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[2019] ZAGPJHC 381
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Hudson v Fedbond Nominees (Pty) Ltd (A5070/2017) [2019] ZAGPJHC 381 (19 September 2019)
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
LOCAL DIVISION, JOHANNESBURG)
REPUBLIC
OF SOUTH AFRICA
Appeal
Court Case Number: A 5070/2017
SCA
Petition number: 949/2017
Court
a quo case number: 13659/2004
In
the matter between:
LESLIE
GEORGE
HUDSON
Appellant
and
FEDBOND
NOMINEES (PTY)
LTD
Respondent
JUDGMENT
BHOOLA
AJ:
Introduction
[1]
This is an appeal against the judgment and order of Victor J dated 6
March 2017, following leave granted on petition by the
Supreme Court
of Appeal.
[2]
The appeal arises from an action instituted in 2004 by the appellant
("Hudson"), against the respondent ("Fedbond"),
in which Hudson sought an order declaring that a judgment debt
obtained by Fedbond against Dalmatian Properties (Pty) Ltd
("Dalmatian")
as principal debtor, in the amount of R1
492.584.08, and against Hudson in the amount of R650 000, as surety
for Dalmatian, had
been discharged.
[3]
The judgment debt against Dalmatian and Hudson has its origin in a
loan that was obtained by Dalmatian from Fedbond in May 1994
where
Hudson and Trevor Giddey ("Giddey"), as the sole
shareholders of Dalmatian, both signed suretyship agreements in
favour of Fedbond. The loan was in the sum of R1.3 million. The
suretyships undertaken by Hudson and Giddey limited their liability
as sureties respectively to the sum of R650 000.00 and held them
jointly and severally liable as co-principal debtors
in solidum
with Dalmatian.
[4]
The court
a qua
dismissed Hudson's claim that the debt had
been discharged and found that the referee appointed in terms of
section
19bis
(1) of the High Court Act 59 of 1959 to
determine the extent of Dalmation's liability had correctly
determined that there was still
an outstanding debt of R 810 881.82
due by Dalmatian. Accordingly, as Hudson has only paid an amount of
R247 OOO, he was still
liable to Fedbond as a surety and ancillary
debtor
in solidum with
Dalmatian.
History
and background
[5]
The loan was granted subject to registration of a mortgage bond in
favour of Fedbond over Dalmation's immovable property situated
at erf
738, South Germiston Extension 7 Township, Johannesburg ("the
property").
[6]
Dalmatian defaulted on the loan and Fedlife Participation Bond
Managers (Pty) Ltd and Fedbond instituted legal proceedings against
Dalmatian and the sureties. On 24 February 1998 judgment was granted
against Dalmatian and the sureties and the property was declared
executable ("the Joffe order").
[7]
The relevant terms of the Joffe order obtained against Dalmatian as
first respondent, and Hudson and Giddey as second and third
respondents, were as follows:
THE COURT GRANTS AN
ORDER:
1.
Entering judgment
in favour of the second Applicant against the First Respondent in the
sum of R1492584.08, with interest thereon
at the rate of 21.53% per
annum from the 1st day of January 1998, to date of payment.
2.
Directing that the
immovable property of the First Respondent, Erf 738 South Germiston
Extension 7 township be declared executable.
AS AGAINST THE SECOND
RESPONDENT
3.
Entering judgment
against him in the sum of R650 000.00 payable jointly and severally
with the First Respondent, the one paying
the other to be absolved.
AS AGAINST THE THIRD
RESPONDENT
4.
Entering judgment
against him in the sum of R650 000.00, payable jointly and
severally with the First Respondent, the one paying
the other to be
absolved.
[8]
Unbeknown to Fedbond, on 12 January 1998 (some six weeks before the
Joffe order), the Transitional Local Council of Greater
Germiston had
obtained a judgment against Dalmatian and a writ of execution in
respect of the property on account of unpaid rates
and taxes and
other municipal charges. Fedbond became aware of the judgment when
the property was being sold in execution. On 3
May 1999 it was
purchased by the only bidder, Fedbond's Attorney Brian Lebos ( who is
since deceased), representing Upbeat Properties
CC, an entity owned
by one of Fedbond's directors. The purchase price was R100 000.00.
[9]
Thereafter, Fedbond applied for the winding up of Dalmatian. This
order was granted on 18 May 1999. Phillip Berman was appointed
the
provisional liquidator and he took control of the affairs of
Dalmatian with effect from 4 June 1999. Berman subsequently approved
two sale transactions in respect of the property: The sale of
the
property to Fedsure Participation Mortgage Bond Managers (Pty) Ltd
("Fedsure"), which held the bond over the property,
on the
same terms and conditions for which it was purchased by Upbeat
Properties CC; and the sale of the property to Macsteel (following
negotiations in which Giddey was involved), for R2 250 000.00. Both
the sales of the property from the liquidator to Fedsure and
from
Fedsure to Macsteel were registered in the deeds office on the same
day, being 28 May 2002.
[10]
At the time of the winding up order the capital debt owed by
Dalmatian was, according to Hudson, about R1.4 million and he
enquired from Fedbond what the remaining liability of Dalmatian was
following the receipt of the property sale price. His belief
was that
at that stage Dalmation's liability, and hence his obligation as
surety, had been discharged by the proceeds received
from the sale of
the property; payments already made to Fedbond by Dalmation's
debtors; as well as payments made by Giddey in the
amount of R62 500,
and by himself in the amount of R247 OOO. Hudson avers that despite
several requests Fedbond failed to provide
a complete account of
monies received.
[11]
In February 2004 Fedbond issued
a writ of execution against Hudson's moveables in terms of the Joffe
order. Aggrieved by the actions
of Fedbond, Hudson approached the
court and obtained an order from Claasens J
[1]
interdicting Fedbond, Fedsure Participation Mortgage Bond Managers
(Pty) Ltd and the Sheriff from executing on the Joffe order,
pending
the outcome of an action against Fedbond in an attempt to determine
the exact outstanding amount owing by Dalmatian, and
accordingly his
own liability as co-surety. In this action, which was instituted on
22 June 2004, Hudson sought the following relief:
1. An order declaring that the
principal judgment and ancillary judgment had been discharged by the
sum of the proceeds of the sale
of the property and payments received
by the defendant in reduction of the judgments;
2. Payment to the plaintiff of that
amount which the Court may find has been overpaid by the plaintiff
plus interest thereon at
the rate of 15,5% per annum calculated from
the date of judgment to the date of final payment;
3. An order releasing the goods
belonging to the plaintiff and attached by the defendant pursuant to
the principal judgment and
ancillary judgment from attachment.
[12]
Upon receipt of Fedbond's plea to Hudson's summons, it became clear
that the parties were
ad idem
on most of the issues in
dispute. They were however unable to agree on the computation of the
amount which remained outstanding
to Fedbond in light of the many
payments that had been made. In August 2005 the ambit of the dispute
was narrowed to that of an
accounting exercise and the parties agreed
to appoint a referee in terms of section
19bis
(1) of the High
Court Act 59 of 1959. The referee's mandate, in terms of the Basis
one calculation (which had been accepted by the
parties as the most
conservative estimate), was to determine the remaining indebtedness
of Dalmatian in terms of the Joffe order.
The referee's exact terms
of reference were as follows:
1.
Basis 1
1.1
The calculation of the present indebtedness of Dalmatian
Properties (Ply} Ltd (“Dalmation'') pursuant to the judgment
granted
against Dalmatian for:
1.1.1
payment of the
sum ofR1492 584.08
,·
1.1.2
interest on the
said sum at the rate of 21.53% per annum calculated from 1 January
1998 to date of payment,
1.1.3
costs of suit
on the attorney and client scale.
1.2
In the
calculation of the said indebtedness the referee shall apply
Generally Accepted Accounting Principles and take account of
1.2.1
all payments
made,
1.2.2
all expenses
paid,
1.2.3
the interest,
1.2.4
the costs of
suit
[13]
After a five year process of engagement with relevant parties, Mr.
Jacob Van Der Laan ("the referee"), produced his
final
account and report in October 2009. His conclusion was that on the
Basis one calculation, as at 28 February 2009, Dalmatian
remained
indebted to Fedbond in the sum of R 810 881.82.
[14]
Hudson amended his particulars of claim in 2012 and introduced the
grounds on which he alleged that the referee had erred in
preparation
of his Basis one account. He averred that the referee should have
found that the principal debt had been discharged.
The relevant
grounds can be summarized as follows:
14.1 Save for the charges due to the
Deputy Sheriff in the amount of R 14 104 and taxed costs in the
amount of R 5458.05 due to
Attorney Lebos in respect of the
application brought under case number 97/34005, the balance of the
entry items listed as "additional
costs incurred" totalling
the sum of R 686 603.88 were incurred after the principal judgment
granted on 24 February 1998 and
were not recovered in terms of the
proceedings under case number 97/34005 and should not have been taken
into account in the determination
of Dalmation's indebtedness.
14.2 The referee should have taken
into account the amount of R 250 000.00 paid by Giddey on or about 20
August 2003 towards the
discharge of Dalmation's indebtedness from
the date of payment instead of allowing for an apportionment of the
sum over the subsequent
years as and when Hudson made payments in
discharge of Dalmation's principal debt.
14.3 The referee should have taken
into account the amounts of R 23 400.00 and R 9000.00 respectively
representing rental payments
by Abkins Steel in respect of the
property.
14.4 The referee should have taken
into account payments made by Rubber for Africa to Attorney Lebos in
the amount of R 119 420.90,
which should have been allocated towards
the discharge of the indebtedness.
Judgment
of the court
a quo
[15]
It must be noted that the judgment of the court
a quo
is a
reconstruction based on notes provided by the parties, as both audio
and written records of the proceedings were lost.
[16]
Victor J found, with reliance
on
Perdikis v Jamieson,
[2]
that since Hudson was
challenging the referee's report, he bore the onus of proving that
the referee exercised his judgment unreasonably,
irregularly or
incorrectly so as to lead to a patently inequitable result.
[17]
Two witnesses testified during the trial; Hudson, on behalf of the
plaintiff, and the referee, on behalf of Fedbond. It is
common cause
that the referee conceded during his testimony that he had failed to
take into account payments made by Rubber for
Africa totalling R119
000, and that he committed an error in his calculation. After
considering the oral evidence of both the referee
and Hudson in
regard to the errors in the referee's determination, Victor J held
that a court could only deviate from the findings
of an expert
referee on narrow grounds. The learned Judge proceeded to reject
Hudson's evidence and found that the referee's report
does not lead
to any
"patently inequitable results" and
that it
cannot be found
"that his judgment is wrong''.
She
accepted Basis one of the referee's determination in its entirety and
without modification.
Did
the court a quo err in accepting the referee’s
report and finding that it correctly
determined the liability of Dalmatian
and hence the co-sureties?
[18]
Hudson did not seek to impugn the report on any ground other than
errors made on the part of the referee, and no challenge
to his
integrity or conduct was made. The essential attack is that the
referee's report is flawed in a number of critical respects,
which
renders its acceptance without modification by the court
a quo
erroneous. More specifically Hudson claims that the referee's
report is flawed in that it failed to include admitted amounts in the
calculation; allowed extraneous charges to be levied against
Dalmation's account, allowed for interest in excess of the
duplum,
and incorrectly allocated payments to the account.
[19]
It is necessary to consider each of these grounds in order to
determine whether the court
a quo
erred in failing to reject
the report in its original form.
Failure
to include admitted amounts in the Basis one calculation
[20]
Fedbond conceded in the court
a quo
that a series of payments
made to Lebos by Dalmation's debtor, Rubber for Africa, stood to be
credited to the Dalmatian account
and were not done. It is therefore
common cause that the sum of R 119 420.90 was paid to Fedbond but was
not taken into account
by the referee. The effect of this concession
is that the debt was overstated by R 292 972.31, which includes
interest on the amounts
totalling R 119 420.90. The outstanding
principal debt, as at February 2009, should have been reflected by
the referee as R 517
909.51 instead of R 810 881.82.
[21]
As stated, the court
a quo
accepted the referee's report
without any modification. In
Perdikis referred
to above, the
error involved an amount of R30 000. The court found that as the
expert had
''acted upon a materially incorrect assumption it
cannot be said that he had properly performed his mandate and that he
had exercised
the judgment of a reasonable man. The error perpetrated
was such as to lead to a patently inequitable result as the first
valuation
gave the appellant an entitlement of R30 000 less than that
in terms of the rectified valuation."
Section 19
bis
(1),
provides that the court may:
': ..adopt the report
of any such referee, either wholly or in part, and either with or
without modifications, or may remit such
report for further enquiry
or report or considerations by such referee, or make such other order
in regard thereto as may be necessary
or desirable';
[23]
The court
a quo
did not did not deal with the failure of the
referee to include the Rubber for Africa payments and took the view
that as long as
the amount owed by Dalmatian exceeded R 403 000.00,
any determination over this amount was irrelevant and that Hudson was
in no
position to place any reliance on the discharge or reduction of
the amount of the principal debt owing in order to escape his own
liability. In our view the court a quo erred in taking this approach.
Firstly: once the respondent conceded the Rubber for Africa
point the
court
a quo
should have accepted that the report was incorrect
or at least that modifications to the report were necessary.
Accepting the report
unmodified led to a patently inequitable result
because it resulted in interest being erroneously calculated at
21.53% on an inflated
sum. It was admitted by Fedbond that this led
to the Basis one calculation being overstated by R 292 972.31 as at
February 2009.
Secondly: the reduction of Dalmation's debt is
relevant and determinative. The surety's obligation is that of an
accessory and
the sureties remain liable only to the extent that the
debt of Dalmatian has not been fully discharged. The reduction of
Dalmation's
debt to R 517 909.51 implies that Hudson and Giddey are
jointly and severally liable for an amount of R 517 909.51. Hudson
had
already paid an amount of R 247 000.
Interest
in excess of the
duplum
[24]
Fedbond's counsel conceded in heads of argument in the appeal that
the referee's final determination was overstated by R 41
775.88 as a
result of the
in duplum
rule not having been correctly
applied. This results in a further reduction of Dalmation's liability
to R476 133.63.
Incorrect
allocation of payments
[25]
The referee's Basis one determination states that the following
accounting principles were applied: “
[c]alculation
acknowledging that payments are first applied to interest and then to
capital"
and
"Interest on expenditure not calculated
in terms of clause 1.1.2 and 1.1.3 of the [Joffe] order':
Hudson
submits that on this basis it is clear that the referee would
allocate any payments received first to interest then to capital
and
that no interest would be calculated on the additional expenses
(assuming that they were correctly taken into account). However,
Hudson's schedule presented in evidence at the trial reflects that
this was not the approach taken by the referee despite his express
statement to this effect. Hudson's schedule took the totals exactly
from the referee's report as at May 2002 reflecting the following
amounts:
Payments received: R 3
003 390.61
Accumulated interest: R 1
392 531.19
Additional costs: R 700
707.88
Cumulative capital
balance: R 1 492 582.08.
[26]
The referee's stated approach would mean that the payments received
of R 3 003 390.61 would first be deducted from the accumulated
interest then from the cumulative capital balance leaving an
unallocated balance of R 118 275. 34. If this is deducted from the
additional costs (assuming they have correctly been taken into
account), the balance in the additional costs column should be R582
432.54 and hence no further interest should be levied. During the
period August 2002 to January 2004 further payments were made
to
Fedbond, as correctly reflected in the referee's report, in the sum
of R 406 661.29. Deducting these payments from the additional
costs
amount leaves a balance of R 175 771.25. Since no interest accrues on
expenses, as the referee had provided, in line with
the Joffe order,
no further interest should have accrued on this amount. However, when
an additional cost of R 5458.05 is added,
the running balance, which
comprises additional costs exclusively, is reflected by the referee
as R 181 229.30. This would mean
that even if the amounts of the
additional costs have been correctly included (which Hudson
disputes), the amount due is still
only R 181 229.30. This is
significantly less than the amount of R 810 881.62 reflecting as
owing in the referee's report and accepted
as correct by the court
a
quo.
Even on the referee's own version his report is incorrect
and overstates the amount due by some R 629 652.52. This error is
material
and leads to a patently incorrect result in the referee's
report, and accordingly its acceptance constitutes an error on the
part
of the court
a quo.
The
failure to take account of Giddey's payment
[27]
It is common cause that Giddey
made a payment of R 250 000.00. Hudson testified that correspondence
from Lebos (dated 13 September
2005) confirms that this amount was
paid by Giddey into a "Fedtrust ledger account" as security
to avoid a writ being
issued against him. Giddey paid R 62 500.00
towards reduction of the principal judgment and the amount still in
trust was R 187
500.00. The letter from Lebos confirmed that each
time Hudson paid an instalment of R 12 500.00 to Fedbond Giddey's
amount was
debited with a similar amount. Hudson referred to the
referee's decision that he did not allocate the full amount of R 250
000.00
paid by Giddey to the Dalmatian account because this amount
was subject to an arrangement between Fedbond and Giddey. The referee
testified to this effect and confirmed that and despite his attempts
to ascertain the facts relating to the arrangement with Giddey,
the
latter failed to respond to his emails or telephone calls. It is
common cause that Fedbond has not taken action against Giddey.
[3]
[28]
Hudson submits that the referee's explanation for not including
Giddey's payment, which was made in August 2003, to the reduction
of
the Dalmatian debt is at best, hearsay and that if this payment had
been applied to the principal debt it would have been reduced
as at
February 2009 by R500 000.00 (consisting of R250
000.00
plus maximum interest thereon of R250 000.00). This would have been
the correct course of action, it was submitted, even
though the money
appears to have been held in trust on Giddey's instructions, on the
basis that Lebos's correspondence to the referee
confirmed that that
the payment was made to avert execution against him. As sureties
Giddey and Hudson are jointly and severally
liable the one paying the
other to be absolved. As a result thereof notwithstanding Giddey and
Lebos's arrangement in law, Giddey's
full amount should have been
taken into account by the referee.
[29]
In this regard it must be noted that this matter came before the
court
a qua
by way of trial proceedings in which the referee
was called as a witness for Fedbond. The referee's evidence on this
aspect was
hearsay and the evidence of Hudson in this regard must be
accepted. The fact that the referee was called as a witness for
Fedbond
also calls into question his independence.
Conclusion
[30]
In our view, by accepting the referee's report unmodified, even to
the extent of the concession made by Fedbond, the court
a qua
erred for the reasons set out above. The referee's determination
of the outstanding amount due in terms of the principal judgment
is
incorrect in that it fails to take account of a number of issues. The
result is that the determination is patently inequitable
as it holds
the appellant liable for payment of a sum far in excess of Fedbond's
legal entitlement. The correct remedial action,
which ought to have
been applied to the referee's report by the court
a qua,
is as
follows:
30.1 To deduct from the Basis one
calculation the amounts admittedly received by Fedbond in consequence
of the admitted Rubber for
Africa payments, together with interest
thereon;
30.2 To deduct the amount conceded by
Fedbond of R 41 775.88 as a result of the
in duplum
rule not
having been applied;
30.3 Directing that all payments made
in reduction of Dalmation's indebtedness must be strictly applied in
accordance with the agreed
basis for the calculation which is stated
in the introductory portion to the Basis one calculation; and
30.4 To deduct an amount of R500
000.00 in respect of the failure to allocate the full amount of the
Giddey payment (R 250 000.00
paid plus R 250 000.00 interest).
[31]
We agree with Hudson's submissions that if the above accounting and
legal principles are applied, far from being correct, the
referee's
report overstates the amount still outstanding on the Basis one
calculation, rendering the report incorrect. Given the
fact that
Fedbond has conceded that the referee erred in two respects at least,
leading to concessions on its part, it cannot be
gainsaid that the
overstatement of the debt by the referee leads to a patently
inequitable result and that the principal debt has
been fully
discharged.
Order
[32]
In the result, we make the following order:
1. The appeal is upheld.
2. The judgment of the court
a qua
is set aside and is substituted with the following order:
i)
The judgment debt against Dalmatian and the appellant has been
discharged in full.
ii)
Any movables belonging to the appellant that were previously attached
by the respondent pursuant to the judgment against the
appellant are
released with immediate effect.
iii)
Costs of suit.
3. The respondent is ordered to pay
the costs of the appeal.
__________________
U.
BHOOLA
Acting
Judge of the High Court of South Africa
Gauteng
Local Division, Johannesburg
I
agree
_____________________
CARELSE
J
Judge
of the High Court of South Africa
Gauteng
Local Division, Johannesburg
I
agree
_____________________
WINDELL
J
Judge
of the High Court of South Africa
Gauteng
Local Division, Johannesburg
Appearances:
For
the Appellant: Adv M. J. Cooke
Instructed
by: Thomson Wilks Inc., Johannesburg
Tel:
(011) 784 8984
Fax:
(011) 883 8660
Email
:
burrows@thomsonwilks.co.za
Ref:
MAT12015/BURROWS
For
the Respondent: Adv G. Porteous
Instructed
by:
Craig
Berg Attorneys c/o De Jager Mckinon Inc, Hyde Park
Tel:
0113256910
Fax:
086 567 9077
Ref:
CBERG/MAT071
[1]
Case number 2004/6416.
[2]
2002 (6) SA 356 (W).
[3]
It should be noted that Giddey was also the liquidator of Rubber for
Africa.