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[1999] ZASCA 15
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Intercontinental Exports (Pty) Ltd v Fowles (85/98) [1999] ZASCA 15; [1999] 2 All SA 304 (A); 1999 (2) SA 1045 (SCA) (23 March 1999)
REPORTABLE
Case No: 85/98
IN THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
In the matter
between:
INTERCONTINENTAL EXPORTS
(PTY) LTD
APPELLANT
and
F T FOWLES
RESPONDENT
CORAM
: MAHOMED CJ, SMALBERGER, HOWIE,
PLEWMAN JJA and FARLAM AJA
DATE OF
HEARING
: 9 MARCH 1999
DELIVERY DATE
: 23 MARCH 1999
Suretyship - formal validity - rectification -
costs.
________________________________________________________
JUDGMENT
________________________________________________________
. . . SMALBERGER JA
SMALBERGER JA:
[1]
The appellant
applied in the Witwatersrand Local Division for default judgment in terms of
rule 31(2)(a) read with rule 31(4) of the
Uniform Rules of Court in respect of
an action instituted by it against the respondent to rectify a deed of
suretyship (“the
suretyship”), payment of the amount claimed to be
due by the respondent in terms of the (rectified) suretyship, interest on
such
amount and costs on the attorney and client scale.
[2] The matter came before
Malan J who refused the application. Leave to appeal was also refused but was
subsequently granted by
this Court on petition to the Chief Justice. At the
hearing of the appeal there was no appearance on behalf of the
respondent.
[3] The suretyship, ineptly adapted from a form apparently used
by a commercial bank, describes the parties as follows in clause 1:
“1.1. Intercontinental Exports (Pty) Ltd, its successors-in-title and
assigns (hereinafter referred to as ‘I.C.E.’)
1.2.
Mr Frank Fowles and Mrs. Linda Fowles c/o 113 Smit Street, Braamfontein,
Johannesburg (hereinafter referred to as ‘the
Debtor’)
and
1.3. The party executing this suretyship as surety and
co-principal debtor or each party executing this suretyship as a surety and
co-principal debtors, as the case may be (hereinafter referred as ‘the
Surety’).”
[4] In the preamble (clause 2) it is recorded:
“that this suretyship is furnished in consideration of I.C.E. allowing the
Debtor or any third party all or any part of whose
present or future
indebtedness to I.C.E. has been or will be guaranteed by the Debtor such banking
facilities as I.C.E. may in its
sole discretion deem fit (either by way of the
continuation of any existing facilities or by the provision of new or further
facilities
or both).”
[5] In terms of clause 3:
“The Suretyship [the word used] binds and interposes himself as surety and
co-principal debtor in solidum for the Debtor’s
indebtedness generally to
I.C.E. howsoever arising including . . .”
The
suretyship is signed at its end by the respondent whose name is given in full as
“Frank Turner Fowles”.
[6] The appellant’s particulars of
claim alleged,
inter alia
, that:
a) A company, Security Depot (Proprietary) Limited (“the company”),
was indebted to the appellant in the sum of R2 178 844,43
in respect
of goods ordered by the company from the appellant between the first quarter of
1996 and April 1997;
b) During or about April 1997 the respondent
bound himself in terms of the suretyship as surety and co-principal debtor for
the company’s
indebtedness to the appellant;
c) The suretyship incorrectly reflected the agreement between the appellant
and the respondent in the following respects:
“4.1 In clause 1.2 thereof Defendant [respondent] is described as the
debtor, whereas the debtor is the
company.
4.2 Plaintiff [appellant] never carried on
business as a bank and it was never the intention of the parties that the
‘suretyship
is furnished in consideration of ICE allowing the Debtor . . .
banking facilities’, as set out in clause 2 thereof.
4.3 It was never
the intention that Defendant would bind himself as surety and co-principal
debtor for his own indebtedness to Plaintiff.”;
d) It was the intention of the parties that the respondent would bind himself to
the appellant as surety for the company’s
indebtedness to the
appellant;
e) The incorrect description in the suretyship of the
debtor as the respondent instead of the company and the incorporation of clause
2 were occasioned by a common error;
f) The appellant was accordingly entitled to rectification of the suretyship
by substituting the words “Security Depot (Proprietary)
Limited” for
the words “Mr Frank Fowles and” where they appear in clause 1.2, and
the deletion of clause 2.
[7] Section 6 of the General Law Amendment Act 50
of 1956 (“the Act”) provides:
“No contract of suretyship entered into after the commencement of this
Act, shall be valid, unless the terms thereof are embodied
in a written document
signed by or on behalf of the surety . . .”
[8] The
“terms” contemplated in section 6 as essential to the validity of a
contract of suretyship include the identities
of the creditor, the principal
debtor and the surety (
Fourlamel (Pty) Ltd v Maddison
1977(1) SA 333 (A)
at 345A - D).
[9] In
Magwaza v Heenan
1979(2) SA 1019 (A) this Court
held that a contract for the sale of fixed property which is formally invalid
(and consequently a
nullity) for want of compliance with section 1(1) of the
General Law Amendment Act 68 of 1957, cannot be rectified (at 1029A - C
read
with 1026A - D). This principle would apply equally to a contract of suretyship
lacking in essential terms. The purpose of
the governing statutory enactment in
each case, namely, to achieve certainty as to the true terms agreed upon and
thus avoid or minimize
the possibility of perjury or fraud and unnecessary
litigation, is the same (
Fourlamel (Pty) Ltd v Maddison
(
supra
) at
343A).
[10] That it is not competent to rectify a contract that is
invalid for non-compliance with statutory formalities must therefore be
taken to
be established law despite the criticism that has been directed at this view
(see eg De Wet en Van Wyk:
Die Suid-Afrikaanse Kontraktereg en
Handelsreg
: 5
th
Ed: Vol 1: 323 ff; Tager:
“Rectification of Invalid Contracts”
(1977) 94 SALJ 8).
On
the other hand, where such formalities have been complied with, rectification is
permissible if the requirements for rectification
have been satisfied (
cf
Litecor Voltex (Natal) (Pty) Ltd v Jason
1988(2) SA 78 (D & CLD);
Lazarus v Gorfinkel
1988(4) SA 123(C)). There are therefore two separate
and distinct enquiries in a matter such as the present. The first relates
to
the formal validity of the deed of suretyship; the second to whether the
requirements for rectification have been satisfied.
The factual allegations
relevant to the second enquiry should not be allowed to impinge on the
first.
[11] Rectification is a well established common law right. It
provides an equitable remedy designed to correct the failure of a written
contract to reflect the true agreement between the parties to the contract. It
thereby enables effect to be given to the parties’
actual agreement. The
requirement of formal validity in the case of a deed of suretyship flows from
the Legislature’s perceived
need to provide safeguards in such matters.
To the extent that the need to satisfy the latter may preclude recourse to the
former,
tension will inevitably exist between the two. While care must be taken
not to defeat the object of the Act, the formality requirements
must not be
allowed to become an unnecessary stumbling-block to rectification and,
consequently, to giving effect to the true intention
of the contracting
parties.
[12] The undisputed averments made by the appellant in its
particulars of claim would permit of rectification of the suretyship provided
the requirements of section 6 of the Act have been complied with. The only
issue on appeal is, therefore, whether the suretyship
identifies a creditor,
principal debtor and surety and is formally valid on that account. If it is, it
is capable of rectification
in the respects claimed by the appellant as its
substantive validity is not in issue. If not, the appeal must fail. This
judgment
is confined to that issue.
[13] The formal validity of a suretyship
agreement must be determined
ex facie
the document embodying the
suretyship undertaking. In
Spiller and Others v Lawrence
1976(1) SA 307
(N) Didcott J, in explaining the difference between a contract which is void for
want of compliance with essential
formalities, and one which is invalid for some
other reason, said the following (at 312B - D):
“The two situations are fundamentally different. In the one . . ., when
the question of validity relates to the substance
of the transaction and not its
form, nullity is an illusion produced by a document testifying falsely to what
was agreed.
In the other . . . the cause of nullity is indeed to be found in
the transaction’s form. When it is said to consist of a failure
to
observe the law’s requirement that the agreement be reflected by a
document with particular characteristics, the document
itself is necessarily
decisive of the issue whether the stipulation has been met; for it has been only
if this emerges from the document
.”
(My
emphasis.)
[14] The above passage from
Spiller
’s case was
referred to with apparent approval by this Court in
Headermans (Vryburg)
(Pty) Ltd v Ping Bai
1997(3) SA 1004 (SCA) at 1010F - H. It also appears to
be in accordance with the approach adopted by this Court in other cases to
the
effect that one is basically confined to looking at the particular suretyship
agreement to see if it contains the required
essentialia
(c
f
Société Commerciale de Moteurs v Ackermann
1981(3) SA 422 (A)
at 438B - 440H;
Du Toit en ‘n Ander v Barclays Nasionale Bank Bpk
1985(1) SA 563 (A) at 570B to 571E).
[15] The learned judge
a quo
found,
inter alia
, that in the suretyship the identity of the surety
“is left in blank” and that a space where the name of the principal
debtor should have been entered was also left blank. I do not propose to review
the provisions of the suretyship in detail. Clause
1.2 of the suretyship, to
which I have referred, clearly identifies “Mr Frank Fowles” as the
principal debtor. The failure
to refer to him again as such in the space left
blank cannot detract from the fact that the suretyship identifies a principal
debtor.
In clause 1.3 the surety has been identified as the party executing the
suretyship. That party, below his signature, is described
as “Frank
Turner Fowles”. The identity of the surety is therefore also established
ex facie
the suretyship. I accordingly disagree with the findings of the
judge
a quo
in this regard. That the suretyship identifies the creditor
(I.C.E.) has never been in dispute.
[16] It was conceded by Mr
Engelbrecht
, who argued the appeal on behalf of the appellant, that where
it appears conclusively from a deed of suretyship that the principal
debtor and
the surety are the same person or legal
persona
, the deed would be
invalid for want of an essential term, because the person or legal
persona
could be either the principal debtor or the surety, but not both,
as one cannot stand surety for one’s own debt (Forsyth and
Pretorius:
Caney’s The Law of Suretyship
: 4
th
Ed: 40). One of the
necessary parties to a suretyship would therefore be lacking. The position
would be the same as if the identity
of either the principal debtor or the
surety were missing. A case in point is
Republican Press (Pty) Ltd v Martin
Murray Associates CC and Others
1996(2) SA 246 (N), where in the deed of
suretyship “Republican Press (Pty) Ltd” featured as both principal
debtor and
creditor. Hurt J, delivering the majority judgment, held (at 251G -
H) that:
“In this case there is no question of the ‘Republican Press (Pty)
Ltd’ cited as the principal debtor, being a different
entity to the
creditor.”
The finding was clearly justified
as there cannot be more than one registered company with the same name. In the
result it was found
that the deed of suretyship lacked formal validity. There
is no reason to doubt the correctness of the majority decision in that
case.
[17] The present situation differs factually from the one with which
the court was confronted in the
Republican Press
case (
supra
).
The principal debtor is referred to in clause 1.2 of the suretyship as “Mr
Frank Fowles”. The name of the surety
is reflected as “Frank Turner
Fowles”. The names, though similar, are not identical, and
ex
facie
the suretyship do not necessarily refer to the same person. Even if
the two names were identical, it would not follow as a matter
of course that
they referred to the same person. The parties might, for instance, be father
and son who happen to have the same
names, a not uncommon occurrence. In those
circumstances, and
a fortiori
in the present, a deed of suretyship would
be capable of being construed
ex facie
the document itself as reflecting
a creditor, principal debtor and surety and would accordingly be formally valid
on that score.
[18] This approach follows a line similar to that taken in
exceptions. An exception ought not to be upheld unless “upon every
interpretation which the pleading in question, and in particular the document on
which it is based, can reasonably bear, no cause
of action or defence (as the
case may be) is disclosed” (
Sun Packaging (Pty) Ltd v Vreulink
1996(4) SA 176 (A) at 183E - F). Likewise a deed of suretyship, in my view,
ought not be held to be formally invalid where
ex facie
the document it
is reasonably capable of an interpretation consistent with validity.
[19] In
the
Republican Press
case (
supra
) Hurt J, confronted with the
argument that where a father and son, both having the same initials (or names),
are respectively stated
to be principal debtor and creditor (or surety) in a
suretyship undertaking, the undertaking could not be presumed to be formally
invalid simply because the principal debtor and creditor were not identified by
two different names, said the following (at 251D
- G):
“It seems to me that there are two conclusive answers to this proposition.
The first is that if there
are
indeed two parties to the suretyship
undertaking who have identical names, there will be no need for a rectification
of the document
and those parties would presumably be cited, and separately
identified, in any proceedings in which the document and the question
of its
enforceability may come before the Court. If it were pleaded, in such a case,
that the document was invalid for non-compliance
with s 6, that plea could be
disposed of by a replication to the effect that the identical names referred to
two different juristic
personae
. The second is that evidence would be
admissible for the limited purposes of identification of the parties to the
undertaking, provided
always that the evidence does not encroach into the
prohibited territory demarcated by the parol evidence rule. (See
Sapirstein
and Others v Anglo African Shipping Co (SA) Ltd
1978(4) SA 1 (A) at 12D.)
It seems to me that such evidence would be admissible
ante omnia
in any
situation where there is doubt as to whether the document refers to three
separate parties to the contract of
suretyship.”
[20] With regard to the first answer, it
seems to proceed from the premise that the suretyship undertaking is formally
valid. With
regard to the second, the envisaged evidence would be admissible
not to establish the document’s formal validity, but to give
effect to an
otherwise valid suretyship. It would, for example, permit extrinsic evidence to
be led to identify the actual creditor,
principal debtor or surety, as the case
may be, from among a group of such named in the written document (see
Sapirstein
’s case referred to in the above quotation at 12E - H;
cf
Federated Timbers (Pretoria) (Pty) Ltd v Fourie
1978(1) SA 292
(T) at 298F - H). To that extent the quoted passage is not inconsistent with
the views expressed above. If by the
last sentence is meant that evidence could
be led to show, contrary to what appears
ex facie
the document, that a
suretyship undertaking lacks formal validity (eg to show that two of the parties
are the same) I would respectfully
disagree. It is for that reason that regard
cannot be had to the undisputed allegation in paragraph 4.1 of the Particulars
of Claim
that the respondent is the person described in the suretyship as the
principal debtor in determining the issue of formal validity.
[21] In the
result I am of the view that the suretyship was formally valid and that the
appellant is entitled to rectification and
default judgment as
prayed.
[22] The appellant asks for attorney and client costs both in the
court
a quo
and on appeal. It relies in this respect on clause 5 of the
suretyship which provides,
inter alia
, for unlimited liability on the
part of the surety (respondent) and “costs of recovery on the attorney and
client scale”.
This raises the question whether a court is obliged to
give effect to such an agreement or whether it retains a residual discretion
with regard to costs.
[23] In
Claude Neon Lights (SA) Ltd v Peroglou
1977(1) SA 575 (C) it was held (at 578C) that parties cannot by agreement
deprive a court of the discretion it has in regard to costs.
However, reliance
for that proposition appears to have been placed on a decision where that was
assumed, not decided. In
Western Bank Ltd v Meyer; De Waal; Swart and
Another
1973(4) SA 697 (T) the Full Court proceeded on the premise that
agreement could not deprive it of its discretion as to costs (at
701C - G). In
Santam Bank Bpk v Kellerman
1978(1) SA 1159 (C), after a review of the
relevant authorities, the Full Court (
per
Grosskopf J) pointed out (at
1162A) that there existed “`n mate van onsekerheid... of die Hof `n
residuêre bevoegdheid
oorhou om te weier om so `n ooreenkoms af te
dwing”. The learned judge added: “Persoonlik vind ek dit moeilik om
`n
beginselgrondslag vir so `n bevoegdheid te vind”.
[24] In
Sapirstein
’s case (
supra
, at 14E - F) this Court left open
the question of whether or not a court retains a residual discretion in the face
of an agreement
with regard to costs. Earlier in the judgment (at 14A - D) it
had been said:
“Generally speaking, awards of costs are, of course, in the discretion of
the Court and that discretion must be judicially
exercised whenever the need
arises. But, accepting this to be the position, I am of the view that there can
be no objection, in
principle, to a Court giving effect to an agreement between
parties concerning their liability for legal costs arising out of a dispute
between them. It is commonplace for parties to enter into agreements of this
sort - for example, parties often agree that each party
shall pay his own costs,
or that no award as to costs shall be made, or that a party’s liability
for costs shall be limited
to a particular amount, and so on - and for the
Courts to make awards in terms of such agreements. In the present instance the
plaintiff, in stipulating that costs should be paid on the attorney and client
basis, obviously wanted to ensure that it would not
be out of pocket in respect
of any legal costs incurred in connection with disputes arising out of the
agreement. The purpose of
an award of costs is to indemnify a party ‘for
the expense to which he has been put through having been unjustly compelled
either to institute or defend litigation, as the case may be’ (
per
Innes CJ in Texas Co (SA) Ltd v Cape Town Municipality
1926 AD 467
at 485)
and, if a contracting party wants to ensure that he is fully indemnified against
such expenses, there is, in my view, no
reason why he should not be entitled to
stipulate that such costs, if incurred, should be paid on the attorney and
client scale.”
[25] The basic rule is that, statutory
limitations apart, all costs awards are in the discretion of the court
(
Kruger Bros & Wasserman v Ruskin
1918 AD 63
at 69, a decision which
has consistently been followed). The court’s discretion is a wide,
unfettered and equitable one.
It is a facet of the court’s control over
the proceedings before it. It is to be exercised judicially with due regard to
all
relevant considerations. These would include the nature of the litigation
being conducted before it and the conduct of the parties
(or their
representatives). A court may wish, in certain circumstances, to deprive a
party of costs, or a portion thereof, or order
lesser costs than it might
otherwise have done, as a mark of its displeasure at such party’s conduct
in relation to the litigation.
Is it to be precluded by agreement from doing
so? A court should not be obliged to give its imprimatur to an order of costs
which,
in the circumstances, it considers entirely inappropriate or undeserved.
In my view, as a matter of policy and principle, a court
should not, and must
not, permit the ouster of its discretion because of agreement between the
parties with regard to costs.
[26] Because a court exercises its discretion
judicially, not capriciously, it would normally be bound to recognise the
parties’
freedom to contract and to give effect to any agreement reached
in relation to costs. But good grounds may exist, depending upon
the particular
circumstances, for following a different course. This might result, on a proper
exercise of discretion, in a party
being deprived of agreed costs, or being
awarded something less in the way of costs than that agreed upon.
[27] As
pointed out in
Sapirstein
’s case (
supra
) at 14C, the purpose
of an award of costs is to indemnify a party. By stipulating for attorney and
client costs a party seeks even
greater indemnity for costs incurred through
having to pursue a claim in court. In the present instance the appellant, in
order
to obtain judgment against the respondent, was obliged to come to court in
order to have the suretyship rectified. This was occasioned
by its own
ineptitude in using an inappropriate form for the deed of suretyship and then
having it completed in respects which did
not properly reflect what had been
agreed upon. While there might have been some fault on the respondent’s
part in signing
the suretyship in that form, it was of a much lesser degree than
that of the appellant. The respondent did not oppose either the
relief sought
in the court below or the appeal. It was through no fault of the respondent
that the court
a quo
found against the appellant on an issue which,
largely through its own doing, it was obliged to take to court and thereafter on
appeal.
In the circumstances good grounds exist, in the exercise of our
discretion, for not giving effect to the agreement in the suretyship
relating to
attorney and client costs, and for awarding costs only on the party and party
scale.
[28] The following order is made:
1) The appeal is allowed with costs.
2) The order of the court
a quo
is set aside and there is substituted in
its stead the following:
“There will be judgment in favour of the plaintiff against the defendant
for:
(a) An order rectifying the deed of suretyship, annexure ‘WL1' to the
particulars of claim, by the substitution of the words
‘Security Depot
(Proprietary) Limited’ for the words ‘Mr Frank Fowles and’
where they appear in clause 1.2
thereof and by the deletion of clause 2 thereof
in its entirety;
(b) Payment of the amount of R2
178 844,43;
(c) Interest at the rate of 24% per annum on the amount of
R2 178 844,43 from 1 August 1997 to date of payment;
(d) Costs of suit
on the party and party scale.”
____________________
J W SMALBERGER
JUDGE OF APPEAL
MAHOMED CJ )concur
HOWIE
JA )
PLEWMAN JA )
FARLAM AJA )