Summary of Judgment

1. Introduction

The proceedings were a civil action for payment brought in the KwaZulu-Natal High Court, Pietermaritzburg. The plaintiff, Lynne & Main Incorporated, sued the defendant, Jane Leven, on a written deed of suretyship in respect of indebtedness arising from a prior judgment debt.

The matter originated from a default judgment granted on 29 September 2002 in favour of Nedbank Limited against Medsolve (Pty) Ltd for payment of R40 039.23, interest, and costs. During March 2003 Nedbank ceded to the plaintiff its rights, title, and interest in the judgment debt. On 9 March 2005 the defendant executed a suretyship in favour of the bank, binding herself as surety and co-principal debtor for amounts Medsolve might owe to the bank, including interest and costs.

Although the defendant initially pleaded denials relating to the cession, the default judgment, and the suretyship, by the time of trial she admitted the existence of the judgment, the cession, and that she had signed the suretyship. The dispute therefore narrowed to whether the suretyship was valid and enforceable and, if so, the extent of the enforceable claim and the appropriate costs order.

The general subject-matter of the dispute concerned the enforcement of a suretyship following a ceded judgment debt, with the defendant raising (i) a statutory validity challenge under section 6 of the General Law Amendment Act 50 of 1956 and (ii) a public policy / unconscionability challenge, as well as the court addressing the in duplum limitation in relation to interest.

2. Material Facts

It was undisputed by the time of trial that on 29 September 2002 Nedbank Limited obtained default judgment against Medsolve (Pty) Ltd for R40 039.23, interest at 22.49% per annum from 10 May 2001, and costs. It was also undisputed that in March 2003 Nedbank ceded to Lynne & Main Incorporated its rights, title, and interest in, among other things, the judgment debt.

It was further undisputed that on 9 March 2005 the defendant concluded a written deed of suretyship in terms of which she bound herself jointly and severally as surety and co-principal debtor in solidum for repayment on demand of amounts Medsolve might owe to the bank, including further sums, interest, and costs, and that she renounced the benefits of excussion and division. The deed also provided for attorney-and-client legal costs in defined circumstances.

The material disputed issues did not concern the existence of the documents or the fact of signature, but rather their legal sufficiency and enforceability. The defendant contended that the suretyship did not comply with section 6 of the General Law Amendment Act 50 of 1956 because the deed did not adequately describe the nature and amount of the principal debt. She further contended that the suretyship was unconscionable, alleging disparity in bargaining power and unintelligibility of terms.

On the quantification of the claim, the court treated the in duplum rule as applicable on the facts, limiting the recoverable amount in the manner described in the judgment and reflected in the final order.

3. Legal Issues

The central legal questions were whether the deed of suretyship complied with the formal validity requirements in section 6 of the General Law Amendment Act 50 of 1956, specifically whether the “terms” required to be embodied in writing and signed included an adequately specified nature and amount of the principal debt, and whether the wording used (“all or any sum or sums…”, with the recoverable amount described as “unlimited”) satisfied those requirements.

A further central question was whether the suretyship should be held unenforceable on grounds of public policy, framed by the defendant as a contention that the agreement was unconscionable, including whether alleged inequality of bargaining power and alleged unintelligibility of terms rendered the transaction contrary to public policy.

In addition, the court addressed the application of the in duplum rule to limit the claim. This involved the application of a legal rule to the established facts concerning the judgment debt and interest.

Finally, the court considered costs, including whether, despite the plaintiff’s success and the contractual attorney-and-client clause, costs should be moderated because the claim fell within the Magistrates’ Court jurisdiction and the court was not satisfied it was necessary to institute the action in the High Court.

Overall, the dispute primarily concerned questions of law and the application of legal principles to largely common cause facts, rather than factual disputes requiring credibility findings.

4. Court’s Reasoning

On the section 6 challenge, the court proceeded from the statutory requirement that no contract of suretyship entered into after commencement of the Act is valid unless its terms are embodied in a written document signed by or on behalf of the surety. The defendant relied on authority for the proposition that the essential terms to be embodied include the identities of the creditor, surety, principal debtor, and the nature and amount of the principal debt.

The court rejected the defendant’s twofold attack on the description of the principal debt. First, in relation to the amount of the principal debt and the absence of a specified “ceiling”, the court relied on the approach that inclusion of a ceiling is not an essential term of a suretyship. The court referred to authority indicating that a ceiling is an incidental term which might or might not be included, and that omission of a ceiling does not, in itself, render the suretyship invalid under section 6.

Secondly, in relation to the nature of the principal debt, the defendant argued that the suretyship had to specify a particular causa giving rise to the principal debt and that the general wording failed to do so. The court rejected this contention, referring to authority interpreting similarly worded suretyships as extending to debts arising from any causa, and accepted that the clause in question indicated that the surety’s liability could be unlimited and not confined to a specifically described transaction. On this approach, the wording “all or any sum or sums of money which the debtor may now or from time to time hereafter owe” was treated as sufficient to describe the nature of the principal obligation for purposes of section 6.

On unconscionability and public policy, the court applied the established test that for an agreement to be declared unenforceable as contrary to public policy it must be shown to be inimical to the interests of the community, contrary to law or morality, or to run counter to social or economic expedience. The court further emphasised that public policy generally favours freedom of contract, and that the power to strike down contracts on public policy grounds should be exercised sparingly, only where the impropriety and element of public harm are manifest.

Applying these principles, the court examined the suretyship and found it to be a readable document in standard terms commonly used by banks in everyday banking activities. It found no provision that could be characterised as inimical to the community, contrary to law or morality, or contrary to social or economic expedience. The court rejected the contention that the mere fact that one party was a bank and the other an individual rendered the transaction improper, and concluded that no manifest element of public harm had been demonstrated. On that basis, the unconscionability/public policy defence failed.

The court then addressed the in duplum rule, stating that it clearly applied on the facts and that this meant the claim had to be limited to twice the amount of the judgment debt, together with interest at 20.5% per annum as described in the judgment. The court’s quantification in the order reflected this limitation by awarding an amount equal to double the original judgment debt.

On costs, the court considered that the claim fell within the jurisdiction of the Magistrates’ Court and held it was not satisfied that it was necessary to institute the action in the High Court. It accordingly directed that, although costs were awarded to the plaintiff (including on the attorney-and-client scale contemplated by the suretyship), those costs were to be taxed according to the Magistrates’ Courts tariff, reflecting a discretionary limitation in light of forum choice.

5. Outcome and Relief

The court upheld the plaintiff’s claim against the defendant on the suretyship, rejected the defences based on section 6 non-compliance and unconscionability, and applied the in duplum rule to limit recovery.

The defendant was ordered to pay the plaintiff R80 078.46, together with interest calculated at 20.5% per annum from the date of this judgment to date of payment.

The defendant was ordered to pay the plaintiff’s costs of action on the scale as between attorney and client, with such costs to be taxed in terms of the tariff of costs of the Magistrates’ Courts.

Cases Cited

Sapirstein and Others v Anglo African Shipping Co (SA) Ltd 1978 (4) SA 1 (A)

First Consolidated Holdings (Pty) Ltd v Bissett and Others 1978 (4) SA 491 (W)

Lynn & Main Incorporated v F J Engelbrecht (Case No: 17107/02, Transvaal Provincial Division, judgment handed down 15 March 2007) (unreported)

Sasfin (Pty) Ltd v Beukes 1989 (1) SA 1 (AA) (as cited in the judgment)

Botha (now Griessel) and Another v Finanscredit (Pty) Ltd 1989 (3) SA 773 (AD)

Legislation Cited

General Law Amendment Act 50 of 1956, section 6

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the defendant’s deed of suretyship met the statutory formalities in section 6 of the General Law Amendment Act 50 of 1956 notwithstanding that it did not specify a particular causa for the principal debt and notwithstanding that it described the recoverable amount as “unlimited”. The court further held that the suretyship was not shown to be contrary to public policy and was therefore not unconscionable or unenforceable on that ground.

The court held that the in duplum rule applied, with the consequence that the plaintiff’s claim was limited to twice the amount of the judgment debt, resulting in an award of R80 078.46, together with interest at 20.5% per annum from the date of the High Court judgment to payment.

The court held that while the plaintiff was entitled to costs (including on an attorney-and-client basis as provided for), the costs were to be taxed on the Magistrates’ Courts tariff because the claim fell within the Magistrates’ Court jurisdiction and the court was not satisfied High Court proceedings were necessary.

LEGAL PRINCIPLES

Section 6 of the General Law Amendment Act 50 of 1956 requires a contract of suretyship to be embodied in a written document signed by or on behalf of the surety; the enforceability enquiry focuses on whether the essential terms are sufficiently recorded in writing.

A suretyship that binds the surety for “all sums” that the principal debtor may owe from time to time may be construed as extending to debts arising from any causa, and does not necessarily require specification of a single underlying transaction to satisfy the written-terms requirement, as applied in the judgment.

The absence of a specified ceiling or maximum amount in a suretyship does not, in itself, render the contract invalid; a ceiling may be treated as an incidental rather than essential term, depending on the contract as formulated.

A contract will be declared unenforceable as contrary to public policy only where it is shown to be inimical to the interests of the community, contrary to law or morality, or running counter to social or economic expedience; and the power to invalidate contracts on this basis is to be exercised sparingly, with due regard to freedom of contract and requiring manifest impropriety and public harm.

The in duplum rule was treated as applicable on the facts, limiting recoverable amounts in relation to interest and resulting in a cap expressed by the court as limiting recovery to twice the judgment debt in the circumstances addressed.

Where a claim falls within the Magistrates’ Court jurisdiction, a High Court may exercise a costs discretion to limit recoverable costs by directing taxation in accordance with the Magistrates’ Courts tariff, even where the successful party obtains substantive relief and relies on a contractual costs provision.