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[2012] ZASCA 78
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Botha v Iveco South Africa (Pty) Ltd (430/2011) [2012] ZASCA 78 (28 May 2012)
THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case No: 430/2011
Not reportable
In the matter between:
DIRK SAMUEL BOTHA
….....................................................................
APPELLANT
and
IVECO SOUTH AFRICA (PTY) LTD
…...............................................
RESPONDENT
Neutral citation:
Botha v Iveco SA (Pty) Ltd
(430/11)
[2012] ZASCA 78
(28 May 2012)
Coram:
Mthiyane DP, Cloete, Cachalia and Tshiqi
JJA and Ndita AJA
Heard: 7 May 2012
Delivered: 28 May 2012
Summary: Prescription ─ Sale of shares
agreement ─ Claim arising from breach of warranty ─
Relief in terms of
indemnity clause ─ Debt due and payable not
on date of breach of warranty but on date of payment in terms of
indemnity clause.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from:
Free State High Court,
Bloemfontein (Rampai J sitting as
court of first instance):
(a) Paragraph 2 of the order of the court a quo is
deleted.
(b) The appeal is dismissed with costs.
______________________________________________________________
JUDGMENT
______________________________________________________________
TSHIQI JA (MTHIYANE DP, CLOETE AND CACHALIA JJA AND
NDITA AJA CONCURRING):
[1] The appellant was previously the sole shareholder in
a company called Duewest Properties (Pty) Ltd (Duewest). The sole
asset
of the company was an immovable property called Erf 23859,
Pinetown, KwaZulu-Natal. On 21 May 2003 the appellant, Duewest and
the
respondent concluded a written tripartite sale of shares
agreement in terms of which the appellant sold 100 per cent of the
shares
as well as his loan account in Duewest to the respondent. The
contract contained both a warranties clause (clause 5) and an
indemnity
clause (clause 9). In terms of the warranties clause read
with annexure A to the agreement the appellant warranted to the
respondent
that ‘as at the Effective Date … the only
liability of the Company will be the Loans’. The effective date
was
23 July 2003 and the definition in the agreement of ‘Loans’
was ‘All the Seller’s claims against the Company
as on
the Effective Date’ ie the appellant’s loan account. In
terms of paragraph 9.1.2 of the indemnity clause the
appellant
indemnified the respondent against inter alia ‘all claims,
obligations, damages or losses … which may be
suffered by the
Purchaser and which may arise out of, result from or be caused by a
breach and/or non-fulfilment of any of the
warranties in this
Agreement’.
[2] Subsequent to the effective date, the respondent
became aware, during January 2004, that Duewest was indebted to the
Inner West
Municipality in Pinetown in the amount of R330 190.48
in respect of duties and levies (including penalties and interest)
imposed
by the local authority. The respondent notified the appellant
through his agents several times during 2004, both verbally and in
writing, of the municipality’s claim and the consequent breach
of the warranty. The appellant requested time to resolve the
matter
with the municipality. Such request was granted, and so were further
extensions that were sought by the appellant to resolve
the matter,
until a notice was given that no further extension would be given
beyond 15 December 2005. After this the respondent
attempted to
resolve the dispute with the municipality itself. Its attempts were
also not successful and it eventually paid the
outstanding amount on
17 July 2007. On this date the amount had increased to R1 507 147.95
and comprised the outstanding
capital in the amount of R330 190.48
together with penalties and interest thereon in the sum of
R1 176 957.47.
[3] The respondent subsequently issued summons in the
high court alleging a breach of the warranty and invoking the
indemnity clause
in order to reclaim the amount it had paid to the
municipality. The summons was served on 17 September 2008. The
appellant raised
a special plea of prescription alleging that the
claim by the respondent against the appellant had become prescribed,
and pleaded
to the merits. The high court (Moolla AJ) ordered a
separation of issues in terms of rule 33(4) and directed that the
appellant’s
special plea be heard and decided separately from,
and before, the other issues and that those issues be stayed in the
meantime.
After hearing evidence, the court dismissed the special
plea with costs but subsequently granted the appellant leave to
appeal
to this court.
[4] The high court’s reasoning was that
prescription began to run in January 2004 when the respondent
acquired knowledge of
the breach of the warranty but that it was
interrupted on 8 September 2005, when the respondent gave the
appellant an opportunity
to resolve the dispute with the
municipality. In coming to this conclusion the high court relied on
the breach of the warranty
clause but failed to take into account the
fact that the respondent had in its pleadings invoked the indemnity
clause for the relief
sought. In that regard it misconstrued the true
cause of action by the respondent.
[5] The crux of the claim by the respondent is simply
that whilst it is so that the breach of the warranty came to its
attention
by January 2004, the debt at that stage had not become due
and payable. It contends that it was only on 17 July 2007, the date
on which it discharged the outstanding liability in terms of the
indemnity clause, that it became entitled to recover the amount
it
paid from the appellant. In a nutshell, the respondent contends that
although its claim was dependent on the breach of the warranty,
its
consequent relief was not based on the breach itself but on the
indemnity clause, which it could invoke only after it had paid
the
municipality. This in my view is correct for the reasons that follow.
[6] The claim by the municipality which the respondent
paid is what is envisaged in clause 9.1.2 quoted above. That (and the
other
indemnities given in clause 9) were expressly stated to be
‘without prejudice to the warranties … in the Agreement,
or of the rights and legal remedies available to the Purchaser …
‘. Thus, whatever rights the respondent had for breach
of a
warranty, it had a separate, specific remedy for an indemnity in
terms of clause 9 inter alia if a warranty was breached.
[7] Clause 9.2 requires the respondent to advise the
appellant timeously of a claim or obligation covered by clause 9.1.2.
In terms
of clause 9.2.1 the appellant could require the respondent
to oppose the claim in which event he would be obliged to provide the
respondent with security to cover the full claim together with
attorney and own client costs which the respondent might incur or
which might be ordered against the respondent as a result of such
opposition. In terms of clause 9.2.2, should the appellant not
require the respondent to oppose the claim timeously, the respondent
would be entitled ‘to pay such claim and recover the
full
amount thereof together with all costs incurred on a scale as between
attorney and own client’ from the appellant. There
is some
dispute about whether the appellant required the respondent to oppose
the claims in terms of clause 9.2.1 but it is clear
that the
appellant did not comply with its obligations in terms of that
clause.
[8] Clause 9.2.2 is not ambiguous. In order to claim
under the indemnity, the purchaser had to pay the debt and only
thereafter
could it ‘recover the full amount thereof’
from the seller. To state the obvious: you cannot ‘recover’
money without first paying it out. Accordingly, it is only after
payment to the municipality had been made that it can be said that
the indemnity obligation owed by the appellant to the respondent
became due, and it is from that date that prescription commenced
running. The payment was made on 17 July 2007. The summons
claiming the debt was served less than three years later,
on 17
September 2008. The special plea of prescription was therefore
correctly dismissed by the high court. That court, however,
because
of the reasoning it adopted, made a further order that ‘2. The
Court hereby issues a declaration that the period
of prescription in
relation to the Defendant’s breach of warranties as
contemplated in Section 11 of the Prescription Act
commenced running
on the
15 DECEMBER 2005
’. The declaratory order just
quoted must be deleted.
[9] This then brings me to the
question of costs. The deletion of paragraph 2 of the high court’s
order is of no moment in
this context. What requires consideration is
the argument by the respondent’s counsel that the costs of
appeal should be
awarded to his client ‘on a scale as between
attorney and own client’ as provided for in clause 9.2.2 of the
Agreement.
On reflection, I cannot agree that this clause is of
application. Clause 9.1.3 provides that the seller indemnifies the
purchaser
against ‘all costs, on the scale as between attorney
and own client, of any
opposition in
terms of clause 9.2 against payment of such claims’
(my underlining). Clause 9.2.2 forms part of
clause 9.2. The structure of clause 9.2 is that the purchaser is
required to inform
the seller ‘timeously’ of any claim
under clause 9.1.2. If the seller does require the purchaser to
oppose the claim,
he has to provide the purchaser with security for
‘costs on a scale as between attorney and own client which the
purchaser
may incur or which may be ordered against the purchaser
as
a result of the opposition of the purchaser to the claim
’
ie the claim of the third party (my underlining).
That accords with clause 9.1.3
─
the
costs referred to in both clauses are the costs of opposing a claim
by a third party. Clause 9.2.2, the clause relied on
by the
respondent’s counsel, provides that if the seller does not
require the purchaser to oppose the claim timeously, then
the
purchaser can recover the ‘costs incurred’ on the scale
mentioned. The costs envisaged are in my view again, as
in the
immediately preceding clause and clause 9.1.3, the costs incurred by
the purchaser in opposing a claim by a third party.
The rationale
behind clause 9.2.2 is this: if the purchaser has advised the seller
of a claim, and the seller does not ‘timeously’
require
the purchaser to oppose the claim, with the result that the purchaser
incurs costs viz-a-viz a third party claimant, the
seller must
reimburse the purchaser for such costs on an indemnity basis -
because it was the seller’s tardiness that caused
the purchaser
to incur such costs. The clause has no application to costs incurred
by the purchaser in suing the seller. Costs
of the appeal must
therefore be on the ordinary scale.
[10] The following order is made:
(a) Paragraph 2 of the order of the court a quo is
deleted.
(b) The appeal is dismissed with costs.
_______________
Z L L TSHIQI
JUDGE OF APPEAL
APPEARANCES:
For Appellant: P Zietsman SC
Instructed by:
McIntyre & Van der Post, Bloemfontein
For Respondent: D J Vetten
Instructed by:
Lovius-Block, Bloemfontein