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[2019] ZASCA 66
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Schoeman and Others v Lombard Insurance Company Limited (1299/2017) [2019] ZASCA 66; 2019 (5) SA 557 (SCA) (29 May 2019)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No. 1299/2017
In
the matter between:
ALIDA
SCHOEMAN FIRST
APPELLANT
CORNELIUS
JACOBUS SCHOEMAN SECOND
APPELLANT
ALIDA
SCHOEMAN
NO THIRD
APPELLANT
CLAUDE
STANLEY BARNES
NO FOURTH
APPELLANT
and
LOMBARD
INSURANCE COMPANY
LIMITED RESPONDENT
Neutral
citation:
Schoeman & others v Lombard Insurance Co Ltd
(1299/2017)
[2019] ZASCA 66
(29 May 2019)
Coram:
Tshiqi, Swain, Mathopo and Makgoka JJA and Plasket AJA
Heard:
3 May 2019
Delivered:
29 May 2019
Summary:
Demand guarantee – demand guarantee stipulating that demand
to be made at address of beneficiary – demand hand-delivered
to
address of guarantor – place at which demand to be made
directory, not mandatory – demand effective.
ORDER
On
appeal from:
Gauteng Division of the High Court, Johannesburg
(Maier-Frawley AJ sitting as court of first instance):
The
appeal is dismissed with costs.
JUDGMENT
Plasket
AJA (Tshiqi, Swain, Mathopo and Makgoka JJA concurring)
[1]
The respondent, Lombard Insurance Company Ltd (Lombard Insurance),
had, in the court below, claimed three amounts totalling
R55 148 449.89 from the appellants, Ms Alida Schoeman, Mr
Cornelius Schoeman and the trustees of the Erf 260-2 Middelburg
Trust
(the Trust) in their capacity as sureties and co-principal debtors.
The trustees of the Trust are Ms Schoeman and Mr Claude
Barnes.
[2]
Maier-Frawley AJ, in the Gauteng Division of the High Court,
Johannesburg,
granted judgment against
the appellants in the amounts claimed by Lombard Insurance, together
with interest and costs on an attorney
and client scale. This appeal
is before us with the leave of the court below.
The
facts
[3]
Golden Sun Retailers (Pty) Ltd (Golden Sun) was a company involved in
the sale of fuel. It was supplied with its products on
credit by
Sasol Oil (Pty) Ltd (Sasol). In order for Golden Sun to acquire fuel
on credit, it applied to Lombard Insurance for a
General and
Commercial Guarantee Facility (the facility). Lombard Insurance
provided a quotation, which Golden Sun accepted.
[4]
The terms of the facility included the following: the guarantee limit
was R55 million, later increased to R60.5 million;
the guarantee
fee was 1,2 percent of the guarantee amount per annum, excluding VAT;
the validity period of the facility was 12
months, renewable every
six months; and security in the form of a counter-indemnity given by
Golden Sun, suretyships undertaken
by Ms Schoeman, Mr Schoeman and
the Trust and a cession of Golden Sun’s book debts was
required.
[5]
As a result, Lombard Insurance (as the guarantor) issued Demand
Guarantee S.50802 in the amount of R60.5 million on behalf of
Golden
Sun (as the client) and in favour of Sasol (as the beneficiary). It
stated in clause 1:
‘
Payment
shall be made under this guarantee upon receipt by the Guarantor, at
the above stated address, of the Beneficiary’s
first written
demand, which written demand will state that the amount of
R60 500 000.00 (
SIXTY
MILLION FIVE HUNDRED THOUSAND RAND
)
or any lesser portion thereof, is now due and payable by the Client
to the Beneficiary. The Beneficiary shall also produce the
original
guarantee should the Guarantor so require.’
The
‘above stated address’ was Sasol’s address, namely
32 Hill Street, Randburg.
[6]
Golden Sun executed a counter-indemnity which, in clause 1,
indemnified Lombard Insurance against ‘any claims, losses,
demands, liabilities, costs and expenses of whatsoever nature’
that it may ‘sustain or incur by reason or in consequence
of
having executed’ the demand guarantee on behalf of Golden Sun.
[7]
In terms of clause 2 of the counter-indemnity, Golden Sun undertook
to pay Lombard Insurance ‘on demand any sum or sums
of money
which [Lombard Insurance] may be called upon to pay under the
Guarantees, whether or not [Lombard Insurance] at such date
shall
have made such payment, and whether or not I/we admit the validity of
such claims against [Lombard Insurance] under the Guarantees’.
[8]
At the same time, Ms Schoeman, Mr Schoeman and the Trust bound
themselves as sureties and co-principal debtors jointly and severally
with Golden Sun in respect of payment by Golden Sun to Lombard
Insurance of ‘all and any amounts’ that Golden Sun ‘may
be liable to pay’ to Lombard Insurance ‘under the
Indemnity’.
The
liability
[9]
Golden Sun purchased fuel from Sasol on a 30-day credit account. At
the end of a month, Sasol would render a detailed account
to Golden
Sun. It, in turn, would send the account to Lombard Insurance, with
instructions to pay the account. Payments were required
to be made by
the 15
th
day of the month following the date of an
account.
[10]
During the period between the statement date and the payment date,
Golden Sun would deposit funds into a redemption account
created by
Lombard Insurance for the purpose, and Lombard Insurance would pay
Sasol on Golden Sun’s behalf. From time to
time, Golden Sun’s
payments into the redemption account had not yet cleared by the time
that payments to Sasol had to be
made. In these cases, Lombard
Insurance paid the account and would be credited when Golden Sun’s
payments had cleared.
[11]
It is alleged by the deponent to the founding affidavit, Mr James
Barrow, Lombard Insurance’s Underwriting Manager: General
and
Commercial Guarantees Division, that, unknown to Lombard Insurance,
Golden Sun began to send to it ‘altered, doctored
and/or forged
Sasol customer account statements’. These allegations were not
denied by Ms Schoeman, who deposed to the answering
affidavit. She
said, however, that she and Mr Schoeman had no knowledge of the fraud
and alleged that the fault lay with an employee
who administered the
Sasol account. It is not necessary to make any findings in this
respect.
[12]
The result was that Golden Sun had been purchasing fuel well in
excess of the quantities that it represented to Lombard Insurance
to
have purchased. When Lombard Insurance discovered the problem, it
raised it with Sasol. It was ascertained that Golden Sun owed
Sasol
R60 096 097.08.
The
claims
[13]
On 20 October 2016, Sasol delivered a demand for payment in terms of
the demand guarantee. It delivered the demand, for the
amount of
R60 096 097.08, by hand to the business premises of Lombard
Insurance. The demand was accompanied by supporting
customer account
statements and invoices. Sasol stated that the amount claimed was not
‘the full and final balance outstanding’
and that a
second demand was likely to be made ‘when the outstanding
billing is finalised’.
[14]
On 27 October 2016, Lombard Insurance, having satisfied itself of the
correctness of Sasol’s claim, paid Sasol the full
amount that
it had demanded.
[15]
On 31 October 2016, Sasol delivered a demand for payment of a second
claim, this time in the amount of R197 014.45. It
was delivered
by hand to the business premises of Lombard Insurance.
[16]
This claim was in respect of fuel sold to Golden Sun, the invoicing
of which had not been completed at the time that the first
demand was
made. Lombard Insurance satisfied itself that it was obliged to pay
Sasol and duly did so on 7 November 2016.
[17]
After Lombard Insurance had paid in terms of Sasol’s first
demand, it credited itself with R5 242 269.67. This
was the
balance of Golden Sun’s redemption account. As a result, when
Lombard Insurance claimed payment from Golden Sun and
the sureties,
it demanded payment of R54 853 827.41 in respect of the
first claim. Its second claim against them was
for the payment of
R197 014.45.
[18]
Lombard Insurance also had a third claim. It was for an amount of
R97 608.03. It represents the outstanding premium in
respect of
the facility.
[19]
Lombard Insurance accordingly demanded of Golden Sun and the sureties
that they pay R54 853 827.41, R197 014.45
and
R97 608.03. No payment was, however, forthcoming, hence the
application that Lombard Insurance brought in the court below.
The
issues
[20]
Two defences were raised by the appellants. The first related to
claims 1 and 2. It was that no valid demand had been made
by Sasol of
Lombard Insurance in terms of the demand guarantee, with the result
that Golden Sun’s obligation to pay in terms
of the
counter-indemnity was not triggered. Consequently no liability arose
on the part of the sureties. The second defence related
to claim 3.
It was that, in terms of the facility, the premium due was R1 000,
and not R97 608.03.
Claims
1 and 2
[21]
It was argued on behalf of the appellants that no proper demand had
been made of Lombard Insurance by Sasol in terms of the
demand
guarantee because, whereas the demand guarantee required the demand
to be made at Sasol’s address, it was in fact
made at Lombard
Insurance’s address.
[22]
The argument proceeded from the basis that a demand guarantee was,
like a letter of credit, subject to strict and precise compliance
in
all respects. I am in agreement with Maier-Frawley AJ in the court
below that there is ‘little to gain from attempts to
divine the
essential distinction between letters of credit, on the one hand, and
demand guarantees, on the other’: the real
issue, which
involves an interpretation of this particular demand guarantee, is
‘simply whether there was compliance with
the terms of the
guarantee under circumstances where the beneficiary’s demands
for payment were made to the guarantor at
its address, rather than at
the address of the beneficiary’.
[23]
The proper approach to the interpretation of written documents was
set out as follows by Wallis JA in
Natal
Joint Municipal Pension Fund v Endumeni Municipality
:
[1]
‘
The
present state of the law can be expressed as follows: Interpretation
is the process of attributing meaning to the words used
in a
document, be it legislation, some other statutory instrument, or
contract, having regard to the context provided by reading
the
particular provision or provisions in the light of the document as a
whole and the circumstances attendant upon its coming
into existence.
Whatever the nature of the document, consideration must be given to
the language used in the light of the ordinary
rules of grammar and
syntax; the context in which the provision appears; the apparent
purpose to which it is directed and the material
known to those
responsible for its production. Where more than one meaning is
possible each possibility must be weighed in the
light of all these
factors. The process is objective, not subjective. A sensible meaning
is to be preferred to one that leads to
insensible or unbusinesslike
results or undermines the apparent purpose of the document. Judges
must be alert to, and guard against,
the temptation to substitute
what they regard as reasonable, sensible or businesslike for the
words actually used. To do so in
regard to a statute or statutory
instrument is to cross the divide between interpretation and
legislation; in a contractual context
it is to make a contract for
the parties other than the one they in fact made. The “inevitable
point of departure is the
language of the provision itself”,
read in context and having regard to the purpose of the provision and
the background to
the preparation and production of the document.’
[24]
The broad context in which the demand guarantee was given was the
facility that enabled Golden Sun to purchase fuel on credit
from
Sasol. Indeed, it commences with the words: ‘At the instance of
GOLDEN SUN RETAILERS (PROPRIETARY) LIMITED . . .’
and records
that Lombard Insurance holds at Sasol’s disposal, and
undertakes, ‘subject to the terms and conditions
stated below,
to pay to [Sasol] all amounts presently due and payable, or which may
become due and payable, by [Golden Sun] to
[Sasol] arising out of any
cause whatsoever . . .’. It was intended, in other words, to
protect Sasol from any default on
the part of Golden Sun. Although it
was part of a greater complex of rights and obligations embodied in
the facility, the counter-indemnity
and the suretyships, its purpose
was to create ‘an independent, autonomous contract’
between Lombard Insurance and
Sasol within which the ‘contractual
arrangements with the beneficiary and other parties are of no
consequence to the guarantor’.
[2]
[25]
It seeks to achieve its purpose by providing for payment to Sasol by
Lombard Insurance ‘on the happening of a specified
event’.
[3]
That event is the presentation to Lombard Insurance by Sasol of a
demand stating that payment of an amount not exceeding R60.5
million
is due.
[26]
The provision that the demand must be presented at Sasol’s
address must be considered in the context that I have outlined,
particularly that the primary purpose of the demand guarantee is to
provide for payment to Sasol by Lombard Insurance when a proper
demand has been made.
[27]
A situation similar to that in the present case arose in
MUR
Joint Ventures BV v Compagnie Monegasque De Banque
,
[4]
a matter decided in the Commercial Court in the Queen’s Bench
Division. The demand guarantee in that case provided that ‘the
Bank’s obligation under this Guarantee to make a Guaranteed
Payment shall arise forthwith upon written demand sent to the
bank by
way of registered mail to the above mentioned bank’s address’.
The demand was not sent by registered mail but
by courier, fax and
e-mail, and it was received by the bank.
[5]
The point was taken that as the stipulated mode of making the demand
was not complied with, the demand was not a valid demand.
[28]
Cranston J rejected this argument. He held:
[6]
‘
In
my view, this requirement in clause 1 is directory, not mandatory.
That is because the guiding principle is one of effective
presentation of a demand. The first demand and all its attachments
were sent by a variety of means, including couriering. The importance
of registered mail is that the communication in question is signed
for by the recipient and signature precludes any suggestion
that it
was not received. In this case there is no question but that the
demand and its attachments were received by the Bank.
Presentation of
the first demand was effective.’
[29]
Similarly, in this case, presentation of the demand, albeit not at
Sasol’s premises, was effective. I am of the view
that in the
case of the demand guarantee before us, as in the
MUR Joint
Venture
case, the requirement of the demand being made at Sasol’s
address is directory and not mandatory. The result is that the court
below correctly concluded that the demands had been properly
presented, with the result that Lombard Insurance’s obligation
to pay was effectively triggered. The appeal in respect of claims 1
and 2 cannot therefore succeed.
Claim
3
[30]
It was argued on behalf of the appellants that, at best for Lombard
Insurance, they were only liable, in respect of claim 3,
for a single
premium payment of R1 000, and not for R97 608.03. Whether
this argument is correct depends on an interpretation
of the facility
and the counter-indemnity.
[31]
The facility provided that what it termed ‘guarantee fees’
were to be paid by clients. They were to be calculated
on the basis
of 1,2 percent of the guarantee amount per annum, excluding VAT. In
respect of the invoicing, the facility stated
that the minimum
‘premium’ per guarantee would be R1 000; that the
minimum invoice period would be six months;
that, in respect of the
invoice period, ‘premiums’ would be ‘based on the
nearest number of whole months of the
guarantee duration’ and
be renewable six monthly on the specified renewal month; and that
payment of the premium was due
on the date of the invoice.
[32]
In clause 11 of the counter-indemnity, Golden Sun undertook to pay,
‘on submission of an account therefor, the premiums
from time
to time payable to the Insurance Company’.
[33]
It is clear from the facility that a distinction has been drawn
between a guarantee fee and a premium. A guarantee fee is the
total
annual charge for Lombard Insurance to assume the risk of
guaranteeing Golden Sun’s payments to Sasol. That amount
is 1,2
percent of R60.5 million – R726 000 per annum. The
premiums that are payable are the fractions of this annual
amount,
initially payable in terms of the facility by Golden Sun every six
months. The evidence was, however, that Lombard Insurance
and Golden
Sun agreed at an early stage that the premiums would be paid, in
instalments of R181 500 plus VAT, every three
months in advance.
R181 500 is a quarter of R726 000, the guarantee fee. In my
view, Maier-Frawley AJ, in the court below,
was correct when she
concluded that ‘the guarantee fees were payable by way of
premiums (instalments) on a quarterly basis
per annum’.
[34]
Golden Sun had paid its premiums diligently on receiving Lombard
Insurance’s invoices, and did so without demur. Mr Barrow
stated that when invoiced in respect of premiums, Golden Sun either
paid by setting-off the premium against interest that had accrued
in
its redemption account, or by direct transfers of funds, or by a
combination of both.
[35]
The interpretation contended for by the appellants that it is only
liable, at best, for payment of R1 000 is untenable. The
amount of
R1 000 is not the premium but the ‘minimum premium’
that may be payable. The appellants’ interpretation
does not
have textual support – where a clear distinction is drawn
between the guarantee fee and the premiums that are payable
from time
to time. An agreement for a client to pay R1 000 in return for a
guarantee of R60.5 million is, certainly from Lombard
Insurance’s
perspective, irrational and unbusinesslike, to put it at its lowest.
[36]
In terms of clause 11 of the counter-indemnity, Golden Sun was liable
to pay the premiums that were due under the facility.
In terms of
clause 1 of the suretyships, the sureties bound themselves for the
due payment by Golden Sun ‘of all and any
amounts’ that
Golden Sun may be liable to pay Lombard Insurance ‘under the
indemnity’.
[37]
The amount of R97 608.03 was the amount due by Golden Sun as a
premium for the period 6 August 2016 to 6 November 2016,
once accrued
interest had been deducted from the amount of R181 500 plus VAT.
[38]
In the result, the appeal in respect of claim 3 must also fail.
The
order
[39]
The appeal is dismissed with costs.
________________
C
Plasket
Acting
Judge of Appeal
APPEARANCES
For
the appellant: L Hollander
Instructed
by:
Edelstein
Farber Grobler Inc
Johannesburg
E
G Cooper Majiedt Inc
Bloemfontein
For
the respondent: C W Jordaan SC
(Heads
of argument drafted by C W Jordaan SC, S J Pratt and B De Costa)
Instructed
by:
Fasken
Martineau
Johannesburg
Symington
& De Kok Attorneys
Bloemfontein
[1]
Natal Joint Municipal
Pension Fund v Endumeni Municipality
[2012] ZASCA 13
;
2012 (4) SA 593
(SCA) para 18.
[2]
Compass Insurance Co Ltd v
Hospitality Hotel Developments (Pty) Ltd
[2011] ZASCA 149
;
2012 (2) SA 537
(SCA) para 14.
[3]
Dormell Properties 282 CC v
Renasa Insurance Co Ltd & others NNO
[2010] ZASCA 137
;
2011 (1) SA 70
(SCA) para 61. See too
Firstrand
Bank Ltd v Brera Investments CC
[2013] ZASCA 25
;
2013 (5) SA 556
(SCA) para 2.
[4]
MUR Joint Ventures BV v
Compagnie Monegasque De Bank
[2016] EWHC 3107 (Comm).
[5]
Para 5.
[6]
Para 43.