Summary of Judgment

Introduction

This judgment concerns an application for leave to appeal brought in the High Court of South Africa, Free State Division, Bloemfontein. The applicant, Patrick Phuti, sought leave to appeal against an earlier decision in which the court dismissed his special plea and granted summary judgment in favour of the respondent, Carospan (Pty) Ltd t/a Nashua Bloemfontein.

The procedural history reflected in the judgment is that, on 19 April 2023, the court granted summary judgment against Mr Phuti for R173 785.22, together with interest and costs, and dismissed a special plea raised by him. Mr Phuti thereafter delivered a notice of application for leave to appeal, advancing multiple grounds attacking both the summary judgment and aspects of the court’s approach to the special plea, service, and related defences.

The general subject-matter of the dispute arises from suretyship obligations associated with a principal debtor, New Beginnings Projects CC (the first defendant in the main action, previously known as Amadwala Trading 363 CC), and includes issues concerning the impact of that entity’s business rescue, questions about service at a domicilium citandi et executandi, and whether certain documents and defences (including reliance on “without prejudice” correspondence and the National Credit Act) affected the respondent’s entitlement to summary judgment and the applicant’s prospects on appeal.

Material Facts

Carospan instituted action in which it relied on suretyship agreements binding Mr Phuti as surety. The judgment records that Carospan relied on both suretyships in its particulars of claim. One of these suretyships dated from 2015, and it contained an address at which service was ultimately effected; the other is referred to as the 2020 suretyship agreement, which featured in the applicant’s service-related argument.

A central background fact is that the principal debtor, New Beginnings Projects CC (NBP), was in business rescue. The applicant’s contentions sought to invoke the consequences of that status (in particular, arguments framed with reference to statutory restrictions on proceedings during business rescue). The court, however, treated as decisive the fact that the plaintiff did not seek relief against NBP in the application under consideration, but proceeded against the surety.

The judgment further proceeds on the basis that service of the summons (or process initiating the proceedings) was effected at 1[…] Frans Rumpff Street, being an address described in the agreement as the applicant’s “Residential Address (domicilium citandi et executandi)”. A material feature for the court’s evaluation was that, in the applicant’s plea and in the opposing affidavit (deposed to by the applicant’s attorney), there was no allegation that Mr Phuti did not reside at that address, had no relationship with it, or did not regard it as an address for service. The court regarded the absence of any “disowning” of the address at the relevant stage as materially significant.

In relation to the pleaded claims, the judgment indicates that claim B was framed as a claim for pre-estimated liquidated damages, and that claims C and D depended on the return of goods. The court treated it as relevant that the surety’s potential exposure in relation to loss or damage connected to the goods could not be quantified until the goods were returned, and that Mr Phuti was not in possession of the goods.

The applicant also relied on correspondence marked “Without Prejudice”. The court treated this correspondence, as appended by the applicant, as evidencing that Mr Phuti did not deny liability in those communications and that, contrary to the contention that a triable defence existed, the appended correspondence indicated an acknowledgement of liability. The court also recorded that it did not treat an acknowledgement of debt as the cause of action, but referred to it because it formed part of the pleadings and the material before it.

Legal Issues

The central legal question was whether the applicant satisfied the statutory threshold for leave to appeal under section 17 of the Superior Courts Act 10 of 2013, namely whether the contemplated appeal would have a reasonable prospect of success, or whether compelling reasons existed for the appeal to be heard.

Within that overarching inquiry, the judgment addressed several sub-issues that were framed by the applicant as grounds of appeal. These included whether the court erred in holding that written consent of business rescue practitioners was unnecessary (invoking the implications of section 133 of the Companies Act 71 of 2008), whether it was permissible to “stand over” certain relief (claims B, C, and D), whether the court lacked jurisdiction due to alleged non-service and the asserted inability to choose more than one domicilium for service, whether the existence of two suretyship agreements and the presence of a co-surety affected the proceedings, whether it was appropriate for an attorney to depose to an affidavit, and whether reliance on “without prejudice” correspondence and alleged non-compliance with the National Credit Act 34 of 2005 undermined the claim.

The dispute therefore concerned a combination of legal interpretation (including the statutory test for leave to appeal and the effect of business rescue), procedural questions (service and rules of court), and the application of legal standards to the established or undisputed features of the record (including what was and was not alleged in the plea and opposing affidavit, and the significance of the appended correspondence). To the extent that the court considered the adequacy of service and the appropriateness of costs, the judgment also involved the exercise of judicial discretion on process and costs.

Court’s Reasoning

The court began by assessing whether the applicant’s grounds demonstrated reasonable prospects that another court would interfere with the earlier decision granting summary judgment and dismissing the special plea. In doing so, it evaluated the grounds advanced in light of the record and the applicable legal standard under the Superior Courts Act.

On the business rescue point, the court held that the applicant’s reliance on section 133 of the Companies Act did not avail him because Carospan was not seeking relief against the business rescue entity (NBP). The court considered that this disposed of the arguments premised on non-compliance with section 133. The court further held that no permission was required to sue a surety, even if the principal debtor was in business rescue, and stated that the authority relied on by the applicant (Timasani) was not on point for the proposition advanced.

Regarding the challenges connected to claims B, C and D, the court explained that it had been unwilling to grant judgment on claim B on the basis that it was framed as “estimated” liquidated damages. It also reasoned that claims C and D were dependent upon the return of goods, and that until the goods were returned, damages could not be quantified. The court treated the fact that the applicant was not in possession of the goods as further indicating that those claims could not then be adjudicated. It emphasised, however, that postponing adjudication of those claims did not amount to a finding that Carospan would be unable to claim payment later once quantification was possible. This reasoning formed the basis for rejecting the applicant’s argument that the “standing over” of those claims could not occur in the absence of the principal debtor.

A major focus of the judgment was the attack on service and the applicant’s argument that service was defective because a person could only choose one domicilium, with the later (2020) suretyship address allegedly replacing the earlier (2015) address. The court considered it unnecessary to embark on a full interpretive exercise concerning Rule 4 and whether the singular reference to domicilium precludes multiple chosen addresses. Instead, it turned to the factual and procedural posture: Carospan had expressly relied on both suretyships; the 2015 suretyship contained the address where service occurred; and, critically, neither the plea nor the opposing affidavit contained an allegation that the applicant had no relationship with that address or that it was not a valid address for service.

The court reasoned that the designation of a domicilium address exists to assist a party by obviating the need to search for the other party. It regarded the plea and opposing affidavit as the appropriate place to dispute the service address and noted that the applicant did not do so. The court therefore treated the service challenge as lacking traction on the record as it stood. In dealing with authorities cited on service, it distinguished BMW South Africa (Pty) Ltd v William and another and First National Bank of South Africa Limited v Ganyesa Bottle Store (Pty) Ltd on their facts, indicating that they did not advance the applicant’s position in the circumstances of this matter.

The court also referred to Van Niekerk and Others v Absa Bank Limited, which recognises that higher courts have a discretion in service matters and must determine whether service was good, legally recognised, or substantially compliant, consistently with the Constitution. This supported the court’s approach that service questions are addressed on their own facts and that the absence of any record-based denial of the address was relevant.

On the complaint about the attorney deposing to the affidavit and suggested application of Rule 7, the court stated that it did not criticise the attorney for deposing to the affidavit and that Rule 7 did not apply. However, it treated as relevant that the applicant himself did not depose to the affidavit and thus did not personally address pertinent facts within his own knowledge, including the relationship (if any) to the service address. The court reasoned that if Mr Phuti intended to contend that the address had no relation to him and was not a domicilium, he should have dealt with it directly or ensured it was properly raised in the plea and opposing affidavit.

On the National Credit Act point, the court stated that the suretyship was not covered by the National Credit Act and recorded that no legal precedent was advanced to displace that finding.

Finally, in addressing the broader set of grounds alleging that the applicant had a triable defence and that the court had erred by relying on “without prejudice” correspondence, the court held that none of the additional issues raised in the special plea had prospects of success. It found that the applicant did not deny liability in the “without prejudice” letters and that, rather than disclosing a triable defence in the plea or opposing affidavit, the appended correspondence evidenced an acknowledgement of liability. The court further clarified that it did not treat an acknowledgement of debt as the cause of action; it referred to it only as part of the material placed before it.

Applying section 17 of the Superior Courts Act, and with reference to authority emphasising that the test is reasonable prospects of success rather than a mere arguable case, the court rejected the applicant’s formulation that another court “might well” come to a different conclusion. It concluded that there was no reasonable prospect of success on appeal and no compelling reasons to grant leave.

On costs, the respondent sought punitive costs. The court considered that the grounds of appeal and argument did not raise prospects satisfying the appeal test and held that it was appropriate to award costs on the attorney and client scale.

Outcome and Relief

The court dismissed the application for leave to appeal. It ordered that the applicant pay the respondent’s costs on the attorney and client scale.

Cases Cited

Timasani (Pty) Ltd (in business rescue) and Another v Afrimat Iron Ore (Pty) Ltd (91/2020) [2021] ZASCA 43; [2021] 3 All SA 843 (SCA) (13 April 2021).

Van Wyk Van Heerden Attorneys v Gore N.O and Another (828/2021) [2022] ZASCA 128; [2022] 4 All SA 649 (SCA); 2023 (1) SA 80 (SCA) (30 September 2022).

Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13; 2012 (4) SA 593 (SCA) para 18.

BMW South Africa (Pty) Ltd v William and another 2022 JDR 1801 (GP).

First National Bank of South Africa Limited v Ganyesa Bottle Store (Pty) Ltd 1998 (4) SA 565 (NC) at 568B–C.

Van Niekerk and Others v Absa Bank Limited (8763/2013) [2014] ZAGPJHC 408 (15 December 2014).

Arendsnes Sweefspoor CC v Botha 2013 (5) SA 399 (SCA) at para 13.

ABSA Bank Limited v Lekuku (citation not provided in the judgment text).

Mothuloe Incorporated Attorneys v Law Society of the Northern Province and Another (213/16) [2017] ZASCA 17 (22 March 2017) at para [18].

School Governing Body Grey College, Bloemfontein v Scheepers and others (South African Teachers Union intervening) [2019] JOL 41823 (FB) para [4]–[5].

MEC for Health, Eastern Cape v Mkhitha and Another (1221/2015) [2016] ZASCA 176 (25 November 2016) para [16]–[17].

Legislation Cited

Companies Act 71 of 2008, section 133.

Superior Courts Act 10 of 2013, section 17.

National Credit Act 34 of 2005.

Rules of Court Cited

Uniform Rule 4(1)(a)(ii) and Uniform Rule 4(1)(a)(iv).

Uniform Rule 7.

Uniform Rule 30.

Uniform Rule 23.

Uniform Rule 35(12).

Held

The court held that the applicant failed to satisfy the requirements for leave to appeal under section 17 of the Superior Courts Act 10 of 2013, because the contemplated appeal did not have a reasonable prospect of success and no compelling reasons justified granting leave.

It held that the business rescue status of the principal debtor did not require the written consent of the business rescue practitioners in circumstances where the plaintiff sought no relief against the company in business rescue and proceeded against the surety. It held further that service was not shown to be defective on the record, particularly given reliance on the suretyship containing the service address and the absence of any allegation in the plea or opposing affidavit disputing that address as connected to the applicant or as a domicilium.

The court held that the National Credit Act did not apply to the suretyship in issue, and that the additional issues raised did not disclose a triable defence. It dismissed the leave application and awarded punitive costs on an attorney and client scale.

LEGAL PRINCIPLES

The judgment applied the principle that leave to appeal may be granted only where the court is satisfied that the appeal would have a reasonable prospect of success, and not merely because another court might conceivably reach a different conclusion. In applying this threshold, the court endorsed the approach that the test is stricter than demonstrating an arguable case or a mere possibility of success.

In relation to business rescue, the judgment applied the principle (as framed on the facts before it) that proceedings against a surety are not, without more, precluded by the principal debtor’s business rescue in circumstances where the claimant does not seek relief against the entity in business rescue, and that the permission regime invoked by the applicant was not triggered on the posture of the case.

On service, the judgment applied the principle that courts possess a discretion to determine whether service was good, legally recognised, or substantially compliant with the rules, assessed on the particular facts. It further applied the practical rationale underlying domicilium provisions, namely that they serve to facilitate service without requiring a party to search for the other party, and treated the absence of a timeous, record-based denial of the chosen service address as significant to the outcome.

On costs, the judgment applied the discretionary principle that where an application lacks merit under the applicable statutory test, the court may order costs on a punitive scale, and in this case found an attorney and client costs order appropriate.