About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2018
>>
[2018] ZASCA 82
|
|
Louis Pasteur Hospital Holdings (Pty) Ltd v Bonitas Medical Fund (281/2017) [2018] ZASCA 82 (31 May 2018)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 281/2017
In
the matter between:
LOUIS
PASTEUR HOSPITAL HOLDINGS (PTY) LTD
APPELLANT
and
BONITAS
MEDICAL FUND
RESPONDENT
Neutral
Citation:
Louis
Pasteur Hospital Holdings (Pty) Ltd v Bonitas Medical Fund
(281/2017)
[2018] ZASCA 82
(31 May 2018).
Coram:
Navsa,
Seriti and Saldulker JJA and Makgoka and Schippers AJJA
Heard:
2 May
2018
Delivered:
31 May
2018
Summary:
Cession
– whether
in
securitatem debiti
or
out-and-out cession – in circumstances of case punitive costs
order justified.
ORDER
On
appeal from
:
Gauteng Division of the High Court, Pretoria (Baqwa J sitting as
court of first instance):
The
appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Navsa
and Saldulker JJA (Seriti JA and Makgoka and Schippers AJJA
concurring):
[1]
The right to the proceeds of two Sanlam investment policies, paid to
the appellant upon maturity, is at the centre of this appeal.
The
appeal is directed against a judgment of the Gauteng Division of the
High Court, Pretoria, in terms of which the appellant,
Louis Pasteur
Hospital Holdings (Pty) Ltd (LPH), which conducts business as a
health care provider, was ordered to pay the respondent,
Bonitas
Medical Fund (Bonitas), a medical aid scheme registered in terms of
the
Medical Schemes Act 131 of 1998
, the sum of R44 245 360
(the ultimate proceeds of the policies) with interest thereon at the
rate of 15.5 per cent per
annum calculated from 29 October 2008 to
date of payment, but limited to no more than R44 245 360.
The appeal is before
us with the leave of this court. The background
is set out hereafter.
[2]
During 1994 Louis Pasteur Medical Investments (Pty) Ltd (LPMI) and
Bonitas embarked on a joint venture to establish a hospital
through a
then dormant company, Maraba Hospital and Medical Centre (Pty) Ltd
(Maraba). In relation to the litigation culminating
in the present
appeal two documents are of importance, namely, a shareholders’
agreement and a funding proposal. These documents
will, in due
course, be considered alongside the other evidence tendered in the
court below.
[3]
The shareholders’ agreement concluded during October 1994
records that Maraba was formed with the intention of operating
a
hospital. Maraba ultimately mutated into LPH. It was envisaged that
the hospital would operate as a private hospital to be known
as the
Louis Pasteur Medical Institute, conducting business at Louis Pasteur
Medical Centre, on the corner of Schoeman and Prinsloo
Streets,
Pretoria. Clause 2.4 of the shareholders’ agreement notes that
74 per cent of the shares in the company would be
held by LPMI and 26
per cent by Bonitas. LPMI is the holding company of LPH.
Consequently, LPMI was required to subscribe for a
total of 444
shares in LPH in cash, at par, which was one Rand. Bonitas in turn
was required to subscribe for 156 shares at par
plus a premium of R12
819.51 per share.
[4]
Thus, clause 6.1 of the shareholders’ agreement, under the
heading ‘Financing’, provides that Bonitas will,
when it
subscribes for shares, pay an amount of R2 million in cash as the
full subscription price. Clauses 6.3, 6.4 and 6.6 are
significant:
‘
6.3
LPMI and Bonitas shall, in proportion to their respective
shareholdings in the company, furnish the security necessary for the
financing of medical and hospital equipment up to a maximum of
R6 000 000. The medical and hospital equipment acquired
with the secured borrowed funds in terms of this clause will include,
inter alia, the items listed in annexure “B”.
6.4
Bonitas shall by no later than fourteen days after the signature date
lend an amount of R1 000 000 to the company
on loan
account. This amount shall accrue interest at the prime rate plus 2%.
The capital amount with interest thereon shall be
repaid to Bonitas
when the board of directors of the company resolves that there are
sufficient funds available which are in excess
of its requirements
for the purpose of the company’s business and subject to the
availability of after-tax profits.
.
. .
6.6
To the extent that any further funds are required by the company for
its working capital and medical equipment, LPMI and Bonitas
shall, if
they agree thereto, furnish the necessary security for those funds,
in proportion to their respective shareholding in
the company.’
[5]
As will become apparent from relevant documentation and the analysis
of the evidence that appears later in this judgment, the
relatively
low amount paid for the 26 per cent
shareholding by Bonitas is best explained by the fact that
it would
provide an exclusive pipeline of patients. Furthermore, LPH would
sublease the building from LPMI, its holding company.
The benefits
for LPH and associated companies are clear to see.
[6]
Clause 13 of the shareholders’ agreement is a non-variation
clause, the relevant parts of which read as follows:
‘
13.1
This agreement, together with the appendices thereto, constitutes the
sole record of the agreement between the parties in regard
to the
subject matter thereof.
13.2
Neither party shall be bound by any representation, express or
implied term, warranty or promise or the like not recorded herein
or
reduced to writing and signed by the parties or their
representatives.
.
. .
13.4
No addition to, variation, or agreed cancellation of this agreement
or any of the appendices hereto shall be of any force or
effect
unless in writing and signed by or on behalf of the parties.’
[7]
Bonitas met its obligations set out in clauses 6.1 and 6.4, which
appear in para 4 above. The cost of establishing and conducting
the
hospital proved challenging and funding was required. During February
1996, Dr Mohammed Adam, the initiator of the idea of
a private
hospital in Pretoria, catering for Black people, together with Mr
Frikkie Lloyd, the then company secretary of LPH, made
representations to Bonitas by way of a funding proposal formulated by
a close corporation,
namely
AFFIN
,
with which Mr Lloyd was associated. This is the proposal referred to
in para 2 above.
[8]
Dr Adam is the driving force behind LPH, is involved in the business
of LPMI and its holding company and is also the central
figure in the
litigation culminating in the present appeal. The relevant parts of
the AFFIN proposal appear hereunder. Where Maraba
is referred to, one
should, for present purposes, take it as a reference to LPH:
‘
1.1
AFFIN has been mandated to obtain the necessary funding to pay for
the equipment to be used in the operating of the Louis Pasteur
Hospital. An amount of R9 million is required.
Lifecare
is also demanding advance payment for drug purchases or acceptable
security. The amount required is estimated at R500 000.
In
addition cash flow productions indicate that in the short-term the
company will also require additional working capital of R1,7
million.
1.2
The financiers which AFFIN approached so far have set demanding
security requirements, that is 50% of the facility must be covered
by
“good security”. Good security is described as easily
realisable assets such as debtors, property or investments.
If “less
good” security is offered (cession of shares, personal
guarantees etc.) the requirements is even higher.
The
reason for this demanding security arrangement is the lack of a
trading record for Maraba.
1.3
Funding will be organised from several financiers i.e
Wesbank
R5 million
Investec/Rand
Merchant R4 million
Lifecare
R0,5 million
First
National Bank
R1,7 million
1.4
Whilst most of the above borrowings can be supported by 80% of the
expected debtors it is not possible to split the debtors
or to make
more than one cession. No single financier [wishes] to be second in
the queue by accepting a reversionary cession.
Trading
projections indicate that debtors will reach R5,5 million when a 55%
occupancy is achieved and R7 million at 65% occupancy.
1.5
In terms of the shareholders’ agreement with LPMI, Bonitas
undertook to provide
surety
to cover 26% of the equipment
funding and support the full working capital requirement whilst LPI
undertook to ensure, from its
own funds, the necessary building
within which 180 beds and 6 theatres can be installed and operated.
1.6
Currently Maraba has working capital available to the value of R3
million which was raised from the sale of shares to Bonitas
(R2
million) and a loan from Bonitas (R1 million).’
Under
the heading ‘
PROPOSAL’
the following appears:
‘
2.1
In order to maximise a cession of debtors it is proposed that the
debtors are ceded to Bonitas in full. Bonitas must then cede
an
insurance policy with a surrender value equal to 80% of the debtors
plus the Bonitas
surety
commitment in respect of the equipment funding to First National
Bank. Ideally it should cover the amount of 80% of the level which
debtors will achieve at 55% occupancy (80 % of R5,5 million, that is
R4,4 million) plus 26% of R9 million, that is R2,3 million.
2.2.
First National Bank will then issue the following guarantees against
the respective facility:
Guarantee
Facility
To
Wesbank
R2,5 million
R5 million
To
Investec/RMB
R2,0 million
R4 million
To
Lifecare
R0,5 million
R0,5 million
To
First National Bank
R1,7 million
R1,7 million
Total
R6,7 million
R11,2 million
It
is envisaged that the above guarantees can be re-negotiated annually
in response to the trading progress of Maraba.
2.3
In addition to the benefit to Maraba of maximising the efficiency of
the security value of its debtors it will also limit the
exposure of
Bonitas to its current investment and the shareholder undertaking in
respect of equipment.
AFFIN
trust that Bonitas will be so kind to support the above proposal at
conditions to be agreed.’ (My emphasis.)
It
is clear that the word ‘surety’ where it appears in the
AFFIN proposal is a typographical error and what the parties
intended
was the word ‘security’.
[9]
On 2 February 1996 Bonitas’ Finance Committee met to consider
the AFFIN proposal and the following decision was recorded:
‘
.
. . that the Fund may sign cession of Sanlam Policy No. 13113913X1 in
respect of facilities availed to Maraba Hospital and Medical
Centre
(Pty) Ltd at First National Bank and that
YEKANI
RICHARD TENZA
in
his capacity as Principal Officer, may sign the necessary forms on
behalf of the Fund.’
Two
days later Bonitas informed LPH that it had approved the AFFIN
proposal. Mr Tenza on behalf of Bonitas completed the necessary
Sanlam forms which gave it notice of the cession of the policy to
LPH. That form, signed by Mr Tenza, indicated that it was a cession
of the rights in the policy to Maraba (LPH) as security for debt.
This was purportedly done in accordance with the terms of the
AFFIN
proposal. LPH purported to on-cede the policy to First National Bank
(FNB). Subsequently, Bonitas surrendered the policy
and Sanlam paid
it the surrender value. To ensure that the financing arrangement
referred to in the AFFIN proposal remained in
place, Bonitas was
called upon by LPH to replace the paid up policy which had been
provided as security. This it did by agreeing
to cede two further
Sanlam investment policies to LPH. The necessary form in relation to
the cession of the two policies giving
notice to Sanlam was once
again completed on behalf of Bonitas by Mr Tenza.
This time
,
however, the standard form contained an annotation providing the
following reason for the cession of the policies:
‘
Outright
cession. Yes.’
Yet
again, the policies were on-ceded to FNB.
[10]
On 1 December 2006 both policies reached their maturity date. The
proceeds amounted to R39 293 353. According to
LPH the
proceeds were reinvested and restructured resulting in a total sum of
R 44 245 360 which it ultimately received.
Part of the
proceeds of the policies was used by LPH to pay off its indebtedness
to FNB flowing from the finance facility provided.
The remainder was
retained for LPH’s benefit.
[11]
Bonitas took the view that it was clear from the shareholders’
agreement and the AFFIN proposal, the terms of which were
agreed with
LPMI and LPH, that it remained the beneficial owners of the policies.
Bonitas was adamant that LPH had no right to
the proceeds of the
policies. Consequently, during 2008, Bonitas instituted action in the
Gauteng Division, Pretoria, for the recovery
of the amount ultimately
paid to LPH together with interest thereon.
[12]
Bonitas claimed repayment of the amount of R44 245 360 on a
number of grounds. Principally, Bonitas relied on the
‘material,
express and/or tacit and/or implied terms’ of the AFFIN
proposal which, it alleged, were essentially that
Bonitas would cede
an insurance policy with a surrender value of R6.7 million to secure
the funding to be provided by FNB to LPH
on overdraft, to fund the
acquisition of equipment and to meet the hospital’s working
capital requirements. In its particulars
of claim, Bonitas alleged
that, in terms of the agreement, it remained the beneficial owner of
the policy and was entitled to its
net proceeds in the event of it
not being required as security. It noted that the cession of the
policy was accessory to the funding
agreement and that LPH would not
be permitted to increase its borrowing without Bonitas’ prior
consent. As a quid pro quo,
so it was alleged, LPH would cede and
assign its debtor book
in
securitatem debiti
to Bonitas. Furthermore, so Bonitas stated, when LPH no longer
required the use of the policy as security and was itself able to
secure its debts, it would immediately procure replacement security
so as to release the policy from any security which it had
previously
been used for, and that the policy would then be re-ceded back to
Bonitas.
[13]
In its particulars of claim, Bonitas alleged that if the policy
reached its maturity date before the need for the security
expired
and Sanlam made payment thereof, LPH or FNB would be entitled to
request Bonitas to provide replacement security to the
satisfaction
of FNB, to enable LPH continued access to the finance facility up to
an amount equal to that which was in place or
in respect of any such
amount as Bonitas may have agreed to. According to Bonitas, in the
event that replacement security was called
for but not provided by
Bonitas, FNB would be entitled to apply the proceeds of the policy up
to an amount of R6.7 million and
LPH would be obliged to pay the
balance to Bonitas.
[14]
Bonitas stated that LPH, unilaterally, without obtaining prior
permission from Bonitas and in breach of the AFFIN proposal,
increased the FNB facility to an amount in excess of the agreed
exposure. The particulars of claim assert that there was thus a
breach of the funding agreement and that in the circumstances Bonitas
was entitled to payment of the full proceeds of the policies.
[15]
In the alternative, Bonitas asserted, in relation to any indication
that the cession of the policies was one which could be
construed as
being other than in the terms set out in the present claim that it
was due to a bona fide mutual error by LPH and
Bonitas. Thus, Bonitas
claimed it was entitled to rectification of the form notifying Sanlam
that there had been an ‘out-and-out’
cession of the
policies. The rectification sought was as follows:
‘
Notwithstanding
anything contained in this cession it is recorded that the cedent
remains the beneficial owner of the proceeds of
the policies and the
cessionary shall upon receipt of any proceeds thereof pay such
proceeds to the cedent.’
Bonitas,
on the basis of the rectification, claimed repayment of the total
proceeds of the policies. Bonitas’ further alternative
claim
was based on enrichment.
[16]
LPH, in its plea resisting Bonitas’ claim, was adamant that the
funding agreement between the parties envisaged an ‘out-and-out’
cession of the investment policy to LPH and that Bonitas would retain
no reversionary interest. In addition, LPH alleged that it
was agreed
between them that Bonitas’ loan account in LPH’s books
would be credited with an amount equal to the value
of the policy on
the date of the ‘outright cession’ on which date it
became the ‘owner of the policy’.
LPH alleged further
that the loan account would be repayable to Bonitas when LPH’s
board of directors resolved that there
were sufficient funds in
excess of its requirements and subject to the availability of
after-tax profits. LPH went on to state
that to secure the loan it
would cede
in
securitatem debiti
its entire debtors book to Bonitas.
[17]
Bonitas insisted that the first policy and the two replacement
policies were ceded on the same basis. LPH admitted receiving
the
policies but was emphatic that it was entitled to retain the proceeds
for its own benefit.
[18]
The dispute between the parties was adjudicated by Baqwa J. He had
regard to the pleadings, the documentation and
viva
voce
evidence tendered during the trial. The court below considered the
evidence of Mr Yekani Tenza, who was Bonitas’ Principal
Officer
in 1994. It had regard to Mr Tenza’s testimony concerning the
origins of the shareholding agreement and how he represented
Bonitas
in relation thereto. Mr Tenza testified about how Bonitas was
determined to establish private hospitals aimed at treating
previously disadvantaged communities. He informed the court about how
he was introduced to Dr Adam and about his involvement in
the
establishment of LPH.
[19]
Baqwa J described the essential parts of Mr Tenza’s evidence as
follows:
‘
The
crux of Tenza’s evidence was that at all material times the
policies which had been ceded by the plaintiff to the defendant
remained the property of the plaintiff and that the plaintiff would
be entitled to the proceeds thereof. He refuted the suggestion
that
the plaintiff had parted with ownership of the policies in favour of
the defendant. His evidence was in line with a body of
objective
evidence in Board minutes, financial statements and correspondence
between the parties.’
[20]
The court below recorded that the standard Sanlam form in respect of
the first policy had been completed by an FNB employee
before Mr
Tenza appended his signature. Baqwa J went on to note that the
problem for Bonitas was that the standard Sanlam form
in relation to
the substitution policies contained the annotation referred to
earlier in this judgment, at para 9, namely, that
in respect of those
two policies there was ‘an outright cession – yes’.
[21]
The evidence adduced on behalf of Bonitas in the court below was that
the standard Sanlam forms in relation to the replacement
policies had
been completed by an FNB employee and had been presented to Mr Tenza,
who signed it without due regard and a proper
understanding of the
nature of cessions. Baqwa J considered that Mr Tenza was unequivocal
that the nature of the cession of the
substituted policies had been
agreed between Bonitas and LPH on exactly the same basis as the
cession of the first policy and in
line with the board decision, the
shareholders’ agreement and the AFFIN proposal.
[22]
Mr Berman Mofokeng, who at the time of the trial in the court below
was 76 years old, had been involved with Bonitas between
1982 and
1998 as a member of the board of trustees. Between 1995 up to 1998 he
was chairperson of the board. Mr Mofokeng testified
that the policies
constituted an investment of investors’ funds and it was always
intended that Bonitas would remain the
beneficial owner of the
policies and would ultimately be entitled to the net proceeds. Mr
Tenza and Mr Mofokeng were the only two
witnesses for Bonitas.
[23]
Dr Mohammed Adam was the only witness for LPH. He was called,
ostensibly in support of LPH’s plea, referred to in para
17
above. At all material times Dr Adam was the controlling mind of LPH.
Baqwa J had regard to his evidence confirming, as testified
to by Mr
Tenza, that he had been involved in discussions with Bonitas that led
to the shareholders’ agreement and the funding
agreement. The
following part of the judgment of the court below is relevant (para
44):
‘
More
importantly, however, whilst Adam admitted that the initial cession
by the plaintiff was as security, he testified that the
policies
which were subsequently ceded to replace the initial policies were an
outright cession which resulted in ownership of
the policies by the
defendant and that this entitled the defendant to do whatever they
wished to do with the policies. Adam relied
for his evidence
regarding the cession of the policies on the cession document which
recorded that the cession was an “
outright
cession”
. Whilst
Adam’s evidence was in line with the cession document, his
evidence was contradicted by numerous contemporaneous
documents such
as Board minutes, correspondence and financial statements.’
[24]
Baqwa J had regard to LPH’s audited financial statements for
the period 1996 to 2008. Neither the first, nor the substituted
policies during that period, were reflected as an asset in the
financial statements of LPH. Furthermore, it is common cause that
there was no concomitant reflection of a credit to Bonitas in the
loan accounts. The only loan reflected in LPH’s financial
statements is an amount of R1 million from Bonitas which is
consistent with what is contained in the shareholders’
agreement.
[25]
Dr Adam was confronted with board minutes and other contemporaneous
documents, including financial statements and correspondence,
which
contradicted the crux of his evidence set out in para 24 above. Baqwa
J noted that his responses were long-winded, rambling
and evasive.
[26]
Not only did the minutes of Bonitas’ board meetings, attended
by Dr Adam reflect that Bonitas had ceded the policies
for purposes
of security for LPH’s debt, but they also stated categorically
that Bonitas would remain the ‘beneficial
owner’ of the
policies. Mr Lloyd, a co-author of the AFFIN proposal, and a director
of LPH, in correspondence with Sanlam,
stated emphatically that the
policies were ceded by Bonitas as security for funds made available
by FNB and that LPH and FNB would
only be entitled to exercise such
rights as they might have in terms of the cession in the event of
default by LPH.
[27]
The court below had regard to the board minutes, the correspondence
by Mr Lloyd, the failure by LPH to call Mr Lloyd as a witness,
as
well as to an affidavit made in related litigation by Dr Adam, which
was consonant with the position adopted in the present
litigation by
Bonitas.
[28]
Baqwa J rejected Dr Adam’s explanation for the contradictions
which, amongst others, was that he had been misled by Mr
Lloyd and Mr
Nkosi, who at one stage was Bonitas’ principal officer. The
court below considered the explanation hollow in
the face of board
meetings at which resolutions were adopted without demur by Dr Adam.
[29]
In his judgment, Baqwa J concluded that it was inescapable that the
AFFIN proposal catered for the cession of a policy as security
and
that it was always contemplated that Bonitas would remain the
‘beneficial owner’ of the policies. It is unchallenged,
as recorded by the court below, that the LPH loan secured by the
policies was never called up by FNB.
[30]
The following two paragraphs are the conclusions of the court below
in relation to the evidence presented (paras 105 and 106):
‘
On
the evidence the defendant appropriated the proceeds of the policies.
In the circumstances where FNB and/or the defendant had
failed to
request the plaintiff to provide replacement security to the
satisfaction of FNB to enable the defendant to continue
to have
access to overdraft facilities, I find that the defendant breached
the funding agreement by applying a portion of the proceeds
of the
policies in order to settle the defendant’s indebtedness under
the FNB facility and/or retaining a portion of the
proceeds of the
policies for itself and not paying the proceeds of the policies to
the plaintiff.
As
a matter of law, the plaintiff is entitled to interest on the sum of
R44 245 360.68 at the prescribed rate of interest
as
provided for in terms of
Section 1
of the
Prescribed Rate of Interest
Act 55 of 1975
. The prescribed rate of interest given the time of the
issuing of summons on 29 October 2008 would be subject to the in
duplum
rule.’
[31]
In respect of costs Baqwa J had regard to what he considered LPH’s
dishonest conduct, particularly in relation to pursuing
a case which
was completely at odds with the objective evidence. He also held Dr
Adam’s petulant conduct in the witness box
against him. The
conduct included his personal attacks on Bonitas’ lead counsel.
Consequently, the court below made the following
order:
‘
1.
The defendant is ordered to pay the plaintiff:
1.1.
The sum of R44 245 360.68.
1.2.
Interest on the sum of
R44 245 360.68 at the rate of 15.5% per annum calculated
from 29 October 2008 to date of payment,
but limited to no more than
R44 245 360.68.
2.
Cost of suit on the scale as
between attorney-and-client, which costs are to include the costs
occasioned by the employment of two
counsel.’
[32]
It is necessary at the outset to consider the distinction between an
out-and-out cession and a cession
in
securitatem debiti
.
In L F van Huyssteen et al
Contract
General Principles
(2016) 5 ed at 467 (and the authorities there cited) an out-and-out
cession is described as:
‘
A
cession made to effect an alienation of a right effects a complete
transfer of the right to the cessionary.’
Starting
with
National
Bank of South Africa Ltd v Cohen’s Trustee
1911 AD 235
, this court has, in a series of decisions, held that a
cession
in
securitatem debiti
resembles
pledge and that the cedent is not wholly divested of an interest in
the asset he provided as security to the cessionary.
Notwithstanding
the cession the cedent retains what has been described as a
reversionary interest.
[1]
[33]
Next, we turn to consider the legal principles in relation to how
cessions are effected. A cession is effected by mere agreement.
In 2
Lawsa
2 ed para 5 the following appears:
‘
Since
the object of a personal right is the as yet unrealised performance
due by another, delivery by the cedent or possession by
the
cessionary is not, in a physical sense, possible. Transfer is
accordingly achieved not by reference to the object of the right
(the
performance) or the concurrence of the debtor who is to render it,
but by the interactive meeting of minds of the transferor
and the
transferee. By their mere agreement the transfer is effected,
irrespective of the prior knowledge or consent or the subsequent
notification of the debtor.’ (Footnotes omitted.)
[34]
It will be recalled that in the court below, LPH relied on the
evidence of Dr Adam to establish its pleaded case, namely, that
the
cession of the two Sanlam policies was an out-and-out cession and
that it was entitled to the proceeds when the policies matured.
Before us, however, counsel for LPH was constrained not to argue
against the proposition that a careful examination of the record
reveals that Dr Adam was a palpably bad witness in that he
contradicted himself, was evasive and appeared to make things up as
he went along. Counsel contended, however, that the objective
evidence including documentary evidence and the probabilities
supported
LPH’s case that there had been an ‘out-and-out
cession’ without any reversionary right and that LPH had, in
consequence,
become the beneficial owners of the two Sanlam policies.
[35]
In our view it is clear that Dr Adam’s evidence cannot be
relied on and that the court below was correct in rejecting
his
evidence concerning the nature of the cessions. The submission on
behalf of LPH that the objective evidence, including relevant
documentation, and the probabilities support its pleaded case falls
to be scrutinised. It is important to bear in mind that in
terms of
the shareholders’ agreement, LPMI and Bonitas would, in
proportion to their respective shareholdings, furnish ‘the
security necessary’ for the financing of medical and hospital
equipment ‘up to a maximum of R6 000 000’.
It will
be recalled that the shareholders’ agreement provided for the
eventuality of further funding becoming necessary and
in that event
security would once again be provided by LPMI and Bonitas in
proportion to their respective shareholding.
[36]
We referred earlier, in para 26, to the documentation that had been
put to Dr Adam for comment including board minutes, correspondence
and financial statements that aligned with Bonitas’ case and
contradicted LPH’s pleaded case. We consider it necessary
to
refer once again to those documents and to record that after the
cession of the two substituted Sanlam policies, Bonitas continued
paying the premiums which, in itself, is at odds with LPH’s
case. In addition, Mr Lloyd, who was intimately connected to
the
AFFIN proposal, during 1999, wrote to Bonitas seeking consent to an
increase in the finance facility at FNB and recorded specifically
that the facility was secured by the cession of two investment
policies ‘owned by Bonitas’. Mr Lloyd then wrote to
FNB
in the following terms:
‘
In
discussion with the Principal Executive Officer of Bonitas he
confirmed that it is the policy (sic) of Bonitas to continue to
provide security acceptable to First Commerce in respect of the
hospital’s liability until the hospital can adequately provide
in its own funding and or security requirements. Bonitas do (sic) not
plan to divest from the policies which First Commerce now
hold as
security.’
[37]
During August 1999, at an LPH board meeting, the following was
discussed and decided, as recorded in the minutes of that meeting:
‘
Mr
Lloyd advised that the facility of R10 million is now in place. Mr
Nkosi tabled a letter from Bonitas dated 18
th
August 1999 advising of problems with regard to the ownership of the
two policies ceded (sic) to the company. The board confirmed
that it
was always the intention of the company that Bonitas remains the
beneficial owner of the policies and that any benefits
declared by
Sanlam will belong to Bonitas.’
At
the following LPH board meeting, what is set out above was
reconfirmed.
[38]
Insofar as LPH’s annual financial statements are concerned, the
following is to be noted. For the entire period from
1996 to 2006
LPH’s annual financial statements did not reflect any of the
ceded investment policies as an asset (or assets)
in its balance
sheet. The LPH annual financial statements covering the entire period
from 1996 to 2006 in each case reflected that
the only loan from
Bonitas to LPH is a loan of R1 million (as per clause 6.4 of the
shareholders’ agreement). The LPH annual
financial statements
of 1997, 1998 and 1999 in each case reflected that LPH’s
debtors were ceded to Bonitas as ‘security
for the Sanlam
investments policy’. In respect of the LPH annual financial
statements for 1998 and 1999, the directors’
report in each
case recorded that the policies are ‘owned by the
shareholders’.
[39]
The harsh criticism on behalf of LPH of Mr Tenza’s evidence is
not justified. It was contended that his evidence was
contradictory
and not credible. More particularly, it was contended that he was
unable to satisfactorily explain why there was
a cession to LPH
rather than to FNB directly and that his testimony concerning the
nature of the cessions and the basis on which
they were effected was
unsatisfactory. In our view, it is clear that his evidence on this
aspect and in relation to the cessions
in general was based on a lack
of appreciation of the technical nature of cessions and their legal
basis and effect and he placed
reliance on support staff to guide him
in this respect. Mr Tenza’s evidence as to how the annotation
‘outright cession
- yes’ was inserted erroneously in the
notification to Sanlam can be attributed to these factors.
[40]
The objective evidence referred to above, coupled with Dr Adam’s
manifestly vacillating and manufactured testimony lead
to the
ineluctable conclusion that the findings by the court below
concerning the nature of the cessions in question and the basis
on
which they were effected are unassailable. Furthermore, one might
rightly ask, why there would be an ‘out-and-out cession’
by Bonitas in the face of their statutory fiduciary duty to protect
the interests of the scheme’s beneficiaries and to act
with due
care and diligence in relation to its assets.
[2]
[41]
As stated above, Bonitas, in consequence of the AFFIN proposal,
reached agreement with LPH that it would cede the first Sanlam
policy
as security for the finance facility to be provided by FNB. The
cession was complete when Bonitas, the cedent, reached agreement
with
LPH, the cessionary, which, in turn, it was understood, would on-cede
the policies to FNB. Notice to Sanlam was to afford
the ultimate
cessionary, FNB, protection when it sought to enforce its right
against Sanlam in justifiable circumstances, namely,
default by
LPH.
[3]
[42]
From what is set out above, it is clear that the cession of the two
policies was
in
securitatem debiti
.
It was always intended that the cession would serve as security for
LPH’s finance facility with FNB. In the present case
there is
no question of default, which would have entitled FNB to proceed to
obtain payment up to the extent of the security from
Sanlam.
[4]
By this time LPH would have had a significant trading record and it
does not appear that FNB required replacement security before
LPH
settled its debt. Neither the shareholders’ agreement nor the
agreement, post the AFFIN proposal, entitled LPH to appropriate
the
proceeds of the policies. In so doing, LPH acted in breach of both
agreements, as contended for by Bonitas.
[5]
That Bonitas’ particulars of claim were not elegantly framed or
with exactitude is of no moment. It was always clear that
the dispute
between the parties centred on the terms of the shareholders’
agreement and the agreement following on the AFFIN
proposal. The
cessions in question were premised on those two documents. The issue
set out at the beginning of this judgment is
the one understood by
the parties to be adjudicated. For all the reasons set out above, the
essential reasoning and conclusions
of the court below cannot be
faulted. The approach of the court below to the question of costs was
motivated and compelling. There
is, in our view, no reason to
interfere with the costs order. The order of the court below in
relation to interest, which on the
face of it seems peculiar, is due
to the application of the in-duplum principle.
[43]
In the result, the following order is made.
The
appeal is dismissed with costs, including the costs of two counsel.
_________________
M
S Navsa
Judge
of Appeal
_________________
H
K Saldulker
Judge
of Appeal
Appearances:
On
behalf of the appellant:
B Burman SC (with him G Girdwood)
Instructed by:
Terry Mahon Attorneys,
Johannesburg
Webbers,
Bloemfontein
On
behalf of the respondent:
M Maritz SC (with him D van Zyl)
Instructed by:
Gildenhuys Malatji Inc.,
Pretoria
Honey Attorneys,
Bloemfontein
[1]
See the discussion concerning the
doctrinal differences on cessions
in
securitatem debiti
in P M
Nienaber’s ‘Cession’ in 2
Lawsa
2 ed paras 52-53 and the decisions by this court there cited. See
also
Grobler v Oosthuizen
2009 (5) SA 500
(SCA) para 17 and the authorities there cited; see
also L F van Huyssteen et al
Contract
General Principles
(2016)
5 ed at 471-473.
[2]
See
s 57(6)
of the
Medical Schemes
Act 131 of 1998
.
[3]
See P M Nienaber ‘Cession’
2
Lawsa
2 ed paras 6 and 26 and the authorities there cited. See also
Agricultural &
Industrial Mechanisation (Vereeniging) (Edms) Bpk v Lombard en
andere
1974 (3) SA 485
(O).
[4]
See also
P
G Bison Ltd & others v The Master & another
2000 (1) SA 859
(SCA) at 15 and
Land-
en Landboubank van Suid-Afrika v Die Meester en andere
1991
(2) SA 761
(A) at 771D-G.
[5]
See
Grobler
fn 1 para 26.