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[2017] ZASCA 145
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EH Hassim Hardware (Pty) Ltd v Fab Tanks CC (1129/2016) [2017] ZASCA 145 (13 October 2017)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not reportable
Case
No: 1129/2016
In
the matter between:
EH
HASSIM HARDWARE (PTY) LTD
APPELLANT
and
FAB
TANKS
CC
RESPONDENT
Neutral
Citation:
Hassim
Hardware v Fab Tanks
(1129/2016)
[2017] ZASCA 145
(13 October 2017)
Coram:
Shongwe AP
and
Molemela and Fourie AJJA
Heard:
22 August 2017
Delivered:
13 October 2017
Summary:
Rescission of
default judgment –– Uniform Rules of Court 31(2)
(a)
and
(b)
–court of appeal may only interfere if power not properly
exercised – court a quo erred - bona fide defence –
carries prima facie reasonable prospects of success – appeal
succeeds with costs.
ORDER
On
appeal from
Gauteng
Division of the High Court Pretoria (Siwendu AJ sitting as court of
first instance):
1
The appeal succeeds with costs.
2
The order of the court a quo is set aside and replaced with the
following
order:
‘
The
application for rescission of judgment is granted. Costs to be costs
in the cause.’
3
The appellant is directed to file its Notice of Intention to Defend
within
7 (SEVEN) days from the date of this order.
JUDGMENT
Molemela
AJA (Shongwe AP and Fourie AJA concurring):
[1]
This appeal concerns a refusal by a single Judge of the Gauteng
Division of the High Court, Pretoria (Siwendu AJ) to rescind
a
default judgment obtained against the appellant by the respondent
arising from the appellant’s failure to file a Notice
of
Intention to defend.
[2]
The appellant is a supplier of building materials and related
products to various builders in the construction industry and
its
operations are based in Limpopo Province. The respondent is a
registered company involved in the supply of water tanks.
[3]
The salient facts and circumstances which gave rise to the
application for rescission of judgment in the court a quo are as
follows. On 25 September 2013, the respondent submitted a quotation
to Segabokeng Construction (principal contractor) for the
manufacture, delivery and erection of a tank which was to be
installed at Malipsdrift SAPS as part of the building project of the
Department of Public Works. The quotation in question embodied the
terms and conditions for the supply and installation of the
tank and
indicated the estimated and/or expected delivery period of five to
seven weeks.
[4]
On 11 October 2013, the appellant was replaced as the purchaser of
the tank and therefore became a sub-contractor of the principal
contractor. The appellant requested the respondent to send a pro
forma invoice in accordance with a quotation it had initially
sent to
the principal contractor. The respondent duly forwarded the
pro
forma
invoice to
the appellant. On acceptance of the terms, the appellant paid to the
respondent a deposit in the amount of R484 585.50
which
constituted 50 per cent of the contract price. The payment terms
entailed, inter alia, that the appellant pay to the respondent
40 per
cent of the price on delivery of the material, 5 per cent after the
erection of the tank and a further 5 per cent after
the testing or
three months after the erection of the tank.
[5]
It was common cause between the parties that delivery was effected in
April 2014 and thus outside the delivery period of five
to seven
weeks. The respondent conceded the late delivery and attributed it to
a larger than expected number of orders. A review
of the
correspondence exchanged between the parties reflects that the
appellant had consistently registered its unequivocal dissatisfaction
with the delay but did not cancel the contract. Prior to delivery and
installation of the tank, the respondent had issued the appellant
with an invoice dated 31 March 2014 in respect of the balance of the
contract price. Further invoices were subsequently issued.
It is also
common cause that subsequent to the payment of the 50 per cent
deposit, the appellant did not make any further payments
to the
respondent. The balance owing subsequently became the subject of the
default judgment obtained against the appellant.
[6]
It is clear that prior to the launch of the action proceedings
instituted by the respondent against the appellant in the court
a
quo, the appellant and the respondent were embroiled in a dispute
about the outstanding balance of the contract price. The appellant
was initially represented by Bresler Becker Attorneys. Due to the
closure of that firm, the appellant’s files were transferred
to
Mr Oberholzer of the firm De Bruin Oberholzer Attorneys. Pursuant to
Mr Oberholzer’s involvement in the matter as the
appellant’s
legal representative, the appellant persisted in the denial of
liability on account of the late delivery of the
tank and certain
defects subsequently found on it. When the respondent’s
attorneys threatened to take legal action against
the appellant, Mr
Oberholzer apprised them that the appellant would defend any action
they intended bringing and requested them
to serve any court
processes intended for the appellant at his firm. It is common cause
that summons commencing action against
the appellant was served at Mr
Oberholzer’s firm on 23 April 2015.
[7]
In the intervening period Mr Oberholzer took ill from 25 March 2015
and was hospitalised in intensive care on 8 April 2015 for
a month.
He was only able to return to work on 11 May 2015. Mr Oberholzer
deposed to an affidavit in support of the application
for rescission
of the judgment, confirming that he was hospitalised. He averred that
during his absence the administration of the
affairs of his office
were entrusted to Mrs Mariaan Bresler, the erstwhile attorney of the
appellant, as well as a professional
assistant in his office and an
article clerk. The erstwhile attorney was to supervise the
appellant’s files. It was only
after a call by the appellant’s
deponent on 20 May 2015 enquiring about the appellant’s adverse
credit listing that
Mr Oberholzer became aware of the service of
summons by the respondent. He filed a notice of intention to defend
on the same day.
He later learnt that default judgment had been
granted the day before he filed the appearance to defend. The
respondent’s
attorneys refused to consent to the rescission of
the judgment. The appellant then launched a substantive application
for rescission
of judgment, which the r
espondent
opposed.
[8]
Although the court a quo found that the appellant was not in wilful
default of entering an appearance to defend the action,
it concluded
that the appellant had not shown a bona fide defence. Curiously,
having acknowledged that the triable issues relied
upon by the
appellant flow from the alleged breach of the contract on which the
respondent’s claim is based, the court a
quo found that those
issues ‘are not necessarily germane to the claim the applicant
[appellant] may have against the respondent
in respect of the
counterclaim’. It further found as follows:-
‘
Stated
conversely, the facts giving rise to the counterclaim which is in its
nature contractual damages, can and does constitute
a separate cause
of action. In this sense, it cannot be construed to constitute a
defence that goes to the heart of the respondent’s
claim. In my
view, the requirement of a bona fide defence means a defence that
provides the kind of answer that addresses the heart
and merits of
the respondent’s claim.’
The
court a quo concluded that the appellant had not satisfied the
requirements for the granting of rescission of judgment and dismissed
the appellant’s application with costs. Aggrieved by that
decision, the appellant applied for leave to appeal against the
whole
judgment of the court a quo.
This
appeal is with leave of that court.
[9]
The central issue to be determined in this appeal is whether the
appellant satisfied the requirements for the granting of rescission
of judgment as contemplated in rule 31(2)
(b)
of the Uniform Rules of Court.
An
ancillary issue is whether the counterclaim raised in respect of the
penalties constituted a bona fide defence to the respondent’s
claim.
[10]
Before this Court, the appellant contended that it had shown that it
had a bona fide defence against the respondent’s
claim. It
contended that it had demonstrated that it had a counterclaim that
served to extinguish the respondent’s claim
and this
accordingly constituted a bona fide defence against the respondent’s
claim. The appellant also asserted that the
court a quo’s
finding that the appellant was not in wilful default falls outside
the purview of the appeal, since it had
not attacked that finding in
its Notice of Appeal. It is the appellant’s case that the
respondent was aware of the fact that,
should it act in breach of the
agreed delivery times, the appellant would suffer damages as it would
be exposed to payment of penalties
raised against the main
contractor. The appellant further submitted that since it had to pay
another supplier for the remedying
of the respondent’s
defective performance, the amount paid to that supplier ought to have
been deducted from the amount reflected
in the respondent’s
invoice for the supply and assembly of the tank. According to the
appellant, the court a quo erred insofar
as it granted default
judgment on the full amount claimed by the respondent. The appellant
further contended that since the principal
contractor had levied the
penalties on it for the late delivery of the tank, it had a
counterclaim against the respondent in respect
of the penalties
charged. The basis for that counterclaim, so it was argued, was the
contractual damages in respect of the penalties
levied, which fell
within the contemplation of the parties.
[11]
T
he
respondent conceded that the court a quo considered the explanation
proffered on behalf of the appellant to be reasonable and
accordingly
found that there was no wilful default on its part. The respondent,
however, contended that since this appeal is directed
against the
whole judgment of the court a quo, this Court will have to make its
own determination as to whether the appellant’s
explanation for
the default is reasonable.
The
respondent further argued that none of the requirements for the
granting of a rescission of judgment had been satisfied. It
further
pointed out that there was no merit to the appellant’s
counterclaim as there was no agreement that penalties would
be
levied. It further averred that there was no legal basis for the
counterclaim, as the appellant relied on an unliquidated claim
that
was not capable of set-off.
[12]
Rule
31(2)
(b)
of
the Uniform Rules of Court provides that a party against whom default
judgment has been granted may, within 20 days after he
or she has
knowledge of that default judgment, apply to court to set it aside.
The court may, on good cause shown, set that judgment
aside. It is
established law that the courts generally require an applicant for
rescission of judgment to show good cause by (a)
giving a reasonable
explanation for the default; (b) showing that his/her/its application
for rescission is made bona fide and
not made merely with the
intention to delay the plaintiff’s claim; (c) showing that
he/she/it has a bona fide defence to
the plaintiff's claim which
prima facie has some prospect of success.
[1]
Regarding
the last-mentioned requirement, i
t
is trite law that an applicant for rescission of judgment is not
required to illustrate a probability of success, but rather the
existence of an issue fit for trial.
[2]
[13]
Equally trite is the principle that even when all the requirements
set out above have been met, it is still within the discretion
of the
court whether or not to rescind the judgment. That discretion must be
exercised judicially in light of all the facts and
circumstances of
the case.
[14]
As regards the requirement pertaining to the
explanation
proffered for the default, it is not in dispute that the appellant’s
attorney, Mr Oberholzer had been hospitalized
for some time. It is
also not disputed that he had personally arranged with the
respondent’s attorneys to serve any processes
and pleadings
intended for the appellant on his firm. It is common cause that the
summons issued by the respondent against the
appellant was served on
Mr Oberholzer’s firm while he was hospitalised. Mr Oberholzer’s
assertion regarding the arrangement
that he had made with Mrs Besler
pertaining to the supervision of the appellants’ files was
confirmed by the latter. As stated
before, it was only when the
appellant’s deponent personally contacted Mr Oberholzer, after
the latter’s return to
the office, that Mr Oberholzer
discovered that summons instituting action against the appellant had
been served on his firm and
that default judgment had also been
granted against the appellant.
[15]
I am satisfied that Mr Oberholzer put enough measures in place to
look after the appellant’s interests in his absence
and
therefore disagree with the respondent’s contention that Mr
Oberholzer’s firm’s failure to file a notice
of intention
to defend
constituted
negligence that should be imputed to the appellant. I am of the view
that the circumstances of this case do not warrant that the
appellant
be penalised for the shortcomings of the staff members of its legal
representative’s firm. It must be borne in
mind that it was at
the instance of Mr Oberholzer that summons was served at the latter’s
firm and not on the appellant.
The appellant was not aware of the
service of the summons and only learnt about it after default
judgment had already been granted
against it. Under these
circumstances, the respondent’s assertion that the appellant
failed to make any enquiries regarding
the progress of its case or
showed disinterest in how its legal representative was conducting its
case is devoid of any merit.
I am satisfied that the appellant’s
explanation of the default is satisfactory.
[16]
It is evident from the bulk of correspondence exchanged between the
parties that the appellant has unequivocally displayed
a firm
intention to defend any court action instituted by the respondent in
relation to this matter. I am therefore satisfied that
the
appellant’s application for rescission of judgment was bona
fide and not merely intended as a delaying tactic
.
[17]
What remains for consideration is whether the appellant has
sufficiently succeeded to make out a bona fide defence which has
prospects of success. As correctly contended by the respondent, for
the appellant to be successful in its application for rescission
of
judgment, it needs to set out averments which, if established at the
trial, would entitle it to the relief asked for. It need
not deal
fully with the merits of the case and produce evidence that shows
that the probabilities are actually in its favour.
[18]
The
papers reveal sufficiently detailed allegations of fact pertaining to
the late and defective delivery of the tank. With regards
to
defective performance, the appellant averred that leaks were found on
the tank subsequent to its installation and that the respondent
refused to cure these defects, as a result of which it commissioned
another supplier to remedy the defects. The respondent contended
that
the appellant had not stated the basis on which the leakages were
being attributed to it. Significantly, the correspondence
exchanged
between the parties revealed that at the time when the respondent was
notified about the leakages and warned that the
appellant would
resort to engaging the services of another contractor for the
necessary repairs if the respondent did not do so,
the latter did not
dispute the defects on the tank but merely stated that it would
attend to such defects only if its invoice was
settled. The appellant
duly appended the invoice presented to it by the contractor who
attended to the repairs on the tank to its
founding affidavit.
[19]
With regards to the penalties, t
he
appellant claimed that it was being held liable for payment of
penalties due to the late delivery of the tank having impacted
on all
water-dependant construction, which in turn delayed the finalisation
of the entire project. T
he
progress-payment form and the Reconciliation Statement dated 13 April
2015 and presented to the appellant by the principal contractor
formed part of the appellant’s papers.
These
two documents reflected an amount of R446 978.00 as ‘penalties
for late completion’.
I
am satisfied that the allegations made by the appellants are
substantiated and evince the existence of triable issues.
[20]
It is undisputed that at the time of the hearing of the rescission
application, the appellant had not yet issued any summons
against the
respondent in respect of the costs of repairs of the tank or the
penalties. The appellant indicated that its counterclaim
pertaining
to that claim would be filed simultaneously with the plea as soon as
the judgment of the court a quo has been rescinded.
[21]
The
respondent’s assertion that the essence of the appellant’s
counterclaim is that of damages which are unliquidated
and that such
damages cannot be set off against a liquid claim seems to have found
favour with the court a quo. In my view, this
assertion simply fails
to take into account that first, rule 31(2)
(a)
and
(b)
specifically cater for the setting aside of a default judgment in
respect of a claim that is ‘not for a debt or liquidated
demand’. Secondly, it is permissible for a defendant, by way of
a plea, to raise the existence of an unliquidated counterclaim
as a
defence.
[3]
Brand JA in
Soil
Fumigation Services v Chemfit Technical Products
[4]
endorsed the principle that if it is permissible for a defendant in
its plea to raise the existence of an unliquidated counterclaim
as a
defence to the plaintiff’s claim, then similarly, it should be
equally permissible to raise that defence by way of affidavit
in
summary judgment proceedings.
[22]
In response to the appellant’s submission that there is no
reason why the same reasoning cannot be adopted in the context
of an
application for rescission of judgment, the court a quo stated as
follows:-
‘
Unlike
in a case of a defence to a summary judgment, the procedure envisaged
in Rule 22(4) does not apply to cases where a judgment
already
exists. Thus, an applicant faced with a rescission of default
judgment cannot apply for a rescission of a default judgment
to
enable it to deliver a counterclaim. . . Materially, an assessment of
the bona fides of a defence in an application for summary
judgment
occurs prior to the granting of judgment thereof. Nevertheless, one
of the time honoured principles which applies to the
furtherance of
the administration of justice is that there must be finality to
litigation.’
[23]
It
is evident from the provisions of rule 22(4) that the
pari
passu
determination of a claim in convention and a counterclaim cannot be
claimed as of right. The court has a discretion whether or
not to
postpone the claim in convention so that both the claim and the
counterclaim are heard simultaneously.
In
making a general statement that rule 22(4) does not apply in cases
where a judgment already exists, the court a quo failed to
consider
that even though the court’s discretionary power to rescind a
judgment is sparingly exercised in the interests of
having finality
in litigation,
[5]
that general
discretion is, in appropriate circumstances, exercised in favour of
the party seeking rescission of judgment. Appropriate
circumstances
would be where the facts and circumstances of the matter cry for the
exercise of the discretion in favour of the
applicant. Thus, the mere
fact that a default judgment has already been granted should not,
without more, preclude the determination
whether a counterclaim may
be accepted as a bona fide defence in an application for rescission
of a default judgment in appropriate
circumstances.
[24]
Where a counterclaim is raised as a defence, rule 22(4) becomes part
of the broader consideration of good cause and one of
the questions
that occupies the court’s mind is whether the claim in
convention and reconvention ought to be adjudicated
upon in the same
hearing. Without in any way limiting the wide discretion allowed to a
court when considering rule 22(4), the following
remarks made by the
court in
Vaughan
& Co Ltd v Delagoa Bay Engineering Co Ltd
[6]
are apposite:-
‘
Of
course there are cases, such as for instance, where, in answer to a
bill of exchange, the defendant sets up a libel action, having
nothing to do with it, in which the magistrate would exercise his
discretion in not refusing to stay the action, but, in a case
like
the present, where the claim in reconvention, the counterclaim,
arises out of the very contract on which the claims in convention
are
based, it does seem to me it would be unjust to require those matters
to be debated in two separate actions in two separate
Courts.’
[25]
In
Soil
Fumigation
[7]
this
Court, having endorsed the principle that a counterclaim can
constitute a defence in a summary judgment application, went on
to
consider whether that counterclaim was bona fide. It, however, warned
that a court should be less inclined to exercise its discretion
in
favour of a defendant where the answer to the plaintiff’s claim
is raised in the form of a counterclaim as opposed to
a plea. It
pointed out that a court can only exercise its discretion in favour
of a defendant on the basis of the material placed
before it. I can
find no reason that precludes a similar approach in an application
for rescission of judgment in appropriate circumstances.
[26]
In the present matter,
the
averments made, which have already been discussed earlier in this
judgment, prima facie suggest some malperformance on the part
of the
respondent. It is also clear that the alleged delayed and defective
performance are, in essence, allegations of a breach
of the very
contract which forms the basis of the respondent’s claim. This
inter-connectedness counts heavily in favour of
the simultaneous
hearing of the claim in convention together with the appellant’s
counterclaim, instead of a piecemeal consideration
of a multiplicity
of claims. Although the amount the appellant had to pay in respect of
the respondent’s defective performance
accounts for a small
percentage of the respondent’s claim, the claim in respect of
the penalties resulting from delayed performance
accounts for the
balance of the respondent’s claim. The counterclaim, if proven,
could therefore extinguish the respondent’s
entire claim. Under
these circumstances, a judicial exercise of the court a quo’s
discretion should have leaned in favour
of hearing the respondent’s
claim and the appellant’s counterclaim in the same proceedings.
[27]
Instead, the court a quo found that the issues raised by the
appellant in respect of the respondent’s alleged defective
and
delayed performance were not germane to the action brought by the
respondent against the appellant. It concluded that such
issues gave
rise to a counterclaim based on contractual damages that did not go
to the heart of the respondent’s claim and
constituted a
separate cause of action. Those findings are not supported by the
facts alluded to earlier in this judgment and are
therefore
erroneous.
[28]
It is trite law that an applicant in an application for rescission of
judgment need only make out a prima facie defence in
the sense of
setting out averments which, if established at trial, would entitle
her or him to the relief asked for. Such an applicant
need not deal
fully with the merits of the case and produce evidence that shows
that the probabilities are in its favour.
[8]
That is the business of the trial court. T
he
object of rescinding a judgment is to restore the opportunity for a
real dispute to be ventilated.
[9]
I
am satisfied that the appellant raised triable issues and
sufficiently disclosed the nature and the grounds of its
counterclaim.
It has also shown that these triable issues have
reasonable prospects of success. The appellant has also shown that
its counterclaim
is bona fide. All the requirements for the granting
of rescission of judgment have been satisfied.
[29]
Considering all the material placed before the court a quo, it ought
to have exercised its discretion in favour of granting
an order
rescinding the judgment. Its failure to do so was on account of a
wrong appreciation of the facts and legal principles.
Its discretion
was therefore not judicially exercised.
[10]
It
follows that the appeal must succeed.
[30]
I therefore grant the following order:
1
The appeal succeeds with costs.
2
The order of the court a quo is set aside and replaced with the
following
order:
‘
The
application for rescission of judgment is granted. Costs to be costs
in the cause.’
3
The appellant is directed to file its Notice of Intention to Defend
within
7 (SEVEN) days from the date of this order.
___________________
M
B Molemela
Acting
Judge of Appeal
Appearances
For
the Appellant:
S G Gouws (with him L W De Beer)
Instructed
by:
De
Bruin Oberholzer Attorneys, Pretoria
Symington
& De Kok Attorneys, Bloemfontein
For the Respondent:
M Basslian SC
Instructed by:
Hogan Lovells (South
Africa) Inc, Pretoria
McIntyre
Van der Post, Bloemfontein
[1]
Colyn
v Tiger Food Industries Ltd t/a Meadow Feed Mills
(
Cape
)
2003 (6) SA 1 (SCA) at 9E–F.
[2]
Sanderson
Technitool (Pty) Ltd v Intermenua (Pty) Ltd
1980 (4) SA 573
(W) at 575H–576A.
[3]
Stassen
v Stoffberg
1973 (3) SA 725
(C) at 729A-C.
[4]
Soil
Fumigation Services Lowveld CC v Chemfit Technical Products
2004
(6) SA 29
(SCA) at 34E-F.
[5]
Firestone
South Africa (Pty) Ltd v Gentiruco
AG
1977 (4) SA 298 (A).
[6]
Vaughan
& Co Ltd v Delagoa Bay Engineering Co Ltd
1919
TPD 165
at 171.
[7]
Soil
Fumigation
fn 4 at 34E-F.
[8]
Erasmus,
Superior
Court Practice
,
(looseleaf)
D1-365 – D1-370.
[9]
Lazarus
& another v Nedcor Bank Ltd, Lazarus & another v ABSA Bank
Ltd
1999
(2) SA 782 (W).
[10]
Trencon
Construction (Pty) Limited v Industrial Development Corporation of
South Africa Limited & another
[2015]
ZACC 22
;
2015 (5) SA 245
(CC) para 88.