Covidien Proprietary Limited v Dinaledi Medical Proprietary Limited and Others (15259/2015) [2017] ZAGPPHC 658 (9 October 2017)

REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA,

NORTH GAUTENG DIVISION, PRETORIA

CASE NO: 15259/2015

NOT REPORTABLE

OF INTEREST TO OTHER JUDGES: NO

REVISED

9/10/2017

COVIDIEN PROPRIETARY LIMITED PLAINTIFF

and

DINALEDI MEDICAL PROPRIETARY LIMITED 1ST DEFENDANT

NARENDRA RAMGOBIN 2ND DEFENDANT

ANDRIES JOHANNES BEZUIDENHOUT 3RD DEFENDANT

MVULA EMPOWERMENT HOLDINGS

PROPRIETARY LIMITED 4THDEFENDANT

JUDGMENT

MSIMEKI J,

INTRODUCTION

[1]This is a summary judgment application by the plaintiff against the first, second, third and fourth defendants jointly and severally, the one paying the other to be absolved for payment of R5 531 673 42, interest theron at the rate of 22.5% per annum a temporae morae to date of final payment and costs of suit on the scale between attorney and own client.

BRIEF BACKGROUND FACTS

[2]The summary judgment application arises from a distribution agreement and addendum thereto which was concluded between the plaintiff and the first defendant on or about 1 October 2011 (the principal agreement). The claim is the amount which the first defendant owed the plaintiff in respect of products sold and delivered by the plaintiff to the first defendant. The amount due, owing and payable by the first defendant to the plaintiff, as at November 2014, according to the plaintif,f was R5 531 673 42 (the principal debt). It appears to be common cause that the principal agreement regulated the relationship between the plaintiff and the first defendant. The plaintiff's claim against the second, third and fourth defendants is based on suretyships concluded by them in favour of the plaintiff for all amounts owing by the first defendant to the plaintiff at the time or in future (the suretyships).

[3]The first, second and third defendants entered their appearances to defend the plaintiffs action.

[4]The first defendant, since the institution of the action against the defendants, placed itself under voluntary winding up. The plaintiff decided to pursue the summary judgment application only against the second and third defendants.

[5]For convenience sake, I shall refer to the parties as they are referred to in the action.

[6]It appears to be common cause that the procedural requirements relating to the summary judgment applications have duly been complied with by the plaintif.f There is nothing to demonstrate otherwise.

[7]The second and third defendants signed one deed of suretyship.

Clause 1.7 thereof reads:

"I/we acknowledge that this Deed of Suretyship has been prepared in a form for signature by more than one surety and accordingly I/we acknowledge that each surety who signs the Deed of Suretyship acknowledgesand records that notwithstanding the fact that it provides for signature hereof by other sureties, there is separate, distinct and independent contract of suretyship brought into existence by each surety that does sign it.. ."

Clause 1.7 demonstrates that:

1. the parties to the Deed of Suretyship acknowledge that they are aware that the Deed of Suretyship "has been prepared in a form for signature by more than one surety".

2.The parties further acknowledge and record that the Deed of Suretyship constitutes a separate, distinct and independent contract of suretyship brought into existence by each surety who signsit. Put differently,separate,distinct and independent suretyship agreements

came into being once they were signed by the relevant parties.

[8]The reading of the distribution agreemen,t which is the principal agreement and the Deed of Suretyship, demonstrates that the Deed of Suretyship forms part of the distribution agreement.

[9]It is also to be noted that the second and the third defendants signed the suretyship agreement. This is evidenced by their allegations in their respective affidavits.

[10]The entitlement of the plaintiff to the principal debt does not seem to be an issue. The second and third defendants merely raised their own personal defences. This, on behalf of the plaintiff, has been said to be an attempt at avoiding paying the amount which is due, owing and payable by them to the plaintiff. This reappears to be correct as I shall demonstrate later in this judgment.

THE ISSUES

[11]The issues to be determined are:

1.Whether the Deed of Suretyship is invalid for its failure to comply with the provisions of Section 6 of the General Law Amendment Act 50 of 1956 ("the Act");

2.Whethe,r as alleged by the second defendant, he was released from suretyship by virtue of the plaintiff acting to his prejudice; and

3.Whether iustus error, as alleged by the third defendan,t constitutes a bona tide defence.

[12]The issues to be determined, in my view, are crisp.

[13]I deem it necessary to repeat the relevant clauses of the Deed of Suretyship. These are clauses 1.1, 1.2, 1.3 and 1.7 respective.ly

Clause 1.7 has been quoted in paragraph 7 above.

" 1.1 I/we by mylour/s signature/s hereto (where the customer is a company

of close corporation) do hereby bound myself/ourselves jointly and severally, the one paying the other to be absolved in our personal

capacitylies as surety for an(d) co-principal debtor with the customer to the vendor for the payment to the vendor by the customer of all sums of money which may now or may in future be or become owing to the vendor and for the fulfilment of the customers obligations to the vendor of whatsoever nature;

1.2 This guarantee shall be a continuing guarantee and I/we can only be released in writing by the vendor who will be obligated to release me/us in writing in the event of the customer and/or ourselves settling the customer's account with the vendor in full;

1.3 I/we hereby renounce the benefits of the legal exceptions "noncause debite", "ordinis sue excussionis et divisions" and "cession of action" with the force and meaning and effect with I/we declare myself/ourselves to be fully acquainted.

[14] I deal now with the identified issues.

THE PROVISIONS OF SECTION 6 OF THE ACT.

The Section provides:

" 6 Formalities in respect of contracts of suretyship

No contract of suretyship entered into after the commencement of this Act, shall be valid, unless the terms thereof are embodied in a written document signed by or on behalf of the surety: Provided that nothing in this section contained shall affect the liability of the signer of an aval under the laws relating to negotiable instruments".

The submission, on behalf of the second defendant, is that for the suretyship to be valid, the creditor, the debtor, the surety and the nature and the amount of the principal debt must be identified. The question to be answered is whether the Deed of Suretyship, annexure "POC9", appearing on page 97 of the paginated papers (i.e. page 97 of the first Bundle) clearly identifies what it should.

[15]Jafta JA (as he then was) in Inventive Labour Structuring (Pty) Ltd v Corte 2006 (3) SA 107 (SCA) at paragraph 5 said:

"[5] In the past, the word 'terms' in the section has been construed to include the identification of three necessary parties, I e the creditor, the principal debtor and the surety. (Fourlamel (pty) ltd v Maddison 1977 (1) SA 333 (A) at 345AD and Intercontinental Exports (Pty) Ltd (supra [BJ at 10518). If any one of the three parties is not identified ex facie the contract, it will be invalid for want of compliance with statutory requirements." (my emphasis).

The word "terms" in Section 6 of the Act, according to the Court, has been interpreted to include the identification of the creditor, the principal debtor and the surety. These are the three parties which, of necessity, have to be identified in the sure.tyship. It is important to note that the nature and amount of the principal debt has not been included as an essential terms in this case.

In Nedbank v Wizard Holdings 2010 (5) SA 523 (GSJ) at paragraph 16, the Court included the nature and amount of the principal debt as one of the essential terms of the agreement of suretyship.

Trengrove AJA, in Sapirstein v Anglo African Shipping Co (SA) Ltd 1978 (4) SA (1) (AD) at 12B-C agreed with the contention that the identity of the creditor, of the surety and of the principal debtor, and the nature and amount of the principal debt must be capable of ascertainment by reference to the provisions of the written document (the suretyship) supplemented, if necessary, by extrinsic evidence by the parties (i.e: the creditor and the surety) as to their negotiations and consensus.

[16]In Credit Guarantee Insurance Corporation v Schreiber 1987 (3) SA 523 (WLD) at 525C, Fleming J said:

"...If the parties succeed in reflecting the 'terms' of the contract without mentioning e.g. the debtor's name. they have a valid contrac"t.(my emphasis).

This, according to the plaintiff's Counse,l is an indication enough to show that Courts take a common sense approach to the interpretation of Section 6 of the Act. (See: Sapirstein v Anglo African Shipping Co (SA) Ltd (supra)).

[17]The third defendant raised non-compliance with the provisions of Section 6 of the Act as his defence.

[18]Applying the law to the facts of the case the following emerge:

1.The second defendant in paragraph 26 of his affidavit resisting the granting of summary judgment says:

"26. As appears from the Deed of Suretyship, the creditor is referred to thereein as the "vendor" while the principal debtor is referred to as the "custome'r. Nowhere in the Deed of Suretyship are these terms defined. On a consideration of the Deed of Suretyship alone, the creditor and the principal debtor are unidentified". (my emphasis). The paragraph, in my view, is contradictory.

2.In paragraph 14 of the second defendant's Heads of Argument, their Counsel quoted what the sureties say, namely, that: "We...do hereby... ourselves iointly and severally, the one paying the other to be absolved in our personal capacities surety for an (sic) co­ principal debtor with the customer to the vendor for the payment to the vendor by the customer..." (my emphasis.) There is, in my view, no ambiguity in the quotation.

3.In paragraph 15 of the Heads of Argument the following is said:

"15.1the creditor is referred to as the "vendor' while;

15.2the principal debtor is referred to as the "customer'."

This bolsters the view that the parties are sufficiently identified.

4.In paragraph 20 of the Heads of Argument the following is said:

"Far from providing clarification as to the identity of the essential parties to the suretyship, it is submitted that the consolidated document as a whole further compounds the difficulties confronted by the plaintiff in respect of non-compliance with the Act. In this regard:

20.1The distribution agreement in its definitions section fails to identify or define either "customer" or "vendor'

20.2Moreover, the plaintiff, who, it will be argued is the creditor is identified as "thesupplier' while:

20.3the first defendant, who, it will be argued is the principal debtor, is identified as "thedistributor'.

[19]From what is said in paragraphs 14, 15 and 20 of the Heads of Argument, it is clear that (although it is said in paragraph 16 of the Heads of Argument that the terms "vendor' and "customer' are not defined or identity of the parties revealed) the second defendant and their Counsel know exactly who the creditor and the

principal debtor are. They are also aware that they too are identified as sureties.

[20]The second defendant acknowledges that the suretyship formed part of the distribution agreement. This, according to the plaintiffs Counse,l means that "vendor" and " custome"r could not mean anything else other than the plaintiff and the first defendant. I agree.

[21]The above, clearly demonstrates that the suretyship agreement in issue is a valid agreement.

THE SECOND DEFENDANT'S OTHER DEFENCE

[22]The other defence, according to the second defendant, is that the plaintiff caused prejudice to him through the alteration of the principal debt. Significantly, the second defendant admits his signature on the suretyship adding that he, at the time, was the managing director of the first defendan,t the position which, according to him, he held until March 2014 when he signed.

[23) The second defendant, surprisingly enough, states that upon his resignation, the remaining directors of the first defendant undertook to secure his release from the suretyship but that they failed "to take any steps to do so". This clearly, demonstrates that the second defendant was not confused about the suretyship. He and the other directors were aware of the existence and validity of the suretyship. Whether the other directors failed or not to stick to their alleged undertaking, this has nothing to do with the plaintiff.

[24]The second defendant contends that the plaintiff caused him prejudice through alteration of the principal debt by allowing the first defendant to make further purchase.sThe principal agreement between the plaintiff and the first defendant was a valid agreement in accordance with which both acted. The second defendan,t as correctly submitted, on behalf of the plaintiff, makes no allegation in his papers that the plaintiff and the first defendant amended the principal agreement in whatever manner. The second defendant proved no novation of the principal debt. What the principal debtor and the plaintiff did was perfectly legal.

[25]The second defendant's alleged defences are no defences at all for purposes of having him released from the operation of the

suretyshi.pHe is bound thereby.

THE THIRD DEFENDANT

[26]I have already alluded to the fact that he too raised the "defence" that the suretyship does not comply with the requirements of Section 6 of the Act.

[27]The third defendant too admits having signed the suretyship agreement. His other defence is that the nature of the suretyship and the consequences thereo[ were never explained to him. He blames the second defendant stating that it is him who induced to him to sign the document. It is noteworthy that the third defendant does not say that the plaintiff or its representatives induced him to sign the suretyship. Whether he, indeed, or not, was induced to sign the suretyship, this is of no moment because the plaintiff had nothing to do with that. If he so wishes, his remedy will be his recourse against the second defendant and not the plaintiff.

[28]In Slip Knot Investments 777 (Pty) Ltd v Du Toit 2011 (4) SA 72 (SCA) the Court held that a person who is induced to sign a suretyship agreement by the fraud or misrepresentation of a third party, unaware

of the nature of the document he is signing, will nevertheless be bound by the agreement if the lender is innocent and unaware of the surety's mistake. The Deed of Suretyship, in my view, is a valid document which protects the plaintiff and binds the third defendant.

[29]Above the third. defendant's signature appear the words " in my personal capacity as surety and co-principal debtor'. In Absa Bank v Trzebiatowsky 2012 (5) SA 134 at paragraph [25] Revelas J said:

"[25] In Roomer v Wedge Steel (Pfy) Ltd the suretyship was contained in a clause in a bold fount, headed 'Agreement of Sale and Suretyship'. In that matter the defence of ignorance was rejected and the court

held that the creditor reasonably relied on the surety's consent. In the Langeveld matter. the court applied the 'praesumptio hominis' (popular presumption) in holding that there was a strong presumption

that anyone who has signed a document had the intention to enter into the transaction contained in it, and the surety is burdened with the onus of convincing the court that he or she had not intended to enter into the contract. The maxim caveat subscriptor. then finds application. This principle in our law that a person who signs a contract. Is taken to be bound by the ordinary meaning and effect of the words which appear over his signature. is still regarded as valid. The second defendant's defence of a iustus error. is clearly trumped by the aforesaid maxim." (my emphasis).

[30]The application of the law to the facts of this case clearly demonstrates that the defences raised by the second and third defendants fall to be rejected and should fail.

ORDER

[31]I make the following order:

Judgement is, accordingly, entered in favour of the plaintiff against the second and third defendants jointly and severally, the one paying the other to be absolved for:

1.Payment in the sum of R5 531 673 42;

2.Interest on the amount of R5 531 673 42 at the rate of 22.5% per annum; a temporae morae to date pf final payment;

3.Costs of suit on the scale as between attorney and client.

M.W. MSIMEKI

JUDGE OF THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION

PRETORIA

Date of hearing: 17

July 2015

Date of delivery of Judgment: 9

October 2017

Counsel for the Plaintiff: M.

G REBELO

Instructed by: Glyn

Marais Incorporated

Counsel for the second Defendant: D GOLDBERG

Instructed by: Marais

Müller Yekiso Inc.