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[2019] ZASCA 81
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Moss and Another v KMSA Distributors (Pty) Ltd (673/2018) [2019] ZASCA 81 (31 May 2019)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 673/2018
In
the matter between:
EDMUND
HAROLD
MOSS FIRST
APPELLANT
FRANCOIS
DE
LANGE SECOND
APPELLANT
and
KMSA
DISTRIBUTORS (PTY)
LTD RESPONDENT
Neutral
citation:
Moss & another v
KMSA Distributors
(673/2018)
[2019]
ZASCA 81
(31May 2019)
Coram:
Wallis, Dambuza and Makgoka JJA and
Plasket and Weiner AJJA
Heard:
16 May 2019
Delivered:
31 May 2019
Summary:
Suretyship – interpretation –
principles relating to interpretation of contracts apply –
agreement comprising
more than one document – all documents
must be considered.
ORDER
On
appeal from
:
Gauteng
Division of the High Court, Pretoria (Khumalo J sitting as court of
first instance):
1 The appeal is upheld with costs.
2 The order of the high court is set
aside and is replaced with the following order:
‘
The
application is dismissed with costs.’
JUDGMENT
Dambuza
JA (Wallis and Makgoka JJA and Plasket and Weiner AJJA concurring):
[1]
The two appellants, Mr Edmund Harold Moss and Mr Francois De Lange
appeal against a judgment of the Gauteng Division of the
High Court,
Pretoria (Khumalo J) in terms of which they were ordered to pay the
respondent, KMSA Distributors (Pty) Ltd (KSMA),
an amount of R3
million based on a suretyship they had executed in favour of KMSA. At
the heart of the proceedings, in both the
high court and this court,
was the issue whether the suretyship covered liabilities arising
under two agreements, a sale agreement
and a dealership (dealer)
agreement, which KMSA had concluded with Express Motor Trading 284
(Pty) Ltd (EMT), or it was limited
to the dealer agreement. The
appeal is with leave of the high court.
Background
[2]
In an agreement of sale concluded on 17 October 2011, KMSA sold to
EMT, a business known as the ‘Mean Machines’,
which dealt
in the sale, repair and maintenance of motorcycles, and accessories.
About nine months thereafter, on 27 July 2012,
the two companies
concluded a second agreement, the dealer agreement, in terms of which
KMSA, as the distributor, appointed EMT
(the dealer), as an
independent retail outlet of its products.
[1]
Five
documents were annexed to the dealer agreement – a ‘dealer
information’ sheet, a pro-forma extract of minutes
of a meeting
of directors of the dealer, a list of suppliers, the deed of
suretyship executed by the appellants in favour of KMSA,
and a
document which embodied the terms and conditions of payment. The deed
of suretyship was annexure 4 to the dealer agreement.
The
dispute
[3]
In April 2013 KMSA instituted arbitration proceedings against EMT
through the Arbitration Foundation of Southern Africa, claiming
an
amount of R11 824 221.60 which consisted of various amounts relating
to unpaid rental in respect of the premises from which
the business
to which the sale agreement related, was conducted. Whilst the
arbitration proceedings were pending, on 10 December
2013, EMT was
placed under voluntary liquidation at the instance of the appellants.
By this time the amount claimed had been reduced
to R5 004 059.71.
Nevertheless, the arbitration proceedings continued. A year later, on
10 December 2014, the claim in the arbitration
proceedings was
settled, with the liquidators of EMT admitting liability in the
amount of R3 million. An arbitration award was
made accordingly on 24
December 2014. Four months thereafter, that award was made an order
of court.
The
high court proceedings
[4]
On 10 July 2015, KMSA launched an application in the high court
against the appellants for payment of the amount of R3 million
in
terms of the deed of suretyship. It is against this background that
the high court granted the judgment against the appellants.
The high
court rejected the appellants’ attempt to challenge the
existence and enforceability of the principal debt against
them. It
found that that the issue was res judicata. In their opposition to
the application the appellants had contended that it
remained open to
them to challenge the enforceability of the principal debt as they
were never party to the arbitration proceedings
and were therefore
not bound by the settlement agreement concluded between KMSA and
EMT’s liquidators. The high court also
rejected the appellants’
contention that the suretyship related only to the sale agreement and
not the dealer agreement and
thus did not cover the debt. In this
regard, the appellants had argued that, on a proper interpretation of
the suretyship, its
operation was restricted to the dealer agreement
of which it was part. The high court found that although ‘the
genesis of
the suretyship may have been the dealer agreement …the
ultimate …nature and extent of [the appellants’]
obligations
[was] to be read from the undertaking or ascertained from
the surety agreement.’
Submissions
on appeal
[5]
The defences raised by the appellants in the high court formed the
basis of their appeal. Regarding the non-enforceability of
the
principal debt against them, it was submitted on their behalf that,
on the common cause evidence, the sale agreement from which
the debt
allegedly originated, did not come into existence because none of the
suspensive conditions therein were ever fulfilled.
[2]
They
contended that they were not precluded from challenging the principal
indebtedness, as the judgment did not result in a new
cause of action
or novation of the original sale agreement; it was merely an
enforcement of rights in terms thereof. Further, the
suretyship had
to be interpreted as part of the dealer agreement, of which it was
part. It was also submitted on behalf of the
appellants that any
conflict between the deed of suretyship and clause 17 of the dealer
agreement should have been resolved as
provided in clause 2.1.17 of
that agreement.
[6]
As to the appellants’ right to challenge the principal debt,
the respondent contended that in terms of the suretyship
the
appellants bound themselves as sureties for debts other than the
original debts, including performance under settlement agreements,
arbitration awards, and court orders. Regarding the issue whether the
suretyship covered obligations arising from the sale agreement,
the
respondent contended that the dealer agreement and the deed of
suretyship should be interpreted as two independent contracts.
The
terms of the suretyship were sufficiently wide to include liability
under the sale agreement. Moreover, the provisions of clause
17 of
the dealer agreement were legally otiose. Furthermore there was no
privity of contract between the appellants and KMSA in
relation to
the dealer agreement.
Discussion
[7]
It is proper to first determine the issue whether the suretyship
covered obligations arising under the sale agreement. This
is because
the suretyship was the only basis for the claim against the
appellants. If it did not cover obligations arising under
the sale
agreement (including the principal debt), that was the end of the
matter. The issue requires interpretation of the suretyship
to
ascertain whether it covered both the dealer and the sale agreements
or only one of them.
[8]
It is trite that the exercise of interpreting a suretyship contract
invokes the application of the same principles relating
to
interpretation of contracts.
[3]
Those
principles are well established. In
Bekker
NO v Total South Africa (Pty) Ltd
[4]
Kriegler J
described them as follows:
‘
The
interpretation of a written document is not an exercise in the
arcane. It is a logical process in which the interpreter seeks
the
intention of the draftsman as embodied in the instrument. The mutual
intention of the parties to a bilateral contract is, of
course, an
abstraction. The primary method to find out what the abstraction was
is to ask: What did the parties say? That does
not mean picking away
at words like a guinea-fowl down a row of maize seed. One looks at
the language used with both sense and
perspective.’
[9]
In
SA
General Electric Co (Pty) Ltd v Sharfam & others NNO
[5]
the court
held that:
‘
The
ordinary suretyship is usually in respect of a particular debt or
obligation. It is accessory to the transaction that creates
the
obligation of the principal debtor. . . The duration of the surety's
liability depends upon the terms of the deed of suretyship.
Some
suretyships are intended to cover a single credit and transaction
only, while others, called continuing guarantees, are framed
so as to
apply to a series of credits and transactions. In the case of a
single credit and transaction the surety's liability extends
only to
one credit or transaction agreed upon, while in the case of a
continuing guarantee the liability endures until the credits
and
transactions contemplated by the parties, and covered by the
guarantee, have been exhausted or until the guarantee itself has
been
revoked.’
[10]
In
Privest
Employee Solutions (Pty) Ltd v Vital Distribution Solutions (Pty)
Ltd
[6]
this court
held that when construing an agreement comprising more than one
document, one must consider all the terms used by the
parties in all
the documents to determine the meaning thereof. Terms in a subsidiary
document can prescribe how the terms in the
main document are to be
construed. In this case, that principle was embodied in the dealer
agreement under clause 2.1.7 in the
following terms:
‘
Annexures
to this agreement [form] part of the agreement and will not be
interpreted in a separate manner or be separated from this
agreement
for construction of a different meaning.’
[11]
As annexure 4 to the dealer agreement the deed of suretyship was, in
express terms, part of the composite dealer agreement.
In it the
appellants gave undertakings as follows:
‘
SURETIES
We
the undersigned, (Sureties”) each bind ourselves jointly and
severally to the Creditor (KMSA) as sureties for and co-principal
debtors jointly and severally with each and every one of the other
Sureties, in relation to each of the undertakings as surety
and
co-principal debtor
for
the performance on demand of all obligations of whatsoever nature and
howsoever arising (whether in contract or delict or any
other cause
whatsoever) which the Dealer (“the Debtor”) may presently
or in the future owe to the Creditor whether
jointly or severally or
to their successors in title or assigns.
’
(My emphasis)
[12]
Clause 17 of the main dealer agreement incorporated the deed of
suretyship into the principal contract as follows:
‘
SURETYSHIP
The
sureties as set out in Annexure 4 hereto do thereby interpose and
bind ourselves as Sureties and Co-Principal Debtors, jointly
and
severally and each in solidum to KSMA DISTRIBUTORS (PTY) LTD T/A
KAWASAKI MOTORS SOUTH AFRICA it[s] order or assigns for fulfilment
of
any of the Dealer[’s] obligations or duties
under
this agreement.
’
(My emphasis)
[13]
It was in as far as the appellants bound themselves for the
performance ‘of all obligations of whatsoever nature and
howsoever arising…’ that KMSA contended, and the high
court held them liable for obligations arising from the sale
agreement. To reach this conclusion the high court did not interpret
the deed of suretyship as annexure 4 of the dealer contract.
It found
it to be ‘separate from the principal agreement.’ This
was contrary to the principles of interpretation set
out above –
that a contract must be interpreted comprehensively, giving effect to
the words used by the parties in all the
documents.
[14]
The interpretation of the high court ignored clause 17 of the
principal contract, which expressed the clear intention of the
parties in relation to the suretyship. It isolated the deed of
suretyship, treating the undertakings given thereunder as independent
commitments that were enforceable, either on their own or by being
attached to any transaction between the parties. This was untenable.
A suretyship is, by its nature, an accessory contract.
[7]
For there to
be a valid suretyship there has to be a valid principal agreement.
[8]
The
suretyship in this case could therefore not be independent of the
dealer agreement. The interpretive exercise only entailed
identifying
from the wording of the composite agreement the principal obligations
to which the suretyship related.
[15]
The words ‘under this agreement’ in clause 17 of the
agreement were a clear expression of the parties’ intention
to
limit the application of the suretyship to any indebtedness arising
under the dealer agreement. The reference to ‘obligations
of
whatever nature…’ in the deed of suretyship were simply
intended to refer to such obligations in as far as they
arose from
the dealer agreement. The description of KMSA as the ‘creditor’
and reference to the ‘dealer’
in the deed of suretyship
are consistent with the interpretation that the parties had in mind
the dealer agreement when the suretyship
was executed. Clause 1.1.15
of the dealer agreement clearly states that all annexures (and thus
the suretyship) are included in
the definition of the agreement and
accordingly form part of the agreement. Although the deed of
suretyship is undated, one can
only infer from the documents that it
was executed at the same time as the dealer agreement, at least nine
months after the conclusion
of the sale agreement. Such timing also
supported the interpretation that it was only intended to cover
obligations that would
arise from the dealer agreement. In as far as
it was intended to be a continuing suretyship such enduring nature
was limited to
obligations that related to the dealer agreement.
[16]
Contrary to the submission on behalf of KMSA that clause 17 was
otiose, careful consideration of that clause together with
the deed
of suretyship revealed the specific reason for its inclusion in the
principal agreement. Careful consideration of the
two documents also
showed that there was no conflict between clause 17 and the deed of
suretyship. Even if there was, the relevant
principle of
interpretation is that where a contract is contained in more than one
document and an inconsistency arises between
them such inconsistency
must be reconciled, as would inconsistency within a single document.
Inconsistencies may be resolved in
different ways; for example, the
contract may set out the priority of the documents or oral evidence
may be led to explain certain
terms.
[9]
Again clause
2.1.17 of the dealer agreement is instructive.
[17]
The fact that the appellants were not party to the dealer agreement
was irrelevant to the interpretation of the suretyship.
They did
assume obligations under the dealer agreement in terms of the
suretyship.
[18]
Given the conclusion that the suretyship only covered obligations
arising under the dealer agreement, it is unnecessary to
deal with
the rest of the arguments made on appeal.
[10]
[19]
Consequently the following order is made:
1 The appeal is upheld with costs.
2 The order of the high court is set
aside and is replaced with the following order:
‘
The
application is dismissed with costs.’
_________________
N Dambuza
Judge of Appeal
APPEARANCES:
For
Appellant:
Adv G F Heyns
Instructed
by:
Krügel Heinsen
Inc, Witbank
Phatshoane Henney
Attorneys, Bloemfontein
For
Respondent:
Adv H P West
Instructed by:
Malherbe Rigg &
Ranwell Inc, Boksburg
Symington & De
Kok Attorneys, Bloemfontein
[1]
Clause 1 (the definitions section) of the Dealer agreement defines
‘products’ as ‘the authentic products and
product
range which the Distributor (KMSA) may from time to time distribute
on behalf of any Manufacturer or Supplier, and which
the Distributor
will make available to the Dealer’.
[2]
Clause 2 of the sale agreement provided for suspensive conditions.
In terms thereof the agreement was subject to approval thereof
by
the boards of directors of the purchaser, the seller, and Associated
Motor Holdings (Proprietary) Limited. It was also subject
to the
seller obtaining the written consent of the lessor of the leased
premises to the cession of the lease agreement to the
purchaser.
That clause also provided that in the event of the conditions
precedent not being fulfilled by the completion date
or such later
date as the parties might agree to in writing, the provisions
of the agreement would automatically lapse
and be of no further
force and effect.
[3]
Forsyth CF & Pretorius JT;
Caney’s
The Law of Suretyship
; 5
th
ed; at 82.
[4]
Bekker
NO v Total South Africa (Pty) Ltd
1990 (3) SA 159
(T) at 170G-H. See also
Airports
Company South Africa v Big Five Duty Free (Pty) Ltd & others
[2018] ZACC 33
;
2019 (2) BCLR 165
(CC) para 29.
[5]
SA
General Electric Co (Pty) Ltd v Sharfam & others NNO
1981 (1) SA
592
(W) at 595.
[6]
Privest
Employee Solutions (Pty) Ltd v Vital Distribution Solutions (Pty)
Ltd
2005 (5) SA 276
(SCA)
paras 22 and 23.
[7]
Kilroe-Daley v
Barclays National Bank Limited
[1984] ZASCA 90
;
1984 (4) SA 609
(A) at 623I-624G.
[8]
Caney supra at 28.
[9]
Bradfield GB;
Christie’s
Law of Contract
; 7
th
ed; at 252.
[10]
These
arguments concerned the effect of the judgment on the arbitration
award and relied on
Bulsara
v Jordan and Co Limited (Conshu Limited)
[1995] ZASCA 106
;
1996 (1) SA 805
(A).