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[2017] ZASCA 61
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Ndubu and Others v First Rand Bank Limited t/a Wesbank (1113/2016) [2017] ZASCA 61 (26 May 2017)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not
reportable
Case
No: 1113/2016
In
the matter between:
AUGUST
NTHAKO NDUBU
FIRST APPELLANT
JOAO
MANUEL VICENTE DA ENCARNACAO
SECOND APPELLANT
QUANTUM
LEAP INVESTMENTS 221 (PTY) LTD
THIRD APPELLANT
TUBE-MECH
SERVICES (PTY) LTD
FOURTH APPELLANT
and
FIRST
RAND BANK LIMITED
t/a
WESBANK
RESPONDENT
Neutral
citation:
Ndubu
v First Rand Bank
(1113/2016)
[2017] ZASCA 61
(26 May
2017)
Coram:
Lewis, Tshiqi,
Majiedt and Swain JJA and Coppin AJA
Heard:
5 May 2017
Delivered:
26 May 2017
Summary:
Suretyship: release
of surety due to alleged prejudicial conduct of creditor in not
accepting offers that would eliminate or reduce
surety’s
liability: onus on surety to prove defences: surety failed to
discharge onus: appeal dismissed.
ORDER
On
appeal from
:
Gauteng Local Division of the High
Court, Johannesburg (Monama J sitting as court of first instance):
1
The appeal is dismissed.
2
The appellants are to pay the costs of the appeal jointly and
severally, the one paying the others to be absolved.
JUDGMENT
Coppin
AJA (Lewis, Tshiqi, Majiedt and Swain JJA concurring):
[1]
This appeal relates to the liability of the appellants, as sureties,
to the respondent, First Rand Bank Limited, trading as
Wesbank
(Wesbank). In a trial action, the Gauteng Local Division of the High
Court, Johannesburg, granted judgment against the
appellants as
sureties for the indebtedness of Sizwe Personnel Service (Pty) Ltd
(Sizwe), arising out of four instalment sale agreements,
in respect
of two trucks and two trailers. The appellants were ordered to pay
the shortfall on the sale of these assets by public
auction at the
instance of Wesbank. The total sum amounted to some R694 042 and they
were ordered to pay that plus interest. The
appeal is before this
court with the leave of the court a quo. The issue before this court
is whether there is any foundation for
the various defences that the
appellants raised as sureties.
Factual
matrix
[2]
Broadly outlined, the common cause facts are the following. On 17
October 2007 Wesbank entered into four separate instalment
sale
agreements (credit agreements) with Sizwe in terms of which it sold
and delivered two trucks and two interlink trailers (the
vehicles) to
Sizwe. On the same date the appellants bound themselves jointly and
severally, in solidum and as co-principal debtors,
in favour of
Wesbank in respect of Sizwe’s liability arising from, or
incidental to, the four credit agreements.
[3]
The first appellant was a director of Sizwe and at all material times
the second appellant was its managing director. The second
appellant
was also managing director of the third appellant and sole director
of the fourth appellant. I shall, for ease of reference,
refer to the
fourth appellant as Tube-Mech.
[4]
On 6 April 2010 Sizwe was placed under voluntary liquidation by way
of a special members’ resolution. Messers Oelofsen
and Kharivhe
were appointed as liquidators on 6 July 2010, having served as the
provisional liquidators until then. Prior to Sizwe’s
liquidation, Mr Oelofsen had been consulted by the second appellant
and his attorney, Mr Prinsloo, in connection with its liquidation.
[5]
From the outset and throughout the process, the appellants,
represented mainly by the second appellant, acting with the
assistance
of the appellants’ bookkeeper, Mrs Viviers, had been
in frequent contact with Mr Oelofsen and Wesbank regarding Sizwe’s
indebtedness in respect of the vehicles. Various attempts were made
by the appellants to reduce the indebtedness, and from about
April
2010 to about January 2011, monthly instalments due in terms of the
credit agreements were paid by certain of the appellants.
[6]
Despite Sizwe’s liquidation, the vehicles were not delivered
forthwith to either the liquidators or Wesbank. But soon
after it was
placed in liquidation the second appellant, through Mrs Viviers,
sought from Wesbank settlement figures for the indebtedness
under the
credit agreements. And during this period, Tube-Mech, which was owned
and controlled by the second appellant, sought
finance to purchase
the vehicles.
[7]
On 31 May 2011, Mr Visage, the sales manager of a truck dealership
where the vehicles were kept, Truck-World (Pty) Ltd (Truck-World),
made a written offer on its behalf to the liquidators to purchase
three of the four vehicles, namely, two trucks and one interlink
trailer (the first offer) The first offer was to purchase the two
trucks for R513 000 (including VAT) each and one interlink
trailer for R250 800 (including VAT).The offer stated that it
was final and the offeree was requested to confirm acceptance
of the
offer ‘as soon as possible’, because the offeror needed
to prepare the vehicles for sale. However, on 14 June
2011 the first
offer was withdrawn in writing by Mr Visage. His letter withdrawing
the offer addressed to Oelofsen, stated the
following:
‘
Ons
aanbod om te koop gerig aan u op die Sizwe voertuie was me[t]
inbegrepe dat dit binne n redelike tydperk aanvaar sou word. Hierdie
aanbiedinge is nie aanvaar nie en word dus teruggetrek.
Hoop
u vind die bogenoemde in orde’.
[1]
[8]
The second offer came a few days later, on 23 June 2011, from
Tube-Mech. It made a written offer, addressed
to Mr Oelofsen, to purchase one truck for R681 379.33 (including
VAT), the other truck for R680 869.39 (including VAT)
and the
two components of one interlink trailer for R328 622.38
(including VAT) each. This offer, which was apparently made
after
settlement figures had been obtained from Wesbank, was, in total,
more than the first offer by approximately R370 000,
but was
subject to Tube-Mech obtaining finance for the purchase. Tube-Mech
had difficulties in securing the necessary finance.
[9]
On or about 27 July 2011, Mr Oelofsen, who was aware of Tube-Mech’s
difficulty in securing finance, instructed Wesbank
to repossess the
vehicles. The appellants contended that their retention of the
vehicles until then was with the knowledge, or
acquiescence, of the
liquidators and Wesbank and that they delivered them to Wesbank as
soon as they were required to do so.
[10]
By 18 August 2011, Tube-Mech was still struggling to obtain finance
to purchase the vehicles. As a result, on 2 September 2011
Mr
Oelofsen, who testified to the effect that he acted in this matter
with the concurrence of his co-liquidator, informed Wesbank
that it
was authorised to sell the vehicles. However, Wesbank did not proceed
to do so immediately and by 13 September 2011 was
still considering
Tube-Mech’s application for financing. Wesbank decided not to
finance Tube-Mech in the light of various
factors that were canvassed
in evidence at the trial, but which need not be traversed here.
[11]
By 27 September 2011, Wesbank had cleared the vehicles for sale by
public auction. On 12 October 2011, which was long after
the second
meeting of creditors, the vehicles were sold at a public auction.
[12]
On 18 October 2011, a written offer dated 10 October 2011, made by PF
Business Services (Pty) Ltd, and addressed to Mr Oelofsen,
was
brought to Mr Oelofsen’s attention by the appellants’
attorney. The offer was for the purchase
of
the two trucks for R680 869.39 (including VAT) each, and the two
interlink trailers for R361 323 (including VAT) each
(the third offer).
[13]
The amount realised for the vehicles at the auction was subsequently
paid by Wesbank to the liquidators. As mentioned, the
full extent of
Sizwe’s indebtedness was not extinguished at the auction,
resulting in a shortfall of approximately R700 000.
Wesbank
consequently instituted action proceedings, in the court a quo,
against the appellants, as sureties of Sizwe, for the shortfall
after
it had received its dividend from the liquidators in respect of each
credit agreement.
The
appellants’ defences
[14]
Before us, as in the trial court, the appellants, essentially,
adopted a shotgun approach in defending themselves against Wesbank’s
claims. Some of their defences were inserted in their plea by way of
an amendment shortly before the trial commenced. The appellants
sought to be released entirely from their respective obligations
under the suretyship. As a basis for that they alleged firstly,
as a
main ground of defence, that Wesbank had refused to accept, or had
declined the three offers; that such conduct amounted to
a breach of
obligations which Wesbank had in terms of the credit agreements, or
the suretyship agreement, or generally. Further,
that as a result of
such conduct the appellants were prejudiced, in that they were still
liable to make payment to Wesbank, whereas
acceptance of the said
offers, according to them, would have extinguished their indebtedness
under the suretyship, or reduced it
substantially.
[15]
Secondly, the appellants alleged that since Wesbank’s claims
were for damages, it had failed to mitigate its losses by
not
accepting the offers. The appellants, thirdly, raised what they
described as a constitutional point, namely, that they (as
sureties)
ought to be released from their obligations on the basis of public
policy because of Wesbank’s conduct in respect
of the offers.
They were essentially contending for the development of a ‘long-stop’
defence, if all else failed.
[16]
Fourthly, the appellants relied on miscellaneous points, the more
prominent of which was that Wesbank could not rely on s 83
of the
Insolvency Act
[2]
because
Wesbank had not complied with s 83 or s 84 of that Act. I shall show
later that those provisions have no application in
this case. Another
miscellaneous point, which was accorded even less attention by the
appellants, was that the sale of the vehicles
was invalid. Not much
needs to be said of the latter defence. The buyer of the vehicles was
not cited, or joined in the proceedings
and obstacles, such as, for
example, that posed by s 157(1) of the Insolvency Act,
[3]
were overlooked and not dealt with by the appellants in their
pleadings or at the trial.
[17]
But for the points dealing with the Insolvency Act, all the other
defences of the appellants had a common denominator, or foundation,
namely, the three offers made to purchase the vehicles. This was also
conceded by counsel for the appellants.
[18]
The appellants had the onus of proving their defences, in particular,
that they ought to be released as sureties because of
the alleged
breaches by Wesbank of its obligations.
[4]
In light of the circumstances of this case it is not necessary to go
beyond the factual substratum of the defences and to deal
with the
legal position regarding the discharge of sureties on the grounds of
prejudice.
[5]
The
defences relating to the offers
[19]
Counsel for the appellants correctly conceded in this court that the
appellants’ contentions regarding the first and
second offers
did not withstand scrutiny and were to be rejected. The first offer
was withdrawn before it could be accepted or
rejected by the
liquidator or Wesbank. The letter withdrawing the offer, which is
quoted earlier in this judgment, is totally inconsistent
with the
hearsay evidence that the appellants relied upon to the effect that
Mr Oelofsen would have said to Mr Fitchett, a clerk
of the
appellants’ attorneys, that Wesbank had rejected the first
offer. Mr Oelofsen denied the allegation that he had rejected
the
offer. There is no reliable evidence that Wesbank or the liquidator
had rejected the offer. The letter of withdrawal does not
imply that
the offer was rejected and the fact that the offer had to be
withdrawn puts beyond doubt that it was not rejected. The
rejection
of an offer made to a specific person results in the termination of
that offer and it is no longer open for acceptance.
[6]
Mr Visage would not have withdrawn an offer that had been rejected.
[20]
The second offer was subject to Tube-Mech obtaining finance. It could
not obtain the necessary finance and that offer accordingly
fell
away. It was not rejected by either the liquidator, or Wesbank. Much
of the trial court’s time was taken up by the appellants’
futile challenge to Wesbank’s bona fides in refusing
Tube-Mech’s application for finance. The evidence
overwhelmingly
supports the genuineness, rationality and
reasonableness of Wesbank’s decision in that regard.
[21]
The third offer was also never rejected by either Wesbank, or the
liquidator. It was submitted to the liquidator, to whom it
was
addressed, and who was the person in authority, after the vehicles
had been sold on 12 October 2011. In respect of this offer
though,
the appellants’ tack was to blame a Wesbank employee, Mrs Zelda
Mafune for the fruitlessness of the offer. They contended
that when
Mrs Viviers contacted Mrs Mafune on 10 October 2011 to enquire about
the person to whom she had to submit this offer,
Mrs Mafune, on some
undisclosed basis, had a duty to inform Mrs Viviers of the date of
the sale.
[22]
In light of the evidence, these contentions are ill-founded. It is
clear that Mrs Viviers was negligent in not timeously communicating
the offer to the liquidator. Ms Viviers’ explanation that she
did not know whom to contact about the third offer was a ruse,
or
excuse, for her own negligence. If she was in possession of the third
offer on 10 October 2011, there could have been no justifiable
reason
for her not submitting it to Mr Oelofsen. It was addressed to him.
So, logically, he would have been the one to contact
in respect of
it. Mrs Viviers was familiar with Mr Oelofsen, and with his office.
The evidence puts this beyond contention. She
was the one who engaged
Mr Oelofsen and Wesbank since the inception of the liquidation
regarding the financing issues, the takeover
of the vehicles and the
other offers.
[23]
Mrs Viviers’ evidence under cross-examination that she did not
contact Mr Oelofsen because he had not been particularly
responsive
regarding the previous offers, can be rejected out of hand. Not
knowing whom to contact and not contacting someone deliberately,
are
two entirely different, irreconcilable versions. But for Mrs Viviers’
contradictory evidence, there is nothing to show
that Mr Oelofsen had
been unresponsive in respect of the previous offers.
[24]
In any event, it is also not conceivable how Mrs Mafune could have
had an obligation, let alone a legally enforceable one,
to inform Mrs
Viviers of the date of the auction, when she was not specifically
asked about it. Mrs Mafune rightly referred Mrs
Viviers to Mr
Oelofsen. In any event, Mrs Mafune testified that even if she had
been asked about the date, she would not have been
able to disclose
it to Mrs Viviers, because of Wesbank's rules of confidentiality.
[25]
Despite the fact that Mrs Mafune had on 10 October 2011 referred
Mrs Viviers to Mr Oelofsen, to whom the
offer was
addressed and despite the alleged urgency of the measures to be taken
to ensure a beneficial outcome for the appellants
relating to the
sale of the vehicles, as testified to by the second appellant, Mrs
Viviers did not act commensurately. Instead,
she only sent the offer
to Mr Prinsloo, the appellants’ attorney, on 12 October 2011,
with a covering letter requesting him
to send the offer to Mr
Oelofsen. Nothing was alluded to that prevented Mrs Viviers from
herself sending the offer directly to
Mr Oelofsen, or to his office
and to have done so on time.
[26]
Before this court counsel for the appellants attempted to make
something of the evidence of Mr Moore, Wesbank's Corporate Asset
Manager, and that of Mr Oelofsen, to the effect that they,
respectively, would have looked favourably at the third offer if it
had been brought to their attention timeously. But that exercise was
futile since those views, in the light of all the other evidence,
are
irrelevant. The fact is that the third offer was submitted too late,
because the vehicles had already been sold.
[27]
That concludes the consideration relating to the offers and
accordingly, the determination of the fate of the bulk of the
appellants’ defences that are premised on the offers.
The
defence invoking s 83 and s 84 of the Insolvency Act
[28]
Wesbank did not rely on s 83 for its claims. Section 83 deals with
the realization of securities for claims, and is essentially
for the
protection of the creditors. The section is referred to in Wesbank’s
particulars of claim, in the context of its
payment to the
liquidators of the proceeds of the sale of the vehicles. The
allegation in each of its claims is that ‘[t]he
plaintiff, as
it was obliged to do in terms of the provisions of section 83 …,
duly paid the amount of…’ to
the liquidators.
[29]
Reference was clearly being made to s 83(10) of the Insolvency Act,
which requires a creditor, who has realised his security,
to pay the
net proceeds of the realisation to the trustee (or liquidator), or to
the Master, if there is no trustee. The relevant
part of the section
provides:
‘
Whenever
a creditor has realized his security
as
hereinbefore provided
he shall forthwith pay the net proceeds of the realization to the
trustee, or if there is no trustee, to the Master …’
(Emphasis added.)
[30]
Latching on to the words in the section ‘…as
hereinbefore provided …’, the appellants apparently
used
the abovementioned allegation in Wesbank’s particulars of claim
as a springboard, essentially arguing that Wesbank could
not rely on
s 83 because the sale took place after the second meeting of
creditors and that Wesbank had not complied with the preceding
provisions of s 83. They read s 83(10) to mean that the subsection
could be complied with only if there was compliance with the
other
(preceding) provisions of s 83. Their interpretation of that
subsection is wrong. In
Venter
NO v Avfin (Pty ) Ltd
[7]
this court held that reference in s 83(10) ‘to the preceding
provisions was intended to be no more than a general reference
to the
realisation of securities as contemplated in the earlier subsections
of s 83. It was not intended to import into s 83(10)
a requirement of
compliance with those subsections as a precondition to the obligation
of the creditor to pay over the proceeds
of his security to the
trustee’.
[8]
[31]
The appellants’ contentions also did not take into account the
facts of this case. Sizwe’s was a voluntary winding
up by its
members. In such a case creditors do not have to prove their claims.
The liquidators simply had to settle all debts,
realise the assets
and submit their liquidation and distribution account to the
Master.
[9]
[32]
Section 84(1) of the Insolvency Act provides that where goods were
delivered to a debtor in terms of an ‘instalment sale
agreement’
[10]
upon the
sequestration of the debtor’s estate, such a transaction shall
be regarded as creating a hypothec over such goods
in favour of the
creditor, whereby the amount still due to the creditor in terms of
the transaction shall be secured. Even though
a hypothec had been
created in favour of Wesbank, as contemplated in terms of s 84 of the
Insolvency Act, Wesbank was not in possession
of the vehicles until
the Master instructed it towards the end of August 2011 to repossess
them. The vehicles were also only sold
on the instruction and
authorisation of the liquidators. Mr Oelofsen explained in detail the
modalities for the keeping and sale
of assets and the reasons why the
sale occurred as it did.
[33]
In any event, s 157 of the Insolvency Act provides that nothing done
in terms of the Act shall be invalid because of a formal
defect or
irregularity, unless a substantial injustice has been thereby done,
which, in the opinion of the court, cannot be remedied
by any order
of the court. The appellants did not only fail to prove any defect or
irregularity as contemplated, but failed to
prove that if there were
any, that they could not have been excused as contemplated in s 157.
The appellants were not creditors
and they had no right to a notice
of the sale. In any event, the duty to provide such notice to
creditors rests on the liquidator.
[11]
[34]
I have earlier dealt with the untenability of the appellants’
contentions regarding the validity of the sale. The appeal,
accordingly, stands to be dismissed.
[35]
Regrettably, the court a quo did not furnish reasons for granting the
appellants leave to appeal to this court. In this matter
there was no
reasonable prospect of success and no compelling, or other
justifiable reason, for leave to appeal to have been granted,
is
discernible.
[12]
It has been
pointed out in previous, reported, decisions that the inappropriate
granting of leave to appeal to this court increases
a litigant’s
costs and results in cases involving greater difficulty and which are
truly deserving of the attention of this
court to compete for a place
on this court’s roll with a matter which is not.
[13]
[36]
In the result the following order is made:
1
The appeal is dismissed.
2
The appellants are to pay the costs of the appeal jointly and
severally, the one paying the others to be absolved.
______________________
P
Coppin
Acting
Judge of Appeal
APPEARANCES:
For
the Appellants:
R J De Beer
Instructed by: Rossouw &
Prinsloo Inc, Vereeniging
Rosendorff Reitz Barry,
Bloemfontein
For
the Respondent:
K Meyer
Instructed by: Smit Jones
and Pratt, Johannesburg
Symington & De Kock,
Bloemfontein
[1]
Own
translation: ‘It was implicit in our offer that was addressed
to you, to purchase the Sizwe vehicles, that it would
be accepted
within a reasonable time. Since the offer was not accepted, it is
thus withdrawn. I hope you find the above in order.’
[2]
Insolvency
Act 24 of 1936 (the
Insolvency Act).
>
[3]
Section
157(1)
provides that ‘…(1) [n]othing done under this
Act shall be invalid by reason of a formal defect or irregularity,
unless a substantial injustice has been thereby done, which in the
opinion of the court cannot be remedied by any order of the
court.’
[4]
See
Absa
Bank v Davidson
[2000] 1 All SA 355
(SCA);
2000 (1) SA 1117
(SCA) para 19;
Bock
& others v Duburoro Investments (Pty) Ltd
[2003] 4 All SA 103
(SCA) ;
2004 (2) SA 242
(SCA). In respect of the
mitigation of damages: See
Dominion
Earthworks (Pty) Ltd v M J Greef Electrical Contractors (Pty) Ltd
1970
(1) SA 228 (A).
[5]
See
Absa
Bank v Davidson
supra;
Bock
& others v Duburoro Investments (Pty) Ltd
supra.
[6]
See
R H Christie and G B Bradfield
Christie’s
The Law of Contract in South Africa
6 ed (2011) at 52.
[7]
Venter
NO v Avfin (Pty) Ltd
[1995] ZASCA 156
;
1996
(1) SA 826
(A). See also
Robert
Sharrock et al
Hockly’s
Insolvency Law
9 ed (2012) at 178-179.
[8]
Ibid
at 843A-B.
[9]
Ibid
Robert Sharrock et al
Hockly’s
Insolvency Law
at 252.
[10]
A
s
defined in the
National Credit Act 34 of 2005
.
[11]
See
s 83(9)
of the
Insolvency Act.
[12
]
See
s 17(1)
(a)
of
the
Superior Courts Act 10 of 2013
.
[13]
See
Shoprite
Checkers (Pty) Ltd v Bumpers Schwarmas CC & others
[2003] 3 All SA 123
(SCA);
2003 (5) SA 354
(SCA) para 23 (separate
concurring judgment of Marais JA). See also:
S
v Monyane & Others
2008 (1) SACR 543
(SCA) para 28.