THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case number: 081/08
No precedential significance
In the matter between:

SILTEK HOLDINGS (PTY) LTD
(in liquidation) t/a WORKGROUP                                  APPELLANT

v

BUSINESS CONNEXION
SOLUTIONS (PTY) LTD

RESPONDENT

Neutral citation:
Siltek v Business Connexion (081/2008) [2008] ZASCA 136
(26 November 2008)

Coram:
Streicher JA, Jafta JA et Boruchowitz AJA

Heard:
6 November 2008

Delivered: 26 November  2008

Summary:
Set-off – requirements therefor restated.

ORDER

On appeal from: Pretoria High Court (Mabuse AJ)

1.
The appeal is upheld with costs.
2.
The order of the court a quo is set aside and replaced with the
following order:
(a)
The defendant is ordered to pay the sum of R436 430-97 with
interest calculated at the rate of 15.5% from the date of default to
the date of payment.
(b)
The defendant is ordered to pay costs of the action.

JUDGMENT

JAFTA JA (Streicher JA, Boruchowitz AJA)

[1] This is an appeal against the judgment of the Pretoria High Court
(Mabuse AJ) in terms of which the appellant’s claim was dismissed with
costs. The appellant had instituted an action against the respondent for the
payment of the sum of R436 430-97. The respondent’s defence, which
was upheld by the trial court, was that the claimed debt had been
extinguished by set-off. The appeal is with the leave of this court.

[2] By agreement between the parties the trial court was presented
with a set of facts in the form of a stated case and requested to answer the
following question:

‘Whether set-off applies between, on the one hand, a debt that is due but not payable
(ie that which is owed to the Plaintiff) and, on the other hand, a debt that is both due
and payable (ie that which is owed to the Defendant).’

In the circumstances of the present case the question posed was
incomplete because it did not refer to the fact that the appellant’s
liquidation commenced prior to its debt becoming payable.

[3] The facts on which the court below was asked to decide the above
question were the following. During August to October 2001 the
appellant sold and delivered goods to the value of R436 430-97 to the
respondent. In terms of the parties’ agreement the respondent had to pay
the purchase price within 30 days from the date of delivery. On
16 October 2001 and before the period of 30 days lapsed, an order
liquidating the appellant for failure to pay its debts, was issued.

[4] Meanwhile the parties had entered into another agreement in terms
whereof the appellant agreed to pay the respondent commission for
introducing new customers, if a sale between such customers and the
appellant occurred. The respondent introduced Telkom which purchased
goods to the total value of R5 589 806. As a result a commission in the
sum of R594 032-34 (inclusive of VAT) became due and payable by the
appellant to the respondent. This amount became payable before the
appellant was liquidated. But the respondent did not demand payment,
nor did it claim set-off prior to liquidation. The respondent raised the
issue of set-off for the first time in its plea to the claim by the appellant’s
liquidator.

[5] The real issue in this appeal is whether the liquidator’s claim had

been extinguished by set-off in circumstances where such claim was not
yet payable at the time the liquidation commenced. In order to determine
this issue it becomes necessary to outline briefly the requirements of
set-off in our law, within the specific context of this case.

[6] In our law set-off takes place if two parties owe each other
liquidated debts which are payable. In essence set-off constitutes a form
of payment by one party to the other. In Schierhout v Union Government1
Innes CJ explained set-off in the following terms:

‘The doctrine of set-off with us is not derived from statute and regulated by rule of
court, as in England. It is a recognised principle of our common law. When two
parties are mutually indebted to each other, both debts being liquidated and fully due,
then the doctrine of compensation comes into operation. The one debt extinguishes
the other pro tanto as effectually as if payment had been made. Should one of the
creditors seek thereafter to enforce his claim, the defendant would have to set up the
defence of compensatio by bringing the facts to the notice of the Court  –  as indeed
the defence of payment would also have to be pleaded and proved. But, compensation
once established, the claim would be regarded as extinguished from the moment the
mutual debts were in existence together.’ 2

[7] As early as 1907 the authorities emphasised that the reciprocal
debts must both be payable for set-off to come into operation.3 In
Colonial Treasurer Innes CJ said:

‘But for set-off to operate there must not only have been a debt due by the
Government to Schoeman, but there must have been at the same time a debt due by
Schoeman to the Government. Was this the case on the 1st September, 1900? To

1 1926 AD 286.
2 Ibid at 289-290.
3 Colonial Treasurer v Schoeman 1907 TS 273; Mohamed v Nadgee 1952 (1) SA 410(A); Thorne and
Another v The Government 1973 (4) SA 42(T) and Roman Catholic Church v Southern Life
Association Ltd 1992 (2) 807 (A).

ascertain that we must have regard to the terms on which he obtained his loan. He
bound himself “to pay the aforesaid loan within five years from date, along with
interest at 3 per cent, payable at the Treasurer-General’s office”. So that he had five
years within which to pay the money, and upon the face of the document the
Government could not have demanded it until the five years had expired. He might
have paid sooner had he wished. But the Government had no right to demand
payment from him until the five years had elapsed. And as those five years had not
expired by the 1st of September, 1900, it is clear that on that date there was no debt
due by the defendant to the Government. And if that be so, set-off cannot operate.’4

[8] In this case, before the debt due by the respondent to the appellant
became payable, the latter was liquidated and this changed the
circumstances relating to set-off. Once the concursus creditorum was
established, set-off could not come into operation in this matter. In
Thorne. 5 Margo J stated:

‘In regard particularly to the question of set-off, the rule is that once a concursus
creditorum has been established, there can be no compensation unless mutuality
between the respective claims existed at the date of the order…. The mutuality here
required is that the reciprocal debts both existed and that both were liquidated and
payable, before the concursus creditorum was established.’

[9] In order to overcome the difficulty created by the appellant’s
liquidation, counsel for the respondent argued that mutuality giving rise
to set-off existed before liquidation, and as a result the respondent could
claim set-off after the concursus creditorum.  He submitted that such set-
off operated retrospectively to the period before liquidation, and that it
automatically came into force in terms of the law. There is no merit in
this argument. On the authority of this court and other courts, mutuality

4 Above n 3 at 274-5.
5 Above n 3 at 45F-H and the authorities there cited. This decision was confirmed on appeal to this
court in the Government v Thorne and Another NNO 1974(2) SA 1(A).

comes into existence only when both debts are due and payable.6 In this
case, as stated earlier, the appellant’s debt became payable after
liquidation.

[10] Allied to the above argument was the submission that a party such
as the respondent, whose debt has become due and payable, ought not to
be denied the right to set it off against another debt which such party
owes, solely on the ground that the second debt is not yet payable. For
this proposition counsel relied on the following statement by De Wet and
Van Wyk7:

‘Die skuldenaar wat ‘n teenvordering in verrekening bring, betaal eintlik die
hoofvordering met die geld wat die hoofskuldeiser in sy besit het, en aan die
teenskuldeiser verskuldig is. As hy dan die hoofvordering deur betaling kan voldoen
voordat dit opeisbaar is, waarom sal hy dit nie deur skuldvergelyking kan uitwis nie?
A skuld aan B honderd rand terugbetaalbaar na vyf jaar. Nou word B skuldenaar van
A vir ‘n gelyke bedrag, onmiddellik betaalbaar. A kan B vir betaling aanspreek, die
geld ontvang en weer aan B betaal voor verstryking van die termyn. Dit kan niemand
ontken nie. Waarom kan A dan nie eenvoudig maar die geld by B laat en hom
meedeel dat hy dit in verrekening bring teen wat B van hom te vorder het nie? Ons
howe dink daar anders oor, na my mening, sonder genoegsame redes. Volgens ons
howe kan daar geen verrekening plaasvind voordat die hoofvordering opeisbaar is nie.
Nou is dit wel waar dat Van Leeuwen en Voet vereis dat die skulde van weerskante
opeisbaar moet wees, maar hulle probeer nie eens om hulle houding te verantwoord
nie. Na my mening moet Van Leeuwen en Voet se ondeurdagte opmerkings wyk voor
die voorskrifte van gesonde verstand en algemene beginsels in verband met
voldoening. Is die hoofvordering nog nie vervulbaar nie, kan die teenvordering nie
daarteen in verrekening gebring word nie, net so min as wat die hoofvordering deur
betaling voldoen kan word. Gevolglik tree skuldvergelyking nie in werking teen ‘n
voorwaardelike hoofvordering voordat die voorwaarde vervul is nie.’

6 Above n 3.
7 Die Suid-Afrikaanse Kontraktereg & Handelsreg, 5 ed, Volume 1 pp 278-9.

[11] I shall assume in the respondent’s favour, without expressing any
view as to the correctness of the assumption that a party to whom a debt
has become payable, can set it off against a debt which is due but not
payable, provided the other requirements for set-off are met. But, in such
a case set-off cannot logically be considered to have taken place at a time
earlier than the time when the election to effect payment by way of set-
off is made. On this basis the respondent would still be precluded by the
liquidation and the resultant concursus creditorum from claiming set-off
after liquidation. It follows that the appeal must succeed.

[12] In their stated case the parties had agreed that should the court find
that set-off did not apply, it may grant judgment in favour of the appellant
in the terms specified therein. Accordingly I will grant an order in those
terms.

[13] The following order is made:

1.
The appeal is upheld with costs.
2.
The order of the court a quo is set aside and replaced with the
following order:
(a)
The defendant is ordered to pay the sum of R436 430-97 with
interest calculated at the rate of 15.5% from the date of default to
the date of payment.
(b)
The defendant is ordered to pay costs of the action.

________________
C N JAFTA
JUDGE OF APPEAL

APPEARANCES:

FOR APPELLANT:

H Louw

ATTORNEYS:

Edward Nathan Sonnenbergs Inc

Johannesburg

Symington & De Kok

Bloemfontein

FOR RESPONDENT:

C A C Korf

ATTORNEYS:

Daly Mazubela Oliphant Attorneys

Johannesburg

Honey Attorneys

Bloemfontein
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal

Date:
26 November 2008

Status: Immediate

Today, the Supreme Court of Appeal (the SCA) overturned the judgment of the Pretoria
High Court in terms whereof a claim by the liquidator of the appellant company was
dismissed.

The
appellant
owed
the
respondent
a
sum
of
R594 032
in
September 2001. At the same time the respondent owed the appellant a sum of R436 430.
The latter amount was not yet payable when the appellant was liquidated for failing to pay its
debts.

The appellant claimed it but the respondent refused to pay, contending that it had set off its
own debt in the amount of R594 032 against the sum claimed by the liquidator. The trial
court upheld the defence of set-off.

On appeal the SCA reversed the trial court’s decision on the basis that the respondent could
not invoke set-off because the appellant’s debt became payable after liquidation had
occurred. Nor could it invoke set-off before liquidation because one of the reciprocal debts
was not yet payable. The SCA held that for set-off to come into operation, both debts have
to be payable. But where liquidation intervenes before the second debt has become
payable, set-off cannot be invoked.