Investec Bank Ltd v Louw and Another, Investec Bank Ltd v Louw and Another, Investec Bank Ltd v Louw and Another, Louw and Others v Minister of Trade and Industry and Others (21145/2011, 21143/2011,21144/2011) [2012] ZAWCHC 170 (12 September 2012)

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[2012] ZAWCHC 170
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Investec Bank Ltd v Louw and Another, Investec Bank Ltd v Louw and Another, Investec Bank Ltd v Louw and Another, Louw and Others v Minister of Trade and Industry and Others (21145/2011, 21143/2011,21144/2011) [2012] ZAWCHC 170 (12 September 2012)

IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE HIGH COURT, CAPE TOWN)
Case No. 21145/2011; 21143/2011; 21144/2011
In the matter between:
INVESTEC
BANK LIMITED
..................................................................................................................
Applicant
and
ANTON LOUW
............................................................................................................................
1
st
Respondent
CONCETTA
PAULINE LOUW
...................................................................................................
2
nd
Respondent
(Case
No. 21145/2011 - "the Anton Louw sequestration application")
INVESTEC BANK LIMITED
...................................................................................................................
Applicant
and
JOHANNES ADRIAAN LOUW
...................................................................................................
1
st
Respondent
CAROLA CECILE LOUW
..........................................................................................................
2
nd
Respondent
(Case No. 21143/2011 - "the
Johannes Louw sequestration application")
INVESTEC
BANK LIMITED
...................................................................................................................
Applicant
and
DEWALD LOUW
.........................................................................................................................
1
st
Respondent
ANEL
LOUW
..............................................................................................................................
2
nd
Respondent
(Case
No. 21144/2011 - the Dewald Louw sequestration application")
ANTON LOUW
.................................................................................................................................
1
st
Applicant
JOHANNES
ADRIAAN LOUW
.......................................................................................................
2
nd
Applicant
DEWALD LOUW
.............................................................................................................................
3
rd
Applicant
and
THE MINISTER OF TRADE &
INDUSTRY
..................................................................................
1
st
Respondent
THE
MINISTER OF JUSTICE &
CONSTITUTIONAL
DEVELOPMENT
.........................................................................................
2
nd
Respondent
INVESTEC
BANK LIMITED
.........................................................................................................
3
rd
Respondent
(Case No. 21144/2011 - "the
counter application")
Coram:
BOZALEK
J
Judgment:
BOZALEK J
Heard:
20 - 24 AUGUST 2012
and 27 AUGUST 2012
Delivered:
12 SEPTEMBER 2012
Sequestration Application
For
the Applicant: Adv BDJ Gassner SC
As
instructed by: Edward Nathan Sonnenbergs
(ref:
Ms C Morgan/Ms L Field)
For
the Respondents: AdvF Joubert SC etAdvJ De Vries
As
Instructed by: Lombard & Kriek
(ref:
Mr JC Kriek)
Counter
Application
For
the Applicant: Adv J de Waal
As
instructed by: Lombard & Kriek
(ref:
Mr JC Kriek)
For
First and Second Respondents: Adv RT Williams SC et Adv T Sidaki
As
Instructed by: The State Attorney
(ref:
Mr L Ngwenya)
For
the Third Respondent: Adv APH Cockrell SC et Adv Ferreira
As
Instructed by:
Edward
Nathan Sonnenbergs
(ref:
Ms C Morgan/Ms L Field)
Enclosed
is a judgment by Bozalek, J of which only the issues dealt with in:
Para's
1 - 7; para's 43 - 64 & para's 86 - 91 are reportable.
THE REPUBLIC OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
WESTERN CAPE HIGH COURT, CAPE TOWN
CASE NO: 21 145/2011; 21143/2011; 21144/2011
In the matter between:
INVESTEC
BANK LIMITED
...................................................................................................................
Applicant
and
ANTON LOUW
............................................................................................................................
1
st
Respondent
CONCETTA
PAULINE LOUW
...................................................................................................
2
nd
Respondent
(Case
No. 21145/2011 - "the Anton Louw sequestration application")
INVESTEC BANK LIMITED
.................................................................................................................
.
Applicant
and
JOHANNES ADRIAAN LOUW
...................................................................................................
1
st
Respondent
CAROLA CECILE LOUW
..........................................................................................................
2
nd
Respondent
(Case No. 21143/2011 - "the
Johannes Louw sequestration application")
INVESTEC
BANK LIMITED
Applicant
and
DEWALD LOUW
.........................................................................................................................
1
st
Respondent
ANEL
LOUW
..............................................................................................................................
2
nd
Respondent
(Case
No. 21144/2011 - the Dewald Louw sequestration application")
ANTON LOUW
.................................................................................................................................
1
st
Applicant
JOHANNES
ADRIAAN LOUW
.......................................................................................................
2
nd
Applicant
DEWALD LOUW
.............................................................................................................................
3
rd
Applicant
and
THE MINISTER OF TRADE &
INDUSTRY
..................................................................................
1
st
Respondent
THE
MINISTER OF JUSTICE &
CONSTITUTIONAL
DEVELOPMENT
.........................................................................................
2
nd
Respondent
INVESTEC
BANK LIMITED
.........................................................................................................
3
rd
Respondent
(Case No. 21144/2011 - "the
counter application")
JUDGEMENT: 12 SEPTEMBER 2012
BOZALEK J:
[1] The applicant in all three of these matters,
Investec Bank Limited, seeks provisional sequestration orders against
the first
respondents in each case, namely Messrs Anton Louw,
Johannes Louw and Dewald Louw. I shall refer to them collectively as
the respondents.
The second respondents in each case are their
respective wives against whom no direct relief is sought since in
each case they
are married out of community of property. [2] The
respondents opposed the relief sought and filed voluminous answering
affidavits.
At the hearing of this matter only Mr Dewald Louw was
represented by counsel. Neither of the two remaining respondents
appeared
in person or were legally represented but they continued to
oppose the relief sought.
[3] Also before the Court is a so
called
"constitutional
counter application"
("the
counter application") in which the three respondents are the
applicants whilst the Ministers of Trade and Industry
and Justice are
the first and second respondents respectively and Investec Bank
Limited is the third respondent. [4] In the main
application Mr
Dewald Louw was represented by Mr Joubert SC together with Mr De
Vries, with the applicant being represented by
Ms Gassner SC. In the
counter application Mr De Waal appeared for the applicants together
with Mr De Vries, Ms Williams SC for
the first and second respondents
and Mr Cockrell SC together with Mr Ferreira for the third
respondent.
[5] The papers in this matter
eventually comprised more than 6000 pages, albeit that a great deal
thereof comprised annexures, and
argument continued into a fifth day.
I propose to deal firstly with the sequestration applications and
then with the counter application.
The issues in the three
sequestration applications differ, the only substantial issue in the
case of Mr Johannes Louw and Mr Anton
Louw being the question of
whether a sequestration order will result in an advantage to
creditors whilst in matter of Mr Dewald
Louw the principal issue is
whether the applicant has established its
locus
standi
as a
creditor which can move for an order of provisional sequestration
against the respondent.
BACKGROUND
[6] The respondents are businessmen
who were key figures in a construction and development business which
can be loosely described
as the Aslo Group of companies. In 2005/2006
the Aslo Group, through one of the companies in its stable, Dormell
Properties 560
(Pty) Ltd ("Dormell"), became involved in a
large property development in Knysna which was financed by the
applicant.
To this end Dormell entered into a loan agreement with the
applicant during May 2006 for a capital amount of some R139m although

an amount of less than R80m was ultimately advanced by the applicant
to Dormell. As security for the repayment of the loan the
applicant
required a considerable number of suretyships by various persons and
entities within the Aslo Group including the respondents
who were
amongst the principal directors within the group. In April 2006 the
respondents entered into unlimited continuing suretyship
agreements
in favour of the applicant for monies owed or to become owing by
Dormell to the applicant. Re-negotiation of the initial
loan
agreement took place on several occasions when Dormell was unable to
repay its indebtedness to the applicant and it was ultimately
placed
into final liquidation on 7 February 2012. At the around the same
time various other companies within the Aslo stable were
similarly
placed into liquidation, in some cases after business rescue
applications had failed. [7] In an effort to recover the
funds
advanced to Dormell the applicant instituted a range of legal
proceedings including the present three sequestrations applications.

They are based, in each case, upon the agreements of suretyship
concluded by the respondents and the applicant's allegation that
the
respondents, as sureties for and co-principal debtors with Dormell,
are indebted to the applicant in amount of some R86m. Messrs
Anton
and Johannes Louw do not dispute their indebtedness to the applicant
in terms of the suretyships although they take issue
with the
quantum, alleging that the applicant is not entitled to some R16m to
which it lays claim. [8] In the case of Mr Dewald
Louw, however, his
case is that there is no indebtedness on his part since he was
released from the suretyship in terms of an oral
agreement. In this
regard he states that he decided to withdraw from the property
development business comprised of the Aslo Group
of companies in
November 2007 (and also the related construction business, the Johan
Louw Konstruksie
{"JLK')
group) in order to
focus solely on farming. To this end he entered into negotiations
with his brothers (the two other respondents)
with a view to
disposing of his interests in the Aslo and JLK groups and purchasing
a farm owned by the group. When the last leg
of this transaction was
completed in October 2008 the relevant banking institutions,
including the applicant, were informed thereof
and his suretyships
were cancelled. More specifically with regard to the applicant, the
respondent relies on a meeting between
his brother, Anton Louw, and
officials of the applicant sometime after 20 October 2008 when the
former allegedly informed them
of his [Mr Dewald Louw's] departure
from the Aslo Group of companies to which their alleged oral response
was that the applicant
would cancel the suretyship in question.
[9] The applicant denies the conclusion of any such
agreement or release but concedes, for the purposes of these
proceedings, that
there is a bona fide dispute regarding this and
various other issues ancillary to this dispute. These are set out in
affidavits
filed by the applicant and are as follows:
a.
whether
the oral agreement relied on by the respondent to resist
the
suretyship indebtedness was concluded;
b.
whether
the respondent in fact received a letter from the applicant
dated
25 March 2009 advising him that his liability in terms of
the
suretyship remained in full force and effect;
c.
whether
the applicant in fact wrote/sent the above letter to the
respondent.
[10] Notwithstanding the existence of
these bona fide factual disputes and the
"Badenhorst
principle"
1
,
which has also been
interpreted in sequestration applications as precluding such
proceedings for the recovery of a debt which is
disputed on bona fide
grounds, the applicant contends that it is nonetheless entitled to a
provisional order of sequestration against
the respondent.
[11] In Investec Bank v Lewis
2
it was pointed out that Badenhorst
rule, as later formulated by Corbett, JA in
Kalil
v Decotex (Ptv) Ltd
1988
(1) SA 943
(A)
,
provides that where indebtedness to the applicant is disputed the
onus is on the respondent to show merely that the indebtedness
is
disputed on bona fide and reasonable grounds.
[12] In the present matter the applicant contends that
notwithstanding the existence of the bona fide factual disputes, on a
proper
analysis of the issues it is entitled to a sequestration order
since the respondent cannot dispute his indebtedness on bona fide
and
reasonable grounds. Even assuming in his favour the disputed facts,
the respondent can, nonetheless, not escape liability under
the
suretyship because it contains a so called non-variation clause in
terms of which the surety may only be released from its
provisions in
writing signed by both parties.
[13] The respondent contends, however, that properly
interpreted, the suretyship agreement permits the release of the
surety or,
put differently, the cancellation of the suretyship by the
applicant, other than in writing. In the alternative it is contended

that should any release from or cancellation of the suretyship be
required in writing, certain documentation issued by the applicant

amounted to a release in writing. In the further alternative, further
defences raised by the respondent are that the applicant
is estopped
from relying on the deed of suretyship; it has waived its rights in
terms of the deed of suretyship, that the respondent
is entitled to
ask for specific performance of the oral agreement, namely
cancellation of the suretyship and having this recorded
in writing by
the applicant and signed by it; alternatively, that the respondent is
entitled to rely on the fictional fulfilment
of a self-created
formality by the applicant and, finally, that it would be against
public policy to enforce the deed of suretyship.
[14] I approach the various defences
on the basis that I must assume the disputed facts to be as contended
on the respondent's version
but that, if on that version his defences
are nonetheless bad in law then it must follow that he has not
discharged the onus of
showing that he disputes his indebtedness on
"bona fide and
reasonable grounds".
Put
differently, if the respondent's defence are bad in law then by
definition they can be neither
bona
fide
nor
reasonable.
THE INTERPRETATION OF THE DEED OF SURETYSHIP
[15] The central issue is whether the
deed of suretyship, properly interpreted, requires that any
cancellation of or release therefrom
must be in writing. In order to
consider this question it is necessary to quote portions of the
agreement. It is entitled an
Unlimited
Continuing Suretyship
"
and in terms of
clause 1.1.1 the respondent bound himself in the applicant's favour
as surety
"in
solidum for and co-principal debtor jointly and severally with"
Dormell Properties
560 (Pty) Ltd:
"for the due and punctual payment by the Debtor
of all and any monies which the Debtor may now or from time to time
in the
future owe to Investec from whatsoever cause and howsoever
arising ..."
and
"for
the
due and punctual performance and discharge by the Debtor of his
obligations under or arising from, any contract or agreement
entered
into or to be entered into in the future by the Debtor, from
whatsoever cause and howsoever arising."
The agreement provides that the
amount recoverable in terms of the deed of suretyship would be
unlimited. Under the heading
"Additional/Continuing
Security
"
the agreement
reads:
"6.1. This Deed of Suretyship is in addition to
and without prejudice to any other security or suretyship (including
any suretyship
signed by the Surety) now or hereafter to be held from
or on behalf of the Debtor and shall remain in force as a continuing
security
for the whole amount now due or owing to Investec or which
at any time hereafter may become due or owing to Investec by the
Debtor,
notwithstanding any intermediate settlement or fluctuation of
account or novation.
6.2. This Deed of Suretyship shall
remain in force notwithstanding the death, insolvency, sequestration,
surrender, winding up,
judicial management (whether provisional or
final) or legal disability of the Debtor or the Surety or any
co-sureties,
until
receipt by the Surety of notice in writing from Investec terminating
same
and
until the sum or sums due or to become due, whether contingently or
otherwise at the date of receipt of such notice, shall have
been
paid, it being recorded for the sake of clarity that the Surety will
therefore not be liable for any obligation incurred after
the date of
receipt of such written notice of termination but that the Surety
will remain liable for all obligations incurred before
the date of
receipt of such written notice, whether such obligation is contingent
or not, including obligations which arose before
receipt of such
notice but are only discovered, disclosed or otherwise established or
subsequently and/or which revive for any
reason whatsoever
thereafter."{my
underlining)
[16] The crucial clause, clause 16,
headed
"Non-Variation
"
reads as
follows:
"No variation or cancellation (whether oral,
consensual or otherwise) of the terms of this Deed of Suretyship
shall be of any
force or effect unless it is reduced to writing and
signed by the Surety and Investec. This Deed of Suretyship is and
shall at
all times remain Investec's property.
[17] On behalf of the respondent Mr
Joubert contended that the non-variation clause is concerned only
with the variation or cancellation
of specific or individual terms or
conditions of the deed of suretyship and as such did not govern the
situation where the deed
of suretyship was cancelled as a whole and
the surety thereby released from the suretyship. For this
interpretation he relied on
the heading of the clause,
"Non-Variation
",
which, he
submitted, excludes the concept of a general cancellation or release,
and the phrase
"of
the terms"
which,
he submitted, underlined the distinction between the variation of one
or more clauses of the deed of suretyship as opposed
to its
cancellation as a whole.
[18] In
Coopers
and Lvbrand and Others v Bryant
[1995] ZASCA 64
;
1995
(3) SA 761
(AD)
a
clear statement of the approach to be followed in the interpretation
of contracts was set out as follows at 767 E - 768 E:
"According to the 'golden rule' of
interpretation the language in the document is to be given its
grammatical and ordinary
meaning, unless this would result in some
absurdity, or some repugnancy or inconsistency with the rest of the
instrument...
The mode of construction should never be to interpret
the particular word or phrase in insolation (in vacuo) by itself...
The correct approach to the application of the
'golden rule' of interpretation after having ascertained the literal
meaning of the
word or phrase in question is, broadly speaking, to
have regard:
1) to the context in which the word or phrase is used
with its interrelation to the contract as a whole, including the
nature and
purpose of the contract...
2) to the background circumstances which explain the
genesis and purpose of the contract, ie to matters probably present
to the
minds of the parties when they contracted.
3) to apply extrinsic evidence regarding the
surrounding circumstances when the language of the document is on the
face of it ambiguous,
by considering previous negotiations and
correspondence between the parties, subsequent conduct of the parties
showing the sense
in which they acted on the document, save direct
evidence of their own intentions."
[19] Applying this approach, it seems
quite clear that the agreement stipulates that any general
cancellation of its provisions
or release of the surety from his
obligations has to be in writing and signed by the surety and the
applicant. In arriving at the
conclusion I bear in mind, in the first
place, that by virtue of s 6 of Act 50 of 1956, no contract of
suretyship is valid unless
the terms thereof are embodied in a
written document signed by or on behalf of the surety. It is well
established that by virtue
of these statutory provisions, variations
of the material terms of a deed of suretyship are also invalid unless
reduced to writing
and signed in the prescribed manner. If,
therefore, clause 16 is construed as applying only to the variation
of individual clauses
in the agreement it would in effect be
superfluous.
3
[20] If, however, the clause is
construed as requiring the cancellation of the entire agreement or
the release of the surety to
be in writing then it indeed serves an
important purpose. In
Tsaperas
and Others v Boland Bank Ltd
4
Harms, J summarises the relevant
legal provisions applying to a situation such as the present as
follows:
"Although a suretyship agreement requires
writing and the surety's signature for validity, there are no
formalities for a valid
cancellation. A surety is also generally
entitled to cancel by notice and unilaterally his future obligations
under a continuing
guarantee. If the agreement prescribes formalities
for the amendment or determination of the suretyship, these are
binding upon
both parties. Lastly, a deed of suretyship must be
interpreted restrictively and in favour of the surety. It does not
mean that
the agreement must not be interpreted sensibly.
[21] The learned judge describes the
object of a non-cancellation clause as
"fairly
obvious":
"It protects the creditor. It enables the
creditor to determine its rights with the reference to the document
in its possession.
The creditor does not have to rely on the memory
of employees or ex-employees. It protects the creditor against
spurious defences
and unnecessary litigation."
[22]
This
point was reinforced in
HNR
Properties CC and Another v Standard Bank of SA Ltd
2004
(4) SA 471
(SCA) w
here
Scott, JA added that the need for the provision of such clause is
greater:
"...where the creditor, as in the present case,
is a large organisation comprising different divisions and employing
a large
number of people. The surety, on the other hand, is unlikely
to be prejudiced. Institutions such as banks do not lightly release

sureties while the debt of the principal debtor remains extant. If
there is a release it is in the interests of both parties that
it be
readily capable of proof."
[23] Mr Joubert conceded that if the
words
"of the
terms"
did not
appear in clause 16 it could only be interpreted as requiring any
cancellation of the suretyship as a whole to be in writing.
But the
presence of these words does not to my mind inevitably suggest that
the
"cancellation"
envisaged cannot be
a general cancellation or release of the surety since the phrase
"cancellation
of the terms of this deed of suretyship"
quite
easily expresses or encompasses, without straining the meaning of the
words, the notion of a general cancellation. It is so
the phrase
"of
the terms"
can
be seen as superfluous and there is a presumption against tautology
in the interpretation of contracts. On the other hand to
give the
clause the meaning for which the respondent contends would render the
key word
"cancellation"
tautologous, and
the entire clause meaningless, since the cancellation of a particular
term of a contract is encompassed by the
notion of varying the terms
of the deed of suretyship and, in any event, statutory law requires
any variation to be in writing.
[24] In interpreting the clause I
place no great importance on the use of the heading
"Non-Variation",
as opposed for
example to
"Non-Variation
and Cancellation".
It
seems quite clear that the phrase
"non-variation"
is a term of art
which refers to the entire subject of clauses which require any
variation or cancellation to be in writing in order
to achieve
certainty and avoid disputes. By way of illustration, in Christie's
Law of Contract, ironically under the heading
"
Non-Variation
Clauses
",
the author
writes:
"When the parties impose
restrictions on their own power of subsequent variation or
cancellation of their contract ... they
will incorporate in their
contract a
non-variation
clause
. (6
th
Edition at page 464). [my
underlining].
[25] A further strong indication that
what the parties envisaged was a non-variation clause which gave no
force to cancellations
of the agreement other than in writing, are
the provisions of clause 6, quoted above. It stipulates that the
surety's obligation
will remain in force until receipt by him
"of
notice in writing from Investec terminating same"
in
which event the surety still remains liable for such sums as fell due
prior to such notice being received. Given the wide reach
of this
clause and its stringency it is not possible to sensibly interpret
clause 16 as nonetheless envisaging a general cancellation
or release
of the surety from all liability, past or future, being effected
simply by means of an oral cancellation or agreement.
[26] In reaching this conclusion I take into account the
provisions of the prior loan agreement with Dormell 260 which led to
the
various suretyships including that of the respondent's. In terms
of that agreement a very substantial loan was made as security
for
which the applicant stipulated that it required the joint and several
unlimited continuing suretyships of a number of companies
within the
Aslo Group as well as its key directors including the three Louw
brothers.
[27] I hold then that, properly interpreted, the
suretyship agreement as a whole and clause 16 in particular,
precludes the release
of the surety/ a general cancellation of the
suretyship agreement by the creditor (the applicant) other than where
such release/cancellation
is reduced to writing and signed by it and
the surety.
[28] It follows, therefore, subject to the respondent's
further and alternative defences, that he is not entitled to rely on
an
oral agreement of cancellation of the suretyship to escape
liability thereunder.
WAS THERE A TERMINATION IN WRITING?
[29] I turn now to consider the
alternative defences the first of which is that the applicant did in
fact terminate the suretyship
in writing. Here the respondent relies
on the restructured loan agreement between the applicant and Dormell
concluded in March
2009 which, as in the previous agreement, lists
the numerous suretyships subject to which the loan finance was
granted. In contrast
to the original 2006 loan agreement and the
restructured 2007 loan agreement, the restructured 2009 loan
agreement excluded the
name of the respondent as a surety. This,
submits the respondent, read together with an exchange of emails
between what appears
to be administrative employees of Aslo Holdings
and Property Developers and the applicant in August 2011, is signed
notice in writing
that his pre-existing suretyship was cancelled. In
the email exchange the Aslo Holdings representative asks the
applicant
"for
audit purposes"
for
a list of the sureties in respect inter alia of Dormell Properties.
The reply from the applicant lists
inter
alia
15 sureties
for Dormell Properties
"as
per our records" but
excludes
the respondent's name.
[30] In
HNR
Properties CC
(supra)
it was held that where a clause in a suretyship agreement requires
the release of the surety to be in writing it does not
mean that when
construing the writing it is impermissible to have regard to
background circumstances. Nonetheless, in every case
the intention to
release must appear from the writing itself.
"It may be explicit or implicit. But if the
latter, the intention to release must be apparent from the writing on
an ordinary
grammatical construction of the words used or, stated
differently, the release of the surety must be a necessary
implication of
the words used. It is therefore not permissible to
import into the writing, whether by reference to background or
surrounding circumstances
or any other sources, an intention to
release which is otherwise not ascertainable from the actual language
of the document reliedupon.
If the position were otherwise the very
object of the requirement of writing would be frustrated."
[31] Having regard to the documents relied upon by the
respondent it is clear that the high water mark of his case is simply
the
omission of his name as a surety in the restructured agreement
and in the applicant's response in the email exchange. These words

clearly do not expressly release the surety and, in my view, they
fall far short of impliedly indicating any intention to release.
The
defence that the respondent was in fact released as a surety in
writing cannot, for these reasons, be sustained.
WAIVER
[32] Next, relying on the same
documentation as relate to its defence based on a release in writing,
the respondent argued that
the applicant through these clear
representations had waived its rights against the respondent arising
out of the suretyship agreement.
In ordinary circumstances a release
may be made tacitly but this is obviously not the case if the
governing contract stipulates
that it must be in writing as in the
present case. This situation was addressed in
HNR
Properties CC
case
in the following passage
5
:
"Courts have in the past, often on dubious of
grounds, attempted to avoid the Shifren principle where its
application would
result in what has been perceived to be a harsh
result. Typically, reliance has been placed on waiver and estoppel.
No doubt in
particular circumstances a waiver of rights under a
contract containing a non-variation clause may not involve a
violation of the
Shifren principle, for example where it amounts to a
pactum de non petendo or an indulgence in relation to previous
imperfect performance
...
.. .But nothing like that arises in the present case.
The appellants contend that they were released as sureties by virtue
of the
conduct of the bank, coupled with a consensual waiver of the
provisions of clause 15. In my view, a factual basis for such a
contention
was not established on the evidence but even if it had
been, it would have amounted, in the circumstances of the present
case,
to no more than a variation of clause 15 which was not in
writing. This is precluded by clause 16. To hold otherwise, would be
to render the principle in Shifren wholly ineffective."
[33] In my view, a similar situation
pertains in the present matter. To hold that the alleged oral
agreement (which must be assumed
for present purposes) coupled with
the documents relied on, constitutes a waiver by the applicant of its
rights under the agreement,
would amount to an impermissible
circumvention of the provisions of clause 16, rendering the principle
in Shifren nugatory. In
any event insofar as the respondent relies on
the 2009 restructured loan agreement and the exchange of emails as
evidence of the
applicant's intention to waive its rights against him
under the suretyship, there is no evidence that these were ever
communicated
to the respondent. Nor does the suggestion that Mr Anton
Louw represented the respondent in the matter and that the latter was
at least aware of the 2009 loan agreement, remedy this defect. The
respondent's defence of waiver lacks the essential element of
a
communication to him that the applicant had abandoned its rights in
terms of the deed of suretyship. See
Traub
v Barclays National Bank Limited
1983
(3) SA 619
(A) at 634 G - 635 C
.
In any event, inter alia for these reasons set out above, both the
2009 loan agreement and the email exchange fall far short constitute

of evincing an unequivocal intention by the applicant to waive its
rights.
[34] Our courts have held in several
cases that a defence based on an unenforceable oral agreement
disguised as a waiver cannot
be used to resistthe enforcement of a
contractual provision governed by a non-variation/non-cancellation
clause.
6
ESTOPPEL
[35] Similar considerations reply to
the next alternative defence raised by the respondent, namely, that
the applicant was estopped
from denying the truth of its
representations to the applicant that he was released from the
provisions of the suretyship since
the respondent would suffer
prejudice if the applicant were permitted to deny the truth of the
representation made. Given the strictures
of the non-variation clause
in this matter there is limited room for the application of the
doctrine of estoppel since to do so
would be to render the principle
in Shifren ineffective. As Scott, JA stated in
HNR
Properties CO
.
"Where a release is required
to be in writing, as in the present case, it may be possible, in
limited circumstances to frame
an estoppel in such a way as not to
violate the Shifren principle. It is unnecessary to consider what
those circumstances would
have to be. What is clear is that an
estoppel cannot be upheld when the effect would be to sanction a
non-compliance with provisions
in a suretyship agreement of the time
contemplated in clauses 15 and 16"
7
[36] I do not consider that the
circumstances of this matter allow of an estoppel argument in such a
way as not to violate the Shifren
principle. Furthermore, I can see
no basis upon which respondent can claim to have acted to his
prejudice on the strength of any
representation made by the
applicant. His case in this regard is that but for the representation
(the 2009 loan agreement excluding
the respondent's name as surety)
Mr Anton Louw would, on his behalf, have insisted on its deletion
before signing the agreement
on behalf of various companies party
thereto. This however, takes the respondent's case no further since
his name
was
omitted from the list annexed and
yet, in terms of the Shifren principle and the non-variation clause,
he remains liable in terms
of the suretyship agreement.
[37] The respondent's case is made no stronger given the
terms of the original suretyship which he concluded. His withdrawal
from
the Aslo Group's business in favour of farming did not give him,
nor anyone on his behalf, any right to be released from his
obligations
as security, which obligations were continuing and
unlimited. Furthermore, had Dormell 560 not signed the 2009 loan
agreement the
pre-existing loan agreement would have remained in
force together with the respondent's obligations as a surety.
Consequently,
whichever way one looks at it, the conduct of the
applicant in omitting the respondent's name from the list of sureties
in the
2009 agreement, coupled with the fact that it can for present
purposes not dispute an oral agreement to release the respondent from

his suretyship agreement, does not in my view come close to founding
a basis for the defence of estoppel on the part of the respondent.
SPECIFIC PERFORMANCE OF THE ORAL AGREEMENT
[38] The fifth alternative defence
raised by the respondent is that he is entitled to ask for specific
performance of the alleged
oral agreement and to that end can demand
that its terms be put in writing and signed by the parties thereto.
In the alternative,
he claims that he can rely on the fictional
fulfilment of a self-created formality as a condition for the
cancellation of the deed
of suretyship. The respondent relies, in
this argument, on
First
National Bank Ltd vAvtioglou
2000
(1) SA 989
(C).
There
the court, faced with a Shifren clause, applied the doctrine of
fictional fulfilment against the defendant but in circumstances
where
that party had admitted that he had refused, after taking advice, to
send a signed original document to the plaintiff despite
an earlier
undertaking to do so.
[39] The element of an undertaking to
reduce an oral agreement to writing is absent in the present matter.
The respondent did not
suggest in his papers that the applicant ever
undertook to confirm in writing the alleged oral agreement releasing
the respondent
as surety. For this reason alone the respondent cannot
rely on the doctrine of fictional fulfilment or on the authority of
Avtjoglou
's
case. In the
absence of any enforceable undertaking by the applicant to reduce the
alleged oral agreement to writing, the defence
raised is no more than
a circumvention of the provisions of the non-variation clause and the
Shifren principle. The same considerations
apply to the respondent's
submission that it is entitled to ask for specific performance of the
oral agreement, more specifically
that the terms thereof be put in
writing and signed by the parties. Allowing a party to a contract
governed by a non-variation
clause such as in the present matter to
compel the other party to reduce an otherwise unenforceable agreement
to writing would
be in fundamental conflict with a long line of
authority commencing, in latter years, with
SA
Sentrale Ko-Op Graanmaatskappv Bpk v Shifren en Andere
1964
(4) SA 760
(A).
PUBLIC
POLICY
[40] Finally, the respondent argued
that the enforcement of the deed of suretyship would be against
public policy. Here he relied
on the applicant's claim of R80m
including the levying of a R10m - R15m
"raising
fee" which, it
was submitted, was not provided for in the written loan agreements,
but only the product of subsequent negotiations
and an oral
agreement. Therespondent takes exception to the fact that,
notwithstanding its own reliance on a non-variation clause
to escape
the consequences of its alleged oral agreement to release the
respondent from his suretyship obligations, the applicant
relies on
an oral agreement for the
"raising
fee",
similarly
in breach of the non-variation clause. The respondent complains
furthermore, that the applicant has purported to claim
the
"raising
fee"
in
various liquidation, sequestration and action proceedings
notwithstanding its own alleged breach of the non-variation clause.
[41] Even assuming that this part of
its claim is invalid or unenforceable, there is no reason in law or
logic why, for this reason
alone, the applicant should be precluded
from relying on the provisions of the suretyship agreement in these
or any other proceedings.
The amount in dispute is but a small
fraction of the various sureties' total liability and there is no
question of deceit, as alleged
by the respondent, since the applicant
makes no secret that it relies on an oral variation of the main loan
agreement to found
its claim for the
"raising
fee".
In
Brisley v
Drotsky
8
the proposition was rejected that
South African law recognises a separate principle of good faith in
contractual disputes that would
preclude a party from a relying upon
a non-variation clause where it be unfair or unreasonable to do so.
"Wat die rot van goeie trou betref, stem ons in
wese saam met die siening van Profesor Hutchinson waar volgens goeie
trou nie
'n onafhanlike, of te wel 'n 'free floating' basis vir die
tersyde stelling of die nie toepassing van kontraktuele bepalings
bied
nie. Goeie trou is 'n grond beginsel wat in die algemeen
onderliggend is aan die kontrakte reg en wat uiting vind in die
besondere
reels en beginsels daarvan."
This
dictum
applies equally in
my view to the defence that, under the rubric of public policy, the
non-variation clause in the present suretyship
agreement should not
be given effect to on the grounds contended for by the respondent.
[42] For these reasons all of the defences raised by the
respondent are without merit, leaving only the counter application to
be
determined.
THE COUNTER APPLICATION
[43] All three respondents are party to the counter
application as applicants challenging various provisions of the
National Credit
Act, 34 of 2005 ("the NCA"), the
Insolvency
Act, 24 of 1936
and the
Companies Act, 71 of 2008
. To this end they
joined the Ministers of Trade and Industry and Justice and
Constitutional Development as first and second respondents,
the third
respondent being the applicant in the three sequestration
applications. All respondents opposed the application but in
the
event the challenges to the provisions of the
Insolvency Act and
the
Companies Act were
abandoned by the applicants following the
liquidation of Dormell Properties, Aslo Holdings (Pty) Ltd and
Rapriprop 135 (Pty) Ltd.
[44] The relief sought by the
applicant's in relation to the NCA is a declaration that
s 4(2)(c)
and the words
"to
which this Act applies"
in
s 8(5) of the Act are inconsistent with s 9(1) and s1 of the
Constitution and are invalid. The relevant provisions of the NCA
read
as follows:
"4 Application of Act
1) Subjects to sections 5 and 6, this Act applies to
every credit agreement between parties dealing at arm's length and
made within,
or having an effect within, the Republic, except:
a) a credit agreement in terms of which the consumer
is -
i)
a juristic person whose asset value or annual turnover, together with
the combined asset value or annual turnover of all related
juristic
persons, at the time the agreement is made, equals or exceeds the
threshold value determined by the Minister in terms
ofs7(1); ...
2) for greater certainty in applying subsection( 1)-
a
)...
b)
...
c)
this Act
applies to a credit guarantee only to the extent that this Act
applies to a credit facility or credit transaction in respect
of
which the credit guarantee is granted;
and
...
8 Credit Agreements
...
(5) an agreement, irrespective of
its form but not including an agreement contemplated in
subsection(2), constitutes a credit guarantee
if, in terms of the
agreement, a person undertakes or promises to satisfy upon demand any
obligation of another consumer in terms
of a credit facility or a
credit transaction
to
which this Act applies.
The underlined provisions are those which are impugned
by the applicants.
[45] It is evident that s 4(1 )(a)
excludes from the reach of the NCA any credit agreement concluded by
what may be termed a high
worth juristic person whose asset value or
annual turnover equals or exceeds a threshold value determined by the
Minister, presently
R1m. Section 4(2)(c) excludes from the reach of
the Act any credit guarantee covering, or in respect of, a credit
facility or credit
transaction which is itself excluded from the
reach of the Act. These exclusions in terms of s 4(1 )(a) and s
4(2)(c) of the NCA
may conveniently be described respectively as
direct and indirect exclusions. The effect of the provisions is that
the NCA applies
to a credit guarantee only to the extent that the
principal debt secured by the guarantee falls within the reach of the
NCA. See
in this regard
Nedbank
Ltd v Wizard Holdings (Pty) Ltd and Others
2010
(5) SA 523
(GSJ)
at
paras 1 - 8 and
Structured
Mezzanine Investments v Davids and Others
2010
(6) SA 622
(WCC)
at
para 16.
[46] In the founding affidavit the applicants state that
they object to the impugned positions of the NCA because they:
"...arbitrarily exclude(s) from the Act
consumers who grant(s) a credit guarantee to a juristic person with
an asset value
or an annual turnover higher than R1m. The exclusion
does not apply if a guarantee is granted to a natural person with a
same asset
value or annual turnover (or even higher), even if the
guarantor of the credit guarantee is a juristic person."
They state further, however, that they:
"have no difficulty with the
exclusion of high value juristic persons from the protection of the
NCA by s 4(1)(a).",
an
assertion which was confirmed in argument. It follows then that the
applicants' objection is directed at what I have termed the
indirect
exclusion rather than the direct exclusion.
The applicants complain thus that the NCA applies to and
protects a natural person as a principal debtor but does not apply to
a
natural person who stands surety for a principal debt which is
excluded from the NCA. This, it is argued, constitutes arbitrary

differentiation between categories of natural persons.
[47] The test for a violation of the
right to equality was set out by the Constitutional Court in
Harksen
v Lane NO and Others
[1997] ZACC 12
;
1998
(1) SA 300
(CO at para 53
as
follows:
"(a) Does the provision differentiate between
people or categories of people? If so, does the differentiation bear
a rational
connection to a legitimate government purpose? If it does
not then there is violation of s (8)(1). Even if it does bear a
rational
connection it might nevertheless amount to discrimination.
(b) Does the differentiation amount to unfair
discrimination? This requires a two stage analysis;
i)
Firstly,
does the differentiation amount to 'discrimination'? If it is on
a
specified ground, then discrimination would have been established. If
it is not on a specified ground, then whether or not there
is
discrimination will depend upon whether, objectively, the ground is
based on attributes and characteristics which have the potential
to
impair the fundamental human dignity of persons as
human beings or
to affect them adversely in a comparably serious manner.
ii)
If
the differentiation amounts to 'discrimination', does it amount
to
'unfair discrimination'? If it has been found to have been on a
specified ground, then the unfairness will be presumed. If on an

unspecified ground, unfairness will have to be established by the
complainant. The test of unfairness focuses primarily on the
impact
of the discrimination on the complainant and others in his or her
position.
If, at the end of this stage of the enquiry, the
differentiation is found not to be unfair, then there will be no
violation ofs
8(2)
c) If the discrimination is to found to be unfair
then a determination will have to be made as to whether the provision
can be justified
under the limitations clause (s 33 of the interim
Constitution)".
[48] As far as the standard to be
applied by a court in determining whether there is a rational
connection between the legislative
scheme and a legitimate government
purpose in impugned legislation, in
Ex
Parte President of South Africa and Others, in re: Pharmaceutical
Manufacturers Association of South Africa and Another
[2000] ZACC 1
;
2000
(2) SA 674
(CO at para 90
,
the Constitutional Court established the test of rationality as the
minimum threshold requirement for the exercise of public power.
In so
doing it stated as follows:
"The setting of this standard does not mean that
the courts can or should substitute their opinion as to what is
appropriate
for the opinions of those in whom the power has been
vested. As long as the purpose sought to be achieved by the exercise
of public
power is within the authority of the functionary, and as
long as the functionary's decision, viewed objectively, is rational,
a
Court cannot interfere with the decision simply because it
disagrees with or considers that the power was exercised
inappropriately.
A decision that is objectively irrational is likely
to be made only rarely but, if this does occur, a Court has the power
to intervene
and set aside the irrational decision."
[49] The first question which must be
answered is whether the impugned provisions differentiate between
people or categories of
people. This issue has already become
considered by this Court in
Standard
Bank of South Africa Limited v Hunkv Dory Investments 194 (Ptv) Ltd
and Another (1)
2010
(1)
SA
627
which involved
a summary judgment application opposed by the
defendant
inter
alia
on the grounds
that s 4(1 )(a), s 4(1 )(b) and s 4(2)(c) of the
NCA were
unconstitutional insofar as they did not apply to a juristic
person.
As in the present matter it was alleged that the
unconstitutionality of the
provisions lay in their breach of the
right to equality contained in s 9(1) of the
Constitution. Steyn,
J held that there was a rational connection created by the
relevant
provisions of s 4 of the NCA and the legitimate government
purpose
behind its enactment. She found further that, even if it
existed, any
differentiation or discrimination was not unfair and
accordingly dismissed the
constitutional challenge.
[50] A similar constitutional
challenge was raised some six months later in a different but
similarly named case,
Standard
Bank v Hunkv Dory Investments (2)
2010
(1) SA 634
. In that
matter the National Credit Regulator and the Ministry of Trade and
Industry were joined by virtue of the constitutional
challenge.
However, as Rogers AJ pointed out, precisely the same point had been
raised and determined in
Hunkv
Dory Investments (1).
He
noted that Steyn J had refused leave to appeal which refusal had been
confirmed by the SCA and subsequently by the Constitutional
Court,
both such courts finding that there was no reasonable prospects of
success in the appeal which the defendant sought. Rogers
AJ was
required to deal with the constitutional challenge on its merits,
however, and stated that in his view
Hunkv
Dory (1)
was
not clearly wrong. He added that even if the constitutional challenge
were
res nova,
he
would have arrived at the same conclusion.
[51] Mr De Waal, who appeared for the
applicants, sought to distinguish the
Hunky
Dory
constitutional
challenges from the present matter. In my view, however, what
differences can be perceived are marginal and the constitutional

issue in all three matters are substantially the same, namely, the
alleged differentiation between categories of natural persons
ie
those who are principal debtors and those who are sureties of high
worth juristic persons. Be that as it may, there being no
decision
which binds me absolutely and bearing in mind that a refusal of a
petition for leave to appeal to our higher courts does
not equate to
a full reasoned judgment, I turn to consider the constitutional
challenge anew.
[52] I have great difficulty in
seeing how the impugned provisions differentiate between people or
categories of people. The scheme
of the Act would appear to be to
lend limited protection to low value juristic persons and no
protection at all to high value juristic
persons. Central to this
scheme is s 4(1 )(a) which excludes from the reach of the Act any
credit agreement concluded by a high
worth juristic person. It is as
a consequence of this direct exclusion that s 4(2)(c) and the tail
piece to s 8(5) provide that
any credit guarantee in respect of what
may be termed an excluded transaction is not covered by the
provisions of the Act. Further,
as I understand the provisions of
sections 4(1) and 4(2), it is possible for a low worth juristic
person to furnish a credit guarantee
and enjoy the protection of the
NCA in respect of a credit facility or agreement provided it is not a
7arge
agreement"
as defined. This
illustrates that the impugned provisions do not primarily
differentiate between people or categories of people
but between
types of credit agreement by specifically excluding those concluded
by high worth juristic persons. Whilst it is correct
therefore that
some natural persons who stand surety for the debts of another fall
within the scope of the NCA while others do
not, it is incorrect in
my view to characterise this as differentiation between natural
persons. The differentiation is, rather,
between different kinds of
principal debt rather than between people or categories of people.
[53] In my view then the applicants'
case falls at the first hurdle ie it fails to establish
differentiation between people or categories
of people in accordance
with the test laid down in
Harksen
v Lane and Others
(supra).
ON THE ASSUMPTION THAT DIFFERENTIATION HAS BEEN
ESTABLISHED
[54] Assuming, however, that I have misconceived the
position and the impugned provisions of the NCA do in fact constitute
differentiation
between two kinds of natural persons ie those who are
principal debtors and those who are sureties of high worth juristic
persons,
the next step in the Harksen test is to determine whether
the differentiation bears a rational connection to a legitimate
government
purpose. But first I deal with some preliminary points
[55] The respondents made a rather faint attempt to
argue that a heightened level of scrutiny must be applied in the test
for rationality
previously enunciated by the Constitutional Court and
which I have set out above. Needless to say I am bound by the
existing law
in this regard and thus any submission in this regard
must be reserved for a higher court.
[56] The applicants also took issue with the fact that
the third respondent rather than the Minister responsible for the NCA
pressed
many arguments favouring the proposition that the impugned
provisions indeed reveal a rational connection to a legitimate
government
purpose and also that these factors or arguments were not
enumerated in the opposing affidavits filed on behalf of the state.
In
my view it is open to any party to a matter who seeks to defend
the constitutionality of impugned provisions to raise arguments

tending to show such a connection. Moreover the fact that these
arguments or factors are not contained in the Ministers' opposing

affidavits is not decisive since they might be self-evident or appear
from analysis of the legislation itself. It is the weight
and cogency
of the arguments to be evaluated by the Court which is most relevant.
[57] The most cogent arguments in regard to a rational
purpose were those initially advanced by Mr Cockrell on behalf of the
third
respondent. He argued that the NCA clearly distinguishes
between juristic and natural persons in that it applies only to a
consumer
which is a juristic person in limited circumstances, namely,
where that entity's asset value or turnover is less than R1m and it

enters into a small or intermediate agreements as envisaged in s 9(2)
and s 9(3) read with s 7(1 )(b) of the Act. Even in those

circumstances, where the NCA applies to a juristic person it does so
to a limited extent, s 6 of the Act providing that a significant

portion of the NCA does not apply to a credit agreement in terms of
which the consumer is a juristic person. It is thus evident
that the
bulk of the protection to credit consumers applies to natural persons
but not to juristic persons.
[58] If one has regard to the overall
purpose of the NCA viz "to
promote
and advance the social and economic welfare of South Africans,
promote a fair, transparent, competitive, sustainable, responsible,

efficient, effective and accessible credit market industry and to
protect consumers"
and
the various protective mechanisms which are set up by the Act, it is
apparent that one of the chief mischiefs that the legislature
sought
to remedy was the danger of sophisticated credit providers taking
advantage of vulnerable consumers who might otherwise
be unable to
adequately protect their own interests.
[59] These considerations, however, Mr Cockrell's
argument proceeded, are unlikely to apply to the same extent in the
case of juristic
persons. The incorporation of a company, closed
corporation or similar vehicle is itself indicative of a degree of
sophistication
and legal literacy. The use of such a vehicle carries
with it the primary advantage of separate legal personality, namely,
limited
liability and if a credit consumer is financially
sophisticated enough to use juristic personality for the conduct of
his or her
business it would appear that the NCA views such a person
as being able to take care of his or her own interests. These
observations
must be read of course subject to the qualification that
low worth juristic persons which conclude relatively low value credit
agreements do enjoy at least some of the protections of the NCA.
[60] The same reasoning appears to underpin specific
distinctions which the Act establishes between natural persons who
stand surety
for other natural persons or for low worth juristic
persons in respect of smaller credit agreements. As was pointed out,
a natural
person ordinarily only provides a credit guarantee for a
juristic person in which he or she has an interest, whether by
ownership
or control. This being so, the person providing the credit
guarantee would not ordinarily have access to, or the means to pay
for,
advice to protect his or her interests and would thus be in much
the same position as the high worth juristic person whose debts
are
being guaranteed and in respect of which the legislature appears to
have taken the view that such entities have the ability
to take care
of their own interests, unprotected by the NCA.
[61] This rationale is neatly illustrated by the
circumstances of the present matter. Each of the respondents, as a
director, was
a central figure in the sophisticated and extended
construction and development business of which Dormell 260 was but a
single
component. No doubt when Dormell 260 entered into the
principal loan agreement it had the benefit not only of the views of
its
directors but of accountants and legal representatives with
specialist experience in the field of finance and law. The third
respondent
looked to the applicants for suretyships since they were
key figures in the Aslo Holdings group and, before concluding their
suretyship
agreements, the applicants would have had access to
exactly the same expertise as did Dormell 260 and its parent
companies.
[62] In my view it is this rationale which lies behind
the scheme of the relevant provisions of the NCA regarding which
credit transactions
or consumers enjoy its protection. Furthermore,
whilst one may agree or disagree with this rationale or where the
line is drawn,
it cannot be said that any such differentiation (which
I do no more than assume) is arbitrary and does not bear a rational
connection
to a legitimate government purpose. That being the case,
even assuming that the respondents cleared the first hurdle in the
Harksen
test they do not succeed in establishing that differentiation
has no rational connection to a legitimate government purpose.
[63] Notwithstanding the above
finding, the (assumed) differentiation may still amount to
discrimination. None of the grounds of
unfair discrimination
specified in s 9(3) of the Constitution are present in the impugned
provisions and thus the applicants must
establish objectively, that
any ground of discrimination is based on attributes or
characteristics which
"have
the
potential to impair the fundamental human dignity of
persons as human beings or to affect them adversely in a comparably
serious
manner."
[64] In my view, in the light of the above analysis of
the effect and purposes of the impugned provisions, the applicants
have made
out no case that their effect is to threaten their human
dignity, thereby establishing discrimination. There can then be no
question
of unfair discrimination. It follows that the counter
application must fail and the only outstanding issue is the question
of costs
which I shall address later.
MR DEWALD LOUW
[65] I turn now to consider the individual applications.
Having found that there is no merit in the special defences raised by
the
respondent nor in the counter application it would appear that
the applicant has made out a case for a provisional order of
sequestration
against the respondent. I am satisfied that the
applicant has established that it is a creditor with an aggregated
liquidated claim
not less than R200.00 against the respondent, that
he is factually insolvent and that there is reason to believe that it
will be
to the advantage of the creditors if his estate is
sequestrated.
[66] In this latter regard the applicant's case is that
even on the respondent's version, on sequestration his creditors
could expect
a dividend of some 0.71c in the rand on the basis that
he has assets of R1.3m as against liabilities of some R71m. It is
further
the applicant's case that there are indications that the
respondent has disposed of assets by way of impeachable transactions
and
that an investigation by a trustee may reveal financial
information which could lead to the setting aside of such
transactions
or the unearthing of other assets of respondent which he
has failed to disclose. The respondent has chosen not to challenge,
at
this stage at least, that a sequestration order will result in an
advantage to creditors. In the circumstances it appears to me
the
applicant has made out a proper case for a provisional sequestration
order.
MESSRS ANTON AND JOHANNES LOUW
[67] I must now consider whether the applicant has made
out a case for a similar order against Messrs Anton and Johannes
Louw. It
will be recalled that although both filed a full answering
affidavit and also were applicants in the counter application,
neither
was represented at the hearing of this matter and nor did
they appear in person.
[68] It follows from the findings which I have already
made, the respondents' circumstances being similar in all material
respects
to that of Mr Dewald Louw, that they are unable to raise any
defence to their liability to the applicant pursuant to the
continuing
unlimited suretyships which they concluded in favour of
the applicant. Accordingly the only question to determine are
whether,
in each of their cases, their estates are insolvent and
whether there is reason to believe that their sequestration will
produce
an advantage to creditors. I deal firstly with the matter of
Mr Anton Louw.
MR
ANTON LOUW
[69] According to the respondent his assets are valued
at some R423 000.00 as against total liabilities of some R98m which
includes
liability towards the applicant reckoned at some R70m.
Accepting the respondent's figures, this will produce a concurrent
dividend
of only 0.0739c in the rand based on a free residue of some
R72 000.00 available for creditors.
[70] If this were the only advantage to creditors I
would have serious doubt as to whether a sequestration order would be
justified.
It is not necessary for me to determine this question,
however, since the applicant makes out a much stronger case for there
being
an advantage to creditors on a different score.
[71] By way of introduction I observe that the papers in
each of these applications demonstrate that the respondents are
sophisticated
businessmen who created a complex web of corporate
personalities and cross ownerships to conduct their dealings. The
papers reveal,
furthermore, that around the time that the Knysna
property deal went sour, the respondents sold their primary
residences to their
spouses and disposed of their shareholding in
various companies which were part of the Aslo Group, often at par
value or for nominal
sums. Many of their assets were transferred from
their personal ownership into trusts of which they are either
trustees or co-trustees
together with members of their family or
business associates. The applicant's main contention is, therefore,
that a proper investigation
of the respondent's affairs by a trustee
is likely to bring to light further assets over and above those
disclosed by the respondent.
It further contends that a series of
transactions concluded by the respondent during 2008 - 2011, in terms
of which he disposed
of several assets held by him in his personal
capacity at no or nominal values, were designed to protect his assets
against claims
from creditors and may be impeachable in terms of the
Insolvency Act.
[72
] Amongst the most important such transactions are
the following:
1. At the end of 2008 the respondent
transferred the family residence in Paarl to his wife for an amount
of R2.5m which she in turn
is alleged to have financed with the
remainder of a donation which the respondent made to her in June
2007. Although the respondent
asserts that at the material time he
was solvent, he only does so by dint of excluding his suretyship
liability to the applicant
on the basis that
"the
relevant entities had the necessary resources to pay these amounts"
at the time. This
assumption is questionable since it is common cause that Dormell 260
was unable to meet its financial obligations
to the applicant from
mid-2008 onwards. On the basis of the principle laid down in
Millman
and Another NNO v Masterbond Participation Bond Trust Managers (Pty)
Ltd (under curatorship) and Others
1997
(1) SA 113
(C)
the
respondent's suretyship indebtedness has to be included amongst his
liabilities to determine his solvency for the purposes of
sections
26
,
29
and
30
of the
Insolvency Act. It
follows that the respondent
may well have been insolvent when he transferred the family residence
to the second respondent. For
this and for other reasons which need
not be listed the respondent's transfer of the family residence to
the second respondent
is a transaction warranting further
investigation by a trustee with a view to setting aside the
disposition in terms of
sections 26
and
31
of the
Insolvency Act.
>
[73] Further dispositions of assets
by the respondent which appear to justify an investigation are the
transfers, in the 2011 financial
year, of certain shares in trading
companies which the respondent previously held in his personal
capacity, to the Anton Louw Family
Trust, a family trust in which he
has an interest. These shares were transferred at a nominal value,
allegedly after the retained
income in each company had been
"wiped
ouf
by a nett loss.
There is, however, no explanation of why the respondent considered it
necessary to transfer these shares to the
family trust if indeed they
had no value. Furthermore, the applicant has set out circumstances
indicating that the shares in two
particular companies, JLK Projects
and Construction and JLK Plant, had a substantial value at the date
of transfer to the trust
and that their disposition for a nominal
value might be impeachable in terms of
s 26
of the
Insolvency Act.
There
are also indications that the family trust might be an alter
ego trust used by the respondent to shield his assets from creditors'

claims.
[74] There are other aspects of the respondent's
financial affairs which may warrant closer scrutiny by a trustee.
These include
indications that the respondent failed to declare or
understated dividends which apparently accrued to him from JLK
Project and
Construction as well as remuneration from that company
and JLK Plant. There is also the question of an unexplained erosion
in the
respondent's personal assets over the period 2008 -2011.
[75] In my view the applicant has made out a convincing
case that there is reason to believe that there are various
dispositions
of assets and other aspects of the respondent's
financial affairs which may yield a benefit for his creditors after
investigation
by a trustee.
[76] It is well established that an
advantage to creditors need not necessarily be an immediate financial
benefit but may be satisfied
by the possible discovery or recovery of
further assets as a result of investigations or the setting aside of
impeachable transactions.
In
Commissioner,
South African Revenue Services v Hawker Air Services (Ptv) Ltd
[2006] ZASCA 51
;
2006
(4) SA 292
(SCA),
Cameron
JA confirmed that an absence of disclosed assets does not preclude
sequestration since:
"(t)the court need be satisfied only that there
is reason to believe - not necessarily a likelihood but a prospect
not too
remote - that as a result of investigation and inquiry assets
might be unearthed that will benefit creditors".
[77]
I
am satisfied that, from this perspective alone, the applicant has
discharged the onus of establishing that there is reason to
believe
that there will be an advantage to creditors. The other elements
necessary for the granting of a provisional sequestration
order,
namely, that the applicant has an aggregate liquidated claim of not
less than R200.00 against the respondent and, in this
case, that he
is factually insolvent, justifies therefore the granting of a
provisional order of sequestration.
MR JOHANNES LOUW
[78] The applicant's case against the respondent is
similar in all material respects to that against the other two
respondents.
However, Mr Johannes Louw has appreciably more assets,
on his own version, namely R2.4m, as against liabilities, estimated
by him
to amount to some R87m.
[79] The respondent contends that
sequestration of estate will not be to advantage of creditors as they
will receive only a negligible
dividend of some 2.3 cents in the
rand. In Meskin, Insolvency Law, the authors express the view that
the authorities to the effect
that the
"pecuniary
benefit"
must
be a
"not
negligible dividend",
are
doubtful and that the correct position is that this requirement is
satisfied where,
"after
making allowance for the anticipated costs of sequestration there is
a reasonable prospect of an actual payment being
made to each
creditor who proves a claim,
however
small such payment may be,
unless
some other means of dealing with the debtor's predicament is likely
to yield a larger such payment.'
9
).
[80] I am not sure how far this
approach can be taken where, for example, the dividend is no more
than a fraction of a cent, but
I have no difficulty with the
envisaged dividend in the present matter. To deny the applicant a
sequestration order in circumstances
such as the present would,
furthermore, produce the anomalous result of leaving the respondent
in possession of a substantial estate
notwithstanding the extensive
liabilities which he has incurred. It would also give rise to the
situation that large scale debtors
with significant assets are
de
facto
rendered
immune against sequestration. In my view, in the circumstances of the
present matter a dividend of 2.3cents in the rand
is quite sufficient
to establish an advantage to creditors.
[81] In any event the applicant also makes out a case
that placing the respondent's estate into sequestration will have the
further
advantage for creditors that a trustee will be able to
investigate a series of questionable transactions by the respondent
with
the possible result that such transactions may be set aside as
dispositions without value or having been made by the respondent
when
he was insolvent or, indeed, further assets may be discovered.
[82] The affidavits reveal that the respondent, in
similar circumstances to Mr Anton Louw, and at a time when Dormell
260 was unable
to meet its obligations to the applicant, donated
assets at a declared value of R3.2m to his wife. Although one such
asset was
apparently a vacant erf, it now appears to be the
respondent's primary residence. The respondent's assertions that he
was solvent
at the time of the disposition are brought into question
having regard to Dormell 260's dire financial position at the
relevant
time and to the principle in Millman's case (supra). Similar
questions arise in relation to the respondent's sale to his wife in

August 2011 of his half share in a sectional title unit in
Wellington, known as The Piano.
[83] Just as Mr Anton Louw is alleged to have done, and
around the same time, the respondent transferred his shareholding in
two
trading companies in the Aslo Group to a family trust at par or
nominal value. The applicant raises the same concerns as to the

respondent's valuation and disposition of the shares. It also makes
out a case that the family trust utilised by the respondent
in some
of these transactions may be an alter ego trust used by him to shield
his personal assets from creditors' claims and that,
as such, his
affairs could be the subject of fruitful inquiry by a trustee with a
view to bringing further assets to light for
the benefit of
creditors.
[84] In the circumstances, apart from a likely dividend
of 2.7c in the rand, a sequestration order could very well bring the
further
advantage to creditors of providing the means and mechanisms
for a trustee to delve into the respondent's financial affairs with
a
view to recovering further assets or setting aside questionable
transactions thereby ultimately enhancing the dividend payable
to
creditors.
[85] It follows that the applicant, having established
that it has an aggregated liquidated claim of more than R200.00 and
that
the respondent is insolvent, a provisional sequestration order
is warranted in this matter as well. In each of the three above
matters there will be an order as set out in the annexures to the
judgment.
COSTS IN THE COUNTER APPLICATION
[86] That leaves only the question of
the costs in the counter application to be determined. The applicants
argued that even if
they should not succeed therein no costs order
should be made against them inter alia because costs order should
seldom, if ever,
be made against unsuccessful litigants in
constitutional challenges. In this regard they rely on the authority
of
Bio Watch
Trust v Registrar, Genetic Resources
2009
(6) SA 232
(CO
.
[87] The respondents argued that in such event the
applicants should nonetheless bear the costs. In support of their
argument they
point out that two legs of the counter application,
namely the challenges to the
Companies Act and
the
Insolvency Act,
had
simply been abandoned by the applicants at a late stage. In their
defence the applicants retorted that a relatively small part of
the
opposing papers had been taken up with the issue of the abandoned
constitutional challenges and that the respondents should
themselves
have realised that these challenges would not be pursued given that
the various companies in the Aslo Group had been
placed into final
liquidation or had been the subject of unsuccessful business rescue
applications by the time that the respondents
were required to file
their answering affidavits.
[88] In
Bio
Watch
the
Constitutional Court held that it was not correct to begin the
inquiry as to whether a costs award should be made with reference
to
the characterisation of the parties involved, for example, as a
litigant acting in the public interest, and that the starting
point
had to be the nature of the issues. It held further that the primary
consideration in constitutional litigation has to be
the way in which
a costs order would hinder or promote the advancement of
constitutional justice; further, that what matters is
not the nature
of the parties or the causes they advanced, but the character of the
litigation and their conduct in pursuit thereof.
This means paying
due regard to whether it had been undertaken to assert constitutional
rights and whether there had been improprietry
in the manner in which
the litigation had been undertaken. Finally, it was held that private
parties which had lost in constitutional
litigation against the state
should not as a rule be mulcted in costs. This means that when a
private party sought to assert a
constitutional right against the
government and failed, each party would bear its own costs.
[89] Subject to these principles this
Court must, of course, ultimately exercise a judicial discretion in
determining what costs
order should be made. Without suggesting any
ranking order of importance, I consider that the following factors
are material to
this decision. The applicants mounted three
constitutional challenges in this counter application but abandoned
two of them at
a relatively early stage and were tardy in formally
advising the two Ministers involved that they were not pursuing such
challenges.
Their reasons for abandoning such challenges, namely,
that they had become moot by reason of the liquidation of or
unsuccessful
applications for business rescue in relation to
companies within the Aslo Group, had little to do with the
respondents and merely
served to emphasize that the challenges were
brought to protect their commercial interests. The applicants brought
their challenges
in their personal capacity and to protect their own
interests; in short there is no suggestion that the applicants were
acting
in the public interest. The applicants achieved no success at
all in their application. More importantly, the applicants launched

their constitutional challenge well aware of the decision in this
Court in
Hunky
Dory (1)
to the
effect that such a challenge was without any merit. That decision was
in effect followed in
Hunky
Dory (2)
where
it was noted that both the Supreme Court of Appeal and the
Constitutional Court had refused leave to appeal against the decision

in
Hunky Dory
(1).
[90] In these circumstances, it
appears to me, to make no costs order in respect of the counter
application would border on finding
that no costs order should ever
be made in constitutional challenges, irrespective of the merits (or
lack thereof) of the challenge
or other relevant factors, a position
which does not reflect the state of our law in this regard. I should
add that were I of the
view that a costs award against the applicants
could have the effect of discouraging persons from pursuing
constitutional claims
in future, the so called
"chilling
effect',
I would
not be inclined to make such an order. In my view, however, the
circumstances of this matter are such that that the respondents
are
entitled to their costs in the counter application.
[91] In the result I order that the
costs of the respondents in the counter
application
shall be costs in the sequestrated estates or, failing any such
orders not being made final, shall be borne by such
applicants,
jointly and severally, the one paying the other to be absolved.
BOZALEK, J
JUDGE OF
THE HIGH COURT
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE HIGH COURT, CAPE TOWN)
BEFORE THE HONOURABLE MR JUSTICE BOZALEK
CAPE TOWN:
CASE NO: 21145/2011
In the matter between:
INVESTEC
BANK LIMITED
Applicant
(Registration
No. 1969/004763/06)
and
ANTON
LOUW
First
Respondent
(I.D. No. )
(Address: 21 Bosman Street, Paarl)
(Marital status: married out of community of property
in
terms of an antenuptial contract to CONCETTA
PAULINE LOUW, identity number )
CONCETTA PAULINE LOUW
Second Respondent
(I.D. No. )
(Address: 21 Bosman Street, Paarl)
(Marital status: married out of community of property
in
terms of an antenuptial contract to ANTON LOUW,
identity number )
ORDER
EDWARD NATHAN SONNENBERGS INC
C
MORGAN
021
4102500
cmoraan@ens.co.za
IT IS ORDERED THAT:
1. The estate of the first respondent is placed under
provisional sequestration.
2. A rule
nisi
is issued calling
upon the first and second respondents to show cause, if any, to this
Honourable Court at 10h00 on
11
October 2012,
why:
2.1. the first respondent's estate should not be placed
under final sequestration; and
2.2. the costs of this application should not be costs
in the administration of the first respondent's insolvent estate.
3.
The
order is to be served on:
3.1. the first respondent at 21 Bosman Street, Paarl,
Western Cape;
3.2. the second respondent at 21 Bosman Street, Paarl,
Western Cape;
3.3. the South African Revenue Service at 22 Hans
Strijdom Avenue,
3.4. the employees of the first respondent, if any;
3.5. all registered trade unions representing the
employees of the first respondent, if any.
BY ORDER OF THE COURT
COURT REGISTRAR
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE HIGH COURT, CAPE TOWN)
BEFORE
THE HONOURABLE MR JUSTICE BOZALEK
CAPE
TOWN :
CASE NO: 21143/2011
In
the matter between:
INVESTEC BANK LIMITED
Applicant
(Registration
No. )
and
JOHANNES ADRIAAN LOUW
First Respondent
(I.D.
No. )
(Address:
10 Du Mont Street, Paarl, Western Cape)
(Marital
status: married out of community of property in
terms of
an antenuptial contract to CAROLA CECILE
LOUW,
identity number )
CAROLA CECILE LOUW
Second Respondent
(I.D.
No. )
(Address: 10 Du Mont Street, Paarl, Western Cape)
(Marital status: married out of community of property in terms of an
antenuptial
contract to JOHANNES ADRIAAN LOUW, identity number )
ORDER
EDWARD NATHAN SONNENBERGS INC
C
MORGAN
021
4102500
cmorgan@ens.co.za
Box
123
Having
heard counsel for the applicant and having read the papers filed of
record:
IT
IS ORDERED THAT:
1. The estate of the first respondent is placed under
provisional sequestration.
2. A rule
nisi
is issued calling
upon the first and second respondents to show cause, if any, to this
Honourable Court at 10h00 on 11 October
2012,
why:
2.1. the first respondent's estate should not be placed
under final sequestration; and
2.2. the costs of this application should not be costs
in the administration of the first respondent's insolvent estate.
3.
The
order is to be served on:
3.1. the first respondent at 10 Du Mont Street, Paarl,
Western Cape;
3.2. the second respondent at 10 Du Mont Street, Paarl,
Western Cape;
3.3. the South African Revenue Service at 22 Hans
Strijdom Avenue, Cape Town, Western Cape;
3.4
.
the employees of
the first respondent, if any;
3.5
.
all registered
trade unions representing the employees of the first
respondent,
if any.
BY ORDER OF THE COURT
COURT REGISTRAR
IN THE HIGH COURT OF SOUTH AFRICA (WESTERN CAPE HIGH
COURT, CAPE TOWN)
BEFORE THE HONOURABLE MR JUSTICE BOZALEK
CAPE
TOWN : WEDNESDAY, 12 SEPTEMBER 2012
CASE NO: 21144/2011
In
the matter between:
INVESTEC BANK LIMITED
Applicant
(Registration
No. 1969/004763/06)
and
DEWALD LOUW
First Respondent
(I.D.
No. )
(Address: Klipdrif Farm, Robertson) (Marital status:
married out of community of property in terms of an antenuptial
contract to
ANEL LOUW, identity number )
ANEL LOUW
Second
Respondent
(I.D.
No. )
(Address: Klipdrif Farm, Robertson) (Marital status:
married out of community of property in terms of an antenuptial
contract to
DEWALD LOUW, identity number )
ORDER
EDWARD NATHAN SONNENBERGS INC
C
MORGAN
021
4102500
cmorqan@nsco.za
Box
123
IT IS ORDERED THAT:
1. The estate of the first respondent is placed under
provisional sequestration.
2. A rule
nisi
is issued calling
upon the first and second respondents to show cause, if any, to this
Honourable Court at 10h00 on
11
October 2012,
why:
2.1. the first respondent's estate should not be placed
under final sequestration; and
2.2. the costs of this application should not be costs
in the administration of the first respondent's insolvent estate.
3.
The
order is to be served on:
3.1. the first respondent at Klipdrif Farm, Robertson,
Western Cape;
3.2. the second respondent at Klipdrif Farm, Robertson,
Western Cape;
3.3. the South African Revenue Service at 22 Hans
Strijdom Avenue, Cape Town, Western Cape;
3.5
all
registered trade unions representing the employees of the
first
respondent, if any.
BY ORDER OF THE COURT
COURT REGISTRAR
1
Badenhorst
v Northern Construction Enterprises (Ptv) Ltd
1956 (2) SA
346
(T) at 374 - 348
2
Investec
Bank v Lewis
2002
(2) SA 111
(C) at 116 B - F
3
See
Morgan
and Another v Brittan Boustred Ltd
[1992] ZASCA 39
;
1992
(2) SA 775
(A) at 778 I
4
[1995] ZASCA 150
;
1996
(1) SA 719
(AD) at 724 B - D
5
At
479 D - H
6
See
Kovacs
Investments 724 (Ptv) LtdvMarais
2009
(6) SA 560
(SCA)
at
571 D - E
and
HNR
Properties CC
supra
at para 20, page 47
7
Clause
16 was a reference to a non-variation/non-cancellation clause whilst
clause 15 provided that the surety would not be released
unless such
release was granted in writing, signed by the bank
8
2002
(4) SA 1
(SCA)
9
At
page 2-20