THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

Case number : 97/04
Reportable

In the matter between :

EXPORT HARNESS SUPPLIES (PTY) LIMITED

APPELLANT

and

PASDEC AUTOMOTIVE
TECHNOLOGIES (PTY) LIMITED

RESPONDENT

CORAM :       MPATI DP, BRAND, CLOETE, HEHER JJA, MAYA AJA

HEARD :
10 MARCH 2005

DELIVERED :  29 MARCH 2005

Summary:    Liquidation ─ final order sought ─ approach to disputes of fact ─ s 22 of
the Supreme Court Act, 59 of 1959 ─ in absence of an appeal, affidavit
cannot be tendered where refused by a lower court.
_________________________________________________________

JUDGMENT

CLOETE JA/

CLOETE JA:
[1] The respondent as the applicant instituted liquidation proceedings in
the High Court, Johannesburg, against two respondents. The appellant
was the second respondent. The application against the first respondent
was abandoned when the replying affidavit was delivered. It would be
convenient to refer to the parties as in the court of first instance.

[2] The application against the second respondent was dismissed by
the court of first instance (Marais J) but a final order liquidating the second
respondent was granted on appeal by a majority of the full court (Blieden
J, Goldblatt J concurring and Goldstein J dissenting). The full order reads
as follows:
‘(a)
The appeal is upheld with costs, including the costs of two counsel.
(b)
The appellant is ordered to pay the costs of the application for condonation
including the respondents’ costs of opposing such application.
(c)
The order of the court a quo is set aside and is substituted by the following
order:
“A final winding-up order is made against the second respondent.”’
The second respondent has appealed against the order of the full court
with the special leave of this court.

[3] The matter is complex from both a legal and a factual point of view.

It can, however, be disposed of fairly simply.

[4] At the outset it would be convenient to refer to what this court
recently held in Paarwater v South Sahara Investments (Pty) Limited
(SCA case number 091/2004 in which judgment was handed down on 3
March 2005) and to deal with an agreement reached between the parties
when the matter was heard by the full court. In Paarwater this court
emphasized that whereas a prima facie case sufficed for the grant of a
provisional order, the grant of a final order required proof on a balance of
probabilities. The agreement was recorded as follows in the judgment of
the majority of the full court:
‘The parties in this appeal were agreed that taking all the facts into account, little
purpose would be served by a provisional order rather than a final  order being granted
at this stage. If the appellant is entitled to an order such order should be a final order.’
The agreement obviously cannot be construed as meaning that if the
applicant discharged the onus for a provisional order, but not the onus for
a final order, a final order should nevertheless be granted; and the
applicant’s counsel freely conceded as much. The agreement must be
interpreted as meaning that neither party wished to place further evidence
before the court and that the appeal should accordingly be dealt with on
the basis that the applicant was seeking a final order. In Paarwater this

court said in para 4:
‘An analysis of all of the facts which were before the court a quo when the appellant
sought a final order reveals that there were serious disputes in regard to the essential
matters that the appellant was required to satisfy the court upon in order to establish
that it was “just and equitable” to wind up the respondent. Furthermore it is important to
note that the applicant, who bore the onus, as I have previously mentioned, did not
seek an order referring such disputes for the hearing of oral evidence as he might have
done (cf Kalil and Emphy and Another v Pacer Properties (Pty) Ltd). In the
circumstances the following test enunciated by Corbett JA in the oft referred decision
of Plascon-Evans Paints Limited v Van Riebeeck Paints (Pty) Limited is of application:

“Secondly, the affidavits reveal certain disputes of fact. The appellant

nevertheless sought a final interdict, together with ancillary relief, on the

papers and without resort to oral evidence. In such a case the general rule

was stated by Van Wyk J (with whom De Villiers JP and Rosenow J

concurred) in Stellenbosch Farmers’ Winery Ltd v Stellenvale Winery (Pty) Ltd

1957 (4) SA 234 (C) at 235 E – G, to be: ‘… where there is a dispute as to the

facts a final interdict should only be granted in notice of motion proceedings if

the facts as stated by the respondent together with the admitted facts in the

applicant’s affidavits justify such an order … Where it is clear that facts,

though not formally admitted, cannot be denied, they must be regarded as

admitted.’ … It seems to me, however, that this formulation of the general rule,

particularly the second sentence thereof, requires some clarification and,

perhaps, qualification. It is correct that, where in proceedings on notice of

motion disputes of fact have arisen on the affidavits, a final order, whether it

be an interdict or some other form of relief, may be granted if those facts

averred in the applicant’s affidavits which have been admitted by the

respondent, together with the facts alleged by the respondent, justify such an

order … In certain instances the denial by a respondent of a fact alleged by

the applicant may not be such as to raise a real, genuine or bona fide dispute

of fact … Moreover, there may be exceptions to this general rule, as, for

example, where the allegations or denials of the respondent are so far-fetched

or clearly untenable that the Court is justified in rejecting them merely on the

papers…”.’
In this matter, too, there are fundamental disputes of fact which cannot be
resolved on the papers.

[5] In the founding affidavit the applicant alleged that the second
respondent had not complied with a demand made in terms of s 345(1)(a)
of the Companies Act, 61 of 1973 (‘the Act’). Section 345(1), to the extent
relevant, provides:
‘(1)
A company … shall be deemed to be unable to pay its debts if –
(a)
a creditor, by cession or otherwise, to whom the company is indebted in  a
sum of not less than one hundred rand then due –
(i)
has served on the company, by leaving the same at its registered office, a
demand requiring the company to pay the sum so due…
…

and the company … has for two weeks thereafter neglected to pay the sum, or to
secure or compound for it to the reasonable satisfaction of the creditor…
…
(c)
it is proved to the satisfaction of the Court that the company is unable to pay its
debts.’
The applicant also alleged that it would be just and equitable for the
second respondent to be wound up in terms of s 344(h) of the Act.

[6] The case based on s 345(1)(a) was doomed to failure inasmuch as
the demand contemplated in that section was not addressed to the
second respondent. It was addressed to another company, the first
respondent. Faced with this difficulty, the applicant argued that it had
made out a case that the second respondent was in fact unable to pay its
debts as contemplated in s 345(1)(c) of the Act.

[7] The majority of the full court, on the urging of the applicant, had
regard to what Mr Annandale, the sole director and member of the second
respondent, had said in the answering affidavit delivered on behalf of the
second respondent. According to Annandale, the second respondent was
not indebted to the applicant; on the contrary, the applicant was indebted
to the second respondent in an amount of R401 135,82. In support of this
allegation, Annandale annexed a schedule, which had been prepared by

an accountant, Mr Aucamp, on the basis of information provided to him by
Annandale. In that schedule was an amount of R1 139 196,47 which
Annandale averred was owing by the second respondent to its customer,
Delphi Packard Electric Systems (‘Delphi’) and for which the applicant
was, according to Annandale, in turn liable to reimburse the second
respondent. No attempt was made by Annandale to substantiate this
alleged indebtedness. If it is left out of account the second respondent is,
on its own calculations, indebted to the applicant in an amount of
R738 060,65. That was the approach of the majority of the full court.
Accepting the correctness of this approach, the question arises whether
the majority of the full court was correct in finding that the applicant had
established that the second respondent was unable to pay that amount.

[8] Of course a court may in a particular case draw an inference as to
the insolvency of a debtor if the debt claimed is not disputed by the debtor
on substantial grounds in liquidation proceedings. The crucial question is
whether this was such a case. The majority of the full court reasoned:
‘It is further relevant that Annandale in the answering affidavit he deposed to on behalf
of both respondents spends a great deal of time and effort in his attempt to attack the
“debt” relied upon by the appellant. However not one word is said by him in regard to
the second respondent’s ability to pay any debts. Not one word is said about the

second respondent’s financial position. The only reasonable conclusion one can
therefore come to on the papers before the court is that if a debt of sufficient size is
proved, the second respondent was not in a position to pay what it owed and which
was due and payable.
In a case such as the present one where a debt has been disputed by the second
respondent on grounds which are shown not to be bona fide, I am of the view that a
court is entitled to hold that section 345(1)(c) has been complied with, no proof to the
contrary having been provided. This is a risk all companies who put up non bona fide
defences in order to avoid paying their debts face.’
There was, however, no allegation whatever in the founding affidavit that
the second respondent was unable to pay the debt claimed by the
applicant, as Goldstein J pointed out. A concerted attempt was made by
the applicant’s counsel, who referred to several passages in the founding
affidavit, to demonstrate the contrary. The high water mark was the
following passage:
‘I believe that ANNANDALE has so arranged the affairs of [the second respondent]
and EXPORT HARNESS SUPPLIES INTERNATIONAL that they will be unable to pay
[the applicant] any sums owing in that such accounts as exist will have been depleted
and the location of the funds will not be capable of being ascertained, save in the case
of a winding-up of the companies and a full and detailed investigation by a duly
appointed liquidator.’
This passage does not, however, contain an allegation that the second

respondent is unable to pay its debts. It amounts to speculation which was
based on bank records of the second respondent. Annandale gave a brief
explanation of the entries in question in rebuttal of the inference the
applicant sought to draw and the applicant did not seek a referral to
evidence to show that the second respondent could not pay its debts ─
whether because of the alleged dishonesty of Annandale or otherwise.

[9] In fact, far from alleging that the second respondent could not pay its
debts, the applicant candidly admitted in the founding affidavit that it was
‘unaware of the financial situation’ of the second respondent. The only
allegation made by the applicant in its founding affidavit in support of its
main claim was, as one would expect under these circumstances, that the
second respondent did not respond to a notice in terms of s 345(1)(a). The
applicant did claim in its founding affidavit that it was entitled ex debito
justitiae to an order liquidating the second respondent inasmuch as the
latter had not disputed the debt claimed on substantial grounds but had
merely denied it without giving reasons; but in order to obtain such an
order, the applicant was obliged to make out a case that the second
respondent was unable to pay its debts. It was nowhere alleged that such
an inference should be drawn from the second respondent’s bare denial,
at that stage, of the debt claimed. The applicant expressly relied on s

345(1)(a) and not s 345(1)(c).  There was a short answer to that case, and
Annandale gave it. Annandale cannot be criticized for failing to deal with
the financial situation of the second respondent to meet an allegation
which was not made.

[10] As I have said, the applicant relied on the second respondent’s
calculations which, if the unsubstantiated Delphi claim is left out of
account, would leave a balance owing by the second respondent of less
than R740 000 ─ not the more than R6 million claimed by the applicant.
There are, however, no concrete facts to suggest that the second
respondent would be unable to pay this much smaller amount from the
more than R6 million which the applicant says the second respondent
should have received from Delphi.

[11] In all the circumstances of this particular case it would be unsafe to
infer that the second respondent is unable to pay its debts. I accordingly
conclude that the applicant did not make out a case for the final liquidation
of the second respondent on that basis.

[12] The alternative basis upon which the applicant sought the
liquidation of the second respondent was that such an order would be just
and equitable. Little emphasis was placed on this ground by the

applicant’s counsel, either in the heads of argument filed or in oral
argument.

[13] The allegations made by the applicant in support of its case on the
alternative basis were summarised in the heads of argument filed by the
applicant’s counsel as those ‘contained in the founding affidavit relating to
the [applicant’s] status as the beneficial shareholder of the [second
respondent], Annandale’s hijacking of the [second respondent’s] business,
the dishonest and corrupt conduct of the [second respondent’s] business,
and the VAT fraud alleged in the replying affidavit in response to
Aucamp’s schedule annexed to the answering affidavit’. It is not
necessary to consider whether the allegations, if proved, could justify an
order that it would be just and equitable for the second respondent to be
wound up.

[14] The allegations contained in the founding affidavit were disputed by
Annandale and his version cannot be rejected as so far-fetched or clearly
untenable that the court would be justified in rejecting them merely on the
papers; nor was the contrary argued on behalf of the applicant.
Accordingly the applicant has not discharged the onus for a final order of
liquidation based on those allegations. Indeed, Goldstein J considered the

allegations in the founding affidavit individually and came to the
conclusion that, assuming the relevance of the contentions advanced, not
even a prima facie case was made out; and no attempt was made to
demonstrate why the learned judge was incorrect in his analysis.

[15] The allegations in the replying affidavit in regard to the VAT fraud
were made in the context of the indebtedness which the applicant alleged
was owed to it, not in support of the applicant’s case that it would be just
and equitable for the second respondent to be liquidated. The applicant’s
counsel readily and correctly conceded that in the circumstances were
this court to take these allegations into account (assuming their legal
relevance) for this latter purpose, the second respondent could well be
prejudiced, for the obvious reason that the second respondent may have
sought to file a further affidavit to deal with them had it been alerted to this
possibility. It follows that the second basis on which the applicant sought
the liquidation of the second respondent cannot succeed either.

[16] There is one further matter which requires consideration. The
second respondent sought to place further evidence before this court in
terms of s 22 of the Supreme Court Act, 59 of 1959. The evidence was
contained in an affidavit. It must be accepted that the affidavit was

tendered to the court of first instance and that that court refused to receive
it. The second respondent’s legal representatives aver that they have no
recollection of this, but a contemporaneous note made by an articled clerk
in the employ of the applicant’s attorneys establishes that it did occur. In
the absence of an appeal against the decision of the court of first instance,
this court cannot be asked to receive the affidavit in terms of s 22. The
applicant employed two counsel to argue the appeal, which the
complexity of the appeal warranted; and because of the significance of the
evidence which the second respondent sought to place before this court, it
was a wise and reasonable precaution for the applicant to employ two
counsel to oppose the application as well. Accordingly the fees of two
counsel should be allowed for the application, as counsel for the second
respondent conceded.

[17] Counsel for the second respondent asked for an order that the costs
of the application for special leave to appeal from the decision of the full
court be paid by the applicant. Such an order is unnecessary. Those costs
were made costs in the appeal by the order of this court given on 11
February 2004.

[18] The following order is made:
1.
The second respondent’s application in terms of s 22 of the
Supreme Court Act is dismissed with costs, including the costs of two
counsel.
2.
The appeal is upheld, with costs. Paragraphs (a) and (c) of the order
made by the court a quo are set aside and the following order is
substituted:

‘The appeal is dismissed, with costs.’

______________
T D CLOETE
JUDGE OF APPEAL

Concur:
Mpati DP

Brand JA

Heher JA

Maya AJA