Brief Summary

Summary Judgment — Suretyship — Application for summary judgment against sureties for principal debtor's indebtedness — Defendants raised multiple defences, including business rescue proceedings and waiver of breach — Court held that the business rescue proceedings barred action against the principal debtor but did not affect the sureties' obligations — Summary judgment granted against sureties for the amounts claimed.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings took the form of an application for summary judgment brought in the KwaZulu-Natal Division of the High Court, Pietermaritzburg. The applicant/plaintiff was Nedbank Limited. The respondents/defendants were Zevoli 208 (Pty) Ltd as principal debtor (first defendant) and Shield Homes EC (Pty) Ltd, Jacob Hendrik van Rensburg, and Ian Kenneth Christie as sureties (second to fourth defendants respectively).

The matter arose from a loan relationship between Nedbank and the first defendant, secured inter alia by suretyships furnished by the second to fourth defendants. After summons had been issued and the defendants had delivered notices of intention to defend, Nedbank invoked Rule 32 and sought summary judgment for a substantial outstanding balance together with interest and costs.

A significant procedural development occurred shortly before the hearing: the first defendant resolved to commence business rescue proceedings in terms of section 129 of the Companies Act 71 of 2008. As a result, the statutory moratorium in section 133(1) became relevant. The court treated this as barring Nedbank from proceeding against the first defendant at that stage, leading to an adjournment of the summary judgment application against the first defendant sine die with costs reserved. Nedbank nonetheless persisted with summary judgment against the sureties (the second to fourth defendants).

The general subject matter was therefore the enforcement of a restated loan agreement and accompanying suretyships, and whether the sureties had disclosed any bona fide defence that was good in law sufficient to defeat summary judgment.

2. Material Facts

Nedbank’s claim against the first defendant arose from a restated loan agreement concluded on 30 July 2014, described as a reinstatement and replacement of an earlier loan agreement concluded on 14 October 2012. Under the restated agreement, Nedbank lent and advanced R28 309 472.00 to the first defendant.

The second, third, and fourth defendants concluded deeds of suretyship in favour of Nedbank (dated 16 March 2009, 3 September 2014, and 5 September 2014 respectively). In terms of these instruments, the sureties bound themselves jointly and severally, as sureties in solidum and co-principal debtors, for the due performance of the first defendant’s obligations to Nedbank. The second defendant’s liability was limited to R2 million, while the third and fourth defendants’ liability was limited to R28 million each. The suretyships also contained provisions permitting Nedbank, without affecting its rights against the sureties, to grant indulgences and make arrangements with the principal debtor, and included a certificate of indebtedness clause providing that a properly signed certificate would constitute prima facie proof of the amount owing and its due status.

A further security component was a mortgage bond over immovable property described as the remainder of Portion 40 of Lot 81 No 1572, Tongaat, which (on the version accepted by the court for purposes of the application) remained of force as security for amounts owed by the first defendant, and which included a costs provision on an attorney and own client scale in the event of litigation.

The default relied upon was the first defendant’s failure to make punctual instalment payments. The judgment records that a payment made on 6 October 2015 was returned “unpaid” and that the account remained in arrears thereafter. As at 5 November 2015, the arrears were stated as R44 919.38. Under the restated loan agreement, a failure to pay punctually constituted an event of default, triggering acceleration: the loan balance and unpaid amounts became immediately due and payable without further notice.

On Nedbank’s case, acceleration entitled it to claim the outstanding loan balance, stated (in the pleadings and summary judgment materials) as an amount that ultimately formed part of the total relief sought in summary judgment. The application sought R15 864 574.25, together with interest at 12.5% per annum, and attorney-and-client costs. While Nedbank initially pursued relief including an order declaring the mortgaged property specially executable, the statutory moratorium meant the application against the principal debtor was not then pursued to finality.

After summons had been issued, and before the summary judgment hearing, the first defendant resolved to commence business rescue proceedings. The court accepted that the moratorium in section 133(1) applied so as to bar Nedbank from proceeding against the first defendant at that stage. The remaining dispute for present purposes concerned whether the sureties could resist summary judgment on the defences advanced in opposing affidavits.

3. Legal Issues

The central questions the court was required to determine were whether, in the context of Rule 32, the second to fourth defendants had disclosed by affidavit a bona fide defence that was good in law to Nedbank’s claims under the suretyships, and whether the notices of intention to defend had been delivered solely for delay.

Closely connected to that enquiry was a specific legal question about the effect of business rescue on enforcement against sureties: whether the moratorium on proceedings against the principal debtor in section 133(1) of the Companies Act 71 of 2008 extended, directly or indirectly, to protect sureties from summary judgment.

The dispute was predominantly about the application of legal principles to largely common-cause contractual facts (the existence and key terms of the loan agreement and suretyships). Several defences raised issues of law (such as the nature of the business rescue moratorium, the legal consequences of indulgences granted to a principal debtor, the requirements for summary judgment affidavits, and jurisdiction). Other defences turned on whether the alleged facts, even if accepted, would constitute a legally cognisable defence in terms of the parties’ agreements and established principles (including waiver, demand requirements, and alleged “good faith” constraints).

4. Court’s Reasoning

The court began by outlining the governing approach to summary judgment under Rule 32(3)(b). It emphasised that the defendant must disclose fully the nature and grounds of the defence and the material facts relied upon, and that the defence must be both bona fide (in the sense of being genuinely advanced on a factual footing believed to be true) and good in law. The judgment reiterated that summary judgment proceedings are not intended for deciding the probabilities of success at trial; rather, they require a disclosure of facts which, if proved, would constitute a defence.

Against that framework, the court assessed each defence raised.

On business rescue, the court accepted that the first defendant’s commencement of business rescue proceedings triggered the statutory moratorium in section 133(1), barring enforcement proceedings against the first defendant and necessitating an adjournment of the summary judgment application against it. The court then addressed whether the sureties could claim the benefit of that moratorium. Relying on authority distinguishing defences available to sureties (including the proposition that a surety may raise defences available to the principal debtor except those that are purely personal), the court characterised the section 133(1) moratorium as a defence in personam, being a personal immunity afforded to the company in business rescue rather than a defence that extinguishes or invalidates the underlying debt. Because the moratorium does not discharge the principal debt but only temporarily bars enforcement against the company, it did not operate to protect the sureties from suit. The court further reasoned that, absent an express statutory provision extending the moratorium to sureties, the sureties could not invoke section 133(1) to defeat enforcement of their own contractual obligations.

On the alleged waiver of breach, the court addressed the contention that payment of arrears after summons constituted a waiver by Nedbank of its right to rely on breach and acceleration. The court treated the suretyship terms as permitting Nedbank to make arrangements with the debtor (and other sureties) for discharge of obligations without prejudicing its rights. On that contractual footing, the acceptance of payments and arrangements did not amount to a waiver that could release the sureties.

On the alleged defective notice (the argument that Nedbank should have demanded that the first defendant remedy the breach before issuing summons, and that proceeding without such notice offended good faith), the court relied on the contractual acceleration clause providing that, upon default, the full balance became due and payable without further notice. It also rejected the attempt to convert “good faith” into a free-standing requirement to restrain enforcement in circumstances not grounded in the contract. Applying the approach in the cited authority concerning judicial interference in contracts on vague fairness grounds, the court held that absent allegations akin to oppression, extortion, or fraud, a court may not set aside or decline to enforce contractual provisions purely on subjective notions of fairness or imprecise good faith.

On the defence that Nedbank’s post-summons indulgence to allow the first defendant time to sell the bonded property was prejudicial to the sureties and released them, the court analysed the suretyship terms permitting Nedbank to grant extensions of time and make other arrangements with the principal debtor without affecting its rights against the sureties. The court additionally applied the principle that prejudice to a surety can release the surety only where it arises from a breach of a legal duty or obligation owed by the creditor. Given the contractual authorisation for indulgences, the court found no basis to regard the creditor’s conduct as releasing the sureties.

On the alleged failure to make demand on the sureties, the court found no contractual clause requiring Nedbank to call upon the sureties to remedy the principal debtor’s default before enforcing the suretyships. The court also noted that the fourth defendant was a director of both the first and second defendants, supporting the inference that the defendants would have been aware of the default, further weakening any suggestion that absence of formal demand constituted a defence.

On the objection that the supporting affidavit contained additional evidence beyond what Rule 32 permits, the court recognised the limitation in Rule 32(4) but accepted that certain material (including post-summons payments affecting the balance) could be reflected in a manner analogous to a certificate of balance. The court held that the plaintiff’s affidavit was partly analogous to permissible balancing material and partly evidential and overlong, and adopted the approach that the non-compliant portions should be disregarded rather than rendering the application fatally defective. The certificate of balance was treated as capable of performing an arithmetical function based on facts already before the court, including reflecting payments made after summons.

On the certificate of balance defence, the court dealt with the complaint that the amount in the certificate differed from the amount claimed in the particulars of claim. The court held that the sureties, having renounced various exceptions (including revision of accounts and errors in calculation) in the suretyships, were precluded by the contractual terms from raising defects in the certificate in the manner contended for. In any event, the court accepted that the plaintiff had provided an adequate explanation for the discrepancy.

On rectification of the restated loan agreement, the court treated the issue as not bearing on the amount of indebtedness for purposes of summary judgment and therefore not relevant to the determination of the application.

On the third defendant’s jurisdiction defence, the court rejected the contention that the court lacked jurisdiction because he did not reside within its area. It held that he was sued on the suretyship and referred to the principle of continentia causae (cohesion of the cause of action). The judgment further recorded that the third defendant had consented, in terms of section 45 of the Magistrates’ Court Act 32 of 1944, to the jurisdiction of a magistrates’ court in terms of section 28. On that basis, the court concluded that the jurisdiction objection lacked merit.

Finally, the court rejected the broader good faith defence, treating it as an attempt to resist enforcement despite clear contractual terms governing default and acceleration, and having already held that such an appeal to good faith did not, on the facts advanced, constitute a proper legal defence.

After considering the defences collectively, the court concluded that the defendants had not disclosed a bona fide defence good in law. It further held that the defences were not supported by the contractual terms accepted as common cause and were not sustainable on the legal principles applicable to suretyship and summary judgment.

5. Outcome and Relief

The court adjourned the application for summary judgment against the first defendant (the company in business rescue) sine die, with costs reserved, due to the statutory moratorium on proceedings in section 133(1) of the Companies Act 71 of 2008.

Summary judgment was granted against the second, third, and fourth defendants, jointly and severally, the one paying the others to be absolved. The court ordered payment of R15 864 574.25, subject to the contractual limits on the sureties’ liability, namely that the second defendant’s liability was limited to R2 000 000.00, and each of the third and fourth defendants’ liability was limited to R28 000 000.00.

Interest was ordered on the sum of R15 846 574.25 at 12.5% per annum (being prime plus 2%), from 17 January 2017 to date of payment, calculated daily on the outstanding capital balance and compounded monthly in arrears.

The second to fourth defendants were ordered to pay costs of suit on the attorney-and-client scale.

Cases Cited

Maharaj v Barclays National Bank Ltd 1976 (1) SA 418 (A).

Joob Joob Investments (Pty) Ltd v Stocks Mavundla Zek Joint Venture 2009 (5) SA 1 (SCA).

Venter v Kruger 1971 (3) SA 848 (N).

Roscoe v Stewart 1937 CPD 138.

Desert Star Trading 145 (Pty) Ltd and Another 2011 (2) SA 266 (SCA).

New Port Finance Company (Pty) Ltd and Another v Nedbank Ltd [2014] ZASCA 201; [2015] 2 All SA 1 (SCA).

Bock and Others v Duburoro Investments (Pty) Ltd 2004 (2) SA 242 (SCA).

Investec Bank Ltd v Bruyns 2012 (5) SA 430 (WCC).

Absa Bank Limited and Another v Davidson [2000] 1 All SA 355 (SCA).

African Dawn Property Finance 2 (Pty) Ltd v Dreams Travel and Tours CC and Others 2011 (3) SA 511 (SCA).

Rossouw and Another v First Rand Bank Ltd 2010 (6) SA 439 (SCA).

Varachia v Alliance Ball Co Ltd 7 P.H.L10.

Venter v Cassimjee 1956 (2) SA 242 (N).

Legislation Cited

Companies Act 71 of 2008.

Banks Act 94 of 1990.

National Credit Act 34 of 2005.

Magistrates’ Court Act 32 of 1944.

Rules of Court Cited

Uniform Rule 32.

Held

The court held that the statutory moratorium on legal proceedings arising from business rescue proceedings under section 133(1) of the Companies Act 71 of 2008 operated as a personal immunity benefiting only the company in business rescue and did not extend to protect sureties from enforcement of their obligations under deeds of suretyship.

The court further held that the defendants opposing summary judgment were required under Rule 32 to disclose fully the nature and grounds of a defence and the material facts relied upon, and that the defence must be both bona fide and good in law. On the facts advanced, none of the defences raised by the sureties met that standard, whether based on waiver, notice, alleged prejudice, demand requirements, objections to the plaintiff’s affidavit, the certificate of balance, rectification, jurisdiction, or generalized reliance on good faith.

Accordingly, summary judgment was granted against the sureties (with contractual limits on the second defendant’s maximum exposure), while the application against the principal debtor was adjourned due to the business rescue moratorium.

LEGAL PRINCIPLES

The judgment applied the principle that in summary judgment proceedings a defendant must, by affidavit (or permissible oral evidence), disclose fully the nature and grounds of the defence and the material facts relied upon, and that the defence must be bona fide and good in law. The court’s function is not to determine the probabilities of success at trial but to assess whether the disclosed facts, if proved, would constitute a defence.

The judgment applied the principle that a surety may generally raise defences available to the principal debtor, except those that are purely personal to the principal debtor. A statutory moratorium on proceedings against a company in business rescue under section 133(1) of the Companies Act 71 of 2008 was treated as a defence in personam (personal immunity) and therefore not a defence that attaches to and extinguishes the creditor’s claim; it does not, without more, provide a defence to enforcement against sureties.

The judgment applied the contractual principle that where suretyships and the principal agreement authorise a creditor to grant indulgences, extensions, or make arrangements with the principal debtor without prejudicing the creditor’s rights against the sureties, such conduct does not, without a breach of a legal duty, release sureties from liability. In that context, alleged prejudice to sureties is legally relevant only if it results from the creditor’s breach of a legal obligation owed to the surety.

The judgment further applied the principle that courts do not have a general power to refuse enforcement of contracts based on imprecise notions of good faith or fairness in the absence of allegations meeting the threshold contemplated in the cited authority (such as oppression, extortion, or fraud), particularly where parties contracted at arm’s length and the relevant terms (including acceleration and “no further notice” clauses) are clear.

Nedbank Limited v Zevoli 208 (Pty) Ltd and Others (15698/2015) [2017] ZAKZPHC 22; 2017 (6) SA 318 (KZP) (4 July 2017)