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[2019] ZASCA 150
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Airports Company SA Ltd v Masiphuze Trading (Pty) Ltd and Others (1120/2018) [2019] ZASCA 150 (22 November 2019)
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THE SUPREME COURT OF
APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case
no: 1120/2018
In
the matter between:
AIRPORTS COMPANY SOUTH
AFRICA LTD
APPELLANT
and
MASIPHUZE TRADING (PTY)
LTD
FIRST RESPONDENT
JOHN RUSSEL
GOLDREICH
SECOND RESPONDENT
NTAVHANYENI ALBERT
NEMUKULA
THIRD RESPONDENT
WILLIAM PATRICK
O’DRISCOLL
FOURTH RESPONDENT
Neutral
citation:
Airports Company SA Ltd v Masiphuze Trading (Pty)
Ltd and Others
(1120/2018) [2019] ZASCA 150 (22
November 2019)
Coram:
Cachalia, Wallis, Nicholls and Dlodlo JJA and Hughes AJA
Heard
:
12 November 2019
Delivered
:
22 November 2019
Summary:
Suretyship – s 6 of General Law Amendment Act 50 of
1956
–
compliance therewith –
defence of
justus error
– alleged error induced by
co-shareholders not lessor – not a basis for defence.
ORDER
On
appeal from:
KwaZulu-Natal Division of the High Court, Durban
(Koen J, sitting as court of first instance)
1 The
appeal is upheld with costs, such costs to include those consequent
upon the employment of two counsel.
2
Paragraph 1 of the High Court’s order is set aside and
replaced with the following:
‘
(a)
It is declared that the third defendant is bound by the deed of
suretyship Annexure 5 to the agreement of lease concluded between
the
first defendant and the plaintiff and annexed as Annexure A1 to the
particulars of claim.
(b)
The third defendant is ordered to pay the plaintiff’s costs of
suit up until 15 June 2018.’
3 The
case is remitted to the trial court for determination of the amounts
owing to the plaintiff by the defendants
in terms of the lease and
the deed of suretyship, including the plaintiff’s claim for
damages for holding over.
JUDGMENT
Wallis
JA (Cachalia, Nicholls and Dlodlo JJA and Hughes AJA concurring)
[1] This
is a dispute over the validity and binding effect of a deed of
suretyship signed by the third
respondent, Mr Nemukula, for the
obligations of the first respondent, Masiphuze Trading (Pty) Ltd
(Masiphuze), under an agreement
of lease. In 2009 Masiphuze leased
premises at the King Shaka International Airport from the appellant,
the Airports Company South
Africa Limited (ACSA). Its purpose was to
operate a Wimpy franchise. The lease was to commence on 1 May 2010
and expire on 30 April
2015. In 2014 ACSA complained that Masiphuze
had fallen into arrears with the payment of rental and accordingly
gave notice terminating
the lease and instituted action to recover
arrear rentals, damages for holding over, ejectment and costs. The
directors and shareholders
of Masiphuze, Messrs Goldreich, Nemukula
and O’Driscoll, were joined as the second to fourth defendants
respectively on the
basis that they had bound themselves as sureties
for and co-principal debtors with Masiphuze for the due performance
of the latter’s
obligations under the lease.
[2] When
the matter came to trial it proceeded against only Mr Nemukula.
Masiphuze had entered business rescue.
Messrs Goldreich and
O’Driscoll defended the action separately from Mr Nemukula and
their attorneys withdrew shortly before
the trial. The action was
accordingly adjourned
sine die
against them. After a three day
trial Koen J dismissed ACSA’s claim against Mr Nemukula. The
appeal is with his leave.
The
facts
[3] Since
1997 Mr Nemukula has been engaged through different companies in
leasing premises from which to
conduct retail businesses in airports
operated by ACSA. Prior to the opening of the King Shaka
International Airport he had leased
retail premises in the old Durban
International Airport from which a franchise business known as House
of Coffees was conducted.
It was there that he encountered Messrs
Goldreich and O’Driscoll, who had experience in the food
industry. Mr Nemukula having
won the tender to lease premises at King
Shaka International Airport for that purpose, the three of them used
Masiphuze as a corporate
vehicle for the operation of a Wimpy
franchise. The operational side of the business was in the hands of
Messrs Goldreich and O’Driscoll,
while Mr Nemukula was merely
an investor and non- executive director of the company. This was the
standard pattern he adopted with
all his businesses. After problems
arose with the business of Masiphuze, Mr Nemukula resigned as a
director in March 2014. However,
he remained a shareholder in the
company.
[4] The
lease concluded with Masiphuze was a standard lease used by ACSA for
all leases of retail premises
in its airports. It was a lengthy
document running to some 67 pages embodying the lease itself and
seven annexures. The disputed
deed of suretyship was Annexure 5 to
the lease at pages 46 to 50 thereof. Clause 9.6 of the lease provided
for a deed of suretyship
to be executed ‘on written request’
by ACSA. Although no written request was produced at the trial,
Messrs Goldreich
and O’Driscoll, who were the persons actively
involved in its conclusion, did not suggest in their plea that there
was no
such request, nor did they suggest that they had executed the
deed of suretyship under any misapprehension as to its contents. It
can safely be accepted that ACSA required the shareholders of
Masiphuze to provide sureties in addition to the other security for
which they stipulated.
[5] The
deed of suretyship, like the lease itself, is a standard form
document. The typed form commences as follows:
‘
Deed
of suretyship
We,
the undersigned,
[INSERT
NAMES]
(“the
Sureties”)
do
jointly and severally hereby bind ourselves to:
AIRPORTS
COMPANY SOUTH AFRICA LIMITED
(“the
Lessor”)
and
its successors and assigns as surety for and co-principal debtors
with
[INSERT
DETAILS]
(“the
Lessee’)
for
the due and punctual fulfilment and performance by the Lessee of all
its obligations to the Lessor in terms of the lease agreement
to
which this suretyship is attached . . .’
Clause
14 of the deed made provision for selection of a
domicilium
citandi et executandi
by inserting the names and addresses of the
sureties. The final page of the document made space for the
signatures of five sureties.
[6] The
names of Masiphuze and Messrs Goldreich, Nemukula and O’Driscoll
have been inserted in
manuscript at the head of the deed of
suretyship after the words ‘We the undersigned’ and
adjacent to the place provided
for the insertion of the names of the
sureties. In clause 14, and in the same handwriting, the name
of the company and the
names of the directors have been inserted,
together with their addresses. On the final page the first signature
is that
of Mr Goldreich, the
second that of Mr O’Driscoll and the third
that of Mr Nemukula.
The first two wrote next to their names that
they had signed the document at Durban. The similarity in both
handwriting and the
pen used makes it probable that Mr O’Driscoll
was the person responsible for the manuscript insertions elsewhere in
the document.
All of the pages of the deed of suretyship were
initialled, although, unlike the rest of the document, not by Mr
Nemukula. In his
evidence he sought to suggest that perhaps these
pages did not appear in the document at the time he affixed his
signature, but
that was not pleaded and was inconsistent with his
evidence that the manuscript insertions were not in the document when
he signed
it. He could only have known that if he had seen those
pages.
[7] The
signatures to the deed of Messrs Goldreich, Nemukula and O’Driscoll
were not disputed.
There was no direct evidence concerning the
circumstances in which the manuscript insertions were added to the
document, although
as I have said they appear to have been inserted
by Mr O’Driscoll. Mr Nemukula testified that they were not on
the deed when
he affixed his signature to it. Mr Govind, who signed
the lease some months later on behalf of ACSA, could not cast
any light
on the matter because he was not present when the sureties
signed, but said that when he received the document for signature on
behalf of ACSA it had been completed. That likelihood was reinforced
by the fact that the insertions included the residential addresses
of
the three shareholders. Nonetheless Koen J accepted Mr Nemukula’s
evidence that the manuscript insertions were not on
the document when
he signed it and that Mr Nemukula had not authorised whoever
inserted them to do so on his behalf.
[8] Mr
Nemukula testified that he affixed his signature to the deed of
suretyship in the following circumstances.
He had gone to Durban for
a meeting in 2009, which took place at the Greyville Racecourse,
where Mr Goldreich was a member of the
Golf Club. The lease documents
were substantial and had already been signed by Messrs Goldreich and
O’Driscoll. He had no
time to peruse the lease and other
documents carefully or to consider their terms. He simply signed
where it was indicated that
he should do so and trusted his partners
to inform him of anything unusual. The result was that he signed not
knowing what was
in the attachments to the lease. He said he believed
that he was signing as a shareholder of Masiphuze to indicate his
assent to
the lease. Nobody pointed out to him that he was signing a
deed of suretyship. He claimed that had he known he would have
refused
to sign as surety for Masiphuze. This evidence was likewise
accepted by the trial court.
[9]
Mr Nemukula did not go so far as to suggest that anything said to him
by Messrs Goldreich and O’Driscoll
had misled him. His
complaint was rather that he trusted them to keep him fully informed
and that they did not tell him that the
documents he was signing
included a deed of suretyship. He said that had he been told he would
have refused to do so, because as
a matter of business principle he
did not bind himself as surety for the business obligations of the
businesses in which he had
an interest. This despite the fact that
ACSA produced another lease where he had bound himself as surety for
its performance by
the lessee.
[10] Given
the circumstances in which the deed of suretyship was signed, there
was nothing that ACSA could
do to rebut this evidence. Mr Nemukula
had affixed his signature to the deed on an occasion when no
representative of ACSA was
present. The suggestion in argument
that they should have called either Mr Goldreich or Mr O’Driscoll,
whom they
were suing on the same deed of suretyship, was wholly
impractical. If anything, one of them should have been called by Mr
Nemukula
to corroborate his version of events, a number of elements
of which seemed improbable. It seems clear that the manuscript
insertions
were made before the documents were returned to ACSA for
signature, probably by Mr O’Driscoll, but the precise
circumstances
are shrouded in mystery. Although a more sceptical view
might have been taken of Mr Nemukula’s evidence,
given
its acceptance by the trial judge, the appeal must be
determined on the basis that it was correct.
The issues
[11] Mr
Nemukula’s first defence was based on the provisions of s 6 of
the General Law Amendment
Act 50 of 1956 (the Act). This provides
that:
‘
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 . . .’
Mr
Nemukula contended that, as the names of the sureties were not
inserted at the head of the deed and the name of the principal
debtor
was omitted, there was non-compliance with this provision and the
deed was accordingly invalid and unenforceable.
[12] The
second defence was one of
iustus error
. Mr Nemukula contended
that he was unaware that one of the documents he was signing was a
deed of suretyship and said that he did
not intend to bind himself as
such. He had been misled, so he said, by Messrs Goldreich and
O’Driscoll’s failure to
inform him that he was signing a
deed of suretyship. His signature was affixed in error as to its
purpose and function; such error
was both bona fide and
iustus
;
and he was, accordingly, not bound by it.
[13]
If neither of these defences succeeded Mr Nemukula contended that
ACSA had not proved the quantum
of its claim under the deed of
suretyship and on that basis also the judgment dismissing its claim
was correct.
The validity of the deed
of suretyship
[14]
The law in
this regard is well established. The deed of suretyship must include
all the material terms of the contract including
the identity of the
principal debtor, the principal debt and the identity of the
sureties.
[1]
However, these do
not have to be set out expressly in the deed of suretyship itself,
provided that they are sufficiently incorporated
by reference.
[2]
Extrinsic evidence is admissible to identify matters referred to in
the written document including the identity of the creditor,
the
principal debtor and the surety, as well as the nature and amount of
the principal debt, provided such evidence does
not seek to add to or
supplement the terms of the written contract.
[3]
[15]
Mr
Nemukula’s argument was that the failure to insert the names of
the sureties at the head of the deed and the name of the
principal
debtor, Masiphuze, where indicated on the document, amounted to non-
compliance with these requirements. This is the
basis upon which he
succeeded before the high court. It held that in the absence of
evidence that the insertion of the names of
the sureties at the
outset of the document occurred with his authority
[4]
he was not bound thereby and that in the absence of his name as
surety the deed did not comply with the statute.
[16] Unfortunately
the high court was not asked to, and did not address, the consequence
of holding that
the manuscript insertions did not appear in the deed
when Mr Nemukula signed it. However, the problem with this was that
without
the manuscript insertions the document he signed identified
the sureties and the principal debtor, as well
as the debts for which the sureties bound themselves as sureties.
That is clear from the following analysis.
[17] After
the heading ‘Deed of suretyship’ the document, without
the manuscript insertions, read:
‘We, the undersigned, [INSERT
NAMES](“the Sureties”)’. The signatures of Messrs
Nemukula, Goldreich and
O’Driscoll appear on the signature
page. They were ‘the undersigned’ who bound themselves as
sureties. By affixing
their signatures to the document the three
shareholders identified themselves unequivocally as the sureties.
Deeds of suretyship
commonly commence with something along the
following lines:
‘
We the
undersigned, do hereby bind ourselves as sureties for and
co-principal debtors with X for the due performance of the
latter’s obligations to Y.’
The
identity of the sureties then emerges by identifying the signatories
to the deed, if need be by way of evidence. It has never,
so far as I
am aware, been suggested that this does not adequately identify the
sureties for the purposes of the Act.
[18]
In
Fourlamel
v Maddison
[5]
Miller JA said that what s 6 requires to be signed is the written
document containing the terms of the agreement. Elsewhere in
that
judgment he said that this included the identity of the parties. But
that does not mean that the document is not completed
when the
signatures of the sureties are affixed identifying themselves as
such. Were that the case there could never be a valid
agreement of
co- suretyship, because at the time the first co-surety signed the
absence of the second co-surety’s signature
would render it
non-compliant with s 6.
[6]
When
two or more persons must sign a document it is necessarily the case
that one will sign first and the other or others later.
That reality
cannot affect whether the signed document complies with a statutory
provision such as s 6 of the Act.
[19] The
document identified ACSA (the Lessor) as the party to whom the
sureties bound themselves as such.
It said that the sureties bound
themselves ‘as surety for and co-principal debtor with [INSERT
DETAILS](“the Lessee”)’.
Given that the suretyship
document was Annexure 5 to the lease between ACSA and Masiphuze, it
was perfectly clear that Masiphuze
was the principal debtor as the
high court correctly held. This was put beyond any doubt by the
following words, in which
the principal debt for the
performance of which the sureties bound themselves was described as:
‘
the
due and punctual fulfilment and performance by the Lessee of all its
obligations to the Lessor in terms of the lease agreement
to which
this suretyship is attached . . .’ There was only one lease to
which the deed of suretyship was attached and that
identified
Masiphuze as the lessee.
[20]
Accordingly, the deed of suretyship identified the sureties, the
principal debtor and the principal debt.
It therefore complied with
the requirements of s 6 of the Act. The first defence must fail.
[21] The
second defence of
iustus error
was based upon the fact that Mr
Nemukula said that his trusted business associates, Messrs Goldreich
and O’Driscoll, did not
tell him that ACSA required all the
shareholders to bind themselves as sureties and did not warn him that
in signing the lease
with its annexures, more particularly Annexure
5, the deed of suretyship, he was binding himself as surety for the
due performance
by Masiphuze of its obligations in terms of the
lease.
[22]
There
are limited circumstances in which a party can set up their
unilateral error as a defence to a claim based on contract. They
were
set out as follows by Schreiner JA in the
Potato
Board
case:
[7]
‘
Our law allows a
party to set up his own mistake in certain circumstances in order to
escape liability under a contract into which
he has entered. But
where the other party has not made any misrepresentation and has not
appreciated at the time of acceptance
that his offer was being
accepted under a misapprehension, the scope for a defence of
unilateral mistake is very narrow, if it
exists at all. At least the
mistake
(error)
would have to be reasonable
(justus)
and
it would have to be pleaded.’
[23]
To
similar effect is the following passage from the judgment of Fagan CJ
in
George
v Fairmead
:
[8]
‘
When
can an
error
be said to be
justus
for the purpose of
entitling a man to repudiate his apparent assent to a contractual
term? As I read the decisions, our Courts,
in applying the test, have
taken into account the fact that there is another party involved and
have considered his position. They
have, in effect, said: Has the
first party - the one who is trying to resile - been to blame in the
sense that by his conduct he
has led the other party, as a reasonable
man, to believe that he was binding himself? … If his mistake
is due to a misrepresentation,
whether innocent or fradulent, by the
other party, then, of course, it is the second party who is to blame
and the first party
is not bound.’(Citations omitted)
[24]
The
decisive question to be asked and answered in cases where reliance is
placed on
iustus
error
is:
[9]
‘…
did the party whose
actual intention did not conform to the common intention expressed,
lead the other party, as a reasonable man,
to believe that his
declared intention represented his actual intention? … To
answer this question, a three-fold enquiry
is usually necessary,
namely, firstly, was there a misrepresentation as to one party's
intention; secondly, who made that representation;
and thirdly, was
the other party misled thereby? … The last question postulates
two possibilities: Was he actually misled
and would a reasonable man
have been misled?’
[25] In
this case Mr Nemukula claimed that he was misled by the failure of
his business associates to inform
him that he was signing a deed of
suretyship. If the approach of Fagan CJ is adopted and we ask
whether he, as the party
seeking to resile from the agreement,
is to blame for the situation in which he found himself, the answer
is clear. It was his
own failure to check the documents that he was
signing – a not particularly onerous task for an experienced
businessman –
that led to the situation in which he found
himself. If one asks the question postulated in
Sonap
, whether
Mr Nemukula led ACSA to believe that his declared intention to be
bound by the deed of suretyship represented his actual
intention, the
answer must be in the affirmative. On either basis it was not open to
Nemukula to rely upon the defence of
iustus error
.
[26]
While
disclaiming any suggestion that ACSA had misled Mr Nemukula, there
was some endeavour to suggest that the deed of suretyship
was
insufficiently identified as forming part of the documents
constituting the lease and its annexures. A similar argument was
considered and rejected by this court in
Slip
Knot Investments 777 (Pty) Ltd v Du Toit
.
[10]
There the trustee of a trust, at the request of his nephew, executed
a deed of suretyship as part of a suite of documents relating
to a R6
million loan to the trust, but without reading them. Like Mr Nemukula
he signed and initialled where the other two trustees
had already
signed or initialled. He claimed that he was unaware that he was
executing a deed of suretyship and
that his
error was induced by the failure of the other trustees to
inform him of this fact, but disavowed any
misrepresentation on the
part of the lender.
[27]
In
that case Malan JA dealt with the contention that the deed of
suretyship was somehow obscure or hidden away in the overall bundle
of documents in the following terms:
[11]
‘
A
contracting party is generally not bound to inform the other party of
the terms of the proposed agreement. He must do so, however,
where
there are terms that could not reasonably have been expected in
the contract. The court below came to the conclusion
that the
suretyship was “hidden” in the bundle, and held that the
respondent was in the circumstances entitled to assume
that he was
not personally implicated.
I can find nothing objectionable in the
set of documents sent to the respondent. Even a cursory glance at
them would have alerted
the respondent that he was signing a deed of
suretyship. … Slip Knot was entitled to rely on the
respondent's signature
as a surety, just as it was entitled to rely
on his signature as a trustee.
The respondent relied entirely on
what was conveyed to him by his nephew through Altro Potgieter. Slip
Knot made no misrepresentation
to him, and there is no suggestion on
the respondent's papers that Slip Knot knew or ought, as a reasonable
person, to have known
of his mistake.’ (Emphasis added.)
[28]
That
passage is entirely apposite to describe Mr Nemukula’s
situation. There was nothing objectionable in the lease
documents.
[12]
A cursory
glance through them would have identified that he was being required
to sign a deed of suretyship. ACSA was as entitled
to rely on his
signature as surety as it was to rely on his signature as shareholder
on behalf of Masiphuze. The defence of
iustus
error
cannot
succeed. The necessary conclusion is that Mr Nemukula was bound by
the deed of suretyship as surety for and co-principal
debtor with
Masiphuze for the latter’s indebtedness to ACSA under the
lease.
[29] In
the course of argument before us the issue of quantum fell away
because it was necessary for the case to
be remitted to the trial
court to resolve the issue of quantum insofar as it related to
damages for holding over. Some evidence
had been led on quantum with
a view to arriving at an agreement, but no such agreement had been
reached. Counsel agreed that the
remittal should also deal with the
question of quantum in regard to the amounts owing by Masiphuze to
ACSA in terms of the lease.
[30] In
the result the following order is made:
1 The
appeal is upheld with costs, such costs to include those consequent
upon the employment of two counsel.
2
Paragraph 1 of the High Court’s order is set aside and
replaced with the following:
‘
(a)
It is declared that the third defendant is bound by the deed of
suretyship Annexure 5 to the agreement of lease concluded between
the
first defendant and the plaintiff and annexed as Annexure A1 to the
particulars of claim.
(b)
The third defendant is ordered to pay the plaintiff’s costs of
suit up until 15 June 2018.’
3 The
case is remitted to the trial court for determination of the amounts
owing to the plaintiff by the
defendants in terms of the lease and
the deed of suretyship, including the plaintiff’s claim for
damages for holding over.
M
J D WALLIS
JUDGE
OF APPEAL
Appearances
For
appellant: L B
Broster SC (with him J F Nicholson and
N
Nicolls)
(Heads
of argument prepared by S M Mullins SC and J F Nicholson)
Instructed
by: Garlicke &
Bousfield, Durban;
Symington
& De Kok, Bloemfontein
For
third respondent: Z Ploos van Amstel
Instructed
by: Fluxmans
Inc, Johannesburg;
Lovius
Block, Bloemfontein.
[1]
Fourlamel
(Pty) Ltd v Maddison
1977
(1) SA 333
(A) at 345
[2]
Industrial
Development Corporation SA (Pty) Ltd v Silver
2003
(1) SA 365
(SCA) paras 11-13.
[3]
Sapirstein
and Others v Anglo-African Shipping Co (SA) Ltd
1978
(4) SA 1
(A) at 12A-D;
Industrial
Development Corporation SA (Pty) Ltd v Silver
supra,
paras 9 and 10.
[4]
Which was held to comply with the Act in
Jurgens
and Others v Volkskas Bank Ltd
1993
(1) SA 214 (A) at 221.
[5]
Fn 1, supra, at 341H.
[6]
See
Nelson
v Hodgetts Timbers (East London) (Pty) Ltd
1973
(3) SA 37
(A) where the co-surety did not sign the document and it
was sought to hold the surety who had signed liable.
[7]
National
and Overseas Distributors Corporation (Pty) Ltd v Potato Board
1958
(2) SA 473
(A) at 479G-H.
[8]
George
v Fairmead (Pty) Ltd
1958
(2) SA 465
(A) at 471A-D.
[9]
Sonap
Petroleum (SA) (Pty) Ltd (formerly known as Sonarep (SA) (Pty) Ltd)
v Pappadogianis
[1992] ZASCA 56
;
1992
(3) SA 234
(A) at 239I-240B.
[10]
Slip
Knot Investments 777 (Pty) Ltd v Du Toit
2011
(4) SA 72
(SCA) paras 11 and 12.
[11]
Ibid para 12.
[12]
The defence that it contained terms that were unusual, unduly
onerous and contrary to public policy was abandoned.