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[2016] ZAWCHC 111
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Basson N.O and Another v Orcrest Properties (Pty) Ltd; In re: Basson N.O and Others v Orcrest Properties (Pty) Ltd; In re: Basson N.O and Others v Orcrest Properties (Pty) Ltd (A466/15, A467/15, A468/15) [2016] ZAWCHC 111; [2016] 4 All SA 368 (WCC) (2 September 2016)
THE
HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Appeal
Case A466/15
DATE:
2 SEPTEMBER 2016
In
the matter between
HENDRIK
JOHANNES BASSON NO
1
st
APPELLANT
KARIN
BASSON NO
2
nd
APPELLANT
And
ORCREST
PROPERTIES (PTY) LTD
RESPONDENT
And
in the matter between
Appeal
Case A467/15
FREDRIK
JOHANNES BASSON NO
1
st
APPELLANT
WILHELM
JOHANNES BASSON NO
2
nd
APPELLANT
ELIZABETH
MARLENE BASSON NO
3
rd
APPELLANT
And
ORCREST
PROPERTIES (PTY) LTD
RESPONDENT
And
in the matter between
Appeal
Case A468/15
HENDRIK
JOHANNES BASSON NO
1
st
APPELLANT
KARIN
BASSON NO
2
nd
APPELLANT
FREDRIK
JOHANNES BASSON NO
3
rd
APPELLANT
WILHELM
JOHANNES BASSON NO
4
th
APPELLANT
ELIZABETH
MARLENE BASSON NO
5
th
APPELLANT
WILHELM
JOHANNES BASSON
6
th
APPELLANT
HENDRIK
JOHANNES BASSON
7
th
APPELLANT
KARIN
BASSON
8
th
APPELLANT
And
ORCREST
PROPERTIES (PTY) LTD
RESPONDENT
Coram
:
DESAI, ROGERS & MANTAME JJ
Heard:
27 JULY 2016
Delivered:
2 SEPTEMBER 2016
JUDGMENT
ROGERS
J:
Introduction
[1]
There are three appeals
before us: two against final sequestration orders, the other against
the dismissal of a rescission application.
The orders were granted by
Traverso DJP who heard the cases together. Mr van Riet SC leading Mr
W van Niekerk appeared for the
appellants and Mr Goodman SC leading
Ms PS van Zyl for the respondent.
[2]
The parties who were
sequestrated are two family trusts, the one associated with Mr HJ and
Ms K Basson, the other with Mr WJ Basson.
I shall refer to these
trusts as the Basson trusts and to the three individuals just named
as the Bassons. For convenience, and
meaning no disrespect, I refer
to Mr WJ Basson by his first name Willem. In the sequestration
applications the Bassons were cited,
with other family members, as
the trustees of the Basson trusts. In the action which gave rise to
the rescission application the
defendants were the Basson trusts and
the Bassons in their personal capacities. In all three matters the
claims were based on deeds
of suretyship. I shall refer to the Basson
trusts and the Bassons collectively as the Basson sureties.
[3]
The applicant in the
sequestration applications and the plaintiff in the action was the
present respondent (‘OPPL’).
OPPL is a wholly-owned
subsidiary of Orcrest Investments (Pty) Ltd (‘Orcrest’).
Orcrest’s shareholders are the
Janiel Trust and the Habets
Trust which are associated with Mr DJ van Breda (‘Van Breda’)
and Mr M Habets (‘Habets’)
respectively. I shall refer to
these trusts as the Orcrest trusts. Orcrest, the Orcrest trusts, Van
Breda and Habets signed suretyships
in respect of the same
obligations as the Basson sureties. I shall refer to them
collectively as the Orcrest sureties.
[4]
The parties agreed that
the fate of the sequestration appeals depends on the rescission
appeal.
Factual
background
[5]
During 2010 a company
called Dynmar
Twaalf
(Pty Ltd (‘Dynmar’)
bought a property in Stellenbosch for R56 million. Dynmar’s
shareholders were the Basson trusts
(40% and 20% respectively), Van
Breda (20%) and the Habets Trust (20%). The purchase price was funded
by loans of R48 326 088
from Investec Bank Ltd (‘Investec’)
and R9 726 915 from Orcrest. It was a condition of the
former loan that
the Basson sureties and the Orcrest sureties sign
deeds of suretyship. Investec also registered a mortgage bond over
the Stellenbosch
property.
[6]
In accordance with the
Investec loan agreement, five deeds of suretyships, each limited to
R15 million plus interest and costs,
were signed, the parties to
these five deeds being respectively (i) Mr HJ Basson, Ms K
Basson and their family trust; (ii) Willem
and his family trust;
(iii) Orcrest; (iv) Van Breda and the Janiel Trust;
(v) Habets and the Habets Trust. Viewed
in the context of the
loan agreement, the suretyships meant that Investec could not recover
more than R15 million plus interest
and costs collectively from the
parties to any particular suretyship. In respect of any particular
suretyship, the liability of
the sureties thereunder was, up to the
specified limit, joint and several.
[7]
During September 2011
Dynmar fell into default towards Investec. In December 2011 Investec
issued letters of demand to Dynmar and
the sureties. Unlike the
Basson sureties, Van Breda and Habets entered into discussions with
Investec with a view to avoiding claims.
The eventual outcome of
these discussions was that in April 2013 OPPL, a wholly owned
subsidiary of Orcrest established in January
2012, purchased
Investec’s claims against Dynmar and the sureties by way of a
cession agreement.
[8]
In the meanwhile
Orcrest in January 2012 had brought an application for Dynmar’s
liquidation, based on its shareholding in
and loan claim against the
company. Dynmar was placed in final liquidation in July 2012. Having
been authorised by the Master,
the liquidators in September 2012 sold
the Stellenbosch property to OPPL for R46,5 million.
[9]
While the liquidation
application was pending Investec in March 2012 issued summons against
the Basson trusts. The trusts entered
appearance to defend. Investec
applied for summary judgment. In their opposing papers filed in
October 2012 the Basson trusts alleged
(i) that the Investec
loan agreement had lapsed due to the non-fulfilment of suspensive
conditions; (ii) that Investec,
Orcrest, Van Breda and the
liquidators had procured the sale of the Stellenbosch property for
less than its market value and that
this conduct, which was to the
prejudice of the Basson sureties, brought about their release.
[10]
On 2 April 2013 the
cession agreement previously mentioned was executed. The purchase
price was the outstanding balance of the Investec
loan after
deducting (i) the dividend to be received by Investec as a
secured creditor from the sale of the Stellenbosch property
and
(ii) a discount of R520 000 which Investec was to write off
against the loan. The price was to be paid on confirmation
of
Dynmar’s liquidation and distribution account. OPPL was
required to deposit R8 million with Investec as security, which
amount Investec was authorised to appropriate and deduct from the
price when it became payable. The deposit was in fact made in
Orcrest’s name.
[11]
Dynmar’s first
liquidation and distribution account was confirmed on 30 May 2013. In
terms thereof Investec received a secured
dividend of R42,7 million.
After deduction of this amount and the write-off of R520 000,
the unpaid balance of the Investec
loan, and thus the purchase price
payable by OPPL in terms of the cession agreement, was about R11,5
million. On 13 June 2013 the
price was settled through an
appropriation by Investec of the R8 million deposit (inclusive of
interest thereon) and a balancing
payment from Orcrest of R3 431
515,76.
Procedural
history
[12]
Investec having fallen
out of the picture and withdrawn its pending action against the
Basson trusts, OPPL as cessionary issued
summons against the Basson
sureties in November 2013 for (i) R11431515 (being the unpaid
balance of the Investec loan) plus
interest from 31 May 2013;
(ii) R1820547 (being liquidation costs and fees for which the
sureties were alleged to be liable
by way of an indemnity contained
in the deeds of suretyship). In regard to the first of these claims,
OPPL pleaded an alternative
claim based on unjust enrichment. This
was no doubt a precaution in the light of the defence foreshadowed in
the Basson trusts’
opposition to Investec’s application
for summary judgment.
[13]
The Basson sureties
entered appearance to defend. Their attorneys of record at that time
were Assheton-Smith Inc (‘ASI’).
[14]
In December 2013 OPPL
issued applications for the sequestration of the Basson trusts. On 13
December 2013 these applications were,
as a result of opposition,
postponed for hearing on the semi-urgent roll on16 April 2014.
[15]
On 24 January 2014 OPPL
served a demand for plea in the action. There was correspondence
between OPPL’s attorneys (Edward
Nathan Sonnenberg –
‘ENS’) and ASI. On 5 February 2014, the defendants now
being under bar, OPPL filed an application
for default judgment on
the first claim in an amount of R11 085 435,64, being the
unpaid balance of the Investec loan
plus interest less R800 000
which OPPL had received on 26 November 2013 pursuant to the
confirmation of Dynmar’s second
liquidation and distribution
account. On the same day ASI wrote to ENS complaining that it was not
fair to proceed with default
judgment given that there was a
realistic prospect of settlement. ASI attached a plea which was
formally served later that day.
ENS replied that their instructions
were to go ahead unless the bar was lifted.
[16]
Willem, who
subsequently became the Basson sureties’ principal deponent,
says that he learnt the next day of OPPL’s
intention to proceed
with default judgment in the absence of condonation. ASI required an
additional deposit from the defendants
of R150 000 before taking
further action. The defendants were not able to provide this sum.
Willem nevertheless asked ASI
to bring a condonation application but
this was not done.
[17]
On 11 February 2014 ENS
notified ASI that they would be proceeding to take default judgment.
On 12 February 2014 ASI replied that
OPPL was not entitled to do so,
the defendants having served a plea. Willem says that he knew of
these developments. He instructed
ASI to continue settlement
discussions which he was confident would succeed. On 13 February 2014
ENS responded to ASI, stating
that because the defendants came under
bar on 1 February 2014 their plea was of no consequence. Willem says
that he was confident
that default judgment would not be granted. He
did not explain the source of his confidence.
[18]
On 28 February 2014 the
registrar referred the application for default judgment to open
court, given that a plea had been filed
albeit late. OPPL enrolled
the matter in third division for hearing on 6 March 2014. On that
date Blignault J granted default judgment
against the defendants in
the reduced amount prayed. The rescission appeal relates to this
default judgment.
[19]
On 10 March 2014 ASI
wrote to ENS making certain settlement proposals, including that
execution under the default judgment be held
over until 30 May 2014.
It is thus clear that the Basson sureties were by 10 March 2014 aware
of the default judgment.
[20]
The sequestration
applications were scheduled to be heard as opposed matters on 16
April 2014. As a result of the Basson trusts’
failure to comply
with a direction, given through the chamber book on 11 March 2014,
for the filing of their answering papers within
five days, OPPL set
the matter down on an unopposed basis in third division for hearing
on 1 April 2014.
[21]
In late March 2014 OPPL
issued applications for the sequestration of the Bassons personally.
The Bassons bestirred themselves and
on 27 March 2014 engaged new
attorneys, Vanderspuy (‘VDS’). On 31 March 2014 the
Basson trusts served an application
for the postponement of the
sequestration applications due to be heard the next day. By agreement
the matters were put back onto
the semi-urgent roll for hearing on 16
April 2014 though in the event they were heard on 22 April
2014. Answering and replying
papers were filed.
[22]
On 14 April 2014 the
Basson sureties delivered an application to rescind the default
judgment. (As will appear, this was the first
of two rescission
applications and I shall thus where appropriate refer to it as the
first rescission application.) Opposing and
replying papers in the
rescission application were filed in short order. The sequestration
and rescission applications were heard
together by Traverso DJP on 22
April 2014. The Basson trusts seem to have accepted that unless the
default judgment were set aside
so that they could contest OPPL’s
claim, they were insolvent and that their sequestration would
inevitably follow. On 21
May 2014 Traverso DJP delivered judgment,
dismissing the rescission application and granting provisional orders
of sequestration
with return days on 30 June 2014.
[23]
On 26 June 2014
Traverso DJP dismissed the Basson sureties’ application for
leave to appeal the dismissal of the rescission
application. Because
the Basson sureties wished to petition for leave to appeal, the
provisional orders of sequestration were extended.
On 25 September
2014 the Supreme Court of Appeal (‘SCA’) dismissed the
petition.
[24]
One might have expected
this to be the end of the road and that final orders of sequestration
would follow unopposed. The extended
return day was 23 October 2014.
On 7 October 2014 VDS notified ENS that the Basson sureties were
considering a second rescission
application. This was served on 17
October 2014 and resulted in the provisional orders again being
extended.
[25]
After the filing of
answering and replying papers, the second rescission application and
the extended return days were argued before
Traverso DJP on 25
November 2014. On the same day she dismissed the second rescission
application and granted final sequestration
orders. She delivered her
reasons on 11 December 2014.
[26]
The Basson sureties
brought an application for leave to appeal the dismissal of the
second rescission application and the Basson
trusts brought
applications for leave to appeal their final sequestration orders.
These were dismissed by Traverso DJP on 25 March
2015. The Basson
sureties petitioned the SCA for leave which the latter court granted
on 18 June 2015, the appeals to be heard
by a full bench. Thus it was
that these three appeals came before us on 27 July 2016.
The first
rescission application
[27]
The defences which the
Basson sureties advanced in the first rescission application were in
summary the following:
(i) One or more of the suspensive conditions of the
Investec loan agreement were not fulfilled with the result that OPPL
as
cessionary had no contractual claim against the sureties.
(ii) As to the alternative enrichment claim, the
defendants had not undertaken to stand surety for enrichment claims.
In any
event Investec had not advanced the money in the genuine and
reasonable belief that the suspensive conditions had been fulfilled.
Furthermore Dynmar’s liquidation showed that it was not
enriched.
(iii) The Stellenbosch property was sold at way
below its market value in breach of a tacit or implied duty owed by
Investec
to the Basson sureties.
(iv) Investec from the outset had no intention of
holding the Orcrest sureties liable. By failing to disclose this,
Investec
induced the Basson sureties to sign the suretyships.
Investec’s initial intentions were said to be evident from its
subsequent
conduct in suing the Basson sureties but not the Orcrest
sureties and in ceding its claim to OPPL, a wholly owned subsidiary
of
Orcrest whose directors were Van Breda and Habets.
(v) Furthermore, Investec’s conduct in ceding
its claim to OPPL prejudiced the Basson sureties because if the
Orcrest
sureties had settled the Investec claim (rather than
procuring OPPL’s purchase of the claim) they would not have
been entitled
to sue the Basson sureties for the full amount of the
claim.
(vi) Investec’s rights had in any event not
passed to OPPL because the suspensive condition in the cession
relating to
proof of authority had not been complied with and because
OPPL had not paid the purchase price. (Willem, who made the affidavit
in support of rescission, does not appear to have claimed personal
knowledge of either of these supposed failures.)
[28]
Similar allegations
were made by the Basson sureties in the affidavits opposing their
sequestration. The allegations were traversed
by Van Breda in OPPL’s
replying affidavit in the sequestration proceedings. Van Breda’s
said affidavit was attached
to and incorporated into OPPL’s
opposing affidavit in the first rescission application. It is
unnecessary to deal with what
Van Breda said concerning the defences
I have summarised in (i), (ii) and (iii) above. In regard to (iv),
(v) and (vi), I mention
the following aspects of Van Breda’s
response:
(i) It was untrue that Investec never intended to
hold the Orcrest sureties liable. Investec had sent demands to them,
pursuant
to which they entered into negotiations with Investec, these
culminating in the cession agreement.
(ii) Investec had not released the Orcrest sureties
from liability.
(iii) If Investec had not ceded its claim to OPPL,
Investec could have sued the Basson sureties for the full amount of
its
claim. The cession thus did not place a greater burden on the
Basson sureties.
(iv) The purchase price payable in terms of the
cession agreement was duly settled. Van Breda attached proof of
payment of
the amounts of R8 073 879,08 and R3 431 515,76.
The attached proof indicated that the R8 million deposit was
made in
Orcrest’s name. (In his replying affidavit Willem highlighted
that the amount of R8 073 879,08 had been
paid by Orcrest,
not OPPL.)
[29]
Traverso DJP’s
reasons for dismissing the first rescission application were in
summary the following: (i) The Basson
sureties had not provided
a satisfactory explanation for their failure to file a plea. (ii) The
application was in any event
not brought within the 20-day period
permitted by rule 31(2)(b). (iii) On the merits, the defences were
not bona fide. There is
no general rule of law that a surety is
released because of a creditor’s prejudicial conduct.
Investec’s actions were
permitted by the terms of the
suretyships. No impropriety in regard to the sale of the Stellenbosch
property had been made out.
The second
rescission application
[30]
In the second
rescission application the Basson sureties alleged that the purported
cession on which OPPL had obtained default judgment
was a sham
transaction which had been structured so as to enable its holding
company, Orcrest, to recover the full balance of the
Investec loan
(about R11,43 million) in circumstances where Orcrest, if it had paid
Investec R11,43 million in its capacity as
surety, would only have
been entitled to recover 10% of such balance (about R1,143 million)
from each of the Basson sureties. The
latter consequence was said to
follow from the fact, so Willem alleged, that it had been ‘understood
and accepted’
by the ten sureties (the five Basson sureties and
the five Orcrest sureties) that inter se they would each be liable
for 10% of
the indebtedness to Investec. OPPL was alleged to have
obtained default judgment fraudulently by misrepresenting to the
court the
true state of affairs.
[31]
Willem recorded that
the Basson sureties had attempted to introduce the fraud defence
during the hearing of the application for
leave to appeal against the
dismissal of the first rescission application but that Traverso DJP
had upheld OPPL’s objection
and thus not decided the point. The
Basson sureties had also relied on the fraud defence in their
petition to the SCA and again
OPPL had resisted. It could not be said
that the SCA, in dismissing the petition, had adjudicated the fraud
defence on its merits.
Accordingly, so Willem submitted, the fraud
defence, unlike the defences raised in the first rescission
application, was not res
judicata. (According to Van Breda, the
Basson sureties in the application for leave to appeal and in the
petition abandoned their
previous defences and relied only on the
fraud defence.)
[32]
In support of the fraud
defence, Willem jettisoned his earlier claim that Investec had never
intended to look to the Orcrest sureties
for payment, instead
adopting what Van Breda had said in that regard in the previous
proceedings. The fact that Investec had been
demanding payment inter
alia from Orcrest and that Orcrest rather than OPPL had settled the
price owing in terms of the cession
agreement was said to show that
the cession was a sham, that Orcrest had in fact discharged the
Investec debt in its capacity as
a surety, that any monies recovered
from the Basson sureties would find their way through OPPL to
Orcrest, and that in this way
Orcrest would recover more from the
Basson sureties than if it had sought, in its capacity as a surety,
to recover a contribution
from the Basson sureties. In explanation
for the late raising of the fraud defence, Willem said that the
Basson sureties only learnt
that Orcrest rather than OPPL had paid
the purchase price upon receipt of the replying papers in the
sequestration proceedings.
This was just a few days before the first
rescission application was argued.
[33]
In OPPL’s
opposing papers Van Breda contended that the fraud defence, if it
were tenable, could and should have been advanced
in the first
rescission application. The matter was thus res judicata.
[34]
On the merits Van Breda
denied the alleged fraud. Orcrest had sought legal advice in regard
to the payment of the shortfall to Investec,
as a result of which it
was concluded that it would not be in Orcrest’s best interests
to pay the shortfall itself. The Investec
loan agreement and the
suretyships permitted Investec to cede its claim. It was thus decided
that OPPL would purchase Investec’s
claim, to which Investec
was amenable. There was nothing untoward about this. Orcrest had
settled the purchase price on OPPL’s
behalf by way of an
inter-company loan, in confirmation of which a letter from the
companies’ auditors was attached. (The
attached letter recorded
that as at 28 February 2014 OPPL was indebted to Orcrest on loan
account in an amount of just under R78
million. Presumably this
included, apart from the purchase price of the cession, the price
OPPL had paid for the Stellenbosch property.)
Van Breda denied that
any agreement had been concluded between the sureties as to how they
would share the Investec liability inter
se.
[35]
Traverso DJP’s
reasons for dismissing the second application were in summary the
following: (i)The application was an abuse
of process. The Basson
sureties were ‘trying to get in through the backdoor what they
could not get in the ordinary course’.
(ii) The issues
raised in the second application were res judicata by virtue of the
dismissal of the first application, which
had become final upon the
dismissal of the first petition.
Explanation
for default
[36]
A defendant who seeks
rescission must provide a full and satisfactory explanation for his
default. In terms of the notice of bar
the Basson sureties had to
file their plea by 31 January 2014. Having failed to do so, they were
ipso facto barred. They purported
to file a plea on 5 February 2014
but this was not accompanied by an application for condonation. There
was still no condonation
when Blignault J granted default judgment on
6 March 2014 – this despite ASI having been warned on several
occasions that
OPPL would proceed with default judgment in the
absence of condonation. The plea which the defendants filed on 5
February 2014,
I may add, was threadbare. The defendants denied the
cession and put OPPL to the proof thereof. In regard to Dynmar’s
indebtedness
to Investec, they claimed not to be in a position to
verify OPPL’s allegations and said they required a detailed and
comprehensive
debatement of account. None of the defences
subsequently asserted in the rescission applications was advanced.
[37]
Traverso DJP, in
dismissing the first rescission application, said that the defendants
had been dilatory in the extreme and had
displayed a wilful disregard
of the rules. This was one of the grounds on which she dismissed the
application. The defendants having
unsuccessfully exhausted their
appeal remedies, I do not think it is open to another court to
revisit the issue, at least not in
the absence of material new facts.
For this reason alone the second rescission application was bound to
fail. In any event I agree
with Traverso DJP’s conclusion that
there was no satisfactory explanation for the default.
The delay
in bringing rescission proceedings
[38]
In the second
rescission application the Basson sureties relied on rule 31(2)(b),
rule 42(1)(b) and the common law. The Basson sureties
had knowledge
of the default judgment by 10 March 2014. The second rescission
application was delivered on 17 October 2014, about
seven months
later. This was not within the 20 court days permitted by rule
31(2)(b), which expired on 8 April 2014. Insofar as
rule 42(1)(b) and
the common law are concerned, rescission must be sought within a
reasonable period of time. The 20-day period
prescribed by rule
31(2)(b) affords some guidance as to what constitutes a reasonable
period (
Nkata v
FirstRand Bank Ltd
2014
(2) SA 412
(WCC) para 27).
[39]
The first rescission
application, which was delivered on 14 April 2014, was itself late.
Traverso DJP said that the first application
was ‘a month out
of time’. This is incorrect – it was four court days
late. Nevertheless it was out of time.
Since the defendants had
already been guilty of default in relation to their plea, they should
at least have complied with the
20-day limit. Their failure to comply
with this time period was another ground on which the first
application was dismissed.
[40]
For the rest, the delay
in the bringing of the second rescission application is tied up with
the question why the so-called fraud
defence was not advanced in the
first application. If one assumes in favour of the Basson sureties
that the fraud defence was a
new defence and not an old one in a new
guise, I do not think there was a satisfactory explanation for the
Basson sureties’
failure to raise it in the first application.
When they launched the first application they knew that Investec had
ceded its claim
to OPPL and that OPPL was a wholly-owned subsidiary
of Orcrest, with Van Breda and Habets being directors of both
companies. Since
they alleged that the Orcrest sureties, if they had
settled the Investec claim in their capacity as sureties, would not
have been
entitled to sue the Basson sureties for the full amount,
they must already have received legal advice along those lines (ie
that
the Orcrest sureties would have had to deduct ‘their
share’ of the liability when suing the Basson sureties). If, as
Willem later claimed, the sureties agreed from the outset that any
liability to Investec which they had to bear would be shared
equally
inter se (10% each), the Basson sureties obviously had knowledge of
such agreement when they brought the first application.
[41]
These are essentially
the same facts on which the Basson sureties relied in the second
application for their conclusion that the
cession was a sham. The
only additional fact, one which they put to the forefront of the
second application, was that Orcrest rather
than OPPL had provided
the cash with which to settle the purchase price of the cession. This
was something they learnt on 14 April
2014 when OPPL filed its
replying papers in the sequestration proceedings. It so happens that
this was the same day on which the
Basson sureties served the first
rescission application. I accept that the replying papers came too
late for this additional fact
to be included in the founding papers
in support of rescission. But if Orcrest’s settlement of the
purchase price was a critical
new fact, the Basson sureties could
have supplemented their first rescission application, particularly
since OPPL incorporated
into its opposing papers filed on 15 April
2014 the allegations inter alia concerning the settlement of the
purchase price. In
his replying affidavit of 16 April 2014 Willem
observed that it was clear from the proof of payment that Orcrest
rather than OPPL
had settled the price.
[42]
In argument before us
Mr van Riet submitted that there were two other vital pieces of
evidence which were not available during the
first rescission
application: (i) that OCCP had a duty to account to Orcrest for
the proceeds of the ceded claim; (ii) that
the Orcrest sureties
had received legal advice prior to the execution of the cession.
[43]
I shall deal presently
in a little more detail with these two points when discussing the
merits of the fraud defence. For present
purposes the following brief
observations suffice. OPPL’s supposed ‘duty to account’
was an inference which Willem
drew in his founding affidavit in the
second rescission application, an inference based on facts known to
the Bassons sureties
when the first rescission application was argued
(the said facts being in essence that OPPL was a wholly-owned
subsidiary of Orcrest,
was controlled by the same persons and had
been provided with the money needed to pay Investec for the cession).
If the inference
was warranted, it could have been asserted in the
first rescission application.
[44]
As to the legal advice,
it is true that Van Breda did not in terms disclose during the course
of the first rescission application
that the Orcrest sureties had
received legal advice. I would have thought, though, that it was
reasonably obvious that they must
have done so. It was known to the
Basson sureties that Investec had made demands for payment to the
Orcrest sureties. The cession
was a detailed document drawn by
lawyers. If, as the Bassons sureties alleged in the first rescission
application, the effect of
the cession was to enable OPPL to recover
more from the Bassons sureties than Orcrest could have done, it is
unlikely that the
Orcrest sureties would have known about this
favourable difference in treatment without taking legal advice.
[45]
In any event, the fact
that the Orcrest sureties had taken legal advice before the execution
of the cession had nothing to do with
the launching of the second
rescission – the fact of such legal advice was mentioned for
the first time in OPPL’s opposing
papers in the second
rescission application.
[46]
I thus consider that
there was not a full and satisfactory explanation for the Basson
sureties’ failure to include the fraud
defence in the first
rescission application, from which it follows that the delay in
launching the second application has not been
satisfactorily
explained.
[47]
Mr van Riet argued,
with reference to a passage in Erasmus
Superior
Court Practice
at
B1-561, that a reasonable explanation is not a requirement where
rescission is sought on grounds of fraud. I think that is a
misreading of the passage. The learned authors are there dealing with
what constitutes fraud for purposes of rescinding a judgment
and not
with the additional requirements which apply to cases of default
judgment. (A judgment can be rescinded on grounds of fraud
even where
the defendant appeared and opposed the case.) Where a defendant
allows a case to go by default he always needs to provide
a
satisfactory explanation as to why he did not raise his defence
timeously. That is so even if the defence is one of fraud.
[48]
For the sake of
completeness I should say that the default judgment in this case was
not ‘erroneously granted’ within
the meaning of that
phrase in rule 42(1).
Res
judicata
[49]
The Basson sureties did
not in their first rescission application assert that the cession
agreement was a sham. It was raised for
the first time in argument
during the hearing of the application for leave to appeal. I disagree
with the submission advanced on
behalf of OPPL that the decisions of
Traverso DJP and the SCA dismissing the applications for leave to
appeal can be regarded as
determining the fraud defence on its
merits. The issue is thus not res judicata in the usual sense.
[50]
However the policy
which underlies the principle of res judicata is that nobody should
be permitted to harass another with second
litigation on the same
subject. Such litigation can be viewed as an abuse of process. The
same policy prevents a litigant from
advancing, by way of second
proceedings, something which he could and should have raised in the
earlier proceedings, provided that
in all the circumstances his
conduct in so doing can be regarded as an abuse of process (
Janse
van Rensburg & Others NNO v Steenkamp & Another; Janse Van
Rensburg & Others NNO v Myburgh & Others
2010
(1) SA 649
(SCA) paras 27-30).
[51]
OPPL contended in the
court quo, and Traverso DJP accepted, that the second application was
an abuse of process in the above sense.
It will be apparent from what
I have already said regarding the Basson sureties’ delay in
bringing the second application
that I agree.
The merits
[52]
The matters discussed
thus far provide a sufficient basis for dismissing the appeal. But
since this might leave the appellants with
lingering discontent that
their case has not been considered on its merits, I shall say
something about it.
[53]
On the appellants’
case, Orcrest orchestrated the alleged sham to avoid the deduction it
would have had to make if it had
paid Investec as surety and sued the
Basson sureties for a contribution. The premise is that because there
were ten sureties the
aliquot share which Orcrest could have
recovered from the five Basson sureties was 10% each (50% in total).
[54]
For purposes of
discussion I assume that all the co-sureties were solvent at all
material times. The entitlement of a co-surety
who has paid the
principal debt to recover money from his co-sureties may be based on
cession from the creditor or on the equitable
right of contribution
(see Pretorius
Caney’s
The Law of Suretyship
6
th
Ed Chapters X and XII respectively). The extent of recovery is
affected by any agreement the sureties may have among themselves
as
to how they will bear the ultimate burden of the principal debt. The
fact that they became co-sureties does not mean that they
reached any
such agreement. If there is such an agreement, the paying surety can
only recover a pro rata share from each co-surety
in accordance with
the agreement. This may be so even where the paying surety has a
cession and each co-surety undertook, as towards
the creditor, to be
liable as a co-principal debtor for the full debt (
Gerber
v Wolson
1955 (1)
SA 158
(A); Pretorius op cit 151).
[55]
More difficult is the
question whether, where there is no agreement among the sureties
inter se, the paying surety who seeks recovery
based on a cession can
sue a co-surety for the full balance after deducting his own aliquot
share or whether he can only sue for
the other surety’s aliquot
share (aliquot here being based on the number of sureties).
Gerber
supra, where one of
seven co-debtors sought to recover six-sevenths of the debt from one
of the other co-debtors, cannot be regarded
as settling this
question, given the particular factual findings on which the majority
judgments were based.
[56]
OPPL’s counsel
referred us to
Traub
v Barclays National Bank Ltd; Kalk v Barclays National Bank Ltd
1983
(3) 619 (A) at 633B-F, which they submitted was dispositive of the
appellants’ attack on the cession. In that case there
were
effectively three sureties one of whom had died. The executors
reached an agreement with the creditor, a bank, in terms whereof
the
bank was to sue the other two sureties at the estate’s cost and
in accordance with the estate’s directions. The
executors
deposited the full amount of the outstanding debt with the bank. In
dismissing a challenge based on prejudice to the
other two sureties,
Botha JA said that it was irrelevant that the litigation was
controlled by the estate:
‘
[T]he
Bank could lawfully have ceded its claims against the appellants to
anyone, including the estate; and the appellants are no
worse off
than if that had been done.’
[57]
Gerber
does
not appear to have been mentioned in argument in
Traub
.
I do not think the court intended to decide that if the bank’s
claim had been ceded to the executors (who stood in the same
position
as the deceased surety), the latter could have sued the other
sureties without deducting the deceased surety’s aliquot
share.
The statement I have quoted seems to have been directed to an
argument that the appellants had been prejudiced because the
estate,
which had control of the litigation, was – unlike the bank
which probably would not have sued the appellants –
a ‘vengeful
remorseless foe’.
[58]
In the present case the
Basson sureties failed to allege any facts in support of Willem’s
statement that the sureties agreed
on an equal division among the ten
of them. OPPL did not allege the existence of an agreement among the
sureties on different terms.
Unlike
Gerber
,
the co-sureties did not sign one and the same document. There were
five separate deeds of suretyship, each with a limit of R15
million.
Given the groupings of the sureties, the limits on the respective
groups’ liability, the fact that only some of
them held shares
in Dynmar, and that they held shares in differing ratios, there is no
natural inference that the sureties intended
an equal ten-way split
rather than some other split. But this is by the way because no
sharing agreement at all was properly alleged.
[59]
Orcrest, if it had paid
Investec as surety, could have obtained a cession from Investec.
Given the absence of an agreement among
the sureties, and depending
on the answer to the difficult question mentioned previously, Orcrest
could then (i) have sued
each of the Basson sureties for at
least 10% of what it had paid to Investec, and thus recovered at
least 50% from them in total;
or (ii) perhaps have sued one or
more of the Basson sureties jointly and severally for up to 90% of
what it had paid to Investec.
[60]
On either approach
Orcrest would have been bound to make a deduction which OPPL, because
it was not a surety, did not have to make.
It is reasonable to infer
that Van Breda and Habets arranged things as they did so that the
Basson sureties, when sued, could not
limit their liability to an
aliquot share or require the claimant to deduct a surety’s
aliquot share. It is also reasonable
to infer that the legal advice
which the Orcrest sureties received, but the content of which they
did not disclose, was to this
effect. Indeed Mr Goodman accepted that
we could adjudicate the appeal on the basis that this was the
reasonable inference. That
is a best-case scenario from the
appellant’s perspective.
[61]
The appellants did not
say in their second rescission application that the law prohibits a
creditor from ceding its rights to a
person associated with one of
several sureties merely because the cessionary would not be subject
to aliquot sharing. There was
also no submission to that effect in
the appellants’ heads of argument. When the court raised this
point with Mr van Riet
SC at the opening of the appeal, he initially
confirmed that this was not the appellants’ case though he
retreated somewhat
when the implications of the concession became
clear. I am not aware of any such legal rule. As
Hippo
Quarries v Eardley
[1991] ZASCA 174
;
1992
(1) SA 867
(A) demonstrates, a cession is not unlawful because the
parties thereby obtain some advantage which would not otherwise have
been
available. This is part of the general principle that the law
permits parties to arrange their affairs so as to obtain a benefit
that a different arrangement would not have permitted or so as to
avoid a prohibition which the law imposes (
Roshcon
(Pty) Ltd v Anchor Auto Body Builders CC & Others
2014
(4) SA 319
(SCA) para 26). In any event, a case along these lines is
closed to the appellants because they could have raised it in the
first
rescission application. Indeed one of their prejudice defences
in the first application essentially rested on this idea.
[62]
Accepting, therefore,
that in law Investec was entitled to cede its claim to OPPL, the
question is whether that it in fact did so.
The appellants’
fraud defence is that the purported cession was a sham, that there
was no contract between Investec and OPPL,
and that what in truth
happened is that Orcrest in its capacity as surety paid Investec the
amount of about R11,5 million. The
cession was a ruse under cover of
which Orcrest, through its puppet OPPL, is trying to recover the full
amount from the Basson
sureties, thus evading aliquot sharing. OPPL
is in truth not a creditor and thus lacked locus standi to sue the
Basson sureties
and to apply for their sequestration. OPPL knew this
but failed to disclose it when seeking default judgment.
[63]
Since OPPL relied on a
signed contract of cession, the evidentiary burden in the main case
would rest on the Basson sureties to
show that the true arrangement
between Investec, Orcrest and OPPL differed from the signed contract
(
Skjelbreds Rederi
A/A & Others v Hartless (Pty) Ltd
1982
(2) SA 710
(A) at 733E-G;
Hippo
Quarries
supra at
873D-E). A sham is in essence a dishonest transaction (
Roshcon
supra para 30;
Commissioner for the
South African Revenue Service v Bosch & Another
2015
(2) SA 174
(SCA) para 40).
[64]
In my view the
appellants’ fraud case has no prospect of success. For there to
have been a sham, Investec must have been party
to it. What incentive
did Investec have to do participate in a fraud? The law did not
prohibit Investec from ceding its claim to
OPPL, and Investec had the
contractual right to do so. Subject to receiving payment of the
outstanding balance, it was a matter
of indifference to Investec
whether it ceded its claim to OPPL, Orcrest or anyone else.
[65]
There was a suggestion
in argument that Investec was advised by the same attorneys as the
Orcrest sureties, namely ENS. While I
do not think it matters, there
is no evidence to that effect. Investec was represented by different
attorneys (De Klerk & Van
Gend) in its prior litigation against
the Basson sureties. Mr Goodman told us from the bar that those
attorneys, not ENS, were
Investec’s advisers in relation to the
cession.
[66]
There would also have
been no incentive for the Orcrest parties to contrive a simulated
contract. Since the law did not prohibit
OPPL from taking cession of
Investec’s claim, since such a cession held the advantage that
aliquot sharing could not be invoked
in any litigation between OPPL
and the Basson sureties, and since this accorded with legal advice
received, why would the Orcrest
parties have failed to do the very
thing which would bring about this advantage (cf
Bosch
para 41)?
[67]
The fact that OPPL is a
wholly-owned subsidiary of Orcrest militates against, rather than
strengthens, the fraud case. If the cession
had been in favour of an
entity in which the Orcrest parties held no economic interest, the
settling of the purchase price on its
behalf by Orcrest would have
raised eyebrows (as it did in
Skjelbreds
,
which I discuss more fully below). But because OPPL was a
wholly-owned subsidiary of Orcrest, the Orcrest parties suffered no
economic disadvantage through the cession of the claim to OPPL.
[68]
Needless to say, the
fact that Orcrest held all the shares in OPPL does not entitle one to
disregard their separate corporate personalities
and to say that any
act by OPPL is in truth an act by Orcrest (see
Dadoo
Ltd & Others v Krugersdorp Municipal Council
1920
AD 531
at 550-551;
Wambach
v Maizecor Industries (Edms) Bpk
[1993] ZASCA 28
;
1993
(2) SA 669
(A) at 674H-675E).
[69]
In regard to the
settlement of the purchase price, it is very common for holding
companies to lend money to subsidiaries. Money
can be, and often is,
lent by payment from the lender directly to a creditor of the
borrower. One knows that OPPL bought the Stellenbosch
property. The
fact that Orcrest provided the funds does not mean that Orcrest
rather than OPPL bought the property.
[70]
It is also irrelevant
that Investec initially looked to all the sureties, including the
Orcrest sureties, for payment. One or more
of the Orcrest sureties
could have effected payment in their capacity as such. The question
is, did they? The fact that Investec
initially looked to them for
payment explains why the Orcrest parties entered into discussions
with Investec; it tells one nothing
about what arrangement was
arrived at pursuant to the discussions.
[71]
In argument Mr van Riet
latched onto a passage from Van Breda’s answering affidavit in
the first rescission application. Van
Breda was answering the
allegation (subsequently abandoned) that Investec had never intended
to look to the Orcrest sureties for
payment. In denying this, Van
Breda said that the contrary was shown by the fact ‘that it was
in fact the Orcrest sureties
which settled Investec’s exposure
as they had the wherewithal to do so by way of the purchase and
cession of claims agreement’.
It is clear from the quoted words
themselves as well as from the context of the affidavit as a whole
that Van Breda was not saying
that the Orcrest sureties themselves
made payment to Investec qua sureties. The point he was making was
that the Orcrest sureties
took steps to ensure that Investec’s
claim was settled, something they would not have if Investec had not
been intent on
enforcing the suretyships.
[72]
As to OPPL’s
supposed duty to account to Orcrest, Mr van Riet argued that Van
Breda had not in his opposing affidavit in the
second rescission
application denied Willem’s statement in the founding affidavit
that OPPL would no doubt have to account
and pay over to Orcrest any
money it recovered from the Basson sureties. Van Breda did not admit
this statement, which was not
based on any underlying facts. What he
said was that he did not understand its logic or relevance. Having
regard to the answering
papers as a whole, OPPL’s case is that
it borrowed from Orcrest the money required to pay Investec for the
cession. Although
this may have the effect that some or all of the
proceeds of the claim will eventually find a way back to Orcrest,
this is by virtue
of the debtor-creditor relationship (inter-company
loan) and not by virtue of a duty to account (such as an agent or
nominee would
owe to its principal).
[73]
I take Mr van Riet’s
point that heightened scrutiny into the genuineness of a transaction
may be called for where it achieves
some legal advantage which would
not otherwise have been available. The purpose of achieving the
advantage is not itself illegal
but it may provide a motive for the
parties to go through the motions of a transaction without really
intending it to take effect.
Mr van Riet devoted some time in
argument to
Skjelbreds
case supra. It is a good illustration of the point but the important
factual differences between that case and the present one
must not be
lost sight of. In
Skjelbreds
a Panamanian company, Tramping Enterprises, purported to cede to a
local company, Hartless, a claim which Tramping Enterprises
had
against a Norwegian company, Skjelbreds. Tramping Enterprises, as a
peregrinus, would not have been entitled to sue Skjelbreds,
another
peregrinus, in South Africa. Hartless, as an incola, did not suffer
from the same disability. The purported cession thus
allowed Hartless
to bring proceedings in this country which Tramping Enterprises was
not able to bring.
[74]
In delivering the
court’s judgment in
Skjelbreds
,
Rabie JA did not say that the purported cession was illegal or could
not in law bring about the advantage in question (at 733H-734A).
But
the purpose of obtaining this advantage, taken together with certain
other facts, justified a conclusion that Tramping Enterprises
and
Hartless had not intended there to be any cession. Among the other
facts were the following. Hartless was a shell company owned
by and
acting as nominee for the attorneys who were advising Tramping
Enterprises. Hartless looked to Tramping Enterprises for
instructions. The document recording the purported cession did not
require Hartless to make payment to Freedom Tramping for the
rights
purportedly acquired. The document did not mention a material part of
the actual agreement as subsequently admitted by Hartless,
namely
that it had to account to Freedom Tramping for the proceeds of the
action against Skjelbreds.
[75]
The fundamental
differences between that case and the present one are immediately
apparent. Here there was an arm’s length
relationship between
the cedent, Investec, and the cessionary, OPPL. The latter is not a
nominee for the former. The deed of cession
records a substantial
purchase price for the claim and Investec in fact received the
purchase price. OPPL has no duty to account
to Investec for the
proceeds of the claim. Investec has fallen completely out of the
picture, just as one would expect with an
out and out cession.
[76]
When these differences
were pointed to Mr van Riet he felt constrained to argue that a court
might find the cession to be a simulation
even though Investec was
not a party to the sham. That is untenable.
[77]
I thus consider that
the fraud defence did not constitute a reasonable and bona fide
defence justifying the grant of rescission.
Conclusion
[78]
From everything I have
said it will be apparent that the appeals stand to be dismissed with
costs including those attendant on the
employment of two counsel.
[79]
It does not follow that
the Basson sureties will be without recourse if they make payment to
OPPL. It is unnecessary to decide,
and I do not decide, the issues
which might arise in that event but the following possibilities may
be mentioned. OPPL has stepped
in to Investec’s shoes. There is
no evidence that Investec or OPPL has released the Orcrest sureties.
Van Breda specifically
stated in the course of the proceedings below
that there had been no such release. Although the deeds of suretyship
incorporate
a renunciation of the benefit of cession of actions, this
may mean no more than that the Basson sureties cannot raise the
absence
of a tendered cession as a dilatory defence to OPPL; if they
make payment, they would be entitled to require OPPL to cede its
claim
to them (Pretorius op cit 158 and fn 101). They could then
proceed against the Orcrest sureties to recover the latter’s
aliquot
shares. Even without cession, they could do so based on the
equitable right of contribution.
[80]
If the Basson sureties
were only able to pay part of the debt, the question would arise
whether they could still proceed against
the Orcrest sureties for a
contribution. In
ASA
Investments (Pty) Ltd v Smit
1980
(1) SA 897
(C) it was held that the surety had to pay the whole debt
before recovering from co-sureties. The outcome is criticised in
Pretorius
op cit 179 and was left open by Griesel J in
Bester
NO & Another v Scholtz
[2013]
ZAWCHC 108
paras 12-13.
[81]
The appellants may fear
that with the dismissal of their appeal OPPL will exercise its
contractual power under the deeds of suretyship
to release the
Orcrest sureties. In that event various questions will arise,
including (i) whether such a release would operate
only as
between OPPL and the Orcrest sureties or would also take away the
Basson sureties’ right to recover a contribution
from their
co-sureties; (ii) if the latter question were answered against
the appellants, whether the discretionary power
of release contained
in the deeds of suretyship is impliedly subject to the arbitrium boni
viri (cf
NBS Boland
Bank v One Berg River Drive & Others, and Other Cases
1999
(4) SA 928
(A) paras 25-27;
Blake
& Another v Cassim & Another
[2008] ZASCA 67
;
2008
(5) SA 393
(SCA) para 22) and/
or
to a duty to exercise the power in good faith rather than with a view
to harming the Basson sureties and unduly benefiting the
Orcrest
sureties (cf
Nedbank
Ltd v Puricare CC & Others
[2014]
ZAWCHC 17
para 18); (iii) and if so, whether the release power was
exercised inconsistently with one or other of these qualifications.
[82]
I would thus make the
following order: The appeals are dismissed with costs including those
attendant on the employment of two counsel.
DESAI J:
[83]
I concur and it is so
ordered.
MANTAME J:
[84]
I concur.
DESAI
J
ROGERS
J
MANTAME
J
APPEARANCES
For
Appellants
Mr
RS Van Riet SC & Mr W van Niekerk
Instructed
by
Vanderspuy
Cape Town
4
th
Floor, 14 Long Street
Cape
Town
For
Respondent
Mr
RG Goodman SC & Ms PS van Zyl
Instructed
by
Edward
Nathan Sonnenbergs
1
North Wharf Square, Lower Loop Street
Cape
Town