Brief Summary

Execution — Sale in execution — Mortgage bond — Plaintiff sought a money judgment and declaration of immovable property executable due to the first defendant's breach of a mortgage bond agreement — Second defendant, as spouse of the first defendant, sought to intervene — Court found that the first defendant had abandoned the property and was aware of proceedings but did not primarily reside there — Rule 46A applicable, requiring inquiry into alternative means of satisfying judgment debt — Court held that the second defendant's proposed business plan was not viable and that the first defendant was hopelessly indebted, thus ordering the immovable property to be declared executable.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an application in the Gauteng Division, Johannesburg, in which Firstrand Bank Limited sought, first, a money judgment arising from a mortgage loan default and, second, relief under Rule 46A of the Uniform Rules of Court declaring certain residential immovable property specially executable and authorising the issue of a warrant of execution for its sale in execution.

The plaintiff was Firstrand Bank Limited. The cited first defendant was Nigel Timothy Salm (the judgment debtor under the loan agreement and bond). Gregory Bloom-Salm participated in the proceedings and was ultimately granted leave to intervene and joined as second defendant, on the basis of his legal interest arising from the parties’ marriage in community of property and his occupation of the property as a residence. The City of Johannesburg Metropolitan Municipality was reflected as an interested party/third defendant, primarily in the context of municipal indebtedness relevant to the reserve price.

Procedurally, the plaintiff instituted action for payment and execution against the mortgaged property. The matter was initially set down on 6 April 2021, when Mr Bloom-Salm appeared and sought an opportunity to oppose; he was given that opportunity and later delivered an answering affidavit on 15 April 2021. The first defendant did not defend. The matter was ultimately heard on 11 April 2023, and judgment was delivered on 5 September 2023.

The general subject-matter of the dispute concerned the enforcement of a mortgage bond debt, the consequential declaration of executability of the mortgaged property under Rule 46A (given its residential character for an occupant), and the determination of an appropriate reserve price for a judicial auction.

2. Material Facts

On 30 June 2006, the plaintiff and the first defendant concluded a written loan agreement in terms of which the plaintiff lent and advanced R 1 400 000.00 to the first defendant. The loan agreement was subject to the registration of a mortgage bond in favour of the plaintiff over the immovable property described as ERF [...] Melville Township, Registration Division I.R., Province of Gauteng, held under Deed of Transfer T48580/2006.

It was not disputed that the first defendant breached the loan agreement by failing to maintain the agreed monthly instalments. At the time the summons was issued, the first defendant had been in breach for 5.6 months, and arrears had accumulated to R 77 487.24. By the hearing date, the arrears had materially increased. The judgment records that, between December 2020 and April 2023, no significant payments were made by either defendant, and the arrears by the hearing had escalated to R 490 513.00. An updated certificate of balance reflected that, as at 11 April 2023, the accelerated judgment debt was R 1 030 563.72.

The first defendant did not oppose the claim for payment and did not advance a substantive defence in the proceedings. The second defendant likewise raised no defence in law to the plaintiff’s entitlement to a money judgment against the first defendant, and did not dispute the arrears position. The second defendant’s opposition was directed to the Rule 46A execution relief, contending that adverse personal and commercial circumstances prevented performance and that he had developed a business plan intended to rehabilitate a guesthouse operation run from the property and thereby enable repayment.

As to occupation and residential use, it was accepted that the first defendant no longer resided at the property, having immigrated to the United Kingdom, and that the property was therefore not the first defendant’s primary residence. However, the property was jointly owned as part of a marriage in community of property subsisting between the first and second defendants, and the second defendant resided at the property and worked there. On this basis, the court treated Rule 46A as applicable because execution would affect a person occupying the property as a residence.

Municipal indebtedness to the City of Johannesburg was placed before the court as relevant to the setting of a reserve price. The City’s claim was recorded as R 894 177.89. The plaintiff’s valuation material reflected a market value of R 1 600 000.00, and the municipal valuation was R 2 032 000.00. The court calculated the median between these values as R 1 816 000.00.

3. Legal Issues

The central legal questions the court was required to determine were whether, in the circumstances, the mortgaged property ought to be declared specially and immediately executable under Rule 46A, and, if execution was warranted, what reserve price should be set for the sale in execution.

A further issue arose concerning procedural compliance with Rule 46A, particularly whether there had been adequate service given that the first defendant was not personally served with the summons and subsequent process in the manner contended for by the opposing party, and whether the requirements of Rule 46A were met in substance.

The dispute primarily concerned the application of legal standards to facts. The money judgment component was effectively uncontentious on the papers (no defence at law being advanced). The execution component required the court to conduct the Rule 46A enquiry, including an evaluative determination as to alternative means of satisfying the judgment debt, the proportionality of execution, and an appropriate reserve price in light of valuations and municipal debt.

4. Court’s Reasoning

The court treated the matter as turning largely on the Rule 46A enquiry, because the defendants did not raise a legal defence to the underlying indebtedness or to the plaintiff’s entitlement to judgment for payment. The court framed the “real issue” as whether the immovable property should be declared executable and, if so, what reserve price should be fixed.

On Rule 46A’s applicability, the court accepted that although the first defendant no longer resided at the property (and thus it was not his primary residence), Rule 46A still applied because the property was residential immovable property in use by an occupant who would be affected by execution, namely the second defendant. In this context, the court relied on the approach articulated in Bestbier and Others v Nedbank Limited - 2022 JDR 1636 (SCA), which emphasised a preceding enquiry in cases where immovable property is used as residential property and whether the occupants are of the “Jaftha kind”. The plaintiff accepted that the second defendant fell within that category, and the court proceeded on that basis.

Before reaching the merits of execution, the court addressed service. It was common cause that the first defendant was not personally served with the summons and particulars of claim, and that later process included service by affixing and service by email for set-down notices. The court considered an email response by the first defendant dated 25 July 2020 (sent to the plaintiff’s attorneys) as evidence that the first defendant was aware of the proceedings and had elected not to oppose them. The court also reasoned that where execution is sought and the immovable property is not the judgment debtor’s primary residence, personal service is not a requirement. Having regard to the first defendant’s knowledge, and the fact that the second defendant (the person at risk of losing his primary residence) had in fact opposed and fully placed his case before the court, the court concluded there had been substantial compliance and that service was adequate for purposes of the application.

Turning to the substantive Rule 46A enquiry, the court considered whether there were alternative means to satisfy the debt other than execution against residential property, and whether execution was warranted in all the circumstances. The second defendant’s explanation centred on the guesthouse business operated from the property, the impact of COVID-19 restrictions, electricity disconnection linked to municipal arrears, and a proposed business plan involving investment to move the property “off the grid” and restore profitability. The court identified multiple difficulties with this proposal on the evidence before it, including that funding was not shown to be probable, that investors were not prepared to commit while related litigation remained unresolved, and that there was no objectively achievable payment plan or fixed timeframe for curing the arrears.

The court placed weight on the payment history, noting the absence of meaningful payments since March 2021 (with a nominal payment of R450.00), and that even during periods when the guesthouse appeared operational and earning income in 2021 and 2022, proceeds were not used to reduce the plaintiff’s arrears. The court further considered that the action had been instituted before COVID-19, supporting the inference that the guesthouse proceeds were insufficient to service the bond even prior to the pandemic-related difficulties relied upon.

In addition, the court assessed the broader indebtedness position. It took account of the substantial arrears on the bond, the sizeable municipal debt to the City of Johannesburg, and the second defendant’s confirmation that the debt on an adjacent property (also used in connection with the guesthouse) had likewise not been serviced, exposing that property to similar execution risk. On this combined factual picture, the court found that the defendants had no alternative means to satisfy the judgment debt and had not made significant efforts to reduce it.

The court then made an evaluative finding on proportionality and abuse of process. It held that there was no disproportionality between execution and the legitimate purpose of debt satisfaction in the circumstances. It also accepted that the plaintiff had not abused the process, noting that the plaintiff had made efforts to afford the first defendant an opportunity to repay arrears before litigating, and that the litigation had been pending since 2019 without meaningful debt reduction.

Having found execution warranted, the court addressed the reserve price. It accepted the market value and municipal valuation figures placed before it and calculated the median value. It referred to a standard approach of calculating 70% of the median value and deducting municipal indebtedness, which on these numbers yielded a reserve price of R 377 022.11. The court expressed concern that this figure was too low and would not serve the interests of any party. It therefore adopted the plaintiff’s suggested reserve price of R 591 572.68.

On costs, the court applied the ordinary approach that costs follow the result and noted that the agreement provided for attorney and client costs, which it awarded.

5. Outcome and Relief

The court granted leave for Mr Gregory Bloom-Salm to intervene and joined him as the second defendant.

Judgment was granted against the first defendant for payment of R 943 945.82, together with interest at 8.3% per annum, calculated daily and compounded monthly in arrears from 30 October 2019 to date of payment.

The property described as ERF [...] Melville Township, Registration Division I.R., Province of Gauteng, measuring 743 square metres, held by Deed of Transfer T48580/2006 was declared specially and immediately executable. The Registrar was directed to issue a warrant of execution enabling the Sheriff to attach and sell the property in execution in satisfaction of the judgment debt, interest, and costs.

A reserve price of R 591 572.68 was set for the sale in execution. The plaintiff was authorised to approach the court on the same papers (duly supplemented) to vary the reserve price if relevant factors changed.

The order recorded advice to the defendants concerning the potential applicability of section 129(3)(a) and (4) of the National Credit Act 34 of 2004, and recorded that the defendants could prevent the sale by paying arrear amounts, permitted default charges, and reasonable enforcement costs up to reinstatement before the sale. The order further directed that a copy be served on both defendants before any sale, and granted leave for service on the first defendant via email.

The first and second defendants were ordered to pay the costs of the application on an attorney and client scale, jointly and severally, the one paying the other to be absolved.

Cases Cited

Bestbier and Others v Nedbank Limited - 2022 JDR 1636 (SCA)

Legislation Cited

National Credit Act 34 of 2004, section 129(3)(a) and section 129(4)

Rules of Court Cited

Uniform Rules of Court, Rule 46A

Held

The court held that, although the judgment debtor (the first defendant) no longer occupied the property as a primary residence, Rule 46A applied because the property was residential immovable property occupied by the second defendant, who had a direct legal interest arising from a subsisting marriage in community of property and who faced the loss of his home if execution proceeded.

The court held that there was substantial compliance with the service requirements in the circumstances, given the first defendant’s knowledge of the proceedings and the second defendant’s full participation and opposition.

On the Rule 46A enquiry, the court held that the defendants had no realistic alternative means to satisfy the debt, that proposed business-based alternatives were not shown on the papers to be objectively achievable within a concrete timeframe, and that execution was not disproportionate and involved no abuse of process. The mortgaged property was therefore properly declared specially and immediately executable, with a reserve price fixed at R 591 572.68.

LEGAL PRINCIPLES

Rule 46A requires a court, when asked to permit execution against residential immovable property, to conduct a preceding judicial enquiry directed at whether execution is warranted in light of the circumstances of the occupants and the availability of alternative means to satisfy the debt, and to consider relevant factors bearing on proportionality.

Even where the judgment debtor does not occupy the property as a primary residence, Rule 46A may be engaged where the property is residentially occupied by another person with a legally cognisable interest (including an interest arising from a marriage in community of property), requiring the court to treat the execution as implicating the protections associated with residential property.

In determining a reserve price for a sale in execution under Rule 46A, the court may consider valuation evidence and municipal indebtedness and may depart from a mechanical calculation where the resulting figure appears unduly low and not aligned with the interests implicated by the Rule 46A process, provided the determination remains grounded in the factual material before the court.

Firstrand Bank Limited v Salm and Others (41829/2019) [2023] ZAGPJHC 993 (5 September 2023)