About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Eastern Cape High Court, Port Elizabeth
SAFLII
>>
Databases
>>
South Africa: Eastern Cape High Court, Port Elizabeth
>>
2018
>>
[2018] ZAECPEHC 14
|
|
Absa Bank Limited v Van Eeden and Others (4078/2012) [2018] ZAECPEHC 14 (27 March 2018)
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
and
SAFLII
Policy
IN
THE HIGH COURT OF SOUTH AFRICA
EASTERN
CAPE DIVISION, PORT ELIZABETH
CASE NO: 4078/2012
Date
delivered: 27 March 2018
In
the matter between
ABSA
BANK
LIMITED
Plaintiff
And
FRANS
ABRAHAM VAN
EEDEN
First Defendant
F.
A. VAN EEDEN N.O.
(A
Trustee for the time being of the FRANS VAN
EEDEN
FAMILY
TRUST)
Second Defendant
E.
F. VAN EEDEN N.O.
(A
Trustee for the time being of the FRANS VAN
EEDEN
FAMILY
TRUST)
Third Defendant
W.
G. MELVILLE N. O.
(A
Trustee for the time being of the FRANS VAN
EEDEN
FAMILY
TRUST)
Fourth Defendant
JUDGMENT
GOOSEN,
J.
[1]
The
plaintiff claims payment of the sum of R5 million together with
interest and costs from the defendants. The claims are founded
upon
deeds of suretyship entered into by the defendants in favour of the
plaintiff as security for amounts due to the plaintiff
by Heneb
Property Enterprises CC (hereinafter ‘Heneb Properties’)
in terms of a loan agreement.
[2]
It
is appropriate to sketch the factual background which is common cause
in order to understand the key
dramatis
personae
before identifying the issues which now serve before this Court.
[3]
The
first defendant is a businessman and property developer. He is also a
trustee, together with third and fourth defendants of
the Frans van
Eeden Family Trust (hereinafter “the Trust”). During the
course of 2010 the first defendant developed
a business association
with Mr. Braam Lamprecht. Lamprecht was then the owner of Heneb
Properties which was the registered
owner of a property adjacent to a
property owned by Edenbond. Edenbond was the company through which
first defendant conducted
his property development business. Heneb
Properties was, at the time, developing a shopping mall at
Kwanobuhle, Uitenhage. The
shopping mall was owned by Evening Flame
(Pty) Ltd (hereinafter “Evening Flame”).
[4]
Lamprecht
requested the first defendant to loan money to Heneb Properties and
/or Evening Flame to enable it to complete the property
development
in Uitenhage. The first defendant advanced certain funds.
Subsequently further funds were required. As a result of
this
Lamprecht and first defendant approached the plaintiff to secure the
additional funds. The plaintiff agreed to advance an
amount of R5
million to Heneb Properties by way of a Term Loan Agreement
(hereinafter the “Term Loan”) to enable it
to provide the
further funds to Evening Flame. The Term Loan was secured by
registration of a mortgage bond, in favour of plaintiff,
over the
immovable property owned by Heneb Properties. The further security
was in the form of suretyships executed by first defendant
and the
Trust in the amount of R5 million.
[5]
It
is common cause that both Heneb Properties and Evening Flame were
placed in provisional and then final liquidation. I shall hereunder
return to what is common cause between the parties. The plaintiff’s
claims arise from the suretyships executed by first defendant
and the
Trust.
[6]
The
litigation has run a course and it is necessary to briefly outline
this course in order to appreciate the issues that now require
determination.
[7]
In
its particulars of claim the plaintiff claimed payment of R 5 million
together with interest in respect of limited sureties concluded
by
the defendants securing a Term Loan Agreement concluded between
plaintiff and Heneb Properties on 10 December 2010. The particulars
alleged that the outstanding balance in respect of the principal
debt, being the loan agreement, was R 5 703 067.55 together with
interest thereon.
[8]
The
defendants admitted that they signed the deeds of suretyships upon
which the plaintiff relies. They pleaded however, that they
were not
liable to plaintiff on the basis:
(a)
That
at the time of execution of the deeds of suretyship Heneb Properties
had already bound itself as surety for the indebtedness
of another
entity, Slipknot Investments (Pty) Ltd (hereinafter Slipknot) for an
amount of R 15 million;
(b)
That
Heneb Properties had secured this by registration of a mortgage bond
over the immovable property owned by Heneb Properties;
(c)
The
defendants were not aware of the existence of the aforementioned
suretyship and mortgage bond;
(d)
That
the plaintiff had failed, in breach of a duty of care owed to the
defendants, to disclose the aforementioned suretyship and
bond and
that such material non-disclosure constitutes a misrepresentation
entitling the defendants to resile from the suretyships
executed by
them; and
(e)
That
the deeds of suretyship fall to be rectified inasmuch as the security
was limited to the Term Loan Agreement and were not intended
to
secure all amounts owed by Heneb Properties to the plaintiff.
[9]
The
trial proceeded on this basis. The defendants commenced adducing
evidence and presented the evidence of the first defendant.
The
plaintiff then presented the evidence of Mr Willem Prinsloo, an
employee of the plaintiff. During the course of the plaintiff’s
case, information came to hand regarding the outcome of the
liquidation of Heneb Properties and Evening Flame. This necessitated
a postponement of the matter.
[10]
The
defendants gave notice of their intention to amend their plea and
subsequently perfected the amendment. This amendment of the
plea
introduced what can usefully be described as “the payment
defence”. It is set out in the amended plea in the following
terms:
4.1.1
The Defendants plead that the principal debtor (Heneb Property
Enterprises CC) was placed in liquidation.
4.1.2
The liquidators of the principal debtor have paid the full
outstanding balance of the “loan
agreement” including
accrued interest thereon, a payment of R6 368 760.05 (Six Million
Three Hundred and Sixty-Eight Thousand
Seven Hundred and Sixty Rand
and Five Cent) having been paid to the Plaintiff Bank, this being the
claim proved by the Plaintiff
Bank in respect of the aforesaid “loan
agreement”. The payment to the Plaintiff Bank was made on 8
September 2014.
4.1.3
In the circumstances the accessory obligations of the Defendants (if
any) have also been discharged.
[11]
The
plaintiff then filed a replication to which the defendants filed an
exception. The plaintiff also filed a notice of its intention
to
amend its particulars of claim. The amendment sought to found the
plaintiff’s claim against the defendants on the allegation
that
the defendants had bound themselves as sureties for repayment of any
and all sums that the principal debtor might owe to the
plaintiff and
that the plaintiff would be entitled to apply all proceeds of
payments received from the debtor or its liquidator
in reduction of
amounts owed to it without diminishing the liability of the
defendants. The amendment sought to introduce a claim
against
defendants on the basis of a suretyship given by Heneb Properties for
the indebtedness arising out of a banking facility.
[12]
The
exception and the amendment application was argued before this Court
and judgment was delivered on 31 January 2017. The exception
to the
replication was refused and the plaintiff was granted leave to amend
its particulars of claim.
[13]
When
the matter re-commenced the parties advised that agreement had been
reached in relation to certain facts and that the issues
to be
determined had been narrowed. The plaintiff elected to close its case
without leading any further evidence. The agreement
reached by the
parties was encapsulated in a statement which is reproduced
hereunder.
AGREED
FACTS AND ISSUES TO BE DETERMINED
1.
The
Defendants abandon the rectification sought in respect of interest in
prayer 1 of the amended Plea (page 92 of the Index to
Pleadings).
2.
The
plaintiff concedes the Defendants’ entitlement to rectify the
relevant Deeds of Suretyship as set out in prayer 2 of the
amended
Plea.
3.
Neither
party intends to lead any further evidence and to that end close
their respective cases.
4.
The
following issues are to be separated and required (sic)
determination, namely:
4.1
The
Defendants’ defence of non-disclosure / misrepresentation.
4.2
Whether
the Plaintiff was entitled to appropriate the payments it received as
set out more fully below.
4.3
Whether
the Deeds of Suretyship (Annexure “C” and “D”
to the amended Particulars of Claim ) provide cumulative
liability or
independent and separate liabilities up to their respective capital
amounts of R 5 000 000.00 (Five Million Rand)
4.4
The
remaining quantum of the Plaintiff’s claims (if any) to stand
over for further determination is necessary.
5.
The
parties further agree as follows:
5.1
Heneb
Properties CC was placed into provisional and final liquidation.
5.2
The
Plaintiff Bank proved three claims in the liquidation. The aforesaid
claims were all secured by the same mortgage bonds.
5.3
Copies
of the claim documents are to be found at pages 15 to 60 in the
Exhibit “B”.
5.4
Claim
2 is in respect of the Term Loan account no [...].
5.5
In
respect of the plaintiff, the following awards were made in terms of
the Final Liquidation and Distribution Account in Heneb
Properties
CC:
5.5.1
Award
to Creditor 1 ABSA BANK
R2,853.079.49
5.5.2
Award
to Creditor 2 ABSA BANK
R6,368,760.05
5.6
In
the ensuing distribution, the liquidators of Heneb Properties CC paid
the plaintiff as follows:
5.6.1
On
8 September 2014, a single amount of R9,000,000.00 in to Absa
collateral account no. [...] (ref: 8064152178, being the reference
for Heneb Properties CC’s mortgage bond account number held
with the plaintiff; and
5.6.2
On
6 February 2015, an amount of R221 859.54 to the aforesaid mortgage
bond account, representing the balance of the awards less
a
contribution in respect of the plaintiff’s Claim 3.
5.7
The
plaintiff, without reference to the liquidators, did not allocate the
aforesaid contributions to the Term Loan account no [...]
but to the
debts owed by Heneb Properties CC to the plaintiff in terms of the
aforesaid mortgage bond account and suretyship obligations
of Heneb
Properties CC for Slipknot Investments.
5.8
Absa
was the only proven creditor of Heneb Properties CC.
6.
A
copy of the relevant Final Liquidation and Distribution Account in
Heneb Properties CC is to found in Exhibit “B”
at page 61
to 68.
7.
That
account has been confirmed by the Master of the High Court.
8.
Evening
Flame Trading 499 (Pty) Ltd was placed into provisional and final
liquidation.
9.
The
Plaintiff Bank proved,
inter
alia
,
a claim of R5 444 541.18 in respect of the Term Loan with Account no
[...].
10.
A
copy of the relevant claim, together with supporting documents
thereto is to be found in Bundle “B” at pages 140 to
160.
11.
The
liquidators of Evening Flame paid to the Plaintiff Bank the amounts
of R2 050 805.63 (in April 2016 and R986 860.13 (in January
2017) in
respect of the aforesaid Term Loan Account no [...]. See p 134 of
Exhibit “B”.
12.
Copies
of the First to Third and Final Liquidation and Distribution Accounts
in Evening Flame are to be found at page 69 to 139
of Exhibit “B”.
13.
The
aforesaid Liquidation and Distribution accounts have been confirmed
by the Master of the High Court.
[14]
The
agreement resolved the question of the rectification of the deeds of
suretyship. The prayer in the defendants’ amended
plea which
was conceded reads as follows,
An Order be
granted rectifying the Deeds of Suretyship, being Annexures “C”
and “D” to the Particulars of
Claim so as to delete the
general description of the principal debt contained in the relevant
Deeds of Suretyship and the insertion
of the following definition of
the principal debt to be secured, in respect of both Deeds of
Suretyship, namely “the Term
Loan Agreement concluded with
Heneb Property Enterprises CC on 10 December 2010”.
[15]
The
effect is that the plaintiff conceded that the deeds of suretyship
establish an accessory liability on the part of the sureties
in
respect only of the principal debtor’s indebtedness relating to
the Term Loan Agreement.
[16]
I
shall deal with the three issues to be determined, in so far as may
be necessary, in turn hereunder.
The
non-disclosure / misrepresentation defence
[17]
It
should at the outset be recorded that the effect of the agreement
reached by the parties and the closure of the plaintiff’s
case
without further evidence being led, is that the evidence of the first
defendant is, in essence, uncontested. Although a contrary
version of
events, particularly those relating to discussions with bank
officials, was foreshadowed in the cross-examination, no
evidence
relating thereto has been presented.
[18]
The
defence relating to non-disclosure is to be appraised on the basis of
the evidence presented by the first defendant. I shall
deal with that
evidence hereunder. Before doing so, it is apposite to set out the
applicable legal principles.
[19]
Suretyship
is an accessory liability. Its existence is dependent upon the
existence of a valid principal debt as between the creditor
and
debtor. The surety, in executing a deed of suretyship, binds herself
to perform the principal debtor’s obligations in
the event that
he fails to do so, alternatively to indemnify the creditor in that
event.
[1]
A contract of
suretyship arises in accordance with the general principles
applicable to the formation of contracts, save insofar
as there are
certain formalities prescribed.
[2]
A surety is equally entitled to resile from an agreement of
suretyship if that agreement was induced by fraud, duress, undue
influence
or mistake, whether induced by misrepresentation or
otherwise.
[3]
[20]
In
Tesoriero
v Bhyjo Investments Share Block (Pty) Ltd
[4]
Wunsh J said,
The general
principle, where a person has signed a contract and wishes to escape
liability of the ground of justified error as to
the nature or
contents of the document, is that he or she must show that he or she
was misled as to the nature of the document
or as to the terms which
it contains by some act or omission (where there was a duty to
inform) of the other contracting party.
The misrepresentation need
not have been fraudulent or negligent. The duty to inform would or
could arise where the document departs
from what was represented,
said or agreed beforehand or where the other contracting party
realises or should realise that the signatory
is under a
misapprehension or where the existence of the provision or the
contract is hidden or not apparent by reason of the way
in which it
is incorporated in a document or where the provision, not clearly
presented, is unusual or would not normally be found
in the contract
presented for signature.
[21]
The
defendants’ case is that at the time of entering into the deed
of suretyship they were not aware of the existence of a
mortgage bond
registered over the immovable property of Heneb Properties in favour
of Slipknot Investments in an amount of R 15
million. They were only
aware of a mortgage bond against the property in favour of the
plaintiff in an amount of R 2.7 million.
The plaintiff, so it was
contented, was aware of the existence of the Slipknot bond or ought
to have been aware of it and was under
a duty to disclose it to the
defendants since the plaintiff was aware that the defendants were
only prepared to execute suretyships
to secure the Term Loan
Agreement because of the equity available in the immovable property
of Heneb Properties.
[22]
The
first defendant’s evidence was that he had advanced, over time,
an amount of approximately R10 million to Evening Flame
in order to
enable the property development project to be completed. Further
funds were however required at a stage when the building
was
completed and further installations were required for business
tenants to occupy the property. It was this that gave rise to
the
discussions with the plaintiff. He stated that Lamprecht and he held
a meeting with senior bank officials of the Plaintiff
on 7 October
2010. The first defendant stated that he had been advised by
Lamprecht that in 2009 he had given an undertaking to
the plaintiff.
In terms of said agreement, he had assigned all claims that he
had in and against Evening Flame to the plaintiff
and that such was
in the amount of R20 million. According to the first defendant it was
decided to approach the plaintiff for further
funding because the
plaintiff had an interest in the project being concluded by Evening
Flame.
[23]
The
first defendant stated that there were several discussions with
representatives of the plaintiff, the purpose of which was to
facilitate an advance to Heneb Properties so that Heneb Properties
could make additional funds available to Evening Flame. He stated
that he was prepared to provide a suretyship to secure a loan to
Heneb Properties since the loan would be secured by a mortgage
bond
over the property of Heneb Properties. He stated that he was informed
that there was an existing bond over the property in
an amount of
R2.7 million. He stated that he considered the Heneb Properties
property to be worth approximately R12 million
and therefore that
there was more than sufficient equity in the property to cover the
existing bond and the proposed R5 million
Term Loan. It was on this
basis that he was prepared to provide the suretyship.
[24]
The
first defendant stated that he was not aware of the existence of the
further bond in favour of Slipknot Investments. He only
found out
about that bond at a stage when Heneb Properties was placed in
business rescue. He immediately realised that the further
bond
liability would result in there being no equity in the property and
that his position as surety was compromised thereby. He
said that if
he had been aware of or had been made aware of the Slipknot bond he
would not have agreed to provide surety for the
Term Loan advanced by
plaintiff to Heneb Properties.
[25]
The
first defendant was cross-examined at length about the limitation of
the suretyship to the liability for the Term Loan Agreement.
His
evidence in this regard need not be addressed in the light of the
concession regarding the necessity to rectify the agreement
to
reflect the true intention of the parties.
[26]
Mr
Buchanan, for the defendants, argued that although the first
defendant was challenged in cross examination regarding his version
of events giving rise to the execution of the suretyships, the
plaintiff did not lead any evidence relating to the discussions.
Accordingly the first defendant’s evidence is uncontradicted
and must, for purposes of determining the misrepresentation
/
non-disclosure defence, be accepted.
[27]
Of
course uncontradicted evidence need not, for that reason alone, be
accepted. It will still be necessary to consider whether it
is
credible and reliable. It was not suggested by the plaintiff
that the evidence of the first defendant was so inherently
improbable
that it could, on that basis, be rejected.
[28]
The
first defendant remained unmoved in his assertion that the
plaintiff’s officials were aware that he was concerned that
there was sufficient equity available in the property to be mortgaged
in order to secure the loan. He said that he was informed
that there
was an existing bond of R2.7 million. He was not informed of the
existence of the Slipknot bond.
[29]
When
asked who, in his view, was obliged to inform him about the existence
of the Slipknot bond he stated that he considered it
the duty of the
bank officials. In challenging this evidence during
cross-examination, plaintiff’s counsel suggested that
plaintiff’s officials were bound by a banker-client privilege,
since Lamprecht and Heneb Properties were clients of the plaintiff.
Implicit in this is recognition that the Slipknot bod was relevant to
the discussions. The version, however, was not addressed
in any
evidence presented by the plaintiff.
[30]
In
dealing with first respondent’s evidence that the financial
standing of Heneb Properties was central to the discussions
held
prior to the execution of the suretyship, plaintiff’s counsel
referred to certain handwritten notes made by a bank official
which
recorded what was discussed at the meetings. It was pointed out that
the notes made no reference to a discussion about the
financial
position of Heneb Properties. The first defendant explained that he
had not made the note, but that the very purpose
of the meeting was
to find a way in which the plaintiff could advance additional funds
to Evening Flame. Once it was decided that
the funds could be made
available to Heneb Properties, the financial circumstances of Heneb
Properties became central. It was in
this context that he was
informed of the existence of the R2.7 million bond. Plaintiff’s
counsel stated that the author of
the note, the bank official, would
testify that no such discussion had occurred. This version of course
was unsupported by any
evidence, since the plaintiff elected to close
its case and present no further evidence.
[31]
In
the light of this, the question is whether the evidence of the first
defendant as to what occurred in the course of the discussions
is to
be accepted. The answer, in my view, is that it must. There is
nothing in his evidence which renders it so improbable that
it may be
disregarded. Indeed the opposite is true. In circumstances where the
plaintiff was considering advancing money to Heneb
Properties and in
which it required the provision of security, it is improbable that
the financial status of Heneb Properties would
not be discussed. The
bank officials involved knew that the first defendant and his company
(now the Trust) had indicated a preparedness
to provide the plaintiff
with security.
[32]
It
was not contended on behalf of the plaintiff that the bank officials
were not aware of the existence of the Slipknot bond. The
particulars
of claim reflect that the Slipknot bond and the suretyship provided
by Heneb Properties in favour of plaintiff pre-dated
the discussions
regarding the Term Loan Agreement. It was also not in dispute that
they never advised the first defendant of the
existence of this bond.
[33]
It
must be accepted, on the evidence, that had the first defendant been
aware of the existence of the Slipknot bond then he would
not have
agreed to provide the required security for the Term Loan Agreement.
[34]
Mr
Amm, on behalf of the plaintiff, argued that the defendants’
were precluded from asserting an alleged misrepresentation
because of
the existence of a “whole agreement” clause in the deeds
of suretyship. This clause provides that the surety
shall be bound by
any undertakings, representations or warranties not included in the
deed.
[35]
The
reliance upon this provision in the deeds of suretyship was not
pleaded by the plaintiff and objection was made to the argument
advanced on that basis. This elicited a belated informal request from
the bar (during the argument in reply) that the replication
be
amended to include reference to whole agreement clauses precluding
defendants’ reliance on the alleged non-disclosure.
[36]
The
amendment was sought on the basis that counsel conceded that
plaintiff could not otherwise rely upon it. It was not pursued
with
any vigour since it was recognised that substantial prejudice would
flow therefrom since the defendants had no opportunity
to address the
issue. In my view it is not necessary to address this belated
reliance upon an un-pleaded defence.
[37]
The
plaintiff’s argument was that the defendants had failed to
establish that the non-disclosure was material and that it
had
induced the defendants to enter into the suretyship agreements.
[38]
In
suggesting that the non-disclosure was not material it was argued
that the dire financial position of Lamprecht was known to
the first
defendant since he had already advanced substantial sums of money to
Lamprecht and Evening Flame. It was known to first
defendant that the
plaintiff was reluctant to advance any further funds to Evening
Flame. It was suggested that if there was substantial
equity in Heneb
Properties, then the plaintiff would not have been reluctant to
advance money to Heneb Properties.
[39]
This
latter submission does not take cogniscance of the first defendant’s
evidence. The plaintiff was prepared to advance
money to Heneb
Properties so that it could advance the money to Evening Flame. It
was prepared to provide a Term Loan if security
was provided by the
defendants. The first defendant said that he was concerned that there
should be sufficient equity in the Heneb
Properties property and was
satisfied when informed that there was a bond registered against the
property in the amount of R2.7
million.
[40]
In
my view the probabilities favour the defendants’ version. The
first defendant’s uncontradicted evidence was also
that the
bank officials knew that he was concerned about the equity position
of Heneb Properties. His unequivocal evidence was
that he would not
have agreed to provide a suretyship if he had known that there was a
further bond registered against the property.
The undisputed evidence
was also that the property was valued at approximately R12 million
(the amount it was eventually sold for).
It could hardly be suggested
that non-disclosure of an additional potential liability of R15
million is not material.
[41]
There
was however an additional string to Mr Amm’s bow. It was that
the defendants had failed to establish a duty to speak
and a
negligent breach of the duty. He argued that even if it was accepted
that there was a non-disclosure and that it was material,
the
defendants had failed to establish the requirements upon which they
could resile from the agreements. It was argued that the
defendants
had failed to establish that the misrepresentation (or
non-disclosure) was intended to induce the defendants to enter
into
the suretyship agreements.
[5]
It was argued that the evidence does not establish that the
non-disclosure was either negligent or wrongful and accordingly,
that
the defence raised by the defendants has not been established.
[42]
In
Absa
Bank Limited v Fouche
[6]
Conradie JA stated
It is by now
settled law that the test for establishing wrongfulness in a
pre-contractual setting is the same as that applied in
the case of a
non-contractual non-disclosure (
Bayer
South Africa (Pty) Ltd v Frost
[1991] ZASCA 85
;
1991 (4) SA 559
(A) at 568F – I and 570D – G). In each
case one uses the legal convictions of the community as the
touchstone (
Carmichele
v Minister of Safety and Security and Another
[2000] ZASCA 149
;
2001
(1) SA 489
(SCA) at 494E – F applying
Minister
of Law and Order v Kadir
[1994] ZASCA 138
;
1995 (1) SA 303
(A) at 317C – 318J).
The policy
considerations appertaining to the unlawfulness of a failure to speak
in a contractual context – a non-disclosure
– have been
synthesized into a general test for liability. The test takes account
of the fact that it is not the norm that
one contracting party need
tell the other all he knows about anything that may be material
(
Speight
v Glass and Another
1961 (1) SA 778
(D) at 781H – 783B). That accords with the
general rule that where conduct takes the form of an omission, such
conduct is
prima
facie
lawful (
BOE
bank Ltd v Ries
2002 (2) SA 39
(SCA) at 46G – H). A party is expected to speak
when the information he has to impart falls within his exclusive
knowledge
(so that in a practical business sense the other party has
him as his only source) and the information, moreover, is such that
the right to have it communicated to him ‘would be mutually
recognised by honest men in the circumstances’ (
Pretorius
and Another v Natal South Sea Investment Trust Ltd (under Judicial
Management)
1965 (3) SA 410
(W) at 418E – F).
[43]
During
cross-examination of the first defendant, he was challenged on the
question as to whether the knowledge of the Slipknot bond
was
exclusive to the plaintiff. It was put to him that the information
was readily ascertainable from Lamprecht, whom the first
defendant
was seeking to assist in securing finance from the plaintiff. It was
also put to him that the information was readily
available upon a
deeds search being conducted. The first defendant testified that he
did not undertake a deeds search. He accepted
that there was a
relationship of trust operative between himself and the plaintiff’s
officials and accordingly that he would
have expected them to
disclose to him the existence of the Slipknot bond.
[44]
‘
Exclusive
knowledge’, it was held in
Absa
Bank v Fouche
[7]
,
is ‘knowledge which is inaccessible to the point where its
inaccessibility produces an involuntary reliance on the party
possessing the information. The argument, to the effect that
knowledge of the existence of the Slipknot bond could not be
described
as ‘exclusive knowledge’ in the hands of the
plaintiff’s officials must, it seems to me, be accepted. The
information
was known to Lamprecht who was a party to the discussions
with the bank.
[45]
That
the information was not ‘exclusive knowledge’ held by
plaintiff’s officials is not the end of the matter.
As noted in
McCann
v Goodall Group Operations (Pty) Ltd
[8]
a duty to speak may arise if
a party has knowledge of certain unusual characteristics relating to
or surrounding the transaction.
Policy considerations require
that the other party be apprised of such facts. It may also arise in
circumstances where there
was a representation which was incomplete
or vague and requires elucidation.
[46]
The
first defendant’s evidence was that the plaintiff’s
officials were aware that he was prepared to execute a suretyship
because of the equity in the Heneb property. The discussions covered
the financial status of Heneb Properties. In the course of
these
discussions it was disclosed to him that there was a bond of R2.7
million over the property.
[47]
The
circumstances of the transaction may not be ‘unusual’.
However, the evidence establishes that a representation was
made to
the first defendant regarding the R2.7 million bond. That disclosure
was, it is now common cause, incomplete. It was known
to the
plaintiff that there was an additional bond in favour of Slipknot
Investments. On the evidence this fact was not known to
the first
defendant. In these circumstances, having made an incomplete
disclosure to the first defendant, a duty arose requiring
the
plaintiff’s officials to speak and to make a full and honest
disclosure to the first defendant of the material facts
in their
knowledge. It must be emphasised that it was never the plaintiff’s
case that it was not aware of the Slipknot bond
or that the officials
who dealt with the matter had no knowledge thereof. To the contrary,
a version which was put to the first
defendant was that the
plaintiff’s ability to disclose was governed by a client-bank
privilege.
[48]
The
failure to disclose constitutes a breach of duty owed to the
defendants. I have already set out, hereinabove, that the failure
to
disclose was material. The first defendant’s uncontradicted
evidence was that he would not have executed the deeds of
suretyship
if he had known about the existence of the Slipknot bond. What
persuaded him to execute the suretyships was the existence
of
sufficient equity in the Heneb Properties property. Had he been
appraised of the Slipknot bond he would have concluded that
there was
insufficient equity in the property.
[49]
I
am therefore satisfied that the defendants’ defence based on
the material non-disclosure of facts entitles them to resile
from the
suretyship agreements. The plaintiff is accordingly not entitled to
claim upon the suretyship agreements.
[50]
Even
if I am wrong in coming to this conclusion, then in any event the
plaintiff’s claim cannot succeed. That is so because,
in my
view, the further defence relating to the discharge of the accessory
liability brought about by payment of the debt due to
the plaintiff,
for reasons to be set out hereunder, must also succeed.
The
payment defence
[51]
The
agreed facts relevant to this defence are set out in paragraphs 5 to
13 of the statement of agreed facts quoted hereinabove.
They need not
be repeated.
[52]
The
defendant’s contention is that the plaintiff proved three
separate claims in the liquidation of Heneb Properties and a
further
claim against Evening Flame. One of those claims related to the claim
in respect of the Term Loan Agreement. It is common
cause that the
liquidators made identified payments to the plaintiff of dividends
then payable in respect of the Term Loan Agreement.
The plaintiff did
not object to the allocation of payments made by the liquidator.
Based on these facts the defendants submit that
the Term Loan
Agreement debt has been paid in full and therefore, that the
defendants have been discharged of their suretyship
liability.
[53]
The
plaintiff however relies upon a contractual entitlement to allocate
any payments received by it to any debts owed by Heneb Properties.
This contractual right is, it was submitted, enshrined in both the
Term Loan Agreement and the suretyship agreements.
[54]
Clause
8 of the Term Loan Agreement provides that,
The BANK may
apply any amount paid to the BANK by the BORROWER in connection with
the AGREEMENT to any debt owing, which may become
owing to the BANK
by the BORROWER from any cause whatsoever.
[55]
Clause
8.1 of the first defendant’s deed of suretyship provides,
similarly, that,
The Bank shall be entitled to
apply any payment received or recovered in terms of this suretyship
in respect of any obligation of
the Debtor to the Bank, in such
manner as the Bank may deem meet.
[56]
Clause
9.1.2 provides that in the event that the estate of the debtor is
liquidated then,
The Bank
shall be entitled to apply all proceeds or payments which are
received from the Debtor, curator, liquidator or from any
other
source in diminishing the amount owed, without affecting or
diminishing my / our liability in terms hereof for payment of
the
amount which is owing to the Bank by the Debtor after receipt of such
proceeds or payments.
[57]
It
was submitted that these contractual terms entitled the plaintiff to
appropriate the payments received from the liquidators to
claims
other than the claim in respect of the Term Loan Agreement. The fact
that the liquidator specified that payment was made
in respect of the
claim proved in relation to the Term Loan Agreement did not preclude
the plaintiff from applying the payment
to another debt since it was
entitled to do so in terms of the agreement.
[58]
The
reliance upon clauses 8.1 and 9.1.2 of the suretyship agreement is,
in my view, misplaced. Clause 8.1 clearly relates to the
allocation
of payments received or recovered in terms of the suretyship. It
accordingly finds no application in the present circumstances.
Clause
9.1.2 also finds no application. Firstly the clause must be read in
the context of the now conceded rectification of the
suretyship
agreement. The effect of the rectification is that the accessory
liability is specifically limited to the principal
debt, namely the
Term Loan Agreement. The clause accordingly cannot extend the
liability beyond the Term Loan Agreement. In any
event the language
of the clause indicates that a payment made in reduction of the
amount owed in terms of the principal debt does
not affect the
surety’s liability for the amount owing after receipt of such
proceeds. The clause does not address the entitlement
of the creditor
to allocate payments received pursuant to the Term Loan Agreement to
any other debt owed by the debtor.
[59]
The
allocation of payments received by a creditor from a debtor who owes
several debts to the creditor is a matter as between the
debtor and
the creditor. The contractual relationship between the surety and the
creditor can have no bearing upon the regulation
of the appropriation
of payments received or recovered from the debtor.
[60]
In
Macrae
v National Bank of SA Ltd
[9]
the principles governing the
appropriation of payments are set out as follows:
Now it is a principle of our
law that when a debtor, who owes his creditor different sums of money
upon different obligations, makes
payment to his creditor he can
appropriate the money to any debt he pleases, and if the creditor
accepts the money he must allocate
it to the selected debt. If,
however, the debtor pays money to his creditor and says nothing then
the creditor may then and there
appropriate it to any particular debt
he chooses and give an acquittance to that effect. But, if neither
debtor nor creditor says
a word about how the money is to be applied,
the law steps in and allocates the money according to artificial
rules to certain
particular debts and, inter alia, it wipes out a
debt earlier in time rather than a later one
caeteris paribus
.
The debtor may, however, at any time before his debts become due give
to the creditor the right to apply monies of the debtor
which he
should thereafter come into his hands to whichever debt he pleases.
If he does so the creditor is at liberty to apportion
the money as he
pleases.
[61]
In
Wille’s
Principles of South African Law
[10]
the learned authors refer
to
Macrae
and other authorities to reflect the principle in the following
terms:
Where a debtor owes her debtor
various sums of money under different obligations and she makes
payment to the creditor which is
insufficient too discharge all the
debts, the debtor,
in the absence of any prior agreement to the
contrary
, may appropriate the money to any debt she pleases by
notifying the creditor to that effect, except that she cannot
allocate the
money to part payment of a capital amount on which she
also owes interest, for the creditor cannot be compelled to receive
payment
in installments, and accordingly the interest must first be
discharged.
(Emphasis
added)
62]
The
underlined portion reflects the proviso contained in the passage from
Macrae
,
to the effect that a debtor may by agreement confer upon the creditor
the right of allocation of payments. This proviso to the
principle
was central to determining of the issues in the
Macrae
matter. Reliance was placed in that matter upon a written pledge
which conferred upon the bank the right to allocate payments made
to
it. Wessels JA found that the term of the pledge conferred upon the
bank plenary power to apply the proceeds to any debt whatever.
In
these circumstances the court held that the technical rules of
appropriation do not apply.
[63]
The
import of this authority is that a debtor may by prior agreement
alter the rules relating to appropriation of payments, conferring
upon the creditor the right to determine appropriation. In
circumstances where the debtor has conferred upon the creditor the
right to appropriate payments the debtor cannot elect to make payment
in regard to a specific debt.
[64]
Clause
8 of the Term Loan Agreement, concluded between plaintiff as creditor
and Heneb Properties as debtor, confers upon plaintiff
the right to
allocate payments received from the debtor to any of the debtor’s
debts. However, the question that arises is
whether this contractual
provision entitles the creditor to appropriate payments received from
a liquidator in respect of a specific
claim or debt owed by the
debtor.
[65]
The
functions of a liquidator are to control and administer the property
and affairs of the company and to liquidate it. The liquidator
is
required to effect the liquidation in accordance with the law. In
Commissioner
of the South African Revenue Service v Stand Two Nine Naught Wynberg
(Pty) Ltd and Others
[11]
it was found that an
agreement between a liquidator and a debtor of the insolvent to pay a
creditor directly, would enable parties
to subvert the scheme of
distribution laid down by the
Insolvency Act, 1936
. The court held
:
[12]
In
terms of
section 391
read with section 342 of the Companies Act 61 of
1973 it is a liquidator’s duty to recover and reduce into
possession all
the assets and property of the company, to realise
them and apply the proceeds in satisfaction of the costs of
winding-up; and,
if there is a residue, to distribute it to the
creditors entitled thereto in the order of preference and manner set
out in
sections 95
–
104
of the
Insolvency Act.
[66
]
Section
94
of the
Insolvency Act sets
out the form in which a plan of
distribution is to be framed. It requires that every claim is to be
set out indicating whether
it is secured or unsecured and whether it
is preferent. The section further requires that the allocation of
payments provided by
the plan of distribution must be in accordance
with sections 95 to 104 of the Act.
[67]
Section
95 is relevant for present purposes. It provides in subsection (1)
that:
(1) The
proceeds of any property which was subject to a special mortgage,
landlord’s legal hypothec, pledge or
right of retention, after
deduction therefrom of the costs mentioned in subsection (1) of
section
eighty-nine,
shall
be applied in satisfying the claims secured by the said property, in
their order of preference, with interest thereon calculated
in manner
provided in subsection (2) of section
one
hundred and three
from the date of sequestration to the date of payment, but subject to
the provisions of subsection (4) of section
ninety-six.
[68]
What
these provisions point to is the statutory scheme of distribution
which is to be applied by the liquidator. They also point
to the
obligations imposed upon the liquidator in the exercise of his or her
functions.
[69]
In
Douglas
Green Bellingham v Green t/a Greens Bottle Recyclers
[13]
the court was required to
decide whether a creditor was entitled to appropriate a dividend
received from a trustee in relation
to a claim for fraud and apply it
to other debts of the insolvent.
[70]
In
that matter an employee of the appellant had colluded with several
suppliers of bottles, of which the respondent was one, to
defraud the
appellant. The appellant made certain payments to the respondent upon
the face of invoices received, although it had
received no bottles
purchased on its behalf by the employee. The employee had been
sequestrated and the appellant proved a claim
in the estate which
comprised the loss suffered in consequence of the fraud involving the
respondent and that of another supplier.
The claim was unsecured and
accordingly the appellant’s claim was dealt with by payment of
a
pro
rata
portion out of the free residue in the estate in terms of s 103 of
the Act. The appellant appropriated the entire dividend received
to
the ‘oldest’ debt which was that relating to the other
supplier. The dividend was insufficient to extinguish the
debts. It
proceeded to claim damages from the respondent as a joint wrongdoer.
[71]
In
the court
a
quo
the appellant’s reliance on the right to appropriate the
dividend to another debt owed by the insolvent, albeit not a debt
of
the respondent was rejected. The appellant’s claim against the
respondent was accordingly reduced by the amount allocated
by the
trustee in his
pro
rata
distribution of the free residue.
[72]
In
upholding the trial court’s treatment of the matter the Supreme
Court of Appeal said the following:
[14]
The appellant was a concurrent
creditor and his claims in respect of the frauds committed by Kotze
were unsecured. The trustee therefore
had to follow the provisions of
the section in applying the balance of the free residue. According to
the evidence an amount of
33, 93 cents in the Rand ("the
dividend") was available. The trustee was accordingly bound in
terms of this section to
pay to the appellant a dividend of 33, 93
cents in the Rand in respect of each one of its claims. Although the
appellant submitted
one globular claim in respect of all the amounts
owed to it by Kotze, the claim included both the debts of Worcester
Bottle Exchange
and the respondent’s debts. In making payment
the trustee in fact paid an amount of 33, 93 cent for each Rand owed
by Kotze
to the appellant in respect of the respondent’s debts.
Consequently there is no merit in the argument that the trustee made
no appropriation and that the appellant was entitled to appropriate
the total dividend to the oldest debts. Unlike the ordinary
debtor,
the trustee had no choice in the matter. He was not entitled to apply
the whole dividend to only one of a number of admitted
debts making
up the total claim of a proved creditor. He had to follow the
directions contained in the Act and he was obliged to
apply the free
residue pro rata to all the debts and did so in this case.
This
might be described as a statutory appropriation and in my judgment
any further appropriation by the appellant as creditor was
not
possible.
(Emphasis
added)
[73]
The
facts of that matter differ from the present inasmuch as the claims
were unsecured and were addressed by way of a payment out
of the free
residue in terms of s 103 of the Act. In this matter we are dealing
with secured claims which were dealt with by the
liquidator in terms
of s 95 of the Act. In my view however, a proper reading of the
judgment indicates that the finding is premised
upon two principles.
The first is that the payment of a dividend by a trustee or
liquidator in relation to a claim proved by a
creditor is an
appropriation of payment in respect of that debt. The second is that
it is not open to a creditor to allocate such
payment to another debt
by reason of the fact that the distribution is a statutory
appropriation. The court found that the trustee
was obliged to act in
accordance with the plan of distribution for which the
Insolvency Act
provides
.
[74]
In
the present matter the liquidator presented a liquidation and
distribution account which dealt with each of the plaintiff’s
three claims. The plaintiff did not object to the account. The
account reflects the application,
inter
alia
,
of
s 95
of the
Insolvency Act.
[75
]
Section
95
envisages the distribution of the proceeds of the liquidation of
property in satisfying claims secured by the property in their
order
of preference. The section is peremptory. The liquidator is obliged
to act in accordance with the section. He accordingly
has no choice
in appropriating payments made in relation to one of several debts
owed by the insolvent company.
[76]
These
obligations are similar to those which were the subject of the
judgment in
Douglas
Green Bellingham
.
The provisions of
s 95
through to
s104
provide a statutory scheme of
appropriation. The liquidator, unlike the debtor, is not free to
allocate a dividend by way of payment
of one or more debts owed to a
creditor as he chooses. Nor can a creditor determine the allocation
or distribution of funds except
by way of objection to the
liquidation and distribution account.
[77]
Thus,
while accepting that the debtor is free to agree with a creditor that
the creditor shall be entitled to allocate payments
received, such
agreement cannot bind a liquidator or trustee in an insolvent estate.
Nor, in my view, is a creditor entitled to
allocate the payment
received other than in accordance with a plan of distribution in
respect of its separate claims proved against
the insolvent estate.
It follows that the plaintiff was not entitled to allocate the
dividends received by it in relation to the
Term Loan claim in the
insolvent estates to the satisfaction of other debts owed by the
debtor.
[78]
It
was common cause that a dividend payment of R 6 368 760.05 was made
in respect of the plaintiff’s claim in respect of the
Term Loan
Agreement. It appears from the Final Liquidation and Distribution
Account
[15]
that the total of
the claim in respect of the Term Loan Agreement was R 6 406 269.33 so
that the dividend paid left a shortfall
on the claim of an amount of
R 37 509.28. However, the further agreed facts were that the
plaintiff had proved a claim in the estate
of Evening Flame in
respect of the same Term Loan Agreement in an amount of R 5 444
541.18 and was paid a dividend in respect of
that claim of R2 050
805.63 in April 2016 and an amount of R986 860.13 in January 2017.
These payments satisfied the claim made
for payment of the
outstanding balance of the Term Loan Agreement.
[79]
The
payment of the principal debt necessarily expunges the debt. In the
light of the payments made to the plaintiff in the liquidation
of
Heneb Properties and Evening Flame the principal debt has been
discharged. Since the surety’s liability is accessory,
the
discharge of the debt discharges the liability of the surety.
[80]
It
therefore follows that on this basis also the plaintiff’s
claims cannot succeed.
[81]
In
the light of the findings made above it is not necessary to consider
whether the liability set out in the deeds of suretyship
is
cumulatively limited to the amount of R 5 million.
[82]
In
the result I make the following order;
The
plaintiff’s claims are dismissed with costs.
G.
G. GOOSEN
JUDGE
OF THE HIGH COURT
Appearances:
For the Plaintiff
Adv.
G. W. Amm
Instructed
by Greyvensteins
For
the Defendants
Adv.
R. G. Buchanan SC
Instructed
by Pagdens Attorneys
[1]
Caney’s
The
Law of Suretyship
5
th
ed p. 28-29
[2]
S 6 of the
General Law Amendment Act 50 of 1964 (as amended) requires that the
terms of the agreement be embodied in a written
document signed by
or on behalf of the surety.
[3]
See Caney
(supra) at p.61
[4]
2000 (1) SA
167
(W) at 175 F- H; cf also
Prins
v Absa Bank Ltd
1998 (3) SA 904
(C) at 908D – 909D;
Davids
en Andere v Absa Bank Bpk
2005 (3) SA 361
(C) at par [14] – [15]
[5]
Cf.
Novick
v Comair Holdings Ltd
1979 (2) SA 116 (W)
[6]
2003 (1) SA
176
(SCA) at par [4] –[5]
[7]
Supra at
par [8]
[8]
1995 (2) SA
718
(C) at 726A - G
[9]
1927 AD 62
at 66
[10]
9
th
ed at 822
[11]
[2006] 4
All SA 11 (SCA)
[12]
Supra at
par [9]
[13]
1998(1) SA
367 (SCA)
[14]
Supra at
372H - I
[15]
Exhibit B
pp 61 - 67