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[2015] ZAWCHC 122
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Kernsig 17 (Pty) Ltd v Absa Bank Ltd (A483/2014 , 12415/2011) [2015] ZAWCHC 122 (2 September 2015)
THE
HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE
DIVISION, CAPE TOWN)
In
the matter between
Appeal
Case No: A483/2014
Trial
Case No: 12415/2011
DATE:
02 SEPTEMBER 2015
KERNSIG
17 (PTY)
LTD
..................................................................................................
APPELLANT
And
ABSA
BANK
LTD
...........................................................................................................
RESPONDENT
Coram
:
BOZALEK, ROGERS & MANTAME JJ
Heard:
27 & 28 JULY 2015
Delivered:
2 SEPTEMBER 2015
JUDGMENT
ROGERS
J (BOZALEK & MANTAME JJ conc):
Introduction
[1]
The appellant (‘Kernsig’) was
the plaintiff and the respondent (‘Absa’) the defendant
in the court quo.
Kernsig claimed damages of R1 507 268,90
arising from a payment which it made to Absa in that amount on 27
June 2009.
The claim for damages was based on fraud (delict),
alternatively negligence (in breach of an alleged contractual duty of
care),
alternatively a contravention of s 38 of the Companies
Act 61 of 1973. There was a further claim for damages of R2 million
arising from alleged dishonesty in prior proceedings between the
parties.
[2]
Davis J dismissed Kernsig’s claims
with costs. Kernsig appeals to a full bench with Davis J’s
leave.
[3]
Mr DB du Preez SC leading Mr PI Oosthuizen
appeared for Kernsig in the appeal (different counsel acted in the
trial). Mr Vivier
appeared for Absa in the appeal, as he did at the
trial.
The
factual background
[4]
Mr JA Greyling and his wife Mrs GJ
Greyling, who are married in community of property, settled on the
farm Karoovlakte during 1976,
having inherited it from Mrs Greyling’s
late father. Subsequently Mr Greyling and his son, Mr PJ Greyling,
formed a partnership
to conduct farming operations on Karoovlakte
(‘the partnership’). Like Davis J and the witnesses, I
shall, to avoid
confusion, refer to the son as ‘Jannie’,
meaning no disrespect thereby. The partnership traded under the name
Karoovlakte
Boerdery. Mr Greyling was the active farmer. Jannie
practised as an advocate in Pretoria. Mrs Greyling did the books. The
partnership
had its bank account with Absa’s Vredendal branch.
Their relationship manager as from 2000 was Mr J Brand (‘Brand
‘).
The security held by Absa included covering mortgage bonds
over Karoovlakte. By March 2001 there were six such bonds totalling
R940 000.
[5]
The partnership’s facilities with
Absa comprised an overdraft and a term loan. The last approved
overdraft facilities were
those set out in Absa’s letter dated
23 August 2003. In terms thereof the approved overdraft was R525 000
reducing to
R450 000 by 30 April 2004. The facility was subject
to review on 15 August 2004.
[6]
Kernsig was incorporated during January
2002. Its shareholders were Mr Greyling and Jannie. During August
2004 Mr and Mrs Greyling
transferred Karoovlakte to Kernsig and the
latter by endorsement became the mortgagor under the six bonds.
Kernsig signed an unlimited
suretyship for the partnership in favour
of Absa.
[7]
The 2004 and 2005 seasons in the area were
bad. By mid-2005 the partnership was in straitened financial
circumstances. Mr Greyling
was advanced in years. The partnership
owed Absa about R1 million. The overdraft component of the debt, so
far from being reduced
to R450 000, had increased, and stood by
early September 2005 at more than R700 000. Brand was constantly
phoning Mrs
Greyling about the state of the overdraft. The Greylings
made certain proposals to Absa, involving a temporary increase of
R200 000
in the partnership’s facility to give them time
to sell the farm free from pressure. The bank rejected the proposals,
at
which point Brand intimated that Absa intended to ‘repossess’
the farm on 12 October 2005, ie to foreclose .
[8]
The Greyling’s daughter and Jannie’s
sister, Ms GJ Visser (‘Visser’), was a practising
attorney in Somerset-West.
She knew a Mr LP Barnard (‘Barnard’),
also an attorney (they had done articles together, they had been in
partnership
for a while and he was currently an associate of
hers, sharing premises and a secretary). Barnard and his wife
displayed
an interest in buying the farm. On 6 September 2005 Mr
Greyling and Jannie concluded an agreement with the Barnards in terms
whereof
they sold their shares in Kernsig to the Barnards for R1,4
million (‘the September contract’). Barnard was the
draftsman
of the contract. The contract described Kernsig as trading
as Karoovlakte Boerdery. Its assets were said to include various
movables
as per an attached schedule (no schedule was attached to the
version produced at the trial).
[9]
An amount of R150 000 was payable on
approval of a loan supposedly specified in clause 3.1 though the loan
in question was
not specified there or elsewhere. The balance was
payable with interest over 12 years to be secured by properties owned
by the
Barnards in Wilderness.
[10]
Clause 14.3 specified the following as a
suspensive condition:
‘
Die
koper neem al die finansiële verpligtinge en verbande van die
maatskappy oor, huidiglik ongeveer R1 000 000.00
en die
huidige aandeelhouers word vrygestel as borge vir die finansiële
bankverpligtinge.’
[11]
Jannie testified that the effect of this
condition was to increase the price to R2,4 million. It was he who
gave Barnard the estimate
of R1 million. It seems that the loan, upon
the approval of which the amount of R150 000 was payable, was
intended to be a
loan which would enable the Barnards to give effect
to clause 14.3. The manner in which the said loan was to be obtained
is contentious.
Kernsig’s case was that the Barnards personally
had to obtain the loan. As a fact, what happened was that Barnard
asked Absa
to grant Kernsig a ten-year term loan of R1,1 million
which would be applied to extinguish the partnership’s
obligations
to Absa.
[12]
Barnard, together with members of his
family and a company in which he was interested, was an existing Absa
client but did not know
Brand. After concluding the September
contract, Barnard introduced himself to Brand in order to discuss the
proposed loan. On 22
September 2005 Brand presented Barnard’s
application to Absa’s Commercial Credit Services (‘CSS’)
in Cape
Town. According to the application, the Barnard group already
had facilities of R1 068 330 with Absa. The new facility
of
R1,1 million for Kernsig would increase the group’s facilities
to R2 168 330. The application was presented
on the basis
that the term loan would be secured by the six existing bonds over
Karoovlakte and a seventh bond to be registered
of R200 000.
[13]
On 28 September 2005 CCS, in the person of
Mr AJ Marais (‘Marais’), approved the loan. The approval
specified inter
alia that the Barnards should sign suretyships for
Kernsig and that the partnership’s debt should be discharged
from the
loan proceeds.
[14]
There is a dispute as to whether Barnard
was authorized to represent Kernsig in seeking the loan. Among the
disputes is whether
there existed an authorizing resolution dated 22
September 2005, signed by Mr Greyling and Jannie. If the resolution
existed, Absa
was unable to find it.
[15]
On 28 September 2005 Brand phoned Mrs
Greyling to tell her the ‘good news’ that Barnard’s
application had been
approved. The Greylings say that they understood
this to mean that loan finance to the Barnards personally had been
approved. On
1 October 2005 the Barnards took possession of the farm,
by which stage they had paid the deposit of R150 000.
[16]
On 30 November 2005 Mr Greyling, Jannie and
the Barnards concluded a contract in substitution of the previous one
(‘the November
contract’). Visser testified that this was
done on the auditor’s advice, because the first contract had
failed to take
into account that the Absa debt was in the name of the
partnership and that the movables were owned by Mr Greyling
personally.
The price for the shares was now R2 million. (Presumably
there was a separate sale between Mr Greyling and the Barnards for
the
movables.) The November contract recorded that R150 000 had
already been paid. The balance was to be discharged as follows:
(i) as to R1 137 750, by the taking over of all the
liabilities of Kernsig to the Land Bank (R57 500) ‘
aook
die verbande wat oor die eiendom van die maatskappy geeregistreer is
in naam van Karoovlakte Boerdery’
(R1,080 250);
(ii) as to R712 500, by 12 annual payments to be secured
over the Wilderness properties. Clause 14.3
contained the following
suspensive condition:
‘
Die
koper neem al die finansiële bankverpligtinge en verbande van
[Greyling] en [Jannie] te Absa Bank tot die bedrag van R1 080 123
ten opsigte van die venootskap Karoovlakte Boerdery, oor.’
[17]
On 8 December 2005, and pursuant to the CSS
approval, a loan contract in Kernsig’s name was signed, Barnard
purporting to
represent the company. The loan of R1,1 million was to
be paid off over ten years. The loan contract’s heading stated
that
Barnard was representing Kernsig pursuant to a directors’
resolution taken on 22 September 2005.
[18]
On 9 December 2005 Absa gave effect to the
loan by entries in terms whereof the partnership’s total
liability to Absa of R1 079 096
was extinguished and a
principal debt in the same amount debited to Kernsig in terms of the
new loan contract. Absa notified the
partnership in January 2006 that
its liabilities to Absa had been settled in full.
[19]
Absa gave effect to the loan as aforesaid
even though one of the conditions of the new loan, registration of a
further bond of R200 000,
had not yet been fulfilled and was in
the event never fulfilled. On 13 October 2005 Brand had instructed a
conveyancer, Mr SC Nell
(‘Nell’), to attend to the
registration of this further bond and to the cancellation of the Land
Bank bond pursuant
to Barnard’s purchase of the company. He
asked Nell to inform him once the client (ie Kernsig) had signed the
necessary power
of attorney. Nell forwarded the conveyancing
documents to Visser on 21 November 2005 for signature by Mr Greyling
and Jannie, who
were still Kernsig’s directors. Jannie refused
to sign the documents in the form presented. He prepared his own
resolution
dated 29 November 2005 which authorised Barnard to apply
on behalf of Kernsig for a ‘further loan’ of R200 000
and to sign all necessary documents in connection with the
registration of the required security subject to the condition that
Barnard comply in full with the terms of the sale agreement. If he
did not, he was to be personally liable to repay the money to
Absa;
Kernsig and its directors were on no account to be liable.
[20]
The purpose of this further bond is a point
of contention. Jannie testified that Brand told him that Barnard
wanted an additional
loan of R200 000 for improvements but that
Absa was not willing to lend more money to Barnard personally.
Brand’s version
is that the further bond was simply to comply
with the conditions of approval for the new term loan.
[21]
Be that as it may, on 6 December 2006,
nearly a year later, Nell emailed Visser to say that the bank was
insisting that he register
the further bond but that the resolution
of 29 November 2005 was subject to the condition that Barnard comply
with the sale agreement.
Nell asked Visser whether there had been
compliance and whether the Kernsig shares had been transferred.
[22]
There was no response from Visser. The
shares had not in fact been transferred to the Barnards. Barnard had
refused to sign documents
for the registration of the mortgage bond
over the Wilderness properties. According to Visser, Barnard
complained that some vineyards
had died and others had not been
planted. Jannie and his father brought an application to compel
registration of the Wilderness
bonds which Barnard opposed. The
dispute had not been finalised when, in February 2008, the Barnards
abandoned the farm. According
to Visser, the Barnards had paid the
two annual instalments for 2006 and 2007. Mr Greyling and Jannie
treated the Barnards’
abandoning the farm as a repudiation
which they accepted, thereby cancelling the sale. The Barnards
disappeared. Visser speculated
that they may have decamped to
Ireland.
[23]
During May 2008 Kernsig sold the farm to
another buyer for R1,41 million, with possession to be given on 1
July 2008. In anticipation
of this sale, Visser wrote to Absa on 5
May 2008, recording that Barnard had repudiated and seeking Absa’s
undertaking that
the bond registered over the property would be
cancelled without liability on Kernsig’s part. (Visser
testified that she
was referring to the new bond of R200 000
which she thought had been registered. This was challenged in
cross-examination.
It was put to her that she must have been
referring to the covering bonds.) On 13 June 2008, and following the
sale, she sent a
further letter which now referred in terms to the
covering bonds. (Visser testified that she believed these bonds to
have a nil
balance. She was again challenged on this in
cross-examination.)
[24]
Brand resigned from Absa’s employ in
August 2008. Although Visser suggested that he left under a cloud,
Barnard was not cross-examined
to that effect.
[25]
On 27 June 2008 Absa’s attorneys,
Heyns & Partners Inc (‘Heyns’), responded to Visser’s
letters, stating
that payment of R1 254 597,18 together
with interest from 25 June 2008 was required to procure cancellation
of the bonds.
Visser replied on 30 June 2008 that Kernsig had no
knowledge of the specified account (which turned out to be the term
loan of
December 2005) and that the two accounts previously held by
Kernsig (the overdraft account and the old term loan) had a nil
balance.
She said that, if Absa had granted Kernsig other facilities,
she required to know who the applicant had been and by what authority
the application had been made.
[26]
There having been no response from Absa for
several weeks, Kernsig launched an urgent application on 17 July 2008
for hearing on
24 July 2008 in which it asked that Absa be ordered to
cancel the bonds. Absa opposed, relying on the loan contract of
December
2005. In reply Kernsig said that this was the first time it
had heard of the alleged loan contract. Kernsig denied that Barnard
had been authorized to represent it. Kernsig denied that the sale
contract had envisaged that the company itself would seek finance,
alleging that such an arrangement would have contravened s 38 of
the Companies Act.
[27]
The application was argued before Meer J on
9 October 2008. The learned judge raised with counsel whether the
factual dispute regarding
Barnard’s authority should not be
referred to oral evidence. Absa’s counsel had no objection but
Kernsig’s counsel
(not its present counsel) elected to argue
the case on the papers. On 30 October 2008 Meer J delivered judgment,
dismissing Kernsig’s
application with costs on the basis that
there was a genuine factual dispute on Barnard’s authority.
[28]
Kernsig applied for leave to appeal. One of
the points raised was that the term loan contract relied upon by
Absa, if concluded,
contravened s 38. Kernsig did not contend
that Meer J had erred in finding that there was a genuine factual
dispute regarding
Barnard’s authority. On 14 November 2008 Meer
J granted leave to appeal to a full bench.
[29]
Kernsig preferred not to await the outcome
of the appeal before transferring the farm to the buyer, since the
latter was threatening
cancellation. On 19 June 2009 Visser wrote to
Heyns proposing (i) that Absa furnish settlement figures for the
alleged bond
liability; (ii) that Visser’s firm would give
an undertaking to pay that amount upon transfer of the farm;
(iii) that
Absa furnish a written undertaking to repay the money
if Kernsig was successful in the full bench appeal or in any further
appeal
to the Supreme Court of Appeal (‘the SCA’); (iv)
that if Absa was successful in the appeal, Kernsig would pay Absa’s
taxed costs on demand. She concluded:
‘
Ons
klient is van opinie dat die eindresultaat vir u klient in bostaande
omstandighede dieselfde sal wees as sou u klient genoodsaak
sou wees
om die eiendom terug te neem indien ons klient die bestaande
koopkontrak moet kanselleer en daar dus geen nadeel vir u
klient
bestaan nie.
’
[30]
Heyns replied on 19 June 2009 accepting the
proposals. Heyns inter alia gave the undertaking that Absa would
repay Kernsig in the
circumstances specified in Visser’s
letter, adding:
‘
Ons bevestig
derhalwe dat beide partye uitvoering sal gee aan die uitspraak van of
die volbank of die Appèlhof’
.
[31]
On 27 June 2009 Visser paid Absa from her
trust account the specified settlement figure of R1 507 268,90
and also paid
an amount of R81 332,60 to the Land Bank which
held a first mortgage bond in respect of its claim.
[32]
The full bench appeal was heard in January
2010. The full bench delivered judgment on 8 February 2010, upholding
the appeal on the
s 38 point and substituting for Meer J’s
order an order requiring Absa to cancel the bonds.
[33]
Absa petitioned the SCA for special leave
to appeal which was granted on 20 May 2010. The only point argued in
the further appeal
was s 38 of the Companies Act. On 31 May 2011
the SCA upheld Absa’s appeal and reinstated Meer J’s
dismissal of
Kernsig’s application. It did so on the basis that
the s 38 point had not been properly raised in the trial court
and
that it could not be said that all the evidence relevant to the
issue was before court.
[34]
On 22 June 2011 Kernsig issued summons in
the present case. The trial ran before Desai J over six days during
May and September
2012. Owing to ill-health Mr Greyling did not
testify. Kernsig’s witnesses were Jannie, his mother and
Visser. Absa’s
witnesses were Brand, Marais, various other bank
officials and the conveyancer Nell. The case was then postponed to 4
December
2012 for argument. Desai J became indisposed and the parties
agreed to argue the matter before another judge. Davis J heard
argument
on 17 January 2014 and delivered judgment on 17 March 2014.
The present appeal is with his leave.
The
pleaded claims
[35]
Kernsig’s claim 1 is for damages in
the amount of R1 507 268,90, based alternatively on fraud,
negligence and s 38
of the Companies Act.
[36]
The pleaded fraud case, which is delictual,
is in summary the following. As at December 2005 Kernsig was an
existing Absa customer,
with Mr Greyling and Jannie as its directors.
Barnard had no authority to represent Kernsig. Brand was aware of
these facts. Kernsig’s
purported application for a loan, the
approval and implementation thereof, and the use of the covering
bonds as security for the
loan, were done by Brand and Barnard in a
fraudulent way and with the intention to defraud Kernsig. The result
was that on 27 June
2009 Kernsig had to pay Absa R1 507 268,90
in order to obtain cancellation of the bonds, something it did under
protest
and with reservation of its rights. Kernsig thus suffered
damages in the said amount.
[37]
The alternative case based on negligence,
which is for breach of contract, is in summary that it was a tacit or
implied term of
the banker/customer relationship between Absa and
Kernsig that the bank would not act negligently and to Kernsig’s
prejudice.
Absa acted negligently in regard to Kernsig’s
purported application for a loan, the approval and implementation
thereof,
and the use of the covering bonds as security for the loan,
because it failed to take any or proper steps to ascertain Barnard’s
authority, to direct queries to Kernsig’s directors or to
inform them of Barnard’s application. The result was that
on 27
June 2009 Kernsig had to pay Absa R1 507 268,90 in order to
obtain cancellation of the bonds, something it did
under protest and
with reservation of its rights. Kernsig thus suffered damages in the
said amount.
[38]
The further alternative case based on s 38,
which does not depend on a finding that Barnard was not authorized,
is in summary
the following. Absa knew of the terms of the share sale
agreement and that the Kernsig loan would be applied to pay a portion
of
the purchase price. Kernsig’s purported application for a
loan, the approval and implementation thereof, and the use of the
covering bonds as security for the loan, having been done to enable
the Barnards to buy the shares in Kernsig, contravened s 38.
The
purported loan of December 2005 was thus a nullity. However, because
Absa refused to cancel the covering bonds, Kernsig on
27 June 2009
had to pay Absa R1 507 268,90 in order to obtain their
cancellation, something it did under protest and
with reservation of
its rights. Kernsig thus suffered damages in the said amount.
[39]
Kernsig’s claim 2 concerns Absa’s
conduct in the previous litigation. Kernsig complaint is in summary
the following.
In its answering papers in the previous case Absa
alleged, with reference to its records, that there existed a
resolution by which
Kernsig’s directors had authorized Barnard
to obtain the loan of December 2005. Absa also attached the loan
contract, the
heading of which referred to an authorizing resolution
dated 22 September 2005. No such resolution existed. Absa’s
contrary
allegation was false and was made to mislead the court. If
Absa had not made the dishonest allegation, Meer J would have decided
the application in favour of Kernsig. Because Absa perverted the
course of justice, Kernsig suffered damages of R2 million. (At
a
pre-trial meeting Kernsig said that the figure of R2 million was an
estimated amount. The actual damages were the costs incurred
by
Kernsig in the trial court, the full bench and the SCA. As noted, the
parties agreed to separate merits and quantum in relation
to claim
2.)
The
pleaded defences
[40]
In regard to claim 1, Absa denied that
Barnard had lacked authority, pleading that he had actual or
ostensible authority to represent
Kernsig. Absa denied that Kernsig
was a customer of the bank before the conclusion of the loan
agreement but admitted that it was
a tacit term of the new term loan
that Absa would not act negligently in the execution thereof. Brand’s
alleged fraud was
denied as was the allegation that Absa had been
negligent.
[41]
Regarding s 38, Absa denied that the
proceeds of the loan were to be used by Kernsig to fund a part of the
purchase price of
the shares or to assist the Barnards in buying the
shares. Absa denied that its loan to Kernsig was void by virtue of
s 38.
[42]
Absa pleaded, further, that Kernsig made
the payment of 27 June 2009 pursuant to an agreement recorded in
Visser’s letter
of 12 June 2009 and Heyns’ reply of 19
June 2009 (‘the June 2009 agreement’). In terms thereof
the money was
only repayable if Kernsig ultimately succeeded in the
appeal, which it did not. Absa alleged that it was a tacit or implied
term
of the June 2009 agreement that, if Kernsig ultimately failed in
the appeal, it would not be entitled to recover the money on any
grounds. There was a general denial that Kernsig had suffered
damages.
[43]
In regard to claim 2, Absa denied that
there had been no resolution authorising Barnard to represent Kernsig
or that it had perverted
the course of justice. Absa denied the
alleged damages.
The
court a quo’s judgment
[44]
Davis J dismissed claim 1 on the basis
that, even if one assumed all else in its favour, Kernsig failed to
prove its damages. The
argument which he upheld, and which Mr Vivier
repeated before us, was in essence the following. If Kernsig was not
bound by the
loan contract of December 2005 (either because Barnard
lacked authority or because the loan contract was void in terms of
s 38),
Kernsig would then have been bound as surety and
co-principal debtor for the partnership’s liability to Absa
which existed
immediately prior to the implementation of the
purported loan. Kernsig’s financial position thus did not
change for the worse.
[45]
In
the course of his judgment, Davis J found that by December 2005 Absa
had called up the partnership’s facilities. Even if
this had
not been done formally, the partnership would have understood that
Absa was requiring repayment. In Davis J’s view
there could be
no other explanation for the proposals which Mr Greyling made to Absa
in mid-2005. Because the partnership’s
debt had become due and
payable, Kernsig’s accessory liability as surety was also due
and payable as contemplated in clause
8 of the mortgage bonds.
[1]
[46]
In regard to claim 2, Davis J considered
that, even if Absa had disclosed in the earlier proceedings that it
could not find in its
records a resolution dated 22 September 2005,
there would have still been a factual dispute as to Barnard’s
authority, as
indeed there still was during the trial in the present
case. Since Kernsig elected to argue the application on the papers,
Absa’s
alleged lack of candour in its opposing papers did not
affect the outcome.
[47]
On appeal Kernsig assails Davis J’s
reasoning on the damages issue and contends that the issues he left
undecided should be
resolved in its favour. Absa supports Davis J’s
reasoning and submits in any event that the claims were rightly
dismissed
on the other grounds raised by Absa.
Claim
1
Cause
of action misconceived
[48]
In my view, claim 1, as a claim for
damages, is misconceived. Kernsig’s claim has as its premise
that Kernsig was not indebted
to Absa in respect of the loan
contract, either because Barnard lacked authority or because the loan
was void in terms of s 38.
This being so, Kernsig is said to
have suffered damages because in June 2009 it paid an amount which it
did not owe.
[49]
If Kernsig had no indebtedness to Absa, how
could the circumstances in which the purported loan contract came
into existence and
its purported implementation be an event causing
Kernsig damages? If Kernsig suffered a ‘loss’, it was
because it made
payment to Absa in June 2009, and that is indeed the
pleaded case. If Kernsig is right that it had no indebtedness to
Absa, it
could have suffered no loss prior to 27 June 2009, because
ex hypothesi there was no liability negatively affecting its
patrimony.
[50]
The critical event was thus Kernsig’s
decision to pay the alleged claim on 27 June 2009. Kernsig made
payment knowing (on
its view of the facts) that Barnard had not been
authorized to conclude the loan contract and that the purported loan
violated
s 38. There was no fraud, negligence or other
illegality which induced the payment. If Kernsig had been content to
await the
outcome of litigation, its only potential loss was if a
sale of the farm after the completion of litigation yielded less than
the
sale which was on the table in June 2009. There was no pleaded
case along those lines.
[51]
The position confronting Kernsig in June
2009 was not novel. To remove an immediate obstacle, Kernsig wanted,
if possible, to make
provisional payment of a disputed debt pending
resolution of the dispute, on the basis that it could recover the
payment if the
dispute was resolved in its favour. The legal position
in such circumstances was laid down in the majority judgment of
Nienaber
JA in
Commissioner for Inland
Revenue v First National Industrial Bank Ltd
[1990] ZASCA 49
;
1990
(3) SA 641
(A). Ordinarily a person who pays a disputed debt without
reservation is not entitled to recover the money because, there being
no error, the condictio indebiti is not available. However, our law
allows a condictio where payment has been made in circumstances
similar to those described in English law as ‘duress of goods’.
Such a payment is regarded as not being voluntary.
(For convenience I
shall refer to this as the extended condictio.) Payment of a disputed
debt might also be made under an arrangement
in terms whereof the
recipient agrees to make a refund in specified circumstances.
[52]
Nienaber JA said (at 649G-J) that the word
‘under protest’ when making payment might, depending on
the circumstances,
fulfil one or more of several functions: (i) The
words may serve as confirmation that the payment in the broad sense
is not
voluntary or is in the narrow sense being made under duress.
The failure so to stipulate might support an inference that the
payment
was voluntary or that there was no duress. (ii) The
words may serve to anticipate or negate an inference of acquiescence,
lest it be thought that, by paying, the alleged debtor was conceding
the quantum or validity of the claim. In these circumstances
the
reservation does not create a new cause of action but serves to
preserve and protect an existing one. (iii) The words
may serve
as the basis for an agreement between the parties as to what will
happen if the contested issue is resolved in the alleged
debtor’s
favour. In such circumstances the agreement indeed creates a new and
independent cause of action.
[53]
Kernsig pleaded that the payment of 27 June
2009 was made ‘under protest and with reservation of all its
rights’. This
is inaccurate. The terms on which the payment was
made were set out in the correspondence previously mentioned.
[54]
Be that as it may, Kernsig did not bring
claim 1 within the scope of any of three possibilities mentioned in
First National Industrial Bank
.
As to the first possibility, it is unnecessary to explore the scope
of the extended condictio. This is because Kernsig did not
plead a
condictio. Its claim was for delictual damages.
[55]
The court raised with Mr du Preez, during
his argument in chief, the question whether, particularly in the
light of the
First National Industrial
Bank
case, Kernsig’s formulation
of the claim as one for damages was not misconceived. Mr du Preez
asked to be permitted to deal
with the issue in reply, at which point
he submitted that it was open to us to uphold Kernsig’s appeal
on the basis of the
condictio recognised in
First
National Industrial Bank
. I do not
think that this shift in stance should be permitted so late in the
day. If the claim had been pleaded as a condictio,
Absa would have
been entitled to plead non-enrichment, in respect of which it would
have borne the onus (
African Diamond
Exporters (Pty) Ltd v Barclays Bank International Ltd
1978
(3) SA 699
(A) at 713
in fine
).
Given the frame of the pleadings, Absa was not called upon to deal
with non-enrichment.
[56]
Furthermore, the question whether Kernsig
made payment under pressure qualifying as duress for purposes of the
extended condictio
is not straightforward, and we have not had the
benefit of full argument thereon. The extended condictio could
perhaps in principle
come into play where a mortgagee refuses to
agree to cancellation of the mortgage except on payment of an amount
disputed by the
mortgagor, with the result that the latter cannot
deal in his property except by paying the disputed amount under
protest. Assuming
that to be so, the facts of the present case are
somewhat removed from the case supposed. Kernsig chose to negotiate
the terms
under which payment would be made. The question whether
Kernsig would in any event have felt under compulsion to make payment
under
protest if Absa had rejected Visser’s proposal was not
explored in the evidence.
[57]
As to the second of Nienaber JA’s
three possibilities, Kernsig did not, immediately prior to the
payment, have an existing
claim for damages, because, as I have
explained, it had suffered no loss. A reservation of rights could not
have created a cause
of action for damages.
[58]
As to the third possibility, there was
indeed an agreement pursuant to which the payment was made. However,
it is not an agreement
whose terms need to be inferred from the
general words ‘under protest’; the terms were quite
specific, being recorded
in an exchange of correspondence between the
parties’ attorneys. Be that as it may, Kernsig did not allege a
contractual
entitlement to recover the money. Indeed, Kernsig did not
even mention the exchange of correspondence in its particulars of
claim.
[59]
The fraud and negligence which Kernsig
alleged to found its supposed damages claim were in truth irrelevant
to any legal remedy
it had. The alleged fraud and negligence
concerned Barnard’s authority. If Barnard lacked authority to
represent Kernsig,
any fault on Absa’s part in treating him as
authorized had no bearing on Kernsig’s financial position, for
the simple
reason that Kernsig was not responsible for any debt
purportedly incurred by Barnard in its name. If Absa wished to hold
Kernsig
liable, it was for Absa to prove Barnard’s actual or
ostensible authority. Things only changed when Kernsig wanted to have
the bonds cancelled without awaiting the outcome of litigation. This
brought into play the principles set out
First
National Industrial Bank
.
[60]
It is also difficult to understand on what
basis the alleged contravention of s 38 could give rise to a
damages claim. If the
transaction contravened s 38, Kernsig’s
answer to Absa’s claim was that the alleged loan contract was a
nullity.
[61]
One may speculate why Kernsig pleaded claim
1 as a damages claim. Kernsig’s legal representatives may have
feared that a repayment
claim based simply on Barnard’s lack of
authority or the s 38 contravention, and the resultant absence
of an indebtedness
on Kernsig’s part, would have been met by a
plea that the claim was barred by the June 2009 agreement or that the
issue was
res judicata. Whatever the reason, the claim for damages
was in my view misconceived for the reasons previously stated.
Did
Kernsig suffer damages?
[62]
If the claim for damages was not in
principle misconceived, I think Davis J was right to find that
Kernsig failed to establish that
it suffered a financial loss.
[63]
It is necessary to remind oneself of the
essence of the pleaded case, namely that Kernsig suffered a loss in
June 2009 by paying
an amount which it did not owe. The supposed
relevance of Brand’s alleged fraud or negligence was simply
that, but for such
fraud or negligence, Absa would not in June 2009
have been claiming that there was a liability which Kernsig needed to
settle before
it could obtain cancellation of the bonds.
[64]
Whether the alleged fraud or negligence
caused Kernsig to suffer loss requires one to determine what would
probably have happened
if Brand had not acted fraudulently or
negligently - ie the difference between Kernsig’s actual
position as a result of the
delict and the hypothetical position that
would have obtained had the delict not been committed (
Transnet
Ltd v Sechaba Photoscan (Pty) Ltd
2005
(1) SA 299
(SCA) para 15; Van der Walt & Midgley
Principles
of the Law of Delict
3
rd
Ed para 143). The main difference between the parties on this issue
in the court a quo and before us is whether or not, in the
hypothetical position, one should regard Kernsig as liable to Absa as
surety for the partnership’s debt. Kernsig’s
case is that
the partnership’s debt was settled in December 2005 and that
this fact cannot be thought away in the hypothetical
position. If
that is correct, Kernsig’s damages would, as Kernsig asserted,
be represented by the money it paid in June 2009.
[65]
In
contending that the settlement of the partnership debt was unaffected
in the hypothetical position, Kernsig’s counsel put
the
principles of privity of contract at the forefront of their argument.
They submitted that Davis J had fallen into error by
failing to
distinguish between Kernsig’s purported loan liability to Absa
and the discharge of the partnership’s liability
to Absa. The
fact that the purported loan contract with Absa was not binding on
Kernsig (either because of Barnard’s lack
of authority or the
s 38 contravention) did not mean that the partnership’s
liability to Absa had not been extinguished
in December 2005. They
submitted that the proceeds of the unauthorized loan discharged the
partnership debt, ‘because a debt-extinguishing
agreement, like
any other agreement, may be concluded expressly or tacitly’ and
‘an acceptance thereof is evidenced
by the corresponding credit
and its non-reversal’.
[2]
[66]
This argument cannot be sustained. It is
Kernsig’s own case that, if Brand had not been guilty of the
alleged fraud or negligence,
the purported loan contract would not
have been concluded. On the facts of the present case, thinking away
the purported loan contract
must inevitably be accompanied by
thinking away the settlement of the partnership debt, because the
latter would not have occurred
but for the former. Kernsig’s
argument treats what happened as equivalent to (i) the payment
of money by Absa to Kernsig
in terms of the purported loan contract
and (ii) the subsequent payment of the proceeds by Kernsig to
Absa in discharge of
the partnership’s liability, these being
independent matters. But this is not what happened. The loan proceeds
were not placed
at Kernsig’s disposal. At least from the
perspective of Absa and Barnard as the purported representative of
Kernsig, all
that happened was that Kernsig, which had hitherto been
a surety for the partnership, became the principal debtor for the
amount
previously owed by the partnership, such primary indebtedness
now regulated by the term loan contract in substitution of the terms
which had hitherto prevailed between Absa and the partnership. No
money changed hands. The substitution of Kernsig as the principal
debtor was achieved by book entries. (Although not put in this way in
the evidence, counsel agreed in argument that this is what
had
happened. There is certainly no evidence that cash was put at
Kernsig’s disposal.)
[67]
Furthermore, the ‘debt-extinguishing
agreement’, in the circumstances of the present case, would
have had to be Kernsig’s
supposed payment of the loan proceeds
to Absa with the intention of discharging the partnership’s
indebtedness. Apart from
the fact that Kernsig in fact made no such
payment, Kernsig’s allegation that Barnard lacked authority to
represent Kernsig
demonstrates that Kernsig could not have been party
to a debt-extinguishing agreement. On Kernsig’s main case,
Barnard was
not authorized to represent the company in receiving the
loan proceeds or applying them in payment of the partnership’s
indebtedness.
And on Kernsig’s alternative s 38 case,
Kernsig’s purported payment to Absa in discharge of the
partnership’s
indebtedness was void since it amounted to the
giving by Kernsig of financial assistance to the Barnards in
connection with a purchase
of the Kernsig shares.
[68]
In the circumstances, it is divorced from
reality to speak of a debt-extinguishing agreement. One cannot drive
a wedge between the
arrangement by which Kernsig purportedly became
the principal debtor and the arrangement by which the partnership was
released
from liability. Kernsig’s contention that Absa was not
entitled in December 2005 to debit Kernsig as the principal debtor
for the amount hitherto owed by the partnership necessarily meant
that the corresponding credit in favour of the partnership could
not
stand. Absa would not have allowed the one without the other.
[69]
Immediately prior to the events of December
2005 Kernsig owned the farm but was liable as a surety to Absa in the
amount of R1 079 096
(and was also liable to the Land Bank
for R57 750). It is irrelevant to my mind whether or not the
partnership’s debt
to Absa had been called up. It is enough
that the partnership owed the money and that Kernsig was jointly and
severally liable
as surety. (To the extent relevant, the evidence
supports a conclusion that the partnership debt was due and payable
by the last
quarter of 2005. Its overdraft facility had expired in
August 2004. The overdraft had increased far above the last approved
limit
of R450 000 as at 30 April 2004. Absa had rejected the
Greylings’ proposals of mid-2005 and informed them that it
would
proceed with foreclosure on 12 October 2005.)
[70]
It follows that the essential premise of
Kernsig’s case on damages was flawed. In the hypothetical
position, Kernsig would
as at December 2005 have been liable as
surety for the same amount as was debited to it in terms of the
purported new loan. Its
hypothetical patrimonial position could not
be assessed in disregard of this suretyship liability.
[71]
Of
course, it does not necessarily follow from this conclusion that
Kernsig’s hypothetical patrimonial position as surety
would
have been the same (ie as onerous) as its actual patrimonial position
following the payment in June 2009 of its purported
liability as
principal debtor in terms of the new loan contract. If the
partnership debt had not been discharged in December 2005,
and if
Kernsig as surety had eventually settled the partnership debt in June
2009 (instead of paying the purported debt under the
new loan
contract), the amount owing in June 2009 might have been more or less
than R1 507 269. That would depend on
the interest rate
applicable to the partnership debt as opposed to the interest rate
payable by Kernsig in terms of the new loan.
If one were to apply the
interest rate of 10,5% specified in the new loan to the partnership
debt, the latter would have exceeded
R1 507 269 by June
2009. The partnership debt, one can deduce from the documents, would
have attracted interest at a
higher rate, since the facility letter
of August 2003 specified a rate of 1% above prime for the approved
facility and up to 8%
above prime for excesses,
[3]
whereas Kernsig’s new term loan was priced at prime.
[4]
[72]
It might be said that, but for Brand’s
alleged fraud or negligence, Kernsig would have made alternative
arrangements to settle
the partnership debt, and would thus not have
incurred interest from December 2005 to June 2009. Indeed, in their
heads of argument
and oral submissions Kernsig’s counsel
submitted that their client should at least be awarded damages equal
to the difference
between R1 137 750 (the sum specified in
clause 3.2 of the November contract) and R1 507 269.
Another possibility
dealt with in argument was that, but for Brand’s
alleged fraud or negligence, the partners might have made alternative
arrangements
to settle their debt, as a result of which Kernsig would
not have been called upon to settle the partnership debt at all. Yet
a
further possibility which I could mention is that, even if Kernsig
had been required to settle the partnership debt (whether in
December
2005 or June 2009), Kernsig as surety would have had a right of
recourse against Mr Greyling and Jannie as principal debtors.
If that
right of recourse were fully recoverable, it might be false to equate
Kernsig’s pre-existing position as surety with
its subsequent
position as principal debtor.
[73]
The difficulty I have with these
hypothetical possibilities is that they do not constitute Kernsig’s
pleaded case nor represent
what Kernsig set out at the trial to
prove. Kernsig’s case was simply that its pre-existing
liability as surety was irrelevant
because the partnership liability
had, come what may, been settled. If that premise is wrong, the
alternative hypotheses justifying
damages depended on proof as to
what would probably have happened if the sale to the Barnards had
been aborted in September 2005
following compliance by Brand with his
alleged duties. Kernsig did not plead or set out to prove what would
probably have happened
in this eventuality. There was no evidence as
to the true value of the farm, something which may have been relevant
in the light
of the Barnards’ subsequent complaints. There was
no evidence as to the state of the market in late 2005.
[74]
However, and even if we were entitled to go
into these matters with reference to the fragmentary evidence bearing
upon them, I am
not satisfied that Kernsig proved that the most
probable scenario was one in which Kernsig would not ultimately have
borne the
cost of meeting the debt. They had been under financial
pressure for some time yet no earlier sale of their shares or of the
farm
was concluded. The Greylings accepted Barnards’ offer with
alacrity, despite what strikes one as the relatively disadvantageous
feature that a substantial part of the price was payable over 12
years. This does not suggest a strong selling market in the latter
part of 2005.
[75]
In order for Mr Greyling and Jannie to have
settled the partnership debt without recourse to Kernsig, they would
have needed to
find a cash buyer for their shares. A purchase of the
shares would not have been an attractive option for a notional buyer.
Such
a transaction carries with it the risk of undisclosed
liabilities. Furthermore, if a purchaser had bought the shares rather
than
the farm, he would, because of s 38 of the Companies Act,
not have been able to use the farm as security for any finance he
needed to fund the purchase. That was precisely where, according to
Kernsig, the Barnards and Absa went wrong.
[76]
A more plausible transaction would have
been the sale by Kernsig of the farm. However, the Greylings did not
have time on their
side. In the hypothetical scenario, Brand would
have told them in mid-September 2005 what the Barnards were trying to
do. Even
if the sale to the Barnards could then promptly have been
aborted without any delaying disputes from the Barnards’ side,
it is difficult to imagine that an alternative sale of the farm could
have been achieved by 12 October 2005, the foreclosure date
threatened by Absa. It thus seems as likely as not that there would
have been a forced sale at the bank’s instance. It is
difficult
to say with any confidence how much would have been realised for the
farm in a forced sale in late 2005, since there
was no evidence
directed to that question. One does not know whether such a sale
would have realised, net of legal costs and auction
charges, more or
less than the amount Kernsig actually obtained by way of the May 2008
sale, namely R1,41 million.
[77]
However, and regardless of the price
Kernsig would have achieved for the farm in late 2005, Kernsig could
not have given transfer
without settling the partnership debt, since
only by so doing could it procure cancellation of the bonds. It
follows that on this
scenario Kernsig would as surety have paid the
partnership debt. The question then becomes whether Kernsig would
have exercised
a right of recourse against Mr Greyling and Jannie and
whether they would have been good for the money. It is common cause
that
the partnership as such was unable to repay Absa and would thus
also have been unable to repay Kernsig. Jannie said that his father
personally had no other assets (ie apart from the farm) from which to
pay Absa.
[78]
As to Jannie’s own financial
position, he practised as an advocate in Pretoria. There was no
realistic prospect of his buying
the farm. His sister put the chances
of such a purchase at nil. Whether he could have afforded to buy the
farm is unclear. At one
point in his evidence he said he might have
been able to do so. Later he testified that in a discussion with
Brand in June 2005
the latter asked why he did not buy the farm.
Jannie replied that he could not afford to do so since he had just
taken out a substantial
bond with Absa in Pretoria. Jannie testified
that Brand’s reaction was to ask why Jannie assumed that Absa
would not grant
him another bond. In cross-examination Jannie said
that he would have had to borrow the money but was creditworthy.
Brand testified
that Jannie told him that he had recently got
divorced and that his financial position was poor. Brand said that
the bank could
never get Jannie to furnish his financial statements.
It was put to Brand in cross-examination that Jannie had got divorced
in
1998. For the rest, Kernsig’s counsel did not explore with
Brand whether Jannie would have qualified for a further loan. One
must bear in mind that, in the hypothetical scenario under
consideration, Jannie could not have used the farm as security for a
loan, since the farm would have been sold to a third party.
[79]
But in any event, and on the facts of the
present case, the notion that Kernsig would have enforced a right of
recourse has an air
of unreality about it, given that the partnership
was in financial difficulty and that the partners, as Kernsig’s
sole shareholders,
were able to determine whether or not Kernsig
would exercise against themselves the right of recourse which in
strict law it had.
Mr Greyling could not repay anything and Jannie
would have had to borrow money to do so. The overwhelming probability
is that Kernsig
would have suffered the loss of paying the
partnership debt without recourse.
[80]
In short, Kernsig’s approach to
damages amounts to this, that the company and its shareholders should
be allowed to be in
the position of having resold the farm for R1,41
million without the burden of the partnership debt, in circumstances
where the
farm was on the probabilities the only source from which
the partnership debt could have been discharged. If it be assumed
that
the price of R1,41 million achieved in May 2008 was the price
the farm would have realised in a forced sale in December 2005,
Kernsig
and its shareholders, viewed collectively, would – if
they were awarded damages in the present case – receive R1,41
million without deduction, whereas in December 2005 they would only
have received about R310 000 (R1,41 million minus the
partnership debt of R1,1 million). On top of this windfall, they get
to keep the Barnards’ deposit of R150 000 and the
two
annual instalments totalling about R120 000 and whatever was
paid for the farm movables. Perhaps the Greylings could have
got more
for the farm in December 2005 than R1,41 million. They may believe
that the farm’s value suffered because of the
passing of time
and mismanagement by the Barnards, and that they have thus not in
truth made a windfall. However, that was not
the case pleaded or
proved.
Barnard’s
authority
[81]
In view of the above conclusions, it is not
strictly necessary to deal with the other issues relating to claim 1.
However, in case
the matter should go further it might be desirable
to state our opinion on two of these other issues, namely Barnard’s
authority
and s 38, particularly since a large part of the
hearing in the court quo and in the appeal was devoted to the
authority issue.
[82]
As
to Barnard’s authority to represent Kernsig, I agree with Mr
Vivier that in the particular circumstances of this case the
onus
rested on Kernsig to prove that Barnard lacked authority. This is a
consequence of the manner in which Kernsig framed its
claim, namely
as one for damages. Its case was in essence that Absa, represented by
Brand, knew that Barnard lacked authority (fraud)
or could by taking
reasonable care have established that Barnard lacked authority
(negligence). On the assumption that a claim
for damages was not
altogether misconceived, Kernsig undoubtedly bore the onus of proving
the alleged fraud or negligence. It could
not discharge that onus
without proving that Barnard in fact lacked authority. Otherwise, as
the Appellate Division observed in
a different context, the onus of
proof in respect of the same factual matrix would rest simultaneously
on the plaintiff and the
defendant.
[5]
[83]
In my view, the answer to the question
whether Barnard had authority depends on whether Mr Greyling and
Jannie signed a resolution
dated 22 September 2005. The critical
question is thus whether Kernsig proved that such a resolution was
not signed. It is a perplexing
issue. The court is faced with two
conflicting versions. Brand said that he drafted the resolution,
discussed it with Jannie telephonically
and with Mr Greyling in
Vredendal on 22 September 2005 and obtained their approval. He then
sent it to Pretoria for signature by
Jannie. When the resolution
arrived back in Vredendal, Mr Greyling came in to sign it. Jannie
denied having signed any resolution
apart from the one he drafted on
29 November 2005. Visser said she had no knowledge of any such
resolution and that Jannie and
her father would not have signed it
without referring it to her.
[84]
The manner of resolving factual disputes
arising from irreconcilable versions was stated thus by Nienaber JA
in
Stellenbosch Farmers’ Winery
Group Ltd & Another v Martell et Cie & Others
2003 (1) SA 11
(SCA) para 5:
’
To
come to a conclusion on the disputed issues a court must make
findings on (a) the credibility of the various factual witnesses;
(b)
their reliability; and (c) the probabilities. As to (a), the court’s
finding on the credibility of a particular witness
will depend on its
impression about the veracity of the witness. That in turn will
depend on a variety of subsidiary factors, not
necessarily in order
of importance, such as (i) the witness’ candour and demeanour
in the witness-box, (ii) his bias, latent
and blatant, (iii) internal
contradictions in his evidence, (iv) external contradictions with
what was pleaded or put on his behalf,
or with established fact or
with his own extracurial statements or actions, (v) the probability
or improbability of particular
aspects of his version, (vi) the
calibre and cogency of his performance compared to that of other
witnesses testifying about the
same incident or events. As to (b), a
witness’ reliability will depend, apart from the factors
mentioned under (a)(ii), (iv)
and (v) above, on (i) the opportunities
he had to experience or observe the event in question and (ii) the
quality, integrity and
independence of his recall thereof. As to (c),
this necessitates an analysis and evaluation of the probability or
improbability
of each party’s version on each of the disputed
issues. In the light of its assessment of (a), (b) and (c) the court
will
then, as a final step, determine whether the party burdened with
the
onus
of proof has succeeded in discharging it. The hard case, which will
doubtless be the rare one, occurs when a court’s credibility
findings compel it in one direction and its evaluation of the general
probabilities in another. The more convincing the former,
the less
convincing will be the latter. But when all factors are equipoised
probabilities prevail.’
[85]
Apart from the fact that Davis J did not
deal with the disputed authority, he did not have the benefit of
seeing the witnesses.
The impression made by the witnesses and their
demeanour are thus not available to assist in resolving the factual
dispute.
[86]
In regard to the inherent probabilities,
the aspects raised by Kernsig in favour of its version include the
following: (i) Absa
failed to produce the resolution. Although
the fire in August 2009 which destroyed many of Absa’s records
might have been
an explanation for such failure at the trial, it
could not explain Absa’s failure to attach the resolution to
the opposing
papers filed in July 2008. The inference is that the
resolution never existed. (ii) In terms of the sale agreement,
it was
the Barnards, not Kernsig, who had to take over the
partnership debt. (iii) Since the Greylings wished to be
completely free
of the Absa debt, it would not have made sense for
them to permit Kernsig to be used, at least not prior to the transfer
of the
shares to the Barnards. (iv) Given how cautious Jannie
was in drafting the resolution of 29 November 2005, it is
unlikely
that he would have signed an unqualified resolution
authorising the term loan.
[87]
As against this, Absa points to the
following: (i) Since an authorising resolution was a standard
requirement, and since its
existence needed to be verified by
officials other than Brand, he would not have promoted the new loan
in the absence of a resolution.
(ii) Brand had nothing to gain
by supposedly defrauding Kernsig or his employer into thinking that a
signed resolution existed
when to his knowledge it did not. (iii)
Contemporaneous internal bank emails show that a signed resolution
dated 22 September 2005
indeed existed. (iv) The Greylings did
not insist, in late 2005/early 2006, that the covering bonds be
cancelled. This showed,
so it was argued, that they knew that the
bonds had to remain in place to secure the new term loan.
[88]
Absa’s inability to produce the
resolution is an important point in Kernsig’s favour. However,
the matter must be considered
in the light of all the evidence. Many
of Absa’s records were destroyed in the well-known fire of
August 2009. As to the
earlier litigation, Kernsig’s
application was brought as one of urgency. Absa’s attorney in
the litigation, Mr AZ van
der Merwe, testified that the challenge to
Barnard’s authority came in the replying affidavit and that he
was not able to
procure a copy of the resolution from his client in
the period which intervened between the filing of the replying
affidavit (19
September 2008) and the hearing before Meer J (9
October 2008). He confirmed that he himself never saw the resolution.
[89]
As to the fact that the sale agreement
required the Barnards, not Kernsig, to take over the partnership
debt, and that the Greylings
wished to be completely free of the Absa
debt, I suspect that all of this might have appeared much more
plainly and forcibly to
Jannie and his sister when things went wrong
in February 2008 than it did at the time the Barnards applied for the
new term loan
in September 2005. The context of the Barnards’
loan application to Absa was the September contract, not the November
contract.
The later version was executed on the advice of Kernsig’s
auditor after he pointed out that the Absa debt was in the name
of
the partnership and that Mr Greyling, not Kernsig, owned the movable
assets. Although the September contract is not a model
of clarity,
Barnard appears to have drafted it in the belief that Kernsig was the
principal debtor in respect of the amounts secured
by the bonds. The
company was described as trading as Karoovlakte Boerdery. Clause 14.3
required the Barnards to procure the release
of Mr Greyling and
Jannie as sureties for the company. (In his oral evidence Jannie said
that he had signed surety inter alia for
Kernsig.) The agreement made
provision for the sale of farming movables supposedly belonging to
Kernsig. Barnard could only have
come under the misapprehension that
Kernsig was the primary debtor by virtue of his discussions with
Jannie. The latter signed
the September contract without demur.
[90]
It thus appears quite possible that Jannie,
and thus the Barnards, may have been under the misapprehension, in
September 2005, that
the Absa debt was in Kernsig’s name and
that Jannie and his father were liable for it as sureties. If that
was Barnard’s
belief, it is not at all surprising that he
should have made the new term loan application in Kernsig’s
name. The purpose
of clause 14.3 was to disclose that Kernsig had an
estimated liability of R1 million and to require the Barnards to
procure the
release of Mr Greyling and Jannie as sureties for that
debt. By obtaining a new term loan for Kernsig, the Barnards put
Kernsig’s
debt on a satisfactory footing from their perspective
as its new controllers (they would not have wanted to buy a company
whose
overdraft was immediately payable) and at the same time
obtained Mr Greyling and Jannie’s release (since their
suretyships
were not among the securities required for the new loan).
If Jannie was likewise under this misapprehension, I do not find it
altogether
implausible that he would have signed a resolution
authorising the new loan. Kernsig would not have been undertaking a
new debt;
its existing debt would simply be reorganised, and he and
his father would be released (as indeed happened).
[91]
By 29 November 2005, when Jannie drafted
the resolution of 29 November 2005, he seems to have become
apprehensive that something
might go wrong with the Barnards. They
had not yet signed the documents for registering the bonds over the
Wilderness properties.
The qualified terms of the later resolution
might have been designed to place pressure on the Barnards. The
inferences to be drawn
from the document are somewhat equivocal. Mr
Vivier suggested that the reference to an ‘additional’
loan showed that
Jannie was aware of the existing approved loan,
namely the new term loan. Jannie testified that, according to Brand,
the purpose
of the R200 000 loan was for improvements. The loan
was ‘additional’ in the sense of being additional to the
loan
which, so he believed, the Barnards (not Kernsig) had already
obtained for R1,1 million. This was challenged in cross-examination.
He was taken to his replying affidavit in the earlier proceedings
where, in answer to an allegation by the bank that the additional
bond of R200 000 had been required because the existing bonds
were not sufficient to cover the whole of the partnership debt,
Jannie said that Kernsig had no details regarding the further loan
and did not know whether it related to discharging the partnership
debt.
[92]
The existence of a resolution dated 22
September 2005 is supported by certain contemporaneous documents. On
8 December 2005 Ms le
Roux, an Absa official in Cape Town whose
responsibilities included the compiling of loan contracts, emailed
Brand’s assistant
in Vredendal, Ms Kotze, attaching the draft
loan contract and asking Kotze to add by hand, in the heading of the
contract after
the words
‘
kragtens ʼn
direksiebesluit’, the further words ‘geneem op 22
September 2005’
. Le Roux testified
that these words had to be added by hand because the electronic
template did not have enough space for the insertion.
She said that,
if the borrower was a company, she had to be given a signed
resolution and that she would not have asked Kotze to
make the
insertion unless she (Le Roux) had seen a signed resolution with that
date. Kotze confirmed that she would not have sent
the loan approval
to Le Roux without a signed resolution.
[93]
After the contract (including the said
insertion, made by Kotze) had been signed in Vredendal by Barnard and
the bank officials,
it was sent electronically back to Cape Town
where Ms Bridgens, who was responsible for validation, had to satisfy
herself that
everything was in order. On 9 December 2005 she emailed
Kotze, stating that the loan contract ‘and resolution’
were
‘in order’. She noted, however, that the bank’s
records did not reflect the powers of the directors. She asked
Kotze
to forward to her a copy of Kernsig’s memorandum and articles
of association so that she could update Absa’s
records. She
also said that she would need a letter from the attorneys confirming
that the further covering bond for R200 000
had been registered.
The proceeds of the loan were not to be paid out until these matters
had been attended to.
[94]
The loan was in fact implemented without
registration of the further bond for R200 000. However, the
emails written by Le Roux
and Bridgens and Kotze’s handwritten
insertion provide strong contemporaneous evidence that a directors’
resolution
authorising the loan contract and bearing the date 22
September 2005 existed. Unsurprisingly Le Roux, Bridgens and Kotze
could
not independently recall the resolution but it is improbable
that they would have acted as they did if there was not a resolution
purporting to have been signed by Mr Greyling and Jannie, who were
the persons reflected in the bank’s records as the company’s
directors. Kernsig’s main criticism was directed at Brand. The
Cape Town officials were strangers to the parties involved
and would
have had no reason to allow Absa to commit itself to a loan contract
which was not supported by a directors’ resolution.
[95]
If
Le Roux, Bridgens and Kotze saw a signed resolution, acceptance of
Kernsig’s version would entail that the signatures of
Mr
Greyling and Jannie were forged. Brand would on this hypothesis have
had to be a party to the forgery, because his version as
to how the
resolution came to be signed did not leave open as a possibility that
someone else, for example Barnard, had forged
the signatures and
duped Brand. A finding of forgery against Brand would be a very
serious matter, as is the fraud alleged by Kernsig.
Although such
conduct in a civil case need only be proved on a balance of
probability, the court takes into account that conduct
which is
immoral or criminal is inherently less probable than conduct which is
not (
Gates
v Gates
1939
AD 150
at 155), so that fraud is not ‘lightly inferred’
(see
Loomcraft
Fabrics CC v Nedbank Ltd & Another
[1995] ZASCA 127
;
1996
(1) SA 812
(A) at 817G-H).
[6]
Brand had no particular reason to advance Barnard’s interests
at the expense of his employer (the bank) or at the expense
of Mr
Greyling and Jannie. He had no existing relationship with the
Barnards. Brand seems to have been fairly sympathetic
to the
plight of Mr and Mrs Greyling. He may well have wanted the
transaction to go through so that they could be relieved of the
partnership debt. However, any attempt on his part to trick his
employer into believing that Barnard was authorized to represent
Kernsig would have been foolhardy. The officials in Cape Town would
have expected to see an authorising resolution; that was standard
procedure.
[96]
Kernsig argued that Brand presented the
loan application in a misleading fashion so as to conceal from the
Cape Town head office
that Barnard himself did not qualify for a loan
in his own name given his personal financial position. This argument
is without
merit. The application was clearly presented as an
application in Kernsig’s name, albeit as part of the Barnard
group. Marais
confirmed that he understood it as such.
[97]
Jannie’s evidence as to when, in the
context of the Barnard transaction, the covering bonds would have
been cancelled was
not altogether consistent. However, I do not think
that much can be inferred from the Greylings’ failure promptly
to insist
on the cancellation of the bonds. If they genuinely
believed that the liability to Absa had been discharged and were
unaware of
the new term loan, the continued existence of the bonds
would not have prejudiced them.
[98]
As noted, Brand claimed to recall certain
details of the circumstances in which the alleged resolution of 22
September 2005 was
signed. Although Kernsig’s counsel submitted
that there were discrepancies between Absa’s trial particulars,
what was
put to Jannie in cross-examination and what Brand testified,
his version was in general consistent, namely that he spoke with
Jannie
and Mr Greyling on 22 September 2005, that he sent the
resolution to a nearby Absa branch in Pretoria, that the signed
resolution
was received back at Vredendal in an envelope; and that Mr
Greyling then called at the Vredendal branch to sign. Kernsig’s
counsel submitted that Brand’s version as put to Jannie was to
the effect that Jannie was leaving town on holiday whereas
Brand
later testified that Jannie was supposedly on his way to visit a
family member who was ill. Both reasons seem to have been
true:
Jannie testified that on the morning of 22 September 2005 (a
Thursday) he and his family left Pretoria to travel to Springs
to
visit a family member who was unwell, that early the following
morning he drove his family to Margate for a holiday, and that
he
flew back to Pretoria on Monday 26 September 2004, leaving again on
Wednesday for a golf trip. Brand did not say that the resolution
was
in fact signed on 22 September 2005 – he said that he inserted
that date because it was the date on which he spoke with
both
directors and obtained their approval. The resolution might have been
signed by Jannie a few days later. It is not unknown,
though
obviously undesirable, for resolutions to bear dates differing from
the actual date of signature. According to Jannie, for
example, his
father only signed the resolution dated 29 November 2005 sometime in
December.
[99]
I do not wish to suggest that it is more
likely that Jannie would have lied about the resolution than Brand.
As I have said, the
whole issue is perplexing. The incidence of onus
is in my view decisive. Kernsig did not in my opinion prove on a
balance of probability
that the resolution was not signed.
Section
38 of the Companies Act
[100]
I can deal more briefly with the
alternative basis of claim 1, namely the alleged contravention of
s 38 of the old Companies
Act. Section 38(1), in the form in
force at the relevant time, read thus:
‘
No
company shall give, whether directly or indirectly, and whether by
means of a loan, guarantee, the provision of security or otherwise,
any financial assistance for the purpose of or in connection with a
purchase or subscription made or to be made by any person of
or for
any shares of the company …’
[101]
The statutory prohibition comprises two
main elements, namely (i) the giving of financial assistance and
(ii) the purpose
of such assistance. In the latter regard, it is
the direct object of the assistance which is crucial. Financial
assistance given
for a legitimate direct object is not rendered
unlawful merely because such financial assistance was incidental to
or had some
connection with a purchase of shares (see in general
Lipschitz NO v UDC Bank Ltd
1979
(1) SA 789
(A) at 799A-F and 804D-805B;
Gardner
& Another v Margot
2006 (6) SA 33
(SCA) para 47).
[102]
The loan contract between Absa and Kernsig,
while not itself the giving of financial assistance within the
meaning of s 38(1),
might nevertheless have been unlawful on
common law principles if its purpose was to enable Kernsig to give
financial assistance
in contravention of s 38(1) (Christie
The
Law of Contract in South Africa
6
th
Ed at 399-401). The first question is thus whether Kernsig gave the
Barnards unlawful financial. This must be decided on the basis
that
Kernsig was duly represented by Barnard. Kernsig, represented by
Barnard, knew that in terms of the November contract the
Barnards had
to take over the partnership’s indebtedness to Absa. Although
Kernsig was already liable as a surety, its conduct
in accepting
liability as the primary debtor constituted the giving of financial
assistance. Effectively Kernsig rather than the
Barnards paid this
part of the purchase price, and that was Kernsig’s direct
purpose. Mr Vivier’s argument, which focused
on Absa’s
purpose, misconceived the enquiry by focusing on Absa rather than
Kernsig.
[103]
The next question is whether the loan
contract between Absa and Kernsig was invalid because its purpose was
to enable Kernsig to
do something unlawful. Absa knew about the sale
of the shares and that the loan contract was directed at enabling the
Barnards,
through Kernsig, to obtain the partnership’s release.
Not only was Absa aware of such purpose; it controlled and gave
effect
to the purpose by crediting the partnership and debiting
Kernsig. Indeed, it was a condition of the loan that the proceeds
should
be so applied. The loan contract could not have been performed
except in a manner which involved illegality.
[104]
I thus consider that the loan contract was
unlawful. But this does not in itself give Kernsig a claim for
damages. The legal effect
of s 38 (apart from criminal
liability) is to render invalid the giving of financial assistance.
The section does not confer
a right of action for damages.
Conceivably a person who has caused a company to give unlawful
financial assistance may be delictually
liable for damages thereby
caused to the company but the company would then have to allege and
prove that the person acted with
dolus or negligently and in breach
of a legal duty owed to the company. Kernsig did not allege that Absa
acted fraudulently or
negligently in Kernsig’s giving of
unlawful financial assistance. Brand and Marais were not
cross-examined as to their knowledge
of s 38. And I am by no
means satisfied that a company is entitled to expect its bank to
advise it on the potential application
of s 38.
Claim
2
[105]
I do not think the second claim has any
merit. I accept that, when Absa filed its answering papers in the
previous case, it was
aware that it had not as yet been unable to
locate the resolution of 22 September 2005. The resolution would have
been attached
if it had been found. It would obviously have been
better for Absa squarely to state that it could not locate the
resolution but
Meer J was most unlikely to have been misled. In any
event, it cannot be said that she would have found in Kernsig’s
favour
if Absa had expressly stated that the resolution could not be
found. Absa would still have alleged, as indeed it did in the trial,
that such a resolution had been signed. In para 21 of her judgment
Meer J said that Absa’s failure to annex the resolution
did not
negate the factual disputes. Even after all the evidence in the
present case, it has been no easy matter to decide whether
or not the
resolution was signed.
Conclusion
[106]
For these reasons the appeal is dismissed
with costs.
BOZALEK
J
ROGERS
J
MANTAME
J
APPEARANCES
For
Appellant Messrs DB du Preez SC & PI Oosthuizen
Instructed
by Hanlie Visser Inc
c/o
Dykmans Inc
Suite
302, 3rd Floor
Cape
Consumer House
20
Lower Burg Street
Cape
Town
For
Respondent Mr P de B Vivier
Instructed
by Sandenberg Nel Haggard
c/o
Nilands Attorneys
2nd
Floor, Bank Chambers
144
Longmarket Street
Cape
Town
[1]
Clause
8 provided that the secured amount would become due and payable
inter alia if Kernsig failed to satisfy any obligation
or liability
on due date.
[2]
Para
6.8 of Kernsig's heads, citing
Absa
Bank Ltd v Lombard Insurance Co Ltd
2012
(6) SA 569
(SCA) para 18.
[3]
Record
8/665.
[4]
See
the pricing column at record 8/694.
[5]
S
v Barnard
1986
(3) SA 1
(A) at 8E-I.
[6]
See
also, eg,
National
Director of Public Prosecutions v Zuma
[2009] ZASCA 1
;
2009
(2) SA 277
(SCA) para 27.