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[2021] ZAKZPHC 25
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Investec Bank Limited v Pillay and Others (4417/2020P) [2021] ZAKZPHC 25 (31 May 2021)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
Case No.:
4417/2020P
In
the matter between:
INVESTEC
BANK
LIMITED
APPLICANT
and
VEJANDRAN
SHUNMUGAM PILLAY
FIRST RESPONDENT
VEJANDRAN
SHUNMUGAM PILLAY N.O.
SECOND RESPONDENT
JENNY
PILLAY
N.O.
THIRD RESPONDENT
ORDER
The
following order is granted:
1.
Judgment is granted against the respondents
jointly and severally with each other, the one paying the other to be
absolved, for
payment of the sum of:
1.1
R59 064 140.93 together with
interest thereon at the rate of 7% per annum and penalty interest at
a rate of 5% calculated
daily and compounded monthly from 14 July
2020 to date of payment, both days inclusive;
1.2
R14 441 916.30 together with
interest thereon at the rate of 7% per annum and penalty interest at
a rate of 5% calculated
daily and compounded monthly from 14 July
2020 to date of payment, both days inclusive;
1.3
R4 871 907.66 together with
interest thereon at the rate of 7% per annum and penalty interest at
a rate of 5% calculated
daily and compounded monthly from 14 July
2020 to date of payment, both days inclusive;
1.4
R2 857 732.05 together with
interest thereon at the rate of 7% per annum and penalty interest at
a rate of 5% calculated
daily and compounded monthly from 14 July
2020 to date of payment, both days inclusive;
1.5
R17 500 000 together with
interest thereon at the rate of 7.25% per annum and penalty interest
at a rate of 5% calculated
daily and compounded monthly from 14 July
2020 to date of payment, both days inclusive;
1.6
R92 000 000 together with
interest thereon at the rate of 7.25% per annum and penalty interest
at a rate of 5% calculated
daily and compounded monthly from 14 July
2020 to date of payment, both days inclusive.
2.
The respondents are to pay the costs of
this application jointly and severally on the attorney and client
scale.
JUDGMENT
HIRALALL
AJ:
Introduction
[1]
The applicant is Investec Bank Limited, a
bank duly registered and incorporated as such, a registered credit
provider, with its
principal place of business at 5 Richeford Circle,
Ridgeside Office Park, Umhlanga Rocks, Durban.
[2]
The first respondent is Mr Vejandran
Shunmugam Pillay, an adult male, attorney and businessman, who
carries on business at Suite
SF01, The Square, 250 Umhlanga Rocks
Drive, Umhlanga Rocks, Durban.
[3]
The second and third respondents are cited
in their capacities as duly appointed trustees of the Jenny Pillay
Family Trust, registration
number IT173/96. The trustees are Mr
Vejandran Shunmugam Pillay N.O. and Ms Jenny Pillay N.O., the second
and third respondents
respectively, with their principal place of
business at Suite SF01, The Square, 250 Umhlanga Rocks Drive,
Umhlanga Rocks, Durban.
[4]
The applicant, represented by a duly
authorised representative, and Misty Blue Investments (Pty) Ltd
(‘
Misty Blue’
)
,
represented at all material times by the first respondent, concluded
various written loan agreements on various occasions as detailed
below:
(a)
On 23 December 2016, the applicant loaned
and advanced R60 228 000 to Misty Blue. Misty Blue
undertook to repay that amount
in 24 equal monthly instalments of
R532 965.54, and a final residual instalment of R60 228 000.
Accordingly, the
full debt was due, owing and payable by no later
than December 2018.
(b)
On 9 September 2013, the applicant loaned
and advanced a principal debt of R75 456 588.80 to Misty
Blue. Misty Blue undertook
to repay that amount, together with
interest thereon, in one residual amount of R75 276 436.92,
18 months after the date
of the loan agreement. Annexed to the
written loan agreement are various written addendums, culminating in
the addendum dated 23
January 2017 in terms of which the parties
agreed, in writing, that the full amount due in terms of the loan was
due and payable
by no later than 25 April 2017.
(c)
On 12 November 2013, the applicant loaned
and advanced R6 000 000 to Misty Blue. Misty Blue undertook
to repay that amount,
together with interest thereon in 60 equal
monthly instalments, and a final residual instalment of R3 900 000,
60 months after
the date of signature of the loan agreement.
(d)
On 11 August 2014, the applicant loaned and
advanced R3 100 000 to Misty Blue. Misty Blue undertook to
repay that amount
in 60 equal monthly instalments together, with a
final residual instalment of R2 015 000.
(e)
On 3 March 2017, the applicant loaned and
advanced R14 750 000 to Misty Blue. Misty Blue undertook to
repay that amount in
12 equal monthly instalments, and a final
residual instalment of R14 750 000. Accordingly, the whole
loan was due, owing
and payable by no later than April 2018.
[5]
On 10 April 2014, the applicant,
represented by a duly authorised representative, and Personify
Investments (Pty) Ltd (‘Personify’),
represented at all
material times by the first respondent, concluded a written loan
agreement in terms of which the applicant loaned
and advanced
R92 000 000 to Personify. This amount together with
interest thereon was repayable by Personify in monthly
instalments,
with a final residual instalment of R73 600 000.
[6]
The various loans advanced to the debtors
were
inter alia
to finance the acquisition of a number of immovable properties known
as Central Park (phases 1 and 2), Auberge Hollandaise Guest
House,
the scheme known as Urban Park, the hotel and office park known as
The Square, and the hotel known as The Waterfront Hotel
and Spa.
[7]
On various dates from 9 September 2013 to
20 December 2016, and at Durban, the first respondent and the Jenny
Pillay Family Trust
signed and executed written guarantees in favour
of the applicant for the due and punctual payment of all and any
moneys owed to
the applicant by Misty Blue and Personify.
[8]
Both Misty Blue and Personify breached
their repayment obligations in terms of all of the aforesaid loans.
As a result, a settlement
agreement was concluded during July 2019
between the applicant on the one hand, and Misty Blue, Personify,
Huntrex 302 (Pty) Ltd,
(‘group of companies’), the first
respondent, and the Jenny Pillay Family Trust, on the other. The
settlement agreement
provided
inter alia
as follows:
(a)
The debtors (which included the respondents
as principal debtors) accepted joint and several liability to
Investec for the amounts
set forth in the various loan agreements
which totalled R191 041 630.
(b)
A restructured payment plan, with specified
due dates, with the entire indebtedness being payable by no later
than 31 December 2019.
(c)
Release of all of Investec’s security
over Central Park phases 1 and 2 upon timeous payment of specified
amounts.
(d)
In order to achieve payment of at least R50
million, an option for the debtors to realize immovable property,
bonded in favour of
the applicant as security for the indebtedness,
as the debtors saw fit, and the applicant would release the aforesaid
properties
subject to the conditions stipulated in the settlement
agreement.
(e)
Suitable guarantees for all payments as
stipulated in the settlement agreement.
(f)
Various further payments pending settlement
of the indebtedness in full.
(g)
Various further conditions in relation to
inter alia
the pending liquidation proceedings, and business rescue proceedings.
(h)
The agreement would not constitute a
novation of Investec's claims against the debtors nor did it in any
way vary or modify the
terms and conditions of the various individual
loan agreements concluded with Investec.
[9]
As at 19 December 2019, the debtors were in
breach of the terms of the July 2019 agreement and two further
addendums affording them
extensions. In addition, the debtors advised
that they had received an application for business rescue from two
intervening creditors.
The introduction of yet another application
for business rescue, albeit from alleged at arms-length creditors,
was of concern to
Investec. However, it was at the instance of the
debtors that the creditors who brought that application agreed to
withdraw those
proceedings. On 19 December 2019 Investec’s
attorneys wrote to the debtors recording that they remained in breach
of the
settlement agreement and the addendums, and entered into
discussions with the debtors as to how to remedy the situation. The
debtors
responded as follows on 19 December 2019:
‘
we
would like to settle this matter and pursue settlement apart from the
urban park issue, we believe this is very possible. We
urge you to
hold this over until the new year when this matter can be resolved
amicably. In the light of your threats to liquidate,
we are
forwarding your letter to our attorneys for the reply.’
[10]
On 31 December 2019 Investec's attorneys
wrote to the debtors stating that:
‘
as
you are aware there's a pending business rescue application, set down
for 15 April 2020. Kindly advise what your position is
in respect of
the business rescue application.’
[11]
On 16 January 2020 the debtors wrote to
Investec’s attorneys with proposals as to how to bring various
arrear payments up
to date and stated as follows
‘
I
confirm I am meeting with the business rescue creditors this
afternoon to settle their application. My proposals herein a subject
to their consent to withdraw their application.’
[12]
On 16 January 2020 the debtors informed
Investec in writing that the properties known as The Square and the
Waterfront Hotel and
Spa were reserved for auction on 17 March 2020,
and that unless the parties apparently interested in purchasing those
properties
by private treaty secured a purchase by 31 January 2020,
then Investec could proceed to advertise and sell the properties on
auction.
On 31 January 2020 the debtors confirmed in writing that
they were in the process of having the business rescue application
withdrawn.
On 19 February 2020 the debtors provided Investec’s
attorneys with an update in regard to the property known as the
Waterfront
Hotel and Spa which was allegedly to be sold for R50
million subject to a due diligence.
[13]
On 5 February 2020, a further written
settlement agreement was concluded between the applicant on the one
hand, and the group of
companies, the first respondent, and the Jenny
Pillay Family Trust, on the other. The settlement agreement provided
inter alia
as follows:
(a)
The debtors acknowledged their joint and
several indebtedness to Investec for the amounts set out in the
various loan agreements
which altogether totalled R186 592 993.87,
plus interest and costs on the attorney and client scale.
(b)
The debtors undertook to pay this amount as
set out on the terms reflected in the agreement.
(c)
The debtors undertook to furnish Investec
with a guarantee for R15 million by no later than 14 February 2020,
and to make payment
of this amount by no later than 28 February 2020.
The debtors complied with the obligation to provide the guarantee.
The guarantee
was extended and stated to expire on 10 April 2020. On
26 March 2020 Investec's attorneys sent a letter stating:
‘
Please
note that the guarantee issued in our client’s favour in the
sum of R 15 000 000.00 in respect of the sale
of the
Imperial Hotel expires on 10 April 2020. Please ensure that this date
is extended accordingly and provide our offices with
proof thereof
prior to the expiry date.’
On
9 April 2020 Investec's attorneys sent a further letter stating as
follows:
As
set out in our letter dated 26 March 2020, the guarantee issued in
our client’s favour in the sum of R 15 000 000.00
in
respect of the sale of the Imperial Hotel expires on 10 April 2020.
Please ensure that this date is extended accordingly and
provide our
offices with proof thereof prior to the expiry date.’
The
debtors breached clause 1 of the agreement in that the guarantee
which they furnished expired without payment, and payment of
R15
million was not received by 28 February 2020.
(d)
The debtors undertook to furnish Investec
with a further guarantee of R15 million by no later than 14
February 2020, and to
pay Investec this amount by no later than 28
February 2020. However, the debtors failed to furnish the guarantee
and to make the
required payment, thereby breaching their
obligations.
(e)
The debtors agreed to provide Investec with
a guarantee of R10 million in respect of the Auberge Hollandaise
Guest House, and to
pay Investec this amount by no later than 31 May
2020. No guarantee was furnished and no payment was received.
(f)
The debtors agreed to provide Investec with
a guarantee for the minimum amount of R50 million in respect of the
sectional title
scheme known as Urban Park, by no later than 30 April
2020, and to pay Investec the amount of R50 million by no later than
31 May
2020. No guarantee was furnished and no payment was received.
(g)
The debtors agreed that Investec would be
entitled to procure the sale and/or auction of The Square, for a
minimum net purchase
price of R90 million, and for The Waterfront
Hotel and Spa, for a minimum price of R47,5 million, on the strength
of duly executed
powers of attorney. A sale agreement in regard to
The Square was obtained by the applicant and concluded on 4 February
2020 for
the price of R90 million including VAT. The purchase price
was payable as follows: R5 million within 5 days of acceptance, and
the balance of R85 million by way of a bank guarantee to be delivered
to Investec within 45 days of the acceptance of Investec’s
consent to the sale. Subsequently, the debtors advised that the
purchaser had requested an extension of time. Investec responded
with
a proposed addendum which, if signed and accepted by both parties,
would have resulted in an agreement to extend the date
for the
furnishing of the guarantees but it was never signed or accepted by
any of the parties. The result was that the guarantees
for R85
million were not furnished. Investec then received correspondence
indicating that the purchaser no longer qualified for
finance
sufficient to cover the R85 million owed for the balance of the
purchase price.
(h)
The entire amount owed by the debtors to
Investec was to be settled in full by no later than 30 June 2020.
Issues
[14]
The applicant seeks judgment as prayed in
the notice of motion. According to the applicant, the amounts owed by
the respondents,
and for which the applicant seeks judgment against
the respondents jointly and severally with each other, the one paying
the other
to be absolved, are as follows:
(a)
payment of the sum of R59 064 140.93
together with interest thereon at the rate of 7% per annum and
penalty interest at
a rate of 5% calculated daily and compounded
monthly from 14 July 2020 to date of payment, both days inclusive;
(b)
payment of the sum of R14 441 916.30
together with interest thereon at the rate of 7% per annum and
penalty interest at
a rate of 5% calculated daily and compounded
monthly from 14 July 2020 to date of payment, both days inclusive;
(c)
payment of the sum of R4 871 907.66
together with interest thereon at the rate of 7% per annum and
penalty interest at
a rate of 5% calculated daily and compounded
monthly from 14 July 2020 to date of payment, both days inclusive;
(d)
payment of the sum of R2 857 732.05
together with interest thereon at the rate of 7% per annum and
penalty interest at
a rate of 5% calculated daily and compounded
monthly from 14 July 2020 to date of payment, both days inclusive;
(e)
payment of the sum of R17 500 000
together with interest thereon at the rate of 7.25% per annum and
penalty interest at
a rate of 5% calculated daily and compounded
monthly from 14 July 2020 to date of payment, both days inclusive;
(f)
payment of the sum of R92 000 000
together with interest thereon at the rate of 7.25% per annum and
penalty interest at
a rate of 5% calculated daily and compounded
monthly from 14 July 2020 to date of payment, both days inclusive.
[15]
The respondents dispute that there is an
indebtedness which is due, owing payable, and contend as follows:
(a)
The applicant’s claim is based on the
guarantees referred to in para 12 of the founding affidavit. It is
alleged that the
applicant now seeks to introduce a new case in
argument by relying on the 31 January 2020 settlement agreement,
which it is not
entitled to do without an amendment to its existing
papers.
(b)
The settlement agreement is based on
guarantees that are unenforceable, against public policy, and
contrary to the Constitution,
and it is therefore tainted with the
same invalidity as the guarantees.
(c)
The settlement agreement is itself invalid
and unenforceable because it seeks to deprive the courts of
jurisdiction.
(d)
The Covid-19 pandemic has led to a
supervening impossibility of performance of the settlement agreement.
(e)
Business rescue in respect of all three
companies has commenced.
(f)
There is a limitation of liability in
respect of Misty Blue.
(g)
There was an agreement for deferment of
payment.
(h)
The
exceptio
non adimpleti contractus
applies as it
was Investec who caused the financial difficulties which the group of
companies found themselves in.
What
is the cause of action?
[16]
The first issue to be decided arises from
the respondents' contention that the applicant’s claim is based
on the guarantees
referred to in para 12 of the founding affidavit,
and that the applicant seeks to introduce a new case in argument by
relying on
the 31 January 2020 settlement agreement as governing
everything, which it is not entitled to do without an amendment to
its existing
papers. It is further alleged that the settlement
agreement is also merely a payment mechanism and not a compromise.
According
to the respondents this was a change of tack by the
applicant, and thus a tacit concession in relation to the offending
clauses
in the guarantees. Mr Harpur SC, for the respondents,
submitted that it is evident from the wording of para 12 that the
applicant
is relying on the guarantees since it sets this out as its
cause of action and attaches copies of the guarantees to the founding
affidavit. The applicant’s case was never that there was a
compromise. He submitted that the replying affidavit even records
at
para 43 that ‘this is not a novation’ and that the
applicant’s ‘claims are neither extinguished nor
reduced’. The settlement agreement was a mechanism to pay,
however the original indebtedness remained.
[17]
Mr
Harpur referred the court to
Mostert
and others v FirstRand Bank Ltd t/a RMB Private Bank and another
[1]
where one of the issues to be decided by the court was whether any
reliance could be placed on an argument that was only raised
in the
replying affidavit. I will return to this aspect later.
[18]
The founding affidavit records the
following:
‘
12.
On various dates, and at Durban, the first respondent and the Jenny
Pillay Family Trust signed and executed written guarantees
in favour
of the applicant for the due and punctual payment of all and any
monies owed to the applicant by Misty Blue and Personify
respectively. Copies of these guarantees are annexed hereto marked
“G1” to “G7” respectively and the terms
thereof appear in the written documents.
13.
On the 5
th
February 2020 at Durban, the applicant (represented by its authorized
employee) on the one hand,
and
Misty Blue, Personify and Huntrex 302 (Pty) Limited, the first
respondent and the Jenny Pillay Family Trust concluded an agreement
of settlement, a copy of which is annexed hereto marked “H”.
In terms thereof the debtors (including the first respondent
and the
Jenny Pillay Family Trust) acknowledged that they were jointly and
severally indebted to the applicant in the amounts set
out therein,
being the amounts due and payable by Misty Blue and Personify set out
in annexures “A” to “F”
above and further:
13.1
agreed that the said indebtedness would be discharged by way of the
various instalments set out in annexure “H”;
13.2
in the event of any payment not being made on due date, and the
debtors, including the first respondent and the Jenny Pillay
Family
Trust, failing to remedy such default upon 5 business days written
notice, the entire indebtedness would immediately become
due and
payable to the applicant.
’
[19]
Mr Stokes SC, acting for the applicant,
submitted in response that it is incorrect to suggest that the
applicant makes out a new
case in its heads of argument, since it is
clear from the founding affidavit that the applicant's case is
pleaded on the settlement
agreement. Paragraph 13.2 of the founding
affidavit proceeds to enforce the acceleration clause which only
appears in the settlement
agreement, and which provides at para 25
thereof that in the event of breach, the entire indebtedness shall
immediately become
payable. That the respondents understood the
applicant's claim as such appears from the content of para 32 of the
answering affidavit,
which acknowledges that the applicant’s
claim is based on the fact that the group of companies and the
respondents are all
in breach of their obligations in terms of the 31
January 2020 agreement. The answering affidavit then proceeds to set
out defences
claiming supervening impossibility of performance due to
the Covid-19 pandemic, and deferment of payment. Nowhere in the
answering
affidavit is it claimed that the settlement agreement is
void.
[20]
The pertinent issue to be decided here is:
What is the cause of action, and whether it was only raised in the
heads of argument?
The question whether the settlement agreement
constitutes a novation, or a compromise or
transactio,
and whether it is valid and enforceable will be decided later in the
judgment.
[21]
It is clear that although the applicant has
referred to, and annexed copies of, the guarantees to its founding
affidavit, its claim
is based on the settlement agreement which is
also an annexure to the founding affidavit. Paragraph 13.2 of the
founding affidavit
proceeds to enforce the acceleration clause which
only appears in the settlement agreement, and which makes the entire
indebtedness
due and payable upon breach. It is not correct to say
that the applicant has introduced a new case in argument.
[22]
That the respondent understood that the
applicant’s claim was based on the settlement agreement is
evident from the defences
raised thereto. The defences raised are not
in relation to the guarantees as the guarantees have not stipulated
any immediate obligations
other than guaranteeing, as a principal
obligation, the due and punctual payment and performance of all or
any moneys and obligations
which the debtors may from time to time or
in the future owe to the applicant. The defences relating to
inter
alia
the alleged supervening
impossibility of performance due to the Covid-19 pandemic, and the
deferment of payment, are directly related
to the settlement
agreement.
[23]
It
is noted that in any event, the court in
Mostert
supra
saw it fit, in the circumstances of that case, to exercise its
discretion to allow the new matter raised in the replying affidavit.
In this regard, the court considered the following factors: ‘no
new facts were raised in the replying affidavit; the merits
of the
matter were fully argued in the court a quo; there was no indication
of prejudice; and the litigation proceedings had been
protracted’.
[2]
It has not been necessary to consider this route in the present case.
Is
the settlement agreement dated 31 January 2020 invalid and
unenforceable?
[24]
The validity of the settlement agreement is
challenged by the respondents on the following two grounds:
(a)
the settlement agreement is based on
guarantees that are unenforceable, against public policy, and
contrary to the Constitution,
and therefore tainted with the same
invalidity; and
(b)
the settlement agreement itself contains
clauses, specifically clauses 39 to 41.5 which seek to deprive the
court’s jurisdiction.
Is
the settlement agreement, based on guarantees that are unenforceable,
against public policy, and contrary to the Constitution,
and
therefore tainted with the same invalidity?
[25]
Mr Stokes submitted that the respondents
have not specifically pleaded a challenge to the validity of the
settlement agreement,
and that if they wished to challenge the
validity of the settlement agreement, this should have been pleaded.
He correctly submitted
that the respondents acknowledged that the
applicant’s claim was based on the settlement agreement, and
proceeded to set
out their defences thereto. It was never the
respondents’ contention in their answering affidavit that the
settlement agreement
was invalid on account of the purported
invalidity of the guarantees.
[26]
It is noted that there is a vague and
indirect reference to a novation of the guarantees in para 72 of the
answering affidavits
(notwithstanding a specific provision in the
settlement agreement stating that the settlement agreement does not
constitute a novation
of Investec’s claims against the debtors,
and that its claims were neither extinguished nor reduced).
[27]
It is submitted at para 23 of the
respondents’ heads of argument, without it appearing in the
answering affidavit, that the
‘settlement agreements are
tainted with the same invalidity that renders the guarantees
unenforceable and are themselves
unenforceable’. Be that as it
may, the contention bears consideration as it is pertinent to the
sustainability of the applicant’s
claim.
[28]
The respondents base their argument on the
contention that clauses 1, 2 and 6.2 of the guarantees are
unenforceable, against public
policy, and contrary to the
Constitution. It was submitted in the respondents’ heads of
argument that:
(a)
Clause 1, which provides that ‘the
guarantees shall be unaffected by any compromise of any claim that
the applicant may have
against the debtor’, means the applicant
could compromise its claim against the debtor by agreeing to receive
a lower amount
of its claim, and then be paid that lower amount but
nonetheless still recover the full amount from the guarantors. This
permits
a double recovery by the applicant in that it would first
recover the lower compromised amount from the debtor, and then
recover
the same compromised lower amount from the guarantors, plus
the differential between the compromised amount and the full amount
of the claim.
(b)
Clause 2 allows the recovery of amounts
which are unenforceable, invalid or illegal (this was never pleaded
by the respondents).
The courts are accordingly required to enforce
invalid and illegal amounts which is contrary to public policy.
(c)
Clause 6.2 of each of the guarantees
provides that they shall remain in force irrespective of any
occurrence or circumstance which
might otherwise constitute a legal
or equitable discharge or defence of the guarantors.
(d)
This effectively renders nugatory the
guarantor's constitutional right of access to courts under section 34
of the Constitution
which grants the right ‘. . . to have any
dispute that can be resolved by the application of law decided in a
fair public
hearing before a court. . .’.
(e)
These results are contrary to public
policy, and contrary to the Constitution.
(f)
They are not severable from the remainder
of the guarantee, notwithstanding clause 20 of the guarantees
providing that each clause
shall be severable from the others, and if
any clause is found to be defective or unenforceable for any reason
by any court, then
the remaining clauses shall remain of full force
and effect. This is because the offending clauses relate to the
enforceability
of any or all of the terms of the contract.
[29]
The applicant’s response to these
contentions was as follows:
(a)
In relation to clause 1, it has long been
held that the clause referred to by the respondents which entitles
Investec to compromise
its claim against the debtor, while still
recovering the full amount from the guarantors, is perfectly
acceptable and not contrary
to public policy, even in the case of
suretyships, let alone guarantees.
(b)
This clause does not allow a double
recovery, and there is nothing in the guarantee which entitles
Investec to obtain more than
what it is owed.
(c)
The wording of clause 6.2 was admitted but
the construction and impact placed thereon was disputed.
(d)
It was disputed that these clauses go to
the principal purpose of the guarantees (as principal not accessary
obligations) and are
not subsidiary or collateral, or that they are
not severable from the remainder of the guarantee. Clause 20 of the
guarantees provides
that each clause shall be severable from the
others, and if any clause is found to be defective or unenforceable
for any reason
by any court, then the remaining clauses shall remain
of full force and effect.
[30]
As
a starting point, in relation to the novation argument, according to
Christie’s
Law
of Contract in South Africa
:
[3]
‘
Novation
means replacing an existing obligation by a new one, the existing
obligation being thereby discharged, but novation is
not to be
regarded as a form of payment . . . . There is a presumption against
novation because it involves a waiver of existing
rights. A creditor
who has rights under an existing contract and then enters into
another connected contract will be presumed to
intend rather to
strengthen and confirm its existing rights than to waive them and
accept its rights under the new contract in
substitution, or there
may be any one of a number of reasons for entering into the new
contract. The onus of proving novation therefore
lies on the party
who asserts that it has taken place, and it must be specifically
pleaded. Where it cannot prove an express intention
to novate, it
must prove a tacit intention; the intention must be clearly proved,
and must itself reflect a clear and unequivocal
intention to novate.’
(Footnotes omitted.)
[31]
In
Gibson
v Van der Walt
,
[4]
a case which dealt with the novation of a wagering debt, the
court stated as follows:
‘
The
test in such a case, to my mind, should be whether the Court is
asked, in effect, to enforce the unenforceable claim; in other
words,
is the later transaction on which the plaintiff relies merely a
device for enforcing his original claim, is it merely his
original claim clothed in another form or with some term or condition
added to it, or a ratification or even novation of the original
claim
which leaves its essential character unchanged; if so, the plaintiff
must fail
.’
And
further:
‘
I
am inclined to agree with BLACKWELL, J., that the conversation relied
on in the case now before us did not amount to a fresh agreement
to
pay, but was merely an admission of the original debt plus
the addition of a time stipulation to it. However, even if we
construe it as a fresh undertaking, it was an undertaking to pay the
betting debt and was, on the test I have indicated, unenforceable
.
. . .’
[5]
[32]
According
to
Christie’s
,
[6]
a compromise or
transactio
,
is ‘the settlement by agreement of disputed obligations,
whether contractual or otherwise’. (Footnote omitted.)
[33]
Harms
in
Amler’s
Precedents of Pleadings
,
[7]
defines a compromise or settlement as ’a contract which has as
its object the prevention, avoidance or termination of litigation’.
[34]
In
Benefeld
v West
[8]
the court stated as follows:
‘
[14]
The contested agreement as pleaded by the plaintiff is, on the face
of it, a settlement. It is not a novation. A compromise
is a
settlement of litigation or envisaged litigation. It is a substantive
contract that exists independently of the original cause.
In the case
of a novation, the original invalid contract taints the novated
contract, but a compromise is not affected by
the invalidity of the
original obligation. I am in respectful agreement with what was held
in that regard in the
Dennis
Peters
case
supra, and in the
Georgias
case
supra. I am not convinced that what was said in those judgments
regarding compromises is wrong.
[15]
In my view, the argument that the compromise is void and
contra
bonos mores
, just because the 1984 agreement was, cannot be
upheld.
[16]
A compromise is a self-standing contract. It is independent of the
cause that gave rise to it. In this instance the cause,
which is
alleged to have given rise to the compromise, is the cause of
action in the magistrates' court
.’
(Footnote omitted.)
[35]
In
Moraitis
Investments (Pty) Ltd and others v Montic Dairy (Pty) Ltd
:
[9]
‘
The
general principles were stated as follows:
“
A transactio,
whether extra-judicial or embodied in an order of Court, has the
effect of res judicata. . . . It is
obvious that, like any other
contract (and like any order of Court), a
transactio
may
be set aside on the ground that it was fraudulently
obtained. There is authority to the effect that it may also
be set
aside on the ground of mistake, where the error is
justus
.”’
(Footnote
omitted)
[36]
In
relation to the unenforceability argument, in
Shabangu
v Land and Agricultural Development Bank of South Africa
,
[10]
the court stated as follows:
‘
[22]
This argument is sound as far as it goes, but the rigid distinction
between public and private in relation to state commercial
activity
is not necessary to arrive at the same conclusion. A subsequent
agreement between private parties that seeks to resuscitate
an
invalid agreement itself remains tainted with invalidity, even if the
invalidity does not stem from illegality or immorality.
In
Gibson
,
Fagan JA stated:
“
In
the matter before us the claim arose out of a betting transaction
which was neither illegal nor immoral, so there is no room
for an
inquiry whether its connection with some other transaction taints the
latter with illegality or immorality, for the original
transaction
itself was not so tainted.
The
test in such a case, to my mind, should be whether the Court is
asked, in effect, to enforce the unenforceable claim; in other
words,
is the later transaction on which the plaintiff relies merely a
device for enforcing his original claim, is it merely his
original
claim clothed in another form or with some term or condition added to
it, or a ratification or even novation of the original
claim which
leaves its essential character unchanged
;
if so the plaintiff must fail.”. . . .’
[37]
In
Standard
Bank of South Africa Ltd v Bloemfontein Celtic Football Club (Pty)
Ltd
[11]
the following was said:
‘
Clause
2.2 fell squarely into the category of offensive and unconscionable
agreements, while also having the tendency to deprive
the respondent
of its constitutional right of access to the courts (see [25]). It
made no difference that the respondent was a
company, not a person:
both sequestration and liquidation involved a change of status (see
[26]). It also made no difference that
the respondent had filed an
answering affidavit: the offending agreement or clause remained
illegal and could not be transformed
by expedience or pragmatism (see
[28]). Since clause 2.2 was contrary to public policy and void, the
applicant could not fall back
on the original notice of motion to
seek the respondent's liquidation (see [29]).’
[38]
Mr Stokes submitted in relation to the
settlement agreement that:
(a)
It is an entirely new agreement;
(b)
It adds on a new party, namely Huntrex 302
(Pty) Ltd, which is not a party to the previous transactions;
(c)
The preamble records that Misty Blue,
Personify and Huntrex take on liability;
(d)
At the time it was concluded during July
2019, there was already pending litigation in the form of liquidation
proceedings;
(e)
The parties did not intend that the
agreement was merely an extension of time for the respondents to pay.
It was a whole new agreement
with an exchange of rights and
obligations;
(f)
Investec gave up rights with regard to the
mortgage bond and sought guarantees;
(g)
The agreement allowed the applicant to sell
The Square for R90 million, a right which arose from the agreement;
(h)
In para 10, the applicant gave the
respondents additional time and also sought guarantees;
(i)
The positions of the parties were
materially altered in the agreement;
(j)
Further, the debtors were all jointly and
severally liable as principal debtors;
(k)
The agreement refers to pending litigation
at paras 18 and 19, and provides for consents to judgment;
(l)
The intention was to put a hold on
liquidation and perfection in order to give the debtors time, and to
avoid further litigation
by obtaining consents to judgment; and
(m)
All of this fell squarely within the
definition of a
transactio
or a compromise.
[39]
Referring
to
Tauber
v Von Abo
,
[12]
Mr Stokes submitted that the validity of a subsequent agreement
entered into between the same parties following upon an earlier
invalid agreement depends on whether it amounts to a novation (in
which case it remains tainted) or a compromise (in which case
it is
not tainted).
[40]
He also submitted that the respondents
incorrectly contended that because the agreement stipulated that
there was no novation, it
meant that the applicant was relying on the
earlier agreement and that in fact, the position was actually the
opposite. On this
score, it does seem that the respondents’
arguments in relation to novation have been contradictory and
inconsistent.
[41]
Having
regard to the features of the settlement agreement in this case, it
is clearly a
transactio
or a compromise. It does not obliterate the rights and obligations
flowing from the original agreement but rather recognises and
affirms
the original agreement, namely the guarantees, whilst rearranging
rights and obligations, and resolving disputes and pending
litigation.
[13]
It was also specifically agreed in the settlement agreement that it
did not constitute a novation of Investec’s claims and
that the
claims were neither extinguished nor reduced.
[42]
In view of my finding that the settlement
agreement constitutes a compromise or
transactio
,
and not a novation, it is not necessary to make any findings on the
respondents’ contention that the guarantees were unenforceable,
against public policy, and contrary to the Constitution.
Is
the settlement agreement dated 31 January 2020 invalid and
unenforceable?
[43]
According to the respondents, the 31
January 2020 settlement agreement is invalid and unenforceable as
clauses 39 to 41.5 of the
agreement seek to deprive the court’s
jurisdiction.
[44]
The content of Clauses 39 to 41.5 records
the following:
’
39.
The debtors will not bring or support any business rescue proceedings
with regard to Misty
Blue, Personify and Huntrex and waive and abandon all rights to do
so;
40.
The debtors warrant that there are no business rescue proceedings
pending and that the
application brought by Aroonkumar Soni and West Investments CC under
the case number
D 10640
/2019 has been withdrawn;
41.
The
debtors are aware of the currently pending business rescue
application, and are fully conversant with their rights and
opportunities
to place the various corporate entities into business
rescue, or to bring applications to this end. This agreement is
concluded
by Investec on the basis of representations and warranties
by the debtors that
41.1
after
taking financial and legal advice, they hold the view that business
rescue is not inappropriate under the circumstances;
41.2
it
is not in the interests of creditors, including Investec Bank
Limited, to place the various corporate entities into business
rescue;
41.3
the
best option for these corporate entities to honour their financial
obligations to creditors, is by means of the terms of the
settlement
agreement, which will achieve the most beneficial financial outcome
for all of the creditors;
41.4
accordingly
business rescue would not be in the interests of the corporate
entities or the creditors;
41.5
in
whatever capacity, the debtors waive and abandon any option to apply
for business rescue.’
[45]
The court was referred, by the respondents, to
Standard
Bank v Essop
[14]
and
Standard
Bank v Bloemfontein Celtic Football Club
.
[15]
The court held as follows in
Bloemfontein
Celtic
:
[16]
‘
[23]
The applicant effectively agreed not to oppose a future application
for its liquidation in the event that it did not comply
with the
terms of the settlement agreement. This stipulation deprived the
respondent of its right to defend any proceeding in a
court of law.
In
Standard
Bank of SA Ltd v Essop
the settlement agreement contained a similar clause. It provided
that —
“
(i)n
the event of the respondent failing to pay any amount on the due
date, the applicant shall be entitled to reinstate the application
for the respondent's sequestration on the unopposed motion roll and
to utilize the affidavit deposed by the respondent consenting
to a
provisional and final order of sequestration”.
[24]
Meskin J considered the clause and correctly said the following about
it:
“
In
my opinion, applicant's conduct in having purported to stipulate for
these rights was, and remains, unconscionable. It has purported
to
empower itself. in the event of any relevant default by the
respondent, to deprive him of his status as a solvent person, and
inevitably to subject him to all the onerous obligations and
extensive restrictions which bind an insolvent in terms of the Act,
without any notice to him and without his being able in any
event to defend himself.
This
conduct offends my, and in my opinion it would offend any reasonable
person's, sense of what is procedurally fair and it offends
my, and
in my opinion would offend any reasonable person's, sense of
justice.”
[25]
Clause 2.2 falls squarely into the category of offensive and
unconscionable agreements as described by Meskin J. It also deprives
the respondent of a constitutional right. Section 34 of our
Constitution expressly gives everyone the right to have any dispute
that can be resolved by the application of law decided in a fair
public hearing before a court. Clause 2.2 has a tendency to deprive
the respondent of that right.
’
(Footnotes
omitted.)
[46]
In terms of section 34 of the Constitution
‘
Everyone
has the right to have any dispute that can be resolved by the
application of law decided in a fair public hearing before
a court
or, where appropriate, another independent and impartial tribunal or
forum
.’
[47]
In
Sasfin
(Pty) Ltd v Beukes
[17]
the court stated that
‘
The
power to declare contracts contrary to public policy should, however,
be exercised sparingly and only in the clearest of cases,
lest
uncertainty as to the validity of contracts result from an arbitrary
and indiscriminate use of the power. One must be careful
not to
conclude that a contract is contrary to public policy merely because
its terms (or some of them) offend one's individual
sense of
propriety and fairness
.’
[48]
There are clearly instances where the courts will give effect to the
need for parties to settle
their disputes on terms agreeable to them.
In
Gbenga-Oluwatoye
v Reckitt Benckiser South Africa (Pty) Limited and another
,
[18]
the court stated as follows:
‘
.
. . Here, the power of the Labour Appeal Court’s approach is
obvious. What is at issue here is a powerful consideration
of public
policy – the need for parties to settle their disputes on terms
agreeable to them. That need arises in their own
interests, and the
interests of the public.
[23]
Here, the applicant had engaged in outright material deceit and
misrepresentation. He himself, confronted with the misrepresentation
in his curriculum vitae, confessed he had no defence. It was then
that he entered into a final agreement to put a present dispute
to
bed. He did so full knowingly, with his eyes open to his own future
interests. It may have been different if he had agreed to
abjure
recourse to the courts in future disputes. But here the dispute was
hot and fresh, and present. He agreed to part ways with
Reckitt on
terms that were final, and that protected him from further action by
his employer – including the possibility
of a disciplinary
process that could wound his career irremediably. That finality
included an agreement that the courts would not
be involved. The
parties would go their ways without more.
[24]
The public, and indeed our courts, have a powerful interest in
enforcing agreements of this sort. The applicant must be held
bound.
When parties settle an existing dispute in full and final settlement,
none should be lightly released from an undertaking
seriously and
willingly embraced. This is particularly so if the agreement was, as
here, for the benefit of the party seeking to
escape the consequences
of his own conduct. Even if the clause excluding access to courts
were on its own invalid and unenforceable,
the applicant must still
fail. This is because he concluded an enforceable agreement that
finally settled his dispute with his
employer.’(Footnote
omitted.)
[49]
In the present case, the parties, and particularly the respondents,
since it is the respondents
who claim that the agreement which they
signed freely and voluntarily with full knowledge of their rights, is
invalid and unenforceable,
entered into the settlement agreement
fully conversant with their rights, with the intention to resolve
their disputes as recorded
in the settlement agreement. The first
respondent can hardly claim that he is not conversant with his rights
or that he did not
understand the agreement. Furthermore, the
settlement agreement was not the first document of its kind to be
signed by the respondents.
An earlier agreement had been signed along
similar lines. According to
Gbenga-Oluwatoye
[19]
parties ‘. . . must be held bound. When parties settle an
existing dispute in full and final settlement, none should be lightly
released from an undertaking seriously and willingly embraced’.
[50]
In
Beadica
231 CC and others v Trustees, Oregon Trust and others
,
[20]
after examining the principles of
pacta
sunt servanda
and ‘perceptive restraint’, the court stated as follows:
‘
Two
principles derived from case law need further elucidation:
pacta
sunt servanda
and
“perceptive restraint”. The former was not a relic of our
pre-constitutional past. This court has recognised
that, in general,
public policy required contracting parties to honour obligations that
have been freely and voluntarily undertaken.
It was crucial to
economic development that individuals should be able to trust that
all contracting parties would be bound by
obligations willingly
assumed. Certainty in contractual relations advanced constitutional
rights and was essential to the achievement
of our constitutional
vision. However, there was no basis for privileging
pacta
sunt servanda
over
other constitutional rights and values; the requirements of public
policy were informed by a wide range of constitutional
values. Where
a number of constitutional rights and values were implicated, a
careful balancing exercise was required to determine
whether
enforcement of the contractual terms would be contrary to public
policy in the circumstances. As for “perceptive
restraint”,
while it was a sound approach, courts should not rely on it to shrink
from their constitutional duty to infuse
public policy with
constitutional values, nor may it be used to shear public policy of
the complexity of the value system created
by the Constitution . . .
.
As
was decided in
Barkhuizen
,
a
party seeking to avoid the enforcement of a contractual term was
required to demonstrate good reason for failing to comply with
the
term. While the explanation provided was not the only relevant
consideration, it was critical in the overall assessment of
whether
enforcement would be contrary to public policy in all the particular
facts and circumstances of a case
.
In most cases the absence of an explanation would be the end of the
enquiry. Here, the only reasons advanced by the franchisees
for their
failure were that they were not sophisticated businesspeople and not
fully apprised of their rights and obligations.
Yet, the terms of
each lease governing termination and renewal were in simple,
uncomplicated language, which an ordinary person
could reasonably be
expected to understand. The inference was inescapable that there were
no circumstances that prevented the applicants
from complying with
the terms of the renewal clauses in the leases and that they had
simply neglected to comply when it was possible
for them to do so.
The harsh outcome alone, absent an explanation for their failure to
comply with the terms of the renewal clauses,
did not constitute a
sufficient basis to hold that the enforcement of the clauses would be
contrary to public policy. It followed
that they did not show that
enforcement of the clauses would be contrary to public policy. . .
.’
(My
emphasis.)
[51]
I find that the settlement agreement is valid and enforceable.
[52]
The respondents’ further alternative defences are as follows:
‘
[22]
There is no amount which is due owing and payable by any of the
companies (and hence no entitlement of the applicant to sue
under the
guarantees) due to
(a)
temporary
supervening impossibility of performance due to covid 19 and national
lockdowns,
(b)
alternatively
because business rescue proceedings had begun,
(c)
further,
alternatively, the applicant has breached the provisions of the
agreements and is not entitled to accelerate payments.
The
exceptio
non adimpleti contractus
applies against the applicant.”
Temporary
supervening impossibility of performance
[53]
As a general rule, impossibility of performance brought about by
supervening events will excuse
performance on a contract. In
MV
Snow Crystal: Transnet Ltd t/a National Ports Authority v Owner of MV
Snow Crystal
,
[21]
the court stated the following:
‘
[28]
This brings me to the appellant's defence of supervening
impossibility of performance. As a general rule impossibility of
performance brought about by
vis
major
or
casus
fortuitus
will
excuse performance of a contract. But it will not always do so.
In each case it is necessary to “look to the
nature of the
contract, the relation of the parties, the circumstances of the case,
and the nature of the impossibility invoked
by the defendant, to see
whether the general rule ought, in the particular circumstances of
the case, to be applied”. The
rule will not avail a defendant
if the impossibility is self-created; nor will it avail the defendant
if the impossibility
is due to his or her fault. Save possibly in
circumstances where a plaintiff seeks specific performance, the onus
of proving the
impossibility will lie upon the defendant
.’
(Footnotes omitted.)
[54]
In
Unibank
Savings
and Loans Ltd (formerly Community Bank) v ABSA Bank Ltd
[22]
it
was held that
‘
Impossibility
is furthermore not implicit in a change of financial strength or in
commercial circumstances which cause compliance
with the contractual
obligations to be difficult, expensive or unaffordable.
’
[55]
In
The
Asphalt Venture: Windrush Intercontinental SA and another v UACC
Bergshav Tankers
AS
,
[23]
the court stated as follows:
‘
[33]
It is hard to discern why the court a quo rejected Justice Khare's
opinion. The doctrine of impossibility or frustration is
applicable
to contracts of employment where supervening events rendered the
performance of the contract impossible or radically
different
from what had been undertaken when the contract was entered into. And
whether a contract is frustrated in the particular
circumstances of
the case will be a matter of fact and degree. In English law a
contract may be frustrated if supervening
events prevent its further
performance. The principle forms part of the law of contract in
India too in terms of s 56 of the
Indian Contract Act 9 of 1872,
which provides that —
“
a
contract to do an act, which after the contract is made, becomes
impossible or, by reason of some event which the promisor could
not
prevent, unlawful, becomes void when the act becomes impossible or
unlawful”
.’
(Footnotes omitted.)
[56]
According to the respondents, after the conclusion of the 31 January
2020 agreement, the group
of companies was in constant discussions
and negotiations with the applicant. Due to the Covid-19 pandemic,
the hospitality industry
was adversely affected by the travel ban and
lockdown, and most of the hotels within the group were closed and
generating no income.
It was anticipated that there would be minimal
business for at least a few months after the lockdown. Furthermore,
the larger clients
of the group and governmental agencies indicated
that they would be unable to keep up with their payment plans, and as
a result
the cash flow of the group of companies would be hampered,
and they would be unable to make payments under the agreement. In the
circumstances, on 3 April 2020, an email was addressed to the
applicant requesting a deferment of payments due for a period of
90
days. On 9 April 2020 the applicant agreed to provide the respondents
with the requested 90 day deferment of payment, which
would result in
the next instalment being payable on 30 June 2020. Guarantees in
terms of the settlement agreement were delayed
by the Covid-19
pandemic, and an extension of time was requested within which the
guarantees would be provided. On 29 April 2020,
when it became
apparent that the lockdown might last longer than anticipated, a
further letter was addressed to the applicant requesting
that the
payment dates be moved to 31 July 2020 as hospitality trade was only
permitted to operate more fully under lockdown level
1, and could
only realistically start trading in July 2020. On 26 May 2020, more
than a month later, the applicant then addressed
a letter to the
group advising that it would not be extending the dates any further
and that it will be issuing breach notices
under the agreement. The
applicant also referred to a liquidation application by Verbaan
Construction against Misty Blue which
was in respect of a disputed
debt which had since been settled, and the application was withdrawn.
On 26 May 2020 a letter was
addressed by the respondent to the
applicant confirming that the 90-day deferment previously referred to
was acceptable.
[57]
It appears from the facts which are common cause, that the financial
difficulties of the group
of companies did not start with the
Covid-19 pandemic. The respondents’ answering affidavit records
that with the passage
of time, the group of companies ran into
financial difficulties. In this regard, it was contended by the
respondents that Investec
singlehandedly engineered the financial
difficulty which caused the group of companies to fall into the
difficulties they found
themselves in, because of its refusal,
despite an agreement to do so, to release an additional R10 million
for the Urban Park development.
It is alleged that had the applicant
released the balance of R10 million in the facility (which was
by agreement to have been
applied in the reduction of the Central
Park loan from R14 000 000 to R4 000 000), the
Central Park development
would have been completed.
[58]
Investec's response was that at the time when the R10 million advance
was claimed, Misty Blue
was already in arrears, and contractually
Investec was not obligated to continue advancing under the facility
whilst Misty Blue
remained in breach. A copy of the loan agreement
was attached to the applicant’s replying affidavit. According
to the loan
agreement, if Misty Blue was in default under any of its
other facilities with Investec, it would constitute a default under
the
agreement in question. At the time, the amount owing under loan
agreement 282762/004 remained unpaid and Misty Blue was in default
of
its obligations. The applicant presented a similar response to the
respondents’ contention that it refused to release
units for
sale, and had this been permitted the entire development would have
been paid off. According to the applicant, the debtors
were
frequently in breach and did not perform under the proposal. There
was accordingly no obligation on Investec to continue allowing
the
release of units at the reduced sum of R300 000 each. Further, an
advance of R10 million or even a release of some of
the units in
Central Park phase 1 for R300 000 per unit would not have made a
difference to the situation.
[59]
According to the applicant, the respondents’ financial
difficulties did not start with
the Covid-19 pandemic. The group of
companies repeatedly signed written settlement agreements and various
addendums acknowledging
their indebtedness to Investec, and agreeing
to terms of the loans and repayment structures in accordance with the
written documents
which all contain non-variation clauses. Thus,
irrespective of the respondents’ complaints, which were now
raised for the
first time in their answering affidavit on 31 January
2020, the parties concluded a further settlement agreement providing
for
the debtors to discharge their indebtedness in accordance with
its terms. The settlement agreement was signed on 31 January 2020.
The respondents first defaulted on their obligations in February
2020, and this continued for the rest of the period until the
notice
of breach.
[60]
The long and short of this is that the respondents’ dire
financial circumstances pre-dated
the first settlement agreement, and
was not on account of the Covid-19 pandemic.
[61]
The applicant correctly submits that there is not a single word in
the answering affidavit suggesting
that the current respondents, who
are manifestly completely unaffected by the lockdown regulations and
do not aver the contrary,
were themselves impacted financially. The
high watermark of the respondents’ case is that the hotels
conducted by Misty Blue
and Personify suffered a reduction in income.
This has no bearing on the current respondents.
Business
rescue proceedings have begun
[62]
According to the respondents the first respondent on 7 August 2020
made applications to the Durban
High Court to commence business
rescue proceedings in respect of Misty Blue, Personify and Huntrex in
terms of
section 131(1)
of the
Companies Act 71 of 2008
.
[63]
The respondents contend that the applications for business rescue
suspend the liquidation proceedings
until the court has adjudicated
upon the business rescue applications. On 12 August 2020, the
liquidation applications were adjourned
sine die and transferred to
the Durban High Court.
[64]
The applicant disputes the contention of the respondents.
[65]
The relevant provisions of sections 132 and 133 of the Act are as
follows:
‘
132
Duration of business rescue proceedings
(1)
Business rescue proceedings begin when-
(a)
the
company-
(i) files
a resolution to place itself under supervision in terms of section
129 (3); or
(ii) applies
to the court for consent to file a resolution in terms of section 129
(5)
(b)
;
(b)
an
affected person applies to the court for an order placing the company
under supervision in terms of section 131 (1); or
(c)
a
court makes an order placing a company under supervision during the
course of liquidation proceedings, or proceedings to enforce
a
security interest, as contemplated in section 131 (7).
.
. . .
133
General moratorium on legal proceedings against company
(1) During
business rescue proceedings, no legal proceeding, including
enforcement action,
against the company, or in relation to any
property belonging to the company, or lawfully in its possession,
may be commenced or proceeded with in any forum, except-
(a)
with
the written consent of the practitioner;
(b)
with
the leave of the court and in accordance with any terms the court
considers suitable;
(c)
as
a set-off against any claim made by the company in any legal
proceedings, irrespective of whether those proceedings commenced
before or after the business rescue proceedings began;
(d)
criminal
proceedings against the company or any of its directors or officers;
(e)
proceedings
concerning any property or right over which the company exercises the
powers of a trustee; or
(f)
proceedings
by a regulatory authority in the execution of its duties after
written notification to the business rescue practitioner.
(2) During
business rescue proceedings, a guarantee or surety by a company in
favour of any other person may not be enforced
by any person against
the company except with leave of the court and in accordance with any
terms the court considers just and
equitable in the circumstances.
(3)
If any right to commence proceedings or otherwise assert a claim
against a company is subject to a time limit, the measurement
of that
time must be suspended during the company's business rescue
proceedings.
’
(My
emphasis.)
[66]
In
Investec
Bank Ltd v Bruyns
[24]
the
question for determination was whether section 133(2) of the Act
should be interpreted as providing that during business rescue
proceedings a suretyship given by A in favour of B for the
indebtedness of the company may not be enforced by B against A
without
the court's leave. Rogers AJ (as he then was) held that the
section explicitly referred to the stay of a suretyship undertaken by
the company, and not to a suretyship undertaken by a third person for
the indebtedness of the company. He also held that the statutory
moratorium in section 133(1) on claims against the company under
business rescue was a defence purely personal to the principal
debtor, namely the company, and could not be raised by the surety. It
follows that the statutory moratorium in section 133 of the
Act does
not have the effect of suspending the indebtedness of any surety to
the company placed under business rescue. The court
held as follows
in this regard:
‘
[17]
The question whether the defendant as surety can raise as a defence
the statutory moratorium in favour of GDI and WC (ie the
moratorium
in terms of s 133(1), which precludes the plaintiff from enforcing
the claims in question against GDI and WC as principal
debtors)
depends on the well-known distinction between defences in rem and
defences in personam: 26
LAWSA
(first
reissue) para 201; and
Standard
Bank of SA Ltd v SA Fire Equipment (Pty) Ltd and Another
1984
(2) SA 693
(C).
A
defence which is purely personal to the principal debtor may not be
raised by the surety. Examples of defences which are purely
personal
to the principal debtor include restrictions on the enforcement
of claims against parties under sequestration or
liquidation
(see the
SA
Fire Equipment
case
at 695F – 696F). In
Worthington
v Wilson
1918
TPD 104
the court held that where the principal debtor had the
benefit of a statutory moratorium in favour of soldiers on active
service
the moratorium was a defence in personam which did not avail
the surety. The judgment of Gregorowski J
in
Worthington
contains
a discussion of the old authorities, including the procedure which
obtained in Holland whereby a distressed debtor
could obtain from the
court a moratorium on the enforcement of claims by way of letters
of
inductie
or
atterminatie
.
Voet and Van Leeuwen were agreed that in such a case a surety for the
distressed debtor could not resist the creditor's claim
on the basis
of the moratorium granted to the principal debtor.
[18]
In my view the statutory moratorium in favour of a company that is
undergoing business rescue proceedings is a defence in personam
.
It
is a personal privilege or benefit in favour of the company. As was
stated in the
SA Fire
case (at 696E – F)
the essence of a defence in rem is that the defence attaches to the
claim itself in the sense that
the defence (if upheld) shows that the
claim against the principal debtor is invalid or has been
extinguished or discharged. A
defence in personam, by contrast,
arises from a personal immunity of the debtor in respect of an
otherwise valid and existing obligation.
Clearly the moratorium
afforded by s 133(1) falls into the latter class. The obligations of
the company as principal debtor are
not extinguished or discharged
and their validity is in no way impaired. Indeed, with the consent of
the business rescue practitioner
or the court the obligations may be
enforced.
[19]
I thus conclude that the statutory moratorium in favour of GDI and WC
does not avail the defendant.
’
(My
emphasis.)
[67]
In the present case, quite apart from the fact that the respondents,
as guarantors, cannot claim
the defence available to the group of
companies, they are also principal debtors in terms of the settlement
agreement.
Whether
there is a limitation of liability in respect of Misty Blue
[68]
The respondents contend that the last dated guarantee in respect of
Misty Blue, annexure ‘G2’,
which was signed on 20
December 2016, was the only prevailing guarantee, and provided that
the liability of the guarantors, in
respect of Misty Blue’s
liability to make due and punctual payment of all moneys then or in
the future due, or obligations
under existing contracts or
agreements, or contracts or agreements to be entered into in the
future, was expressly limited to R10
million. Thus according to the
respondents, the guarantee claims in respect of Misty Blue are
limited to R10 million.
[69]
The applicant’s response to this contention is that, save for
the guarantees marked ‘G2’
and ‘G6’, each of
the guarantees contains a reference, on the top right hand side, to
the contract number to which
it relates. The same contract numbers
appear in each of the loan agreements marked ‘A’ to ‘F’.
There is
a separate guarantee and indemnity in regard of each of the
six loan agreements. But even if this were not the case, there was
absolutely no reason to contend that subsequent guarantees novated or
cancelled the earlier ones. It was ludicrous to suggest that
any of
the parties ever intended for Investec to accept a single guarantee
of R10 million, and somehow to waive and abandon its
existing
guarantees given the extent of Investec's exposure which was
ever-increasing. On the respondents’ argument the loans
would
be increasing, while the securities decreased, which made no sense.
[70]
For the purposes of this case, as stated earlier, the respondents
have undertaken obligations,
jointly and severally with the group of
companies, as co-principal debtors in the settlement agreement. It is
therefore not relevant
for the court to decide whether ‘G2’
was the only prevailing guarantee in respect of the indebtedness of
Misty Blue.
Further the arguments of the applicant that it makes no
sense that the loans would be increasing while the securities
decrease
is a valid one.
Deferment
of payment
[71]
The respondents contend that on 9 April 2020 the applicant agreed to
provide them with ‘the
requested ninety (90) day deferment of
payment which would result in the next instalment being payable on 30
June 2020’.
Annexure ‘VSP3’ was referred to in this
regard.
[72]
The applicant's response to this contention was that it is clear from
the correspondence and
its founding affidavit that there was no
agreed deferment of payment of the sum of R1,5 million, but in any
event non-payment of
those amounts was a small part of the detailed
various breaches of the settlement agreement. Assuming the
respondents are correct
and there was such a deferment, the remainder
of their breaches are not denied by them.
[73]
The correspondences at annexure ‘VSP3’ records the
following:
(a)
Email dated 2 April 2020 from Mr Vejan Pillay to Ms Karen Sivewright:
‘
.
. .We also foresee minimal business for at least a few months after
lockdown . Furthermore, a lot of our larger clients have indicated
that they are unable to keep their payment plan such as Tourvest, TWF
and government agencies.
It
is therefore necessary for us to appeal to you to defer any payments
due for a period of 90 days
.
. . .’
(b)
Email dated 9 April 2020 from Ms Kandi Hilliar to Mr Vejan Pillay:
“
those
instructing us have
agreed
to defer payment in respective clauses 15.2 and 15.3 of the
settlement agreement for a period of 90 days.
An
addendum to the settlement agreement will be forwarded shortly for
signature.’
[74]
The payments referred to in clauses 15.2 and 15.3 were for two
payments of R1,5 million each,
payable by 28 February 2020 and 31
March 2020 respectively. It is not known whether the promised
addendum to the settlement agreement
was ever forwarded to the
respondents for signature but it is clear that there was an agreement
for deferment of the two specified
payments to at least 9 July 2020.
[75]
It is inconceivable, however, that an agreed deferment of R3 million
should prevent the applicant
from accelerating payments due in
respect of the rest of the breaches on the settlement agreement.
Further, it is noted that the
breach notice was extended until 10
July 2020.
The
exceptio non adimpleti contractus
[76]
The respondents’ claim of
exceptio non adimpleti contractus
is predicated on the contention that it was the applicant’s
conduct of tightening the noose on the group of companies which
caused it to single-handedly engineer the financial difficulty which
the group of companies found themselves in, by:
(a)
Not advancing the full amount of the
facilities and by unlawfully retaining portions thereof thereby
making it difficult for Misty
Blue to complete the developments.
(b)
Nevertheless expecting the group of
companies to pay raising fees and monthly instalments on amounts that
were not advanced to it.
(c)
Threatening to charge penalty interest.
(d)
Unreasonably withholding its consent for
Misty Blue and Personify to sell properties for amounts which would
adequately pay off
the mortgage bonds held by the applicant. The
applicant, as mortgage bond holder, demanded unreasonable purchase
prices with no
justification, and Personify and Misty Blue were
unable to sell these properties which would have increased its cash
flow, as it
required the applicant’s consent to sell the
properties.
(e)
Dealing
in bad faith with Misty Blue and its associated companies, by
negotiating and obtaining increased securities without following
through in releasing units for transfer as agreed, and by negotiating
in bad faith pursuant to the section 345 letter.
[25]
(f)
That in these circumstances, the applicant
cannot benefit from the fact that it has solely, and wrongfully,
brought about the financial
situation in which Misty Blue and its
associated companies find themselves.
[77]
The applicant disputed the respondents' contentions stating that
Investec was not contractually
obliged nor willing to advance further
moneys whilst Misty Blue was in breach and unable to repay. It always
relied on its written
loan agreements and security documents,
including registered mortgage bonds which Investec required to be
settled before releasing
units in Central Park. Because the sureties
and mortgage bonds were cross sureties and cross securities, and
because they were
the only protection which Investec enjoyed, it was
not willing to release its securities in the absence of payment. It
was correct
that Investec from time to time stipulated the amounts
which properties would be released for, but those amounts were always
within
Investec's rights in accordance with the loan agreements and
the securities. The amounts stipulated by Investec were never just
thumb-sucked, as the respondent contended, but were calculated within
Investec's rights with reference to the value of its remaining
securities and the outstanding debts owed by the debtors.
[78]
In
Wightman
t/a JW Construction v Headfour (Pty) Ltd and another
,
[26]
the
court gave effect to the well-known rule in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
in
holding that:
[27]
’
[12]
Recognising that the truth almost always lies beyond mere linguistic
determination the courts have said that an applicant who
seeks final
relief on motion must, in the event of conflict, accept the version
set up by his opponent unless the latter's allegations
are, in the
opinion of the court, not such as to raise a real, genuine or
bona fide dispute of fact or are so far-fetched
or clearly untenable
that the court is justified in rejecting them merely on the papers:
Plascon-Evans Paints
Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984
(3) SA 623
(A) at 634E - 635C. See also the analysis by Davis J in
Ripoll-Dausa v
Middleton NO and Others
[2005] ZAWCHC 6
;
2005
(3) SA 141
(C) at 151A - 153C with which I respectfully agree. (I do
not overlook that a reference to evidence in circumstances
discussed
in the authorities may be appropriate.)
[13]
A real, genuine and bona fide dispute of fact can exist only where
the court is satisfied that the party who purports to raise
the
dispute has in his affidavit seriously and unambiguously
addressed the fact said to be disputed. . . .
'
[79]
In the present case, whereas the applicant sets out a clear and
unambiguous case, most of which
is common cause or not disputed, the
respondents have met the case with generalisations. What the
respondents fail to address is
the fact that they were in breach,
with such breach seemingly pre-dating any complaints against Investec
not releasing R10 million
or units at a certain price, and that the
applicant was not contractually obliged to advance further moneys
whilst Misty Blue was
in breach and unable to repay. The trail of
agreements and correspondences between the parties is indicative of
the applicant’s
attempts to protect its interests as well as to
avoid litigation. It was open to the respondents at any time to
refuse to further
engage with the applicant or to raise the
constitutional challenges it saw fit to raise in this application.
Conclusion
[80]
I find that the respondent’s defences must fail, and that the
applicant is entitled to
the judgment it seeks. Costs should follow
the result.
Order
[81]
The following order is granted:
1.
Judgment is granted against the respondents
jointly and severally with each other, the one paying the other to be
absolved, for
payment of the sum of:
1.1
R59 064 140.93 together with
interest thereon at the rate of 7% per annum and penalty interest at
a rate of 5% calculated
daily and compounded monthly from 14 July
2020 to date of payment, both days inclusive;
1.2
R14 441 916.30 together with
interest thereon at the rate of 7% per annum and penalty interest at
a rate of 5% calculated
daily and compounded monthly from 14 July
2020 to date of payment, both days inclusive;
1.3
R4 871 907.66 together with
interest thereon at the rate of 7% per annum and penalty interest at
a rate of 5% calculated
daily and compounded monthly from 14 July
2020 to date of payment, both days inclusive;
1.4
R2 857 732.05 together with
interest thereon at the rate of 7% per annum and penalty interest at
a rate of 5% calculated
daily and compounded monthly from 14 July
2020 to date of payment, both days inclusive;
1.5
R17 500 000 together with
interest thereon at the rate of 7.25% per annum and penalty interest
at a rate of 5% calculated
daily and compounded monthly from 14 July
2020 to date of payment, both days inclusive;
1.6
R92 000 000 together with
interest thereon at the rate of 7.25% per annum and penalty interest
at a rate of 5% calculated
daily and compounded monthly from 14 July
2020 to date of payment, both days inclusive.
2.
The respondents are to pay the costs of
this application jointly and severally on the attorney and client
scale.
HIRALALL
AJ
DATE
OF HEARING:
5 February 2021
DATE
OF JUDGEMENT: 31 May 2021
FOR
THE APPLICANT: Adv A
Stokes SC
Instructed by Johnston &
Partners
Locally represented by Stowell &
Co
FOR
THE RESPONDENT: Adv G D Harper SC
Instructed by T.Giyapersad
Incorporated
Locally represented by Schoerie
Sewgoolam Inc
[1]
Mostert
and others v FirstRand Bank Ltd t/a RMB Private Bank and another
2018
(4) SA 443
(SCA) para 13.
[2]
Ibid
from the headnote at 443H-444A.
[3]
GB
Bradfield
Christie’s
Law of Contract in South Africa
7
ed (2016) at 521-524.
[4]
Gibson
v Van der Walt
1952
(1) SA 262
(A)
at
270A-B.
[5]
Ibid
at 271C-D.
[6]
GB
Bradfield
Christie’s
Law of Contract in South Africa
7
ed (2016) at 528.
[7]
L T C
Harms
Amler’s
Precedents of Pleadings
9
ed (2018) at 338.
[8]
Benefeld v West
2011
(2) SA 379
(GSJ) paras14-16.
[9]
Moraitis Investments
(Pty) Ltd and others v Montic Dairy (Pty) Ltd
2017
(5) SA 508
(SCA) para 14.
[10]
Shabangu v Land and
Agricultural Development Bank of South Africa
2020 (1) SA 305
(CC) para 22.
[11]
Standard Bank of South
Africa Ltd v Bloemfontein Celtic Football Club (Pty) Ltd
2020 (3) SA 298
(FB) at 299 as per the headnote.
[12]
Tauber v Von Abo
1984 (4) SA 482
(E) at 566.
[13]
See also
Prinsloo v
Derksen and others
[2007] ZAGPHC 96.
[14]
Standard
Bank of SA Ltd v Essop
1997
(4) SA 569 (D).
[15]
Standard Bank of South
Africa Ltd v Bloemfontein Celtic Football Club (Pty) Ltd
2020 (3) SA 298 (FB).
[16]
Ibid
paras 23-25.
[17]
Sasfin
(Pty) Ltd v Beukes
[1988] ZASCA 94
;
1989 (1) SA 1
(A) at 9B-C.
[18]
Gbenga-Oluwatoye v
Reckitt Benckiser South Africa (Pty) Limited and another
[2016] ZACC 33
;
2016 (12) BCLR 1515
(CC) paras 22-24.
[19]
Ibid para 24.
[20]
Beadica
231 CC and others v Trustees, Oregon Trust and others
2020 (5) SA 247
(CC) at 249-250 from the headnote.
[21]
MV Snow Crystal:
Transnet Ltd t/a National Ports Authority v Owner of MV Snow Crystal
[2008] ZASCA 27
; 2008 (4) 111 (SCA) para 28.
[22]
Unibank Savings
and Loans Ltd (formerly Community Bank) v ABSA Bank Ltd
2000
(4) SA 191
(W) para 9.3.1.
[23]
The
Asphalt Venture: Windrush Intercontinental SA and another v UACC
Bergshav Tankers
AS
2017 (3) SA 1
(SCA) para 33.
[24]
Investec
Bank Ltd v Bruyns
2012
(5) SA 430 (WCC).
[25]
In
terms of section 345 of the Companies Act 61 of 1973.
[26]
Wightman t/a JW
Construction v Headfour (Pty) Ltd and another
[2008] ZASCA 6
;
2008
(3) SA 371
(SCA) paras 12 13.
[27]
Plascon-Evans Paints
Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984
(3) SA 623
(A).