Liquidations and arbitrations: The consequences of the definition of "debts" in section 345 of the Companies Act 61 of 1973 for bringing a liquidation application
Interim costs awards in arbitration proceedings are not often the precursors to winding up applications. However, it may happen that if such an award of costs is not paid, the possibility of winding up the non-paying party may arise. This possibility leads to the following question, "Is a bill of costs drafted pursuant to an arbitration award and taxed by the taxing master of the High Court a "debt" for purposes of section 345 of the Companies Act 61 of 1973?"
The answer to this question would determine whether the amount owing in terms of the taxed bill of costs could be considered a "debt" for the purpose of bringing an application for the liquidation of the company against whom the bill of costs was taxed.
In order to answer this, the question has been broken down into three sub-questions, namely:
- Is it competent for a party in whose favour an arbitration award is made to have the arbitration award taxed by the taxing master of the High Court?
- If the taxing master is entitled to tax such a bill of costs, does that "order" as made by the taxing master then become a debt that can be executed upon?
- What is the definition of the word "debts" in section 345 of the Companies Act 61 of 1973 (1973 Act)?
Section 35 of the Arbitration Act 42 of 1965 (the Act) states:
"(1) Unless the arbitration agreement otherwise provides, the award of costs in connection with the reference and award shall be in the discretion of the arbitration tribunal, which shall, if it awards costs, give directions as to the scale on which such costs are to be taxed and may direct to and by whom and in what manner such costs or any part thereof shall be paid and may tax or settle the amount of such costs or any part thereof, and may award costs as between attorney and client;
(3) If the arbitration tribunal has no discretion as to costs or if the arbitration tribunal has such a discretion and has directed any party to pay costs but does not forthwith tax or settle such costs, or if the arbitrators or a majority of them cannot agree in their taxation, then, unless the agreement otherwise provides, the taxing master of the court may tax them."
What section 35(1) above tells us is, firstly, that what the arbitration agreement states in relation to costs trumps all and must be followed, but that if the agreement does not deal with costs (or simply does not state otherwise) then the arbitration tribunal, if it awards costs, must give directions as to the scale of such costs, may direct as to whom and in what manner the costs must be paid, and may also tax or settle the amount of the costs. Therefore the arbitration tribunal making the award as to costs is not required to tax or settle the costs but it may do so if it so chooses. Subsection 3 then deals with the first sub-question when it states that if the arbitration tribunal directs a party to pay costs but does not inter alia then tax or settle the costs, the taxing master of the High Court may tax the costs.
Thus if an arbitration tribunal has awarded costs, but has not taxed or settled those costs, then it is competent for the party in whose favour the award of costs was made to approach a taxing master of the High Court, in accordance with Uniform Rule 70, to tax the bill. It is worth mentioning the rules of the Arbitration Foundation of Southern Africa (AFSA), under whose auspices many commercial arbitrations are conducted. Rule 13 deals with costs awards in arbitrations, and is entirely consistent with and complementary to section 35 of the Act.
Section 31 of the Act states:
"(1) An award may, on the application to a court of competent jurisdiction by any party to the reference after due notice to the other party or parties, be made an order of court;
(3) An award which has been made an order of court may be enforced in the same manner as any judgment or order to the same effect."
This section makes it clear that the only way in which an award made by an arbitration tribunal can be executed upon in the same way as a judgment or order as handed down by a court, is for that arbitration award to be made an order of court. This principle is confirmed by Erasmus' commentary on Rule 45 of the Uniform Rules of Court wherein the learned author states "in terms of s31(3) of the Arbitration Act 42 of 1965 an award which has been made an order of court may be enforced in the same manner as any judgment or order to the same effect. In order for an award (or interim award) of costs to be enforceable under rule 45, it must therefore first be made an order of court as contemplated in the Arbitration Act 42 of 1965." Once the award is made an order of court it can be executed upon using the normal processes, namely the issue of a writ of execution and the service thereof by the sheriff.
If, however, the arbitration award was not made an order of court before the taxation by the taxing master of the High Court occurred, while the taxing master has the power to tax the bill of costs, the party in whose favour the bill is taxed cannot execute on that bill as it could have if the award had been made an order of court in accordance with section 31 of the Act.
In the case of Koekemoer v Taylor and Steyn NNO and another 1981 (3) All SA 368 (W) the court considered the question as to the definition of the word "debts" in section 345 of the 1973 Act and concluded that the word bears its ordinary meaning, that being "an amount or sum of money which is due or owing". On appeal the court was faced with argument (as it was in the court a quo) on whether the meaning of the word "debts" includes contingent and prospective liabilities and whether these can be taken into account when determining whether a company is unable to pay its debts for the purposes of section 345 of the 1973 Act. The appeal court found that when a determination of whether a company is unable to pay its debts is made, all liabilities, including those which are contingent, prospective and unliquidated must be taken into account.
Now that the three sub-questions have been answered we can look towards answering the ultimate question of whether the taxed costs as awarded by the taxing master pursuant to the arbitration award (which was not made an order of court) can be considered a "debt" in terms of section 345 of the 1973 Act which can then be used to bring a liquidation application.
Since the Act allowed the bill of costs to be taxed by the taxing master of the High Court, there is no way for the party against whom the costs were taxed to argue that the bill was not taxed legitimately or that the order as to the amount owing on the bill of costs as handed down by the taxing master is not in fact owing.
We concluded above in answer to the second sub-question posed that the taxed bill of costs will not be able to be executed upon by the sheriff in this situation as it was not made an order of court. Despite this the taxed costs awarded do fit within the recognised definition of the word "debts" in section 345 of the 1973 Act as they do amount to "an amount or sum of money which is due or owing". Since the taxed costs fit within the definition of the word "debts" this is sufficient for purposes of utilising section 345 of the 1973 Act. Assuming the other requirements of the section are met, and notwithstanding the non-executability of the award, the entity against whom the bill was taxed is deemed to be unable to pay its debts and therefore is liable to be wound up.