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[2010] ZAGPJHC 7
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Pam Golding Properties (Pty) Limited v Industrial Development Corporation of South Africa Limited and Others (19783/2008) [2010] ZAGPJHC 7 (5 March 2010)
IN THE SOUTH GAUTENG HIGH COURT
(JOHANNESBURG)
CASE NO 19783/2008
NOT REPORTABLE
NOT OF INTEREST TO OTHER JUDGES
REVISED
In the matter between
PAM
GOLDING PROPERTIES (PTY) LIMITED
APPLICANT
and
INDUSTRIAL
DEVELOPMENT CORPORATION OF SOUTH AFRICA LIMITED
FIRST
RESPONDENT
SIROMA
PROPERTIES CC t/a PAM GOLDING PROPERTIES JOHANNESBURG EAST
SECOND
RESPONDENT
ROBERT
BUTHELEZI
THIRD
RESPONDENT
SIMISO
HELLOID SEBITSO
FOURTH
RESPONDENT
MASHUDU
JUSTICE RATOMBO
FIFTH
RESPONDENT
J U D G M E N T
VAN OOSTEN J:
[1] This is an application for
rescission of a default judgment granted against the applicant (as
the fifth defendant) in
an action instituted by the first respondent
(as plaintiff) (IDC) against the applicant (Pam Golding) and the
second to fifth respondents
(as the first to fourth defendants).
IDC’s cause of action against the second respondent (the
principal debtor) was based
on a written loan agreement concluded
between the IDC and the principal debtor. The third, fourth and fifth
respondents (who were
the members of the principal debtor) as well as
Pam Golding were sued as sureties and co-principal debtors of the
principal debtor.
[2] The summons in the action was
served by the deputy sheriff on Ms C Mota, who was Pam Golding’s
national franchise
manager. No appearance to defend was entered and
judgment by default was granted against Pam Golding as well as the
second to fifth
respondents, jointly and severally for payment of the
sum of R541 212.74, interest thereon and costs on the attorney
and client
scale. The judgment capital amount in respect of Pam
Golding was incorrectly granted for double the amount claimed by IDC
in the
summons. IDC however quite correctly so, has abandoned that
portion of the judgment exceeding the amount of its claim which
brings
the amount of the judgment against Pam Golding to R270 606.37.
This is the judgment Pam Golding now seeks to be rescinded. The
application for rescission is opposed by IDC.
[3] The parties are in agreement that
the common law principles are to be applied to this application.
Those principles are well-entrenched.
The court’s discretion
under the common law extends beyond, and is not limited to the
grounds provided for in Rules 31 and
42(1) (see
De Wet and Others
v Western Bank Ltd
1979 (2) SA 1031
(A ) 1042H–1043A).
The basic requirement remains that “good cause” must be
shown. As much was recently re-affirmed
by Jones AJA in
Colyn v
Tiger Food Industries Ltd t/a Meadow Feed Mills (Cape)
2003 (6)
SA 1
(SCA) para [11] where it was held:
‘
I turn now to the relief
under the common law. In order to succeed an applicant for rescission
of a judgment against him by default
must show good cause. The
authorities emphasise that it is unwise to give a precise meaning to
the term ‘good cause’.
As Smalberger J put it in HDS
Construction (Pty) Ltd v Wait:
‘
When dealing with words such
as “good cause” and “sufficient cause” in the
other Rules and enactments the
Appellate Division has refrained from
attempting an exhaustive definition of their meaning in order to
abridge or fetter in any
way the wide discretion implied by these
words. The Court’s discretion must be exercised after a proper
consideration of
all the relevant circumstances.’
With that as the underlying
approach the courts generally expect an applicant to 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.
”
(references
omitted)
[4] I turn to deal firstly, with the
explanation tendered by Pam Golding for its default. It is stated
that the summons was “handed”
to Ms Chareen Mota,
who had then been recently employed by Pam Golding as its national
franchise manager. This of course is
incorrect. The summons was
not merely “handed” to her: it was as I have indicated,
served on her and the deputy
sheriff’s return of service
further reflects that he in addition explained to her the “nature
and contents thereof”.
Be that as it may, the explanation
continues that Ms Mota reported the service of the summons to
her superior, Mr Patrick
Maingard, who at the time was a
director of Pam Golding Franchise Services (Pty) Ltd (the franchisor
in the franchise agreements
referred to below) and who had overall
responsibility for all franchise related matters which included
responsibility for litigation.
Mr Maingard, who it is stated is
no longer employed in the Pam Golding group of companies,
“misunderstood the facts
relating to the summons and their
legal consequences”. The misunderstanding is alleged to have
been the following: “Mr Maingard
did not understand that
applicant itself had been served and was under the mistaken
impression that it was only second to fifth
respondents that had been
served”.
[5] The explanation is in a number of
respects unsatisfactory. Apart from the hearsay nature of Maingard’s
understanding (although
no case has been made out for the admission
of this hearsay evidence under
s 3(1)(c)
of the
Law of Evidence
Amendment Act 45 of 1988
, I propose to deal with it on the basis that
it is allowed) there is simply an absence of any evidence as to when
and how his understanding
was made known to Pam Golding. The
explanation turns on his “understanding” which in any
event in my view is not an
explanation at all: it simply makes no
sense.
[6] Compounding the difficulty Pam
Golding is facing is its further somewhat faint reliance on so called
“settlement discussions”
between IDC and the franchise
owners (to which Pam Golding was not a party) “prior to that”
which in the context the
words were used, must have occurred prior to
the service of summons on Pam Golding. It is alleged that Maingard
was “assured”
by the franchise owners that “settlement
arrangements had been concluded and were being implemented”
which led him
to “assume” that it was not necessary for
Pam Golding to take any steps in defending the action. IDC has
convincingly
and conclusively shown that this version is devoid of
all truth: the only settlement negotiations that were conducted were
those
conducted only after the judgment by default had been granted
and then with the third respondent who had undertaken to pay the
judgment debt in instalments which he eventually defaulted in. In
view hereof IDC undertook not to execute the judgment against
Pam
Golding pending due payment of the judgment debt by the third
respondent.
[7] One further observation: I have
been unable to find any indication that Pam Golding at any time
before execution of the judgment
became apparent, wanted to defend
the action. My views in this regard are fortified as will become
apparent later in the judgment,
by the nature of the defence relied
upon by Pam Golding and more importantly the way in which the defence
was initially set out
in the founding affidavit and drastically
refined after the service of IDC’s answering affidavit. Pam
Golding’s concerns
relate more to the adverse effects the
judgment has on its reputation in the market place and its
creditworthiness and therefore
financial situation.
[8] The inadequacy of Pam Golding’s
explanation for the default in itself may well justify a refusal of
rescission on that
account. It is well known, and this is often
encountered in practice, that strong prospects of success on the
merits of the defence,
especially where the considerations are evenly
balanced, tilts the scale in favour of rescission. Whether this is a
permissible
approach to adopt is the subject of some controversy (See
Colyn v Tiger Food Industries
supra para [12]). On the view I
take of the matter I do not consider it necessary to attempt to make
any meaningful contribution
to this debate. Suffice to say that I
propose for purposes of this judgment, to determine the
bona fides
of Pam Golding’s defence as separate requirement standing on
its own.
[9] As a point of departure and before
dealing with the defence relied upon, it is necessary to consider the
three separate but
closely linked agreements that are relevant for a
proper understanding of the relationship between the parties. These
agreements
must be considered and interpreted together (see
Cash
Converters Southern Africa (Pty) Ltd v Rosebud Western Province
Franchise (Pty) Ltd
2002 (5) SA 494
(SCA) para [21] –
[29]). By way of background the starting point is when Pam Golding
decided to make its contribution to
Black Economic Empowerment. It
had for quite some time made it its mission to include members of
previously disadvantaged communities,
among the operators of Pam
Golding franchises. To this end Pam Golding was quite willing to
source, screen, approve and train prospective
franchisees to
eventually establish and conduct such franchise operations. But
finances presented a difficulty. The prospective
franchisees coming
from previously disadvantaged communities would inevitably not have
the finances to become involved in the project.
This led to
discussions with IDC and eventually the conclusion of a co-operation
agreement between Pam Golding and IDC. The co-operation
agreement
regulated their relationship. Only certain clauses thereof are
relevant for present purposes. By way of introduction
it is recorded
in the co-operation agreement that Pam Golding and IDC have agreed
“that IDC will conclude loan agreements
with various selected
franchisees subject to, amongst other things, the terms and
conditions of this co-operation agreement”
(clause 2.2) and
that IDC will “as and when requested by Pam Golding, advance
portions of the wholesale facility (an amount
of R10m reserved by IDC
for the finance of approximately 16 Pam Golding franchisees) subject
to the terms and conditions of the
loan agreements” (clause
2.3). A recommended franchisee furthermore, having met IDC’s
funding criteria, would then
be required to enter into a standard
loan agreement “subject to such terms and conditions as IDC may
decide” (clause
5.3). A copy of the standard draft loan
agreement to be concluded between IDC and the prospective franchisee
is annexed to the
co-operation agreement. The loan agreement in turn
provides for two deeds of suretyship in favour of IDC firstly, by Pam
Golding
and secondly, by the members of the franchisee entity in
respect of which standard draft deeds of suretyship are annexed.
Lastly,
copies of a standard draft cession of loan accounts and a
pledge of shares are annexed and these documents accordingly all form
an integral part of the loan agreement.
[10] One of the successful franchisee
applicants was the principal debtor. A loan agreement, substantially
in accordance with the
standard draft loan agreement annexed to the
co-operation agreement, was concluded between IDC as lender on the
one hand and the
principal debtor (as the borrower) and its members
on the other (the loan agreement). Subsequent to that Pam Golding
signed a deed
of suretyship (the suretyship agreement) again
substantially in accordance with the draft annexed to the draft loan
agreement forming
part of the co-operation agreement. In terms of the
suretyship agreement Pam Golding bound itself as surety and
co-principal debtor
with the principal debtor for the “due and
punctual” payment by the principal debtor of an amount of R630
000.00 lent
and advanced in terms of the loan agreement. The
suretyship agreement further limits Pam Golding’s liability to
50% of the
total indebtedness of the principal debtor. In addition
the third, fourth and fifth respondents signed a similar deed of
suretyship.
Against this background the liability of Pam Golding now
needs to be considered.
[11] Pam Golding does not dispute that
IDC has advanced the amount of R630 000.00 to the principal
debtor, that it has defaulted
and is indebted to IDC in the amount
claimed in the summons and that it has undertaken liability as surety
as co-principal debtor
in respect of 50% of the principal debtor’s
indebtedness. The defence relied upon by Pam Golding is stated in the
founding
affidavit as that the “conditions precedent in clauses
7.1 and 7.2 of the loan agreement were not fulfilled and/or waived”
and that IDC’s conduct in advancing the loan “where it
was not authorised to do so and where the applicant was prejudiced
thereby” constitutes a breach of clauses 2.3 and 5.3 of the
co-operation agreement between the applicant and the first
respondent.
In response to the somewhat unspecified and blanket
statement IDC in the answering affidavit, meticulously attempted to
show, annexing
documents where necessary, that all the suspensive
conditions in the loan agreement in fact had been fulfilled. These
documents
having been scrutinised by Pam Golding with the proverbial
fine comb, revealed three what I prefer to call, imperfections. These
were carried forward to the hearing of the application when counsel
for Pam Golding, obviously in an attempt to steer away from
a
self-created
numerus clausus
of suspensive conditions not
fulfilled, referred to those imperfections as merely “examples”
of suspensive conditions
that were not fulfilled. As the argument
progressed it became abundantly clear that those in fact were the
only suspensive conditions
found not to have been fulfilled. Before I
deal any further with the defence it is necessary to record that one
of the three non-fulfilled
conditions (
ie
clause 7.2.9 quoted
below, relating to the requirement for VAT registration) counsel for
Pam Golding readily and in my view quite
correctly, conceded was of
no relevance and could therefore be expunged from the defence. It is
accordingly necessary to only deal
with the non-fulfilment of the two
remaining suspensive conditions. Counsel for IDC conceded for
purposes of argument, that those
conditions had not been fulfilled.
[12] At the outset it is necessary to
consider the nature and contents of the suspensive conditions. For
this purpose they are quoted
in full:
“
7.2 It shall be a further
condition precedent to any advance whatsoever under this agreement
that the following documents shall
have been furnished by the
borrower to the lender:
7.2.1 a certified copy of the
signed franchise agreement;
7.2.2 an auditor’s
confirmation to the effect that the members have deposited into the
borrower’s operating bank account
at least 10% (ten per cent)
of the total capital outlay required by the borrower prior to the
allocation of the franchise;
7.2.3 curriculum vitae of each
shareholder;
7.2.4 a signed balance sheet of
each shareholder of the borrower;
7.2.5 projected income statement,
operating cash flow and balance sheet of the borrower for a period of
3 (three) years;
7.2.6 a certified copy of the lease
agreement in respect of the borrower’s business premises;
7.2.6 a bank-certified debit order,
duly signed and completed by the borrower, in such form and subject
to such terms and conditions
as the lender may reasonably require;
7.2.7 written proof to the
satisfaction of the lender that Pam Golding has trained the
borrower’s key personnel to run the
franchise outlet;
7.2.8 proof to the satisfaction of
the lender that the borrower has been registered for VAT;
7.2.10 copies of the borrower’s
certificate of incorporation, certificate to commence business,
articles and memorandum of
association.”
The agreement further records that the
parties shall use their best endeavours to procure the fulfilment of
the conditions precedent.
[13] The question whether a term of an
agreement constitutes a suspensive condition has to be answered
firstly, by having regard
to the intention of the parties. In
Vizirgianakis v Karp
1965 (2) SA 145
(W), Coleman J held that
the words in an agreement for the sale of a motor vehicle, “subject
to AA test” decisively
showed that a suspensive condition was
intended and created. The effect of those words the learned Judge
held was that the parties
intended the fate of their contract to
depend on the outcome of the AA test. Secondly, the words must be
interpreted in the context
of the agreement in which they appear. In
Pangbourne Properties Ltd v Gill & Ramsden (Pty) Ltd
1996
(1) SA 1183
(A) at 1187 I-J, Harms JA (as he then was) remarked that
the words “subject to” have no
a priori
meaning
indicating a suspensive condition. Those words Harms JA further said,
may just as well in a particular context establish
what is dominant
and what is subordinate (in a statutory context) or create a
resolutive condition, or simply introduce a condition
of the
contract,
ie
a material term (in contradistinction to a
suspensive or resolutive condition).
In casu
the introductory
words in the clause 7 which I have quoted above, refer to the
conditions enumerated in the clause as “condition
precedent”.
Although I am not entirely satisfied that the conditions are true
suspensive conditions, I will assume in favour
of Pam Golding that
they are. The
dramatis condictiones
are firstly, clause 7.2.2
providing for an auditor’s confirmation, and clause 7.2.5
requiring a projected income statement,
operating cash flow and
balance sheet. The non-fulfilment of these conditions counsel for Pam
Golding submitted, had the effect
of either rendering the loan
agreement void or, as against Pam Golding, rendering the suretyship
unenforceable because the obligation
for which it stood surety has
never come into being. The argument raises nothing but a theoretical
possibility which it effectively
remains if regard is had to the
facts of this matter. It is common cause that Pam Golding prior to
IDC advancing the loan amount
of R630 000.00, wrote a letter to IDC
in which it stated:
This letter serves to inform you
that Siroma Properties CC have fulfilled the conditions precedent in
respect of the loan agreement
for R700 000 (this is a typographical
error and should read R630 000). Please transfer the amount of R630
000 to Siroma Properties
CC’s bank account…”
The amount in consequence was advanced
by IDC to the principal debtor. IDC’s obligations in terms of
the loan agreement were
accordingly duly performed. The “voidness”
of the loan agreement relied upon by Pam Golding, therefore never
occurred.
The alternative argument raised by counsel for Pam Golding
was that Pam Golding, as surety, resulting from the non-fulfilment of
the suspensive conditions, suffered prejudice which flowed from a
breach of IDC’s obligations to Pam Golding. The argument
is
fallacious and falls to be rejected. Again, nothing has either been
alleged by Pam Golding or shown in argument as to what such
prejudice
was or benignly advancing it one step further, what possible
prejudice Pam Golding could have suffered. It has moreover
not been
shown that IDC has committed any breach of contract
vis-a–viz
Pam Golding or for that matter any other party. The only possible
question that in my view might arise is whether the non-fulfilment
of
any of the suspensive conditions in any way released Pam Golding from
its obligations as surety. Any such suggestion is effectively
ruled
out by the judgment of the Supreme Court of Appeal in
Bock and
Others v Duburoro Investments (Pty) Ltd
2004 (2) SA 242
(SCA)
para [18]-[21]. If anything, the prejudice suffered by Pam Golding is
the very prejudice they undertook to suffer in the
deed of
suretyship, which is to make good the principal debtor’s
failure to comply with the terms of the loan agreement.
[14] For these reasons I conclude that
Pam Golding has failed to show the existence of a
bona fide
defence which
prima facie
carries some prospect of success.
The application for rescission must accordingly fail.
[15] As to costs there is no good
reason for not extending the contractual liability of Pam Golding for
payment of costs on the
attorney and client scale to this
application.
[16] In the result the application is
dismissed with costs on the scale as between attorney and client.
FHD VAN OOSTEN
JUDGE OF THE HIGH COURT
COUNSEL
FOR THE APPLICANT
ADV AR
SCHOLTO-DOUGLAS SC
APPLICANT’S
ATTORNEYS
MCGREGOR
STANFORD KRUGER
COUNSEL
FOR THE FIRST RESPONDENT
ADV (MS)
A DE KOK
FIRST
RESPONDENT’S ATTORNEYS
CHEADLE
THOMPSON & HAYSOM
DATE
OF HEARING
18
FEBRUARY 2010
DATE
OF JUDGMENT
5
MARCH 2010