Brief Summary

Judgments and orders — Rescission of judgment — Application for rescission of default judgment granted against appellants — Appellants contending that they were not aware of the summons and default judgment due to ineffective service at their chosen domicilium — High Court dismissing rescission application — Appeal against dismissal upheld on grounds that appellants demonstrated good cause for rescission, including a bona fide defence and reasonable explanation for default — Default judgment rescinded and appellants ordered to file their plea.

Comprehensive Summary

Summary of Judgment

1. Introduction

The matter concerned an appeal against the refusal of an application to rescind a default judgment. The appellants were Mr Andreas Demetriou Elia, Mr Kyriacos Kyriacou, and Ms Irene Kyriacou (who had been cited as defendants in the court a quo). The respondent was Absa Bank Limited, the plaintiff in the main action.

The procedural history began with Absa Bank issuing summons against the appellants as sureties for the indebtedness of Lightworks Imaging (Pty) Ltd. A default judgment was granted against the appellants on 27 August 2019 (in their absence). The appellants thereafter brought an application for rescission of that default judgment, which was dismissed by the court a quo (Matojane J). The court a quo also refused leave to appeal. The appellants then petitioned the Supreme Court of Appeal, which granted leave to appeal, resulting in the appeal before Wepener, Adams and Mahalelo JJ.

The dispute’s general subject-matter was whether the default judgment should be set aside under Uniform Rule 42(1)(a) and/or the common law, given the appellants’ assertion that the proceedings did not come to their attention and that they had bona fide defences (including compromise and prescription) to Absa’s claim.

2. Material Facts

Absa Bank’s claim was founded on four agreements concluded between Absa and Lightworks Imaging (Pty) Ltd between 2006 and 2008 for the purchase of equipment. The appellants signed suretyships in favour of Absa for debts owed by Lightworks to Absa.

On 10 July 2009, Lightworks was placed under final winding-up. At the first meeting of creditors on 2 April 2014, Absa submitted claims relating to the agreements, but those claims were rejected.

Absa subsequently issued summons against the appellants (as sureties) on 26 June 2016. The summons, application for default judgment, and notice of set down were served at the appellants’ chosen domicilium address in Johannesburg. On 27 August 2019, Absa obtained default judgment against the appellants in their absence.

In the rescission proceedings, the appellants’ version (relied upon in the appeal) was that the summons and default-judgment process did not come to their attention because they had vacated the domicilium address and had provided Absa’s attorney (Mr Georgiades) with updated contact details. They contended that they only became aware of the litigation when served with the warrant of execution. They further maintained that Absa knew they no longer had a presence at the domicilium address.

Absa’s opposing stance was that service at the chosen domicilium was contractually authorised, and that the domicilium could only be altered by proper written notice to Absa, which Absa contended had not occurred. Absa also alleged that the first appellant was aware of the action by 2018 but did not enter an appearance to defend.

The appeal court treated as materially significant that, on the record, the summons and default-judgment application did not in fact reach the appellants, and it assessed wilfulness and “good cause” on that footing. It also treated as material that the appellants advanced two substantive defences, namely that Absa’s cause had been compromised by settlement and that Absa’s claims had prescribed, raising triable issues.

3. Legal Issues

The central legal questions were whether the appellants had established grounds for rescission of the default judgment under Uniform Rule 42(1)(a) and/or the common law.

This required determination of mixed questions of law and fact, and the application of legal standards to facts, including whether the appellants’ default was wilful, whether they had provided a reasonable and satisfactory explanation for their default, and whether they had disclosed a bona fide defence carrying prima facie prospects of success.

A further legal issue concerned whether the asserted defences of compromise (settlement) and prescription (with reliance on section 13(1)(g) of the Prescription Act 16 of 1968) were sufficiently raised to constitute triable issues for purposes of rescission, without the rescission court deciding the merits finally.

4. Court’s Reasoning

The court began by setting out the applicable legal framework for rescission under both the common law and Uniform Rule 42(1)(a). Under the common law, an applicant must show “good cause”, which requires two essential elements: a reasonable explanation for the default and a bona fide defence that, prima facie, carries some prospect of success. The court emphasised that an explanation must be sufficiently full to permit the court to understand how the default occurred and to assess the applicant’s conduct. It also noted that wilful default forms part of the explanation inquiry, but that an unconvincing explanation on wilfulness does not necessarily end the inquiry if a bona fide defence is shown.

In relation to Rule 42(1)(a), the court noted that rescission may be granted where an order was erroneously sought or erroneously granted in the absence of an affected party, and that even where the requirements are met, the court retains a discretion to rescind, to be exercised judicially with reference to fairness and justice.

On the explanation for default and wilfulness, the court applied the principle that wilful default generally entails knowledge of the action and the steps required to avoid default, coupled with a deliberate failure to act with appreciation of the consequences. Against that standard, it found that it was “quite apparent” that the appellants did not receive the summons and default-judgment application. Although service at a domicilium address is not inherently improper, the court expressed the view that a plaintiff who knows of other means to effect service should serve in a manner likely to ensure the defendant is informed of the proceedings. On this footing, the court concluded that the appellants’ failure to defend could not be characterised as wilful, and that the court a quo ought to have found no wilful default.

The court then considered whether the appellants had advanced a bona fide defence with sufficient disclosure of grounds and material facts. It reiterated that, at rescission stage, an applicant need not show a probability of success, but must demonstrate a substantial defence raising triable issues. The court treated the appellants’ reliance on compromise and prescription as defences that were adequately explained and raised issues appropriate for ventilation at trial.

Regarding compromise, the appellants asserted the existence of a settlement agreement containing a “full and final settlement” clause. The court considered the appellants’ reliance on authority describing compromise as terminating prior rights and obligations and replacing them with a new set under the settlement. The appellants further contended that there had been no reservation of Absa’s rights, and that the suretyships could not be enforced if the principal debt had been extinguished by settlement. The court regarded these contentions as contributing to triable issues for rescission purposes.

Regarding prescription, the appellants contended that, applying section 13(1)(g), Absa should have instituted proceedings within one year after the rejection of its claim at the creditors’ meeting (which occurred on 2 April 2014), and that Absa’s summons (instituted in 2017) was out of time. Absa responded that prescription would run until one year after the liquidation and distribution account was finalised, and that filing claims in an insolvent estate interrupts prescription. The court was not persuaded by Absa’s formulation. It aligned itself with the appellants’ submission that the impediment ceased one year after rejection of the claim as contemplated by section 13(1)(g), and it considered Absa’s reliance on resubmission of claims years later to be flawed. On this basis, the court held that there was sufficient merit in the appellants’ prescription contentions to justify rescission so that these issues could be determined in the main action.

Having concluded that the appellants established both a lack of wilful default and the presence of bona fide defences raising triable issues, the court held that the court a quo erred in refusing rescission. It considered it unnecessary to decide the other grounds advanced on appeal.

5. Outcome and Relief

The appeal was upheld with costs. The order of the court a quo dismissing rescission was set aside and replaced with an order rescinding the default judgment of 27 August 2019 under case number 19617/2017.

The appellants were directed to deliver their plea within twenty days of the appeal judgment date (6 June 2023). The costs of the rescission application were ordered to be costs in the cause of the main action.

Absa Bank was ordered to pay the appellants’ costs of appeal, including the costs of the application for leave to appeal to the court a quo and the costs of the application for leave to appeal to the Supreme Court of Appeal.

Cases Cited

Chetty v Law Society, Transvaal 1985 (2) SA 756 (A).

De Wet and Others v Western Bank 1979 (2) SA 1031 (A).

Childerley Estate Stores v Standard Bank SA Ltd 1924 OPD 163.

Cairn’s Executors v Gaarn 1912 AD 181.

PE Bosman Transport Works Committee and Others v Piet Bosman Transport (Pty) Ltd 1980 (4) SA 799 (A).

Smith NO v Brummer NO and Another; Smith NO v Brummer 1954 (3) SA 352 (O).

Zuma v Secretary of the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector Including Organs of State and Others [2021] ZACC 28.

Silber v Ozen Wholesalers 1954 (2) SA 345 (A).

Harris v ABSA Bank Ltd t/a Volkskas 2006 (4) SA 527 (T).

Melane v Santam Insurance Co Ltd 1962 (4) SA 531 (A).

Standard Bank of SA Ltd v El-Naddaf 1999 (4) SA 779 (W).

Steinberg v Cosmopolitan National Bank of Chicago 1973 (3) SA 885 (RA).

FirstRand Bank v Gazu 2011 (1) SA 45 (KZP).

Sandton Square Finance (Pty) Ltd and Others v Biagi, Bertola and Vasco and Another 1997 (1) SA 258 (W).

Man Financial Services SA (Pty) Ltd v Phaphoakane Transport and Another 2017 (5) SA 526 (GJ).

Gollach & Gomperts (1967) (Pty) Limited v Universal Mills & Produce Co (Pty) Limited and Others 1978 (1) SA 914 (A).

Road Accident Fund v Ngubani 2008 (1) SA 432 (SCA).

Hamilton v Van Zyl 1983 (4) SA 379 (E).

Van Deventer and Another v Nedbank Ltd 2016 (3) SA 622 (WCC).

Legislation Cited

Prescription Act 16 of 1968.

Rules of Court Cited

Uniform Rules of Court, Rule 42(1)(a).

Held

The court held that the court a quo erred in dismissing the rescission application because, on the facts accepted as material, the summons and default-judgment process did not come to the appellants’ attention and their failure to defend was therefore not shown to be wilful default.

The court further held that the appellants disclosed bona fide defences—in particular, compromise and prescription—that raised triable issues and were sufficient, when considered together with the explanation for default, to constitute good cause for rescission under the common law (and in the context of the rescission discretion).

Accordingly, the default judgment was rescinded, the appellants were directed to plead, and costs orders were made in favour of the appellants on appeal, with rescission costs to stand over for determination in the main action.

LEGAL PRINCIPLES

Rescission under the common law requires proof of good cause, comprising a reasonable and satisfactory explanation for the default (including the absence of wilful default) and the disclosure of a bona fide defence which, prima facie, carries some prospect of success. The explanation must be sufficiently full to enable the court to understand how the default occurred and to evaluate the applicant’s conduct.

In assessing “good cause”, the adequacy of the explanation for default is not considered in isolation; it is weighed together with the nature and apparent strength of the defence and the full context of the matter. Even where the explanation is weak, a demonstrated bona fide defence may still justify rescission in an appropriate case.

Under Uniform Rule 42(1)(a), rescission may be granted where a judgment was granted in the absence of an affected party and was erroneously sought or granted. The Rule is empowering rather than peremptory: a court may, not must, rescind, and the discretion must be exercised judicially with regard to fairness and justice.

For purposes of rescission, an applicant is not required to prove a probability of success on the merits; it is sufficient to place before the court a prima facie case that discloses triable issues, supported by a bona fide factual foundation for the proposed defences.

Elia and Others v Absa Bank Ltd (A5083/2021 ; 19617/2017) [2023] ZAGPJHC 649 (6 June 2023)