REPUBLIC OF SOUTH AFRICA
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
Case number: 29/04
In the matter between:
EKKEHARD CREUTZBURG 1
st Appellant
EMIL EICH 2nd
Appellant
and
COMMERCIAL BANK OF NAMIBIA LTD Respondent
CORAM
: MPATI AP, STREICHER, NUGENT,
HEHER JJA and PONNAN AJA
HEARD: 5 NOVEMBER 2004
DELIVERED: 1 DECEMBER 2004
Summary: Contract – suretyship – w here choice of proper law made – lex loci
contractus determines formalities otherwise not in compliance with proper
law.
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JUDGMENT
____________________________________________________________
2
MPATI AP:
[1] The two appellants, who are resident in South Africa (Cape Town), were
the directors of a Namibian company, Pacific Best Namibia (Proprietary)
Limited (‘Pacific Best’). On 3 May 1995 and 22 May 1995, at Swakopmund,
Namibia, the two appellants respectively signed a document in terms of which
they bound themselves as sureties and co-principal debtors with Pacific Best
for the latter’s indebtedness to the respondent bank (‘the bank’).
[2] On 14 October 1996 the second appellant resigned as a director of
Pacific Best and determined his suretyship, as he was entitled to do in terms
of the deed of suretyship. At the time of determination Pacific Best’s
indebtedness to the bank stood at N$597 808.34. (It was common cause that
at all relevant times one Namibian Dollar was equivalent to one South African
Rand.) Pacific Best was provisi onally wound up on 27 April 1998 and that
order was made final on 26 June 1998. The bank instituted action against the
appellants as sureties, jointly and severally, out of the Cape High Court on 9
May 2000 for payment of R663 152.27 plus interest, such amount being what
was allegedly due by Pacific Best to it. The appellants raised as a defence
the validity of the suretyship agreement. Two further defences were pleaded
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by the second appellant, viz (a) that his liability had been discharged by
payments made by Pacific Best since his suretyship had been determined and
(b) if not, the bank’s claim against him had in any event become prescribed.
[3] It was agreed between the parties that in the event of the trial court
finding against the appellants on the issue of the validity of the suretyship
agreement and that the second appellant had not determined the suretyship
on 14 October 1996 the appellants would both be liable to pay to the bank the
sum of R1 103 282.90 plus int erest at 25% per annum compounded and
capitalised monthly from 16 May 2000 until date of payment. But in the event
of it being held that the second appellant had terminated his suretyship on 14
October 1996 and that the claim against him had not prescribed, then his
liability, if any, would be limited to R597 808.34 plus interest at 25% per
annum compounded and capitalised monthly from 15 October 1996 to date of
payment.
[4] The trial court, Louw J, found the deed of suretyship to have been
validly executed. He held further that the second appellant had terminated his
suretyship on 14 October 1996 and that the bank’s claim against the second
appellant had not become prescribed. The learned judge accordingly ordered
the appellants to pay to the bank, jointly and severally, the amounts agreed to,
the one paying the other to be absolved, with the second appellant’s liability
4
being limited to the sum of R597 808.34 plus interest. It is against that order
that this appeal is before us with leave of the trial court.
The validity of the Deed of Suretyship
[5] The deed of suretyship is headed ‘COMMERICAL BANK OF NAMIBIA’
in bold print. Immediately below the heading and between bold tramlines
appear, in capitals, the following: ‘THE COMMERCIAL BANK OF NAMIBIA
LIMITED
REG. NO. 73/04561’. On the left of the page below the tramlines the
word ‘SURETY’ is printed in bold and beneath it is printed: ‘TO:’. In the middle
of the page and in line with the words just mentioned is a revenue stamp and
to the right of it appears a stamp reading: ‘THE COMMERCIAL BANK OF
NAMIBIA LTD Risk Management Head Office of the CBN Group’. According
to a statement of agreed facts signed by the parties’ legal representatives on
31 March 2004, it is common cause that at the time the appellants signed the
deed of suretyship the stamp bearing the bank’s name did not appear on the
document; that the stamp was onl y placed on the document at Windhoek
during the period 1997-98; that the absence of the identity of the creditor,
namely the bank, on the document offends against the provisions of s 6 of the
General Law Amendment Act No 50 of 1956 and thus, according to South
African Law, the suretyship is invalid. It is further common cause that the Law
of Namibia does not require any formalities for the conclusion of a valid deed
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of suretyship and that according to Namibian law the suretyship is valid.
[6] Although Louw J referred to ‘the plaintiffs ’ dilemma . . . that the identity
of the creditor, being a term of the suretyship, is not “embodied” in the written
document as is required by the provisions of section 6 of Act 50 of 1956’
1, he
was persuaded that ‘at least the formalities concerned, are governed by the
law of Namibia’ and that the provisions of the section ‘do not apply in the
Republic of Namibia’.
[7] The clause at issue in the deed of suretyship reads thus:
‘This suretyship shall in all respects be governed by and construed in accordance with the
law of the Republic of South Africa and/or the Republic of Namibia, and all disputes, actions
and other matters in connection therewith shall be determined in accordance with such law
. . . .’
The deed of suretyship also entitles the bank, as creditor, ‘to institute all or
any proceedings’ against the appellants in connection with the suretyship ‘in
any Supreme Court of South Africa and/ or the Republic of Namibia’. In
considering the proper law of the contract Louw J held that the parties ‘did not
make a clear choice in regard to the law which should govern the applicable
formalities’. At best, he said, they agreed that South African or Namibian law
would apply. He held accordingly, that the general principles that the lex loci
1 Section 6 of Act 50 of 1956 reads: ‘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. . . .’
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contractus will govern questions of formalities applies.
[8] Counsel for the appellants submitt ed in this court that the court a quo
erred in finding that the parties did not make a clear choice of law which would
govern the formalities of the suretyship agreement and in applying the lex loci
contractus principle. He contended that not only did the parties make an
express choice regarding the fora but also in respect of the law applicable to
the agreement ‘in all respects’. He argued that the proper law of the contract
is the law of the Republic of South Africa and/or the Republic of Namibia ‘in all
respects, including formalities’, and that given the ordinary and grammatical
meaning of the wording of the agreement, it follows that the parties intended
that in South African courts South African law would apply and in Namibian
courts Namibian law would apply.
[9] The expression ‘proper law of a contract’ has been used to indicate the
appropriate legal system governing an international contract as a whole or a
particular issue raised by the contract
2, and where parties have made an
express choice of law to govern such contract their choice should be upheld.3
[10] The general principle is that the lex loci contractus (the law of the place
2 Joubert, Law of South Africa 2ed (2) para 328.
3 Forsyth C F Private International Law 4ed 304; Van Rooyen Die Kontrak in die Suid-Afrikaanse Internasionale
7
where the contract is entered into) determines the formalities of a contract.4
In
Ex Parte Spinazze and Another NNO
5, a case dealing with the proper law of
an antenuptial contract, Corbett JA, after a review of the old authorities and
the position in foreign jurisdictions, concluded as follows6:
‘Having regard to the aforegoing, I am of the opinion that modern South African law should
adopt a facultative approach to the well-entr enched rule that an antenuptial contract
executed in accordance with the forms required by the lex loci contractus is formally valid,
and hold that a contract which alter natively complies as to form with the lex causae, or
proper law, is formally valid, even though it may not comply with the formal requirements of
the lex loci contractus. Such an approach would maintain in South Africa a conformity to
modern jurisprudential trends in the Western World in the sphere of private international
law.’
Although Corbett JA mentions only antenuptial contracts in his conclusion his
excursus shows that the facultative approach has been applied in respect of
contracts generally, though not in all foreign jurisdictions he has referred to (in
particular England). It is plain, however, that if a contract is formally valid in
terms of the lex loci contractus one need look no further. The facultative
approach was intended to ensure that a contract was not rendered invalid
merely for lack of the forms required by the lex loci contractus when it
Privaatreg at 72.
4 Johnson and Another v Registrar of Deeds 1931 CPD 228 at 230-1; Way v Louw and Another 1924 CPD 450 at
453-4; Bishops and Others v Conrath and Another 1947 (2) SA 800 (T) at 803.
5 1985 (3) 633 (A).
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complied as to form with its proper law.
[11] In the present matter the proper law of the contract is stipulated to be
the law of the Republic of South Africa and/or the Republic of Namibia. It
being common cause that the deed of suretyship is invalid under the law of
the Republic of South Africa
7 it follows that the general rule applies, ie the lex
loci contractus determines the formalities of the contract. Under Namibian law
the deed of suretyship was validly executed and it is therefore enforceable
through South African courts.
Has second appellant’s liability been discharged?
[12] It was common cause in this court that the second appellant, upon
resignation as a director of Pacific Best on 14 October 1996, determined his
suretyship in writing in terms of the deed of suretyship. Pacific Best’s
indebtedness to the bank as at that date was R597 808.34 (the same figure in
Namibian currency). It is also common cause that since that date the sum of
N$3 109 170.88 was deposited into Pacific Best’s cheque account with the
bank and that that account was credited with N$68 157.20 in respect of
reversal of debit orders.
[13] Counsel for the bank contended that the submission on behalf of the
6 at 665 B-C.
9
second appellant that his liability has been discharged by virtue of the
deposits into Pacific Best’s cheque account ignores the fact that the debits
subsequent to the date of determination of his suretyship exceeded the credits
by more than the outstanding balance as at that date. He relied in this regard
on a clause in the deed of suretyship which reads:
‘Upon determination of this suretyship by notice in writing by the undersigned as set out
above you may in your entire discretion continue any then existing facility or open a fresh
facility with the Debtor and any moneys paid in respect of such facility/ies by or on behalf of
the Debtor shall not affect your right to recover from the undersigned the full indebtedness
of the Debtor to you at the date of such determination, subject to the limitation in amount
aforementioned.’
Counsel for the bank accordingly argued that despite payments and
fluctuations in the balance of the principal debtor’s account the sureties would
remain liable for the ‘full indebtedness’ of the principal debtor as at the date of
determination.
[14] According to the pleadings Pacific Best’s original account number with
the bank was changed. It was not contended, however, that the change of
account number means that a fresh facility was opened. A surety’s liability is
always accessory to that of the principal debtor – if the principal debtor does
not owe the creditor the surety cannot be liable to the creditor under the
7 By section 6 of Act 50 of 1956 (see note 1 above).
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suretyship agreement. The common law rule relating to the appropriation of
payments made by a debtor is that where the debtor fails to specify payments
are appropriated to the most onerous debt or to the oldest.
8 It was not
suggested in the present matter that the bank had appropriated the payments
in any way different from the common law rule I have just mentioned. The
liability of the surety being accessory to that of the principal debtor no
agreement between the creditor and the surety as to how payments by the
principal debtor are to be appropriated can alter the position without the
involvement of the principal debtor. That is also in accordance with the terms
of the deed of suretyship in that the surety is liable only for the indebtedness
of the debtor at the date of the determination.
[15] It was not suggested that if the common law rule mentioned above
applied the second appellant would still be liable to the bank in any amount. It
follows that the liability of the second appellant has been discharged. This
finding renders it unnecessary for me to consider the issue of prescription.
[16] The following order is made:
(a) The first appellant’s appeal is dismissed with costs.
(b) The second appellant’s appeal is upheld with costs. Paragraph 2
8 Eaton Robins & Co v Nel (2) (1909) 26 SC 624 at 630; Zietsman v Allied Building Society 1989 (3) SA 166 (O);
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of the order of the court a quo is set aside and replaced with the
following:
Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 572 F-J.
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‘(2) Plaintiff’s claim against the second defendant is dismissed
with costs.’
(c) Paragraph 3 of the order of the court a quo is altered to read:
‘(3) Against first defendant, payment of the costs of suit.’
L M P A T I A P
CONCUR:
STREICHER JA
NUGENT JA
HEHER JA
PONNAN AJA