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[2010] ZAGPJHC 149
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Nedbank Ltd v Wizard Asset Holdings (Pty) Ltd and Others (2009/51978) [2010] ZAGPJHC 149; 2010 (5) SA 523 (GSJ) (30 March 2010)
REPORTABLE
IN THE SOUTH GAUTENG HIGH COURT, JOHANNESBURG
(REPUBLIC OF SOUTH AFRICA)
CASE NO: 2009/51978
DATE:30/03/2010
In the
matter between:
NEDBANK
LTD
...........................................................................................
Plaintiff
and
WIZARD
ASSET HOLDINGS (PTY) LTD
…..................................
First Defendant
FRANTZESKAKIS,
JOHN
…....................................................
Second
Defendant
MICHELOUDAKIS,
JOHN
.............................................................
Third
Defendant
MICHELOUDAKIS,
MICHAIL
......................................................
Fourth
Defendant
JUDGEMENT
VAN DER MERWE, AJ
The applicant (plaintiff) seeks summary judgement against the
second, third and fourth respondents (defendants). The causes of
action against the defendants are based on suretyships entered into
in respect of
inter alia
overdraft facilities granted by the
plaintiff to the principal debtor, which has been liquidated. Leave
to defend had been granted
by agreement to the first defendant, who
was also a surety in respect of the principal debt.
Judgement is also sought against the second defendant and the third
defendant by virtue of continuing covering mortgage bonds
granted by
the second and third defendants over certain immovable property in
favour of the plaintiff for all and any sums of
money owing to the
plaintiff by the second and the third defendants respectively, from
any cause of debt whatsoever.
The defence based on the provisions of the National Credit Act
The first defence raised in the opposing affidavit filed on behalf
of the second, third and fourth defendants (hereinafter referred
to
as "the defendants") is that the plaintiff did not comply
with the provisions of the
National Credit Act, 34 of 2005
, in that
the plaintiff did not give notice to the defendants in terms of
section 129(1)
of the Act prior to the commencement of legal
proceedings.
It must firstly be considered whether the
National Credit Act
applies
to the principal debt. This will in turn determine whether
the
National Credit Act applies
to the deeds of suretyship entered
into in respect of the principal debt. It is not disputed by the
defendants that the
National Credit Act does
not apply to the
principal debt. It is common cause between the parties that the
principal debtor is a juristic person, Anichi
Trading CC, now in
liquidation.
In terms of
section 4(1)(a)
of the
National Credit Act, read
with
Government Notice 713 of 1 June 2006, published in Government
Gazette no 28893, the Act does not apply to a credit agreement
in
terms of which the consumer is a juristic person whose asset value
or annual turnover, at the time the agreement is made,
equals or
exceeds the threshold value (currently R1 million) determined by the
Minister responsible for consumer credit matters,
in terms of
section 7(1)
of the Act. In terms of
section 4(1)(b)
of the
National
Credit Act, the
Act does not,
inter alia
, apply to a credit
agreement:
which is a large agreement as envisaged in
section 9(4)(b)
read
with
section 7(1)(b)
of the
National Credit Act (i.e
. the
“principal debt” under the transaction equals or
exceeds the amount of R250,000, as determined in government
notice
713 of 1 June 2006); and
in terms of which the consumer is a juristic person, whose asset
value or annual turnover is, at the time the agreement is
made,
below the threshold value (currently R1 million) determined by the
Minister in terms of
section 7(1)
of the Act, read with Government
Notice 713 of 1 June 2006.
For purposes of determining whether the credit facility, which
constitutes the principal debt (in the context of the suretyship
agreement) in the current matter, is a large agreement, the
“principal debt” (as defined in
section 1
of the Act) of
the credit facility (as defined in
section 8(3))
, is the credit
limit under that facility. (See
section 7(2)
of the Act.) It is
alleged in the particulars of claim that the principal debt as
defined in the Act exceeds the threshold of
R250,000. This is not
disputed in the opposing affidavit.
The effect of the aforegoing is that:-
The
National Credit Act does
not apply where the consumer is a
juristic person whose asset value or annual turnover, at the time
the agreement is made,
equals or exceeds the threshold value
determined by the Minister (currently R1 million);
The
National Credit Act does
not apply where the consumer is a
juristic person which enters into a large agreement, irrespective
of the value of its asset
value or annual turnover;
The only instance where the
National Credit Act applies
to a
consumer who is a juristic person is where the juristic person’s
asset value or annual turnover is below the threshold
value
determined by the Minister (currently R1 million) and the juristic
person enters into a small agreement or an intermediate
agreement
as envisaged in
sections 9(2)
and
9
(3), read with
section 7(1)(b)
of the Act;
Even where the
National Credit Act applies
to a consumer who is a
juristic person, the Act only finds limited application. (See
section 6
of the Act.)
Since it is not disputed in the answering affidavit that the
principal debt was entered into with a juristic person and that
the
principal debt arose from a large agreement, either the exemption in
section 4(1)(a)
of the
National Credit Act or
the exemption in
section 4(1)(b)
of the
National Credit Act must
find application.
Since the principal debtor is a juristic person, the application of
the
National Credit Act is
excluded in terms of
section 4(1)(a)
if
the asset value or annual turnover of the principal debtor was equal
to or exceeded the threshold value of R1 million. Even
if the asset
value or annual turnover of the principal debtor was below the
threshold value of R1 million, the credit agreement
giving rise to
the principal debt is exempted from the application of the
National
Credit Act in
terms of
section 4(1)(b)
, because the principal debt
arose from a large agreement. (See also
Firstrand Bank Ltd v Carl
Beck Estates (Pty) Ltd
2009 (3) SA 384
(T), para 13; Scholtz and
others
Guide to the
National Credit Act
par
4.4.2.) It is
accordingly evident that the
National Credit Act does
not apply to
the principal debt.
The defendants contend, however, that the
National Credit Act does
apply to sureties who are natural persons. This approach is
incorrect, as
section 4(2)(c)
of the
National Credit Act provides
expressly that the Act "applies to a credit guarantee only to
the extent that this Act applies to a credit facility or credit
transaction in respect of which the credit guarantee is granted."
It is accordingly evident that the
National Credit Act does
not
apply to a suretyship if the principal debt does not arise from a
credit agreement which falls within the scope of the Act.
This conclusion is also confirmed by the provisions of
section 8(5)
of the
National Credit Act, to
the effect that a credit guarantee
constitutes a credit agreement for purposes of the Act, only if in
terms of the credit guarantee
a person undertakes or promises to
satisfy an obligation of another consumer in terms of a credit
facility or a credit transaction
to which the Act applies. Since the
National Credit Act does
not apply to the credit transaction which
gave rise to the principal debt, the suretyships in the present
matter do not constitute
credit agreements for purposes of the Act.
(See also
Firstrand Bank Ltd v Carl Beck Estates (Pty) Ltd
2009 (3) SA 384
(T). para 18.) The plaintiff was accordingly not
obliged to give notice to the defendants as required by
section 129
of the Act in respect of credit agreements which are subject to the
National Credit Act.
The
first issue relied upon in the opposing affidavit consequently
do not constitute a defence to the plaintiff’s claims.
The blank space defence
The next defence raised by the second, third and fourth defendants
is that when they signed the deeds of suretyship,
"the
indebtedness of the sureties did not appear in any of the deeds of
suretyship. In other words, the word ‘unlimited’
did not
appear and was only inserted by the plaintiff after we have signed
the deeds of suretyship."
Clause 1 of each deed of
suretyship provides
inter alia
that the surety binds himself
"as surety and co-principal debtor … for the repayment
on demand of all amounts which the principal debtor may now or
at any
time hereafter owe Nedbank Ltd, …
provided that the
total amount to be recovered from me shall not exceed in aggregate,
the sum of
:
UNLIMITED
(‘my obligation’) plus interest, discount commission,
commission, legal costs on the attorney and client scale and all
other necessary and usual charges and expenses."
(Underlining
inserted.)
It is accordingly the contention of the defendants that the space
where the word "UNLIMITED" currently appears in clause
1
of each of the deeds of suretyship was left blank at the time when
each of the respective suretyship documents were signed
by the
respective defendants. Consequently, the defendants content that the
suretyships are unenforceable but virtue of the provisions
of
section 6 of the General Law Amendment Act , 50 of 1956, which reads
as follows:
"No contract of suretyship entered into after the
commencement of this Act [22 June 1956] shall be valid, unless the
terms
thereof are embodied in a written document signed by or on
behalf of the sureties: provided that nothing in this section
contained
shall affect the liability of the signer of an aval under
the laws relating to negotiable instruments."
An analysis of the case law dealing with the issue of blank spaces
in written documents where it is required by statute that
the terms
of the agreement must be reduced to writing (i.e. agreements for the
alienation of land and suretyship agreements),
reflects that the
cases dealing with such blank spaces fall, broadly speaking, into
two categories. In the first category of
cases dealing with blank
spaces, the courts disregarded the blank spaces on the basis that it
can be accepted that the parties
did not intend to incorporate the
provision containing the blank space into the agreement and enforced
the remainder of the agreement.
In the second category, the courts
held that the existence of a blank space in the written document had
the result that the agreements
in question were invalid for failure
to comply with the statutory formalities.
In the first category of cases, the courts were able to make a
finding that the signed document containing a blank space (in
respect of a non-essential term) had been accepted by the other
contracting party, thereby indicating that the agreement was
to be
entered into on the basis that the provision containing the blank
space would not find application or on the basis that
the
entitlement to fill in the blank space was waived. On this approach
a finding could be made in each instance that the written
document
reflected all the terms agreed upon between the parties and that the
clause containing the blank space should be regarded
as
pro non
scripto
. Consequently, the written document complied with the
statutory requirement that the terms of the agreement should be
reduced
to writing, provided the essential terms of the agreement
had all been recorded in the written document.
The essential terms of the contract of suretyship are the identity
of the creditor, the identity of the debtor, the identity
of the
surety and the nature and amount of the principal debt. Failure to
complete the essential terms of the suretyship agreement
means that
the contract is invalid for failure to comply with the statutory
formalities. It cannot be assumed that the parties
intended one of
the essential terms not to apply. In such event one of the essential
requirements for the coming into existence
of a binding suretyship
agreement is not present. (See eg
Sapirstein v Anglo African
Shipping Co (SA) Ltd
1978 (4) SA 1
(A) at 12 B-D.) The limit to
the surety's liability is not one of the essential terms for the
coming into existence of a surety
relationship, although it may
obviously be a significant and material term in the view of the
parties to the surety agreement.
(See e.g.
Standard Bank of SA v
Jaap de Villiers Beleggings
1978 (3) SA 955
(W) at 959D-E.)
This does not mean that only the essential terms of the suretyship
agreement need to be recorded in the deed of suretyship in
order to
comply with the requirements of section 6 of the General Law
Amendment Act. All the terms of the agreement of suretyship
are
required to be in writing by section 6 of the General Law Amendment
Act. (See e.g
Plascon Evans Paints (Transvaal) Ltd v Virginia
Glass Works. (Pty) Ltd
1983 (1) SA 465
(O) at 470;
Van
Leeuwen Pipe and Tube (Pty) Ltd v Mulroy
1985 (3) SA 396
(D).)
On the approach reflected in the first category of cases, as dealt
with above, the mere fact that a blank space pertaining
to a
non-essential, albeit material, term of the suretyship agreement was
not completed, does not necessarily have the consequence
in all
instances that the agreement is void for non-compliance with the
statutory formalities.
Thus, in
Blundell v Blom
1950 (2) SA 627
(W) it was held that
a written contract for the purchase of immovable property was valid
notwithstanding the fact that the amount
of the deposit payable in
terms of the agreement had been left blank. This conclusion was
reached on the basis that the meaning
to be attached to the blank
was
“that the parties had agreed that no deposit was to be
paid on the signing of the contract." (At 632.)
Cases where a similar approach was followed include
Oosthuizen v
Wentzel
1957 (1) SA 653
(W) at 655B-E;
Miller and Miller v
Dickinson
1971 (3) SA 581
(A);
First Consolidated Holdings
(Pty) Ltd v Bissett
1978 (4) SA 491
(W) at 496D-H;
Pizani v
First Consolidated Holdings
1979 (1) SA 69
(AD);
Botha v
Nedbank
1981 (4) SA 949
(NC) at 954H -955G and
Commercial
Bank of Namibia Ltd v Trans Continental Trading (Namibia)
1992
(2) SA 66
(Nm HC) at 74A-77G. See also Forsyth & Pretorius (5
th
ed)
Caney’s The Law of Suretyship
73-74.)
This approach was applied by the Appellate Division in
Pizani v
First Consolidated Holdings
1979 (1) SA 69
(AD). The judgement
is instructive for current purposes because it is comparable to the
defence raised by the defendants in the
current matter. In the
Pizani
judgement, an exception to a plea based on
non-compliance with the formalities required by section 6 of the
General Law Amendment
Act, 50 of 1956, was upheld. Clause 9 of the
deed in the
Pizani
matter read as follows:
"Notwithstanding
the foregoing, the amount of this guarantee will be limited to R …
"
and then followed a blank space. Clause 9 was marked with
an asterisk which was to be read at the foot of the printed deed,
which
indicated that the clause was "to be deleted if the
amount is not to be limited". The blank space was not
completed,
nor was clause 9 deleted. (See the
Pizani
judgement at 80F-G.) The Appellate Division dealt with the issue as
one of construction of the document and considered whether,
from the
mere omission to complete the clause, the inference can be drawn
that the intention of the parties was that the maximum
amount for
which the sureties were to be liable was still to be agreed.
Recognising that the printed words in clause 9 were of significant
import as it goes directly to the extent of the surety's liability,
the Appellate Division concluded as follows at 81G-H of the report:
"It is true that the incomplete clause was not deleted, but
it does not follow therefrom that not only the draughtsman of the
printed form contemplated the possible fixing of a limit to the
extent of the surety's liability by whomsoever might use such form,
but that also the parties to these particular deeds intended or
contemplated the fixing of such a limit. … As it stands,
clause 9 is meaningless. In the circumstances which I have described
the inference is irresistible … that the signing and
delivery,
without qualification, of the deeds in their existing form signified,
in lieu of deletion of the clause, its inapplicability
to the
transactions thereby concluded."
In the cases dealt with above it was accordingly accepted that
leaving blank spaces relating to non-essential terms of the
agreement blank, did not affect the validity of the suretyship
agreement. The non-completion of blank spaces pertaining to
non-essential
terms was interpreted to mean that the clause was not
intended to apply to the contractual arrangement between the
parties. (See
the discussion of this approach in
Johnston v Leal
1980 (3) SA 927
(AD) at 939H-941D.)
In the second category of cases pertaining to blank spaces in
respect of non-essential but material terms, the courts came to
the
conclusion that the agreements in question were (or may be - see
Johnston v Leal
(above)) invalid for failure to comply with
the statutory formalities. In these instances, it was found that the
parties had
indeed intended the clause containing the blank space to
form part of the agreement but had either not reached agreement in
respect
thereof at the time of signature or had failed to complete
the blank space in question, notwithstanding the fact that agreement
had been reached in respect thereof. Under these circumstances it
cannot be held that the terms of the agreement were reduced
to
writing and the written document does not reflect the intention of
the parties. Reported cases falling in this category include
King
v Potgieter
1950 (3) SA 7
(T);
Johnston v Leal
1980 (3)
SA 927
(AD);
Raven Estates v Miller
1984 (1) SA 251
(W);
Ellis v Trust Bank of Africa Ltd
1981 (1) SA 733
(N);
Just
Names Properties 11 CC v Fourie
2008 (1) SA 343
(SCA).
In the second category of cases, the matter of
Johnston v Leal
(above) is instructive, not only because it is Appellate Division
authority, to which I am bound to the extent that it is applicable
in the current matter, but also because the factual circumstances
thereof are comparable (but not similar) to those in the present
matter and also to the factual circumstances in the
Pizani
judgement. The latter judgement was reported one year earlier than
the
Johnston
judgement. Whilst the
Pizani
judgement
deals with blank spaces in a deed of suretyship, the
Johnston
judgement deals with blank spaces in a contract for the sale of
land. In both instances, pleas were filed by the respective
defendants in which the alleged invalidity of the written agreement
in question for lack of compliance with the relevant statutory
formalities was pleaded as a defence. In both instances an exception
to the plea in question was upheld by the court of first
instance.
In the
Pizani
judgement, the appeal was dismissed. In the
Johnston
judgement, the appeal was upheld.
The main reason for the difference in approach in the two Appellate
Division judgements can be found in the documents which served
in
each instance before the court. In the
Johnston
judgement it
was found that there were conflicting
indicia
in the written
document itself as to the question whether the parties intended the
blank spaces in question to be disregarded
or not. For instance, it
was evident
ex facie
the document that the parties were
particularly careful to specifically delete portions of the printed
document which they did
not regard applicable. There were also other
references in the document to the clause containing the blank space
which suggested
that the clause was intended to be applicable. (See
page 941D-H of the judgement, where an analysis of the conflicting
indicia
in the agreement was made.) Consequently, the
Appellate Division in the
Johnston
judgement held that
extrinsic evidence was required (and would be admissible) in order
to determine whether the parties intended
the blank spaces to be
regarded as
pro non scripto
or not. Hence judgement should
not have been granted on exception and the appeal was upheld.
On the other hand, in the
Pizani
judgement, the Appellate
Division came to the conclusion that there were no indications in
either the plea or the written deed
of suretyship that the parties
intended the clause containing the blank space to be applicable.
Hence the appeal against the
decision upholding the exception was
dismissed.
It remains to apply the above analysis of the principles established
in the case law to the facts and circumstances of the present
matter. In particular, it must be considered whether the factual
circumstances of the current matter or the difference in the
wording
and the structure of the suretyship agreements which form the
subject matter of the present application for summary judgement,
distinguish the current matter from the
Pizani
judgement and
the cases which fall in the first category referred to above. In the
current matter, the blank space in the deed
of suretyship was
subsequent to the signature and delivery thereof completed by the
insertion of the words "UNLIMITED"
in the blank space
where provision was made for the limitation of the surety’s
liability. It also needs to be considered
whether a different
approach is called for because the current matter is one for summary
judgement whilst the
Pizani
judgement dealt with the issue on
exception to a plea. The answer to both issues must in my view be in
the negative, for the
reasons that follow.
In the present matter, the defence pertaining to the alleged blank
space in the deed of suretyship was raised in the affidavit
opposing
summary judgement and not in a plea. The defendants accordingly had
the opportunity to place evidence on oath before
the Court to
substantiate their defence and to demonstrate their
bona fides
in
this regard
.
The defendants did not challenge the relief
sought on the basis that it was not the intention of the parties to
have entered
into an unlimited suretyship. The irresistible
inference is that the suretyships, providing for unlimited liability
on the part
of the sureties, correctly reflected the intention of
the parties. The affidavit opposing summary judgement by necessary
implication
confirms that no limitation was intended. Under these
circumstances, it matters not whether the space that makes provision
for
the limitation of the suretyship was left blank or whether it
was subsequently completed, as is contended by the defendants, to
expressly reflect that there was no limit on the liability of the
sureties. In both instances, the document would have reflected
the
true and correct intention of the parties. Under these factual
circumstances, it was not material to the binding nature of
the
suretyship agreement whether the parties left the relevant space
blank at the time of signature to indicate its inapplicability
or
whether the word "UNLIMITED" was subsequently inserted, as
contended by the defendants.
Accepting the veracity of the evidence presented on oath in the
opposing affidavit (similar to the approach in the event of an
exception in respect of the contents of a plea or the particulars of
claim), the only defence raised in this regard is the fact
that the
word "UNLIMITED" was inserted after the deeds of
suretyship had been signed and removed from the defendants
by the
plaintiff’s representative. Nowhere in the answering affidavit
can an express or implied contention that the suretyships
were
intended to be limited or that they do not correctly reflect the
intentions of the parties, be found. Consequently, the
opposing
affidavit places the current matter firmly in the first category of
cases dealt with above, where the existence of the
blank space did
not affect the validity of the agreements in question.
It can accordingly be concluded that where a deed of suretyship
does not expressly reflect at the time of signature that the
liability of the surety was unlimited, the validity of the
suretyship is not affected, in the event where an unlimited
suretyship
was intended. In such a case, the legal position will be
that there is no limitation on the surety's liability for the
principal
debtor's indebtedness. The legal consequences will be
different in a situation where the parties had agreed that the
surety's
liability was to be limited to a maximum amount but failed
to reflect such limitation in the blank space providing for such
limitation
in the deed of suretyship. In such an event the
limitation cannot
ex lege
be implied and the deed of
suretyship does not reflect all the agreed terms thereof as required
by section 6 of the General Law
Amendment Act. (It need not be
decided in the current matter whether parole evidence in this regard
will be admissible even where
there are no blank spaces and
consequently no ambiguity regarding the intention of the parties
ex
facie
the document itself.)
It follows that the defendants have failed to disclose a
bona
fide
defence in the opposing affidavit, which, if it is proved
at the trial, will constitute a defence to the plaintiff’s
claim.
It would not be appropriate to exercise my residual
discretion to refuse summary judgement in favour of the defendants
in the
present instance, as the facts deposed to in the affidavit
opposing summary judgement do not suggest a reasonable possibility
that the defendants may have a defence against the monetary claim of
the plaintiff.
In the particulars of claim, the plaintiff also seeks judgement
against the second and the third defendants on the grounds of
two
covering mortgage bonds granted by the second and the third
defendant respectively to the plaintiff over certain immovable
properties held by the second defendant and the third defendant
respectively. The plaintiff also seeks an order in the particulars
of claim declaring the properties in question executable. The
plaintiff failed to comply with the practice directive laid down
in
Standard Bank of SA Ltd v Saunderson
2006 (2) SA 264
(SCA) at
277D-E, in that the summons did not include the notice drawing
attention to section 26(1) of the Constitution of the
Republic of
South Africa, which accords to everyone the right to have access to
adequate housing. In the circumstances, leave
to defend will be
granted in respect of the orders declaring the properties
executable.
The notice of application for summary judgement did not seek a cost
order against the defendants. Counsel appearing in the matter
did
not address me on this issue. I will accordingly, in the exercise of
my discretion, reserve the question of the costs of
the application
for summary judgement, for determination at the hearing of the
matter.
I make the following order.
Judgement is granted against the second, third and fourth
defendants, the one paying the others to be absolved, for:
Payment of the sum of R621,338.54;
Interest on the said sum of R621,338.54 at the rate of 5.5% above
the prevailing prime lending rate, as applicable from time
to time
and calculated from 28 November 2009, to date of final payment,
both days inclusive;
Leave to defend is granted in respect of prayers (c) and (d) of the
application for summary judgement dated 18 January 2010,
in respect
of the orders declaring the immovable properties specially
executable;
The costs of the application for summary judgement are reserved.
___________________________
LJ VAN DER MERWE, AJ
ACTING JUDGE OF THE HIGH COURT
26 March 2010.
Counsel for plaintiff: R Robinson
Counsel for defendants: SS Cohen
Attorneys for plaintiff: Kim Warren Rambay & Associates
Attorneys for 2
nd
, 3
rd
and 4
th
defendants: Gishen-Gilchrist
Date of hearing: 10 March 2010.
Date of judgement: 30 March 2010.