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[2015] ZAWCHC 73
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Absa Bank Limited v Haremza (12189/2014) [2015] ZAWCHC 73 (27 May 2015)
THE
REPUBLIC OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
No: 12189/2014
DATE:
27 MAY 2015
In
the matter between:
ABSA
BANK
LIMITED
...........................................................................................................
Applicant
And
RUTH
SUSAN
HAREMZA
.............................................................................................................................
Respondent
Coram
:
BOZALEK J
Heard:
10 MARCH 2015 & 15 APRIL 2015
Delivered:
27 MAY 2015
JUDGMENT
BOZALEK J:
[1]
This is an application for summary judgment
in which, once again, the principal issue is the liability of a
surety for the debts
of a company which has been the subject of
business rescue proceedings.
THE
FACTS
[2]
Defendant bound herself as surety and
co-principal debtor, jointly and severally, together with Views of
the Waves at Wilderness
Developments (Pty) Ltd (‘
the
company’
) in favour of plaintiff,
a commercial bank, for any debts (limited to R4, 185 000.00), owing
by the company to the plaintiff from
whatsoever cause arising,
together with such further amounts as may follow by way of interest
and costs. The company had undertaken
a hotel and property
development in Wilderness. On 27 April 2011, the company was placed
in business rescue in terms of sec 129
of the Companies Act, No 71 of
2008 (‘
the
Companies Act’
).
On 21 August 2012 an amended business rescue plan for the company was
presented to and adopted by creditors. In terms of the
plan the
business of the company would be sold as a going concern and
plaintiff, as a secured creditor, would receive payment to
the full
extent of the realisation of its securities with the balance of its
claims ranking as concurrent claims. Concurrent creditors
would,
however, receive no dividend, no amount being made available to
concurrent creditors either on liquidation or in terms of
the plan.
[3]
In its combined summons plaintiff pleaded
that in 2010 it entered into a written agreement with the company in
terms whereof it
granted it an overdraft facility and that, as at
November 2011, it had claims in excess of R57mil against the company
of which
nearly R16mil consisted of claims in respect of the
overdraft facility.
[4]
It pleaded further that in terms of the
business rescue plan it would receive a secured dividend of just less
than R25mil and would
be a concurrent creditor and receive no
dividend in respect of the balance of its claim, amounting to more
than R32mil.
[5]
Plaintiff sought judgment against defendant
in the amount R4, 185 000.00, being the limit of its suretyship
obligation together
with interest as well as an order declaring
executable certain property owned by defendant and over which a
mortgage bond had been
registered in favour of plaintiff as security
for defendant’s obligations in terms of the suretyship.
[6]
In her affidavit opposing summary judgment
defendant raised a variety of defences but eventually persisted only
in two of them.
The main defence is that, on a proper interpretation
of the business rescue plan, the company’s debt to plaintiff
having
been extinguished, she could not be held liable for an
accessory obligation arising out of the deed of suretyship which she
had
concluded. The second point or defence raised by defendant was
that summary judgment should not be granted until plaintiff had given
an account of what monies it had recovered from the company, or from
various other securities which it held in the form of cessions
or
notarial bonds, and demonstrated that the principal debt had not been
extinguished or that it was not less than the amount claimed
from
defendant.
THE
ACCOUNTING DEFENCE
[7]
I propose to deal first with the subsidiary
defence which defendant seeks to raise, namely, that no summary
judgment can be given
until such time as plaintiff has given an
accounting of all the monies which it has recovered in respect of the
company’s
liabilities to it.
[8]
To the extent that this defence was raised
in the opposing affidavit it was done almost in passing and in vague
terms, defendant
stating that there was nothing in plaintiff’s
combined summons to indicate to what extent the claim against the
principal
debtor had been reduced or extinguished. She put up no
facts or made no averments suggesting that plaintiff had recovered so
much
of its claim against the company that it could not rely on
defendant’s suretyship obligations. By contrast, as I have
pointed
out, in its particulars of claim plaintiff not only pleaded
the full extent of its claims against the company, the secured
dividend
which it would receive in terms of the business rescue plan,
and the fact that it would receive no dividend in respect of those
of
its claims as a concurrent creditor, it also pleaded that the
business rescue plan was adopted and implemented and that it received
the envisaged dividend. These allegations were not disputed by
defendant in her opposing affidavit. When regard is had to the
pleaded allegations that the plaintiff would receive no dividend on
the balance of its claims amounting to R32.5mil, including,
as at
November 2012, an amount of more than R18mil owing in respect of the
overdraft facility which it had extended to the company,
it appears
highly unlikely that plaintiff’s outstanding claims against the
company were less than the upper limit of defendant’s
liability, namely, R4, 185 000.00.
[9]
In terms of Rules of Court 32 (3)(b) a
defendant wishing to avoid summary judgment must satisfy the Court
that he or she has a bona
fide defence through an affidavit which
‘
disclose(s) fully the nature and
grounds of the defence and the material facts relied upon therefor’
.
At the stage of summary judgment it is not for the Court to rule on
the correctness of the facts so alleged but merely to consider
whether such facts constitute a good defence in law and whether that
defence appears to be bona fide. See
Maharaj
v Barclays National Bank Ltd
1976 (1)
SA 418 (A) at 426. To this end the Court must be apprised of the
facts upon which the defendant relies with sufficient
particularity
and completeness as to be able to hold that if these statements of
facts are to found at the trial to be correct,
judgment should be
given in favour of the defendant.
[10]
In the present instance defendant alleges
no facts at all suggesting that plaintiff had recovered more than the
R24mil as provided
by the business rescue plan nor does it dispute
that plaintiff’s claims were initially in excess of R57mil. In
argument Mr
Coston, on behalf of defendant, could do no more than
refer to a list of some 13 securities which the company was required
to furnish
in order to secure the overdraft facility which it enjoyed
from plaintiff. These included defendant’s suretyship
obligations,
in turn secured by a mortgage bond over her property. Mr
Coston speculated that plaintiff could have realised any of these
securities
and thereby reduced the company’s debts to the
extent that it had recovered its claims in full against the company
or at
least to the extent that its claim against defendant was
reduced. All of this was, however, no more than speculation,
unsupported
by any facts.
[11]
It is notable, furthermore, that defendant
was not a stranger to the principal business of the company. She
testified that she and
her husband were friendly with the driving
force behind the company, a Mr TG du Toit, that she furnished the
suretyship at his
request, that she purchased two properties in the
development which was the principal business of the company. In
addition she
annexed correspondence between Du Toit and someone who
appeared to be the representative of the business rescue
practitioner, relating
to the overall effect and outcome of the
business rescue plan and, further, indicating the aftermath of the
company’s failure
following the business rescue proceedings. In
these circumstances one would reasonably expect that defendant would
offer some indication
or proffer some facts in her opposing affidavit
in support of the suggestion that in fact plaintiff had, or might
well have, recovered
sums well in excess of those pleaded in its
particulars of claim with the result that its claim against her had
been extinguished
or diminished. For these reasons I consider that
this defence cannot ward off summary judgment.
THE
EFFECT OF THE BUSINESS RESCUE PLAN ON DEFENDANT’S LIABILITY AS
A SURETY
[12]
As stated, the primary defence raised by
defendant is that since plaintiff’s claim against the company
has, on a proper interpretation
of the business rescue plan, been
extinguished defendant’s liability, being accessory in nature
was, by virtue of
sec 154
of the Companies Act, likewise
extinguished. In raising this defence defendant relied on the
judgment by Rogers J in
Tuning Fork
(Pty) Ltd v Greeff and Another
2014 (4)
SA 521
(WCC).
[13]
Before considering the merits of this
argument it is necessary to furnish the material terms of both the
business rescue plan and
the suretyship concluded by defendant. As
mentioned, in terms of the business rescue plan the business of the
principal debtor
(the company) would be sold as a going concern and
plaintiff, as a secured creditor, would receive payment to the full
extent of
the realisation of its securities with the balance of its
claims ranking as concurrent claims. Concurrent creditors would
receive
no dividend.
[14]
The plan stipulates, in several clauses,
that the proceeds of the sale of the company’s various assets,
which were to be distributed
to the creditors as described therein,
would be ‘
in settlement of all
claims against the respective legal entities’
and ‘
in full and final settlement
of creditors’ claims against the company or any other
associated company’
.
[15]
Part C
of the business plan sets out its
operative assumptions and conditions and include the following
material clauses:
‘
6.4
The amounts made available for payment to creditors for the combined
businesses in terms of this BR Plan are paid in full and
final
settlement of any and all claims creditors may have against the
combined businesses.
6.5 Such
settlement is not intended to affect any rights that any creditor may
have against any third party who had bound itself
as surety, or on
any basis in law, or on behalf of either Views Restaurant or Views
Development.
6.6 Secured
creditors of the combined businesses will receive payment in terms of
this BR Plan and will upon receipt of such payment
be required to
consent to the release of their respective securities’.
[16]
Defendant concluded the deed of suretyship
in June 2007 wherein she bound herself as ‘
surety
and co-principal Debtor jointly and severally together with’
the company in favour of plaintiff ‘
for
the repayment on demand of any sum or sums of money, which the
defendant owes or may hereafter owe to the Bank from whatever
cause
arising and/or the due fulfilment of all obligations of the Debtor to
the Bank in respect of such indebtedness’
.
[17]
Under the heading ‘
The
discretion of the Bank’
defendant acknowledged and agreed that plaintiff could, in its
discretion ‘
and without prejudice
to its rights in terms hereof:
‘…
6.3
enter into any arrangement, compromise or settlement or grant an
extension to the Debtor or any surety;
[18]
Under the heading ‘
Insolvency,
Liquidation, etc’
defendant, as surety, agreed that:
‘
8.1
if the estate of the Debtor … is sequestrated, liquidated,
surrendered or placed under judicial management, administration,
compromise or arrangement, either by way of statute or otherwise:
8.1.1 the Bank
may, in its discretion, decide to institute a claim against such
estate and to calculate the extent of such claim,
without affecting
or diminishing my/our liability in terms hereof
8.1.2 the Bank
shall be entitled to apply all proceeds or payments which are
received from the Debtor, Curator, Liquidator or from
any other
source in diminishing the amount owed, without affecting or
diminishing my/our liability in terms hereof for payment
of the
amount which is owing to the Bank by the Debtor after receipt of such
proceeds or payments;’
[19]
Under the heading
‘
Renunciation
of Benefits’,
defendant
agreed that she was not entitled to demand cession of plaintiff’s
rights against the company before payment by
her of the full debt
owing by the company to plaintiff. Finally, a limitation clause
provided that the amount that plaintiff would
be entitled to recover
from defendant under the suretyship would be limited to a maximum of
R4 185 000.00 ‘
together
with such further amounts in respect of interests and costs as have
already accrued or which will accrue until the date
of payment of the
amount’
and, further that, in the
event that she did not fulfil her obligations in terms of the
suretyship by means of a payment to plaintiff,
it would ‘
only
be entitled to sell the surety’s property situated at ERF 2339,
South Street, Wilderness and to utilise the proceeds
thereof to
settle the surety’s liability towards the Bank in terms of the
suretyship’
.
[20]
By way of background,
sec 154
of the
Companies Act, found
in the chapter dealing with business rescue,
provides as follows in respect of the discharge of debts and claims:
‘
(1)
a business rescue plan may provide that, if it is implemented in
accordance with its terms and conditions, a creditor who has
acceded
to the discharge of the whole or part of a debt owing to that
creditor will lose the right to enforce the relevant debt
or part of
it.
(2) if a business
rescue plan has been approved and implemented in accordance with this
Chapter, a creditor is not entitled to enforce
any debt owed by the
company immediately before the beginning of the business rescue
process, except to the extent provided for
in the business rescue
plan.’
[21]
The defendant’s argument relied to no
small extent on the judgment in
Tuning
Fork
. In that matter Rogers J was
called upon to determine whether sureties, against whom summary
judgment was sought, had been released
from their liabilities as
sureties by reason of a compromise between the principal debtor,
being a company which was the subject
of a business rescue plan, and
its creditors. The learned judge refused summary judgment holding
that the business rescue plan
could reasonably be construed as one in
which the company as principal debtor had been discharged from its
liability to the plaintiff
and, since the position of the surety for
the company was not addressed in the plan, the defendants had on this
construction of
the plan been discharged.
[22]
Rogers J reached the following main
conclusions in his analysis of the business rescue provisions in the
Companies Act and
, in particular,
sec 154
thereof:
‘
i)
Applying the well-established test for implying a term in a statute,
one cannot imply a term, in the business rescue provisions
of the
Act, to the effect that creditors’ rights against sureties are
or are not unaffected by the adoption of a business
rescue plan. The
matter has simply not been addressed;
ii) The general
principles of our law of suretyship must thus be applied to determine
what effect, if any, the provisions contained
in any particular
business rescue plan have on sureties.
iii) One of the
general principles is that, if the principal debt is discharged by a
compromise with or release of the principal
debtor, the surety is
released unless the deed of suretyship provides otherwise (the deeds
of suretyship in this case do not provide
otherwise);
iv)
This general
principle applies also to a compromise or release pursuant to a
statute, regardless of whether the creditor himself supported
the compromise or release (unless, of course, the statute provides
otherwise, which is not so here, given the absence of any express
or
implied term on the matter).
v)
Accordingly,
if a business rescue plan provides for the discharge of the principal
debt by way of a release of the principal debtor,
and the claim
against the surety is not preserved by such stipulations in the plan
as may be legally permissible, the surety is
discharged’.
[23]
It will be seen then that Rogers J took the
view that a surety of a principal debtor is released by a compromise
or release effected
by a business rescue plan unless the relevant
deed of surety provides otherwise or the claim against the surety is
preserved in
the business rescue plan by stipulations which are
legally permissible.
[24]
The rationale in
Tuning
Fork
has been questioned recently in
Newpoint Finance Co (Pty) Ltd v Nedbank
Ltd
[2014] ZASCA 210
where it was
suggested, in para [14], ‘
that sec
154 is capable of the construction that it deals only with the
ability to sue the principal debtor and not with the existence
of the
debt itself’
. If that was the
case, the Court reasoned, then the liability of the surety would be
unaffected by the business rescue, unless
the plan itself made
specific provision for the situation of sureties’. Referring to
Tuning Fork
the Court, per Wallis JA states ‘
that
it is by no means clear to me that ‘(the reasoning of Rogers J)
is correct’
. These remarks were
obiter
and
therefore, ordinarily, I am obliged to follow the judgment of Rogers
J unless I consider that it is clearly wrong. However,
I regard it as
unnecessary for me to express a view one way or the other since, in
my view, in the present instance, in terms of
the approach adopted in
Tuning Fork,
defendant, notwithstanding the compromise reached with the company in
the business rescue plan, remains liable as surety by reason
of the
suretyship’s particular terms and/or by reason of the
provisions in the business rescue plan preserving the creditor’s
right of recourse against the surety.
[25]
In
Tuning Fork
Rogers J referred to the general legal position in our law that the
extinction of the principal obligation extinguishes the obligation
of
the surety which also finds application where the principal debt is
discharged by settlement or is extinguished by prescription.
He
discussed the reasoning adopted by Dove Wilson J in
Wides
v Butcher and Sons
(1905) 26 NLR 578
where it was held that a discharge of the debtor does not liberate
the surety if the remedy against the surety is expressly reserved
‘
because in that case the
discharge is not an absolute release, but is merely
a
pactum de non petendo
’
,
the reservation having that effect ‘
because
it rebuts the presumption which ordinarily exists that if you
liberate the principal debtor, you mean to liberate also the
surety,
and it is also has the effect of preserving the right of recourse by
the surety against the principal debtor’
.
As Rogers J put it ‘
If
the creditor and the principal debtor reach agreement that the
creditor will not sue the principal debtor but that the creditor
preserves his right to sue the surety, with the resultant risk that
the surety will be entitled to exercise his right of recourse
against
the principal debtor, the principal debtor's defence may be regarded
as personal. The arrangement between the creditor
and principal
debtor does not prejudice the surety, because his right of recourse
remains’.
[26]
Under the present suretyship the surety
agreed that in the event of a range of circumstances, including
judicial management, administration,
compromise or arrangement,
either by way of statute or otherwise, the plaintiff could, in its
discretion, institute a claim against
such estate and to calculate
the extent of such claim ‘
without
effecting or diminishing my/our liability in terms hereof’
.
The wide range of circumstances envisaged in this clause would seem
to quite easily encompass a business rescue plan notwithstanding
that
such proceedings may have been introduced into our law only after the
suretyship agreement was concluded. Secondly, that clause
(8.1.1) in
my view clearly envisages a situation in which the bank (plaintiff)
might compromise its claim against the principal
debtor (the company)
by way of such an arrangement without necessarily forfeiting its
right to proceed against the surety for any
monies still outstanding
by virtue of its pre-existing claim against the principal debtor.
[27]
The conclusion that plaintiff reserved its
right to proceed against defendant, as surety, notwithstanding a
compromise or settlement
of its claim against the company is
strengthened by the provisions of clause 6.3 which expressly permit
plaintiff ‘
without prejudice to
its rights
’ to ‘
enter
into any arrangement, compromise or settlement or grant an extension
to the Debtor…’
[28]
Even if I am wrong in my conclusion that
the plaintiff’s right to proceed against the surety is, in the
present circumstances,
preserved by the terms of the suretyship
agreement, I consider that the provisions of the business rescue plan
put the matter beyond
any doubt.
[29]
In considering the argument that, without
finding that it is a necessary implication of the business rescue
provisions that rights
against sureties are safeguarded failing which
such plans are unworkable, Rogers J cited the various possibilities
which would
have presented themselves to the law-maker had it chosen
to deal with the matter expressly. One of those possibilities was
that
the law-maker might have decided to leave it to the stakeholders
to regulate the position of sureties by appropriate provisions
in the
business rescue plan.
[30]
The learned judge found in fact that, given
the absence of the implied term in the new Act contended for by the
creditor, that
is
the effect of the term as it stands. In this regard he stated ‘
Even
if the surety were unwilling to make any compromise, there is
authority for the view (see below) that the creditor and company
could agree, as a term of the plan, that the creditor's right
against the surety will be preserved, the effect being that
the
'release' in favour of the company is merely a pactum de non petendo
and that the company acknowledges that it will be liable
to the
surety under the latter's right of recourse if the creditor chooses
to sue the surety.
The
learned judge cited another possibility relating to the terms of the
suretyship agreement itself when he said ‘
In
combination with the immediately preceding option, the lawmaker might
also consider that a creditor, when taking a suretyship,
can guard
itself against the effects of a voluntary or statutory compromise or
release by the inclusion of appropriate terms in
the suretyship.
Indeed, the standard suretyships used by banks and other large
financial institutions in this country usually
contain protection of
this kind’.
[31]
In my view this was
clearly the path which was followed by the parties in the present
matter when they agreed (in clause 6.5 of
the business rescue plan)
that the settlement which they reached through the business rescue
plan was ‘
not
intended to affect any rights that any creditor may have against any
third party who had bound itself as surety … for
and on behalf
of it (the company)’
and
when they included paras 6.3 and 8.1 in the deed of suretyship.
[32]
Mr Coston, on behalf of defendant had no
convincing answer to the existence and provisions of the clause cited
above. He pointed
out that defendant had not attended any meeting of
the creditors nor voted for the adoption of the business rescue plan
and argued
that it was not open to the other creditors who adopted
the plan, ‘
to legislate away the
defendant’s common law rights and to preclude her from relying
on her accessory position as a surety’
.
That proposition, however, begs the question as to whether any rights
which defendant had under the common law, were removed.
In the light
of the terms of the suretyship and the business rescue plan, as cited
above, this was not the case. The agreement
between plaintiff, as one
of the creditors, and the company, expressed through the business
rescue plan was no more than a
pactum
de non petendo
and the surety in
turn must be held to have preserved her right of recourse against the
principal debtor. To the extent that
sec 154
of the
Companies Act is
applicable, and to the extent that in proceeding against defendant
plaintiff is ‘
enforcing any debt
owed by the company immediately before the beginning of the business
rescue process’
, the proviso to
sec 154
‘
except to the extent
provided for in the business rescue plan’
clearly permits this.
[33]
It is so that, read on its own, clause 6.4
could be construed as an unconditional discharge or release subject
only to payment of
the dividend in question to the creditors and
having the result that any accessory obligations are also
extinguished. However,
clause 6.4 cannot be read alone and, when read
with clause 6.5, must clearly be construed as nothing more than a
pactum de non
petendo
preserving
plaintiff’s right to proceed against sureties including
defendant.
[34]
Further reasons advanced by Mr Coston as to
why defendant’s accessory obligation must be regarded as
extinguished hold no
water either. These included that the company
had no assets and liabilities, that the amended business rescue plan
did not contain
a clause retaining defendant’s right of
recourse against the company and that defendant was prejudiced as her
right of recourse
against the company was valueless. The first and
third reason are the same and amount to no more than surrounding
circumstances;
a surety’s right of recourse is not conditional
upon the principal debtor having the resources to meet any judgment
which
a surety might obtain pursuant to such right. As regards the
second reason, the preservation of defendant’s right of
recourse
against the company is a clear implication of the relevant
provisions of the business rescue plan and follows as a matter of
law.
It does not have to be spelled out in so many words.
[35]
Finally, Mr Coston contended that in view
of the conflicting interpretations of the amended business rescue
plan, summary judgment
ought to be refused. He also contended that
evidence heard at the trial might shed further light on the proper
interpretation of
the business rescue plan. He was, however, unable
to give any indication of what evidence might be forthcoming or how
it might
affect the interpretation of the business rescue plan with
the result that I consider this argument to be speculative. In
Tuning
Fork
Rogers J considered that, since he
was dealing with a summary judgment application, he could not grant
judgment unless satisfied
that the business rescue plan was not
reasonably capable of an interpretation that the company’s
indebtedness to the plaintiff
had been discharged. Applying this
test, which appears logical, I am satisfied that the present business
plan is not reasonably
capable of an interpretation that the
company’s indebtedness to it has been discharged and thus that
the surety’s accessory
obligations has also been extinguished.
Accordingly, in my view, plaintiff is entitled to summary judgment in
the amount of R 4 185 000.00.
[36]
Further relief sought was for interest on
the principal sum from 6 November 2012 to date of payment at the rate
of 17.75% per annum.
Plaintiff’s counsel, Mr Olivier, was
unable to direct me to any provisions either in the deed of
suretyship or the banking
facility agreement which made provision for
interest at this rate. The suretyship agreement referred only to
interest ‘
already accrued or which
will accrue until the date of payment of the amount’.
The
facility agreement referred to interest at prime + 1.25%, further
recording that prime was at that stage 9.5%. I do not consider
that
the uncertainty over the exact rate of interest applicable is
resolved by a certificate of balance indicating that the rate
of
interest sought, 17.75% (made up of a prime rate of 8.5% to which was
added 9.25% per annum), particularly where there is no
apparent
agreement that any such rate could be charged. In the result I
consider that this relief must stand over for later determination.
[37]
Finally, plaintiff sought an order that the
property mortgaged by defendant in its favour pursuant to the
suretyship agreement be
declared executable. The agreement provided
that in the event that defendant did not fulfil her obligations in
terms thereof plaintiff
would be entitled to sell the property in
question. Defendant stated in her opposing affidavit that this
property constituted her
and her husband’s family home but made
no further submissions regarding an order declaring the property
executable. Given
the express terms of the suretyship agreement I
consider that the plaintiff is entitled to an order of executability
but may only
act on this in the event that the surety does not
otherwise satisfy the judgment.
[38]
In the result the following order is made:
Summary
judgment is granted against defendant in the sum of R4 185
000.00;
Plaintiff’s
claim for interest on the aforesaid sum is reserved for
determination by a trial court and defendant is granted
leave to
defend this claim;
Erf 2339
Wilderness, in the municipality and division of George, Western Cape
Province, in extent 687m², held by deed of
transfer no
T3002/2006 is declared executable but such order may itself only be
executed in the event that the defendant is otherwise
unable to
satisfy the judgment granted under prayer 1 above;
Plaintiff
is awarded the costs of suit on the scale as between attorney and
client save for the costs arising out of the postponed
hearing of
this matter on 10 March 2015.
BOZALEK
J
APPEARANCES
For the
Plaintiff: Mr LM Olivier SC
Instructed
by:
Marais
Muller Yekiso
For
the Defendant: Mr P Coston
Instructed
by: B & T Attorneys