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[2013] ZASCA 105
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Land and Agricultural Development Bank of South Africa v Ryton Estates (Pty) Ltd and Others (460/12) [2013] ZASCA 105; [2013] 4 All SA 385 (SCA); 2013 (6) SA 319 (SCA) (13 September 2013)
THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case No: 460/12
Reportable
In the matter between:
THE
LAND AND AGRICULTURAL DEVELOPMENT
BANK
OF SOUTH AFRICA
...................................................................
APPELLANT
and
RYTON ESTATES (PTY) LTD
................................................
FIRST
RESPONDENT
TWIGGY TIMBERS (PTY) LTD
..........................................
SECOND
RESPONDENT
BORK ESTATES (PTY) LTD
..................................................
THIRD
RESPONDENT
JAN FREDERICK NELL BRITS
.........................................
FOURTH
RESPONDENT
GERHARDUS LE ROUX
.........................................................
FIFTH
RESPONDENT
UITGEZOCHT INVESTMENTS CC
........................................
SIXTH
RESPONDENT
GIDE
ON WILHELMUS
BŰHRMANN
...............................
SEVENTH
RESPONDENT
Neutral citation:
The Land and Agricultural
Development Bank of South Africa v Ryton Estates (Pty) Ltd
(460/12)
[2013] ZASCA 105
(13 September 2013)
Coram:
Brand, Theron and Majiedt JJA and Van der
Merwe and Mbha AJJA
Heard:
20 May 2013
Delivered:
13 September 2013
Summary: Contract ─ mora ─
interest on unpaid interest – unless the parties agreed
otherwise, a debtor who is
in mora in regard to a contractual
obligation to pay interest, is liable for payment of mora interest on
the unpaid interest calculated
at the prescribed rate.
O R D E R
On appeal from:
North Gauteng High Court,
Pretoria (Prinsloo J sitting as court of first instance):
1 The appeal succeeds with costs, including the costs of
two counsel.
2 The order of the high court is varied as follows:
2.1 In the matter of Ryton Estates, by deleting
paragraph 1.1 thereof and substituting paragraph 2.1 thereof with the
following:
‘
2.1
die Land Bank (tensy die teendeel blyk uit die ter saaklike kontrak
of daar anders met die lener beding is) nie geregtig is
daarop om
saamgestelde rente te hef op voorskotte of lenings wat toegestaan is
ingevolge wet 13 van 1944 nie, met dien verstande
dat die Land Bank
geregtig is om enkelvoudige rente op agterstallige of onbetaalde
rente te verhaal ten opsigte van sodanige voorskotte
of lenings teen
die voorgeskrewe koers of die kontraktuele koers, van tyd tot tyd,
welke ook al die laagste is.’
2.2 In the matter of Brits, by setting aside paragraphs
1, 2 and 3 thereof.
2.3 In the matter of Le Roux, by setting aside paragraph
1 thereof.
2.4 In the matters of Uitgezocht and Bührmann, by
setting aside paragraphs 1, 2 and 3 of the order in each matter.
3 All the matters are referred back to the high court
for determination of the amounts payable by the appellant in
accordance with
this judgment and of costs, where applicable.
______________________________________________________________
JUDGMENT
______________________________________________________________
VAN DER MERWE AJA (BRAND, THERON AND MAJIEDT JJA AND
MBHA AJA CONCURRING):
[1] The issue in this appeal is whether the respondents,
who were in mora in regard to contractual obligations to pay
interest,
were liable to pay mora interest on the unpaid interest.
[2] The background of the matter can be briefly
summarised. The appellant was established under s 3 of the Land
Bank Act 18
of 1912. The 1912 Act was repealed by the Land Bank Act
13 of 1944, which in turn was repealed by the
Land and Agricultural
Development Bank Act 15 of 2002
. Despite the repeal of the earlier
Acts, the appellant continues to exist in terms of s 2(1) of the
Land and Agricultural
Development Act 15 of 2002. It is common cause
that despite the repeal thereof the provisions of the Land Bank Act
13 of 1944 regulated
the relationship between the parties. In terms
of Act 13 of 1944 the main object of the Land Bank was the
development of agriculture
in South Africa by providing financial
assistance to commercial farmers, inter alia from public funds.
[3] The respondents are all commercial farmers. The
appellant lent and advanced funds to the respondents in terms of
various written
loan agreements, for present purposes all secured by
mortgage bonds. These respondents were (a) the first, second and
third respondents
jointly (Ryton Estates); (b) the fourth respondent
(Brits); (c) the fifth respondent (Le Roux); (d) the sixth and
seventh respondents
jointly (Uitgezocht); and (e) the seventh
respondent (Bührmann). Each loan agreement provided that
interest at a stipulated
annual rate would be calculated on the
balance of the capital outstanding from time to time. Yet, each
agreement authorised the
appellant to vary the stipulated interest
rate without notice to the borrower at any time. It is common cause
that in terms of
this provision the appellant adjusted interest rates
on the loans from time to time.
[4] In terms of each loan agreement, the loan and
interest was repayable in equal instalments annually in arrears. The
first instalment
was payable one year after the registration of the
mortgage bond. In this way each instalment consisted of capital and
interest
and the date on which each instalment was due and payable
was fixed by agreement. It follows as a matter of law that, in the
event
that any instalment was not paid in full on the due date, mora
operated
ex re
.
1
It is common cause that in many instances instalments
were not paid on the due date by the respondents.
[5] After all the loans were repaid, the respondents
instituted separate actions against the appellant based on the
condictio indebiti
. In
particular the respondents alleged that the appellant charged
compound interest, instead of simple interest on the loans;
unreasonably adjusted the applicable rates of interest; and levied
administration fees and diverse costs – to which it also
added
compound interest – all of which it was not entitled to do. The
respondents consequently alleged that as a result of
a bona fide and
reasonable but mistaken belief they made payments to the appellant of
amounts that were not due, hence their claim
under the
condictio
indebiti
.
[6] The appellant conceded that neither compound
interest nor the administrative fees and diverse costs and interest
thereon were
recoverable in terms of the loan agreements. But, so it
contended, the respondents were liable for mora interest on the
interest
not paid on due date. It thus recalculated the loans
accordingly and admitted that the respondents were entitled to
certain repayments
and in some instances in fact made repayments to
the respondents.
[7] By agreement these cases were heard together as a
test case by Prinsloo J in the North Gauteng High Court. At the
conclusion
of the trial only two issues remained for adjudication.
The first concerned the interest rates applied by the appellant in
terms
of the loan agreements. The second issue was whether the
appellant was entitled to levy mora interest on unpaid but due and
payable
interest.
[8] The trial court decided the first issue in favour of
the appellant. It held that in terms of the loan agreements the
appellant
was entitled to levy interest at the rates applied by it
from time to time (Land Bank rates). This finding is not challenged
before
us.
[9] As to the question of mora interest, the position
taken by the respondents was that the appellant was entitled to
charge simple
interest on capital only and that no interest on
interest could be charged in any way. The case for the appellant, on
the other
hand, was that, apart from simple interest on capital, it
was also entitled to levy mora interest on the unpaid interest,
calculated
on a simple interest basis only, but at the rate then
applicable on the balance of the capital outstanding, that is the
Land Bank
rate. Each side to the dispute employed an expert to
recalculate the loans. Each expert recalculated every loan at the
Land Bank
rates in accordance with the position taken by his side.
Both experts agreed that the recalculations by his counterpart were
technically
and mathematically correct. The only differences between
them thus resulted from the different assumptions upon which they
relied.
[10] The court a quo found that in the absence of
agreement to that effect, the appellant was not entitled to interest
on unpaid
interest and gave judgment for the respondents in each case
for the amounts calculated by the respondents’ expert, taking
into account repayments that had already been made by the appellant.
It granted leave to appeal to this court on the issue of mora
interest.
[11] In deciding this issue, it is helpful to keep the
following principles in respect of interest in mind. Interest remains
interest
and no method of accounting (such as capitalisation) can
change its nature.
2
Contractual interest may be compound interest or simple
interest. Compound interest is interest on capital plus accrued
interest.
If compound interest is not provided for in an agreement,
only simple interest on the capital will be payable in terms of the
agreement.
[12] Mora interest, on the other hand, is something
fundamentally different. It is not payable in terms of an agreement,
but constitutes
compensation for loss or damage resulting from a
breach of contract, specifically mora
debitoris
.
[13] The nature of mora interest is explained as follows
in
Bellairs v Hodnett & another
:
3
‘
It may
be accepted that the award of interest to a creditor, where his
debtor is
in
mora
in
regard to the payment of a monetary obligation under a contract, is,
in the absence of a contractual obligation to pay interest,
based
upon the principle that the creditor is entitled to be compensated
for the loss or damage that he has suffered as a result
of not
receiving his money on due date (
Becker
v Stusser
,
1910 CPD 289
at p 294). This loss is assessed on the basis of
allowing interest on the capital sum owing over the period of
mora
(see
Koch
v Panovka
1933
NPD 776).
Admittedly, it is pointed out by Steyn,
Mora
Debitoris
,
p 86, that there were differences of opinion among the writers on
Roman-Dutch law on the question as to whether
mora
interest
was lucrative, punitive or compensatory; and that, since interest is
payable without the creditor having to prove that
he has suffered
loss and even where the debtor can show that the creditor would not
have used the capital sum owing, this question
has not lost its
significance. Nevertheless, as emphasized by CENTLIVRES, CJ, in
Linton
v Corser
1952
(3) SA 685
(AD) at p 695, interest is today the “life-blood of
finance” and under modern conditions a debtor who is tardy in
the
due payment of a monetary obligation will almost invariably
deprive his creditor of the productive use of the money and thereby
cause him loss. It is for this loss that the award of
mora
interest
seeks to compensate the creditor.
. . .
As previously pointed out,
mora
interest in a case like the
present constitutes a form of damages for breach of contract. The
general principle in the assessment
of such damages is that the
sufferer by the breach should be placed in the position he would have
occupied had the contract been
performed, so far as this can be done
by the payment of money and without undue hardship to the defaulting
party. Accordingly,
such damages only are awarded as flow naturally
from the breach or as may reasonably be supposed to have been in the
contemplation
of the contracting parties as likely to result
therefrom (
Victoria
Falls and Transvaal Power Co Ltd v Consolidated Langlaagte Mines
Ltd
1915 AD 1
at p 22). In
awarding
mora
interest to a creditor who has
not received due payment of a monetary debt owed under contract, the
Court seeks to place him in
the position he would have occupied had
due payment been made. The Court acts on the assumption that, had due
payment been made,
the capital sum would have been productively
employed by the creditor during the period of
mora
and the interest consequently
represents the damages flowing naturally from the breach of
contract.’
[14] This principle is succinctly stated in Christie
4
as follows:
‘
When a
debtor’s contractual obligation is to pay money, and he is
in
mora
,
the general damages that flow naturally from the breach will be
interest
a
tempore morae
’
,
and has repeatedly been stated and confirmed by this
court.
5
[15] The words ‘monetary obligation under a
contract’ or ‘contractual obligation to pay money’
appear to
be wide enough to include an obligation in terms of a
contract to pay interest. The question therefore is whether there is
any
reason not to apply this principle where a debtor is in mora in
respect of a contractual obligation to pay interest.
[16] In
Davehill (Pty) Ltd &
others v Community Development Board
6
the appellants were the owners of certain properties
that were expropriated by the respondent under the provisions of the
Expropriation
Act 63 of 1975. The respondent took possession of the
properties on 3 December 1980. The agreed compensation in respect of
the
expropriation was finally paid by the respondent to the
appellants on 11 January 1985. In terms of s 12(3) of the
Expropriation
Act, the respondent was obliged to pay interest, at a
statutorily determined rate from the date of taking possession of the
properties,
on any outstanding portion of the compensation payable in
respect thereof. This was for convenience referred to as statutory
interest.
This court found that the obligation to pay the statutory
interest arose on the same date as the final payment of compensation
was made, that is 11 January 1985. The statutory interest was only
finally paid on 5 January 1987. The question arose whether the
respondent was liable to pay mora interest on the statutory interest
from the date on which it was due and payable until it was
paid, that
is from 12 January 1985 to 5 January 1987.
[17] The court in
Davehill
found for the appellant on this issue and concluded:
7
‘
In the
present instance the time for performance was 11 January 1985, and
the respondent’s failure to pay the statutory interest
due by
it to the appellants on that date automatically placed it in
mora
.
(Wessels
Law
of Contract in South Africa
2
ed
para 2863). This is so because, as the time for performance was
fixed,
mora
operated
ex
re
and
no demand (
interpellatio
)
was necessary to place the respondent in
mora
.
The statutory interest due being a liquidated amount, and the
respondent being in
mora
,
the appellants are entitled, in keeping with general principles, to
mora
interest
from 12 January 1985 on the amount of statutory interest outstanding
until it was paid in full on 5 January 1987.’
[18] In deciding this issue the court had to deal with
an argument on behalf of the respondent that it is not permissible to
award
interest on interest in the absence of agreement. Smalberger JA
dealt with the argument in the following terms:
8
‘
Compound
interest may be expressly stipulated for by agreement, is commonplace
today in commercial and financial dealings and has
been sanctioned by
our Courts for many years. In principle there appears to be no reason
why the right to claim interest on interest
should be confined to
instances regulated by agreement, and why it should not extend to the
right to claim
mora
interest
(which is a species of damages) on unpaid interest which is due and
payable. To the extent that the decision in
Stroebel
v Stroebel
(
supra
)
is in conflict with this broad principle it cannot be supported. The
problem which arose in
Stroebel’s
case
at 139F would today be dealt with under the provisions of
s 2
of
the
Prescribed Rate of Interest Act 55 of 1975
.
Subject to what has been said
above, it is not necessary in this judgment to attempt to define
under what circumstances and within
what limits a claim for interest
on interest will lie. Suffice it to say that in principle there can
be no objection to a claim
for
mora
interest on outstanding
statutory interest, bearing in mind that statutory interest is, in
essence, compensation for loss of possession
and fruits.’
[19] I respectfully agree that there is no principle
that stands in the way of a finding that in the absence of agreement
in this
respect, a creditor should be compensated by an award of mora
interest on unpaid interest for the loss or damage suffered as a
result of not receiving the agreed interest on time. Clearly it must
similarly be assumed that the interest would have been productively
employed had it been paid on the due date. Also, no consideration of
public policy points the other way. On the contrary, taking
into
account that interest is the ‘life-blood of finance’ it
is in the public interest that creditors be compensated
when debtors
fail to make payment of agreed interest on the due date.
[20]
Section 1(1)
of the
Prescribed Rate of Interest Act
55 of 1975
provides as follows:
‘
If a
debt bears interest and the rate at which the interest is to be
calculated is not governed by any other law or by an agreement
or a
trade custom or in any other manner, such interest shall be
calculated at the rate prescribed under subsection 2 as at the
time
when such interest begins to run, unless a court of law, on the
ground of special circumstances relating to that debt, orders
otherwise.’
In terms of
s 1(2)
the Minister of Justice
prescribed the rate of interest at 15,5 per cent per annum for the
purpose of
s 1(1).
9
[21] As mora interest represents damages, the rate
thereof is not governed by agreement or in any other manner. It
follows that
mora interest is payable at the prescribed rate.
[22] I accept that parties may by agreement exclude
liability for mora interest. The effect of such agreement would be,
as I have
said, to exempt a party from common law liability for
damages for breach of contract. Such agreement must be clear and
unambiguous.
As Marais JA said in
First
National Bank of SA Ltd v Rosenblum & another
:
10
‘
In
matters of contract the parties are taken to have intended their
legal rights and obligations to be governed by the common law
unless
they have plainly and unambiguously indicated the contrary. Where one
of the parties wishes to be absolved either wholly
or partially from
an obligation or liability which would or could arise at common law
under a contract of the kind which the parties
intend to conclude, it
is for that party to ensure that the extent to which he, she or it is
to be absolved is plainly spelt out.’
[23] This judgment therefore lays down that in the
absence of agreement to the contrary, mora interest at the prescribed
rate is
payable on unpaid interest which is due and payable.
[24] Counsel for the respondents argued that the parties
hereto did agree to exclude liability for mora interest. In this
regard
he relied solely on the fact that the loan agreements provided
only for interest on capital and not for interest on interest. But
these provisions have to do with contractual interest only. They do
not deal with breach of contract and therefore cannot be understood
to constitute an agreement to exclude common law liability for
damages in the form of mora interest.
[25] It follows that the appeal must succeed. However,
although the Land Bank rates applied in the appellant’s
aforesaid recalculations
were mostly lower than the prescribed rate,
they did during some periods exceed the prescribed rate. The
appellant accepts that
it is only entitled to mora interest
calculated at the lower of the applicable Land Bank rate and the
prescribed rate from time
to time. At the hearing of the appeal this
court requested the appellant to recalculate all the loans in
accordance with this approach,
on the understanding that the parties
could reach agreement in this regard. The parties were however unable
to reach such agreement.
In the result the matter should be referred
back to the court a quo for determination of the amounts, if any,
payable by the appellant
in accordance with this judgment. Since it
accepts liability in principle for repayment in all the matters, save
for Uitgezocht
and Bührmann, the appellant did not appeal
against the orders of the court a quo in respect of interest on
judgment debts
and costs. In consequence these orders must stand.
[26] In result the following order is made:
1 The appeal succeeds with costs, including the costs of
two counsel.
2 The order of the high court is varied as follows:
2.1 In the matter of Ryton Estates, by deleting
paragraph 1.1 thereof and substituting paragraph 2.1 thereof with the
following:
‘
2.1
die Land Bank (tensy die teendeel blyk uit die ter saaklike kontrak
of daar anders met die lener beding is) nie geregtig is
daarop om
saamgestelde rente te hef op voorskotte of lenings wat toegestaan is
ingevolge wet 13 van 1944 nie, met dien verstande
dat die Land Bank
geregtig is om enkelvoudige rente op agterstallige of onbetaalde
rente te verhaal ten opsigte van sodanige voorskotte
of lenings teen
die voorgeskrewe koers of die kontraktuele koers, van tyd tot tyd,
welke ook al die laagste is.’
2.2 In the matter of Brits, by setting aside paragraphs
1, 2 and 3 thereof.
2.3 In the matter of Le Roux, by setting aside paragraph
1 thereof.
2.4 In the matters of Uitgezocht and Bührmann, by
setting aside paragraphs 1, 2 and 3 of the order in each matter.
3 All the matters are referred back to the high court
for determination of the amounts payable by the appellant in
accordance with
this judgment and of costs, where applicable.
_____________________
C H G VAN DER MERWE
ACTING JUDGE OF APPEAL
APPEARANCES:
For Appellant: T W Beckerling SC (with him M J Sawyer)
Instructed by: Edward Nathan Sonnenbergs, Johannesburg
Matsepes Inc, Bloemfontein
For Respondent: A F Arnoldi SC (with him C F J Brand)
Instructed by: Schalk Botha Attorney, Pretoria
Christo Dippenaar Attorneys, Bloemfontein
1
See
Laws v Rutherfurd
1924
AD 261
at 262.
2
See
Standard Bank of South Africa Ltd v
Oneanate Investments (Pty) Ltd (in liquidation)
[1997] ZASCA 94
;
1998
(1) SA 811
(SCA) at 828F-G.
3
Bellairs
v Hodnett & another
1978 (1) SA 1109
(A)
at 1145D-G and 1146H-1147A.
4
R
H Christie
The Law of Contract in South
Africa
, 6 ed (2011) at 530.
5
See
Union Government v Jackson & others
1956 (2) SA 398
(A) at 411G-H;
Thoroughbred
Breeders’ Association v Price Waterhouse
2001
(4) SA 551
SCA at 593-594 paras 82-85;
Mokala
Beleggings & another v Minister of Rural Development and Land
Reform & others
2012 (4) SA 22
(SCA) at 25 para 6;
Crookes Brothers
Ltd v Regional Land Claims Commission, Mpumalanga & others
2013 (2) SA 259
(SCA) at 268-269 paras 15-17;
Steyn NO v Ronald Bobroff &
Partners
2013 (2) SA 311
(SCA) at
322-324.
6
Davehill
(Pty) Ltd & others v Community Development Board
1988
(1) SA 290
(A).
7
At
298D-F.
8
At
298H-299B.
9
By
notice in GN R1814,
GG
15143, 1 October 1993.
10
First
National Bank of SA Ltd v Rosenblum & another
2001
(4) SA 189
(SCA) at 195H.