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[2014] ZAGPPHC 483
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South African Securitisation Program (RF) Limited and Others v Leppan Beech Incorporated and Others (67751/2011) [2014] ZAGPPHC 483 (28 March 2014)
IN
THE NORTH GAUTENG HIGH COURT, PRETORIA
(
REPUBLIC
OF SOUTH AFRICA
)
CASE NO:
67751/2011
DATE: 28/3/2014
In
the matter between:
SOUTH
AFRICAN SECURITISATION
PROGRAM
(RF)
LIMITED
...............................................................................
First
Plaintiff/Excipient
SASFIN
BANK
LIMITED
..............................................................................................
Second
Plaintiff
SUNLYN
(PTY)
LIMITED
...............................................................................................
Third Plaintiff
and
LEPPAN
BEECH
INCORPORATED
............................................................................
First
Defendant
MEGAN
ELIZABETH
JARVIS
.................................................................................
Second
Defendant
SELLO
EUGENE
PHAJANE
........................................................................................
Third
Defendant
WARREN
ROBERT
BEECH
......................................................................................
Fourth Defendant
DEIDRE
VENTER (
previously
BONE
)
...........................................................................
Fifth
Defendant
KEVIN
PIETERSEN
.......................................................................................................
Sixth
Defendant
WESSEL
JOHANNES JACOBUS
BADENHORST
................................................
Seventh
Defendant
ELIZABETH
LOUW
......................................................................................................
Eight Defendant
JUDGMENT
MAKHUBELE
AJ
INTRODUCTION
[1]
Plaintiffs
[1]
issued summons
against the first defendant, an incorporated firm of attorneys
and second to eighth defendants who are or
were directors of the
first defendant for payment of the amount of R274, 203.22 ,
interest and costs of suit.
[2]
This judgment concerns an exception taken by plaintiffs against
certain averments in the pleas filed by sixth, seventh and eighth
defendants (former directors of first defendant, referred to
hereafter as “the defendants”) on the basis that they
do
not disclose a defence to its claim.
[3]
It is common cause that the pleas, though filed separately are
identical, and so are the exceptions. I will refer to the joint
plea
of the 6
th
and 7
th
defendant and the exception thereto.
ISSUES
THAT ARE COMMON CAUSE
[4]
The following issues are common cause or accepted as correct for
purposes of the execption.
[5]
Third Plaintiff and first defendant entered into a rental agreement
on 04 May 2009 in terms of which the former let to the latter
a “
multifunctional copier ‘
and “
fax option”
at a monthly rental of R5 928.00 for a rental period of 60 months
commencing on 25 May 2009.
[6]
Sixth, seventh and eight defendants were still directors of the first
defendant at the time. They resigned on 04 January 2010,
13
October 2009 and 29 January 2010 respectively
[7]
The defendants were no longer directors of the first plaintiff when
it allegedly fell into arrears with the monthly rental payments.
Sasfin, the second plaintiff, issued a letter of demand on 23
April 2010 and demanded payment of arrear amount of R11938.49.
[8]
First defendant responded to this demand on 29 April 2010 and advised
SASFIN that
“
all contracts with
Nashua were terminated on the basis of material breach, and all
quipment, including the copier, subject t the
abovementioned contract
were uplifted by Nashua in mid March 2010. In the circumstances, no
amounts are due and owing to Sasfin
Bank by Leppan Beech Incorporated
(“LBI”).
Please
be advised further, that any and all actions taken by Safin, will be
defended by LBI”
[9]
The contract was subsequently cancelled without notice to plaintiff
and summons were then issued.
RELEVANT
PARTICULARS OF CLAIM
[10]
In paragraphs 12, 13, and 14, plaintiff pleaded that second to
eighth defendants are or were directors of the fisrt defendant
when
the first defendant concluded a rental agreement with Sunlyn Rentals
and that they are jointly and severally liable
for the debts of the
first defendant by virtue of Section 23 of the Attorneys Act 53 of
1979 read with Section 53(b) of the Companies
Act 61 of 1973,
alternatively with Section 8 of the new
Companies Act 71 of 2008
.
[2]
A copy of the fisrt defendant’s memrandum of association was
also attached as annexure POC 3
[3]
.
In
paragraph 19.3, plaintiff stated that:
“
In
terms of clause 7
[4]
the first defendant agreed that should it breach any of the
conditions or terms of this agreement, or fail to pay any amounts to
Sunlyn, Sunlyn, without notice and without affecting any of its
rights be entitled to:
19.3.1
Claim immediate payment of all amounts which would have been payable
in terms of the rental agreement until expiry thereof,
whether such
amounts are payable or not;
[5]
19.3.2
In which case the first defendant agreed not to withold payment or to
make any deeductions from the outstanding amount as
a result of any
loss of possession of the goods ; or
19.3.3
Immediately terminate the rental agreement, retain possession of the
goods and all amounts already paid annd claim all outstanding
rentals.
[6]
”
[11]
In paragraph 19.6 , the following was pleaded:
“
In
terms of clause 13 the first defendant agreed not to transfer its
rights in terms of the rental agreement, nor part with possession
of
the goods to any party without first obtaining Sunlyn’s written
consent.
[12]
The breach and subsequent steps taken by the plaintiffs is pleaded in
the following paragraphs:
“
33.
The first defendant failed to make monhly rental payments as agreed
to in Annexure “POC4” , and which it had previously
paid
to the first plaintiff.
34.
On 23 April 2010 Sasfin on behalf of the first plaintiff , demamnded
payment of the outstanding arrear amount of R11 938.49
from the first
defendant. The written demand is annexed hereto as Annexure “POC7”
35.
In response to the letter of demand the first defendant replied to
Sasfin (representing the first plaintiff) in Annexure “POC8”
dated 29 April 2010 and:
35.1 confirmed
that it relinguished its possession of the leased goods without
written approval from the first plaintiff; and
35.2
alleged that no amounts are due to the plaintiff and that any action
by the first plaintiff to recovery (sic) ant outstanding
amount will
be defended.
36.
The contents of Annexure “POC8” amounts to a material
breach alternatively a repudiation of the material terms of
lease
agreementwhich the fisrt plaintiff chose to accept.
37. The first
plaintiff has elected t act in terms of clause 7.2 of the rterms of
business to the rental agreement and :
37.1 without
notice to the first defendant and without prejudice to any other
right it may have, terminate the rental agreement;
37.2
take possession of the leased goods;
37.3 retain all
amounts already paid by the first defendant ; and
37.4
claim all outstanding rentals as pre estimated liquid damages
including legal costs on the attorney and cleint scale
38.
On 13 May 2010 the frst plaintiff, in terms of clause 7.2 of the
terms of business, demanded the accelerated amount of R290,
721.68
from the first defendant which amount represens the first plaintiff’s
pre estimated and agreed liquidated damages.
This demand, sent by
registered post is annexed hereto as annexure “POC9” and
the proof of posting.
39.
The first plaintiff took possession of the goods and sold the leased
goods at a fair and reasonable market related value of
R20 000 which
amount has been credited to the first defendant’s account.
40.
In accordance with annexure “POC 10.1” and “POC10.2,
being the detailed reconciliation and certificate of
balance
respectively, the first defendant is liable to the first plaintiff
for an amount of R274, 203.22 together with interest
thereon at a
prime rate of interest plus 6% calculated from day to day from 01
July 2010 until date of fina payment.
41.
Despite demand the first defendant remains indebted to the first
plaintiff for an amount of R274, 203.22 which is now due and
owing
and payable”.
THE
PLEA OF THE DEFENDANTS
[13]
The sixth and eights defendants admitted that they were directors of
the first defendant on the date the lease gareement was
concluded.
They however pleaded that
they
were no longer directors at the time the plaintiff’s claim for
damages arose
(my
emphasis)
,
having resigned on 04 January 2010 and 24 November 2009.
[7]
[14]
Suprisingly, in paragraph 8 they deny the contents of paragraph 12 of
the particulars of claim in terms of which plaintiff
had pleaded that
they were directors of first defendant when the rental agreement was
concluded.
In
paragraph 9, they amplify the denial as follows:
“
9.1
In terms of the provisions of
section 23
of the attorneys Act, Act 53
of 1979, the Defendants are liable for the debts of the First
defendant which arose while they were
directors of the First
defendant. The Plaintiff’s, alleged claim arose on or about 1
July 2010 and the Defendants had resigned
as directors of the First
defendant with effect from January 2010.
9.2
The New
Companies Act, Act
71 of 2008 came into effect during April
2011, being a date after the resignation of the Defendants as
directors of the First defendant
and/or the Plaintiff’s,
alleged claim arising. In the premises, it is denied that the
plaintiff can place reliance on the
provisions of
Section 8
of the
latter mentioned act in an endevour to hold the defendants liable for
the debts of the First defendant.”
[15]
In paragraph 10, defendants admit that they are jointly and severally
liable with the first defendant for its debts in terms
of the
Attorneys and
Companies Act.
However
,
in paragraph 11, they deny that
“
the
Plaintiff’s claim relates to a debt and /or liability
contracted during their period of office”
[16]
In paragraph 13, the defendants pleaded that
“…
..
the Plaintiff’s claim is for payment of damages, which arose
after the Defendant had resigned as directors of the First
Defendant”.
THE
EXCEPTION
[17]
The plaintiffs noted the defendants’ admission that they were
directors at the time the rental agreement was concluded
and their
denial of liability on the basis that they were no longer directors
when the claim arose.
[18]
Paragraphs 5 , 6 and 7 of the exception read as follows:
“
5.
According to paragraph 11 of the plea the defendants deny that the
plaintiff’s claim relates to a debt and/ or liability
contacted
(sic)
by
the first defendant during their period of office.
6.
Assumig that the defendants’ allegations are correct and that
they were not directors of the plaintiff when the plaintiff’s
claim arose (as pleaded in paragraph 6 of the plea), these
allegations disclose no defence on a proper interpretation of section
23 of the Act read together with the said lease agreement as pleaded
in the particulars of claim.
7.
The plaintiff contends that the second to eight defendants are
jointly and severally liable for the debts of the first defendant
in
terms of section 23 of the At notwithstanding the resignation of any
of the directors”.
THE
LEGISLATION
[19]
Section 23 (1)(a) of the Attorneys Act, Act 53 of 1979 (the
Attorneys Act) reads as follows:
23.
Juristic person may conduct a practice.
—
(1)
A private company may, notwithstanding anything to the contrary
contained in this Act, conduct a practice if—
(a)
such company is incorporated and registered as a private company
under the Companies Act, 1973 (
Act
No. 61 of 1973
), with a share
capital, and its memorandum of association provides that all present
and past directors of the company shall be
liable jointly and
severally with the company for the debts and liabilities of the
company contracted during their periods of office”
[20]
Section 53 (b) of the Companies Act, Act 61 of 1973 (the Companies
Act) reads as follows:
53.
Memorandum may contain special conditions and may provide for
unlimited liability of directors.
The
memorandum of a company may, in addition to the requirements of
section 52 –
(a)….
(b)
in the case of a private company, provide that the directors and past
directors shall be liable jointly and severally, together
with the
company, for such debts and liabilities of the company as are or were
contracted during their periods of office, in which
case the said
directors and past directors shall be so liable.
SUBMISSIONS
[21]
Counsel for both parties filed comprehensive heads of argument to
address their respective standpoints. I am indebted to them,
in
particular their agreement at the outset that the only point they
woud argue is the meaning of the word “
contracted”
as it appears in both the Attorneys and Companies Acts . The judgment
of Hefer JA, in the matter of Fundstrust (Pty) Ltd
(in
liquidation ) v Van Deventer
[8]
took center stage, with both counsel relying on different
passages to drive their point home.
[22]
Counsel for the plaintiffs , MrCothill submitted that:
(a)
If a director was in office at the time the debt was consensually
incurred, he is liable
[9]
(b)
The Fun dstrust decion is distinguishable from the facts of this
matter ;
(i) The Fundstrust
matter concerned impeachment proceedings whereas in this matter the
fisrt defendant entered into a five year
agreement.
(ii) The rental
agreement in this matter is for a fixed period and does not concern
the subjective intentions of the directors accused
of wrong doing.
(iii)
An emphasis was placed in the Fundstrust matter on whether the
directors foresaw the statutory liability of committee
placed on
them. Hefer JA concluded that they could not have foreseen susch a
consequence. The defendants in this matter agreed
to a conclusion of
the fixed term contract.
(c)
counsel for the plaintiffs also referred me to the matter of
Sonnenberg McLoghlin Inc V Spiriro
2004 (1) SA 90
(C) where it was held amongst others that a director
who discharges the debt of a company has recourse against the others.
(d)
He also referred me to the matter of
Maritz
& Another v Maritz & Pieterse Inc
2006
(3) SA 481
(SCA). Section 53(b) of the Companies Act is intended to
offer protection to creditors by making directors liable, and not to
create
an asset for the company in liquidation.
(e)
On the intention of the legislator, he submitted that:
(i)
Directors are held liable for contractual debts of a company in the
context of incorporated firms. The parties in this matter
entered
into an agreement and made provision for breach thereof. The
plaintiff’s election is in accordance with the agreement.
It
could not have been the intention of the legislature to punish the
creditor for his election. The damages arise from the berach
of the
contract and the elcetion made by the plaintiff.
(ii)
Section 23 of the Attorneys Act and section 53(b) of the Companies
Act are a form of suretyship. The defendants suggest that
they have
been released from their obligations by their resignantions. The
resignations do not absolve them.
(iii)
The argument of the defendants that the claim is no longer
contractual is superficial because the genesis of their relationship
is based on contract. A claim for damages was not excluded.
(iv) Clause 7.2
amounts to an agreement to pay the “pre estimated agreed
liquiddated damages”.
(v)
Defendants’ argument about their resignation as having absolved
them, if accepted, would mean that directors of attorneys’
firms facing financial difficulties would simply resign to escape
liability.
[23]
In his heads of argument, Counsel for the defendants, Mr Prinsloo
raised an issue about the fact that the exception does not
go to the
root of the plea because it is just but one point of law amongst many
other defences raised by the defendants in their
plea.s The amount of
evidence during trial would not be reduced. He listed the defences in
the plea.
However,
in argument, this was not pursued. His submissions were
centered around the defendants’ belief that the damages
claim
arose after they had resigned. The anomaly, so the argument
went, was being held liable for a debt that was not there
when they
resigned.
ANALYSIS
[23]
I do not think that there is any merit in the defendants’
contention that the damages claim arose when they were no longer
directors and as such they are not liable. Clause 7.2 of the Rental
Agreement is clear and does not need interpretation. The plaintiffs
exercised a choice, as such, the liability for damages arising out of
the breach was foreseeable.
[24]
I agree with counsel for the plaintiffs that the relevant sections in
the Attorneys and Companies Acts are some form of suretyship.
The
directors remain liable for as long as the debt exist and it does not
matter how the contract is cancelled, as long as the
cancellation
complies with the terms agreed upon.
[25]
The defendants’ argument, as I understand it, is that the
creditor acted in a manner that releases them from their obligations.
Having accepted that they are sureties for the company, this argument
stands to be rejected because there is no general principle
that
the creditor’s conduct, even prejudicial entitles a surety
to be released from suretyship.
[26]
In
Absa Bank Ltd v Davidson
2000
(1) SA 1117
(SCA), the court 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. Olivier JA,
came 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”
[27]
My view is that it does not matter whether one looks at clause 7.2 or
the meaning of the word “contracted” as it
appears in the
provisions of sections 23 and 53 of the Attorneys and Companies Acts
respectively, the end result will be the same.
[28]
The contractual debt became due after cancellation of the agreement.
It does not matter that the creditor is the one who repudiated
the
contract or it was the one to be blamed for its cancellation. The
fact that plaintiff sued for damages is not a defence to
plaintiff’s
claim because such damages are as a result of breach of contract.
[29]
The defendants and plaintiffs “
contracted”
clause
7.2 , in terms of which there is a built-in damages claim in the
event of breach of contract. The claim for damages was
triggered by
failure on the part of the first defendant to honour monthly
payments. In addition, first defendant admitted to having
given away
possession of the goods in contravention of the terms of the
agreement. The plaintiff, as it was entitled to, immediately
cancelled the agreement, without notice, as it was also entitled to.
[30]
Paragraphs 6 – 11 of the 6
th
and 8
th
dfendants’ plea, though sufficiently pleaded, does not
constitute a defence to plaintiff’s claim for reasons stated
above.
The
plaintiffs have prayed for setting aside of paragraphs 6-11 of the
defendants’ respective pleas. Though I am
inclined
to accede to this request , the usual practice when upholding
an exception is for leave to be granted for an amended
pleading to be
filed within a specific period.
[10]
I will grant the plaintiff’s to file am amendment.
COSTS
[31]
Counsel for the plaintiffs argued that the defendants should be
oredered to pay costs of the exception jointly and severally
on the
scale as between attorney and own client in terms of clause 7.2 of
the agreement and that the costs should include the reserved
costs of
the unopposed hearing.
[32]
There is nothing in the court file to indicate that costs were
reserved at any time. The only time the matter was in court
was for a
joinder application and notice of intention to amend in terms of Rule
28. This was on 08 March 2013. The court file only
indicates that
prayers 1-4 granted. Prayer 4 reads as follows
“
That costs of the
application against the respondents only in the event that they
oppose same”.
[33]
There is no basis for me to make an order of costs for the hearing on
08 March 2013. Counsel for both parties were unable to
provide me
with further details as to the meaning of prayer 4 because it does
not seem like costs were reserved.
[34]
The defendants’ pleas are bad in law, more espescially in
view of the fact that the agreement spells out exactly
what would
happen in the event of breach. There is no ambiquity as to the effect
of breach of the terms of the agreement.
ORDER
[35]
I am satisfied that the exceptions are good and well taken, and I
make the following order;
[35.1]
The exceptions are upheld;
[35.2]
The defendants (6,7 and 8
th
) are ordered to pay costs
jointly and severally, one paying the other to be absolved, on
the scale as between attorney and
own client
[35.3]
Paragraphs 6-11 of the defendants’ respective pleas are hereby
set aside;
[34.4]
The defendants are granted leave to amend their respective pleas only
with regard to paragraphs 6-11 that have been
set aside within
15 days of this order.
MAKHUBELE
AJ
Acting
Judge of the High Court
APPEARANCES
PLAINTIFFS
/ EXCIPIENT
:
ADVOCATE C COTHILL
Instructed
by: Smit Jones & Pratt
C/o
Hack Stupel & Ross
PRETORIA
Tel:
(012) 325 4185
Fax:
(012) 325 7159
Ref:
J Pretorius/tn/RF 5493
6
TH
,
7
TH
& 8
TH
DEFENDANTS: ADVOCATE DANIEL
PRINSLOO
Instructed
by: Routledge Modise Inc Attorneys
C/o
Edelstein-Bosman Inc Attorneys
New
Muckleneuk, PRETORIA
Tel:
(012) 452 8900
Fax:
(012) 452 8901/2
Ref:
Mr W Scrooby/AB/IR002045
[1]
Second
and third plaintiffs were joined on 08 May 2013, and the particulars
of claim were subsequently amended to amongst
other things
reflect them as altenate plaintiffs. This, and the cession
agreements between the plaintiffs has no
bearing on the
exception, although the lawfulness of the agreements is raised in
the defences put up.
[2]
It
is common cause that the provisions of the New Companies Act are not
applicable because the agreement was concluded before
it was
enacted.
[3]
It
reads as follows “ The directors and past directors are liable
jintly and severally together with the company , for its
debts and
liabilities contracted during their periods of office”.
[4]
Rental
Agreement, Annexure POC4
[5]
clause
7.1
[6]
clause
7.2
[7]
paragraphs
5, 6, and 7 of the plea dated 14 January 2013
[8]
1997
(1) SA 710 (A)
[9]
with
reference to paragraph 731B-C of the judgement
[10]
Group
Five Building Ltd v Government of the Republic of South Africa
1993 (2) SA 93