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[2014] ZAGPPHC 432
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Nedbank Limited v Van Der Berg and Another (61063/2013) [2014] ZAGPPHC 432 (14 March 2014)
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IN THE
NORTH GAUTENG HIGH COURT, PRETORIA
(REPUBLIC
OF SOUTH AFRICA)
CASE
NUMBER: 61063/2013
DATE:
14 MARCH 2014
NOT
REPORTABLE
OF
INTEREST TO OTHER JUDGES
In
the matter between:
NEDBANK
LIMITED
.........................................................................................................
PLAINTIFF
And
ILSE
VAN DER
BERG
..............................................................................................
1
ST
DEFENDANT
IDENTITY
NUMBER: 6[…]
PETRUS
VAN DER
BERG
......................................................................................
2
ND
DEFENDANT
IDENTITY
NUMBER: 6[…]
JUDGMENT
MAKHUBELE
AJ
INTRODUCTION
[1]
It is common cause that Plaintiff (“Nedbank”) is a
successor in title of Imperial Bank Limited (“Imperial
Bank”’)
and has lawfully acquired its assets and liabilities. During
September 2013, Nedbank instituted action against
first and second
defendants (“defendants “) for payment of an amount R8
939 201.84, plus interest at Nedbank Limited’s
prime lending
rate which was 8.5% plus 1.00% at the date of issue of the summons
calculated from 1 September 2013 to date of payment,
calculated daily
on the capital balance outstanding from time to time, compounded
monthly in arrears. The liability of each defendant
is limited to the
extent of his her limited surety amount.
[2]
The debt arises from loan facilities and loan agreement in terms of
which certain amount of monies was advanced to Centro Development
CC
(now in liquidation) by Imperial Bank.
[3]
The defendants are sued in their capacities as sureties and
co-principal debtors.
[4]
The Defendants filed notice of intention to defend the action;
whereafter Nedbank filed an application for summary judgment.
The
defendants filed an affidavit to oppose and raised certain defences
that I will revert to later in this judgment.
[5]
The application came before me on 07/02/14 at short notice due to the
fact that the Registrar erroneously omitted to enroll
and allocate
it. Counsel for Nedbank had filed main and also supplementary heads
of argument that specifically dealt with the defences
raised in the
opposing affidavit. I am grateful to Mr Leathern for the heads of
argument. They were of great assistance to the
court, particularly in
view of the fact that the file was handed to me at short notice.
Counsel for the defendants, Mr Kruger
did not file any heads of
argument. I agreed to adjourn the matter for a short while to peruse
the papers because a postponement
would not have been in the interest
of the parties or justice.
THE
LOAN FACILITIES, LOAN AGREEMENT AND ADDENDUM THEREOF
[6]
It is common cause, (as it appears from the particulars of claim and
is not placed in dispute in the opposing affidavit) that
in the
period between 2007 and 2010, Imperial Bank granted Centro
Developments CC various loan facilities under certain conditions
that
are summarized hereunder.
[6.1]
Imperial Bank approved a facility loan of R17 060 304.00 on 21 August
2007
[1]
for the purchase of land
known as Holding 8, Waterval Small Holdings as well as payment of
bulk contributions. The loan was granted
on amongst other conditions:
[6.1.1]
that Centro would register a First Continuing Covering Bond in favour
of Imperial Bank for an amount of R90 000 000 .00
plus a 20% cover
clause over Holding 8 Waterval Small Holdings.
[6.1.2
] First defendant and Snapshot Investments 1036 CC each would sign a
limited suretyship jointly and severally for an amount
of R10 000
000.00.
[6.1.3]
Second defendant would sign a limited suretyship of an amount of R30
000 000.00.
[6.2]
A further facility loan in the amount of RR20 000 000.00 was granted
to Centro on 22 July 2008
[2]
.
The purpose of the loan was to enable Centro purchase land and to
construct 80 residential sectional title units (Phase 2) on
the
property known as Holding 8 Waterval Small Holdings. The conditions,
amongst others were:
[6.2.1]
Interest would be capitalized during construction and payment would
on transfer of the units by way of a 100% release value.
[6.2.2]
that Centro would register a First Continuing Covering Bond in favour
of Imperial Bank for an amount of R90 000 000 .00
plus a 20% cover
clause over Holding 8 Waterval Small Holdings.
[6.2.3]
First defendant and Snapshot Investments 1036 CC each would sign a
limited suretyship jointly and severally for an amount
of R10 000
000.00.
[6.2.4
] Second defendant would sign a limited suretyship of an amount of
R30 000 000.00.
[6.2.5
] the term of the loan would be 12 months.
[6.3]
A third facility
[3]
loan was
approved on 16 September 2010 for an amount of R29 979 348.00 for
purposes of “
inter
alia consolidating various loans”
[4]
.
The
conditions were amongst others;
[6.3.1]
the loan would be paid in equal monthly installments over a period of
240 months.
[6.3.2]
The conditions relating to registration of First Covering Bond and
signing of sureties as in the previous facility loans.
[6.3.3
] Loan accounts 1[…], 1[…], 1[…] and the
shortfall of R451 027.39 would be incorporated into this loan
and be
settled from the proceeds thereof.
[6.3.4
] the net release amount on all the units would be used to
permanently reduce the loan.
[6.5]
The parties entered into a loan agreement
[5]
on 23 September 2010 in terms of which an amount of R29 979 was
advanced to Centro on certain conditions, amongst which;
[6.5.1
] Centro renounced the benefits that would arise from the legal
exceptions
non numeratee pecuniae, non causa debiti, errore
caculi,
revision of accounts and no value received.
[6.5.2
] Registration of First Continuing Bond in the amount of R90 000
000.00 over certain specified units in the Sectional Title
“
Scheme
known as Villa Primarius in respect of the land and buildings
situate at Waterval East Extension 42 Township, Local
Authority:
Rustenburg Local Municipality”.
[6.5.3
] the full loan amount would be repaid by way of monthly installments
over a period of 240 months .
[6.5.4
] Demand for immediate payment of all amounts in the event of amongst
other things; failure to satisfy a default judgment
within 21 days or
application for liquidation or judicial management by Centro .
[6.6]
On 30 March 2011 , alternatively 04 April 2011 the parties
entered into an Addendum to the Loan Agreement
[6]
.
In terms of the Addendum, the Loan Agreement was increased to R32 287
392.12 the loan would “
expire
on the 7
th
March 2012”.
The net proceeds of the sale of the Units or portions of the land
would be paid to the lender.
[7]
It is common cause that:
[7.1]
Centro accepted the terms and conditions of the loan facilities, the
Loan Agreement and Addendum thereof . It is also common
cause that a
First Continuing Covering Mortgage Bond was registered in favour of
Imperial Bank over the property known as Holding
8 Waterval Small
Holdings, North West Province for the sum of R90 000 000.00.
[7.2]
A breach of any of the provisions of the Bond would entitle Imperial
Bank, at its own option, to forthwith demand full payment
of all
amounts secured by the bond and to institute proceedings to recover
the amounts and an order to declare the property
executable.
THE
BREACH
[8].
Nedbank alleges that Centro has breached the terms and conditions of
the facility letters, loan agreement and addendum thereof
in that it
failed to repay the loan at the agreed date, namely; 07 March 2012.
Furthermore, Centro was placed under winding-up
in the hands of the
Master of the North Gauteng High Court, Pretoria on 26 March 2012.
[8.1]
The amount owing, as per certificate of balance
[7]
dated 09 September 2013 is indicated as follows:
“
Account Number:
3[…]
Balance owing as
at 31 August 2013: R8 939 201.84
Arrears owing as
at 31 August 2013 : R8 939 201.84
Plus
interest at Nedbank Limited’s prime lending rate (currently
8.5% ) plus 1.00% at the date of issue of the summons
calculated from
1 September 2013 to date of payment, calculated daily on the capital
balance outstanding from time to time, compounded
monthly in arrears.
SURETIES
[9].
The First Defendant signed two limited sureties
[8]
, the first on 11 October 2007 for an amount of R10 000 000.00 and
the second on 11 December 2008 for amount of R15 000 000.00.
[10]
The second defendant signed a limited surety
[9]
for an amount of R30 000 000.00 on 02 October 2007.
CAUSE
OF ACTION AGAINST THE DEFENDANTS
[11].
The plaintiff’s cause of action is based on the deeds of
suretyship agreements referred to above in terms of which the
defendants bound themselves as sureties and co-principal debtors
jointly and severally to Imperial for the due performance of all
obligations of Centro in terms of the Facility Letters, Loan
Agreement and Addendum thereof as stated in the preceding paragraphs.
[12]
I will highlight the relevant terms and conditions of the suretyship
agreements when I deal with the plaintiff’s submissions
on the
defences raised by the defendants to resist summary judgment.
LEGAL
PRINCIPLES OF SUMMARY JUDGEMENT
[13]
In the matter of
Joob
Joob Investments (Pty) Ltd v Stocks Mavundla Zek Joint Venture
[10]
,
Navsa
JA
[11]
restated the origin and principles of summary judgment and
cautioned about the labeling of summary judgment as “extraordinary”
.
“
29]
A summary judgment procedure was first introduced into our practice
by the Magistrate’s Court Act of 1917. It was based
upon a
procedure introduced in England by Order XIV under the Judicature
Acts whereby a plaintiff was able, by means of a summary
proceeding,
to obtain a final judgment when there was no bona fide defence to an
action.
16
[30]
In John Wallingford v The Directors &c. of The Mutual Society
(1880)
5 AC 685
(HL) at 699-700, Lord Hatherley referred to the objects of the new
English procedure as follows:
‘
I
apprehend that from the first the objects of these short methods of
procedure has been to prevent unreasonable delay, a delay
which was
very prejudicial to the creditors, and never, I am afraid, or rather,
I am pleased to say, can have been very beneficial
to the debtor
himself. Simply allowing legal proceedings to take place, in order
that delay may be applied to the administration
of justice as much as
possible, is not an end for which we can conceive the Legislature to
have framed the provisions which now
exist under the several
Judicature Acts. If a man really has no defence, it is better for him
as well as his creditors, and for
all the parties concerned, that the
matter should be brought to an issue as speedily as possible; and
therefore there was a power
given in cases in which plaintiffs might
think they were entitled to use the power by which, if it was a
matter of account, an
account might be immediately obtained upon the
filing of a bill, or, if it was a matter in which the debt was clear
and distinct,
and in which nothing was needed to be said or done to
satisfy a Judge that there was no real defence to the action,
recourse might
be had to an immediate judgment and to an immediate
execution.’
[31]
So too in South Africa, the summary judgment procedure was not
intended to ‘shut (a defendant) out from defending’,
unless it was very clear indeed that he had no case in the action. It
was intended to prevent sham defences from defeating the
rights of
parties by delay, and at the same time causing great loss to
plaintiffs who were endeavouring to enforce their rights.
17
[32]
The rationale for summary judgment proceedings is impeccable. The
procedure is not intended to deprive a defendant with a triable
issue
or a sustainable defence of her/his day in court. After almost a
century of successful application in our courts, summary
judgment
proceedings can hardly continue to be described as extraordinary. Our
courts, both of first instance and at appellate
level, have during
that time rightly been trusted to ensure that a defendant with a
triable issue is not shut out. In the Maharaj
case at 425G-426E,
Corbett JA, was keen to ensure first, an examination of whether there
has been sufficient disclosure by a defendant
of the nature and
grounds of his defence and the facts upon which it is founded. The
second consideration is that the defence so
disclosed must be both
bona fide and good in law. A court which is satisfied that this
threshold has been crossed is then bound
to refuse summary judgment.
Corbett JA also warned against requiring of a defendant the precision
apposite to pleadings. However,
the learned judge was equally astute
to ensure that recalcitrant debtors pay what is due to a creditor.
[33]
Having regard to its purpose and its proper application, summary
judgment proceedings only hold terrors and are ‘drastic’
for a defendant who has no defence. Perhaps the time has come to
discard these labels and to concentrate rather on the proper
application of the rule, as set out with customary clarity and
elegance by Corbett JA in the Maharaj case at 425G-426E.
[14]
In the matter of
Di
Savino v Nedbank Namibia Ltd
[12]
, the appeal court, per
Ngcobo AJA considered the principles of summary judgment, in
particular the issue of whether the failure
of the affidavit to
measure up to the requirements of the Rule would result in the
granting of summary judgment.
Principles
governing summary judgment
23.
One of the ways in which the
defendant may successfully avoid summary judgment is by satisfying
the court by affidavit that he or
she has a bona fide defence to the
action. The defendant would normally do this by deposing to facts
which, if true, would establish
such a defence. Under Rule 32(3)(b)
the affidavit must “disclose fully the nature and grounds of
the defence and the material
facts relied upontherefor”. Where
the defence is based upon facts and the material facts alleged by the
plaintiff are disputed
or where the defendant alleges new facts, the
duty of the court is not to attempt to resolve these issues or to
determine where
the probabilities lie.
24.
The
enquiry that the court must conduct is foreshadowed in Rule 32(3)(b)
and it is this:first, has the defendant “fully”
disclosed
the nature and grounds of the defence to be raised in the action and
the material facts upon which it is founded; and,
second, on the
facts disclosed in the affidavit, does the defendant appear to have,
as to either the whole or part of the claim,
a defence which is bona
fide and good in law.
[13]
If the court is satisfied on these matters, it must refuse summary
judgment, either in relation to the whole or part of the claim,
as
the case may be.
25.
While
the defendant is not required to deal “exhaustively with the
facts and the evidence relied upon to substantiate them”,
the
defendant must at least disclose the defence to be raised and the
material facts upon which it is based “with sufficient
particularity and completeness to enable the Court to decide whether
the affidavit discloses a bona fide defence.”
[14]
Where the statements of fact are ambiguous or fail to canvass matters
essential to the defence raised, then the affidavit does
not comply
with the Rule.
[15]
26.
Where
the defence is based on the interpretation of an agreement, the court
does not attempt to determine whether or not the interpretation
contended for by the defendant is correct. What the court enquires
into is whether the defendant has put forward a triable and
arguable
issue in the sense that there is a reasonable possibility that the
interpretation contended for by the defendant may succeed
at trial,
and, if successful, will establish a defence that is good in
law.
[16]
Similarly,
where the defendant relies upon a point of law, the point raised must
be arguable and establish a defence that is good
in law.
27.
But
the failure of the affidavit to measure up to these requirements does
not in itself result in the granting of summary judgment.
The defect
may, nevertheless be cured by reference to other documents relating
to the proceedings that are properly before the
court.
[17]
In
Sand and Co. Ltd v Kolliasthe court held that the principle that is
involved in deciding whether or not to grant summary judgment
is to
look at the matter “at the end of the day” on all the
documents that are properly before the court.
[18]
OPPOSING
AFFIDAVIT FILED AND DEFENCES RAISED BY THE DEFENDANTS TO RESIST
SUMMARY JUDGMENT.
[
15]
The affidavit filed by the defendants to resist summary judgment and
the defences raised therein should be considered in accordance
with
the above stated general principles.
[16]
The following defences have been raised:
[16.1]
The plaintiff acted in a prejudicial manner towards the defendants,
thereby releasing them from their surety obligations.
[16.2]
“
The principle (sic) debt was settled by virtue of the
realization of securities held by Centro, alternatively the amount
that
may be due is in dispute….”
[16.3]
The plaintiff has infringed their
constitutional right of
freedom of equality as protected in sections 18, 22, 23, 25 and 31 of
the Constitution of the Republic
of South Africa” .
The
first defendant allege that she “
was forced to sign a
deed of surety with terms and conditions that only benefitted the
plaintiff and to which I would not have consented
to if I had the
opportunity to negotiate on an equal footing”.
[17]
I now deal with how each defence was substantiated in the opposing
affidavit as well as in oral argument.
Release
from surety
[18]
In paragraph 5 , defendants alleged that the following
constitutes prejudicial conduct of the plaintiff that entitles
them
to be released from their surety obligations:
“
[5.2] More
specifically, Nedbank was unreasonable in its requirements for
cancellation figures in release of immovable properties
that were
sold by Centro shortly before the application for business rescue.
Nedbank was not prepared to reduce its cancellation
figure
requirements that would have resulted in a loss of approximately R500
000.00 (Five Hundred Thousand Rand). It did not consult
the
defendants on the decision that ultimately resulted in the alleged
loss of R6 000 000.00. I respectfully refer the Honourable
Court to
Annex “IB1”, a series of letters illustrating these
developments.
[5.3]
Nedbank acted to the detriment of the surety, increase its burden,
which resulted in a release of the surety obligation and
contrary to
its obligations as a banker.
[5.4]
Furthermore, at the time of the liquidation of Centro:
[5.4.1]
The account with Nedbank was in fact paid up to date and in fact a
credit of R40 000-00 ( Forty Thousand Rand) was available.
[5.4.2]
Nedbank materially breached the terms of the development loan
agreement with Centro which was seriously prejudicial to both
Centro
and eventually the defendants.
[5.5]
I respectfully refer the Honourable Court to Annex “IB2”,
an affidavit filed in the application for intervention
and
liquidation of Centro which stated the following:
[19]
IB2 is a replying affidavit deposed by Petrus Van der Berg ( second
defendant) under case number NGHC 27922/2011 in the matter
between
Petrus Van der Berg and Centro Developers CC as first respondent and
Nedbank and others as further respondents. The affidavit
is
incomplete but appears from its contents to deal with the
dissatisfaction of the defendants when Imperial Bank refused to pay
the full amount as per payment certificate and thus forcing the
second defendant to obtain bridging finance from another finance
institution called II Incentives. This company subsequently
registered a second mortgage bond over the property that the
plaintiff
held a first bond. The conduct of the plaintiff, according
to this extract is alleged to have increased the principal debtor’s
indebtedness. Failure to grant further funds allegedly caused Centro
not to proceed with development for a period of 4 months whilst
waiting for bridging finance.
[20]
I do not know what the allegations in the founding and answering
papers in that case were. However, save for the alleged payment
and
allegations of unequal bargaining power, the allegations regarding
refusal to pay funds and further advances are not denied
by the
plaintiff. According to plaintiff, it was entitled in terms of the
surety agreement to act in the manner it did.
I
will revert to this later.
[21]
Defendants also aver that in 2009, Nedcor
reneged on their loan
account with Centro by paying R6 million short on the development
loan.
[22]
Defendants futher aver that:
“
8.1
II Incentives is claiming the profit share to which Nedbank has a
first right of cession. The claim is as yet not quantified.
8.2
The potential benefit for Nedbank is at least for an amount of R4,1
million plus mora interest from 2011;
8.3
There is a counterclaim.
[
23]
Defendants also rely on the alleged discussions between an attorney
representing II Incentives and the deponent to plaintiff’s
affidavit for summary judgment that “
Nedbank had been eager
that II Incentives be paid so that their bond could be cancelled.
Other
than this bald statement, there is nothing to substantiate this.
[24]
Another allegation made to support the alleged prejudicial conduct
relate to a million rand that is being kept in trust pending
the
finalization of the dispute between II Incentives and Sergovia. This
amount would or should apparently be utilized to realize
Nedbank’s
securities for the indebtedness of Centro.
Payment
[25]
In paragraph 13, the first defendant deposed to amongst others the
following “…
. Since the liquidation of Centro, some
21 months ago, Nedbank or the liquidators have collected rental of
approximately R200 000.00
(Two Hundred Thousand Rand) per month. The
liquidation and distribution account of Centro makes no mention of
this rental, alternatively
of occupational interest earned after the
property was sold.”
Infringement
of constitutional rights
[26]
The defendants’ complaint is that:
[26.1]
They were in an unequal bargaining position because “
the
deed of surety contained all standard terms and conditions in
favour of the plaintiff. The defendants were simply not
in a position
to negotiate the terms of the deed of surety and had to consent
thereto without reference to an attorney. I was forced
to sign the
document as presented, on behalf of the defendants, failing of which
the plaintiff would not have made the funds available
to the
principal debtor.”
[19]
[26.2]
“The banks have a powerbase and negotiate from this position.
This is standard, bank practice, and neither the principal
debtor nor
the defendants was in a position to negotiate with any other
financial institution.”
[20]
[26.3]
In paragraph 14.5, the first defendant stated that “
I had
no intention to be bound as co-principal debtor”.
[27]
In conclusion, defendants in paragraph 14.7 indicated in their
opposing affidavit that they will rely on “
RH Christie, The
Law of Contract in South Africa, 5
th
Edition, Lexis Nexis, op p.18-19 where the following is stated…..”
The
relevant portion of the book deals with amongst others what the
author refers to as ‘
weak bargaining position that consent,
even if genuine, was at best reluctant”.
The learned author
refers to the section 9(1) of the Bill of Rights to support his views
that there should be an investigation to
determine whether a contract
under those circumstances is enforceable.
Defendants
place further reliance on legislations such as
Promotion of Equality
and Prevention of Unfair Discrimination Act 4 of 2000
, enacted as
required by
s9(4)
of the Bill of Rights
[28]
As I have indicated above, defendants did not file heads of argument.
In their oral presentation, their counsel argued that
the liquidation
of Centro (as a result of the prejudicial conduct of the plaintiff )
caused problems for the defendants, and as
such they were released
from their surety obligations.
[29]
Mr. Kruger referred to clauses in the surety agreement that are
according to him are
contra bonos mores
, oppressive and
unreasonable towards the defendants such as :
Clause
13
[21]
that reads: “
The
surety will not have the right to any cession of action in respect of
any payment to the bank made by the surety or on behalf
of the
surety, nor will the surety be entitled to take any action against
the debtor or against any other surety for the debtor
in respect
thereof unless and until the indebtedness of the debtor to the bank
has been discharged in full………”
Clause
15
thereof that reads: “
The surety acknowledges that all
amounts due and payable by the debtor to the bank shall be
recoverable from and paid by the surety.
If any dispute arises
between the debtor and the bank:
15.1
and the debtor contends that any obligation is not due and owing, or
that the debtor has a counter claim against the bank whether
liquidated or not, then the surety:
15.1.1
will accept the written contention of the bank that such
obligation is due and owing; and
15.1.2
waives any defence or contention which the debtor may raise; and
15.1.3
agree to pay the amount or perform the obligations forthwith.
15.2
The bank shall repay to the surety any amounts paid in terms of
paragraph 15.1 to the extent that a court of competent jurisdiction
(including any appeal court) finally determines that the contentions
of the debtor are correct”
[30]
Plaintiff’s counsel had raised an issue about whether second
defendant has filed any opposing affidavit in view of the
fact that
the first deponent in the affidavit filed referred to “I”
. In response, Mr Kruger indicated that Annexure
IB2 attached to the
opposing affidavit was deposed by the second defendant and that
they rely on each other for their defences.
I
agree with Mr. Kruger in this regard.
[31]
In reply,
Mr Leathern pointed out that clauses 14 and 15 of
Annexure M1 do not give the bank a discretion because they are
couched in peremptory
terms. The bank does not have to consult the
surety before making or taking any decision that may affect him or
her.
[32]
I may at this point turn to the clauses in the surety
agreements that according to plaintiff entitle it to act in the
manner that it did when refusing to pay funds on presentation of the
certificates by Centro and furthermore, refusing to make a
further
loan amount of R6M available in 2008..
[32.1]
The defendants accepted the terms and conditions of the deed of
surety agreement
[22]
.
[32.2]
Plaintiff was entitled to take 100% net release value in accordance
with clause 6.20 of the deed of surety agreement.
In terms of
clause 7
[23]
, the debtor is
obliged to pay the net proceeds of the sale of the units on date of
release of such unit.
BONA
FIDE DEFENCE
[33]
The opposing affidavit makes bald vague allegations that are not
supported by facts. In some cases, conclusions of law that
are not
justified by the facts. I am mindful of the fact that I do not have
to adjudicate the correctness of the defences, but
to consider
whether on the facts placed before me , that would still need to be
proven at trial stage, the defendants have a defence
that is good in
law and made in good faith.
[34]
I have, as stated in the Maharaj case, taken into account all
documents properly placed before me and not just the opposing
affidavit in an attempt to have a complete view at the end of the
day.
[35]
I was however, not able to find prima facie evidence relating to the
alleged payment or collection of the rentals of
R200 000.00 per
month by either the plaintiff or liquidators of Centro. I could also
not find support that Centro was not owing
plaintiff at the time of
its winding up. The fact that the winding up order was made by the
court makes this argument not worth
pursuing. In any event, a surety
may claim against a debtor what he has paid to satisfy the principal
debt.
[36]
I reject the contention that the conduct of plaintiff entitles
defendants to be released from their obligations on two
basis;
namely, there is a body of legal precedents that there is no such
general principle, but that the relationship between surety
and the
bank is governed by the contract between them. In this case, the
signed deeds of sureties are self-explanatory. If the
agreement deed
of sureties were silent on prejudicial issues, I would without
hesitation refuse to grant plaintiff summary
judgment because then
the conduct of the plaintiff would need to be judged in a trial court
to determine whether they breach “some
or other legal duty”
It
is not surprising that defendants, in the face of the contracts
of suretyship they signed that clearly render the conduct
of the
plaintiff lawful, now , resort to a defence based on unequal
bargaining power. I will deal with this defence later.
[37]
In the matter of
Bock
and Others v Duburoro Investments (Pty) Ltd
[24]
, Harms JA
[25]
, reiterated the
principle that prejudicial conduct does not per se release a surety
from his/her obligations. The appeal court
also placed in perspective
the views of the learned author C H Christie on the issue in
question.
“
[18]
I then turn to the next issue, namely that of prejudice. In the 1992
edition of Caney’s The Law of Suretyship,
28
there appeared a statement in these
general terms:
‘
The
creditor must do nothing in his dealings with the principal debtor
and the other sureties which has the effect of prejudicing
the
surety; if he does the surety is released.’
This
and a similar statement from Wessels Law of Contract in South
Africa,
29
were quoted in some judgments.
30
The latter reads as follows:
'In
equity, upon a contract of suretyship, if the person guaranteed does
any act injurious to the surety, or inconsistent with his
right, or
if he omits to do any act which his duty enjoins him to do and the
omission proves injurious to the surety, the surety
will be
discharged.'
These
statements, it appears, became in the eyes of some a rule of general
application and it is on this rule that the sureties
in a sense rely.
The problem, however, is that
Wessels was not quoted fully and that he was quoted out of context.
Wessels was dealing with the effect
of the creditor’s
negligence on the surety (para 4338). He mentioned that it is
difficult to lay down a general rule to determine
when the personal
negligence of the creditor would enable the surety to claim discharge
(para 4342). He then hypothesized that
the surety might be released
‘
if
by contract there is a duty cast upon the creditor to preserve the
surety’s rights.’
(Para
4343; my emphasis.) The next four paragraphs illustrate this
proposition and the last of these deals with an 1861 case of
Watts v
Shuttleworth
31
where, as Wessels (at para 4346)
said,
‘
a
person became surety for the due performance of a work, on the
understanding that the employer would insure against fire. The
Court
held that a failure to insure discharged the surety.’
Only
then the quoted text came. In Watts the building did burn down. The
Court there had to consider whether the failure to insure
released
the surety fully or only pro tanto and, applying the ‘analogy’
of the English rule of equity that if the creditor
gives the debtor
time to perform, the surety is released (which is not part of our
law) the Court held that the surety had been
released in toto.
[19]
Probably fearing that he might be misunderstood by future generations
Wessels, after the quotation, referred by way of comparison
to a
judgment of his. That case, Nathanson and Another v Dennill
1904
TH 289
292, makes his point in no uncertain terms. He held that if
‘
a
material alteration is made between the creditor and the principal
debtor in an agreement to which there is a surety’
the
surety may be released if the surety is thereby prejudiced. The
alteration he referred to was one that amounted to a novation
of the
principal debt.
[20]
This Court, in Absa Bank Ltd v Davidson
2000
(1) SA 1117
(SCA), was confronted with the submission that:
‘
there
is a general so-called “prejudice principle” in our law
to the effect that, if a creditor should do anything in
his dealings
with the principal debtor which has the effect of prejudicing the
surety, the latter is fully released.’
It
came, in the words of Olivier JA, without any mincing to the
conclusion that no such principle exists and held (at para 19):
‘
As
a general proposition prejudice caused to the surety can only release
the surety (whether totally or partially) if the prejudice
is the
result of a breach of some or other legal duty or obligation. The
prime sources of a creditor's rights, duties and obligations
are the
principal agreement and the deed of suretyship. If, as is the case
here, the alleged prejudice was caused by conduct falling
within the
terms of the principal agreement or the deed of suretyship, the
prejudice suffered was one which the surety undertook
to suffer.
Counsel who drafted the plea was therefore on the right track when he
sought to base his case upon prejudice which flowed
from the breach
of an obligation, contractual in the present circumstances.’
[
21]
This statement of the law was accepted as correct by Griesel J
32
and by the Court a quo (at para 19)
and somewhat grudgingly by the sureties during argument before us.
The problem is that Van Zyl
J
33
added an obiter gloss to it in these
terms:
‘
On
the basis of these considerations I would then suggest that the
prejudice required for a successful defence of prejudicial conduct
justifying release from a suretyship agreement may be described in
the following terms. With reference to all the relevant facts
and
circumstances, and with due regard to considerations of justice,
fairness, reasonableness, good faith and public policy, the
alleged
prejudice must constitute real and substantial prejudice which has
the effect of unduly increasing the contractual burden
of the
surety.’
I
have to admit that I do not understand how this test will work in
practice or why the gloss was necessary. The considerations
given may
be appropriate where a judicial discretion is involved or a value
judgment called for, such as in the case of sentencing
or the
determination of wrongfulness, but the release of a surety is not a
matter of either. In a constitutional democracy the
principle of
legality applies and making all rules of law discretionary or subject
to value judgments may be destructive of the
principle. In any event,
this gloss is irreconcilable with Brisley v Drosky
[2002]
ZASCA 35
;
2002
(4) SA 1
(SCA) para 11-24 dealing with the concept of bona fides in the law of
contract. Lest there be any misunderstanding, this judgment
subscribes to the law as set out in the judgment of Olivier JA
34
in
spite of the criticism in the current edition of Caney.
35
[22]
The argument of the sureties amounts to this: the banks were in
possession of securities; these had to be realized in a lawful
manner
at the appropriate time and at a fair value; since this did not
happen, they were released. The Court a quo (at para 19.1)
saw the
law in another way:
‘
I
can see no reason in equity, morality, public policy, principle or
law why minimal prejudice should automatically release a surety
from
all liability for the principal debt. In an appropriate case there is
much to be said for limiting the surety’s release
to the extent
that he or she has been prejudiced by the conduct of the creditor
that is in breach of some of some or other legal
duty or obligation.’
[23]
One can approach the matter from a slightly different angle. The
agreement between Nedcor and the principal debtor provided
for the
take-over of the pledges in a particular manner. Nedcor took them
over in a manner contrary to that agreed upon. This breach
did not
release the principal debtor from its liability but the principal
debtor was entitled to have been placed in the position
as if the
agreement had not been breached, which means in this case that the
principal debtor was entitled to be credited with
the ‘true’
value of the shares as at the date of take-over. Why should the
position of the sureties, who are also co-principal
debtors, be any
different? There is no fiduciary relationship between them and the
creditor.
36
Their indebtedness will not have been
increased or changed as a result of Nedcor’s breach.
[24]
Wessels (para 4345) in the paragraph preceding his discussion of
Watts, gave an example that fits this exposition of the law
and is
particularly apposite to the facts of this case:
‘
A
obtained an advance of money from a loan society and B became his
surety. There were certain goods pledged to the society by A.
The
society sold these goods and claimed on B for the balance. B pleaded
as an equitable defence that but for the mismanagement
of the agents
of the society in selling A’s goods they would have realized
sufficient to satisfy the whole debt. The Court
held this to be a
good plea.’
(Emphasis
added.)
[25]
It would thus appear as if the question of the release of a surety
due to the prejudicial conduct of the creditor and the question
of
the quantum of the principal debt tend to be conflated. These are two
distinct inquiries. Properly analyzed, the sureties’
defence is
about quantum, i.e., the extent of the principal debtor’s
liability for which they are in solidum liable.
37
[26]
Nestadt JA
38
once referred to a general principle
according to which a surety will be discharged if the creditor by his
own act makes it impossible
for himself to cede his security to the
surety. This
statement
of his may appear to be in conflict with conclusions thus far. The
learned Judge, it should be noted, did not deal with
the question
whether the release is in toto or pro tanto and, additionally,
Wessels makes it clear that the release is dependent
on the
creditor’s negligence (at para 4338-4339 and 4352) and is pro
tanto (at para 4354). This principle can, in any event,
not be
applicable where the creditor utilized the securities in order to
reduce the indebtedness of the principal debtor.
39
[38]
In the matter of
Andre
Visser and Another v Ereka Kotze
[26]
,
a defence of duress was raised in the affidavit opposing summary
judgment. The court, per Van Heerden JA
[27]
assessed the facts placed by the deponent to assess the defence of
duress. It came to a conclusion that the facts placed before
the
court did not meet the
elements
necessary to set aside a contract on the ground of duress.
[39]
The defendants make bald allegations of having been forced to sign
the suretyship agreements and seek to rely on unequal bargaining
power that the banks hold as against consumers.
[40]
I am inclined to agree with the submissions made by Mr. Leathern on
behalf of the plaintiff that:
[40.1] Surety
contracts should be complied with.
[40.2] The sureties
in question were signed in 2007/2008.
[40.3]
The deponent to the opposing affidavit (first defendant) describes
herself as a business woman.
[40.4]
The defendants did not place any facts before the court on the nature
of the unequal bargaining power, such as whether there
is any lending
institution that would have offered them what they would consider
favorable conditions.
[41]
I may add that having taken all facts in the documents properly
placed before me and not just the opposing affidavit,
it is
clear that the defendants were involved in some multimillion rand
property developments in up market areas. They do not appear
to be
any simple Jane and Harry who obtained a loan to start a café
in a small sleepy town. They welcomed the benefit and
were looking
forward to reap profits when the bank (rightly so in terms of
the deed of sureties) pulled the rug underneath
them.
They
should have placed real facts before the court to enable it to assess
the defence of duress and unequal bargaining power. They
do not state
what preferable terms they would have agreed to and the basis
thereof.
[42]
Mr Kruger identified certain clauses in the surety agreements as
stated above as oppressive and
contra bonos mores.
This
is say so because the defendants, as I have already stated have not
laid a basis as to whether anything else is possible
in the economic
space they operate within.
[43]
In the matter of
Napier
v Barkhuizen
[28]
the Constitutional Court
per Cameron JA was not able to decide whether the consumer was in a
weak bargaining power as against an
insurer because there was no
sufficient evidence to make such a finding. “
whether
the plaintiff in effect was forced to contract with the insurer on
terms that infringed his constitutional rights to dignity
and
equality in a way that requires this court to develop the common law
of contract so as to invalidate the term. But without
any inkling
regarding the issues set out above, the broader constitutional
challenge cannot even get off the ground.”
[29]
[44}
Consequently, the defendants have failed to disclose a bona fide
defence based on allegations of infringement of their constitutional
right to equality.
CONCLUSION
[45]
Having considered all defences put forward by the defendants and
having found that none of them discloses a defence that is
good in
law and made in good faith as envisaged in
Rule 32
, the plaintiff is
entitled to summary judgment.
[46]
In the result, I make the following order:
Summary
judgment is granted in favour of the plaintiff as follows:
1.Payment
of an amount R8 939 201.84.
2.
Plus interest at Nedbank Limited’s prime lending rate which was
8.5% plus 1.00% at the date of issue of the summons calculated
from 1
September 2013 to date of payment, calculated daily on the capital
balance outstanding from time to time, compounded monthly
in arrears.
3.The
liability of the first defendant shall be restricted to an amount of
R15 000 000.00 plus legal costs and interest.
4.The
liability of the second defendant shall be restricted to an amount of
R30 000 000.00 plus legal costs and interests.
5.Costs
of suit against first and second defendants on a scale as between
attorney and own client to be taxed.
MAKHUBELE
AJ
Acting
Judge of the High Court.
APPEARANCES:
PLAINTIFF:
DM Leathern SC
Instructed
by: Van Rensburg Koen & Baloyi Attorneys
Arcadia,
Pretoria
DEFENDANT
:
TP Kruger
Instructed
by: Jaco Roos Attorneys
Colbyn,
Pretoria
[1]
In the particulars of claim it is referred to as Facility letter E.
[2]
Annexure (Facility Letter) F
[3]
Annexure (Facility Letter) G
[4]
Particulars of Claim, paragraph 10.1
[5]
Annexure (Loan Agreement) H
[6]
Annexure I
[7]
Annexure L1
[8]
Annexures M1 and M2 respectively
[9]
Annexure N
[10]
(161/08)
[2009]
ZASCA 23
(27 March 2009)
[11]
Harms
DP, Brand, Mhlanta JJA and Bosielo AJA concurring
[12]
(SA
24/2010)
[2012] NASC 3
(21 June 2012)
[13]
Maharaj
v Barclays National Bank Ltd
,
1976(1) SA 418 (A)at 426A-C
[14]
Maharaj
v Barclays National Bank
,
supra,
at 426C-D
[15]
Arend
and Another v Astra Furnishers (Pty) Ltd
,
1974(1) SA 298(C) at 304A-B
[16]
Shingadia
v Shingadia,
1966(3) SA 24(R) at 26A-B;
Tesven
CC and Another v South African Bank of Athens,
2000(1) SA 268 (SCA) at para 26;
Shepstone
v Shepstone
,
1974(2) SA 462(N) at 467A;
Marsh
and Another v Standard Bank of SA Ltd
,
2000(4) SA 947(W) at 949 para 3
[17]
Sand
and Co. Ltd v Kollias,
1962
(2) SA 162
(W) at 165;
Maharaj
v Barclays National Bank Ltd, supra,
at
423H
[18]
Sand
and Co. Ltd v Kollias, supra,
id.
[19]
Paragraph 14.3
[20]
paragraph 14.4
[21]
Annexure M1
[22]
Annexure M1, P.135 and p.157, Annexure M2, p163, Annexure N, P169
[23]
p.131
[24]
(228/2002)
[2003] ZASCA 94
;
[2003] 4 All SA 103
(SCA) (26 September 2003)
[25]
ZULMAN,
FARLAM, NAVSA JJA and VAN HEERDEN AJA concurring.
[26]
(519/2011)
[2012]
ZASCA 73
(25 May 2012)
[27]
Heher,
Mhlantla, Leach JJA and Ndita AJA concurring
[28]
[2007] ZACC 5
,
2007 (5) SA 323
CC
[29]
at para. 16