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[2015] ZAGPJHC 244
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Arctocel (Pty) Limited v Firstrand Bank Limited (32633/2015) [2015] ZAGPJHC 244 (21 October 2015)
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REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT OF
SOUTH AFRICA
GAUTENG LOCAL DIVISION,
JOHANNESBURG
CASE NO: 32633/2015
DATE: 21 OCTOBER 2015
In the matter between:
ARCTOCEL (PTY)
LIMITED
................................................................................................
Applicant
And
FIRSTRAND BANK
LIMITED
...........................................................................................
Respondent
J U D G M E N T
MAKUME, J:
[1] In this application which served
before me in the Urgent Court on Tuesday the 29th September 2015 the
Applicant seeks an order
interdicting the Respondent from placing any
suspension, freeze or hold on the Applicant’s bank account.
[2] The Applicant trades inter alia in
scrap metal locally and internationally. Locally it brokers the
purchase and sale of scrap
metal and its international business is
the export of scrap metal, aluminium and chrome. It also exports
manganese and imports
rice into the country.
[3] The export business is conducted
through its two bank accounts which it holds at the Respondent’s
bank being current account
number [62……..] and the CFC
(Dollar) account bearing account number [0………..].
[4] On or about the 3rd September 2015
the Respondent suspended and froze the two accounts resulting in the
Applicant not being
able to access the funds deposited therein.
[5] The Applicant says that the freeze
or the suspension of the two accounts was done unlawfully and without
notice to it. The Respondent
says that the Applicant was informed
prior to the freeze or suspension and says that the Respondent is
entitled to do so as a result
of the Applicant’s indebtedness
to it in the sum of R83 million.
[6] The Applicant disputes it
indebtedness to the Respondent and has instead instituted action in
this Court under case number 31408/15
in which action the Applicant
claims payment from the Respondent of the amount of some R59 million
based on misrepresentation.
[7] In the particulars of claim to that
action the Applicant refers to two cessions it signed in favour of
the Respondent the two
deeds of cession concluded during July and
August 2014 are to the following effect:
“(i) The cession and pledge in
the amount of R5 000 000,00 in favour of the Respondent by the
Plaintiff of any and all its
rights in and to its call/special/fixed
deposit held at the Defendant in account number [62………]
and any account
or any subsequent/renewed account number to be
allocated to the deposit, as well as noting of the Defendant’s
interest.
(ii) The unlimited cession and pledge
in favour of the Defendant by the Plaintiff if any and all of its
rights in and to its call/special/fixed
deposit held at the Defendant
in account number [62………..] and any account or
any subsequent renewed account
number to be allocated to the deposit
as well as noting of the Defendant’s interest.”
[8] The question before me in this
matter is whether the Respondent may freeze or put a hold on the bank
account of the Applicant.
The Applicant argues that the Respondent
should not be permitted to do so as this amounts to self-help and is
an infringement
of the constitutional right to its property.
[9] The Respondent argues that the
Applicant concluded an unlimited cession in its favour which cession
and pledge permits the Respondent
to inter alia hold monies in the
Applicant’s accounts including monies still to be deposited
therein as security for payment
of amounts owing to it by the
Applicant.
[10] It is common cause that the two
deeds of cession were executed pursuant to the granting of credit
facilities by the Respondent
to the Applicant. Part of the
facilities related to hedging transactions whereby the Applicant
purchased cover against particular
currency fluctuations. In July
2014 the Respondent had granted the Applicant a R40 million
short-term pre-settlement facility
in respect of derivative Forward
Exchange Contracts (“FEC”).
[11] On the 23rd June 2015 the
Respondent addressed a letter to the Applicant wherein it recorded
discussions that had taken place
the previous day between their
respective representatives. In the letter the Respondent says the
following:
“As discussed the bank has a
number of concerns with this facility which were discussed at length
in the meeting and as such
we require our facilities to be repaid.
Our aim is settlement and we would like
all facilities repaid within 30 days and all derivative trades moved
to an alternative financial
institution or cash collateralised within
the same period for run down thereafter.”
[12] Further meetings and
correspondence was exchanged all aimed towards Applicant exiting its
arrangement with the Respondent in
an orderly manner. The 30 days
afforded the Applicant in the letter referred to above was extended
further to accommodate the Applicant
to novate its derivates to
another financial institution and settle its indebtedness to the
Respondent.
[13] The Applicant did not act in
accordance with the discussions held between its representatives and
that of the Respondent.
Instead on the 20th and the 21st August 2015
Applicant withdrew US $600 000 and US $1 million from the bank
account held with the
Respondent leaving only a balance of US $20
000.
[14] It was these withdrawals that
prompted the Respondent to address a formal latter of breach of the
facility agreement to the
Applicant. In a letter dated the 26th
August 2015 the Respondent called upon the Applicant to rectify the
fact that it was R18,7
million over its R40 million facility. This
letter was followed by another one similar to that of the 26th August
2015 which is
dated the 3rd September 2015 which reads in part as
follows:
“Our letter dated 26 August
requesting rectification of the breaches. These breaches have not
been rectified nor have we received
the information requested within
the 5 (five) days granted to you.
Accordingly we are entitled to exercise
our right of closing out all un-matured contracts which we have with
you netting as applicable,
claiming immediate payment of the amount
due and exercising our right of set-off of accounts. As an interim
step we have frozen
your accounts with us and hereby exercise our
right under the above security documents in that all credit balances
held with ourselves
will be frozen until breaches of facilities are
rectified or facilities are replaced or novated by another financial
institution
or information is provided to ourselves that allows us to
review facilities.”
[15] The Applicant did not bother to
respond to that letter it instead issued summons against the
Respondent which I have referred
to earlier on. It is in the
particulars of claim that for the first time the Applicant says that
the two deeds of cession as well
as the facility agreement it
concluded with the Respondent are null and void and of no force and
effect.
[16] In the founding affidavit the
Applicant contends that it was induced into entering into the credit
facility. In a letter by
its attorneys dated the 6th September 2015
addressed to the Applicant’s attorneys the Applicant says the
following:
“In so far as you allude to the
cession agreement as a basis for withholding amounts received into
our client’s current
USD account you will appreciate that the
cession agreement is premised upon a debt being due to your client
and is an ancillary
agreement linked to the facility agreement. As
such if the facility agreement falls away so too must the cession
agreement. In
the circumstances the cession agreement cannot be
relied upon to appropriate funds to your clients arising from a
disputed facility
and FEC agreement.
In any event in so far as your client
relies on the cession agreement for withholding funds in the current
and USD (CFC) account
they are separate accounts not subject to the
cession agreement in respect of account number [62………]
referred
to in the facility letter attached to the summons.”
[17] My understanding when reading the
last letter is that the Applicant does not place in dispute that
cession agreements were
entered into which are linked to the credit
facility. In the founding affidavit at paragraph 6.12 the Applicant
says that the credit
facility agreement and the utilisation of the
facility was made subject to a suspensive condition being that a
limited and an unlimited
deed of cession and pledge be provided to
the Respondent and that such cessions were not provided accordingly
so the Applicant
argues the credit facility agreements lapsed and are
of no force and effect.
[18] Having said what it said in the
founding affidavit the Applicant when told in the answering affidavit
that in fact the deed
of cession was executed on the 23rd April 2014
and a copy attached to the answering affidavit marked “ADS2”
a strange
and rather disingenuous response was made in the following
words by the Applicant’s director:
“We do not recall signing the
cession ‘ADS2’ and did not have a copy thereof until the
answering affidavit was
delivered. A copy was never given to us.”
[19] The deed of cession “ADS2”
is critical and plays a major role in this matter and yet the
Applicant wants this Court
to believe that it never had it in its
possession. If that is the case why was it mentioned in the founding
affidavit?
[20] In the replying affidavit the
Applicant attacks the right of Mr Stuart to have deposed to the
answering affidavit on the basis
that all that he says is hearsay and
that he does not reveal the source of his information. I find that
argument untenable. Mr
Stuart is the in-house Legal Counsel in one of
the divisions of the Respondent. He says upfront that what he has
deposed to is
within his personal knowledge. Besides this he openly
says that in certain instances what he has deposed to is what has
been told
to him by other persons. He continues to name the sources
of this information and attaches confirmatory affidavits by such
persons.
I find nothing wrong with what Mr Stuart has said. This
argument by the Applicant is not only technical but is frivolous and
has
no merit. It has not been proved that what Mr Stuart said is a
lie. He has in fact stated what is common cause to a large extent.
[21] The Applicant argues that what the
Respondent has done is self-help and has referred this Court to the
Constitutional Court
case of Chief Lesapo v North West Agricultural
Bank and Another
2001 (1) SA 409
(CC). In that matter the
Constitutional Court was asked to decide on the constitutionality of
section 38(2) of the North West
Agricultural Bank Act No 14 of 1981
(“the Act”). The facts briefly were that the Applicant
Chief Lesapo who is a farmer
had borrowed R60 000,00 from the
Respondent bank to enable him to buy certain farming implements. The
loan was made in terms of
a written agreement pursuant to the
provisions of the Act. When he fell into arrears with his payments
the bank acting in terms
of section 38(2) of the Act gave him notice
to make good his arrears. He failed to make payment despite the
notice whereupon the
bank wrote a letter to the messenger of the
court authorising him to seize and sell by auction movable property
which the Applicant
had pledged as security for the loan.
[22] The Constitutional Court in
upholding the decision of the High Court in declaring the provisions
of section 38(2) of the Act
unconstitutional said the following at
page 417 paragraph [19]:
“As discussed above the ordinary
way of securing execution in settlement of debts due is through the
court process and the
seizure of property against the will of a
debtor in possession of such property for that purpose without an
order of court amounts
to self-help. This is an infringement of
section 34. It would be unacceptable to construe section 34 in such
a way that it permitted
self-help which infringed a person’s
property rights provided that such self-help was carried out in such
a way that it precluded
a dispute from being raised by the debtor.
This would in fact be an a fortiori case where the section ought to
operate in protection
of the rule of law underlying its provisions.”
[23] The underlying principle decided
in Lesapo’s case is understandable and is correct however not
only are the facts in
that case distinguishable but also the
principle in the present application involves an agreement of cession
not a statutory provision
as in Lesapo’s case.
[24] In LAWSA Volume 3 cession is
defined as a bilateral juristic act whereby a right is transferred by
mere agreement between the
transferor termed a cedent and the
transferee termed a cessionary.
[25] The Applicant in executing the
unlimited cession immediately transferred the personal right it had
over its funds held in the
bank account identified in the deed of
cession to the Respondent. In the Lesapo matter the pledged article
remained in the possession
of the debtor and was seized without a
court order which act is rightly described as self-help and thus
unconstitutional.
[26] The Applicant argues further that
the Respondent in freezing the Applicant’s account is applying
set-off under circumstances
where it could not because there is a
dispute about the debt which accordingly is not liquid. In support
of this argument counsel
for the Applicant referred me to the
decision in Ackerman Ltd v Commissioner SARS
2011 (1) SA 1
(SCA). In
that matter the seller Ackerman Ltd sought a deduction from SARS in
terms of section 11(a) of the Income Tax Act of
an amount comprising
contingent liabilities which formed part of the purchase price to the
purchaser Pepkor. The Appeal Court in
dismissing the appeal said the
following at page 7 paragraph C:
“It is trite that set-off comes
into operation when two parties are mutually indebted to each other
and both debts are liquidated
and fully due.”
[28] The Applicant further referred
this Court to the decision of Maharaj v Sanlam Life Insurance Ltd and
Another
2011 (6) SA 17
(KZD). In that matter Sanlam succeeded in its
claim to set-off what was due to the cessionary on payment of the
proceeds of a policy.
The set-off amount was in respect of money due
by the cedent to Sanlam.
[29] The two cases are in support of
the Applicant’s contention that set-off can only take place or
is permissible where the
debts sought to be set-off are liquidated.
Applicant contends that the Respondent’s claim of R83 million
is unliquidated
on the basis as set out in their action under case
number 31408/15. In my view this submission is without merit. The
amount due
to the Respondent needs no adjudication. It was spelled
out in the letter of demand and the amounts in the Applicant’s
account
are known and identified.
[30] The Respondent argues and
correctly so that the mere fact that the Applicant has been deprived
of access to funds is no different
to the position of any debtor who
cedes or pledges an asset as security for a debt. There is in this
case no need for the Respondent
to perfect is security prior to
executing it for the security is already in its possession. This is
different from a notarial bond
which first requires to be perfected
to enable the creditor to take possession. In the present case the
pledged security is already
in the possession of the Respondent.
[31] In its answering affidavit and in
the heads of argument the Respondent says that it will hold no more
than the amount due being
R83 million in trust and not appropriate it
until the action instituted by the Applicant shall have been
finalised. The Respondent
says and correctly so that if this
application is granted the Applicant will continue to deplete the
funds therein as it had already
commenced and this will result in the
disappearance of the Respondent’s security.
[32] In the matter of Bock and Others v
Duburoro Investments (Pty) Ltd
2004 (2) SA 242
(SCA) the court in
dealing with the meaning of a pledge document which read as follows:
“Immediately or at any time
thereafter irrevocably and in rem suam or at its discretion to
realise the securities or to take
over the securities at the bank’s
election at a fair value.”
identified three legal principles or
concepts at play therein and described them as follows:
(a) The right to dispose of a pledged
article without the intervention of a court order, commonly known as
parate execute;
(b) The contractual right of taking
over a pledged article by the creditor, a pactum commissorium;
(c) The quasi conditional sale whereby
the creditor may upon default take over a pledge at a fair price.
[33] His Lordship Harms JA in the
Duburoro matter concluded as follows at page 248 paragraph [9]:
“An agreement whereby a creditor
may keep a pledge upon the debtor’s default at a fair price
then determined is similar
to a conditional sale. Such an agreement
is valid and in relation to the pledging of shares known since 1892
it does not differ
much in kind from a lex commissoria or forfeiture
clause which typically permits a creditor to keep what was received
from a debtor
in the event of the cancellation of an agreement.”
[34] Similarly in upholding the appeal
against a ruling by the trial court which had held that a deed of
cession clause was contra
bonos mores and constituted a classic
“parate execute” clause the Supreme Court of Appeal in
the matter of Bank of
Athens Ltd v Van Zyl
2005 (5) SA 93
(SCA) held
that parate execute has long been acceptable under the common law
provided that the terms of the agreement authorising
the procedure
are not unconscionable or incompatible with public policy (see Sasfin
(Pty) Ltd v Beukes
1989 (1) SA 1
(A) at 13J-14A).
[35] The Applicant concluded the
facility agreement as well as the cession fully conscious of the
risks therein particularly in
view of the volatile Rand/Dollar
exchange and to now come and ask this Court to find that the
Respondent by securing its financial
risks is acting unreasonable is
to say the least being disingenuous. It is trite law that given the
rule of interpretation that
promotes validity rather than invalidity
and the presumption that parties to a contract intended it to be
implemented in a lawful
manner the deeds of cession have to be
construed in a sense consistent with the common law having regard to
the commercial transactions
of this nature.
[36] The Applicant wants to have access
to the funds and has not furnished or tendered any security for its
indebtedness to the
Respondent. The principle governing the granting
of interim relief is that if serious doubt is shown in the facts or
case of the
applicant then the Applicant should not succeed.
[37] The Applicant has not been open to
the court by not disclosing the contents of the deeds of cession and
later simply disavowing
knowledge or of the existence of the deeds is
in my view central to the demise of the Applicant’s case.
[38] The Respondent by putting a hold
on the funds in Applicant’s bank account is not carrying out
any form of parate execute.
It is exercising its contractual right
and holding the funds “in securitatem debiti” and to the
extent that the Applicant
contends that the Respondent should not
exercise its right to security merely because the Applicant has at
the last moment decided
to raise a dispute as to its indebtedness
such contention is in my view misplaced.
[39] The Applicant’s standpoint
in challenging the validity of the facility and the cession agreement
is in my preliminary
view heading for stormy seas for as it was said
by Nugent AJA in the matter of De Beer v Keyser and Others
2002 (1)
SA 827
(SCA) at page 835:
“A court will be even more
reluctant to hold that a clause in an agreement is void for
uncertainty where the agreement is
no longer executory but has been
partly performed.”
At paragraph [16] on the same page the
judge expands on this concept as follows:
“The validity of an agreement
does not depend upon whether the obligations have been described with
such linguistic precision
that their ambit is ascertainable solely by
reference to the language in which they are couched. It suffices that
their ambit is
capable of being identified by recourse to admissible
extrinsic evidence.”
[40] The balance of convictions in this
application in my view is in favour of the Respondent. The Respondent
will suffer irreparable
harm if this application is granted for it is
most likely to lose the security it presently has on the other hand
the Applicant
has access to two other bank accounts through which it
has recently been conducting its business.
[41] Accordingly the Applicant has
failed to make a case and I remain unpersuaded that it is entitled to
the order as prayed and
I make the following order.
ORDER
[42]
42.1 The application is dismissed.
42.2 The Applicant is ordered to pay
the Respondent’s costs of this application which shall include
the costs of two counsel.
DATED at JOHANNESBURG on this the
day of OCTOBER 2015.
M A MAKUME
JUDGE OF THE HIGH COURT OF SOUTH
AFRICA
GAUTENG LOCAL DIVISION, JOHANNESBURG
DATE OF HEARING 29 SEPTEMBER 2015
DATE OF JUDGMENT OCTOBER 2015
FOR APPLICANT ADV PETER HODES SC
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