decisions on the
basis that the bank was a secured creditor and would prove a claim in the
company’s estate. Had they known that the bank was not a secured creditor as
required by law, they would not have allowed it to collect and retain the collected
amount. The liquidators had to finalise the first liquidation and distribution
account in the company’s estate, and were required to deal with the collected
amount. There was no legal basis for the bank to retain the collected amount
without having proved a claim in the estate. The liquidators thus initially took the
position that the bank had not perfected its security prior to the commencement
of the winding-up of the company on 15 July 2014. However, the high court’s
clear factual finding to the contrary was rightly not challenged before us and the
appeal must be determined on the basis that the bank had indeed perfected its
security prior to the effective date of the winding-up.

[16] The company raised two further grounds upon which it claimed to be
entitled to payment of the collected amount. The first was based on an alleged
breach of an agreement between the parties, namely that in the event of the bank
not being a secured creditor, it would pay the collected amount to the company,
together with interest. The second ground was delictual. It was alleged that at the
date of the concursus creditorum, the bank had wilfully or negligently
represented to the liquidators that it was a secured creditor and would prove its

claim in the winding up of the company. This representation was false and
induced the company to act to its prejudice by allowing the bank to collect and
retain the collected amount. However, the company did not persist with these
claims on appeal.

[17] In the high court, and before us, the case was advanced on the basis that
the liquidators had acted ultra vires and the bank was consequently enriched.
More specifically, it was submitted on behalf of the company that monies paid by
liquidators in error or outside their powers, may be recovered with the condictio
indebiti or the condictio sine causa. It was contended that the acts of the
liquidators were inconsistent with s 44 and s 83(10) of the Insolvency Act.

[18] The high court (Dippenaar J) dismissed the application with costs,
including the costs of two counsel. Its main findings may be summarised as
follows. The sale of the assets was effected outside the estate of the company,
with the sanction of the Master. The company was seeking to receive, and not
recover, the purchase price of the assets (R100 million) paid to the bank. Neither
the payment of that amount to the bank nor the conduct of the liquidators was
unlawful. The principle in Bowman,1 that an ultra vires payment by a liquidator
may be recovered with the condictio indebiti or the condictio sine causa was
inapplicable, since in that case the Master had not authorised the sale of an
insolvent’s assets in specific terms. The validity of the Master’s consent to the
sale of the company’s assets could not be decided without an application to
review and set aside that decision. The high court also held that the bank had, in
any event, not been enriched.

1 Bowman, De Wet and Du Plessis NNO and Others v Fidelity Bank Ltd [1996] ZASCA 141; 1997 (2) SA 35 (A)
at 42A.

[19] The finding that the payment to the bank of the proceeds of the sale of the
insolvent company’s assets, was ‘effected outside the estate’ with the sanction of
the Master, has no basis in the evidence. The Master did no more than authorise
the sale of the company’s assets. That much is clear from the facts which the
liquidators placed before the Master in support of the application for permission
to accept the West Lake offer, as well as the terms of the Master’s authorisation.

[20]  The liquidators informed the Master that the bank was a secured creditor
which had perfected its notarial bond over the assets. The West Lake offer of
R100 million was for all the stock and assets of the company at all its branches.
The liquidators attached a desktop valuation of the assets showing a forced-sale
value of R65 million, and said that acceptance of the offer would benefit all the
creditors. The company had some 800 employees and West Lake had undertaken
to attend to the labour relations issues. Acceptance of the offer would increase
the dividend; avert any auctioneer’s commission, advertising costs and the
liquidators’ administrative expenses; and release the insolvent estate from
monthly expenses in respect of rent, insurance and security, which the liquidators
would have had to pay until the estate was wound-up. For these reasons, the
Master authorised the sale and extended the powers of the liquidators. On the
facts, it cannot be suggested that the Master authorised payment of the proceeds
of the sale of the company’s assets to the bank, outside the estate and the
principles of insolvency law.

[21]  Counsel for the company, on the authority of Bowman,2 submitted that it
was entitled to repayment of the collected amount. In Bowman this Court
approved the judgment in Van Wijk’s Trustee,3 in which it was held that if an heir
or executor in violation of his duty pays a creditor whose claim should have been

2 Ibid.
3 Van Wijk’s Trustee v African Bank Corporation 1912 TPD 44 at 52-53.

postponed, it is not contrary to any principle of law that the estate through the
executor or the trustee is entitled to recover what has been improperly paid, by
way of the condictio indebiti. Harms JA said that an ultra vires payment ‘can be
reclaimed with the condictio indebiti or, at the very least, the condictio sine
causa’.4

[22] The submission is, however, unsound. There was no allegation in the
founding affidavit that the bank had been enriched at the expense of the company.
The condictio indebiti and the condictio sine causa, or the respects in which the
company had met the requirements of these enrichment actions, were not pleaded
at all. But even if they were, and on the assumption that the payment of the
collected amount to the bank was ultra vires the provisions of s 44 of the
Insolvency Act because the bank did not prove a claim in the company’s estate,
an ultra vires payment is not recoverable without more. The company was still
required to establish the general elements of an enrichment claim, namely that (i)
the bank was enriched, ie it gained a financial benefit that would otherwise not
have taken place; (ii) the company was impoverished; (iii) the bank’s enrichment
was at the company’s expense;5 and (iv) the enrichment was unjustified, ie there
was no legal basis to justify the retention of the collected amount.6

[23] The company simply did not meet these requirements. To begin with, the
bank was not enriched. To found an enrichment action, the company had to show
that the bank had received the collected amount indebite in the widest sense or
sine causa:7 in other words, that there was an increase in the assets of the bank
which would not have taken place, but for the receipt of the collected amount.

4 Bowman fn 1.
5 Fletcher & Fletcher v Bulawayo Waterworks Co Ltd, Bulawayo Waterworks Co Ltd v Fletcher & Fletcher 1915
AD 636 at 649.
6 17 Lawsa 3 ed para 209.
7 17 Lawsa 3 ed para 214.

The liquidators acknowledged that the company was indebted to the bank in an
amount in excess of R100 million. Indeed, the liquidators informed the bank that
its claim against the company could be reduced (which they incorrectly referred
to as ‘set-off’) by the proceeds of the sale of the assets to West Lake. What is
more, on 22 August 2014 they paid an amount of R3.1 million to the bank as
‘provisional dividends’, which merely confirmed that the bank was entitled to the
collected amount.

[24] The company’s reliance on Bowman does not assist it. In that case a
creditor, Fidelity Bank Ltd (Fidelity), had secured claims against a company in
liquidation in the amount of R640 000. The liquidators of the company entered
into an agreement with Fidelity to pay the amount of R640 000 from the proceeds
of the sale of the secured assets to Fidelity, prior to the drawing and confirmation
of the liquidation and distribution accounts of the insolvent estate. Payment in
terms of this agreement was thus ultra vires the powers of the liquidators.
However, the liquidators made an overpayment to Fidelity in the sum of
R220 000 and sought to recover it by way of the condictio indebiti. The
liquidators did not seek to recover the payment of the R640 000 made in respect
of the valid underlying debt. This Court held that because the agreement provided
for payment of the amount R640 000 in respect of Fidelity’s secured claim,
nothing more or less, it was only the amount of R220 000 that was an indebitum,
which could be recovered in terms of the condictio indebiti.8

[25] If the bank had not been enriched by the receipt of the collected amount,
then the company was not impoverished, since the quantum of a plaintiff’s claim
is the amount by which it has been impoverished or by which the defendant has
been enriched, whichever is the lesser.9 In any event, no payment was made at

8 Bowman fn 1 at 43F-G.
9 Fletcher & Fletcher fn 5 at 649.

the company’s expense: it owed the bank R104 million plus interest, and its debt
to the bank was reduced by the collected amount. Only the bank could lay claim
to the proceeds of the sale to West Lake.

[26] It follows that the company did not satisfy the requirement of enrichment
at its expense. Neither was there any unjustified enrichment. There was a legal
basis for the bank’s receipt of the collected amount. The founding affidavit stated
that the bank ‘was a secured creditor in an amount in excess of R104 000 000.00’.

[27] In any event, it would be unjust to require the bank, many years later, to
prove its claim in the company’s estate. The unchallenged evidence was that the
bank could not be restored to its position as a secured creditor, since the assets
were transferred to West Lake many years ago and used in the course of the
latter’s business. If the bank were ordered to repay the collected amount, all that
would happen is that it would have to go through the formality of proving its
claim for the initial loan of R104 million plus interest, and then be repaid the
amount paid to the estate, less the liquidators’ fees. The inevitable conclusion to
be drawn from the facts is that the recovery of the liquidators’ fees was the sole
reason for the claim. As stated in Mars,10 a trustee (here a liquidator) who pays a
creditor before confirmation of a liquidation and distribution account, does so at
his own risk.

[28] In the result the appeal is dismissed with costs, including the costs of two
counsel.

___________________
A SCHIPPERS
JUDGE OF APPEAL

10 E Bertelsmann et al (eds) Mars: The Law of Insolvency 10 ed (2019) at 597 para 23.10.2.

Appearances:

For appellant:

M v R Potgieter SC
Instructed by:
Smit Sewgoolam Inc, Johannesburg

McIntyre Van der Post, Bloemfontein

For respondent:

P Stais SC (with him G D Wickins SC)
Instructed by:

Brooks & Braatvedt Inc, Johannesburg

Honey Attorneys Inc, Bloemfontein

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
21 June 2022
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does
not form part of the judgments of the Supreme Court of Appeal
Alert Steel (Pty) Ltd (in liquidation) v Mercantile Bank Limited (case no 165/21) [2022]
ZASCA 96
The Supreme Court of Appeal (SCA) today dismissed an appeal by the appellant, Alert Steel
(Pty) Ltd (in liquidation) (the company), against an order by the Gauteng Division of the High
Court, Johannesburg (the high court), which dismissed its claim against the respondent,
Mercantile Bank Limited (the bank) for repayment of the sum of R105 226 381.17, together
with interest and costs.
The Company previously traded as a wholesaler and retailer of steel and hardware products. In
2014 the bank granted the company overdraft facilities in the sum of R104 million against
certain securities, including a registered notarial bond over the company’s stock and movable
assets, and cession of its present and future book debts, and an insurance cover. The company
was provisionally wound-up in 22 July 2014. A final winding-up order was made in February
2015.
On 22 July 2014 the provisional liquidators received a written offer from West Lake Trade and
Investments (Pty) Ltd (West Lake) to purchase all the companies assets for R100 million. The
bank accepted this offer and the liquidators obtained the Master’s consent to proceed with the
sale. The assets were sold to West Lake and the company’s indebtedness to the bank was
reduced by R100 million. The liquidators paid an amount of R3.1 million in respect of book

debts which they collected to the bank. An amount of R2 126 381.17 was collected by the bank
pursuant to the perfection of its notarial bond.
Subsequently, the liquidators applied to the high court for an order directing the bank to repay
the amount of R105 226 381.17 together with interest, on the basis that the bank was not
entitled to retain this amount because it had not proved the claim in the company’s insolvent
estate. The liquidators’ claim was based on enrichment, namely the condictio indebiti,
alternatively the condictio sine causa.
The SCA held that the requirements of enrichment had not been satisfied. The bank had not
been enriched: the liquidators had acknowledged that the company was indebted to the bank in
an amount in excess of R104 million, and that the bank was a secured creditor. The company,
correspondingly, was not impoverished. No payment was made at the company’s expense. It
owed the bank R104 million plus interest. The payment to the bank was not unjustified: there
was a legal basis for payment to the bank of the proceeds of the sale of the company’s assets
to West Lake. The inevitable conclusion to be drawn from the facts was that the recovery of
the liquidators’ fees was the sole reason for their claim.
The appeal was accordingly dismissed with costs, including the costs of two counsel.