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[2014] ZASCA 210
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New Port Finance Company (Pty) Ltd and Another v Nedbank Limited (30/2014) [2014] ZASCA 210; [2015] 2 All SA 1 (SCA); 2016 (5) SA 503 (SCA) (1 December 2014)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case
no: 30/2014
In
the matter between:
NEW
PORT FINANCE COMPANY (PTY)
LTD
.........................................................
First
Appellant
DAVID
CARL
MOSTERT
..........................................................................................
Second Appellant
and
NEDBANK
LIMITED
...........................................................................................................
Respondent
(WCHC
Case No 20896/2010)
and
in the matter between:
DAVID
CARL
MOSTERT
...............................................................................................
First
Appellant
NEW
PORT FINANCE COMPANY (PTY)
LTD
.....................................................
Second
Appellant
and
NEDBANK
LIMITED
...........................................................................................................
Respondent
(WCHC
Case No 22331/2010)
Neutral
citation:
New Port Finance Company
(Pty) Ltd v Nedbank Ltd
(30/2014)[2014]
ZASCA 210 (1 December 2014)
Coram:
Navsa ADP, Majiedt, Wallis, Saldulker and Zondi
JJA
Heard
:
25 NOVEMBER 2014
Delivered
:
1 December 2014
Summary:
Companies undergoing business rescue in
terms of
Companies Act 71 of 2008
– effect of business rescue
on obligations of sureties discussed –
section 154
of Act –
interpretation of deed of suretyship
ORDER
On
appeal from:
Western Cape High Court
(Blignault J sitting as court of first instance):
The
appeals are dismissed with costs such costs to include those
consequent upon the employment of two counsel.
JUDGMENT
Wallis
JA (Navsa ADP, Majiedt, Saldulker and Zondi JJA concurring
[1]
Wedgewood
Village Golf and Country Estate (Pty) Ltd (Wedgewood) and Danger
Point Ecological Development Company (Pty) Ltd (Danger
Point) both
borrowed money from the respondent, Nedbank Ltd (Nedbank) for the
purposes of pursuing two property developments. The
loans in both
instances were secured by deeds of suretyship executed by the
appellants, New Port Finance Company (Pty) Ltd (New
Port) and Mr
David Mostert, the sole director of New Port.
[1]
Wedgewood and Danger Point defaulted on their obligations to Nedbank
and in 2010 it instituted separate proceedings against each
of them
and New Port and Mr Mostert. On 27 September 2011, judgments were
entered in favour of Nedbank against Wedgewood and the
two sureties
jointly and severally, the one paying the other to be absolved, for
some R55 million, interest and costs, and against
Danger Point and
the two sureties, also jointly and severally, for a little over R10
million, interest and costs. Thereafter Nedbank
obtained provisional
and final liquidation orders against Wedgewood and Danger Point.
[2]
On 29 March 2012 Nedbank launched an
application for Mr Mostert’s sequestration and on 17 May 2012
it launched an application
for New Port’s liquidation. The
present appeals arise because Mr Mostert and New Port sought to
prevent Nedbank from pursuing
those applications. They relied for the
relief they sought on the fact that both Wedgewood and Danger Point
had been taken out
of liquidation, placed under supervision under
orders of court granted in terms of s 130(1) of the Companies
Act 71 of 2008
(the Act), and business rescue plans had been adopted,
become final and were being implemented in respect of both companies.
In
those circumstances, in separate applications, the one relating to
Wedgewood and the other to Danger Point, Mr Mostert and New Port
applied for orders interdicting Nedbank from taking any further steps
against them in relation to the enforcement or execution
of the two
judgments, including pursuing the applications for their respective
sequestration and liquidation. The orders were to
be final unless the
business rescue plans proved unsuccessful and were terminated in one
of the ways provided in terms of the Act.
Blignault J dismissed their
applications in the high court, but granted leave to appeal to this
court.
[3]
Two arguments were advanced on behalf of Mr
Mostert and New Port. The first was that the terms of the business
rescue plans, which
were binding on Nedbank, altered the obligations
of the principal debtors, Wedgewood and Danger Point. This, so it was
argued,
had the effect as a matter of law of altering the obligations
of Mr Mostert and New Port as sureties for the debts of Wedgewood
and
Danger Point, so as to render them liable for no more than the
obligations of Wedgewood and Danger Point under the business
rescue
plans. Accordingly, the argument proceeded, they were no longer
liable immediately to satisfy the judgments taken against
them,
because the principal debtors had been given time to pay the same
debts, and if the business rescue proved successful in
each case
their obligations to Nedbank would be discharged because the
obligations of Wedgewood and Danger Point would have been
discharged.
[4]
The alternative argument was that the court
should in any event grant a stay of execution on the two judgments,
either in terms
of its common law powers, or in terms of rule 45A of
the Uniform Rules of Court, in order to prevent them suffering a
grave injustice.
They said that it would be unfair to permit Nedbank
to pursue execution on the judgments when there was a possibility
that the
successful implementation of the business rescue plans would
result in the complete discharge of the debts by Wedgewood and Danger
Point. In addition Mr Mostert claimed that his own and New Port’s
involvement in the business rescue plans was integral to
their
success and his sequestration would hinder that.
[5]
An immediate difficulty confronted both Mr
Mostert and New Port arising from events subsequent to the hearing in
the court below.
According to affidavits delivered shortly before the
appeal and admitted without opposition, the business rescue in
relation to
Wedgewood had failed and Nedbank had given notice to the
business rescue practitioner to terminate it and to dispose of the
assets.
In the order sought in the court below it was accepted that
in that eventuality there could be no bar to the sequestration of Mr
Mostert’s estate and the liquidation of New Port.
[6]
Mr Mostert and New Port sought an interdict
against execution being levied against them and particularly an
interdict prohibiting
the continuation of the sequestration and
liquidation applications. The interdict was to be made conditional
(‘unless’)
on certain events occurring, in which event it
would fall away. Two of those events were the business rescue
proceedings being
terminated in terms of s 132(2)
(a)
of the Act or Nedbank becoming entitled
to call on the business rescue practitioner to dispose of the assets
of Wedgewood where
there had been a failure to pay it in accordance
with the business rescue plan, or the plan had not been complied
with, or the
conditions in the plan had not been fulfilled. Nedbank
delivered an affidavit saying that these events had occurred and that
they
rendered the appeals moot. In an affidavit delivered in response
to this, Mr Mostert accepted that there had been a default under
the
Wedgewood business rescue plan. This meant the fulfilment of the
conditions that would cause the proposed interdict to fall
away. All
that he could proffer as a reason for continuing with the appeals was
the possibility or more accurately the hope that
some fresh
compromise could be reached with Nedbank.
[7]
These events effectively spelled the end of
the appeal so far as the Wedgewood business rescue plan was
concerned. In turn that
meant that Nedbank can pursue Mr Mostert’s
sequestration and New Port’s liquidation on the basis of the
judgment it
obtained against them jointly with Wedgewood. That
destroyed the underlying rationale for the application for an
interdict, in
similar terms and subject to similar conditions, based
on the Danger Point judgment. In the founding affidavit in the Danger
Point
application, Mr Mostert said that the application was
precipitated by Nedbank’s election to continue with the
sequestration
and liquidation applications. Once Nedbank was free to
pursue those applications, based on the judgments in relation to the
Wedgewood
development, no purpose would be served by an order
interdicting it from doing so, in the wording suggested by counsel
‘in
reliance on any claim made under’ the judgment in the
Danger Point case. If Nedbank is free to pursue these applications it
cannot be prevented from doing so by an order in the terms suggested.
That order would amount to a pointless restraint –
a
brutum
fulmen
.
[8]
The appeals must therefore be dismissed on
that ground alone. However, the matter has been fully argued, the
issues are of some
general importance and that would in any event
have been their fate, even had intervening circumstances not rendered
the two applications
pointless. In those circumstances it is
appropriate to state briefly why that would have been the result. At
the heart of the submissions
on behalf of Mr Mostert and New Port was
the proposition that the successful outcome of the business rescue
proceedings would be
that the sureties would have been relieved of
any indebtedness to Nedbank over and above the payment of the amounts
already received
by Nedbank under those two plans. For various
reasons that would not have been the case.
[9]
The
first reason is that Nedbank had obtained judgments that served to
fix the liability of the sureties. There were no grounds
for
rescinding those judgments nor any attempts to do so and they had
become final, with no avenue open for them to be challenged
on
appeal. Even if it is accepted that they did not novate the claims
under the deeds of suretyship, but merely strengthened those
claims
and replaced the right of action on the deeds of suretyship by a
right to execute on the judgment,
[2]
the fact remained that the liability of the sureties was thereby
established. If any payment was made by the principal debtor
thereafter that would enure to the benefit of the sureties, but that
would follow from the fact that the judgment established joint
and
several liability so that, in the time honoured expression, if the
one paid the others would be absolved. But we were referred
to no
authority and I have discovered none, in which it has been held that
a compromise of the principal debtor’s liability
under the
judgment, whether as a result of business rescue or otherwise, would
accrue to the advantage of the surety after judgment
had been taken
against them. There can be no question of the surety’s rights
or interests being prejudiced thereby,
[3]
because the extent of the surety’s liability for the debt in
question has been fixed and determined. How the creditor thereafter
sets about executing the judgment against the principal debtor does
not affect either the nature or the extent of the surety’s
liability.
[10]
The second reason is that the terms of the
deeds of suretyship in this case, as is frequently the situation, had
been drafted so
as to cater for this very eventuality. Clauses five,
six and seven entitled the bank to pursue the sureties
notwithstanding their
dealings with the principal debtor and the
grant of any extension of time, or any compromise in relation to the
scope and extent
of the principal debtor’s indebtedness. Any
default on the part of the principal debtor entitled the bank to sue
the sureties.
The benefit of excussion was waived. I will not
lengthen this judgment by quoting the clauses. They were relatively
standard clauses
to be found in most commercial deeds of suretyship.
[11]
Clause
five is in similar terms to the clause in the deed of suretyship that
was in issue in
Cape
Produce Co (Port Elizabeth) (Pty) Ltd v Dal Maso and Another NNO
.
[4]
There, a power to give time to or release the principal debtor
‘without prejudice to its rights hereunder’ was held
to
entitle the creditor to demand immediate payment from the surety,
notwithstanding its having subordinated its claim against
the
principal debtor in favour of other creditors. Similarly here, the
fact that the bank agreed, by way of its agreement to the
business
rescue plans, to give Wedgewood and Danger Point time to pay their
indebtedness to it and, conditional on them doing so,
agreed to limit
the amounts that would be paid to them, fell squarely within clause
five.
[12]
Of necessity therefore it had to be argued
that the liquidation of Wedgewood and Danger Point had altered the
situation. But that
only brought clause six into sharper focus. It
identified four broad situations when its terms would apply. They
were liquidation,
judicial management under the Companies Act 61 of
1973, the submission of an offer of compromise by the debtor and the
submission
of a scheme of arrangement by the debtor. If any of those
events occurred, clause six entitled Nedbank to accept any dividend
on
account or any alternative securities arising out of that event
and ‘to recover from the surety, to the full extent of this
suretyship’ any sums remaining owing thereafter. In other
words, the fact that in any of those situations the principal debtor
would be released in whole or in part from its obligations would not
disentitle the bank from recovering the outstanding amount
from the
sureties. Neither suggestion by counsel as to ways in which this
could be avoided held water. In particular the suggestion
that a
clause in these terms did not encompass business rescue – an
institution that did not exist under that name when the
deeds were
executed – was incorrect.
[13]
Counsel
eschewed any contention that the sureties were entitled to the
benefit of the statutory moratorium afforded Wedgewood and
Danger
Point under s 133(1) of the Act. He was right to do so.
[5]
He also did not go so far as to contend that the effect of the
business rescue provisions in ss 128 to 154 of the Act is to
deprive creditors of the company of their rights against sureties
under the deeds of suretyship by which they have bound themselves
for
the debts of the company, although that was implicit in his argument
that the debts owed by the sureties were altered by the
terms of the
business rescue plans and would ultimately be discharged if the plans
succeeded. He fortified this argument by reference
to the judgment of
Rogers J in
Tuning
Fork,
[6]
which in turn was largely based on the learned judge’s reading
of the decision in
Moti
and Co v Cassim’s Trustee
.
[7]
[14]
As
the case will be disposed of on the grounds already set out above it
is inappropriate to explore in detail the reasoning of Rogers
J. I
simply record that it is by no means clear to me that it is correct.
Moti
and Co v Cassim’s Trustee
was decided on the basis of the court’s interpretation of a
specific provision in the 1916 Insolvency Act
[8]
that has no direct counterpart in the Act. The key provision in that
regard is s 154, which, in subsec 1, simply says that
in certain
circumstances a creditor will not be able to enforce a debt against a
company in business rescue and, in subsec 2, says
that the company
may enforce a debt in accordance with and to the extent permitted by
the terms of the business rescue plan. That
section is capable of the
construction that it deals only with the ability to sue the principal
debtor and not with the existence
of the debt itself. If that is the
case then the liability of the surety would be unaffected by the
business rescue, unless the
plan itself made specific provision for
the situation of sureties.
[15]
There was also a contention that the court
should have exercised a discretion to stay the enforcement of the
judgments granted against
Mr Mostert and New Port pending the outcome
of the business rescue plans. That became academic once the Wedgewood
plan failed and,
if the large debt in that case can be enforced,
there seems to be little reason to postpone enforcement of the far
smaller debt
in Danger Point.
[16]
On every ground advanced before us
therefore the appeals must fail. It is unnecessary therefore to
consider the criticism directed
at the judgment of the high court, as
the result it reached was correct. We were asked to award Nedbank the
costs of three counsel
on the grounds that the case involved a lot of
money; that there was an attack on its standard form of suretyship
and that the
implications of business rescue are important to the
bank and the wider commercial community. Whilst all that is correct
it is
true of much litigation that comes to this court and it does
not warrant the employment of three counsel. The additional costs
incurred thereby are an expense that the bank must bear.
[17]
The appeals are dismissed with costs, such
costs to include those consequent upon the employment of two counsel.
M
J D WALLIS
JUDGE
OF APPEAL
Appearances
For
appellant: Paul Farlam (with him Grant Quixley)
Instructed by:
John Taylor &
Associates Inc, Cape Town;
Webbers,
Bloemfontein
For respondent:
Schalk Burger SC (with him Brendan Manca SC and Stephan Wagener)
Instructed
by:
Cliffe
Dekker Hofmeyr, Cape Town;
Honey
Attorneys Inc, Bloemfontein.
[1]
In the case of Wedgewood there were other sureties but that is
irrelevant for present purposes.
[2]
Swadif
(Pty) Ltd v Dyke NO
1978
(1) SA 928
(A) at 942C-E.
[3]
Bock
and Others v Duburoro Investments (Pty) Ltd
2004
(2) SA 242
(SCA) paras 18-21.
[4]
Cape
Produce Co (Port Elizabeth) (Pty) Ltd v Dal Maso and Another NNO
2002
(3) SA 752
(SCA) paras 9 to 11.
[5]
Investec
Bank Ltd v Bruyns
2012
(5) SA 430
(WCC) paras 17-19.
[6]
Tuning
Fork (Pty) Ltd t/a Balanced Audio v Greeff and Another
2014
(4) SA 521
(WCC) paras 14(i) and (ii)
.
[7]
Moti
and Co v Cassim’s Trustee
1924
AD 720.
[8]
Section
126(2)
(b)
of
the Insolvency Act 32 of 1916.