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[2018] ZAGPJHC 568
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Forsyth v Heydenrych (31749/2011) [2018] ZAGPJHC 568 (18 October 2018)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, JOHANNESBURG
Case
No.
31749/2011
In
the matter between:
DR
HOWARD BRUCE MORTIMER
FORSYTH
Plaintiff
and
GERHARD
CHRISTOPHER
HEYDENRYCH
Defendant
JUDGMENT
INGRID
OPPERMAN J
Introduction
[1]
The plaintiff, a medical doctor specialising
in anaesthesiology, lent his brother-in-law, the defendant, R660 000
in October
2008 so that the defendant, could invest such funds in a
company, Blue Moonlight Properties (Pty) Limited (Blue Moonlight).
Notwithstanding
that both parties foreshadowed that the loan would be
of short duration and repaid within mere months, some ten years later
the
defendant has yet to do so.
The
issues
[2]
At the commencement of the trial on 14 August
2017, the parties agreed that the only issues which the court was
called upon to adjudicate
were the following:
2.1.
When is the loan repayable?
2.2.
What is the applicable interest rate; and
2.3.
Whether the National Credit Act 34 of 2005 (the
NCA) is applicable
[3]
During the course of the trial the defendant
sought to contend that the loan to the defendant did not attract any
interest at all;
despite the agreement on the issues. This
necessitated an amendment to the plaintiff’s particulars of
claim in order
to plead out what he contended a proper construction
and interpretation of the agreement entailed. In the
alternative thereto
the plaintiff sought a rectification of the
written agreement in question.
[4]
Both the plaintiff and the defendant
testified. They called no witnesses.
Background
facts
[5]
The following facts are either common cause
between the parties or have not been placed in issue by the defendant
(in the sense
that the defendant failed to present contrary
evidence).
[6]
The plaintiff and the defendant are
brothers-in-law; the plaintiff being married to the defendant’s
older sister for the past
33 years. He has known the defendant
ever since he met his wife some 2 years before they were married.
During about 2007,
the defendant acquired a business; a property
holding entity named West Dunes Properties 232 (Pty) Limited (West
Dunes) which owned
an immovable property. The business plan
entailed renovating the immovable property and then renting out rooms
to students
of the nearby university, for profit. The defendant
sought people willing to invest in this business venture. The
plaintiff
considered the business plan and agreed to invest in the
venture. To that end he purchased a percentage of the shares in
West Dunes and hoped for a dividend return on his investment.
[7]
At a later stage, in about May 2008, the defendant
sought to acquire a further immovable property; this time in the name
of Blue
Moonlight. As before, the defendant sought investors to
take up shares in the business so as to fund both the purchase and
renovation of the property in question. The plaintiff initially (in
about May 2008) subscribed for 10 of the 100 shares in Blue
Moonlight
at a cost of R44 000 per share. He later upped his
shareholding to 25 shares for a total investment of R1 100 000
(i.e. 25 x R44 000 = R1 100 000).
[8]
In addition to the plaintiff’s investment, West
Dunes also sought to acquire shares in Blue Moonlight. It,
however,
did not have the necessary funds to pay for the shares it
sought, nor could it raise such funds from a financial institution.
Being
aware that the plaintiff had recently obtained access finance
from the Standard Bank of SA through a mortgage bond facility over
his home, the defendant, on behalf of West Dunes, approached the
plaintiff for a possible loan to West Dunes. The plaintiff
agreed to lend such funds to West Dunes on extremely favourable terms
(i.e. prime minus 1.7%) because he saw that as support for
his
family, the defendant.
[9]
Not long thereafter the defendant, cognisant
of the plaintiff’s access facility and the circumstances
surrounding his loan
to West Dunes, asked the plaintiff to lend him
the R660 000 he required to pay for the 15 shares he (the
defendant) had subscribed
for in Blue Moonlight at a cost of R44 000
per share.
[10]
The plaintiff agreed to assist the defendant
and to lend him the money at no benefit or cost to himself (i.e. the
plaintiff), hence
the interest that was payable would be at the same
rate that the plaintiff was paying on the money that he had withdrawn
from the
access facility on the bond over his home. The
parties accordingly signed their agreement in respect of such loan on
12 October 2008, just over a month after a similar agreement in
respect of the West Dunes loan had been signed which had occurred
on
10 September 2008.
[11]
The plaintiff then withdrew the requisite funds from the
mortgage bond facility and lent and advanced the sum of R660 000
to
the defendant, he having transferred such funds directly into the
defendant’s bank account. The defendant, in turn,
made
regular monthly payments. Such payments continued after service of
summons, right up until 31 July 2017. The defendant has
not made any
further payments since 31 July 2017. The defendant has also not
sought alternative finance, as contemplated in clause
14 of the
written agreement, nor has he paid the full amount of the loan and
interest to the plaintiff.
When
is the loan repayable?
[12]
The only provision in the written agreement,
which speaks to the repayment of the loan, is clause 14. It
provides as follows:
14. GC Heydenrych undertakes to do his
utmost to obtain alternative finance and to repay all interest and
costs on the advance within
the shortest time possible.
[13]
On the face of it the provision relates only
to the defendant’s undertaking to procure alternative finance
within the shortest
time possible and to pay interest on the loan at
the rate and frequency provided for in the bond. It does not
say when the
loan itself is to be repaid.
[14]
The plaintiff accordingly asserted in
paragraph 4.4 of his amended particulars of claim that the agreement,
properly construed,
means that the loan was repayable within a
reasonable time, alternatively on demand. That reasonable
period of time, says
the plaintiff, was not more than 24 months.
[15]
The defendant denies that the loan was
repayable either within a reasonable period of time or on demand; he
contended that “
the sum was repayable
within the shortest possible time.
”
This construction was repeated during argument.
[16]
There
is nothing in the agreement to support the defendant’s
contention. Be that as it may, even if the loan could be
said
to have been payable “
within
the shortest time possible
”,
it is impossible to ascertain from the agreement itself what the
shortest time possible is. As such, the agreement
concerning
time to repay is so vague as to be unintelligible, meaning that the
term relating to the time for repayment is void
for vagueness and the
agreement must thus be considered as one without any time clause
[1]
.
[17]
In the
absence of a time period there is, strictly speaking, no limitation
on the right of the plaintiff to reclaim the loan immediately
[2]
(i.e. to make
demand) but fairness demands that the borrower (i.e. the defendant)
be given a period of grace and be entitled to
a reasonable time
before he can be compelled to repay the money lent
[3]
.
The amount
involved usually determines the reasonableness of the period where no
date for repayment has been set. It is for
the borrower (the
defendant) to make out the case that the period is unreasonably short
in the light of ordinary everyday experience
of affairs, should a
claim be instituted against him for immediate repayment
[4]
.
[18]
The defendant has failed to show that the 24 month
period contended for by the plaintiff, is unreasonably short.
He has also
failed to state what he contends a reasonable period
would be. Plaintiff submits that, having regard to the
sum involved
(a loan of R660 000), a period of 24 months is,
more than reasonable. This, so the argument continues, all the
more
so in circumstances where the parties themselves contemplated,
at the time the agreement was negotiated and concluded, that the
loan
would be of short duration; that the defendant would be in a position
to acquire alternative finance once his divorce had
been finalised
and, once so finalised, that the defendant would repay the loan to
the plaintiff. Indeed, they both expected
that the loan would
be paid in full within 3 or 4 months.
[19]
That the period of 24 months is reasonable is
born out by the conduct of the parties themselves. The defendant not
only agreed to
vary the interest rate with effect from the expiry of
the 24 month period at the end of October 2010, he also implemented
such
variation, testifying that the loan ought to have been repaid
within mere months from the date that his divorce was finalised.
He would only have agreed to the interest variation in regard to both
the West Dunes loan and his personal loan because he knew
that the
time for him and West Dunes to have repaid their respective loans,
had passed.
[20]
As it turned out, the defendant’s
divorce was unexpectedly delayed and only finalised in about
July/August 2009, in part due
to the untimely and tragic suicide of
the defendant’s son in December 2008. Despite this,
almost ten years later, the
defendant is yet to “
do
his utmost to obtain alternative finance
”,
as required by the clause, or to repay the loan to the plaintiff in
full. The defendant condeded during cross-examination
that he still
owed, at the very least, as at 31 July 2017, the sum of R201 903.54.
Plaintiff’s attorneys made demand upon
the defendant by letter
dated 22 July 2011. In response thereto, by email dated 10 August
2011, the defendant informed the plaintiff’s
attorney that his
own attorney would react to the letter in due course.
[21]
The summons in this action was issued on 22 August 2011
and served on the defendant on 4 October 2011. Summons also
constitutes
a further demand.
[22]
In light of the above, one can safely
conclude that the loan was repayable no later than 8 October 2010
(being 24 months after the
loan was granted) alternatively no later
than 10 August 2011 (being the day that the defendant reacted to
plaintiff’s attorneys’
letter of demand), further
alternatively, the day after summons was served (being 5 October
2011).
The
applicable interest rate
[23]
Clause 13 of the agreement provides as
follows:
13. GC Heydenrych agrees to pay
interest to HBM Forsyth at the same rate and on the same terms and
conditions that are applicable
to HMB Forsyth’s bond at the
Standard Bank of South Africa.
[24]
Both the plaintiff and the defendant
testified that the applicable interest rate at the commencement of
the loan was prime minus
1.7%. It was not disputed by the
defendant that prime was then 15.5%.
[25]
During the course of defendant’s
counsel’s address to court in respect of an objection raised
and during the plaintiff’s
temporary absence from the witness
stand (he having been asked to leave the court), the defendant sought
to submit that the defendant
is not liable for any interest at all,
because the plaintiff does not have a mortgage bond at the Standard
Bank of SA in his own
name. This assertion, having regard to the
agreed and defined issues, came as a bit of a surprise as one of the
agreed issues was
whether or not the NCA had application which can
only be an issue if interest is payable. If no interest is payable,
the agreement
is not a credit agreement and thus not subject to the
NCA.
The
proper interpretation and rectification of the agreement
[26]
The
current approach to interpretation, which encapsulates the principles
applied and refined in the numerous authorities
[5]
since
Natal
Joint Municipal Pension Fund v Endumeni Municipality
[6]
,
is to be found in
Novartis
v Maphil
[7]
, in which Lewis JA held as
follows:
“
[27] I do
not understand these judgments
[8]
to mean that interpretation is a process that takes into account only
the objective meaning of the words (if that is ascertainable),
and
does not have regard to the contract as a whole or the circumstances
in which it was entered into. This court has consistently
held, for
many decades, that the interpretative process is one of ascertaining
the intention of the parties – what they meant
to achieve. And
in doing that, the court must consider all the circumstances
surrounding the contract to determine what their intention
was in
concluding it.
KPMG
,
in the passage cited, explains that parol evidence is inadmissible to
modify, vary or add to the written terms of the agreement,
and that
it is the role of the court, and not witnesses, to interpret a
document. It adds, importantly, that there is no real distinction
between background circumstances, and surrounding circumstances, and
that a court should always consider the factual matrix in
which the
contract is concluded – the context – to determine the
parties’ intention.
[28] The passage cited from the
judgment of Wallis JA in
Endumeni
summarizes the state of the
law as it was in 2012. This court did not change the law, and it
certainly did not introduce an objective
approach in the sense argued
by Norvatis, which was to have regard only to the words on the paper.
That much was made clear in
a subsequent judgment of Wallis JA in
Bothma-Botha Transport (Edms) Bpk v S Bothma & Seun Transport
(Edms) Bpk
[2013] ZASCA 176
;
2014 (2) SA 494
(SCA), paras 10 to
12 and in
North East Finance (Pty)Ltd v Standard Bank of South
Africa Ltd
[2013]ZASCA 76;
2013 (5) SA 1
(SCA) paras 24 and 25. A
court must examine all the facts – the context – in order
to determine what the parties intended.
And it must do that whether
or not the words of the contract are ambiguous or lack clarity. Words
without context mean nothing.
[29] Referring to the earlier approach
to interpretation adopted by this court in
Coopers & Lybrand &
others v Bryant
[1995] ZASCA 64
;
1995 (3) SA 761
(A) at 768A-E,
where Joubert JA had drawn a distinction between background and
surrounding circumstances, and held that only where
there is an
ambiguity in the language, should a court look to surrounding
circumstances, Wallis JA said (para 12 of
Bothma-Botha
):
‘
That summary
is no longer consistent with the approach to interpretation now
adopted by South African courts in relation to contracts
or other
documents, such as statutory instruments or patents. While the
starting point remains the words of the document, which
are the only
relevant medium through which the parties have expressed their
contractual intentions, the process of interpretation
does not stop
at a perceived literal meaning of those words, but considers them in
the light of all relevant and admissible context,
including the
circumstances in which the document came into being. The former
distinction between permissible background and surrounding
circumstances, never very clear, has fallen away. Interpretation is
no longer a process that occurs in stages but is “essentially
one unitary exercise” [a reference to a statement of Lord
Clarke SCJ in
Rainy Sky SA v Kookmin
Bank
[2011] UKSC 50
, [2012] Lloyd’s
Rep 34 (SC) para 21].
[30] Lord Clarke in
Rainy Sky
in turn referred to a passage in
Society of Lloyd’s v
Robinson
[1999] 1 All ER (Comm) at 545, 551 which I consider
useful.
‘
Loyalty to
the text of a commercial contract, instrument, or document read in
its contextual setting is the paramount principle
of interpretation.
But in the process of interpreting the meaning of the language of a
commercial document the court ought generally
to favour a
commercially sensible construction. The reason for this approach is
that a commercial construction is likely to give
effect to the
intention of the parties. Words ought therefore to be interpreted in
the way in which the reasonable person would
construe them. And the
reasonable commercial person can safely be assumed to be unimpressed
with technical interpretations and
undue emphasis on niceties of
language.’
[31] This was also the approach of
this court in
Ekurhuleni Metropolitan Municipality v Germiston
Municipal Retirement Fund
[2009] ZASCA 154
;
2010 (2) SA 498
(SCA)
para 13. A further principle to be applied in a case such as this is
that a commercial document executed by the parties with
the intention
that it should have commercial operation should not lightly be held
unenforceable because the parties have not expressed
themselves as
clearly as they might have done. In this regard see
Murray &
Roberts Constuction Ltd v Finat Properties (Pty) Ltd
[1991] ZASCA
130
;
1991 (1) SA 508
(A) at 514B-F, where Hoexter JA repeated the
dictum of Lord Wright in
Hillas & Co Ltd v Arcos
Ltd
[1932] UKHL 2
;
147
LTR 503
at 514:
‘
Business men
often record the most important agreements in crude and summary
fashion; modes of expression sufficient and clear to
them in the
course of their business may appear to those unfamiliar with the
business far from complete or precise. It is accordingly
the duty of
the court to construe such documents fairly and broadly, without
being too astute or subtle in finding defects.’
[27]
The circumstances attendant upon the
agreement coming into existence are mostly common cause between the
parties. They are, in essence,
the following: the plaintiff and West
Dunes, represented by the defendant, had executed a written loan
agreement only a month earlier,
on 10 September 2008. The funds for
such loan (to West Dunes) were procured by the plaintiff through a
bond facility provided by
the Standard Bank of SA over the
plaintiff’s home. The defendant was not concerned that a
company, Ceefax Properties (Pty)
Limited (Ceefax Properties),
appeared to be the bond holder. The defendant’s sister
(and plaintiff’s wife) had
instructed the defendant, in writing
on 3 October 2008, to make the monthly payments in respect of the
West Dunes loan into Ceefax
Properties’ bond account at the
Standard Bank. The plaintiff did not seek to make a profit out of the
loan to West Dunes.
The plaintiff merely wanted to cover the costs to
which he would be put in procuring and advancing such funds because
he saw such
as support for the defendant, his brother-in-law and
family. The defendant was aware that the monthly payments in respect
of the
West Dunes loan had to be repaid into Ceefax Properties’s
bond account. The defendant was completely indifferent to the
instruction
that the monthly loan repayments in respect of West Dunes
were to be paid into Ceefax Properties’s bond account. The
defendant
was equally indifferent to West Dunes’ need for good
corporate governance in so far as how West Dunes accounted for the
payments
made by it to Ceefax Properties. The defendant personally
sought to borrow money from the plaintiff, which loan the defendant
suggested
be financed from funds procured from the same bond facility
over the plaintiff’s home as that advanced by the plaintiff to
West Dunes.
[28]
It is also common cause between the parties
that the plaintiff’s home is, and was, that situated at 7
Currie Street, Oaklands,
Johannesburg. The plaintiff’s home is
registered in the name of Ceefax Properties. The plaintiff’s
home is bonded to
the Standard Bank of SA, is the only bond over the
plaintiff’s home now and in 2008, is the only bond for which
the plaintiff
is responsible and the plaintiff did not have a bond in
his own name, whether at the Standard Bank of SA or elsewhere.
[29]
The
plaintiff himself understood clause 13 of the agreement as being a
reference to the bond over his home held by the Standard
Bank.
He thus intended and understood that the very words in clause 13
would be a reference to that bond. The defendant
could not have
cared less in whose name the plaintiff’s home was registered.
His evidence that it mattered to him that
the funds emanated from the
plaintiff’s bond, and no one else’s, does not bear
scrutiny as the defendant did not make
any enquiries from the
plaintiff in regard to the bond, did not ask for a copy of the bond,
did not make enquiries regarding the
applicable interest rate, did
not enquire why the funds were to be repaid to Ceefax Properties, did
not enquire why the plaintiff
later told him to change payments from
Ceefax Properties to the plaintiff himself, says that he simply
trusted the plaintiff “
not
to take him for a ride
”
and that he paid whatever the plaintiff told him to pay, and to
whomever. He has not even bothered to calculate whether
the sum he
has paid to the plaintiff to date was sufficient to discharge his
liability at prime minus 1.7%. Rather, he conceded
that it was
not sufficient and that he remains indebted for just over R201 000
if the applicable rate is still prime minus
1.7% The
ineluctable conclusion to be drawn from such facts is that it was
immaterial to the defendant what the source
of the funds were which
the plaintiff was to lend and advance to him, whether such funds were
procured by the plaintiff from winning
the lottery, a bond over his
home, a loan from a third party or elsewhere
[9]
.
[30]
Given that the defendant instructed the drafter of the
agreement, Geerts, to draft the agreement; that the terms of the bond
were
immaterial to him; that he knew there was a bond over the
plaintiff’s home; that he had no direct knowledge of any bond
in
the plaintiff’s own name (whether at the Standard Bank or
elsewhere) and that West Dunes would be paying prime minus 1,7%
on
its loan from the plaintiff, coupled with the fact that the plaintiff
intended and understood clause 13 to be a reference to
the only bond
he was responsible for, i.e. the one held by Ceefax Properties over
his home and which he personally would have to
pay, it can not
be said that the parties were not
ad idem
.
This is further born out by the damning admission by the defendant of
the allegation contained in paragraph 5 of the plaintiff’s
amended particulars of claim that it was the plaintiff, not Ceefax
Properties, who lent and advanced the sum of R660 000 to him.
[31]
There can also be no question that the
plaintiff and the defendant would still have entered into the
agreement if clause 13 had
stipulated that the interest payable by
the defendant to the plaintiff would be at the same rate and terms as
applicable to Ceefax
Properties’s bond at the Standard Bank, or
that it be at the same rate and terms as applicable to the loan
agreement secured
by a mortgage bond held by the Standard Bank over
the plaintiff’s home. The reference to a bond was, after all,
merely a
recordal of where the applicable interest rate could be
found. It was the prevailing interest rate that was material;
not
the document recording the interest rate. The parties could
just as easily have stipulated that the interest rate would be
prime
minus 1.7%. In so far as there is an error in that regard, it
is an immaterial and meaningless error with no effect
at all.
[32]
This
being so, and in view of the SCA’s imprimatur that
a
sensible meaning is to be preferred to one that leads to insensible
or unbusinesslike results or undermines the apparent purpose
of the
document
[10]
,
clause 13 falls to be constructed and interpreted to mean that the
parties agreed that the interest payable by the defendant to
the
plaintiff would be at the same rate and on the same terms and
conditions applicable to a loan agreement secured by the mortgage
bond in favour of the Standard Bank of SA over the plaintiff’s
home.
[33]
That mortgage bond was received as evidence
and provides at clause 4.1 thereof for a variable interest rate of
prime minus 1.7%.
In my view, there can be very little doubt that the
reference to the plaintiff’s bond in clause 13 of the agreement
is not
relevant to identifying the source of the funds, but rather
the interest rate.
[34]
Should I be wrong in this interpretation,
then the question arises whether the recordals in the agreement were
occasioned by a common
error of the parties labouring under a
bona
fide
but mistaken belief that it recorded the
true agreement between them.
[35]
The defendant conceded in cross examination
that there were numerous errors in the agreement. He
specifically referred to
clauses 11 and 12 where the loan amount was
recorded as Six Hundred and Sixty Six Thousand Rands as opposed to
Six Hundred and
Sixty Thousand Rands. Further, he referred to
clause 13 where the agreement referred to “
the
plaintiff’s bond as opposed to Ceefax’s
”.
[36]
The defendant also asserted that it was his
intention that the loan to be advanced by the plaintiff to him be
advanced by the plaintiff
and no one else. These funds, he
said, had to be procured from funds which the plaintiff was to access
through a mortgage
bond over the plaintiff’s home. He did
not know that the plaintiff’s home was registered in the name
of Ceefax
Properties. Had he known that, he would not have
entered into the agreement because, he said, he did not want to
borrow money
from Ceefax Properties. The defendant’s contention
does not bear scrutiny. The fact that the plaintiff sourced the
funds from a third party could have made no difference as the
plaintiff would still have remained the lender of the money.
That the defendant would have found it objectionable had the
plaintiff won the lottery and advanced those funds to him, is
incredulous
and gives the lie to his contention. His assertion
that the plaintiff was obliged to procure the funds from his personal
bond over his home at the Standard Bank is contrary to the express
provisions of the agreement. The clause speaks to the applicable
interest rate. Clause 12, rather, speaks to the plaintiff’s
obligation to lend the money to the defendant. Nowhere
does the
agreement stipulate what the origin of such funds is or has to be.
[37]
The plaintiff himself testified to this fact
and asserted that the funds were going to come from an access
facility secured by a
bond over his home. The only bond being that
held by Standard Bank in the name of Ceefax Properties.
[38]
There can be little doubt that the defendant
(who instructed the drafter of the agreement) and the plaintiff
laboured under a common
error; namely that the agreement correctly
recorded their intention that the interest rate payable would be the
same as that referred
to in the mortgage bond held by the Standard
Bank over the plaintiff’s home. They thus both signed the
agreement whilst labouring
under the same error and belief that the
agreement correctly recorded their intention.
Agreement
to vary the interest rate
[39]
The plaintiff contends that, during about
September 2010 the plaintiff and the defendant orally agreed to vary
the loan agreement
so that, from October 2010, the defendant would
pay interest on the loan at the rate of 14.5% per annum, with an
increase thereof
at a rate of 0.5% every 3 months thereafter until
the loan was repaid. In substantiation of the agreement the plaintiff
referred
to certain email exchanges. The defendant does not dispute
either the email exchanges or that he received and sent the emails.
The defendant disputes only the date of one of the emails, not the
content thereof, because, so he says, the date does not correspond
with the same email appearing elsewhere. In one exhibit,
exhibit G, the date is reflected as ‘28 October 2010’,
whereas in exhibit P the same email reflects the date as
‘2010-10-28’. The defendant is clutching at straws. This
discrepancy, if it can even be elevated to such status, certainly
does not lay the foundation for the rejection of the variation
agreement because, as already stated, the content of the mails are
not disputed save for one feature being that the defendant contends
that the agreement referred to in the email exchanges only pertained
to the West Dunes loan. This assertion I reject as the
emails
refer to ‘loans’ in the plural, the email attaches a
schedule which refers to both the West Dunes loan and the
defendant’s
own loan from the plaintiff; the defendant implemented the agreement
to increase the interest rate because he
effected the increases for
both loans, on the very day (29 October 2010) that he said “
That’s
what we agreed. I’ll implement immediately...”
and the plaintiff’s bank statements for September and
October 2010 reflect that the lesser instalments for both loans
were
paid on 27 September 2010, whilst the increased instalments were paid
on 29 October 2010.
[40]
During argument, much emphasis was placed on
the fact that the plaintiff had failed to call Mr Joubert to
corroborate his version
relating to what had been agreed to at the
meeting regarding increased interest rates. In my view, this was,
given the unequivocal
admission contained in exhibit ‘G’
read with exhibit ‘H’, unneccessary.
[41]
The
chronology of events is most revealing. On 28 October 2010
[11]
the plaintiff
wrote to the defendant recording the discussion at their previous
meeting being an agreement in terms of which the
defendant would pay
interest at a rate more appropriate to short term loans as an
incentive to the defendant to find the resources
to settle the
outstanding amounts as ‘rapidly’ as possible. The rate
suggested was one which commenced at 14,5% per
annum, with quarterly
increments of 0,5%. A file of projected instalments, commencing
October 2010, was attached to the mail
[12]
.
The payment
for October 2010 was R7 975. On 29 October 2010, the defendant
responded in a mail and said: ‘
That’s
what we agreed. I’ll implement immediately….’
On
the very same day he paid R7 975 – as undertaken.
[42]
The probabilities are overwhelmingly in
favour of a finding that the defendant indeed agreed to pay the
increased interest rate
i.e. 14.5% with effect from end October 2010,
with such interest increasing at a rate of 0.5% every three months.
[43]
The suggestion that the subsequent conduct of
the defendant did not support such a finding, can safely be rejected.
Once again the
chronology of events tells the full story: The varied
interest rate was intended to be an interim arrangement, designed to
incentivise
the defendant to get alternative financing. The defendant
breached the varied agreement in two respects – he failed to
procure
alternative financing and he failed to make payment of the
increased quarterly instalments. The plaintiff caused his attorneys
of record to send a letter of demand to the defendant on 22 July
2011. On 4 October 2011, action was instituted. The reason advanced
by the defendant as to why he paid the increased amount on 29 October
2010 was that he always paid what he was told by the plaintiff
to pay
and this occasion was one where he was, yet again, told what amount
to pay which he did. He could not produce a single document
or letter
or mail which corroborated his version nor could he explain the
existence of mails, some of which he had authored, which
supported
the plaintiff’s version of events.
The
applicability of the National Credit Act (NCA)
[44]
Section 4(1) of the NCA stipulates that:
Subject
to sections 5 and 6, this Act applies to every credit agreement
between parties dealing at arm's length and made within,
or having an
effect within, the Republic, except-
a) a credit agreement in terms of
which the consumer is-
(i) a juristic person whose asset
value or annual turnover, together with the combined asset value or
annual turnover of all related
juristic persons, at the time the
agreement is made, equals or exceeds the threshold value determined
by the Minister in terms
of section 7 (1);
(ii) the state; or
(iii) an organ of state;
(b) a large agreement, as described in
section 9 (4), in terms of which the consumer is a juristic person
whose asset value or annual
turnover is, at the time the agreement is
made, below the threshold value determined by the Minister in terms
of section 7 (1);
(c) …
(d) …
[45]
So as to determine whether the NCA applies
one must therefore first answer the following questions:
45.1.
Is it a credit agreement as defined in the
Act?
45.2.
Does the transaction relate to a credit
agreement that was concluded at arm’s length?
45.3.
Was the credit agreement concluded in South
Africa or does it have effect within South Africa?
45.4.
Do any of the exemptions as set out in the
Act apply?
[46]
The Act defines a credit agreement as being
an agreement that meets all the criteria set out in section 8.
[47]
Section 8, in turn, differentiates between:
(a) credit facility, as
described in subsection (3);
(b) a credit transaction,
as described in subsection (4);
(c) a credit guarantee,
as described in subsection (5); or
(d) any combination of
the above.
[48]
Section 8(4)(f) designates an agreement a
credit transaction in the following terms:
An agreement, irrespective of its form
but not including an agreement contemplated in subsection (2),
constitutes a credit transaction
if it is-
(f) any other agreement, other than a
credit facility or credit guarantee, in terms of which payment of an
amount owed by one person
to another is deferred, and any charge, fee
or interest is payable to the credit provider in respect of-
(i) the agreement; or
(ii) the amount that has been
deferred.
[49]
The agreement in question clearly meets the
requirements of section 8(4). It is a credit transaction. The
defendant himself
contends that it is a credit agreement.
[50]
The next step is to determine whether the
parties were dealing at arm’s length.
[51]
The NCA does not define the term “
dealing
at arm’s length
” but merely gives
interpretational guidelines in section 4(2)(b). As such, it is
useful to bear in mind the provisions
of section 2(1) of the NCA
which requires the Act to be interpreted in a manner that gives
effect to the purpose set out in section
3.
[52]
Section 4(2)(b) of the NCA provides:
(2) For greater certainty in applying
subsection (1)-
(a) …..
(b) in any of the following
arrangements, the parties are not dealing at arm's length:
(i) a shareholder loan or other credit
agreement between a juristic person, as consumer, and a person who
has a controlling interest
in that juristic person, as credit
provider;
(ii) a loan to a shareholder or other
credit agreement between a juristic person, as credit provider, and a
person who has a controlling
interest in that juristic person, as
consumer;
(iii) a credit agreement between
natural persons who are in a familial relationship and-
(aa) are co-dependent on each other;
or
(bb) one is dependent upon the other;
and
(iv) any other arrangement-
(aa) in which each party is not
independent of the other and consequently does not necessarily strive
to obtain the utmost possible
advantage out of the transaction; or
(bb) that is of a type that has been
held in law to be between parties who are not dealing at arm's
length;
[53]
The guidelines at sub-sections 4(b)(i) and
(ii) are clearly inapplicable.
[54]
In so
far as the provisions of sections 4(2)(b)(iv)(aa) are concerned it
would appear that the statement by Trollip JA in
Hicklin
v Secretary for Inland Revenue
[13]
where he stated the following:
“
For 'dealing at arms' length'
is a useful and often easily determinable premise from which to start
the inquiry. It connotes that
each party is independent of the other
and, in so dealing, will strive to get the utmost possible advantage
out of the transaction
for himself. Indeed, in the Afrikaans text the
corresponding phrase is "die uiterste voorwaardes beding".
has
been codified in section 4(2)(iv)(aa) of the NCA, except that the
criteria distilled is expressed in the negative as opposed
to the
positive.
[55]
The
defendant placed much reliance on the case of
Beets
v Swanepoel
[14]
,
where the
plaintiff had lent her daughter the sum of R600 000 in terms of a
partly written and partly oral loan agreement so that
she could
acquire certain property. The issue on exception was whether this
loan had occurred at arm’s length and, accepting
as correct the
factual averments in the particulars of claim, the court found that
in fact and in law the parties were independent
of each other. Given
their respective circumstances, he further accepted that they strove
to gain the utmost possible advantage
from the agreement. In
Dayan
v Dayan
[15]
Lamont J (with
whom Tsoka J and Bizos AJ concurred) explored whether the parties
were independent and whether they had been striving
to gain the
utmost advantage for themselves out of the transaction and applying
such criteria, concluded that the two half brothers
had not
transacted at arm’s length.
[56]
It is
the plaintiff’s case that the transaction between the plaintiff
and the defendant was clearly not one between parties
dealing at
arm’s length. I too hold this view. This conclusion is
supported by the following facts which are either common
cause or
have not been disputed by the defendant in evidence: The parties are
brothers-in-law, they have known each other for in
excess of 35
years, they have spent many a Christmas, Easter, birthday and family
gathering together, including at the plaintiff’s
home, which
the defendant and his then wife and children attended over many, many
years. The plaintiff and his children and
the defendant and his
children got on very well, they had good family relations. The
defendant and the plaintiff were extremely
close on an emotional
level. The very day that the defendant’s son tragically
committed suicide, the plaintiff was
the first person the defendant
turned to for support. The plaintiff had invested in three of the
defendant’s business ventures
because he saw that as support
for his brother-in-law. The plaintiff’s loan to the defendant
was the biggest amount of money
he had ever loaned and he testified
that he certainly would not have lent it to anybody but a very
familiar family member. The
defendant could not obtain finance from
any arm’s length financial institution due to his impending
divorce. The nature of
the loan by the plaintiff to the defendant was
such that the plaintiff stood to gain nothing from the loan as the
defendant would
repay the loan amount plus interest that the
plaintiff would have paid to the mortgagee (i.e. Standard Bank) on
the amount withdrawn
from the bond. It is factually almost on
all fours with
Cloete
v Van Den Heever
[16]
.
[57]
I find as a fact that the plaintiff and the
defendant did
not strive to obtain the utmost
possible advantage out of the transaction
. I
therefore conclude that the plaintiff and the defendant are not
independent of each other, as meant in section 4(2)(b)(iv)(aa)
of the
NCA, and that they did
not strive to obtain
the utmost possible advantage out of the transaction
.
[58]
The NCA accordingly had no application on
this loan transaction.
Potential
usurous nature of interest rate
[59]
During
the course of the hearing, I raised with counsel the potential
usurious nature of the interest rate in the varied agreement.
Mr
Williamson referred me to the judgment of
African
Dawn Property Finance v Dreams Travel and Tours
[17]
.
It would seem that the legal position can be summarised as follows:
If the NCA is applicable, it dicates the permissable interest
rates.
If it is not applicable, then the common-law rule governs the
position which requires a party to show either extortion or
oppression, or something akin to fraud. This was neither pleaded nor
does the evidence in this case support such a finding. I am
further
mindful of the caution expressed by the Supreme Court of Appeal in
African
Dawn
that ‘
our
Constitution and its value system do not confer on judges a general
jurisdiction to declare contracts invalid on the basis of
their
subjective perceptions of fairness or on grounds of imprecise notions
of good faith
’
[18]
and that ‘
judges
should approach with restraint the task of intruding upon the domain
of the private powers of citizens’
[19]
and I accordingly take this issue no further.
Conclusion
[60]
During
October 2008, the plaintiff and the defendant concluded a loan
agreement in terms of which the plaintiff lent and advanced
R660 000
to the defendant. The loan attracted interest at a rate of prime
minus 1.7%. The loan was repayable within a reasonable
period (being
24 Months – 8 October 2010) from the date of its advancement,
but at the latest, from date of service of summons,
being 4 October
2011. The parties agreed to vary the interest rate applicable to the
loan with effect from October 2010 because
a reasonable period within
which to repay the loan, had arrived. The agreement was that the
defendant would pay 14.5% with effect
from end October 2010, subject
to the rate increasing by 0.5% every three months thereafter. By the
end of October 2010, when the
loan was repayable, the defendant was
indebted to the plaintiff in the sum of R630 289.66, as appears
from the defendant’s
own calculation in Exhibit F. The
plaintiff is accordingly entitled to judgment in the sum of
R630 289.66 together with interest
thereon at the rate of 14.5%
per annum, calculated from 1 October 2010, subject to such interest
rate increasing by 0.5% every
three months to date of payment, less
R486 900 paid by the defendant to the plaintiff during the
period 30 October 2010 to
31 July 2017
[20]
.
[61]
I am most indebted to counsel for their heads
of argument and other assistance provided during argument. I have
borrowed generously
from such workings for which I thank counsel.
Order
[62]
I accordingly grant the following order:
62.1.
The written agreement, annexure ‘A’
to the amended particulars of claim, is rectified by substituting the
following
clauses 12 and 13 thereof with the following clauses:
Clause 12. HBM Forsyth herewith
agrees to advance an amount of R660 000 (Six Hundred and Sixty
Thousand Rand) to GC Heydenrych
for the purpose of obtaining these
shares.
Clause 13. GC Heydenrych agrees to pay
interest to HBM Forsyth at the same rate and on the same terms and
conditions that are applicable
to the loan agreement secured by
mortgage bond held by the Standard Bank of South Africa over HBM
Forsyth’s home.
62.2.
Judgment is granted against the defendant for:-
62.2.1.
the sum of R630 289.66 together with
interest thereon at the rate of 14.5% per annum, calculated from 1
October 2010, and increasing
by 0.5% every three months to date of
payment; less R486 900 paid by the defendant to the plaintiff
during the period 30 October
2010 to 31 July 2017.
62.2.2.
Costs of suit.
___________________________
I OPPERMAN
Judge of the High
Court
Gauteng
Local Division, Johannesburg
Heard:
14 & 15 August 2017
26
March 2018
2,
3 and 4 July 2018
19
July 2018
Judgment:
18 October 2018
Appearances:
For
Plaintiff: Adv AL Williamson
Instructed
by: Werthschröder Inc
For
Respondent: Adv N. Riley
Instructed
by: FJ Cohen Attorneys
[1]
See
LAWSA
Volume 15(2) Second Edition Volume par 301;
Beretta
v Beretta
1924 TPD 60
(explained in
Levenstein v
Levenstein
1955
3 SA 615
(SR));
Roberts v
Forsyth
1948 3 SA 926 (N).
[2]
Beretta v Beretta supra (explained in
Levenstein
v Levenstein
supra);
Roberts v Forsyth
supra.
[3]
Mackay v Naylor
1917 TPD 533
538 (obiter per Mason J).
Earle
v Driman
supra;
Fluxman
v Brittain
1941 AD 273
;
Van Pareen v Pareen’s
Properties (Pty) Ltd
1948
1 SA 335
(T) 339 (does not apply to compensatio);
Rae
v Rohrs
1954 2 SA 235
(N);
Credit Corporation of SA
Ltd v Roy
1966 1 SA 12
(D).
[4]
Rae v Rohrs
supra;
Credit Corporation
of SA Ltd v Roy
supra.
[5]
See for example
Communicare
and Others v Khan and Another
2013 (4) SA 482
(SCA) at para 31;
Kwazulu-Natal
Joint Liaison Committee v MEC for Education, Kwazulu-Natal and
Others
2013 (4) SA 262
(CC) per Nkabinde J;
Strydom
v Engen Petroleum Ltd
2013
(2) SA 187
(SCA);
National
Credit Regulator v Opperman & Others
2013 (2) SA 1
(CC) per Cameron JA (dissenting);
Hubbard
v Cool Ideas
1186 CC
2013
(5) SA 112
(SCA) at para 14; CA Focus CC v
Village
Freezer t/a Ashmel Spar
2013 (6) SA 549
(SCA);
Cape
Town Municipality v SA Pension Fund
2014
(2) SA 365
(SCA);
Mansingh
v General Council of the Bar and Others
2014 (2) SA 26 (CC).
[6]
2012 (4) SA
593 (SCA)
[7]
[2015] ZASCA 111
[8]
Referring
to
KPMG
Chartered Accountants (SA) v Securefin Ltd & another
,
2009 (4) SA 399
(SCA) para 39 and
Endumeni
(supra) at para 18
[9]
When an inference is drawn from circumstantial evidence in a civil
case, the rule that the inference sought to be drawn must
be
consistent with all the proved facts, is applicable. The
conclusion need not be the only reasonable one: it is sufficient
if
it is the more natural or plausible conclusion from amongst several
conceivable ones. See
Govan
v Skidmore
1952 1 SA 732
(N) 734;
Ex parte Holden
1954 4 SA 128
(N);
Merchand
v Butler’s Furniture Factory
1963 1 SA 885
(N);
Ocean
Accident & Guarantee Corp Ltd v Koch
1963 4 SA 147
(A) 159;
SAR &
H v Dhlamini
1967 2 SA 203
(D);
Smit v Arthur
1976 3 SA 378
(A) 386;
AA
Onderlinge
Assuransie-Assosiasie Bpk v De Beer
1982 2 SA 603
(A);
Maritime
& General Insurance Co v Sky Unit Engineering (Pty) Ltd
1989
1 SA 867
(T);
S v Van
As
1991 2 SACR 74 (W).
[10]
Natal Joint Municipal
Pension Fund v Endumeni Municipality
supra
[11]
Exhibit ‘G’
[12]
Exhibit ‘H’
[13]
1980 (1) SA 481
(A) at 495A-B
[14]
2010]
ZANCHC 55
[15]
Case
674/2010, full court judgment of the Gauteng Local Division,
Johannesburg
[16]
2013 JDR 1075 (GNP) at par. 22
[17]
2011 (3) SA
511
(SCA) at paras [19] to [29]
[18]
at para
[28] p 523 C
[19]
at para
[28] p 523 E
[20]
This is
when the defendant ceased to make payments to the plaintiff.