CONSTITUTIONAL COURT OF SOUTH AFRICA
Case CCT 215/18
In the matter between:
NGWANE ROUX SHABANGU Applicant
and
LAND AND AGRICULTURAL DEVELOPMENT BANK
OF SOUTH AFRICA First Respondent
MELITA MEISEL N.O. Second Respondent
MANDLA JONATHAN SHUMBA Third Respondent
DESMOND KHALID GOLDING Fourth Respondent
LINDIWE MICHELLE MASEKO Fifth Respondent
KENELIWE LYDIA SEBEGO Sixth Respondent
JUDITH SUSAN BORNMAN Seventh Respondent
GEZINA DOROTHEA VAN ROOYEN Eighth Respondent
ADRIAAN WILLEM VAN ROOYEN N.O. Ninth Respondent
Neutral citation: Shabangu v Land and Agricultural Development Bank of South
Africa and Others [2019] ZACC 42
Coram: Mogoeng CJ, Cameron J , Froneman J, Jafta J, Khampepe J,
Madlanga J, Mathopo AJ, Mhlantla J, Theron J and Victor AJ
2
Judgment: Froneman J (unanimous)
Heard on: 1 August 2019
Decided on: 29 October 2019
Summary: Land and Agricultural Development Bank Act 15 of 2002 —
invalid loan agreement with organ of state — acknowledgment of
debt — compromise or novation — compromise invalid if it
perpetuates invalidity of loan agreement
ORDER
On appeal from the High Court of South Africa, Gauteng Division, Pretoria:
1. The second to ninth respondents’ applications to intervene as applicants
are dismissed.
2. Leave to appeal is granted.
3. The appeal succeeds with costs, including the costs of two counsel.
4. The High Court order is replaced with the following:
“The plaintiff’s claim is dismissed with costs”.
JUDGMENT
FRONEMAN J (Mogoeng CJ, Cameron J , Jafta J, Khampepe J, Madlanga J,
Mathopo AJ, Mhlantla J, Theron J and Victor AJ concurring):
FRONEMAN J
3
Introduction
[1] The applicant and second to ninth respondents 1 (sureties) stood written surety
for loans advanced by the first respondent (Land Bank) to the principal debtor, Westside
Trading 570 (Pty) L imited (Westside), for the development of urban property . The
Land Bank was subsequently advised that the transaction (loan agreement) was beyond
its statutory powers in terms of the Land and Agricultural Development Bank Act (the
Act),2 because these powers were confined to promoting, facilitating and supporting the
equitable ownership and development of agricultural land by historically disadvantaged
persons.3
[2] Upon receipt of this advice, the Land Bank stopped advancing funds to Westside.
By then R51 million had been spent by Westside on purchasing properties and
approximately R11.5 million of the planned R49 million for township establishment
and professional fees as envisaged. The Land Bank asserted that together with interest,
Westside owed it some R95 million. Westside disputed this amount. Its financial
director then signed an acknowledgment of debt in which Westside accepted liability to
repay R82 million to the Land Bank in full and final settlement of its indebtedness.
1 The position of the second to ninth respondents is dealt with at [11] to [12] below.
2 15 of 2002.
3 Section 3 of the Act provides:
“(1) The objects of the Bank are the promotion, facilitation and support of—
(a) equitable ownership of agricultural land, in particular the increase of ownership of
agricultural land by historically disadvantaged persons;
(b) agrarian reform, land redistribution or development programmes aimed at historically
disadvantaged persons or groups of such persons for the development of farming
enterprises and agricultural purposes;
. . .
(2) The Bank must achieve its objects by—
(a) providing financial services to promote and facilitate access to ownership of land for
the development of farming enterprises and for agricultural purposes by historically
disadvantaged persons;
(b) providing financial services in support of any of its objects;
(c) facilitating and mobilising private sector finance to the agricultural sector; and
(d) providing such assistance as is necessary for carrying out the objects of the Bank.”
FRONEMAN J
4
[3] Westside failed to repay the amounts claimed by the Land Bank. The Land Bank
then instituted proceedings a gainst Westside and the sureties on various bases for
payment, as well as for an order declaring the development properties executable in
terms of a covering mortgage bond in its favour.
[4] After the institution of proceedings , Westside was liquidated. The Land Bank
then amended its claim. It did not pursue its claim against Westside but persisted in a
claim against the sureties – not directly based on the original principal debt under the
loan agreement for payment of R82 million, but on the sureties’ alleged liability for the
R82 million acknowledgement of debt.
High Court
[5] The Land Bank succeeded in its claim against the sureties in the High Court.4
Basson J approached the matter on the basis that the fact that the loan agreement was
invalid did not mean that it necessarily followed that the deed of suretyship was also
invalid:
“I should pause here and point out that the fact that the loan agreement is invalid, does
not mean that it necessarily follows that the deed of suretyship, being an ancillary
agreement, is likewise invalid. In this regard the Supreme Court of Appeal in Panamo
held (albeit in the context of a mortgage bond) that it does not necessarily follow that,
because the principal agreement is invalid, the ancillary agreement is also invalid.”5
[6] She then disposed of the matter on the basis that the acknowledgme nt of debt
was properly proved and that the debt it acknowledged was covered by the suretyship:
“I am satisfied on the evidence and on an interpretation of the relevant documents that
[the sureties] are liable to pay the plaintiff R82 million jointly and severally, the one
4 Land and Agricultural Development Bank of South Africa v Meisel N .O., unreported judgment of the Gauteng
High Court, Pretoria, Case No 23733/12 (6 October 2017) (High Court judgment).
5 Id at para 22.
FRONEMAN J
5
paying the other to be absolved, on the basis of the suretyship read together wi th the
acknowledgment of debt.”6
[7] After unsuccessful efforts to obtain leave to appeal to the Supreme Court of
Appeal, the applicant sought leave to appeal to this Court.
In this Court
Submissions
[8] The sureties submitted that the only debt acknowledged in the acknowledgement
of debt was the alleged liability of Westside under the inv alid loan agreement. It did
not cover any possible enrichment claim. The acknowledgment of debt thus suffered
from the same taint as the invalid loan agreement, especially so as the Land Bank is an
organ of state. No ancillary obligation under the suret yship could accordingly extend
to any obligation arising from the similarly invalid acknowledgement of debt. The
Supreme Court of Appeal ’s decision in Panamo did not assist the Land Bank because
that case concerned the question whether the mortgage bond i n issue was capable of
covering a valid enrichment claim, which was not the case here.7
[9] Two of the sureties raised a further issue not dealt with in the High Court
judgment. It related to the defence raised by them in their plea, amended shortly before
trial, to the effect that the Land Bank’s failure to perform in terms of the loan agreement
caused them substantial prejudice that they had not been prepared to risk and that th is
released them from their surety obligations.
[10] The Land Bank contended that the acknowledgment of debt constituted a
compromise and not a novation and was thus not tainted by the invalid loan agreement.
In accordance with the approach of the Supreme Cou rt of Appeal in Panamo, the deed
6 Id at para 69.
7 Panamo Properties 103 (Pty) Ltd v Land and Agricultural Development Bank of South Africa [2015] ZASCA
70; 2016 (1) SA 202 (SCA) (Panamo) at para 30.
FRONEMAN J
6
of suretyship, like the mortgage bond there, covered the debt contemplated in the
acknowledgement of debt and the sureties are thus liable.
The second to ninth respondents
[11] The second to ninth respondents were cited in the application for leave to appeal
to this Court by the applicant. They did not themselves originally seek leave to appeal.
The first respondent requested clarity on the status of the other respondents. In light of
their direct and subst antial interest, we determined that they should remain as parties
but that it made no difference whether they were cited as applicants or respondents. The
fourth and eighth respondents submitted written arguments and raised a separate ground
of appeal.8 Shortly before the hearing, the third, fifth, sixth and seventh respondents
sought leave to intervene as applicants. We indicated that these applications would be
dealt with at the hearing and in this judgment.
[12] The citation of the second to ninth respondents by the applica nt was necessary
to ensure that the outcome was binding on all. No costs were sought against them. The
later application of the third, fifth, sixth and seventh respondents to in tervene as
applicants was opportunistic in view of their earlier failure to apply for leave to appeal.
Materially, they brought little of value to the issues already raised by the applicant and
the first respondent. Granting them leave to intervene as applicants will have no
additional effect on the binding nature of this judgmen t on all the parties concerned.
The applications to intervene must therefore be dismissed.
Issues
[13] The issues for determination are:
(a) Jurisdiction and leave to appeal;
(b) If leave is granted, the merits of the appeal, namely the effect of the
invalidity of the principal agreement on—
(i) the validity of the acknowledgement of debt; and in turn
8 See above at [9].
FRONEMAN J
7
(ii) the liability of the sureties under the suretyship agreement in
respect of the acknowledgment of debt.
Jurisdiction and leave to appeal
[14] The questio n whether the Supreme Court of Appeal’s decision in Panamo
governs a situation where a suretyship , not a mortgage bond, is alleged to cover the
principal obligation is not yet settled in our law. Nor is the question whether it covers
not the original prin cipal agreement, but one entered into after recognition of the
invalidity of the o riginal principal agreement. These issues are interlin ked arguable
points of law of general public importance. Clarity on them will not only affect the
immediate parties, b ut also many others in similar positions. 9 That the invalidity in
question here stems from exceeding statutory powers adds a constitutional dimension
to the issues, as does the complaint that the failure to deal with a pleaded defence
involves a denial of access to justice.10
[15] And as we will see, there are reasonable prospects of success. It is in the interests
of justice to grant leave to appeal.
Merits of the appeal
Validity of the acknowledgment of debt
[16] As noted earlier, 11 the High Court, with reliance on Panamo, approached the
matter on the basis that the fact that the loan agreement was invalid did not mean that it
necessarily followed that the deed of suretyship was also invalid. But that approach
missed a crucial step, namely whether the debt in the acknowledgment of debt was not
9 In Paulsen v Slip Knot Investments 777 (Pty) Ltd [2015] ZACC 5; 2015 (3) SA 479 (CC); 2015 (5) BCLR 509
(CC) at para 26, this Court highlighted that “[i] n sum, for a matter to be of general public importance, it must
transcend the narrow interests of the litigants and implicate the interest of a significant part of the general public”.
10 Section 34 of the Constitution provides:
“Everyone has the right to have any dispute that can be resolved by the application of law
decided in a fair public hearing before a court or, where appropr iate, another independent and
impartial tribunal or forum.”
11 See above at [5].
FRONEMAN J
8
itself tainted by the invalid loan agreement. Panamo did not address that issue. It
merely held that if the terms of a security agreement (in that case a mortgage bond)
establish accessory liability for principal debts untainted by the original invalidity, and
those untainted debts are sought to be enforced, the accessory security provider may be
held liable.12 So the first issue here is to determine whether the taint of invalidity of the
loan agreement also stretched to taint the acknowledgement of debt.
[17] The purpose of the loan agreement was to provid e financing for the proposed
urban township development. The money advanced was to be used, first, for the
acquisition of the properties on which the development would take place (R51 million)
and, second, for the establishment of the township and professional services in doing so
(R49 million). As we have seen, R51 million was spent by Westside on purchasing the
properties as stipulated and approximately R11.5 million of the planned R49 million for
township establishment and professional fees as envisaged. There is no suggestion that
the money so advanced was used improperly or that any of the sureties gained any
unjustified benefit from the payments to Westside.
[18] It is also important to note that the acknowledgment of debt was signed after the
Land Bank had been advised that the original loan agreement was invalid because it
lacked the powers to provide finance for urban land development. Westside was aware
of this too. There was no dispute between them that the original loan agreement was
invalid.
12 The facts before the Supreme Court of Appeal in Panamo above n 7 were that the Land Bank had entered into
a loan agreement and, as security for advancing the loan amounts under the loan agreement, a mortgage bond was
registered in favour of the Land Bank over Panamo’s property. The issues for determination were threefold. First,
whether the loan agreement entered into between the Land Bank and Panamo was invalid because the Land Bank
acted beyond the scope of its empowering legislation. Second, whether the mortgage bond as an a ccessory
obligation could survive in circumstances where the principal obligation was invalid. Last, whether the mortgage
bond, on its terms, was broad enough to cover as security the Land Bank’s claim for unjustified enrichment. The
Supreme Court of App eal held at para 29 that the loan agreement was invalid, but that “e ven though the loan is
void, this does not in itself mean that there is no obligation secured by the [mortgage] bond”. The Supreme Court
of Appeal further held that the mortgage bond could secure more than obligations arising under the loan and was
therefore not necessarily extinguished merely because the loan agreement was void. As a result, the Supreme
Court of Appeal concluded at para 31 that “[t] he nature of the [mortgage] bond thus d oes not exclude the
possibility that an enrichment claim may be covered”.
FRONEMAN J
9
[19] The relevant parts of the acknowledgement of debt read:
“1. The company has successfully negotiated an offer of R82 million in full and
final settlement of its indebtedness with [the] Land Bank. Notwithstanding,
for your records we attach a schedule of the company’s loan balance as at
31 January 2009 amounting to R94 900 589.32 . . .
2. The company has undertaken to repay [the] Land Bank on con clusion of the
transaction with the third party interested in buying the development and with
whom a Deed of Sale has been signed;
3. Land Bank has informed the company that the loan advanced to the company
fell outside of the Land Bank’s mandate . . .
. . .
[I]t is imperative that the outstanding balance of the loan be repaid in full by the end of
April 2009.”
[20] There can be little doubt that the debt of R82 million related to the invalid loan
initially advanced to Westside by the Land Bank . The “full and final settlement” was
in respect of its “indebtedness with” the Land Bank. There is no reference to any form
of indebtedness to the Land Bank other than the “loan balance”, “loan advanced” or
“outstanding balance of the loan”. The “full and final settlement” was not in respect of
a dispute about the invalidity of the original loan agreement . At best it was about
payment of a reduced amount still owing under the invalid loan agreement. The Land
Bank was claiming an amount in the acknowledgment of debt they actually advanced
together with interest accruing from that money. This illustrates that it was attempting
to derive some form of benefit from an invalid contract.
[21] The applicant sough t to draw a distinction between the position of the Land
Bank, as an organ of state, and private entities when assessing the validity of the
subsequent acknowledgement of debt. If the Land Bank lacked the necessary statutory
powers to conclude the loan ag reement, it could not have the power to compromise a
claim for any debt owed in terms of the invalid loan agreement. As a result, the
applicant contends, the acknowledgment of debt was also invalid.
FRONEMAN J
10
[22] This argument is sound as far as it goes, but the rigid distinction between public
and private in relation to state commercial activity is not necessary to arrive at the same
conclusion.13 A subsequent agreement between private parties that seeks to resuscitate
an invalid agreement itself remains tainted with invalidity, even if the invalidity does
not stem from illegality or immorality. In Gibson, Fagan JA stated:
“In the matter before us the claim arose out of a betting transaction which was neither
illegal nor immoral, so there is no room for an inquiry wh ether its connection with
some other transaction taints the latter with illegality or immorality, for the original
transaction itself was not so tainted. The test in such a case, to my mind, should be
whether the court is asked, in effect, to enforce the unenforceable claim; in other words,
is the later transaction on which the plaintiff relies merely a device for enforcing his
original claim, is it merely his original claim clothed in another form or with some
term or condition added to it, or a ratification or even novation of the original claim
which leaves its essential character unchanged; if so the plaintiff must fail.”14
13 As Quinot reminds us in State Commercial Activity: A Legal Framework (Juta, Cape Town 2009) at 223:
“When the state acts it always does so with public power and its actions are always public action.
The principle of legality thus always applies to the state.”
See also Hoexter Administrative Law in South Africa 2 ed (Juta, Cape Town 20 16) at 185-9. On numerous
occasions, this Court has recognised that the exercise of all public pow er is subject to the principle of legality:
see, for example, Affordable Medicines Trust v Minister of Health [2005] ZACC 3; 2006 (3) SA 247 (CC); 2005
(6) BCLR 529 (CC) at para 49; Minister of Health v New Clicks South Africa (Pty) Ltd [2005] ZACC 14; 2006
(2) SA 3 11 (CC); 2006 (8) BCLR 872 (CC) at paras 612-3; President of the Republic of South Africa v South
African Rugby Football Union [1999] ZACC 11; 2000 (1) SA 1 (CC); 1999 (7) BCLR 725 (CC) at para 148; and
Pharmaceutical Manufacturers Association of SA: In re Ex Parte President of the Republic of South Africa [2000]
ZACC 1; 2000 (2) SA 674 (CC); 2000 (3) BCLR 241 (CC) at para 85. This Court has also emphasised, in varied
contexts, that the so -called public/ private divide is often more apparent than real: see, for example , AllPay
Consolidated Investment Holdings (Pty) Ltd v Chief Executive Officer, South African Social Security Agency
[2014] ZACC 12; 2014 (4) SA 179 (CC); 2014 (6) BCLR 641 (CC) ( AllPay Remedy) at paras 52 -7; Steenkamp
N.O. v Provincial Tender Board, Eastern Cape [2006] ZACC 16; 2007 (3) SA 121 (CC) ; 2007 (3) BCLR 300
(CC) at paras 20-1; and AAA Investments (Pty) Ltd v Micro Finance Regulatory Council [2006] ZACC 9; 2007
(1) SA 343 (CC); 2006 (11) BCLR 1255 (CC) at paras 40-1.
14 Gibson v Van der Walt 1952 (1) SA 262 (A) at 270A-B. Fagan JA went on to hold at 271C-D:
“I am inclined to agree with Blackwell J that the conversation relied on in the case now before
us did not amount to a fresh agreement to pay, but was merely an admission of the original debt
plus the addition of a time stipulation to it . However, even if we construe it as a fresh
undertaking, it was an undertaking to pay the betting debt and was, on the test I have indicated,
unenforceable. It follows that the claim of the plaintiff (the present appellant) had to fail, and
that the order made by the Transvaal Provincial Division was correct.”
FRONEMAN J
11
[23] The Land Bank also sought to distinguish the acknowledgment of debt as a
compromise and not a novation.15 Even characterised as a compromise , however, the
sureties are correct in asserting that the acknowledgement of debt was invalid because
it related to the same indebtedness flowing from the invalid agreement . In Weltmans,
the Supreme Court of Appeal held that a compromise was invalid as it differed from the
original agreement only in relation to the amount payable and the method of payment
but it did not alter the essence of the creditor’s claim or the debtor’s obligation.16 It
suffices to s ay that, in this case, the acknowledgement of debt was similarly a mere
resuscitation of the invalid agreement which did not change the essential claim of the
Land Bank or the obligations of Westside as debtor.
[24] Where, as here, there is no dispute that the subject-matter of the original loan
agreement – financing urban, not rural development – was invalid, there is no scope for
arguing that the mere acknowledgement of a lesser sum owing transforms the nature of
the original invalid agreement into something new and valid. In logic , and on first
principles, the subsequent agreement may only be valid if the original invalidity may
be overcome in one way or another.
[25] The first and obvious way to do this is if the cause of the original invalidity can
be removed. In the case of state organs that may lie in removing the legality
impediment. That cannot help the Land Bank here: it remains an organ of state
empowered to a ssist in land and agricultural development ; it is not a public township
developer.
15 In Acacia Mines Ltd v Boshoff 1958 (4) SA 330 (A) (Acacia Mines) at 337C, Beyers JA stated that “[n]ovation
is essentially a question of intention: when parties novate they intend to replace a valid contract by another valid
contract”. From this definition it is apparent that the validity of the novation is dependent on the existence of a
valid obligation. A compromise can be defined as an agreement between two or more persons for the purpose of
preventing, avoiding or terminating a dispute. See also Gollach & Gomperts (1967) (Pty) Ltd v Universal Mills
& Produce Co (Pty) Ltd 1978 (1) SA 914 (A) at 921A-D.
16 Weltmans Custom Office Furniture (Pty) Ltd (In Liquidation) v Whistlers CC [1999] ZASCA 45; 1999 (3) SA
1116 (SCA) (Weltmans) at para 16.
FRONEMAN J
12
[26] The problem of the original invalidity may be addressed in another way.
Recovery of what was transferred under an invalid agreement is governed either by
enrichment or what was referred to in argument as the “no-profit principle” put forward
by this Court in AllPay Remedy.17
[27] While there is some kind of overlap between the basis for an enrichment claim
(restoring a legally unjustified imbalance) and the “no -profit principle” (not allowing
profit from unlawfulness), there are differences. Enrichment is a valid claim that may
arise from an unlawful contract, while the no-profit principle prevents the perpetuation
of unlawfulness. The latter is part of regulating the just and equitable relief of
suspending the declaration of unlawfulness in respect of a contract. It is therefore bound
up in that just and equitable assessment and the continued (if suspended)
operation/enforcement of an un lawful agreement, something different to the remedial
nature of an enrichment claim.
[28] Whatever the merits or demerits are of substituting a just and equitable remedy ,
in keeping with the “no-profit principle”, for an ordinary enrichment claim in invalid
contracts by organs of state, 18 recovery for unjust enrichment or profit gained from an
invalid agreement both seek to ameliorate or redress the consequences of the invalidity
through the re-transfer of unjustified gains.
[29] So, the acknowledgement of debt could have embraced a valid principal
obligation, in respect of which the sureties could have been liable, in relation to a claim
for unjust enrichment if it were premised on there being an absence of a relationship of
other legal indebtedness.19 In other words, it could have validly grounded a principal
17 AllPay Remedy above n 13 at para 67.
18 See Du Plessis and Coutsoudis “Considering Corruption through the AllPay Lens: On the Limits of Judicial
Review, Strengthening Accountability, and the Long Arm of the Law” (2016) 133 SALJ 755 at 771; compare
Sonnekus “Procurement Contracts and Underlying Principles of the Law – No Special Dispensation for Organs
of State (Part 2 – Developing the Common Law, Consequences and Remedies)” (2014) TSAR 536 and Finn
“AllPay Remedy : Dissecting the Constitutional Court’s Approach to Organs of State” (2016) 6 Constitutional
Court Review 258 at 270-1.
19 At its heart, an enrichment claim arises from the absence of a relationship of indebtedness. The orthodox view
in South African law is that this absence of liability, without more, will generally ground a restitution claim: see,
FRONEMAN J
13
obligation if it recognised the invalidity of the debt in terms of the loan agreement. On
its terms, however, it did not do so: it was common cause that the acknowledgement did
not cover any enrichment claim. This absence of a relationship of indebtedness is also
the reason that the Supreme Court of Appeal could find in Panamo that the enrichment
claim was validly covered by the mortgage bond.
[30] How does this impact on the conventional wisdom that the validity of a
subsequent agreement entered into between the same parties following upon an earlier
invalid agreement depends on whether it amounts to a novation (in which case it
remains tainted) or a compromise (not tainted)?20
[31] This matter concerns the so-called settlement of an admittedly undisputed invalid
earlier loan agreement by way of the acknowledgment of debt. We hold that the terms
of the acknowledgement of debt in effect perpetuated the original invalidity and must
therefore also be invalidated . To that extent it follows the conventiona l notion of a
novation that remains tainted.21
[32] This judgment also says, however, that an agreement in relation to an undisputed
invalid earlier agreement may be possible if it relates to an enrichment claim which
results from the invalidity of the earlier debt, but not if it seeks to enforce the earlier
indebtedness.22 If the terms of the accessory suretyship agreement are wide enough to
cover the enrichment claim, the sureties may well also be liable.
for example, Visser Unjustified Enrichment (Juta, Cape Town 2008) at 274-5. It is worth registering the recent
challenge to this orthodox view posed by Scott Unjust Enrichment in South African Law: Rethinking Enrichment
by Transfer (Hart, Oxford 2013), who contends that the absence of a relationship of indebtedness is a necessary,
but not sufficient, condition for the restitution of enrichment by transfer (see, in particular, at 8-9).
20 On the relevance of this distinction to the validity of the subsequent agreement, see Benefeld v West 2011 (2)
SA 379 (GSJ) at paras 14-8. See further Weltmans above n 16 at 16; Syfrets Mortgage Nominees Ltd v Cape St
Francis Hotels 1991 (3) SA 276 (SE) at 288E-G; Tauber v Von Abo 1984 (4) SA 482 (E) at 484G-I; Dennis Peters
Investments (Pty) Ltd v Ollerenshaw 1977 (1) SA 197 (W) at 202; and Acacia Mines above n 15 at 337D.
21 Although the reduced amount may be regarded as a compromise in relation to the extent, but not the nature of
the claim – see [23] above.
22 An enrichment claim is an independent and self-standing action and the extent of the claim is often uncertain
until determined in court. That uncertainty may then conceivably result in a valid compromise of the enrichment
claim.
FRONEMAN J
14
[33] What this judgment does not deal with are compromises by organs of state where
the validity of the agreement remains disputed. This is an issue that was not canvassed
before us. Suffice it to say that if a compromise or settlement of that kind is sought to
be made an order of court, it will only be sanctioned if it accords with the Constitution
and the law.23 And if it is not sought to be made an order of court it risks later challenge.
But the judgment does not impact on the ability of the state to enter into compromise
agreements in respect of indubitably invalid original agreements when there are
uncertain associated claims that may be founded on unjust enrichment or the no -profit
principle. It is important that it was common cause in this matter that the
acknowledgement of debt did not cover any enrichment claim.
[34] This outcome makes it unnecessary to deal with the High Court’s interpretation
of whether the suretyship agreement covers the indebtedness acknowledged in the
acknowledgment of debt. Simply put, if no claim lies against Westside, no claim could
possibly lie against the sureties.
[35] However, for purposes of distinguishing Panamo from the facts of this case, it is
important to elucidate why the suretyship agreement does not cover the
acknowledgement of debt. In terms of clause 2 of the suretyship agreement, the sureties
agreed to be bound only for the “indebtedness” which flowed from the invalid
agreement.24 This is further evident from the fact that their release as sureties, in terms
of clause 10 of the suretyship agreement, coincided with th e full repayment of the
amount of “indebtedness” (R100 million). Clause 2 is subject to clause 10 of the
suretyship agreement.25 This clearly shows an intention by the sureties to be bound
23 Eke v Parsons [2015] ZACC 30; 2016 (3) SA 37 (CC); 2015 (11) BCLR 1319 (CC) at para 26.
24 Clause 2 of the deed of suretyship states as follows:
“The Sureties individually and collectively her eby bind themselves as surety and co-principal
debtor in solidum to [the] Land Bank, its orders or assigns for the due and punctual payment by
the Debtor to [the] Land Bank of the Indebtedness subject to clause 10 and the terms and
conditions set out herein.”
25 Clause 10 of the deed of suretyship states as follows:
FRONEMAN J
15
only for the “indebtedness” arising out of the invalid agreement a nd is distinguishable
from Panamo where the mortgage bond itself stipulated that a bond would be passed to
cover “in general . . . any existing or future debt that Panamo owes or may owe to the
[Land] Bank”.26 That is the reason the Supreme Court of Appeal held:
“A covering bond may provide security for more than one specific debt. The bond may
therefore afford security for more than obligations arising under the loan. It is not
necessarily extinguished merely because the loan is void. . . . The nature of the bond
thus does not exclude the possibility that an enrichment claim may be covered.”27
[36] Even on the assumption that the High Court’s interpretation of the deed of
suretyship is correct, the acknowledged indebtedness remains tainted and cannot found
suretyship liability.
[37] Similarly, it also becomes unnecessary to determine whether the sureties could
be held liable when the object and purpose of the original loan agreement had been
frustrated. That issue has become moot between the parties.
Order
[38] In the result, the following order is made:
1. The second to ninth respondents’ application s to intervene as applicants
are dismissed.
2. Leave to appeal is granted.
3. The appeal succeeds with costs, including the costs of two counsel.
4. The High Court order is replaced with the following:
“The plaintiff’s claim is dismissed with costs”.
“This suretyship agreement remains in force until the debt of one hundred million rand
(R100.000.000) referred to in clause 1 herein and interest and fees thereto have been repaid and
until the Sureties are released from their liabilities in terms hereof, by written notice to that
effect from [the] Land Bank.”
26 Panamo above n 7 at para 33.
27 Id at para 31.
FRONEMAN J
2
For the Applicant:
For the First Respondent:
For the Third, Fifth, Sixth and Seventh
Respondents:
For the Fourth, Eighth and Ninth
Respondents:
M Chaskalson SC and C Avidon
instructed by Etienne Naudé Attorneys
and Conveyancers
V Soni SC instructed by Mkhabela
Huntley Attorneys Inc.
M Snyman instructed by Dibakwane
Attorneys
L de Beer and R Raubenheimer
instructed by Nel and Richter
Incorporated Attorneys