REPORTABLE

IN THE SUPREME COURT
OF NAMIBIA

In
the matter between:

and

CORAM:
Shivute, C.J., Maritz, J.A. et Strydom, A.J.A.

HEARD
ON: 11/10/2006

DELIVERED
ON: 08/12/2006

APPEAL JUDGMENT

STRYDOM, A.J.A.:
[1] The respondent in this matter did carpentry and joinery work as
subcontractor for the appellant. Respondent alleged that on
completion of the work the appellant owed her an amount of N$ 225
869,55. When no payment was forthcoming the respondent issued
summons and obtained judgment by default in the above amount.
Notwithstanding judgment the respondent did not receive any payment
as a result of which a writ of execution was issued which led to the
attachment of a payment certificate in favour of the appellant in an
amount of approximately N$1 Million.

[2] This at last elicited
reaction from the appellant which in turn led to an agreement between
the parties whereby respondent would release the payment certificate
from attachment on condition that the appellant paid the amount of
N$225 869,55 into the trust account of his attorneys, Messrs. P.F
Koep & Co. It now also became clear that the appellant disputed
part of the respondent’s claim. An amount of N$95 309,01, not in
dispute, was paid to the respondent. The balance was to remain in
the trust account until the dispute between the parties had been
resolved. It was further agreed that the respondent would not
oppose an application by the appellant for a rescission of the
default judgment.

[3] The respondent
further alleged that the money paid into the trust account of
appellant’s attorney was in effect security for the balance of her
claim.

[4] Then on 22^nd
November 2004 an application was launched by the appellant whereby an
offer of compromise was made to the creditors of the appellant in
terms of the Companies Act. This order was granted by the Court on
the same day and in terms thereof Mr. Claus Jurgen Hinrichsen was
authorised to convene the meetings with creditors of appellant and to
act as Chairman of such meetings.

[5] The meetings were
held and a statement in terms of section 312(1) and (2/ of the
Companies Act, Act 61 of 1973, was duly filed by the Chairman.

[6] It is alleged that
notwithstanding the fact that the respondent was a judgment creditor
of the appellant no notice of any meeting of creditors was given to
her. However it seems that the legal practitioner, as well as the
respondent, attended a meeting and there is a dispute whether, on
this occasion, Mr. Vaatz, the legal practitioner of the respondent,
admitted to the Chairman that the respondent was not a secured
creditor but an ordinary concurrent creditor of the appellant.

[7] During this time the
respondent became aware that the legal practitioner of the appellant
had sent the money, held in its trust account as security for the
respondent’s claim, to the Chairman, Mr. Hinrichsen, because of the
intervening offer of compromise by the appellant.

[8] Because the
respondent was also nowhere reflected as a creditor of the appellant
and because appellant was not taking any further steps to prosecute
its application for rescission of the default judgment, the
respondent launched an application to the High Court and obtained the
following order:

“1. That the Court
directs the attorneys for the defendant, Messrs P.F. Koep & Co,
to retain the money (N$ l30 144,64) paid into their trust account by
the Defendant, being the full amount of the judgment claim until the
matter has been disposed of by way of an agreement or in terms of a
court order.

2. 
   That the Court makes a
   declaratory order that the Plaintiff is a secured creditor against
   the Defendant in view of the payment the Defendant had made into the
   trust account of Defendant’s attorney by way of security at the
   time.

   
   

2. 
   That the defendant state
   in writing within fourteen (14) days of the date of this Court order
   whether or not the Defendant intends to proceed with its application
   for rescission of judgment.

   
   

2. 
   That the Defendant
   furnishes the Plaintiff with a copy of the offer of compromise and
   with the necessary documents to proof (sic) a claim to the
   Receiver allegedly appointed in terms of the offer of compromise.

   
   

2. 
   That the Plaintiff
   is hereby advised to within ten (10) days from date of this Court
   order who has been appointed in Namibia as Receiver in terms of the
   offer of compromise.” (sic)

   
   

[9] Although the
application was served on the attorneys of the appellant there was no
defence to the application and the order was granted by default.

[10] This again elicited
reaction from the appellant which filed a notice of appeal in terms
of which it appealed on various grounds against the order granted by
default.

[11] Mr. Tötemeyer
argued the appeal on behalf of the appellant and Mr. Vaatz argued on
behalf of the respondent.

[12] The record of appeal
was filed out of time which necessitated an application for
condonation. This application was not opposed by the respondent.
According to the explanation given some problems were encountered in
regard to the completion of the record of appeal and it was stated
that the record was filed as soon as it became available.

[13] The explanation was
accepted by the Court and condonation was granted.

[14] Two further issues
need to be addressed at this stage. The first is whether, in the
circumstances where the appellant did not oppose any of the relief
claimed, it could now appeal the order of the Court a quo, and
whether in any event the order was appealable. Secondly, an
application was launched by the appellant in which it asked this
Court to allow it to amplify the record of appeal by accepting three
further documents as part of such record as well as an affidavit of
Mr. Hinrichsen.

[15] In regard to the
first issue the Registrar of the Court addressed the following letter
to the respective parties, namely:

“His Lordship, the
Chief Justice, directed that counsel should be invited to file heads
of argument before – and to present argument at – the hearing of
the appeal on the following issues:

"1. Could (and if
so, should) the Supreme Court entertain the appeal in circumstances
where –

1. 
   the appellant did not
   file a notice of intention to oppose in the application;

   
   

2. 
   the appellant did not
   file any answering affidavit or give notice of its intention to
   raise a question of law;

   
   

3. 
   the appellant did not
   oppose the granting of the relief prayed for in the application
   before the court a quo;

   
   

4. 
   the appellant did not
   move any application to rescind the order granted?

   
   

2. Was the application in
the Court a quo interlocutory in nature and, if so, was leave
to appeal required?”

[16] Both Counsel filed
Heads of Argument and the Court is indebted to them for doing so at
short notice.

[17] With reference to
the provisions of sec. 18(1) of the High Court Act, Act l6 of 1990,
Mr Tötemeyer submitted that the default judgment granted in the
matter was final in effect and that sec. 18(1) therefore granted a
direct right of appeal to this Court. Counsel referred the Court to
the matter of Sparks v David Polliack & Co. (Pty) Ltd,
1963 (2) 491(T).

[18] Mr. Vaatz agreed
that the matter was appealable but he submitted that it was
interlocutory in nature and that it was therefore necessary to obtain
leave to appeal before this Court could hear the matter. Mr. Vaatz
referred the Court to the case of Von der Nist v Pickering, 1931
NLR 185 and to S.A. Civil Procedure in the Superior Courts,
4^th Ed., by the authors Herbstein and van Winzen, p877
-883.

[19] I agree with Counsel
that sec. 18(1) of Act 16 of 1990 affords a general right of appeal
in these proceedings to the Supreme Court. This section provides as
follows:

“l8(1) An appeal from
a judgment or an order of the High Court in any civil proceedings or
against a judgment or order of the High Court on appeal shall, in so
far as this section otherwise provides, be heard by the Supreme
Court.”

[20] A limitation on this
general right of appeal is found in sec. 18(3) which provides that
where the judgment or order under appeal is interlocutory, or only
against an order of costs which is left by law to the discretion of
the court, then leave to appeal is required.

[21] It was submitted by
Mr. Tötemeyer that because the appeal was only launched after
the period, within which rescission of judgment could be applied for
in terms of the Rules of Court, had lapsed, the judgment or order was
final.

[22] Whether the
appellant was limited to its remedy in terms of the Rules of Court
and was forced to apply for a rescission of judgment or whether it
could appeal, is fully dealt with in the cases quoted by Counsel.
In the case of Sparks v David Polliack & Co, supra, the
Court (Trollip, J, as he then was) dealt with a judgment by default
granted by a magistrate’s court in terms of sec. 83(b) of the
Magistrate’s Court Act, which required that a judgment should be
final before it is appealable. At p. 494G – 495A the learned
Judge stated the following:

“The test of
appealability in such cases is whether the judgment was final or
provisional, and not whether another remedy was available in the
Court a quo which should have been first exhausted. The fact
that the remedy of rescission is available in the court that granted
the judgment, is of course an important factor in determining whether
the judgment is final or merely provisional, but it is not decisive
as Austin v Mills, supra, indicates. A judgment might, in
terms of the statute and practice of court, be final and therefore
appealable even though the remedy of rescission is also available;
and if the statute does confer the right to appeal against the
judgment, I do not think that the Appeal Court is entitled to
frustrate that right by refusing to entertain it merely because the
remedy of rescission is also available to the defendant in the court
a quo. (Goldberg v Goldberg, 1938 WLD 83 at 85). After all
the appellant is dominus litis and it is for him to select the
remedies available to him what particular remedy he wishes to invoke
and if he chooses his statutory right to appeal, I do not think that
the Appeal Court could refuse to hear it.”

[23] In the present
instance the time for rescission of the judgment had lapsed and
notice of appeal was given after the lapse of such period. The
person who could apply for the rescission is before this Court on
appeal. It seems to me that this is an instance where the Court can
also accept that the appellant waived its right to apply for a
rescission and elected instead to come on appeal. See Sparks-case,
supra, p496E-F.

[24] Mr. Vaatz, on the
other hand, based his argument that this is an interlocutory
application on the fact that the rescission of the main application
for payment of the debt is still not resolved. This appeal does not
concern that judgment. It concerns the subsequent order made by the
Court a quo and in regard to which the time for rescission has
lapsed.

[25] In the
circumstances I agree that the order is appealable and that no leave
to appeal is necessary in view of the Court’s finding that it is a
final order.

[26] The second issue
which must be addressed is the application to put further evidence
before this Court which was not before the Court a quo. This
new evidence consists of three documents as well as an affidavit by
Mr. Hinrichsen. If the Court should allow the affidavit by Mr.
Hinrichsen then it follows that the replying affidavit by the
respondent should also be allowed.

[27] Although, by sec.
19(a) of Act 15 of l990, this Court is granted wide powers to receive
evidence on appeal a reading of the cases has shown that this is a
power which the Court would exercise sparingly and only where certain
prerequisites are complied with. These are firstly that a reasonable
and acceptable explanation must be given why the evidence was not
tendered at the trial. Secondly the evidence must be essential for
the case on hand and thirdly it must be of such a nature that it may
probably have the effect of influencing the result of the case. (See
Staatspresident en ‘n Ander v Lefuo, 1990 (2) SA 679 (AD) at
691C – 692C)

[28] In the present case
there is obviously not an acceptable explanation why the evidence was
not put before the Court a quo in the first place because the
matter was left undefended. The only reasons given by the deponent
to the affidavit were that for reasons unknown certain documents were
not put before the Court. Further an attempt was made to make out a
case by referring to the importance of the documents.

[29] The rules referred
to above have crystalized over many years. In one of the first
cases concerning these principles, namely Shein v Excess
Insurance Co Ltd. 1912 AD 418, Innes, ACJ, explaining that
special grounds must exist before a Court would grant such an
application, expressed himself as follows at p. 429-

“It would be
undesirable to endeavour to frame an exhaustive definition of the
special grounds on which the Court ought to accede to the application
of a litigant desirous of leading further evidence upon appeal. But
neither the circumstance that the matter at issue is of great
importance to the applicant nor the circumstance that he finds
himself able materially to strengthen the case he made in the trial
Court or materially to weaken that of his opponent would in
themselves be such special grounds.

[30] The appellant, by
electing to let the matter go by default and failing to present the
facts now tendered as part of an application for rescission of
judgment has deliberately made his choice and cannot now complain if
he finds himself in a position where his case could have been
strengthened, or that of the respondent weakened by evidence which
was available but was not put before the Court.

[31] For the above
reasons the appellant’s application to introduce new evidence on
appeal is dismissed with costs. For purposes of taxing these costs
the Registrar is directed to allow half an hour for argument on this
point.

[32] The debt between the
parties arose as a result of a contract between the appellant and the
respondent whereby the respondent did carpentry and joinery work in
houses built by the appellant. The contract was personal with no
indication that payment was secured in any way.

[33] When the work was
completed and payment still outstanding judgment was obtained by the
respondent for the full amount outstanding. A writ of execution was
issued and an attachment was made. Concerning the allegation by the
respondent that she holds a secured claim which would then give her
preference over other claims against the estate of the appellant and
would also have secured the respondent’s claim against the
supervening offer of compromise made by the Court, it is necessary to
see whether, during any of the stages through which the debt went, it
was converted into a secured right as alleged.

[34] As a result of the
offer of compromise by the appellant the High Court ordered:

“10. That all legal
proceedings pertaining to the liquidation of and execution against
the Applicant, be forthwith suspended from date of this order to the
date of sanctioning of the envisaged compromise, alternatively the
withdrawal of this application.”

[35] At the time when the
offer of compromise was made and when the above order was issued the
respondent had already come to an agreement with the appellant to
release the certificate of payment attached by her in lieu of payment
of the judgment amount into the trust account of the appellant’s
attorney. It was this step taken by the appellant which prompted
the respondent to attempt to secure her position as a creditor by
applying to the Court a quo to declare her as a secured
creditor in regard to the debt owed to her by the appellant.

[36] Provided that the
appellant kept to this bargain, which was made with the respondent,
the debt would have been ‘secured’ but for the supervening offer
of compromise as a result of which a concursus creditorum was
created and, if sanctioned by the Court, would have divided the
creditors of the appellant into preferent and/or secured creditors
and concurrent creditors. As a result of the order of the Court a
quo the respondent finds herself in the advantageous position
that she can claim payment of her claim ‘out of’ the money so
deposited in the trust account of appellant’s attorney instead of
ranking as a concurrent creditor who would only receive a dividend.

[37] The question is
whether the appellant is a secured creditor and whether the Court a
quo was correct to make such a declarator.

[38] The ranking of
creditors in a compromise would ordinarily be divided between secured
and preferent creditors on the one hand and concurrent creditors on
the other hand. The principles applied in cases of liquidation or
insolvency would therefore be relevant.

[39] In terms of sec.
98(2) of the Insolvency Act, Act 24 of 1936, the attachment of any
property in execution of any judgment shall not confer on the
judgment creditor any preference except his taxed costs in those
proceedings not exceeding R50. Meskin, Insolvency Law, states
that the statutory provisions have the effect of also destroying the
common law preference previously acquired by a judgment creditor upon
attachment of property in execution.

(See Simpson v Klein
NO and Others, 1987 (1) SA 405(W) at 412B

[40] In the
Simpson-case, supra, Kriegler, J, had to determine
whether immovable property which was attached in terms of several
writs of execution was part of the estate of the insolvent seller,
where the writ was supervened by the insolvency, and although the
property was sold, it was not yet transferred. The Court concluded
that in terms of sec 20 of the Insolvency Act the property still
vested in the trustee.

[41] Although a judgment
creditor who has made an attachment thereby established a pignus
judiciale the effect of a supervening sequestration, for as long
as the sale in execution has not been perfected, divests such
creditor of the preference in terms of the common law. (Simpson’s
– case, supra, p.411G – 412A).

[42] In the present
instance it seems to me that the appellant lost the possible
preference she had in terms of the pignus judiciale by the
subsequent agreement whereby the attached payment of the money
certificate was released in favour of payment into the trust account
of the legal practitioners of the appellant.

[43] What must now be
determined are the rights of persons who became creditors of money
paid into the trust account of a legal practitioner and whether the
respondent became such a creditor. Obviously if nothing goes wrong
creditors are entitled to full payment of money held on their behalf
in such trust account. Should a sequestration of the legal
practitioner supervene, their rights must be determined in accordance
with the Legal Practitioner’s Act, Act 15 of 1995 (“the Act”).

[44] Section 26(1)
provides that every legal practitioner who holds or receives money on
behalf of or for any other person shall open a separate trust
banking account where such moneys are to be deposited. In terms of
sec. 27 money standing to the credit of a legal practitioner's trust
account shall not be regarded as part of the legal practitioner’s
assets except in so far as there might be a free residue in such
account after payment of all claims in regard to the trust account as
well as interest received on moneys invested. The trust account can
also not be attached for or on behalf of a creditor of that legal
practitioner.

[45] A similar provision
to that contained in the Act was part of the previous Attorneys
Admission Act, Act 23 of 1934, (R.S.A.) sec 33(7). In regard to
this section Hefer, J, (as he then was), stated the following in the
matter of Fuhri v Geyser NO and Another, 1979 (1) SA 747 at p
749C – E:

But, despite the
separation of trust moneys from an attorney’s assets thus affected
by s 33(7), it is clear that trust creditors have no control over the
trust account: ownership in the money in the account vest in the bank
or other institution in which it has been deposited (S v Kotze,
1965 (1) SA 118 (A) at 124), and it is the attorney who is
entitled to operate on the account and to make withdrawals from it
(De Villiers NO v Kaplan, 1960 (4) SA 476 (C)). The only
right that trust creditors have, is the right to payment by the
attorney of whatever is due to them, and it is to that extent that
they are the attorney’s creditors. This right to payment plainly
arises from the relationship between the parties and has nothing
whatsoever to do with the way in which the attorney handles the money
in his trust account.

[46] Thus the
relationship is one of debtor and creditor with exclusion of any and
all other creditors of the attorney except in so far as there might
be a free residue in the trust account after payment of all trust
creditors. In regard to the trust account it can be said that the
position of trust creditors is analogous to a preferent claim.
(See Geyser NO v Fuhri, 1980 (1) SA 598 (NPD), a Full Bench
decision confirming the judgment of Hefer ,J, in the former quoted
case. See also Ex Parte Law Society, Transvaal : In re Hoppe and
Visser, 1987 (2) SA 773 (TPD)).

[47] In the present
instance the money kept in the trust account of the appellant’s
legal practitioner was so kept in terms of an agreement between the
parties. In my opinion this agreement did not give rise to a
secured and/or preferent claim. Meskin, Op. cit., par 9.1.2.1
states that a secured claim “is one in respect of which the
creditor holds security, i.e. has a preferent right over property of
the insolvent”. Examples given by the learned author are the
landlord’s hypothec, a pledge, a right of retention or a special
mortgage or a notarial mortgage bond in terms of sec. 1 of Act 57 of
1993 or a session in securitatem debiti.

[48] With reference to
the Insolvency Act the learned author states:

“In this context, a
preferent right to payment, i.e. a preference, means a right to
payment ‘out of’ property of the estate in preference to other
claims. In the case of a secured claim, the creditor has a right to
payment ‘out of’ the particular property by which his claim is
secured which ranks before the right to payment of any other creditor
of the estate. In this context, by payment ‘out of’ the property
is meant payment from the proceeds of the realisation thereof by the
trustee in the course of his administration subject to the provisions
of the Insolvency Act regulating the realisation of securities for
claims and providing for costs of sequestration”.

[49] From the citation
above it is apparent that there is not a limited number of real
rights and that by means of statutory enactments, as an example, real
rights may be created. Therefore, rather than to determine the
right of the respondent by reference to the enumerated categories,
one should look at the nature of the respondent’s right to see
whether she is a secured creditor.

[50] The original debt
arose from a personal agreement between the appellant and the
respondent. The judgment and the writ of attachment, which
established a pignus judiciale, was abandoned in favour of the
agreement whereby the judgment debt was paid into the trust account
of the appellant’s legal practitioner to be held until the dispute
between the parties was solved. To that extent the respondent agreed
to a rescission of the judgment.

[51] Whilst the money was
so held it was supervened by first the offer of compromise and
secondly the sanction of that offer by the Court. At the time of
the sanction of the compromise respondent’s claim to the money paid
into the trust account depended on whether the appellant owed her
money and if so, what the amount thereof was. In terms of the cases
set out above the respondent, at this stage, was not a trust
creditor. The money paid into the trust account was not held for and
on behalf of the respondent but was paid to get the release of the
payment certificate. Until the dispute was resolved respondent did
not have a right of preference to get paid ‘out of’ the money
paid into the trust account.

[52] Once the attachment
was abandoned the judgment, by itself, did not create a preference
because the judgment gave no right to the respondent to payment "out
of" any property which secured the respondent's claim and once
the compromise supervened the money held in trust became part of the
estate of the appellant.

[53] An offer of
compromise only binds creditors once it has been sanctioned by the
Court and registered in terms of the Companies Act. Although there
is no order of Court attached to the documents showing that the offer
in this instance was sanctioned by the Court certain correspondence
attached by the respondent in my opinion clearly showed that that was
the case.

[54] There was firstly
the letter by Mr. Hinrichsen to P.F. Koep & Co. dated 9^th
November 2005. In this letter the author referred to the fact that
he rendered his report to the Court whereupon the Court granted an
order sanctioning the compromise and the order was also registered
with the Registrar of Companies. Mr. Vaatz also attached a letter
by attorneys Gys Louw which showed that a draft first and final
distribution account was drawn up in regard to the creditors of the
appellant. This could only have happened once there was a sanction
by the Court of the offer of compromise.

[55] These documents,
which were placed before the Court by the respondent, in my opinion
sufficiently proved that the offer of compromise was sanctioned and
registered.

56. 
    For the reasons stated
    and the conclusion arrived at the claim of the respondent is not a
    secured creditor, the first two paragraphs (paragraphs 1 and 2) of
    the order of the Court a quo cannot be allowed to stand and
    must be set aside.

    
    

56. 
    There is no basis on
    which this Court can interfere with paragraphs 3, 4, and 5 of the
    order and those orders must remain.

    
    

56. 
    The appellant was
    substantially successful and should be awarded the costs of appeal.

    
    

56. 
    In the result the
    following order is made:

    
    

1. 
   The application to
   introduce new evidence is dismissed with costs and the Registrar
   is directed to allow no more than half an hour for argument when
   taxing those costs.

   
   

2. 
   The appeal succeeds to
   the extent that paragraphs 1 and 2 of the order dated 30 January
   2006, are set aside.

   
   

3. 
   The respondent is
   ordered to pay the costs of appeal including the costs of one
   instructing and one instructed counsel.

   
   

(signed)
G.J.C. Strydom

________________________

STRYDOM,
A.J.A.

I
agree.

(signed)
P.S. Shivute

________________________

SHIVUTE,
C.J.

I
agree.

(signed)
J.D.G. Maritz

________________________

MARITZ,
J.A.