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[2014] ZAGPJHC 101
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Maleth Investment Fund (Pty) Limited v Paget (13/32676) [2014] ZAGPJHC 101; [2014] 3 All SA 79 (GJ) (2 May 2014)
REPUBLIC OF SOUTH
AFRICA
SOUTH GAUTENG
HIGH COURT JOHANNESBURG
CASE
NO: 13/32676
DATE:
02 MAY 2014
In the matter
between:
In the matter
between:
MALETH INVESTMENT
FUND (PTY) LIMITED
....................................
Applicant
And
STUART CAMERON
PAGET
................................................................
Respondent
J U
D G M E N T
WEINER J:
Background
[1] In 2011, the
Applicant (“Maleth”) Loaned monies to Scarab Investments
Holdings (Pty) Ltd (“Scarab”)
and its subsidiaries in
terms of various loan agreements.
[2] Scarab is the
holding company of, inter alia, Cemlock (Pty) Ltd (“Cemlock”),
one of the companies to which reference
is made in the present
application.
[3] As at the date
of signature of the first agreement, the Mezzanine Loan agreement
(“the Mezzanine Loan”), the respondent
(“Paget”)
was the sole director and shareholder of Scarab.
[4] Maleth alleges
that the Scarab Group, and Paget, in his personal capacity, are
indebted to Maleth, jointly and severally, as
at 10 August 2013, in
the sum of R119 054 822.96.
[5] The indebtedness
of the Scarab Group arises from the various agreements concluded
between Maleth on the one hand and various
other subsidiaries in the
Scarab Group, on the other. Paget’s indebtedness arises from
the Deeds of Suretyship referred to
below.
The agreements
[6] The agreements
relevant to this application are the following:
6.1. The Mezzanine
Loan, concluded between Maleth and Scarab on 21 April 2011. In terms
thereof, Maleth made available to Scarab
a facility of US$15 million.
Scarab has benefitted from six advances made pursuant to this
agreement, which advances are not disputed
by Paget.
6.2. The Senior Term
Loan Sheet (“The Senior Loan”), dated 21 July 2011. The
agreement sets out Cemlock’s obligation
to pay to Maleth a
commitment fee, a break up fee and a maintenance fee in respect of
the loan to be advanced to Cemlock in terms
of the Senior Term
Facility Agreement (“The Senior Facility”). The
commitment fee was payable immediately upon signature
of the Senior
Loan. In terms of this agreement, Paget, as well as all members of
the Scarab Group, are bound as sureties.
6.3. The Senior Term
Facility Agreement (“the Senior Facility”), dated 14
August 2011, in terms of which Maleth agreed
to advance to Cemlock an
amount up to a value of US$13 million in South African Rand for the
purposes of refinancing Cemlock’s
debt with Standard Bank. This
agreement was signed by Paget, who also signed as surety;
6.4. The Senior Term
Loan Fee Letter (“the Senior Letter”), dated 14 August
2011. It recorded the fees payable by Cemlock
as a quid pro quo for
the advance of the Senior Loan. In particular it dealt with the
maintenance fee, the redemption fee and the
break-up fee;
6.5. The Deeds of
Suretyship, dated 21 April 2011 and 18 December 2011, which were
executed in favour of Maleth by Paget in his
personal capacity;
6.6. The Release and
Assumption Deed (“the Release Deed”), dated 27 June 2012,
which was signed on two occasions. Cemlock
undertook, as a
co-borrower with Scarab, liability for all of Scarab’s payment
obligations in terms of the Mezzanine Loan;
6.7. Supplement
number 1 to the Mezzanine Loan, concluded between Maleth, Paget and
two companies in the Scarab Group as sureties.
Supplement number 1
related to 24 Promissory Notes (“the Promissory Notes”)
signed by Paget on 27 July 2012 for and
on behalf of the members of
the Scarab Group as further security for the indebtedness of Scarab
and Cemlock.
6.8. Deeds of
Cession and Pledge (“the Deeds of Cession”) dated 21
April 2011 and 17 June 2011, in terms of which Paget
ceded and
pledged in securitatem debiti his shares in Scarab. Various other
members of the Scarab Group also ceded and pledged
their shares in
the subsidiaries to Maleth. These deeds of cession and pledge are the
agreements which Maleth alleges enabled it
to exercise its “step-in”
rights, in relation to the Scarab Group (dealt with below).
[7] Maleth seeks
payment from Paget in his capacity as surety and co-principal debtor.
In this regard, Maleth refers to:-
7.1. the first
suretyship agreement in terms of which Paget bound himself as surety
for and co-principal debtor in solidum for the
payment of all monies
and the due performance of all obligations which Scarab owed or would
owe to Maleth in terms of, inter alia,
the Mezzanine loan and
ancillary agreements (“the first suretyship”).
7.2. the second
suretyship agreement (“the second suretyship”) in terms
of which Paget bound himself to Maleth as surety
and co-principal
debtor in solidum for the payments of all monies and for the due
performance of all obligations which were owing
and would become
owing by Cemlock in terms of the Release Deed, the Senior Loan, the
Senior Facility and the Senior Letter. [For
the purpose of
convenience, the latter three agreements will be referred to as the
Senior Loan agreements, when dealt with collectively.]
Admission
[8] In a letter
dated 4 August 2013, Paget admitted, on behalf of the Scarab Group,
the indebtedness to Maleth in the amount of
UDS12.5 million. Paget
offered Maleth payment of USD12.5 million “…in full and
final settlement of the debt owed to
[Maleth]”. This amount is
in excess of the amount claimed in this application, but does not
include amounts Maleth contends
are due in the future.
[9] Maleth contends
that on the basis of the above agreements and the admission of the 4
August 2013, the Scarab Group, and Paget
(as surety and co-principal
debtor) are indebted to Maleth in the amount claimed. The detailed
calculation of the amount owing
is not challenged by Paget.
Defences raised
in the Answering Affidavit
[10] Paget deposed
to the answering affidavit on 1 October 2013. In the answering
affidavit, Paget raised two defences:
10.1. The Mezzanine
Loan Agreement is unconscionable and / or falls to be set aside as it
was concluded in circumstances of actual
/ presumed undue influence
and duress. Paget argues that therefore the suretyship agreements
entered into pursuant to the Mezzanine
Loan are also unenforceable.
Paget stated that the Mezzanine Loan was governed by English law and
that such law, based on equity,
would render such agreement
unenforceable.
10.2. The Senior
Term Loan Sheet and the Senior Loan Agreement (sic.) are
unenforceable because they never became unconditional
in their
respective terms due to non-fulfilment of various conditions
precedent contained in the agreements. Paget contends that
it was a
condition precedent that Maleth obtain the requisite exchange control
approval from the South African Reserve Bank or
authorized dealer (as
per clause 11.1(l) of the Facility Agreement). He contends this
condition was not fulfilled.
[11] In the
Answering Affidavit, although Paget referred to English law, he
failed to prove same by way of expert evidence.
[12] Paget, after
the present proceedings had been set down for hearing, launched an
application to refer the matter to trial on
the basis that:-
12.1. There are
‘disputes of fact’ relating to several issues; and
12.2. As the loan
agreements are governed by English law, the necessary expert evidence
regarding the English law should be presented
at a trial.
[13] Paget has taken
the position that it is not possible to determine the English law on
affidavit. He does not say why this is
so. He failed to furnish the
Court with any factual basis or expert evidence for the conclusion
that the English law would hold
that the Mezzanine Loan was
unconscionable.
[14] Maleth had
argued that the correspondence after 4 August 2013, the defences
raised in the affidavits and the application to
refer the matter to
trial contradicts the earlier acknowledgement of indebtedness in the
amount of US$12.5 million. Maleth contends
that such later
documentation relating to the defences raised was initiated by Paget
in an attempt to create a dispute of fact
where none exists.
Events subsequent
to the filing of the answering affidavit
[15] Subsequent to
the filing of the answering affidavit, the parties agreed to suspend
the time periods for the filing of the replying
affidavit, in order
to discuss the settlement of the matter. It was agreed that such
suspension would operate until the 30th of
October 2013.
[16] The settlement
discussions were unsuccessful. As a result, Maleth took the decision
to exercise the ‘step-in’ rights
it held pursuant to the
Deeds of Cession. In terms of the Deeds, Maleth was entitled, in the
event of a default or breach of the
Mezzanine Loan to exercise voting
rights in Scarab as if it were the sole shareholder.
[17] The Applicant
relied on various breaches and events of default in terms of the
Mezzanine Loan in order to exercise its step-in
rights, inter alia:
17.1. Repayment of
the loan was late,
17.2. The Standard
Bank of South Africa Limited, as a creditor of Cemlock:
17.2.1. had applied
for the liquidation of Cemlock;
17.2.2. had
perfected its security in the form of general notarial bonds over the
properties of Cemlock;
17.2.3. had taken
cession of all of Cemlock’s book debts; and
17.2.4. had disposed
of all Cemlock’s assets.
[18] Maleth
submitted that these events constituted breaches and/or events of
default in terms of the Mezzanine Loan. As a result,
Maleth demanded
repayment of the indebtedness from the Scarab Group members and
subsequently applied for liquidation of various
of these companies,
including Cemlock. On Paget’s own version, Maleth will not be
able to recover any monies from Cemlock.
Maleth accordingly exercised
its “step-in” rights.
The urgent
application
[19] When Maleth
elected to exercise the step–in rights, the Scarab Group
launched an urgent application (“the urgent
application”)
in terms of which Paget, purportedly acting for and on behalf of the
Scarab Group companies, sought to interdict
Maleth from “continuing
in its unlawful conduct in regard to its attempts at undermining the
operation of the applicant companies”;
and other related
relief.
[20] In the urgent
application, Paget contended that the step-in rights could not be
exercised by Maleth because the Mezzanine Loan
was unenforceable, as
it was unconscionable or was concluded under undue influence. The
Scarab Group in the urgent application
did not dispute the
indebtedness under either the Mezzanine Loan or the Senior Loan
Agreements.
[21] Paget also
contended in the urgent application that the exchange control
approval for the Mezzanine Loan was not obtained by
Maleth and that
the numerous loan and security agreements constituted a scheme for
the purposes of exchange control avoidance.
[22] Ultimately,
Victor J dismissed the urgent application with a special order as to
costs, directing that Paget, as the true applicant
in the urgent
application, was liable jointly and severally (with the remaining
applicants) for costs of the application on the
attorney and own
client scale. Paget has filed an application for leave to appeal
Victor J’s judgment.
[23] Paget contends
that the noting of the appeal in the urgent application automatically
invalidates the findings of the Court
in the urgent application and
that Maleth cannot rely on the principle of res juridicata. Maleth
submits however that, in the present
instance, the dismissal of the
urgent application is not suspended pending the appeal, because there
is nothing that was to operate
or upon which execution was to be
levied. The findings and order of the Court in the urgent application
stand (pending those findings
being overturned on appeal). See
Dengetenge Holdings (Pty) Ltd v Southern Sphere Mining and
Development Company Ltd and Others
[2013] 2 All SA 251
(SCA), where,
at [17], Ponnan JA quoted the following dicta by Froneman J from
Bezuidenhout v Patensie Sitrus Beherend BPK
2001 (2) SA 224
(E) at
229 B-C:-
'An order of a court
of law stands until set aside by a court of competent jurisdiction.
Until that is done the court order must
be obeyed even if it may be
wrong (Culverwell v Beira
1992 (4) SA 490
(W) at 494A-C). A person
may even be barred from approaching the court until he or she has
obeyed an order of court that has not
been properly set aside.”
[24] Even if this
Court does not accept that the issue of the enforceability of the
Mezzanine Loan is res judicata, Victor J had
to have found that an
indebtedness on the part of the Scarab Group members towards Maleth
existed in order to determine the issue
in the urgent application.
There would be no other basis upon which Maleth could have exercised
its step-in rights. This finding
stands unless the judgment is set
aside on appeal. As will appear below, even if Victor J’s
judgment is ignored there is
sufficient in the papers before me, for
this court to make a finding on the issues relevant to the relief
claimed.
The Replying
Affidavit and Subsequent Affidavits
[25] When the
settlement negotiations failed, Maleth filed a replying affidavit in
the present application. Maleth set out the details
concerning the
urgent application and its outcome. It is common cause that both
applications concern the enforceability of the
Mezzanine Loan.
Maleth, in response to Paget’s reference to English law, filed
a comprehensive opinion of Doctor QC, a barrister
practicing at the
bar of England and Wales.
[26] Paget filed a
supplementary affidavit on 28 February 2014 alleging that new matter
was raised by Maleth in reply. The issue
of the urgent application,
having interposed itself, obviously had to be placed before the
court. Maleth filed a response to Paget’s
supplementary
affidavit on 4 April 2014. Paget also launched the interlocutory
application seeking that the matter be referred
to trial on 4 April
2014. The answering and replying affidavits have been filed in the
interlocutory application. Paget’s
supplementary Answering
Affidavit in the present application dealt with the “new
matter”. He referred, in the main,
to the fact that the expert
evidence of Doctor QC constituted new matter. Despite filing that
affidavit, and further affidavits
in the interlocutory application,
he has still not filed any expert evidence to counter that of Doctor
QC.
[27] I have
considered and taken account of all the affidavits filed in this
matter and will therefore not deal with the applications
to strike
out.
Defences relied upon
by Paget at the hearing Undue influence and duress
The Application
of English law
[28] This defence,
in relation to the Mezzanine Loan, is that same is unconscionable and
therefore unenforceable. There appears
to be no factual or legal
basis for the allegations of undue influence and duress. Paget relies
on the tenets of English law in
this regard, as he did in the urgent
application. He offers no factual support or expert evidence for such
claims.
[29] It is trite
that:
“The content
and effect of a foreign law is a question of fact and must be proved…
Proof is usually furnished by way
of evidence of properly qualified
persons who have an expert knowledge of the law in question.”
See Standard Bank of South
Africa Limited and Another v Ocean
Commodities Inc. and Others
1983 (1) SA 276
(A) at 294.
[30] It is also
trite that the party who relies on the provisions of foreign law
bears the onus to prove what the position is under
that foreign law:
“…as a consequence of the ‘fact doctrine’ a
party pleading foreign law will bear the
onus of proving its content
and also that the content is different from that of the lex fori”.
See Burchell v Anglin
2010 (3) SA 48
at 57.
[31] Paget simply
makes the statement that the agreements relied on by Maleth fall foul
of English law.
[32] Paget concedes
that “English law must be established by way of expert
evidence”. He however states that the establishment
of such
facts can only be undertaken in a trial, as opposed to application
proceedings. He has not adduced any expert evidence
regarding the
provisions of English law. Had he done so, and had such opinion
contradicted that of Doctor QC, there might have
been reason to refer
that issue to evidence.
The Factual
Scenario relating to unconscionability, undue influence and/or duress
[33] Paget signed
the Mezzanine Loan (and the documents related thereto) and then
proceeded to enter into numerous subsequent agreements
(all of which
are related to and refer to the Mezzanine Loan). He never raised the
issue that the agreement was unconscionable
or entered into under
undue influence or duress, and never sought to set aside the
Mezzanine Loan.
[34] Paget refers to
clauses 18.3 and 21.8 of the Mezzanine Loan Agreement. He asks the
Court to conclude that these two clauses
render the entire agreement
an unconscionable bargain. He offers no factual or legal basis as to
why the clauses are offensive.
[35] In relation to
the contention that the Mezzanine Agreement constitutes an
unconscionable bargain, Doctor QC opines that:
35.1. the English
courts would be hesitant to undermine the principles of freedom of
contract and that “[I]t must be a rare
case where a party to a
contract involving the loan of very large sums of money can escape
its contractual obligations outside
of some specific statutory right
to do so”;
35.2. the doctrine
of equitable relief for unconscionable bargains, if it applies at
all, applies in circumstances where the entire
contract is so
oppressive that its terms “shock the conscience of the court”.
He cites authorities which consider it
doubtful whether the doctrine
would be applied in English law to a single harsh term, unless the
contract was oppressive in its
entirety;
35.3. The scope of
the English law doctrine of unconscionable agreements is limited is
limited in three ways:
35.3.1. the
agreement must be oppressive to the complainant in overall terms;
35.3.2. it only
applies where the complainant was suffering from certain types of
bargaining weakness; and
35.3.3. the other
party must have acted unconscionably in the sense of having knowingly
taken advantage of the complainant.
35.4. With reference
to those clauses of the Mezzanine Loan specifically referred to by
Paget, as examples of an ‘unconscionable
bargain’, Doctor
QC states:
35.4.1. clause 18.3
of the Mezzanine Loan Agreement requires Scarab to “prepay the
loan immediately should there be any change
in any applicable law or
regulation”. On proper interpretation, clause 18.3 is nothing
more than a force majeure clause,
which cannot give rise to the
conclusion that the bargain is unconscionable. Paget has failed to
provide any facts from which it
can be inferred that at the time of
the conclusion of the Mezzanine Loan Agreement, Scarab was in some
position of disadvantage
of which Maleth took advantage. Doctor
accordingly concludes that this argument would be dismissed by an
English court.
35.4.2. In relation
to clause 21.8 of the Mezzanine Loan Agreement, which provides that
any certificate issued by Maleth of the
rate or amount due under the
loan “shall be conclusive evidence of such amounts, in the
absence of a manifest error”:
35.4.2.1. the clause
recognizes that any evidence offered in terms of the certificate
would be subject to attack in the event of
error or fraud;
35.4.2.2. the
purpose of the clause is to obviate the need for calling a witness to
testify as to how the amount of indebtedness
was calculated;
35.4.2.3. there is
no factual averment supporting the conclusion that the clause
prejudices the borrower (Scarab) or that it resulted
in advantage
being taken of Scarab as borrower;
35.4.2.4. the
borrower would in any event be free to lead evidence to counter the
effect of the certificate.
35.4.3. Doctor
concludes that neither clause 18.3 nor clause 21.8 would satisfy the
requirements of being an ‘unconscionable
bargain’ for the
purposes of English law. Even if the clauses did satisfy the
requirements, they would be severed from the
operation of the
Mezzanine Loan, as opposed to invalidating the entire contract, as
suggested by Paget.
35.5. Doctor QC
concludes that the clauses are typical commercial clauses which,
without more, do not render either the clauses
or the Mezzanine Loan
as a whole, an unconscionable bargain.
[36] In relation to
the defence of duress:-
36.1. Paget suggests
that, having to sign Supplement 1 and furnish a promissory note in
respect of an existing agreement, amounts
to duress and renders the
original Mezzanine Loan unenforceable.
36.2. Maleth
responds that Supplement 1 (and the Promissory Note) encompassed an
amendment to the Mezzanine Loan. The amendment
was concluded at the
request of Scarab and Paget and other members of the Scarab Group.
36.3. The purpose of
the Supplement/amendment was for Maleth to make payment, on behalf of
Scarab, out of the advance of the first
draw down, in terms of the
Mezzanine Loan, of the amount of R23 075 202.59 to Pretoria Portland
Cement.
36.4. In
consideration of the undertaking by Maleth to make that payment to
Pretoria Portland Cement Company, Scarab together with
all the other
borrowers and sureties (including, Paget) agreed to provide the
Promissory Notes to Maleth.
36.5. The factual
scenario flies in the face of Paget’s claim that he/Scarab was
unduly influenced and/or signed the promissory
note under duress.
36.6. Paget does
also not explain why even if such defence would apply to the
Promissory Note, the Mezzanine Loan should be set
aside as
unenforceable.
[37] Doctor QC is of
the opinion that the basis of duress in English law is not the
absence of consent, but the combination of pressure
and absence of a
practical choice. After a thorough analysis of English law on the
question of duress in relation to the conclusion
of commercial
agreements, Doctor QC concludes that:
“In the
present case, Mr Paget does not suggest even one fact as to the
alleged threat or pressure that was applied, in support
of the
assertion that duress took place… An English court would pay
no attention to a bald allegation of duress which does
not suggest
the factual basis on which it is put forward…Even if the court
were to conclude that the Supplement Agreement
is avoidable as having
been entered into under duress, that would not affect the Mezzanine
Facility Agreement itself. Furthermore,
it is clear that the effect
of “duress” is that a contract is voidable, not void. If
a person has entered into a contract
under duress he must either
affirm or avoid it after such duress ceased, and if he has
voluntarily acted with full knowledge of
the duress, he will be taken
to have affirmed it. There is no allegation by Mr Paget that the
borrower has avoided the Mezzanine
Facility Agreement…”
[38] Doctor QC
further observes that the power to unduly influence the borrower is
not assumed in a commercial lender–borrower
relationship
Accordingly, Doctor concludes that:
“…Given
that there is no pre-existing relationship of trust and confidence
between a commercial lender and a commercial
business borrower, facts
would have to be alleged as to how the borrower came to be in a
relationship of trust and confidence with
Maleth. There is nothing
in Mr Paget’s affidavit to suggest why such relationship should
have existed…
It is almost
impossible to conceive of how such a doctrine could have any
relevance to the present case as alleged by Mr Paget.
The absence of
even a single factual allegation does not make the task any easier.
It would obviously be nonsensical for [Paget]
to suggest that the
borrower (Scarab) agreed to become the beneficiary of a very large
facility agreement and gain the right to
drawdown large sums of money
for use in its business as a result of undue influence by the
lender”.
[39] On the basis of
the above, it is clear that Paget has failed to prove that the
Mezzanine Agreement and/or the Promissory note
is unenforceable
because of unconscionability/ undue influence and/or duress.
Non fulfilment of
conditions precedent in the Senior Loan Agreements
[40] Paget suggests
that the Senior Loan Agreements are not enforceable owing to
non–fulfilment of the conditions precedent
relating to Exchange
Control Approval.
[41] It is noted
that in the urgent application, Paget contended that the exchange
control approval was necessary for the fulfilment
of conditions
precedent in relation to the Mezzanine Loan, not the Senior Loan
agreements.
[42] Maleth submits
that the three agreements comprising the Senior Loan agreements,
although related, are separate, independent
agreements. Each of these
agreements gives rise to different obligations.
[43] Cemlock became
liable, on signature of the Senior Loan Term Sheet (the Senior Loan),
to pay a commitment fee equal to 1.5%
of the Loan amount, by way of
an advance from Maleth to Cemlock in terms of the Mezzanine loan
(emphasis added).
[44] The Senior Loan
specified that draw down of the Loan would be subject to certain
conditions precedent being fulfilled. Maleth
was under no obligation
to advance the loan (of up to R95 000 000.00) prior to the conditions
precedent being fulfilled. However,
the commitment fee was payable on
signature of the Senior Loan, as a draw down in terms of the
Mezzanine Loan, which agreement
was already in place. This was
unrelated to the fulfilment of the conditions precedent.
[45] As regards the
Senior Facility, the conditions precedent are set out in clause 3.3
with reference to clause 11 of that agreement.
In terms of clause
3.3: “the Lender shall not be obliged to disburse the proceeds
of the Advance until the Lender is satisfied…”.
The
clause sets out what should occur before the obligation to disburse
the loan becomes effective. When the conditions set out
in clause 11
have been met, the loan will be disbursed. However, Clause 11.2
provides that Maleth can make advances even if the
conditions
precedent are not fulfilled. Accordingly, the validity of the Senior
Facility as a whole cannot be dependent on the
fulfilment of those
conditions.
[46] The defence
relating to the non-fulfilment of the conditions precedent is, in
fact, academic as it is common cause that the
Senior Loan Agreements
were cancelled at Paget’s request, on behalf of Cemlock as the
borrower. If the Senior Loan Agreements
were ineffective owing to the
non–fulfilment of conditions precedent, as now stated by Paget,
there would have been no agreement
to cancel.
[47] Maleth’s
claim in respect of the Senior Loan is limited to the commitment fee
and break-up fee stipulated in that agreement.
These fees are
unrelated to the fulfilment of the conditions precedent. This is
evident from what is set out above (in relation
to the commitment
fee) and from clause 3 of the Senior Letter concluded in terms of the
Senior Loan which provides:-
“If, for any
reason, before or after the Settlement Date, the Borrower or any of
the Obligors…withdraw from the refinancing
transaction set out
in the Senior Loan Agreement, then…Scarab shall be required to
pay, immediately upon receipt of the
termination notice from the
Lender to the Borrower and Scarab, a Break-up Fee equal to twenty
(20) percent of the Rand Currency
Equivalent of US$13,000,000.00.”
[48] In the
circumstances, Paget’s disputes regarding the non–fulfilment
of conditions precedent of the Senior Loan
Agreements are not
supported by the language of the agreements. The commitment fee was
payable upfront, and the break-up fee was
payable on termination.
Save for that, the conditions precedent are not relevant to the
dispute by virtue of the cancellation of
the agreements.
Paget’s
various changes of stance over the course of the litigation
[49] The present
application was launched in September 2013. The application was not
pursued during the month of October 2013 and
subsequently whilst the
urgent application was proceeding.
[50] In the Founding
Affidavit of the Urgent Application, Paget stated that:
50.1. The Mezzanine
Loan was signed by a person who was not properly authorized and in
fact signed the agreement “as part
and parcel of [Maleth’s]
elaborate scheme to circumvent the exchange control regulations”;
50.2. The only
security documents which were executed between the parties were the
cession and pledge agreements entered into between
(i) Scarab and
Maleth and (ii) Derry and Maleth. No suretyship agreements were
signed. Paget went as far as to state that if such
documents were
produced it would be an indication of fraudulent conduct on Maleth’s
behalf.
50.3. All the
agreements were challenged on the basis that they constituted a
scheme for exchange control avoidance.
50.4. An expert
would be called upon ‘in due course’ to testify in
relation to the English law concerning the enforceability
of the
Mezzanine Loan; and
50.5. The Mezzanine
Loan contravenes various exchange control regulations.
[51] Paget’s
contentions in relation to the alleged unauthorized signature of the
Mezzanine Loan are not raised in the answering
affidavit in the
present application. This defence was also not pursued at the
hearing. It was only in the urgent application (after
the answering
affidavit in the present application was filed) that the allegation
about the Mezzanine Loan not being executed by
a duly authorized
representative was raised. Similarly, it was also only in the urgent
application that there is the allegation
that all the agreements
constituted a scheme for Exchange Control Avoidance. Neither of these
defences were raised in Paget’s
answering affidavit in the
present application.
[52] Maleth
demonstrated, in the urgent application, that numerous security
documents, including the suretyships provided by Paget
personally,
were properly executed. The allegations of fraud are noted and, in my
view, have been disproved and warrant a punitive
costs order. Maleth
contends that Paget deliberately misled the court hearing the urgent
application;
[53] In relation to
the exchange control defence, Maleth contended that the necessary
exchange control approval in respect of the
Mezzanine loan was indeed
obtained as required. Exchange control approval was required for the
purposes of transferring funds from
Maleth’s offshore
shareholder to Maleth. This was in order to advance the loan to the
members of the Scarab Group. Evidence
of the exchange control
approval of the offshore loan was produced and accepted by the Court
in the urgent application. Maleth
contended, and it was accepted by
that court, that the loan made by Maleth to the various members of
the Scarab Group of companies
was made on shore, and therefore did
not require any exchange control approval.
[54] It was argued
in the present hearing on Paget’s behalf, that Maleth is not
resident in the Republic of South Africa and
therefore exchange
control approval is required for Maleth to repatriate the amounts
(paid by Paget) to Maleth’s holding
company in Malta.
[55] Paget contended
that Maleth is a “non-resident” in terms of the Exchange
Control Manual as issued by the Financial
Surveillance Department of
the South African Reserve Bank (“SARB”), which defines a
non-resident as follows:-
“For the
purposes of the application of securities control, a non-resident is
defined as a person (i.e. a natural person or
legal entity) whose
normal place of residence, domicile or registration is outside the
CMA.”
[56] Section 3(1) of
the Exchange Control Regulations (“the Regulations”)
provides for certain procedures to be followed
and permission to be
granted in relation to, inter alia, payments to a person resident
outside of the RSA.
[57] Paget submits
that in order to comply fully with section 3(1)(c) Maleth would have
been obliged to disclose how the remittance
of monies to its holding
company would occur. In order to do so it would require a normal
bank account in compliance with the
provisions of the
Financial
Intelligence Centre Act, 38 of 2001
, which details should have formed
part of the Exchange Control application.
[58] Maleth contends
that this defence is a “red herring”. Maleth is
registered in South Africa and has a registered
office in South
Africa. The fact that it conducts business in Malta does not affect
its status as a resident company.
[59] The gist of
Paget’s argument is that because Paget has not been informed of
the way in which the repatriation of the
funds from Maleth to its
shareholder will occur, he is entitled to assume that it contravenes
the Exchange Control Regulations
and therefore he should be excused
from performance in terms of the surety agreements. Maleth submits
that this argument and Paget’s
reliance on the judgment in
Oilwell (Pty) Ltd v Protec International Ltd and Others 2011 (SA) 394
SCA are misplaced.
59.1. The Oilwell
judgment held that a debtor cannot hide behind the allegation of non
– compliance with exchange control
provisions:
“[17] Reliance
on the Regulations in order to escape contractual obligations is not
something new. However, as Steyn CJ said
nearly 50 years ago, the
Regulations are there in the public interest and not to provide "an
unwilling debtor with a ready
instrument for evading liability"
or "to grant a selective moratorium to a particular class of
defaulting debtors".
59.2. In addition,
Maleth relies upon the judgment in Barclays National Bank v Thompson
1985 (3) SA 778.
The court considered whether the approval by the
Treasury of the payment sought by a peregrinus plaintiff from an
incola defendant
was an essential part of the plaintiff’s cause
of action. The defendant also contended that, if the approval of the
Treasury
to ‘export’ the payment from the plaintiff is
not obtained, it would be pointless for the Court to make a judgment
which may prove to be ineffective. The Court dismissed both
‘defences’ raised by the incola defendant.
[60] In the present
instance, Paget suggests that the failure to obtain exchange control
approval renders the suretyship agreements
unenforceable. In Barclays
National Bank (supra), the SCA (quoting with approval from A C Beck’s
article in the South African
Law Journal, 1982 (volume 99), at 797
held:-
“…provided
that the defendant is resident within the area of the court’s
jurisdiction (or some other basis exists
for the exercise of
jurisdiction) the court will be able to grant an ‘effective’
judgment against the defendant and,
if necessary, order execution
against his property. The purely economic requirement of exchange
control, it is submitted, in no
way fetters the court’s
jurisdiction or power. The plaintiff is entitled to his judgment, and
Treasury permission is a hurdle
which can be jumped when it is
reached…To conclude: the courts would do better to avoid
concerning themselves with the effects
of Treasury being granted or
withheld. It is not really within the province of the courts to try
to weave around the requirement,
and in their attempts to do so a
great deal of unnecessary hardship has been caused to plaintiffs at
the expense of defaulting
debtors, which was certainly not intended
by the legislature, whose purpose is achieved whenever the permission
is given, if at
all. Treasury permission has no bearing on the
jurisdiction of a court and, in fact, does not even constitute
defence to the action
- it is merely a limitation on payment, which
can be removed by the Treasury at any time, and there is no reason
why the plaintiff
should have to wait for this before obtaining a
judgment.”
Conclusion
[61] Paget
originally admitted the indebtedness of the Scarab Group (in
correspondence of 4 August 2013) and a month thereafter
denied
liability for such indebtedness in correspondence of 4 September
2013. No reasons for this volte farce were provided. In
the
affidavits in both the present and the urgent applications, the
indebtedness is not challenged. Paget also fails to deal with
the
fact that the Scarab Group has benefitted from numerous advances in
terms of the Mezzanine Loan. The Scarab Group has already
acted in
terms of that agreement by making payments to Maleth.
[62] Paget stated in
his affidavit in the urgent application, that evidence would be led,
in the present application, regarding
the English law and the
unenforceability of the Mezzanine Loan. He has not adduced any such
evidence in the present application
and Doctor QC’s testimony
in this regard remains unchallenged.
[63] For the reasons
set out earlier in this judgment, the arguments against the
enforceability of the Mezzanine Loan are both legally
and factually
untenable.
[64] So too, for the
reasons set out earlier, are the defences relating to the failure to
obtain exchange control approval without
merit.
[65] Various other
defences were set out in the supplementary Answering Affidavit (that
there was non-compliance with certain sections
of the
Companies Act
of 2008
and non-compliance with the Double Taxation agreement). These
were not pursued in argument.
[66] Corbett JA’s
dictum in Plascon-Evans Paints (TVL) Ltd v Van Riebeck Paints (Pty)
Ltd
1984 (3) SA 620
is relevant to the defences raised by Paget in
the present application:-
“It is correct
that, where in proceedings on notice of motion disputes of fact have
arisen on the affidavits, a final order,
whether it be an interdict
or some other form of relief, may be granted if those facts averred
in the applicant’s affidavits
which have been admitted by the
respondent, together with the facts alleged by the respondent,
justify such an order. The power
of the court to give such final
relief on the papers before it is, however, not confined to such a
situation. In certain instances
the denial by respondent of a fact
alleged by the applicant may not be such as to raise a real, genuine
or bona fide dispute of
fact.” [emphasis added]
This approach was
applied by Cameron JA in Fakie NO v CCII Systems (Pty) Ltd
[2006] ZASCA 52
;
2006 (4)
SA 326
(SCA).
[67] In my view,
Maleth has proved that Paget is indebted to it as claimed. None of
the defences raised can be considered as bona
fide disputes, which
would persuade this court to refer this matter to trial.
Costs
[68] The defences
raised by Maleth are not only legally untenable, but, in certain
instances, the implication is that Maleth acted
fraudulently and
dishonestly. These allegations were made in relation to:-
68.1. the denial
that any suretyships were signed;
68.2. the failure by
Maleth to obtain exchange control approval;
68.3. Maleth’s
contravention of the Exchange Control and Tax Regulations;
68.4. the defence
that the agreements constituted a scheme for Exchange Control
avoidance.
[69] For these
reasons, I am of the view that a punitive costs order is warranted.
Accordingly, the
following order is made:
1. The Respondent is
to pay the Applicant:-
1.1. The sum of R119
054 822.96; and
1.2. Interest in the
amount in 1.1. above calculated at a rate of 2.5% per month to be
compounded monthly, or at the end of such
other period as may be
determined from time to time by the Applicant, from 10 August 2013
until the amount in 1.1. is paid in full;
1.3. Costs of suit
on the attorney and client scale.
2. The Respondent’s
interlocutory application is dismissed with costs.
WEINER J
Counsel for the
Plaintiff: Adv Fine SC with Adv. Milovanovic
Applicant’s
Attorneys: Bowman Gilfillan
Counsel for the
Defendant: Adv Theron
Defendant’s
Attorneys: Hogan Lovells
Date of Hearing:
22 April 2014
Date of Judgment:
2 May 2014