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[2015] ZAFSHC 196
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Botha v Iveco South Africa (Pty) Ltd (A259/2014) [2015] ZAFSHC 196 (22 October 2015)
FREE
STATE
HIGH
COURT, BLOEMFONTEIN
REPUBLIC
OF
SOUTH AFRICA
Appeal
No. : A259/2014
In the
appeal between:-
DIRK
SAMUEL
BOTHA
Appellant
and
IVECO
SOUTH AFRICA (PTY)
LTD
Respondent
CORAM:
KRUGER,
EBRAHIM JJ
et
OPPERMAN, AJ
HEARD
ON:
12
OCTOBER 2015
JUDGMENT
BY:
KRUGER
et
EBRAHIM JJ (
Majority
Judgment
)
DELIVERED
ON:
22
OCTOBER 2015
[1]
This case arises out of a sale on 21 May 2003 of all the shares in a
company whose sole asset was a property.
Twelve judges have
dealt with this matter. A special plea of prescription was
dismissed by Moolla AJ. Rampai
J gave leave to appeal to the
Supreme Court of Appeal where the dismissal of the special plea was
confirmed by five judges. The
trial proceeded before Sepato AJ
who granted judgment in favour of the plaintiff. Van Zyl J
granted leave to appeal the full
court of this division.
[2]
The appellant, defendant in the court a quo (Botha) sold all his
shares and loan account in Duewest
(Pty) Ltd (Duewest) to the
respondent, plaintiff in the court a quo (Iveco). The only
asset of Duewest was a property. The
appellant warranted that
the only liability of Duewest was his loan account. The
appellant, as seller, provided an indemnity
to the respondent as
buyer in the following terms
“
9.
INDEMNITY:
9.1
Without prejudice to the warranties and representations in the
Agreement, or of the rights and
legal remedies available to the
Purchaser, the Seller hereby indemnifies the Purchaser against:
9.1.1.
any obligation of the Company which may exist or arise in any way
whatsoever
before or in respect of the period before the Effective
Date other than the Loans;
9.1.2.
all claims, obligations, damages or losses and/or shortages which may
be
suffered by the Purchaser and which may arise out of, result from
or be caused by a breach and/or non fulfillment of any of the
warranties and/or other representations in this Agreement.
9.1.3.
All costs, on the scale as between Attorney and own client, of any
opposition
in terms of Clause 9.2. against payment of such claims;
9.2
The Purchaser undertakes to advise the Seller timeously of any claim,
which may arise against
the Purchaser in terms of paragraph 9.1.2.
and should the Seller require the Purchaser to oppose or resist such
claim, to do so
on condition that:
9.2.1.
The Seller shall first provide the Purchaser with security to the
satisfaction
of the Purchaser for payment of the said claim and all
costs on a scale as between attorney and own client which the
Purchaser
may incur or which may be ordered against the Purchaser as
a result of the opposition of the Purchaser to the claim;
9.2.2.
Should the Seller not require the Purchaser to oppose the claim
timeously
then the Purchaser will be entitled to pay such claim and
recover the full amount thereof together with all costs incurred on a
scale as between attorney and own client from the Seller.
”
In
terms of clause 9.1.2 the appellant indemnified the respondent
against all claims, obligations, damages or losses which may be
suffered by the respondent which may result from a breach or
non-fulfilment of any of the warranties given by the appellant.
[3]
Subsequent to the effective date of the sale the respondent became
aware that Duewest was indebted to
the Inner West Municipality in
Pinetown in amount of R330 190,48 in respect of duties and
levies including penalties and interest.
The respondent issued
summons alleging a breach of the warranty and invoking the indemnity
clause in order to reclaim the
amount it had paid to the
municipality. At the trial only Mr SG Powdrell, a senior credit
controller of the Ethikweni municipality
testified for the
respondent. The appellant called no witnesses. The parties
agreed that the evidence of Mr C Minnie who
testified for the
respondent during the determination of the special plea would form
part of the record of the trial as if it had
been tendered in the
trial. After the trial Sepato AJ gave judgment for respondent
in the amount of R858 286,70 being
the reduced amount claimed by
the respondent together with an attorney and client costs order
because she found that the appellant
had been dishonest in presenting
its case before her and Moolla AJ.
[4]
Respondent’s case is that it paid an amount to the municipality
for which it was not liable and
which amount had to be reimbursed to
it by appellant. Appellant’s case is that there was no
money due to the municipality
at the effective date, alternatively
that respondent should not have delayed so long in paying, allowing
interest and penalties
to accrue.
[5]
In its judgment on the special plea the Supreme Court of Appeal held
that respondent’s claim is
based on the indemnity in clause 9.
Respondent became entitled to recover the amount it had paid to the
municipality from
the appellant after it had paid the municipality.
This
appeal concerns two principal points: (i) the applicability of the
indemnity to respondent, and (ii) the quantum.
I
The indemnity under clause 9.2
[6]
Mr Zietsman, for appellant contended that on a proper interpretation
of clause 9.2 it is only applicable
when a “claim” arises
against the purchaser (plaintiff/respondent). The claim of the
municipality was one against
Duewest, not against the purchaser.
Thus clause 9.2 cannot be invoked by the respondent.
[7]
Mr Vetten, for respondent contended that a claim against Duewest is
equally a claim against the purchaser
(plaintiff/respondent), because
the respondent is ultimately the party who will have to pay or suffer
the loss. He submitted
that in order to give business efficacy
to clause 9.2 it should be interpreted to also be applicable to
instances where there is
a claim from a third party against Duewest.
[8]
In considering the application for leave to appeal Van Zyl J opined
that clause 9.1 distinguishes between
the company on the one hand and
the purchaser on the other hand. She pointed out that clause
9.1.1 refers to obligations
of the company, whereas clause 9.1.2
deals with losses suffered by the purchaser. Clause 9.2 refers
to the purchaser, its
wording is restricted to instances where a
claim arises against the purchaser. Van Zyl J expressed the
view that the agreement
throughout draws a distinction between the
company and the purchaser, and could not see how the purchaser could
be substituted
for the company in clause 9.2. If it is accepted
that the obligation by the company to the municipality is a claim as
contemplated
in clause 9.2 then it is a claim against the company,
not against the purchaser, and clause 9.2 would not be applicable.
On that basis she granted leave to appeal.
[9]
In the particulars of claim the allegation is made that the seller
gave the purchaser certain undertakings
of indemnity, and clause 9 is
quoted. The respondent makes the allegation in the particulars
of claim that it discharged
the appellant’s outstanding
liability to the local authority on 17 July 2007 and thereafter the
respondent became entitled
to recover the full amount from the
appellant (paragraph 11 of the particulars of claim). In the
plea appellant says that
the respondent should not have paid the
local authority, but should have notified the appellant and then
appellant would have requested
respondent to oppose the local
authority’s request for payment. In paragraph 2.7 of the
plea the allegation is made
that the respondent allowed the claim of
the local authority to increase, and thereby the respondent failed to
limit the damage.
In the plea to paragraph 11 appellant says it
has no knowledge of the allegations therein and puts the respondent
to the
proof. There is no allegation in line with Mr Zietsman’s
submission that the indemnity did not cover debts of the company
Duewest, as opposed to liabilities of the respondent as purchaser.
[10]
In plaintiff’s replication to the special plea for
prescription, the allegation is made, borne out by the
correspondence, that the appellant requested the respondent to
postpone the due date for the payment of appellant’s indemnity
so as to afford the appellant a reasonable opportunity to settle the
Duewest liability. The respondent paid the Duewest liability
on
17 July 2007.
[11]
The reasoning of Mr Zietsman, as adopted by Van Zyl J is artificial.
The intention of an indemnity is to
provide relief to the other
contracting party. Because of the sale the respondent took over
the liabilities of the company.
The respondent had to pay the
debt, and was entitled to an indemnity from the appellant.
II
The Quantum
[12]
The appellant contends that the respondent failed to prove the
quantum of the liability. The respondent on
17 July 2007 paid
the municipality R1 176 957,47 in respect of the debt of
R330 198,48, the amount that was due
on the effective date being
23 July 2003. The respondent subsequently reduced its claim to
R858 286,70 as it admitted
that the larger amount could have
included penalties on monies due by itself after 23 July 2003.
The court
a
quo
gave judgment for R858 286,70.
[13] Mr
Vetten, for respondent, set out the chronology of events as follows:
(i)
23 March 2000:
The Inner West Local
Council (the predecessor of the current municipality) sold the
property to a close corporation or company to
be formed. That
company was then formed as Due West Properties (Pty) Ltd (“Duewest”).
(ii)
12 February 2001:
The property was
transferred from the municipality to Duewest.
(iii)
6 July 2001:
The shares in Duewest
were sold to the appellant. Thus the appellant acquired the
company.
(iv)
21 May 2003:
The sale agreement
between appellant and respondent, selling the shares and the property
of Duewest. The effective date was
the date of cancellation of
the bond over the property, being 23 July 2003.
(v)
3 June 2004:
Respondent’s
attorney (Steenkamp Weakley Inc) writes to
appellant’s
attorney (McIntyre & Van Der Post) stating that
there is still a dispute
around the payment of rates and taxes.
(vi)
1 December 2004:
Duewest sells the
property to respondent, both represented by the same person, being a
director of Duewest.
(vii)
17 July 2007:
Transfer
takes place from plaintiff to Imperial Properties. Plaintiff
paid the rates and taxes. There was an escalation
of penalties.
[14] As to
the correspondence, Mr Vetten referred to the following:
(i)
12 February 2001:
(The letter referred to
above)
Respondent’s
attorney wrote to appellant’s attorney stating that there is
still a dispute as to the payment of rates
and taxes referring to
clause 14.3 of the agreement which says the purchaser is responsible
for payment of rates and taxes after
the effective date.
(ii)
9 August 2006:
Appellant’s
attorneys write to respondent’s attorneys stating that they
have already made enquiries at the local authority
and after
obtaining particulars from the local authority they will take up the
matter with their client, the appellant.
(iii)
20 August 2004:
Respondent’s
attorneys send details of the calculations by the local authority to
appellant’s attorneys.
(iv)
8 September 2004:
Letter of demand from
respondent’s attorneys to appellant’s attorneys,
demanding appellant to pay the rates and penalties
due for the period
up to 23 July 2003, giving them 14 days.
(v)
17 September 2004:
Appellant’s
attorneys write to respondent’s attorneys stating that they are
giving attention to the question of rates
and taxes but request more
time:
“
Geagte
meneer
VERKOOP
VAN AANDELE DUEWEST PROPERTIES (PTY) LTD /IVECO SA (PTY) LTD OP 21
MEI 2003
U
skrywe gedateer 8 September 2004 gerig aan ons kliënt mnr DS
Botha is aan ons oorhandig met opdrag om daarop te antwoord.
Soos
reeds telefonies aan u mnr Steenkamp meegedeel is ons tans besig om
die hele kwessie van die korrekte verskuldigheid van die
Maatskappy
aan die Plaaslike Owerheid ten opsigte van erfbelasting uit te klaar.
Alhoewel
ons reeds ver hiermee gevorder het, sal ons nie in staat wees om
binne die keertyd van u skrywe van 14 dae na 8 September
2004 hierdie
proses te voltooi nie. Ons versoek u dus om die keertyd van u
skrywe te verleng na 8 Oktober 2004 asseblief.
Ons
bevestig dat ons kliënt sy verpligtinge in terme van die
koopkontrak sal nakom. Indien daar enige fout is in die
finansiële state wat aan u kliënt oorhandig is, sal dit dan
daarna reggestel kan word sodra die korrekte bedrag bepaal
is.
Die
uwe
”
(vi)
5 October 2004:
Mr Medalie, an attorney
in Pinetown appointed by appellant’s attorney, reports to
appellant’s attorney that he has started
enquiries and will
revert.
(vii)
11 October 2004:
Full report by Medalie to
appellant’s attorneys. He says the officials at the local
authority could find no proof of
payment by appellant, and the
reduction of penalties, or interest could only be considered if proof
of payment by appellant could
be provided.
(viii)
7 March 2005:
Medalie
writes to appellant’s attorneys. In the letter he says he
will consult appellant’s attorneys before submitting
a request
to write off penalty amounts.
(ix)
24 March 2005:
Medalie
writes a long letter to the local authority. In the closing
paragraph Medalie makes it clear that the appellant is
willing to pay
accounts which were properly delivered (not to a street address where
there is no postal delivery):
“
We
further confirm that should you see your way clear to cancel any
interest and penalties levied against our client it will result
in
immediate payment thereof. Kindly do not see this in a negative
context, as it only demonstrates our client’s goodwill,
all
along, to make payment of outstanding amounts, once it was received
and explained.
”
[15]
Mr Vetten says the gravamen of the correspondence is that the
respondent was aware of its liability towards the
local authority,
accepted such liability, and wanted interest and penalties to be
reduced if possible. He further points
out that in terms of
clause 9.2.2, if the appellant does not pay, the respondent is
entitled to pay “such claim” and
the appellant can then
recover “the full amount thereof” from the appellant.
The clause requires the respondent
to notify the appellant of the
claim. The respondent must afford the appellant an opportunity
to dispute the claim or try
to reduce it. If the appellant does
not pay or succeed in getting the claim reduced, the respondent pays
and recovers the
amount of the claim from the appellant. That
is what happened here: The appellant caused the claim to be
investigated and
failed to make any payment to the local authority.
Because transfer had to be effected and a rates clearance certificate
had to be obtained, respondent paid the claim of the local
authority. Respondent is now entitled to recover the amount of
the claim of the local authority from the appellant.
[16]
Mr Vetten pointed out that Mr Powdrell was called by the respondent
not to prove the quantum of its claim, but
only to show what the
municipality said was due. The
prima
facie
evidence of the respondent was not countervailed. The appellant
chose to call no witnesses.
[17]
Mr Zietsman, for appellant relies on the rates clearance certificate
dated 8 November 2001 stating that rates have
been paid in full.
Thus the municipality could not demand payment of rates prior to
October 2001, because that is contrary
to the rates clearance
certificate. Mr Zietsman says this rates clearance certificate
was the basis of the appellant’s
defence. My view is that
the appellant should have taken this point up with the municipality
when the payment of the rates
was being investigated by Medalie.
The appellant cannot now raise the quantum.
CONCLUSION
[18]
A contract of indemnity creates a primary obligation. It is not
a suretyship which is dependent upon non-payment
by the principal
debtor (
List
v Jungers
1979 (3) SA 106
(A) at 119). Clause 9 embodies an original and
unqualified undertaking by the appellant. Being an indemnity,
quantum
is assessed in a different manner to the situation where the
plaintiff institutes a claim. The ordinary position is that the
plaintiff bears the onus to prove its claim which includes quantum.
Where one is dealing with an indemnity, the terms of
the indemnity
must be considered. The purpose of the indemnity is to ensure
that the party receiving the indemnity has no
claims it must pay. If
there are claims, it tells the furnisher of the indemnity about them,
who then has to investigate
the claim and pay it. If the
indemnity giver does not pay after having been afforded a reasonable
opportunity, the indemnity-taker
pays the claim, and, in terms of the
contract, recovers what was paid. That is what the respondent
did here. The subtraction
of amounts it felt were the liability
of the respondent was an act to the benefit of the appellant.
The respondent proved
its quantum. There is no merit in the
appeal.
[19] As to
costs, it is not clear from the judgment of Sepato AJ in what manner
she regarded the appellant as having
been dishonest. Often
evidence emerges in a case upon which liability is based in the
judgment. The fact that a defence
is without merit does not
mean it is dishonest. Senior counsel advanced the argument with
great gusto. This case did
not call for a punitive costs order.
ORDER
The appeal is dismissed
with costs, save that the costs order of the court a quo is amended
to be a normal costs order.
_____________
A. KRUGER, J
I
agree.
_____________
S. EBRAHIM, J
On behalf of
appellant:
Adv P Zietsman SC
Instructed
by:
McIntyre & Van Der
Post
BLOEMFONTEIN
On behalf of
respondent:
Adv D Vetten
Instructed
by:
Lovius-Block
BLOEMFONTEIN
/wm