Summary of Judgment

1. Introduction

This matter concerned an application in the High Court of South Africa, Free State Division, Bloemfontein, for judgment sounding in money against three respondents in their capacities as sureties and co-principal debtors for the obligations of a close corporation described as the principal debtor, Heever Boerdery CC (in liquidation).

The applicant was Firstrand Bank Ltd. The respondents were Janette van den Heever (first respondent), Theodorus I van den Heever (second respondent), and Therese van den Heever (third respondent). The bank sought a monetary judgment against them jointly and severally, the one paying the others to be absolved.

Procedurally, the matter comprised two interrelated applications: first, the main claim for payment under the suretyships; and secondly, an application by the respondents for condonation for the late filing of their answering affidavit. The court heard the matter on 10 February 2022 and delivered judgment on 29 April 2022.

The general subject-matter of the dispute was the enforcement of suretyship obligations arising from a credit facility advanced to the principal debtor, and whether the respondents could resist judgment on the basis of (i) a pending business rescue application involving the principal debtor and (ii) the principal debtor’s liquidation, as well as whether their late answering affidavit should be condoned.

2. Material Facts

The court accepted as material that, on or about 12 July 2018, the applicant concluded an agreement with the principal debtor in terms of which the applicant made available a credit facility limited to the capital amount of R197 000.00. The court proceeded on the basis that the applicant complied with its obligations under that agreement.

It was material that the principal debtor failed to maintain the minimum monthly instalments, and that the last payment made by the principal debtor was on 24 March 2021. Despite written demand duly served on the principal debtor, payment was not made.

The outstanding indebtedness relied upon by the applicant (and accepted by the court) was that the principal debtor was indebted to the applicant in the amount of R205 884.78, together with interest calculated daily and compounded monthly in arrears from 1 September 2021.

It was also material that the respondents had concluded suretyship agreements with the applicant in terms of which they bound themselves as sureties and co-principal debtors in solidum for amounts that might become due under the credit facility. The court further treated it as material that the suretyships included terms preserving the applicant’s rights to recover the balance from the respondents if full recovery from the principal debtor could not be achieved, and that the respondents had renounced the benefit of excussion.

As to matters raised in defence, the respondents relied on two factual circumstances. First, a creditor of the principal debtor (Mr Oosthuizen) had lodged an application on 10 May 2021 to place the principal debtor under business rescue, which was heard on 4 November 2021, and at the time of the present judgment no decision had yet been handed down in that business rescue application. Secondly, the principal debtor was stated to be in liquidation and a liquidator had been appointed. The respondents asserted uncertainty as to whether the applicant had submitted a claim in the liquidation, and contended that the applicant was not entitled to obtain judgment against both the principal debtor and the sureties.

Regarding the condonation application, the respondents’ explanation for lateness included their expectation that judgment in earlier opposed motion proceedings involving the principal debtor would be delivered before the due date for their answering affidavit, and that they experienced logistical constraints relating to distance between their places of residence and Bloemfontein, the third respondent’s inability to secure leave from employment to sign a confirmatory affidavit, and the fact that their attorney of record was in Pretoria.

3. Legal Issues

The central legal questions were whether the applicant was entitled to judgment against the respondents as sureties and co-principal debtors for the outstanding amount, and whether the respondents’ pleaded defences provided a legally sustainable basis to resist judgment.

Within that enquiry, the court was required to consider whether the respondents could rely on the prospect of business rescue proceedings (and their understanding of section 133(2) of the Companies Act 71 of 2008) as a basis to stay or dismiss the enforcement proceedings against them. This aspect primarily involved a question of law, namely the interpretation and applicability of the statutory moratorium provision relied upon.

The court also had to determine whether the principal debtor’s liquidation, and the alleged uncertainty regarding the applicant’s conduct in the liquidation process, constituted a valid defence to enforcement against sureties who had bound themselves jointly and severally and renounced excussion. This involved the application of legal principles concerning suretyship, co-principal debtor liability, and the effect of a renunciation of excussion.

A further issue was whether condonation should be granted for the late answering affidavit. This was a discretionary evaluation involving a combination of fact and value judgment, guided by established principles regarding non-compliance with procedural requirements and the adequacy of explanations tendered.

4. Court’s Reasoning

On the business rescue defence, the court considered the statutory text relied upon by the respondents, namely section 133(2) of the Companies Act 71 of 2008, and treated it as dealing with the enforcement of claims against a company founded on guarantees and suretyships. The court’s reasoning was that the provision, on a plain reading, regulates circumstances in which a person seeks to enforce a guarantee or surety by a company and limits enforcement against the company without leave of the court. In this regard, the court referred to Investec Bank Ltd v Bruyns 2021 (5) SA 430 (WCC).

The court then addressed the respondents’ contention that the mere possibility that the principal debtor might be placed under business rescue justified staying or dismissing the applicant’s claim against the respondents as sureties. The court rejected that proposition, reasoning that the possible granting of the business rescue application would not affect the respondents’ indebtedness to the applicant. The court placed weight on the suretyship clauses identified as preserving the applicant’s rights to recover the balance from the respondents if full recovery from the principal debtor could not be achieved.

On the liquidation defence, the court reasoned from the contractual position created by the suretyships. It held that each respondent had bound themselves as sureties and co-principal debtors, jointly and severally, which meant the applicant had an election and could proceed against one or more of them as co-principal debtors. The court further emphasised that the respondents had renounced the benefits of excussion. On that basis, the court reasoned that the respondents were precluded from insisting that the applicant first pursue the principal debtor, and the applicant was entitled to proceed directly against the sureties.

In relation to condonation, the court applied the discretionary principles governing condonation, including factors such as the degree of non-compliance, the explanation provided, the importance of the case, the interest in finality, convenience to the court, and avoidance of unnecessary delay. The court referred to the statement of principle in Dengetenge Holdings (Pty) Ltd v Southern Sphere Mining Development Company Ltd and Others [2013] 2 All SA 251 (SCA). It further relied on authority emphasising the need for a reasonable and acceptable explanation, that non-compliance should be remedied as soon as possible, and that prospects of success are relevant but not determinative; a flagrant disregard of the rules may justify refusal of condonation notwithstanding prospects. In this respect the court referred to Darries v Sheriff, Magistrate’s Court Wynberg and Another 1998 (3) SA 34 (SCA).

Applying those principles, the court concluded that the respondents’ explanation demonstrated a deliberate decision to refrain from filing their answering affidavit timeously because they expected another judgment to be handed down. The court characterised this as confirming the default was wilful. As to logistical constraints, the court held that the respondents’ allegations lacked sufficient detail and substance, particularly because they did not explain why alternative arrangements could not have been made (including the potential use of correspondent attorneys, after-hours commissioning services, or electronic/virtual means). The court also considered it material that the respondents gave no explanation for failing to apply for an extension of time at the earliest opportunity. The court therefore found that the condonation application was not shown to be bona fide and that the reasons advanced were not reasonable or acceptable, with the result that no good cause was established.

Finally, the court recorded that all aspects required for the applicant to obtain judgment in the main action had been admitted by the respondents, and that the defences raised were not sound in law. On that basis, the main claim succeeded.

5. Outcome and Relief

The court dismissed the respondents’ application for condonation for the late filing of their answering affidavit, and ordered the respondents to pay the costs of that condonation application.

The court granted judgment in favour of the applicant against the respondents, jointly and severally, the one paying the others to be absolved, in the sum of R205 884.78, together with interest at the prime rate plus 11% per annum, calculated daily and compounded monthly in arrears from 1 September 2021 until date of payment, both days inclusive.

The court further ordered the respondents to pay the costs of the application on the scale of attorney and client.

Cases Cited

Investec Bank Ltd v Bruyns 2021 (5) SA 430 (WCC)

Dengetenge Holdings (Pty) Ltd v Southern Sphere Mining Development Company Ltd and Others [2013] 2 All SA 251 (SCA)

Darries v Sheriff, Magistrate’s Court Wynberg and Another 1998 (3) SA 34 (SCA)

Legislation Cited

Companies Act 71 of 2008 (section 133(2) referred to; section 132(2) is mentioned in the judgment text)

Rules of Court Cited

The judgment referred generally to the Rules of Court in the context of condonation, without identifying a specific rule.

Held

The court held that the respondents’ reliance on a pending business rescue application involving the principal debtor did not provide a basis to stay or dismiss the claim against the respondents as sureties and co-principal debtors, and that the statutory provision relied upon concerned enforcement against a company in respect of guarantees and suretyships.

The court held that the principal debtor’s liquidation and uncertainty about the applicant’s participation in the liquidation process did not defeat the applicant’s contractual entitlement to proceed directly against the respondents, particularly given that they bound themselves jointly and severally as co-principal debtors and renounced the benefit of excussion.

The court held that condonation should be refused because the respondents’ failure to comply with time limits was wilful, the logistical explanations were insufficiently substantiated, and no good cause was shown. Given admissions establishing the applicant’s claim and the failure of the defences in law, judgment was granted for the claimed amount and interest, together with attorney-and-client costs.

LEGAL PRINCIPLES

The judgment applied the principle that a creditor who holds a suretyship in which the surety also binds themselves as a co-principal debtor, and where liability is joint and several, may elect to proceed against the surety directly, and the surety cannot insist that the creditor first proceed against the principal debtor where the surety has renounced the benefit of excussion.

The judgment applied the principle that the operation of statutory restrictions or moratoria associated with business rescue (as discussed with reference to section 133(2) of the Companies Act 71 of 2008) concerns the enforceability of certain claims against the company in specified circumstances, and does not, on the court’s reasoning, operate to extinguish or suspend the independent contractual liability of sureties who have bound themselves to the creditor on terms preserving the creditor’s rights.

On condonation, the judgment applied the principle that condonation is discretionary and depends on factors including the extent of non-compliance and the adequacy of the explanation, that an applicant must provide a reasonable and acceptable explanation and act promptly to remedy non-compliance, and that even where prospects may exist, a wilful or insufficiently explained disregard of procedural requirements may justify refusal of condonation, particularly where no good cause is shown.