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[2014] ZAWCHC 166
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Quince Property Finance (Pty) Ltd v Van Niekerk Groenwoud & Van Zyl Inc and Others (A459/2013) [2014] ZAWCHC 166 (4 November 2014)
THE HIGH COURT OF SOUTH
AFRICA
(WESTERN CAPE DIVISION,
CAPE TOWN)
Case A459/2013
DATE: 04 NOVEMBER 2014
In the matter between:
QUINCE PROPERTY FINANCE
(PTY) LTD
.................................................
APPELLANT
And
VAN NIEKERK GROENWOUD &
VAN ZYL INC
.........................
FIRST
RESPONDENT
HL VAN
ZYL
.............................................................................
SECOND
RESPONDENT
PJ
GROENEWALD
.......................................................................
THIRD
RESPONDENT
PH
WEHMEYER
.......................................................................
FOURTH
RESPONDENT
LJR
VISSER
.................................................................................
FIFTH
RESPONDENT
H duP
LOMBARD
.......................................................................
SIXTH
RESPONDENT
WJM
SAAIMAN
....................................................................
SEVENTH
RESPONDENT
PA
VENTER
.............................................................................
EIGHTH
RESPONDENT
C HvR VAN
OUDTSHOORN
.....................................................
NINTH
RESPONDENT
ALD
MOHOLO
........................................................................
TENTH
RESPONDENT
AJ VAN
GREUNEN
...........................................................
ELEVENTH
RESPONDENT
Coram: DESAI &
ROGERS JJ
Heard: 24 OCTOBER 2014
Delivered: 4 NOVEMBER
2014
JUDGMENT
Rogers
J:
Introduction
[1]
The appellant and the
respondents were the plaintiff and defendants respectively in the
court
a quo
.
The appellant (‘Quince’) is a bridging finance company.
The first respondent (the first defendant
a
quo
) is an
incorporated firm of attorneys (‘VGV’). The other
respondents (the remaining defendants
a
quo
) were at the
relevant time the directors of VGV and thus personally liable for any
debt contracted by VGV during their term of
office (s 23(1)(a)
of the Attorneys Act 53 of 1979). I shall refer to the respondents
collectively as the defendants.
[2]
Quince alleged that VGV
had by contract assumed responsibility to repay bridging finance
which Quince had advanced to a client of
VGV, Vexma Properties 219 CC
(‘Vexma ‘). Vexma was a property developer. Its sole
member was Melda Nortje but her husband,
Reynaldo Nortje (an
rehabilitated insolvent), was the driving force.
[3]
Quince relied for its
claim on the terms of a financing agreement executed on 30 May 2006.
This document was in the standard form
then used by Quince. In terms
thereof the borrower’s attorneys undertook an obligation to pay
the advanced sum plus finance
charges if the transaction contemplated
in the agreement was for any reason delayed for more than 90 days.
[4]
The defendants raised a
host of defences. Some were based on an oral statement which a Mr
Mario Nel of Quince allegedly made to
VGV’s representative, Mr
HL Van Zyl (‘Van Zyl’), the second defendant, prior to
the conclusion of the relevant
financing agreement to the effect that
Quince would never sue VGV. On this basis, the defendants relied on
an undertaking not to
sue, on misrepresentation and on rectification.
A further defence arose from the circumstance that additional sums
were later advanced
to Vexma on terms which allegedly amounted to a
novation. The defendants averred that they had no liability in terms
of the novated
agreement. The defendants alleged, further, that the
National Credit Act 34 of 2005
applied to the two additional loans
and that there had not been compliance with that Act. The defendants
also placed the quantification
of Quince’s claim in issue.
[5]
Summons was issued on 8
of July 2009. Evidence ran on five days over the period April 2010 to
June 2012. The principal witnesses
were Mr W le Roux (‘Le
Roux’) for Quince and Van Zyl for the defendants. The case was
argued in October 2012. Quince
was represented by its attorney, Mr
Burger, and the defendants by counsel, Mr van Reenen. The magistrate
delivered judgment in
May 2013. He rejected the defences based on
Nel’s oral statement. He upheld the defence based on novation.
He also concluded
that Quince had not proved the quantum of its
claim.
[6]
Quince attacks the
magistrate’s judgment on the two defences which the magistrate
upheld. The defendants support the magistrate’s
dismissal of
the action on all the grounds they originally advanced, including
those the magistrate rejected. The defendants noted
a cross-appeal in
respect of the grounds which the magistrate rejected. This was
misconceived; an appeal lies against the order,
not the reasons. In
the appeal Quince was represented by counsel, Mr D van der Merwe. Mr
van Reenen continued to represent the
defendants.
[7]
The magistrate’s
judgment is, regrettably, not of much assistance in resolving the
factual and legal issues.
The facts
[8]
According to Van Zyl,
Nel approached him during 2005 with a view to cooperation between
Quince (then known as ZS Rational Finance
(Pty) Ltd) and VGV in
regard to bridging finance transactions. Nel, who was based at
Quince’s head office in Bloemfontein,
met with Van Zyl in Cape
Town on several occasions. The idea was that VGV would introduce
clients in need of bridging finance to
Quince and share in the
profits or receive commission on the ensuing bridging transactions.
[9]
Van Zyl testified that
at an earlier time another bridging finance company had sought to
hold VGV liable where its client, having
terminated VGV’s
mandate and caused transfer to be effected by other attorneys, failed
to repay the financier. Van Zyl said
that he told Nel this and that
the latter assured him that Quince would not sue a party with whom it
had a business relationship.
Van Zyl testified that he relied on this
as an undertaking. No written cooperation agreement was signed though
according to Van
Zyl his firm thereafter introduced a number of
transactions to Quince and received commission.
[10]
In about 2005 Vexma
embarked on a property development in the Hermanus area called
Mooizicht. There were two phases. The bulk of
the erven (numbering
60) comprised phase 1. There were eight erven in phase 2. Vexma
engaged VGV as its conveyancers. The primary
financier was Mainfin
Finance (Pty) Ltd (‘Mainfin’) in whose favour mortgage
bonds in amounts totalling R9,8 million
were registered.
[11]
During mid-2006 Vexma
required bridging finance for rates so as to obtain clearance
certificates. VGV approach Nel of Quince on
Vexma’s behalf. A
telephonic discussion was followed by a letter from VGV dated 30 May
2006, addressed to Quince’s
directors with Nel as the
reference, in which Van Zyl confirmed that Vexma urgently needed a
bridging loan of R1,25 million by
1 June 2006. He said that his firm
was ready to lodge the first 50 transfers in phase 1 subject to
obtaining clearance certificates
from the municipality and that the
proceeds of the first 50 transfers should be sufficient to settle
Vexma’s indebtedness
to Mainfin and leave a substantial balance
from which the bridging finance could be discharged in full. He added
that he expected
to be able to lodge an additional ten transfers by
the time the first 50 transfers were lodged. He proposed that the
bridging loan
be repaid at a rate of R22 500 per transfer,
meaning that the capital would be fully settled by the time of the
55
th
transfer. He concluded by saying that his firm would give an
irrevocable undertaking to repay the bridging loan and finance
charges
from the proceeds of the sales in phase 1, which should be
registered by not later than the end of July 2006. He asked Quince to
send him the prescribed application forthwith, as Nortje would be
calling later in the day to sign.
[12]
Later that day Vexma,
represented by Mrs Nortje, and VGV, represented by Van Zyl, signed
Quince’s then standard financing
agreement and sent it to
Quince. One of the preambles stated that signature of the document
signified that all parties thereto
had read and understood its terms
and reached consensus thereon. Another preamble stated that
variations of the agreement would
not be valid or binding unless
reduced to writing and signed by the parties.
[13]
The ‘initial
period’ of the transaction was specified in part B on page 1 to
be 60 days commencing 1 June 2006. Vexma
undertook to repay the
amount of R1,25 million within the initial period together with an
application fee of R300 and a ‘service
fee’ of 1,6% per
month (both of which were to attract VAT) plus finance charges of
16,8% per annum. Excluding VAT, the service
fee and finance charges
together amounted to 36% per annum.
[14]
In clauses 1 and 2 of
the terms and conditions forming part of this document, VGV gave
certain warranties and undertakings regarding
the intended use of the
bridging finance and the unconditional character of the relevant sale
agreements. Clause 3, which was the
target of the pleaded
rectification, reads thus:
‘
3.
The Attorney’s Undertakings
The Conveyancing Attorney hereby
irrevocably undertakes to:
(i) Pay [Quince] the full
and complete some of the sum borrowed plus the interest ... within a
period of 72 hours from the
date of registration of transfer of the
property or registration of the bond, as the case may be, as
described above.
(ii) Pay [Quince] the
application fee and service charges as set out above within a period
of 72 hours from the date of registration
of transfer of the property
as described above.
(iii) In the event of
cancellation of the transaction or the borrower becoming deceased, to
pay Quince within 72 hours of demand
by Quince the full amount
advanced as described in B above.
(iv) Pay [Quince] on demand
all the amounts due including finance charges and fees in the event
of the transaction being delayed,
for whatever reason for a period of
more than 90 days.’
[15]
Clause 5 made provision
for a certificate of indebtedness in respect of any amount which
might be due or owing by the attorneys.
Vexma and VGV inserted their
respective
domicilia
addresses in clause
6. In clause 10 the parties consented to the jurisdiction of the
magistrate’s court.
[16]
The document contained
a reference number. According to Van Zyl, this reference number was
necessary in order for VGV to earn commission
on the introduction of
the loan to Quince.
[17]
On the following day,
31 May 2006, VGV wrote to Quince’s directors, again with Nel’s
reference, confirming that the
firm had received instructions from
Vexma to give, subject to the making of the bridging loan, the
following undertaking (I translate
from the Afrikaans):
‘
This
firm hereby irrevocably binds itself to you to pay you the amount of
R22 500 per erf transferred by Vexma to each of the
respective
buyers of the subdivided portions of Erf 1444 Hermanus, as soon as
registration thereof has been registered in the Deeds
Office Cape
Town, until the full amount owing by Vexma to you is paid in full.
This undertaking is not
transferable and can only be enforced by a competent court.’
[18]
Until this stage, so it
seems, Van Zyl had dealt with Nel. However, on 31 May or 1 June 2006,
and subsequent to Quince’s receipt
of the above undertaking but
prior to the advancing of funds, Le Roux contacted Van Zyl to clarify
the status of the pending transfers.
Van Zyl confirmed his oral
response by way of a letter to Quince’s directors dated 1 June
2006, this time with Le Roux’s
reference, stating that his firm
could have lodged at least 50 transfers that same day if Vexma had
the clearance certificates.
[19]
Quince thereupon paid
R1,25 million into VGV’s trust account.
[20]
Vexma was required to
repay the loan by 30 July 2006. It did not. This was because the
transfers (expected to be 50 or more) had
not by then been
registered. The reasons for the delay were not explained in the
evidence. One must assume that, in order to procure
the transfers,
Vexma needed to pay amounts in excess of the bridging finance but
failed to do so. In the event, 59 of the phase
1 erven together with
three of the Phase 2 erven were registered in November and December
2006. Even then, Quince was not repaid.
Van Zyl testified that, with
the delay in registration, the interest owing to Mainfin had built
up, such that there was no free
surplus.
[21]
Le Roux said that he
made frequent enquiries about progress. During March 2007 Van Zyl
emailed Le Roux to say that Mr Nortje would
like to meet with Le Roux
because he felt bad about the delays in the Mooizicht development and
wanted personally to set Le Roux’s
mind at rest. Le Roux said
that he would like to meet Nortje. It does not appear from the
evidence whether such a meeting took
place. Certainly no further
money was paid at that stage.
[22]
Instead, on 15 June
2007 Van Zyl forwarded correspondence to Le Roux from which it
appeared that Vexma wanted to borrow an additional
R61 300 to
procure the transfer of six of the last eight Mooizicht erven. The
money was needed to settle the project engineer’s
fees and thus
obtain a completion certificate. In Van Zyl’s email to the
engineer, which he forwarded to Le Roux, the incorrect
statement was
made that there were no bonds over these erven. In fact, the amount
owing to Mainfin had not yet been settled. In
his email to Le Roux,
Van Zyl confirmed that the amount of R63 100 would be repaid
from the proceeds of the six erven.
[23]
In reply, Le Roux
sought confirmation of various matters, including that there would be
sufficient surplus from the transfers to
repay the original loan plus
the additional loan. Le Roux added that he took Van Zyl’s email
to be an undertaking to repay
the additional R63 100 plus
interest and the initiation fee on date of registration of the
transfers.
[24]
Van Zyl responded on
the same day by stating that his firm was in a position to lodge at
least five of the transactions, that documentation
in respect of the
sixth was expected shortly, that the free residue from the six
transactions would amount to at least R1,65 million
and that there
were, in addition, the last two Mooizicht erven which had not yet
been sold. In regard to any shortfall, Vexma was
holding VGV covered
from other projects which ought to be registered within two months.
He confirmed the undertaking regarding
the repayment of the R63 100.
[25]
Quince thereupon paid
the amount of R63 100 into VGV’s trust account.
[26]
On the same day, 15
June 2007, the details of the first additional loan were entered on
Quince’s then standard bridging finance
agreement. Le Roux’s
evidence was that this document was not signed or submitted by Vexma
or VGV; the completion of the particulars
was for Quince’s
internal records. Not much turns on this because the standard
agreement had by then changed and did not
contain the same
undertakings as clause 3 of the initial loan agreement. Although the
later standard agreement contained certain
undertakings by the
conveyancing attorneys, they were not such as to render the attorneys
liable for repayment of the loan.
[27]
The standard agreement
required the loan to be repaid on the earlier of date of transfer or
expiry of 90 days from the date of advance.
In Quince’s letter
to VGV of 15 June 2007, formally approving the additional loan and
providing proof of payment, Quince
furnished a repayment schedule for
a period of 60 days, the same period as stipulated in the initial
loan. Nothing turns on whether
the repayment date was 60 days or 90
days.
[28]
In mid-July 2007 Le
Roux contacted Van Zyl to enquire about progress. Van Zyl emailed him
on 20 July 2007 to say that he had received
the rates accounts for
the six erven and that bulk service fees were still payable. He said
he should be getting funds for that
purpose from another transaction
that he was registering shortly for the Nortjes.
[29]
Le Roux pressed for
further progress in an email of 26 July 2007. Van Zyl informed him
that he had not yet lodged the Vexma transfers
because the amount
received from the other transaction had been too little to settle the
rates and bulk services fees. He had asked
his partners temporarily
to finance the difference. He repeated that there were two unsold
erven which should be sufficient to
cover the shortfall (implying, as
I understand it, that Quince would receive only partial repayment
from the transfer of the six
erven). He proposed that Quince register
a covering bond as security.
[30]
Le Roux met with Van
Zyl on 27 July 2007. The latter made certain proposals which Le Roux
recorded in an email of the same day,
stating that the proposals were
acceptable. The proposals were that (i) Quince would take
cession of a R5 million mortgage
bond from Mainfin; (ii) Quince
would lend Vexma a further R63 000 as a contribution towards a
total amount of R172 000
needed to settle the rates and bulk
services fees (the rest would be financed by VGV and from another
Nortje project); (iii) VGV
would lodge the six Mooizicht
transfers immediately upon paying the bulk services fees and
obtaining the clearance certificates;
(iv) VGV would pay Quince
R1 662 700 upon transfer of the six erven; (v) the
balance of the amount owing to
Quince (ie on the initial loan and on
the two additional loans) would be settled from the sale of the last
two Mooizicht erven
or from other Nortje projects. Le Roux sought
confirmation that he had understood the proposals correctly and said
that he wished
to use Van Zyl’s reply as an undertaking for
repayment of the additional amount (ie the further loan of R63 000).
[31]
On 31 July 2007 Van Zyl
confirmed Le Roux’s understanding of the proposals. In
response, Le Roux sought confirmation on certain
matters, which Van
Zyl supplied on the same day, including the precise amount needed to
settle the bulk services fees. Le Roux
then informed Van Zyl that
Quince would pay the amount required (adjusted, in the light of Van
Zyl’s reply, to the figure
of R66 697,09) upon the
Nortjes’ signing the email exchanges between VGV and Quince.
[32]
On the following day, 1
August 2007, Van Zyl emailed the Nortjes’ signed confirmation
to Le Roux, whereupon Quince paid the
sum of R66 697,06 into
VGV’s trust account.
[33]
The details of the
second additional loan were entered on Quince’s standard
bridging finance agreement. Le Roux said that
this was, again, a
matter of internal record-keeping and that the document was not
signed or submitted by Vexma or VGV. He said
the agreement relating
to the second additional loan was constituted by the correspondence.
[34]
The standard agreement
required, once again, that the amount of the loan be repaid on the
earlier of date of transfer or expiry
of 90 days from the date of
advance. In Quince’s letter to VGV of 1 August 2007, formally
approving the additional loan and
providing proof of payment, Quince
furnished a repayment schedule for a 60-day period, the same period
as stipulated in the initial
loan. Again, nothing turns on whether
the repayment date was 60 days or 90 days
[35]
On 2 August 2007 VGV
paid the bulk services fees to the municipality (R175 697,09).
[36]
On 14 August 2007 Le
Roux made enquiries to Van Zyl concerning progress. Van Zyl replied
that the municipality had not yet issued
the clearance certificates.
He said he would phone Le Roux regarding the cession of the bond. He
indicated that his firm would
lodge the six transfers immediately on
obtaining the clearance certificates.
[37]
There was further
delay. Behind the scenes, Standard Bank had sent a letter of demand
to Vexma foreshadowing a liquidation application.
VGV corresponded
with the bank’s attorneys on that matter. It seems that VGV was
able to placate the bank.
[38]
Various transactions
lodged by VGV were registered at the deeds office on 4 October 2007.
These were (i) the transfer of the
six Mooizicht erven mentioned
in the earlier correspondence; (ii) the cession to Quince of a
Mainfin mortgage bond for R2,3
million. Although a mortgage
bond of R5 million was meant to have been ceded, Mainfin was not
willing to release its other two
bonds because Vexma was still
indebted to it.
[39]
Van Zyl performed
calculations pursuant to which he determined that only R1 480 081,71
(not R1 666 700 as specified
in the email exchanges of late
July 2007) was available to Quince from the six transfers. He
testified that the deficit was attributable
to the fact that an
amount had to be paid to Mainfin to settle Vexma’s indebtedness
to that company. It also emerged from
supplementary discovery made by
the defendants while Van Zyl was under cross-examination that
payments from the transfer proceeds
were made to certain other
parties, for example to another firm of attorneys to whom VGV had
given an undertaking and to Mr Nortje
himself in respect of
commissions he had advanced to his agents. Van Zyl was not able to
say how much had been paid to Mainfin
or precisely how the sum of
R1 480 081,71 was calculated.
[40]
Be that as it may, Van
Zyl’s evidence was that, in advance of the transfers registered
on 4 October 2007, he spoke with Le
Roux and explained to him the
reduced amount available for Quince. Van Zyl said that, in view of
his firm’s undertaking in
the earlier correspondence to pay
Quince R1 662 700 on transfer (an amount which, so it had
transpired would not on his
calculations have been available for that
purpose), he would not have registered the transfers unless Quince
had agreed upon transfer
to accept the lesser amount. He said that Le
Roux gave him the go-ahead to register. Le Roux was comfortable that
the proceeds
from the last two unsold Mooizicht erven, in respect of
which Quince would have the security afforded by the ceded mortgage
bond,
would be sufficient to cover the amount which would remain
owing to Quince after payment of the sum of R1 480 081,71.
[41]
Although this version
was not put to Le Roux in cross-examination, it may well be correct.
There is no evidence that, upon being
paid the lesser sum of
R1 480 081,71, Quince remonstrated that VGV had breached
its undertaking.
[42]
Thus it was that on 10
October 2007 VGV paid Quince an amount of R1 480 081,71.
The evidence regarding the manner in which
that payment was
appropriated is unsatisfactory. It appears that neither Vexma nor VGV
on its behalf made any appropriation at
the time of payment. Le Roux
testified that to the best of his recollection Quince initially
appropriated the amount
pro
rata
to the initial
loan, the first additional loan and the second additional loan. On 12
December 2007 Quince addressed to Vexma a notice
in terms of
s 129
of the
National Credit Act. It
is apparent from the schedule to this
letter that Quince appropriated the payment firstly in discharge of
the two additional loans
and the balance of R1 337 663 to
the initial loan. In an action which Quince instituted against
Vexma in the magistrate’s
court during February 2008, the
payment was apparently treated as having been appropriated in full to
the initial loan (I say ‘apparently’,
because this is a
matter of inference from Vexma’s affidavit opposing summary
judgment – the particulars of claim are
not in the record). The
methods of appropriation reflected in the
s 129
letter and in
the action are both at odds with Le Roux’s recollection of a
pro rata
appropriation.
[43]
In Vexma’s
affidavit opposing summary judgment in the magistrate’s court
action, the Nortjes asserted that the amount
owed on the initial loan
was not yet due and that the payment of R1 480 081,71 had
thus fully discharged the additional
loans, with only the balance
being applied in reduction of the initial loan. This was the
appropriation initially adopted by Quince
in the
s 129
notice
and is also the appropriation Quince asserted in the current
proceedings against the defendants. In other words, Quince
treated
the additional loans as having been repaid in full, leaving a larger
unpaid balance than would otherwise have existed on
the initial loan.
This is relevant to quantification, because VGV was only alleged to
have incurred a personal liability on the
initial loan. Quince’s
case was and is that only an amount of R1 337 419,36 was
available to be appropriated to
the initial loan, and that this
appropriation, which discharged all the interest and some of the
capital, reduced the balance on
the initial loan as at 10 October
2007 from R1 907 131,22 to R571 022,68.
[44]
I have mentioned that
Quince instituted action against Vexma during February 2008 and that
Vexma opposed the action. While those
proceedings were pending Vexma
was, during October 2008, placed in provisional liquidation at
Quince’s instance. The order
was made final in July 2009. It
was also in July 2009 that Quince issued summons against the
defendants in the present case.
Interpretation
and application of clause 3(iv) of initial loan agreement
[45]
Leaving aside the
defences raised, VGV was liable, in terms of clause 3(iv) of the
initial loan agreement, to repay the amount owing
thereon ‘in
the event of the transaction being delayed, for whatever reason, for
a period of more than 90 days’. The
standard contract
contemplated that details of the ‘property transaction’
would be inserted in part A of the document.
Those details were not
inserted in the present instance but the parties were
ad
idem
that the
relevant property transaction was the sale of Mooizicht erven in
phase 1 as mentioned in the correspondence preceding the
conclusion
of the agreement.
[46]
Part B of the document
specified a ‘commencement date’ and an ‘initial
period’. Here they were 1 June 2006
and 60 days. Vexma was
obliged to repay the loan plus charges within that 60-day period.
[47]
In my view, the 90-day
period contemplated in clause 3(iv) started to run on the
commencement date, 1 June 2006. What the contract
envisaged was that
the property transaction would be registered within the initial
60-day period. If this did not occur, and if
that transaction still
had not been registered after the expiry of 90 days, the conveyancing
attorney incurred the liability imposed
by clause 3(iv). That would
only be so, of course, if registration of the transaction was still
pending. If, within the 90-day
period, the transaction was
registered, the conveyancer’s obligation would be the one
specified in clauses 3(i) and (ii).
If, within the 90-day period, the
transaction was cancelled or the borrower became deceased, the
conveyancer’s obligation
would be the one specified in clause
3(iii).
[48]
In his evidence Van Zyl
said that the undertaking in clause 3(iv) was not enforceable because
it was a suretyship which did not
comply with the prescribed
formalities. This was, correctly, not pleaded as a defence. Clause
3(iv) imposes a primary obligation
to pay in specified circumstances;
it is not a suretyship (see
List
v Jungers
1979 (3)
SA 106
(A) at 117H-119G). It is unnecessary, in the circumstances, to
decide whether, if the undertaking were construed as a suretyship,
there was compliance with the prescribed formalities. The undertaking
was in writing and signed by VGV. The question would be whether
the
failure to insert the details of the property transaction was a fatal
formal defect.
[49]
Clause 3(iv) is quite
distinguishable from the undertaking considered in
Kruger
v Property Lawyer Services (Edms) Bpk
[2014]
ZASCA 80
, which Mr van Reenen mentioned in his written argument. The
Supreme Court of Appeal was concerned with an undertaking, contained
in a letter given by the conveyancer, to pay a certain amount upon
transfer. The court did not say that the undertaking was a suretyship
but found that, construing it in the context of the bridging finance
loan which had given rise to it, the undertaking did not compel
the
attorneys to pay more than the net proceeds received on registration.
Clause 3(iv) naturally cannot bear a similarly limited
meaning
because it expressly applies in the event of the transaction being
delayed, ie applies where no registration has occurred.
[50]
Subject, therefore, to
the defences raised, VGV became liable, by not later than the end of
October 2006, to pay to Quince the amount
owing on the initial loan.
[51]
I may mention, before
moving on, that the rationale for imposing a direct obligation on the
conveyancer was presumably the following.
Quince did not necessarily
know or deal directly with the borrowers. The latter were introduced
to Quince by conveyancing attorneys.
It suited conveyancing attorneys
that clients in need of bridging finance should obtain it, because
this facilitated completion
of property transactions and thus the
earning by the conveyancers of their fees. The conveyancers would
have control of the property
transaction. Quince would typically have
depended on the conveyancers for information about the quality of the
proposed property
transactions and the likely time lines. All these
considerations obtained in the present case.
Specific
performance or damages?
[52]
Mr van Reenen argued
that Quince’s claim was for damages rather than specific
performance. This distinction was said to be
relevant when it came to
quantification of the claim.
[53]
In my view, Mr van
Reenen’s characterisation of the claim is incorrect. Paras
15-23 of the final amended particulars of claim
constitute a claim
for specific performance of the undertaking in clause 3(iv). Paras
23A-26 are an alternative claim for damages.
The alternative of
damages was added by way of amendment in response to a special plea
that in terms of s 46(1) of the Magistrates’
Court Act 32
of 1944 the magistrate’s court did not have jurisdiction to
hear a claim for specific performance without an
alternative of
damages. The special plea was, I may add, misconceived and the
amendment thus unnecessary: the phrase ‘specific
performance’
in s 46(1) has been held not to include an order for the payment
of money (see
Tuckers
Land & Development Co v Van Zyl
1977
(3) SA 1041
(T);
Otto
v Basson
1994 (2)
SA 744
(C); Jones & Buckle
The
Civil Practice of the Magistrates’ Courts in South Africa
Vol
1 at 305 ).
[1]
Nel’s
oral statement
[54]
Van Zyl’s
evidence was that, in the co-operation discussions between himself
and Nel, the latter said that his company ‘has…never
ever been involved in any litigation with attorneys and they don’t
foresee to, and undertake that they never will take any
action
against a firm that is in a business relationship with them’.
In cross-examination he said that Nel made the statement
with
specific reference to clause 3 of the then standard bridging
financing agreement. Van Zyl relayed Nel’s words as being
(I
translate from the Afrikaans): ‘Hennie, I promise you, we have
never claimed against any attorney in terms of this clause
and won’t
do so and if we go into co-operation forget about it, it will never
happen.’
[55]
Le Roux, who in my view
gave his evidence very fairly, said that he did not have personal
knowledge of what Nel and Van Zyl discussed
but could not believe
that Nel had given such an undertaking. Nel’s availability as a
witness does not appear from the record.
[56]
I accept that Nel made
some statement along the lines indicated by Van Zyl. But the latter
was testifying five years after the conversation.
I think it doubtful
that Nel would have categorically undertaken that Quince would not
enforce its rights against VGV under future
financing agreements. Van
Zyl conceded during cross-examination that Quince could have sued VGV
on undertakings of the kind contained
in the correspondence (ie to
pay a specified amount on transfer). The precise content of such an
undertaking would depend on its
wording. It strikes me as more
probable that Nel was conveying to Van Zyl that he would not expect
Quince ever to sue the conveyancing
attorneys. This would be an
expression of opinion falling short of an undertaking.
[57]
Van Zyl’s
evidence, to the effect that on his understanding clause 3 of
Quince’s standard bridging finance agreement
would not apply to
transactions between VGV and Quince, is at odds with a resolution
passed by VGV’s directors on 31 May
2006. This resolution was
among various documents of which the defendants made supplementary
discovery during July 2011, shortly
before the resumption of Van
Zyl’s cross-examination on 28 July 2011. In terms of the
resolution VGV’s directors approved
the making of bridging
loans by Quince to VGV’s clients on the terms of a draft
contract annexed to the resolution. Although
the annexed draft was
not identical to the Vexma bridging finance agreement of 30 May 2006,
clause 3 of the draft contained substantially
the same undertakings
as clause 3 of the Vexma contract, including the contentious clause
3(iv). (The precise reasons for the passing
of the resolution at this
particular point in time do not appear from the evidence. One thus
does not know whether it is purely
coincidental that the resolution
was passed on the same date as the signing of the Vexma bridging
finance agreement.)
[58]
Nevertheless, I shall
assume in favour of the defendants that Nel gave the oral undertaking
they allege.
Nel’s
authority
[59]
On this assumption, the
question obviously arises as to whether Nel was authorised by Quince
to make the undertaking. In its plea
the defendants alleged that Nel
represented Quince in giving of the undertaking. It was for the
defendants to allege and prove
Nel’s authority (see
Van
Niekerk v Van den Berg
1965
(2) SA 525
(A) at 537E-G) though it has also been said that a
litigant who disputes the authority of his alleged agent must
specifically plead
this (
Kwikspace
Modular Buildings Ltd v Sabodala Mining Company
Sarl
& Another
2010
(6) SA 477
(SCA) para 16).
[60]
In its replication
Quince denied that any representation had been made. There was some
debate on the opening day of the trial as
to whether Nel’s
authority (if he had said what was alleged) was in issue. Mr van
Reenen for the defendants told the magistrate
that he thought it safe
to assume that Nel’s authority was in issue even though this
might not clearly appear from the pleadings.
There is nothing in the
record to suggest that this assumption ever changed. Quince at no
stage admitted Nel’s authority.
The circumstances of the case
were such as to have made it highly unlikely that Quince would have
admitted Nel’s authority.
Accordingly, and although Quince
ought to have pleaded, in the alternative, that if Nel made the
alleged statement he was not authorised
to do so, the trial was
conducted on the assumption that Nel’s authority needed to be
proved. Since the function of pleadings
is to alert parties to the
issues, Quince’s failure specifically to plead an absence of
authority should not in the particular
circumstances of this case be
held against it.
[61]
Nel was not one of
Quince’s directors. The undertaking he allegedly gave was
contrary to the standard financing agreement
then in use by Quince.
No express authority was proved, and the giving of the alleged
undertaking would not have been within the
usual authority of someone
like Nel. Le Roux testified that the initial loan was a large one by
Quince’s standards and that
it thus needed to be approved by
the board. Insofar as ostensible authority is concerned, there is no
evidence that Quince held
Nel out as a person who could bind Quince
to undertakings of the kind in question.
[62]
Mr van Reenen, in
written argument, alluded to Van Zyl’s evidence that Nel held
himself out to be a director of Quince. Van
Zyl said that he inferred
that Nel was a director but gave no detail of Nel’s behaviour
which gave rise to this belief. In
any event, one cannot rely on a
representation by the purported agent himself in order to establish
ostensible authority (
Glofinco
v Absa Bank Ltd t/a United Bank
2002
(6) SA 470
(SCA) paras 12-13).
[63]
The magistrate was thus
right, in my view, to conclude that Nel did not have authority to
make the alleged representation or give
the alleged undertaking.
Rectification,
misrepresentation and undertaking
[64]
If it were found that
Nel made the alleged representation or gave the alleged undertaking,
it by no means follows that the defences
based on rectification,
misrepresentation or undertaking should have succeeded.
[65]
As to rectification, it
is clear from Van Zyl’s evidence that he was under no
misapprehension as to the terms contained in
Quince’s standard
financing agreement. He testified that Nel’s statement was made
with specific reference to clause
3. VGV concluded a number of
transactions with Quince in the same form. Van Zyl did not, on this
or any other occasion, strike
out any part of clause 3 when signing
the document on behalf of his firm.
[66]
We are thus not dealing
with a case where, by virtue of an error common to the parties, their
written contract was formulated in
a manner contrary to their common
intention. VGV signed the document knowing what it contained. Its
case is that, because of an
earlier oral agreement, clause 3 (or at
least clause 3(iv)) is not enforceable.
[67]
There is authority for
the proposition that an agreement which is in the form intended by
the parties but which has a consequence
which is contrary to the
common intention can be rectified (see, for example,
Tesven
CC & Another v South African Bank of Athens
2000
(1) SA 268
(SCA) paras 15-18;
Brits
v Van Heerden
2001
(3) SA 257
(C) at 268G-269H). The defendants’ case on
rectification is that, although both parties knew that the bridging
finance agreement
reflected the provisions contained in clause 3,
neither side intended those provisions to be operative.
[68]
None of the cases where
rectification has been granted because of unintended consequences has
gone as far as holding that a clause
which both parties knew was
contained in the document may be disregarded because the parties did
not intend it to be operative.
In principle, though, I am prepared to
accept that rectification could be granted in such a case. However,
it would in the nature
of things be difficult for a party who relies
on rectification in such circumstances to discharge the burden of
proof resting on
him, because it is unusual for contracting parties
to include a clause which they intend not to be operative. Even in a
pre-printed
document, a clause can simply be struck out if it is not
intended to take effect. The difficulty is more pronounced where the
party
relying on rectification is an experienced firm of attorneys
and the document is on its face one intended to create legal
relations
between the attorneys and the other party.
[69]
Be that as it may, the
defence of rectification would fail in the present case because there
is no evidence that Quince, in concluding
the initial bridging
finance agreement, intended clause 3 to be inoperative. The fact that
Nel, at an earlier point in time and
in the context of co-operation
discussions, gave an undertaking within his authority does not mean
that Quince, when it concluded
the bridging finance agreement on 30
May 2006, did not intend its standard terms to apply. It was not the
defendants’ case
that Nel represented Quince in the conclusion
of the bridging finance agreement. The evidence did not establish
whether anyone
actually signed the document on behalf Quince. Le Roux
testified, however, that the transaction was approved by Quince’s
board and we know from the evidence that Le Roux had communication
with Van Zyl prior to the advancing of the funds on 1 June 2006.
The
defendants certainly did not prove that Le Roux or Quince’s
board intended clause 3(iv) to be inoperative.
[70]
It was argued for the
defendants that one could infer, from Quince’s delay in
demanding payment from VGV, that Quince appreciated
that clause 3(iv)
was not enforceable. I do not agree. When that proposition was put to
Mr Le Roux in cross-examination he denied
that the delay had anything
to do with Nel’s alleged statement. He said that VGV channelled
a lot of business to Quince and
that Quince was trying to save the
relationship. I find it quite plausible that Quince decided, in the
particular circumstances
of the case, to exhaust other avenues before
enforcing its claim against VGV.
[71]
The defendants also
argued, with reference to the claim which Quince lodged in Vexma’s
liquidation, that Quince, in stating
in the claim form that no
person apart from Vexma was liable for the debt or any part thereof,
was recognising that it had
no claim against VGV. Quince’s
statement was in fact that no other person was liable ‘otherwise
than as surety or co-principal
debtor’ for the debt or any part
thereof ‘save as may appear from any annexures hereto’.
Accepting in the defendants’
favour that VGV’s liability
in term of clause 3(iv) was not encompassed by the expression
‘co-principal debtor’,
the fact is that the initial loan
agreement was an annexure to the claim form,
[2]
and VGV’s liability appeared from that contract.
[72]
At one point in his
evidence Van Zyl indicated that VGV did not regard the standard form
document as constituting a contract at
all between Quince and VGV. It
was simply an ‘order form’ so that VGV could earn
commission on the loan. However, that
was not the defendants’
pleaded case. They pleaded that the agreement should be rectified by
the deletion of clause 3. They
pleaded that the remaining terms of
the agreement between Quince and VGV were those contained in the
standard document.
[73]
The case based on Nel’s
oral undertaking is misconceived. The general principle is that,
except where the requirements for
rectification are proved, reliance
on an earlier oral promise is precluded by the conclusion of a later
inconsistent written contract.
Clause 3 of the written contract
imposed certain obligations on VGV. The earlier alleged oral
agreement was that there would be
no such obligations. For similar
reasons, the argument that, by virtue of the alleged breach of the
oral undertaking, Quince is
liable to VGV for damages in an amount
equal to the amount for which VGV is liable to Quince in terms of
clause 3(iv) is untenable.
[74]
The case which treats
Nel’s oral statement as a misrepresentation (allegedly
fraudulent) rather than a contractual promise
also does not withstand
scrutiny. Nel’s statement, as a representation that Quince
would not seek to hold VGV liable on the
undertakings in clause 3,
could have been no more than Nel’s belief as to how Quince
would behave in the future. It was not
shown that Nel misrepresented
his own state of mind in that regard. He may well have believed that
Quince would not sue VGV.
[75]
Furthermore, Quince did
not, at the time of the conclusion of the bridging finance agreement,
make any misrepresentations. On Van
Zyl’s evidence, VGV’s
error was to assume that it could disregard the provisions contained
in clause 3 because of an
undertaking given sometime previously by
Nel. That was its own mistake.
The
additional loans - novation
[76]
There is a presumption
against novation because it involves a waiver of existing rights
(Christie
The Law of
Contract in South Africa
6
th
Ed at 469). In that regard, Leon J said the following in
Woolfsons
Credit (Pty) Ltd (Formerly Vavasseur (SA) Credit (Pty) Ltd) v Holdt
19
77
(3) SA 720
(N) at 724F-G:
‘
Moreover
in the principal case the onus will lie upon the defendant to
establish the defence of novation. Clear and cogent proof
of such
novation would be required in view of the fact that it involves a
waiver of rights. (
Marendaz
v Marendaz
1953
(4) SA 218
(C) at pp 226-227.) Where an intention to novate is
sought to be established by implication the intention must be “clear
and unequivocal” because it is more likely that a creditor, who
has an existing enforceable right, will intend, when he enters
into
any new arrangement in regard thereto, to reinforce rather than
destroy that right and accept something else in its place.
(
Trust
Bank of Africa Ltd v
Dhooma
1970 (3) SA
304
(N) at p 307D-G.)’
[77]
The defendants’
case is that such obligations as Vexma and VGV had under the initial
bridging financing agreement were superseded
by the two additional
loan agreements so that the rights and obligations under the initial
agreement were discharged. In the case
of VGV in particular, this
requires one to find that Quince gave up the rights it had in terms
of clause 3(iv).
[78]
Unless a later contract
expressly novates an earlier one, novation is generally a matter of
inference from the terms of the new
contract. I do not think that the
terms of the two additional loan agreements were such as to bring
about a termination of the
rights and obligations under the initial
bridging finance agreement. By the time the additional loan
agreements were concluded
Quince had already advanced the amount of
the initial loan. The terms contained in the initial bridging finance
agreement plainly
continued to operate, for example in relation to
the service fee and finance charges and the choice of
domicilia
citandi et executandi
.
[79]
The primary purpose for
the coming into existence of the additional loan agreements was that
Vexma needed additional funds in order
to procure the transfers from
which it could repay what it should long since have paid to Quince.
The additional agreements regulated
those further loans. To the
extent that the standard financing agreement forms completed by
Quince in respect of the additional
loans have contractual force or
reflect terms agreed orally or in correspondence, they deal
exclusively with the additional loans.
They make no reference to the
initial loan.
[80]
A waiver of Quince’s
rights under the initial agreement cannot be inferred from the fact
that Quince, as a condition for agreeing
to advance further funds,
required undertakings that monies already owing to it be paid upon
the transfer of the Mooizicht erven.
The
causa
of the indebtedness
in respect of the initial advance remained the initial bridging
finance agreement. In this regard, reference
can be made to
Adams
v SA Motor Industry Employers Association
1981
(3) SA 1189
(A) where a purchaser (the appellant), who had fallen
into breach of his obligations under an agreement for the purchase of
shares,
signed an acknowledgment of debt. The sellers thereafter
ceded their rights under the acknowledgment of debt to the
respondent.
Among the questions were whether the acknowledgment
novated the purchase agreement and whether the acknowledgment could
be ceded
separately from the rights under the sale agreement. Jansen
JA rejected the argument that an acknowledgment of debt could not
found
an independent cause of action unless it amounted to a
novation, saying that there was no objection in principle to a second
obligation
arising in respect of an existing debt (1198E).
[81]
When Van Zyl wrote to
Le Roux on 15 June 2007 in respect of the first additional loan,
there was no hint that the advancing of the
additional sum would have
any effect on the original loan. In his reply, Le Roux made only
passing reference to the initial loan,
enquiring whether there would
be sufficient surplus from the proposed transfers to repay the
additional loan as well as the original
loan. The only undertaking Le
Roux sought was that the amount of the additional loan together with
interest and the initiation
fee be repaid on date of transfer of the
Mooizicht erven. Van Zyl responded by indicating that the surplus
would be at least R1,65
million. He furnished the requested
undertaking in respect of the additional loan. By no stretch of the
imagination can this be
regarded as a novation of the initial loan
agreement. There was not even, as I see it, a contractual extension
of time for repayment
of the amount of the initial loan. Van Zyl was
simply indicating, as a matter of practical reality, when and from
what sources
Vexma would be able to repay what it owed.
[82]
The proposal that
Quince take security in the form of a ceded mortgage bond originated
from Van Zyl’s response to Le Roux’s
email of 26 July
2007. The proposal was made because it now appeared that the residue
available to Quince from the six Mooizicht
transfers would be less
than previously indicated by Van Zyl. It is hardly surprising that
this was one of several proposals which
Quince subsequently accepted.
The ceded bond secured Vexma’s indebtedness to Quince from any
cause whatsoever and thus provided
security in respect of the initial
loan and the two additional loans. The taking of security in respect
of an amount which a debtor
already owes is not unusual and does not
suggest an intention to novate. On the contrary, the ceded mortgage
bond here did not
itself create an indebtedness; the
causa
of the debts
secured by the bond would need to be sought in other contracts.
[83]
In the context of the
second additional loan, the exchange of emails of late July 2007
record an agreement that VGV would pay Quince
R1 662 700
upon transfer of the six Mooizicht erven and that the balance would
be paid from the sale of the last two
Mooizicht erven or other Nortje
projects. Quince, in its amended particulars of claim, pleaded this
arrangement as an extension
of the due date for repayment. In
context, the ‘extension’ would have related to the
initial loan and the first additional
loan, because the second
additional loan had not yet been advanced. I am somewhat doubtful
whether there was in truth a contractual
extension of the due date.
Quince was shoring up its position by obtaining commitments as to
when and how amounts, which were already
due and payable, would in
fact be paid. Be that as it may, the extension of time in relation to
the initial loan and first additional
loan can hardly be regarded as
a novation of either of those contracts (cf
Estate
Liebenberg v Standard Bank of South Africa Ltd
1927
AD 502
at 507-508;
Optima
Fertilizers (Pty) Ltd v Turner
1968
(4) SA 29
(D) at 34D-G). The exchange of emails is entirely
consistent with the understanding that there were two existing
outstanding loans
(the initial loan and the first additional loan),
that there would now be a second additional loan, and that Quince was
wanting
to pin down when and from what sources the total amounts owed
on the three loans would as a fact be repaid. This does not suggest
a
novation of the initial loan or the first additional loan. At most
there was an extension of time.
[84]
In the light of these
conclusions, it is unnecessary to decide whether the non-variation
clause in the initial agreement precluded
reliance on novation and
Quince’s contention that VGV was not a party to the additional
loan agreements.
The
additional loans – the
National Credit Act
[85
]
In my view, the
defendants’ contention that there was non-compliance with the
National Credit Act in
respect of the additional loans is a red
herring. The issue was not raised on the pleadings. What Quince did
plead (and this is
common cause) is that, by virtue of
s 4(1)(b)
,
the
National Credit Act did
not apply to the initial loan agreement
because Vexma was a juristic person and because the credit agreement
was a ‘large
agreement’ as contemplated in
s 9(2)(c).
On the defendants’ case the same would have been true in
respect of the novated agreement allegedly concluded in July/August
2007. As a matter of argument, however, the defendants contended in
the court
a quo
that, on Quince’s
case (ie if there was no novation), the two additional loan
agreements were governed by the Act and that
there should thus have
been compliance with the enforcement procedures of the Act. Although
the point was not taken in the pleadings,
one might say it was one of
law in that it was for Quince to allege and prove either that there
had been compliance with the Act
or that there was a relevant
exemption.
[86]
I do not see how the
defendants can derive any assistance from supposed non-compliance
with the
National Credit Act in
relation to the two additional loans.
Quince did not claim that VGV was liable in respect of the additional
loans. The only entity
with a possible interest in non-compliance was
Vexma. A
s 129
notice was in fact sent to Vexma, albeit on the
basis that the additional loans had been repaid and that the only
outstanding balance
was in respect of the initial loan. Vexma did
not, in the magistrate’s court proceedings, take any point of
non-compliance
with
s 129
in relation to the additional loans.
Indeed, its case was that the additional loans had been fully repaid.
Furthermore, judgment
was at some stage taken against Vexma. The
matter is thus
res
judicata
as between
Quince and Vexma.
[87]
In any event, the
evidence sufficiently established that the
National Credit Act was
not applicable to the additional loans. Those loans were concluded in
the period June-August 2007. One knows that Vexma at that
time owned
eight Mooizicht erven, that six of those erven had been sold for
prices totalling more than R1,662 million, and that
the remaining two
erven had some value. Vexma’s asset value thus exceeded the
threshold contemplated in
s 4(1)(a)(i).
One also knows, by
virtue of the numerous transfers registered during November and
December 2006, that Vexma’s turnover as
a property developer
must have exceeded the prescribed threshold.
[88]
Finally, in view of the
conclusion I have reached on the quantification issue below, and in
particular regarding the appropriation
of the payment of 10 October
2007, the enforceability of the two additional loan agreements in any
event has no bearing on Quince’s
claim against the defendants
arising from the initial agreement.
Quantification
[89]
Le Roux gave evidence
on the quantification of the indebtedness with reference to three
loan schedules. There was no challenge to
the accuracy of the
calculations. There was some debate about whether the interest was
usurious. However, no such point was taken
on the pleadings nor does
the evidence disclose that the interest exceeded the maximum interest
then permitted by law (by ‘interest’
I mean the monthly
service fees and finance charges). The interest was high but the
maximum permitted rates on short-term loans
are typically high
relative to more conventional lending.
[90]
Based on the submission
that Quince’s claim was in truth one for damages, Mr van Reenen
repeated the argument made to the
magistrate to the effect that
Quince had been required to prove the value of the last two Mooizicht
erven and of the dividend likely
to be received from Vexma’s
liquidation. In the event, and prior to the conclusion of the trial,
the last two Mooizicht erven
were sold for R80 000 each, and
credit was allowed for this in the computation.
[91]
As I said earlier, on
my reading of the particulars of claim the primary cause of action
was for specific performance, with damages
as an alternative. I thus
consider that Quince was entitled to sue the defendants for the
outstanding indebtedness without taking
into account the value of
possible future recoveries from Vexma. In regard to the amount of
R160 000 from the realisation
of the last two Mooizicht erven,
Quince would naturally not be permitted to make a double-recovery. In
its final computation, Quince
allowed a credit for this amount as at
23 March 2012. This may be regarded as generous to the defendants,
because although the
last two Mooizicht erven were sold by the
liquidators on 27 August 2011, they had not yet been transferred when
Mr October gave
evidence on 22 June 2012. Quince would thus only have
received the proceeds (which would have been less than R160 000
after
deduction of costs) at some stage later.
[92]
The only point that
need be considered in relation to quantification is the appropriation
of the payment made on 10 October 2007.
The evidence I summarised
earlier shows that there was no express or tacit declaration of an
appropriation by either Vexma (or
VGV, acting on its behalf) or
Quince at the time the payment was made or received. The residual
rules of appropriation thus apply
(see Christie
op
cit
at 444-447;
Zietsman v Allied
Building Society
1989
(3) SA 166
(O) at 177F-178C). Vexma’s contention, when sued in
the magistrate’s court, was that the payment should first have
been appropriated to extinguish the two additional loans, because
payment of them was due whereas payment of the initial loan was
not.
That contention is incorrect and was not advanced by Quince in the
present proceedings. In my view, at least the initial loan
and the
first additional loan were due, because a period of 90 days had
expired from the relevant dates of advance. Alternatively,
to the
extent that the email correspondence of late July 2007 has a bearing
on due date, it affected the due date of all three
loans in identical
fashion. They thus ranked equally in that respect.
[93]
One of the residual
rules is that payment should be appropriated to a debt secured by a
suretyship before an unsecured debt (
Northern
Cape Co-Operative Livestock Agency Ltd v John Roderick & Co Ltd
1965 (2) SA (O) at
73E-H; Wessels
Law
of Contract
2
nd
Ed para 2306(vii)). VGV’s undertaking was not in my view a
suretyship but one might reason by analogy that a similar rule
should
apply where, as here, the creditor has the benefit of a primary
undertaking from a third party. However, if this is not
the correct
position, the same result would follow from the last residual rule,
which is that where the debts are equal in all
other respects payment
should be appropriated to the oldest. (As I understand the law, the
rule that payments are appropriated
to interest before capital
applies only where the payment has to be appropriated to the
interest-bearing debt. Where there are
two interest-bearing debts,
payment is not appropriated to the interest of the later debt in
priority to the capital of the earlier
debt: cf
Standard
Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (In
Liquidation)
[1997] ZASCA 94
;
1998
(1) SA 811
(SCA) at 829I-832C.)
[94]
In argument Mr van der
Merwe, relying on the rule that payment must be appropriated to the
more onerous debt even if it is not the
oldest, submitted that the
two additional loans were more onerous because they bore interest at
36,5%
per annum
whereas the rate in terms of the initial agreement (service fee plus
finance charges) was 36%. To this may be added that the standard
forms used in the two additional loan agreements stated that interest
would be capitalised annually whereas there was no provision
for
capitalisation in the initial loan agreement. However, the
applicability of this rule of appropriation was not canvassed at
the
trial. Le Roux’s evidence was that, in the case of the second
and third loan agreements, the standard forms were only
used for
internal purposes. He also said that Quince at no stage capitalised
interest. The email correspondence relating to the
additional loans
did not record that the interest would be determined differently from
the initial loan. There may well have been
such an agreement but it
does not appear from the evidence. Furthermore, if one includes the
VAT component of the service fee charged
in terms of the initial loan
agreement, the monthly charge payable by Vexma was actually 38,68%
whereas no VAT was charged on the
interest levied on the additional
loans (36,5%). Mr van der Merwe submitted that the VAT would not have
affected Vexma because
the VAT was a deductible input credit.
However, VAT is accounted for in arrears so that Vexma would only
have got the benefit of
the input deduction (or refund) sometime
after it had paid the full charge to Quince, ie there would have been
some negative cash
flow effect. I thus do not think it would be fair,
as against the defendants, to base our decision regarding
appropriation on the
argument relating to the interest rates.
[95]
One can see from the
schedule relating to the first loan that, immediately prior to
payment, the outstanding balance was R1 907 131,22
and that
appropriation in full would have reduced this balance to R427 049,51
(rather than R571 022,68) as at 10 October
2007. The payment
would naturally have been appropriated to interest on the initial
loan and then to capital. The result is that
all interest on the
first loan was repaid and the reduced balance as at 10 October 2007
comprised only capital. Although there
was some reference to the
in
duplum
rule, it is
clear that interest on the capital as at 10 October 2007 had not yet
reached that capital amount at the time summons
was issued in July
2009. The
in duplum
rule did not
prevent interest from running in excess of the capital after that
date (
Oneanate supra
at 832H-834I).
[96]
The effect of my
conclusion on appropriation is that Quince’s claim is somewhat
lower than claimed in the original summons
and as updated in the
final amended particulars of claim of 24 May 2012. The
quantification, though tedious, is a matter of mere
arithmetic. At
the court’s request counsel after the hearing submitted an
agreed calculation up to 31 October 2014 on the
basis of
appropriating the payment of 10 October 2007 in full to the initial
loan and allowing a credit of R160 000 as at
23 March 2012. This
is reflected in the order below.
Conclusion
[97]
For all these reasons I
would uphold the appeal. Although Quince has not succeeded in full on
the quantification issue, it has achieved
substantial success. The
appropriation issue took up virtually no time at the trial. I thus
consider that Quince is entitled to
its costs here and below. In
accordance with the bridging finance agreement, those costs are to be
paid on the attorney/client
scale (I decline to go further and to
approve attorney/own client costs).
[98]
I would make the
following order:
(a) The appeal succeeds with costs on the
attorney/client scale.
(b) The order of the court
a quo
dismissing
the appellant’s action with costs is set aside and there is
substituted an order in the following terms:
‘
The
defendants, jointly and severally, are directed to pay the plaintiff:
(i) R1 438 256,28
plus a service charge thereon of 1,6% per month plus VAT (simple, not
compounded) and finance charges
thereon of 16,8% per annum (simple,
not compounded) from 1 November 2014 to date of payment.
(ii) costs of suit on the
attorney/client scale.’
Desai J:
[99]
I concur and it is so
ordered.
DESAI
J
ROGERS
J
APPEARANCES
For Appellant: Mr D van der Merwe
Instructed by:
Marais Muller Yekiso Inc
1
st
Floor Tyger Forum A
53 Willie van Schoor Street
Bellville
For Respondents: Mr D van Reenen
Instructed by:
Norton
Rose South Africa
10
th
Floor Norton Rose House
Riebeek
Street
Cape
Town
[1]
See also
Ndlovu v
Santam Ltd
[2005] ZASCA 41
where the
court and litigants evidently took it for granted that the
magistrate’s court had jurisdiction to order an insurer
to pay
the agreed indemnity to the plaintiff .
[2]
Record 10/906-907.