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[2015] ZAGPPHC 1108
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Business Partners Limited v Silverstars Trading 245 CC (A762/2012, 14408/2008) [2015] ZAGPPHC 1108 (29 May 2015)
REPUBLIC
OF SOUTH AFRICA
IN
THE
HIGH COURT
OF
SOUTH
AFRICA
(GAUTENG
D
I
VISION,
PRETORIA)
Appeal
Case no: A762/2012
Court
a quo
case number: 14408/2008
Date:
27 May 2015
In the
matter between:
BUSINESS
PARTNERS
LIMITED
Appellant
And
SILVERSTARS
TRADING 245
CC
1st Respondent
MULLER,
HERMAN
PAUL
2nd respondent
JUDGMENT
MOLOPA-SETHOSA
J
[1]
This is an appeal against
parts of the
judgement
and order granted by Mr
Justice Kollapen on 10
May 2012 at the Gauteng
Division, Pretoria, in
which
part of the claim of Business Partners Limited ("the
Appellant"), against Silver Stars
Trading 245 CC ("the
1st
Respondent")
and
Herman
Paul Muller ("the
2nd
Respondent") (claim
B)was dismissed with costs.
[2]
For purposes
of this appeal, the only
relevant
claim
on appeal
is
the claim
for
royalties
pleaded by
the
appellant in
paragraphs 6.3
and
6.4
of
the
particulars
of
claim;
and
the
only
relevant defence for
purposes of
the
appeal
is the defence pertaining
to royalties, pleaded
by the respondents
in
paragraph
3.7 (3.7.1 -
3.7.2) of the plea.
[3]
The appellant was the plaintiff and the respondents were the 1st and
2nd
defendants
in the court
a quo.
The
parties will be referred to herein as in
the
Appeal, i.e. as appellant and respondents respectively.
[4]
With
the
leave
of the
court
a
quo,
granted
on 05
October
2012,
the appellant
appeals
against
those
parts
of the judgement and
order
adverse to it. The
respondents,
without
obtaining
leave
from the court
a
quo
also
seek to
cross-appeal those
parts
of the judgment
and order
adverse to them.
[5] At
the commencement of the hearing of the appeal before us, two
applications were made, one on behalf of the appellant and the
other
on behalf of the respondents.
[6] The
appellant's application was for: [6.1] condonation for:
[6.1.1]
the late application for a date for the hearing of the appeal;
[6.1.2] the late filing of the record;
[6.1.3]
the late service of copies of the record on the respondents. [6.2]
that the appeal be reinstated insofar as it may
be necessary;
[6.3]
that the appellant be ordered to pay the costs of the
application, save in the event of opposition;
[6.4]
that any party opposing the application be ordered to pay the
costs thereof.
[7] The
appellant fully explains in a comprehensive affidavit deposed to by
one Dorothea Regina Van Heerden why the record was not
filed
timeously.
It
is apparent from the explanation in the affidavit that the
delay in the filing of the record was not due to any delaying
tactics,
recklessness or intentional disregard of the rules of court.
The major delay was due to the record not being timeously transcribed
by iAfrica (court transcribers), and the appellant through its
attorneys seems to have done everything in their power to ensure
that
the record was filed timeously.
[8]
Counsel for the respondents,
Mr
Van Coller, indicated to this court that the respondents were
not opposing the appellant's application for condonation.
[9]
Condonation was thus granted to the appellant.
[10] The
respondents' application was for condonation for:
[10
.1]
the late filing of the respondents' cross-appeal in the appeal;
[10.2]
the late filing of this application in terms of the provisions of
Rule 30 of the Uniform Rules of Court;
[10
.3]
Ordering the respondents to pay the costs hereof, except in
the case of opposition.
[11] The
respondents' grounds of cross-appeal are set out in the respondents'
notice of cross-appeal, pp.535-537, and are specifically
incorporated
herein.
[12] The
appellant opposes the respondents' condonation application on the
basis that the respondents did not seek the leave of
the court
a
quo
to cross appeal. Counsel for the appellant
relied heavily on two cases,
viz.
Goodrich v Botha and others
1954 (2) SA 540
(AD) and Gentiruco AG v Firestone SA (Pty) Ltd
1972
(1) SA 589
(A), in which two cases it was basically held that the
appeal court has no jurisdiction to entertain a proposed cross-appeal
where
leave to cross-appeal was not sought from the court
a quo.
[13]
It
is common cause that the respondents did not seek leave from
the court
a
quo
to cross-appeal. The
respondents' counsel
Mr
Van Coller, indicated that based on the authorities cited by
the appellant's counsel above, the respondent will not proceed with
the cross-appeal; he however implored this appeal court to
mero
motu
entertain the cross-appeal. Clearly the
respondents are indirectly pursuing the cross-appeal by stating that
this appeal court should
mero motu
entertain the cross-appeal.
Basically they still require this appeal court to adjudicate on the
cross-appeal.
[14] As
already stated above, it is common cause that the respondents did not
seek leave of the court a quo to cross-appeal. The
authorities are
very clear in this regard.
An
appeal court does not have jurisdiction to entertain a cross
appeal where leave to cross appeal has not been sought from the court
a quo; refer Goodrich supra and Gentiruco supra, both of which are
Appellate Division decisions.
[15] On
the authorities aforesaid, it is clear that this court does not have
the jurisdiction to entertain the cross-appeal, and
there is no basis
upon which this court can
mero motu
entertain the
cross-appeal.
[16] In
the result, no leave to cross- appeal having been obtained by the
respondents from Kollapen J at the court a quo, this court
does not
have jurisdiction to entertain this cross-appeal. The cross-appeal
should thus be struck off the roll with costs, such
costs to include
the costs consequent upon the employment of two counsel.
[17] I
now tum to the merits of the appeal. The appellant's grounds of
appeal are set out in the appellant's notice of appeal,
pp.527 to
532,
and are specifically incorporated herein.
Background
[18] The
appellant is a corporate entity whose main business is to
finance small and medium businesses. From the
facts it
appears that the 1st respondent needed finance to purchase a liquor
store and applied for a loan of R590 00.00 at the
appellant.
[19] On
26 May 2004 the parties entered into a loan agreement (Annexure A),
in terms of which the 1st respondent was loaned R500
100.00 by the
appellant. The loan would bear interest at a rate of prime plus 1
%
and was repayable over 60 months;
refer clause
5.1
pl
7.
[19.1]
On the same day (26 May 2004) the parties entered into a Royalty
Agreement (Annexure C), that formed part of the loan agreement
with
the following relevant terms:
[19.1.1]
In terms of clause 4.1 royalties were payable monthly over the
same 60 months period as the loan;
refer p34 read with
clause
6
pl
7.
[19.1.2]
In terms of clause 2.1 royalties were payable at a rate of l
.4o/o on the monthly actual or projected turnover (indicated
in
Annexure
"2" to
the
royalty agreement),
whichever was the greater;
refer
pp.
33 and 36.
[19.1.3]In
terms of clause 4.2, if the 1st respondent repaid the loan prior to
the end of the 60 month term, or sold the business,
it would be
liable to repay all royalties for the unexpired period of the loan
together with any outstanding royalties.
[19.1.4]
In terms of clause 3.3 any royalties due and payable but unpaid would
form part of the principal debt and would be subject
to finance
charges in accordance with the rate applicable to the loan from
to time.
[20] The
1st respondent's business does not seem to have been doing well, and
the 1st respondent apparently began defaulting on
payments in terms
of the loan and the royalty agreements. In or about August 2005, the
1st respondent sold the business to Redlex
283 (Pty) Ltd to curb its
losses.
[21] The
1st respondent also negotiated with the appellant
to write off R145 249.38 from
R249 115. 00 of the
outstanding royalties. The remaining balance of R l 18 406.81 on the
royalty account was payable over a 36
month period in instalments of
R3 289.08 per month;
refer letter dated
5 October
2005 from
the appellant to the 2nd
respondent,
p37.
[22] The
1st respondent fell behind with the payment of both the loan and the
royalties of R3 279.94 plus interest at 10% per annum;
refer
certificate of balance
prepared
by
Daniel
Johannes
Frey,
p458.
[23] On
18 March 2008 the Appellant issued Summons against the 1st and 2nd
Respondents for payment of monies in terms of the loan
agreement and
the royalty agreement, annexures A and C to the particulars of claim
respectively, and costs.
[24] The
2nd respondent was sued jointly with the 1st appellant as he had
bound himself as surety and co-principal debtor for the
1st
respondent's indebtedness to the appellant in an unlimited amount.
For present purposes of the appeal, this court was informed
by
Counsel for the respondents, Mr Van Coller, that the only party
remaining [in this appeal] is the 2nd respondent. No explanation
was
proffered to this court why the 1st respondent is no longer party to
this appeal; counsel for the respondents, Mr Van Coller,
merely
stated to that "the 1st respondent has fallen out of the
picture". The 2nd respondent is thus the only respondent
remammg.
[25]
Pertaining to the royalty agreement, the appellant pleaded as follows
in paragraph 6.3 and 6.4 of its Particulars of Claim:
"6.3
Plaintiff
attaches
hereto
as Annexure
"C"
a
copy
of the Royalty
Agreement,
as attached
to Annexure
"A
"
hereto,
the
terms
of which are
incorporated
herein
by reference. In
terms of
Annexure
"C"
the First
Defendant
was
t
o
pay
a royalty
of
1.4%
on
the higher
of actual monthly
turnover or of the Projected
Monthly
Turnover
contained in
the
Schedule to
Annexure
"C
",
before or on
the
Ft
day of
each and every month, the first
payment to
have been made on or before 01 June
2004.
If
the First Defendant
breaches any term of
the loan agreement
the First Defendant
shall
pay
to the Plaintiff
an amount equal
to the royalt
y
for the unexpired
term
of
the
loan together with outstanding royalties.
6.4
On or approximately
05 October 2005,
the
Plaintiff represented
by Mr. H
Windell,
allowed
the First Defendant
, represented
by the Second Defendant
,
a reduction
of
arrear Royalties
not
paid
at
that stage
an
d
further
granted
the First
and/or Second Defendant
the
opportunity
to make
payment
of
the balance then due of R1 18 406.
81 in 36 equal
instalments
of R 3
289.88 each, subject
to the balance being
paid
in full
on
expiry of
the
36
month
period and
subjec
t
further
to
the
remaining
terms
and
conditions of
annexure
"C
",
which arrangement the
First and
Second
Defendants
accepted. The
confirmatory
fax is
attached as annexure
"D
",
the
terms of
which are incorporated
herein by
reference.
"
[26] In
response to the appellant's claim set out above, the 1st and 2nd
respondents pleaded as follows in paragraph 3.7 of their
plea:
3.
7.1 The so called royalty agreement annexed to the Plaintiff's
Particulars of Claim (Annexure "C") is a
simulated
agreement;
3.
7.2 The Defendants deny that they entered into a royalty
agreement with the Appellant. There exist no underlying
cause
for the royalty agreement;
3.
7.
3
The
true
agreements between th
e
parties are
annexed to
the
Plaintiff 's
Particulars of Claim
as
Annexures
"A"
and
"B
",
and
was
an
agreement of
loan;
3.
7.
4
The
royalty
agreement
is
nothing
more
than
an
attempt
by
the
Plaintiff
to
charge
extra
interest,
which
is
contra
bonos mores and contrary to
the
common
law
and the Conventional
Penalties
Act,
(1962)
and is
accordingly
illegal and void.
From what
is pleaded by the respondents in their plea here above, it is clear
that the crux of the respondents' defence on the appellant's
royalty
claim is that the royalty agreement is against public policy
(
contra
bonos more
s
),
in that
it was a simulated transaction.
[27] The
court
a quo
granted the appellant's claim on the loan
agreement but found that the royalty agreement was contrary to public
policy and therefore
void and unenforceable.
[28] The
court
a quo' s
findings of fact [that the royalty
agreement amounts to interest on the loan, and not 'royalties' as
envisaged in, for example,
franchise agreements as envisaged in
De Beer v Keyser and Others 2002 (1) SA 827 (SCA)], seem
to be accepted by both
parties as correct, save that the appellant
disputes the finding by the court
a
quo
that the
interest rate charged by the appellant was 28.6%.
[29] At
issue in this appeal is whether the Court
a quo
correctly
found that the royalty agreement is contrary to public policy and
void.
[30]
The appellant's evidence at
the trial, regarding royalties,
was the
following:
[30.1]
royalties are charged by the appellant as compensation for the risk
that the appellant took in advancing the loan to the
1st respondent.
[30.2]
the amount of the royalties depends on the nature of the risk
involved in granting the loan to the 1st respondent. In this
regard
Harold
Douglas
Windell
("Windell"),
the business development manager of the appellant, testified as
follows:
"..
..Nou
hierdie
tantieme
wat
u
nou
verdien
of wat Business Partners
nou
verdien,
dit
is
'n bedrag geld
wat gehef
word in ruil
vir
die
feit dat
u
aan
die
klient
geld
geleen
het,
is dit korrek?-Dit
is korrek
maar
dit gaan
oor
di
e
finansiele
risiko
wat
ons geneem
het.
"
"Die
enigste
rede
waarom julle
die
tantieme
hef
is
in
ruil vir
die feit
dat
julle
geld gleen het
aan
mnr
Muller, is
dit korrek? Dit
is
korrek,
U
Edele.
"
"Jammer,
u
se
die
bedrag
van
die
tantieme
hang
af
van
die risiko waaraan Business Partners
blootgestel
word, is
dit korrek?
----
Dit
is korrek,
U
Edele.
"
[30.3]
Windell further testified that the loan was granted in the amount of
R500 100.00 in order to fall outside the limit of the
Usury Act, Act
no. 73 of 1968 ("The Usury Act"), which limit at the time
was R500 000.00.
[30.4]
That the appellant wanted at least a 28.6% return on the amount of
the loan over a period of 5 years, and for that reason
the amount of
royalties was fixed at 1.4% of the projected turnover.
[31] The
2nd respondent,
Herman
Paul
Muller
("Muller") testified on behalf of the 1st respondent
that:
[31.1]
he/Muller accepted that the 1st respondent was bound by the royalty
agreement throughout, until he obtained advice from counsel
to the
contrary.
[31.2]
after he received the summons he was advised by counsel that the
royalty agreement may be invalid and/or void.
[31.3]
the respondents' counterclaim consist of royalties paid, that the 1st
respondent claims back on the basis that the royalty
agreement was
void.
[31.4]
the royalty and the rationale behind it were explained in detail to
him/Muller as the representative of the 1st respondent,
prior to the
1st respondent entering into the royalty agreement with the
appellant. That he/Muller wrote a letter in 2007,
prior to the
institution of litigation, in which he confirmed this;
refer pp.
396, 397,
and
490.
[31.5]
further that he/Muller understood prior to entering into the Loan and
royalty agreement that the royalties were part of the
compensation
the appellant charged for advancing the loan to the 1st respondent.
In this regard he/Muller testified as follows
at
p352:
"Nee,
maar wat dink u nou
waarvoor
vra hulle
'royalty', vir
watter doeleindes?
---
Ek
het vir
Herald gevra
waaroor
die
royalties gaan,
ja, en
hy
het
aan
my
verduidelik
dat
dit
wil
oor
die
risiko gaan.
Ja,
maar het
u vir hom gevra
voor u die
ooreenkoms
aangegaan het?
---
Ek
kan
nie presies
onthou
watter tydstip
nie,
maar
dit
is waarsknlik so,
ja.
Ja,
toe weet u mos nou waaroor dit gaan, oor risiko. Hu/le leen vir
u geld op risiko?
---
Ja.
Hu/le
wit
'n
opbrengs
maak,
is ek reg?
---
Korrek.
Hu/le
sien
dit as
'n opbrengs, ja."
"So
u
weet
baie
mooi
dat
dit
is
eintlik
maar,
kom
ans
noem
dit
addisionele
rente
wat
hulle
vra
omdat
hulle
die
geld
vir
u uitleen?
---
Korrek,
u Edele.
Ja,
u weet dit voor die tyd, mnr Windell verduidelik dit in soveel woorde
aan u?.....korrek."
"Dit
is wat die word
beteken?
---
Ja,
dit
is oak hoe
ek dit verstaan
het.
Goed,
maar
dit
was
nooit
wat
hier
gebeur
het
nie.
U
het
dit
nooit so
van
die
begin
af
verstaan
nie?
---
Nee,
ek
het
dit
nie
verstaan
as
royalties
in
dieselfde begrip
as 'franchises
'
of
kundigheid of
wat
oak
al
nie
".
[32]
Muller further testified that he understood the principle that the
higher the risk the higher the interest rate charged on
the loan will
be; that when he/Muller was searching for finance to purchase the
business for the 1st respondent he had various
options other than the
appellant.
[33] From
the facts and the evidence it shows that the royalty agreement and
the rationale behind the paying of royalties were explained
to the
2nd respondent, who at all material times acted on behalf of the
1st respondent.
[34] In
re-examination, for the first time, Muller stated that he accepted
that the contracts the appellant presented to him to
sign contained
the terms upon which appellant was prepared to enter into the
agreement with him and that he would not be entitled
to change
anything in the contracts.
[35]
It
is worth noting that the above evidence ([34] here above) was
never canvassed m Muller's examination in chief, nor did he state
this anywhere m cross examination; significantly this was not put to
appellant's witnesses, especially Windell. Muller seems to
want to
create the impression that he had no choice and/or was under duress
to sign. On the facts this cannot be. From his evidence
he had
understood what 'royalties' were and the reasoning behind the
concept; he had all the facts before he signed. He himself
testified
that prior to entering into the agreement herein with the appellant,
he had various options other than the appellant,
but chose to do
business with the appellant on the terms set out in annexures A and C
to the particulars of claim.
[36] On
the facts and the evidence the court
a quo
found that:
"(a)
On the face of it the royalty agreement was a simulated agreement and
was nothing other than an agreement to pay interest.
(b)
The
loan
amount of
R500
100.00
was contrived to
avoid
the provisions
of the
Usury
Act.
(c)
The rate
of 28.6%
was
considerably
higher
than
the maximum permissible
on loans of R500
000.00 in terms of the
Usury
Act.
(d)
The terms
of the Royalty
Agreement
were oppressive
and harsh to the extent
that
it created
the obligation
t
o
pay
interest
even
after
conditions
that ordinarily
in contract
would
result
in
the cessation of interest payments (the full amount
of
the loan being
paid)
would
be
met."
[37] The
court a quo thus concluded that the royalty
agreement "...
undermines
public
policy
in
that
the
objective it
seeks to
advance is
a calculated
avoidance
of the
Usury
Act
and
a
desire
to levy interest beyond that
permissible
in
law."
Refer
para
[56]
and
[57],
pp.515
-
516.
[38]
The two main considerations upon which the court
a quo
decided that the royalty agreement was against public policy and
therefore void was that because it amounts to a calculated avoidance
of the Usury Act; and that the interest is levied in terms of the
agreement beyond that permissible in law.
[39] The
appellant contends that the royalty agreement is in no way simulated.
Further, that on a correct calculation the interest
rate charged was
18.45% and not 28.6%% as found by the court
a
quo.
This aspect is dealt with further below.
[40] The
onus to establish that a contract is void and unenforceable because
it is contrary to public policy is upon the party who
alleges it;
refer Diners Club
SA
v
Singh
2004
(3)
SA
530
(D)
at
645
G
where
Levinsohn
J
said the following:
"The
legal onus of establishing that
a term in a
contract (admittedly
entered
into
by
the
defendants)
is
contra
bonos
mores rests on the
defendants.
This
carries with
it the duty finally to satisfy
the court
that
it ought
to succeed
on
the
issue and
they have also the
duty to
adduce evidence in
regard
to
the factual background
relevant
to
the
defence.
"
Refer also
Magna Alloys and Research
(SA) (Pty) Ltd v
Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
at 893
[41]
There is authority for the proposition that in determining whether a
contractual provision ought to be enforced, the circumstances
existing at the time the enforcement is sought should be taken into
account;
refer
Magna Alloys
supra
at
898 C
-
D;
Nyandei Local Municipality v Hlazo
2010 (4) SA 271
(ECM) at 278 -
279.
[42] When
the loan agreement was entered into by the parties in May 2004, the
Usury Act was applicable to loans up to RSOO 000.00.
The Usury Act
was repealed by the National Credit Act no 34 of 2005
("the
NCA
"
)
on 1 June 2007.
[43] The
court a quo's conclusion stems from the fact that the
appellant granted the
1st
respondent a loan
of RSOO
100.00,
which is above the limit of the
Usury Act, which act imposed a maximum interest of 18% on loans of
R500 000.00 or less. The court
a quo thus found that the loan amount
of R500 100.00 was contrived to avoid the provisions of the Usury
Act.
[44]
Windell did testify that the loan was
granted in the amount
of
R500 100.00 in order to fall outside the limit of the Usury Act,
which Act stipulated the interest to be charged on amounts
of R500
000.00 or less; which interest was 18% at time the contract was
entered into by the parties herein on 26 May 2004.
It
is important that Windell, who represented the appellant,
never attempted to hide this fact;
refer p226.
[45] The
interest rate applicable to the loan agreement herein was 12%, i.e.
prime, which was 11% at the time, plus 1%. The effective
"interest
rate"
that a royalty fee of 1.4% on the projected
turnover would amount to 16.6%.
It
must be noted that the projected turnover amounts were
provided to the appellant by the respondents.
Refer
Annexure '2' to
the royalty
agreement,
P36.
[46] The
effective interest rate payable on the loan of R500 100.00 was,
therefore, calculated by the court
a quo
as 28.6°/o (12o/o
plus 16.6%). The court
a quo
thus concluded that the rate of
28.6% was considerably higher than the maximum
permissible on loans of R500 000.00
in terms of the Usury Act.
[47] The
appellant contends that the court
a quo
made an important
misdirection of fact when it came to the conclusion that the interest
rate charged amounted to 28.6%. That
the court
a quo
did
not take into account that R145 249.38 of the royalty amount was
written off during October 2005, this taking into consideration
that
an amount of
R149
249.38 on royalties was written off from debt/arrears of R249 115.00,
which effectively reduced the interest rate charged,
and the parties
had agreed that the 1st respondent was only to pay Rl 18 406.81. The
appellant thus contends that on a proper calculation
the amount of
interest paid by the respondent equals 18.45% and not 28.6% as found
by the court
a quo.
[48] The
court
a quo also
specifically took into account the
interest rate applicable in terms of the Usury Act to determine if
the royalty agreement was
invalid. In the matter of
African
Dawn
Finance
(Pty) Ltd.
v Dreams Travel
&
Tours
CC 2011(3)
SA
511
(SCA)
at
para
[19)
the Supreme Court of Appeal said
that where neither the Usury Act nor the NCA applied to the
transaction, it fell to be determined
in terms of the common law,
which does not fix a rate of interest, to determine whether or not a
transaction was usurious.
[49]
It
would thus amount to misdirection if a court takes the
interest rate prescribed by either the Usury Act or the NCA into
consideration
to decide if a transaction is usurious if neither
of the acts applied to the transaction. In order to decide if a
transaction
is usurious the interest rate in itself is not a criteria
but merely an element to be taken into consideration.
[50] On a
proper analysis of the facts, the loan and the royalty
agreements between the parties are not subject to the
Usury Act, nor
are they subject to the NCA; therefore, there is no limitation on the
interest rate the appellant may charge, as
long as it can be shown
that there was no extortion amounting to fraud, and that would not be
contrary to the common law in my
considered view.
[51] The
question then becomes whether it was wrong and
contra
bonos
more
for the appellant to grant a loan which would
not be subject to the provisions of the Usury Act.
It
must be noted that the 1st Respondent, represented by the 2nd
Respondent, had applied for a loan of R590 000.00. This much was also
confirmed by the 2nd respondent's counsel, Mr Van Coller during
argument. The amount itself (R590 000. 00), applied for by the
1st
respondent, fell outside the limit of the Usury Act.
[52] With
regard to the court
a
quo' s
finding that
the agreement was entered into with the specific purpose of avoiding
the provisions of the Usury Act the following
was said by Innes CJ in
Dadoo
LTD and
others
v
Krugersdorp
M
unicipal Council
1920
(A.D) 530 at 548:
"But
an Act
...
may nevertheless
be
evaded;
parties
may generally
arrange
their transactions
so
as to remain
outside
its
provisions. Such
a
procedure
is,
in the
nature of things,
perfectly
legitimate.
There
is nothing
in the authorities,
as I
understand
them,
to forbid
it.
Nor can it
be
rendered
illegitimate by
the
mere fact
that
the parties intend
to avoid
the operation
of
the
law,
and
that the selected
course
is as convenient
in
its result
as another
which
would have
brought them
within
it.
"
Refer also
Automotive
Tooling Systems
v Williams
2007 (2) SA
271
(SCA) at
277
B
-
C
[53] From
the facts and the evidence there is nothing that indicates that the
respondents wanted a lesser loan amount which fell
within the
limitation of the Usury Act [i.e. R500 000.00 or less], but that the
appellant fraudulently granted a loan amount above
what the
respondents had applied for, and falling outside the limitation of
the Usury Act, to merely avoid the operation of the
law so that they
could charge extra interest amounting to extortion akin to
fraud.
[54] This
is not a transaction which is in truth within the provisions of the
Usury Act, which was cloaked by the parties in a guise
calculated to
escape those provisions. In other words, it cannot be said that the
transaction was
in fraudem
legis.
The
appellant was within its right to grant a loan amount outside the
limitation of the Usury Act.
[55] In
order to determine if the transaction was usurious the common law
must then be applied. The common law does not fix
a rate beyond
which a transaction becomes usurious;
refer
African
Dawn
Property
Finance supra at
para
[19].
[56] In
terms of the common law a transaction or agreement would be
considered usurious if it is shown that there has either been
extortion or oppression, or something which is akin to fraud;
refer
S
A
Securities
Limited v Greyling
1911 TPD 352
at 356; Dyson v Ruthven (1860
Searl 282; Merry v Natal Society of Accountants
1937 AD 331
at 336;
Africa n Dawn
Supra
at para [20].
[57] In
the recent decision of the Supreme Court of Appeal,
African
Dawn Property
Finance supra,
the court
had to decide if an interest rate of between 60%-78% per annum
was without more
per
se
usurious and
contra
bonos
mores.
The Supreme Court of Appeal in
finding that it was not, per Ponnan JA said the following:
"[26]
At common law there is no faed customary rate that can be described
as a standard rate beyond which it can be said that
the transaction
become usurious. Rates of interest vary with the nature of the
financial transaction, the social economic standing
of the parties,
the risks, and so on. In the absence of any proof or allegation to
the contrary, it must be assumed, I would imagine,
that the loan
was worth the rate of interest fixed to the borrower.
...
the
rate of interest
levied depends
upon various factors,
not
least
the
risk to
the
lender,
which in
turn
is
usually dependent upon whether
the creditor
is well
or
ill-secured.
And,
it can
hardly
be disputed
that
inasmuch
as
profit varies
and
fluctuates, so
too must interest, which
by its very
nature
is
representative
of
profit.
I
thus hesitate
to
say that
the
court
by
a
mere
decision or
a
series
of
mere decisions
can
authoritatively declare
what
shall
be
the
rate
of
interest which,
without
more,
upon
being
exceeded,
shall
amount
to
usury.
To
declare to be usurious a bargained
interest beyond a certain rate may well amount to a court legislating
by judicial decree."
"[2
8
]
..
.
our
constitution
and
its
value
system
do
not
confer
on
judges
a
general
jurisdiction
to
declare
contracts invalid on
the
basis
of
their
subjective perceptions
of
fairness or
on
the ground
of
imprecise notions of
good
faith.
Nor does
the
fact
that
a
term
is
unfair,
or
that
it
may
operate
harshly,
of
itself
lead
to
the
conclusion
that
it
offends
against
constitutional
principles.
In
my
view
it
is
essential
that
the
law
which
makes
a transaction
usurious
should
be clear
and explicit.
"
"[29]
I
therefore
conclude
that
the
common
law
rule
is not
inimical
to the values
that
underlie
our
constitutional
democracy,
and
that
if
any
stipulation
for interest
be
attacked
as
being
liable
to reduction
on
the ground of
usury,
it
can
only
be
done
offering
proof
of
extortion
or oppression,
or something
akin to fraud.
"
[58] From
the above mentioned case, the Supreme Court of Appeal
specifically decided that the following circumstances
will be an
indication that the transaction was not usurious; refer p511D-F,
where:
[58.1]
The borrower had approached the lender without inducement or
compulsion. This is indeed the position in the present case.
The 2nd
respondent, testifying for and on behalf of the 1
st
respondent, admitted that he approached other finance houses before
he settled on the appellant.
[58.2]
The lender
had
made
full
disclosure
of the applicable
interest
rate.
This is also the position in the present case. The
appellant disclosed the interest rate and the amount of the royalties
prior
to the 2nd respondent entering into the transaction on behalf
of the 1st respondent. The 2nd respondent was also informed
of
the reason for charging royalties, and he testified to this effect.
[58.3]
The money was
borrowed
to allow
the borrower
to exploit a business
opportunity.
This is again the position in
the present matter. The money was advanced to the 1st
respondent in order to put it in the position
to purchase a liquor
store which it intended to operate.
[58.4]
There was
no evidence
to show that the
interest
rate
was incommensurate with
the
risk
run
by
the
lender.
The only evidence offered
was the evidence on behalf of the appellant that the rate of interest
was specifically linked to the security,
or lack of it, that the 1st
respondent could provide. The 1st respondent could not provide
sufficient security to obtain a loan
from the normal commercial
banks. These banks considered the risk too high to lend money to the
1st respondent where he could not
provide more security. The court
stressed that it is incumbent upon a respondent to lead evidence of
what the prevailing rate of
interest was for similar transactions. In
circumstances where the respondent fails to provide such evidence the
court is left in
the dark and cannot come to the aid of the
respondent;
refer African Dawn
Property
Finance
supra
at
para
[33].
[58.5]
The
borrower
was
unable
to
point
to
any
particular circumstances to
show
that
the
transaction was not
an
ordinary
one.
The 1st respondent did not
lead any evidence to the effect that the transaction was not an
ordinary transaction.
[59] Our
authorities, referred to above, are clear that contracting parties
are well within their rights to arrange their affairs
in such a way
that they suit their circumstances; of importance is that the other
party is not defrauded, and/or does not know
what the contract
entails.
[60] The
interest of 28.6% was well within the appellant's right
to charge such, as long as the respondents
knew that this
is what would be charged. The
2nd
respondent/Muller testified that he understood, as Windell had
testified, that royalties represented compensation for the risk the
appellant took in advancing the loan to the 1st Respondent.
It
is common cause that the 1st Respondent did not have security
which would have been required by conventional financing entities
like banks, to secure a loan.
[61] The
2nd
respondent, representing the 1
st
respondent
accepted the status quo. There is no evidence whatsoever
that he was coerced, bullied, and/or put under
duress to sign or
enter into the loan agreement, including the royalty agreement with
the appellant.
[62] As
already stated above, the appellant contends that actually, on a
proper calculation, the interest rate paid by the 1st respondent
equals 18.45%, and not 28.6% as found by the court
a
quo;
this taking into account that an amount of R149 249.38 on
royalties was written off from the debt/arrears of R249 115.00, and
the
parties had agreed that the 1st respondent was only to pay Rl 18
406.81. The appellant contends that had the court
a quo
calculated
the interest rate taking into consideration what is set out by the
appellant here above, the court
a
quo
would
not have found the royalty agreement to have been void.
[63]
True, this might have influenced the court a quo; but, still, looking
at the 28.6% interest/return that the appellant wanted
on the amount
of the loan over a period of 5 years, it would, in my considered
view, and on the authorities referred to, still
be within its right
to charge such high interest, as long as this was not done
fraudulently and/or deceitfully, and this [fraud/deceit],
in my view
has not been proved.
[64] The
plaintiff worked towards a return of 28.6% on monies lent. The
interest payable on the loan agreement together
with royalty
agreement would together constitute the return of 28.6%. To achieve
this, over and above the interest payable on the
loan amount, the 1st
respondent would pay 1.4% on the royalty, and this is stipulated in
clause 2.1 of the royalty agreement which
forms part of the whole
transaction between the parties.
[65]
Clause 2.1 specifically provides as follows
"2.
Royalty
2.1
The borrower shall pay
to Business
Partners
a Royalty
in the amount
of
1.4%
(one comma
four
per
centum)
on
the
higher of
actual
monthly
turnover
or
of
the Projected
Monthly
Turnover.
"
[66] The
2nd
respondent never testified that he was not aware of this
clause; on his own version he was well aware of the clause; he may
not
have been happy with it but nowhere does he say that he tried to
negotiate his way out and was told it was this or never. Even if
that
could have been the case, he on his own version had other options
other than the appellant, but he chose the appellant, he
acquiesced
to all their terms including the terms of the
royalty agreement. From the evidence, the appellant
was transparent
from the beginning.
[67]
It
has thus been established that at all material times the
2nd
respondent understood that royalty payments were in fact
additional interest on the loan amount.
[68] No
evidence was led at the trial and no case was established that the
1st respondent was subject to the dictates of the appellant
when
entering into the royalty agreement. The 2nd
respondent specifically stated in his
evidence that he approached various finance
houses and that he had options
other
than the appellant.
[69] From
the evidence of 2nd respondent/Muller, he clearly knew from the
beginning what the royalties were, and he entered
into this
transaction with his eyes wide open; he surely knew what he was
getting into. He testified that he had other options
other than
the appellant, yet with the full knowledge he had, more specifically
here pertaining to the royalty agreement, he still
went ahead and did
business with the appellant.
[70] As
stated above, in re-examination the 2nd respondent for the first time
said that he accepted when he signed the agreements
that, that was
the terms upon which the appellant was prepared to lend the money to
him and that he believed he could not really
insist on any changes to
the documentation. This amounts to mere speculation on his part and
it was never put to any of the appellant's
witnesses that there was
any inequality.
[71]
Neither the 1 st nor the 2nd respondent was an uninformed and
vulnerable borrower. The 2nd respondent was a businessman and
the 1st
respondent was not his first business venture. The 1 st respondent
unsolicited and without any inducement or compulsion
approached the
appellant for finance and prior to entering into the agreement the
appellant made full disclosure of the terms of
the Royalty Agreement.
It
is clear that Muller is an astute businessman. The argument
that he was a lay person and did not have any legal representative
when
he signed the agreements cannot hold.
[72]
There is no evidence that at the time the parties entered into this
agreement the appellant was represented by attorneys/legal
representatives. Windell represented the appellant; Muller/2nd
respondent represented the 1st respondent. The parties were on an
equal footing. All that was required was business acumen.
[73] The
1st respondent, understood all along that the royalty agreement
provided the basis to pay additional interest on the loan
advanced to
the 1st respondent;
refer judgement
para
[37]
p
507;
Muller's
evidence
at pp. 351
and 352.
[74] The
royalty agreement was not a trap for the unsuspecting borrower. No
evidence was led to indicate that the 1st respondent
was in dire need
of finances.
It
needed
the finances to exploit the very specific venture for which it needed
finance to pay the purchase price.
[75] The
2nd respondent contends that the court a quo was entirely correct in
finding that the royalty agreement was a simulated
agreement, on the
basis that Windell testified that the royalty agreement was actually
an agreement to charge extra interest on
the loan is common cause
that the royalty is nothing else but interest.
[76]
Counsel for the 2nd respondent submitted that there
was no full disclosure on the applicable
interest,
that therefore the African Dawn case does not apply. This is contrary
to Muller's evidence, who testified that all was
explained to him
prior to signing the agreement. Clause 2.1 of the royalty agreement
does stipulate that the first respondent shall
pay 1.4% on the
monthly turnover or the projected turnover, whichever is the highest.
The schedule of the projected turnover is
annexure "2" to
the royalty agreement; it is contained on page 36 of the record, and
it forms part and parcel of the
royalty agreement. Thus, the 1st
respondent and/or the second 2nd respondent knew exactly how the
royalty amount would be calculated.
[77] The
defence in the plea pertaining to the Conventional Penalties Act, Act
50 of 1962 (" The Conventional Penalties Act"),
does not
seem to have been persisted with; even on the record of the
proceedings at the court
a quo
it was not pursued. In any
event the Conventional Penalties Act contains no prohibitions and
does not render anything illegal;
refer Christie,
Law
of
contract
in
South
Africa,
6th
edition,
p584-585.
The
Conventional Penalties Act thus cannot play a role in this appeal.
[78]
It
does appear from the evidence of both parties already dealt
with above, that these royalties were charged by the appellant as
compensation
for the risk that the appellant took in advancing the
loan to the 1st respondent; and most importantly the rationale behind
the
paying of royalties was explained to Muller, who at all material
times herein represented the 1st respondent.
[79]
Counsel for the 2nd respondent further submitted that the appellant
inappropriately charged VAT on the royalty amount. This
aspect was
never raised in the pleadings, nor was it ever dealt with in the
evidence at the court
a quo.
It
is therefore not an issue which this appeal court should deal
with.
[80] From
the facts and evidence, in my considered view, it cannot be said that
the respondents were in an unequal bargaining position,
as found by
the court
a quo.
Further, the royalty
agreement cannot be said to be a simulated agreement; which will be
something akin to a sham/fake or bogus
contract aimed at deception.
One cannot read into the evidence that the respondents were deceived
in the sense that they did not
know what they were getting into;
refer Mackay
v Fey NO and another
2006 (3) SA 182
at
194 para
[26].
[81] On
the facts and the evidence there are no circumstances that show
either extortion or oppression or anything akin to fraud,
and
therefore the royalty agreement cannot be said to be contrary to
public policy and therefore void, as found by the court
a
quo.
[82] The
learned Judge in the Court a quo should have thus upheld the
Appellant's claim B as well, and should therefore have granted
judgement in the Appellant's favour, and should have dismissed
the
1st
and
2nd
respondents' counterclaim with costs.
[83] In
the result
1.
Condonation is granted to the appellant in terms of prayers 1 and 2
of the notice of motion dated 19 March 2013.
2.
The
2nd
respondent's cross-appeal is struck off the roll with costs,
such costs to include the costs consequent upon the employment of two
counsel.
3.
The Appeal is upheld with costs, such costs to include the costs
consequent upon the employment of two
counsel.
4.
Prayers 3, 4 and 5 of the order of the court
a quo
is
set aside and in its stead is substituted the following:
"3.
In respect of claim (B) the appellant's claim is upheld in the sum of
R3 279.94 plus interest at 10% per annum from 25
January 2012 to date
of payment with costs, such costs to be paid by the 1st and 2nd
defendants jointly and severally the one paying
the other to be
absolved.
4.
The respondents' counterclaim is dismissed with costs."
_________________________
L
M MOLOPA-SETHOSA
JUDGE
OF THE HIGH COURT
I
agree
_________________________
K
E MATOJANE
JUDGE
OF THE HIGH COURT
I agree
_________________________
C
P RABIE
JUDGE
OF THE HIGH COURT
It
is so ordered.