Bock and Others v Duburoro Investments (Pty) Ltd (228/2002) [2003] ZASCA 94; [2003] 4 All SA 103 (SCA) (26 September 2003)

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[2003] ZASCA 94
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Bock and Others v Duburoro Investments (Pty) Ltd (228/2002) [2003] ZASCA 94; [2003] 4 All SA 103 (SCA); 2004 (2) SA 242 (SCA) (26 September 2003)

Reportable
Case No 228/2002
In
the matters between:
ANTHONY
SIMON BOCK AND OTHERS Appellants
and
DUBURORO INVESTMENTS (PTY) LTD Respondent
Coram: HARMS, ZULMAN, FARLAM, NAVSA JJA and
VAN HEERDEN AJA
Heard: 8 SEPTEMBER 2003
Delivered: 26 SEPTEMBER 2003
Subject: Suretyship – release of – parate executie – pactum
commissorium – pledge of shares
JUDGMENT
HARMS JA/
HARMS
JA:
[1] These appeals are about the release of sureties (the appellants)
from their obligations under a number of deeds of suretyship.
They
stood surety for the obligations of L S Molope Holdings (Pty) Ltd, a
company that had borrowed substantial amounts from three
banks:
Nedcor Bank Ltd, Mercantile Bank Ltd and The Business Bank Ltd. One
of the appellants, Dunbush Investments (Pty) Ltd, was
also a debtor
of Mercantile Bank and the other appellants stood surety for its
liabilities. Much more need not be said about this
because the
outcome of the case on the indebtedness of Molope Holdings applies to
that of Dunbush.
[2] The banks have ceded their rights against the sureties to the
present respondent, Duburoro Investments (Pty) Ltd, a company in
which they hold shares and which they control. Duburoro instituted
separate applications, each dealing with the claims of one of
the
banks but since the issues were similar they were heard together in
the Court below and so have the appeals, which are before
us by leave
of that Court.
[3] The facts have been set out in the judgment of Schwartzman J,
1
who found in favour of Duburoro, and since it has been reported, I
shall limit myself to recite those facts that are material to
this
judgment. It may be noted that his factual findings have not been
attacked and that the issues on appeal are largely legal.
Because of
the factual overlap, I intend to take the claim of one of the banks
as the basis for discussion of the issues and where
necessary
indicate any relevant differences.
[4] Dunbush, Molope Holdings and the appellants were all part of an
intricate control structure of a listed company, Molope Group
Ltd,
and as security for the loans of Dunbush and Molope Holdings a large
number of shares in Molope Group were pledged to the banks.
(Some
other shares had also been pledged but those have no effect on this
judgment.) Each bank used its own deed of pledge and these
differ one
from the other but, as will become apparent, not much turns on these
differences. When the principal debtors defaulted,
the banks called
up the loans and, purportedly acting in terms of the pledges, took
over the pledged shares and credited the principal
debtors with the
value attributed to them. Herein lies the rub of the problem between
the sureties and the banks. The sureties, in
summary, say that the
banks, in acting as they did, acted to their prejudice and this led
to their release. In the alternative, they
allege that the amounts
credited to the principal debtors as a result of the taking over of
the shares were insufficient and that
since the true amount of the
principal indebtedness had not been established on the papers, the
applications should have been dismissed
or referred to trial or
evidence.
[5] The Nedcor pledge permitted Nedcor, on default of the debtor,
‘
immediately or at any time thereafter irrevocably and
in rem suam
or at its discretion . . . to realise the
securities . . . or to take over the securities at the bank’s
election at a fair value
. . ..’
In other words, the bank had an option: it could have realised the
pledged shares by disposing of them to a third party or it could
have
taken them over.
2
It was, in any event, not obliged to do either.
[6] Three distinct legal concepts are at play:
3
(a) The right to dispose of a pledged article without the
intervention of a court order, commonly known as
parate executie
;
(b) the contractual right of taking over a pledged article by the
creditor – a
pactum commissorium
; and (c) the quasi
conditional sale whereby the creditor may, upon default, take over a
pledge at a fair price.
[7] The principles concerning
parate executie
(immediate
execution) are trite.
4
A clause in a mortgage bond permitting the bondholder to execute
without recourse to the mortgagor or the court by taking possession
of the property and selling it is void.
5
Nevertheless, after default the mortgagor may grant the bondholder
the necessary authority to realise the bonded property.
6
It does not matter whether the goods are immovable or movable: in the
latter instance, to perfect the security, the court’s imprimatur
is
required.
7
It is different with movables held in pledge: a term in an agreement
of pledge, which provides for the private sale of the pledged
article
and in the possession of the creditor, is valid but a debtor may
‘
seek the protection of the Court if, upon any just
ground, he can show that, in carrying out the agreement and effecting
a sale, the
creditor has acted in a manner which has prejudiced him
in his rights.’
8
Smalberger JA put the proviso in slightly different terms when he
said that for validity the private execution clause should not
prejudice, or be likely to prejudice, rights of the debtor unduly,
9
meaning that the clause should not contain execution provisions that
would be
contra bonos mores
.
[8] The principles about a
pactum commissorium
have recently
been reaffirmed by this Court:
10
‘
A
pactum commissorium
in the context of a
pledge is an agreement that, if the pledgor defaults, the pledgee may
keep the security as his own property.’
Such an agreement is void.
[9] An agreement whereby a creditor may keep a pledge upon the
debtor’s default – at a fair price then determined is similar
to
a conditional sale. Such an agreement is valid
11
and, in relation to the pledging of shares, known since at least
1892.
12
It does not differ much in kind from a
lex commissoria
or
forfeiture clause which, typically, permits a creditor to keep what
was received from a debtor in the event of the cancellation
of an
agreement.
13
The effect of a forfeiture clause may be alleviated under the
Conventional Penalties Act.
14
[10] The quoted clause in the Nedcor pledge does provide for
parate
executie
of the pledged shares which, for purposes of these
rules, are considered to be movables held by the creditor
in
securitatem debiti
.
15
But Nedcor did not ‘execute’ in terms of this right. It had,
additionally, the right to exercise the ‘option’ to purchase
the
pledged shares at a fair price and it is this right the Bank sought
to exercise.
[11] I have taken the trouble to explain this in some detail because
the Court below (at para 13.1) and the appellants in argument
assumed
that Nedcor had exercised a right of
parate executie
. The
importance of this assumption for purposes of the appellants’
argument lies therein that they submit that Nedcor’s exercise
of
its right to
parate executie
was unconstitutional since
clauses permitting summary execution are in conflict with s 34 of the
Constitution which, i. a., guarantees
the right to have a dispute
resolved by the application of law before a court of law. For this
submission they rely on two judgments
of the Constitutional Court
16
where it had to consider the constitutionality of legislative
provisions entitling an organ of state acting as a bank in the
agricultural
sector, without recourse to a court of law, to instruct
a messenger of the court to seize property, which is subject to a
right of
security and in the possession of the debtor, and to sell it
on such conditions as the bank in its discretion may determine.
[12] Procedurally, the way this point has been dealt with by the
appellants is unacceptable. They, in one sentence in the answering
affidavit, submitted that what Nedcor did by means of
parate
executie
was unconstitutional. Before Schwartzman J the point was
not argued although the heads of argument had made some reference to
it.
He consequently assumed the constitutionality of
parate
executie
(at para 13.1). Before us it became the main point. It
has more than once been said
17
that this is unsatisfactory especially where, as in the present case,
the attack becomes diffuse and the ramifications of the decision
are
difficult to envisage. Where unconstitutionality may involve
questions of fact, especially when questions of reasonableness and
justifiability have to be considered, this method of dealing with
such important commercial matters ought not to be countenanced.
[13] Nevertheless, I find it difficult to extend the proscription of
these statutory provisions by the Constitutional Court to
parate
executie
of movables which are lawfully in the possession of the
creditor. This procedure does not authorise a creditor to bypass the
courts
and ‘seize and sell the debtor’s property of which the
debtor was in lawful and undisturbed possession.’
18
It does not entitle the creditor ‘to take the law into his or her
hands’.
19
It does not permit ‘the seizure of property against the will of a
debtor in possession of such property’.
20
And since the debtor may seek the protection of the court if, on any
just ground, he can show that, in carrying out the agreement
and
effecting a sale, the creditor acted in a manner which prejudiced him
in his rights,
21
the creditor cannot be said to be the judge in his own cause.
22
[14] Our common law has always recognised that self-help is
unlawful.
23
That is why the
mandament van spolie
developed and judgments
such as
Nino Bonino v De Lange
24
have stood the test of time. The rules relating to
parate executie
in relation to pledged articles developed within that milieu and drew
a sensible distinction between the case where the security
is in the
hands of the debtor and that where it is in the hands of the
creditor. The Constitutional Court was concerned with a legislative
deviation from the norm.
[15] It follows from this that the judgment in
Findevco (Pty) ltd
v Faceformat SA (Pty) Ltd
,
25
finding that the law relating to
parate executie
of movables
as set out above is unconstitutional, is wrong. It is not necessary
to deal with all the reasons
26
for this conclusion since the criticism of Prof Susan Scott
27
is generally to the point, especially where she points out that the
judgment failed to distinguish between (a) perfection clauses,
(b)
statutory measures empowering the state to seize, without the
intervention of the courts, property from debtors and (c) summary
execution clauses in pledge agreements.
[16] However, as I have indicated, Nedcor (and, for that matter, the
other two banks) did not exercise its right of
parate executie
;
instead it took over the shares at an allegedly fair price in terms
of its option. When this became apparent during argument, the
appellants were driven to submit that conditional contracts
(especially sales), forfeiture clauses, agency agreements permitting
the sale of one’s property, powers of attorney
in rem suam
,
voluntary repossessions and even rights of retention are all
unconstitutional. I do not believe that this was suggested with any
degree of confidence and it illustrates my objection to the procedure
adopted.
[17] The Nedcor pledge, permitting it to take over the shares ‘at a
fair price’, contained an important qualification: the parties
to
the pledge had to agree on the price; and in the absence of agreement
the price had to be determined by an expert. Nedcor relied
on an
agreement which came about as follows. On 6 December 1999, it wrote a
letter to the directors of Molope Holdings, informing
them of its
intention to take over the shares at a fair price which it set out.
Agreement was sought. In response, Nedcor the following
day received
a letter on a Molope Holdings letterhead, signed by a director, Mr
Hirschowitz, agreeing to the value proposed. Nedcor
referred to these
facts in answer to an allegation by one of the sureties, Mr Bock,
that no directors’ meeting had been held to
consider the letter of
6 December and that, to the best of his knowledge, the company had
never approved the suggested values. The
Court
a quo
(at para
13.3) saw this as a dispute of Hirschowitz’ authority which, on the
papers, could not be resolved and proceeded to determine
the issues
on the assumption that in taking over the shares Nedcor was in breach
of the pledge agreement (at para 21.1). Counsel
for the respondent
was content to argue the case on this assumption. The effect of this
assumption was that the validity of the relevant
clauses and the
propriety of the exercise of their rights by the banks became
irrelevant.
[18] I then turn to the next issue, namely that of prejudice. In the
1992 edition of
Caney’s The Law of Suretyship
,
28
there appeared a statement in these general terms:
‘
The creditor must do nothing in his dealings with the
principal debtor and the other sureties which has the effect of
prejudicing
the surety; if he does the surety is released.’
This and a similar statement from
Wessels Law of Contract in South
Africa
,
29
were quoted in some judgments.
30
The latter reads as follows:
'In equity, upon a contract of suretyship, if the person
guaranteed does any act injurious to the surety, or inconsistent with
his
right, or if he omits to do any act which his duty enjoins him to
do and the omission proves injurious to the surety, the surety
will
be discharged.'
These statements, it appears, became in the eyes of some a rule of
general application and it is on this rule that the sureties in
a
sense rely. The problem, however, is that Wessels was not quoted
fully and that he was quoted out of context. Wessels was dealing
with
the effect of the creditor’s negligence on the surety (para 4338).
He mentioned that it is difficult to lay down a general
rule to
determine when the personal negligence of the creditor would enable
the surety to claim discharge (para 4342). He then hypothesized
that
the surety might be released
‘
if
by contract
there is a duty cast upon the
creditor to preserve the surety’s rights.’
(Para 4343; my emphasis.) The next four paragraphs illustrate this
proposition and the last of these deals with an 1861 case of
Watts
v Shuttleworth
31
where, as Wessels (at para 4346) said,
‘
a person became surety for the due performance of a
work, on the understanding that the employer would insure against
fire. The Court
held that a failure to insure discharged the surety.’
Only then the quoted text came. In
Watts
the building did burn
down. The Court there had to consider whether the failure to insure
released the surety fully or only
pro tanto
and, applying the
‘analogy’ of the English rule of equity that if the creditor
gives the debtor time to perform, the surety is
released (which is
not part of our law) the Court held that the surety had been released
in toto
.
[19] Probably fearing that he might be misunderstood by future
generations Wessels, after the quotation, referred by way of
comparison
to a judgment of his. That case,
Nathanson and Another
v Dennill
1904 TH 289
292, makes his point in no uncertain terms.
He held that if
‘
a material alteration is made between the creditor
and the principal debtor in an agreement to which there is a surety’
the surety may be released if the surety is thereby prejudiced. The
alteration he referred to was one that amounted to a novation
of the
principal debt.
[20] This Court, in
Absa Bank Ltd v Davidson
2000 (1) SA 1117
(SCA), was confronted with the submission that:
‘
there is a general so-called “prejudice principle”
in our law to the effect that, if a creditor should do anything in
his dealings
with the principal debtor which has the effect of
prejudicing the surety, the latter is fully released.’
It came, in the words of Olivier JA, without any mincing to the
conclusion that no such principle exists and held (at para 19):
‘
As a general proposition prejudice caused to the
surety can only release the surety (whether totally or partially) if
the prejudice
is the result of a breach of some or other legal duty
or obligation. The prime sources of a creditor's rights, duties and
obligations
are the principal agreement and the deed of suretyship.
If, as is the case here, the alleged prejudice was caused by conduct
falling
within the terms of the principal agreement or the deed of
suretyship, the prejudice suffered was one which the surety undertook
to suffer. Counsel who drafted the plea was therefore on the right
track when he sought to base his case upon prejudice which flowed
from the breach of an obligation, contractual in the present
circumstances.’
[21] This statement of the law was accepted as correct by Griesel J
32
and by the Court
a quo
(at para 19) and somewhat grudgingly by
the sureties during argument before us. The problem is that Van Zyl
J
33
added an obiter gloss to it in these terms:
‘
On the basis of these considerations I would then
suggest that the prejudice required for a successful defence of
prejudicial conduct
justifying release from a suretyship agreement
may be described in the following terms. With reference to all the
relevant facts
and circumstances, and with due regard to
considerations of justice, fairness, reasonableness, good faith and
public policy, the
alleged prejudice must constitute real and
substantial prejudice which has the effect of unduly increasing the
contractual burden
of the surety.’
I have to admit that I do not understand how this test will work in
practice or why the gloss was necessary. The considerations given
may
be appropriate where a judicial discretion is involved or a value
judgment called for, such as in the case of sentencing or the
determination of wrongfulness, but the release of a surety is not a
matter of either. In a constitutional democracy the principle
of
legality applies and making all rules of law discretionary or subject
to value judgments may be destructive of the principle.
In any event,
this gloss is irreconcilable with
Brisley v Drosky
2002 (4) SA
1
(SCA) para 11-24 dealing with the concept of bona fides in the law
of contract. Lest there be any misunderstanding, this judgment
subscribes to the law as set out in the judgment of Olivier JA
34
in spite of the criticism in the current edition of
Caney
.
35
[22] The argument of the sureties amounts to this: the banks were in
possession of securities; these had to be realised in a lawful
manner
at the appropriate time and at a fair value; since this did not
happen, they were released. The Court
a quo
(at para 19.1) saw
the law in another way:
‘
I can see no reason in equity, morality, public
policy, principle or law why minimal prejudice should automatically
release a surety
from all liability for the principal debt. In an
appropriate case there is much to be said for limiting the surety’s
release to
the extent that he or she has been prejudiced by the
conduct of the creditor that is in breach of some of some or other
legal duty
or obligation.’
[23] One can approach the matter from a slightly different angle. The
agreement between Nedcor and the principal debtor provided
for the
take-over of the pledges in a particular manner. Nedcor took them
over in a manner contrary to that agreed upon. This breach
did not
release the principal debtor from its liability but the principal
debtor was entitled to have been placed in the position
as if the
agreement had not been breached, which means in this case that the
principal debtor was entitled to be credited with the
‘true’
value of the shares as at the date of take-over. Why should the
position of the sureties, who are also co-principal debtors,
be any
different? There is no fiduciary relationship between them and the
creditor.
36
Their indebtedness will not have been increased or changed as a
result of Nedcor’s breach.
[24] Wessels (para 4345) in the paragraph preceding his discussion of
Watts
, gave an example that fits this exposition of the law
and is particularly apposite to the facts of this case:
‘
A obtained an advance of money from a loan society
and B became his surety. There were certain goods pledged to the
society by A.
The society sold these goods and claimed on B for the
balance. B pleaded as an equitable defence that but for the
mismanagement of
the agents of the society in selling A’s goods
they would have realised sufficient
to satisfy the whole debt
.
The Court held this to be a good plea.’
(Emphasis added.)
[25] It would thus appear as if the question of the release of a
surety due to the prejudicial conduct of the creditor and the
question
of the quantum of the principal debt tend to be conflated.
These are two distinct inquiries. Properly analyzed, the sureties’
defence
is about quantum, i.e., the extent of the principal debtor’s
liability for which they are
in solidum
liable.
37
[26] Nestadt JA
38
once referred to a
general principle according to
which a surety will be discharged if the creditor by his own act
makes it impossible for himself to
cede his security to the surety.
This statement of his may appear to be in conflict with conclusions
thus far. The learned Judge,
it should be noted, did not deal with
the question whether the release is
in toto
or
pro tanto
and, additionally, Wessels makes it clear that the release is
dependent on the creditor’s negligence (at para 4338-4339 and 4352)
and is
pro tanto
(at para 4354). This principle can, in any
event, not be applicable where the creditor utilised the securities
in order to reduce
the indebtedness of the principal debtor.
39
[27] The banks were entitled to prove prima facie the extent of the
principal debtor’s liability by means of certificates, which
they
have done.
40
The extent of the indebtedness before the credit due to the take-over
of the pledges is common cause. It is also common cause that
the
debtor was credited by the banks with an amount somewhat above the
ruling price of the shares as quoted on the Johannesburg Secureties
Exchange on the dates the shares were taken over.
41
There is no acceptable evidence to contradict that of the banks that,
at the time, these prices represented the fair value of the
shares.
42
The fact that thereafter the share price kept dropping to still lower
levels provides compelling evidence that the banks were correct.
[28] The sureties, contrary to their main submission that the banks
were not entitled to take over the shares at all, submit that
the
shares should have been taken over as soon as the respective debts
fell due, relying on the principle that the exception to the
prohibition of a
pactum commissorium
depends on
‘
the proviso that a fair price is to be given when the
debt falls due, not the time when the agreement is concluded.’
43
The sureties point out that if the shares had been taken over at an
earlier date their indebtedness would have been smaller. Once
again,
different concepts are being confused. At this stage of the inquiry
we are no longer concerned with the validity of
parate executie
and the like – since the argument is proceeding on the assumption
that the take-over was in any event flawed – but with the question
whether the banks, through their negligence, have prejudiced the
sureties. In any event, there is much to be said for the following
view of Schwartzman J (at para 22.4):
‘
I find that
Mapenduka's
44
case does not lay down as a principle of our common law that a
pledgee must realise the pledged property on the date when the debt
falls due for payment. The
Sun Life
45
decision clearly suggests that this is not the case. If there is no
common-law duty on the pledgee to realise the pledge on the day
the
debt falls due it follows that a surety for such debt cannot complain
if the debt is not so realised.’
[29] There is, however, a simpler answer. As the venerable Voet
46
once said
‘
agreements make the law for contracts, and therefore
for suretyships also . . .’
thereby making the obvious point that one should begin with the terms
of a deed of suretyship in order to determine the rights and
obligations of the respective parties. In the Nedcor case, the deed
granted the Bank a discretion to determine the nature and duration
of
the facilities; without prejudicing its rights, the Bank could give
time in respect of any security; additionally, the sureties
renounced
the benefit of excussion. Similar, if not more stringent, provisions
are contained in the other banks’ deeds. Further,
if one has regard
to the terms of the pledges, they make it clear that the banks were
entitled, at their discretion, to decide when
to realise the
pledges.
47
In other words, the reliance on the (supposed) rule cannot succeed in
the light of the agreements to which the debtor and the sureties
had
bound themselves.
[30] In order to protect their own interests in recovering the debt,
the banks entered into an agreement with a third party. The
circumstances surrounding and the effect of this arrangement gave
rise to further ‘defences’ for the sureties.
[31] Schwartzman J explained the reasons for and effect of the
agreement fully (at para 12) and what follows is more or less a
quotation.
The banks found the value of their security rapidly
diminishing and were on the horns of a dilemma. If any of them
attempted to realise
their security by disposing of the pledged
shares the sheer size of the number of shares offered for sale would
probably have caused
a panic amongst investors and further suppressed
the price, thereby materially reducing the amount that might be
recovered. Legal
proceedings against Molope Holdings to recover the
debt or exercise the pledge could also have caused a panic. In the
circumstances
the financial interests of the banks lay in preserving
the going concern value of the Molope Group until a cash-rich buyer
of either
its shares or assets could be found. There was no purchaser
for this number of shares.
[32] During the week ending 15 October 1999 there were three possible
purchasers of the business. Two of them fell by the wayside.
The
third, Rebhold Ltd, a quoted company, pursued negotiations that
resulted in a written agreement signed on 25 November 1999 in
terms
of which Rebhold Ltd and an associated company, Rebserve Ltd,
purchased certain of the businesses of the Molope Group and its
subsidiaries. The purchase price was R483 million, being a cash
amount of R300 million plus R183 million of liabilities assumed by
Rebserve Ltd. The price that Rebhold offered was the best available
price.
[33] Consummating the Rebserve sale required the passing of some
resolutions and it was essential that the voting rights attached
to
the shares should be exercised in favour of all resolutions that were
required to implement the agreement.
[34] In the agreement (the letter agreement) the banks undertook to
take possession of and execute under the terms of their respective
deeds of pledge all the shares held by them in Molope Group; to
attend all shareholders' meetings of the Molope Group; and to vote
for the resolutions.
48
All this they subsequently did.
[35] The agreement envisaged the voluntary winding-up of Molope Group
and the payment to shareholders of a liquidation dividend.
This, on
the evidence, would not have exceeded 90 cents a share which is less
than the value attributed to the shares by the banks
for purposes of
their taking over.
[36] Mr van Huysteen, who appeared on behalf of some sureties,
submitted that the banks should have disclosed the arrangement with
Rebhold and Rebserve to Molope Holdings and to the sureties, and that
a failure to have done so amounted to some breach of confidence.
Assuming that to have been the case, the question that springs to
mind is how did this breach of confidence affect the value of the
shares at the time? He could not provide us with any answer. He also
made some recalculations of the value of the shares in which
he
assumed that the net asset value of a company divided by the number
of shares gives the value of those shares. This I find a startling
proposition but it is in any event not supported by evidence. His
recalculation was also flawed in that the facts used for the exercise
were not the correct facts. He further argued that the shares gave
the banks a controlling interest in Molope Holdings and that some
premium should have been added to the quoted prices. One can assume
that, in principle, the controlling shares in a company do have
a
premium but the fact is that the banks acted as creditors and none
had a controlling interest and they did not act in concert to
take
control of Molope Holdings. This matter was fully thrashed out before
the Securities Regulation Panel, and we agree with its
conclusion.
However, the short answer is that there is no evidence that in this
case the controlling shares had any added value over
and above the
quoted price. On the contrary, there were no buyers for the banks’
bundle of shares.
[37] The letter agreement gave each bank an option to acquire a
number of Rebserve shares. The options were not exercised and allowed
to lapse. Mr van Huyssteen submitted that the options must have had a
value when granted and that added value should have been deducted
from the main debt. The first answer to this submission is, as
Schwartzman J found (at para 24), that since they had not been
exercised
they did not provide the banks with any additional benefit.
There is also a dispute as to the meaning of the options. In order to
have exercised them, the banks had to fork out substantial amounts as
option price. They would have been obliged to have kept the
shares
for a substantial period of time. They were not permitted to dispose
of the options. I know of no principle obliging a creditor
to take
steps such as these in order to reduce the liability of a surety.
Last, there was no evidence that the options had any market
value or
of the amount by which the claims of the banks should have been
reduced.
[38] In the Rebhold agreement the banks undertook to cede certain
claims against the chairman of Molope Holdings (Mr Ramaphosa) and
the
mentioned Mr Hirshowitz to Rebhold. In consideration for these
cessions Rebhold indemnified the banks indirectly
‘
in respect of such loss (limited to R20 000 000)
which the [banks] may suffer, sustain or incur as a result of the
[claims against
the sureties] proving to be irrecoverable’.
Under a deeming provision the claims were to be deemed to have been
irrecoverable if the sureties had not paid by 30 November 2001.
[39] The sureties argue that their indebtedness had to be reduced by
R20m because of this. As I read the agreement, the intention
of the
parties was not that, eventually, the banks would be entitled to the
R20m as additional consideration. It is not as if Rebhold
had
intended to pay part of the sureties’ indebtedness or make payment
on their behalf; on the contrary, Rebhold clearly did not
intend to
do anything of the kind.
[40] The appeals are dismissed with costs, including those of two
counsel.
___________________
L T C HARMS
JUDGE OF APPEAL
Agree:
ZULMAN
JA
FARLAM
JA
NAVSA
JA
VAN
HEERDEN AJA
1
Duburoro Investments (Pty) Ltd v Bock and Others
2003 (2) SA
76
(W).
2
So did the other pledges. Their terms appear from the judgment below
para 14.1 and 15.1.
3
Cf
Sasfin (Pty) Ltd v Beukes
1989 (1) SA 1
(A) 14C-E.
4
Scott & Scott
Wille’s Mortgage and Pledge
3 ed 121-123;
17
LAWSA
para 478 and 539; Van der Merwe
Sakereg
2 ed
611, 659;
De Beer v Keyser and Others
2002 (1) SA 827
(SCA)
para 26.
5
Iscor Housing Utility Co and Another v Chief Registrar of Deeds
and Another
1971 (1) SA 613 (T).
6
Iscor Housing Utility Co and Another v Chief Registrar of Deeds
and Another
1971 (1) SA 613
(T) 616D-G.
7
Cf
Contract Forwarding (Pty) td v Chesterfin (Pty) Ltd and Others
2003 (2) SA 253
(SCA).
8
Osry v Hirsch, Loubser & Co Ltd
1922 CPD 531 547.
9
Sasfin (Pty) Ltd v Beukes
1989 (1) SA 1
(A) 14D-E.
10
Graf v Buechel
2003 (4) SA 378
(SCA) para 9-11.
11
Graf v Buechel
2003 (4) SA 378
(SCA) para 27 et seq.
12
Osry v Hirsch, Loubser & Co Ltd
1922 CPD 531 546-547.
13
Cf
Port Elizabeth Town Council v Rigg
(1903) 20 SC 252 256.
14
15 of 1962.
15
Graf v Buechel
2003 (4) SA 378
(SCA) fn 1.
16
Chief Lesapo v North West Agricultural Bank and Another
[1999] ZACC 16
;
2000 (1)
SA 409
(CC);
First National Bank of South Africa Ltd v Land and
Agricultural Bank of South Africa and Others, Sheard v Land and
Agricultural
Bank of South Africa and Another
[2000] ZACC 9
;
2000 (3) SA 626
(CC).
17
E.g.
Singh v Commissioner South African Revenue Service
2003
(4) SA 520
(SCA) para 24.
18
Chief Lesapo v North West Agricultural Bank and Another
[1999] ZACC 16
;
2000
(1) SA 409
(CC) para 10.
19
Chief Lesapo v North West Agricultural Bank and Another
[1999] ZACC 16
;
2000
(1) SA 409
(CC) para 11.
20
Chief Lesapo v North West Agricultural Bank and Another
[1999] ZACC 16
;
2000
(1) SA 409
(CC) para 19.
21
Osry v Hirsch, Loubser & Co Ltd
1922 CPD 531
547 quoted
above.
22
Metcash Trading Ltd v Commissioner, South African Revenue Service
and Another
2001 (1) SA 1109
(CC) para 50.
23
First National Bank of South Africa Ltd v Land and Agricultural
Bank and Others
2000 (6) BCLR 586
(O) 590 quoting
Curatoren
van ‘Pioneer Lodge No 1’ v Champion en Andere
1879 OFS 51
at
54 where the following was said:
‘
Deze is eene der belangrijkste zaken die voor dit
Hof ooit kan gebracht worden of gebracht is; niet wegens de waarde
der goederen
die er in betrokken zijn, maar wegens de voorname
principen die er in opgesloten zijn. Wanneer in dit hoofdstad van
den Oranjevrijstaat
het toegelaten zou kunnen worden dat eene bende
van achttien personen zou gaan om op eigen gezag goederen weg te
voeren terwijl
die zijn in het bezit van anderen waartoe zij geen
recht van ingang hadden, dan zou men bijna kunnen zeggen dat de
gerechtshoven
maar moeten gesloten worden, want “de sterkste man
is baas”. Dit zou slaan aan den wortel van de veiligheid der
maatschappij.’
24
1906 TS 120.
25
2001 (1) SA 251
(E) per Froneman J.
26
Froneman J thought it important that the statutory provisions dealt
with by the CC related to both immovables and movables (at
254G-H),
failing to realise that the movables, too, were in the possession of
the debtor in terms of a statutory hypothec which
does not require
the creditor to have possession. He also thought that that the
common law permits the attachment of movables without
a court order
(at 256E-F) which it does not.
27
‘Summary Execution Clauses in Pledge and Perfecting Clauses in
Notarial Bonds’
2002 (65)
THRHR
656.
28
4 ed by Forsyth & Pretorius.
29
2 ed para 4346. The para and page references in Schwartzman J’s
judgment (at para 17.1) are wrong.
30
E.g.
Minister of Community Development v SA Mutual Fire &
General Insurance Co Ltd
1978 (1) SA 1020
(W) 1023H;
Fry and
Another v First National Bank of SA Ltd
1996 (4) SA 924
(C)
928C-D.
31
[1861] EngR 800
;
158 ER 510
(Ex Ch).
32
Investec Bank Ltd v Lewis
2002 (2) SA 111
(C) 116H-117C.
33
Hlope JP concurring in
Di Giulio v First National Bank of SA Ltd
2002 (6) SA 281
(C) para 41.
34
Absa Bank Ltd v Davidson
2000 (1) SA 1117
(SCA) para 19.
35
Forsyth & Pretorius
Caney’s The Law of Suretyship
5 ed
205-206.
36
Cf the relationship between a bank and its client:
Absa Bank Bpk
v Janse van Rensburg
2002 (3) SA 701
(SCA) para 16.
37
Cf Wessels para 4363;
Gould v Ekermans
1929 TPD 96.
38
Barlows Tractor Co Ltd v Townsend
[1996] ZASCA 3
;
1996 (2) SA 869
(A) 878D-E.
39
Cf
South African Scottish Finance Corporation Ltd v Wassenaar
1966 (2) SA 723
(A) 731H-732A.
40
Contrary to the position in the Court
a quo
(at para 25 et
seq), there is no attack on the certificates before us.
41
Nedcor took over the shares pledged to it on 6 December 1999 at a
price of 105 cents. On that day the closing price of the shares
on
JSE was 100 cents. Mercantile Bank took over the shares pledged to
it on 14 December 1999 at 92 cents an ordinary share and
90 cents
an 'N' share. The closing prices of the shares on the JSE that day
were 84 cents and 85 cents respectively. On 3 December
1999 Business
Bank took over the shares pledged to it at a price of 107 cents a
share for the ordinary shares and 105 for the
'N' shares. These were
the closing prices of the shares on the JSE that day. (Para 12.7.)
42
The reasons for the fall of the share prices are set out by
Schwarzman J at para 12.
43
Graf v Buechel
2003 (4) SA 378
(SCA) para 29.
44
Mapenduka v Ashington
1919 AD 343.
45
Sun Life Assurance Co of Canada v Kuranda
1924 AD 20.
46
Comm ad Pandectas
46.1.36 (Gane’s translation vol 7 p 67).
47
The detail appears from the judgment below at para 22.5.
48
Nedcor and Mercantile Bank did not in terms of their respective
pledges have to execute on their pledges as their respective
agreements
gave them voting rights over the pledged shares.