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[2014] ZAGPPHC 281
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Grindrod Bank Limited v Torode N.O and Others (55503/11) [2014] ZAGPPHC 281 (13 May 2014)
IN THE HIGH COURT
OF SOUTH AFRICA
GAUTENG DIVISION,
PRETORIA
Case No: 55503/2011
Last date of hearing: 18
April 2014
Date of judgment: 13 May 2014
In the
matter between:
GRINDROD BANK
LIMITED
...................................................................
Plaintiff
And
JEREMY
ARTHUR TORODE N.O
.................................................
First Defendant
CAROL-ANN
TORODE
N.O
.......................................................
Second
Defendant
DEE-BRONWYN
BEZUIDENHOUT N.O
......................................
Third
Defendant
JEREMY
ARTHUR
TORODE
.......................................................
Fourth
Defendant
JUDGMENT
PHATUDI J:
[1]
The plaintiff is a registered bank, duly registered as a public
company and incorporated with limited
liability in accordance with
the banking and company laws of the Republic of South Africa.
[2]
The plaintiff instituted this action against the first, second and
third defendants in their capacity
as the trustees for the time being
of the Sania Trust (the trust) for monies lent and advanced in terms
of the loan agreement annexed
to the declaration as annexure “A”.
[3]
The fourth defendant (Mr Torode) is sued on the strength of his
agreement to bind himself jointly and
severally, as surety and
co-principal debtor with Sania Trust in terms of the loan agreement.
The plaintiff further seeks
an order declaring the property owned by
Sania Trust specifically executable.
[4]
The defendants disputes the plaintiff’s entitlement to claim
the money and to seek the specifically
executable of the property on
the basis that the loan agreement was
void ab initio
on the
basis that the loan agreement transaction contravened the provisions
of section 38(1) of the Companies Act, 61 of 1973.
[5]
During the trial proceedings, the defendant conceded that the amount
set out in the plaintiff’s
certificate of balance is the
correct amount due. It was further conceded that Mr Torode’s
authority to act in purporting
to conclude the loan agreement was
proportionally ratified by the trustees for the time being of Sania
Trust. The defendants
thus, do not persist with their denial
thereto.
[6]
Two witnesses testified for and on behalf of the plaintiff.
Gavin Price, an attorney at law, testified
that he was instructed by
Umoya Airtime Solutions (Pty) Ltd (Umoya) at the time the loan
agreement was drafted and concluded.
Umoya was in dire need of
cash to settle the debt of Electro Sure CC T/A Custom Electronic
Solutions (CES). CES threatened
Umoya with legal action and to
make dealings with other companies in relation to the distribution of
terminals. Mr Torode,
who was Umoya’s agent in Gauteng,
intended to assist Umoya to get out of the said debt which was a
major setback for him
as well.
[7]
Mr Price introduced Mr Torode to Ryan Oliver (Mr Oliver) who was
employed by Grindrod (the plaintiff).
Mr Torode applied for a
loan through Sania Trust of an amount of R2 million from the
plaintiff. The money would be used to
purchase 45% of White’s
shares in Umoya. The money would actually not be paid to Mr White but
to CES.
[8]
Mr Price prepared documentation setting out the existing and proposed
shareholding in Umoya. This
led to the submission of the
recommendation to the plaintiff by Mr Oliver. The facility
letter was then issued on the 02
September 2009. It is recorded
that ‘
the facility is for an
amount of R2, 000,000-00 (two million rand) which will be utilised
for the acquisition of 45% shareholding
in Umoya Airtime Solutions
(Pty) Ltd. (the company)
[9]
It is recorded under special conditions, among others, that
‘
(d)
The Bank requires the company’s Shareholder’s Agreement
acknowledging the Borrower’s investment in the company
as well
as the Bank’s facility to the Borrower. The Shareholders
Agreement should incorporate that the company is responsible
for the
monthly repayments of capital and interest on this facility.’
[10]
Mr Oliver advised Mr Price and Mr Torode of the possibility for the
plaintiff paying out the loan amount to Sania
Trust as soon as the
loan agreement was signed. Mr Price, on that advice, wrote to
CES informing them of imminent availability
of cash in the company
and provided CES with the facility letter received from the
plaintiff.
[11]
The plaintiff instructed Cox Yeats, a firm of attorneys to cause
registration of the mortgage bond. On perusal
of the letter by
Roger Green (Mr Green) of Cox Yeats, he, Mr Green, advised Mr
Oliver of the plaintiff that if the company
is required to stand
guarantee for the obligations of a shareholder in acquiring shares in
the company, then that act will require
a special resolution passed
by the shareholders of that company. Mr Green further advised the
plaintiff that in the absence of
such a resolution renders the
proposed transaction in breach of section 38(1) of the Companies Act.
[12]
Mr Price, knowing that the required special resolution could not be
passed, suggested the alternative which he
believed would be able to
“fix” the impediment created by section 38. Mr
Price then drafted the sale of shares
agreement which was never
concluded and or signed by any of the parties. The said
agreement was then referred to during the
testimonies of the
witnesses. Mr Price testified that he informed Mr Green that
the shares and loan account in the company
had already been acquired
and paid for knowing that that was not the position.
[13]
Mr Green insisted on seeing the shareholding agreement which Mr Price
referred to, to ensure and to satisfy him
that the transaction does
not contravene the provisions of section 38 of the Companies Act.
[14]
Mr Price then sends Mr Green a second draft of the sale of shares
agreement which records that the purchase price
has been paid as
opposed to the first draft. The draft has a breakdown of
payments purportedly made by Mr Torode to CES.
The sale of
shares agreement tabled by Mr Price was not signed by the parties.
It remained a concept document.
[15]
The plaintiff could not pay out the loan amount prior to the
registration of the bond. This prompted Sania
Trust to apply
for a bridging finance. This was done with the advice and
knowledge of Mr Price and Mr Oliver for the plaintiff.
[16]
The loan agreement, which ought to have been paid to Sania Trust, was
paid by the plaintiff directly to the bridging
finance company.
Mr Price and Mr Oliver conceded to that effect during their
testimonies.
[17]
Section 38(1) of Companies Act provides that
‘
No
company shall give, whether directly or indirectly, and whether by
means of a loan, guarantee, the provision of security or otherwise,
any financial assistance for the purpose of or in connection with a
purchase or subscription made or to be made by any person of
or for
any shares of the company, or where the company is a subsidiary
company, of its holding company.’
[18]
It is clear from the reading of section 38(1) that Green was right
that the initial transaction intended to be
concluded between the
plaintiff and the defendant would be in contravention to the section.
[19]
Both parties did their best to paint the bitterness of the section
with a little sugar by drafting the sale of
shares agreement
purporting to have been concluded prior to the lending of money.
Mr Price, Mr Oliver and Mr Torode were
aware if not knew or
reasonably expected to have known that the said shares were not paid
for prior to the lending of money.
Put differently, the parties
knew that the money to be loaned to Sania Trust was in fact intended
to purchase 45% of Mr White’s
shares. They were as well
up to speed that the money will be used by Sania Trust to pay Mr
White for his shares.
[20]
In my view, the original loan agreement transaction of which Umoya
would stand as guarantee is the true intention
of the parties.
I, however, accept that the parties were not aware of the provision
of section 38(1) of the Companies Act
at that time.
[21]
The plaintiff failed to “walk away” from the transaction
as Mr Oliver testified that they would have
done so if the
transaction was indeed in contravention of the section. He,
however, conceded that he issued the second recommendation
to the
plaintiff that the shares have already been paid for knowing that
that was not the position.
[22]
Mr Torode was as well in the know of the circumvention. He
testified to the effect that as far as the correctness
of the
documentation was concerned, he knew that the documentation was not
correct because it was altered to make the section 38
issue no longer
an issue and the fact that it had been done by all parties duly
represented. He indicated that Mr Price represented
the
company, Cox Yeats and Mr Oliver represented Grindrod Bank. Of
importance was that Mr Torode knew that the amendment
of the original
documentation was to “make the section 38 issue no longer an
issue”.
[23]
All sales of shares agreements are not signed by any of the parties.
The documents relied on as the sales
of shares are concept agreements
which cannot be accepted as evidence. These are therefore, no
sale of shares agreements
handed up to this court. It is trite
law that a concept document is evidentially not admissible.
[24]
In my consideration of the evidence, all parties concluded the loan
agreement in its amended form knowing that
the transaction is in
contravention of the provisions of section 38 of Companies Act.
[25]
In my assessment of the evidence presented, the doctrine “
in
pari delicto
” came to my mind in that both the plaintiff
and defendants are equally at fault. The doctrine provides that
the court
will not enforce an invalid contract and that no party can
recover in an action where it is necessary to prove the existence of
an illegal contract in order to make his or her case.
[26]
It is stated in
Klokow v Sullivan
2006 (1) SA 259
(SCA)
that
the maxim “
in pari delicto potior conditio defendentis
”,
which curtails the right of the delinquent party to avoid the
consequences of his performance or part performance of an
immoral or
illegal contract, is concerned with the moral guilt of contracting
parties, not their criminal liability.
[27]
The defendant’s counter claim or their unjustified enrichment
claim finds no application where both parties
are at fault in
concluding an illegal contract. Reliance on
Mkhwanazi v
Quarterback Investment (Pty) Ltd
2013 (2) SA 549
(GSJ)
is
misplaced. The
ratio decidendi
has since been replaced
by
Quarterback Investment (Pty) Ltd v Mkhwanazi
2014 (3) SA 96
SCA.
[28]
In Mkhwanazi case the SCA found that Quarterback Investment defrauded
Mkhwanazi. In this case, neither the
plaintiff nor the
defendants was defrauded or fraudulently misrepresented by either
party. Both parties participated knowing
very well that the
transaction as amended is a mere disguise.
[29]
In my view, the principle to apply in
casu
is “
potior/melior
est conditio possidentis
”. In simpler terms, “better
is the condition of the possessor”. Put differently, he
who is in possession
is in a better position. This brings me to
the conclusion that both the plaintiff’s claim and the
defendant’s
counter claim stands to be dismissed.
[30]
It is trite that costs follow the event. None of the parties
succeeds as both are at fault in concluding
a disguised contract.
Each party stands to pay its own costs. I, in the result, make the
following order.
Order:
1.
The plaintiff’s
claim is dismissed.
2.
The defendant’s
counter claim is as well dismissed.
3.
There shall be
no order as to costs.
A.M.L.
Phatudi
Judge
of the High Court
On
Behalf of the Plaintiff:
Cox Yeats Attorneys
C/O Stegmanns Inc.
379 Lynnwood Road
Menlo Park
Pretoria
Adv.
L.B Broster SC
On
Behalf of the 2
nd
Defendant: Webber Wentzel
C/O Macrobert Inc.
Macrobert Building
Cnr Jan Shoba & Justice Mahomed Streets
Pretoria
Adv. R. Moultrie
Adv. N. Muvangua