De Villiers NO and Another v BOE Bank Limited (477/2002) [2003] ZASCA 101; [2004] 2 All SA 457 (SCA) (26 September 2003)

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[2003] ZASCA 101
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De Villiers NO and Another v BOE Bank Limited (477/2002) [2003] ZASCA 101; [2004] 2 All SA 457 (SCA); 2004 (3) SA 1 (SCA) (26 September 2003)

THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
Reportable
Case no: 477/2002
In
the matter between:
MICHAEL
DE VILLIERS, N.O.
First Appellant
BRIAN
BASIL NEL, N.O.
Second Appellant
and
BOE
BANK LIMITED
Respondent
_______________________________________________________
Coram
:
Howie
P, Streicher, Navsa, Heher JJA
and
Van Heerden AJA
Date of
hearing: 29 August 2003
Date of
delivery:
26 September 2003
Summary: Claim
based on three loan agreements
─
lack of formal resolution by company ─ whether in prevailing
circumstances agreements
authorised
─ whether provision that waiver of suspensive
conditions
be
in
writing only
enforceable.
_______________________________________________________
JUDGMENT
_______________________________________________________
NAVSA JA:
[1] During December 2000
the respondent company, BOE Bank Limited (‘the bank’), instituted
action in the South Eastern Cape
Local Division of the High Court
against the appellants in their capacity as joint liquidators of
Intramed (Pty) Ltd (in liquidation).
The claim which is the subject
of this appeal is for payment of a total amount of R101 458
341-07 plus interest. The claim
is based on three separate but
similar written loan agreements (‘the loan agreements’),
concluded on 17 June 1999 (less than
six months before the
winding-up), in terms of which amounts of R40 million, R20 million
and R40 million respectively would be
lent and advanced to Intramed
(Pty) Ltd (‘Intramed’) against a number of securities namely, a
notarial bond over Intramed’s
moveable assets, a continuing
covering mortgage bond over fixed property, a cession of book debts
and deeds of suretyship. The
amounts outstanding on the loan
agreements became due and payable on the winding-up of the borrower.
[2]
On
3 June 2002, Ludorf J, who heard the matter, held in favour of the
bank. The full extent of the order made by him is as follows:
‘A. The
Defendants are ordered to pay to Plaintiff:
(i) The sum of R 20 489
275-47 plus interest thereon at 17.25% per annum from 29 November
1999 to 12 September 2000;
(ii) The sum of R 40 926
423-88 plus interest thereon at 17.2% per annum from 29 November 1999
to 12 September 2000.
(iii) The sum of R 40 042
641-72 plus interest at 17.2% per annum from 29 November 1999 to 12
September 2000.
B. I declare that the
claims by the Plaintiff are secured by the securities which are
annexures “G”, “I” and “J” to
the Plaintiff’s
particulars of claim.
C. The Defendants are
ordered to pay the costs of suit including the costs of two Counsel
on the scale as between attorney and
client.’
[3]
Ludorf
J subsequently granted the appellants leave to appeal to this Court.
The three questions posed in the appeal are as follows:
(i) whether
the loan agreements, the cession of book debts and the registration
of the notarial and mortgage bonds on which the
learned judge in the
Court below based his order were duly authorised by Intramed;
(ii) whether
the total of R100 million advanced in terms of the loan agreements
was received by Intramed; and
(iii) whether
the non-fulfilment of a suspensive condition in each of the loan
agreements caused them to lapse.
[4] I will for the sake
of convenience refer to the appellants as the liquidators.
[5] The
liquidators contend that Alan Stanley Hiscock (‘Hiscock’), who
signed the loan agreements on behalf of Intramed, could
not bind it
as he purported to because he was not a director of Intramed and was
not authorised by Intramed by way of a formal
resolution or in any
other acceptable manner. They contend further, that since the R100
million advanced in terms of the loan agreements
was paid to Macmed
Health Care Limited (‘Macmed’) without Intramed’s
authorisation, the latter had not received the money
and was under no
obligation to repay the loans in question. They submit that the Court
below erred in concluding that they were
liable to pay the amounts in
question.
[6] The background
against which this appeal is to be decided is set out hereafter.
[7] Macmed was a company
listed on the Johannesburg Securities Exchange, operating almost
entirely through subsidiary companies
and joint ventures in the
health care industry. The loan agreements were negotiated and
concluded against the background of a decision
by Macmed to acquire
from Aspen Healthcare Holdings Limited (‘Aspen’) parts of the
business of South African Druggists Limited
(SAD) conducted under the
style of ‘Intramed’ and ‘Serevac’, as well as the shares and
loan accounts held by SAD in Fine
Chemicals (Pty) Limited, for a
total of R500 million (‘the acquisition’).
[8] On 2 March 1999,
whilst Aspen was in the process of purchasing the businesses from
SAD, a document embodying heads of agreement
was signed on behalf of
Aspen and Macmed, the terms of which ultimately regulated the
acquisition.
[9] The
purchase price of R500 million was to be raised by way of a rights
offer of R200 million, plus R200 million from Macmed’s
own cash
resources and bank facilities of R100 million.
[10] To
raise the last mentioned R100 million Macmed entered into
negotiations with the bank, which agreed to advance the money
to
Macmed or its nominated subsidiary. The nominated subsidiary was
ultimately Intramed.
[11] Intramed
was formerly known as Zenith Medical and Surgical Supplies (Pty) Ltd
(‘Zenith’), but Macmed caused its name to
be changed so that it
could be used as a vehicle for the acquisition and operation of the
established business known as ‘Intramed’.
Zenith was a shelf
company and was intended to be a receptacle for the Intramed business
to be acquired from SAD. Intramed was
thus brought into being by
Macmed for the specific purpose of housing the business to be
acquired.
[12] In
accordance with Macmed’s
modus operandi
of conducting its
business, mainly through subsidiaries which it controlled, the shares
in Intramed were transferred to Macmed
Investments (Pty) Limited
(Macmed Investments), which was wholly owned by Macmed. Thus, Macmed
became Intramed’s ultimate holding
company.
[13] On
17 June 1999 Mr Gregory James Heron (‘Heron’), the bank’s
general manager (structured finance), authorised by the
bank, signed
each of the loan agreements on its behalf. On the same date, Hiscock
signed these agreements ‘for’ Intramed and
Macmed.
[14] In
accordance with the facility letter dated 24 May 1999 sent by BOE to
Macmed confirming approval of the R100 million loan
to Macmed ‘and
for its nominated subsidiary’, the loan agreements identified
Intramed as the borrower.
[15] Each
of the loan agreements contain similar terms concerning repayments,
interest and default by the borrower. They each make
provision for
security to be furnished in one or more of the forms referred to
earlier.
[16] The
first covering notarial bond hypothecating movable assets which was
in terms of one of the loan agreements to be executed
by Intramed in
favour of the bank, was registered on 16 August 1999; the first
continuing covering mortgage bond over specific
fixed property (the
Intramed factory) which was in terms of another of the loan
agreements to be executed by Intramed in favour
of the bank was
registered on 16 August 1999; and the cession of book debts required
in terms of the third loan agreement, was
signed by Hiscock,
purporting to act on behalf of Intramed, on 17 June 1999. On
this last mentioned date, Hiscock also signed
a deed of suretyship in
terms of which Macmed bound itself as surety in favour of the bank
for all the debts owed by Intramed to
the bank, as was required in
terms of each of the three loan agreements.
[17] It
is common cause that:
on
18 June 1999, pursuant to the loan agreements and acting on the
instructions of Hiscock, the bank paid R100 million into an
account
held at Standard Bank, called SCMB Macmed Rights Offer, Customer no.
68802, Account no. 278037;
three
instalments as provided for in the loan agreements totalling R5 962
153-74 were paid by Intramed to the bank during July,
August and
September of 1999;
after
September 1999 Intramed discontinued making payments and was placed
in provisional winding-up on 29 November 1999, which
order was
confirmed on 16 February 2000;
on
31 March 2000 the liquidators sold the Intramed business for R153
million;
on
12 September 2000 the liquidators paid the bank an amount of R100
million subject to the outcome of the action instituted in
the Court
below.
[18] The
Court below in coming to the conclusion that the loan agreements and
the underlying securities were duly authorised had
regard to the fact
that, at the time of the conclusion of the loan agreements, Hiscock
was the principal figure behind the Macmed
group’s business success
and growth. The acquisition was his brainchild. Ludorf J had regard
to the importance of the acquisition
to the group in general and to
Macmed in particular, and concluded from the evidence that the
directors of Macmed and its members
were well aware of and in favour
of the acquisition.
[19] The
learned judge also had regard to a resolution by Macmed ratifying the
acquisition (ordinary resolution number 1) and a
second resolution
(ordinary resolution number 2) passed by its members on 18 June 1999
at a general meeting of shareholders in
the following terms:
‘It
was agreed that
any director
of the Company be and
is
hereby
authorised to
sign all such documents and
do all such other
acts as may be necessary
to implement
Ordinary Resolution Number One.’
(emphasis
added)
[20] Ludorf
J took into account that at some stage prior to the passing of the
resolutions it was common knowledge that the majority
of the members
of Macmed were in favour of passing the resolutions so that the
actual passing thereof was a foregone conclusion.
He reasoned that
the directors were authorised to act not only on behalf of Macmed but
also on behalf of Intramed because the latter
was a wholly owned
subsidiary of Macmed through Macmed Investments. He considered that
the terms of the second resolution, particularly
the last emphasised
part in the preceding paragraph, warranted the conclusion that a
delegation by a director or directors of Macmed
to Hiscock was
authorised.
[21] Although
the said resolution was passed the day after the loan agreements were
signed, Ludorf J reasoned that the resolution
was no more than the
formal embodiment of the pre-existing unanimous assent on the part of
members of Macmed to do something
intra vires
the company.
[22] In
considering the correctness of the conclusions reached by the Court
below it is necessary to have regard to:
the
role played by Hiscock within the Macmed group and its subsidiaries;
material
events leading up to the conclusion of the loan agreements,
including events in which Hiscock and the directors and shareholders

of Macmed and of Intramed played a role;
events
subsequent to the conclusion of the loan agreements, including those
in which the actors described in (b) played a role.
[23] The
evidence shows that there were three leading figures in the Macmed
group of companies: Donald Ian McArthur (‘McArthur’),
the
managing director and chairman of the board of directors of Macmed,
Robin Frank Maguire (‘Maguire’), an executive director
of Macmed
Consumables, the division in which Intramed was housed, and Hiscock,
the Macmed company secretary and its
de facto
financial
director. Maguire and McArthur were the only directors of Macmed
Investments which, as stated earlier, held all the shares
in
Intramed.
[24] Hiscock
was an unrehabilitated insolvent and thus statutorily barred from
taking up any directorships within the group. His
official
designation was that of Macmed’s company secretary. Within the
Macmed group Hiscock was regarded as the ultimate financial
authority
and his authority over subsidiaries was unquestioned.
[25] McArthur
himself considered that Hiscock was the powerhouse of the group and
largely responsible for its then growing success.
[26] Over
a number of years during which he exercised overall financial
authority within the group Hiscock negotiated, concluded
and executed
numerous contracts on behalf of Macmed and its subsidiaries. It
appears that there was never in this regard a challenge
to his
authority by any of the directors of either Macmed or of its
subsidiaries or by any shareholders of Macmed.
[27] I
turn to deal with the involvement of shareholders and directors of
Macmed and Intramed in events surrounding the conclusion
of the loan
agreements.
[28] On
4 March 1999 there was a report by Hiscock to the Macmed board on
developments in the acquisition. It appears from the minutes
of the
relevant meeting that Aspen had agreed to a due diligence enquiry and
that the acquisition was being pursued.
[29] On
30 April 1999 a circular to Macmed shareholders was issued concerning
the rights offer that was an integral part of the
financing of the
acquisition.
[30] Before
the loan agreements were signed Hiscock was hard at work to ensure
that Macmed and Intramed complied with their obligations
in terms of
the heads of agreement signed in March 1999. He negotiated and
secured the loan facility with the bank. He visited
the Intramed
factory to ensure that the assets were properly catalogued and
valued. As described earlier, the necessary steps were
taken to
locate Intramed within a stand-alone wholly-owned subsidiary company.
Hiscock also recruited Intramed’s financial director,
Albertus
Petrus Marais (‘Marais’) from its predecessor.
[31] All
the activity and the underlying transactions generated excitement
within Macmed. The group was abuzz with anticipation
that the
acquisition would be the most important transaction of its existence.
[32] Legislation
required that the managing director of a pharmaceutical company, such
as Intramed, be a registered pharamacist.
To that end Macmed
appointed John Kok managing director of Intramed on 19 May 1999, with
effect from 11 June 1999. The letter of
appointment was written by
McArthur in his capacity as Chief Executive Officer of Macmed and
records that Kok’s appointment is
at the instance of Macmed’s
board of directors.
[33] On
26 May 1999 McArthur, Maguire, Kok and Marais were appointed
directors of Intramed. This appointment is somewhat strange
as the
relevant resolution suggests that they appointed themselves. However,
it has not been suggested that they were disqualified
from acting as
directors of Intramed or that that they lacked authority to act on
its behalf. On the contrary, the liquidators
adopt the position that
these directors of Intramed ought to have been formally consulted
before the loan agreements were signed
and that a specific formal
resolution by them authorising the loans in question was required.
They submit that this was required
because Intramed was a distinct
legal
persona
which had to act in its own name and in terms of
its articles of association.
[34] On
26 May 1999 Hiscock reported to the Macmed Board that the acquisition
was almost finalised and would add meaningfully to
the group’s
stature and earnings potential.
[35] On
3 June 1999 a circular was distributed to Macmed shareholders
incorporating a notice of a general meeting formally to approve
the
acquisition.
[36] On
14 June 1999 the directors of Macmed passed a resolution authorising
Hiscock to sign the deed of suretyship (by Macmed)
in favour of the
bank (as required by the loan agreements) which he then duly did on
the same day.
[37] Extracts
of minutes of an Intramed directors’ meeting on 14 June 1999
reflect resolutions authorising:
(a) the
borrowing of R60 million against the security of a mortgage bond over
immovable property and a cession of book debts;
(b) the
borrowing of R40 million against the security of a special notarial
covering bond over moveable property;
(c) Hiscock
to sign the necessary documents in respect of the acts referred to in
(a) and (b).
Maguire
signed the extracts of the minutes. There is a dispute about the
second signatory to the minutes, which, for reasons that
will become
apparent, it is not necessary to resolve.
[38] On
14 June 1999 Hiscock signed a power of attorney on behalf of Intramed
authorising the registration of the mortgage bond
in favour of the
bank.
[39] On
17 June 1999, the day on which the loan agreements were signed,
Hiscock signed a cession of book debts to the bank on behalf
of
Intramed as required by one of the loan agreements. On the same day,
Marais and Gayronisa Rahim, an accountant employed by Intramed
as a
financial manager, signed debit order instructions on the Intramed
bank account for repayment of each of the three loans.
[40] On
18 June 1999 Macmed shareholders adopted the two resolutions referred
to in paragraph [19]. On the same day Hiscock instructed
the bank to
pay the R100 million into the rights offer account referred to
earlier in this judgment. The bank complied.
[41] On
18 July 1999 Intramed paid instalments to the bank on each of the
three loans totalling R1 972 604-24.
[42] On
20 July 1999 Hiscock signed a power of attorney on behalf of Intramed
for the registration of the special notarial bond
in favour of the
bank.
[43] On
16 August 1999 the mortgage bond over immovable property was
registered in favour of the bank. On the same day the notarial
bond
by Intramed was registered in favour of the bank.
[44] On
18 August 1999 Intramed paid instalments to the bank on each of the
three loans totalling R1 995 985-76.
[45] On
18 September 1999 Intramed paid instalments to the bank on each of
the three loans totalling R1 993 563-74.
[46] It
is clear from Marais’ testimony that he was employed in management
at SAD at the time that the acquisition was being negotiated.
He
became aware of the implications of the acquisition towards the end
of March 1999. He understood how Macmed would structure
the
acquisition and knew how Intramed would function within the Macmed
group. He was actively involved in setting up Intramed and
in
starting up its operations. Testifying about his interaction with Kok
about the acquisition and its implementation he
said
the following:
‘Mr
Kok and myself had daily discussions, and I would inform him, as a
colleague I would inform him of what was happening, and
on some
issues obviously he did not have maybe the technical financial
experience, but nevertheless he was informed, and we would
discuss
issues around the company and the formation, and also what
administration was happening at that stage, that he was kept
up to
date.’
[47] At
the beginning of June 1999 Marais became aware of the fact that
Intramed’s assets were being used as security to obtain
a loan from
the bank. He was also aware of the revaluation of the immovable
property on which the Intramed factory was situated.
According to
Marais he discovered later in June 1999 that Intramed was borrowing
the R100 million from the bank. Although he was
the financial
director of Intramed, Marais unquestioningly took instructions from
Hiscock but he was somewhat disappointed by the
fact that Intramed,
the company he had just joined, was borrowing a substantial amount of
money. He informed Kok about the loan.
Kok apparently registered some
protest but Maguire explained that it was necessary. It is clear that
Kok and Marais decided to
abide the decisions to conclude the loan
agreements, albeit perhaps grudgingly.
[48] Marais
conceded that a formal resolution authorising or ratifying the loan
agreements was never passed by Intramed’s four
directors. As far as
he was concerned, Hiscock, as the financial head of Macmed, had the
authority to sign the loan agreements.
As was the case with the other
subsidiaries of Macmed, Intramed was an operational arm within the
group and operated under instructions
from corporate headquarters. In
June 1999 Intramed required an overdraft facility at the bank and
could only acquire one with Hiscock’s
approval.
[49] It
is true that at one stage under cross-examination Marais stated that
Macmed had borrowed R100 million against the Intramed
assets.
However, Marais later testified that he provided for the R100 million
loan in Intramed’s budget, made calculations and
concluded that
Intramed could repay the loan. In August 1999 he received the three
loan agreements and reflected the R100 million
as a loan by Intramed
from the bank in Intramed’s accounting records. Up until that time
the total paid for the Intramed business
was reflected in Intramed’s
books of account as an amount of R425 million, owing to Macmed. From
August 1999 onwards that amount
was reduced to R325 million, with the
remaining R100 million recorded as being owed to the bank by
Intramed.
[50] I
will now have regard to the relevant section of Intramed’s articles
of association before considering, against the factual
matrix set out
in the preceding paragraphs, whether the conclusion of the Court
below in respect of the primary issue was correct.
[51] Article
57 of Intramed’s articles of association provides:
‘Unless
otherwise determined by the company in general meeting, or by a
meeting of the directors (at which all directors are present),
the
quorum necessary for the transaction of the business of the directors
shall be a majority of the directors for the time being
in office. A
resolution of directors shall be passed by a majority of the votes of
the directors present at the meeting at which
it is proposed.’
[52] Of
course, principles of good governance of companies dictate that
resolutions should be properly taken at general meetings
or meetings
of directors after due and proper deliberation. This does not mean,
however, that in instances where this course is
not strictly followed
the directors cannot otherwise bind a company.
[53] It
has never been suggested that the loan agreements or the underlying
securities were not
intra vires
Intramed. It is abundantly
clear that the directors of Intramed, both before and after the
conclusion of the loan agreements, knew
about them. McArthur, the
Chief Executive Officer of Macmed which was aggressively pursuing the
acquisition, was also a member
of the board of Intramed and of Macmed
Investments. His assent to the loan agreements and the underlying
securities can hardly
be questioned. As shown earlier the Macmed
board was kept apprised of developments in the acquisition and its
execution. Maguire,
a Macmed director and a director of Macmed
Investments, signed the relevant extracts of the minutes of Intramed
recording the resolutions
flowing from the acquisition. Maguire was
also a member of the Intramed board and was actively involved in the
acquisition. His
approval of the loan agreements can also not be
questioned. On Marais’ uncontested evidence he and Kok both knew
about the loans
and decided to abide by them.
[54] In
these circumstances the lack of a formal resolution by the directors
of Intramed, either authorising the conclusion of the
loan agreements
or ratifying it, is not fatal to the bank’s claim. See
Alpha
Bank Bpk en Andere v Registrateur van Banke en Andere
[1995] ZASCA 84
;
1996 (1) SA
330
(A) 348G-I where the following appears:
‘Ook
is daar geen meriete in die punt dat daar nie ‘n skriftelike
resolusie was van Alpha Bank se direksie dat Van der Walt
die
relevante toestemming mag teken nie. . . . Die direksie van ‘n
maatskappy kan deur eenparige toestemming afstand doen van
die
formele vereistes wat resolusies betref (
Gohlke
and Schneider and Another v Westies Minerale (Edms) Bpk and Another
1970 (2) SA 685
(A)
op 693E-694F). Insoverre een direkteur nie vooraf sy toestemming
gegee het nie omdat hy oorsee was, is dit duidelik dat hy
na sy
terugkeer in die direksie-besluit berus het (sien
Robinson
v Randfontein Estates Gold Mining Co Ltd
1921
AD 168
te 217-18;
Dickson
v Acrow Engineers (Pty) Ltd
1954
(2) SA 63
(W) te 65B, 69D-E). Vir twee-en-‘n-half jaar na die
in-kuratele-stelling het geen lid van die direksie daarteen beswaar
gemaak
nie. Die waarskynlikhede is oorweldigend dat die
direksiebesluit geratifiseer en tans onaanvegbaar is.’
[55] In
Randcoal Services Ltd and Others v Randgold and Exploration Co Ltd
[1998] ZASCA 45
;
1998 (4) SA 825
(SCA) at 840G-H the following appears:
‘I
am therefore of the view that all the respondent’s directors had at
least impliedly resolved to authorise the conclusion
of the
substitution agreement as amplified by Heyns’ letter. I am not
unmindful of the fact that this resolution was not adopted
at a
properly convened board meeting. But the doctrine of unanimous assent
does not require that all the directors should meet
together. . .’
[56] In
the present case the acquisition was at the instance of Macmed.
Intramed was brought into life to serve Macmed’s purpose.
All the
subsidiaries in the group were subjected to control from
headquarters. The directors of Intramed accepted this method of

operation and acquiesced in the decisions made by Macmed in respect
of the acquisition. From a logistical point of view one can

understand why the acquisition and the loan agreements were
negotiated before Intramed came into existence.
[57] Not
only did all the directors of Intramed acquiesce in the transactions
in question, but the directors of their immediate
holding company,
Macmed Investments (Maguire and McArthur) consented to and were
actively involved in finalising the acquisition.
This included the
conclusion of the loan agreements. The shareholders of Macmed,
Intramed’s ultimate holding company, passed
formal resolutions
authorising the acquisition including all such acts as were necessary
to ensure that it was finalised. To sum
up, shareholders and
directors of Intramed all authorised the loan agreements and the
underlying securities.
[58] Even
though Ludorf J’s reasoning is not entirely consonant with what is
contained in the preceding paragraphs, his conclusion
that the loan
agreements and the underlying securities were authorised is in my
view correct.
[59] At
this point it is necessary to deal with the second issue in this
appeal, namely, whether the R100 million was received by
Intramed.
There is no merit in the submission that, because the R100 million
was required by Macmed as part of the financing of
the acquisition
and because it received the R100 million in its ‘rights offer’
account,
it
was the borrower and should be liable for the
repayment. A borrower is entitled to nominate the person to whom
money it has borrowed
should be paid. This does not mean that the
borrower ceases to be the borrower. Against the facts spelt out
earlier in this judgment
it is clear that Intramed borrowed the money
from the bank, nominated the Macmed rights offer account as the
payee, paid three
instalments and in all the circumstances can
rightly be considered to have received the R100 million.
[60] I
now turn to deal with the question whether the agreement lapsed
because of the non-fulfilment of a suspensive condition.
Each of the
loan agreements contains the following suspensive conditions:
‘
2.1 This
agreement is subject to the fulfilment of the following suspensive
conditions to the
satisfaction of BOE by no later than 17 June 1999.
final
unconditional duly completed agreements satisfactory to BOE, being
duly signed by all parties thereto recording the
purchase and sale
of the business from Aspen Healthcare Holdings Limited to the
borrower.
BOE
being placed in possession of, and approving, the final audited
annual financial statements of Macmed for the year ended
31 March
1999;
the
loan agreements to finance the acquisition by the borrower of the
immovable and movable assets of the business are signed
by all
parties and become unconditional;
the
guarantee issued by BOE to Standard Corporate and Merchant Bank on
behalf of Macmed in the amount of R30 000 000,00 (thirty
million
Rand) being cancelled and returned to BOE without having been
presented for payment;
2.1.5 the
provision of the security required in terms of 7.’
The
suspensive condition in question is contained in clause 2.1.1. It is
common cause that no final agreement as contemplated therein
was
submitted to the bank for scrutiny and that the condition was not
waived in writing by the bank. Aspen and Macmed were ultimately

content to have the acquisition regulated by the heads of agreement
referred to earlier. The conditions contained in clauses 2.1.2
to
2.1.5 were fulfilled after a number of written extensions by the
bank.
[61] Clause
2.2 of each of the loan agreements provides:
‘The
suspensive conditions referred to in 2.1 are stipulated for the
benefit of BOE which shall be entitled, in writing only,
to waive any
or all such conditions or to extend the date by which any or all of
them must be fulfilled. If any of the above conditions
are not waived
or fulfilled by the date set out in 2.1 or such later date as agreed
by BOE, then this loan agreement shall lapse
and be of no further
force or effect.’
[62] Clause
9.7 of the one loan agreement and clause 11.7 of the other two
provide:
‘No
contract varying, adding to, deleting from or cancelling this
agreement, and no waiver of any right under this agreement,
shall be
effective unless reduced to writing and signed by or on behalf of the
parties.’
[63] The
submission in the alternative on behalf of the liquidators is that,
in terms of clause 2.2, the loan agreements had lapsed
with the
result that restitution should occur.
[64] It
was contended on behalf of the bank that, since clause 2.2 was
stipulated for its benefit, the requirement that waiver could
only be
effected in writing could also be waived by it. It was submitted
further that it is clear from the evidence that the bank
in fact
waived the condition in question.
[65] The
Court below held that the requirement that waiver be in writing was a
condition solely for the benefit of the bank which
it could waive.
The Court found that on the evidence an oral waiver by the bank had
been proved and that the loan agreements were
of full force and
effect despite the non-fulfilment of the condition.
[66] The
material facts against which the dispute concerning the
interpretation and application of clauses 2.1.1, 2.2, 9.7 and 11.7
is
to be decided are set out in paragraphs [67] to [72] hereafter.
[67] In
respect of two loan agreements, the bank, on 17 June 1999, in
writing, extended until 18 June 1999 the period within which

condition 2.1.1 had to be met. In respect of the remaining loan
agreement the bank extended the period until 25 June 1999. On 18
June
1999 the period in respect of the first two loan agreements was
further extended by the bank in writing to 25 June 1999.
[68] On
18 June 1999, the day on which the R100 million was paid into the
Macmed’s rights offer account, an internal bank e-mail
written by
Heron recorded the following:
‘
.
. . Paul Leaf-Wright and Clive Whittaker have agreed to payout the
Macmed loans today.
Condition
2.1.1 still however needs to be met in the next week. Notwithstanding
this payout can still take place.’
[69] On
19 July 1999 an internal bank memo from Clive Whittaker, the bank’s
regional manager for Gauteng, to Roland Cooper (‘Cooper’),
a
corporate branch manager in Johannesburg ─ copied to Ingrid De
Villiers, a bank employee involved in its medical services
department
─ recorded the following:
‘Dear
Roland
I
refer to the outstanding condition relating to the Intramed
acquisition and after discussions with Alan Hiscock and Alan Rubin
of
Bernadt Vukic Potash & Getz, I am totally satisfied that we can
request Advances to amend the conditions of the agreement
by removing
the clause: “Final, unconditional duly completed agreements
satisfactory to BOE, being duly signed by all parties
thereto
recording the purchase of the sale of the business of Aspen
Healthcare Holdings Limited to the borrower”.
My
reason for this is that:
I
have been satisfactorily convinced by Alan Rubin that the “Heads
of Agreement” between Macmed and Aspen is a binding document
(in
this regard refer to clause 2 of the Heads of Agreement).
Macmed
has taken possession of the businesses.
The
attached document, signed by Werksmans and Investec Bank, confirms
that the condition precedents of the agreement have been
fulfilled
and specifically indicates that ownership and risk in the business
had lawfully passed to Macmed.
In
view of the above, we should urgently request Advances to amend the
conditions of approval to replace the clause referred to
in paragraph
1 above, with the requirement that we obtain the attached document
from Werksmans and Investec Bank Limited.’
[70] On
22 July 1999 (after the apparent expiry of the previous extension
period on 25 June 1999), the bank in writing once more
purported to
extend the period for the fulfilment of clause 2.1.1 in respect of
the loan agreements, this time to 20 August 1999.
[71] On
23 July 1999 Ingrid De Villiers responded by e-mail to Clive
Whittaker’s memorandum as follows:
‘Dear
Clive
Thank
you for your memo dated the 19
th
July 1999 with regard to our meeting on the 14
th
July 1999 re: the Clause 2.1.1 issue.
As
this still seems to be an issue I would like to point out the
following.
1. The
content of Clause 2.1.1 in the Loan Agreements was not a condition
of Approval and therefore we
are all satisfied that all the conditions of the
approval
of the above facility have been met.
2. The
Facility letter was drawn up by Regional Office and signed by
yourself
and Roland Cooper.
Clause 2.1.1 came about because of one of the
Conditions
Precedent that was added in by Regional Office i.e. The
Facility
letter.
3. Daryn
Brown has only acted on our instruction to draw up the Loan
Agreements, where Clause
2.1.1 was brought in.
This
is not a credit issue but a Regional Office one and according to the
Memo I have received from yourself it is clear that you
are satisfied
that clause 2.1.1 has now been met. However, Roland needs to sign
this off as well to enable us to record this in
our files.
I
feel that we should now stop sending reminders to Alan Hiscock to
meet the suspensive conditions as I feel this issue has now
been
finalised.’
[72] Cooper
testified that Whittaker told him that he had telephoned Hiscock
during August 1999 and informed him that the bank was
now satisfied
that ‘the agreements and the transaction were completed’. It is
this evidence on which the Court below relied
in coming to its
conclusion that an oral waiver was sufficient.
[73] The
opening sentence in each of the three loan agreements introducing the
suspensive conditions states that they have to be
fulfilled ‘to the
satisfaction’ of the bank, presupposing, in respect of clause
2.1.1, that the bank would consider whether
the agreement is to its
satisfaction. It is common cause that no such agreement was submitted
to the bank.
[74] The
bank in extending in writing on three occasions the period within
which the condition in question had to be fulfilled recognised
that
the conditions could only be waived in writing as stipulated in
clause 2.2. Whittaker’s memorandum dated 19 July 1999 set
out in
paragraph [69] is not a written waiver. In that memo, Whittaker
clearly contemplates written amendments to the loan agreements
which
would exclude clause 2.1.1. It was in any event never communicated to
the other parties to the loan agreements and it was
written after the
most recent
extension period (until 25 June 1999) had
apparently already expired. Ingrid De Villiers’ memo, in response,
confused as it is,
nevertheless recognises that Cooper has to ‘sign
off’ in respect of clause 2.1.1. After the third written extension
there was
no further written communication by the bank to Intramed
concerning compliance with clause 2.1.1. It should be reiterated that
the third written extension was given after the second one had
apparently already expired causing the agreements to lapse in terms

of clause 2.2 (see Christie
The Law of Contract
4
th
ed 2001 at 167).
[75] Clause
2.2 records that the conditions in 2.1 are suspensive conditions
stipulated for the bank’s benefit. The bank has rights
flowing from
the suspensive conditions and has the right to waive compliance with
any of the conditions. Clause 2.2, however, stipulates
that the
entitlement to waive can be exercised
in writing only
. It
should be borne in mind that the bank was the
stipulans
.
[76] The
validity and binding nature of an entrenchment clause in a written
contract, providing that amendments to an agreement
have to comply
with specified formalities, were reaffirmed by this Court in
Brisley
v Drotsky
2002 (4) SA 1
SCA. Dealing with the motivations for
such clauses this Court said the following at 11 C-F:
‘
Partye
doen dit deur vooraf ooreen te kom dat ‘n kontrak alleen dan tot
stand kom wanneer aan sekere formaliteite voldoen is.
Die
oogmerk is om geskille te beperk of uit te skakel
.
Natuurlik staan die partye vry om die formaliteite te ignoreer en te
handel asof ‘n bepaalde Wet nie bestaan nie.
Ontstaan
‘n dispuut, is enigeen geregtig ─ en die Hof verplig ─ om die
strikte reg toe te pas
.
En hoekom moet dit anders wees in vrye kontraksverband? Daar is ook
‘n algemeen heersende mite dat hierdie tipe bepaling slegs
ten bate
van die ekonomies magtige bestaan en dat dit tot ongelykheid in
kontraksverband aanleiding gee. Dit is waarskynlik waarom
daar ‘n
beroep op die grondwetlike gelykheidsbeginsel gemaak word.
Hierdie
bepaling dien ter beskerming van beide partye . . .’
A
few lines further down (at 11F-G) the following appears:
‘Die
Shifren
-beginsel
is “trite” en die vraag ontstaan waarom dit, na bykans 40 jaar
omvergewerp moet word?
Mens
kan jou beswaarlik die handelsgevolge, regsonsekerheid en
bewysprobleme wat gaan ontstaan indink
.
. .’
(emphasis added)
The
same reasoning applies with equal force to the clauses in the loan
agreements that stipulate in clear and emphatic terms that
the
entitlement to waive can only be exercised
in writing
. This is
particularly so against the provisions of clauses 9.7 and 11.7 of the
respective loan agreements as set out in paragraph
[62].
[77] Whilst
it is recorded in clause 2.2 that the suspensive conditions are for
the benefit of the bank it can hardly be contended
that Macmed and
Intramed had no interest in the certainty of a written waiver. The
bank could, if it chose, after the conclusion
of the loan agreements
and the payment of the R100 million, claim the return of the money
based on the non-fulfilment of condition
2.1.1, particularly since it
had repeatedly (as the evidence shows) called on the other parties to
the loan agreements to fulfil
that condition.
[78] It
may appear odd that agreements which were ostensibly executed should
now be held to have lapsed. The proper approach, however,
is to
consider the terms of the agreement and to hold the parties to such
obligations and formalities as agreed to. In the present
case all
that was required from the bank was a one-sentence letter in terms of
which it waived compliance with the requirements
of clause 2.1.1 in
order for the waiver to be effective. It is precisely to avoid the
kind of disputes and uncertainties referred
to in the highlighted
parts of the
dicta
of the
Brisley
judgment referred to
in paragraph [76] above that the validity and binding nature of
clauses 2.2 and 9.7 and 11.7 of the loan agreements
should be
observed and enforced. The dispute in the present case arose because
waiver was not exercised as set out in the loan
agreements.
[79] The
suggestion that because the rationale for the suspensive conditions
had ceased to exist and the money had been paid over
the question of
waiver falls away is, in my view, fallacious. It ignores the express
provisions of the agreements and leaves scope
for the kind of
uncertainty and disputes which entrenchment clauses by their very
nature are designed to obviate.
[80] The
application of clause 2.2 of the loan agreements results in the
lapsing of the loan agreements with the consequence that
the total
amount which the bank is now entitled to recover, as opposed to what
it would have been able to obtain in terms of the
agreement, is
relatively smaller, because the interest that would have accrued in
terms of the loan agreement is not recoverable.
However, interest
a
tempora morae
would be payable from the time of the lapsing of
the agreement.
[81] A
calculation supplied by the respondents showing the amount which
would be due to the bank upon restitution was not challenged.
The
amount is R113 177 568-51.
[82] The
cost order made by the Court below was based on the terms of the loan
agreements which provided for attorney client costs
against the party
in breach. The lapsing of the agreements renders the provisions in
question inoperative.
[83] It
has not been suggested that, in the event that the underlying
securities were held to be authorised, the liquidators would
not be
bound by them.
[84] The
degree of success attained by the appellants is insufficient in the
overall picture to carry costs of appeal. It was not
argued that it
should. In light of the foregoing conclusions the following order is
made:
1. The
appeal is upheld only to the extent reflected in the difference
between the amounts set out in the order of the Court below
and in
paragraph [81] above;
2. The
appellants are to pay the respondent’s costs of appeal including
the costs of two counsel;
3. The
order of the Court below is amended as follows:
‘
A. The
Defendants are ordered to pay to the plaintiff the amount of R113 177
568-51.
B. It
is declared that the claims by the Plaintiff are secured by the
securities which are annexures “G”, “I” and “J”
to the
Plaintiff’s particulars of claim.
C. The
defendants are ordered to pay the plaintiff’s costs of suit
including the costs of two counsel.’
________________
MS
NAVSA
Judge
of Appeal
CONCUR:
HOWIE P
STREICHER JA
VAN
HEERDEN AJA
STREICHER JA:
[1] I have read the judgments by Navsa JA and Heher JA.
I agree with the judgment of Navsa JA to which I would like to add
the following
comments in respect of the finding by Heher JA that the
suspensive condition in clause 2.1.1 of the agreements of loan was
fulfilled.
The clause reads as follows:
‘
2.1 This agreement is subject to the fulfilment of
the following suspensive conditions to the satisfaction of BOE by not
later than
17 June 1999.
Final unconditional duly completed agreements
satisfactory to BOE signed by all parties thereto recording the
purchase and
sale of the business from Aspen . . . to [Intramed].’
(‘The suspensive condition.’)
[2] It is common cause that no such agreement was ever
concluded. It follows logically that the suspensive condition could
not have
been fulfilled.
[3] The respondent alleged in its particulars of claim
that the suspensive conditions referred to in clause 2.1 of each of
the agreements
of loan were fulfilled alternatively waived by it.
However, in its reply to a request for particulars for trial it
replied that
the suspensive condition in clause 2.1.1 of each of the
loan agreements was not fulfilled. During his cross-examination of
Cooper
counsel for the appellants stated that it was common cause
that the condition had not been fulfilled. The statement was repeated

in the appellants’ heads of argument. Counsel for the respondent
also stated in their heads of argument that it was common cause
that
the suspensive condition was not fulfilled in that there were no
‘final unconditional duly completed agreements . . . recording
the
purchase and sale of the business from Aspen . . . to [Intramed].’
[4] In the circumstances it is not open to this court to
find that the suspensive conditions had in fact been fulfilled and to
fill
factual gaps in the evidence by way of inferences drawn as a
matter of probability from statements made by counsel for the
respondent
in his opening address, the evidence of the respondent’s
witnesses and the ‘failure’ of the appellants’ counsel to
follow
what may be considered to be an obvious line of attack if the
common cause facts are ignored.
[5] In any event, the evidence was not to the effect
that the suspensive condition had been fulfilled. Cooper testified
that Mr
Whittaker told him that he had telephonically advised Mr
Hiscock that the respondent ‘was now satisfied that the agreements
and
the transaction were completed’. Cooper understood him to mean
that the deal was finalised but did not know whether the suspensive

conditions had been fulfilled. It was at this stage that it was put
to him by counsel for the appellants that it was common cause
that
the condition had not been fulfilled. He did not dispute the
statement and counsel for the respondent did not object thereto.
[6] In the light of the fact that there was no agreement
between Aspen and Intramed, Whittaker could not have intended to say
that
he was satisfied that the suspensive conditions had been
fulfilled, he could only have meant to say that fulfilment of the
condition
was no longer necessary as far as the respondent was
concerned. That is to say he could only have meant to say that the
respondent
had waived fulfilment of the suspensive condition.
[7] But, even if Whittaker had in terms told Hiscock
that the respondent was satisfied that the suspensive condition had
been fulfilled
and that the transaction was for that reason complete
he would, in the light of the fact that there was no agreement
between Aspen
and Intramed, in fact have been telling him that the
respondent was waiving compliance with the condition.
[8] I, therefore, disagree with the finding of Heher JA
that the suspensive condition was fulfilled.
_________________
STREICHER JA
HOWIE P)
NAVSA
JA) CONCUR
VAN HEERDEN
AJA)
HEHER JA:
[1]
I have read the judgment of Navsa JA. I
agree with his conclusions on the issues of authorisation and the
recipient in law of the
money advanced by the respondent.
[2]
As to whether the agreements lapsed I regret
that I see the matter somewhat differently. For the reasons which
follow, I think
that Ludorf J was correct in the order he made.
[3]
Of course the respondent could at any time
during the validity of the agreements have notified the borrower in
writing that it did
not require compliance with any specified aspect
of any of the suspensive conditions, thereby formally waiving its
right to rely
on non-fulfilment. However, because of the particular
terms of clause 2.1 of each agreement, this was not the only option
open
to the respondent.
[4]
Clause 2.1 laid down a minimum measure for
the assessment of whether the suspensive conditions had been
fulfilled. That measure
was the satisfaction of the respondent. In
addition, lest any doubt should remain, clause 2.2 provided that the
conditions were
stipulated for the benefit of the respondent.
Because the unrestricted satisfaction of the respondent was to be
decisive it was
entitled to regard any degree of performance from 0%
to 100% as fulfilment. The only, implied, requirement was that the
expression
of its satisfaction should be communicated to the borrower
before the agreements lapsed in order to render the fulfilment
effective.
[5]
Such an expression of satisfaction in
relation to any of the conditions was a right conferred on the
respondent and the communication
was its exercise. The agreements
did not require that it be exercised in writing.
[6]
The evidence established that the respondent
did communicate its satisfaction with regard to the fulfilment of
clause 2.1.1 while
the agreements were still
in esse
. In
these circumstances, waiver, ie an abandonment of a right to rely on
the non-fulfilment of the condition in question, is irrelevant.
[7]
The respondent extended the date by which
clause 2.1.1 had to be fulfilled in writing from time to time from 17
June 1999, the last
extension expiring on 20 August 1999.
[8]
That there were effective extensions of the
agreements seems to me an overwhelming inference derived from the way
in which the
case was presented by the respondent and fought by both
sides:
(a) In opening the case for the respondent in the trial
Court senior counsel, Mr Wallis, informed the Court that there had
been
seven letters extending the agreements.
(b) In fact, the bundle of documents placed before that
Court (and included in the appeal record) included only three such
letters,
dated 17 and 18 June and 22 July. The respective letters
each dealt with all the conditions which had not at the time of
writing
been fulfilled. The first extended the date for fulfilment
of clause 2.1.1 to 18 June, the second extended that date to 25 June

and the last extended it to 22 August.
(c) Mr Wallis, in leading his witness Mr Heron of the
respondent and referring to the extension letters, said
‘
Now I do not propose to take you to all of them . . .
but there were a number of extension letters?’ ─ ‘That is
correct.’
Heron confirmed that his colleague Cooper was
responsible for attending to the fulfilment of the agreements.
(d) In the evidence in chief of Mr Cooper the witness
confirmed that the letter of 22 July was ‘the last letter’ which
he wrote.
He said:
‘
We kept sending the letters [of extension] . . . You
will see they were weekly or fourteen day extensions and then I
pushed it
up to three or four weeks to cover the period while I was
away on leave. I went away at the beginning of August.’
(e) The evidence of Cooper and the correspondence leaves
no doubt that the question of fulfilment was a matter constantly at
the
forefront of the minds of himself and other officials of the
respondent. He was very aware of the requirement that the agreements

needed to be extended
before
they lapsed by the sending of
timeous notices to the borrower. It is very probable that the
letters not produced in evidence had
the necessary effect. In
cross-examination of Cooper senior counsel for the appellants
suggested to him that clause 2.1.1 had,
notwithstanding the
respondent’s satisfaction with the alternative performance, not
been fulfilled according to its terms. Counsel
did
not
suggest
that the letter of 22 July had not been preceded by others in a chain
of extensions or that that letter would not in any
event have been
effective in extending the time for fulfilment of clause 2.1.1
because the agreements had already lapsed which,
if the facts bore
him out, would have been the obvious line of attack.
[9]
No agreement was signed between the parties
to the sale from Aspen to the borrower. By the end of July internal
correspondence
of the respondent leaves no doubt that the responsible
officials, Messrs Steensma, Corey, Whittaker, Heron and Cooper, were
satisfied
that fulfilment of clause 2.1.1 according to its terms was
unnecessary as ‘the requirements of that clause have been satisfied

via other means’ (memo from Steensma to Cory dated 26 July 1999).
When Cooper returned from leave in the middle of August he
was told
by his senior Whittaker that the latter had notified Hiscock (who
possessed authority to represent the borrower) telephonically
that
the respondent was satisfied and regarded the agreements and the
transaction as completed. The respondent decided for this
reason,
correctly, in my view, that it was unnecessary to extend the
agreements once again. (It was common cause that Whittaker
was
disabled by a fatal illness from testifying and there is no reason
why reference to his conversations and correspondence with
Cooper and
Hiscock should be excluded from consideration.) The evidence was
substantially adduced by appellant’s counsel in
cross-examination
of Cooper, its correctness was not placed in issue and Hiscock was
not called to rebut it. It is true that the
respondent did not plead
such fulfilment but Mr Wallis stated unequivocally in his opening
address to the Court
a quo
that he would rely on the
satisfaction of Whittaker for the fulfilment of clause 2.1.1. There
was not then or thereafter objection
from the appellant’s side.
Although he did not refer to the oral communication of that
satisfaction to the borrower that critical
gap was filled by the
cross-examination of Cooper. There is no suggestion that the matter
was not fully canvassed by the evidence
or that anything further
could have been said or done to dilute its effect. I conclude,
therefore, that the evidence proved that
clause 2.1.1 of each
agreement was fulfilled to the satisfaction of the respondent
although no final or unconditional agreements
were produced or signed
as provided in the clause.
[10]
I would, therefore, dismiss the appeal with
costs, including the costs of two counsel, on the scale as between
attorney and client.
___________________
J A HEHER
JUDGE OF
APPEAL