About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: South Gauteng High Court, Johannesburg
SAFLII
>>
Databases
>>
South Africa: South Gauteng High Court, Johannesburg
>>
2019
>>
[2019] ZAGPJHC 559
|
|
Diesel Electric Services (Pty) Ltd v IRT Projects (Pty) Ltd and Others (15/15095) [2019] ZAGPJHC 559 (13 December 2019)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO:
15/15095
REPORTABLE:
NO
OF
INTEREST TO OTHER JUDGES: NO
REVISED.
13/12/2019
In
the matter between:
DIESEL
ELECTRIC SERVICES (PTY) LTD
Plaintiff
and
IRT
PROJECTS (PTY)
LTD
1
st
Defendant
HADLEY
DAVIS
STEVENS
2
nd
Defendant
LINETTE
EVELINE STEVENS
N.O.
3
rd
Defendant
(In
her capacity as the duly appointed
Executrix
in the Estate of the Late Jerome
Gladwin
Stevens)
JUDGMENT
WINDELL J:
INTRODUCTION
[1]
The plaintiff, Diesel Electric Pty Ltd (“Diesel”), is an
incorporated company that has been in existence since the
1990’s.
Diesel is in the business of providing clean power and supplying
large ‘industrial’ generators, un-interrupted
power
supply (“UPS”), batteries, and invertors to customers. Mr
Kevin Donaldson (“Mr Donaldson”) is the
sole shareholder
and director of Diesel.
[2]
The first defendant is IRT Projects Pty Ltd (“IRT”) an
incorporated company established in January 2002. IRT started
as a
close corporation with only one member, the late Mr Jerome Gladwin
Stevens (“Mr Stevens Snr”), now represented
by Mrs L
Stevens N.O. as executrix of Mr Stevens Snr’s estate (the third
defendant). During January 2002 IRT converted from
a close
corporation to an incorporated company and Mr Donaldson and Mr
Stevens Snr were appointed as directors thereof. Mr Stevens
Snr held
60% of the shares in IRT, Diesel 20%, and a third party held the
remaining 20% of the shares.
[3]
Diesel and IRT entered into an agreement during or about 2002/2003
(the first agreement). The exact nature and the terms of
the first
agreement are in dispute. Diesel alleges that it was a written
agreement in terms of which Diesel supplied goods and
or services to
IRT and its customers, and IRT alleges that it was an oral joint
venture agreement in terms of which IRT would subcontract
work to
Diesel, who would then provide the materials and perform the work.
[4]
During November 2012 the parties entered into a replacement agreement
(the second agreement). The second agreement was in writing
and a
copy is attached to the summons. Diesel contends that the terms and
conditions of the first agreement were the same as the
second
agreement. The material terms of the second agreement are the
following:
1. Diesel would supply
IRT with goods and services at IRT’s special instances and
requests;
2. The price invoices by
Diesel to IRT was the agreed price of the goods and services.
3. Payment terms would be
30 days from date of invoice. (It is common cause that the 30 days
requirement was not enforced)
[5]
During 2011 Diesel established that Mr Stevens Snr’s wife’s
company, Integrated Premise Solutions (Pty) Ltd, had
been the
recipient of unauthorized loans from IRT in the sum of R7.7 million.
On further enquiry it was also established that over
and above the
R7.7 million, IRT was also indebted to Diesel for outstanding
invoices.
[6]
On 4 July 2013 Mr Stevens Snr and the second defendant, Mr Stevens
Jnr, signed surety agreements whereby they bound themselves
jointly
and severally for the past, current and future debts or IRT to
Diesel. The deeds of suretyship were drafted under the express
instruction of Mr Stevens Snr. On 30 July 2013 IRT, through its duly
appointed auditors, acknowledged that it owed Diesel an amount
of
R16 516 807.06.
[7]
In April and May 2014 letters of demand were sent to the defendants
demanding payment of an amount of R 13 669 015.77.
IRT’s
directors denied that IRT had been paid by its customers and alleged
that the obligation to make payment to Diesel
in terms of the back to
back invoices had therefore not yet arisen. In April 2015 Lorna Geen,
an ex-employee of IRT, advised Mr
Donaldson that IRT’s
customers had in fact paid IRT.
[8]
Diesel instituted action against IRT and its sureties on 22 April
2015 based on the first agreement and deeds of suretyship.
Diesel’s
first claim is against IRT for payment of invoices in an amount of R
13 669 015.77, rendered for goods and
services (Claim 1). The
second claim is against the second and third defendants as sureties,
jointly and severally, for the indebtedness
of IRT to Diesel (Claim
2). In the third claim Diesel seeks an order declaring the second and
third defendant liable for the loss
suffered by Diesel in terms of
section 218 (2) of Companies Act 71 of 2008 (“the
Companies
Act&rdquo
;) and further a declaration of delinquency against the
second defendant in terms of the
section 162
(5)(c) of the
Companies
Act (Claim
3).
[9]
In their pleaded case the defendants admit that the goods were
delivered and the services rendered. The defendants’ defence,
in the main, is that Diesel failed to prove the terms of the first
agreement and that its claim should therefore fail. In paragraph
9 of
their initial plea they reiterated that payment will only be made
once IRT’s customers paid it, and persisted with the
denial
that their customers have not paid them. The defendants also pleaded
prescription of the debt, alternatively, a denial that
the amount is
due, owing and payable. The second and third defendants pleaded that
the suretyships were null and void for lack
of compliance with the
General Law Amendment Act and because the principal debtor, IRT, is
referenced in the document as a surety.
[10]
The trial commenced on 6 March 2018. On 1 March 2018, the defendants
filed a supplementary discovery affidavit incorporating
IRT’s
customers’ general ledger for the period 2009 to 2015. On the
day of the hearing, 6 March 2018, the defendants
amended their plea
to incorporate a reconciliation of Diesel invoices against IRT
invoices. It was clear from the supplementary
discovered documents
received, and the reconciliation incorporated into the defendants’
plea that IRT had, in most instances,
been paid. At the request of
the defendants the trial was postponed on 7 March 2018 for the
defendants to consider the plaintiff’s
consequential
adjustments to its replication. The postponement was granted and
costs were reserved.
[11]
The trial continued on 26 August 2019. Diesel had categorized the
defendants’ plea and at the resumption of the trial
the
defendants admitted the plaintiff’s categorization with a few
minor movements of certain items. This is reflected in
exhibit ‘K’
and “L” and follows the following categorization:
1.
Category 1
relates
to IRT’s invoices being paid by its customers but no payment
being made to Diesel, the total value of the invoices
in this
category amount to
R3 902 998.49;
2.
Category 2
relates
to IRT’s invoices being paid by its customers but no payment
being made to Diesel due to alleged queries on the invoices
or
overcharges, the total value of the invoices in this category amount
to
R1 372 132.60
;
3.
Category 3
relates
to IRT’s invoices being paid by its customers and alleged
payment being made to Diesel, the total value of the invoices
in this
category amount to
R2 966 902.49
;
4.
Category 4
relates
to IRT’s invoices to its customers against which IRT passed
credit notes, the total value of the invoices in this
category amount
to
R3 414 284.20
;
5.
Category 5
relates
to IRT failing to invoice its customers despite being in receipt of
the correlating invoice from Diesel, the total value
of the invoices
in this category amount to
R195 694.68
;
6.
Category 6
relates
to IRT’s invoices to its customers not being paid the total
value of the invoices in this category amount to
R11
487.17
; and
7.
Category 7
relates
to an invoice in respect of which IRT was to revert back. The total
value of the invoice in this category amount to
R789
555.78
.
[12]
The following are the disputed issues as per the pleadings:
1.
What were the terms of the first agreement?
2.
Does IRT owe any money to Diesel?
3.
Is the surety agreement null and void?
4.
Should the second and third defendant be
held personally liable as directors in terms of
section 218
of the
Companies Act?
>
5.
Should the second defendant be declared
delinquent in terms of
section 162
of the
Companies Act?
[13
]
The plaintiff called three witnesses: Mr Kevin Donaldson the managing
director of Diesel, Mr Adrian Stevens the son of Mr Stevens
Snr and
brother of the second defendant, and Mr Kamalie the accountant in the
employ of IRT from 2014 to sometime in 2018, and
now in the employ of
a related company IRT Distribution. The defendants called no
witnesses and adduced no evidence.
THE
EVIDENCE
The
First Agreement
[14]
Mr Donaldson testified on behalf of Diesel. What follows here below
is a summary of his evidence.
[15]
Diesel and IRT have been in a “partnership” since 2001.
The goal of the “partnership” was to embark
on the
enterprise development of IRT. Diesel’s role was to assist in
the financing and coaching of IRT in order for them
to become an
active participant in the clean power supply marketplace. During
2002/2003 IRT signed a ‘counter-top’
credit application,
the first agreement, with Diesel. The credit application was a
pre-requisite to doing business with Diesel
and the terms of the
agreement are precisely those as stated in the second agreement. This
was for account number 1. (All the invoices
in dispute fall under
account number 1).
[16]
As stated earlier, the first agreement provided for payment to be
made on 30 days from date of invoice, but this requirement
was not
enforced. It was agreed between the parties, either tacitly or by
conduct that IRT would only make payment to Diesel once
IRT received
payments from its customers. The parties therefore issued back to
back invoices for the goods supplied and the services
rendered.
[17]
IRT confirm that this arrangement pertained to the invoices on which
Diesel currently claim payment under account number 1.
It is
therefore common cause between the parties that Diesel did not insist
on compliance with the requirement that payment be
made on 30 days of
invoice and that payment would only become due to Diesel when IRT’s
customer paid IRT. From the evidence
it is clear that the
non-insistence on 30 days was applied by the parties to all invoices.
Mr Donaldson testified that on non-project
related work the 30-day
period ought to have applied, but in effect based on the conduct of
both parties these invoices were similarly
only paid when IRT’s
customer paid this accords with what is pleaded by both parties in
terms of the payments. On all project
work IRT would charge 3% on
Diesel’s fee as a management fee to the customer. However, if
IRT sourced work on its own and
utilized Diesel for the supply of
goods and services IRT could charge any fee it deemed appropriate.
Diesel would only invoice
IRT once the work (goods delivered, and
services rendered) had been completed. On receipt of these invoices
IRT would draw up the
corresponding invoice and submit it to the
customer for payment. IRT had an obligation to render the back to
back invoices to the
customers.
[18]
The defendants admit that there was an agreement between the IRT and
Diesel and that goods and services were rendered by Diesel,
but
dispute the nature and terms of the first agreement as pleaded by
Diesel. The defendants plead a different agreement, the so-called
joint venture agreement. The
onus
is on Diesel to prove the
terms of the agreement it relies upon and the defendants bear the
onus
to prove the joint venture agreement they rely upon.
[19]
The defendants failed to put any evidence before the court in either
support of their version or to contradict the plaintiff’s
version. The second defendant, Mr Stevens Jnr, was present in court
throughout the trial and his version was put to Mr Donaldson.
At the
close of plaintiff’s case the defendants closed their case
without leading any witnesses or evidence. Counsel on behalf
of the
plaintiff contends, with reference to
Waste
Products Utilization (Pty) Ltd v Wilkes and Another
[1]
,
that an adverse inference should be made against the defendants for
their failure to call any witness, and more specifically,
for their
failure to call the second defendant. It is contended that the reason
the second defendant was not called to testify
was because ‘
the
defendants
’
legal
advisors had no confidence in him as a witness’.
[2]
I agree. No explanation has been furnished why the second defendant
was not called to testify. The only inference that can reasonably
be
drawn from his failure to testify is that he would not have been able
to support the version of the defendants put to the witnesses
during
cross examination.
[20]
The plaintiff’s version of the agreement is the only version
before court and stands uncontroverted. Irrespective of
the fact that
the original agreement was lost the evidence demonstrates that the
parties conducted themselves according to the
terms of the agreement
pleaded by the plaintiff, save for a variation regarding the terms
giving rise to payment. The defendants
did not produce any evidence
to prove that the joint venture agreement was the contract governing
the relationship between the
parties. The statements made during
cross-examination are not evidence. Mr Donaldson’s evidence
constitutes
prima facie
evidence as to the existence of the
first agreement.
Prima facie
evidence as pointed out by
Stratford JA in
Ex parte Minister Of Justice: In re R v Jacobson
and Levy
1931 AD 466
at 478 is:
"Prima facie
evidence, in its more usual sense, is used to mean prima facie proof
of an issue the burden of proving which is
upon the party giving that
evidence."
If
the
prima facie
evidence or proof remains unrebutted at the
close of the case, it becomes "sufficient proof" of the
fact or facts (on
the issues with which it is concerned) necessarily
to be established by the party bearing the
onus
of proof.
[21]
I am satisfied that Annexure K, reflecting Diesel’s invoices
with the reciprocal invoices from IRT and payment or non-payment
by
IRT’s customers, demonstrates the parties contracting with each
other as per the first agreement. Diesel’s version
of the
agreement as pleaded is therefore accepted.
The
invoices
[22]
For convenience and clarity’s sake
Diesel’s evidence will be dealt with
as per the defined categories of its invoices as rendered to IRT; and
IRT’s reconciliation
thereof (Exhibit “N”).
Category
1 & 2
[23]
IRT admits that it did not make payment to Diesel on the invoices in
Category 1 and 2, despite receiving payment from its customers.
Category 2 invoices were not paid due to alleged queries on the
invoices or overcharges. The total value of the invoices in these
two
categories are R5 274 131.09. The only invoices placed in
dispute by the defendants in this category are the following
line
items: 58, 64, 80,105,114,149 and 249. The total amount of the
disputed invoices is the amount of R1 318 990.92.
[24]
Mr Donaldson testified that Diesel was never notified by the
defendants that these invoices had been paid. It was only in early
2015 that an ex-employee told him that IRT customers had in fact made
payment to IRT on various back to back invoices, but that
no payment
was made to Diesel. The first time the defendants acknowledged any
form of payment as against the back to back invoices
claimed by
Diesel was in March 2018 when the defendants served their
reconciliation and supplementary discovery on Diesel with
their
amended plea. If Diesel weren’t advised by IRT, its directors
or employees that its customers had in fact paid Diesel
would have no
knowledge of such payment and the debt would not arise. Diesel and Mr
Donaldson were further never advised of any
queries on any invoices
or any issues raised with regards to any alleged overcharges on these
invoices.
[25]
Mr Kamalie, the accountant of IRT confirmed that once IRT received
payment of their invoices from their customers it would
be the
responsibility of IRT to notify Diesel that IRT’s invoice had
in fact been paid and that it would be incumbent on
IRT to raise
concerns of overcharging and issues relating to any invoices with
Diesel. Mr Kamalie further testified that he had
not seen any IRT
documentation relating to the allegations about concerns of
overcharging and issues relating to any Diesel invoices.
Mr Kamalie
confirmed that these amounts ought to have been paid to Diesel.
[26]
The defendants admit that they received payment from its customers
for the invoices in Category 1 & 2. No evidence was
tendered by
the defendants to explain why Diesel was not paid. I am satisfied
that an amount of R5 274 131.09 is due owing
and payable to
Diesel.
CATEGORY
3
[27]
The total value claimed by Diesel in this category is an amount of
R2 966 902.49. The line items in dispute in this
category
are the following: 1,2,3,29,60,164 and 286-302. The defendants plead
by way of their reconciliation that payments were
made to Diesel and
that these payments were allocated by IRT against Diesel invoices in
this category. Mr Donaldson testified that
Diesel’s books did
not reflect these payments against these invoices and that all these
invoices were reflected as not having
been paid on Diesel books.
Diesel also never received any instruction, advise or remittance for
these invoices against these payments.
Attempts were made to allocate
payments received from IRT based on discussions between both parties’
accounts departments
or receipt of remittance advises. In most
instances the parties would agree as to what was paid to make sense
of what was short
paid and overpaid. Mr Donaldson explained that in
the event that there was no agreement or communication or remittance
advise provided
by IRT as to which invoice was being paid to Diesel,
Diesel would engage in an exercise to collate invoices to make up the
figure
and should this not be possible then it would be allocated to
the oldest debt. This verification and allocation would be done
multiple
times, but the obligation to advise, instruct and or to send
a remittance advise to Diesel, lay with IRT. If no advice,
instruction
or remittance was forthcoming and Diesel could not find a
way to adequately collate the payments against projects the payment
would
then go to the oldest debt.
[28]
Mr Donaldson confirmed that all the payments stated by IRT did in
fact reflect in Diesel’s books and on the running statement
which would be provided to IRT from time to time. These payments had
an allocation on these statements as “various”.
Mr
Donaldson and Mr Kamalie confirmed that when IRT received the
statements and saw the allocation to various, it was incumbent
on IRT
to raise a query at the time and advise Diesel as to precisely where
these payments should be allocated. Mr Donaldson and
Mr Kamalie
confirmed that no such queries were ever raised in respect to the
allocation of these payments to “various”.
[29]
Mr Kamalie confirmed that the following amounts reflect as being paid
on Diesel - IRT Statements and that the payment reduces
the running
balance owing to Diesel on the statement:
1.
R3,971,901.37 on 10 May 2010, this payment
reduced the running balance on the account from R33 million to R29
million [these are
rounded off figures];
2.
R4,500,000.00 on 3 December 2010, this
payment reduced the running balance on the account from R25 million
to R20.4 million [these
are rounded off figures];
3.
R1,848,126.61 on 9 May 2010, this payment
reduced the running balance on the account from R32.5 million to
R30.5 million [these
are rounded off figures];
4.
R863,381.82 on 5 October 2010, this payment
reduced the running balance on the account from R13.4 million to
R12.6 million [these
are rounded off figures]; and
5.
R627,783.17 on 8 January 2013, this payment
reduced the running balance on the account from R12.7 million to
R12.1million [these
are rounded off figures].
[30]
Mr Kamalie testified that it was standard practice for IRT to inform
Diesel as to which invoices would be allocated and that
it was IRTs’
obligation to inform Diesel to appropriate the funds to these
invoices. IRT had not done so.
In
cross-examination Mr Donaldson was referred to various documents in
the defendants’ bundle’
s 1
and
2
and in particular pages
1 to 17 of bundle 1.
Mr Kamalie confirmed
that pages 1, 8, 10-17 were snap shots taken from the IRT supplier
age analysis. He confirmed that he did this
exercise in March 2018 in
preparation for trial. He could not confirm the veracity of the
information and transactions as he was
not the person who inputted
the information into the system as he only commenced his employment
with IRT in 2014.
[31]
Both Mr Donaldson and Mr Kamalie were referred to the D reference
numbers in particular D-02-16, D-09-009, D-04--12, D-01-044,
D-09-14,
D-10-010.
Mr Kamalie testified that these
numbers were the IRT cashbook reference numbers. He further testified
that these summarized age
analyses documents had not been shared with
Diesel until trial.
Mr Donaldson testified
that the D reference numbers had no meaning to Diesel. He further
confirmed that none of the documents reflecting
the payment and the
actual invoice paid against were given to Diesel before March 2018.
[32]
It is contended on behalf of Diesel that in light of IRT’s
failure to instruct, advise, inform or remit a payment advise
to
Diesel in respect of the amounts paid Diesel was entitled after
attempting to allocate the amounts to invoices to make payment
towards the oldest debt.
[33]
When determining where payment should be made in the absence of an
instruction from the debtor, Lawrence JP said the following
in the
matter of
Stiglingh
v French
[3]
:
“
The
first rule is that the debtor, when he makes payment, is at liberty
to declare under what head or to what account he wishes
it to be
entered ... The second rule, as laid down by Van der Linden, is that
'when the debtor neglects to appropriate the creditor
is at liberty
when he has different accounts against the debtor to specify by his
receipt the account which he means to place it'.
Pothier quotes the
rule as laid down in the Digest and discusses at some length the
commentary of Bachovius to the effect 'that
as long as the thing is
still entire and as long as the debtor has not received from the
creditor an aquittance, importing the
implication, he may object to
the application which the creditor would make to the account of those
debts which the debtor had
at
least
interest to acquit, and consequently may demand that the creditor
should either make an equitable application by his acquittance
or
restore the money'."
And
at p411
“
The
rules as to the appropriation of payments are well known. It is for
the debtor, and, failing him, for the creditor, to indicate
at the
time of payment to which of more items than one such payment shall be
imputed, and it is only on failure of both that the
law steps in to
make the appropriation. The debtor, and, failing him, the creditor,
must declare his intention before or at the
time of payment, in order
that it may still be open to the creditor not to accept it upon the
debtor's terms, and to the debtor
not to make it upon the creditor's
terms (Voet, 46. 3. 16). If the debtor's intention had been declared
before payment and not
withdrawn, the creditor would be quite
justified in acting upon it, and if he did so act upon it there would
be no necessity for
any declaration of his intention. If the course
of dealing between the parties has been such that the creditor has
been reasonably
led to believe that any payment was intended to be
imputed to a particular item and has acted upon that belief; the
debtor cannot
afterwards claim that the law shall step in to make the
appropriation.”
[4]
[34]
The payments as claimed by IRT have been reflected in Diesels
Statement to IRT. These various payments over the relevant periods
have reduced the running balance on the account. Diesel was entitled
to allocate the payments as it has in the absence of any instruction
from IRT. Mr Kamalie in any event confirmed that even if the invoice
hadn’t been allocated properly, the running balance
of the
account would remain the same. Accordingly, as per IRT’s
reconciliation provided on 6 March 2018 these invoices have
been paid
by IRT’s customer and the amount of R2 966 902.49 is due,
owing and payable to Diesel.
CATEGORY
4 & 5
[35]
Category 4 deals with credit notes passed and were dealt with in
evidence in a fair amount of detail. Diesel pleads that the
passing
of credit notes amounts to fictional fulfilment of the conditions of
the agreement, thereby entitling Diesel to payment.
In the
alternative, Diesel pleads that the passing of a credit is in effect
akin to payment against the customers invoices which
entitles Diesel
to payment. Mr Donaldson testified that Diesel was never advised that
credit notes had been passed on the end user
customer invoices and
that Diesel had never consented to the passing of any of these credit
notes. The first time Diesel became
aware of IRT’s actions in
passing these credit notes was on 6 March 2018 when it was presented
with the reconciliation. Mr
Kamalie confirmed that IRT were obliged
to discuss the passing of any credit notes on the back to back
invoices with Diesel.
[36]
At the conclusion of the trial and during argument the defendants no
longer disputed line Item 4 (R1 387 293.75);
Item 172 (R215
606.58); Item 236 (R193 331.33); Item 283 (R198 346.18) and Item 308
(R1 147 937.92). In terms of these invoices,
which were in fact
paid, IRT owes payment thereof to Diesel in the sum of R 3142 515.76.
[37]
IRT had no entitlement to credit these invoices and in so doing have
defrauded Diesel and at best for it, it intended to prejudice
Diesel
by contriving a basis to avoid payment. This is particularly clear
from the following line items: Item 308 was an invoice
(IN014526/IN014575) in the amount R 1 147 606.58. This
invoice was credited twice and reinvoiced to Claassen Auret. Mr
Donaldson indicated that Claassen Auret was a consultant to MTN and
if there were issues in the MTN budget, certain payments of
MTN’s
invoices would be made by Claassen Auret. Mr Donaldson received
confirmation from Claassen Auret that it had in fact
paid the amount
of R1 147,937.92 in respect of the work done at MTN to IRT on 22
October 2013. Mr Donaldson and Mr Kamalie further
confirmed that the
payment from Claassen Auret of R1 147,937.92 is reflected in IRT’s
bank statements. Considering payment
by Claassen Auret to IRT for the
full value of this invoices, IRT was obliged to make payment to
Diesel for these invoices in the
total amount R1 147 937.92. IRT
had no entitlement to credit the invoice and not reflect the
replacement invoice, in so doing
IRT have defrauded Diesel.
[38]
Diesel places reliance on the doctrine of fictional fulfilment for
the remainder of the invoices not dealt with in Category
4, being
items 25, 59, 304 and 310 in the reconciliation. These invoices total
the amount of R414 364.50. Diesel also places reliance
on the
doctrine of fictional fulfilment for Category 5 invoices where IRT
failed to invoice its customers. It is submitted that
the passing of
credits amounts to an intentional act made by IRT, which results in
the end customer not being required to make
payment for goods
delivered and services rendered. The consequence of passing credits
against these customers invoices, so it is
argued, is that there is
then no obligation on the customer to make payment to IRT. This then
in effect means that the condition
for payment from IRT to Diesel
cannot arise. By passing credit notes IRT have wilfully obstructed
the condition that its customers
make payment which would then result
in payment being due to Diesel.
[39]
I agree with counsel for Diesel’s contentions in this regard.
In terms of the agreement between IRT and Diesel, IRT are
obliged to
invoice its customers. Mr Donaldson testified that Diesel would only
invoice IRT once the work (goods delivered, and
services rendered)
had been completed. On receipt of these invoices IRT would draw up
the corresponding invoice and submit it to
the customer for payment.
IRT had an obligation to render the back to back invoices to the
customers and that obligation arises
once Diesel had invoiced IRT.
The invoices to the customer are required in order for IRT to be paid
by the customer and thereafter
for Diesel to be paid by IRT. The
obligation for IRT to pay Diesel cannot arise unless IRT have
fulfilled their obligation and
invoiced their customer.
[40]
By failing to invoice its customers IRT has intentionally obstructed
the condition for payment to Diesel to be fulfilled. A
party may not
take advantage of its own default (whether by act or omission)
[5]
to the detriment of another party.
[6]
In
Scott
v Poupard
supra
[7]
, Holmes JA that “
Where
a party to a contract, in breach of his duty, prevents the fulfilment
of a condition upon the happening of which he would
become bound in
obligation and does so with the intention of frustrating it, the
unfulfilled condition will be deemed to have been
fulfilled against
him.”
[41]
In
Thanolda
Estates
[8]
,
Wunsh J held as follows:
[22]
Whatever the position may be with regard to the degree of proof
required to a condition would have failed even if the promisor
who
deliberately prevented its fulfilment had not done so, where, as
here, the defendant had a positive duty to take steps to try
to have
the condition fulfilled but neglected to do so, it is equitable to
hold the defendant liable as though the condition had
been fulfilled
unless it can be shown that the steps to be taken would have been an
utter waste of time and money.”
[23]
As indicated in Scott v Poupard (supra) the onus to show the absence
of a causal connection between the defendant's conduct
and the
failure of the condition should rest on the defendant. (See R H
Christie The Law of Contract in South Africa 3rd ed (1996)
at 168.)
The same should apply where the defendant contends that any effort to
have the condition fulfilled would have been futile.”
[42]
The defendants failed to fulfil the condition (by failing to invoice
and by the actions in passing credit notes thereby negating
the need
for customers to pay) which would enable Diesel to claim payment from
it. It is submitted that without any contrary evidence
from the
defendants they had the intention of frustrating the fulfilment of
the condition which would entitle Diesel to payment.
Accordingly, the
unfulfilled condition must be deemed to have been fulfilled. By
fictional fulfilment of the condition for payment,
Diesel is entitled
to payment of the sum total of category 4 and 5 invoices.
CATEGORY
6
[43]
This category makes up an amount of R11 178.78. The defendants did
not testify as to what steps they took to secure payment.
Further to
this it is evident that the defendants have been remiss in their
obligations relating to payment, passing of credits
notes, failing to
invoice, failing to advise regarding payment allocation and so forth.
I am satisfied, on the evidence presented,
that Diesel is entitled to
payment of this amount on these invoices in the sum of R11 478.78.
CATEGORY
7
[44]
This category deals with a single invoice rendered to IRT in the sum
of R 789 555.40. This is item 222 on the reconciliation.
The
defendants were to revert back, they have not.
[45]
Mr Donaldson testified that he was of the view that this invoice
related to goods received at IRT’s offices in Northlands
for
their own use or for purposes of resale. Until March 2018 Mr
Donaldson and Diesel were not aware of whether this invoice pertained
to a customer or not. Mr Donaldson and Mr Kamalie testified that the
delivery note indicated that the goods were delivered at IRT’s
offices. IRT were in possession of the goods and therefore payment
for the goods is due in the sum of R789 555.40.
CONCLUSION
[46]
Mr Kamalie as the accountant for IRT testified that as at 22 August
2019 as per the books of IRT and the supplier age analysis
relating
to Diesel, IRT owed Diesel the sum of R12 453 381.98. He further
confirmed that short of approximately R200 000,
this balanced
with annexure K and the reconciliation put together by IRT. It is
submitted that Diesel is entitled to payment of
the amount as
reflected on Exhibit K being the total of R12 652 046.40
.
Further to this as per the agreement Diesel is entitled to interest
on the outstanding invoices at its bankers prime lending rate
plus
2%, not compounded as per Exhibit “N”. The total interest
as at 30 September 2019 was an amount of R10 591
425.78.
VALIDITY
OF THE SURETYSHIP
[47]
The defendants deny that the suretyship agreements are valid and
binding. They base these denials on the following two propositions:
1.
In terms of clause 1.2 of the suretyship
agreements, they agreed to be liable for the due and punctual payment
and performance by
IRT of all debts and obligations which it may owe
to Diesel in terms of another agreement which would be attached to
the suretyship
agreement and marked Schedule A; and
2.
IRT is referred to as both a surety and a
co-principal debtor in the suretyship agreements. The defendants
contend that the suretyship
agreements are therefore null and void
because the same party cannot be both the surety and principal
debtor.
[48]
Section 6 of the General Law Amendment Act 50 of 1956 provides that
in order for a suretyship agreement to be valid, its terms
must be
embodied in a written document which is signed by or on behalf of the
surety. In
Sapirstein
and Others v Anglo African Shipping Co (SA) Ltd
[9]
,
the
Appellate Division provided instructive guidance to assess compliance
with this provision:
“
What
s 6 requires is that the ‘terms’ of the contract of
suretyship must be embodied in the written document. It was
contended
by counsel for plaintiff that this meant that the identity of the
creditor, of the surety and the principal debtor, and
the nature and
amount of the principal debt, must be capable of ascertainment by
reference to the provisions of the written document,
supplemented, if
necessary, by extrinsic evidence of identification other than
evidence by the parties (i.e. the creditor and the
surety) as to
their negotiations and consensus. I agree with this contention. In my
view there can be no objection to extrinsic
evidence of
identification being given, either by the parties themselves, or by
anyone else, unless the leading of such evidence
can be said to
amount to an attempt to supplement the terms of the written contract
‘by testimony as to some negotiation
or consensus between the
parties which is not embodied in the written agreement’.”
[49]
The suretyship agreements
in casu
comply with section 6. The
agreements and the terms thereof are embodied in written documents
and were signed by the second and
third defendants as sureties.
Clauses 1.1 and 1.2 of the suretyship agreements each describe the
nature of the principal debts
and the bases upon which the second and
third defendants can be held liable. Clause 1.1 is stated very
broadly to encompass “all
sums of money which [the first
defendant] now owes to the creditor, or may from time to time
hereafter owe…”. Clause
1.2 is more limited in its scope
in that it applies specifically to debts or obligations arising from
another agreement which was
to be attached to the suretyship
agreements as schedule A.
[50]
The defendants’ objection to the validity of the suretyship
agreements relates only to clause 1.2 and is premised on
the fact
that the other agreement, the intended schedule A, was not attached
to the suretyship agreements at the time of their
signing.
[51]
The failure to attach the other agreement does not in my view render
the suretyship agreements noncompliant with the General
Law Amendment
Act. The defendants do not explain the practical effects of not
attaching the other agreement to the suretyship agreements,
nor do
they provide any other factual basis to demonstrate how the
suretyship agreements fall short of the requirements of section
6 as
defined in
Sapirstein supra.
The provisions of clause 1.1 are
enough to give efficacy to the agreements of suretyship. I agree with
counsel for Diesel that
the defendants’ argument that the
suretyship agreements are void due to the failure to attach the
intended schedule A is
misplaced and falls to be rejected.
[52]
The court is further required to consider what consequences, if any,
should befall the suretyship agreements because they refer
to IRT as
both a surety and principal debtor. Diesel contends that the parties
did not intend to bind IRT as both surety and principal
debtor.
Accordingly, it is seeking a rectification of the suretyship
agreements to give effect to the parties’ intention.
[53]
It is not in my view unnecessary to deal with this issue in much
detail. It is also my view that it is not necessary for a
rectification of the surety agreements. IRT cannot stand surety for
its own debt. The purpose of a suretyship agreement is to provide
a
safeguard for creditors in the event that the debtor defaults on the
debt. This was the case when Diesel concluded the suretyship
agreements with the Mr Stevens Snr and Mr Stevens Jnr. The defendants
are incorrect in their assertion that the agreements are
unenforceable against them. The liability of the sureties is stated
to be joint and several. The fact that IRT was included as
a surety
itself does not impact on the liabilities of Mr Stevens Snr and the
second defendant.
DECLARATION
OF DELINQUENCY
[54]
Section 162
(5) of the
Companies Act states
that (5)…”
A
court must make an
order declaring a person to be a delinquent
director if the person-
……………
(c)
while
a director-
(i)
grossly abuse the position of director;
(ii)
………….
(iii)
acted in a manner-
(
aa)
that amounted to gross negligence, wilful misconduct or breach of
trust in relation to the performance
of the directors functions
within, and duties to, the company, or
(bb)
contemplated in
section 77
(3) (a), (b), (c).
[55]
Reference in this respect was made to payments to Integrated Premise
Solutions and payment for personal expenses of Mr Stevens
Snr. Mr
Donaldson in his evidence conceded that the payments to IPS
Integrated Premise Solutions, was in respect of the R7 million
rand
that was settled and paid for. Mr Donaldsonadmitted in his evidence
that if the personal expenses were debited to the loan
accounts, then
that would be in order.
[56]
Firstly; the second defendant is not implicated under this ground.
Secondly; the second defendant became a director of IRT
on 6 December
2012 and the conduct complained of occurred before he was appointed
as a director.
[57].
Diesel also contends that the second defendant, as a director of IRT,
would have been aware of the debt owed to Diesel. On
30 July 2013,
whilst the second defendant acted in his capacity as a director, IRT
issued a letter to Diesel requesting confirmation
of the amount owing
by IRT to Diesel. Despite this express acknowledgment of the
indebtedness by IRT, IRT under the guidance of
its directors and the
second defendant failed to make payment to Diesel. In advancing this
ongoing denial from December 2012 (after
his appointment) to March
2018, Mr Stevens Jnr has traded the business of IRT recklessly;
conducted the business of IRT with gross
negligence; conducted the
business of IRT with the intent to defraud its creditor, Diesel;
conducted the business of IRT for fraudulent
purposes.
[58]
This, in my view, is not the type of conduct envisaged by
Section 162
5
(aa) or
77
(3) of the
Companies Act. Section
77 states as follows:
(3)
A director of a company is liable for any loss, damages or costs
sustained by the company as a direct or indirect consequence
of the
director having—
(a)
acted in the name of the company, signed
anything on behalf of the company, or purported to bind the company
or authorize the taking
of any
action
by or on behalf of the company, despite knowing that the director
lacked the authority to do so;
(b)
acquiesced in the carrying on of the
company’s business despite knowing that it was being conducted
in a manner prohibited
by
section 22
(1);
(c)
been a party to an act or omission
by the company despite knowing that the act or omission was
calculated to defraud a creditor,
employee or shareholder of the
company, or had another fraudulent purpose.
[59]
There is no evidence that the second defendant in any way knew or for
that matter acquiesced in the conduct of the business
of IRT in any
manner identified in the
Section 77
(3) (a) to (c) of the
Companies
Act.
>
PERSONAL
LIABILITY
[60]
Section 218
of the
Companies Act states
as follows:
”
Civil
actions………………………
(2)
Any person who contravenes any provision of this Act is liable to any
other person for any loss or damage suffered by that person
as a
result of that contravention.
[61]
No loss or damage has been proven and there is not sufficient
evidence to make such a finding. The defendant’s are also
liable for the reserved costs of the postponement on 7 March 2018.
CONCLUSION
[62]
Diesel has made out a case in terms of claims 1 and 2 of its
particulars of claim.
[63]
I am satisfied that the dishonest conduct of the defendants, in
general, as well as their obstructive conduct during the trial
justifies a punitive costs order being made against both of them
[64]
In the result the following order is made:
1.
The draft order marked “X” is made an order of court.
L.
WINDELL
JUDGE
OF THE HIGH COURT
GAUTENG
LOCAL DIVISION, JOHANNESBURG
APPEARANCES
Counsel
for plaintiff:
Adv. N Strathern
Instructed
by:
Ismail & Dhaya Attorneys
Counsel
for respondents: Adv M. Smit
Instructed
by:
Cliffe Dekker Hofmeyer
Date
matter heard:
6 -7 March 2018, 26-28 August
2019, 3 September 2019.
Judgment
date:
13 December 2019
[1]
2003
(2) SA 515
(W) at page 570 C-D.
[2]
Galante
v Dickinson
1950 (2) SA 460
(A) – p 464 – 465 Schreiner
JA“
In
the case of the party himself who is available , as was the
defendant here, it seems to me that the inference is, at least,
obvious and strong that the party and his legal advisers are
satisfied that, although he was obviously able to give very material
evidence as to the cause of the accident, he could not benefit and
might well because of the facts known to him, damage his case
by
giving evidence and subjecting himself to cross-examination.”
[3]
[1891]-[1892]
9 SC 386
at
page 393
[4]
This
rule was confirmed in
Bergville
Mall (Pty Ltd v Biltworx (Pty) Ltd
[4]
learned
Justice De Vos applied the aforesaid rule, in the absence of an
instruction from the debtor the creditor is entitled to
allocate the
payment to an outstanding debt.
[5]
Lekup
Prop Co No4 (Pty) Ltd v Wright
2012
(5) SA 246
(SCA) at [12]
[6]
Thanolda
Estates
supra
at
[15]
[7]
At
378G - H
[8]
At
page 207 at [22]-[23]
[9]
1978
(4) SA 1
(A) at page1.