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[2010] ZASCA 174
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Ribeiro and Another v Slip Knot Investments 777 (Pty) [2010] ZASCA 174 (2 December 2010)
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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case No: 661/09
In
the matter between:
J C DA SILVA V RIBEIRO
......................................................................
First
Appellant
L D BOSHOFF
...................................................................................
Second
Appellant
v
SLIP
KNOT INVESTMENTS 777 (PTY) LTD
..............................................
Respondent
Neutral citation:
Da Silva v
Slip Knot Investments
(661/2009)
[2010] ZASCA 174
(2 December
2010).
Coram:
Mpati P, Cachalia,
Tshiqi JJA, R Pillay and K Pillay AJJA
Heard:
18 November 2010
Delivered: 2 December 2010
Summary:
Where an initial loan
agreement is a ‘credit transaction’ to which the National
Credit Act 34 of 2005 (NCA) does not
apply, and the parties enter
into a new agreement to guarantee the obligations under the initial
loan agreement, the new agreement
is a credit guarantee to which the
NCA does not apply.
________________________________________________________________
ORDER
________________________________________________________________
On appeal from:
South Gauteng
High Court, Johannesburg (Van der Walt AJ sitting as court of first
instance).
The following order is made:
The appeal is dismissed with costs.
________________________________________________________________
JUDGMENT
________________________________________________________________
CACHALIA JA (Mpati P, Tshiqi JA, R
Pillay and K Pillay AJJA concurring):
[1] The respondent sought and obtained
an order in the South Gauteng High Court on 18 September 2009 against
the first and second
appellants jointly and severally for payment of
the sum of R10 659 157.18 and certain ancillary relief. The
appellants now come
before this court with leave of the high court.
It will be convenient to refer to the parties as they were referred
to in the high
court: the respondent was the applicant, the first and
second appellants were the first and second respondents to whom I
shall
refer together as the respondents. It will, however, be
preferable to refer to the third respondent (R B Merit Investments
(Pty)
Ltd), who has no interest in these proceedings, as R.B. Merit.
[2] The applicant’s claim is
based on a written agreement, which was concluded on 10 January 2008,
but which had its genesis
in two previous loan agreements. Under the
loan agreements, concluded in May 2007 and July 2007, the respondents
had bound themselves
as sureties for two loans that R.B. Merit had
obtained from the applicant for a hotel development. After R.B. Merit
and the two
sureties (the respondents) had failed to repay these
loans when they became due, and were thus in breach of their
obligations under
the loan agreements, the parties negotiated a
settlement of their dispute by concluding the current agreement.
[3] In terms of this agreement it was
recorded that:
(i) the applicant had lent and
advanced amounts of R22,5m and R1m to R.B. Merit in terms of the
loan agreements;
(ii) the outstanding amount still
owing under those agreements was an amount of R35 641 117.69;
(iii) R.B. Merit would, on 11 January
2008, pay R7,6m to the applicant and the balance would be apportioned
towards repayment of
the outstanding amounts under the two loan
agreements;
(iv) R.B. Merit would provide a bank
guarantee to the applicant in an amount of R20,4m before 18 January
2008;
(v) the respondents would then be
liable to pay the balance of the amount of R28 196 336.48 as follows:
by 15 May 2008 an amount
of R800 000, and by 1 December 2008, the
balance together with any interest.
[4] R.B. Merit met its commitments
under the agreement; the respondents were unable to meet theirs. The
applicant then demanded
payment from them of the total amount due
under the agreement, but they paid only R158 754.88 on 24
September 2008. They were
thus in breach of their contractual
obligations. The applicant sought to enforce the agreement by
claiming the outstanding amount
in the high court. This comprised the
amount of R800 000, which the respondents had failed to pay on 15 May
2008, and the balance,
after deducting the 24 September 2008 payment,
which had become due and payable as of 25 September 2008.
[5] The respondents
opposed the claim by seeking refuge in the National Credit Act 34 of
2005 (the NCA). Their main ground of opposition
was that the
agreement constituted a ‘credit agreement’ as
contemplated by s 8 of the NCA. The consequence of this,
they
contended, was that the agreement was void because it was concluded
contrary to s 89(2)(d), read with s 89(5),
1
which requires a
credit provider to be registered as such before entering into an
agreement to which the NCA applies. It is common
cause that the
applicant is not a registered credit provider.
[6] The applicant
on the other hand asserted that the agreement was concluded because
of R.B. Merit’s failure to fulfil its
undertakings under the
initial loan agreements, and the respondents’ failure to meet
their obligations in terms of their
guarantees. So, it contended, the
agreement was a ‘credit guarantee’ and not a credit
agreement. And further, that
the NCA did not apply to it because, by
virtue of s 8(5), read with s 4(2)(c),
2
the NCA is
applicable to a credit guarantee only to the extent that it also
applies to a credit agreement in respect of which the
guarantee was
granted. Accordingly, so it contended, because the agreement was
nothing more than a continuing guarantee to satisfy
R.B. Merit’s
original obligation under the loan agreements – to which the
NCA did not apply – the agreement,
properly construed, was a
credit guarantee, which also fell beyond the ambit of the NCA.
[7] The high court (Van Der Walt AJ)
dismissed the respondents’ defence and upheld the applicant’s
contention that the
NCA did not apply to the agreement because it was
a credit guarantee – not a credit agreement – to which
the NCA did
not apply. The respondents appeal against this finding.
The outcome of this appeal therefore turns on whether the agreement
is
a credit agreement, as the respondents contend, or a credit
guarantee as the applicant asserts.
[8] The respondents
do not dispute that the initial loan agreements were credit
transactions (credit agreements) as contemplated
by s 8(4)(d)
3
of the NCA because
they were mortgage agreements or secured loans, which entitled the
applicant to register mortgage bonds over
the property on which R.B.
Merit was to build the hotel and, as further security, the
respondents were to guarantee R.B. Merit’s
obligations. But
because the loans were made to a juristic person, ie R.B. Merit, the
loan agreements were not subject to the NCA
for two reasons: first,
by virtue of s 4(1)(b)
4
the loans were
large agreements because they were mortgage agreements as
contemplated in s 9(4), and secondly, because the principal
debts in
both loans were above the higher threshold of R250 000 established in
terms of s 7(1)(b) under General Notice 713, published
in Government
Gazette 28893 of 1 June 2006.
5
So, because the NCA
did not apply to the loan agreements, by virtue of s 4(2)(c) and
s 8(5), it did not apply to the respondents’
accessory
obligations (guarantees) under those agreements either. This much, as
I have said, is common cause.
[9] The respondents
contended in the high court, as they did before us, that once R.B.
Merit fulfilled its obligations flowing from
the agreement, and had
no further commitments towards the applicant, they became principal
debtors under the agreement. This meant
that their obligations to the
applicant were no longer of an accessory nature. They were now the
true borrowers or credit receivers
under the agreement. And the fact
that they had guaranteed R.B. Merit’s loans under the previous
loan agreements had no bearing
on the current agreement. Accordingly,
they contended, the agreement, properly construed, is a credit
transaction – not a
credit guarantee – as contemplated by
s 8(4)(f) of the NCA.
6
This is because it
involves the payment of an amount owed by the respondents to the
applicant, which has been deferred, and is payable
together with
interest and an administration fee. We are thus required to consider
whether the agreement was merely an undertaking
or a promise by the
respondents to satisfy R.B. Merit’s debts, as the applicant
contends, or a new and separate obligation,
as the respondents would
have it. The answer depends on what the parties intended by the
agreement.
[10] The applicant, the respondents
and R.B. Merit were all parties to the agreement. In terms of the
agreement the following was
recorded:
(i) The initial loan agreements were
concluded so that R.B. Merit could fund a hotel development;
(ii) in order to complete the
development R.B. Merit required additional funding, which has now
been secured from certain third
parties;
(iii) the additional funding is,
however, subject to the lender (the applicant) releasing R.B. Merit
and the sureties (the respondents)
from their obligations and
undertakings in terms of the initial loan agreements;
(iv) at the request of R.B. Merit and
the sureties, the lender has, subject to the fulfilment of the terms
and conditions of the
agreement, agreed to the cancellation of the
pledges, cessions and suretyships concluded in terms of the initial
loan agreements.
It was, however,
specifically recorded
that
the agreement
does not constitute a novation of the initial loan
agreements
. (Emphasis added.);
(v) it is agreed that the obligations
and undertakings as accepted by the sureties in terms of the
agreement have as their origin
the initial undertakings and
obligations attributable to the sureties in the initial loan
agreements;
(vi) the agreement shall be the sole
record of the subject matter contained in it;
(vii) the outstanding amount owing as
at 11 January 2008 under the initial loan agreements would be R35 641
117.69.
[11] The outstanding amount was to be
settled by R.B. Merit paying the sum of R7,6m to the applicant on 11
January 2008 and providing
a guarantee in the sum of R20,4m before 18
January 2008. Once the sum was paid and the guarantee furnished, R.B.
Merit and the
respondents would be released from their obligations
under the initial loan agreements and R.B. Merit would incur no
further obligations
under the agreement. The respondents would then
be responsible for settling the outstanding balance, together with
interest, as
provided for in the agreement. It is common cause that
R.B. Merit met its obligation to pay the applicant and also provided
the
guarantee in terms of the agreement.
[12] The high court rejected the
respondents’ contention that the initial loan agreements were
irrelevant to determining the
issue in this case. The learned judge
pointed out that the agreement specifically referred to the
respondents’ obligations
under the loan agreements and also
that at the time the agreement was concluded the respondents still
had the obligation to guarantee
R.B. Merit’s commitments to the
applicant. It was therefore not, the judge held, a credit
transaction. And if it was not
a credit transaction at the time the
agreement was concluded, it could not have become one subsequently,
after R.B. Merit was released
from its obligations. For, if it could
have, this would mean that the agreement was not void at the time
that it was concluded,
but became so once R.B. Merit had discharged
its obligations under the very agreement. This result, said the high
court, would
be absurd.
[13] I respectfully
agree with the high court’s reasoning. To this I wish to add
that the parties ‘specifically recorded’
that the
agreement ‘does not constitute a novation of the initial loan
agreements’ and that the ‘obligations
and undertakings as
accepted by the sureties in terms of the agreement have as their
origin the initial undertakings and obligations
attributable to the
sureties in the initial loan agreements’. The fact that the
parties also recorded that ‘this agreement
shall be the sole
record of the subject matter contained herein’ – a point
the respondents relied upon to avoid the
consequences of the initial
agreements – does not detract from the fact that the parties
explicitly intended not to extinguish,
but rather to confirm, the
obligations arising from the initial agreements. The obligations
under the loan agreements and those
under the new agreement were thus
interdependent.
7
This can only mean
that the agreement was, in substance, an agreement to guarantee R.B.
Merit’s obligations under the initial
loan agreements –
and was therefore a credit guarantee to which the NCA did not apply.
[14] The appeal must therefore fail.
The following order is made:
The appeal is dismissed with costs.
______________
A CACHALIA
JUDGE OF APPEAL
APPEARANCES
APPELLANTS: P L Carstensen
Instructed by Ross Munro Attorneys c/o
A le Roux Attorneys, Johannesburg
Honey Attorneys, Bloemfontein
RESPONDENT: A C Botha
Instructed by Sim & Botsi
Attorneys Inc, Johannesburg
Symington & De Kok, Bloemfontein
1
Section
89 ‘
Unlawful credit agreements
(1) . . .
(2) . . . a credit
agreement is unlawful if –
(a) . . .
(b) . . .
(c) . . .
(d) at the time the
agreement was made, the credit provider was unregistered and this
Act requires that credit provider to be
registered.
(5) . . .
(a) the credit agreement
is void as from the date the agreement was entered into.’
2
Section
8(5) provides: ‘An agreement, irrespective of its form . . .
constitutes a credit guarantee if, in terms of that
agreement, a
person undertakes or promises to satisfy upon demand any obligation
of another consumer in terms of a credit facility
or a credit
transaction to which this Act applies.’
Section 4(2)(c) provides
that the NCA: ‘. . . applies to a credit guarantee only to the
extent that this Act applies to
a credit facility or credit
transaction in respect of which the credit guarantee is granted.’
3
Section
8(4)(d): ‘. . . a mortgage agreement or secured loan.’
In terms of s 1 a ‘credit transaction’
means ‘an
agreement that meets the criteria set out in s 8(4)’.
4
Section
4(1)(b): ‘. . . a large agreement, as described in section
9(4), in terms of which the consumer is a juristic person
whose
asset value or annual turnover is, at the time the agreement is
made, below the threshold value determined by the Minister
in terms
of section 7(1).’
5
Section
9(4): ‘A credit agreement is a large agreement if it is-
(a) a mortgage
agreement; or
(b) any other credit
transaction except a pawn transaction or a credit guarantee, and the
principal debt under that transaction
or guarantee falls at or above
the higher of the thresholds established in terms of section
7(1)(b).’
6
Section
8(4)
(f): ‘. . .
any
other agreement, other than a credit facility or credit guarantee,
in terms of which payment of an amount owed by one person
to another
is deferred, and any charge, fee or interest is payable to the
credit provider in respect of-
(i)
the agreement; or
(ii)
the amount that has been deferred.’
7
Cf
Adams v SA Motor Industry Employers Association
1981 (3) SA
1189
(A) 1199G-H.