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[2016] ZAKZDHC 54
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Business Partners Limited v Bold Moves 277 (Pty) Limited and Others (11199/2013) [2016] ZAKZDHC 54 (19 September 2016)
NOT
REPORTABLE
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
LOCAL DIVISION, DURBAN
CASE
NO. 11199/2013
BUSINESS
PARTNERS
LIMITED
PLAINTIFF
and
BOLD MOVES 277 (PTY)
LIMITED FIRST
DEFENDANT
TYSON TRADING
CC SECOND
DEFENDANT
DEBORAH JANE
ROWE THIRD
DEFENDANT
LYNNE COLLEEN
SCHWAN FOURTH
DEFENDANT
JUDGMENT
Delivered
on 19 September 2016
MOODLEY
J:
[1] The plaintiff,
Business Partners Limited (‘Business Partners’), a duly
incorporated and registered company with
limited liability which
carries on business as a lender of money, granted the principal
debtor, Bold Moves 277 (Pty) Ltd (‘Bold
Moves’), a loan
of R1 949 970 on terms set out in a loan agreement, which Bold
Moves accepted on 23 June 2008.
[2]
Security for the repayment of the loan by Bold Moves comprised
suretyships provided by Tyson Trading CC, Deborah Jane Rowe and
Lynne
Colleen Schwan, and a special notarial bond registered by Bold Moves
and two surety bonds registered by Ms Rowe and Ms Schwan
over their
respective immovable properties, in favour of Business Partners.
[3]
In October 2013, Business Partners instituted action against Bold
Moves and its sureties, its cause of action being the failure
of Bold
Moves to repay the loan in accordance with the terms of the loan
agreement, and sought judgment against the defendants
for payment,
jointly and severally in the amount of R1 485 511.69,
interest and costs and an order enabling execution
against the
immovable and movable property mortgaged by the defendants as
security.
[4] The proceedings
against Bold Moves, Tyson Trading and Deborah Rowe, the first, second
and third defendants respectively, were
finalised when judgment by
default was granted against them.
[5]
The trial therefore proceeded only against the fourth defendant, Ms
Schwan. Business Partners persisted with the monetary relief
sought
in the summons and an order declaring Ms Schwan’s mortgaged
immovable property specially executable.
[6]
The terms of the loan agreement, suretyships and mortgage bonds are
not in dispute, rendering the repetition of the material
terms
superfluous. Ms Schwan put Business Partners to the proof of the
failure of Bold Moves to pay the loan in accordance with
the terms
and conditions of the loan agreement and pleaded further that:
‘
2.
2.1 During or on or about the first
week of June 2008 and at Westville the Plaintiff and the Fourth
Defendant, with the consent
of the First and Third Respondents,
concluded an oral agreement in terms of which the Fourth Defendant
would provide the First
Surety Bond and Deed of Suretyship referred
to in paragraphs 8.1.2 and 8.1.4 of the loan agreement subject to the
Plaintiff:
2.1.1 Carrying out a Due Diligence
Audit, investigation and report (“Due Diligence”) on the
financial affairs of the
First Defendant;
2.1.2 concluding from the report and
advising the Fourth Defendant that the business of the First
Defendant was a sound one and
one well capable of repaying the loan
sought by the First Defendant.
2.2 In concluding the aforesaid
agreement the Plaintiff was represented by Jason Doig (Doig”)
and the Fourth Defendant acted
in person;
2.3 The Plaintiff, First Defendant and
the Third Defendant agreed to the condition imposed by the Fourth
Defendant.
3.
Thereafter and on the 23 June 2013 and
at Westville the Plaintiff represented to the Fourth Defendant that:
3.1 it has carried out its Due
Diligence; and
3.2 the business was a sound one and
one in respect of which the Fourth Defendant could safely:
3.2.1 conclude the First Surety Bond
and Deed of Suretyship; and
3.2.2 take up a 30% shareholding
in the First Defendant as security for her obligations to the
Plaintiff.
4.
4.1 Pursuant to the representations
referred to in paragraphs 2 and 3 above the Plaintiff granted the
Second Defendant a loan in
an amount approximately R 1 949 970.00
4.2 included in the loan was a fee
charged by the Plaintiff for the Due Diligence, which included a
“mentorship” fee,
in a total sum of R13, 623.00
5.
5.1 in making representations referred
to in paragraph 3 above:
5.1.1 The Plaintiff was represented by
Doig and the Fourth Defendant acted in person.
5.1.2 Doing knew them to be false in
that no Due Diligence had been carried out; and
5.1.3 the business contemplated by the
First Defendant was not a viable one and the First Defendant was not
in a position to meet
its obligations under the loan Agreement.
In the alternative to paragraph 5.1
above
5.2 in the event that a Due Diligence
was carried out it was carried out negligently and under
circumstances where the Plaintiff
owed the Fourth Defendant a duty of
care, for those reasons outlined in paragraphs 2 and 3 above.
6.
In consequence of the
misrepresentations made by the Plaintiff and in accepting the truth
thereof the Fourth Defendant was induced
to:
6.1 provide the Plaintiff with the
First Surety Bond over her immovable property;
6.2 conclude the deed of Suretyship;
and
6.3 take up a 30% shareholding in the
First Defendant as security for her obligations to the Plaintiff.
7.
Had the Fourth Defendant known that
the Due Diligence had not been carried out or that the business of
the First Defendant was not
a viable one or that the First Defendant
was not in a position to meet its obligations under the loan
agreement she would not have
concluded the First Surety Bond and the
Deed of Suretyship.
8.
For the reason of the fraudulent,
alternatively
negligent, misrepresentations aforesaid the loan
agreement together with the First Surety Bond and the Deed of
Suretyship are void
ab initio,
alternatively
fall to be
declared null and void.’
[7]
Ms Schwan
subsequently alleged that
the Business Partners representative referred to in her plea was not
Jason Doig but Sudhir Sahadeo (‘Mr
Sahadeo’), who was
employed by Business Partners as Portfolio Manager. She sought an
order declaring the loan agreement,
the First Surety Bond and the
Deed of Suretyship executed by her null and void, and dismissing
Business Partners action with costs
on an attorney and own client
scale.
[8]
It was common cause that in 2006 Business Partners advanced Tyson
Trading a loan of R 2 400 000 to purchase a franchise business,
the
Bangkok Wok restaurant in Hillcrest (‘the business’),
from the franchisor and concluded a ‘Royalty Agreement’;
and that to facilitate the first loan Ms Rowe and Ms Schwan signed
suretyships and registered surety bonds over their respective
immovable properties.
[9]
It was also not in dispute that in 2008 a Risk Partner facility was
negotiated whereby Bold Moves became the new debtor. Business
Partners loaned the new entity, Bold Moves, R1 950 000.
R1 800 000 of the loan was applied to settling the
existing
facility of Tyson Trading. The Royalty Agreement was cancelled and
replaced with a Shareholder’s Agreement, and
Business Partners
acquired a 30% shareholding in the business. Both Ms Rowe and Ms
Schwan again furnished security by way of suretyships
and security
bonds over their immovable properties.
Onus
[10]
Business Partners bore the onus in respect of the breach of the loan
agreement by Bold Moves, and the balance due.
[11]
In order to succeed with her defence and claim in reconvention, Ms
Schwan was required to establish:
1. the oral agreement and
the representations alleged by her;
2. that these
representations were material
[1]
and wrong and intended to
induce her to act on them;
3. that the
misrepresentations were made fraudulently or negligently;
4. the misrepresentations
induced her to sign the surety and mortgage documents, and that the
loan agreement, first surety bond
and /or deed of suretyship are void
ab
initio
;
[2]
5. the misrepresentations
were the cause both, factually and legally, of the loss suffered by
the Fourth Defendant; the
Defendant; and
6. the extent of the
damages suffered.
[3]
Business
Partners’ Claim
[12]
Business Partners called one witness to prove its claim. Mr Alick
Rajkaran, a Senior Credit Controller in the employ of Business
Partners, confirmed the details and the transaction history of the
loan account for Bold Moves, as reflected in his certificate
in terms
of
s 15(4)
of the
Electronic Communications and Transactions Act No
25 of 2002
.
[4]
He
testified that Bold Moves had made poor and erratic payments in
amounts lower than the due instalment. The final payment by Bold
Moves was R8 000 on 19 February 2013 and the payments from 31 January
2014 onwards were received from the proceeds of the sale
of Ms Rowe’s
immovable property. Mr Rajkaran confirmed that the balances as
reflected at the end of the transaction history,
and on the
‘certificates of outstanding balance’ dated the 24 August
2016 viz R 1 371 597.55 and dated 7
October 2013 viz R
1 485 511.69 were correct.
[5]
[13]
Under cross-examination Mr Rajkaran clarified that he was only
involved with the loan account after the loan had been advanced
and
was not part of the preceding negotiations. The balances and
transaction history were not disputed.
Ms
Schwan’s case
[14]
Ms Schwan testified that when Tyson Trading (of which she was not a
member) applied for a loan from Business Partners to buy
the
business, she signed the suretyship to enable her erstwhile partner,
Ms Rowe, to provide security for the loan. She herself
knew nothing
about the restaurant business and ‘had never been involved in
the business’.
[15]
According to Ms Schwan, the previous owner of the business had
overstated the monthly turnover by including tips to the value
of R
40 000. Tyson Trading therefore ran into financial difficulty
and defaulted with the payments due to Business Partners
within five
to six months of being granted the loan. Ms Rowe worked overseas in
2008 to ease the financial constraints, put money
back into the
business and paid the suppliers, which lent the impetus to her
approach to Business Partners to renegotiate the agreement.
When the
loan was restructured in the name of Bold Moves, Tyson Trading
‘disappeared’.
[6]
[16]
Ms Schwan admitted that it was mainly Ms Rowe who dealt with the
three signatories to the Investment Proposal;
[7]
she had limited dealings
with them. But she disputed that the business had ‘an excellent
repayment record’ or was ‘trading
profitably’ as
reflected in the Investment Proposal, and alleged that the Chief
Operating Officer and Mr Sahadeo were aware
to the contrary.
[17]
Further, ‘according to her knowledge’ Business Partners
had not asked for financial statements and no VAT
and bank
statements were furnished to Business Partners, as listed in the Due
Diligence summary of credit checks (clause 8) in
the Investment
Proposal, and the valuation of the business was provided by the
previous owner.
[18]
Ms Schwan testified that she had spoken to Mr Sahadeo about the Due
Diligence which was supposed to have been done on both
Tyson Trading
and Bold Moves. She denied that the Due Diligence investigation was
conducted on Tyson Trading although the defendants
had paid for it.
She and Ms Rowe had discussed the Due Diligence with Mr Sahadeo and
requested the Due Diligence report from him
per email and
telephonically, prior to the signing of the loan agreement by Bold
Moves, but did not receive the report despite
numerous promises. She
was however advised by Mr Sahadeo that it was viable to refinance the
business and that the Due Diligence,
for which they paid R50 000,
had been conducted. She would otherwise have not signed the Deed of
Suretyship or mortgage bond.
[19]
Although Ms Schwan testified that she knew nothing about the
restaurant business and had never been involved in the Bangkok
Wok
business, she was not uneducated; her work experience included
employment with a bond originator and as an estate agent and
she had
knowledge of financial management, albeit limited, as she reluctantly
admitted under cross-examination. The impression
she attempted to
create was that her involvement with the business was remote and
minimal, even when she admitted that she ‘supervised’
the
business when Ms Rowe was overseas, while the Manager was responsible
for the day to day running of the business. However her
evidence was
contradicted by Mr Sahadeo, who stated that Ms Schwan’s
involvement and level of expertise was reflected in
her
curriculum
vitae
which had been provided to Business Partners, who was
informed that she was the person responsible for the financial
management
of the business and he personally had observed her direct
involvement in the business.
[20]
Ms Schwan confirmed that she had an interest in the viability of the
business because she had mortgaged her house as security
and that
when Tyson Trading defaulted, Business Partners would have foreclosed
on her home, but she denied any involvement or participation
in the
running of the business as she ‘did not have a huge interest in
it’ and was running another business at the
time. Nevertheless
she disputed that the business had ‘an excellent repayment
record’ or was ‘trading profitably’
while admitting
that the statement on page 4 of the Investment Proposal that Business
Partners ‘will be investing in a successful
franchise’
was correct, and that the restructured loan eased the cash flow
albeit ‘slightly’.
[21]
Although Ms Schwan testified that Tyson Trading ran into trouble in
2006 and Ms Rowe went overseas to work in 2008,
[8]
she was unable to explain
how the business survived for two years before the restructuring in
June 2008, especially if there
was a shortfall in the turnover
of a minimum of R40 000 per month. The probabilities, in my
view, favour Mr Sahadeo’s
evidence that Ms Rowe was
disappointed with the profits because the business was not as
lucrative as she had anticipated, but the
business was trading
profitably and had an excellent payment record, as evinced by the Due
Diligence investigation.
[22]
In attempting to distance herself from the operation of the business,
Ms Schwan testified under cross-examination that she
did not have
recourse to the ‘printouts’ of the daily takings, as a
result of which she was compelled to concede that
her evidence about
the turnover being inflated by the previous owner was based on what
Ms Rowe told her and she had herself not
ascertained any shortfall.
She also conceded that her evidence related to the transaction
involving Tyson Trading and not Bold
Moves.
[23]
Ms Schwan testified that she had spoken to Mr Sahadeo about the Due
Diligence which was supposed to have been done on both
Tyson Trading
and Bold Moves. But Tyson Trading was the existing juristic entity
which was trading, not Bold Moves, which was a
new company which was
to take over the business; so a Due Diligence on Bold Moves would
have been unfeasible. Ms Schwan admitted
that she had not requested
for a Due Diligence to be done for her.
[24]
It was apparent that Ms Schwan’s evidence that the credit
checks were not conducted in accordance with the Due Diligence
summary (clause 8) in the Investment Proposal by Business Partners
was unfounded. Ms Schwan was not an impressive witness. Her
lack of
confidence arose from her inability to substantiate her allegations.
Her evidence as a whole lacked credibility, which
is demonstrated
further in the following evaluation of her defence and counterclaim.
[25]
In rebuttal of Ms Schwan’s defence and counterclaim, Business
Partners called one witness, Mr Sahadeo, who is currently
an Area
Manager, but was a Portfolio Manager and Financial Advisor tasked
with compiling deals and credit reports for Business
Partners in
2008, and was responsible for the loans granted to Tyson Trading and
Bold Moves. His evidence about the structure of
the loan granted to
Tyson Trading is common cause. He clarified that the payment in terms
of the Royalty Agreement was based on
a percentage of the monthly
turnover of the business, provided by the previous owner.
[26]
Mr Sahadeo confirmed that Business Partners was approached by Ms Rowe
in 2008 with a request that the loan be restructured
to ease the
constraints with the cash flow. Subsequent to negotiations between Ms
Rowe, Ms Schwan and Mr Sahadeo, Business Partners
concluded an equity
finance loan agreement for R1.95 million and a shareholders’
agreement with Bold Moves. The monthly payment
was reduced because
the royalty fee was cancelled and the five year loan repayment was
effectively extended to seven years because
Tyson Trading was already
two years into the loan. Ms Schwan who had provided security for the
Tyson Trading transaction, put the
security into place again for the
Bold Moves loan.
[27]
Mr Sahadeo confirmed that he and other representatives of Business
Partners conducted a Due Diligence investigation into
the
business, Bangkok Wok, in terms of clause 3 of the loan agreement,
and that a R2 233 Due Diligence and administration
fee was
debited in terms of clause 4 of the loan agreement. He established
the valuation of the business which was presented as
a part of the
credit assessment. He then prepared the Investment Proposal for
consideration by the Credit Committee. The report
was not furnished
to anyone outside Business Partners. Mr Sahadeo denied that Ms Rowe
and/or Ms Schwan had asked him for the Due
Diligence report or to
compile a report for them. He also denied that he had discussed the
Due Diligence investigation or report
with Ms Schwan or received any
emails querying the report or investigation from her. He denied
further that he had entered into
an oral agreement on behalf of
Business Partners or made any representations as pleaded by Ms
Schwan.
[28]
Mr Sahadeo explained that he had reported that the business had ‘an
excellent repayment record’ and ‘trading
profitably’
because it was producing a profit and servicing its debt to Business
Partners and had specifically recorded that
‘
as a
precautionary measure
the client has approached Business Partners
to restructure her debt’. He explained his comment that
‘trading circumstances
are expected to be difficult for the
next 12 months’ arose from the forecast that the economy was
going into a recession
at the time, disposable income in the
restaurant business was reducing and Ms Rowe had approached Business
Partners to restructure
the loan.
[29]
When he conducted the Due Diligence investigation and proposal Mr
Sahadeo went to the business premises of Bang kok Wok. Ms
Schwan was
present because she was involved in the running of the business. She
participated in the discussions and confirmed her
involvement as the
Financial Manager of the business.
[30]
Under cross-examination Mr Sahadeo testified that as Tyson Trading
was an existing client, the financial statements and transaction
records required for the Investment Proposal were already available.
Although Ms Schwan had not utilised the recourse available
to her in
terms of Rule 35(3) of the Uniform Rules, when Mr Sahadeo indicated
under cross-examination that the documents which
were referred to in
the letter from Cox Yeats dated 18 June 2015 should be on file, Mr
Jeffreys
requested that the documents be made available, which
I directed Mr Sahadeo to do. Although Mr Sahadeo located some of the
documents,
nothing significant emerged from this exercise as the
documents were irrelevant to the current cause of action.
[31]
Mr Sahadeo was aware that Ms Rowe went overseas but did not know why.
He reiterated that Ms Rowe had advised him that cash
flow was
becoming marginal and she did to want the account to fall into
arrears. Therefore in assessing risk, Business Partners
had
considered her advices against the current business environment for
the restaurants. The profit and turnover margin was not
what she had
expected from the advices of the franchisor, and as a precautionary
measure, Ms Rowe had approached Business Partners
to restructure the
loan, which was intended to alleviate the cash flow constraints she
anticipated.
[32]
Mr Sahadeo was a good witness who responded to all questions without
hesitation and confidently. Under cross-examination he
was consistent
with his evidence in chief. He substantiated his comments and
conclusions in the Investigation Proposals credibly
and coherently.
Consequently his credibility was not undermined.
Argument
[33]
Mr
Quinlan
submitted that Business Partners had proved it
claim through its evidence in respect of the default of Bold Moves
and the balance
outstanding under the loan agreement. He contended
that Ms Schwan had failed to provide any proof of her counterclaim or
her special
defence, as pleaded in paragraphs 2 and 3 of the plea,
that there was an oral agreement between her and Mr Sahadeo, which
had induced
her to sign the suretyship and pass the mortgage bond as
security. She had not provided any evidence in respect of the consent
alleged in paragraph 2.1, and under cross-examination, she had
conceded there was no oral agreement and that there was no other
Due
Diligence that was to be carried out by Business Partners, except the
internal investigation. She had further accepted that
the
Investigation Proposal was a confidential document for Business
Partners own purposes and it had not been provided to her.
She also
conceded that no representations were made, while Mr Sahadeo
testified that he made no representations. Mr
Quinlan
concluded with the submission that Ms Schwan had failed to discharge
the onus on her in respect of her special defence, which was
merely
dilatory. She had already signed a suretyship and a bond to secure
the indebtedness of Tyson Trading to Business Partners,
and she had
signed a similar suretyship and bond to enable the granting of the
loan to Bold Moves. Business Partners was therefore
entitled to the
relief sought.
[34]
Mr
Jeffreys
submitted that Ms Schwan had relied on fraudulent,
alternatively negligent, misrepresentation, because she had
consistently asked
for a Due Diligence report, which was not
furnished to her despite undertakings that it would be. The plea was
signed on 29 August
2014 and despite the delivery of a discovery
affidavit and a supplementary affidavit on 15 August 2016, the Due
Diligence report
was only made available at the trial. He contended
that there were a number of allegations in the Investment Proposal
that could
not be sustained, inter alia that Tyson Trading had an
excellent payment record, and that the members of Tyson Trading were
entrepreneurs
with sound financial basis. Ms Schwan had testified
that, to the contrary, the business under Bold Moves was suffered
financial
woes from the beginning. Therefore the probabilities did
not favour Mr Sahadeo’s evidence that Ms Rowe approached
Business
Partners to restructure the business relationship because
she wanted more profit.
[35]
Mr
Jeffreys
argued further that Business Partners had not
disproved that Ms Rowe went overseas to earn more money which kept
the business afloat,
and Mr Rajkaran had confirmed that the business
under Bold Moves had defaulted from the beginning. Therefore it was
improbable
that business was sound as suggested in the Investment
Proposal. Further Mr Sahadeo’s evidence that Ms Rowe wanted
more profit
was inconsistent with Business Partners taking a 30%
shareholding, which would have depleted the profits in the business.
Although
the payments were reduced, Bold Moves could not meet the
repayment, which indicated that the business was not viable. Mr
Jeffreys
made no submissions on the counterclaim.
[36]
Finally, relying on the judgment in
Business
Partners Limited v Silver Stars Trading 245 CC
[9]
,
Mr
Jeffreys
argued that the Royalty Agreement was contrary to public policy and
that it should be struck out because it offended against public
policy, and that Ms Schwan had been prejudiced by the failure of
Business Partners to inform her that the Royalty Agreement was
a
simulated transaction which effectively constituted additional
interest on the loan.
[37]
However Mr
Quinlan
favoured me with a copy of the judgment which upheld the appeal
against the judgment relied on by Mr
Jeffreys
.
[10]
In any event, not only
was the issue of the Royalty Agreement being contrary to public
policy not raised by Ms Schwan in her plea
or at any time prior to
argument, she did not testify that the implications or true nature of
the Royalty Agreement were not explained
to her or that she did not
appreciate or comprehend such ramifications, or that it impinged upon
the loan agreement between Business
Partners and Bold Moves, the
breach of which constitutes the cause of action in this matter. The
argument that the Royalty Agreement
between Business Partners and
Tyson Trading was contrary to public policy finds no favour with me
because it is ill-conceived,
and lacks merit and relevance.
Default
of Bold Moves and payment due to Business Partners
[38]
The undisputed evidence of Mr Rajkaran established the default of
Bold Moves and the amount due to Business Partners.
The
Oral Agreement and Fraudulent / Negligent Misrepresentations
[39]
In determining the defence of misrepresentation, I adopted a holistic
view of the terms of the alleged representations and
the context in
which they were allegedly made.
[11]
[40]
Although Ms Schwan testified that she had specifically asked Mr
Sahadeo for the Due Diligence report for Bold Moves before
the loan
agreement for Bold Moves was signed and was promised that it would be
given to her, under cross-examination she admitted
that the parties
had agreed, in terms of clause 3 of the terms and conditions to the
loan agreement, that Business Partners would
conduct an internal
investigation which would be used in determining whether to grant the
loan. She also acknowledged that the
Investment Proposal was marked
‘Confidential’ and prepared for Business Partners’
Credit Committee.
[41]
Mr Sahadeo denied that Ms Schwan and Ms Rowe had at any time
requested the Due Diligence report or discussed it with him
personally.
He was very clear and confident in his testimony that the
Investment Proposal contained the report and recommendations arising
from the Due Diligence investigation he conducted with the other
signatories in accordance with clause 3, the purpose of which was
to
provide the Credit Committee with the information necessary to
determine whether or not to grant the restructured loan to Bold
Moves. The Investment Proposal was not made available at any stage to
the defendant prior to the trial because it was a confidential
document for Business Partners purposes, and not intended for the
client. Nor had Ms Schwan requested that Business Partners prepare
a
Due Diligence report for her.
[42]
This purpose for which the Investment Proposal was intended is
consistent with the context in which the investigation was
undertaken. It is a commercial reality that as a ‘lending
institution’ Business Partners would have had to assess the
risk which its exposure through the loan would entail. The
confidentiality of the Investment Proposal is signified by the
document
bearing the heading ‘CONFIDENTIAL’ and as such
was clearly intended for use by Business Partners only.
[43]
Therefore Mr Sahadeo’s confirmation that he had carried out the
Due Diligence investigation as well as his denial that
he had
discussed the Due Diligence report or been requested to furnish the
report by Ms Schwan, is consistent with the probabilities
and
corroborated by the loan agreement and the Investment Proposal.
[44]
Ms Schwan on the other hand, vacillated between discussions between
Ms Rowe and Mr Sahadeo at which she was not present, between
Ms Rowe
and herself and Mr Sahadeo, and ‘a suggestion that Mr Doig was
involved at some stage’, as put to her by Mr
J
effreys
.
Ms Schwan furnished no proof of the emailed requests, and relied on
the ‘crashing’ of her computer, which I shall
deal with
more fully below.
[45]
When asked if there were any other conditions when she signed the
suretyship and bond, Ms Schwan responded, ‘No, the
most
important thing was to get the due diligence’, and she was
reassured when she was told that the Due Diligence was done.
She
admitted that she and Ms Rowe saw value in the business. However when
taken through the pleadings and when referred to clause
3
[12]
of the loan agreement, Ms
Schwan alleged then that the purchase of the business was dependent
on the Due Diligence report; she had
been told that it was done and
would not have signed the suretyship and bond documents had she known
that the Due Diligence was
not done, and had she not been given the
assurance that the business was viable.
[46]
The evidence of Ms Schwan was therefore inconsistent and
contradictory. She admitted under cross-examination that the Due
Diligence investigation as provided for in the loan agreement had
been conducted. She initially denied that there were any conditions
other than the Due Diligence investigation being conducted, until she
was referred to the loan agreement. When asked how Mr Sahadeo
had
established viability, she responded that Mr Sahadeo must have looked
at the turnover, but she was not involved and he must
have discussed
the viability with Ms Rowe. It follows that any assurance about the
viability of the business would not have been
given by Mr Sahadeo to
Ms Schwan. Consequently her allegation that he made representations
in respect of the viability of the business
to her cannot be
sustained.
[47]
Ms Schwan admitted that she had, prior to the granting of
restructured loan to Bold Moves, executed a suretyship in favour
of
Business Partners in respect of the loan agreement with Tyson
Trading. Therefore Business Partners could have executed against
her,
had Tyson Trading defaulted with payment.
[13]
She admitted further that
she received the letter of grant dated 24 April 2008 issued to her
and Ms Rowe when the loan was approved
[14]
which set out the terms
and conditions of the loan; and that in order for the loan to Bold
Moves to be approved, she had to execute
the suretyship and bond. She
also conceded that the terms and conditions under the restructured
loan to Bold Moves were more favourable
than the loan to Tyson
Trading, and that the Royalty Agreement was cancelled.
[48]
Mr Sahadeo stood by his comments in the Investment Proposal that the
business had ‘an excellent repayment record’
and was
‘currently trading profitably’. He explained that the
account of Tyson Trading had not lapsed into arrears
and the
instalments were being maintained. However Ms Rowe was unhappy that
the profits were lower than she anticipated and approached
Business
Partners to restructure the loan. The financial statements on which
his analysis was based, which are annexed to the Investment
Proposal,
do not contradict his conclusion as expressed in the report or his
evidence. Further Tyson Trading had to render monthly
financial
statements, and Business Partners would have been able to monitor the
profits and turnover.
[49]
Had there been any merit in the allegation that the Due Diligence
investigation had been conducted negligently by Business
Partners, no
doubt Mr Sahadeo would have been cross-examined on the financial
statements furnished by Business Partners. Instead
Mr
Jeffreys
led the evidence of Ms Schwan on agreements to be entered into in
terms of clause 8.2 and other precedent conditions as stipulated
in
clause 8.4 of the loan agreement, which were irrelevant to her
defence as asserted in her plea.
[50]
Ms Schwan’s unsubstantiated evidence that Ms Rowe injected her
foreign earnings into the business to pay the instalments
due to
Business Partners does not undermine Mr Sahadeo’s conclusion
that the business was not in arrears, and therefore had
a sound
credit record. Further the employment history of Ms Rowe
[15]
does not reflect that she
was employed overseas during the trading period of Tyson Trading.
Therefore there is no proof that, as
alleged by Ms Schwan, that the
business ran into financial trouble within a few months of the loan
being granted to Tyson Trading
because the previous owner had
inflated the turnover and that the business was not profitable when
Ms Rowe applied for the restructuring.
[51]
It is also relevant that Mr Sahadeo (and the other signatories) were
unlikely to place their own positions with their employer
at risk by
confirming that the business was viable and trading profitably, or
declaring in clause 2.1 of the Investment Proposal
that the granting
of the restructured loan was to the benefit of Business Partners as
it would achieve a higher return than on
the loan agreement with
Tyson Trading, if the relevant documents had not been perused and the
resultant conclusions were not sound.
It is also pertinent, as
pointed out by Mr
Quinlan
, that Business Partners accepted a
30% shareholding in Bold Moves, which would not have made commercial
sense if it was not confident
that the business would be profitable.
[52]
In her evidence in chief Ms Schwan testified that they were charged
R50 000 for the Due Diligence, and in her plea she
alleged that
the fee, including a ‘mentorship fee’, was R13 623. Under
cross-examination Ms Schwan admitted that in
terms of clause 4 of the
loan agreement the funds applied to the Due Diligence and
Administration Fee was R2 223. It was also
clear from clause 3
of the Standard Terms and Conditions that the fee charged was only R1
950 plus VAT.
[53]
Finally, as properly pointed out by Mr
Quinlan
, there was no
evidence of any consent by Business Partners, and Bold Moves and Ms
Rowe to the alleged oral agreement.
[54]
I am therefore satisfied that no oral agreement was concluded between
Business Partners and Ms Schwan. Further if Ms Schwan
had not
discussed the viability of the business with Mr Sahadeo, and had not
received the Investment Proposal, no representations
could have been
made to her by Business Partners as alleged in paragraph 3 of her
plea, as again properly contended by Mr
Quinlan
.
[55]
In the premises, the averments in respect of the fraudulent and
negligent misrepresentations to Ms Schwan by Mr Sahadeo as
representative of Business Partners cannot be sustained, nor does the
evidence support the allegation that the Due Diligence investigation
was conducted negligently. Therefore her defence to Business
Partners’ claim must fail.
Ms
Schwan’s claim in reconvention
[56]
Ms Schwan also pursued a claim in reconvention, alleging that she was
induced into investing a sum of R 80 000 (eighty
thousand rand)
into the business of Bold Moves by the fraudulent, alternatively
negligent, misrepresentations made by Business
Partners through its
representative. She alleged that she would not have made the
investment ‘had she known that the Due
Diligence had not been
provided’
[16]
or had she been aware
that the business was not viable and could not meet its obligations
to Business Partners under the loan agreement.
Consequent to Business
Partners misrepresentations, she suffered damages to the value of her
investment. Ms Schwan therefore sought
judgment against Business
Partners for payment in the sum of R80 000, interests and costs
on an attorney and client scale.
[57]
In defending the counterclaim, Business Partners averred that it had
conducted a Due Diligence investigation in processing
Bold Move’s
loan application for its internal purposes only, and denied that it
or its representative made either a fraudulent
or negligent
misrepresentation and sought the dismissal of the claim in
reconvention with costs.
[58]
Ms Schwan bore the onus to prove that she had invested the sum of R80
000 into the business, that she was induced to make such
investment
by the fraudulent or negligent misrepresentations made by Mr Sahadeo
and that she would not have invested in the business
had she known
that the Due Diligence had not been carried out or that the business
was not viable and /or that Bold Moves could
not meet its obligations
under the loan agreement.
[59]
I have already found that Ms Schwan failed to prove the alleged
misrepresentations, either fraudulent or negligent. Therefore
she
could not have been induced to invest in Bold Moves.
[60]
Ms Schwan also furnished no proof of the alleged investment of
R80 000. Her blatant dishonesty was apparent when in response
to
a question from Mr
Jeffreys
about whether she had
documentation to prove her claim, she stated ‘Not here.’
I then questioned her about her
failure to bring the proof when she
knew she was testifying; she merely responded that she could ‘produce
the proof’.
Mr
Jeffreys
then addressed Ms Schwan, saying
that he was instructed that her computer had crashed which is why she
could not provide proof,
to which she replied that she did not have
proof for the full amount, ‘only a small amount, perhaps
R25 000’.
It was apparent that by Mr
Jeffreys
’
interjection, she was reminded of ‘her instructions’ that
she did not have any proof of the debt. I am of the
view that her
contrived response was also untrue, as she had adequate opportunity
to provide the proof prior to the trial, and
she did not.
[61]
Consequently her counterclaim must fail, and costs be ordered against
her.
Order
[62]
In the result, judgment is granted against the Fourth Defendant,
jointly and severally with the First, Second and Third Defendants,
the one paying the others to be absolved for:
1. Payment of the sum of
R 1 485 511,69.
2. Interest on the above
sum at the prevailing prime rate charged by The Standard Bank of
South Africa, in accordance with Clause
5 of Loan Agreement read with
Clause 5 of the Standard Terms and Conditions annexed to the
agreement, from date of service of summons
viz 18 October 2013, to
date of final payment.
3. Costs of suit on an
attorney and client scale.
4. The Fourth Defendant’s
immovable property, described as Portion 11 (of 10) of Erf 175
Botha’s Hill, Registration
Division FT, Province of
KwaZulu-Natal, in extent 1 873 (one thousand eight hundred and
seventy three) square metres, held under
Deed of Transfer No
T33978/2003, is declared specially executable.
_____________
MOODLEY
J
[1]
Jones v Mazza & another
1973
(1) SA 570
(R) at 573H: ‘…a representation need not
relate only to the quality or suitability of the subject-matter of a
contract
to maintain an action based on fraudulent
misrepresentation. It is a representation if it materially concerns
or is associated
with some aspect or circumstance of a proposed
contract.
[2]
Feinstein v Niggli &
another
1981 (2) SA
684
(A) at 695B-C: ‘Now a representation, in order to found a
cause of action for rescinding a contract for fraud, must relate
to
a matter of present or past fact. Hence, a statement of opinion
about the future prospects of a business may for that reason
not
amount
per se
to an actionable representation if it turns out to be wrong.’
Ms Schwan
must therefore prove
that the representations were intended to and did induce her to sign
the suretyship and bond.
[3]
mCubed International (Pty) Ltd &
another v Singer & others NNO
2009 (4) SA 471 (SCA).
[4]
Exhibit A2 pages 135- 143. The name
of Bold Moves is incorrectly stated as Bold Moves
377
(Pty) Ltd.
[5]
Exhibits C and D respectively.
[6]
Tyson Trading also signed a deed of
suretyship and bound itself as surety for and co-principal debtor
with Bold Moves in respect
of the loan.
[7]
Exhibit A1 pages 1-15.
[8]
The Investment Proposal indicates
that ‘from 2006 to date’ Ms Rowe was employed by Bangkok
Wok.
[9]
2012 JDR 0865 (GNP).
[10]
A762/2012 delivered on 27 May 2015.
[11]
Presidency Property Investments
(Pty) Ltd & others v Patel
2011 (5) SA 432
(SCA) headnote at 433A-B: ‘A misrepresentation
is actionable if it relates to an ascertainable fact and not if it
consists
in a mere expression of opinion, although a dishonest
opinion as to a future event may found an action for fraudulent
misrepresentation
insofar as it falsely reflects the state of mind
of the representor. The terms of the representation and the context
in which
it was made will be decisive in this regard.’
[12]
‘
DUE DILIGENCE AND
ADMINISTRATION FEE
Business
Partners shall be entitled to a due diligence and administration fee
of R1 950,00 (one thousand nine hundred and
fifty rand)(plus
VAT). The Borrower acknowledges that this fee is payable in respect
of Business Partners’ investigation
to determine whether or
not it is willing to grant the loan to the Borrower. The fee shall
constitute a charge against the loan
and may be recovered from the
first draw which the Borrower makes against the loan.’
[13]
But Mr Sahadeo testified that Tyson
Trading did not default which is why he stated that it had an
‘excellent repayment record’.
[14]
Exhibit A1 page 34.
[15]
Page 8 of the Investment Proposal.
[16]
Para 3.3 of Ms Schwan’s claim
in reconvention.