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[2016] ZAGPJHC 382
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Zilwa v Industrial Development Corporation of South Africa (9719/2013) [2016] ZAGPJHC 382 (14 October 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
PROVINCIAL DIVISION, PRETORIA
Case
No: 9719/2013
Reportable
Of
interest to other judges: No
Revised
In
the matter between:
SIVUYILE
SANDILE
ZILWA
Applicant
and
INDUSTRIAL
DEVELOPMENT CORPORATION OF SOUTH AFRICA
Respondent
Case
Summary: Application under the common law for the setting aside
of a summary judgment that was granted in the absence
of the
defendant – an applicant for such relief under the common law
must bring the application within a reasonable time
and must show
‘good cause’ – a weak explanation of the default
may be cancelled out by the putting up of a
bona fide
defence
which has a good prospect of success.
Matrimonial
Property Act 88 of 1984
,
s 15(2)(h)
and
15
(6) – deed of
suretyship - defence raised that suretyship entered into by person
married in community of property without
consent of spouse –
such invalid if suretyship not entered into in ordinary course of
business – the question is whether
the surety’s
involvement in business is his or her business and whether the
execution of the suretyship was in the ordinary
course of the
surety’s business – onus on surety to show that
suretyship not entered into in ordinary course of business
–
creditor seeking to enforce suretyship need not join the surety’s
spouse.
JUDGMENT
MEYER,
J
[1]
The applicant, Mr Sivuyile Sandile Zilwa, seeks the setting aside of
a summary judgment that was granted in favour of the respondent,
the
Industrial Development Corporation of South Africa (the IDC), in his
absence.
[2]
The applicant seeks the relief under the common law. He must,
therefore, ‘show good cause
(a)
by giving a reasonable
explanation of his default;
(b)
by showing that his
application is made
bona fide
; and
(c)
by showing that
he has a
bona fide
defence to the plaintiff’s claim
which
prima facie
has some prospect of success’.
An inadequate explanation ‘may well justify a refusal of
rescission on that account
unless, perhaps, the weak explanation is
cancelled out by the defendant being able to put up a
bona fide
defence which has not merely some prospect, but a good prospect
of success’. (
Colyn v Tiger Food Industries Ltd t/a
Meadow Feed Mills (Cape)
2003 (6) SA 1
(SCA), paras 11-12.)
‘If it appears that his default was wilful or that it was due
to gross negligence the Court should
not come to his assistance.’
(
Federated Timbers Ltd v Bosman and others
1990 (3) SA 149
(W), at 155G-H.) The applicant is also required to bring the
application for rescission within a reasonable time. (
First
National Bank of Southern Africa Ltd v Van Rensburg NO and others:
In re First National Bank of Southern Africa Ltd
v Jurgens and others
1994 (1) SA 677
(T), at 681B-G.)
[3]
The applicant is a practising attorney, who invested and acquired
shares in a company, Mandla Technologies (Pty) Limited (the
company). Its main business is the provision of ‘smart
meter reading solutions’ to municipalities in their
provision
of electricity to consumers. The company was formed in 2007.
The applicant became a director of the company
and a Mr Reginald
Vuyile Miti assumed the position of chief executive officer,
responsible for all operational matters. Mr
Miti did not become
a director because of his adverse credit listing. The initial
shareholders of the company were the applicant,
Mr Miti and a Mr Zola
Tsotsi.
[4]
The company commenced trading when it, and four other tenderers, were
awarded a tender by the Tshwane Municipality during 2009
for the
installation of ‘smart meters’ (the Tshwane project).
The company required working capital to execute
the Tshwane project.
At the time Mr Miti held 55% of the issued shareholding of the
company, the applicant held 35% and Mr
Tsotsi 15%. Mr Miti’s
entire shareholding was transferred to the applicant in order not to
jeopardise the obtaining
of credit by the company in the light of Mr
Miti’s adverse credit bureau listing.
[5]
The company applied for a loan from the IDC at a time when the
applicant was a registered shareholder of 90% of the company’s
issued share capital and Mr Tsotsi the registered holder of the
remaining 10%. In its business plan, which the company
submitted
to the IDC in support of its loan application, the
applicant is stated to be a director and the chairman and chief
executive officer
of the company. Mr Tsotsi is reflected as one
of its non-executive officers and Mr Miti as a consultant to the
company.
Mr Miti, however, and not the applicant, was in fact
responsible for the day-to-day running of the company.
[6]
On 22 February 2011, the company, represented by the applicant and Mr
Tsotsi, and the IDC entered into a written loan agreement
in terms
whereof the IDC advanced an amount of R5,5 million to the company.
In terms of the loan agreement the applicant
and Mr Tsotsi bound
themselves as sureties and co-principal debtors proportionate to
their respective shareholdings for any amount
owed by the company to
the IDC.
[7]
When the company failed to pay its indebtedness to the IDC as agreed
upon in terms of the loan agreement, the IDC, on 14 February
2013,
instituted action against the company as principal debtor and against
the applicant and Mr Tsotsi in their capacities as
sureties and
co-principal debtors for payment of the then outstanding indebtedness
in the sum of R5 359 060.73 plus interest thereon.
The action
was defended and the IDC applied for summary judgment. On 25
June 2013, this court (Phatudi J) ordered that the
application for
summary judgment be served on the applicant and Mr Tsotsi
personally. It was thereafter served by the sheriff
on the
applicant at his residential address, and also on Mr Tsotsi.
The applicant, it is common cause, was aware that the
summary
judgment application was enrolled for hearing on 30 August 2013.
He acted as the attorney for himself and for Mr
Tsotsi in the matter.
[8]
The applicant, in his capacity as attorney practising under the name
and style of Makuala Zilwa Inc., corresponded with the
IDC’s
attorneys, Mothle Jooma Sabdia Inc. In an email dated 19 August
2013, he advised the IDC’s attorneys
inter alia
as
follows:
‘
1. We refer to the above matter
and confirm that we act on behalf of the Second Defendant, Sivuyile
Sandile Zilwa and the Third
Defendant, Mr Zola Tsotsi, in this
matter.
2. Our client only became aware of
this matter when the application for summary judgment was served
personally to (sic) our clients.’
Certain
proposals are then made in the email and it concludes thus:
‘
7. Please revert to us by the
21
st
August 2013.
8. All our clients’
rights remain reserved.’
The
IDC’s attorneys responded with counter proposals in an email
dated 26 August 2013, which email concludes as follows:
‘
Should your clients not agree
to same or should we not hear from you, we will proceed to move for
an application for summary judgment
against your clients on 30 August
2013.’
[9]
The applicant replied in emails dated 26 and 28 August 2013, to which
the IDC’s attorneys in turn responded in an email
dated 28
August 2013, thus:
‘
Dear Mr Zilwa
I refer to your email dated 26 August
2013 and your subsequent email dated 28 August 2013. We have
forwarded your request
on to our client for its instructions.
As we pointed out in our letter dated
26 August 2013, however, if your clients do not accept our without
prejudice proposal, we
will proceed with moving for an application
for summary judgment against your clients.
We have strict instructions to proceed
on this basis and we intend to move the application for summary
judgment, unless our client
instructs us specifically to the
contrary.
We want to make it clear therefore
that you should proceed on the assumption that our client will not
accept your clients’
proposal and that we
will
(as we
already pointed out in our letter dated 26 August 2013) be moving for
summary judgment on 30 August 2013.
Regards’
[10]
In an email dated 30 August 2013, which was send at 09.24 that Friday
morning, the applicant advised the IDC’s attorneys
as follows:
‘
We have been informed by IDC
yesterday that this matter will be postponed today for several weeks
while we engage with them.
Please confirm that this matter will
be postponed today.’
The
IDC’s attorneys responded within the hour, at 10.16, thus:
‘
We acknowledge receipt of your
email of 30
th
August 2013.
The matter will not be postponed.
Our instructions are to proceed with the application for summary
judgment.’
[11]
On 30 August 2013, this court (Van Oosten J) granted summary judgment
against the company, the applicant and Mr Tsotsi.
The
applicant, in terms of the order, is liable to pay to the IDC an
amount equivalent to 90% of the sum of R5 359 060.73, interest
thereon at the rate of 18%
per annum
from 24 January 2013
until date of final payment and costs. The company, the
applicant and Mr Tsotsi never filed an affidavit
resisting the
summary judgment application nor was there any appearance for them
when summary judgment was granted.
[12]
The applicant served his present application for the rescission of
the summary judgment on the IDC’s attorneys on 8 June
2015,
which is almost two years after summary judgment had been granted on
30 August 2013. The applicant proffers no explanation
for the
lengthy delay in bringing the application for the setting aside of
the summary judgment, other than to state:
‘
I was extremely surprised when
I was visited by the sheriff in our offices on the 26
th
May 2015 armed with a writ of execution and a copy of the default
judgment that was granted by this Honourable Court on the 30
th
August 2013.’
and
‘
Neither the IDC nor Mr Miti
informed me after the 30
th
August 2013 that the default judgment was in fact granted until I
became aware when the sheriff came to our office with a writ
of
execution on the 26
th
May 2015, almost two years after the date of the said default
judgment.’
[13]
This explanation cannot be regarded as a reasonable one. A
reasonable time within which the applicant was enjoined to
bring the
application for rescission is substantially less than the almost two
years it took him to launch the present proceedings.
The
applicant was unambiguously advised by the IDC’s attorneys in
their email dated 30 August 2013, which was send to him
at 10.16 that
morning in response to his email earlier that morning, that the
matter will not be postponed and of their instructions
to proceed
with the application for summary judgment. The applicant
explains his failure to have responded to that email
thus:
‘
Despite the fact that at the
time, the Court had already started, I did not notice the reply in
time hence I didn’t reply
to the email.’
[14]
I find this explanation to be untenable. In his earlier email,
which was sent at 9.24 that morning, the applicant specifically
requested the IDC’s attorneys to ‘confirm that this
matter will be postponed today’. One would, therefore,
have expected the applicant to keep a look out for the response to
his email. Furthermore, the applicant does not state when
that
email came to his attention. Moreover, it is not suggested by
him that he made any enquiries whatsoever whether summary
judgment
had in fact been granted once that email had come to his attention.
Also, it is not suggested that he ever made
any enquiries whether the
matter had indeed been settled if there was any ring of truth to the
content of the email that he had
sent to the IDC’s attorneys
that morning. He, after all, was the attorney who represented
Mr Tsotsi and himself in
the summary judgment proceedings.
[15]
The ineluctable inference is that the applicant deliberately
refrained from defending the summary judgment application.
It
was served on him by the sheriff on 17 July 2013. He never
filed an opposing affidavit. By the 26
th
August 2013
he knew that if a settlement agreement was not concluded before 30
August 2013, the application for summary judgment
would proceed on
that day. No settlement agreement was ever concluded. And
he was informed on 30 August 2013 that the
summary judgment
application would indeed proceed on that day. The applicant’s
explanation of the default – that
he was not aware that the
summary judgment application would actually proceed and be heard on
30 August 2013 because of the settlement
negotiations that were
taking place between the IDC, Mr Miti and Mr Tsotsi - is all but
satisfactory and is refuted by the exchange
of emails between himself
and the IDC’s attorneys.
[16]
The main defence put up by the applicant is that at the time when he
signed the deed of suretyship he was married in community
of property
and that his spouse had not given the written consent required by s
15(2)(h) of the Matrimonial Property Act 88 of
1984 (the Act).
It is common cause that the requirements of s 15(2)(h) were not
complied with. But the IDC invokes
s 15(6) of the Act, in terms
of which such consent was not required where the act in question,
such as to stand surety, was ‘performed
by a spouse in the
ordinary course of his profession, trade or business’.
[17]
The applicant bears the onus, which rests upon him
qua
surety,
to show that the deed of suretyship was not entered into in the
ordinary course of his profession, trade or business.
(See
Strydom v Engen Petroleum Limited
2013 (2) SA 187
(SCA), paras
13-16.) The question that arises here is whether the exception
contained in s 15(6) applies to the IDC merely
because the applicant
signed the deed of suretyship in his capacity as director and
shareholder of the company. (Compare
Strydom
(supra);
Amalgamated Banks of South Africa Bpk v De Goede en ‘n ander
1997 (4) SA 66
(SCA); and
Investec Bank Ltd and Another v
Naidoo and Others
(D&CLD case No 9640/98, unreported), which
case is referred to in
Strydom
, para 12.)
[18]
The following concise summary of the facts in
De Goede
is
given by Wallis JA in
Strydom
, para 8:
‘
There two members, who were
employed respectively as a teacher and a clerk, each held a 12%
interests in a close corporation.
The controlling interest was
held by a man who, in the case of the teacher, was his father and, in
the case of the clerk, was his
father-in-law. The younger men
played no day-to-day role in the operation of the close corporation.
They had, however,
contributed small amounts to the close corporation
as their members’ interests by way of loans. In order to
finance
the business activities of the close corporation a loan was
sought from the bank and it required all three men to sign
suretyships
as security for the loan. When the close
corporation went into liquidation the bank sued the teacher and the
clerk on their
suretyships to recover what was owing to it and were
met with the defence that these were invalid by reason of s 15(2)
(h)
of the Act.’
[19]
In rejecting that defence on the grounds that, in accordance with the
provisions of s 15(6), the suretyships had been furnished
by them in
the ordinary course of their business, the Supreme Court of Appeal in
De Goede
held that-
‘
a member of a close corporation
stood in a special relationship to that close corporation: as
co-manager he was legally entitled
to participate in the management
of the corporation’s business. ... When a member
performed a juristic act that
relates to the ordinary business of the
corporation, he acted in his capacity as co-manager of the
corporation, and thus also in
the course of his business as such.
... [I]n the application of s 15(6) it had to be determined
whether a (single)
juristic act performed by a spouse, such as to
stand surety, was performed in the ordinary course of his profession,
trade or business,
and not whether he normally stood surety in the
course of his profession, trade or business. ... [T]he
fact that the
respondents were respectively a clerk and a teacher and
not involved in the day-to-day management of the CC was not
decisive:
although the business of providing passenger services
was legally that of the CC, the CC itself was still the business of
the respondents
in the sense that it was their commercial enterprise
and in the sense that they, as members, legally managed the
business.
… [I]t was also irrelevant whether or
not the member in question conducted such business on a daily basis:
the
issue was whether the member performed
the
juristic act in question
(such
as binding himself as surety) in the ordinary course of
his
business
as co-manager.
A single, isolated activity (such as the act of standing surety)
could in proper circumstances be regarded
as the member’s
‘business’. … [A]s to the further
question whether the provision of surety
had taken place
in
the ordinary course
of the
business, that it had to be answered in the light of the fact that
the CC had requested the overdraft facility in order to
defray
business expenses and that the facility had been granted on condition
that each member had to bind itself as surety.
If the test
adopted under s 29 of the Insolvency Act 24 of 1936 (viz whether,
having regard to the terms of the agreement and the
circumstances in
which it was entered into, the agreement was one which would normally
be entered into between businessmen) was
applied to the circumstances
of the instant case, it appeared that the suretyship had been entered
into ‘in the ordinary
course’ of the respondents’
business: it had been a transaction with commonly-used terms
that ordinary businessmen
would normally have entered into in the
circumstances.’
(The
quoted passage is from the headnote in
De Goede
at 69-70.)
[20]
In referring to
Naidoo
, Wallis JA said the following in
Strydom
, para 12:
‘
That case involved a property
syndication, where 50 investors, through the medium of a private
company, purchased a property for
redevelopment and resale on a
sectional title basis. The acquisition was funded by way of a loan
from the plaintiff bank repayment
of which was secured inter alia by
individual deeds of suretyship from the investors. When the scheme
collapsed and the bank sued
the sureties 14 of them raised a defence
under s 15(2)(h) of the Act that the deeds of suretyship were invalid
because their wives
had not consented to their execution. Hurt
J held that the question whether they had been granted in the
ordinary course
of the sureties business „must be judged
objectively with reference to what is to be expected of businessmen
(or, these days,
businesswomen)‟. He stressed the importance
attached in
De Goede
to the fact that the sureties’ interest in the close
corporation was an investment and that the suretyship was given to
enable that investment to succeed by providing it with the necessary
funding via a loan to pay operating expenses. In those
circumstances, even though the shareholders were not directors and
were not managing the venture, he held that the only difference
in
the two cases was that he was dealing with shareholders and not
members of a close corporation. Given the nature of the
scheme;
the obligation of the shareholders to make capital contributions; the
fact that they were consulted on the purchase of
the property at a
higher price than originally contemplated and that the corporate form
was adopted for reasons of business convenience
in relation to what
was in substance a partnership or joint venture, he held that the
deeds of suretyship were executed in the
ordinary course of the
business of the sureties.’
[21]
The
Strydom
case involved a company, Soutpansberg Petroleum
(Pty) Ltd (Soutpansberg), which distributed petroleum products on
behalf of Engen
Petroleum Ltd (Engen). At the time when it was
finally wound up Soutpansberg owed some R25 million to Engen.
Strydom,
who was a director of Soutpansberg, had executed an
unlimited deed of suretyship in favour of Engen, binding himself as
surety
for and co-principal debtor with Soutpansberg for the due and
punctual payment of all moneys that were then or might thereafter
be
owing by Soutpansberg to it. Engen sued Strydom and another
surety. One of the questions considered by the Supreme
Court of
Appeal was whether, in accordance with the provisions of s 15(6), the
suretyships had been furnished by them in the ordinary
course of
their business.
[22]
Wallis JA
inter alia
said the following:
‘
[10] Accordingly s 15(6)
provides that spousal consent in relation to most of the transactions
in s 15(2) and (3) is not required
where those transactions are
entered into in the ordinary course of a spouse’s business,
trade or profession. Where a business
is carried on through an
incorporated vehicle such as a company or close corporation, or even
an unincorporated vehicle, such as
a partnership or trust, the
question to be answered is whether the surety’s involvement in
that business is his or her business
and whether the execution of the
suretyship was in the ordinary course of the surety’s business,
not the business of the
company, close corporation, partnership or
trust. It may not be the surety’s business if they are a
mere salaried employee,
having no commercial interest in the
business’ success or failure. However, a person who holds a
number of non-executive
directorships that are the principal source
of their income may well when executing a deed of suretyship for one
of those companies
be acting in the ordinary course of their
business.
[11]
This illustrates the fact that whether a deed of suretyship was
executed in the ordinary course of business is, as Southwood
J held
it to be in this case, a question of fact. That is how this court
treated it in
De Goede
. It rejected a contention by the
sureties that their interest in the close corporation was merely a
paper interest. It pointed
out that under the
Close Corporations Act
69 of 1984
they both owed a fiduciary duty to the close corporation
and both were vested with powers of management in respect of its
affairs.
They had involved themselves in those affairs by investing
money to provide it with capital and by being parties to the
conclusion
of the loan agreement with the bank. Their intention was
to profit from their participation in the affairs of the close
corporation.
They were therefore conducting business through
the vehicle of the close corporation and the execution of the deeds
of suretyship
was done in the ordinary course of that business.’
[Footnotes
omitted.)
[23]
The Supreme Court of Appeal held that Strydom ‘failed dismally’
to ‘show that he did not bind himself as
surety in the ordinary
course of his business’. (See paras 16-20.) Strydom was a
director of Soutpansberg. He
was principally involved with the
marketing of Engen’s products, which was the ‘heart and
soul’ of Soutpansberg’s
operations. Soutpansberg
was a small private company and it is unusual for such companies to
have directors who have no share
in the company. In terms of
the agreements that were concluded between Engen and Soutpansberg,
Engen required the directors
of Soutpansberg to sign deeds of
suretyship for the company’s indebtedness to Engen. In
the absence of evidence to
the contrary, the Supreme Court of Appeal,
therefore, inferred that the directors were also the persons having a
financial stake
in the company, in other words, its shareholders.
At some stage Strydom had a debit loan account with Soutpansberg in
an
amount in excess of R3 million. In conclusion it was held
that-
‘
[e]ven had the onus of proving
that Mr Strydom had bound himself as surety in the ordinary course of
his business rested on Engen
there would still have been a need for
Mr Strydom to give evidence to rebut that suggestion. There was
certainly sufficient evidence
in the nature of the business, Mr
Strydom’s position as the director in charge of the key area of
the company’s operations,
the fact that he signed the deed of
suretyship and, as a result of his directorship, was clearly aware of
the nature of the company’s
relationship with Engen and
familiar with the contractual arrangements between Soutpansberg and
Engen to require him to explain
why he had not been acting in the
course of his business. That he failed to do.’
[24]
Turning to the facts of the present case, the company in question was
similarly a small private company. Although the
business of
providing ‘smart meter reading solutions’ was legally
that of the company, the company itself was still
the business of the
applicant, Mr Miti and Mr Tsotsi in the sense that it was their
commercial enterprise and in the sense that
they were vested with
powers of management in respect of its affairs - even though the
applicant and Mr Tsotsi were not directly
involved in its day-to-day
management - and their intention was to profit from their
participation in the affairs of the company.
They carried on
their business through the vehicle of an incorporated company.
The applicant, as director and shareholder,
had a commercial interest
in the business’ success or failure. The only difference
in this case and
De Goede
, as was held to be the situation in
Naidoo
, is that I am dealing with a director and shareholder
and not a member of a close corporation.
[25]
The suretyships were given to enable the business to succeed by
providing the company with the necessary funding via the loan
from
the IDC to defray business expenses in the execution of the Tshwane
project. The loan had been granted on condition
that each
shareholder bind himself as surety. The applicant was one of
the persons who represented the company in the conclusion
of the loan
agreement and he was aware of the nature of the company’s
relationship with the IDC and the contractual arrangements
between
them. The terms of the loan agreement including the requirement
that suretyships be given by the company’s
shareholders, is one
which would normally be entered into by businessmen. The
applicant, therefore, was one of the persons
who was conducting
business through the vehicle of the company and the execution of his
deed of suretyship was done in the ordinary
course of that business.
[26]
My conclusion renders it unnecessary to consider the alternative
argument raised by the IDC based on the provisions of s 15(9)
of the
Act, which is that the deeming provision in subsection (9) finds
application
in casu
and that it must accordingly be deemed
that the applicant bound himself as surety and co-principal debtor
with the required consent
of his spouse in terms of subsection (2),
because the IDC, so it is contended, did not know and could not
reasonably have known
that the deed of suretyship was given contrary
to the provisions of subsection (2) in the light of the
representations that were
made to it that the applicant held 90% of
the company’s issued shares and that he was a director and the
chairman and chief
executive officer of the company.
[27]
The applicant further contends that his wife was a necessary party to
the IDC’s action proceedings and her non-joinder
had the effect
that the IDC was non-suited until she had been joined. The
summary judgment that was granted should, therefore,
so it is argued,
be rescinded. There is also no merit in this argument.
The question whether or not a spouse should
be joined in
circumstances such as these has been definitively answered by the
Supreme Court of Appeal in
Strydom
, paras 22-25. Joinder
is not necessary. Wallis JA, who wrote the majority judgment,
concludes as follows on this question:
‘
[24] On that basis the question
is whether Mrs Strydom has a direct and substantial interest in the
subject matter of this litigation,
that is, the suretyship and its
validity, or whether her interest is merely a financial interest that
is only indirect and therefore
does not require her joinder. The
answer is clear. She has no interest in the suretyship or its
validity. She is not a party to
it and according to her husband she
was opposed to its execution. The fact that he went ahead and
executed it notwithstanding her
disapproval is a potential source of
financial prejudice to her and undoubtedly a source of matrimonial
discord. However, that
is not a direct and substantial interest in
the issues in this case. It is an interest that exists only by virtue
of the fact that
she and Mr Strydom are married in community of
property. . . . ’
The
applicant, therefore, has also not been able to put up a defence
which has good prospects of success.
[28]
Finally, the matter of costs. The IDC seeks a punitive costs
order against the applicant. I am in all the circumstances
of
this case not satisfied that this is one of those ‘rare’
occasions where a deviation from the ordinary rule that
the
successful party is awarded costs as between party and party, is
justified. (See
LAWSA
Vol 3 Part 2 2
nd
Ed
para 320.)
[29]
In the result the following order is made:
The
application is dismissed with costs.
P.A.
MEYER
JUDGE
OF THE HIGH COURT
Date
of hearing: 6 September 2016
Date
of judgment: 14 October 2016
Plaintiff’s
counsel: Adv P Managa
Instructed
by: Makaula Zilwa Inc, Sandton, Johannesburg
Defendant’s
counsel: Adv RL Kayingo
Instructed
by: Mothle Jooma Sabdia Inc, Brooklyn, Pretoria