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[2011] ZASCA 97
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Absa Bank Ltd v Kernsig 17 (Pty) Ltd (386/2010) [2011] ZASCA 97; 2011 (4) SA 492 (SCA); [2011] 4 All SA 113 (SCA) (31 May 2011)
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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case No 386/2010
In the matter between
ABSA BANK LIMITED
...........................................................................
APPELLANT
and
KERNSIG 17 (PTY) LTD
....................................................................
RESPONDENT
Neutral citation:
Absa
Bank v Kernsig 17
(386/2010)
[2011] ZASCA 97
(31 May 2011)
Coram: CLOETE, CACHALIA, SHONGWE, MAJIEDT and SERITI
JJA
Heard: 4 MAY 2011
Delivered: 31 MAY 2011
Summary:
Company Law ─ Section 38 ─
Allegation that the loan agreement contravenes s 38 of the Companies
Act 61/1973 –
Section 38 enquiry is fact based ─
Generally allegation must be pleaded or all facts must be before
court for the court to
make a determination.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from:
Western Cape High Court (Cape
Town), (Traverso AJP, Fourie and Yekiso JJ, sitting as a full court):
(a) The appeal succeeds with costs which will include
the costs consequent upon the employment of two counsel.
(b) The order of the court a quo is set aside and
replaced with the following:
'The appeal is dismissed with costs, which costs will
include the costs consequent upon the employment of two counsel.'
______________________________________________________________
JUDGMENT
_____________________________________________________________
SERITI JA (CLOETE, CACHALIA, SHONGWE, MAJIEDT JJA
concurring):
[1] The respondent (Kernsig) approached the Western Cape
High Court, Cape Town, by way of motion proceedings seeking an order
cancelling
six covering mortgage bonds registered against the title
deed of its immovable property (Karoovlakte farm) in favour of the
appellant
(Absa). The court of first instance (Meer J) dismissed the
application with costs. With leave of the court of first instance,
Kernsig
appealed to the full bench of the Western Cape High Court
(the court a quo).
[2] The court a quo (Fourie J; Traverso AJP and Yekiso J
concurring) reversed the decision of the court of first instance and
granted
the order sought by Kernsig. The matter is before this court
after this court granted Absa special leave to appeal.
[3] Messrs P J Greyling and J A Greyling are the sole
directors and shareholders of Kernsig. Kernsig owns an immovable
property
known as Karoovlakte farm situated in the district of
Klawer, Western Cape. P J Greyling and J A Greyling formed a
partnership
known as Karoovlakte Boerdery (the partnership) and the
partnership conducted farming activities on Karoovlakte farm which
they
leased from Kernsig.
[4] Absa, through its Vredendal branch, was the banker
of the partnership. Absa granted the partnership an overdraft
facility on
the partnership's cheque account and short-term loans. As
security for the facilities granted to the partnership, six covering
mortgage bonds were registered against the title deed of Karoovlakte
farm in favour of Absa. The total amount secured by the mortgage
bonds was R1.11 million. As I have said, the bonds were covering
bonds and each provided:
'Voortdurende Dekkingsverband
Hierdie verband sal van krag bly
as 'n voortdurende dekkende sekuriteit vir die hoofsom – die
rente daarop en die bykomende
bedrag, ondanks enige tussentydse
skuldvereffening en, ondanks enige tussentydse skuldvereffening, sal
hierdie verband van volle
krag en effek bly as 'n voortdurende
sekureits- en dekkingsverband vir enige en elke bedrag wat die
Verbandgewer nou of hierna
aan die Bank verskuldig mag wees
voortspruitend uit welke oorsaak ookal tot die bedrag van die
hoofsom, die rente daarop en die
bykomende bedrag.'
[5] Mr Johan Brand (Brand), the relationship manager of
the Vredendal branch, was not happy about the manner in which the
Greylings
were conducting the two accounts. The limit of the
overdraft facility was frequently exceeded and the loan repayments
were not
made timeously.
[6] Attorney Visser (Visser), Kernsig's attorney of
record, and a sister of P J Greyling, was known to Brand as her law
practice
operated an account at the Vredendal branch of Absa. Visser
and P J Greyling discussed the possible sale of Karoovlakte farm with
Brand over several months.
[7] On 6 September 2005 the Greylings entered into a
written sale agreement of Karoovlakte farm with Mr Lionel Patrick
Barnard and
his wife Christine Barnard (the Barnards). The
transaction was structured in such a manner that the Barnards would
buy the Greylings'
entire shareholding in Kernsig and as part payment
of the purchase price, take over the partnership's financial
obligations towards
Absa.
[8] Brand, as a result of his discussions with Visser
and the Greylings, was aware of the fact that it was a term of the
sale agreement
that the Barnards would, in the name of Kernsig, take
over the financial obligations of the partnership towards Absa. That
entailed
that the debts of the partnership would be consolidated and
be paid by Kernsig with the proceeds of a loan that Kernsig would
obtain
from Absa. The Barnards, in their own names, would not have
qualified for a loan.
[9] The 6 September 2005 agreement of the sale of
Kernsig was replaced by an almost identical sales agreement dated 30
November
2005. Clause 3 thereof reads as follows:
'3. Koopprys
Die koopsom is die bedrag van R2
000 000.00 (twee miljoen rand) betaalbaar deur die koper aan die
verkoper as volg:
'n Bedrag van R150 000.00 (een
honderd en vyftig duisend rand) reeds betaal;
Die oorname van alle skulde
van die maatskappy insluitend die Landbou kredietlening ten bedrae
van R57 750.00, asook die verbande
wat oor die eiendom van die
maatskappy geregistreer is in naam van Karoovlakte Boerdery. In
totaliteit die bedrag van R1 137
750.00.
Die balans van die koopsom
naamlik R712 250.00 word in 12 jaarlikse paaiemente afbetaal
waarvan die eerste betaling op 1 Augustus
2006 sal geskied en
daarna jaarliks voor of op die einde van Julie . . .'.
[10] The shares of Kernsig were not transferred into the
name of the Barnards and in order for Kernsig to apply for a loan,
Brand
required the Greylings to give authority to Barnard to apply
for the loan in the name of Kernsig. Barnard applied on behalf of
Kernsig for a loan of R1.1 million and same was approved or granted
on 8 December 2005. The covering mortgage bonds already registered
against the title deed of Karoovlakte farm referred to earlier,
served as security for the loan granted to Kernsig.
[11] On the day that the loan was approved, Visser
telephoned Brand enquiring about the progress of Kernsig's loan
application.
The proceeds of the loan were paid to Kernsig and they
were utilised to pay off the loan and overdraft facility of the
partnership
on 25 January 2006, and Kernsig remained with a debt of
R1.1 million.
[12] The Barnards, who had taken possession and
occupation of the farm during September 2005, vacated the farm in
February 2008
and returned the keys of the farm to the Greylings. The
Greylings accepted the Barnards' repudiation of the sale agreement,
and
cancelled it.
[13] In May 2008, after Kernsig sold Karoovlakte farm to
another buyer, Visser wrote a letter to Absa wherein she demanded
that
Absa cancel the mortgage bonds registered against the title deed
of Karoovlakte as, according to her, the partnership's debts for
which the mortgage bonds served as security, had been liquidated.
Absa refused to do so, alleging that the mortgage bonds served
as
security for the loan granted to Kernsig. Absa required payment of
R1.25 million before it would cancel the mortgage bonds.
[14] In the founding affidavit, the deponent (P J
Greyling) stated that he together with his co-director and
co-shareholder were
not aware of any further loan given to Kernsig
and referred to a letter written to Absa requesting details of the
authority of
the applicant for any such loan. Their case was that the
debt of the partnership had been extinguished and consequently the
mortgage
bonds should be cancelled. In the answering affidavit Absa
alleged that the loan agreement had been entered into by Absa and
Kernsig
with the full knowledge and authorisation of the directors
and shareholders of Kernsig, and that consequently, the mortgage
bonds
served as security for the new loan granted to Kernsig. This
was disputed in the replying affidavit. Before the court of first
instance Kernsig elected, despite the dispute of fact, to have the
matter adjudicated upon on the papers without a referral for
oral
evidence.
[15] The court of first instance found that the loan
agreement had been concluded between Absa and Kernsig and dismissed
the application.
It is unlikely that the court of first instance was
invited to determine whether the loan agreement contravened the
provisions
of s 38 of the Companies Act 61 of 1973 as the judgment
makes no mention of such an argument. It was only mentioned as part
of
the court's recordal of allegations made on behalf of the
respondent which are set out below.
[16] The case that the loan agreement contravened s 38
was not raised in the founding affidavit in any shape or form. In the
replying
affidavit the section was referred to in three passages.
(a) In the first, the deponent said:
'Ek ontken dat Applikant op 22
September 2005 deur bemiddeling van die Vredendal tak van Respondent,
aansoek gedoen het vir 'n termynlening
en dra geen kennis van
sodanige aansoek nie.
. . .
Applikant voer respekvol aan en
grond sy aansoek hierop, naamlik dat
L P & C Barnard op geen
stadium direkteure van Applikant was nie.
Hul op geen stadium deur die
bestaande direkteure van Applikant van 'n volmag, hetsy skriftelik
of mondeling of by implikasie,
voorsien is om in die naam van
Applikant op te tree nie.
Daar op geen stadium 'n
resolusie deur die direkteure van Applikant geneem is om 'n
termynlening van R1.1 miljoen met Respondent
aan te gaan nie of wat
Barnard magtig om in naam van Applikant so 'n termynlening aan te
gaan nie.
Daar op geen stadium
toestemming deur die direkteure van Applikant verleen is dat die
bates van Applikant as sekuriteit vir 'n
termynlening van R1.1
miloen gebruik kon word nie.
Die aandele nooit op enige
stadium aan Barnard oorgedra is nie.
Die doel van die koopooreenkoms
was dat Barnard uit persoonlike finansies die koopsom aan Applikant
moes vereffen en as deel daarvan,
die skulde van Applikant en/of
Karoovlakte Boerdery moes oorneem. Daarna moes sekuriteitsverbande
geregistreer word oor Wildernis
Eiendomme waarna die aandele van
Applikant aan Barnard oorgedra word.
Applikant is nie regtens
toelgelaat om eie bates te beswaar ten einde behulpsaam te wees om
die verkoop van aandele te finansier
nie.'
(b) In the second, the deponent said:
'Applikant ontken ten sterkste
dat dit 'n term van die transaksie was dat Barnard in die naam van
Applikant bestaande verpligtinge
van Karoovlakte Boerdery teenoor
Respondent moes oorneem deurdat die oortrokke tjekrekening en die
termynlening-skuld gekonsolideer
word en deur die Applikant betaal
sou word deur middel van 'n nuwe fassiliteit wat aan die Applikant
toestaan sou word.
Applikant verwys met respek na
die aanhef van die vermelde koopkontrak (aanhangsel PJG 2 tot
Kennisgewing van Mosie) waaruit dit
duidelik blyk dat die ooreenkoms
tussen Applikant en L P & C Barnard was en dat lg die aandele van
Applikant gekoop het.
Verder wys Applikant die
Respondent ook respekvol na die bepalings van Art 38 van die Wet op
Maatskappye wat impliseer dat Barnard
nie Applikant se bates kon
beswaar ter verkryging/bekomming van die aandele nie. Dit was dus
deurentyd die bedoeling tussen die
partye dat Barnard in sy
persoonlike hoedanigheid finansiering sou bekom ten einde die koopsom
te delg. Soos die Respondent tereg
opmerk, is beide Visser en ekself
regsgeleerdes. Nie een van voormelde twee persone sou ooit toestem
dat die koper die bates van
die Applikant kon beswaar ten einde die
aandele van Applikant te bekom nie. In elk geval is die aandele nooit
aan Barnard oorgedra
nie.'
(c) In the third, the deponent said:
'Hierdie beweringe van
Respondent word onomwonde ontken. Daar was nooit enige sprake dat 'n
termynlening aan die Applikant toegestaan
moes word ten einde
Karoovlakte Boerdery se skuld af te los nie. Dit sou sinneloos wees
aangesien dieselfde vennote in Karoovlakte
Boerdery ook die
direkteure en aandeelhouers Applikant was en sou dit slegs 'n
verskuiwing van skuldverpligtinge wees. Verder sou
so 'n transaksie
ook nie regtens toelaatbaar wees nie. Die direkteure van Applikant is
ook nooit sedert September 2005 gekontak
rakende betalings en/of die
gebrek aan betalings van die premies van 'n termynlening nie.’
[17] In the first passage, the section is not mentioned
specifically and the allegation at the end would not have served to
alert
Absa that its provisions were being relied upon as an
independent cause of action for the cancellation of the bonds. In the
second
passage, the section was not relied upon for an argument that
the loan of 8 December 2005 was void and that the bonds should be
cancelled for that reason. Rather, the section was relied upon to
support Kernsig's version that the Barnards were not authorised
to
act on behalf of Kernsig to apply for the loan or to agree that the
existing bonds would remain to secure it. The same applies
to the
third passage. The alleged invalidity of the loan is there put
forward to support an argument that the Barnards were not
authorised
to represent Kernsig in obtaining the loan, not an argument that if
such a loan had been granted, Kernsig would contend
that it was
invalid because of the provisions of s 38.
[18] The allegation that the loan agreement contravened
s 38 was apparently raised squarely for the first time in the
application
for leave to appeal which served before the court of
first instance. When granting leave to appeal, the court of first
instance
stated, inter alia:
'I am of the view that another
Court could well come to a different decision as to whether
Respondent disclosed a defence, and as
to whether the loan was
improper in the light of section 38 of the Companies Act 1993. This
being so, I must find there to be a
reasonable prospect of success on
appeal.'
[19] The court a quo found that the loan agreement
contravened s 38(1) of the Companies Act. The court reasoned that it
cannot be
said that the direct object of the loan agreement of 8
December 2005 was to enable Kernsig as mortgagor to take over the
partnership's
debt.
[20] The sole question raised by Kernsig in the appeal
before this court was whether the loan agreement contravened s 38.
That section
reads as follows:
'No financial assistance to
purchase shares of company or holding company ─
(1) No company shall give,
whether directly or indirectly, and whether by means of a loan,
guarantee, the provision of security
or otherwise, any financial
assistance for the purpose of or in connection with a purchase or
subscription made or to be made by
any person of or for any shares of
the company, or where the company is a subsidiary company, of its
holding company.'
[21] The main purpose of s 38 is to protect the
creditors and minority shareholders of a company. A person who
purchases shares
in a company must do so out of his or her own funds,
because using the company's resources to buy shares of that
particular company
may prejudice the creditors and minority
shareholders of that company. As Nicholas AJA said in
Lewis
v Oneanate (Pty) Ltd & Another
[1992] ZASCA 174
;
1992 (4)
SA 811
(A) at 818A-B:
'The object of a provision such
as s 38(1) is the protection of creditors of a company, who have a
right to look to its paid-up
capital as the fund out of which their
debts are to be discharged . . . The purpose of the Legislature was
to avoid that fund being
employed or depleted or exposed to possible
risk in consequence of transactions concluded for the purpose of or
in connection with
the purchase of its shares.'
See
also
Gardner & Another v Margo
2006 (6) SA 33
(SCA) at para 45.
[22] The section is drawn in very wide terms. It
prohibits a company from giving financial assistance to any person
for the purpose
of or in connection with the purchase of its shares,
or in the case of a subsidiary company for the purchase of shares of
its holding
company. There has therefore been a tendency to give the
section a narrow interpretation. In
Gardner &
Another v Margo
supra at para 47 Van Heerden
JA said:
'In
Lipschitz NO v UDC Bank Ltd
this Court appears to have accepted the
distinction drawn by Schreiner JA in
Gradwell
(Pty) Ltd v Rostra Printers Ltd
between the
"ultimate goal" of the
transaction in question and its "direct object",
and to accept that it is only the direct object of the transaction
that
is relevant. If the direct object is not the provision of
financial assistance by the company for the purpose of or in
connection
with a purchase of its shares, then it is irrelevant that
the ultimate goal of the transaction was to enable a person to
purchase
such shares. Moreover, financial assistance within the
meaning of s 38(1) is given only when the direct object of the
transaction
is to assist another financially – the s 38
prohibition is not contravened when the direct object of the
transaction is merely
to give another that to which he or she is
already entitled.'
Furthermore, In
Gradwell (Pty)
Ltd v Rostra Printers Ltd and Another
1959
(4) SA 419
(A) at 425E Schreiner JA said:
'The question whether it was to
give financial assistance would depend not on how it obtained the
money – by loan, secured
or not, by realising assets or
otherwise – but on what it was to do with the money when
available.'
[23] It is clear from the above that s 38 is fact-based
and that without the necessary facts a court cannot make a finding on
whether
s 38 was contravened or not. In
Transnet
Ltd v Rubenstein
2006 (1) SA 591
(SCA) at
para 28 Cloete JA said:
'In motion proceedings the
affidavits constitute not only the evidence, but also the pleadings.'
See also
Minister of Land Affairs
& Agriculture v D & F Wevell Trust
2008
(2) SA 184
(SCA) at 200D-E and
Eskom Holdings
Ltd v New Reclamation Group (Pty) Ltd
2009
(4) SA 628
(SCA) at 638C-F. In
Yannakou v
Apollo Club
1974 (1) SA 614
(A) at 623G-H
Trollip JA said:
'And if his defence is
illegality, which does not appear ex facie the transaction sued on
but arises from its surrounding circumstances,
such illegality and
the circumstances founding it must be pleaded. It is true that it is
the duty of the court to take the point
of illegality mero motu, even
if the defendant does not plead or raise it; but it can and will only
do so if the illegality appears
ex facie the transaction or from the
evidence before it, and in the latter event, if it is also satisfied
that all the necessary
and relevant facts are before it.'
See also
F & I Advisors
(Edms) Bpk v Eerste Nasionale Bank van SA Bpk
[1998] ZASCA 65
;
1999
(1) SA 515
(A) at 525H-526A and 526D-E, and
Middleton
v Carr
1949 (2) SA 374
(A) at 385-386.
[24] In this matter, it is plain that all the facts are
not before court to enable the court to determine whether or not s 38
has
been contravened. The court a quo, for example, itself said:
'Die betrokke verbandaktes,
gelees met die res van die stukke voor die hof, toon ook nie dat
enige bedrag daarkragtens opeisbaar
en betaalbaar was deur appellant
aan respondent nie. Klousule 6 van die verbandaktes bepaal voorts dat
die terugbetaling van enige
bedrag wat deur appellant aan respondent
verskuldig is uit hoofde van die betrokke verbande, moet geskied
ooreenkomstig sodanige
skriftelike ooreenkoms(te) as wat van tyd tot
tyd deur appellant en respondent aangegaan mag word. Respondent steun
egter nie op
enige sodanige ooreenkoms(te) om te toon dat appellant
enige bedrag uit hoofde van die dekkingsverbande aan respondent
verskuldig
is nie. Dit volg dus dat appellant, as verbandgewer, geen
skuld teenoor respondent gehad het om te vereffen nie.
In die omstandighede kan dit nie
bevind word dat die direkte doel (of minstens die mede-direkte doel)
van die termynleningsooreenkoms
van 8 Desember 2005, was om appellant
se skuld as verbandgewer teenoor respondent te vereffen nie.'
Without having the relevant facts before it, it was
incorrect for the court a quo to find that the loan agreement
contravenes s
38; nor could it have been expected of Absa to produce
documents relevant to the question whether there had been such a
contravention,
as this was not the case Absa was called upon to meet.
[25] My view is that the order of the court of first
instance was correct and Absa's appeal should succeed.
[26] In the court a quo, Absa was represented by two
counsel and I believe that they are entitled to the costs of the two
counsel.
[27] The following order is made:
(a) The appeal succeeds with costs which will include
costs consequent upon the employment of two counsel.
(b) The order of the court a quo is set aside and
replaced with the following:
'The appeal is dismissed with costs, which costs will
include the costs consequent upon the employment of two counsel.'
__________
W L SERITI
JUDGE EOF APPEAL
APPEARANCES:
Counsel for Appellant: R S van Riet SC
P de B Vivier
Instructed by: Heyns & Partners Inc, Goodwood
Symington & de Kok, Bloemfontein
Counsel for Respondent N J Treurnicht SC
Instructed by: Hanlie Visser Attorneys, Somerset West
Webbers, Bloemfontein