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[2010] ZAWCHC 570
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Firstrand Bank Ltd v Anthony Karmis Propety (Pty) Ltd (12882/2010) [2010] ZAWCHC 570 (24 November 2010)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE HIGH COURT, CAPE TOWN)
CASE
NUMBER:
12882/2010
DATE:
24
NOVEMBER 2010
In
the matter between:
FIRSTRAND
BANK LIMITED
….............................................................
Applicant
and
ANTHONY
KARMIS PROPERTY (PTY) LTD
…..................................
Respondent
JUDGMENT
DAVIS,
J
:
There
are two opposed applications for the provisional winding up of two
corporate entities being Erf 15461 Brackenfell CC and Anthony
Karmis
Properties (Pty) Ltd. It is common cause that the factual matrix upon
which the applications are predicated are the same,
the legal
arguments are the same and accordingly I shall deal exclusively with
argument with regard to Erf 15461 Brackenfell. The
analysis is
equally applicable to Anthony Karmis Properties (Pty) Ltd.
The
background to this dispute can be summarised thus. The applicant
advanced R82 million to a principal debtor, Olympian Developing
Company (Pty) Ltd ("Olympian"), which Olympian then used to
purchase and commence a development of a property (Zeekoe
property).
Applicant extended the funding in terms of two loan agreements, one
referred to as the senior loan agreement in the
amount of R58
million, another referred to as the mezzanine agreement in an amount
of R24 million. These loan agreements required
security and limited
suretyship from the respondent (as mentioned earlier I am hereby
referring to Erf 15461 Brackenfell CC).
In
terms of this suretyship agreement, respondent bound itself as surety
and co-principal debtor
in
solidum
with
Olympian for the due and punctual payment by Olympian of R700 000,00
plus interest in such amount which Olympian then owed
or might in the
future own to the applicant. Having bound itself as co-principal
debtor, it appears to be common cause that respondent
renounced the
benefits of the excussion. Consequently, applicant is entitled to
recover from the respondent any amounts owed by
Olympian to the
applicant up to the maximum provided for in the suretyship agreement
without having to first proceed against Olympian.
In
terms of clause 8 to the suretyship agreement, the applicant was
permitted to recover the full amount owing by the respondent
on the
winding up of Olympian. In terms of its loan agreement with Olympian,
the applicant was entitled to claim immediate repayment
of all
amounts owed by Olympian on the latter's winding up. Since Olympian
has been wound up, it follows there can be no impediment,
according
to Mr
Melunsky
,
appearing on behalf of the applicant, to the applicant proceeding
against the respondent of whatever was owed by Olympian up to
the
maximum of R700 000,00.
The
full amount owing by Olympian by the applicant in terms of the senior
loan agreement, had a repayment period of 12 months. It
fell due for
payment on 5 November 2008. At this stage Olympian could not pay this
amount. This, in turn, led to a settlement agreement
between the
applicant, Olympian and the respondent. It was concluded on 19
December 2008. Olympian and the respondent acknowledged
that, as at 1
December 2008, the former was indebted to the applicant to the amount
of R80 124 174,15. In terms of clause 4.3 thereof,
the parties agreed
that the full amount would be due and payable on the signature date,
that is 22 December 2008.
In
terms of this settlement agreement, applicant was authorised to sell
Olympian's property and if those proceeds were insufficient,
to
settle the indebtedness of Olympian to applicant. The latter was
authorised to sell respondent's property which had been mortgaged
to
security for its obligation. The settlement agreement was subject to
various suspensive conditions, which are no longer central
to the
dispute between the parties. The applicant's attempt to sell
Olympian's property in July 2009, was opposed by Olympian,
which
issued interdictory proceedings.
This
application was dismissed with costs on 26 November 2009. On 11
December 2009, and prior to the registration of the property
into the
name of the purchaser, as I have already mentioned, Olympian was
provisionally wound up. The final order was granted on
29 January
2010, on the basis that Olympian was commercially insolvent. As at
the date of its liquidation, Olympian had failed
to discharge its
indebtedness to the applicant in the amount of R88 931 493,77. This
does not appear to be in dispute. The applicant
has, therefore, in
terms of clause 15 of the suretyship agreement, established
Olympian's indebtedness by way of a certificate.
The
key issue, when the dispute was debated in this court, turned on what
Mr
Murphy
,
who appeared on behalf of the respondent, referred to as a prejudice
defence. The respondent contended that the applicant, in
its dealings
and conduct with the respondent, had acted in a prejudicial manner
towards the suretyship (that is respondent) for
the loans of
Olympian. Accordingly respondent had a defence that it should be
released from its suretyship liabilities, a defence
I might add that
Mr
Murphy
contended
could be classified as
bona
fide
for
the purposes of justifying an opposition to an order of provisional
liquidation.
I
shall return to this defence presently. The question which, of
course, underpins this entire dispute, is what constitutes the
bona
fide
defence,
is sufficient to justify opposition to an application such as the
present. The so called
Badenhorst
principle,
as articulated in
Badenhorst
v Northern Construction Enterprises (Pty) Ltd
1956
(2) SA 347
(T) at 348, asserted a foundational principle, that
liquidation proceedings are not a legitimate mechanism for seeking to
enforce
payment of a debt which is
bona
fide
disputed
by the debtor. As the Court when on to state:
"A
petition presented ostensibly for a winding up order, but really to
exercise pressure, will be dismissed and under circumstances
may be
stigmatised as a scandalise abuse to the process by the Court. Some
years ago, petition founded on disputed debts, were
directed to stand
over till the debt established by action. If, however, there was no
reason to believe that the debt, if established,
would not be paid,
the petition was dismissed. The modern practice has been to dismiss
such petition, but, of course, if the debt
is not disputed on some
substantial ground, the Court may decide it on the petition and make
the order."
The
question, of course, which has vexed Courts since
Badenhorst
is
what is meant by "on some substantial ground", bearing in
mind that these applications come to court on paper without
the
benefit of oral evidence. In his careful and considered fashion,
Thring
,
J in
Hulse-Reutter
v Heg Consulting enterprises (Ptv) Ltd
1998
(2) SA 208
(C) at 219-220 sought to tease out a substantial answer to
this question. The learned judge noted that it was not necessary for
the respondent to produce on paper actual evidence on which it would
rely at a trial. In other words, there is a difference to
be drawn
between the
Badenhorst
principle
on the one hand and an application for summary judgment in terms of
Rule 32 on the other.
What
is required from a party such as respondent, is to allege facts
which, if proved, would constitute a good defence to the claims
made
against it. In other words, the Court is enjoined to examine the
answering affidavit and to decide whether the facts as alleged,
if
proved on the evidence, comprised a defence of substance to the
claims which are alleged. In this case, the scope of this inquiry
is
narrowed to a considerable extent by virtue of the fact that this
suretyship agreement and accordingly with a dispute which
falls
within the scope of a dictum of the Supreme Court of Appeal ion
Absa
Bank Limited v Davidson
2000
(1) SA 1117
(SCA), para 19, where
Olivier
,
JA said:
"As
a general proposition, prejudice caused to a surety can only release
a surety (whether totally or partially) if the prejudice
is the
result of a breach of some or other legal duty or obligation. The
prime sources of a creditor's rights, duties and obligations
are the
principal agreement and the deed of suretyship. If, as is the case
here, the alleged prejudice was caused by conduct falling
within the
terms of the principal agreement or the deed of suretyship, the
prejudice suffered was one which the surety undertook
to suffer."
The
critical question is the legal basis for the respondent as a surety
to claim that a legal duty or obligation has been breached
by the
applicant as a result of which the surety now suffers prejudice. To
this, Mr
Murphy
submitted
that in terms of clause 11.1 of the principal agreement which had
been entered into between Olympian and the applicant
"the
outstanding balance as a ratio to the value of the mortgage
properties, is not to exceed the percentage reflected in
the facility
schedule for the duration of the facility". The ratio for this
particular facility in terms of the facility schedule
records "ratio
not to exceed 50% (existing value) in respect of remainder of the
farm Klein Zeekoe Vallei Number 681 in the
City of Cape Town, Cape
Division, Western Cape Province ... and 50% (existing value) and
erven 3488, 3993, 3576 Simon's Town and
erven 15461 and 15462
Brackenfell.
Mr
Murphy
submitted
that as these particular ratios had to be monitored "for the
duration of the facility", the argument of respondent
that the
property values were insufficient to meet these ratios, implied there
had been a breach of the clause which was thus to
the legal prejudice
of the surety.
It
is difficult to divine the precise basis of this argument from the
opposing affidavit in that, as I shall note presently, the
opposing
affidavit opposed to by Mr Karmis, is hardly precise about the value
of the properties. In other words, whilst Mr Karmis
contends that the
provisions of clause 11.1 were not complied with strictly and,
therefore, the lack of cover for the loans acted
to his prejudice, he
is also keen to inform the Court that the property values are much
higher than would be required in terms
of clause 11.1. This forms the
basis now for an argument that applicant has prejudiced the
respondent by seeking to sell properties
at a price vastly lower than
that which they might fetch. For example, in paragraph 48 of the
answering affidavit he says:
"As
mentioned above, I am convinced that this property generates far more
than the 88 million outstanding on the bond. It should
be noted that
the applicant failed to provide the Court of any valuation by a
property specialist or local reputable agency, would
no doubt have
placed a much higher value on the property than the R70 million
mentioned by the applicants."
This
then forms the basis for the general argument that the ratios has not
been made in terms of clause 11.1 of the agreement. At
para 54 of his
affidavit he says:
"In
my view the properties are worth more than 100 million and if
properly marketed, and not just to a few friends and the
bank,
generally enough for the sureties to be absolved from any liability."
In
the applicant's replying affidavit, mention is made of Mr Karmis'
allegation that the property is worth some R240 million. It
is
difficult, therefore, to understand precisely the factual basis upon
which his defence is predicated.
But,
assume for the purposes of argument and in favour of the respondent,
that a value of R70 million would not have covered an
ongoing
obligation pursuant to clause 11.1. Mr
Melunskv
,
who appeared on behalf of the applicant, correctly pointed out that
in order to examine the issue of the property ratios, the
clauses of
the contract had to be assessed in the totality of their context. In
other words, clause 11.1 was qualified by clause
11.5. It read:
"In
the event that the ratio in 11.1 has exceeded, you undertake (you
being Olympian) within 20 business days a receipt of
a notice from us
advising you that the afore-mentioned ratio has been exceeded, to
offer additional properties to us as security.
The identity of such
properties to be agreed upon by both of us."
It
is clear that this clause envisaged that there was an obligation on
the part of the debtor to keep the creditor in knowledge
about the
values of the mortgage properties. If the value of the mortgage
properties did not meet the ratios, then there was an
obligation to
inform the applicant of this fact so that it could offer additional
properties as security. Mr
Murphy
was constrained to concede that clause 11.5 did not in any way
provide that in the absence of such an undertaking, the contract
was
immediately void. Indeed clause 11.5 indicates that the entire
purpose of the ratio provision was to protect the creditor.
There is
no suggestion that the debtor would benefit thereby. What makes the
argument of respondent even more problematic is that,
as Mr Karmis
was the alter ego of the respondent, it was for him to advise the
creditor of the noncompliance with the ratio
provision.
There
is no legal basis as set out in this clause, which was the critical
focal point of respondent's argument, that the surety,
being
respondent, could divine a legal right which imposed a legal
obligation upon the creditor sufficient for respondent to bring
itself within the scope of the
Davidson
principle
as I have outlined it. Furthermore, there are additional difficulties
which confronted respondent. There is a settlement
agreement which,
as I have noted, took place in 2008. There is no suggestion in that
agreement that the question of ratios constitutes
any obstacle to the
rights being pursued by the applicant.
Indeed,
though the cause of action appears to be predicated on the suretyship
agreement, the settlement agreement certainly casts
some considerable
doubt on the
bona
fides
of
a party who entered into this agreement without raising obstacles
which it now seeks to do in order to stave off an application
for
liquidation. However, for the reasons that I have already set out
regarding the question as to whether the suretyship has the
kind of
legal obligation which would justify prejudice, it is not necessary
to decide this question. Neither is it necessary to
decide the
further point which Mr
Melunsky
pressed,
namely that there are two loans, the mezzanine and the senior loan,
that even if the property value was exceeded by the
value of the
senior loan, this was not the case with regard to the mezzanine loan.
In
short, in order for the respondent to show on the papers that it has
a
bona
fide
defence,
a defence which if the facts it avers would prove the trial would
justify its argument, it was required to show the line
of argument it
took that it had suffered prejudice. To have suffered prejudice, it
was required to show that there was a legal
obligation which was
imposed upon the applicant pursuant to clause 11 of the agreement to
maintain the ratios in the fashion argued
by the respondent, and to
the benefit of a surety who was not a party to that agreement. There
is no legal authority to justify
some residual right which the
suretyship was entitled to rely upon and the clause read as its
whole, does not appear to sustain
any basis for the argument so
advanced.
For
these reasons, therefore, and given that both the applications, that
is for erf 15461 Brackenfell CC and Anthony Karmis Properties
(Pty)
Ltd were predicated on the same arguments and the same facts, I am
justified in granting the order as sought.
The
respondent, in both cases, is placed under a provisional order of
liquidation in the hand of the Master of this court. A
rule
nisi
is
issued, calling upon the respondent and all parties interested to
show cause, if any, on Thursday, 3 February 2010, why respondent
should not be placed under a final order of liquidation and why the
costs of the application should not be costs in the liquidation.
This
order will be effected on the respondent on the South African
Revenue Services and by one publication each at Cape Town in
Die
Burger newspapers. In the light that Mr
Melunsky
has
handed up draft orders, I simply read out the basis of the order and
I am going to sign the two orders as reflecting the order
of this
Court.
DAVIS,
J