Essence

Whether the Badenhorst principle also applies to genuine and reasonable legal disputes arising from undisputed facts.

Judgment

Trinity Asset Management (Pty) Ltd v Grindstone Investments 132 (Pty) Ltd (CCCT248/16) [2017] ZACC 32 (5 September 2017).  Disallowed the appeal.

Judges

Froneman J, considering this issue: [Mogoeng CJ, Nkabinde ADCJ, Cameron J,  Jafta J, Khampepe J, Madlanga J, Mhlantla J, Mojapelo AJ, Pretorius AJ and Zondo J].

Significance

Applying the Badenhorst principle correctly has important implications and there is need to resolve the issue of genuine and reasonable legal disputes arising from undisputed facts.
Discussion by GilesFiles
As explained by Froneman J the principle holds that where there is a genuine and bona fide (good faith) factual dispute concerning a debtor’s indebtedness to a creditor seeking provisional liquidation of the debtor’s estate, the application for provisional liquidation should normally be dismissed. There is as yet no authoritative certainty whether this principle also applies to genuine and reasonable legal disputes arising from undisputed facts. It is in the interests of justice to consider this issue as well.
Court summary

Concurring in part and dissenting in part, Froneman J held that the outcome should have been the same: the appeal must be dismissed, and the dismissal of the provisional liquidation application in the High Court should be confirmed.

According to him, whether the Badenhorst principle also applies to purely legal issues that arise in provisional liquidation proceedings needed to be dealt with before the issue of prescription.  He found that the High Court judgment did apply the Badenhorst principle to a disputed legal issue, and an appeal against it could succeed only if its application of the principle was incorrect.

Froneman J did not agree that the prescription issue is properly before the Court.  But, if it were, he held that the reasons for rejecting the applicability of the Badenhorst principle to legal issues, even on undisputed facts, had to be articulated.  He however agreed with the majority judgment regarding the interpretation of the contract and outcome of the prescription enquiry with additional reasons in which the majority concur.

Quotations from judgment

The Badenhorst principle

[145] Liquidation proceedings are designed to bring about a concurrence of creditors to ensure an equal distribution of the insolvent estate between them, and are inappropriate to resolve a dispute as to the existence of a debt.  In order to prevent the possible abuse of the liquidation process, the rule was developed to the effect that where there is a genuine and good faith factual dispute concerning an alleged insolvent debtor’s indebtedness to a creditor, the application for provisional liquidation should normally be dismissed.

[146] The High Court judgment is capable of being understood as saying that its refusal of the provisional liquidation order was based on the existence of a good faith dispute about the legal issue of prescription – in other words, it did apply the Badenhorst principle to a disputed legal issue.  If that is a proper or feasible interpretation of the High Court judgment, which I think it is, then an appeal against it can only succeed if its application of the Badenhorst principle to legal disputes was incorrect.  If not, its finding of a good faith legal dispute can hardly be faulted, given the difference of opinion on the merits of the prescription issue in both the SCA and this Court.

[147] The applicant argued before us that it was accepted practice that the rule does not apply to disputed legal issues, only disputed factual issues.  That may or may not be correct, but hardly disposes of the legal question of whether the alleged practice is in accordance with the correct legal position.  This question has not been authoritatively settled.

[148] In dealing with this in Orestisolve, Rogers J pointed out that:

“If the Badenhorst [principle]’s foundation is abuse of process, it might be said that it is as much an abuse to resort to liquidation where there is a genuine legal dispute as where there is a genuine factual dispute.”

However, he went on to say:

“[I]f the Badenhorst [principle] extends to purely legal disputes, I venture to suggest that the rule, which is not inflexible, would not generally be an obstacle to liquidation if the court felt no real difficulty in deciding the legal point.”

[149] A similar kind of ambivalence exists in relation to deciding legal issues in temporary interdict proceedings.  In Fourie, Viljoen J held that a judge confronted with a legal issue needed to decide it, even if the relief sought was of a temporary nature.  Decision of the legal point would dispose of the matter finally.  Fourie has not been uniformly followed.  In Ward, Blignault AJ also adopted a kind of compromise approach to the effect that “ordinary questions of law” should be finally decided even in interlocutory proceedings, but not where “difficult questions of law” are involved.

[150] This Court has not yet pronounced on what the correct position is.  In National Gambling Board the issue was expressly left open.  What further complicates matters is that in some divisions of the High Court the practice of provisional liquidation orders being issued is not followed: most liquidation applications are followed by final orders.  In those instances the Badenhorst principle may be inapposite as an approach to the determination of factual disputes.  And, as pointed out by Cameron J in the second judgment, the facts relating to the “due” clause in the loan agreement are very sparse.

[151] For these reasons I disagree with the acceptance in the first and second judgments that the prescription issue is properly before us.  If it is, then the reasons for rejection of the applicability of the Badenhorst principle to legal issues, even on undisputed facts, must be articulated.  That has not been done, nor did the SCA deal with that issue.  And to do so now, in the absence of full argument, is not appropriate.

[152] In the absence of a finding that the Badenhorst principle does not apply to disputed legal issues, there is no ground for faulting the dismissal of the application for provisional liquidation in the High Court.  For different reasons than those of the majority in the SCA, I would nevertheless hold that the outcome should have been the same: the appeal must be dismissed and the dismissal of the provisional liquidation application in the High Court should be confirmed.

[153] But if I am wrong in this, then I agree with the second judgment that the claim for repayment of the loan has prescribed, and that the appeal should be dismissed for that reason as well.