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[2020] ZASCA 38
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Liberty Group Ltd v Illman (1334/2018) [2020] ZASCA 38; 2020 (5) SA 397 (SCA) (16 April 2020)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 1334/2018
In the matter between:
LIBERTY
GROUP
LIMITED APPELLANT
And
WARREN
PATRICK BROUGHTON
ILLMAN RESPONDENT
Neutral
citation:
Liberty
Group Limited v Illman
(1334/2018)
[2020] ZASCA 38
(16 April 2020)
Coram:
SWAIN,
MAKGOKA, MOKGOHLOA AND NICHOLLS JJA AND KOEN AJA
Heard:
13
March 2020
Delivered:
This
judgment is handed was down electronically by circulation to the
parties’ representatives by email and by publication
in the
Supreme Court of Appeal website and release to SAFLII. The time and
date for hand down is deemed to be 09h45 on the 16
th
day of April 2020.
Summary:
Suretyship –
a surety who binds himself as co-principal debtor does not become a
co-debtor with another surety and co-principal
or with the principal
debtor.
Prescription
– service of summons on surety and co-principal debtor –
prescription in favour of another surety and co-principal
debtor
not interrupted thereby.
ORDER
On
appeal from:
Gauteng
Division of the High Court, Pretoria (Rabie J sitting as court of
first instance).
The
appeal is dismissed with costs.
JUDGMENT
Makgoka
JA (Swain, Mokgohloa and Nicholls JJA and Koen AJA concurring)
[1]
The
anterior issue in this appeal is whether sureties who also bind
themselves as co-principal debtors become co-debtors with the
principal debtor, and with each other. Ancillary thereto, is whether
the service of a summons on any of the sureties interrupts
the
running of prescription in favour of the others. The court a quo, the
Gauteng Division of the High Court, Pretoria, answered
the question
in the negative. It upheld the respondent’s special plea of
prescription and dismissed the appellant’s
claim with costs.
Aggrieved with that order, the appellant appeals with the leave of
the court a quo.
[2]
The
factual background against which the issue arises is briefly this. On
10 March 2003 Charter Life Insurance Company Ltd (which
later changed
its name to Liberty Active Ltd (Liberty)) concluded a written broking
agreement with ECE Financial Holdings (ECE)
[1]
in terms of which ECE was to act as an independent intermediary for
its financial products. As compensation for its services, ECE
would
be paid commission on premiums received by Liberty during the
currency of the agreement on contracts issued pursuant to proposals
submitted by ECE.
[3]
On
various dates between March 2003 and February 2005, eight
individuals, including the respondent, each signed separate but
identical
deeds of suretyship in terms of which they bound themselves
as sureties and co-principal debtors
in
solidum
with ECE for the payment to Liberty of all monies which ECE could in
future owe to Liberty, ‘from whatsoever cause arising’.
[4]
During
March 2003 and March 2011, and before receiving any premiums in
respect of contracts issued by the appellant on proposals
submitted
by ECE to it, Liberty advanced commissions to ECE. However, during
the same period, up to August 2011, the contracts
in respect of which
commissions were advanced to ECE, either lapsed, were cancelled or
terminated, because of non-payment of premiums
to Liberty.
[5]
As
a result, the commissions which Liberty had paid in advance, became
repayable to it by ECE in terms of the agreement, and by
the sureties
in terms of the deeds of suretyship. The total amount of the
commissions was R1 029 963.50.
Liberty
later ceded to the appellant all its rights to claims arising from
the claw-back commissions in respect of the broking agreement.
[6]
On
22 September 2011, the appellant, as cessionary, issued summons
against all the sureties and co-principal debtors for the re-payment
of the amount of R1 029 963.50 referred to above. It
alleged in its particulars of claim, among others, that the agreement
between the parties was terminated on 14 March 2011. On 29 September
2011 the summons was served on one of the sureties, Mr Russel
John
September (Mr September), who was the seventh defendant. He failed to
deliver a notice of intention to defend. As a result,
the appellant
obtained default judgment against him on 27 January 2012.
[7]
With
regard to the respondent, who was the sixth defendant, the summons
was served on him on 31 March 2016, approximately five years
after it
was issued. The respondent raised a special plea of prescription to
the appellant’s claim. He asserted that to the
extent that the
appellant’s claim against him was based on the alleged
termination of the agreement on 14 March 2011, such
claim became
prescribed after three years of that date, in terms of
s 11
of the
Prescription Act 68 of 1969
.
[8]
The
appellant delivered a replication to the respondent’s plea of
prescription, the essence of which was that: as the appellant
and Mr
September had bound themselves to the appellant as sureties and
co-principal debtors
in
solidum
with ECE, they became ‘co-debtors.’ The claim
against ECE and the sureties became due on 14 March 2011. Service
of
the summons on Mr September within the prescription period,
interrupted the running of prescription in favour of ECE and all
co-debtors, including the respondent. Accordingly, it was pleaded,
the claim against the respondent had not prescribed.
[9]
In
order to resolve this issue three decisions of this court must be
considered, namely
Kilroe-Daley
v Barclays National Bank
[1984] ZASCA 90
;
[1984]
2 All SA 551
;
1984 (4) SA 609
(A) and
Neon
and Cold Cathode Illuminations (Pty) v Ephron
[1978] 2 All SA 1
;
1978 (1) SA 463
(A) and
Jans
v Nedcor
Bank
Ltd
[2003] 2 All SA 11
; 2003 (6) 646 (SCA).
[10]
It
is convenient to commence with
Jans.
There,
the issue was whether the interruption in the running of prescription
in favour of the principal debtor, interrupted the
running of
prescription, in favour of a surety. The court considered two
opposing views on the effect of a surety binding himself
as a
co-principal debtor. The one view was that the effect thereof was
that such a surety would be jointly and severally liable
with the
principal debtor and prescription would begin to run in favour of
both at the same time. He would not be liable to the
creditor in any
capacity other than that of a surety, who had renounced the benefits
ordinarily available to him against a creditor.
The opposing view
stressed that the surety’s liability was accessory to that of
the principal debtor, despite that it was
based on a different
contract. The surety’s obligation is merely to guarantee
performance by the principal debtor. Given
a suretyship’s
accessorial nature, the liability of a surety is tied to that of the
principal debtor. If the claim against
the principal debtor became
prescribed or ceased to exist, the claim against the surety likewise
became prescribed or otherwise
ceased to exist.
[11]
After
an extensive review of the authorities, Scott JA pointed out that
there were significant differences between the relationship
existing
between the principal debtor and surety on the one hand, and that
between co-debtors,
in
solidum
on the other. He accordingly concluded that an interruption or delay
in the running of prescription in favour of the principal
debtor,
interrupted or delayed the running of prescription in favour of the
surety. As between co-debtors, the common law allowed
the judicial
interruption of prescription of a co-debtor by service on another
co-debtor.
[12]
In
this regard, it is significant that the appellant in its replication,
referred to the respondent and other sureties as ‘co-debtors’.
This is at the heart of the appellant’s case. The sum total of
the appellant’s case is that the sureties, by binding
themselves also as ‘co-principal debtors
in
solidum
’
with ECE, the subsidiary nature of their obligations lapsed. Their
liability became equal to that of the principal debtor,
and they in
fact, became co-debtors.
[13]
In
this court, counsel for the appellant submitted that the effect of a
renunciation of the benefit of the legal exception of excussion
is
that the surety’s liability is no longer subsidiary to the
primary liability of the principal debtor. The addition of
the words
‘co-principal debtor
in
solidum
’
signaled an intention that the liability shall be of the same scope
and nature as that of the principal debtor. This made
the principal
debtor and the surety, co-debtors. Thus, service of summons on any of
them, Mr September in this case, interrupted
prescription running in
favour of the rest.
[14]
Counsel
for the appellant was fully cognisant that this submission was
contrary to the jurisprudence of this court in the decisions
of
Kilroe-Daley
and
Neon.
In
Kilroe-Daley
,
the accessorial nature of a suretyship agreement to the main contract
was emphasised, despite it being a separate contract from
that of the
principal debtor and his creditor. The addition of the words
‘co-principal debtor’ did not transform the
contract into
any contract other than one of suretyship. Consequently, it was held
that if the principal debt became prescribed
the surety’s debt
also became prescribed and ceased to exist. In
Neon
it was held that the sole consequence (albeit an important one) of a
surety binding himself as a co-principal debtor is that, as
regards
the creditor, he renounces the benefits such as excussion and
division available to him, and he becomes liable with the
principal
debtor jointly and severally. It did not make him a co-debtor.
[15]
The
appellant submitted that
Kilroe-Daley
and
Neon
,
to the extent that they limited the effect of the phrase ‘and
co-principal debtor’ to only a tacit renunciation of
the legal
exceptions, had been wrongly decided. To that end, reliance was
placed on the following dictum by Wessels JP in
Union
Government v Van der Merwe
1921
TPD 318
at 322:
‘
The
present case is however stronger for the surety has signed as surety
and co-principal debtor. We must give some meaning to the
words
“co-principal debtor”. That the addition of these words
operate as a renunciation of the benefits of the surety
is clear, but
they have a still greater force. The addition of these words shows
that the surety intends that his obligation shall
be co-equal in
extent with that of the principal debtor: or otherwise expressed,
that his obligation shall be of the same scope
and nature as that of
the principal debtor.’
[16]
The
appellant submitted, in reliance upon an article by Prof Sonnekus,
[2]
that this passage correctly reflects the effect of inserting the
words ‘co-principal debtor’ in suretyship agreements.
Prof Sonnekus in reliance upon this decision, expressed a view that a
surety who binds himself as a co-principal debtor becomes
a co-debtor
and the suretyship loses its accessory nature. The obligations of the
principal debtor and the surety are then one
and the same i.e. to pay
the debt of the principal debtor
.
The
words ‘co-principal debtor’ do not only operate as a
renunciation of the benefits of the surety, but have a ‘still
greater force’, namely that these words show that the surety
intended that his obligation shall be co-equal in extent with
that of
the principal debtor; or otherwise expressed, that his obligation
shall be of the same scope and nature as that of the
principal
debtor. The appellant therefore submitted that this court ignored
this phrase in
Kilroe-Daley
and
Neon
,
and the cases which followed these decisions. This phrase, so was the
submission, should have been given a textual interpretation.
This
criticism has merely to be stated, to be rejected. In all of the
cases sufficient attention was devoted to the phrase, and
a proper
contextual meaning attributed to it.
[17]
The
flaw in the criticism of the decisions of this court, is the
conflation of two distinct concepts: co-debtors and co-principal
debtors. As explained by the authors of
Caney’s
Law of Suretyship
,
[3]
the undertaking of the surety is accessory to the main contract. It
is an undertaking that the obligation of the principal debtor
will be
discharged, and if not, that the creditor will be indemnified.
[18]
What
is more, the dictum in
Union
Government van der Merwe
was explained in
Neon
at 472-473 where Trollip JA said that he did not think that Wessels
JP, when saying that the surety’s obligation ‘shall
be of
the same scope and nature as that of the principal debtor’,
meant to convey that by signing as co-principal debtor,
the surety
became a party to the main contract. Earlier, at 471C-472E it was
pointed out that the correct legal position was as
follows: although
the surety binds himself as co-principal debtor, that does not render
him liable to the creditor in any capacity
other than that of a
surety who has renounced the benefits ordinarily available to a
surety against the creditor. He does not become
a party to the
contract between the creditor and the principal debtor.
[19]
Union
Government
is
therefore no authority for the proposition that by binding himself as
a co-principal debtor, the nature and ambit of the obligation
of a
surety mutates from an accessory undertaking that the obligation of
the principal debtor will be discharged, and if not, that
the
creditor will be indemnified, to one where the surety assumes the
obligation to discharge the principal debtor’s obligation.
[20]
It
only remains to reiterate the position in our law. A surety and
co-principal debtor does not undertake a separate independent
liability as a principal debtor; the addition of the words
‘co-principal debtor’ does not transform his contract
into
any contract other than one of suretyship. The surety does not
become a co-debtor with the principal debtor, nor does he become
a
co-debtor with any of the co-sureties and co-principal debtors,
unless they have agreed to that effect. The jurisprudence of
this
court in
Kilroe-Daley
and Neon
accordingly correctly reflects our law on this topic.
[21]
There
was another string to the appellant’s bow, based on Justinian’s
decree formulated in Codex 53 C8.39(40).4(5) which
deals with the
interruption of prescription where there are several co-debtors. Its
effect is that if a creditor, through the service
of a process,
claimed payment from one co-debtor who bound himself jointly and
severally with others, the remaining co-debtors
could not rely upon
extinction of the debt by prescription. The principle was received
into Roman-Dutch law. Voet extended this
to sureties by adopting the
view that interruption of prescription in respect of a principal
debtor served to interrupt prescription
in respect of a surety.
[22]
The
appellant urged us to apply this principle to the converse situation.
In other words, we should decide that the interruption
of
prescription in respect of a surety serves to interrupt prescription
in respect of a principal debtor. Once so decided, it was
said, the
further logical extension of the principle would be that interruption
of prescription in favour of a surety would also
interrupt
prescription in favour of a co-surety. The result would therefore be
that service on Mr September interrupted prescription
in favour of
the respondent.
[23]
The
court a quo dealt with this submission as follows:
‘
I
do not agree with the aforesaid submissions. Neither in the Roman law
nor in the Roman Dutch law had it ever been suggested that
the
converse should apply - in other words that interruption of
prescription against the surety should constitute interruption
of
prescription against the principal debtor. The Roman Dutch writers,
who wrote extensively on the topic and debated the pros
and cons
thereof, were
ad
idem
that
the converse should not apply. It is consequently simply not part of
our common law.
It
was submitted on behalf of the plaintiff that it is not necessary to
amend the common law in order to find for the plaintiff
but that it
merely requires a consistent application of a principle already
accepted by the common law. I do not agree. As mentioned,
our common
law writers have considered the extension of Justinian's decree and
had decided that it should be done to the extent
mentioned and no
further. To find that interruption of prescription against one surety
constitutes not only interruption of prescription
against the
principal debtor but even against the other sureties, constitutes a
substantial deviation of the common law principles
on the topic.’
I
cannot fault this reasoning.
[24]
In
all the circumstances the appeal has to fail. The following order is
made:
The
appeal is dismissed with costs.
____________________
T
M Makgoka
Judge
of Appeal
APPEARANCES
For
Appellant: JF Steyn
Instructed
by:
Gerings
Attorneys, Johannesburg
Rossouws
Attorneys, Bloemfontein
For Respondent: HP Van
Nieuwenhuizen
Instructed
by:
Wikus
du Toit Attorneys, Mbombela
Couzyn
Hertzog & Horak Attorneys, Pretoria
Symington
de Kok Attorneys, Bloemfontein
[1]
ECE
was placed in final deregistration on 24 February 2011.
[2]
J
C Sonnekus ‘Borg en Tegelyk Medehoofskuldenaar is ‘n
contradictio in terminis en onversoenbaar.’ TSAR (2)
2018 at
256.
[3]
C F Forsyth and J
T Pretorius
Caney’s
Law of Suretyship
5 ed (2002) at 26-29.