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[2015] ZAGPJHC 348
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Fagan and Others v Business Partners Limited (2009/17752) [2015] ZAGPJHC 348 (1 December 2015)
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REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NUMBER: 2009/17752
REPORTABLE:
NO
OF
INTERETS TO OTHER JUDGES: NO
REVISED
DATE
1/12/2015
In
the matter between:
FAGAN,
KEVIN
JOHN
FIRST APPLICANT
FAGAN,
ERNA
SECOND APPLICANT
CHOICE
PAINTS AND HARDWARE CC
THIRD APPLICANT
And
BUSINESS
PARTNERS LIMITED
RESPONDENT
JUDGMENT
WINDELL
J:
INTRODUCTION
[1]
The subject matter of this application is an order granted by this
court
(per Mojapelo DJP) on 17 February 2012. The order is in the
following terms:
"WHEREAS the
Plaintiff has issued summons against the Defendants, the one paying
the other to be absolved, inter alia, for:-
1.
Payment of the sum of R552 194.71, together with interest thereon
at the rate of 14% per annum from 26 March 2009 to date of payment;
2.
Payment of the sum of R259 297.00, together with the interest
thereon at the rate of 14% per annum from 26 March 2009 to date of
payment;
3.
Declaring that Erf [....] Mindalore Township, belonging to the
First Defendant, specially executable;
4.
Declaring that the moveable property wheresoever situate belonging
to the First Defendant, to be declared generally executable in
terms
of the notarial bond number B[....]
and Plaintiff be allowed
to deal with such assets
in terms of the provisions of the
bond;
5.
Cost of suit on the scale as between attorney and own client and
payment of collection commission;
6.
Further and/or alternative relief.
AND WHEREAS this
matter has been set down for trial on 17 February 2012;
AND
WHEREAS
the
parties
have
reached
a
settlement,
which
settlement
agreement
they require to be
made an Order of Court;
NOW THEN THE FOLLOWING
IS HEREBY AGREED:
1.
The Defendants agree to pay the Plaintiff an amount
of
R750 000.00
(seven hundred and fifty thousand Rand) plus
interest at 14% per annum from 17 February 2012 to date of payment as
follows:-
1.1
R10 000.00 (ten thousand Rand) for 3 (three) months commencing on
30 March 2012 up to and including 31 May 2012
and payable
at the end of each and every month;
1.2
R12 500.00 (twelve thousand five hundred Rand) per month from 30
June 2012 up to and including
31 August 2012
payable at
the end of each and every month;
1.3
The balance of the capital and interest, together with the
Plaintiff's
costs taxed up to 1O February 2012 to be paid by
the Defendant on or before 28 September 2012;
2.
In the event the Defendants defaulting
in any of the
aforementioned payments
the full amount as claimed by the
Plaintiff in its summons, together with interest mentioned therein as
claimed in the summons shall
become due, owing and payable and the
Plaintiff shall be entitled to proceed against the Defendants
without any notice to the Defendant.
3.
In
this
event
the First
Defendant
hereby
accepts
that
the
Plaintiff
will
be entitled
to
execute against the
immovable property belonging to the First Defendant, namely Erf
[....] Mindalore Township and that such property
in the event of
default be declared executable by the Plaintiff;
4.
The parties require the settlement agreement to be made an Order
of Court, subject to the approval of the above Honourable Court.
5.
The parties record further that the settlement agreement is in
full and final settlement of this matter and should the Defendants
effect payment within the aforementioned period, the Plaintiff
undertakes to cancel the bond it has over Erf [....] Mindalore
Township, belonging to the First Defendant, at the cost of the First
Defendant.
6.
The Defendants hereby agree that no variation, waiver or estoppe/
will be of any force or effect unless it is reduced to writing and
signed by the Plaintiff and the Defendants or their duly appointed
attorneys."
[2]
There are two applications serving before this court. Firstly, the
applicants seek
the rescission of the judgment by Mojapelo DJP
wherein the settlement agreement was made an order of court. The
rescission application
is brought under the provisions of Rule
42(1)(a),
alternatively
the common law
alternatively
the
provisions of Rule 31. Secondly, the respondent has brought an
application in terms of Rule 46 wherein it seeks an order that
immoveable property be declared specially executable.
THE
PARTIES
[3]
The first applicant is Kevin John Fagan, a businessman and hotelier
who is married
in community of property to Erna Fagan, the second
applicant. The third applicant is Choice Paints and Hardware CC, a
close corporation
duly registered in accordance with the Close
Corporations Act, with its principal place of business at [....]
Voortrekker Road,
Mindalore North, Roodepoort, Krugersdorp
(hereinafter referred to as the property.)
Mr Fagan is the
sole member of Choice Paints and Hardware CC. Choice Paints and
Hardware CC was cited as the first defendant in
the action procedure
whilst Mr and Mrs Fagan were cited as the second and third defendants
respectively.
[4]
Mr and Mrs Fagan operate a bed and breakfast trading under the name
and
style of African Sky Guest House on the property which is owned
by Choice Paints and Hardware CC. Mr Fagan stated in his founding
affidavit that the property is utilised for both residential and
commercial purposes as he and his immediate family reside on the
property.
[5]
The respondent is Business Partners Ltd, a company duly incorporated
and
registered in terms of the Company Laws of the Republic of South
Africa with its principal place of business situated at [....]
Caxton
Street, lndustria, Johannesburg. The respondent was the plaintiff in
the trial action.
THE
TRIAL ACTION
[6]
On 30 April 2009, Business Partners Ltd instituted action against
Choice
Paints and Hardware CC with Mr and Ms Fagan as sureties, for
the payment of the sum of R 552 194.71, and an order declaring the
immovable property belonging to Choice Paints and Hardware CC
specially executable.
[7]
The underlying
causa
was a written loan agreement concluded on
13 February 2007 in terms whereof Choice Paints and Hardware CC
borrowed R700 000.00 from
Business Partners Ltd. In terms of the
agreement Choice Paints and Hardware CC undertook to repay the loan
in monthly instalments
of R16 470.00 payable over 60 months
commencing on 1 March 2007. The loan was advanced in regard to a
retail outlet conducted under
the name of Choice Paints and Hardware
CC. The agreement was subject to the delivery of securities. In terms
of clause 8.1 of the
agreement, Choice Paints and Hardware CC agreed
to the registration of a new second covering mortgage bond by Choice
Paints and
Hardware CC over the property for R 500 000 as well as a
general notarial bond by Choice Paints and Hardware CC over movable
property
situated at the property. The new second covering mortgage
bond was registered over the property as well as a general notarial
covering bond over all of Choice Paints and Hardware CC movable
property, stock and effects.
[8]
Choice Paints and Hardware CC defaulted in its obligations in that it
failed to make payment of its instalments in respect of the loan and
fell in arrears. The paint store ceased trading operations
during
August 2009.
[9]
All three applicants defended the action and the matter was enrolled
for
hearing on 17 February 2012.
[10]
The applicants were represented by their erstwhile attorney, Mr
Roland T. Eloff throughout
the relevant period of litigation between
the parties.
[11]
It is common cause, that no legal representative appeared at court on
behalf of the applicants
on the date of the trial due to the fact
that the matter had become settled and the applicants had agreed to
the settlement agreement
being made an order of court.
[12]
It is not disputed that the applicants were aware of the trial date
as well as the fact
that an order would be sought to make the
settlement agreement an order of court. It is also uncontested that
the applicants breached
the settlement agreement which was made an
order of court. The respondent subsequently caused for a warrant of
attachment to be
issued and the property was judicially attached by
the Sheriff of this court. The property has, however, to date hereof
not been
put up for sale.
THE
RESCISSION APPLICATION
[13]
In his founding affidavit, Mr Fagan based his application for
rescission on clause 2 and
3 of the settlement agreement, and
contends that the settlement agreement concluded by their erstwhile
attorney was against public
policy. Clause 2 and 3 of the settlement
agreement provided for the following:
"2. In the event
of the Defendant defaulting in any of the aforementioned payments the
full amount as claimed by the Plaintiff
in its summons, together with
interest mentioned therein as claimed in the summons shall become
due, owing and payable and the
Plaintiff shall be entitled to proceed
against the Defendant without any notice to the Defendant."
"3.
In this event
the First Defendant hereby accepts that the Plaintiff
will be
entitled to execute against the immovable property belonging to the
First Defendant, namely Erf [....] Minda/ore Township
and that
such property
In the event of default be declared executable
by the Plaintiff."
[14]
It is firstly submitted that the right of the plaintiff to proceed
against the applicants
for the amounts claimed in the summons without
any notice to them is
contra bonos mores
and emasculates the
audi alteram partem
rule, as well as their right to be heard,
which is constitutionally enshrined. Secondly, the right of the
Plaintiff to execute upon
the immovable property is in blatant
contravention of the provisions of section 26 of the Constitution.
Although the property may
have a commercial use, its core utilisation
is residential. Execution took place in terms of clause 3 without any
judicial supervision.
Even if the agreement is not declared to be
contra bonos mores,
the attachment of the property, following
upon any rights the plaintiff may have obtained from this clause,
entitles the Applicants
to an order setting aside the attachment.
[15]
In his founding affidavit, Mr Fagan sets out his personal
circumstances and revisits the
trial action as well as other
applications heard under the same case number. Several court
documents related to the action procedure
were attached to the
founding affidavit as annexures. In the event that the application
for rescission of judgment was successful
and the settlement
agreement was declared null and void, it was submitted that the
matter should proceed to trial. The first applicant,
Mr Fagan filed a
replying affidavit on 24 February 2015 in which he acknowledged that
the replying affidavit was not filed within
the prescribed time
periods as provided for in the Rules. The reason for failing to file
the replying affidavit timeously was due
to the fact that the first
applicant was required to raise the necessary funds required by his
current attorney-of-record. The
late filing of the replying affidavit
was condoned.
[16]
Mr Fagan submitted that Ms van Heerden, who deposed to the answering
affidavit on behalf
of the respondent, did not have the necessary
authority to do so. This argument was not persisted with and I am
satisfied that
the answering affidavit is before the Court.
[17]
The respondent submitted that the applicants had failed to make out a
case justifying the
rescission of the judgment in terms of Rule
31(2)(b), Rule 42(1)(a) or the common law. The application for
rescission was not
bona fide
and the application was dilatory
in nature. The applicants also raised two other issues in their
founding affidavit; novation and
the royalties agreement. These two
defences were not persisted with during the hearing of the
application. I am in any event of
the considerate view that there are
no merits in these defences. A compromise, defined as a settlement of
litigation or envisaged
litigation, is a substantive contract that
exists independently of the original cause, and is therefore not
affected by the invalidity
of the original obligation, provided that
the terms of the compromise itself are not invalid. See
Benefeld v
West
2011 (2) SA 379
(GSJ).
CONSENT
ORDER
[18]
There is a recognised difference in substance between an order handed
down by the court
after hearing and deciding upon the merits of the
dispute between the parties, and an order made at the behest of the
parties incorporating
a compromise agreement or transaction reached
between the parties, without the court making any determination on
the issues. The
difference appears to lie in the circumstances under
which the order may be set aside by the court.
[19]
A compromise, defined as a settlement of litigation or envisaged
litigation, is a substantive
contract that exists independently of
the original cause. The applicants
in casu
challenge the
validity and enforceability of the compromise. The defendant contends
that the compromise is
contra bonos mores,
void and
unenforceable. In
Georgias v Standard Chartered
Finance
Zimbabwe Ltd
2000 (1) SA 126
,
Gubbay CJ held as follows:
"The purpose of
compromise is to end doubt and to avoid the inconvenience and risk
inherent in resorting to the methods of
resolving disputes. Its
effect is the same as
res judicata
on a judgment given by
consent. It extinguishes
ipso jure
any cause of action that
previously may have existed between the parties,
unless the
right to rely thereon was reserved
As it brings legal
proceedings
already instituted to an end, a party sued on a
compromise is not entitled to defences to the original cause of
action.
...
but a compromise
induced by fraud, duress,
justus error,
misrepresentation, or some other ground for
rescission, is voidable at the instance of the aggrieved party, even
if made an order
of court."
[20]
It is common cause that the order was granted in the absence of the
applicants and their legal
representative. There are three ways in
which a judgment taken in the absence of one of the parties may be
set aside. Firstly in
terms of rule 42(1), secondly in terms of rule
31
(2)(b),
and thirdly in terms of the common law. The
applicants brought this application under the provisions of rule 42
(1)(a). The purpose
of rule 42(1) is to
"correct
expeditiously an obviously wrong judgment or order".
It is
trite that under Rule 42(1)(a) it is not necessary for the party
seeking rescission to show good cause. In general terms a
judgment is
erroneously granted if there existed at the time of its issue a fact
of which the judge was unaware, which would have
precluded the
granting of the judgment and which would have induced the judge, if
aware of it, not to grant the judgment. See
Naidoo v Matlala NO
2012(1) SA 143 GNP.
The court has a discretion whether to grant a
rescission under rule 42(1)(a). See
Bakoven
Ltd
v
GJ
Howes (Pfy)Ltd 1992(2) SA 466 (E).
[21]
The court does not have inherent power to set aside its judgments and
Rule 42 caters for a mistake.
The court made a settlement agreement
an order of court. The applicants failed to show that the judgment
was erroneously granted
and failed to establish grounds for a
rescission under Rule 42 (1). In
De Vos v Calitz and De Villiers
1916 CPD 465
the court recognised that any order or judgment made
by consent may, generally speaking, be set aside upon any ground
which would
invalidate an agreement between the parties. In
De Wet
and Others v Western Bank Ltd
1977 (4) SA 770
(T)
Trengove AJA
(as he then was) held that there would also be other circumstances,
based on justice and fairness, which would justify
rescission. A
consent judgment is founded on contract, and like any other contract,
defects such as fraud, error and lack of authority
would warrant the
avoidance of such agreement.
[22]
The applicants submitted that the court order incorporating the
settlement agreement was to be
set aside on the grounds that the
offending clauses purported to oust the jurisdiction of the court and
violated the applicants'
rights afforded to them in terms of section
26 of the Constitution. Clauses 2 and 3 of the consent order are
therefore invalid
and unenforceable on account of the fact that they
are contrary to public policy. They purport to permit attachment and
execution
of the applicants' immovable property without intervention
to due legal process.
[23]
The applicants entered into a loan agreement with the respondent and
agreed to put up the
immovable property as security for the repayment
of the loan. In the summons the respondent sought an order for the
executability
of the property. The applicants defended the action and
employed a legal representative. The matter was set down for trial on
17
February 2012. On 14 February 2012 the applicant's attorney
addressed a letter to the respondent's attorney wherein the following
was recorded:
12.1
"I refer to your email letter dated 13 February 2012 and the
settlement
agreement attached thereto.
12.2
Transmitted herewith
is
the settlement agreement signed by
th
e defendants
.
12.3
The matter
is
therefore settled.
12.4
The original settlement agreement will be delivered to our
correspondent
Attorneys on or before 16 February 2012 and may
be uplifted there."
[24]
In a further letter dated 17 February 2012 addressed to the
respondent's attorney
of-record by the applicant's attorney-of
record at the relevant time, the intention of the applicants (as
first, second and third
defendants) is stated at follows:
13.1
"As requested I herewith confirm that the settlement was
signed in my presence on 14 February 2012 by the second and third
defendants who each bound themselves by signing above their
respective names and also bound the first defendant by signing the
agreement as duly authorised representatives of the first defendant.
13.2
I
confirm that the agreement may
be
made an Order of Court."
[25]
In none of the affidavits deposed to by Mr Fagan was it alleged that
Mr Eloff acted on
behalf of the applicants without a mandate to do
so. Summons was issued in 2009 and the matter was only set down for
trial in 2012.
At no stage did Mr Fagan aver that he was unaware of
his constitutional right to housing in terms of section 26 of the
Constitution
or that he was unaware of his right to judicial
oversight. Mr Fagan did not advance any reasons why his legal
representatives,
and as a matter of fact, why he himself as well as
the second applicant did not attend court on 17 February 2012.
[26]
Stipulations in a contract which are unconscionable, illegal or
immoral will have the result
that a court will refuse to give effect
thereto. A contract or term of a contract may be declared contrary to
public policy if
it is clearly inimical to the interests of the
community, or is contrary to law or morality, or runs counter to
social or economic
expedience, or is plainly improper and
unconscionable, or unduly harsh or oppressive. The criteria upon
which a contract may be
declared contrary to public policy is thus
not sharply defined and changes with
"the general sense of
justice
of the community,
the
boni mores,
manifested in public opinion".
It is necessary to draw a
distinction between superficial public opinion and seriously
considered public opinion on the general
sense of justice and good
morals of the community. See
Brisley
v Drotsky
2002 4 SA 1
(SCA)
and
Juglal NO and Another v Shoprite Checkers (Pty) Ltd
t/a OK Franchise Division
2004(5) SA 248 (SCA).
[27]
A clause permitting the executibility of immovable property is not
contra bonos mores.
Most if not all mortgage loan agreements
wherein executability is sought from the court, contain such a
clause. Rule 46 of the Uniform
Rules of Court does not prohibit
parties from including an executibility clause in their agreements,
but only provides for a procedure
to be followed before the property
can be attached and declared specifically executable. Mr Fagan and Ms
Fagan signed the settlement
agreement, duly witnessed by their
attorney, after counsel for the parties had been successful in
negotiating a settlement of the
dispute which had brought them to
Court. They also agreed that the court can declare the property
executable. Having regard to
the facts of this case interference by
this Court with the settlement agreement would have the unacceptable
result of creating
widespread uncertainty with regard to contractual
issues. In my view the provisions of the settlement agreement are not
such as
would render them contrary to public policy. Similarly, where
a settlement agreement provides for legal action without any further
notice, in light of the specific circumstances of this case, it can
hardly be regarded as
contra bones mores.
[28]
In
Gollach and Gomperts(1967) (Pty) Ltd v Universal Mills
&
Produce Co (Pty) Ltd and others
1978 1 SA 914
(A) at 923C-E it
was reiterated with reference to Voet and Grotius that the purpose of
a
transactio
is not only to put an end to existing litigation
but also to prevent or avoid litigation. Reference was made to
Estate
Erasmus v Church,
1927 T.P.D. 20
at p. 24, in which a
transactio
was described
as "an agreement between two or more persons,
who, for preventing or ending a law suit, adjust their differences by
mutual
consent, in the manner which they agree on; and which every
one of them prefers to the hopes of gaining, joined with the danger
of losing.".
At page 923 D-E of the judgment, Miller JA
stated the following:
"Voluntary
acceptance by parties to a compromise of an element of risk that
their bargain might not be as advantageous to them
as litigation
might have been is inherent in the very concept of compromise. This
is a circumstance which the Court must bear in
mind, when it
considers a complaint by a dissatisfied party that, had he not
laboured under an erroneous belief or been ignorant
of certain facts,
he would not have entered into the settlement agreement"
[29]
In
Gundwana v Steko Development
and Others
2011 (3) SA 608
(CC)
the Court deal with the constitutionality of the practice of
Registrars of the High Court granting default judgment and in
particular
ordering the special executability of immovable property
where such constituted the homes of indigent debtors, after judgment
on
a money debt. It was held that this practice was unconstitutional
for lack of judicial oversight bearing in mind the constitutionally
entrenched right to housing. In par [53] and [54] the Court
reiterated that:
[53]
Some further cautionary remarks are called for. It is rather
ironic that the effect of this judgment is to restore to the courts
a
function that they exercised for close on a century
before the
introduction of rule 31(5) in 1994. The change to the original
position has been necessitated by constitutional considerations
not
in existence earlier, but these considerations do not challenge the
principle that a judgment creditor is entitled to execute
upon the
assets of a judgment debtor in satisfaction of a judgment debt
sounding in money. What it does is to caution courts that,
in
allowing execution against immovable property, due regard should be
taken of the impact that this may have on judgment debtors
who are
poor and at risk of losing their homes. If the judgment debt can be
satisfied in a reasonable manner, without involving
those drastic
consequences, that alternative course should be judicially considered
before granting execution orders."
[54]
In Jaftha, Mokgoro J, before listing some relevant factors that
needed to be considered in judicial oversight of the execution
process,
warned that 'it would be unwise to set out all the facts
that would be relevant to the exercise of judicial oversight' Mindful
of that warning, I would merely add the following. It must be
accepted that execution in itself is not an odious thing. It is part
and parcel of normal economic life. It is only when there
is
disproportionality between
the means used in the execution
process to exact payment of the judgment debt, compared to other
available means to attain the same
purpose, that alarm bells should
start ringing. If there are no other proportionate means to attain
the same end, execution may
not be avoided.
[30]
The settlement agreement containing the offending provision for the
executability of the
immoveable property which was made an order of
court was not adjudicated or considered by a registrar but by a Judge
in open court.
This scenario is commonplace throughout various courts
in the country and occurs on a daily basis. Such a mechanism caters
for
the expedient resolution of litigation involving disputes,
especially in commercial matters. In
Twee Jonge Gezellen (Pty) Ltd
v Land and Agricultural Development Bank
the Court stated that
the right embodied in section 34 of the Constitution is a right to a
fair public hearing, not a right to a
trial. At par [38] the Court
held that
"many procedures that are the daily stuff of court
business are decided on affidavit, and never go to trial."
The
judgment incorporating the settlement agreement in the present
application is clearly distinguishable from the judgment contemplated
in
Gudwana
which provided for judicial oversight where
executability of people's homes was sought. The applicants were
represented by an attorney
when the settlement agreement was entered
into. The attorney representing the applicants confirmed in writing
that the settlement
agreement can be made an order of court. The
facts of the matter in consideration are clearly distinguishable from
the facts in
Gudwana and Jafhta.
[31]
I have no doubt that the parties had intended to bring all litigation
to a conclusion by
entering into the settlement agreement. To achieve
this goal the parties agreed on the amount to be paid by the
applicants, the
payment terms and the intended consequences if the
applicants failed to adhere to the payment terms. The applicants
never contended
that had they not laboured under an erroneous belief
or been ignorant of certain facts, they would not have entered into
the settlement
agreement. A consent to judgment duly executed cannot
be arbitrarily revoked or withdrawn. The applicants failed to make
out a
case justifying the rescission of the judgment in terms of Rule
31(2)(b) or in terms of the common law. In light of the specific
circumstances of this case I am of the view that the applicants were
not
bona fide
in the bringing of this application and that
they have no
bona fide
defence. I can find no reason to
exercise my discretion in their favor to rescind the order.
RULE
46 APPLICATION
[32]
The merits of this application were not sufficiently dealt with by
the parties during the
rescission application in order for this court
to decide the issue. The property described in the settlement
agreement and those
forming the subject matter of the Rule 46
application are not the same. The settlement agreement referred to
Erf [....] Mindalore
whereas the separate application refers to Erf
[....] Monument and Unit 26 in the Sectional Title scheme known as SS
Edenhof. The
applicants in the rescission application have not filed
any opposing affidavit. It was however clear during the hearing of
the
rescission application that counsel for the applicants was not
ready to deal with this application. It is also clear from his heads
of argument that he is under the mistaken belief that the rule 46
application was brought for the property forming the subject
of the
settlement agreement. The Rule 46 application is postponed
sine
die
with costs in favour of Business Partners Ltd.
[33]
In the result the following order is made
1. The application for
rescission of the order of court incorporating the settlement
agreement is dismissed with costs.
L
WINDELL
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
ATTORNEY
FOR APPLICANTS:
Larry Marks Attorneys
COUNSEL
FOR PLAINTIFF:
Advocate S. Cohen
ATTORNEY
FOR RESPONDENT:
Shirish Kalian Attorneys
COUNSEL
FOR DEFENDANT:
Advocate S. Aucamp
DATE
MATTER HEARD:
18 August 2015
JUDGMENT
DATE:
1 December 2015.