Summary of Judgment

1. Introduction

This matter concerned an application for summary judgment in an action in which a commercial bank sought to enforce a written guarantee (suretyship) against a natural person who had guaranteed the indebtedness of a close corporation.

The plaintiff was The Standard Bank of South Africa Limited and the defendant was Zenzo Khulumangifile Zungu. The defendant was sued in his capacity as guarantor for the debts and liabilities of ZKZ Security CC, of which he was the sole member.

The procedural history was that the plaintiff issued summons and the defendant delivered a notice of intention to defend and a plea. The plaintiff then proceeded by way of a Rule 32 summary judgment application. Summary judgment was granted on 11 May 2022 in favour of the plaintiff for two monetary amounts, interest, and costs on the attorney-and-client scale. The reasons for that order were subsequently delivered on 21 June 2022.

The dispute fell within the general subject-matter of enforcement of a guarantee for corporate debts, and whether defences raised by the guarantor—particularly a defence based on section 129 of the National Credit Act 34 of 2005 and an alleged debit-order arrangement—constituted bona fide defences sufficient to defeat summary judgment.

2. Material Facts

The court treated as material the contractual matrix giving rise to the principal debt and the guarantee, as well as the subsequent default and liquidation of the principal debtor.

It was pleaded that on 18 September 2014 the plaintiff and ZKZ Security CC concluded a written fleet management system agreement, in terms of which the plaintiff provided ZKZ Security CC with a credit card facility for repairs, fuel purchases, and related on-road costs. It was further pleaded that on 5 July 2019 the defendant executed a written guarantee in favour of the plaintiff, limited to R1 million, in terms of which he unconditionally guaranteed and undertook payment of ZKZ Security CC’s debts to the plaintiff, whether existing or future.

It was also pleaded that on or about 30 December 2019 the plaintiff and ZKZ Security CC (represented by the defendant) concluded a written overdraft agreement, in terms of which the plaintiff lent and advanced R550 000 to ZKZ Security CC on agreed interest terms.

The court identified as common cause that ZKZ Security CC breached the relevant agreements and committed an act of default when it was placed into provisional liquidation by order of the High Court on 6 October 2021. On the plaintiff’s pleaded case, and pursuant to the defendant’s guarantee, the defendant became indebted to the plaintiff for the amounts claimed, namely R311 179,85 and R166 190,83, together with interest.

As to the defences, the defendant raised two contentions in the plea. First, he alleged (as a point in limine) that the plaintiff was obliged to comply with section 129 of the National Credit Act 34 of 2005 before instituting proceedings against him, even though (on his own case) the National Credit Act did not apply to the agreements between the plaintiff and ZKZ Security CC. Second, he alleged that the plaintiff had agreed to facilitate a debit order against the bank account of Ncwane Investments (Pty) Ltd (a related entity of which the defendant was the sole director and shareholder) and that the plaintiff unilaterally terminated the debit order, resulting in arrears.

On the debit-order aspect, the court recorded that the plaintiff admitted that ZKZ Security CC had been reducing its indebtedness by way of a monthly debit order from the related entity, but the plaintiff’s case was that the debit order lapsed automatically because it was returned unpaid on two occasions. The court treated this as decisive in evaluating whether the debit-order allegation constituted a defence.

3. Legal Issues

The central legal questions the court was required to determine were whether the defences pleaded disclosed a bona fide defence and a defence good in law so as to resist summary judgment under Rule 32, and in particular whether the plaintiff was required to deliver a section 129 notice under the National Credit Act before suing the defendant as guarantor.

The dispute concerned primarily the application of legal rules to largely common-cause facts, rather than a factual contest requiring oral evidence. The Rule 32 enquiry required a value judgment about whether the pleaded defences amounted to genuine triable issues or were insufficient in law and indicative of delay.

4. Court’s Reasoning

The court approached the matter through the principles governing summary judgment and the legal character of suretyship (guarantee) obligations where the principal debt arises from agreements to which the National Credit Act does not apply.

On the National Credit Act defence, the court accepted the plaintiff’s contention that compliance with section 129 was not required because the defendant was sued as guarantor for ZKZ Security CC’s obligations arising from a credit transaction to which it was common cause the National Credit Act did not apply. The court relied on authority for the proposition that a surety who binds himself as surety and co-principal debtor remains a surety, and that the surety’s liability arises from the contract of suretyship. In applying those principles, the court reasoned that, because the principal obligation fell outside the National Credit Act, the defendant could not claim entitlement to a section 129 notice.

In this regard, the court referred to decisions interpreting the National Credit Act’s provisions dealing with credit guarantees, including that the Act applies to a credit guarantee only to the extent that it applies to the underlying credit facility or transaction in respect of which the guarantee is granted. The court treated this as determinative of the point in limine: since the Act did not apply to the principal debt, it did not apply to the guarantee in a manner that would trigger the section 129 notice requirement.

On the debit-order defence, the court accepted the plaintiff’s explanation that the debit order lapsed automatically because it was returned unpaid twice. The court concluded that this defence did not constitute a defence to the claim and was, instead, consistent with a breach of the agreements by ZKZ Security CC and with the defendant’s ensuing liability under the guarantee. The court also had regard to an admission in the plea that, on the court’s reading, amounted to an admission of arrears by ZKZ Security CC, which the court considered further undermined any suggestion of a triable defence.

Applying Rule 32, the court stated the procedural purpose of summary judgment as being available where the plaintiff can show that the defendant has no bona fide defence and that the notice of intention to defend and plea were delivered solely for delay. Having evaluated the nature of the two defences, the court concluded that they were not bona fide and were not legally sustainable. It followed, in the court’s assessment, that summary judgment was properly granted.

On costs, the court reasoned that, since the plaintiff was successful and the agreements provided for costs on the attorney-and-client scale, there was no basis to depart from the usual costs order contemplated by the parties’ contractual arrangements.

5. Outcome and Relief

The court granted summary judgment in favour of the plaintiff against the defendant for payment of R311 179,85 and R166 190,83, together with interest and costs of suit on the attorney-and-client scale.

The court rejected the defendant’s point in limine based on section 129 of the National Credit Act 34 of 2005 and held that the debit-order-related defence did not constitute a bona fide defence sufficient to resist summary judgment under Rule 32.

Cases Cited

FirstRand Bank Ltd v Carl Beck Estates (Pty) Ltd and Another 2009 (3) SA 384 (T)

Nedbank Ltd v Wizard Holdings (Pty) Ltd and Others 2010 (5) SA 523 (GSJ)

Joob Joob Investments (Pty) Ltd v Stocks Mavundla Zek Joint Venture 2009 (5) SA 1 (SCA)

Legislation Cited

National Credit Act 34 of 2005 (including sections 129, 4(2)(c), and 8(5))

Rules of Court Cited

Uniform Rule 32

Held

The court held that the plaintiff was not required to comply with section 129 of the National Credit Act 34 of 2005 before suing the defendant on the guarantee, because the National Credit Act did not apply to the principal credit transaction giving rise to the guaranteed debt and, on the court’s application of the Act, a credit guarantee is regulated only to the extent that the underlying credit agreement is regulated.

The court further held that the defendant’s debit-order complaint did not constitute a bona fide defence, particularly where the debit order had lapsed after being returned unpaid and where the plea was treated as containing an admission of arrears, with the result that summary judgment was appropriate under Rule 32.

LEGAL PRINCIPLES

A surety (including one who signs as surety and co-principal debtor) remains a surety, and the surety’s liability arises from the contract of suretyship, with any renunciation of benefits (such as excussion and division) not converting the surety into a principal debtor for purposes of determining the applicable statutory regime.

The National Credit Act 34 of 2005 applies to a credit guarantee only to the extent that it applies to the underlying credit facility or credit transaction in respect of which the guarantee is granted. Where the principal debt arises from a transaction to which the Act does not apply, statutory mechanisms such as the section 129 notice requirement are not triggered in an action against the surety based on that guarantee.

Under Uniform Rule 32, summary judgment is granted where the defendant fails to disclose a bona fide defence that is good in law, and where the opposition is assessed as lacking a genuine triable issue. Where the pleaded defences do not legally answer the claim and are inconsistent with material admissions, summary judgment may be granted, including contractual costs consequences such as attorney-and-client costs where provided for in the governing agreements.