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[2016] ZAWCHC 146
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Yardley v Watson and Another (6717/2016) [2016] ZAWCHC 146 (28 October 2016)
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Republic of South Africa
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE DIVISION, CAPE TOWN)
Case
No: 6717/2016
Before: The Hon. Mr Justice Binns-Ward
Dates of hearing: 25 October 2016
Date of judgment: 28 October 2016
In
the matter between:
MELVIN
DAVID
YARDLEY
Applicant
and
ADRIAN
CHARLES
WATSON
First
Respondent
(ID
Number …)
DONNA
WATSON
Second
Respondent
(ID
Number …)
JUDGMENT
BINNS-WARD
J:
[1]
On the extended return date of a
provisional sequestration order, the applicant, Mr Yardley, applied
for a final order. For
that purpose he was required by
s 12(1)
of the
Insolvency Act 24 of 1936
to satisfy the court that –
(a) he has a liquidated claim sounding in money against the first
respondent (Mr Adrian Watson);
(b) the first respondent has committed an act of insolvency or is
insolvent; and
(c) there is reason to believe that it will be to
the advantage of creditors of the debtor
if
the respondents’ joint estate is sequestrated.
[2]
The issue centrally in contention at this
stage of the proceedings, as it was in the application for the
provisional order, goes
to the first of those requirements; namely,
whether the first respondent (to whom the second respondent is
married in community
of property) is indebted to the applicant.
Its determination turns on the proper construction of a deed of
contract recording
a loan by the applicant to Bedshelf Investments
Number 3 CC (‘Bedshelf’).
[3]
It is not in dispute that during 2012 the
applicant lent Bedshelf an amount of £50 000. The
amount was advanced
in three tranches: £10 000 on 22
February 2012, £10 000 on 29 February 2012 and
£30 000 on
3 July 2012. The transactions were
formalised and integrated in a contract document entitled ‘Loan
Agreement by and
between Bedshelf Investments Number 3 CC and Melvin
David Yardley’. The deed of contract was drafted at the
instance
of the first respondent and executed by him on 6 July 2012.
It was signed by the applicant, who lives in England, just over
a
fortnight later on 24 July 2012.
[4]
Bedshelf, which was a close corporation at
the time – it was converted to a company later in 2012 –
carried on business
in the import of books from the United Kingdom
for sale in South Africa. The first respondent was its sole
member, and after
its conversion to a company he became, and still
is, its sole shareholder and only director.
[5]
The applicant and the first respondent had
been close friends since their childhood and had kept up regular
contact. There
is some dispute as to precisely how the
transactions came about; more particularly, whether the first
respondent had sought the
loan, as alleged by the applicant, or
whether, as alleged by the first respondent, it had come about as a
result of the applicant
seeking a profitable venture into which to
invest uncommitted funds that he had available. Nothing really
turns on the dispute.
It is common ground that Bedshelf was in
need of working capital and that it was already heavily indebted to
its bankers, who held
security in the form of a number of mortgage
bonds over the respondents’ home in Somerset West. The
loan was effected
by way of the applicant making payment on
Bedshelf’s behalf directly to one of the close corporation’s
suppliers in
the United Kingdom.
[6]
The
preamble to the deed of contract recorded that:
WHEREAS
Bedshelf
requires working capital to import books.
AND WHEREAS
Yardley is willing to loan Bedshelf
the sum of 50, 000 Pounds Sterling
AND WHEREAS
the
respective parties wish to record the terms and conditions of this
agreement in writing.
It confirmed Bedshelf’s need for the money and the common
intention of the parties that the terms and conditions of their
contractual arrangement should be reduced to writing and recorded in
the deed of agreement. Their intention that the deed
should be
the sole memorial of their agreement was underscored by the
provisions of paragraph 2 of the ‘Concluding Clause’,
which recorded that ‘
This document contains the entire
agreement between the parties relating to these presents and no party
shall be bound by any undertakings,
representation, warranties,
promises or the like not recorded herein
’.
[7]
The preamble was followed by a
‘Definitions’ clause, which bears quoting in full:
DEFINITIONS
1.
Bedshelf –
shall mean Bedshelf
Investments Number 3 CC, Registration No: 1997/006549/23.
2.
Yardley –
shall mean Melvin
David Yardley, Date of Birth: …/56.
3.
Watson –
shall mean Adrian Charles Watson,
Identity number: ….
4.
Auditor –
shall mean Watson Incorporated,
Registration No: 2001/002354/21.
5.
Effective date –
shall mean 1 July 2012.
6.
The Loan Amount –
shall mean £50, 000 (Fifty
thousand Pounds Sterling).
7.
The interest –
shall mean 8% per annum on the
outstanding balance.
8.
Payment terms –
shall mean payable within 24 months
of the effective date or within such shorter time period the latter
being at the discretion
of Bedshelf.
Seen in the context of the substantive provisions of the deed of
agreement, the definitions clause in a sense encapsulated the
essence
of the agreement. It identified the relevant actors in the
contractual arrangement (paragraphs 1- 4) and highlighted
the
essential terms of the loan (paragraphs 5-8).
[8]
According to its tenor, the deed of
contract was cast as if the loan were still to be advanced; whereas,
as will be apparent from
the context described thus far, it was in
substantial measure a recordal or confirmation - certainly in respect
of the advance
of the funds - of what had already happened.
That much is apparent from the section of the deed that follows
immediately
after the ‘Definitions’ clause:
NOW THEREFORE IT IS AGREED AS FOLLOWS THAT:
1.
That
Yardley
is hereby willing to lend to
Bedshelf
the
loan amount
on the
effective
date. The
loan amount
will be paid directly to the Supplier of
Bedshelf
in the United Kingdom as payment for pending shipment of stock to
Bedshelf.
2.
That the
loan
amount
will be in
the Pounds Sterling denomination.
3.
That the full and final
settlement of the
loan
amount
and
interest
shall
be repaid within 24 month from the
effective
date
or within such
shorter time period the latter being at the discretion of
Bedshelf
.
4.
The
interest
shall be charged on the outstanding amount on a monthly basis.
It is agreed that the interest will be paid at an agreed exchange
rate of R13.00 to the Pound on the outstanding balance.
5.
The
loan
amount and interest
will be paid into the bank account/s designated by Yardley.
6.
That
Watson
shall stand as surety and co-principal debtor with
Bedshelf
for the due
fulfilment of all its obligations.
7.
That
this
agreement
shall
commence on the
effective
date
and shall
remain in force until the full amount has been settled.
8.
That a certificate
issued by the
Auditor
shall be prima facie evidence of the amount of indebtedness of
Bedshelf
to
Yardley
at the date of the certificate.
I shall for convenience hereinafter refer to this clause as the
‘substantive agreement clause’.
[9]
The first respondent placed emphasis on the
formulation of the deed as a loan agreement between the applicant and
Bedshelf.
He pointed to the fact that the document was signed
only by the applicant and on behalf of Bedshelf. The deed
provided for
signatures by Bedshelf and Yardley. It is common
ground that the signature appearing on the last page of the document
above
the name of Bedshelf is that of the first respondent. He
averred that he had signed the document only in his representative
capacity, and not personally. It is apparent, however, that the
applicant appreciated when the document was executed that
Bedshelf
was the corporate vehicle through which the first respondent
conducted the business and that no-one else had a proprietary
interest in it. He was also aware that the business was being
financed with money borrowed by Bedshelf from the bank against
the
security of the respondents’ home. The first respondent
was equally aware of the applicant’s appreciation
of that
factual context. There is no indication in the evidence that
the applicant dealt with anyone else but the first respondent
in
respect of the affairs of Bedshelf.
[10]
An averment similar to that of the first
respondent’s as described in the preceding paragraph was made
in comparable circumstances
by a signatory seeking to avoid a
suretyship obligation in the case of
Steenkamp
v Webster
1955 (1) SA 524
(A).
The claim in that matter was founded on a deed of contract which read
as follows:
Ooreenkoms koop en verkoop en sessie
Ooreenkoms
gemaak en aangegaan deur en tussen Stanley Webster hierna genoemd die
verkoper aan die ene sy, en Hennenman Sand (Proprietary)
Limited
hierna genoemd die koper aan die andere sy.
Gemelde
verkoper sedeer en maak hiermee oor aan en ten gunste van gemelde
koper al sy reg, titel en belang in en ten opsigte van
sekere
huur-ooreenkoms aangegaan tussen Johannes Jacobus Fouche en verkoper
gedateer die 9de Maart 1951 met betrekking tot die
verwydering van
sand van die resterende gedeelte van die plaas Brandhoek No. 60
distrik Bothaville tesame met alle andere regte
en verpligtinge soos
uiteengesit in gemelde ooreenkoms en op die volgende verdere
voorwaardes:
1.
As
konsiderasie van hierdie oormaking en betaling van die materiaal en
goed soos later uiteengesit in die skedule hieraan geheg
sal die
gemelde koper aan die verkoper betaal die som van ses duisend ponde
(£6,000-0-0) betaalbaar £2,000-0-0 kontant,
£2,000-0-0
op die 12de April 1953 en £2,000-0-0 op die 12de April 1954.
2.
Hierdie
sessie en oormaking sal van krag wees vanaf die 12de April 1952.
3.
Mnr. M. D. C.
Steenkamp in sy private hoedanigheid verbind homself hiermee as borg
en mede-prinsipale skuldenaar teenoor die verkoper
vir die betaling
van die gemelde koopsom soos in klousule 1 uiteengesit.
4.
Dit word goed
verstaan deur die partye dat die materiaal, toerusting en goed soos
uiteengesit in die skedule hieraan geheg deel
uitmaak en ingesluit
word in die som van £6,000 vermeld in klousule 1 van hierdie
C ooreenkoms, en gemelde goed word
dadelik gelewer aan die koper.
Aldus
gedaan en geteken te Odendaalsrus op hede die 12de dag van April
1952.
As
Getuies: -
S.
Webster
Verkoper
A.
P. Hauptfleisch
J.
C. Vermaak
M.
D. C. Steenkamp
D
M.
P. van Staden
vir
Hennenman Sand (Pty.) Ltd.'
...................................
Steenkamp was sued by Webster pursuant to the suretyship undertaking
provided in terms of clause 3 of the agreement.
[11]
Centlivres CJ disposed of an argument
advanced by Steenkamp’s counsel in similar terms to that
advanced by the first
respondent in the current case as follows at
pp 529-530:
It was contended by Mr.
O'Hagan
who appeared on
behalf of Steenkamp that according to the document sued on Steenkamp
appended his signature in a representative
capacity. In support of
this contention counsel argued that the spacing between the four
typed lines intended for signatures gave
rise to an inference that
the signatures of Steenkamp and van Staden were linked with the words
‘vir Hennenman Sand (Pty.)
Ltd.’ (there being a smaller
space between the lines containing those signatures than there was
between those lines and the
other two lines) and that the document
must therefore be read as meaning that Steenkamp signed only in his
capacity as representing
the Company. I am unable to agree with
this contention. It was not disputed that Steenkamp read the
document before
he appended his signature and he must therefore be
taken to have been fully aware of clause 3 which stated that he bound
himself
in his private capacity as a surety and co-principal debtor
for the payment of the purchase price of £6,000. The question
at once arises why Steenkamp signed the document without either
deleting clause 3 or making it clear by means of an appropriate
endorsement at the foot of the document that he did not agree to the
terms of that clause. He did neither and left a reader of
the
document under the impression that he had no objection to the terms
of clause 3. More especially must he have left Webster
under that
impression, seeing that clause 3 was part and parcel of the
transaction whereby he agreed to the Company purchasing
his rights
and seeing that the Company had already paid over the first
instalment of the purchase price and had taken over the
plant
mentioned in the schedule to the agreement. It is a fair inference
from the document sued on that clause 3 was an essential
term of the
arrangement whereby the Company was to take over the right, which
Webster had, to remove sand from the farm mentioned
in that document
and Steenkamp when he signed that document must have known this. We
have to take the document as it stands with
the appended signature
and when we find from the document itself that Steenkamp signed it
without any reservation, it must be taken
that he agreed to all its
terms, even although his signature was also necessary in order to
bind the Company. Williston on
Contracts
(revised edition vol.
1,
sec. 35)
states the principle to be applied as follows:
'Throughout the formation of contracts it is to be
observed that not assent, but what the other party is justified as
regarding
as assent, is essential . . . This rule, though frequently
harsh in application, rests upon the fundamental principle of the
security
of business transactions, and the integrity of contracts
demands that it be rigidly enforced by the courts.'
Assent to a contract can, of course as
Williston
points out, be negatived by proof of fraud on the part of a party
seeking to enforce a contract and the principle would not apply
in an
action to rectify a contract on the ground of mutual mistake. In the
present case we are not concerned with either fraud
or mistake. The
principle laid down by
Williston
is similar to the rule of
interpretation of contracts enunciated by my Brother Greenberg, in
Worman v Hughes and Others
,
1948 (3) SA 495
at p. 505 (AD),
where he said that the rule
'is to ascertain, not what the parties' intention was,
but what the language used in the contract means, i.e. what their
intention
was as expressed in the contract. As was said by Solomon,
J. in
van Pletzen v Henning
,
1913 AD 82
at p. 99, 'the
intention of the parties must be gathered from their language, not
from what either of them may have had in mind.’
There is no allegation of fraud in the current matter (nor, for that
matter, of duress, undue influence or mistake) and the first
respondent has not sought to rectify the contract. Instead, as
will be discussed more fully below, he has asserted that he
is not
privy to the agreement.
[12]
It is clear that if paragraph 6 does
constitute a suretyship undertaking, the written contract satisfied
the requirements of s 6
of the General Law Amendment Act 50 of
1956.
[1]
Furthermore, the first respondent’s counsel conceded, correctly
in my view, that if paragraph 6 of the substantive
agreement clause
did in point of fact record a suretyship obligation by the first
respondent, then, by unqualifiedly affixing his
signature to the
document, the first respondent would have bound himself to it.
The respondent’s counsel, however,
embraced an observation that
I had made during his opponent’s address to the effect that
clause 3 of the agreement in
Webster
’s
case was of ‘much clearer’ import than paragraph 6 of the
substantive agreement clause. He contended
that paragraph 6
denoted nothing more than an indication that the first respondent
would sometime in the future stand surety, not
that he was, by his
execution of the contract, actually doing so. In this respect
counsel emphasised the effect of the word
‘shall’ as
denoting something yet to happen. He stressed that the contract
in the current case did not contain
wording equivalent to that
whereby it was declared in clause 3 of the agreement in issue in
Webster
’s
case that ‘
Steenkamp in sy private
hoedanigheid verbind homself hiermee as borg …
’.
While the distinctions to which counsel drew attention are
indisputable, they nevertheless do not derogate from the
principle
illustrated by the judgment in
Webster
.
Whether paragraph 6 constitutes a suretyship undertaking by the first
respondent is a matter of construction.
[13]
The
approach to be adopted in respect of the construction of deeds of
contract has been the subject of a veritable wealth of appeal
court
jurisprudence in recent years. A convenient overview of the
most pertinent judgments is to be found in the discussion
in
Novartis
SA (Pty) Ltd v Maphil Trading (Pty)
Ltd
2016 (1) SA 518
(SCA) at paras. 24-35. The essence of it is
that the provision in issue should be interpreted contextually.
The consideration
of all the contextual factors in the interpretative
exercise must be an integrated one; the process of interpretation is
not one
that occurs in stages, but is essentially ‘one unitary
exercise’; see
Bothma-Batho
Transport (Edms) Bpk v S Botha & Seun Transport (Edms) Bpk
2014 (2) SA 494
(SCA), at para 12, with reference to
Rainy
Sky S.A. and others v Kookmin Bank
[2012] 1 All ER 1137
(SC), at para 21.
[2]
[14]
The words used by the contracting parties
are the point of departure, but their literal and grammatical import
considered in isolation
is not the be-all and end-all. They
fall to be construed with regard to the apparent objects of the
contract and its place
in the relevant factual matrix, by which is
meant the circumstances in which it was brought into being - which is
something materially
different from having regard to what the parties
to it might purport to say that they mean. If matters of
construction
were to be determined with reference to the parties’
contesting statements as to the nature of their allegedly common
intention,
rather than on the basis of the language they have used to
express it, then the meaning of written contracts would be determined
on the basis of findings as to the contracting parties’
respective credibility, rather than the language by which they chose
to express themselves. The determining factor is the latter,
not the former. That, no doubt, is what judges have meant
when
they have described interpretation as being a matter of law and not
one of fact and accordingly one for the court and not
for the
witnesses (
KPMG Chartered Accountants
(SA) v Securefin Ltd and Another
2009
(4) SA 399
(SCA) at para 39), and held that the process of
interpretation is objective, not subjective (
Natal
Joint Pension Fund v Endumeni Municipality
2012 (4) SA 593
(SCA) at para 18). The parol evidence (or
‘integration’) rule remains part of our law.
[3]
[15]
Regard is also properly had in the process
of contextual assessment to the subsequent conduct of the parties in
relation to the
contract. That is obviously an important
consideration having regard to the essence of the exercise, which is
the objective
determination of the contracting parties’
apparent common intention.
[16]
Courts also bear in mind that draftsmanship
is often inept. The clumsy or inapposite use of language by the
drafter should
not be allowed to detract from or obscure the
discernible intended meaning. ‘Sophisticated semantic
analysis’
should not be permitted to negate an evident
practical object that was clearly sought to be achieved by the
provision which is
being construed; see e.g.
Lloyds
of London Underwriting Syndicates 969, 48, 1183 and 2183 v Skilya
Property Investments (Pty) Ltd
[2004]
1 All SA 386 (SCA) at para. [14].
[4]
[17]
The first respondent’s counsel
contended that a consideration of the contract document shows that
there were only two parties
to it and that the first respondent was
not one of them. In this regard he referred to the cover page
which records the nature
of the contract as a loan agreement
between the applicant and Bedshelf; he referred also to various
paragraphs in the agreement
that sensibly construed contemplate ‘the
parties’ to be only the applicant and Bedshelf; he pointed out
that
domicilia citandi et executandi
were chosen only by the applicant and Bedshelf (the latter at the
first respondent’s home address) and that the signature
page
provided for signatures only by the applicant and someone on behalf
of Bedshelf.
[18]
I have already disposed of the
last-mentioned consideration with reference to
Webster
’s
case supra. As to the remainder of the contention, whilst it is
correct that some clauses of the agreement - as indeed
might be
expected having regard to the nature of the principal agreement
recorded therein - have the characteristics highlighted
by counsel,
that is not uniformly the case. So, even the clause headed
‘Notice and Domicilium’, in which the
domicilia
citandi et executandi
of the lender and
borrower are recorded, contains an unnumbered final paragraph which
reads grammatically only if more than two
parties are implicated:
‘
Notwithstanding anything to the
contrary contained in this agreement, a written notice or
communication actually received by one
of the parties from another
[not ‘
the
other’, which would apply if only two parties were concerned]
including by way of facsimile
transmission shall be adequate written notice or communication to
such party
’. Similarly, the
exclusion of any right to rely on matters such as set-off or
counterclaim, to avoid payment was expressed
in paragraph 3 of the
clause entitled ‘General’ in a manner that plainly
applies to more than just two parties: ‘
No
[not ‘neither]
party
shall have the right to defer, adjust or withhold any payment due to
the other
s
in terms of or arising out of this agreement or to obtain deferment
of judgment for such amount or any execution of such judgment
by
reason of any set-off or counterclaim of whatsoever nature or
howsoever arisin
g’.
Paragraph 7 of the same clause, which is a non-waiver clause, speaks
of any latitude, extension of time or other
indulgence given or
allowed ‘
by
any
party to
any other
party
’, not ‘by
either
party to
the other
party’ as would have been appropriate if there had been only
two parties to the transaction. Paragraph 1 of the clause
headed ‘Concluding Clause’, which is a non-variation
provision, excludes any variation of the agreement ‘
unless
reduced to writing and signed by
all
[not ‘both’]
the parties to
this agreement
’. Paragraph
3 of the same clause contains references to ‘any party’
and ‘any other party’,
which also would be inappropriate
language if only two parties had been privy to the contract.
[19]
I therefore do not find the argument
persuasive. It is inconsistent with the language of the deed.
[20]
I am also not persuaded by the submission
that the use of the word ‘shall’ in paragraph 6 of the
substantive agreement
clause denotes that the provision of a
suretyship by the first respondent would be a future event. The
word ‘shall’
is capable of bearing a variety of
meanings.
[5]
The one that is applicable in a given case depends on the context in
which it used.
[21]
There would be no point in the lender and
borrower agreeing between themselves and in the absence of a third
party that the latter
should give a suretyship for the borrower’s
obligation unless that were to be a suspensive condition for the
lender’s
obligation to extend the loan. The notion of
paragraph 6 stating a suspensive condition is inconsistent with the
language
of the provision and the factual context of the execution of
the deed. On the construction contended for on the first
respondent’s
behalf paragraph 6 of the substantive agreement
clause would be mere surplusage. It would have no binding
effect between
the applicant and Bedshelf; and the first respondent,
in his personal capacity, would not be privy to it. The
argument, based
on inadmissible parol evidence by the first
respondent, that the first respondent’s had no present
intention to bind himself
as surety, but intended by the clause to
signify that he might do so in future, subject to a number of
unexpressed considerations
including his wife’s consent, is
subversive of the argument, dealt with earlier, that the first
respondent had not made himself
party to the agreement. More to
the point, the construction contended for by the argument is also
utterly bereft of what
Lord Clarke referred to as ‘business
common sense’.
[6]
[22]
In my judgment the employment of the word
‘shall’ in the provision is clearly demonstrative of its
use in the second
of the examples given in Oxford Dictionary of
English, viz. ‘expressing a strong assertion or intention’.
It
connoted, in positive or assertive terms, an undertaking by the
first respondent to stand as surety for the debt incurred by
Bedshelf.
[23]
I agree with the submission by the
applicant’s counsel that the first respondent’s current
contention that paragraph
6 of the substantive agreement clause did
not constitute a binding suretyship undertaking is inconsistent with
his subsequent conduct.
Counsel relied in this respect on the
content of an email directed to the applicant’s attorney by the
first respondent in
April 2016, shortly before the institution of
these proceedings. The email was written, so it says, after the
first respondent
had taken legal advice having been threatened with
sequestration proceedings. The first respondent indicated that
he would
oppose such proceedings and then proceeded at some length
about how the applicant might encounter difficulty in satisfying the
requirements of proving advantage to creditors. He indicated
that he would argue that there were better means of benefitting
the
general body of his creditors, and that he already had the support of
two of his creditors who were willing to make affidavits.
The
lengthy email did not assert that the respondent had no personal
liability to the applicant, as he now alleges. While
this is a
factor that weighs against the idea that the first respondent had no
intention, when signing the agreement, to bind himself
as surety, it
is merely a factor, and by no means decisive. I should
therefore make it clear that I would have reached the
conclusion that
I have on the construction of paragraph 6 without it on the basis
explained earlier in this judgment.
[24]
While on the subject of subsequent conduct,
it is appropriate to also mention the submission advanced on the
first respondent’s
behalf that the applicant’s attorney’s
invitation to him to conclude a settlement agreement was inconsistent
with any
belief by the applicant or his attorney that paragraph 6
constituted a suretyship undertaking. The argument was advanced
on the basis that the proposed settlement agreement had been tabled
merely in order to obtain for the applicant security in the
form of
an acknowledgment of personal liability by the first and second
respondents, which he must have appreciated the existing
deed of
agreement did not give him. The argument is not persuasive.
The proposed settlement agreement did indeed incorporate
an
acknowledgement of liability, but the evident purpose of the draft
contract was to secure an entitlement by the applicant to
payment of
his claim by the respondents’ conveyancer from the unencumbered
proceeds of the sale of their property as a first
charge on those
proceeds. The object of the proposed agreement was thus not to
establish the first respondent’s personal
liability, but to
obtain some form of security in respect of payment of the debt.
[25]
The first respondent’s counsel
addressed detailed argument on what they contended were material
disputes of fact that stood
in the way of applicant establishing
personal liability on the part of the first respondent. However, it
was in respect of evidence
in the affidavits that is inadmissible in
terms of the parol evidence rule that the alleged disputes of fact on
which the first
respondent’s counsel sought to rely were
founded. For the reasons discussed above, that evidence is
irrelevant; as,
consequently, also is the related debate about the
effect of the application in the case of the principles expressed in
Plascon-Evans Paints Ltd v Van Riebeeck
Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at
634-5. There are no relevant disputes of fact. The
position is summed up succinctly in Botha JA’s
observation
about the effect of the parol evidence rule in
National
Board (Pretoria) (Pty) Ltd v Estate Swanepoel
1975 (3) SA 16
(A) at 26B-D:
The rule is well summarised by Wigmore,
Evidence
,
3rd ed., vol. 9, sec. 2425, as follows:
"This process of embodying the
terms of a jural act in a single memorial may be termed the
integration of the act, i.e. its
formation from scattered parts into
an integral documentary unity. The practical consequences of this is
that its scattered parts,
in their former and inchoate shape, do not
have any jural effect; they are replaced by a single embodiment of
the act. In other
words:
When
a jural act is embodied in a single memorial, all other utterances of
the parties on that topic are legally immaterial for
the purpose of
determining what are the terms of their act.
"
(Italics in the original.)
[26]
The applicant relied on an alleged
statement by the first respondent during a conversation with the
applicant in December 2015 that
he would unable to settle the debt
unless he was able to sell his house or won the lottery as an act of
insolvency. The first
respondent has denied making any such
statement. Accordingly it falls to be considered whether the
applicant has established
that the respondents are actually
insolvent. In this regard, the applicant’s counsel
propounded the adoption of the
approach enunciated in
De
Waard v Andrews & Thienhans
1907 TS
727
at 733, as it was applied in
Absa
Bank Ltd v Rhebokskloof (Pty) Ltd and Others
1993 (4) SA 436
(C) at 446 I- 447D, where Berman J held:
A debtor's unexplained failure to pay his debts is, as
was stated in
Mackay v Cahi
[1962 (4) SA 193
(O)] referred to
above at 204H, a fact to which the Court has always attached much
weight in determining the question of solvency.
The oft-repeated and,
with respect, eminently commonsensical and practical statement of
Innes CJ in
De Waard v Andrews & Thienhans Ltd
1907 TS 727
at 733 is singularly apt in the instant context, viz:
‘
To my mind the best proof of
solvency is that a man should pay his debts; and therefore I always
examine in a critical spirit the
case of a man who does not pay what
he owes’,
words which were echoed by Bristowe J in his judgment in
the same case, in which he said at 739:
‘
After all, the
prima
facie
test of
whether a man is insolvent or not is whether he pays his debts; and
if he cannot pay them, that goes a long way towards
proof that he is
insolvent.’
It is true that in the
De Waard v Andrews
case
the question of solvency or insolvency on the part of the debtor
turned on the commission of an act of insolvency but there
is no good
reason to confine the language used in that case to those cases only
in which an act of insolvency is involved. Certainly
Key fails to
pass the test enunciated by Bristowe J and, for all the juggling with
figures and amounts and the various permutations
of assets versus
liabilities advanced in argument on Key's behalf, an examination
conducted in the critical spirit suggested by
Innes CJ reveals a
muddy picture of Key's assets and liabilities, … . That Key is
actually insolvent was sufficiently established
and certainly so on
an inferential basis where a precise assessment of his assets and
liabilities cannot be made.
[27]
The evidence shows clearly that the first
respondent is under some financial constraint. The bank is
unwilling to lend him
more and his wife has been forced to go out to
work to supplement the family income. His only assets appear to
be his residential
property in Somerset West and his shares in
Bedshelf. The property was placed on the market in 2008 at an
asking price of
R11 million. That price has been reduced
over time, with the last indicated asking price having been R7,95 m.
It has recently been sold, but transfer has been held up by virtue of
the effect of the provisional sequestration order.
The nominal
extent of the mortgage encumbrance of the property is R6,8 million.
The selling price is not apparent on
the papers. If the
property were sold at the most recent asking price, there would no
doubt be agents’ commission,
which would reduce the proceeds in
his hands.
[28]
The only indication of the value of the
first respondent’s shares in Bedshelf is his averment that they
are worth R1,55 million.
He expressed that opinion on the
basis of a valuation that he says he was given by an ‘independent
valuator’.
The valuator is not identified, no
confirmatory affidavit was filed, and nothing more than the
aforementioned unconfirmed report
was offered in substantiation of
the claim. The valuation is therefore unsubstantiated.
What is known, however, is
that the company appears to have
experienced long-term and ongoing operating difficulties due to
inadequate working capital.
[29]
If the first respondent has any other
assets, he has chosen not to disclose them.
[30]
It is clear from the first respondent’s
averments, including the assertions he made in his aforementioned
email to the applicant’s
attorney that he has other creditors
apart from the applicant and the bank. He has not disclosed who
they are, or the value
of their claims. He has, however, stated
that the monthly cost of servicing his debt exceeds R70 000 per
month.
[31]
The applicant’s counsel pointed out
that one could extrapolate the extent of the respondents’
disclosed and acknowledged
debt with reference to the currently
applicable bank prime lending rate, which, it is well-known,
currently stands at 10,5% per
annum. Counsel did the arithmetic
to arrive at a figure of R7 million; his sums let him down,
however. Correctly
calculated, the extrapolated indebtedness of
the first respondent would amount to R8 000 000
(70 000x12x100÷10,5),
[7]
and that would be only in respect of the debt that he is currently
servicing. Most, if not all, of the monthly service charge
is
probably in respect of the mortgage debt, which it will be recalled
was in respect of monies advanced to Bedshelf. Those
loans are
unlikely to have been advanced at prime lending rate.
[32]
In addition, his indebtedness to the
applicant in the amount of £50 000 with interest at 8% per
annum from 1 July 2012
amounts to more than R880 000 if
calculated at the contractually fixed conversion rate of R13 to the
Pound. The amount
would be considerably higher if the fixed
conversion rate applies only to the payment of interest and not the
capital, which is
very arguably the case in terms of paragraph 4 of
the substantive agreement clause.
[33]
The first respondent has admitted to having
stood surety in respect of other debts. He has not indicated
what these were,
or whether they have been settled.
[34]
His response to the proposal that he should
enter into the settlement agreement, described above, was to state
that to do so would
be a fraud on his other creditors. That is
a statement that only an insolvent could make.
[35]
In my judgment the evidence makes out a
prima facie case of actual insolvency, at least on a justified
inferential basis (to borrow
the expression used by Berman J in
Rhebokskloof
).
The effect was to place an evidential burden on the respondents to
‘present to the Court a full, true and accurate
picture of
[their] assets and liabilities’ (see
Rhebokskloof
supra, at 444E).
[8]
They failed even to attempt to discharge it.
[36]
An advantage to creditors is demonstrated
in the ability of a trustee to ensure that the unsecured debt of the
respondents is settled
in an orderly fashion without undue
preference. It will also facilitate an investigation of the
respondents’ actual
assets and liabilities for the benefit of
the general body of creditors. That this may be advantageous is
to some extent
underscored by the failure of the respondents to have
made a full disclosure in their answering papers, as might have
expected
having regard to the exigencies of the case.
[37]
In the result I have been persuaded that
the requirements for a final order in terms of
s 12(1)
of the
Insolvency Act have
been satisfied.
[38]
It was argued on the respondents’
behalf that should I reach this conclusion I should nevertheless
exercise the court’s
discretion in favour of the respondents
and decline to make a final order. It is only exceptionally
that a court will refuse
a final order when a case for it has been
made out. As the applicant’s counsel pointed out, it is
only in cases in
which it is evident that it would unduly prejudicial
to the respondents to place their estates into sequestration that the
discretion
is ordinarily used. An example might be where the
provisional order had been obtained on the basis of an act of
insolvency
and it was demonstrated on the return day that the
respondent was nevertheless factually solvent and that his debts
would be redeemed
in full if the provisional order were to be
discharged. No such unusual circumstances are present in the
current matter.
There is no good reason to withhold from the
applicant the relief to which he would ordinarily be entitled
ex
debito justitiae
.
[39]
The following order is made:
1.
The
provisional order for the sequestration of the joint estate of the
first and second respondents is hereby made final.
2.
The
applicant’s costs of suit in the application, including the
costs of two counsel where such were employed, shall be costs
of
administration in the sequestration.
A.G. BINNS-WARD
Judge of the High Court
[1]
The identity of the creditor, the principal debtor and
the surety and also the nature of the principal obligation are set
out
in the deed. And it bears the first respondent’s
signature.
[2]
In
Rainy
Sky
loc.cit., Lord
Clarke held ‘
The
language used by the parties will often have more than one potential
meaning. I would accept the submission made on behalf
of the
appellants that the exercise of construction is essentially one
unitary exercise in which the court must consider the
language used
and ascertain what a reasonable person, that is a person who has all
the background knowledge which would reasonably
have been available
to the parties in the situation in which they were at the time of
the contract, would have understood the
parties to have meant. In
doing so, the court must have regard to all the relevant surrounding
circumstances. If there are two
possible constructions, the court is
entitled to prefer the construction which is consistent with
business common sense and to
reject the other
’.
[3]
As noted in RH Christie and GB Bradfield,
Christie’s
The Law of Contract in South Africa
, 6
th
ed. at p.200, ‘The Appellate Division first stated the rule in
Lowrey v Steedman
1914 AD 532
543:
‘
The rule is that when a contract has once
been reduced to writing no evidence may be given of its terms except
the document itself,
nor may any of the contents of such document be
contradicted, altered, added to or varied by oral evidence
’.
[4]
In
Skilya
Property
loc.cit.,
Conradie JA remarked ‘
Sophisticated
semantic analysis is not the best way of arriving at an
understanding of what the parties meant to achieve by paragraph
1 of
section IV. A better way is to look at what, from the point of view
of commercial interest, they hoped to achieve by the
incorporation
provision
’.
[5]
The
Oxford
Dictionary of English
(version
2.2.1 (178)) defines the word ‘shall’ as follows:
1 (in the first person) expressing the future tense:
this time next week I shall be in Scotland | we shan't be gone long.
2 expressing a strong assertion or intention: they
shall succeed | you shall not frighten me out of this.
3 expressing an instruction, command, or obligation:
every employer shall take all practicable steps to ensure the safety
of employees
| you shall not steal.
4 used in questions indicating offers or suggestions:
shall I send you the book? | shall we go?
[6]
See note 2, above.
[7]
The extrapolated acknowledged debt would actually
exceed R8 million because it is calculated on the assumption of
a monthly
service charge of R70 000, whereas the first
respondent has averred that it is costing in excess of that amount
to service
the debt.
[8]
Inasmuch as the judgment in
Rhebokskloof
might be read to suggest that an onus in the true sense is attracted
by a respondent in such circumstances, I would respectfully
differ.
Nevertheless, it is trite in any civil matter that if the party
bearing the onus makes out a prima facie case,
that case will be
sufficient if at the end of the day it is unaffected by rebutting
evidence. I think it is clear from
what Berman J said at
443F that this is what he meant when he referred to an ‘onus’
on the respondent.