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[2010] ZAFSHC 35
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Quince Property Finance (Pty) Ltd Formerly known as ZS Rational Finance (Pty) Ltd v Honey & Partners Inc and Others (6096/2008) [2010] ZAFSHC 35 (18 March 2010)
FREE STATE HIGH
COURT, BLOEMFONTEIN
REPUBLIC OF SOUTH
AFRICA
Case No. : 6096/2008
In
the matter between:-
QUINCE
PROPERTY FINANCE (PTY) LTD
Plaintiff
Formaly
known as
ZS
RATIONAL FINANCE (PTY) LTD
and
HONEY &
PARTNERS INC
1
st
Defendant
E F SAFFY
2
nd
Defendant
R J BRITZ
3
rd
Defendant
J J VAN ZYL 1
ST
DEFENDANT
4
th
Defendant
N J NAUDE
5
th
Defendant
J M BURGER
6
th
Defendant
N J G DREYER
7
th
Defendant
C J POTGIETER
8
th
Defendant
H L BUCHNER
9
th
Defendant
J DU TOIT
10
th
Defendant
G DE BEER
11
th
Defendant
N H
BARNASSCHONE
12
th
Defendant
D J J DE
VILLIERS
13
th
Defendant
S J LE ROUX
14
th
Defendant
J J FEUTH
15
th
Defendant
L B SAFFY
16
th
Defendant
H E VAN DER
WALT
17
th
Defendant
A PRINSLOO
18
th
Defendant
G S GOODES
19
th
Defendant
HEARD ON:
19,
20, 21, 22 JANUARY 2010
JUDGMENT:
EBRAHIM,
J
DELIVERED ON:
18
MARCH 2010
[1] This trial is
concerned with the interpretation, validity and terms of an agreement
entered into between the plaintiff and the
defendants in terms of
which the plaintiff claims payment of an agreed amount of R744 883,02
from the defendants.
[2] The plaintiff’s
claim is based on a standard form written finance agreement (“the
finance agreement”) concluded
between the plaintiff, a close
corporation known as Joroy 0002 CC (“Joroy”) and the
defendants Honey and Partners (“Honey”).
Honey has
defended the plaintiff’s claim and in defence relies on an
agreement (“the master agreement”) concluded
between
Honey and the plaintiff.
[3] 3.1 The context in
which the agreement between the plaintiff and the defendants (Honey)
was concluded is the following: The
plaintiff, a limited liability
company, was initially known as Dynarc Bridge Finance (Pty) Ltd. It
thereafter changed its name
by special resolution to ZS Rational
Finance (Pty) Ltd and then to Quince Property Finance (Pty) Ltd, the
name in which it sues
the defendants. It is a company which conducts
business as a money lender and has its principal place of business in
Tyger Valley
in the Western Cape. The first defendant is a company
with limited liability conducting business as legal practitioners in
terms
of section 23 of the Attorneys Act, 53 of 1979 at its principal
place of business in Bloemfontein. The remaining defendants are
all
directors of the first defendant.
During 2004 the first
defendant was approached by the plaintiff with a view to obtaining
legal assistance in regard to a new
business venture which
plaintiff intended embarking upon. The new venture was concerned
with the granting of bridging finance
in the context of property
transactions. The first defendant was required by the plaintiff to
formulate the necessary contracts
required to conduct the business
of the granting of finance. It was envisaged that the plaintiff
would negotiate agreements
with the estate agents whereby the
estate agency would appoint the first defendant as conveyancing
attorney in the knowledge
that the latter had an agreement with the
plaintiff whereby financing for the payment of certain matters
connected with the
property transaction would be readily available
subject to the condition that the registration of the transfer of
the property
sold by the estate agency would be dealt with
timeously and effectively. This business venture required that
there be a contract
to regulate the relationship between the
plaintiff and the borrower of the finance as well as the
conveyancing attorney and
for this purpose a standard finance
agreement was drawn up by Deon Rossouw (“Rossouw”) an
attorney employed as
a professional assistant at the time by the
first defendant (Honey). The standard finance agreement was
printed and embodied
in book-form called “Die Kontrakboek”.
It was intended that a number of attorneys firms would be involved
with
the plaintiff in the business venture. Honey was appointed as
the attorney to draft the preliminary agreements in connection
with
the business venture, hence the standard format agreement contained
in “Die Kontrakboek”. It was also agreed
between the
plaintiff and the first defendant that an agreement regulating the
relationship between the plaintiff and the conveyancing
attorney
appointed by the plaintiff to attend to the registration of
transfer of the property transaction in respect of which
plaintiff
had loaned monies was necessary. For this purpose an agreement
termed “the master agreement” was formulated
by
Rossouw. At the trial Rossouw’s evidence that the master
agreement was intended to be a blueprint to regulate the
plaintiff’s relationship with every conveyancing attorney
appointed to deal with the registration of the transfer of
property
transactions in respect of which the plaintiff had loaned money,
was not contested.
[4] 4.1 On 24 August 2004
Honey and the plaintiff (Dynarc Bridge Finance (Pty) Ltd) signed an
agreement (“the master agreement”).
I set out hereunder
the salient portions of the agreement. The preamble to this
agreement provides as follows:
“WHEREAS
the Attorney has received instructions to proceed with the
registration of transfers of properties in terms od Deeds
of Sale.
AND WHEREAS as the funds for the
payment of the transfer duty, transfer and bond costs and any other
costs, related to the transfer,
have been included in a bond to be
registered in favour of a Financial institution.
AND WHEREAS the purchasers wish to
utilise the funds of DYNARC BRIDGE FINANCE to pay transfer duty and
rates & taxes.”
Clause 1 provides as
follows:
“
1. THE
ATTORNEY’S OBLIGATION
The Attorney undertakes unto and in
favour of DUNARC BRIDGE FINANCE that:
The maximum capital sum will only be
utilised for the purpose of obtaining a Transfer Duty Receipt and/or
Rates and Taxes Certificate,
as the case may be, and for no other
purpose whatsoever, unless agreed thereto in writing between DYNARC
BRIDGE FINANCE and the
attorney.
The maximum capital sum shall be
deposited into the Attorneys Trust Account.
The Attorney will furnish a certified
copy of the Transfer Duty Receipt reflecting the payment of the
transfer duty to the South
African Revenue Services on demand to
DYNARC BRIDGE FINANCE.
Registration of the Transaction will
not exceed 30 days from commencement date of loan, failing which
additional fees of R2,50
plus VAT per R1000,00 per day will be
payable by the purchaser.
Whenever a purchaser or a seller,
whatever the case may be, is desirous to obtain finance for the
payment of transfer duty and/or
rates and/or taxes, the Attorney,
where possible, will recommend that the purchaser or seller,
whatever the case may be, use
DYNARC BRIDGE FINANCE as financier.
The Attorney will attend to the duly
completion of the financing agreement entered into between DYNARC
BRIDGE FINANCE, the Attorney
and the purchaser or seller, as the
case may be.”
Clause 3:
THE ATTORNEY’S UNDERTAKINGS
The Attorney hereby irrevocably
undertakes to:
Use DYNARC BRIDGE FINANCE where
possible as financier in a conveyancing transaction where the
Attorney is the Conveyancer and
where a purchaser or seller
requires finance with regards to the payment of transfer duty
and/or rates and/or taxes and to
use no other financier for the
currency of this agreement.
Make payment to DYNARC BRIDGE
FINANCE of the financed amount within a period of 72 hours from the
date of registration of transfer
of the property.
Make payment to DYNARC BRIDGE
FINANCE of the administration fee of 3% (minimum of R300) and
finance charges calculated at 2,3%
on the amount advanced for a
30-day period within a period of 72 hours from the date of
registration of transfer of the property.
In the event of cancellation of the
transaction and where the loan amount is still in the possession of
the attorney, to pay
DYNARC BRIDGE FINANCE any balance of the
capital amount advanced and also the administration fee within a
period of 72 hours
after cancellation. DYNARC BRIDGE FINANCE shall
be entitled to recover from the Attorney all amounts due including
the administration
fee and finance charges. If the Attorney does
not hold sufficient funds to pay the capital amount and
administration fee,
the Attorney undertakes to take all reasonable
steps to recover the outstanding monies from the Purchaser and upon
recovery
to make payment thereof to DYNARC BRIDGE FINANCE. If the
attorney has already made payment to the Receiver of Revenue and/or
relevant local authority, he undertakes to take all reasonable
steps within a reasonable time to recover the money paid and
shall
immediately upon recovery of any money, make payment to DYNARCH
BRIDGE FINANCE of the money recovered. He does not however
warrant
this payment of this amount but warrants that he will assist DYNARC
in all necessary litigation steps to recover the
money from the
party concerned.
In the event of death and/or
insolvency of the borrower, the attorney shall be under no
obligation to make payment to DYNARC
BRIDGE FINANCE but shall
immediately advise DYNARC BRIDGE FINANCE of the occurrence of death
and/or insolvency of the Borrower
and furnish DYNARC BRIDGE FINANCE
with documentary proof thereof. The attorney shall furthermore
liase with the executor and/or
curator, as the case may be, and
take all reasonable steps in order to recover the monies owing to
DYNARC BRIDGE FINANCE but
does not warrant the repayment of the
amount.
Pay DYNARC BRIDGE FINANCE on demand
all the amounts due including the Administration fee and finance
charges in the event of
the transaction be delayed, for whatever
reason for a period of more than 90 days. This clause is subject
to the provisions
of clauses (iv) and (v) above.
Make use of the following bank
account, which belongs to DYNARC BRIDGE FINANCE:
Bank name: STANDARD BANK LIMITED
Branch no: 055 534
Account holder: DYNARC BRIDGE FINANCE
(PTY) LTD
Account number: 041 274 458”
Clause 4:
“
4. DYNARC
BRIDGE FINANCE undertakes to:
Negotiate agreements with estate
agencies whereby such estate agency will appoint the Attorney as
conveyancer, knowing that the
Attorney has an agreement with DYNARC
BRIDGE FINANCE whereby financing for the payment of transfer duty
and/or rates and/or taxes
is readily available, subject to certain
conditions and therefor that the registration of the transfer of a
property sold by
the estate agency will be dealt with timeously and
effectively.”
Clause
5:
“
5. DURATION
This
agreement commences on the date that the last party to this agreement
to have signed this agreement has in fact done so and
shall continue
to be binding on the parties for a period of five years from date of
commencement.”
Clause
7:
“
7. RESPONSIBILITY
(i) Furthermore
the warranties given by the Attorney in this agreement and
furthermore the conditions of this agreement, the Attorneys
accepts
that he is responsible for payment of all amounts due to DYNARC
BRIDGE FINANCE by the borrower.
(ii) DYNARC BRIDGE FINANCE will cede
its claim, against the borrower, to the Attorney, after payment
thereof by the Attorney to
recover the amount paid to DYNARC BRIDGE
FINANCE in terms of this agreement.”
It was common cause at
the trial that the master agreement had been signed by plaintiff’s
representative, Mario Nel (“Nel”)
and by the second
defendant (“E. F. Saffy”).
On 29 June 2006 an
addendum to the master agreement was formulated and agreed upon by
Rossouw and Nel (acting on behalf of ZS
Rational Finance (Pty)
Ltd).
“
WHEREAS the Attorney entered
into an agreement with Dynarc Bridge Finance (Pty) Ltd which company
has since changed its name to
ZS Rational Finance (Pty) Ltd or with
ZS Rational Finance (Pty) Ltd on 25 day of August 2004 (hereinafter
referred to as the ‘Master
Agreement’);
AND WHEREAS in terms of clause 5 of
the Master Agreement the duration of the Agreement was for a
specified period of time;
AND WHEREAS ZS RATIONAL FINANCE and
the ATTORNEY wishes to renew the Master Agreement and/or amend clause
5 of the Master Agreement.
NOW THEREFORE ZS RATIONAL FINANCE and
the ATTORNEY agree as follows:
1. REVIVAL OF MASTER AGREEMENT,
ADDENDUM
1.1 In the event where the Master
Agreement has lapsed, ZS RATIONAL FINANCE and the ATTORNEY hereby
agrees to enter into a new
Agreement on exactly the same terms and
conditions as the Master Agreement, subject to any changes, if any,
as stipulated in this
agreement.
1.2 ZS RATIONAL FINANCE and the
ATTORNEY agree that in the event where the Master Agreement has
lapsed and further transactions
had occurred between ZS RATIONAL
FINANCE and clients of the ATTORNEY, ZS RATIONAL FINANCE and the
ATTORNEY confirms that such transactions
was done on exactly the same
terms and conditions as the Master Agreement.
1.3 In the event where the Master
Agreement is still binding between ZS RATIONAL FINANCE and the
ATTORNEY, then and in that event
this agreement shall be an addendum
to the Master Agreement.
2. DURATION
2.1 Clause 5 of the Master Agreement
is amended insofar as the agreement between ZS RATIONAL FINANCE and
the ATTORNEY shall endure
indefinitely, subject thereto that either
party can cancel the agreement with 30 (thirty) days prior notice
delivered to the domicilium
address of the other party.
2.2 In the event of notice of
cancellation, the cancellation shall only be effective upon date
where any amounts owing to ZS RATIONAL
FINANCE which was lend through
the ATTORNEY, have been paid in full.”
It is apparent that the
principal change in the addendum refers to the duration of the master
agreement; where the original master
agreement was limited to a
period of five years the addendum made the effective period of
unlimited duration, that is the master
agreement, was to endure
indefinitely. It was also agreed that in the future the master
agreement would regulate relationships
between the plaintiff and the
conveyancing attorney in respect of all bridging finance, namely in
respect of all kinds of loans
made by the plaintiff to the borrower.
[5] 5.1 On 23 March 2006
at Bloemfontein the plaintiff, represented by Nel, concluded a
finance agreement with Joroy CC (“Joroy”)
as borrower and
Honey represented by Rossouw, as conveyancing attorney in respect of
a property described as Plot 8995, Forrestdale,
Kimberley, owned by
Joroy and sold by it to a company called Bothma Diamonds Incorporated
(translated in Afrikaans Bothma Diamante
BK) on 9 March 2006. In
terms of the agreement which is to be found at pp. 34 and 35 of the
documents bundle “A”,
the plaintiff loaned to Joroy an
amount of R300 000,00. The loan was described in the agreement as an
“Advance on Profit”.
The preamble to the agreement reads
as follows:
“1. AND
WHEREAS it is recorded that:
1.1 The Borrower is the Purchaser,
Seller or Mortgagee, as the case may be, of the relevant property(s)
described in this agreement
and as referred to below and which terms
apply
mutuatis mutandis
in whatever context to this agreement in the singular or the plural;
1.2 This short term ‘bridging
finance’ agreement is entered into to facilitate the transfer
of the property to the
Borrower(s) jointly and/or severally or to
facilitate an advance or a bond registration or an advance on the
profit of a sale and
signature of this document signifies that all
parties to this agreement have read and understood it’s terms
conditions and
reached consensus; and
1.3 That variation of the terms and
conditions of this agreement are not valid and binding on any party
unless reduced to writing
and signed by the parties.
1.4 The reference to Conveyancing
Attorney means each Attorney in that firm jointly and/or severally.”
Under
terms and conditions the following is agreed between the parties:
“WHEREAS
THE BORROWER AND THE CONVEYANCING ATTORNEY WARRANT THAT:-
1. THE CONVEYANCING ATTORNEY
WARRANTING HIS AUTHORITY UNDERTAKES THE FOLLOWING OBLIGATIONS:
The Conveyancing Attorney
undertakes unto and in favour of ZSRATIONAL FINANCE that:
I) The maximum capital sum will
only be utilised for the purpose of the Transfer Duty and/or Rates
and Taxes, and/or advance
on profit of sale and/or advance on
proceeds of bond registration as the case may be, and for no other
purpose whatsoever.
II) The maximum capital sum from
the Bond Grantor shall be deposited directly into the Attorneys Trust
Account and no otger.
III) The Attorney will furnish a
certified copy of the Transfer Duty receipt of the South African
Revenue Services on demand,
to ZS RATIONAL FINANCE.
2. THE CONVEYANCING ATTORNEY’S
WARRANTIES
The CONVEYANCING ATTORNEY
unequivocally warrants to ZS RATIONAL FINANCE that:
I) An Agreement of Sale for the
property (as referred to in A above) or a loan agreement between the
Mortgagee and bank has been
concluded and signed and all suspensive
conditions in relation thereto have been fulfilled or waived.
II) All material facts relating to
the transaction are true and correct in every material aspect.
III) That he is unaware of any
impediment to this agreement.
IV) That his implied duties both
under contract and in terms of the Attorneys’ Act and any other
applicable statutory authority
or common law hereto apply.
3. THE ATTORNEY’S UNDERTAKINGS
The Conveyancing Attorney hereby
irrevocably undertakes to:
I) Pay ZS RATIONAL FINANCE the full
and complete sum of the sum borrowed plus the interest described
therein as at section C
above within a period of 72 hours from the
date of registration of transfer of the property or registration of
the bond, as the
case may be, as described above.
II) Pay ZS RATIONAL FINANCE the
application fee and service charges as set out above within a period
of 72 hours from the date
of registration of transfer of the property
as described above.
III) In the event of cancellation
of the transaction or the borrower becoming deceased, to pay ZS
RATIONAL FINANCE within 72
hours of demand by ZS RATIONAL FINANCE the
full amount advanced as described in B above.
IV) Pay ZS RATIONAL FINANCE on
demand all the amounts due including finance charges and fees in the
event of the transaction
being delayed, for whatever reason for a
period of more than 90 days.
DEFAULT: In the unlikely event of the
Borrower(s) and/or their Conveyancer defaulting in the payment of
any of the above stated
amount the Borrowers and/or Conveyancers
waive their common law rights and/or statutory rights to invoke the
in duplum
rule and said rule shall not apply; and, the Borrower(s) and/or
Conveyancers agree to pay the total amount advanced, application
fee, service fee, finance charges, pay collection commission at the
prescribed rate, interest on the total cumulative outstanding
sums
(capital + interest + fees) from date of default date to date of
judgment at the morator interest rate; and, costs of any
legal suite
on an attorney and client High Court scale.”
In respect of this
agreement, the following matters were common cause, namely
1. that the property
concerned was not registered in the name of Bothma Diamante.
2. that the reason for
this was that Bothma Diamante was unable to obtain bond finance from
a registered commercial financial institution
to purchase the
property.
3. The transaction was
not formally cancelled by Joroy who elected to cut its losses by
pursuing other possible avenues to obtain
a purchaser for the
property.
4. The transaction was
delayed meaning it had not been registered for a period of more than
90 days from the date of the signing
of the finance agreement.
5. Joroy defaulted in
repaying the loan of R300 000,00 to the plaintiff. The plaintiff was
accordingly entitled to invoke the remedy
provided by clause 4 of the
finance agreement.
[6] After making an
unsuccessful demand for repayment of the loan to Joroy plus all fees
and charges due to it in terms of the finance
agreement, the
plaintiff instituted action in this court against the defendants
jointly and severally during September 2008. It
must be mentioned
that this was done after the plaintiff had sought the assistance of
the defendants in pursuing Joroy for repayment
of the amount of the
loan.
[7] 7.1 The plaintiff has
based its claim for payment of the agreed amount exclusively on
clause 3(iv) of the finance agreement.
It has not formulated an
alternative claim against Honey in terms of one of the other clauses
in the finance agreement or in terms
of the master agreement. For
the reader’s convenience I reiterate the provisions of clause
3(iv):
“The
conveyancing attorney hereby irrevocably undertakes to pay ZS
RATIONAL FINANCE on demand all the amounts due, including
finance
charges and fees in the event of the transaction being delayed for
whatever reason for a period of more than 90 days.”
The plaintiff sought,
by agreement, at the inception of proceedings, to amend its
particulars of claim to extend the ambit of
its cause of action
against the defendants by including clause 4 of the finance
agreement which I remind the reader provides
as follows:
“
DEFAULT: In the unlikely event
of the Borrower(s) and/or their Conveyancer defaulting in the payment
of any of the above stated
amount the Borrowers and/or Conveyancers
waive their common law rights and/or statutory rights to invoke the
in duplum
rule and said rule shall not apply; and, the Borrower(s) and/or
Conveyancers agree to pay the total amount advanced, application
fee,
service fee, finance charges, pay collection commission at the
prescribed rate, interest on the total cumulative outstanding
sums
(capital + interest + fees) from date of default date to date of
judgment at the morator interest rate; and, costs of any
legal suite
on an attorney and client High Court scale.”
[8] 8.1 The formulation
of the plaintiff’s claim is accordingly done on a very narrow
basis and limit its chance of success
in this action to the “all
or nothing” approach it has adopted in the pleadings. In
addition Mr. Joubert, counsel
for the plaintiff, was constrained to
concede in closing argument that the evidence of the plaintiff’s
only witness, Willem
le Roux, had not assisted the plaintiff in
throwing any light upon any of the issues in this case.
8.2 Honey has pleaded
that on a proper construction of the master agreement and the finance
agreement, it is not liable to the
plaintiff alternatively it alleges
that the finance agreement should be rectified and as a further
alternative that the finance
agreement is void as a result of a
common or unilateral mistake.
It was agreed between
counsel that in respect of the first issue, that is that of proper
construction of the master agreement
and the finance agreement, the
plaintiff carried the onus and had the duty to begin because of the
additional overall burden
that it bears in civil proceedings,
whilst the defendants would bear the burden of proof in respect of
the special defences
raised in their pleadings.
See:
PILLAY
v KRISHNA AND ANOTHER
1946 AD 946
at 952 – 953 and
SOUTH
CAPE CORPORATION (PTY) LTD v ENGINEERING MANAGEMENT SERVICES (PTY)
LTD
1977 (3) SA 534
(A) at 548.
[9] The only evidence
relative to the issues in this case was presented by two defence
witnesses, Deon Rossouw and Mario Nel. In
this regard this is a
peculiar case in that the only evidence which tends to throw light on
the intention of the parties on contracting
with each other in
respect of both the master agreement and the finance agreement, has
been presented by the defendant.
Mario Nel represented
the plaintiff and Rossouw represented the defendant in the
conclusion of the two agreements. The uncontested
evidence of both
these witnesses was that Honey would not “staan pa” for
any monies loaned by the plaintiff to
a borrower/client of Honey.
Deon Rossouw, is an
attorney of the High Court of South Africa and at present a
director of the first defendant (Honey). In
2004, in his capacity
as a professional assistant attorney of the firm, he drafted the
original master agreement and the finance
agreement. He also
represented Honey during negotiations with the plaintiff (Mario
Nel) when the master agreement was negotiated,
discussed and
concluded. He said after these discussions it was agreed that the
master agreement would be amended to incorporate
a further
agreement which had been reached between the parties. In response
to a question in cross-examination by Mr. Joubert
as to what he
meant by the word “amend” he responded as follows:
“
U edele, die meestersooreenkoms
is die ooreenkoms wat die verhouding tussen die partye reël.
Tussen Dynarc en
die prokureurs. In die sluiting van daardie ooreenkoms, daar is ‘n
boekkontrak wat ‘n standaard finansieringsooreenkoms
is, dit is
‘n standaardformaat en as daar in daardie ooreenkoms
byvoorbeeld klousules of terme is wat nie, want in daardie
kontrak
gee ‘n prokureur ook sekere ondernemings. As hy nie tevrede is
met daardie ondernemings nie, word dit gewysig op
die
meestersooreenkoms of word dit in die meestersooreenkoms gestipuleer.
Die meestersooreenkoms sal dan gesluit word sonder dat
daar nog
enige finansieringsooreenkoms waartoe ‘n prokureur ‘n
party is, gesluit is. Maar dit was definitief die bedoeling
tussen
onsself en Dynarc dat as ons die finansieringsooreenkoms dan teken,
dat daardie ondernemings wat in daardie ooreenkoms gegee
word, is
onderhewig aan die ondernemings in die hoofooreenkoms.”
As I understood his
evidence, it amounted to the following: that it was agreed between
the parties orally that any clause in the
finance agreement which
sought to saddle the defendants with liability for repayment of the
loan made by the plaintiff to the borrower/Honey’s
client,
would be superseded by the master agreement which they agreed was to
be amended to reflect that any reference to the defendant’s
liability to the plaintiff in respect of monies loaned by the
plaintiff to the borrower/Honey’s client, was to be regulated
by clause 3 of the master agreement so that in effect the only
agreement between the plaintiff and the defendants regulating their
relationship, would be the master agreement and not clause 3 of the
finance agreement to which Honey was a party. The amendment
was
agreed upon orally between Nel and Rossouw but not recorded
specifically in writing so that there was no specific written amended
master agreement in this respect. The master agreement would
magically be transformed in accordance with the orally agreed
amendment
and would exist as the one and only agreement regulating
the relationship between the plaintiff and the defendant in respect
of
monies loaned for any kind of transaction by the plaintiff to the
borrower/Honey’s client. (See exhibit A4 and 5.) Rossouw
testified that it was not possible to strike out the offending
clauses seeking to impute liability for amounts advanced by the
plaintiff to its borrowers, because
“
We are not now going to change
each and every finance book format application in writing, it was not
necessary we had the agreement,
our master agreement.”
This evidence appears at
p. 146 of the transcript at line 12 – 15.
In answer to a question
put by his counsel, Mr. Green, as to what the amended attorney
agreement meant to him, he answered as follows:
“
As stated there was an original
agreement which included all the warranties from the attorney and
that original agreement was sent
in a template format to Dynarc and
they then printed it on their stationary and presented it to
attorneys whenever they entered
or wanted a relationship with an
attorney. So I amended the template, the original agreement in line
with our conversation and
negotiation with Mr Mario Nel and then
obviously in order to get it on Dynarc stationary I then sent him the
amended agreement
for Honey attorneys to be printed and to be signed
by the parties.”
No doubt Mr. Joubert
considered the evidence to be a little bit confusing. He was pressed
on the question of what the amended agreement
actually meant to him.
His evidence in this regard at p. 148 of the transcript at line 18
was the following:
“
No it was stated to me that the
finance agreement that Honey attorneys signs has got certain
warranties and undertakings by the
attorney that will apply to that
attorney and I do not agree with it, although it has got those
warranties and undertakings in
the standard wording and in the
standard format, it was never the intention that that applies to
Honey attorneys.”
He was then asked at p.
149 of the record by Mr. Joubert under cross-examination at line 5:
“
Are you aware that its terms
contained undertakings in terms of which the attorney as defined in
the contract, in your case, in
the case of the document at page 34 of
the bundle would hold your firm of attorneys, would be liable in
terms of that contract,
forget for a moment about the master
agreement and other intent, that you concede? ---Yes.”
He also agreed that he
was aware that when he signed that contract on behalf of Honey and
Partners it contained a liability clause.
When asked pertinently why
he did not take the trouble of simply drawing a line through clause 3
before appending his signature
to the finance agreement, he answered:
“
M’lady, it is not
necessary to draw a line through that clause because I have got
another document that regulates that clause.
We have got a signed
agreement.”
He was then asked to show
pertinently where the master agreement regulates the specific
transaction that involves bridging finance
being granted to Joroy and
his answer was:
“
It is necessary then at this
point in time to explain how the master agreement has come about.”
He was then asked by Mr.
Joubert to make a concession that the bridging finance transaction in
respect of which the plaintiff loaned
R300 000,00 to Joroy with Honey
and Partners as a co-signee is not referred to in the master
agreement and he conceded that and
then proceeded further with his
evidence at line 14 on p. 150 of the transcript:
“
When the business started up
and when they, when Dynarc ventured into this type of business the
original idea was that they will
only be financing certain types of
property transactions being rates and taxes and… transfer
duty. Now the nature of such
a transaction there must be a deed of
sale, the borrower will always be a purchaser because, well it can
also be a seller in the
instance of rates and taxes but that is where
the business idea originated from and at that point in time when this
master agreement
was drafted that was the type of financing that they
would entertain.”
In response to the
court’s enquiry as to whether it would have been a hardship to
cross out clause 3 in the finance agreement
which imputed liability
to Honey, and on which basis the plaintiff charges the defendants
with liability in this case, he replied
in the negative adding:
“
But we have referred numerous
clients on this bridging finance agreement, loans been granted and
repaid etc, on which we never crossed
it out because that was the
understanding in the agreement, … and the intention of the
parties.”
That evidence is to be
found on p. 147 of the typed transcript of the proceedings.
He conceded that the
finance agreement containing clause 3 was drafted by him and that he
was aware that in accordance with the
undertakings as drafted, his
firm of attorneys would be held liable in the event, generally
speaking, of non-payment by the borrower
and that armed with such
knowledge he had signed the agreement on behalf of his firm. When
asked pertinently by Mr. Joubert to
point out a reference in the
master agreement to the transaction between the plaintiff and Joroy
to which Honey was a co-signatory
he evaded giving a direct answer
that there was none but ultimately was forced to make that concession
as well as the further concession
that the master agreement only
referred to loans granted by the plaintiff for the payment of rates
and taxes and transfer duty.
He was forced to make the concession
also that the master agreement provided for no other form of
transaction. To the proposition
that in the event of a loan required
for anything other than rates and taxes and transfer duty such as
advance on profits, a separate
written agreement regulating such
transaction was required, he answered:
“
On the interpretation of this
master agreement, correct.”
On my understanding of
Rossouw’s evidence as a whole, the amended master agreement and
the business of the amendment embrace
a scenario which could be
likened to that found in the fairytale “The Emperor’s New
Clothes” – the amendment
had been agreed to and it was
there, but nobody could see it, except the parties who had agreed to
it that is Rossouw and Nel.
Nel’s evidence
dovetailed with that of Rossouw in all material aspects. At the
time of the conclusion of the master agreement
and finance
agreement, he was a director of the plaintiff. He referred to the
original master agreement as being part of the
plaintiffs insurance
policy, the term he used was “staan pa”. He testified
that the second defendant, as the most
senior member and director
of Honey, was adamant that he was not going to let his company,
that is the first defendant (Honey),
“staan pa” for
money borrowed by the clients of Honey from the plaintiff. Nel
also testified that his company
(at the time Dynarc Bridge Finance
(Pty) Ltd) had developed a relationship of trust with Honey and
accordingly he agreed to
the amendment of the original master
agreement in the terms testified to by Rossouw because in effect
the master agreement
was the agreement which outlined the
relationship between Dynarc and Honey in respect of all the
transactions for bridging
finance granted by Dynarc. He also
agreed with Rossouw that it was not possible to change the finance
agreement format in
the “kontrakboek” because the heavy
financial costs involved made such a course of action prohibitive.
Each and
every conveyancing attorney involved as a co-signee to
loan transactions financed by the plaintiff (Dynarc) would have to
be
furnished with a “kontrakboek”; that is why, he
testified, the master policy, as he put it, was the document which
“we used to outline the wording of the finance agreement”.
This, he said, made it unnecessary to delete clause
3 of the
finance agreement. He confirmed his signature on the addendum to
the master agreement and said that the reference
therein to “all
bridging finance” included advances on profits.
[10] 10.1 Honey has
denied liability to the plaintiff on three main grounds, firstly it
has pleaded that on a proper construction
of both the master
agreement and the finance agreement its relationship with the
plaintiff was regulated by the master agreement
and not the finance
agreement. Accordingly it alleges that it was not liable to pay to
the plaintiff the amount of the R300 000,00
loan to Joroy in the
event of the said transaction being delayed for a period of more than
90 days. In terms of the master agreement,
Honey alleges that it was
obliged only to assist the plaintiff in all necessary litigation
steps to recover the amount of R300
000,00 plus interest and
administration costs. Secondly, as a first alternative to this
defence and only if the proper construction
defence is not upheld,
Honey has pleaded that the finance agreement does not correctly
record the agreement between plaintiff,
Joroy and first defendant in
that the continuing common intention of the parties was that Honey’s
obligations to the plaintiff
in respect of the loan of R300 000,00 to
Joroy were to be limited to the terms set out in clause 3 of the
master agreement and
calls for the rectification of clause 3 of the
finance agreement. Thirdly, as a second alternative defence and only
if the proper
construction and rectification defences are not upheld,
Honey has pleaded that the finance agreement was concluded on the
common
assumption of the plaintiff and the first defendant that
Honey’s obligations to the plaintiff in terms of the finance
agreement
was the same as those set out in clause 3 of the master
agreement and as there is a material difference between the first
defendant’s
obligations as set out in the finance agreement and
in the master agreement, it never intended to bind itself in terms of
the obligations
set out in clause 3 of the finance agreement and that
accordingly the finance agreement is void as a result of the common
mistake
between the parties, alternatively the first defendant’s
unilateral mistake when entering into the finance agreement with
the
plaintiff.
10.2 In its replication
the plaintiff admits the conclusion of the master agreement but
alleges that it does not apply and is irrelevant
to the issue of the
first defendant’s liability to the plaintiff for the amount
loaned to Joroy for three reasons namely,
10.2.1 The finance
agreement replaced the master agreement.
10.2.2 The finance
agreement deals with the specific transaction which forms the subject
matter of the dispute between plaintiff
and first defendant, namely
the loan to Joroy where as the master agreement governs the general
relationship between the parties;
and
10.2.3 On a proper
construction of the master agreement clause 3 of the provisions
relating to the undertakings given by Honey
apply only to cases where
the transaction has been cancelled and the loan amount is still in
the first defendant’s possession,
which is not the case in the
present action.
[11] 11.1 I propose to
deal
seriatim
with each of the defences raised by the first defendant.
1.
THE
PROPER CONSTRUCTION DEFENCE
The question to be
answered in respect of this defence is whether it was the finance
agreement which regulated the relationship
between the parties in
respect of the loan to Joroy in which case the defendants would be
liable to the plaintiff as contended
for by the plaintiff or whether
clause 3 of the finance agreement was replaced by corresponding
provisions in the master agreement
in which case the defendants would
not be liable to plaintiff as contended for by the first defendant
(Honey). The answer lies
in the interpretation of the language
contained in the two agreements concerned in order to ascertain the
common intention of the
parties and the true meaning and
interpretation of the contracts. I have embarked on this exercise
bearing in mind some seminal
judicial decisions on the topic as well
as the more recent remarks of Harms DP concerning the role of
evidence in matters of interpretation
in
KPMG
CHARTERED ACCOUNTANTS v SECUREFIN LTD AND ANOTHER
2009 (2) ALL SA 523
(SCA) at 533 par. 39 b where he said the
following:
“
First,
the integration (or parol evidence) rule remains part of our law.
However, it is frequently ignored by practitioners and
seldom
enforced by trial courts. If a document was intended to provide a
complete memorial of a jural act, extrinsic evidence may
not
contradict, add to or modify its meaning (
Johnson
v Leal
1980 (3) SA 927
(A) at 943B [also reported at
[1980]
2 All SA 366
(A) – Ed]). Second, interpretation is a matter of law and not
of fact and, accordingly, interpretation is a matter for the
court
and not for witnesses (or, as said in common-law jurisprudence, it is
not a jury question: Hodge M Malek (ed)
Phipson
on Evidence
(16ed
2005) paragraphs 33–64). Third, the rules about admissibility
of evidence in this regard do not depend on the nature
of the
document, whether statute, contract or patent (
Johnson
and Johnson
(
Pty
)
Ltd v
Kimberly-Clark Corp
[1985]
ZASCA 132
(at www.saflii.org.za), 1985 Burrell Patent Cases 126 (A)).
Fourth, to the extent that evidence may be admissible to
contextualise
the document (since ‘context is everything’)
to establish its factual matrix or purpose or for purposes of
identification,
‘one must use it as conservatively as possible’
(
Delmas
Milling Co Ltd v du Plessis
1955 (3) SA 447
(A) at 455B–C [also reported at
[1955]
4 All SA 140
(A) – Ed]).’
Dealing
specifically with the paral evidence rule in
JOHNSTON
v LEAL
1980 (3) SA 927
(A) at 943 B Corbett JA spelt out the rule as
follows:
“
...it
is clear to me that the aim and effect of this rule is to prevent a
party to a contract which has been integrated into a single
and
complete written memorial from seeking to contradict, add to or
modify the writing by reference to extrinsic evidence and in
that way
to redefine the terms of the contract... To sum up, therefore, the
integration rule prevents a party from altering, by
the production of
extrinsic evidence, the recorded terms of an integrated contract in
order to rely upon the contract as altered.”
Closely
connected to this parol evidence/integration rule is the rule that no
evidence may be given to alter the clear and unambiguous
meaning of a
contract. See
RAND
RIETFONTEIN ESTATES LTD v COHN
1937 AD 317.
The
most favoured technique of interpretation consistently applied by
our courts remains the application of the “Golden
Rule”
of interpretation in order to determine the plain ordinary and
popular meaning of the language of the contract
in the context of
the contract as a whole. Joubert JA summarised the approach as
follows in
COOPERS
& LYBRAND AND OTHERS v BRYANT
[1995] ZASCA 64
;
1995 (3) SA 761
(A) at 767 E – 768 E:
“
According
to the 'golden rule' of interpretation the language in the document
is to be given its grammatical and ordinary meaning,
unless this
would result in some absurdity, or some repugnancy or inconsistency
with the rest of the instrument... The mode of
construction should
never be to interpret the particular word or phrase in isolation (
in
vacuo
)
by itself... A The correct approach to the application of the
'golden rule' of interpretation after having ascertained the literal
meaning of the word or phrase in question is, broadly speaking, to
have regard:
(1) to
the context in which the word or phrase is used with its
interrelation to the contract as a whole, including the nature and
purpose of the contract...;
(2) to
the background circumstances which explain the genesis and purpose of
the contract, ie to matters probably present to the
minds of the
parties when they contracted...;
(3) to apply extrinsic evidence
regarding the surrounding circumstances when the language of the
document is on the face of it
ambiguous, by considering previous
negotiations and correspondence between the parties, subsequent
conduct of the parties showing
the sense in which they acted on the
document, save direct evidence of their own intentions.”
In
RICHTER
v BLOEMFONTEIN TOWN COUNCIL
1922 AD 57
at 70 Innes CJ dealing with the question of the
admissibility of evidence of background circumstances and extrinsic
evidence of
surrounding circumstances with reference particularly to
when they may be employed as a rule/technique to interpreting a
contract
stated at pp. 69 – 70:
“Every
document should, of course, be read in the light of the circumstances
existing at the time, and evidence may rightly
be given of every
material fact which will place the Court as near as may be in the
situation of the parties to the instrument
(see judgment of PARKE,
B., in
Shore v Wilson
,
9 Cl. & Fin. 556). Where extrinsic evidence is tendered to
identify the persons or things referred to - in other words, where
it
is merely a question of applying the document - the matter is
comparatively simple. But where it is sought to interpret the
language used by reference to surrounding circumstances, then the
enquiry becomes often very intricate. Not because of any doubt
as to
the test, but because of the difficulty of applying it. The rule
itself is clear; apart from cases where words or expressions
are used
in a technical or special sense, extrinsic evidence is only
admissible to explain the construction of a document where
words
occur which are ambiguous either in themselves or as read with their
context. And I agree with the learned JUDGE-PRESIDENT
that the
evidence admitted must relate to the ambiguity. For it is only
allowed in order to explain the meaning of language which,
as it
stands, is capable of more than one meaning. The object is to
ascertain the intention of the parties, not in the abstract,
but as
embodied in the language of the instrument. The narrow line upon
which enquiries of this nature often proceed, and the important
consequences which may be involved in the application of the rigid
rule as to ambiguity are well illustrated...”
The learned Judge then
goes on to illustrate the rule with reference to two foreign
judgments.
The classical analysis
of the rule excluding evidence of surrounding circumstances as an
aid to interpretation is to be found
in the dictum of Schreiner JA
in
DELMAS
MILLING CO LTD v DU PLESSIS
1955 (3) SA 447
(A) at 454 – 455:
“
There appear
to be three broad classes of evidence that are usable in different
kinds of cases. Where although there is difficulty,
perhaps serious
difficulty, in interpretation but it can nevertheless be cleared up
by linguistic treatment this must be done.
The only permissible
additional evidence in such cases is of an identificatory nature;
such evidence is really not used for interpretation
but only to apply
the contract to the facts. Such application may, of course, be itself
the cause of the difficulty, giving rise
to what is sometimes called
a latent ambiguity. If the difficulty cannot be cleared up with
sufficient certainty by studying the
language, recourse may be had to
'surrounding circumstances' i.e. matters that were probably present
to the minds of the parties
when they contracted (but not actual
negotiations and similar statements). It is commonly said that the
Court is entitled to be
informed of all such circumstances in all
cases (cf.
H
Richter's
case
supra
at
page 69;
Garlick
v Smartt and Another
,
1928 AD 82
at p. 87;
Cairns
(Pty.) Ltd v Playdon & Co. Ltd., supra
at
p. 125). But this does not mean that if sufficient certainty as to
the meaning can be gathered from the language alone it is
nevertheless permissible to reach a different result by drawing
inferences from the surrounding circumstances. Whether there is
sufficient certainty in the language of even very badly drafted
contracts to make it unnecessary and therefore wrong to draw
inferences
from the surrounding circumstances is a matter of
individual judicial opinion on each case. Cases of this class, though
they are
generally spoken of as cases of ambiguity, might
conveniently be given some such name as 'cases of uncertainty' to
distinguish
them from the third class of case where even the use of
surrounding circumstances does not provide 'sufficient certainty'.
These
are cases of ambiguity in the narrow sense, where after the
surrounding circumstances have been considered there is still no
substantial
balance in favour of one meaning rather than another. The
usual examples of such true ambiguity come from testamentary
documents,
but examples are conceivable in the case of contract. In
these cases, which will naturally be much rarer than those of
uncertainty,
recourse may be had to what passed between the parties
on the subject of the contract. One must use outside evidence as
conservatively
as possible but one must use it if it is necessary to
reach what seems to be a sufficient degree of certainty as to the
right meaning.”
11.4 The
difficulty inherent in distinguishing between admissible background
circumstances and inadmissible surrounding circumstances
was
recognised by Harms JA in
SECUREFIN
,
supra
,
where at 533 e he stated:
“
The
time has arrived for us to accept that there is no merit in trying to
distinguish between ‘background circumstances’
and
‘surrounding circumstances’. The distinction is
artificial and, in addition, both terms are vague and confusing.
Consequently, everything tends to be admitted. The terms ‘context’
or ‘factual matrix’ ought to suffice.
(See
Van
der Westhuizen v Arnold
2002 (6) SA 453
(SCA) at paragraphs 22 and 23 [also reported at
[2002]
4 All SA 331
(SCA) – Ed] and
Masstores
(
Pty
)
Ltd v Murray and Roberts
(
Pty
)
Ltd and another
2008 (6) SA 654
(SCA) at paragraph 7 [also reported at
[2009]
1 All SA 146
(SCA) – Ed].)”
Our
courts have also frequently quoted, approved and followed the
statement of Wessels JA regarding notions of fairness and equity
in
the interpretation of a contract in
SCOTTISH
UNION & NATIONAL INSURANCE CO LTD v NATIVE RECRUITING CORPORATION
LTD
1934 AD 458
at 465:
“
We have no
right, because we may think that the contract is a hard bargain, to
lean towards a construction more reasonable to the
insured than the
contract constituted by the words of the document.”
Clearly
the
learned Judge was dealing with a contract of insurance in the matter.
In
SOUTH
AFRICAN FORESTRY CO LTD v YORK TIMBERS LTD
2005 (3) SA 323
(SCA) at 340 par. [32] Brand JA opined:
“
...
In
the interpretation process, the notions of fairness and good faith
that underlie the law of contract again have a role to play.
While a
court is not entitled to superimpose on the clearly expressed
intention of the parties its notion of fairness, the position
is
different when a contract is ambiguous. In such a case, the principle
that all contracts are governed by good faith is applied
and the
intention of the parties is determined on the basis that they
negotiated with one another in good faith.”
[12] Neither
counsel addressed me in closing argument pertinently on what to me is
the
pivotal
issue in this case, namely the proper construction of the two
agreements. I am unable therefore in considering what interpretation
to place on those agreements to have regard to any oral submissions
by counsel because none were made. Be that as it may, I do
not think
that had any such arguments been advanced, that any debate would have
arisen that applying the golden rule of interpretation
to the
language of the relevant clauses in the two agreements (clause 3),
that they are mutually and unambiguously exclusive where
each seeks
to impute liability to the first defendant (Honey). In terms of
clause 3(iv) of the master agreement, the first defendant’s
obligations to the plaintiff are limited to assisting, in the event
of cancellation of the transaction, by taking
“
all
reasonable steps to recover the outstanding monies from the purchaser
and upon recovery to make payment to Dynarc Bridge Fin
ance.
If the attorney has already made payment to the Receiver of
Revenue... he does not however warrant this payment... but warrants
that he will assist... in all necessary litigation steps”.
On the
plain
and ordinary meaning of the language used in clause 3(v) of the
master agreement, it is clear that in the event of the death or
insolvency of the borrower, the defendant’s obligation to the
plaintiff is also limited to assisting with recovery of the
loan by
liaising with the executor of the deceased or insolvent estate. To
that end, the first defendant shall repay on demand
to the plaintiff
the amount of the loan should the transaction have been delayed for
whatever
reason
for a period of more than 90 days. (The underlining is mine). What
is clear from the language used in clause 3 of the master
agreement,
is that the first defendant’s liability for repayment of the
loan amount to the plaintiff is non-existent, on
my reading,
interpretation and construction of the master agreement, its only
obligation to the plaintiff being to assist in a
legal capacity to
recover the amount loaned to the borrower in the event of
cancellation of the conveyancing transaction on the
latter’s
death or insolvency. It is also noteworthy that the agreement refers
throughout to the purchaser clearly because
the agreement is framed
in a context that the amount loaned would be in respect of payment of
transfer duty, rates and taxes to
the Receiver of Revenue. The
unambiguous language used in clause 3 of the finance agreement, on
the other hand, imputes unequivocal
responsibility for repayment of
the amount of the loan to Joroy plus finance charges and fees, which
I have accepted means administrative
costs in the context of the
facts of this case, to the first defendant in the event of
cancellation of the conveyancing transaction,
or the death of the
borrower, within 72 hours of such event or in the event of the
transaction being delayed for
whatever
reason
for a period of more than 90 days. (Underlining is my own.)
[13] It
is apparent from the ordinary meaning of the words used to define the
ambit of the master agreement in its preamble and
from the plain
ordinary meaning of the words used in its substantive clauses that
the agreement is concerned only with the provision
by the plaintiff
of funds for payment of transfer duty, rates and taxes and for no
other purpose unless the plaintiff and first
defendant agree to the
variation in writing. The finance agreement, on the other hand,
stipulates the loan of R300 000,00 to Joroy
is an advance on profits
to be repaid out of the proceeds of the sale and thus capable of
being utilised by the borrower (Joroy)
for whatever purpose he deems
appropriate. Having regard to these two diametrically opposed
versions of the first defendant’s
obligations to the plaintiff
in regard to the loan to Joroy, it can hardly be argued by the first
defendant, in my view, that in
regard to the plaintiff’s loan
to Joroy and employing the ordinary grammatical meaning of the
language used in clause 3 of
each of the two agreements, that is the
master and the finance agreements, that each of these agreements does
not qualify in its
own right, based on its own content, as a model of
clarity, the material clauses in each of them being clear,
unambiguous and consonant
with the balance of the contract which,
each in its own respect, pertinently allocates various
responsibilities to the remaining
party/parties to the contract. I
must add though that in comparing and analysing each of these
agreements, with reference particularly
to the first defendant’s
liability to the plaintiff, that I have found that the finance
agreement has the merit of greater
precision.
[14] I
deal now with the evidence of context, background and surrounding
circumstances (the factual matrix) as an aid to the interpretation
of
the two agreements. In doing so I am guided by the dictum in
SECUREFIN
,
supra
,
that the limitation and restriction of ambiguity is no longer a
necessary pre-requisite for the use of evidence of surrounding
circumstances in interpreting documents. The only evidence to which
I can have regard in fathoming the common intention of the
parties,
is that of Rossouw and Nel, provided off course that, on the
probabilities, their evidence passes muster and is accepted
by this
court as being indicative of an intention for the first defendant not
to be liable to the plaintiff for the amount loaned
to Joroy as
contended for by these witnesses. Regrettably though for the
defendants, I am unable to find in their favour, that,
on the
probabilities, either of these witnesses were credible witnesses and
that the interpretation relied upon by the defendants
is justified by
the underlying text. Given that the intention of the two contracting
witnesses must, first and foremost, be gathered
from the ordinary
grammatical meaning of the language used in the two agreements and
not from what either of them may have had
in mind at the time of
contracting (
VAN
PLETSEN v HENNING
1913 AD 82
at 99), the additional contribution made in ascertaining
that intention by reference to the background and surrounding
circumstances,
that is what transpired between these two witnesses,
their negotiations and their conduct, does not, in my judgment,
reflect that
the master agreement had been amended as testified to by
each of them, because their evidence in this regard is unconvincing
and
improbable. Rossouw is a commercial attorney on his own
admission. He drafted both agreements and signed the finance
agreement.
He did not attempt to deny that he fully understood the
grammatical construction and import, and more importantly, the
grammatical
independence of the language used in clause 3, the clause
concerned with the subject matter of the dispute, in the two
agreements.
He did not deny that he was fully acquainted with the
terms of both agreements and despite the second defendant’s
objections
to assuming liability for repayment of the loan to Joroy
in the event of the latter defaulting with payment for whatever
reason,
he nevertheless signed the finance agreement without deleting
clause 3 and clause 4 thereof. His explanation that an oral
antecedent
agreement between himself and Nel amending clause 3 of the
master agreement so as to limit the obligations of the first
defendant
to plaintiff, to that of taking legal action for recovery
of the amount of the loan to Joroy, made the deletion of clause 3 of
the finance agreement unnecessary and that, this course of action, if
embarked upon, would have been prohibitively expensive for
the
plaintiff, is at odds with the uncontested objective fact that it
would only have been necessary to delete clause 3 of the
finance
agreement in respect of the Joroy application and that would not have
involved the plaintiff in any expense at all. I
reject out of hand
the testimony of both Rossouw and Nel on this crucial aspect, as
being so highly improbable that it is incapable
of any credence
whatsoever. In doing so I take into account that Nel at the time
was, on his own evidence as well as that of Rossouw’s,
a
director of the plaintiff possessed of inordinate innovative ideas
and skills and who described himself with pride on the witness
stand
as an entrepreneur, always on the lookout to explore new business
opportunities and ventures. That is hardly the type of
businessman
who would ignore the forcefulness and indiscriminate weight of a
clause in a contract which he signs on behalf of his
company,
imputing liability to his co-signee’s company (Honey) with an
intention to limit the protection accorded to his
company (the
plaintiff) in the sense conveyed by the ordinary, plain and popular
meaning of the language of clause 3 of the finance
agreement in the
context of that agreement as a whole.
In
light of the view I have taken of the testimony of these witnesses,
in the critical respects mentioned, I find that I am unable
to accept
their further testimony that the addendum to the master agreement
signed on 27 June 2006, had application to the finance
agreement
signed by the plaintiff on 23 March 2006, because it referred to all
bridging finance which included advance on profits.
I am fortified
in this conclusion by the fact that the addendum was signed long
after the finance agreement and it was never the
defendant’
case that the parties intended the provisions of the addendum in this
material respect to operate retrospectively
as regards the finance
agreement. Whilst it is true that Mr. Green in argument submitted
that clause 1(i) of the master agreement
requiring the plaintiff to
agree in writing that a loan can be made for a purpose other than
rates and taxes or transfer duty does
not require the conclusion of a
further agreement in respect of a loan for purposes other than rates
and taxes or transfer duty,
I reject the further contention advanced
by him that the requirement that the plaintiff agree in writing to a
variation of the
master agreement would be met if the plaintiff were
to write a letter authorising such a transaction or if the plaintiff,
advised
of the purpose of the loan, then produced a written quotation
in respect thereof. Whilst there was evidence provided by Rossouw
that a quotation was given in respect of the loan requested to Joroy
and that loan was in respect of an advance of profits, there
is no
evidence from the defendants that the provision of that quotation
satisfied the requirement in clause 1(i) of the master
agreement that
the plaintiff agree in writing. So that argument advanced by Mr.
Green is pure speculation on his part and I intend
saying no more
than that about it.
In
passing I comment that the evidence as outlined by the defendants in
respect of its defence of a proper construction, must stand
out for
its extraordinary ability to tantalise the legal mind and whilst not
harbouring any doubts as to the correctness of the
conclusion I have
reached in regard to that defence, the evidence remains perplexing
and elusive to the questioning legal mind.
[15] My
findings are accordingly that on a proper construction of the master
agreement and the finance agreement:
1. The
master agreement and the finance agreement are two separate,
divisible
,
distinct and severable agreements, each serving a specific purpose,
the one unrelated to the other: the master agreement was concluded
in
order to regulate the relationship between the plaintiff and Honey in
respect of the conveyancing transactions for which the
plaintiff had
loaned funds for the payment of rates and taxes and transfer duty.
It related mainly to the plaintiff’s loan
to a purchaser in
respect of a property transaction. The finance agreement was
concluded in order to regulate the relationship
between the
plaintiff, Joroy and the first defendant (Honey) in respect of the
conveyancing transaction relating to the sale of
Joroy’s
property and for which plaintiff had loaned funds to Joroy as an
advance on profit.
2. Each of the master
agreement and finance agreement records that the document embodying
the agreement is the entire agreement
and may not be varied except in
writing and on signature by the parties. No written variation of
either the master agreement or
the finance agreement was recorded and
signed by the parties.
3. The
master agreement accords a protection to the defendants in that it
limits their obligation to the plaintiff to the furnishing
of legal
assistance in the recovery of the loan for rates and taxes and
transfer duty, whilst the finance agreement makes the defendants
liable for the repayment of the loan to Joroy in the event of the
transaction being cancelled or delayed.
4. The plaintiff’s
acceptance of Joroy’s application embodied in the finance
agreement does not constitute the plaintiff’s
agreement in
writing to a variation as required by the master agreement, nor is it
the plaintiff’s consent to the alleged
amendment of the master
agreement such as to qualify as an execution of the master agreement.
This is impossible in the context
of the timeframe in which the
master agreement, the finance agreement and the amended agreement as
well as the addendum to the
master agreement were all entered into on
the common cause evidence given by both Rossouw and Nel.
5. The
evidence, as contextualised, of the conclusion of the master
agreement and the finance agreement does not advance the
interpretation
contended for and relied on by the defendants. There
is no factual basis for a finding that the master agreement regulated
the
relationship between the parties and that the defendants are not
liable to the plaintiff for payment of the agreed amount of R744
883,02. On the contrary the relationship was very much subject to
clause 3(iv) and clause 4 of the finance agreement.
I conclude therefore that
the common continuing intention of the parties when entering into the
master agreement and the finance
agreement, as distilled from a
comparative analysis of the two agreements, was that the defendants
would attract liability to the
plaintiff in the event of non-payment
of the loan to Joroy.
THE
DEFENCE OF RECTIFICATION
[16] It
is trite that rectification may be granted where the common
continuing intention of parties to a written contract, is incorrectly
recorded as a result of a common mistake of both parties on proof by
the party claiming it of such facts as would entitle him to
the
remedy. This is so even when the contract correctly reflects the
language the parties intended to record, but where the words
used
incorrectly reflected the parties’ prior actual agreement or
continuing common intention which the parties’ seeking
rectification intends to entrench by the leading of extrinsic
evidence. See
TESVEN
CC AND ANOTHER v SOUTH AFRICAN BANK OF ATHENS
2000 (1) SA 268
(SCA) at 274 par. [16]. There is ample authority for
the recognition that the onus placed on the parties seeking
rectification
(in this case the defendants) is a heavy one and not
easily discharged. See
BARDOPOULOS
AND MACRIDES v MILTIADOUS
1947 (4) SA 860
(W) at 863 – 864:
“
A
party seeking to obtain rectification must show the facts entitling
him to obtain that relief 'in the clearest and most satisfactory
manner'...
and
as is pointed out in
Taylor
v Cape Importers
(1938
CPD 362
at p. 368), where the common intention is to be shown not by
any writing but by verbal evidence, the Courts may have great
difficulty
in determining whether there was a mistake in the written
contract. These cases do not, I consider, require more than a balance
of probability in favour of the party seeking rectification but
indicate that such a claim is in fact difficult to prove.”
In
BUSHBY
v GUARDIAN ASSURANCE CO
1915 WLD 65
at p. 71 quoted with approval in the
BARDOPOULOS
-case
by Clayden J the principle was neatly stated thus:
“
In
order to obtain the rectification of a written instrument, the
plaintiff must show in the clearest and most satisfactory manner...
that there was a prior contract entered into between the parties,
with which the instrument to be rectified fails to agree; that
such
failure was due, not only to the plaintiff's mistake, but also to
mistake on the part of the other party to the contract;
and further
that the mistake was reasonable and was not the result of
carelessness or negligence on the part of the plaintiff...
the
plaintiff must also prove that the prior contract continued up to the
date of the instrument sought to be rectified. As a rule
this, no
doubt, is so, but where the prior contract is itself in writing it
seems to me that its continuance must be presumed until
the contrary
is shown.”
(In this case the onus
was on the plaintiff because it was the party seeking rectification.)
The
factual issues relating to the conclusion of the oral amended
agreement were fully canvassed in evidence by Mr. Green on behalf
of
the defendants and evolved to perfection under cross-examination of
Rossouw and Nel by Mr. Joubert. On the basis of this evidence
Mr.
Green contends that in the particular circumstances of the present
matter, where the terms of the antecedent oral amended agreement
between Rossouw and Nel had been intentionally (for that was the
evidence) omitted from the written master agreement as being
unnecessary, this court ought to find that the terms thereof were at
variance with clause 3 of the finance agreement as a result
of a
common mistake between the parties that the first defendant’s
obligation to plaintiff as set out in clause 3 of the
finance
agreement were the same as those set out in the antecedent amended
master agreement and allow clause 3 of the finance agreement
to be
rectified in accordance with the continuing common intention of the
parties as deduced from their prior oral agreement.
Such a remedy is
however not open to the defendants because of the negative
credibility findings I have made in regard to the testimony
of both
Rossouw and Nel specifically with reference to the improbabilities of
the version advanced by each of them concerning the
alleged oral
amended agreement. In light of those improbabilities I reject the
contention of a common assumption and/or a common
mistake as being
devoid of any rational belief. I come to the conclusion therefore
that the defendants have failed to prove an
antecedent contract with
which clause 3 of the finance agreement is at variance or in
conflict. Such proof is indispensible to
a successful plea of
rectification. No factual basis has been shown by the defendants to
exist for a finding by this court that
they are entitled as of right
to the rectification of the finance agreement and the defence must
therefore fail. In coming to
this conclusion I have borne in mind
the case of
FIRST
RAND BANK OF SOUTHERN AFRICA LTD v PRETORIUS AND ANOTHER
2002 (1) ALL SA 275
(C) relied on by the defendants. The case is
distinguishable from the facts of this matter in that there the court
was dealing
with a completely acceptable and tangible document which
clearly comprised further terms not contained in the original
agreement
and not the
viva
voce
evidence of the existence of an antecedent verbal agreement in
respect of which unfavourable credibility findings had been made.
THE DEFENCE OF COMMON
AND UNILATERAL MISTAKE
[17] By
parity of reasoning, the defendants’ plea that the finance
agreement falls to be declared a nullity on the ground
of common
mistake cannot be sustained and is summarily dismissed for lack of an
evidentiary basis therefor.
[18] 18.1 The
defendants’ reliance on the defence of unilateral mistake is
also misconceived and fatally flawed because the
erroneous belief
complained of is not supported by any evidence that such an error
existed at the time of contracting. This is
due to this court’s
unequivocal rejection of the testimony of Rossouw and Nel on the all
important and material aspect of
how the master agreement, the
finance agreement, the amended agreement and the addendum to the
master agreement were negotiated,
discussed and concluded. But even
if I were to assume in the defendants’ favour, without finally
deciding, that there was
room for finding, on an analysis of the
testimony of these two witnesses, that Rossouw laboured under the
erroneous belief that
his actual intention of excluding defendants
from liability to the plaintiff for repayment of the Joroy loan
conformed to the
expressed common intention of the parties, such a
unilateral mistake, does not allow him to repudiate his apparent
assent to the
finance agreement except in very narrow circumstances.
See
GEORGE
v FAIRMEAD (PTY) LTD
1958 (2) SA 465
A at 471 and
NATIONAL
AND OVERSEAS DISTRIBUTORS CORPORATION (PTY) LTD v POTATO BOARD
1958 (2) SA 473
A at 479. The effect of these decisions is that for
a unilateral mistake to vitiate a contract, the error complained of
must be
a
iustus
error
.
The test is a subjective one and there is very limited scope for the
defence in the absence of misrepresentation by the other
party, or at
the very least, knowledge that the assent to the contract was being
made under some misapprehension or misconception.
None of these
prerequisites have been shown on a balance of probabilities to have
been present and to have influenced the defendants’
decision to
enter into the finance agreement subject to the acceptance of
liability to the plaintiff in terms of clause 3 thereof.
18.2 Nowhere
in Rossouw’s evidence does he raise the defence of
iustus
error
(reasonabale error). I deal with the concept nevertheless to show
the futility of the defence. Rossouw is not a layman and when
he put
his signature to the finance agreement, it is inconceivable that he
did not realise what he was called upon to signify by
his assent to
that document, that is that the was agreeing its terms and binding
his firm to an obligation to repay the debt of
another (the loan to
Joroy). Nowhere in the evidence is it apparent that he did so
because he was led to believe otherwise by
Nel. It is axiomatic that
in these circumstances Rossouw could not help but appreciate the risk
he was assuming by appending his
signature to the finance agreement
so that, if indeed a error was made, it was one which was not
reasonably made in the circumstances.
All of this however does not
assist the defendants one jot because it was never Rossouw’s
testimony that he had erred unilaterally
in signing the finance
agreement, specifically with reference to clause 3(iv) and clause 4
of the attorney’s undertakings
in the finance agreement. The
idea of Rossouw and Nel signing the finance agreement because of a
common mistake and/or a unilateral
mistake seems to me, given the
uncontested evidence of these witnesses, to be a somewhat large
demand on one’s credulity.
I find that the defendants have
therefore failed to discharge the onus they carry on a balance of
probabilities in respect of
both these defences.
[19] Another
bone of contention between the parties, not pleaded, but one which
evolved through the cross-examination of the witnesses,
was the
question of whether or not there had been a repudiation and
cancellation of the Joroy transaction. During cross-examination
of
Rossouw, Mr. Joubert, suggested that the transaction had not been
cancelled in an attempt to take the facts of the matter outside
of
the provisions of clause 3(iv) of the master agreement to which Mr.
Green immediately objected, arguing that it had been cancelled.
[20] Repudiation
occurs when the act or conduct or a party to a contract evinces an
intention to no longer be bound by the contract
and indicates by word
or conduct a deliberate and unequivocal intention that all or some of
its obligations arising from the contract
will not be performed.
(See
DATACOLOR
INTERNATIONAL (PTY) LTD v INTAMARKET (PTY) LTD
[2000] ZASCA 82
;
2001 (2) SA 284
(SCA) at 294 H – I.) It is agreed by both
parties that Bothma Diamonds (Bothma Diamante) repudiated the
property transaction
by frustrating the fulfilment of the suspensive
condition. Joroy accepted Bothma Diamante’s conduct in this
regard and by
doing so elected to find another purchaser thereby
accepting the repudiation which, in turn, had the effect of bringing
the contract
to an end, that is of cancelling the contract. The
contract, in any event, became void
ab
initio
on non-fulfilment of the suspensive condition.
[21] In
my view, the contract between Joroy and Bothma Diamante was
terminated in this manner. Mr. Joubert, however, was adamant
that
the contract had not been cancelled because notice of cancellation
had not been conveyed to Bothma Diamante and in an attempt
not to
restrict the plaintiff’s claim in the event of it succeeding in
this action, applied for the amendment of its particulars
of claim to
reflect that the transaction in question was not cancelled. The
amendment, if granted, would have had the effect of
not limiting the
amount of the plaintiff’s claim only to the capital loaned to
Joroy (par. B: Details of the Finance Agreement).
The application by
Mr. Joubert was directed at amending clause 3(III) of the finance
agreement. The application was vigorously
opposed by Mr. Green. I
disallowed the application on the basis of the remarks of Nienaber
JA and Conradie AJA in
CIBA-GEIGY
(PTY) LTD v LUSHOF FARMS (PTY) LTD EN 'N ANDER
2002 (2) SA 447
(SCA) at 426 par. [30] – [34]. At par. [34]
the learned Judges quoted, with approval, and applied, the following
dictum
in
TRANS-DRAKENSBERG
BANK LTD (UNDER JUDICAL MANAGEMENT) v COMBINED ENGINEERING (PTY) LTD
AND ANOTHER
1967 (3) SA 632
(D) at 641 A – B:
“
Having
already made his case in his pleading, if he wishes to change or add
to this, he must explain the reason and show
prima
facie
that
he has something deserving of consideration, a triable issue; he
cannot be allowed to harass his opponent by an amendment which
has no
foundation. He cannot place on the record an issue for which he has
no supporting evidence, where evidence is required,
or, save perhaps
in exceptional circumstances, introduce an amendment which would make
the pleading excipiable...”
The
learned Judges went on to quote, with approval, the judgment of De
Villiers JP in
KROGMAN
v VAN REENEN
1926 OPD 191
at 195:
“
He must show, for
instance, that the matter involved in the amendment is of sufficient
importance to justify him in putting the
court and the other party to
the manifold inconveniences of a postponement.”
In
my judgment nothing turned on the proposed amendment because the
plaintiff had pinned its mast to the specific sale of clause
3(iv)
and clause 4 of the finance agreement and the parties had agreed the
amount of the claim at R744 883,02. So no useful purpose,
from the
plaintiff’s point of view, would have been served by allowing
Mr. Joubert to persist in the bringing of his application
to further
amend the particulars of claim in the manner sought.
[22] I
find that on the evidence presented, the plaintiff has discharged the
onus it carries of showing on a balance of probabilities
that Honey
is liable to it in the agreed amount of R744 883, 02. In the result
there will be judgment for the plaintiff against
the defendants
jointly and severally, the one paying the other to be absolved, in
the sum of R744 883, 02 together with costs on
the attorney and
client scale.
_____________
S. EBRAHIM, J
On
behalf of plaintiff: Adv. D.C. Joubert
Instructed
by:
Symington
& De Kok
BLOEMFONTEIN
On
behalf of defendants: Adv. I.P. Green
Instructed
by:
Lovius
Block
BLOEMFONTEIN
/sp