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IN THE HIGH COURT OF SOUTH AFRICA

(WITWATERSRAND LOCAL DIVISION)

CASE NO: 05/13586

[Consolidating Case Nos 05/13586, 05/13890 & 05/13893]

In the matter between:

MOBILE TELEPHONE NETWORKS (PTY) LIMITED Plaintiff

and

CONSOLIDATED NEWS AGENCIES (PTY) LIMITED

(IN LIQUIDATION) First Defendant

WEBBER WENTZEL BOWENS ATTORNEYS Second Defendant

NEDBANK LIMITED Third Defendant

BIOTRACE TRADING 89 (PTY) LIMITED Fourth Defendant

GORDON KAY AND ASSOCIATES (PTY) LIMITED Fifth Defendant

MARK LAWRENCE GORDON Sixth Defendant

HOBART ANTHONY KAY Seventh Defendant

JOHNNIC COMMUNICATIONS LIMITED Eighth Defendant

WOOLTRU LIMITED Ninth Defendant

CONSOLIDATED NEWS AGENCIES HOLDINGS

(PTY) LIMITED Tenth Defendant

J U D G M E N T

SALDULKER, J:

A. INTRODUCTION

[1] The parties have agreed to the separate determination of an issue that arises in three consolidated actions between them. The separate issue deals with the applicability on certain assumptions arising out of the pleaded allegations of Section 33(1) of the Insolvency Act 24 of 1936 (The Act) as amended.

[2] The liquidators of Consolidated News Agencies (Pty) Ltd (in liquidation) (CNA) assert that certain provisions of an agreement, the Amended Retailer Agreement, (ARA¹), concluded in March 2001 fall to be set aside as dispositions without value in terms of section 26 of the Act.

[3] The five dispositions² are:

1. the waiver by CNA of any claim it might have had under the second income warranty for the year ended 30 June 2001; (clause 4.2 of the ARA);

2. the undertaking by CNA to pay all income accruing to it into an income bearing trust account; (clause 5.1 of the ARA; in terms of Clause 5.2 of the ARA, CNA is entitled to withhold collectively from the trust account 50% of their income; income being defined as all income earned from cellular telephony business)³;

3. the liability of CNA to reimburse Mobile Telephone Networks (Pty) Ltd

(MTN) for payments effected by MTN pursuant to the guarantees provided

by MTN under the ARA (clause 6.3);

4. the issuing of the undertaking as surety and co-principal debtor in favour of

MTN for payments affected by MTN pursuant to the MTN guarantees under

the ARA (clause 6.4);

5. the cession of all funds by CNA to MTN of its rights to the funds in the trust

account in favour of MTN (clause 6.4 of the ARA).

[4] MTN and MTN Service Provider (Pty) Ltd (M-Tel) (the MTN parties), deny that these provisions and the resultant transactions constitute impeachable dispositions without value. They contend that even if they did, the MTN parties, are not obliged to restore any property or other benefit received under such (alleged) dispositions unless the liquidators of CNA have indemnified the MTN parties, more particularly in that they acted in good faith and parted with property or security, or losing rights, in terms of section 33(1) of the Act.

[5] The parties’ agreement regarding the separate determination of the issue under Rule 33(4) appears from paragraph 3.2 of the Rule 37 minute, and the order granted by the above Honourable Court on 4 December 2006. The minute provides as follows:

“Assuming that the disposition referred to at paragraph 15.4 of the particulars of claim under case number 05/13890 constitute dispositions within the meaning of section 2 of the Insolvency Act, No. 24 of 1936, and were not made for value within a period of two years prior to the liquidation of consolidated and would accordingly be liable to be set aside (as alleged in paragraph 15.5.2.1 of the particulars of claim), the Court is requested to determine the merits of the defence pleaded in paragraphs 14.2.1 to 14.2.4 of the plea under case number 05/13890, read with paragraphs 2.1 to 2.3 of the replication under case number 05/13586 (‘the section 33(1) defence’).”

[6] In terms of the above agreement and the order of court, this court is requested and required to assume for the purposes of this determination that the relevant provisions of the ARA do indeed constitute dispositions identified supra for the purposes of Section 26 of the Act and that such dispositions were not made for value.

[7] By agreement between the parties the following documents were handed into court:

Exhibit A - Consolidated Index to the Pleadings (Pages 1-223)

Exhibit B - Trial Bundle A; File 1– Items Nos 1-90 (Pages 1-347)

Exhibit C - Trial Bundle A; File 2 –Items Nos 91 to 168(Pages 348-638)

Exhibit D - Trial Bundle – Financials

Exhibit E - Agreement as to Documents

B. BACKGROUND

[8] In the action under Case No. 05/13586, MTN sues the liquidators of CNA on the basis of an allegation that CNA is liable to MTN as a co-principal debtor with Gordon Kay & Associates (Pty) Ltd (GKA) to refund MTN in respect of MTN’s payment under guarantees issued by it in favour of Wooltru Limited (Wooltru).This action has been defended by CNA⁴ on the basis that the provisions of the ARA relied upon by MTN constitute voidable dispositions in terms of section 26 of the Act.

[9] To that defence MTN has replicated as follows:⁵

“2.1 In return for one or more of the dispositions, the plaintiff in good faith paid to Wooltru an amount of R85,976,778.08 pursuant to the guarantees as pleaded in paragraph 8 of the particulars of claim;

2. The first defendant’s liquidators have not indemnified the plaintiff in respect of the above;

2.3 Accordingly, in terms of section 33(1) of the Insolvency Act 24 of 1936, the plaintiff is not liable to restore any benefits received under the amendment agreement.”

[10] Under Case No. 05/13890 the liquidators of CNA have instituted action against, inter alia, MTN and M-Tel alleging that relevant provisions of the ARA constitute dispositions not for value in terms of section 26 of the Insolvency Act.

[11] MTN and M-Tel have raised in their plea to that action as one of their defences the following⁶:

“14.2 Alternatively and in the event of it being found that dispositions were made and are liable to be set aside as alleged (which is denied) then in such event the defendant aver:

1. in return for one or all of the alleged dispositions the first defendant [MTN], acting in good faith made payment to Wooltru Limited in amounts aggregating R85 976 778,08 pursuant to the aforesaid guarantees;

2. further in return for one or more of the aforesaid dispositions the second defendant [M-Tel], acting in good faith lost its right against Consolidated to terminate the retailer agreement consequent upon the breaches by Consolidated pleaded in paragraph 6.2.3 above;

3. the plaintiffs have not indemnified the first or second defendants in respect of the aforegoing;

4. accordingly, in terms of section 33(1) of Act 24 of 1936 the first and/or second defendants are not liable to restore any property or other benefits received under the alleged dispositions unless they are indemnified for parting with the aforesaid monies and/or benefits and for losing such right, in accordance with section 33(1).”

[12] Under Case No. 05/13893 the liquidators of CNA sue to enforce the topping up obligation of M-Tel under clause 5.3 of the ARA, into the trust account.⁷

[13] It is MTN’s case that in terms of the ARA, MTN undertook an obligation to provide the guarantees referred to in the ARA and made payment to Wooltru of an amount of R85 976 778,08 under those guarantees. But for the ARA, MTN would not have given these guarantees or made any part of this payment. The undertaking by MTN to provide the guarantees was given in return for one or more of the hypothesised dispositions and in doing so the MTN parties acted in good faith.

[14] According to the liquidators the question as to the causa for the payment by MTN is significant. The liquidators state that it was made pursuant to the terms of the guarantees and not because dispositions were made.

C.THE TERMS OF THE RETAILER AGREEMENT

[15] For the purposes of determining the issues in the present matter, the relevant portions of the (RA), are inter alia as follows:

1. The income warranties appear in clause 25.1⁸:

For the year ended 30 June 2000 a minimum income warranty of

R65million was stipulated; the corresponding figures for the years ended

30 June 2001 and 30 June 2002 were R77million and R84, 7million

respectively.

2. Clause 25.3 the “Retailer undertakes to use its “best endeavours” to achieve the minimum targets contemplated in Clause 25.1…”

4. Clause 25.4 provides as follows:

“The parties wish to record that the warranties contemplated in 25.3 above are necessary to ensure that the minimum targets contemplated in 25.1 are achieved and accordingly , any material or persistent breach of the warranties contemplated in 25.3 which materially prejudiced the achievement of any of the minimum targets shall constitute a material breach of this Agreement and the Service Provider shall be entitled to call upon the Retailer to rectify such breach within forty eight (48) hours of receiving such notice to rectify, failing which the Service Provider shall be entitled to immediately terminate the Agreement upon written notice to the Retailer.”

D. THE RELEVANT PORTIONS OF THE ARA

1. Clause 2.2 of the ARA⁹ inter alia reads as follows:

“…M-Tel’s liability in terms of the Income warranty for the year ended 30 June 2001 is substantial, and further claims may be made in respect of the Income warranty for the year ended 30 June 2002. The parties wish to renegotiate the terms of the Income warranties.”

2. Clause 2.3 reads as follows:

“ The companies in the Johnnic Group and the Johnnic Principals have supplied and will continue to supply goods to CNA and Newco, and require security for their exposure to Newco and CNA.

3. Clause 2.4 reads as follows:

“ The Purchaser, Holdings, CNA, M-Tel, Gordon and Kay are prepared to amend the terms of the RA as it relates to the Income warranty on the basis that in consideration for the concessions made by CNA, MTN will furnish the first guarantee and the second guarantee to Wooltru with the result that Gordon and Kay will be released from the Suretyship. MTN will be reimbursed from the trust account for payments made under the guarantees. Wooltru is prepared to except the First guarantee and the Second guarantee in lieu of the bank guarantees referred to…”

4. Clause 3.2 reads inter alia as follows:

“ M-Tel undertakes to Wooltru that it will give Wooltru notice of any breach of the RA by CNA or Newco, provided that such obligation will only exist for so long as the purchase price has not been paid in full.

5. Clause 4.2 reads as follows: “the Income Warranty for the year ended 30 June 2001 is hereby deleted from the Retailer Agreement. Accordingly neither CNA nor Newco shall have any claim against M-Tel arising from that Income Warranty, and each of CNA and Newco waives any claims which it may have against M-Tel arising from that Income Warranty”

6. Clause 4.3 reads as follows:” The Income Warranty for the period ended 30 June 2002 shall remain in force, save that:-

4.3.1 the period covered by the Income Warranty shall run from 1 April 2001 to 30 June 2002;

4.3.2 in determining the liability of M-Tel under this Income Warranty, the income earned by all CNA stores under the RA, whether operated by Newco or CNA shall be aggregated. To the extent that the aggregate of such income so arrived at is less than the warranted income from the RA of R84 700 000, M-Tel shall be liable for the shortfall to the Trust Account.

7. Clause 5.1 reads inter alia as follows: “CNA… agree that all income accruing to CNA between 1 April 2001 and 30 June 2002… shall be paid by CNA into an interest bearing Trust Account opened by Webber Wentzel. Interest earned on the trust account shall accrue and be for the benefit of CNA…”

8. Clause 5.2 inter alia reads as follows: “Notwithstanding the provisions of Clause 5.1, CNA and Newco shall be entitled to with hold collectively from the trust account, and to retain for their own purposes 50% of their income from existing business…conducted under the RA, subject to a maximum aggregate withholding by CNA and Newco collectively of R1 500 000 per month…”

9. Clause 5.3 reads inter alia as follows:“ M-Tel undertakes to CNA and to MTN that if the balance of the trust account at the date on which payment is made by MTN under the guarantees is less than the sum payable under the guarantees …M-Tel shall, forthwith pay into the trust account the full shortfall between such sum and the balance in the trust account…”

10. Clause 6.3 reads inter alia as follows: “If MTN is called upon to make any payment under either of the guarantees, MTN shall be entitled to recover the amount paid by it from the Purchaser, CNA and Newco, it being the intention of the parties that MTN will be reimbursed by CNA and Newco, such reimbursement being effected from the monies held in the trust account…”

11. Clause 6.4 reads inter alia as follows: “Each of CNA and Newco binds itself as surety for and co-principal debtor with the Purchaser for the Purchasers obligations to MTN to refund monies paid by MTN under the Guarantees, to create the legal causa for the payments contemplated in clause 6.3. CNA and Newco each cede to MTN, as security for those obligations, all of their rights in and to the monies in the trust account and all of their rights under the Income Warranty for period ended 30 June 2002, as recorded in this Agreement and the Retailer Agreement. Such cession shall remain in force until such time as all amounts owing to MTN pursuant to payment by MTN under the guarantees, has been repaid to MTN…”

12. Clause 6.5 reads inter alia as follows:“… Wooltru confirms that it accepts the guarantees in lieu of the bank guarantees… and the delivery of the guarantees will discharge the obligations of the Purchaser…”

E. THE EVIDENCE

[16] What follows is a summary of the evidence presented by the plaintiff insofar as it is relevant to the issues arising for determination. No evidence was led by the liquidators.

[17] Steven Peter Tredoux (Tredoux) testified that he was Group Executive Sales for MTN during the period between 1999 to 2001. Rob Reynolds (Reynolds) was Group Executive Marketing and later Chief Operating Officer. Reynolds is currently living in Sydney, Australia.

[18] A Retailer Agreement (RA) was negotiated with CNA. Tredoux explained the commercial advantages to both M-Tel and CNA which arose from the RA relationship. The RA which was concluded on 8 March 1999 served to secure exclusivity of MTN products in the CNA retail outlets and would afford M-Tel the ‘footprint’ of approximately 380 CNA stores.¹⁰The benefits to CNA from the ongoing relationship with MTN were numerous. CNA would retain the custom of M-Tel and accordingly of MTN products within its stores. The increased ‘footprint’ would result in increased turnover for the retailer.

[19] They believed that the figures provided for in the RA were easily achievable as the growth rate for the purchase of cellphones was exponential during that period. In terms of the RA, warranties had to be provided by CNA to ensure that MTN met their minimum target.

[20] He was shown an inter-office memo from Geraldine Kode, a legal adviser, to Mr Bob Chaphe, CEO of MTel, where concerns were raised with regard to “warranties to be provided by CNA to allow us to meet the minimum target”. However he stated that a breach of the RA in respect of the warranties given by CNA would result in a ‘prorated’ liability.¹¹

[21] During May 2000 MTN were of the view that they were going to make the target and this positive mood continued into August 2000. MTN “was very positive, we had a very positive approach notwithstanding the facts that there were many, many operational issues on both sides. We were frustrated with CNA about some issues, they were frustrated with us, but the relationship worked well between the people that worked there and I think the business relationship was going well despite the fact that we were really having some operational challenges”;¹²

[22] However, during October 2000 M-Tel was surprised at having to draw a cheque in favour of CNA for R9, 4 million in respect of the guaranteed margin of R65 million for the first warranty period ending 30 June 2000, in terms of the RA. Tredoux had not made provision for this shortfall as he had been under the impression that the minimum guarantees would be achieved.¹³

[23] There were complaints by M-Tel about CNA’s performance during October 2000. Despite assurances these concerns were escalating. There was some "finger pointing over operational issues”. During January 2001 stretching into February 2001 M-Tel became aware that they were well behind in making the target for the warranties and became concerned about their exposure as it could be as high as R44million. Although they felt that CNA was not putting their full effort into this “partnership”, there was a lot of goodwill and they were working together. CNA took the view that MTN had to pay the warranties anyway.¹⁴ Reynolds expressed concern and his attitude was that he was not going to pay the warranty and that he would rather remove the MTN kiosks from the various CNA retail outlets¹⁵.

[24] During the second week in February 2001, Tredoux specifically raised the question whether they were liable to pay or not at a meeting he attended with Richard Brand of CNA, and where Tim Holden had been present. During this meeting he told them that they “were not going to pay the warranty,” Although they had a different view there was still an understanding that “whatever happened going forward we would have to work together to make this thing work otherwise it would fail”..¹⁶

[25] It was put to Tredoux that Holden would dispute his evidence that CNA had been told that M-Tel would not pay on the warranty.¹⁷

[26] Early in February 2001 he became aware that Gordon and Kay (GKA) was buying CNA from Wooltru. He and Reynolds were introduced to Mark Gordon (Gordon) and Kay of GKA when they attended a presentation of a 100 day plan presented by GKA in the CNA boardroom, as to what the “new” management of CNA intended to do with CNA and what the role of MTN would be in that plan. GKA were very clear that they had bought a business from Wooltru which had not performed up to expectations and there were operational issues. It was important for them to negotiate a way forward and resolve any outstanding issues that there may be and grow the business into the future.¹⁸

[27] They were also aware that there were issues concerning the RA and that there were disputes around the payment of some of the warranties. However he was prepared to negotiate around the settlement of that payment provided that he had a way forward.¹⁹

[28] Notwithstanding these difficulties, during 2000 there was optimism that the business would improve. The view was conveyed by CNA, that it was a ‘cyclical’ business which peaked over the Christmas period. However, on 16 January 2001, it became apparent to M-Tel that they were approximately R20 million behind on the CNA margin guarantee. This led to “a whole lot of meetings and discussions between all the parties…We were disappointed with the performance. So we spent a couple of weeks finding out what the problems and issues were but had felt that they were not perhaps giving it their full effort over a period of time.”²⁰ According to Tredoux, the relationship between MTN and CNA was akin to that of a partnership and M-Tel adopted the view that CNA “needed to put in their part”.²¹

[29] On 26 March 2001 the ARA was signed. The re-negotiation of the RA was central to GKA’s plan to restructure and reinvigorate CNA.²² They believed that the ‘footprint’ provided by CNA from a retail perspective “was really, really good for our business”²³. They embarked on a massive marketing and advertising campaign (including co-branding) for the business of CNA. Despite all of this, things did not improve. Reynolds was concerned that CNA was not performing and commented “so much for CNA’s ‘best endeavours’ to make the warrant”.²⁴

[30] On 25 May 2001, he and Reynolds met with Gordon at this meeting they were made aware of CNA’s cash flow problem as they were asked for extended terms for R1.2 million. Until that meeting they were under the impression that the business was secure. There were some concerns about the cash flow situation and questions were raised as to whether "they were heading for the ditch”²⁵ as per the e-mail of Mr Dabengwa, the managing director of MTN but were assured that it was a temporary cash flow problem.

[31] Under cross-examination he stated that there was a lot of ‘finger pointing’ between the parties over the entire period of the agreements and there were justifiable complaints on both sides.²⁶ It was during October 2000 that alarm bells were set off by Andre Marshall’s e-mail where he stated that he had made out a cheque for R9.4 million and was worried that “if sales continued at the current rate there would be a shortfall in relation to the warranty which would fall due for payment in June 2001.”²⁷

[32] Tredoux was referred to an e-mail sent by Mr McGrath to Geradine Kode regarding the requirement that Credit Guarantee would provide cover in respect of M-Tel’s debit book for CNA on condition that the payment has been unconditionally guaranteed by Wooltru. To this Tredoux replied that he was aware that Credit Guarantee asked for a guarantee from Wooltru and this had raised debates about the creditworthiness of CNA.²⁸ But there were no particular alarm bells ringing as regards CNA’s cash flow and at some point they did receive a guarantee from Wooltru. He did not know whether CNA had furnished their financial statements to MTN.

[33] During December 2000, their ‘exposure’ was seen to be around R40 million and by early February 2001 there were many meetings to strategise a way forward, but there was no documentation recording these events. It was put to Tredoux that an e-mail sent in early 2001 indicated that the issue of Credit Guarantee had still not been resolved²⁹.To this he replied that M-Tel had not felt ‘at risk’ but they were “sitting between a rock and a hard place.”³⁰

[34] He was referred to a slide presentation by Reynolds during early 2001 where reference was made to the “renegotiation, total guaranteed amount of R1, 617million to a total of R85million. Reasons for this are many. Johnnic involvement and CNA non-performance.” ³¹ He explained that “Jenkins who was a director of MTN had got involved in the discussions and the renegotiation of the agreement to the extent that the new owners believed that they needed to look after all of their supplies. The Johnnic Group owning shares in MTN and others, Johncom, the music business, the books, the publishing magazines, Caxton, had an interest in making sure that the Johnnic Group was favourably treated in whatever the new agreement was. So he got involved to negotiate that”.³²

[35] Before the ARA was concluded, they were aware of the under performance and disastrous results from CNA and that Wooltru “had been fairly vocal in the press in terms of the unbundling exercise and they were getting rid of it because it would not perform”.³³ However before the final signature on the ARA, MTN knew that CNA was making losses but they were under the impression that Wooltru would stand behind any losses. It was plain to him that CNA was “unhealthy but for a turnaround”. If the trend continued he knew they would be at a risk. When questioned that this meant “Into liquidation but for a turnaround” ³⁴, he replied “Well but for a rescue plan either from existing management, from whoever it may be, Wooltru or whoever it may be. It looked as though CNA were battling to run the business. This would ‘expose’ MTN with MTel and the Johnnic broader interests. They were well aware of the problems that CNA, had but a new management team would take control of CNA and turn it around.”³⁵

[36] Tredoux was referred to the proposed Board paper that Mr McGrath had sent for comments ³⁶ where it was recorded that ”the legal opinion obtained that MTN is liable for an amount of up to R45million in September for an amount of up to R85million in September 2002….and that the remaining exposure being liquidation on the short term”. To this he replied that liquidation was one of the things they had considered as one of the options.³⁷One of features of the ARA was to give to the MTN parties security in the event of liquidation. However they were aware of the problems that CNA had, but were optimistic that a new management team would ‘turn it around’. They however did not have any information that it was going into liquidation but it was one of the risks that they looked at.

[37] Going into the ARA, they were aware they had an ‘exposure’ and that M-Tel’s liability in terms of the income warranty for the year ended 30 June 2001 was substantial.³⁸ They decided not to put out a formal notice of cancellation under clause 25.4 of the RA.³⁹ CNA was not put on terms to remedy a breach under the RA as that would have terminated the agreement and they wanted an ongoing commercial relationship. They believed that Wooltru was standing behind CNA until they disposed of it. They were not at risk, “it did not necessarily mean liquidation”.⁴⁰

[38] He confirmed that in terms of the ARA, “a new agreement had been negotiated to take care of years two and three in one warranty. The total guaranteed amount was renegotiated from R1, 617million to a total of R85million”. From an MTN’s perspective the whole purpose of the ARA was to renegotiate the terms of the agreement with the new owners of CNA in order to help CNA achieve its success. They believed that CNA had one of the best footprints in South Africa, from a retail perspective.

[39] Paul Jenkins (Jenkins) testified that he joined the Johnnic Group as an executive director of Media and Entertainment in 1998. He worked in the Johnnic Group in various capacities until 2005. Johnnic Holdings owned a very valuable stake in a company called MCel which is now the listed holding company of the MTN Group. They had a significant stake in MNet. He was a director of the listed Johnnic Holdings, of Johncom, of MTN group, and several other companies and on the Board of several companies in the entertainment sphere. And as CEO his focus was in the entertainment sector. Every one of these businesses had something to do with CNA. By virtue of its reach and the diversity of the products it sold, CNA was an important customer of the Johncom Group. Jenkins identified the importance of the supply of Johnnic products to CNA.

[40] He was not a party to the RA concluded between M-Tel and CNA during April 1999 but was aware that there was an agreement between MTN, M-Tel and CNA in terms of which CNA was an outlet for MTN products. On the day of the announcement in the press of the sale of CNA to GKA (15 February 2001), he met Gordon, the new owner of CNA.

[41] At the end of February 2001, a formal meeting was arranged where Gordon informed him that as a result of an agreement between CNA and MTN there was a likelihood that MTN/M-Tel would end up owing CNA a substantial amount of money in June 2001.⁴¹Jenkins informed Gordon that M-Tel was contesting this amount and that there was a serious problem in the relationship. Gordon wished to resolve the issues between MTN and CNA. Gordon expressed to Jenkins that he saw MTN as an integral part of his plan to re-invigorate CNA and in the circumstances needed to ensure that the relationship with MTN as supplier was ‘very, very solid.⁴²

[42] He contacted Mr McGrath the financial manager of MTN and confirmed that there was indeed a potential amount owing under the RA. When he read the RA he was concerned about clause 25 which indicated that a minimum amount of R77 million as a margin was payable by MTN in June 2001 which was to be offset against what had been earned on the sale of cellphones and products. McGrath told him that MTN’s exposure under this guarantee was between R30 to R40 million. He became concerned at the R30 million potential liability. He made enquiries and Reynolds informed him that “he did not think the money was payable, he was never going to pay the money. He was on the point of pulling his product out of the CNA, that the relationship had failed, and that the failure to meet the margin was not his fault and basically he was going to cancel the agreement.”⁴³ His state of mind was one of grave unhappiness as it appeared to him that the relationship between MTN and CNA was seriously troubled.

[43] At the beginning of March 2001, he informed Gordon that M-Tel was concerned over the minimum guarantee warranty which they were not going to pay and that there was a serious problem with the relationship between CNA and M-Tel. Gordon could not afford a breakdown in the relationship. It was his prime objective as the new prospective buyer to secure the support of both the MTN Group and CNA and needed MTN products to ‘drive the footfalls’ into the stores to generate sales. Gordon wanted to come up with proposals as to how the liability under the second guarantee could be resolved and a formulation be arrived at that would change the relationship and obligation under the RA in a way that would be more acceptable to MTN.

[44] Jenkins was concerned about the total Johncom group exposure to CNA which was in the region of R100million, if the relationship broke down. Discussions to resolve the issues, then began. He “realised that Mr McGrath was the person taking the most responsibility for the MTN side of things and he and I started to talk much more frequently in this period…and tried to devise a way forward that would be acceptable to MTN short of cancellation and a termination of the agreement and a big fight”. In an effort to end the dispute he and McGrath formulated the view that the “only equitable solution from an MTN point of view would be the waiver or the expunging of that or the residual portion of that warranty in the second year from the agreement to get the agreement back onto a proper footing and thereafter we could look at ways in which CNA would support the business, so that MTN would support the business of CNA and that we would focus on the past having drawn a line, we focussed on the future having drawn a line under the past and so it was in that capacity that Buckley McGrath and I entered into one on one negotiations with Mr Gordon which resulted in us reaching a commercial understanding of the way in which we could deal with this minimum commission level 25.1.2 under the retailer agreement and what we would do”.⁴⁴

[45] He was personally involved with the negotiations with Gordon. It was made clear to Gordon that MTN would not pay the middle warranty in terms of the Clause 25.1. (ii) of the RA and that the M-Tel view was that the shortfall in the revenue warranty was not attributable to MTN and that in order to resolve the matter it would have to be waived. Gordon’s attitude was that “the real success of CNA going into the future was not trying to get his hands on a 40million or CNA trying to get its hands on a R40 million penalty that MTN regarded as unconscionable or inequitable but that what he wanted is the parties collectively to drive business to promote the product of MTN to sell it to the public such that the minimum margins were earned through the sale of product as opposed to topped up by way of a financial guarantee”⁴⁵

[46] Gordon wanted to be assured that commercially CNA would receive retail support and assistance from the Johncom and the MTN Groups and ensure more “feet” through the stores, thus ensuring improved trading.

[47] MTN “wanted a holistic solution to a relationship problem and then specifically we needed to deal with the stone in the shoe from an MTN perspective and we as suppliers representing Johncom and MTN with Buckley McGrath, we wanted to ensure that the CNA was vibrant and a viable entity that was able to act as a channel to market our products.”⁴⁶

[48] All of these negotiations culminated in the conclusion of an agreement. He instructed Attorneys Webber Wentzel to draft the agreement in accordance with the terms that they reached with Gordon on behalf of CNA.

In principle what was being addressed “was a holistic solution to trading with the ‘CNA going forward”. The object of the agreement (ARA) was to ensure a settlement of the minimum guarantee issue and that CNA would be able to trade through its change of ownership. There would be a long lasting and sustainable commercial substratum to their relationship.

[49] In contrast to the RA which was a narrow agreement between two parties, the ARA had more entities including MTN, Biotrace, Johnnic Communications, and the Johnnic Group and its subsidiaries and its associated companies. Johncom’s responsibility was to ensure that its associate companies provided the requisite support of CNA. By expanding the parties to the ARA “both directly and indirectly it was to ensure that this multi-party agreement, multi-purpose agreement had the widest sphere of influence possible”. The ARA also extended credit to an unknown entity, Newco, which in the ordinary course would not have secured credit from MTN or the Johnnic Group.⁴⁷

[50] Jenkins testified in detail with regard to the material provisions of the ARA. Jenkins explained that Clause 2.2 did not refer to their dispute but indicated a desire of the parties to renegotiate the terms of the Income Warranties. Clause 2.3 of the ARA set out one of the pillars that they were going to address. They were committing themselves to ensuring that CNA would be able to access goods and services from the entire Johncom Group and that they required security for their exposure to Newco and CNA.

[51] Clause 3 of the ARA was amended “to remove…the stone in the shoe for M-Tel namely…that it was totally inequitable to expect them to pay R30 to 40 million as a top up guarantee almost as a penalty for the underperformance of their business in CNA when in fact they could never have made that target because CNA itself was under performing.” This clause “gave the flexibility to CNA to undertake their restructuring by recognising the existence of Newco and agreeing to recognise Newco as a participant in the retailer agreement and in the benefits of the minimum guarantee in the third year and then Clause 4 regarded the bygones as bygones and removed the obligation to pay a top up for the second year warranty…we are simply deleting that guarantee and we recommit ourselves effectively through Clause 4 to the third year warranty.”⁴⁸

[52] In terms of Clause 4: “Income warranty for the year ended 30 June 2001 is hereby deleted from the retailer agreement. Accordingly neither CNA nor NEWCO shall have any claim against MTel arising from that income warranty and each of CNA and NEWCO waives any claims which it may have against M-Tel arising from that income warranty.” He replied that: “… from an MTN perspective there was no money payable under that clause in any event. We did not consider ourselves liable. So what we were dealing with, words in the agreement that reflected the obligation to make a payment which MTN/Mtel. On the one hand believed they did not have an obligation to pay; and so in order to make sure that there was no confusion afterwards we simply said what words do we need to put into this agreement to ensure that whatever has been paid and whatever has been retained by the CNA under the margin payments earned until the end of March they will retain, but there is no obligation for us to do any accounting at a new point in time and say how much did you earn in the second income period, how much is the shortfall and what is the shortfall payable. It simply said whatever the situation is now that is the status quo, we draw a line under it and we are looking prospectively. So the stone in the shoe, namely the obligation that would have arisen in June 2002 had MTN actually been liable and had they not contended that there was a lack of performance on CNA’s part that was removed. That contentious bit was taken out of the agreement and what we then said was that a three-month period, April, May and June, MTN had three-months to, added to the third income warranty period to ensure that they would earn the warranty or they would generate that minimum level of commissions now over a 15 rather than 12-month period.”⁴⁹

[53] Clause 5 of the ARA dealt with the establishment of the trust into which payments would be made. As MTN was going to furnish the guarantees and thereby ‘crystallise a liability’ of R86 million, they wanted to ensure that they were secured for making the payments and thus a trust account was created into which the margins earned from the sale of CNA products and the ‘topup’ payment due in 2002 would be paid. Gordon was of the view that the business was in need of cash flow. They agreed that whatever was paid into the trust account 50% to a maximum of R1.5 million per month would not go into the trust account and would be retained by the CNA. Effectively MTN would become a concurrent creditor if there was any issue at a later stage in terms of liquidation.

[54] The prospect at that stage of CNA’s liquidation was ‘unthinkable’ and ‘improbable’.⁵⁰ There were no signs of an imminent demise. He testified that “in any kind of commercial context I suppose you look at risks and you say that nothing is impossible, but you know, you are looking at commercial, which is a fair commercial risk, what is not a fair commercial risk, and as far as we were concerned the likelihood of CNA’s insolvency was improbable. It was an iconic brand. It had 300, in excess of 300 stores. It was a household name. It had lost its way, admittedly, and we believe that it needed to sharpen up its systems, it needed to sharpen its logistics, it needed a new focus, and it needed some new management. But the idea that CNA would not be around or that it could deal with the company that was on, you know, kind of on the brink of financial disaster, it never crossed our minds.”⁵¹

[55] Jenkins testified that had they contemplated liquidation, they would not have concluded the transaction. MTN had committed itself to the future success of CNA as a going entity rather than as a company on the brink of liquidation. “We conducted negotiations on the relationship with these people on the basis that CNA was going to remain, was going to be with us forever, was going to be a better business – that we wanted to be part of that success”.⁵²

[56] They were dealing with reputable and responsible directors viz: Casenove, who was the merchant banker representing Wooltru, directors on the Board of CNA and Wooltru who would have been the first to raise the alarm that CNA was in grave danger. The sale of CNA was for a purchase consideration of R150million and he accepted that this was a fair price and a fair reflection of the value of CNA. “I think none of us have ever grown up without CNA and so if you had said to me – do you think that was a prospect of CNA going insolvent or being liquidated whatever in 2001, the answer is absolutely not. It was just unthinkable.”⁵³

[57] He was referred to Mr Bird’s notes (representative of Casenove) which recorded that he, Jenkins had explained that “Johnnic has a very high exposure to Crocus (CNA)…MTN had scrutinised the agreement between M-Tel and CNA and recognised that it was watertight. Hence absent insolvency of Crocus (CNA) and/or a renegotiation of the agreement, Johnnic will be making a significant cash payment in respect of Crocus.”⁵⁴ He explained that it was his intention to convince Bird that the transaction would proceed and that they had negotiated and reached an acceptable settlement. He explained to Bird that MTN also had issues and one of the risks was “that the agreement was watertight and they would have to pay the money in any case”. He was in a commercial negotiation and ‘if you call this a bit of commercial poker,” it was a stratagem to get Bird to accept that this was the way forward.⁵⁵

[58] By virtue of his position inside Johnnic he had knowledge of the issues relating to CNA. He “probably had within let us call it our negotiating team within the Johnnic, Johncom and MTN team, I had more knowledge than everybody else, certainly Steve Tredoux or Rob Reynolds had knowledge from a trading perspective of their commercial relationship with MTN under the retailer agreement and McGrath was financial, ….but a great deal of reliance was being placed on me by the Group in the assessment of where this business was, how the deal should be implemented and constructed”. When he was asked as to who was the “directing mind” from the MTN side in formulating the terms that were ultimately settled upon in the ARA he replied that “I was the leader of the negotiating team and I suppose from what would be commercially accepted Mr McGrath and myself we debated and we discussed together and I certainly also spoke from time to time to the MTN Management team…”⁵⁶

[59] Around the same time as the ARA was signed, a co-operation agreement between Johncom, CNA and GKA was signed.⁵⁷ The agreement provided for the commitment of Johnnic’s support as a major supplier to the substantially restructured CNA as envisaged by GKA.

[60] Jenkins stated that what Clause 6 of the ARA did for MTN was to put them ‘on the hook’ for R85, 7 million and tied them to the success of CNA. Had there been a liquidation a month after the ARA he would have been fired. It would mean that he had done a disastrous deal by ‘committing R84, 7million of MTN’s credit to this transaction’.⁵⁸

[61] In terms of Clause 9 all the parties undertook to take all steps to procure the maintenance of the provisions of the RA and that they would put their full weight behind ensuring that the RA in its amended form was achieved and that the margin was earned through trading in the CNA. This clause committed all the parties “negotiating in good faith an extension because if we got the business to work in the next 18 months as we envisaged it would, then both parties would be commercially aligned to extend it further⁵⁹.”

[62] Jenkins was referred to the questions set out in the request for further particulars of the Section 33 (1) defence directed by the MTN parties to the liquidators. Jenkins denied that MTN had intended to receive a ‘preference’. He highlighted the fact that MTN had entered as a new player and had not previously been a creditor of CNA at all.⁶⁰ MTN gave a guarantee although it was not a party to the RA. ”It came into the transaction to support. So it gave up R84, 7 or gave up the guarantee of R84 million odd when it was not even involved in the transaction to start with”. The warranty was “in fact M-Tel’s warranty.”⁶¹ He did not believe that there were any dispositions. The conclusion of the agreement was to “settle an incipient dispute” and this perpetuated M-Tel’s obligations to ensure the success of CNA. The whole intention of the transaction was to commit M-Tel “afresh to the success of this supplier and retailer arrangement” as structured on the basis of continued support for CNA. There never was any contemplation of a disposition or a preference ahead of other creditors.

[63] As far as the claim under the second warranty was concerned it was “an illusory” claim. “I mean it had no value because MTN was disputing, M-Tel was disputing it was not going to pay. So if there was a giving up it was giving up something that was pie in the sky but it was not certainly going to be coming out of M-Tel’s pocket and the only person that it was going to tell M-Tel to pay it was going to be the Supreme Court of Appeal in Bloemfontein. We would never have got there fortunately because we got a commercial solution to the problem.”⁶²

[64] Jenkins explained that “it was certainly my desire to see the CNA succeed and succeed fantastically because that was in everyone’s interest. You know you can participate in an industry and you cannot be selfish about it. If CNA suffered it affected all of us, and it was an iconic brand. It had employees, it had people … It was not a selfish kind of what is in it for me? So no I do not think that you could attribute bad faith to me and certainly Buckley, Steve Tredoux and Rob Reynolds, they were involved on a commercial basis and yes, they have a fight with CNA but I mean there was no, I never discerned any bad faith there or absence of good faith and Buckley McGrath you know he was there as my kind of, my confidante, sounding board and the person who bought MTN’s perspective and there is no bad faith or absence of good faith on Buckley McGrath’s part”.⁶³

[65] The guarantees were furnished by MTN and Wooltru was released from its obligations under its suretyship.⁶⁴ The pledge of shares by CNA Holdings in CNA was not a benefit “because effectively the security of shares in the business that we were suppliers is a much more risky prospect than the suretyship of a third party and so we gave up, a suretyship was almost like a guarantee and we took a risk on the business itself.”

[66] Jenkins stated that they “had no reason to believe that it was not a going concern. It was a massive undertaking”. Consequent upon the ARA MTN had committed their support. MTN and Johnnic were putting their weight behind CNA to ensure its future success and not to position itself for CNA’s demise.

[67] Jenkins disputed that the major asset of CNA was its rights to the guaranteed margins under the retailer agreement. This was a co-operative joint venture and the right to the minimum guarantee was conditional upon performance by CNA.

[68] He denied that the effect of the ARA was in practical terms to deprive CNA of all income earned by it during the period 1 March 2001 to 30 June 2002 save for the amount of R20 million. On a day to day basis at least from March 2001 until June 2002 CNA were taking a substantial portion of the margin that they earned out of the sale of cellphones and were retaining it for their own purposes. It was a fair commercial agreement.⁶⁵ Quite a significant portion of the margin would be retained by CNA.

[69] Jenkins denied that CNA’s financial position was further compromised.⁶⁶The ARA enhanced CNA’s position in that it restored the “commercial substratum to the relationship and to the agreements between CNA and MTN”.⁶⁷ The definition of income was actually that income that was derived from the cellphone business that is that income that was related to MTN’s trading with CNA. ⁶⁸

[70] CNA was placed under in liquidation at the end of July 2002, about 16 months after the ARA and MTN continued to trade with CNA for another 15 months or 16 months before there appeared to be problems. Jenkins denied that the dispositions by CNA would prefer one or both of the MTN parties in the event of a liquidation intervening. He stated that:

“Again we did not enter into this agreement contemplating liquidation, so that was never in our minds. We dealt with certain risks in the agreement, but the prospect that there would be a liquidation and that we were looking for a preference in those circumstances, that is just, it is just not true. If that was the intention then I can indicate a whole lot of ways that we would probably have dealt with this thing that would have been, that would have been preserved our position. If we wanted to prefer ourselves then we would have done a lot different. I am sure that this was certainly, entering into ARA was certainly not the actions of a person who wanted to become a preferred creditor of an insolvent company.”⁶⁹

[71] Under cross examination by Mr Butler for the liquidators, Jenkins stated that prior to the 15 February 2001, which was the date when the sale was announced, he had no knowledge of the existence of the RA.

[72] When he had spoken to Tredoux and Reynolds about the RA, their impression was that there was a very unhappy relationship which could not be perpetuated in its current form and they were not going to pay. He was referred to a letter by Tredoux to Gordon describing the relationship as being good ⁷⁰ which was inconsistent with his evidence. In reply to this he stated “We are trying to move three complex parties to the point of a commercial settlement and this is like playing poker.”⁷¹

[73] He was not aware of any legal opinion that was obtained as recorded in the document prepared for the Board of MTN, that M-Tel would be liable for an amount of up to R45million in September 2001 and an amount of up to R85 million in September 2002.⁷²

[74] He stated that he had scrutinised the RA and agreed that he had described it to Mr Bird as “watertight”. He wanted to convey to Mr Bird that “there was a sense within MTN that this was a good transaction, that there was benefit for them in it.”

[75] Based on his instructions Webber Wentzel Attorneys produced a draft of the ARA. He was referred to the wording of Clause 2.2 of the ARA where M-Tel’s liability in terms of the income warranty for the year ending 30 June 2001 was being described as substantial and further claims may be made in respect of the income warranty for the year ended 30 June 2002. He explained that this agreement was the product of a final negotiation which included attorneys from Wooltru, and that the parties wished to renegotiate the terms of the income warranties. “So there is no reflection in here about the breach or the malperformance by the management or the fact that this is a settlement.” He did not explain to attorney Weber Wentzel that they were not paying under the warranty.

[76] He was referred to the minutes of a board meeting⁷³ of MTN where it was reflected that “The CNA agreement was renegotiated with Messrs Paul Jenkins and McGrath, resulted in the saving of R50- million on the profit warranty for the last financial year.” To this he replied that exactly what the saving would be was never quantified. “They were looking forward.”

[77] There were two major areas of the ARA which afforded some protection to the MTN parties. One was the creation of the trust account and the other was the security given by CNA Holdings of a pledge of its shares in CNA and Newco⁷⁴ (Clause 6.4). He agreed that the creation of the trust account provided security because in the event of liquidation, to the extent that there was money in the trust account the MTN parties would be secure and not rank as a concurrent creditor.

[78] Through his association with Johncom, he was aware of generalised issues concerning CNA and its state in the market. However he had no knowledge that CNA was trading at a loss and had no knowledge of its balance sheet.

[79] He was referred to the note circulated by Tredoux and McGrath ⁷⁵ where it stated that “the remaining exposure being liquidation in the short term can be secured by the pledge of the 20% shares in the Top 50 stores. In the instance of liquidation value of shares pledged will in any case be questionable. What we mean with exposure, being liquidation on the short term, liquidity cash flow.” To this he replied that liquidation was a possibility that they had considered “but, and so we were managing risk and therefore what is our exposure as a group if we enter into this deal. And what happens if there was a worst case scenario? But, I mean, it is in a theoretical sense, I do not think it was in any kind of sense of impelling or impending doom that we focussed on.”

[80] The structure of the ARA was such that no payment would be made to CNA under the second warranty and this meant that “only the top-up payment was relieved “. Further, in respect of the third year, the position changed as M-Tel would have three more months in which to make the target through actual sales. CNA would further pay monies into the trust account which would serve to secure the payment under the guarantee when the guarantee payment was made.

[81] By committing themselves financially and commercially they believed that they were giving CNA every prospect of retaining its position in the market "and that would have reduced our exposure to it.”⁷⁶ He denied that their exposure was reduced by the waiver of the second income warranty and the extension of the trading time relevant to the third income warranty. However to the extent that the trust arrangement secured an obligation that MTN did not have previously, their exposure was reduced but this was not true in respect of the shares in CNA.

[82] It was put to him that according to clause 2.6 of the co-operation agreement⁷⁷, the “CNA Group undertakes to provide the Johncom Group with regular reports of their financial position to monitor the granting of credit to the CNA group. To this he replied that they “agreed to extend credit to the group, secured only by shares, and we wanted to be sure that we could call on the financials if we needed to”. He did not call for the financials. Reynolds was on the Board of CNA and he would have access to the financials of CNA. It seemed to him that “Reynolds on the board of CNA would be able to provide his input from an M-Tel, MTN perspective at the highest level and that it would be an additional channel of communication and an additional assurance for all the parties that M-Tel would be putting their weight behind this agreement and the future of its trading with CNA”⁷⁸ He was referred to the financial statements of CNA for the period 28 February 2001 which showed a very substantial loss, he replied that although it had an operating loss there was a gross profit of R235 million. “The picture really is not that bad.”⁷⁹

[83] He was referred to the definition of ‘income’ in the ARA and stated that “…if by income is meant the Income derived from the cellular telephony business done by CNA, then that is correct, but it certainly does not include income from the sale of books and pens and paper bags…”⁸⁰ The relationship with MTN was an exclusive one and there was no cellphone business conducted by the CNA other than under the auspices of MTN and as such it was an exclusive arrangement.

[84] There had been a “singular lack of performance by CNA” according to Reynolds which formed the view that they were not liable. They never got to the point of a court case as litigation would have been a ‘sterilisation’ of the relationship between MTN and CNA. It was put to him that Tredoux, McGrath and Dabengwa realised that there was a liability to CNA in respect of the second warranty under the RA. To this he replied that the agreement “expressed the obligation to make a top-up payment in July or in September 2001and that…, had there not been the dismal performance of CNA, then the turnover of the business would have been different and the shortfall would not been of the magnitude that it was expected…”⁸¹

[85] In response to the proposition put to Jenkins that he was aware that there was a real risk of liquidation of CNA at the time of entering into the ARA Jenkins stated:

“…I say that the risk was remote and it was dealt with on a technical basis as we do, but it certainly was not contemplated that an imminent risk or something that we would face at any point in time.”⁸²

[86] When it was put to him that a major motive on entering into the ARA was to reduce Johnnic’s exposure to CNA, he replied:

“our intention in entering into the ARA was in fact to put our weight behind the business of CNA, to cause it to be a success, to assume greater risk in our dealings with them”⁸³and further that “the ARA had to be seen holistically and in the context of the corporate transaction and in the context of the business, as we were running it then, and in the context of the co-operation agreement from Johncom in the context of the incipient commercial dispute that this ARA avoided.”⁸⁴

[87] Jenkins emphatically denied that the factual effect of the ARA was to deprive CNA of various rights and assets. He stated that:

“ I believe that the rights were questionable, there could have been a big dispute about them and a Court may have pronounced otherwise down the line, but that would not have helped anybody and without putting too fine a point on it, we were very, very invested in the success of CNA as well as indicated by all our conduct and it would be eccentric for us to try and promote the success of CNA at the same time purposefully try and denude it of its assets and push it into insolvency.”⁸⁵

[88] When it was put to him that the creation of the trust account mechanism was to cater for the worst case scenario, he replied that “It was to provide MTN with security for an obligation that it had entered into afresh and to secure the repayment of monies to it and I guess that the benefit of that, or the benefit of a trust account was security and the creation of a stronger right than any other creditor. But whether I think to go to the next step and say that that was because we contemplated insolvency, that is not true”.⁸⁶

[89] As to the trust account to be held by Webber Wentzel Bowens, Jenkins explained that this was to serve as some form of security for the payment that MTN might have to make.

F. THE LAW

[90] Section 33(1) of the Insolvency Act provides:

“a person who, in return for any disposition which is liable to be set aside under section 26, 29, 30 or 31, has parted with any property or security which he held or who has lost any right against another person, shall, if he acted in good faith, not be obliged to restore any property or other benefit received under such disposition, unless the trustee has indemnified him for parting with such property or security or for losing such right.”

[91] Accordingly, for the purposes of section 33(1), three requirements must be met:

1. the party raising the defence must have parted with property or

security or lost a right;

2. such parting must be “in return for” the disposition liable to be

set aside ;and

3. the party must have acted in good faith.(bona fide)

[92] Good Faith has a defined meaning in section 2 of the Act:

“in relation to the disposition of property[good faith] means the absence of any intention to prejudice creditors in obtaining payment of their claims or to prefer one creditor above another”.

[93] In Ruskin NO v Barclays Bank D.C.O 1959 (1) SA 577 (W), the court followed the reasoning in National Bank of South Africa Ltd v Hoffman’s Trustee 1923 AD 247 and identified the meaning of “good faith” in section 33(1), at 584 H to 585A as follows:

“I do not think that the phrase “in good faith” is confined to the action merely of parting with property or security or losing a right. In my view “good faith” is required in the whole operation giving rise to the parting with property, or security or losing right.”

[94] In Barclays National bank Ltd v Umbogintwini Land and Investment Co (Pty) Ltd (in Liquidation) and Another,⁸⁷ Kumleben J stated as follows at 411 B to C:

“The underlying purpose of S33(1) is to ensure that in the stated circumstances when a disposition is set aside there is restitution in integrum, that is, the restoration of both parties to their position before the disposition was made.”

[95] In Geyser NO and Another v Telkom SA Ltd 2004(3) SA 535(T) and at para[12]:

“It is common cause that, having agreed that the issue or issues raised …. be heard and decided separately in terms of Rule 33(4), the defendant would bear the duty to begin and the onus in respect of the provisions of s33(1) of the Act, which are the basis of its defence. In order to succeed with the said defence the defendant bears the onus of proving on a balance of probabilities that:

1. It has lost a right against another person;

2. Such a loss of right was in return for a disposition which is liable to be set aside : and

3. It acted in good faith”

Should the defendant succeed in establishing the above three requirements, then the court would be constrained to order that, unless the first plaintiff has indemnified the defendant for losing such right , no restoration of the money received under such disposition need be made.’’

See also :Lane and Another v Dabelstein and Others 1999(3) SA 150 ( C) at 172F.

[96] The general principles to be applied in determining whether a disposition was made with the intention to prefer the recipient thereof, (referred to in

Meskin⁸⁸) as they appear from the judgment of Zulman JA in Cooper & Another NNO v Merchant Trade Finance Ltd⁸⁹ are summarised in Gore NO & Others v Shell South Africa (Pty) Ltd⁹⁰ as follows:

(a) the court must weigh up all the relevant facts and circumstances in order to determine what, on the probabilities was the ‘dominant, operative or effectual intention in substance and in truth’ of the debtor for making the disposition; (b) the test with regard to intention is a subjective one and can only be present if the debtor actually applied its mind to the matter; (c) the mere fact that a debtor who made the disposition does not give evidence does not ipso facto mean that one must infer that there was an intention to prefer; (d) as far as inferences are concerned, however, the plaintiff is aided by the natural inference that arises where the debtor, knowing that liquidation is substantially inevitable⁹¹, selects for payment out of a number of creditors one who has no right to such selection: in those circumstances, the inference from its conduct is a fair one, namely, that the debtor intended to prefer such creditor above the rest, to disturb in the creditor’s favour the proper distribution of its assets in insolvency; (e) an intention to prefer requires that the debtor must, at the time of the disposition, have been in a position to exercise a free choice: thus, where a debtor pays a creditor out of turn under great pressure, for example to shield himself from prosecution, an intention to prefer will not be proved: but it is not any pressure or coercion which will displace the free will or intention to prefer, but rather pressure which is akin to duress or undue influence, or what has been described in the cases as ‘an overwhelming sense of imminent peril’, ‘great pressure’ or ‘severe or terrifying pressure’.

In the context of section 29(1) of the Insolvency Act, and indeed, in those respectively of section 30 and section 135 thereof, one must focus on the object or on the paramount object, if there were more than one, with which the insolvent made the payment or other disposition. An intention to prefer existed if such object was the conferring on the creditor in fact preferred of the preference involved. The essence of such a preference is that the giving of it before the institution of the concursus creditorum precludes the distribution thereafter among all proved creditors of the insolvent’s property in accordance with the provisions of the Insolvency Act designed to prevent any creditor obtaining a preference not otherwise assigned to him by law. But if the object or the paramount object was not the conferring of the preference, there was no intention to prefer.

Since one is concerned essentially with an evaluation of his state of mind, important relevant evidence is that of the insolvent’s knowledge of his financial position and of his expectations in relation thereto at the time of the payment or other disposition. If he knew he was insolvent or at least in financial difficulty, and contemplated the sequestration of his estate as being accordingly substantially inevitable, then, independently of any other evidence denotative thereof, an inference arises that his object in making the payment or other disposition was indeed to confer the preference; and it is submitted that, unless at least the insolvent had such contemplation, his object could not have been such: one could not intend to circumvent the due process of distribution of property in one’s insolvency if in fact one did not envisage that such insolvency might occur. However, contemplation of sequestration obviously is not inevitably inconsistent with there having been no intention to prefer; e.g. the insolvent’s object might have been the taking advantage of a concession or benefit offered by the creditor in return for the preference (e.g. the withholding of action or the allowing of further credit) for the very purpose of avoiding the contemplated sequestration.

Other evidence which is relevant obviously would be the insolvent’s own as to his state of mind (although clearly it could not be conclusive as to the existence or non-existence of the intention), that of any relationship between the insolvent and the creditor additional to that of debtor and creditor, that of any conduct by the creditor which may have induced the giving of the preference and, indeed, that of all the circumstances under which such giving occurred…

An intention to prefer in this context is an actual intention. An intention to prefer inferred from the consideration that the insolvent ought to have realised that the preference would occur is irrelevant.”

[97] In Fourie (supra) at paragraph 15 the following is stated:

“It is established law that in considering whether an intention to prefer has been shown, all the relevant facts must be considered. One such relevant (and important) fact is whether the insolvent at the time of the disposition contemplated insolvency (Pretorius NO v Stock Owners’ Co-Operative Co Ltd 1959 (4) SA 462 (A) at 472E-G);proof of such a contemplation ( of which there was none) would have brought the appellants some distance but possibly not far enough since the inference to be drawn from a contemplation of sequestration is not necessarily that the insolvent’s subjective “dominant, operative or effectual intention” in making the disposition (see Cooper and another NNO v Merchant Trade Finance Ltd 2000 (3) SA 1009 (SCA) at 1026G) was the intention to prefer. The intention to prefer is nothing but resolve “to disturb what would be the proper distribution of assets” in insolvency. (Pretorius NO at 476 D-F, a passage cited with approval in Gert de Jager Edms Bpk v Jones NO and McHardie NO 1964 (3) SA 325 (A) at 331 E-F.)”

[98] In Pretorius (supra)at 472 E-H:

“Cases may possibly arise in which a debtor makes a disposition with the intention of preferring one creditor above another contemplating sequestration within the meaning that was given to those words in Thurburn v Steward, supra, but I imagine that such cases would be rare. In a case like the present, however, where there is no direct evidence of intention to prefer. I think it is clear that it must be proved that the debtor contemplated sequestration before an inference can be drawn that he made the disposition with the intention to prefer the creditor to whom it was made. I respectfully agree with what was said on this point by SOLOMON,J., and CURLEWIS, J., in Fearnley’s Trustee v. Netherlands Bank, supra. The next question to consider is what has to be shown in order to prove that the debtor contemplates sequestration. I do not think it necessary in this case to deal with this question exhaustively. In Thurburn v. Steward, supra, contemplation of sequestration was said to mean “expectation of sequestration “. In Malherbe’s Trustee v. Dinner and Others, 1922 O.P.D. 18, DE VILLIERS, J.P., paraphrased those words as meaning “knowledge that sequestration was substantially inevitable”. It may be less than that would suffice as was suggested by the same learned Judge in Swanepoel, N.O. v National Bank of South Africa, 1923 O.P.D. 35, but it is not necessary to decide that. For the purposes of the present case it is sufficient to say that a debtor contemplates sequestration, at any rate, if he knows that sequestration is “substantially inevitable”.

[99] And at page 476 D “An intention to prefer exists when the debtor intends “ to disturb what would be the proper distribution of assets” in insolvency, Thurburn v Steward⁹², supra.”

[100] In Cooper(supra) at1026G:

“[4] It is essential and indeed fundamental to any decision as to whether there has been an intention to prefer to examine and weigh up all the relevant facts which prevailed at the time that the disposition was made in order to determine what, on a balance of probabilities, was the ‘dominant, operative or effectual intention and in truth of the debtor for making the disposition.”

And at page 1029, B-C:

“[10] In order to determine whether the debtor had the requisite intention it is necessary to enquire whether the debtor actually applied his mind to the matter. If there was no application of mind by the debtor to the question of whether in fact he was conferring a preference, it can hardly be said that he had an intention to do so. There is no room for treating as an intention to prefer ‘ a culpable or reckless disregard of the possibility that the disposition might have the effect of preferring one creditor above another’. An actual intention is required – not simply the fact that objectively viewed the debtor ought to have realised that a preference would occur if the disposition is made. ⁹³

[101] And at page 1029:

“[11] Mere proof that the insolvent’s liabilities exceeded his assets at the time the disposition was made does not raise a presumption of an intention that the debtor’s dominant motive in making the disposition was to prefer. Whilst contemplation of insolvency or inevitable insolvency is generally speaking necessary before an intention to prefer can be inferred it by no means follows axiomatically that the presence of such a state of mind, in itself, proves such an intention since other factors may nevertheless negate such an inference. Even if it can be said that sequestration was substantially inevitable, evidence of a more probable inference to the contrary that shows, for example, that the debtor’s dominant intention in making the disposition was not to prefer the creditor in question but to achieve some other purpose would not entitle the Court to draw the inference of an intention to prefer. As Pitman AJP pointed out in Giddys’ case⁹⁴: “The intention to prefer must reside in the mind of the debtor, and its presence here is ordinarily to be inferred from his conduct. If, when he is contemplating sequestration, he selects for payment out of a number of creditors one, who has no right to such selection, the inference from his conduct seems a fair one, that he intended to prefer such creditors above the rest, to disturb in his favour the proper distribution of his assets in insolvency. Such is the only apparent explanation of his action. Where, however, behind the selection and payment there appears to be some other compelling intention, the intention to prefer is not necessarily to be regarded as the dominant intention. The former intention indeed may so powerfully animate the debtor, that the intention to prefer may be said to have been wholly inactive.’

[102] The question is whether MTN intended to prefer and whether the liquidation of CNA was foreseen as a “substantial inevitability (on MTN’s argument) or whether liquidation was contemplated (on CNA’s argument) for the period following upon and as a result of the conclusion of the ARA.

[103] In El Ajou v Dollar Land Holdings PLC and Another Rose LJ states that⁹⁵ the doctrine known as the alter ego doctrine “attributes to the company the mind and will of the natural persons or persons who manage and control its actions….Their minds are its minds; their intention its intention; their knowledge its knowledge…..It is necessary to identify the natural person or persons having Management and control in relation to the act or omission in question”.

And at page 699 c to j:

“In Tesco Supermarkets Ltd v Nattras [1971] 2 All ER 127 at 15[1971] UKHL 1; , [1972] AC 153 at 200 Lord Diplock identified those who are to be treated in law as being the company as-

‘those natural persons who by the memorandum and articles of association or as a result of action taken by the directors, or by the company in general meeting pursuant to the articles are entrusted with the exercise of the powers of the company.’

Lord Reid said ([1971] 2 All ER 127 at 132[1971] UKHL 1; , [1972] AC 153 at 171):

‘Normally the board of directors, the managing director and perhaps other superior officers of a company carry out the functions of management and speak and act as the company … But the board of directors may delegate some part of their functions of management giving to their delegate full discretion to act independently of instructions from them.’

Lord Pearson said ([1971] 2 All ER 127 at 148[1971] UKHL 1; , [1972] AC 153 at 190):

‘There are some officers of a company who may for some purposes be identified with it, as being or having its directing mind and will, its centre and ego, and its brains… The reference in s 20 of the Trades Descriptions Act 1968 to “any director, manager, secretary or other similar officer of the body corporate” affords a useful indication of the grades of officers who may for some purposes be identifiable with the company…’

There are, it seems to me, two points implicit, if not explicit, in each of these passages. “First, the directors of a company are, prima facie, likely to be regarded as its directing mind and will whereas particular circumstances may confer that status on non-directors. Secondly, a company’s directing mind and will may be found in different persons for different activities of the company.”

[104] And at 706d/e that:

“The authorities show clearly that different persons may for different purposes satisfy the requirements of being the company’s directing mind and will.”

[105] In Levy v Central Mining and Investment Corporation Ltd 1955 (1) SA 141 (A) Centlivres CJ stated⁹⁶ that:

“in the case of a fictitious person like a company one must endeavour as best one can to ascertain who is or are its directing mind or minds.”

[106] Blackman at 4-130⁹⁷ states that:

“It cannot be argued that an act was not that of the directing mind of the company because the act was beyond the authority of the person in question. The act will be considered to be that of the directing mind as long as it is performed by the person in question within the sector of the company operation assigned to him by the company, which sector may be the functional or geographic, or be the entire undertaking of the company. No formal delegation is necessary, nor does it matter that the directors are unaware of the activity in question nor, in fact, that the conduct had been expressly prohibited by the company.”

[107] In determining whether a particular natural person is the directing mind of the company for a particular act or state of mind, it was held in Re Bank of Credit and Commerce International SA (in liquidation) (no 15): Morris v Bank of India [2005] 2 BCLC 328 (CA)⁹⁸ , that the rules of attribution would

“typically depend on factors such as these. The agent’s importance or seniority in the hierarchy of the company: the more senior he is, the easier it is to attribute. His significance and freedom to act in the context of a particular transaction: the more it is ‘his’ transaction, and the more he is effectively left to get on with it by the board, the easier to attribute. The degree to which the board is informed, and the extent to which it can be said that it was, in the broadest sense, put on enquiry: the greater the grounds for suspicion or even concern or questioning, the easier it is to attribute, if questions were not raised or answers were not raised or answers were too readily accepted by the board.”

G. ANALYSIS OF THE EVIDENCE

[108] The legal representatives for MTN and the liquidators submitted thorough, detailed and helpful Heads of Arguments with Bundles of relevant authorities to assist the Court. The court is grateful to them for their assistance.

[109] The onus is on MTN to establish all the elements of the Section 33 (1) of the Act and overcome the threshold requirements of the section 33(1).

[110] It is the liquidators’ case that MTN lacked good faith in giving the guarantees in return for the hypothesised dispositions and CNA contends that those who negotiated the ARA on behalf of MTN and M-Tel were not acting in good faith and that MTN and M-Tel intended to be preferred in relation to the other creditors of CNA. The liquidators allege that to the knowledge of the MTN parties, CNA’s status as a going concern was questionable, that a major asset of CNA was its right to the guaranteed margin under the RA warranty, and that the ARA deprived it of this asset. They allege that there was knowledge of CNA’s precarious financial position and there was a substantial prospect of their liquidation.

THE REQUIREMENTS OF THE SECTION 33(1): PARTED WITH PROPERTY, IN RETURN FOR, GOOD FAITH

[111] MTN has alleged that “In return for one or more or all of the dispositions”, the plaintiff in good faith paid the sum of R85 976 778, 08 to Wooltru and such a payment was paid under the guarantees issued as required by the ARA. M-Tel has relied upon the alleged loss of its right against CNA to terminate the RA consequent upon breaches by CNA of that agreement. The liquidators argue that MTN have pleaded that they paid in terms of the guarantees and not in terms of the ARA. The liquidators argue that although the guarantees were given “in return for dispositions”, payment under the guarantees was rendered because there were guarantees and not because of the dispositions. The liquidators submit that there is a difference of real substance.The liquidators rely on paragraph 2.1 of the replications by MTN⁹⁹ that “in return for one or more or all of the dispositions, the plaintiff in good faith paid to Wooltru an amount of R85, 976, 778, 08 pursuant to the guarantees as pleaded in paragraph 8 of the particulars of claim.”

[112] In terms of paragraph 8 of the particulars of claim ¹⁰⁰: “the plaintiff was called upon to make and made payment under each of the First and Second guarantees as contemplated in Clause 6.3 of the amending agreement in an amount of R85, 976, 778, 08 , the conditions for payment stipulated in the guarantees having being fulfilled.” In terms of paragraph 7¹⁰¹ , it is pleaded that MTN executed and delivered the first and second guarantees in terms of the relevant provisions of the ARA. When CNA was called upon to make admissions, CNA admitted that¹⁰²” in return for one or more of the dispositions MTN gave the guarantees under which payment was made to Wooltru.”

[113] When a further admission was requested by the MTN parties¹⁰³:

“But for the hypothesised dispositions MTN would not have incurred a liability to, nor made payment to Wooltru of R85 million or any part of this amount. The answer from CNA was: ”The requested admission is made”¹⁰⁴.

[114] To the request ”Apart from the provisions of the ARA, MTN had no liability to Wooltru to make any part of such payment¹⁰⁵”, CNA replied¹⁰⁶: “MTN’s liability and consequent payment to Wooltru was assumed and made under the guarantees referred to in clause 6.1 of the ARA.”

[115] It is quite clear from the aforegoing that what is being admitted by CNA is that the guarantees were paid, and that they were given “in return for” one or more of the dispositions, and that the payment was paid in terms of the ARA pursuant to the guarantees. There is no suggestion that payment was made for some other consideration.¹⁰⁷ From the pleadings it clearly appears that CNA admits that the guarantees were paid and that they were given in return for one or more of the dispositions.

[116] There is a committed obligation under the ARA to give the guarantees. The guarantees gave rise to the payment. The guarantees were given under the ARA. There is therefore no substance in the liquidators’ argument.

[117] According to Clause 6.1 of the ARA, MTN undertook to give guarantees. According to clause 6.3 of the ARA: If MTN is called upon to make payment under the guarantees, MTN shall be entitled to be reimbursed by the purchaser CNA, and Newco, such reimbursement being effected from the monies held in the trust account. In terms of the ARA, MTN undertook an obligation to provide the guarantees referred in the ARA and made payment to Wooltru under those guarantees. But for the ARA, MTN would not have given the guarantees or made any part of the payment. The undertaking by MTN to provide the guarantees was given in return for one or more of the hypothesized dispositions.

[118] Tredoux testified that M-Tel had disputed the liability to CNA and threatened to cancel the retail agreement and to cease trading with CNA. Jenkin’s evidence that Gordon himself acknowledged when he came along to negotiate that there were problems with management, and this evidence is not contradicted. There was at the very least ‘finger pointing’ both ways. The view was that M-Tel considered CNA to have defaulted in respect of its obligations in terms of the RA and that CNA’s performance was a necessary prerequisite for claiming under the warranty. According to clause 25.3 of the RA, CNA undertook to use its “best endeavours” to achieve the minimum targets contemplated in clause 25.1.

[119] No notice under either clause 25.4 or clause 32 of the RA had been given by M-Tel to CNA. According to the liquidators the reason for this was that there was no basis for giving such a notice. However the evidence that M-Tel had a right to cancel in terms of the RA for the lacklustre performance of CNA, and gave up such right by concluding the settlement of the ARA was unchallenged. It was reported that Reynolds had said “we are not paying you we rather pull out our kiosk.” This was unchallenged.At the time of the conclusion of the ARA, the income warranty for the year ended June 2001 was referred to as substantial, the terms of the RA were renegotiated and although this warranty was deleted, the third warranty remained but for the extension of the period. It was never suggested to Tredoux nor to Jenkins that any of the dispositions were materially severable from any other dispositions. Jenkins testified that the only equitable solution from an MTN point of view was the expunging or the waiver of the second income warranty. It is MTN’s case that it paid the sum of R86 million in return for all the concessions pleaded by CNA as constituting dispositions.

[120] In Ruskin’s case (supra), the court invoked the decision in National Bank of South Africa LTd v Hoffman’s Trustee 1923 AD 247 as authority for the meaning of the term of “good faith” in Section 33(1). It was because of what was said in Hoffman’s case about the need to establish good faith in respect of the whole transaction that Ruskin established the principle that good faith with respect to Section 33(1) needed to be present not only at the time of the parting of the property, but at all material times in respect of the transaction as a whole. When considering the question of “good faith” in relation to whether parties intended to prefer creditors, the question arises whether there was knowledge of the impeachability of the transaction in question. No such knowledge was suggested to Tredoux and Jenkins and no evidence of such knowledge adduced. On the contrary, the evidence indicates that the ARA was to lead the way forward reinvigorating CNA and restoring its relationship with the MTN group with the active support of the Johnnic group.

[121] There is no suggestion that at the time of concluding the ARA, MTN and/or M-Tel intended obtaining any preference, and certainly not vis-à-vis other creditors. MTN was not a creditor of CNA at the time of the ARA and there is therefore no plausible basis for suggesting that the ARA addresses the position of the MTN parties as creditor of CNA. Neither Tredoux nor Jenkins was examined by the liquidators’ counsel as to their knowledge of precisely what creditors there were and how the provisions of the ARA might affect other creditors.

[122] More significantly, neither Tredoux nor Jenkins had knowledge of the actual financial position of CNA nor were they in possession of the CNA’s financial statements. Their evidence to this effect was uncontroverted. I am unable to find that there was a “deliberate shutting of eyes to the truth” as occurred in Ruskin. There, the bank accepted payment of overdraft indebtedness by the insolvent company in circumstances where the banker was in possession of the insolvent’s financial statements and knew that payments by the company to other creditors were being stopped.

[123] What remains indisputable is that MTN came to the ARA without any debt owing between it and CNA. It could therefore not have concluded the ARA and put up the guarantees in question with the object of preferring itself as a creditor. The liquidators have offered no answer to the fact that MTN, in return for the dispositions, in good faith parted with R86 million, and must be indemnified for this before any (alleged) disposition by CNA can be restored.

[124] The question of good faith is subjective. It has to be shown that Jenkins knew or foresaw as a prospect and shut his eyes to the liquidation which took place 16 months later. MTN was not the original party to the RA. It did not have any obligation as far as CNA was concerned or to Wooltru. It was not simply an amendment to the RA. But for the ARA, CNA would have had a claim under the RA and that would have been an entirely different financial position. But for the conclusion of the ARA MTN owed no liability to CNA or to any other party to give any guarantees of any amount.

[125] The good faith of MTN/M-Tel is in issue on entering into the ARA. The liquidators contend that the purpose of the ARA was to achieve a release from the obligation of the second warranty. It is improbable that MTN would enter into an elaborate scheme where it would commit itself to parting with R86 million in order to release itself from the obligation in clause 2.2 of the ARA. The liquidators have sought to attack particular provisions of the ARA and particularly this clause in the ARA to convince this court that the MTN/M-Tel parties did not act in good faith when they parted with R86 million, and further that there was an intention to prefer, intended to prejudice creditors. The language of Clause 4.2 is clear.

[126] It is improbable that they would enter into a multiparty agreement which involved Johncom, and its principals and commit R86million of its money just to release itself from just one warranty in the ARA. The other warranties viz third warranty in terms of the ARA remained in place and their obligations in respect thereto were not waived. The ARA was a holistic transaction. It was interlinked and it was in consideration for the reciprocal obligations undertaken by numerous parties.

EXPOSURE AND WHETHER M-TEL WOULD HAVE BEEN LIABLE TO PAY UNDER THE WARRANTY

[127] According to the liquidators the board documentation indicate that M-Tel was concerned about its exposure under the warranties and hence the ARA especially clause 2.2 of the ARA.¹⁰⁸The liquidators have argued that the object of the ARA was to reduce the overall exposure of Johnnic to CNA. No evidence was led that Johnnic enjoyed the benefit of any disposition. There is no evidence that CNA made any disposition in terms of the ARA to Johnnic. Nor is Johnnic seeking to be indemnified. Jenkins testified that the exposure of Johnnic to CNA related to the amount of work that was done by the Johnnic group with CNA.

[128] The way forward was to reinvigorate CNA under new management with the support from the Johnnic group in terms of the ARA and the Johnnic co-operation agreement. At the time of the conclusion of the ARA, any liability by M-Tel to pay in terms of the RA would only be determined at the end of June 2001. This was a disputed claim as far as M-Tel was concerned. Tredoux testified that Gordon, the new owner wished to resolve their problems. The RA was a narrow agreement between CNA and M-Tel and the way forward was a renegotiation of the RA. The ARA was the result and this was concluded in March 2001. The question whether M-Tel was liable to pay would have only been determined during the end of the second warranty period, depending on whether or not CNA had complied with its obligations in terms of the RA. Clearly after the ARA was concluded there was no liability. Clauses 2.2 and 4.2 of the ARA are significant in this regard. In terms of Clause 2.2, M-Tel’s liability in terms of the Income warranty for the year ended 30 June 2001 was regarded as substantial and further claims may be made in respect of the year ended 30 June 2002. However it goes on to say that the parties wish to renegotiate the terms of the Income warranties. Furthermore in terms of clause 4.2 of the ARA:

“The Income warranty for the year ended June 2001 is hereby deleted from the Retailer Agreement. Accordingly neither CNA nor Newco shall have any claim against M-Tel arising from that Income warranty, and each of CAN and Newco waives any claims which it may have against M-Tel arising from that Income warranty.” From this it appears that both CNA and Newco waive any claims that they may have. This can only be in reference to a settlement of disputed claims.

[129] According to the further particulars R16 million was owing by CNA to M-Tel at the time of the conclusion of the ARA. The ARA makes no reference to this debt. However according to the ARA, the security that M-Tel held for this debt in the form of a suretyship from Wooltru, was surrendered in terms of the ARA. Clearly there is no evidence that M-Tel attempted to avoid a potential liability in terms of this warranty. There is no evidence in these circumstances that the purpose of the ARA was “to prefer” M-Tel as a creditor of CNA.

[130] As to the question whether there had been any concern that CNA would not be able to pay a debt owing to M-Tel, the first time there had been any issue raised about payment was in May 2001, after the ARA was executed, when CNA had requested an extension to pay an amount of some R1,2 million. Furthermore, the uncontradicted evidence was that, at the end of 2000, when Credit Guarantee indicated their requirement of a Wooltru guarantee to cover the book debt, this did not raise concerns or alarm bells on the part of M-Tel with respect to CNA’s ability to pay.

[131] There is no evidence or suggestion that the terms of the ARA was to prefer M-Tel as creditor of CNA. MTN was not a creditor of CNA at the time nor did Johnnic have anything to do with any of the pleaded dispositions

[132] The liquidators have argued that this court must find that there was not in MTN any doubt that MTN was liable to pay under the warranty. Tredoux and Jenkins evidence in regard to the disputed claim was not contradicted. Although it was put to Tredoux, that Holden would testify to the contrary, Holden was not called. MTN’s contentions therefore that there was indeed a disputed claim must be accepted. There is no doubt that MTN was not intending to pay CNA and there would be litigation before they paid anything out under the warranty. Jenkins version is that we have a new arrangement and we want to go forward must be accepted. On this evidence, this court cannot find that MTN was considering that it was liable to pay under the warranty.

[133] However, the third period warranty which was extended by three months was retained. There was still a liability that was preserved under the ARA. In so far as there may have been a claim under the second period which was waived, there was still a warranty going forward. So for the period of 15 months starting in April 2001 to the end of June 2002, there was still a warranty in place under the ARA, in addition to the guarantee being provided by MTN. So the R86 million was in terms of the guarantee and in addition there was still a further warranty claim. Clearly it could not have been the intention by the ARA to avoid the second warranty. Commercially there were numerous benefits to the CNA in terms of the ARA and the Johncom cooperation agreement.

[134] In regard to the third income warranty, there is no evidence to indicate that there would have indeed been a liability on the part of M-Tel to make payment under the third warranty. It is entirely speculative what would have occurred during 2001 had the ARA not been concluded.

LIQUIDATION

[135] According to Mr Subel, the principles laid down in Fourie (supra) does not state that a contemplation of liquidation is enough. It has to be contemplated as a substantial inevitability as set out in Cooper (supra). It would lead to an absurdity in commercial ventures that merely because you notionally contemplated liquidation or purely theoretically questioned as to what would happen if there was to be a liquidation that therefore the threshold of a contemplation of liquidation was satisfied.

[136] Postulated scenarios and possibilities about the risk of CNA’s liquidation was put to both Tredoux and Jenkins From the evidence it appears that it was only in the context of hypothetical speculations that Tredoux conceded that the prospect of CNA’s liquidation was real.¹⁰⁹ Tredoux’s evidence was that, at the end of 2000 and beginning of 2001, when it was known that Wooltru was trying to sell CNA as part of its unbundling process, the prospect was considered what would happen if Wooltru did not manage to sell CNA, but ‘unbundled’ in any event, thereby abandoning CNA? It was in this context, that Tredoux conceded that the prospect of CNA’s liquidation was real. Tredoux’s evidence is significant in this regard:

“I think that during this period it was, and we looked at it earlier on. These are the press reports and so on where CNA had disastrous results. We were unsure that what would happen if Wooltru was not able to unbundle it. Would they shut it down and pay all the bills and walk away? Would they liquidate it, and liquidation was obviously one of the things we had to consider.”

[137] The liquidators argue that MTN’s reliance on the principles set out in Cooper (supra) is misplaced. Mr Butler has argued that “it is well established that in considering whether an intention to prefer has been shown all the relevant facts must be considered. One such relevant (and important fact) is whether the insolvent at the time of the disposition contemplated insolvency”.¹¹⁰ This according to CNA is the correct test and not the test as proposed by the MTN parties.

[138] According to CNA the fact that Tredoux¹¹¹stated that CNA was “unhealthy but for a turnaround..but for a rescue plan. It looked as though CNA was a battling to run the business…and that liquidation was discussed as one of the options” all indicate that unquestionably there was a contemplation of liquidation in the minds of Tredoux and others that he spoke to. For the year ending June2000 CNA had reported an operating loss of R17.6 million before interest. Its current liabilities exceeded its current assets by R28.7 million. Although the financials were not known to MTN it is the liquidator’s argument that from Tredoux’s evidence it was clear that they were aware of CNA disastrous results. This evidence of Tredoux was sufficient to bring the case within the test in Fourie’s case (supra).

[139] The liquidators led no evidence but merely introduced the financial statements of the CNA Group. There is nothing to suggest, in these circumstances, that MTN/M-Tel were aware, at the very least before the conclusion of the ARA and the appointment of Reynolds to CNA’s board, of any matter or facts appearing from the financial statements that were indicative of a financially failing company.

[140] Jenkins explained that liquidation was unthinkable; in these circumstances there cannot be an intention subjectively to prefer or to prejudice. None of the financial statements were put to Tredoux or to Jenkins except for those contained in Exhibit B. Jenkins said he had no knowledge of CNA’s assets and liabilities. He relied on the international reputation of Casenove as a merchant banker for CNA.

[141] From the evidence it appears that although there was pessimism about the under performance of CNA, there was a hope that things would improve. It became apparent in 2001 that things did not MTN became concerned that they may have a liability under the warranty. There is nothing to suggest in the evidence that at the time of concluding the ARA, MTN or M-Tel intended to obtain a preference. If liquidation was foreseen the last thing that MTN would have done was enter into the ARA as this could only prejudice its position, not improve it. CNA was a huge retail chain with a national footprint. The prospect of CNA being liquidated was unthinkable. Even if their trading difficulties had been known it did not mean that it was going to translate into the prospect of liquidation. Gordon Kay was prepared to pay R150-million as the purchase consideration.

[142] Did Jenkins at the time of the ARA foresee liquidation and deliberately shut his eyes to it. It must be born in mind that the company continued for 16 months thereafter and only went into liquidation the signing of the ARA. The intention must be examined as to what the dominant operative or effectual intention in substance and in truth of the debtor was in making the disposition. It is what he subjectively knew or what he deliberately shut his eyes to. The question is whether there is knowledge or foresight of a substantial inevitability of a liquidation occurring.

[143] Did McGrath in his memo consider liquidation to be or contemplated liquidation as “substantially inevitable” when he notes “what will the effect be if there is a liquidation prior to 30 June?” Is it a liquidation that he is contemplating or is he considering MTN’s position? If the tone of this note is sinister, as the liquidators want this court to believe, then surely MTN would have provided for such an inevitability if liquidation was uppermost in the minds of the MTN parties.

[144] The enquiry into the concept of “intention to prejudice creditors” or “to prefer one creditor above another” is a subjective one. There appears to be no attempt to prefer. If anything they were putting themselves “on the hook” for R86 million by taking a risk on CNA. In terms of the ARA, there would be very little in the trust account. There will also be commitment on the guarantee. In my view contemplating liquidation in March as being substantially inevitable is different from thinking of its possibility in a commercial endeavour.

[145] MTN was binding itself to paying R86 million, certainly not a paltry sum and it would be a commercial and business naivety to discount the prospect of liquidation in any negotiation in the commercial world when parting with such a large sum. If liquidation was “substantial inevitable” at that stage as the liquidators suggest then what MTN did was shut their eyes to it deliberately and committed commercial suicide in parting with property with the hope of nothing in return. Liquidation is a commercial prospect in any entity and McGrath was voicing concerns which any commercial businessman would.

[146] The note made by McGrath raises simply what the consequence would be in the event of a liquidation prior to the closing date (i.e. 30 June 2002). This does not translate into an appreciation of liquidation being either likely or substantially inevitable.

[147] The question to be addressed is whether in terms of Section 29 an intention to prefer existed and the object was to confer a preference. The essence of such a preference is the giving of such before the institution of concursus creditorum which precludes the distribution arrived at amongst all proved creditors. In doing so one must therefore have at least the knowledge that there is going to be a "concursus” and that one is therefore interfering with a distribution and thereby prejudicing creditors or preferring creditors. No such evidence was lead.

[148] What was the state of knowledge on the part of Jenkin’s, and therefore of MTN of CNA’s actual financial position? The liquidators have tried to convince this court that M-Tel tried to avoid liability under the warranty. Had the ARA not been concluded and had CNA been liquidated M-Tel would have faced a claim. Both Jenkins and Tredoux made it clear that CNA had not played its part to entitle it to earn on the warranties. The claim may have been disputed. This evidence was uncontroverted.

[149] The purpose of the ARA was to go forward and it committed MTN and Johnnic and its principals to the future success of CNA. In his mind Jenkins was committed to assisting CNA which would be beneficial to MTN as CNA’s retail outlets would provide a national footprint. Clearly liquidation was not being contemplated. Furthermore the cooperation agreement recorded the commitment of Johnnic’s resources to the promotion and the restructuring of CNA as envisaged by GKA to the “superstars in the CNA galaxy”. The support from various suppliers indicated their commitment to an ongoing icon. The linkage in the branding of CNA and MTN names is a further indication that MTN would not contemplate associating its name to a financially failing entity.

[150] Prior to the conclusion of the ARA, MTN and M-Tel appreciated that there was a substantial liability in respect of the June 2001 warranty and a probable further liability for the following year. The liquidators contend that MTN was aware that they were “on the hook” for R86 million and replaced it with another liability from a sister company but added a mechanism of a trust account to reduce the liability. The liquidators argue that there can be no question that they were taking money that would have accrued to CNA but for the ARA and used it to refund MTN to fulfil its obligations under the guarantees.

[151] The liquidators argue that both MTN and M-Tel foresaw and intended to prejudice creditors in that;

1. The giving of the dispositions would prefer one or both of the MTN and M-Tel parties in any subsequent liquidation of CNA.

2. Both MTN and M-Tel would be preferred in relation to the other creditors of CNA in the event of a subsequent liquidation.

[152] It is unchallenged that the purpose of the ARA was to secure a viable CNA group going forward which was mutually beneficial to everyone. The time to test whether the intention to prefer and knowledge or contemplation of liquidation as a substantial inevitability is at the time when the ARA is concluded and not as the liquidators suggest which is prior to the ARA. Questions such as: What if Wooltru did “unbundle”? What if Wooltru did not find a buyer for CNA? What would happen if there was a liquidation?, were all part of the discussions and went through the minds of Tredoux and McGrath. These questions did not translate into contemplating liquidation as a substantial inevitability.

[153] In the context of their discussions these questions were raised and it does not follow automatically that the presence of such a state of mind proves an intention to prefer, because it has to be shown that the debtor’s dominant motive in making the disposition was to prefer. An actual intention is required. In the Fourie’s case “mere knowledge that you are insolvent” is not enough. It has to be shown that the debtor’s dominant motive in making the disposition was to prefer. Clearly the requirement is subjective actual knowledge.

[154] The liquidators have argued that liquidation was contemplated. They rely on Tredoux’s testimony with regard to the concerns in 2000. Trading results were poor. There were a lot of uncertainties about what Wooltru intended to do. Jenkins’ evidence was that liquidation was ‘unthinkable.’ Tredoux testified that they had discussions with regard to liquidation as a notional possibility. This was at a different time before the ARA. They had faith in the CNA brand which was over 100 years old with a national footprint. It is inconceivable that MTN would continue to want to trade with a company going into liquidation. They saw the ARA as the saviour. Furthermore they were aware that Wooltru would stand behind CNA and “pay off the bills”. This did not mean liquidation.

[155] There is nothing sinister about the McGrath note¹¹². One cannot infer from this that there was a contemplation of liquidation as the liquidators submit. The guarantees would not be payable if liquidation proceedings intervened before the closing date of that transaction, which was 30 June 2002.¹¹³

[156] It is improbable that MTN would associate its brand with a failing company likely to go insolvent.¹¹⁴Jenkins explained that MTN’s position would have been worse after the conclusion of the ARA and it would have ended up with worthless security in the form of a pledge of shares in a worthless entity. It is significant that the ARA was in fact implemented and CNA was in fact only liquidated approximately 16 months later i.e. in July 2002.¹¹⁵

[157] It was only during June 2001 that CNA sought extended terms of R1, 2 million.¹¹⁶ Tredoux testified that until then M-Tel “had the impression that financially at least the business was reasonably secure”. It was only then that there was a suggestion that CNA may be in trouble.¹¹⁷ Even then M-Tel was led by CNA to believe that it was a “temporary cashflow problem”. CNA did not make its financial statements available to M-Tel.¹¹⁸ Jenkins testified that on the basis of a purchase consideration of R150 million and Casenove’s involvement, this was to him the fair value of CNA and a fair purchase price.¹¹⁹

[158] Particularly significant in relation to whether Jenkins foresaw the prospect of a liquidation of CNA is the following extract from the evidence of Jenkins:

“It was, I suppose it was unthinkable¹²⁰ … because our, well, in any kind of commercial context I suppose you look at risks and you say that nothing is impossible, but you know, you are looking at commercial, which is a fair commercial risk, what is not a fair commercial risk, and as far as we were concerned the likelihood of CNA’s insolvency was improbable. It was an iconic brand. It had 300, in excess of 300 stores. It was a household name. It had lost its way, admittedly, and we believe that it needed to sharpen up its systems, it needed to sharpen its logistics, it needed a new focus, it needed some new management. But the idea that CNA would not be around or that it could deal with the company that was on, you know, kind of on the brink of financial disaster, it never crossed our minds.”¹²¹

[159] There is also nothing sinister about the reference to Mr Bird’s note. Wooltru was taking a risk on GKA and they wanted to be sure of MTN’s commitment. It cannot really be contended that Jenkins or MTN/M-Tel knew of the financial state of CNA.

[160] It is clear from the authorities quoted in Fourie’s case (supra) the Pretorius and Cooper cases (supra) that the submissions made by Mr Subel have merit. It is not correct to suggest, as the liquidators do, that contemplation of liquidation is the only requirement. It also does not appear that the MTN parties are relying on the author Meskin for their submissions. The notion that liquidation must be considered as “substantially inevitable” is not a new concept. In Fourie’s case reference is made to the case of Pretorius (supra) where the following is stated¹²²: “The next question to consider is what has to be shown in order to prove that the debtor contemplates sequestration….In Thurban v Steward, contemplation of sequestration was said to mean “expectation of sequestration”. In Malherbe’s Trustee v Dinner and Others, 1922 O.P.D. 18, De Villiers JP paraphrased those words as meaning “knowledge that sequestration was substantially inevitable”…..For the purposes of the present case it is sufficient to say that a debtor contemplates sequestration, at any rate, if he knows that sequestration is “substantially inevitable”.

[161] Since the enquiry is a subjective one, the only conclusion is that Jenkins and Tredoux bona fide believed the ARA to be beneficial for all parties and did not and could not reasonably have contemplated liquidation intervening as a substantial inevitability. On the evidence of Jenkins and of Tredoux, there was no knowledge of the actual state of the assets and liabilities of CNA at the time of concluding the ARA or that they were privy to the financial statements of CNA.

[162] MTN was not a creditor and would become one only in the event that it paid anything under guarantees it gave only because of and in terms of the ARA. Johnnic, although a creditor, was not alleged by the liquidators to have benefited from any of the pleaded dispositions. M-Tel was a creditor in the amount of some R16 million, yet the ARA in no way provides for or addresses this particular debt; on the contrary, M-Tel’s security for this debt, R25 million suretyship from Wooltru, was surrendered because of the ARA.

[163] The ARA was to create a new relationship going forward. It is unthinkable that at that point in time MTN would have contemplated and deliberately shut its eyes to the prospect of liquidation and paid out R85 million. The suggestion that MTN and M-Tel at the time of ARA knew that liquidation was likely to occur in the foreseeable future must be rejected. There is nothing to support the contention that MTN knew that liquidation was substantially inevitable.

[164] Applying the principles stated by Zulman JA in the Cooper decision, I am satisfied that the MTN parties had no subjective intention to prefer. Not only was the liquidation of CNA not foreseen as a “substantial inevitability” but, on the contrary, the ARA was agreed to and implemented for precisely the opposite purpose, viz to allow CNA to continue trading. The dominant, operative and effectual intention was to create and facilitate a mutually beneficial commercial relationship between not only the MTN/CNA parties but also between the Johncom Group, including the Johncom principals and CNA.

[165] Whatever might have been the view of any person regarding the financial position of CNA prior to the ARA, the issue is what was intended and contemplated for the period following upon and as a result of the conclusion of the ARA. I accept that Jenkins and the other representatives of the MTN/Johncom Group did not contemplate liquidation of CNA as “substantially inevitable” after the conclusion of the ARA.

PURPOSE OF THE ARA

[166] Tredoux and Jenkins explained that the purpose of the ARA was “to draw a line and to make bygones bygones.” The purpose of the ARA was to go forward, CNA had tremendous good will, it had branding. It was in the interest of the owners of CNA, the Johnnic Group, MTN to go forward.

[167] From both Tredoux and Jenkins’ evidence it emerged that the purpose of the ARA was not to secure any advantage for any party in respect of the past. Its purpose was to create a structure for a future relationship and its terms were designed to govern the relationship in the interests of all the parties. The provision for a waiver of any claim was simply there to remove any issue between the parties in respect of the past period. The language of the ARA itself makes it plain that there is no acknowledged liability in respect of the warranty. Although clause 2.2 of the ARA referred to M-Tel’s liability in terms of the second warranty being substantial, clause 4.2 deleted it.

[168] The ARA is in its terms clearly prospective and each of its provisions governs the relationship going forward. Jenkins testified that Gordon had not sought to defend CNA’s position but, on the contrary, had acknowledged that there might be merit in M-Tel’s contention that CNA had not performed as required under the RA and was therefore not entitled to any warranty period.

[169] The effect and purpose of the ARA was therefore not to secure a benefit vis-à-vis the creditors. Most importantly, Jenkins stressed that he had no basis for contemplating the liquidation of CNA and that had he contemplated such a prospect, he would not have concluded the ARA. The importance of this evidence lies in the fact that there could in such circumstances have been no intention or even any contemplation of the MTN parties receiving any preference or of the creditors of CNA being prejudiced by the conclusion and implementation of the ARA.

[170] From the income generated from the cellular telephony business there was going to be an amount retained by CNA for operational purposes up to a maximum of R20 million and that the rest would be paid into a trust account to serve as security for one day when MTN if paid R86 million. The security would grow incrementally and would be a long term issue. MTN was committing itself to the future success of CNA and it had to be successful for MTN to derive any security from the trust account. It is obvious that this was for MTN a long term relationship, going forward with an iconic brand, which was reinvigorated and restructured under new management. It would have been suicidal for the MTN parties to go on board a “sinking ship.”

[171] The reason why MTN introduced itself into a relationship where it became a debtor was to provide support going forward, to build a relationship and to renegotiate the terms of the RA in good faith. It is not suggested by the MTN parties that MTN was purely philanthropic. The advantage was that its products would be sold on a national basis. There was certainly benefit to MTN. Johncom would also provide outlets. The MTN/M-Tel/Johncom group had faith in CNA as a group because that is precisely why they entered into the ARA so that going forward they would have the ability to sell their product.

THE DIRECTING MIND

[172] In the seminal case of TESCO relied on in El Ajour (supra) at page 699 e - h, the following is stated :

“…But the Board of directors may delegate some part of their functions of management giving to their delegate full discretion to act independently of instructions from them”. Jenkins gave instructions to the attorneys to draw the ARA. These instructions were an important part of the function of the Board that was entrusted and delegated to Jenkins. He had to be aware of what the Board had in mind to instruct attorneys to draft the formulation of the clauses of the ARA. He had to be “clothed with authority “to do that.

[173] It is sufficient to justify Jenkins being treated as the directing mind and will of MTN. The authorities set out supra indicate that the controlling or directing mind is that of the person who was involved in the transaction and who carried out the act. The cases have recognised that the board may do it or may delegate it or may authorise somebody else to do it. The person who does the act becomes the instrument.

[174] The only person whose mindset was relevant was Jenkins. He testified that he was the leader of the negotiating team. He instructed the attorneys, Webber Wentzel on the drafts and the final agreement. In formulating the terms he was a senior executive within the group vested with the role of dealing with the issues and renegotiating the ARA. It was not put to Jenkins that he was neither the controlling mind nor had mindset of what the mindset of the board was. Calling McGrath, the MD, the chairperson and Reynolds who all may have given input would be purely corroborative of Jenkins. The board here is acting through Jenkins, he is the directing mind.¹²³

[175] In El Ajou vs Dollar Holdings (supra), it is stated that it is necessary to identify the natural person or persons having management and control in relation to the act or omission in point. Jenkins is the particular person having the management and control in relation to the act on MTN’s side. The act being the negotiation and the conclusion of the ARA, he does not have to be a director. The act will be considered to be that of the directing mind as long as it is performed by the person in question within a sector of the company operation assigned to him by the company. It was not suggested that Jenkins was not authorised to represent MTN.

[176] Jenkins testified that he spoke to various people in management and tried to devise a way that would be acceptable to MTN short of a cancellation and the termination of the RA and litigation. There is no doubt that Jenkins was the directing mind and controlling mind. Jenkins was given the approval and authority, he ultimately instructed the attorneys and concluded the agreement. It did not matter that he did not sign the agreement, the fact that McGrath may have signed does not detract from who was the person who was instrumental, whose mind was it that was being brought to bear upon in the terms of the transaction.

[177] The liquidators have argued that Jenkins was not circulated with the Board papers, he was not copied with the proposed resolution authorising Dabengwa and McGrath to sign the ARA. He had no authority to conclude the deal in his own discretion. The board approved of the ARA by simply resolving by ‘round-robin’. This showed that they had no involvement in the ARA. They simply authorised the signatures on the agreement. It did not make them or McGrath or Dabengwa the controlling mind. Both Tredoux and Jenkins were giving the input but ultimately the person whose state of knowledge and the only person who had the full conspectus of facts and the requisite state of knowledge was Jenkins.

[178] There is also no suggestion that McGrath or the board were involved in instructing the attorneys in the formulation or the conclusion of the ARA. It was not disputed that not everything relevant to this transaction was known to Tredoux and Jenkins. The board accepted Jenkins’ role. They had obviously delegated him to instruct he attorneys. They had confidence in him to negotiate the terms on their behalf goes without saying. The fact that the board ultimately had to approve of the ARA or authorise it does not detract from it.

[179] As stated by the authors of Blackman supra the “directing mind” need not be one person or body; the knowledge of more than one can be combined to compromise a piece of information that is regarded as knowledge of the company. The question is whether the mindset of Jenkins and to a lesser extent Tredoux, can be attributed to and constitute the mindset of the plaintiffs.

[180] The liquidators have argued that Jenkins was the directing mind as he was not a board member of either MTN or M-Tel. He could not speak for the board of either company nor did he represent either MTN or M-Tel in signing the ARA. This argument has no merit. Jenkins testified that he was the leader of the negotiating team, he gave the instructions to Attorney Webber Wentzel in regard to the terms of the ARA and”I probably had more knowledge than everybody else”.¹²⁴

[181] The question whether an individual’s mindset can be attributed to the company is whether a particular individual can be said to be the directing mind of the company for a particular act or state of mind.¹²⁵

[182] Clearly Jenkins was acting with the concurrence of McGrath, who was a director of the plaintiffs. The question whether Jenkins and Tredoux can testify to the mindsets of the boards or whether Jenkins’ mindset can be attributed to the plaintiffs in these particular circumstances must therefore be answered in the affirmative. From the authorities set above (supra), there is no reason why Jenkins cannot be considered the directing mind of the plaintiffs for purposes of establishing the mindset of the plaintiffs and more particularly for attributing the state of mind of Jenkins to the plaintiffs.

[183] The plaintiffs held out Jenkins as the party conducting negotiations on their behalf. All the parties negotiated with Jenkins, including Gordon. Jenkins was in constant contact with the executives of the plaintiffs including McGrath, Tredoux and Reynolds. Jenkins was the person in the best position to appreciate the import of the ARA, both commercially and legally that is why Jenkins was instructed to brief the attorneys. The fact that Jenkins, as the directing mind, did not sign the ARA on behalf of the plaintiffs is irrelevant.

[184] The evidence is overwhelming that Jenkins was the directing mind and will of MTN for the conclusion of the ARA. His liaison with the Boards was merely for the purposes of formal approval and authority. This, as the authorities make clear, does not detract from the directing mind and will of the person who was closest to the transaction. The suggestion by CNA that Tredoux and Jenkins testified that McGrath was primarily responsible is not supported by the evidence. Jenkins made it clear beyond question that he was the person who negotiated the transaction with Gordon and instructed the attorneys to draw the final version of the ARA. There was, in these circumstances, no need to call Mr McGrath to testify.

[185] The evidence demonstrates that Jenkins was in fact the only participant on the Johncom side as well as on the MTN/M-Tel side. It was not put to Jenkins that there was any aspect of the negotiations to which Jenkins was not privy. Nor was it suggested that any of the directors of MTN/M-Tel or the Johncom Group had any understanding, insight or intention other than that which was formed by Jenkins.

[186] In view of all the aforegoing, I find that Jenkins was the directing mind of the plaintiff and that his state of mind can be attributed to the plaintiff.

[187] Tredoux and Jenkins said more than was sufficient. There was accordingly no necessity for either McGrath or Dabengwa to testify as to their intention. They would have merely served to corroborate evidence already given.There was no necessity to call McGrath or Dabengwa as the notes and memos were all consistent with what Tredoux testified to. Ultimately the only person whose mind really was relevant ultimately was Jenkins.

[188] For the purpose of Section 33(1), it is clear that MTN gave up property, in the amount of R86 million in return for one or more of the hypothesized dispositions. The following confirm that the MTN guarantees were given “in return for” the hypothesised dispositions in terms of and pursuant to the ARA:

1. clause 2.4 of the ARA, which stipulates that”… in consideration for the concessions made by CNA, MTN will furnish the First Guarantee and the Second Guarantee to Wooltru….”;

2. If MTN is called upon to furnish the guarantees it will be entitled to recover the amounts paid by it from CNA and Newco, reimbursement being effected from the Trust account.

3. clause 6.4 of the ARA, which provides that the suretyship obligation undertaken by CNA for the obligation to refund MTN for payment of the guarantees is given “to create the legal causa for the payments contemplated in clause 6.3” ; and

4. the ARA was a holistic transaction, a multi-party, and multi-purpose agreement in which the MTN group gave its financial and commercial support to CNA for the purpose of facilitating a future relationship with a reinvigorated CNA and inter alia in settlement of disputes between CNA and M-Tel about potential liability under the income warranty for the year ending June 2001.It created a new arrangement.

H. CONCLUSION

[189] The hypothesised dispositions all occurred at the time of the conclusion of the ARA. Subsequent to that, it was MTN, not CNA, that ‘suffered’ a disposition or disadvantage by having to pay out on the guarantees.

[190] It is improbable that MTN would have concluded the ARA and taken upon itself a liability of R86 million, had it envisaged liquidation in the short term, before sufficient monies had been paid into the trust account to secure the repayment to MTN of the monies paid under the guarantees. An assessment of the evidence reveals that it has been established without contradiction that the ARA was negotiated and concluded by MTN and M-Tel in good faith.

[191] The person who was the directing mind in the negotiation was Mr Paul Jenkins. His evidence of the rationale for the conclusion of the ARA, leaves no doubt that the transaction, far from being concluded with the object of preferring MTN or M-Tel in the event of insolvency, was in fact concluded with an attitude of commitment to the well-being of CNA. I accordingly find that neither Jenkins nor Tredoux nor any other representative of MTN/M-Tel, were aware at the relevant time, i.e. at the time of conclusion of the ARA, of the true financial position of CNA.

[192] None of the evidence by Tredoux and Jenkins was contradicted. In fact, very little of their evidence was challenged. Propositions put to them under cross-examination were answered in a forthright manner consistent with their version throughout and no contradictions emerged from their evidence. Not only were they both reliable witnesses but their versions are consistent with each other, and with the objective facts. Both Tredoux and Jenkins were credible, reliable and consistent. They withstood the rigours of cross-examination and they supported each other in material respects. There is no basis to reject the evidence of Jenkins or Tredoux.

[193] In view of the aforegoing I find that the MTN parties have proved on a balance of probabilities, that the R86 million paid by MTN, and M-Tel’s acceptance of the continuation of the RA as amended, was given in return for the hypothesised dispositions.

[194] The MTN parties have demonstrated that in return for the (assumed) “dispositions” which are sought to be set aside by the liquidators, MTN and M-Tel parted with property and lost rights against CNA and that they acted in good faith. Having regard to all of the aforegoing, the separated issue falls to be decided in favour of the MTN parties.

[195] As far as the costs are concerned, Mr Subel has argued that this case must not be viewed as dealt with on the separated issue. There are three actions all consolidated into one, which necessitated a great volume of preparation and documentation. As a result, it was necessary to engage the services of three counsel.

THE ORDER

[196] In the result I make the following order:

1. The MTN parties are not obliged to restore any property or any other benefit received under the (alleged) dispositions (on the assumptions recorded in the order of Court in terms of Rule 33(4)) unless the liquidators have indemnified them for parting with such property and for losing such rights.

2. The liquidators are ordered to pay the costs of suit up until the present time, including the costs consequent upon the employment of three counsel.

_________________________ H SALDULKER

JUDGE OF THE HIGH COURT

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