Muller and Others v Botswana Development Corporation Ltd (106/2001) [2002] ZASCA 65; [2002] 3 All SA 663 (SCA) (31 May 2002)

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[2002] ZASCA 65
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Muller and Others v Botswana Development Corporation Ltd (106/2001) [2002] ZASCA 65; [2002] 3 All SA 663 (SCA); 2003 (1) SA 651 (SCA) (31 May 2002)

IN THE SUPREME COURT OF
APPEAL
OF SOUTH AFRICA
Reportable
Case
number:
106/2001
In
the matter between:
GEORGE
STEWART MULLER
First Appellant
GREGORY STEWART MULLER
Second
Appellant
MARIA
AUGUSTA MANZONI
Third Appellant
and
BOTSWANA
DEVELOPMENT CORPORATION LIMITED
Respondent
CORAM
:
HOWIE,
MPATI JJA and LEWIS AJA
HEARD
:
14
MAY 2002
DELIVERED
:
31
MAY 2002
Summary
: Principal
and surety – actions against surety – summary judgment – surety
raising defence that principal debtor in separate
action had illiquid
counterclaim against creditor for amount exceeding creditor’s claim
and involving set-off – opposing affidavit
to comply with Uniform
Rule 32(3)(b) and disclose valid counterclaim.
___________________________________________________________________
JUDGMENT
___________________________________________________________________
MPATI JA:
[1]
The issue in this appeal,
as formulated by counsel for the appellants at the commencement of
his argument, is whether, as a matter
of law, a surety is entitled to
rely on an unliquidated counterclaim to be instituted by the
principal debtor against the creditor
to stave off a claim instituted
by the creditor against the surety. If the answer is in the
affirmative the further issue is whether
on the facts the present was
a proper case for the court
a quo
, in the exercise of its
judicial discretion, to have granted summary judgment.
[2]
The respondent instituted
action against the appellants for payment, by each of them, of the
sum of Botswana P1 500 000.00 or the
Rand equivalent thereof,
together with interest and costs. The claims arise from separate
deeds of suretyship in terms of which
the appellants individually
bound themselves, up to the sum claimed, as sureties and co-principal
debtors with Trans Africa Plastics
(Pty) Ltd (the principal debtor),
a company of which they were directors, for the due and punctual
performance by the principal debtor
of all its obligations to the
respondent. The principal debtor’s indebtedness to the respondent
is not disputed. It arose from
a loan agreement entered into between
the respondent and the principal debtor at Gaborone, Botswana, in
terms of which the respondent
lent and advanced to the principal
debtor the total sum of P1 500 000.00. It appears from the
particulars of claim that at
the time of the institution of the
action the amount of the debt, including interest, totalled
P1 677 087.34.
[3]
When the appellants filed
a notice of intention to defend the action the respondent applied for
summary judgment, which the appellants
opposed. The opposing
affidavit was deposed to by the first appellant on behalf of himself
and the other two appellants. It is
stated therein that:
“
4. As will appear from what follows the defendants
deny liability to the plaintiff on the basis that the principal
debtor … has
a bona fide counterclaim against the plaintiff which
[it] intends to institute by way of counterclaim in proceedings
currently pending
between the plaintiff and the [principal] debtor in
the High Court of Botswana …. In that action the plaintiff claims
payment
from the [principal] debtor of the amount allegedly owing by
the [principal] debtor to the plaintiff in terms of the loan
agreement
forming the subject matter of the present action.
5. … In my respectful submission the issue of the
[principal] debtor’s counterclaim ought first to be determined in
the proceedings
in the High Court of Botswana since should the
[principal] debtor be successful in establishing its counterclaim it
will in such
event be entitled to set off its claim against the
plaintiff and thereby extinguish the plaintiff’s claim in toto ….”
The appellants then allege that they “will accordingly
seek an order staying the current action pending the determination of
the
proceedings between the [respondent] and the [principal] debtor
in Botswana”. In essence then, the appellants sought an
opportunity
to enable them, in effect, to raise a defence of set-off.
They allege that should the principal debtor succeed in establishing
its
counterclaim it will be entitled to set off its claim against the
respondent, thereby extinguishing the respondent’s claim and,
with
it, the suretyship debt.
[4]
The facts giving rise to the alleged
counterclaim are the following. Firstly, it is alleged that in
making funds available in terms
of the loan agreement the respondent
did not advance the moneys “in accordance with what was required of
it”; that apart from
delays in advances the respondent only
provided working capital finance against suppliers’ invoices. The
principal debtor was
accordingly unable to expend money on capital
equipment, which resulted in it suffering loss of profit “by virtue
of it not being
able to source requisite capital equipment”.
Secondly, the appellants allege that the respondent obtained an order
from the High
Court of Botswana,
ex parte
, and on false
allegations, interdicting the principal debtor from “alienating,
disposing and/or otherwise removing” the principal
debtor’s
movable assets, which, it would appear, were essential for the
operation of its business. The effect of the execution
of the order,
so it is alleged, was to prevent the principal debtor from carrying
on its business “so that it was compelled to
immediately cease
trading”, thereby destroying the business in its entirety,
resulting in substantial loss to the principal debtor.
[5]
Despite the appellants’ opposition the
court
a quo
(Griesel J) granted summary judgment. He
subsequently granted leave to the appellants to appeal to this Court.
[6]
The general rule relating to sureties is that
a surety may rely on any defence which is open to the principal
debtor, provided such
defence arises upon the obligation (one
in
rem
) and not from some personal privilege granted to the debtor
(a defence
in personam
) (
Ideal Finance Corporation v
Coetzer
1970 (3) SA 1
(A) at 11G-12F). The defence of
compensation or set-off is one
in rem
and is thus available
against a creditor to both the principal debtor and his surety
(
Standard Bank of SA Ltd v SA Fire Equipment (Pty) Ltd and Another
1984 (2) SA 693
(C) at 696G-697H;
J R & M Moffett
(Pty) Ltd v Kolbe Eiendoms Beleggings (Edms) Bpk and Another
1974
(2) SA 426
(O) at 432 C-D).
[7]
But what about an unliquidated claim for
damages which the principal debtor has against the creditor?
Rose-Innes J in the
Standard Bank
case,
supra
, says the
following in this regard (at 698 F-H):
“
A claim in reconvention is a cross-action. It is
not a plea or answer or defence to an action. In particular, a claim
for unliquidated
damages is in law incapable of set-off. While a
surety may avail himself of the defence that the debt of the
principal debtor has
been discharged by set-off against a debt owed
by the creditor to the principal debtor, it does not follow that a
surety may avail
himself, without cession of action, of a claim which
the principal debtor has for unliquidated damages against the
creditor. It
is quite clear that, since a counterclaim for damages
cannot discharge a debt by set-off, it cannot release either the
principal
debtor or the surety from their liability for the debt owed
to the creditor. It is only when a counterclaim is liquidated by
judgment
at the end of the litigation that the judgment debt for
damages may be brought into compensation so as to discharge or reduce
the
debt due to the creditor, so releasing both the principal debtor
and the surety from their liability for the debt.”
It was in reliance on this passage that Griesel J held,
in the present matter, that the appellants were unable “in these
proceedings
to rely on the alleged unliquidated counterclaim” by
the principal debtor.
[8]
Although the raising of an illiquid
counterclaim may not in strict law be a defence to an admitted claim
in convention, since a claim
for unliquidated damages is in law
incapable of set-off, the common law and the practice of the courts
has been to allow a defendant,
at least where the counterclaim
exceeds the claim in convention, to plead such counterclaim in
anticipation of it becoming liquidated
by judgment in the action
(
Hesse and Ritter v Louw
1930 SWA 92;
Hipkin v Nigel
Engineering Works (Pty) Ltd
1941 TPD 155
;
Abbott and Another
v Nolte
1951 (2) SA 419
(C) at 424A-426A;
Du Toit v De Beer
1955 (1) SA 469
(T) at 472A-474C). The purpose of the practice is
obvious; it is “to avoid a multiplicity of consecutive actions …
and, where
possible and just, to dispose of all issues, claims and
counterclaims between the same litigants in one and the same trial in
order
that there should be an end to litigation” (
Standard Bank
v SA Fire Equipment
,
supra
, at 699B-C). The practice has
been entrenched by Rule 22(4) of the Uniform Rules of Court, in terms
of which the courts have a discretion
whether or not to allow it.
And where it has been allowed, the effect thereof is not that the
plea now amounts to a defence to the
admitted claim, but merely to
allow a dilatory plea that a defence of set-off will arise when
judgment is ultimately given in the
case in which both the claims in
convention and reconvention are being adjudicated upon.
[9]
There are conflicting decisions on the issue
whether the procedure, as enshrined in Uniform Rule 22(4), is
available to a surety
who does not rely on a counterclaim of his own
against the creditor. In the
Standard Bank
case Rose-Innes J
held that it is, while Erasmus J in the
J R & M Moffett
case held a contrary view. The conclusion of Erasmus J was arrived
at through a consideration of the introductory words in the English
and Afrikaans versions of the Rule. Both he and Rose-Innes J
(in the
Standard Bank
case) are at one that the English
version is wider than its Afrikaans equivalent. The English version
(the introductory words) reads:
“
If by reason of any claim in reconvention
, the
defendant claims that on the giving of judgment on such claim the
plaintiff’s claim will be extinguished in whole or in part
…”;
while the Afrikaans text reads:
“’
n Verweerder wat ‘n teeneis het
wat, as
dit slaag, die eiser se eis geheel of gedeeltelik sal uitwis ….”
Erasmus J held that the narrower meaning, which is
common to both versions, i.e. that of the Afrikaans version, must be
adopted.
He accordingly concluded that Rule 22(4) is confined to a
defendant who has filed a counterclaim of his own (at 431E-F).
Rose-Innes
J (in
Standard Bank
) on the other hand, arrived at
his conclusion on the basis that the law “is that all the defences
of the principal debtor, save
personal defences, are available to the
surety and co-debtor”, and that it would therefore be anomalous if
the effect of Rule 22(4)
were to preclude, as a matter of pleading,
the setting up of a defence which a defendant has as a matter of law.
[10]
In
Inter Industria Bpk v Nedbank Bpk en
‘n Ander
1989 (3) SA 33
(NC) Steenkamp J expressly declined to
follow the view taken by Erasmus J in the
J R & M Moffett
case and preferred that of Rose-Innes J in the
Standard Bank
case. In the present matter the court
a quo
held that the
provisions of Rule 22(4) cannot be relied upon in circumstances where
“the counterclaim (if any) lies on behalf of
a different defendant
in a different forum”.
[11]
In the view I take of this matter it is
unnecessary to express a firm view on the issue and I expressly
refrain from doing so. Suffice
it to say, however, that the view
taken by Rose-Innes J in the
Standard Bank
case and followed
by Steenkamp J in
Inter Industria v Nedbank
is the more
attractive. If that view is correct, there seems to be no reason for
differentiating between cases where the principal
debtor and the
surety have been sued together in one action or where they have been
sued separately and in different
fora
. As I have stated,
however, it is not necessary to express a firm view on these matters.
I shall accept, for present purposes,
that a surety and co-principal
debtor can, on these facts, avail himself of the provisions of Rule
22(4) and thus that the appellants
in the present case were entitled
to request that judgment in the respondent’s claim be postponed
until judgment in the principal
debtor’s claim in reconvention to
be instituted in the High Court of Botswana against the respondent
has been given.
[12]
Turning to the contents of the opposing
affidavit, the proceedings before the court
a quo
being an
application for summary judgment, the issue is not whether the
defence to be raised is likely to succeed or fail, but merely
whether
it is
bona fide
. As such, the opposing affidavit must
disclose fully the nature and grounds of the defence (here, in the
sense of a valid counterclaim
by the principal debtor) and the
material facts relied upon therefor (Rule 32 (3)(b)). The nature of
the defence to be raised is
an alleged claim for loss of profit,
which can arise in this case only from a contractual breach on the
part of the respondent or
from a negligent performance of its
obligations in terms of the loan agreement.
[13]
The appellants allege in the opposing
affidavit that apart from delays in advances the respondent only
provided working capital finance
as against suppliers’ invoices.
This resulted in the principal debtor being unable to expend moneys
on capital equipment. The
alleged delays in advances are
unspecified. There is no allegation that they were unreasonable and
therefore in breach of the respondent’s
obligations in terms of the
loan agreement. The bald statement that there were delays in
advances does not constitute material facts
to be relied upon for the
alleged claim for loss of profit. The inability of the principal
debtor to expend moneys on capital equipment
is merely a consequence
of the alleged delays in giving advances.
[14]
Equally lacking in substance is the
allegation that the respondent “only provided capital finance as
against suppliers’ invoices”.
Again there is no allegation that
this was in breach of the respondent’s obligations in terms of the
loan agreement. Clause 7.5
of the loan agreement provides that:
“
A disbursement of the Loan or parts thereof shall be
by way of cheque or bank draft either to:-
7.5.1 the COMPANY as part of its working capital, in
which case such payment shall be effected directly to the COMPANY’s
bank account:
or
7.5.2 the suppliers of goods and/or services to the
COMPANY against specific invoices unless otherwise agreed to in
writing by [the
respondent] and copies of receipts from any such
suppliers shall be furnished in each case by the COMPANY to [the
respondent] which
may decline to permit further disbursements from
the Loan until any outstanding receipts as aforesaid are furnished by
the COMPANY.”
On the face of it, it appears that the respondent had a
choice to act either in terms of clause 7.5.1 or 7.5.2. I mention
this merely
by way of illustration. There is no substantiation as to
the nature of the breach, if any. To my mind no material facts have
been
set out in the opposing affidavit upon which reliance can be
placed for an alleged claim for loss of profit.
[15]
The second alleged cause of action arises
from an interim order obtained from the High Court of Botswana,
inter
alia
, prohibiting the principal debtor from removing or disposing
of certain listed items of movable property from its premises and
authorising
the respondent to place a security guard at the premises
to ensure compliance with the order. The effect of the execution of
the
order, so it is alleged, was to prevent the principal debtor from
carrying on its business and it was accordingly compelled, by virtue
of the execution of the order, to immediately cease trading. Apart
from the fact that it has not been alleged that the respondent
acted
contrary to the court order, I fail to appreciate how a prohibitory
order in the terms just mentioned could have caused the
principal
debtor to cease trading. Once again the allegation lacks substance.
And as was correctly pointed out by counsel for the
respondent, the
principal debtor was in any event entitled, in terms of the order, to
anticipate the return day on 24 hours’ notice.
It has not been
alleged that the principal debtor availed itself of this procedure.
I agree with counsel for the respondent that
there is no discernible
factual basis for concluding that the execution of the order
per
se
resulted in the destruction of the principal debtor’s
business. The allegation that the order was improperly obtained on
the strength
of false averments that the principal debtor was moving
office takes the matter no further.
[16]
It follows that the appellants failed to set
up a
bona fide
defence to the respondent’s claim so as to
avoid summary judgment. In view of this conclusion it becomes
unnecessary to consider
a further submission by counsel for the
respondent that the alleged loss of profit is clearly in the nature
of special or consequential
loss, which is ordinarily regarded as
being too remote to be recoverable, unless the parties actually or
presumptively contemplated
the probable result from a breach of the
contract.
[17]
It therefore cannot be said that in granting
summary judgment the court below exercised its discretion wrongly.
The appeal is accordingly dismissed with costs.
……………….
L MPATI JA
CONCUR:
HOWIE JA)
LEWIS AJA)