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[2016] ZAGPJHC 298
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Tuna v Pioneer Foods (Pty) Limited (A5001/2015) [2016] ZAGPJHC 298 (18 November 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NUMBER: A5001/2015
In
the appeal of:
SEAN
CROWDER BASTOS TUNA
Appellant
PIONEER
FOODS (PTY) LIMITED
Respondent
Coram:
VAN
OOSTEN et WEPENER et MPHAHLELE JJJ
Heard:
16
NOVEMBER 2016
Delivered:
18
NOVEMBER 2016
Summary:
Surety – Corporation under supervision for the purposes of
business rescue: the provisions of s 133(1) of the Companies
Act
allowing for a moratorium in respect of payment of debts by a
principal debtor, do not extend to a surety.
JUDGMENT
WEPENER
J:
[1]
This is an appeal against a judgment and order granted by Tshabalala
J, leave having been granted by him to appeal to this court.
[2]
There is a single issue for determination: the appellant stood surety
for a close corporation, KJ Foods CC, the latter which
was placed
under supervision for purposes of commencing business rescue
proceedings after the deed of surety was entered into.
Although there
is some dispute as to whether a business rescue plan was approved, it
does not matter whether the respondent is
bound by it as a creditor
of the close corporation as a result of the view which I take of the
matter.
[3]
It was common cause that all creditors of the close corporation in
business rescue will be bound by a business plan approved
by the
court. But the respondent’s application for summary judgment
against the appellant was not sought on the basis as
a creditor of
the close corporation. It sought a judgment against the appellant
which stood surety for the close corporation.
[4]
In terms of a written deed of suretyship the appellant bound himself
jointly and severally as guarantor and co-principal debtor
for the
full amount owed to the respondent and for the proper and punctual
payment of all amounts and due discharge of the commitments
of the
close corporation towards the respondent. The appellant renounced the
benefits and legal exceptions that he would otherwise
have been able
to rely upon as a defence had he not so renounced it, save that such
renunciation is also explicit as a result of
the appellant having
bound himself as a co-principal debtor.
[1]
[5]
The terms of the deed of suretyship includes the following:
‘
Without
prejudice to the above, I / we agree thereto that the creditor may,
at his own choice and in his own discretion institute
legal action to
recover the full amount due from me / us without first addressing
either the debtor or any other guarantor. . .
.’
[6]
The respondent issued summons against the appellant as surety and
co-principal debtor for the payment of the amount of R12 574 850,
being the amount for which the close corporation was indebted to the
respondent. The appellant defended the action and the respondent
successfully applied for summary judgment. Tshabalala J held that the
defence upon which the appellant relied was not available
to him in
his capacity as surety and co-principal debtor. The defence that was
raised was that the moratorium to pay its debts
which is available to
a corporation pursuant to s 133(1) of the Companies Act,
[2]
should also be available to a surety of that corporation. Section
133(1) reads as follows:
‘
1)
During business rescue proceedings, no legal proceeding, including
enforcement action, against the company, or in relation to
any
property belonging to the company, or lawfully in its possession, may
be commenced or proceeded with in any forum, except-
(a) with the written
consent of the practitioner;
(b) with the leave of the
court and in accordance with any terms the court considers suitable;
(c) . . . . ‘
[7]
When considering the effect of s 133(1) on the rights of a creditor
vis-à-vis a surety, and not the corporation, Kathree-Setiloane
J said in
African
Banking
[3]
that the moratorium provided for in s 133 is directed exclusively at
protecting the interests of the company under business rescue
and
that the indebtedness of the surety is not affected thereby. The
learned Judge said:
‘
[65]
In terms of the arbitration
awards and his suretyship, Baldwin Nchite is liable jointly
and
severally with the company for the payment of the company's
indebtedness to the Bank. Under the arbitration appeal award,
Birgitta Nchite's liability to the Bank under her suretyship was
discharged. The company and the Nchites have launched an application
in terms of which they seek to have the arbitration awards set aside.
If they succeed in doing so, the full extent of the Bank's
claim as
formulated in its original particulars of claim will revive, and the
Bank's claim against the Nchites will be based on
their respective
suretyships.
[66]
In terms of the suretyships, the Nchites are sureties and
co-principal debtors for
the payment of all sums of money owing by
the company to the Bank. The suretyships specifically provide that
the Bank's claim against
the Nchites will not, in any way, be
affected by any compromise of the Bank's claim against the principal
debtor (the company),
whether this is caused by 'insolvency, judicial
management or liquidation, as the case may be'.
[67]
The Bank maintains that the fact that the company was placed under
business rescue
cannot deprive it of its right to pursue the sureties
under the suretyships. Jordaan and the Nchites, no doubt, have
expressed
the contrary view. At the second meeting of creditors the
Nchites' attorney indicated that the binding offer made by his
clients
was in full and final settlement of the Bank's claim. Jordaan
confirmed this at the meeting. In his answering affidavit Baldwin
Nchite states that the Bank's claim 'in terms of the sureties stands
to be decided upon the agreements themselves, as well as the
status
of the business rescue proceedings at the time such actions are
instituted'. The Bank, accordingly, seeks a declaratory
order to the
effect that the adoption of a business rescue plan, in respect of a
company placed under business rescue, will not
affect the rights
which a creditor has under suretyships executed in favour of the
creditor for the payment of amounts owed by
the company placed under
business rescue.
[68]
There is no express provision contained in ch 6 of the Act which
provides that the
adoption of a business rescue plan will deprive
creditors of the company in business rescue of their rights as
against sureties
for the debts of the company in business rescue. The
effect of such a provision, in my view, would be drastic, as it would
deprive
a creditor of its rights as against a third party (surety)
simply by virtue of the adoption of a business rescue plan for the
debtor.
If the legislature intended that the adoption of a business
rescue plan would have such a far-reaching consequence, the
legislature
would have expressly provided for this consequence.
[69]
There is, furthermore, no basis to suggest that such a provision
could be read into
the business rescue regime. As already explained,
the express purpose of business rescue is to 'provide for the
efficient rescue
and recovery of financially distressed companies in
a manner that balances the rights and interests of all relevant
stakeholders'.
The emphasis of the business rescue regime is
therefore on the company in financial distress, and the relevant
stakeholders. There
need be no connection between a surety and either
the company in financial distress or the stakeholders, and whether or
not a creditor
is entitled to pursue a surety will, in the ordinary
course, have no bearing on the prospects of rescuing a company.
[70]
I am, therefore, of the view that the interests of sureties do not
fall within the
scope of the objective of the business rescue regime.
This is clear from the provisions of s 133(1) of the Act, which
provides
that during the course of business rescue proceedings no
legal proceedings, including enforcement action against the company,
or
in relation to any property belonging to it or in its possession,
may be commenced or proceeded with, except under certain
circumstances.
Section 133(2) provides that during business rescue
proceedings, a surety by a company in favour of any other person may
not be
enforced by any person against the company, except with the
leave of the court. In
Investec Bank Ltd v Bruyns
the question
for determination was whether s 133(2) of the Act should be
interpreted as providing that during business rescue proceedings
a
suretyship given by A in favour of B for the indebtedness of the
company may not be enforced by B against A without the court's
leave.
Rogers AJ (as he then was) held that the section explicitly referred
to the stay of a suretyship undertaken by the company,
and not to a
suretyship undertaken by a third person for the indebtedness of the
company. He also held that the statutory moratorium
in s 133(1) on
claims against the company under business rescue was a defence purely
personal to the principal debtor, namely the
company, and could not
be raised by the surety. It follows that the statutory moratorium in
s 133 of the Act does not have the
effect of suspending the
indebtedness of any surety to the company placed under business
rescue.
[71]
Thus, the moratorium provided for in s 133 is directed exclusively at
protecting
the interests of the company in business rescue. By parity
of reasoning, if the legislation does not suspend the indebtedness of
a surety pending the outcome of the business rescue proceedings, it
is difficult to see how it could deprive entirely a creditor
of its
rights against a surety. In the circumstances, it is clear that the
adoption of the plan will not affect the Bank's claim
against Baldwin
Nchite as surety for the debts of the company.’
[8]
Dealing with this issue Rodgers AJ said in
Investec
Bank v Bruyns:
[4]
‘
[17]
The question whether the
defendant as surety can raise as a defence the statutory moratorium
in favour of GDI and WC (ie the moratorium in terms of s 133(1),
which precludes the plaintiff from enforcing the claims in question
against GDI and WC as principal debtors) depends on the well-known
distinction between defences in rem and defences in personam:
26
LAWSA (first reissue) para 201; and
Standard
Bank of SA Ltd v SA Fire Equipment (Pty) Ltd and Another
1984 (2) SA 693
(C). A defence which is purely personal to the
principal debtor may not be raised by the surety. Examples of
defences which are
purely personal to the principal debtor include
restrictions on the enforcement of claims against parties under
sequestration or
liquidation (see the
SA
Fire Equipment
case at 695F – 696F). In
Worthington
v Wilson
1918 TPD 104
the court held that where the principal debtor had the
benefit of a statutory moratorium in favour of soldiers on active
service
the moratorium was a defence in personam which did not avail
the surety. The judgment of Gregorowski J in
Worthington
contains a discussion of the old authorities, including the procedure
which obtained in Holland whereby a distressed debtor could
obtain
from the court a moratorium on the enforcement of claims by way of
letters of inductie or atterminatie. Voet and Van Leeuwen
were agreed
that in such a case a surety for the distressed debtor could not
resist the creditor's claim on the basis of the moratorium
granted to
the principal debtor.
[18]
In my view the statutory moratorium in favour of a company that is
undergoing
business rescue proceedings is a defence in personam. It
is a personal privilege or benefit in favour of the company. As was
stated
in the SA Fire case (at 696E – F) the essence of a
defence in rem is that the defence attaches to the claim itself in
the
sense that the defence (if upheld) shows that the claim against
the principal debtor is invalid or has been extinguished or
discharged.
A defence in personam, by contrast, arises from a
personal immunity of the debtor in respect of an otherwise valid and
existing
obligation. Clearly the moratorium afforded by s 133(1)
falls into the latter class. The obligations of the company as
principal
debtor are not extinguished or discharged and their
validity is in no way impaired. Indeed, with the consent of the
business rescue
practitioner or the court the obligations may be
enforced.
[19]
I thus conclude that the statutory moratorium in favour of GDI and WC
does
not avail the defendant.’
[9]
The view of Kathree-Setiloane J in para 68 of her judgment that the
legislature would have expressly provided for a moratorium
to operate
in favour of a surety was set out thus by Rodgers AJ:
[5]
‘
If
the lawmaker had intended to prohibit creditors from enforcing their
claims against sureties of companies undergoing business
rescue
proceedings it would have said so. Such a prohibition would be a
drastic interference with the rights of creditors and would
require
clear language.’
[10]
In
Business
Partners v Tsakiroglou
[6]
La
Grange J likewise concluded that the suretyship liability to the
creditor had nothing to do with the moratorium imposed by s
133 of
the Act.
[11]
That a personal defence does not avail a surety was also held in
Linden
Duplex (Pty) Ltd v Harrowsmith.
[7]
In personam defences unavailable to the surety include insolvency or
liquidation of the principal debtor
[8]
statutory composition with creditors, exemption from execution or
legal moratorium whether by statute or order of court
[9]
.
This view is in accordance with the learning of Voet:
[10]
‘
Nevertheless
suretyship does not disappear if the goods of the debtor have been
confiscated, or have been transferred to his creditors
by the benefit
of surrender, or if a written order for a stay of payments has been
obtained by the debtor.’
According
to Voet
[11]
the
‘
.
. . benefit of surrender is so personal that it in no way assists the
sureties of him who surrenders is obvious from the principles
of law
and from natural reason. One who puts others under obligation to
himself on behalf of a debtor looks forward especially
to this, that
when the debtor has slipped back in his resources he can recover what
is his from those who he put under obligation
on behalf of that
debtor.’
[12]
When considering the effect of s 133(1) on the rights of a creditor
vis-à-vis a surety, and not the corporation, Kathree-Setiloane
J held in
African Banking
that the moratorium provided for in
s 133 is directed exclusively at protecting the interests of the
company in business rescue
and that the indebtedness of the surety is
not affected thereby.
[13]
Wallis JA referred to the judgment of
Investec
Bank
with approval in
New
Port Finance Company (Pty) Ltd and Another v Nedbank Limited.
[12]
[14]
A surety who has assumed liability as surety and co-principal debtor
is in the same situation as the principal debtor. In
Union
Government v Van der Merwe,
[13]
Wessels JP said:
‘
The
present case is however stronger for the surety has signed as surety
and co-principal debtor. We must give some meaning to the
words
“co-principal debtor” that the addition of these words
operate as a renunciation of the benefits of the surety
is clear, but
they have a still greater force. The addition of those words shows
that the surety intends that his obligation shall
be co-equal in
extent with that of the principal debtor: or otherwise expressed,
that his obligation shall be of the same scope
and nature as that of
the principal debtor’.
[15]
A surety’s liability to pay is triggered by the principal
debtor’s default and payment of the debt then becomes
due. The
debt of the close corporation was indeed due and the surety and
co-principal debtor’s liability to pay therefor
arose.
[16]
I am of the view that the appellant’s reliance on s 133(1) is
misplaced. He is a surety and co-principal debtor. The
only
requirement for his obligation to pay to arise is that the debt must
be due – which is not in dispute. Once that fact
had been
established, the respondent was entitled to call upon the surety to
pay.
[17]
In my view, summary judgment was correctly granted. Tshabalala J did
not grant the respondent its costs on the attorney and
client scale
as was claimed in the summons and is provided for in the deed of
suretyship. There is however, no cross-appeal on
this issue. The
respondent asked for costs of the appeal to be costs on an attorney
and client scale, an order to which it is entitled.
[18]
In all the circumstances, the appeal is dismissed with costs, such
costs to be on the scale as between attorney and client.
______________
W.
L. Wepener
I
agree.
_________________
F.H.D.
Van Oosten
I
agree.
______________
S.S.
Mphahlele
Counsel
for Appellant: L.K. Van der Merwe
Attorneys
for Appellant: Koster Attorneys
Counsel
for Respondent: J.E. Smit
Attorneys
for Respondent: Edward Nathan Sonnenbergs
[1]
Para 12 below.
[2]
Act 71 of 2008.
[3]
African Banking of Botswana v Kariba Furniture
Manufacturers
2013 (6) SA 471
(GNP)
paras 65-71.
[4]
2012 (5) SA 430
(WCC) paras 17-19.
[5]
At para 23.
[6]
2016 (4) SA 390
(WCC) para 22.
[7]
1978 (1) SA 371
(W) at 373B-D.
[8]
Norex Industrial Properties (Pty) Ltd v
Monarch South Africa Insurance Co Limited
1987 (1) SA 827 (A).
[9]
Worthington v Wilson
at 106;
Skelton v Shelvoke and Smith
1904 (21) SC 664
at 666.
[10]
Voet 46.1.39 – Gane’s Translation.
For a general discussion on the consequences of a statutory
moratorium see
JJ Henning: ‘n oorsig van die aard en
onwikkeling en invloed van statutêre moratoria in Suid –
Afrika
gedurende die eerste helfte van die 20ste eeu: Litnet
Akademies Jaargang 9(3) Desember 2012.
[11]
Voet 42.3.11 – Gane’s Translation.
[12]
2016 (5) SA 503
(SCA) para 13.
[13]
1921 TPD 318
at 322.