Brief Summary

Execution — Rescission of default judgment — Applicants sought rescission of default judgment and declared sale in execution null and void — First applicant, Firstrand Bank, held a mortgage bond over property owned by second and third applicants, who had chosen a specific address for service of notices — Default judgment granted after summons served at mortgaged property, not chosen address — Court held that service was defective as it did not comply with chosen domicilium citandi et executandi, resulting in default judgment being erroneously granted.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings took the form of an application for the rescission of a default judgment granted by the Registrar of the South Gauteng High Court, Johannesburg. The applicants were Firstrand Bank Ltd (as first applicant) together with Neketane Piet Khoza and Selina Khoza (as second and third applicants), who were the registered owners of the immovable property that had been mortgaged to the bank. George Frederik Meyer participated as an intervening party, opposing the rescission.

The default judgment had been granted on 5 November 2008 in favour of Firstrand Bank Ltd against the second and third applicants. After judgment, the mortgaged property was sold in execution on 23 January 2009 to the intervening party. In the amended notice of motion, the applicants sought not only rescission of the default judgment but also an order declaring the sale in execution to be null and void.

The dispute concerned the procedural regularity and legal consequences of service of process in circumstances where the mortgagors had chosen a contractual domicilium citandi et executandi, and the summons in the action leading to default judgment had been served at an address different from that chosen domicilium. A further contextual feature was that, after the sale in execution, the intervening party had obtained an order (by default) from Coetzee J on 14 July 2009 declaring the sale valid and binding and directing steps to effect transfer, which had not occurred.

2. Material Facts

Firstrand Bank Ltd held a registered mortgage bond over the immovable property described as Erf 594, Eagle Canyon Golf Estate, Honeydew Manor Extension 8 (the mortgaged property), securing amounts advanced to the second and third applicants under a loan agreement. At the time the loan and bond were concluded and registered, the second and third applicants informed the bank that they did not reside at the mortgaged property and did not intend to do so. They provided and selected 109 Columbine Street, Mondeor, Johannesburg, 2091 as their residential and postal address, and this address was recorded as their domicilium citandi et executandi in clause 20 of the mortgage bond.

By early 2008 the second and third applicants fell into arrears. The bank instituted action by issuing summons on 23 September 2008. In the particulars of claim, it was alleged that the second and third applicants were ordinarily resident at the mortgaged property and that they had chosen the mortgaged property as their domicilium. The bank’s stance in the rescission application (supported by the second and third applicants) was that these allegations were factually incorrect and that the bank had not instructed its attorneys to allege ordinary residence at the mortgaged property or to effect service there.

Service of the summons was effected by the Sheriff on 8 October 2008 at the mortgaged property by affixing it to the outer door. The second and third applicants did not defend the action. Default judgment was later sought from and granted by the Registrar on 5 November 2008 in their absence.

Execution followed, and on 23 January 2009 the mortgaged property was sold in execution to the intervening party. The intervening party was described as a businessman who purchased properties at sales in execution for resale. He asserted that he had expended money complying with the conditions of sale and pursuing transfer. When transfer did not occur, he approached the court to enforce the sale agreement and obtained an order from Coetzee J on 14 July 2009 (by default) declaring the sale valid and binding and directing the bank’s attorneys to lodge documentation for transfer.

The rescission application was opposed. The intervening party disputed that the default judgment was erroneously sought or granted and contended, on his reading of clause 20, that the mortgagors had chosen domicilium either at the Columbine Street address or at the mortgaged property, giving the bank an option to serve at either address.

3. Legal Issues

The central legal questions were whether the default judgment of 5 November 2008 was “erroneously sought or erroneously granted” in the absence of the second and third applicants within the meaning of Rule 42(1)(a) of the Uniform Rules of Court, and whether the summons had been properly served given the mortgagors’ contractual domicilium citandi et executandi.

A key subsidiary issue was the proper interpretation of clause 20 of the mortgage bond, specifically whether it created a single chosen domicilium (Columbine Street), or whether it conferred on the bank an option to treat the mortgaged property as an alternative domicilium for service.

The dispute was primarily concerned with the application of legal rules to largely common-cause facts (the content of clause 20; where service occurred; the address typed into the bond; the fact of default judgment), together with an interpretive question of law (construction of clause 20) and an evaluative exercise of discretion relevant to rescission and the consequential relief sought regarding the sale in execution.

4. Court’s Reasoning

The court approached the matter by first identifying the governing rules on service and rescission. It referred to Rule 4(1)(a) of the Uniform Rules of Court, including Rule 4(1)(a)(iv), which recognises service at a chosen domicilium citandi. The court also noted Rule 4(10), which confers a discretion where the court is not satisfied as to the effectiveness of service, and Rule 42(1)(a), which permits rescission of an order or judgment erroneously sought or granted in the absence of an affected party.

On interpretation of clause 20, the court reproduced its wording and emphasised that the Columbine Street address was typed into the space provided. The clause was construed in accordance with the “golden rule” of interpretation, giving the words their clear and grammatical meaning. The court rejected the intervening party’s construction that the mortgagors had effectively chosen two addresses in the alternative. The court reasoned that there was no “failure to insert an address” (since an address had been inserted), and therefore the provision referring to the mortgaged property operated only as a default mechanism where no address was inserted (or in the scenario of multiple mortgaged properties), rather than as an additional elected domicilium alongside the typed address.

The court supported this conclusion by reference to the bank’s own conduct: when the mortgagors defaulted, the bank sent a section 129 notice under the National Credit Act 34 of 2005 to the Columbine Street address, not to the mortgaged property, which aligned with the view that Columbine Street was the operative chosen address.

In considering the consequences for service, the court relied on established authority concerning service at a chosen domicilium, particularly Amcoal Collieries Ltd v Truter 1990 (1) SA 1 (A), and the cases there discussed (including Muller v Mulbarton Gardens (Pty) Ltd 1972 (1) SA 328 (W) and Loryan (Pty) Ltd v Solarsh Tea & Coffee (Pty) Ltd 1984 (3) SA 834 (W)). Those authorities were treated as confirming that the purpose of a domicilium clause is to allow service at the chosen place as effective service in litigation, without the serving party bearing the burden of proving actual receipt.

Against that legal background, the court held that, on the facts of this case, the second and third applicants had chosen only the Columbine Street address as domicilium. Service at the mortgaged property was therefore not service at the chosen domicilium. The court accepted that the summons did not come to the attention of the second and third applicants and that, as a result, they did not defend the action. In that sense, the default judgment had been sought and granted on the footing of a defective procedural step, which rendered it susceptible to rescission under Rule 42(1)(a).

The court then applied the Rule 42 standard as discussed in Colyn v Tiger Food Industries Ltd 2003 (6) SA 1 (SCA) and noted, with reference to authority including De Wet and Others v Western Bank Ltd 1979 (2) SA 1031 (A) and Topol v LS Group Management Services (Pty) Ltd 1988 (1) SA 639 (W), that an applicant proceeding under Rule 42(1) need not establish “good cause” in the manner required for other forms of rescission. The court was satisfied that the applicants demonstrated a bona fide error: the bank’s error led to service being effected at the mortgaged property instead of at the chosen domicilium.

The court also treated Firstrand Bank Ltd v Gazu 2011 (1) SA 45 (KZP) as persuasive authority illustrating that courts may exercise a discretion concerning service and procedural fairness in matters involving banks and mortgage enforcement. While the present case differed on its facts, the court considered it supportive of the conclusion that relief should be granted where the procedural step taken is inconsistent with effective notification, particularly where the bank had records reflecting the proper address.

In relation to the additional relief seeking to declare the sale in execution null and void, the court declined to grant that relief at this stage. It reasoned that it would be improper to declare the sale in execution invalid without joinder of the Sheriff, who had conducted the sale, and it noted there was a dispute regarding compliance with the conditions of sale. The court also considered it material that there was an existing order of Coetzee J declaring the sale valid and binding, and the court was not asked in the present proceedings to rescind that order, even though rescission of the default judgment suggested consequences for the sale.

On costs, the court exercised its discretion against the first applicant. It reasoned that the bank was to blame for obtaining the default judgment and that the intervening party’s opposition was reasonable because he appeared to have acted bona fide in purchasing the property at the sale in execution.

5. Outcome and Relief

The court rescinded and set aside the default judgment granted by the Registrar on 5 November 2008 under case number 08/32310.

The request in the amended notice of motion to declare the sale in execution null and void was postponed sine die to permit the joinder of the Sheriff.

The court ordered the first applicant to pay the costs of the application, including the costs of two counsel where applicable.

Cases Cited

Amcoal Collieries Ltd v Truter 1990 (1) SA 1 (A).

Pretoria Hypotheek Maatschappij v Groenewald 1915 TPD 170.

Muller v Mulbarton Gardens (Pty) Ltd 1972 (1) SA 328 (W).

Loryan (Pty) Ltd v Solarsh Tea & Coffee (Pty) Ltd 1984 (3) SA 834 (W).

Firstrand Bank Ltd v Gazu 2011 (1) SA 45 (KZP).

Colyn v Tiger Food Industries Ltd 2003 (6) SA 1 (SCA).

De Wet and Others v Western Bank Ltd 1979 (2) SA 1031 (A).

Topol v LS Group Management Services (Pty) Ltd 1988 (1) SA 639 (W).

Fraind v Nothmann 1991 (3) SA 837 (W).

Downey v Downey 16 S.C. 475.

Botha v Measroch 1916 T.P.D. 142.

I'ons v Freeman & Frock 1916 W.L.D. 64.

Hollard's Estate v Kruger 1932 T.P.D. 134.

Lindrup v Lowe 1935 NPD 189.

Goldberg and Another v Di Meo 1960 (3) SA 136 (N).

Legislation Cited

National Credit Act 34 of 2005.

Financial Intelligence Centre Act 38 of 2001.

Rules of Court Cited

Uniform Rules of Court, Rule 4(1)(a)(i)–(iv).

Uniform Rules of Court, Rule 4(10).

Uniform Rules of Court, Rule 42(1)(a).

Held

The court held that clause 20 of the mortgage bond reflected a single elected domicilium citandi et executandi, namely 109 Columbine Street, Mondeor, Johannesburg, 2091, because the address had been inserted into the bond and the fallback reference to the mortgaged property did not create an additional alternative domicilium at the bank’s option in those circumstances.

On that basis, service of the summons at the mortgaged property was not service at the chosen domicilium. The court accepted that the summons did not reach the second and third applicants and that default judgment was consequently granted in their absence after a defective step. The default judgment was therefore erroneously sought and erroneously granted for purposes of Rule 42(1)(a) and was rescinded.

The court further held that it was not appropriate, on the papers as framed, to declare the sale in execution null and void without joinder of the Sheriff and in light of a dispute regarding performance of the conditions of sale and the existence of a prior order declaring the sale valid.

LEGAL PRINCIPLES

Service of process at a contractually chosen domicilium citandi et executandi is recognised by Rule 4(1)(a)(iv) and, in principle, constitutes effective service for litigation purposes even where the process is not actually received, because the purpose of the election is to relieve the serving party of proving actual receipt.

The interpretation of a domicilium clause depends on the text as read with its clear grammatical meaning. Where a clause provides for a fallback domicilium only in the event of a failure to insert an address, and an address is in fact inserted, the fallback does not operate to create an additional elected domicilium.

Under Rule 42(1)(a), a court may rescind a judgment erroneously sought or erroneously granted in the absence of an affected party. In such rescission proceedings, it is not necessary for the applicant to establish “good cause” in the manner applicable to other rescission mechanisms, and the enquiry focuses on whether an error of the kind contemplated by the Rule is established on the facts.

Even where formal provisions relating to service are invoked, the court retains a discretion, including under Rule 4(10), to consider whether service was effective in the circumstances and to require further steps where appropriate.

Firstrand Bank Ltd and Others v Meyer (08/32310) [2011] ZAGPJHC 78 (12 August 2011)