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[2018] ZAKZDHC 4
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Standard Bank of South Africa Limited v Pillay and Others (4759/2014) [2018] ZAKZDHC 4 (20 March 2018)
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IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
LOCAL DIVISION, DURBAN
CASE
NO: 4759/2014
In
the matter between:
THE
STANDARD BANK OF SOUTH
AFRICA
LIMITED
APPLICANT
and
KELVIN
PILLAY
FIRST RESPONDENT
(Identity
Number: [...])
DASHIELL
PILLAY
SECOND RESPONDENT
(Identity
Number: [...])
TRANSNAUTICA
LOGISTICS CC
THIRD RESPONDENT
LANDSTAR
TRANSPORT CC
FOURTH RESPONDENT
KELVIN
PILLAY
N.O.
FIFTH RESPONDENT
DASHIELL
PILLAY
N.O.
SIXTH RESPONDENT
ANAND
RAMDHIN
N.O.
SEVENTH RESPONDENT
J
U D G M E N T
Delivered
on: TUESDAY, 20 MARCH 2018
OLSEN
J
[1]
The applicant, Standard Bank of South Africa Limited, seeks an order
provisionally sequestrating the joint estate created by
the marriage
between the first and second respondents. In the original
founding papers the applicant based its case on the
proposition that
the first respondent had committed an act of insolvency, and stated
that in the alternative it relied upon the
proposition that the
estate is insolvent. In argument before me the proposition that
an act of insolvency had been established
was not pressed. In
view of the conclusion I have come to concerning the question as to
whether the estate is insolvent there
is no need for me to consider
the alleged act of insolvency any further.
[2]
Counsel for the respondents concede that the only issue which need be
decided at this stage is the question as to whether the
estate is
insolvent. The respondents concede that all other requirements
for the grant of a provisional order are met.
In particular it
is conceded that it is established on the papers that the respondents
are indebted to the applicant as sureties
for an overdraft in an
amount of some R200 000.00, which gives the applicant standing
under
s 9(1)
of the
Insolvency Act, No. 24 of 1936
.
[3]
The applicant must at this stage establish a
prima
facie
case. The court must
have regard to all the affidavits delivered in order to determine
whether a
prima facie
case for the insolvency of the estate has been established on a
balance of probabilities. (See
s 10
of the
Insolvency Act, and
Kalil v Decotex (Pty)
Limited and Another
1988
(1) SA 943
(A) at 976 to 978.)
[4]
Counsel for the respondents have submitted, correctly in my view,
that the answer to the question as to whether the insolvency
of the
joint estate has been established turns on one issue only. That
issue is the enforceability of an unlimited deed of
suretyship signed
by the first respondent on 4 January 2008 for the payment of all
amounts which might be owing to the applicant
by Transnautica
Logistics Close Corporation, which I shall refer to as
“Transnautica”. (Transnautica, as well
as certain
other parties, have been joined in the sequestration proceedings.
They have not participated in them. In
the papers it is
contended that the joinder was improper, but the issue was not argued
before me, and the resolution of it is not
necessary at this time.
For the sake of convenience I will call the first and second
respondents the “respondents”.)
Transnautica is
indebted to the applicant in a considerable sum. The applicant
relies on the unlimited deed of suretyship
to hold the respondents
liable for the amount. If the debt is added to the respondents’
other liabilities they are
insolvent by a wide margin. If it is
excluded from their liabilities then, in my view, these papers do not
establish the
insolvency of the joint estate.
[5]
An account of the facts is necessary in order to examine the basis
upon which it has been argued that the unlimited deed of
suretyship
is not enforceable. These facts are to be gleaned from what are
in effect two sets of papers. For reasons
which need not be
canvassed in full at this time this application has progressed rather
too slowly. In the result the papers
comprise the customary
three sets of affidavits, and then supplementary founding, answering
and replying affidavits.
[6]
In the founding affidavit the deponent made the allegations necessary
to establish the quantum of the principal debt owed by
Transnautica.
The amount owing at that time (and now) had its immediate origins in
Transnautica’s failure to meet its
obligations in terms of a
series of credit agreements concluded in 2011 for the purchase of
trucks and associated equipment used
in its logistics business.
The founding affidavit was signed in April 2014. One of the
annexures to it was a summons
which the applicant disclosed it had
issued against Transnautica and its sureties in June 2013, which
reveals that there were also
at that time outstanding amounts due in
terms of similar credit agreements concluded between Transnautica and
the bank during the
period 4 March 2008 to 6 August 2008.
[7]
The fact that all these credit agreements were concluded between
Transnautica and the applicant was not disputed by the respondents
in
their answering papers.
[8]
The founding affidavit recorded that the written deed of suretyship
in terms of which the first respondent bound himself on
an unlimited
basis was executed on 4 January 2008. With rather less
attention to detail and accuracy than this matter required,
the
deponent to the founding affidavit went on in the next paragraph to
assert that a second deed of suretyship signed by the first
respondent on 23 February 2008 (i.e. some seven weeks after the first
one) had also been provided in favour of the applicant for
payment of
“any sums of money” which Transnautica may owe to the
applicant. This description of the suretyship
is, to say the
least, inaccurate. A perusal of the document shows that it was
a limited suretyship under which the first
respondent’s
liability for capital did not extend beyond R250 000.00.
[9]
In the answering papers the first respondent admitted that he had
signed both deeds of suretyship. Having done that,
he
drew attention to the fact that in terms of the second deed his
liability was limited to R250 000.00. In subsequent paragraphs
of his lengthy affidavit, and with little by of an explanation for
the assertion, he claimed that whatever the position might be
as
between the applicant and Transnautica, his liability as a surety for
Transnautica did not extend beyond R250 000.00.
[10]
In reply, and perhaps distracted by a host of other immaterial (or
presently immaterial) disputes and contentions and
counter-contentions,
and perhaps distracted further by the obscurity
which characterised the manner in which the first respondent had
asserted that
his liability was restricted to R250 000.00, the
deponent to the applicant’s affidavit simply made the
observation that
whilst the second deed of suretyship was indeed
limited, the first was not.
[11]
The further prosecution of the present application was interrupted,
apparently without any objection, principally to accommodate
necessary processes which followed the cancellation of the credit
agreements between Transnautica and the applicant. In January
2016 the applicant launched an application to deliver a supplementary
founding affidavit. This was not opposed. The
affidavit
gave an account of what had transpired with regard to its claim
against Transnautica and certain other matters.
Concerning the
issue to be decided at this time, the deponent to the applicant’s
affidavit recorded that the applicant’s
then understanding of
what had been said in the earlier papers by the respondents, was that
the later deed of suretyship had “somehow
amended the earlier
unlimited suretyship” despite the fact that the requirements
for the variation of the earlier document
had not been complied
with.
[12]
It was only in their supplementary answering affidavit that the
respondents stated clearly the basis upon which they repudiated
unlimited liability under the earlier deed of suretyship.
[13]
The defence raised in the affidavit may be summarised as follows.
(a)
When the first respondent and his co-member of Transnautica signed
the second deed of suretyship
they bound themselves, “jointly
and severally to a maximum amount of R250 000.00 …, plus
interest, fees and charges,
as sureties for the payment when due of
all present and future debts of any kind …” owed by
Transnautica to the applicant.
(b)
The applicant is the “author and generator” of the second
deed of suretyship
and it was at the instance of the applicant that
it was signed in the presence of bank representatives.
(c)
The two suretyships cannot co-exist. Legal effect must be given
to the later
one “which clearly, intentionally and deliberately
contain[ed] a restriction/limitation of our liability, as sureties,
towards
the applicant”.
(d)
The later deed of suretyship “simply and legally
novated/replaced” the earlier
one.
[14]
The deponent to the applicant’s supplementary replying
affidavit, a Ms Johanna M Greyling, is employed as a manager in
the
applicant’s Business Support & Recoveries, Personal and
Business Banking Credit sections. She does not claim
to have
been personally involved in the set of circumstances and agreements
of which the first and second suretyships form a part.
The
facts stated in the affidavit had come to her knowledge in her
capacity as an employee of the applicant. In dealing with
the
defence now clearly stated by the respondents she had regard to
certain documents forming part of the applicant’s bank
records. She had access to the relevant documents from
different divisions of the applicant which deal with different forms
of finance. Her reply to the defence of novation goes along the
following lines.
(a)
The first deed of suretyship
was obtained by the applicant’s vehicle and asset finance
division in order to secure the debt
relating to anticipated
instalment sale agreements. The first of these agreements was,
like the deed of suretyship, dated
4 January 2008. She provided
a copy of that document.
(b)
She provided a copy of a form
proposing the approval of further finance by the vehicle division
which was dated 7 July 2008, and
which records that four instalment
sale transactions following the original approval of the credit line
had by then been concluded.
(This fact accords with the
information concerning the 2008 credit agreements reflected in the
summons.) The document records
that a “general guarantee
of members is held” and proposes the approval of an extension
of the credit line. One
sees from the summons that four further
credit agreements, one dated 17 July 2008 and three dated 6 August
2008 were concluded
following this review.
(c)
The second deed of suretyship
was obtained by the bank’s branch which granted an overdraft
facility to Transnautica.
The deed of suretyship records that
the branch concerned is the applicant’s one at Prospecton.
The deponent puts up
a request for authority emanating from the
Prospecton branch to keep the then overdraft limit of R90 000.00
in place for another
two months. This is dated 24 July 2008 and
records that the bank held a suretyship limited to R250 000.00.
The
deponent offers the observation that it is probable that the
person who secured the second deed for the bank did not know of the
existence of the first deed.
(d)
A triangular stamp bearing the
date 22 April 2008 appears above the heading of the second deed of
suretyship. In their supplementary
answering affidavit the
respondents referred to the signature as an “endorsement”
of the second suretyship by the applicant.
The deponent to the
replying affidavit pointed out that the word “endorsement”
is inappropriate. It is merely
a signature and it could have
been affixed by any unidentified employee at any stage, such as when
filing the document away.
Over the stamp the number of the
overdraft account appears.
(e)
Finally the deponent states
that it is improbable that the parties to the instalment sale
agreements proceeded upon the assumption
that the only suretyship in
operation was one limited to R250 000.00, given that the bank’s
vehicle and asset finance
division allowed the exposure to
Transnautica to run up as high as some R8 million.
[15]
The two deeds of suretyship are very different documents. The
first one under which the liability of the sureties is
unlimited runs
to seven pages. The second one, limited to R250 000.00, is a
single page document. One has the impression
that it
constitutes an attempt by the applicant to simplify the statement of
a surety’s obligations where the principal debt
is the product
of a simple money lending transaction. Both of them are
standard form documents. There are clauses in
the earlier
unlimited deed of suretyship which have a bearing upon the
respondents’ contention that its operation was terminated
by
novation.
(a)
Clause 10.1 provides that the
earlier suretyship is “in addition to any other suretyship or
security, which the bank holds
at
any time
for any of the
Debts”. (My emphasis.) The word “Debts” is a
defined concept, being “all the present
and future debts of any
kind” owed by Transnautica to the applicant.
(b)
Clause 11 deals with
termination and cancellation of the obligations under the deed.
It allows the sureties to limit their
liability by written notice to
the applicant. The notice brings about that the liability is
fixed at that time.
(c)
Such notice aside, Clause 11 is
to the effect that liability for the “Debts” will only
end when all of them have been
extinguished; or when the bank gives a
written release from liability under the deed of suretyship; or when
the bank cancels the
suretyship in writing. The clause goes on
to provide that the suretyship may “only be terminated,
cancelled or otherwise
brought to an end in the way provided for in
this suretyship.”
[16]
In an apparent attempt to avoid the rigours of our law of novation,
in oral argument counsel for the respondents attempted
to shift the
respondents’ ground from the “novation/replacement”
pleaded in the supplementary answering affidavit,
to the proposition
that the second deed should be regarded as an amendment of the
first. (There was a tentative suggestion
that this might be
legitimate in the supplementary answering affidavit.) I will deal
with that argument after examining the pleaded
defence of novation.
[17]
The argument for novation rests on the words chosen to express the
contingent obligation in the second deed of suretyship,
and its
apparent inconsistency with the continuance of the unlimited
liability imposed by the earlier deed. As I understand
the
argument it is developed as follows.
(a)
Amongst the debts of
Transnautica owed to the applicant at the time of conclusion of the
second deed were amounts owing in terms
of a credit agreement
concluded with the vehicle and asset finance division of the
applicant.
(b)
The second deed of suretyship
therefore expresses a limitation of liability on the part of the
sureties for vehicle and asset debt
(together with any other debts)
of R250 000.00. The deed covers “all present and
future debts of any kind”.
(c)
The second deed of suretyship
was accepted by the applicant through the agency of its division
which secured it.
(d)
The continued existence of
unlimited liability amounts to a contradiction of the express terms
of the second deed. There cannot
at once be a limited liability
and unlimited liability in respect of the same debts.
(e)
The only inference to be drawn
is that the second deed of suretyship novated and terminated the
first.
[18]
In
National Health
Laboratory Service v Lloyd-Jansen Van Vuuren
2015 (5) SA 426
(SCA) at paragraph 16 the Supreme Court of Appeal
endorsed the proposition stated in
Electric
Process Engraving and Stereo Co v Irwin
1940 AD 220
at 226 – 227, that our law on the subject of
novation was clearly stated as far back as 1880 in the case of
Ewers
v The Resident Magistrate of Oudtshoorn and The Trustee of the
Insolvent Estate of Roberts
(Foord
32). A consideration of the facts of the last-mentioned case,
which established the principle which continues to be
applied in our
law, seems to me to be of assistance in dealing with the argument put
up by the respondents. The applicant in
Ewers
sought to prove a claim in the insolvent estate of Roberts upon the
basis that it was secured by a bond which had been passed in
favour
of the applicant to secure performance under a promissory note for
£412. The bond provided that if the promissor
“properly
took up the note with interest, costs and charges” then the
bond would become null and void, but would otherwise
remain in full
force and effect. On the due date for payment the insolvent
paid the costs, charges and interest then due,
but issued two new
promissory notes payable at later dates for the capital. The
original promissory note was endorsed with
words which recorded that
it was settled by the new notes. De Villiers CJ held that, the
particular wording of the bond aside,
the question was whether the
effect of the issue of the subsequent notes was to bring about that
the debt reflected in the original
promissory note – the one
secured by the mortgage bond – had been extinguished by
novation. The principle the
learned Judge enunciated was
therefore stated in a context in which,
prima
facie
, the obligation
evidenced by the original promissory note could not continue to exist
if the obligations evidenced by the two new
ones were enforceable, as
they obviously were. The continued existence of the earlier
obligation was, on the face of it, incompatible
with the liabilities
established by the later notes.
[19]
After examining the authorities the learned Judge held the following
at page 35.
“
The
result of the authorities is that the question is one of intention
and that, in the absence of any express declaration of the
parties,
the intention to effect a novation cannot be held to exist, except by
way of necessary inference from all the circumstances
of the case.
Now the mere fact that a debtor has given his own promissory note to
his creditor for the amount of the debt
certainly does not lead to
the necessary inference that the parties intended to substitute the
note for the debt.”
The
learned Judge concluded that the original debt had not been novated,
with the result that the security given for the original
promissory
note was still good. I can see no reason to distinguish the
present case merely because it concerns contingent
liabilities.
In both cases the question is whether the earlier obligation is
extinguished by the later one, and in both cases
the answer lies in
the enquiry into whether that was actually intended by the parties.
Where there is no express declaration
of novation, all the
circumstances of the case must be examined in order to establish
whether it is necessary to infer that a novation
was intended.
Apparent contradictions between the later and earlier contracts do
not inevitably render it necessary to infer
an intention to novate.
[20]
Counsel for the respondent accepted that the onus of proving the
alleged novation rests upon the respondents. (See
Barclays
National Bank Limited v Smith
1975
(4) SA 675
(D) at 683 B-E where the principles are neatly
summarised.) The second deed of suretyship contains no
reference to the first,
let alone a statement that it replaces the
first. Counsel argued that the intention that it should replace
the first can
be derived from the contents of the second deed of
suretyship, along the lines set out above.
[21]
The intention required is that of the parties, not one of them.
Suretyship is a bilateral juristic act. (See
African
Life Property Holdings (Pty) Limited v Score Food Holdings Limited
1995 (2) SA 230
(A) at 239.) The respondents’ answering
affidavit contains no statement that the first respondent or his
co-signatory
(his co-holder of the interests in Transnautica)
personally intended the second deed of suretyship to novate the
first. There
is no statement that the representative of the
bank who solicited the second deed of suretyship even knew of the
existence of the
earlier one, let alone that he or she intended by
requesting the second deed to novate the obligations under the
earlier one.
Given the silence of the second deed on the
subject of novation, if an intention to extinguish the obligations
under the earlier
deed existed, then it must have been discussed
between the parties who attended to the execution and acceptance of
the second deed.
There is no evidence of any such discussion.
The respondents’ argument is confined to the words employed in
the second
deed.
[22]
Counsel for the respondents have argued that an inference from the
second deed of suretyship that a novation of the first was
intended
may safely be drawn because, at the time it was executed, only the
first of the credit agreements between Transnautica
and the applicant
had been concluded, and that its existence is not incompatible with a
limited liability of R250 000.00.
They argue that the
credit agreements which followed in 2008 (the first one following
only 10 days after the second deed of suretyship
was signed) should
be ignored because the debts incurred by Transnautica as a result of
those did not exist when the second deed
of suretyship was signed.
There is no merit in that argument. Such transactions do not
spring out of nowhere on the
spur of the moment. It is
overwhelmingly probable that they were contemplated when the first
deed of suretyship was signed,
and continued to be so contemplated by
the vehicle and asset finance division at the time when the second
deed was signed.
[23]
As already pointed out, the first deed of suretyship expressed both
(a)
its ability to live side by side with any subsequent deed of
suretyship obtained in favour
of the applicant, and
(b)
the manner in which the obligations under it could be brought to an
end.
The
second deed of suretyship expresses neither a release from liability
under the earlier one, nor a cancellation of the earlier
one.
[24]
In addition to the aforegoing I take the view that the respondents’
contention that the two deeds of suretyship cannot
co-exist is
erroneous. The second deed of suretyship did not contain a
declaration that the undertaking made therein was
the only one which
bound its signatories in favour of the applicant. The
undertakings in each of the deeds of suretyship
are intended to
express the liability of the sureties under the particular
instrument. Deeds of suretyship are instruments
of debt,
despite the fact that the liability they express is contingent.
There is no reason to suppose that the cancellation
of the one
instrument would automatically bring about the cancellation of the
other. They can co-exist as instruments of
debt. Of
course, if the applicant sued its sureties under the second deed the
claim would have to be limited to R250 000.00.
It would be
necessary to invoke the first deed of suretyship in order to get more
than that.
[25]
Counsel for the respondents have criticised the applicant for failing
to produce an affidavit attested to by the person who
represented it
in obtaining the second deed of suretyship. The criticism is
not entirely unwarranted because the deponent
to the applicant’s
papers was confined to the observation that it was inconceivable that
the person involved could have intended
to cancel the first deed of
suretyship, basing that statement of overwhelming probability on the
facts of which an account has
been given earlier. The papers
contain no explanation for the failure of the applicant to provide
such an affidavit.
However I consider the criticism to be of no
assistance to the respondent’s case. There is no
statement made in the
respondents’ papers to the effect that
the person concerned actually intended the novation of the earlier
deed; nor any statement
that he or she was aware of the existence of
the earlier deed, and the purpose it was intended to fulfil in
Transnautica’s
logistics business. On the respondents’
papers there is no case which the person concerned had to answer.
[26]
In my view the oral argument made by counsel for respondents, that
the second deed of suretyship should be regarded as an amendment
of
the first, fails for reasons not dissimilar to those which warrant
the rejection of the claim of novation. There is no statement
in the
second deed of suretyship that it is intended as an amending
document. In particular the second deed of suretyship
contains
no statement that it is intended to constitute a declaration that the
contingent liabilities of its signatories to the
applicant under any
other instrument are limited to the sum of R250 000.00.
All that is expressed in the second deed
is that the undertaking made
in it is limited to R250 000.00.
[27]
I conclude that the applicant has made out the requisite case for the
insolvency of the respondents and that a provisional
order must
follow.
I
accordingly make the following order.
1.
A Rule Nisi issues
calling upon the first and second respondents and all other
interested parties to show cause, if any, before
this court on the 30
April 2018 at 09h30 or so soon thereafter as the matter may be heard,
why the joint estate of the first respondent
(ID No. [...]) and the
second respondent (ID No. [...]) should not be placed under final
sequestration.
2.
This order operates with
immediate effect as a provisional order for the sequestration in the
hands of the Master of this court
of the joint estate of the first
and second respondents.
3.
This order shall be
served personally on the first and second respondents, and shall be
served also on the South African Revenue
Service and the Master.
____________________
OLSEN
J
Date
of Hearing:
WEDNESDAY, 31 JANUARY 2018
Date
of Judgment: :
TUESDAY, 20 MARCH 2018
For
the Applicant:
Mr R M Van Rooyen
Instructed
by:
Edward Nathan Sonnenbergs Inc.
APPLICANT’S
ATTORNEYS
1 Richefond Circle
Ridgeside Office
Park
Umhlanga
Durban
(Ref.: A
Lombard / 0347704)
(Tel.: 031 –
536 8639)
For the Respondents :
Mr
A J Troskie SC with Mr E S Crots
Instructed
by:
Gey Van Pittius Attorneys
Respondents’
Attorneys
Unit 3, 17
Ennisdale Drive
Durban North
(Ref.:
TNL1/0001SEQ)
(Tel.: 031 –
5642028)