Brief Summary

Execution — Rescission of judgment — Application for rescission of default judgment and setting aside of warrant of execution — Applicants, as trustees of the Spreading the News Trust, sought rescission on grounds of lack of service and erroneous grant of judgment — Respondent contested application, raising points in limine regarding hearsay, late filing, and locus standi — Court found that service was not properly effected on the applicants, as the respondent was aware of the sale of the property and failed to notify them — Rescission granted as the judgment was erroneously granted in the absence of the affected parties.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an opposed application for the rescission of a default judgment and the setting aside of consequential execution process, including a warrant of execution and an order declaring immovable property specially executable. The application was brought in terms of Uniform Rule 42(1)(a) on the basis that the default judgment had been erroneously sought and granted in the absence of parties affected.

The applicants were Annelise Cilliers N.O. and Karel Frederick Cilliers N.O., cited as trustees of the Spreading the News Trust (“the Trust”), and Annelise Cilliers in her personal capacity as surety. The respondent was Firstrand Bank Limited trading inter alia as First National Bank (“the bank”).

The procedural history was that the bank obtained a default judgment on 15 July 2019 (per Vuma AJ) against the Trust (through its trustees) and against the third applicant as surety, in the amount of R838 928.06, together with an order declaring the relevant immovable property specially executable. A warrant of execution followed, dated 14 August 2019. The applicants then launched the present rescission proceedings, which were heard on 3 August 2020 and decided on 9 December 2020 (per Mia J).

The dispute concerned enforcement of a facility loan agreement concluded between the bank and the Trust, the validity of the process by which default judgment was obtained (especially service at a domicilium address that had been sold), and whether the bank had pursued judgment and execution without bringing relevant facts to the attention of the court that granted default judgment.

2. Material Facts

A written facility agreement was concluded on 2 June 2011 between the bank and the third applicant acting on behalf of the Trust. A facility sum of R2 480 000.00 was made available, repayable over 240 months. As security, the bank required mortgage bonds over two immovable properties (one in Cape Town and one in Johannesburg) and a deed of suretyship executed by the third applicant.

It was common cause, as the court treated it, that the domicilium citandi et executandi recorded for purposes of the bank’s proceedings was an address in Johannesburg (the [….] property). The court also accepted that the bank knew that this domicilium property had been sold and transferred (the judgment records transfer having taken place in 2015) because the bank was required to provide information to enable transfer, including a bond cancellation amount, and because the bank consented to the sale.

Despite that knowledge, the bank continued to send notices (including section 129 notices under the National Credit Act 34 of 2005) and served the main application process at the domicilium address after the property had been transferred. The judgment records that notices were sent by registered post to the domicilium address on 22 July 2016, 16 May 2017, and 17 April 2019, all after transfer in 2015, at a time when the property was no longer occupied by the applicants. The bank did not pursue substituted service or alternative service methods to reach the applicants.

The bank’s founding papers in the main application included allegations intended to support an order of special executability, including that the property appeared to be a holiday home (not a primary residence). A valuation was performed externally after unsuccessful attempts to gain access; the valuer estimated a market value of R650 000.00 and a forced sale value of R450 000.00.

A material factual contention raised by the applicants, and treated by the court as relevant to the rescission enquiry, was that the bank received the full benefit of the sale proceeds of the domicilium property paid into the facility account. On the applicants’ version, this payment settled arrears and placed the Trust ahead on its repayment obligations. The court recorded a dispute between the parties about the effect of an “extra” payment into the account, including whether it entitled the Trust to a form of payment holiday. The court did not finally determine the accounting dispute in this judgment but regarded it as reinforcing the appropriateness of further detail and account statements, and potentially debatement.

The court accepted, as central to the rescission enquiry, that service of the main application and notices did not reach the applicants, and that the bank on its own version effectively accepted that there was no service on the applicants. The judgment further records that the bank suggested in the main application that the third applicant “may nevertheless be residing” at the domicilium property despite knowing it had been sold, and the court treated this as a misrepresentation or, at minimum, a materially inaccurate presentation of facts.

3. Legal Issues

The court was required to determine, first, a set of preliminary objections (points in limine) and, second, whether the requirements for rescission under Uniform Rule 42(1)(a) were met. The issues were primarily application of law to fact, with some factual evaluation, particularly as to service, knowledge of the domicilium sale, and standing.

The preliminary issues were whether the bank’s affidavits were inadmissible as hearsay due to lack of personal knowledge, whether the rescission application was late and required condonation, and whether the Trust had locus standi in light of an alleged defect in trusteeship (including whether all trustees acted jointly and whether a trustee’s resignation was valid without attaching a Master’s letter of authority).

The central merits issue was whether the default judgment and execution-related orders were “erroneously granted” in the applicants’ absence within the meaning of Uniform Rule 42(1)(a), particularly where service was effected at a domicilium address that the bank knew had been sold and would not bring the proceedings to the applicants’ attention. A further connected issue was whether the order declaring the property specially executable should stand in circumstances where the court granting judgment allegedly lacked full facts about occupation and service.

A further issue identified by the court (though not finally determined in the relief) concerned the quantification of the outstanding amount, the basis on which it was calculated, and whether the applicants were entitled to a debatement of account.

4. Court’s Reasoning

On the hearsay objection, the court relied on Rees and another v Investec Bank Limited [2015] JOL 33635 (SCA) for the proposition that first-hand knowledge of every fact is not required of a deponent for large financial institutions, because the relevant information is typically contained in records under the deponent’s control. Applying that approach, the court held that the bank’s affidavits were not hearsay merely because the deponent was not personally involved in each underlying event.

On the timing objection, the court distinguished between rescission under Uniform Rule 31(2)(b) (where time periods can be relevant) and rescission under Uniform Rule 42(1)(a). The applicants expressly relied on Rule 42(1)(a) on the basis of an order erroneously sought or granted, primarily due to defective service and the bank’s knowledge that the domicilium was no longer effective. The court held that, on this footing, the applicants were not bound by the time limits contended for by the bank. The court additionally noted that, even on the bank’s own admission, there was no service on the applicants.

On locus standi, the court addressed the bank’s argument that the Trust lacked standing because (on the bank’s version) a trustee’s resignation was invalid and no Master’s letter of authority was attached to establish that only the first and second applicants were trustees. The court accepted the applicants’ position that they were acting jointly, supported by a confirmatory affidavit, and that the resignation of Mr Hannington in 2015 complied with clause 20.2 of the Trust deed (written notice). The court further accepted the applicants’ contention that the resignation did not contravene section 21 or provisions of the Trust Property Control Act 24 as referenced in the judgment, and treated the Master’s letter of authority as an additional method of proof rather than an absolute prerequisite on the papers as framed. The court therefore found that the Trust had established locus standi, and added that, in any event, the third applicant as surety had standing to bring the application and raise defences.

Turning to Rule 42(1)(a), the court set out the text of the rule and applied the principle that rescission is appropriate where an order was granted in the absence of an affected party, including where proper notice was not given, or where the true facts were not placed before the court granting default judgment. The court emphasised that the relevant enquiry is whether the judgment was erroneously granted, which can occur even if the order might otherwise have been correct on the merits.

On the facts, the court treated as decisive that the bank knew the domicilium property had been sold, had consented to the sale, and had received the benefit of the sale proceeds, yet continued to serve notices and the main application at that address years after transfer. The court regarded it as self-evident that such service would not have reached the applicants and that the bank did not take meaningful steps to effect substituted service or to locate an alternative address. The court further highlighted that the bank’s papers in the main application suggested that the third applicant might still be residing at the property despite the bank’s knowledge of the sale and transfer, and considered this to be a material misstatement to the court that granted default judgment.

The court also noted that the bank’s later account of how the applicants learned of the judgment involved documents found at a different property (a Cape Town property), whereas service of the main application and earlier notices was effected at the Johannesburg domicilium property. The court considered that the bank had not satisfactorily explained proper service, and that the returns of service were referred to but not attached, contributing to the conclusion that service was defective.

Regarding the payment dispute and the outstanding balance, the court did not finally determine the parties’ accounting disagreement but accepted that, given the applicants’ contention that the facility account had been brought up to date by the sale proceeds, and their contention about delay by the bank affecting interest and costs, it was appropriate that detailed statements be requested and that the issues be ventilated, potentially through debatement. This reinforced, in the court’s view, the appropriateness of rescission where default judgment had been obtained without proper service and without full facts being before the court.

On costs, the court applied the general principle that costs follow the result in the rescission application and concluded that the bank should bear the costs, including the costs associated with setting aside the special executability order, which the court ordered to include the costs of two counsel.

5. Outcome and Relief

The court rescinded and set aside the default judgment granted on 15 July 2019 under case number 2019/20259 in favour of the bank.

The court rescinded and set aside the warrant of execution against immovable property dated 14 August 2019.

The court set aside the order declaring the property specially executable, and ordered that the costs related to that aspect include the costs of two counsel.

The respondent was ordered to pay the costs of the rescission application.

Cases Cited

Rees and another v Investec Bank Limited [2015] JOL 33635 (SCA).

Custom Credit Corporation Ltd v Bruwer 1969 (4) SA 564 (D).

Theron v United Democratic Front (Western Cape Region) 1984 (2) SA 532 (C).

Topol v LS Group Management Services (Pty) Ltd 1988 (1) SA 639 (W).

Clegg v Priestley 1985 (3) SA 950 (W).

Athmaram v Singh 1989 (3) SA 953 (D).

Fraind v Nothmann 1991 (3) SA 837 (W).

Kili v Msindwana [2001] 1 All SA 339 (Tk).

Brangus Ranching (Pty) Ltd v Plaaschem (Pty) Ltd [2008] 4 All SA 542 (N).

Legislation Cited

National Credit Act 34 of 2005 (including reference to section 129 notices).

Trust Property Control Act 24 (as referenced in the judgment, including reference to section 21).

Rules of Court Cited

Uniform Rule 42(1)(a).

Uniform Rule 31(2)(b).

Held

The court held that the requirements of Uniform Rule 42(1)(a) were satisfied because the default judgment and related execution orders were erroneously granted in the absence of parties affected, in circumstances where the bank served process at a domicilium address that it knew had been sold and would not bring the proceedings to the applicants’ attention.

The court further held that the bank’s affidavits were not excluded as hearsay on the basis advanced, that rescission under Rule 42(1)(a) was not defeated for want of condonation based on the time periods argued by the bank, and that the Trust had established locus standi to bring the application (with the surety in any event also having standing).

The default judgment, the warrant of execution, and the order declaring the property specially executable were accordingly set aside, with costs awarded against the bank, including the costs of two counsel in relation to the special executability order.

LEGAL PRINCIPLES

Uniform Rule 42(1)(a) empowers a court to rescind or vary an order erroneously granted in the absence of a party affected thereby, and rescission is generally appropriate where an affected party was absent because proper notice was not given or where material facts were not placed before the court granting default judgment.

In the context of affidavits deposed to on behalf of large financial institutions, the absence of first-hand knowledge of every fact by the deponent does not necessarily render affidavit evidence inadmissible as hearsay, where the information is drawn from records and files within the deponent’s control and oversight, consistent with the approach endorsed in Rees and another v Investec Bank Limited [2015] JOL 33635 (SCA).

Where a litigant effects service at a chosen domicilium while knowing that the domicilium is no longer operative in a practical sense (for example, because the property has been sold and the other party no longer occupies it), and takes no effective alternative steps to ensure notice reaches the affected party, a default judgment granted on such service may be treated as erroneously granted for purposes of Rule 42(1)(a).

Questions of trustees’ authority and standing in motion proceedings may be resolved on the papers where the court is satisfied that the trustees before it are acting jointly and that reliance on a Master’s letter of authority is not treated, in the circumstances presented, as the only permissible proof of authority; and, in any event, a surety sued under the judgment may independently have standing to seek rescission and raise defences affecting execution.

Cilliers NO and Others v Firstrand Bank Limited trading inter alia as First National Bank (2019/20259) [2020] ZAGPJHC 361 (9 December 2020)