Brief Summary

Suretyship — Claim against guarantors — Principal debtor liquidated prior to alleged cancellation of agreement — Cancellation not communicated to principal debtor or liquidators — Whether plaintiff entitled to rely on deemed termination of lease agreement in terms of s 37 of the Insolvency Act 24 of 1936 — Liability upon pleaded case not established — Appeal upheld with costs.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an appeal to the Supreme Court of Appeal against an order of the Mpumalanga Division of the High Court, Middelburg. The dispute arose from an action instituted against guarantors/co-principal debtors for payment obligations allegedly arising from a Master Rental Agreement concluded by the principal debtor, a close corporation, in respect of leased office equipment.

The appellant was Mr Ebrahim Patel, one of the members of the principal debtor and one of three guarantors. The respondents were South African Securitisation Programme (RF) Limited (first respondent), Sasfin Bank Limited (second respondent), Sunlyn (Pty) Limited (third respondent), and two other guarantors, Ms Maria Elizabeth Kilfoil (fourth respondent) and Mr Richard Henry Kilfoil (fifth respondent). Although the high court’s order operated against all three guarantors, only Mr Patel obtained leave to appeal; the Kilfoils were cited as respondents because of their interest in the outcome.

In the high court, the plaintiffs (as cited) obtained judgment confirming an alleged cancellation of the rental agreement and ordering the guarantors to pay R448 615 plus interest. The appeal primarily concerned whether the plaintiffs could, on appeal, rely on a basis of liability not pleaded, namely the alleged statutory termination of the lease under section 37 of the Insolvency Act 24 of 1936, after abandoning reliance on contractual cancellation.

The general subject-matter of the dispute was the enforcement of guaranteed payment obligations under a lease/rental agreement following the principal debtor’s default and subsequent liquidation, and the procedural question of whether the plaintiff could shift the foundation of its case from pleaded contractual cancellation to statutory deemed termination.

2. Material Facts

On 9 May 2019, the principal debtor, Ezindaleni Power Solutions CC (Ezindaleni), concluded a Master Rental Agreement with Centrafin (Pty) Ltd (Centrafin) in terms of which Ezindaleni leased certain office equipment, including telephone systems, for a monthly rental. At the time the rental agreement was concluded, Mr Patel and the Kilfoils were members of Ezindaleni. They executed a guarantee incorporated into the rental agreement, guaranteeing Ezindaleni’s due performance and binding themselves as co-principal debtors in respect of Ezindaleni’s payment obligations.

Centrafin’s rights and obligations under the rental agreement were subsequently transferred through a sequence of transactions: first to an entity later known as Sunlyn (Pty) Ltd, then to Sasfin Bank Limited as part of a financing arrangement, and later ceded by Sasfin to South African Securitisation Programme (RF) Limited. The standing of the relevant plaintiff to enforce the agreement was not disputed on the papers and was not treated as a live issue at trial or on appeal; the Supreme Court of Appeal proceeded on the basis that South African Securitisation was the only entity entitled to pursue the claim.

According to the pleaded case, Ezindaleni fell into arrears in rental payments, alleged to be R94 990 as at 10 December 2020, and the plaintiff asserted entitlement, upon default, to terminate the agreement and claim accelerated rentals and agreed pre-estimated liquidated damages under the agreement. The summons pleaded that the plaintiff had cancelled the agreement, alternatively purported to cancel it through the summons itself.

The primary factual dispute at trial concerned whether there had been an effective cancellation of the rental agreement as contemplated by the agreement, which was treated as a prerequisite for the plaintiff’s claim under the pleaded clause (clause 8.3). The plaintiff’s witness accepted that no notice of cancellation had been given other than by service of the summons on the guarantors, and it was further common cause that Ezindaleni was not a party to the action. It was also not disputed that the summons was not served at Ezindaleni’s chosen domicilium for service of notices and legal process under the rental agreement.

A further undisputed fact emerged during evidence: Ezindaleni had been liquidated in about June or July 2020, and liquidators had been appointed. Evidence was led that correspondence was addressed to the liquidators asking whether they would elect, under section 37 of the Insolvency Act, to continue with the lease; no response was received and, on the evidence accepted by the Supreme Court of Appeal, the liquidators did not elect to continue the lease within the statutory period.

In the high court, notwithstanding the domicilium provisions and Ezindaleni’s liquidation, the trial court held that service on the members/guarantors sufficed and that cancellation had been effected. The high court also accepted that, because the liquidators did not elect to continue, the agreement was deemed terminated under section 37 and treated this as an additional basis for guarantor liability.

3. Legal Issues

The central legal questions on appeal were whether, given the way the plaintiff pleaded its case, it was entitled to uphold its claim against the guarantor on a different legal basis advanced on appeal, namely reliance on section 37 of the Insolvency Act 24 of 1936 and the deemed termination of the lease following liquidation.

This raised a procedural and substantive intersection. Procedurally, the appeal required determination of whether a party is bound by its pleaded case, and in what circumstances a court may permit reliance on an unpleaded issue on appeal, particularly where the alleged new basis alters the foundation for liability and quantification. Substantively, the matter implicated the effect of liquidation on leases, the operation of section 37, and the accessory nature of surety/guarantee liability, in that the guarantor’s liability depends on what is due and payable by the principal debtor on the proper legal basis.

The dispute therefore concerned primarily the application of legal rules to facts (pleading constraints, the legal effect of liquidation and deemed termination, and the consequences for a claim framed as contractual cancellation damages), rather than pure factual findings. It also required an evaluative judgment about whether the section 37 basis had been fully and properly ventilated at trial such that it could be entertained without prejudice to the appellant.

4. Court’s Reasoning

The Supreme Court of Appeal treated the plaintiff’s abandonment of contractual cancellation on appeal as justified because the high court’s reasoning on cancellation was unsustainable. A key difficulty identified was that the pleaded case depended on a cancellation by the plaintiff as a prerequisite for the accelerated claim under the pleaded contractual clause. Yet, on the evidence, the alleged cancellation was not communicated to the entity legally controlling Ezindaleni after liquidation, namely the liquidators, and Ezindaleni itself was not served or joined. The Court held that the high court’s conclusion that service on members/guarantors could constitute effective cancellation was not tenable in light of the liquidation context and the contractual service provisions.

The Court then addressed the plaintiff’s attempt to uphold the judgment on the alternative basis of section 37. It reaffirmed the principle that a litigant is generally bound by its pleadings, and that reliance on an unpleaded cause or issue may be permitted only in the exercise of a discretion where the issue has been fully and properly canvassed and where the opposing party would suffer no prejudice.

Although evidence about liquidation and the liquidators’ non-election emerged during cross-examination and was largely uncontroverted, the Court regarded this evidence as destructive of the plaintiff’s pleaded case rather than supportive of it. On the accepted version, if section 37(2) operated, the lease would have been deemed determined by law after the statutory period, with the consequence that the plaintiff could not, many months later, purport to cancel a lease that had already terminated by operation of law. The Court found that the high court failed to appreciate this incompatibility when it simultaneously confirmed contractual cancellation while also relying on deemed termination.

Crucially, however, the Supreme Court of Appeal held that the appeal could not be resolved simply by deciding whether section 37(2) in fact applied or whether the evidence established deemed termination. The decisive question was whether the plaintiff’s claim as advanced and quantified could be sustained against a guarantor on the basis of deemed termination, given that the plaintiff’s case was pleaded and run on the footing of contractual cancellation and clause 8.3 pre-estimated damages.

In explaining section 37, the Court referred to authority describing it as consistent with common-law principles, including that insolvency does not itself terminate the lease, but the liquidator may determine it, and failure to elect within the specified period results in deemed determination. The Court emphasised that section 37 preserves a lessor’s claim for compensation against the insolvent estate for loss suffered through premature termination. The Court reasoned that the presence of such a statutory claim did not automatically translate into the same claim pleaded under the contract against guarantors, because suretyship is accessory and the guarantors are liable only for amounts properly due by the principal debtor on a legally sustainable basis.

The Court held that, where there is no contractual cancellation event by the lessor (as pleaded), but rather a termination resulting from the liquidator’s election or deemed election, a different legal and factual pathway to liability would have to be pleaded and established. Even if termination by the liquidator could, in some circumstances, entitle the lessor to cancel and claim contractual damages, that would require a properly pleaded case and evidentiary foundation, including how the claim should be quantified by reference to the termination event. The Court held there was no evidentiary basis in the trial record to undertake that exercise.

The Court also rejected the plaintiff’s further alternative attempt to rely on clause 8.2 (an election to keep the agreement alive and claim payment notwithstanding default), on the basis that it similarly involved a shift to a different case not pleaded and not properly ventilated. The Court underscored that section 37’s operation raised issues not addressed on the record, and this was not a situation where the Court could conclude that the new basis was fully canvassed and that no prejudice would result from adjudicating the matter on that basis.

Finally, the Court noted a remedial limitation: only Mr Patel appealed, and the high court’s order, though joint and several, operated separately against each guarantor. The Court therefore confined its interference to the order as against Mr Patel.

5. Outcome and Relief

The Supreme Court of Appeal upheld the appeal with costs.

It set aside the high court’s order only insofar as it related to Mr Ebrahim Patel (the second defendant in the trial court) and replaced it with an order dismissing the plaintiff’s action against him with costs.

Because the Kilfoils did not appeal, the Supreme Court of Appeal did not interfere with the orders against them.

Cases Cited

Miller and Miller v Dickinson 1971 (3) SA 581 (A)

Datacolor International (Pty) Ltd v Intamarket (Pty) Ltd 2001 (2) SA 284 (SCA)

Minister of Safety and Security v Slabbert [2009] ZASCA 163; [2010] 2 All SA 474 (SCA); 2009 JDR 1218 (SCA)

Molusi and Others v Voges NO and Others [2016] ZACC 6; 2016 (3) SA 370 (CC); 2016 (7) BCLR 839 (CC)

Ellerine Brothers (Pty) Ltd v McCarthy Limited [2014] ZASCA 46; 2014 (4) SA 22 (SCA)

Legislation Cited

Insolvency Act 24 of 1936, section 37

Conventional Penalties Act 15 of 1962

Companies Act 61 of 1973, section 339

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The Supreme Court of Appeal held that the plaintiff could not, on appeal, sustain the judgment against the guarantor on the basis of section 37 of the Insolvency Act where that basis was not pleaded and where the claim as pleaded depended on contractual cancellation as a prerequisite for the accelerated and liquidated damages claim.

It held that, even accepting the evidence that liquidation occurred and that the liquidators did not elect to continue the lease (with the result that the lease may have been deemed terminated), the consequences for the plaintiff’s contractual claim and the quantification of any enforceable indebtedness against guarantors were not properly pleaded or fully ventilated at trial. In those circumstances, the plaintiff remained bound to its pleaded case, and liability on that pleaded basis was not established against Mr Patel.

It further held that it was impermissible, on the record, to uphold the plaintiff’s claim by recasting it as one under a different contractual clause (clause 8.2) not relied on in the pleadings and not properly canvassed.

LEGAL PRINCIPLES

A party is generally bound by its pleadings. A court may permit reliance on an issue or cause not pleaded only as an exercise of discretion where the issue has been fully and properly canvassed in the evidence and argument, and where the opposing party would suffer no prejudice if the matter is decided on that basis.

The liquidation or insolvency of a lessee does not, by itself, terminate a lease. Under section 37 of the Insolvency Act 24 of 1936, the trustee or liquidator may determine a lease by written notice to the lessor, and if the trustee or liquidator does not notify the lessor within the statutory period of an intention to continue the lease, the lease is deemed determined at the end of that period.

A lessor’s right to compensation for loss arising from premature termination of a lease in insolvency is a distinct legal foundation that must be properly invoked and supported. Where a claim against guarantors is advanced, the accessory nature of guarantee/suretyship liability requires that the plaintiff establish what is legally due and payable by the principal debtor on the pleaded basis; a plaintiff cannot simply transpose a contractual cancellation-based damages claim onto a statutory deemed-termination scenario without pleading and proving the necessary juridical steps and quantification.

Where a trial court’s order operates against multiple defendants and only one appeals, an appellate court’s interference is ordinarily limited to the part of the order affecting the appellant, particularly where the order is separable in its operation as against each defendant.

Patel v South African Securitisation Programme (RF) Limited and Others (790/2024) [2025] ZASCA 186 (8 December 2025)