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[2014] ZAGPPHC 484
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Antalis South Africa (Pty) Ltd v C N.O. (73947/2010) [2014] ZAGPPHC 484 (20 March 2014)
IN
THE NORTH GAUTENG HIGH COURT, PRETORIA
(REPUBLIC
OF SOUTH AFRICA)
CASE
NO: 73947/2010
DATE:
20/3/2014
In
the matter between:
ANTALIS
SOUTH AFRICA
(PTY)
.........................................................................................
Applicant
and
D[…]
C[…] C[…]
N.O
....................................................................................................
First
Respondent
D[…]
C[…] C[…]
N.O
...............................................................................................
Second
Respondent
G[…]
G[...] J[…] V[…] D[…]
M[…]
N.O
......................................................................................................................
Third
Respondent
D[…]
J[…]
P[…]
.........................................................................................................
Fourth Respondent
JUDGMENT
MAKHUBELE
AJ
INTRODUCTION
[1]
In this application, and in terms of the Notice of Motion, applicant
sought payment of an amount of R3 160 472.51 (three
million
hundred and sixty thousand four hundred and seventy two rand and
fifty one cents) against the respondents on the following
basis:
(a)
first respondent in her representative capacity as the
executrix of the estate of late P[…] H[…]
C[…]
(the deceased) and as second respondent in her capacity as
trustee of the J[…] Trust . I will refer to
her as first
respondent ; and
(b)
Third and fourth respondents in their capacities as trustees of the
J[…] Trust.
[2]
The deceased, who was the husband of first respondent and a
co-trustee of J[…] Trust with all the other respondents,
bound himself and the J[…] Trust by resolution signed by
the other trustees as sureties and co-principal debtors in
solidum
for all the debts and fulfillment of the obligations of J[…]
Printers (Pty) Ltd (“Principal Debtor’) in favour
of the
applicant for the due and punctual payment and performance on demand
of all obligations and payment of all monies owed by
the principal
debtor to the applicant.
The
debt against the Principal Debtor, that, according to applicant
acknowledged, arises from credit facilities extended
by
applicant.
SECURITY
FOR PAYMENT OF THE DEBT
[3]
In paragraph 11 of the founding affidavit, applicant averred that it
had, at the time this application was issued, instituted
proceedings against Fastpulse Trading 368 (Pty) Ltd (‘Fastpulse),
a company that has also bound itself as surety and co-principal
debtor in
solidum
with the Principal Debtor for due
performance of the latter’s obligations towards the applicant.
As it turned out, Fastpulse
had sold a game farm for R5 000
000.00 and was awaiting payment of an amount of R3 632 975.32 out of
the proceeds of sale.
[4]
It is common cause from subsequent pleadings
[1]
that:
(a)
judgment was granted in favour of applicant,
(b)
Fastpulse sought and was granted leave to appeal to the Supreme Court
of Appeal on 14 June 2011, however, it failed to
prosecute the
appeal which subsequently lapsed,
(c)
Applicant proceeded to execute against the judgment by serving a writ
of execution on 15 November 2011 in the amount of R3 179
290.85 with
interest and costs, (d) the sheriff received a cheque in the amount
of R3 857 734. 84 from Fastpulse’s
co-respondent in the
action on 25 November 2011,
(d)
In the meantime, on 24 November 2011, Capital Acceptance, a creditor
of Fastpulse obtained default judgment against it in the
amount of R9
304 577.12
[5]
Applicant entered into an arrangement with Capital Assurance with
regard to sharing of the proceeds received from the
execution
of the judgment it obtained against Fastpulse . The cheque was
deposited in the account of the sheriff, who only
made a payment to
applicant after it was cleared by the bank.. Applicant made a payment
of R1 742 197 . 91 to Capital Assurance
and retained R2
115 536.93, which was used to reduce the indebtedness of the
respondents.
According
to applicant, the balance due now is R1 044 935.58 together with
interest and costs.
[2]
.
OPPOSING
AFFIDAVIT, SUPPLEMENTARY AFFIDAVIT AND DEFENCES THEREIN
[4]
Respondents filed an opposing affidavit and raised the following
initial defences:
(a)
Non-joinder of two other trustees. The fourth respondent, who was
still a trustee was subsequently joined in these proceedings,
(b)
the deceased had no authority to bind the Trust. First respondent
denied the authenticity of the resolution allegedly passed
by the
trustees to authorize the deceased to bind it as a surety and
co-principal debtor; and
(c)
J[…] Printers has since been liquidated.
(d)
Applicant has instituted action against Fastpulse for the same
amount.
[5]
On 07 March 2013, respondents, without leave of the court, filed a
subsequent affidavit in response to applicant’s replying
affidavit. The applicant raised no objection in court.
[6]
According to the deponent (first respondent), applicant had raised
new issues in paragraph 33
[3]
of
its replying affidavit and as such, respondents were entitled to
respond thereto.
[7]
In paragraph 11.2 thereof, respondents stated the following:
“
11.2
In this regard however, I would humbly submit the following:
11.2.1
Receipt by applicant of the sum of
R3 857 734.84 (THREE
MILLION EIGHT HUNDRED AND FIFTY SEVEN THOUSAND SEVEN HUNDRED AND
THIRTY FOUR RAND AND EIGHTY FOUR CENTS )
pursuant to the
writ issued by it, and executed served to extinguish the indebtedness
of the Surety concerned (The Execution Debtor
, Fastpulse Trading 368
(Pty) Ltd, and the Principal Debtor, J[…] Drukkers (Pty) Ltd.
11.2.2
It is denied that the rationale underlying Applicant’s payment
to Capital Assurance Limited, of the sum of
R1 742 197. 01
(ONE MILLION SEVEN HUNDRED AND FORTY TWO THOUSAND ONE HUNDRED AND
NINETY SEVEN RAND AND NINETY ONE CENT )
is correct in Law.
Applicant does not explain or substantiate its election so to do,
other than stating generally, that it sought
to avoid participation
by Capital Assurance Limited in the proceeds, of the attachment;
11.2.3
In any event , inasmuch as First and Second respondents herein are
exposed to the liability of the Principal Debtor, as Sureties,
it is
apparent that Applicant’s action constituted conduct
prejudicial to those Respondents as sureties;
11.2.4
Applicant had, without due consideration as to defences, and
recourses First and Second Respondents might have, elected to
remit
payment to Capital Assurance Limited, of the sum in question
11.3
Accordingly, I would humbly submit that the sum of
R1 742
197. 01 (ONE MILLION SEVEN HUNDRED AND FORTY TWO THOUSAND ONE HUNDRED
AND NINETY SEVEN RAND AND NINETY ONE CENT
) paid by
Applicant to Capital Assurance Limited, was incorrectly so pad. The
amounts so paid was received by Applicant, pursuant
to the Writ
issued by it, and on receipt thereof effectively extinguished any and
all claims as it may have had vis-a vis First
and Second Respondents.
11.4
It is my submission that Applicant has no claim for payment of the
sum it claims, as reduced , or at all.”
[8]
The defences raised in the opposing affidavit were effectively
abandoned and the only issue argued before me was whether the
respondents were released from their obligations as sureties by
virtue of the fact that applicant received payment from another
co-surety, FASTPULSE .
[9]
Applicant filed a further replying affidavit
[4]
and argued that:
(a)
payment to the sheriff does not automatically extinguish the
indebtedness of the surety, neither does payment to Capital
Assurance.
(b)
Its actions are justified in terms of the suretyship agreement and
are not prejudicial to the respondents. Reference was made
to the
following clauses in the suretyship agreements to justify its conduct
:
“
1.12
: the Trust, by signature, intercedes and binds itself jointly and
severally with J[…] Printers, as surety and co-principal
debtor in solidum and in favour of client for the due and punctual
performance on demand of all J[…] Printers obligations
of
whatsoever nature and howsoever arising…. Which J[…]
Printers presently owes client or which J[…] Printers
may in
future owe client… arising from … any obligation owed
by J[…] Printers to any creditor or third party
and howsoever
arising acquired by the creditor.
2.3.3:
The Creditor is at liberty , without affecting its rights, to
release, abandon, realize or sell securities and to give time
or
compound or make any other arrangement with any other surety,
guarantors or indemnitors for the debtor whether before or after
any
obligation has fallen due for performance.
2.6:
The surety shall not be released from liability if the Creditor …..
in any manner prejudices the rights of the Surety,
or the Debtor
(c)
Applicant and the attorneys acting for Capital Assurance reached the
agreement to share the proceeds because the latter would
have been
entitled to bring an application to participate in the proceeds. The
attorneys acting for Capital Assurance had already
issued a letter of
demand at the time the sheriff received the cheque. The claim of
Capital Assurance was much higher than the
applicant’s, and if
no agreement had been reached, the latter would have received a far
lesser amount if the matter had gone
to court for adjudication. The
sureties’ indebtedness would not have been reduced to the
extent it has. In effect, the applicant
has acted to the benefit, not
detriment of the respondents.
SUBMISSIONS
ON BEHALF OF THE APPLICANT
[10]
Mr. Carstensen , on behalf of the applicant filed comprehensive heads
of argument and addressed all the defences raised by
the respondents.
However, as I have indicated above, the only issue in dispute before
me was whether the payment to Capital Assurance
had the effect of
releasing the respondents from their obligations as sureties.
[11]
Two arguments were made on behalf of the applicant, namely ;
(a)
There was no release, and as such, applicant was entitled to claim
the balance after the respondents’ indebtedness was
reduced by
the proceeds realized by execution of the writ against Fastpulse and;
(b)
the amount being claimed represented interest (This was apparently an
alternative argument).
[12]
I agree with counsel for the respondents that the second argument
does not have merit because it was not raised in the
papers. In
any event, the issue of interest can properly be addressed in the
order applicant may obtain. If applicant wanted to
base its cause of
action on it, it should have amended its prayers and filed further
affidavits to enable the respondents to deal
with it. Therefore, I
reject this argument and there is no need to go into its merit.
[13]
On the issue of release, Mr. Carstensen made the following
submissions:
(a)
Prejudice in itself does not entitle a surety to be released from
his/her obligations. Reference was made to the matter of
Absa Bank
v Davidson 2000(1) SA 1117 (A)
at 1124I-J. He submitted further
that there is no release even if the alleged prejudicial conduct is
supported by the principal
obligation, in this case being the
application of credit and deed of suretyship. He referred to the
matter of
Block & Others v Duburoro Investments (Pty) Ltd
2004
(2) SA 242
(SCA
) in this regard.
SUBMISSIONS
ON BEHALF OF THE RESPONDENTS
[14]
In his written and oral submissions, Mr Sullivan raised the following
issues:
(a)
Applicant is not correct in its submission that it was obliged to
address the demands of Capital Assurance as a consequence
of a
judgment obtained by the latter against Fastpulse,
(b)
Fastpulse did not proceed with its threat to approach the court
for an order to participate in the proceeds. Applicant
and the
latter’s attorneys took it upon themselves to pay monies to
Capital Assurance,
(c)
The suretyship obligations of the respondents were extinguished when
applicant successfully executed its writ against the co-principal
debtor and received the amount of R3 857 734, 34.
The
suretyship then no longer had any force or effect. Reference was made
to a quotation in the matter of
Eley v Lynn & Main
Incorporated 2006 JDR 0770 (W
) in paragraph 5 where the following
was said “
By our common law the surety undertakes to pay the
debt of the principal debtor so long as the debt exists in law and
has not in
fact been paid by the debtor”,
(d)
Capital Assurance should have utilized the provisions of rule
45(11)(a)(i).
(e)
Each creditor is for himself.
RELEASE
FROM SURETYSHIP OBLIGATIONS
[15]
In the matter of
Bock
and Others v Duburoro Investments (Pty) Ltd
[5]
,
Harms JA
[6]
, 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,
[7]
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
[8]
were quoted in some judgments.
[9]
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
[10]
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
[11]
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
[12]
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
[13]
in spite of the criticism in the current edition of Caney.
[14]
[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.
[15]
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.”
[16]
[26]
Nestadt JA
[17]
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.”
[18]
CONCLUSION
AND FINDINGS
[16]
Respondents’ indebtedness was not extinguished by execution of
the writ against its co-principal debtor because in terms
of the deed
of suretyship, applicant was entitled to act in the manner it did. I
have already referred to clauses in the suretyship
agreement that
justifies the conduct of applicant.
[17]
I therefore reject the respondents’ argument that payment to
Capital Assurance was unlawful.
[18]
There is no merit in the respondents’ contention that
“
Receipt by applicant of the sum of
R3 857 734.84
(THREE MILLION EIGHT HUNDRED AND FIFTY SEVEN THOUSAND SEVEN HUNDRED
AND THIRTY FOUR RAND AND EIGHTY FOUR CENTS )
pursuant to
the writ issued by it, and executed served to extinguish the
indebtedness of the Surety concerned (The Execution Debtor
,
Fastpulse Trading 368 (Pty) Ltd, and the Principal Debtor, J[…]
Drukkers (Pty) Ltd.”
[19]
I thefore make a finding that the amount claimed by applicant against
the respondents in the Notice of Motion was reduced by
an amount of
R2 115 536.93 and that the balance due is R1 044 935.58 together with
interest and costs.
[20]
In the result, I make the following order:
First,
Second, Third and Four respondents are ordered , joint and severally,
the one paying the other to be absolved;
[1]
to pay applicant an amount of R1 044 935.58 (One Million forty four
thousand nine hundred and thirty five and fifty eight cents)
; with
[2]
interest at the rate of 15,5% a tempore morae to date of payment. The
interest should be reckoned from the date of payment of
the reducing
amount by the sheriff to applicant’s attorneys; and
[3]
costs of suit on the scale as between attorney and client.
MAKHUBELE
AJ
Acting
Judge of the High Court.
APPEARANCES:
APPLICANT:
Advocate PL Carstensen
Instructed
by: Hutcheon Attorneys, C/O Van Stade Van der Ende Inc, Menlyn,
Pretoria.
Ref:
D Beyers/EK/Antalis/J[…] Trust
Tel:
(011) 454 3221
RESPONDENTS
:
Advocate JH Sullivan
Instructed
by: Ron Lippi Attorneys, C/O ME Eybers Attorney, Pretoria.
Ref:
Mr. R Lippi
Tel:
(012) 329 7306
[1]
[2]
Replying affidavit dated 07 December 2012
[3]
This paragraph deals with amongst other issues; execution of
judgment against Fastpulse and the sharing of proceeds with Capital
Assurance.
[4]
Filing of further affidavits without leave of the court is
unprocedural. However, none of the parties took issue with this. It
was necessary to explain by further affidavits the developments in
view of the statement by applicant in the founding affidavit
that it
had instituted proceedings against a co-surety. As such, I do not
have to disallow the affidavits, moreso because there
was no
objection.
[5]
(228/2002)
[2003] ZASCA 94
;
[2003] 4 All SA 103
(SCA) (26 September 2003)
[6]
ZULMAN,
FARLAM, NAVSA JJA and VAN HEERDEN AJA concurring.
[7]
4 ed by Forsth & Pretorius
[8]
2 ed para 4346. The para and page references in Schwartzman J’s
judgment (at para 17.1) are wrong.
[9]
E.g. Minister of Community Development v SA Mutual Fire &
General Insurance Co Ltd
1978
(1) SA 1020
(W)
1023H;
Fry
and Another v First National Bank of SA Ltd
1996 (4) SA 924
(C)
928C-D.
[10]
[
1861]
EngR 800
;
158 ER 510
(Ex Ch)
[11]
Investec
Bank Ltd v Lewis
2002
(2) SA 111
(C)
116H-117(C)
[12]
Hlophe JP concurring in
Di
Giulio v First National Bank of SA Ltd
2002
(6) SA 281
(C)
para
41
[13]
Absa
Bank Ltd v Davidson
2000
(1) SA 1117
(SCA)
para 19.
[14]
Forsyth & Pretorius
Caney’s
Law of Suretyship
5 ed 205-206
[15]
Cf the relationship between a bank and its client:
Absa
Bank Bpk v Janse van Rensburg
2002
(3) SA701 (SCA)
para 16
[16]
Cf Wessels para 4363,
Gould
v Ekermans
1929
TPD 96
[17]
Barlows
Tractor Co Ltd v Townsend
[1996]
ZASCA 3
;
1996 (2) SA 869
(A)
878D-E
[18]
Cf
South
African Scottish Finance Corporation Ltd v Wassenaar
1996
(2) SA 723
(A)
731H-732A