Firstrand Bank Limited v Naude and Others (839/2019) [2020] ZAMPMBHC 29 (6 November 2020)

REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

(MPUMALANGA DIVISION, MBOMBELA)

Case number: 839/2019

In the matter between:

FIRSTRAND BANK LTD Applicant

and

MICHAEL ANDREW NAUDE

First Respondent

BERTUS VAN DER MERWE

Second Respondent

KENNETH DANIEL SONNEKUS Third Respondent

JUDGMENT

MASHILE J:

INTRODUCTION

[1] The Applicant claims payment of two separate amounts from the Respondents, jointly and severally, the one paying the others to be absolved. The first amount is R9 578 444.33 together with interest at prime, being 10.25%, plus 2% per annum compounded monthly from 1 February 2019 to date of payment. The second amount is R5 354 273.52 together with interest thereon at prime, being 10.25%, plus 5% per annum, compounded monthly from 22 February 2019 to date of payment.

[2] The application owes its genesis to three agreements, a credit facility, loan and an amendment of the latter concluded by the Applicant and Steval Engineering (Pty) Ltd with Reg. Number 2001/017093/07 (“the principal debtor”). Following the conclusion of those agreements, each of the three Respondents bound themselves as sureties and co-principal debtors in solidum with the principal debtor in favour of the Applicant for the indebtedness of the former. The principal debtor is in liquidation, a condition listed in the agreements as one of those that would prompt the Applicant to invoke the acceleration clause and demand immediate payment of whatever amount is due to it.

[3] The principal debtor being in liquidation, it follows that it is not in a position to pay the amount due to the Applicant. It is against that backdrop that the suretyship agreements entered into by each of the three Respondents in favour of the Applicant have become central to this litigation insofar as the Respondents have undertaken to make good what the principal debtor cannot in events of this kind. The Respondents are resisting the claim mainly on three grounds, which are firstly, that the claim of the Applicant has prescribed, the proceedings are an abuse of court process and the Applicant ought to have launched this application in the Magistrate’s Court.

FACTUAL MATRIX

[4] A comprehension of what unfolded subsequent to the agreements between the parties’ rests on the terse exposition of the background facts. For that reason, I deem it necessary to describe the circumstances leading to the launching of the application.

CREDIT FACILITY

[5] On 8 July 2016, the Applicant and the principal debtor at Nelspruit, concluded a written credit facility agreement whose validity is not confuted. For purposes of this judgment, I regard the following as the most pertinent:

5.1 The Applicant would make available to the principal debtor a credit facility of R35 000 000.00, repayable on demand and subject to annual review;

5.2 A breach of the credit facility agreement would occur in the event that any order of court, whether provisional or final, and whether voluntarily or compulsorily, be granted for the winding-up of the principal debtor;

5.3 In the event of a breach the Applicant would be entitled to claim immediate repayment of all amounts outstanding under the credit facility;

5.4 A certificate signed by any general manager of the Applicant setting forth the amount of the principal debtor’s indebtedness to the Applicant would be prima facie proof of the amount which the principal debtor owes to the Applicant under the credit facility agreement.

[6] On 8 April 2010 at Nelspruit, the Applicant and the principal debtor concluded a written loan agreement in terms of which:

6.1 The Applicant would advance the amount of R6,000,000.00 to the principal debtor;

6.2 The loan amount would be repayable over a period of 120 months in monthly instalments of R78,414.92;

6.3 Should the principal debtor be provisionally or finally wound up, whether or not voluntarily or compulsorily, the Applicant would have the right to claim immediate repayment of the outstanding balance and any other amounts owing by the principal debtor to the Applicant from whatever cause arising;

6.4 Should any dispute arise between the Applicant and the principal debtor at any time in regard to the outstanding balance due and payable by the principal debtor to the Applicant, a certificate signed by any of the Applicant’s managers shall be prima facie evidence, of the facts stated in the certificate and shall be capable of being used in all legal proceedings.

AMENDMENT OF THE LOAN AGREEMENT

[7] On 2 November 2011 at Nelspruit, the Applicant and the principal debtor concluded an amendment to the loan agreement, the material terms of which were:

7.1 The Applicant would advance a further amount of R2 600 000.00 to the principal debtor;

7.2 The principal debtor agreed that the further amount would on the date of disbursement be added to the principal debtor’s existing outstanding balance. The principal debtor further acknowledged that this would result in the increase of the overall outstanding balance that is owed to the Applicant;

7.3 The repayment period provided for in the loan agreement would be deleted and substituted for a repayment period of 120 months, which would commence on the date of the disbursement of the future use amount.

SURETYSHIP AGREEMENTS

[8] On 5 August 2014 at Nelspruit, each of the Respondents signed three discrete suretyship agreements by which they bound themselves as sureties and co-principal debtors in solidum with the principal debtor in favour of the Applicant. Although the suretyship agreements are separate and distinct, their terms and conditions are similar and they provide:

8.1 The Respondents bound themselves to and in favour of the Applicant as surety in solidum for and as co-principal debtor, jointly and severally as ongoing obligation with the principal debtor for the due payment by the principal debtor of all and any monies which the principal debtor may now or from time to time owe to the Applicant from whatsoever cause and howsoever arising;

8.2 The amount recoverable from each of the Respondents would be limited to R20 00 000.00;

8.3 If any non-payment, breach or default occurs in respect of the principal debtor’s obligations to the Applicant (including contemplating the commencement of any business rescue proceedings, liquidation, sequestration, administration or debt review of the principal debtor), the Applicant’s rights against the Respondents under the suretyship will not be prejudiced or affected should the Applicant pursue alternative remedies available to the Applicant, nor shall the Applicant, by pursuing a particular remedy instead of another remedy, be deemed to have waived any rights against the Respondents or the principal debtor, it being the intention that the Applicant shall, without prejudice to its rights against the Respondents, have a full and free discretion as to the choice and method of enforcement of the Applicant’s rights against the Respondents and/or the principal debtor. Nothing contained or implied in the suretyship shall be deemed to create any obligation on the Applicant’s part to enforce or pursue any of its rights against the principal debtor before being entitled to enforce its rights against the Respondents under the suretyship;

8.4 Should the Respondents not pay any amount due, or any breach of default occur, the Applicant may demand that the Respondents immediately pay the Applicant any amounts that are due and payable along with interest, costs and fees. If the Respondents do not either pay the Applicant or make arrangement with the Applicant to its satisfaction, the Applicant may take legal steps against the Respondents without further notice;

8.5 A certificate signed by any of the Applicant’s managers shall be prima facie evidence of the Respondents’ indebtedness or the indebtedness of the principal debtor and as to any other fact in relation to any of such indebtedness and shall be sufficient for the purposes of any application or action, judgment order or for any other purpose whatsoever.

[9] It is common cause that in compliance with the agreements above, the Applicant advanced the loan amount and made the credit facility available to the principal debtor on the terms and conditions agreed by the parties. Upon the principal debtor defaulting and ultimately being placed in liquidation, the Applicant invoked the acceleration clause thereby making the full outstanding amount by the principal debtor immediately due and payable. The outstanding amount on the credit facility agreement stood at R9 578 444.33 on 21 February 2019 while that concerning the loan agreement was R5,354,273.52.

PLEADINGS

[10] In their answering affidavit, the Respondents state that the Applicant was not in a position to prove its claim and that this was evident from its failure not to attach relevant records. They threatened to serve and file a notice in terms of Rule 35(12), if the Applicant did not do so in its replying affidavit. The Applicant lived up to the challenged by appending all the information to its replying affidavit required by the Respondents as per their Rule 35(12) notice. Of significance insofar as this matter is concerned, are the transactions captured on 14 July 2017 and 10 July 2018 being payments of R293 361.90 and R155 827.59 respectively into the account utilised for the credit facility and term loan. Furthermore, it is also apparent that in July 2017, the Respondents were actively using the credit facility.

ASSERTIONS OF THE PARTIES

[11] The Respondents contend that if one were to peruse the papers of this application independently of the various payments, which the Applicants claims were made by the principal debtor after February 2016, the claims have prescribed. The respondents state that according to the Applicant’s own papers, it is evident that by 13 February 2016 the principal debtor was already in arrears in the amount of R301 264.83 on account number 62314961360. Furthermore, assert the Respondents, it is plain that by 7 March 2016 the principal debtor had also defaulted with its payment to the Applicant on account numbers 3000012634713 and 62314961360.

[12] The Respondents conclude that to the extent that this application was launched on 13 march 2019, the claim had prescribed by the time this application was launched. The Respondents emphasise that this Court cannot simply take the Applicant’s word that the amounts paid after February 2016 were paid by the principal debtor. They deny any knowledge of the amounts and that the payments were in fact made on behalf of the principal debtor as payment in reduction of its indebtedness to the Applicant. On the available evidence before court therefore the claim has indeed prescribed, conclude the Respondents.

[13] The date on which the principal debtor was ultimately declared insolvent, 26 September 2018, cannot assist the Applicant, so continues the argument of the Respondents. This is because on 14 July 2015, the principal debtor was already in default being in arears with an amount of R228 542.06. If this assertion is correct, the claim of the Applicant had already prescribed by the time it was liquidated on 26 September 2018.

[14] Insofar as the Respondents having been hauled and made to appear before an incorrect forum, the Respondents state that The legal position is that if parties to a written contract consent to the jurisdiction of the magistrates’ court, the High Court will not entertain the action or application flowing from such agreement in circumstances where such a matter is capable of being adjudicated in the magistrate’s court. In this regard, the Respondents rely heavily on Clause 23, which is common to all three suretyship agreements.

[15] The Applicant’s approach to this matter is that the Respondents’ argument on prescription can only be insuperable if the principal debtor did not make payment in reduction of its indebtedness to the Applicant and/or that it did not make use of the credit facility after 13 February 2016. The Applicant points out that according to the bank statements annexed to its replying affidavit, the principal debtor made payment on the term loan as late as 10 July 2018. Moreover, it is also manifest from the bank statements that the principal debtor used the credit facility in July 2017 and that on 14 July 2017, it made payment into the relevant account number. Prescription was therefore interrupted as envisaged in Section 14 of the Prescription Act 68 of 1969.

[16] Apart from the issue of payments made into the bank account of the Applicant, the liquidation of the principal debtor that occurred on 26 September 2018 presents itself as a hurdle to the Respondent’ contention that the matter has prescribed. In this regard, it is the Applicant’s argument that if the default of the principal debtor was earlier than 13 February 2016 or even on 14 July 2015, the claim would not have prescribed by 13 March 2019.

[17] Prescription must be taken to have begun to run upon the appointment of liquidators, which is understood to have been the 26th of September 2018. Insofar as abuse of court processes is concerned, the Applicant argues that the raising of prescription as the only major defence to the Applicant’s claim speaks volumes about the absence of real material disputes of fact. Lastly, the Applicants regards the argument about the wrong forum as totally misguided as it is clear from clause 23 of the suretyship agreements that it has a choice whether to bring the application in the Magistrate’s Court or High Court.

ISSUES

[18] From the contentions of the parties described above, it is immediately apparent that the issues for determination by this Court are whether or not:

18.1 The claim has prescribed;

18.2 These proceedings constitute abuse of court process; and

18.3 Clause 23 of the suretyship agreements should be interpreted in a manner that would have restricted the Applicant to initiate these proceedings in the Magistrate’s Court only.

LEGAL POSITION

[19] The starting point insofar as prescription is concerned ought to be the Prescription Act, 68 of 1969 (“the Prescription Act”) particularly, Sections 10 and 14 dealing with extinction of debts by prescription and interruption of prescription by acknowledgement of liability respectively. Section 10(1) lays down that:

“Subject to the provisions of this Chapter and of Chapter IV, a debt shall be extinguished by prescription after the lapse of the period which in terms of the relevant law applies in respect of the prescription of such debt.”

[20] It is common cause or at the least, it is not disputed, that in terms of Section 11(a) of the Prescription Act the debt of the Applicant against the principal debtor would have prescribed on 13 February 2019 being a period of three years from the date on which it arose. Section 12(1) of the Prescription act provides that:

“Subject to the provisions of subsections (2) and (3), prescription shall commence to run as soon as the debt is due.”

[21] Section 14 provides that:

“(1) The running of prescription shall be interrupted by an express or tacit acknowledgement of liability by the debtor.

(2) If the running of prescription is interrupted as contemplated in subsection (1), prescription shall commence to run afresh from the day on which the interruption takes place or, if at the time of the interruption or at any time thereafter the parties postpone the due date of the debt from the date upon which the debt again becomes due.”

[22] The interruption of the running of prescription of a debt in favour of a principal debtor will have a similar effect on those who stood surety in favour of the creditor of the principal debtor. The Supreme Court of Appeal in Jans v Nedcor Bank Ltd [2003] 2 All SA 11 (SCA) at paragraph 32 confirmed this principle when it held that:

“… In my view therefore the position in the South African law is that an interruption or delay in the running of prescription in favour of the principal debtor interrupts or delays the running of prescription in favour of the surety. If, of course, prescription in respect of the claim against the surety has not yet commenced to run, any interruption or delay relating to the claim against the principal debtor will not affect the position of the surety, but in the present case, of course, prescription began to run in respect of both the principal debtor and the surety at the same time.”

[23] The Respondents have also challenged the jurisdiction of this Court to hear this application especially in the face of the provisions of Clause 23. The clause deals with jurisdiction and it is common and similar in content and substance to all the three suretyship agreements concluded by each of the Respondent with the applicant. The clause provides as follows:

“I/We hereby consent and submit to the jurisdiction of the Magistrate’s Court having jurisdiction in respect of all proceedings connected with this suretyship, even if the amount claimed or the value of the matter in dispute exceeds the Magistrate’s Court’s jurisdiction, but FRB shall not be obliged to take steps against me/us in the Magistrate’s Court, FRB may, however take steps against me/us in connection with this suretyship in the appropriate division/s of the High Court of South Africa (unless this suretyship is subject to the NCA and the Magistrate’s Court has concurrent jurisdiction) and I/we hereby consent and submit to the jurisdiction of that court and I/we agree that any costs awarded against me/us on the High Court Scale.”

EVALUATION

PRESCRIPTION

[24] It is manifest from the argument of the Respondents that primarily they place substantial reliance on the claim of the Applicant having prescribed as envisaged in Section 10 of the prescription Act. The prescription argument is premised on the fact that the Applicant did not prove that the amounts that it claims were deposited into the account of the principal debtor, held with the Applicant, on 10 and 14 July 2017 emanated specifically from the principal debtor. Over and above these payments, it is also plain that during the month of July 2017, the principal debtor used the credit facility.

[25] Upon realisation that the Applicant did not establish that the amounts were paid by the principal debtor, the Respondents delivered a Notice in terms of Rule 35(12) requiring the Applicant to produce for inspection and allow the Respondents to make copies of ‘all bank statements in respect of both the credit facility and the loan from onset of these accounts.’ In response, the Applicant appended all the bank statements pertaining to the account of the principal debtor and delivered them to the Respondents.

[26] The information contained in the bank statements relate to transactions conducted by the principal debtor. Notably, the principal debtor did not at any time during the life of the bank account object to the deposits of these amounts. It is remarkable that it is only after the launching of this application that the respondents are challenging knowledge of these amounts reflected in the bank account of the principal debtor. The respondents have specifically demanded to be furnished with these statements containing history of its transactions on the account.

[27] The Applicant has availed the information to the Respondents. If the Respondents deny knowledge of the deposits into the account of the principal debtor, they will have to demonstrate more than a simple denial because the information has been introduced into the pleadings, has been incorporated and now forms part thereof. Insofar as the Applicant is concerned the account was operated by the principal debtor and the information therein must relate to the principal debtor until the contrary is shown.

[28] It is the opinion of this Court that the Respondents did not show that the amounts deposited into the account of the principal debtor were not made by it in reduction of its indebtedness with the Applicant. Accordingly, I regard the amounts as having paid by the principal debtor. As such, the payments constitute an acknowledgment of indebtedness and prescription was interrupted as contemplated in Section 14 of the Prescription Act. The Respondent’s argument that the claim had prescribed by the time the application was launched on 13 March 2019, is rejected as bereft of any truth.

ABUSE OF COURT PROCESS

[29] The Respondents contend that the Applicant should not have approached this Court on motion proceedings because it was clear that disputes of fact were likely to arise especially in regard to the payments that were made into the account of the principal debtor held with the Applicant. An attempt to make a case about The payments made after 13 February 2016 is only in the replying affidavit, state the Respondents. The court must not countenance this because the Applicant has missed the opportunity to state its case in the founding papers. Besides, the Applicant ought to have foreseen that those amounts could be denied by the Respondents and as such, lead to a possible disputes of fact requiring resolution by way of action.

[30] Any discussion on this subject should be prefaced by reference to the matter of Arnold v Viljoen 1954 (3) SA 322 (C) where it was held that:

“In appropriate circumstances it is both competent and desirable to adopt motion proceedings to enforce money claims, other than unliquidated claims for damages. Whether the circumstances are appropriate for the decision of any money claim upon motion depends upon the particular facts of the matter, but generally speaking where no real dispute of fact exists motion proceedings are permissible.”

[31] The Arnold case recognises that while there are cases where it would be totally inappropriate to proceed by way of motion, either because a statute lays down or that the claim is illiquid, it is generally accepted that they should be preferred where no real disputes of fact exist. Absence of the aforegoing guiding principles will often require assessment of the facts of each case. Since this matter was not required by statute to be brought on motion, the amount claimed is liquid and there were no real disputes of fact, the Applicant was entitled to proceed by way of motion.

[32] It is perfectly understandable that in circumstances where a bank account is operated by one party, the principal debtor in this instance, one would expect all payments made into it to have been effected by the party to whom it belongs, the principal debtor in this case. What is aberrant in this case is the silence of the principal debtor when the deposits were made. The lack of interrogation of the Applicant about the source of the payments leaves one staggered and leads to one inexorable conclusion – the principal debtor made the payments in reduction of its indebtedness with the Applicant.

[33] I also need to point out that in any event, the Respondents challenged the Applicant to demonstrate their indebtedness to it and threatened to deliver a Rule 35(12) notice if it failed to produce all the records upon which it based its claim. The Respondent cannot, upon being supplied with the records showing payments into the account, turn around to dissociate the payments from the principal debtor. The bank account belongs to the principal debtor and if the Respondents deny knowledge thereof, they need to show it and a mere denial will not suffice. In the circumstances, there is no merit in the existence of disputes of fact argument and it is rejected.

INCORRECT FORUM

[34] The Respondents’ contention that the Applicant should have brought this application in the Magistrates’ Court is totally misguided having regard to the contents of Clause 23 of the three suretyship agreements. I am at a complete loss why such an assertion would be made in the face of an explicit provision that gives the Applicant an election whether to launch the application in the High Court or the magistrates’ Court. The first part of the clause deals with the consent of the Respondents to the jurisdiction of the matter being adjudicated in the magistrates’ Court. The second portion of the clause, however, makes it clear that the Applicant would not be obliged to submit to the jurisdiction of the Magistrates’ court unless the latter has concurrent jurisdiction, which it lacks in this case. It provides:

“…. but FRB shall not be obliged to take steps against me/us in the Magistrate’s Court, FRB may, however take steps against me/us in connection with this suretyship in the appropriate division/s of the High Court of South Africa (unless this suretyship is subject to the NCA and the Magistrate’s Court has concurrent jurisdiction) and I/we hereby consent and submit to the jurisdiction of that court and I/we agree that any costs awarded against me/us on the High Court Scale.”

[35] In support of their argument, the Respondents have referred me to the Western Cape High court case of Standard Bank of SA Ltd v lehlogonolo Kekana Case no: 19167/19 and (5 other similar matters) 25 May 2020. The Respondents assert that this case is authority for the principle that ‘if parties to a written contract consent to the jurisdiction of the magistrates’ court, the High Court will not entertain the action or application flowing from such agreement, if same is capable of being adjudicated in the magistrates’ court.’

[36] The Respondents’ argument is oblivious of the provisions of the clauses of the agreements with which the western Cape High Court was concerned. The clause in the Kekana matter stipulates as follows:

“25.8 You consent in terms of section 45 of the Magistrate’s Court Act, for purposes of the Bank taking legal steps to enforce any of its rights in terms of this Agreement, to the jurisdiction of any Magistrate’s Court having jurisdiction in the area in which you reside or work notwithstanding the amount involved. You do not consent to the jurisdiction of the High Court if the Magistrate’s Court has concurrent jurisdiction.”

[37] The provisions of the clauses in the other five similar matters, although differently formulated, accomplish the same result as that in Kekana. It is immediately obvious that Clause 23 of the suretyship agreements in casu is, to the extent that it does not force the parties to submit to the jurisdiction of the one Court or the other, different from the clause in the Kekana matter, which specifically and effectively disgorges the jurisdiction of the High Court. Clause 23 is unequivocal that it gives the Applicant an election whether to proceed in the High Court or the Magistrates’ Court save where the matter concerned is governed by THE NCA or the Magistrate’s’ Court has concurrent jurisdiction.

[38] There is accordingly no merit in the argument of the Respondents that the application should have been brought in the Magistrates’ Court. Against that background, I find that:

38.1 The payments made into the bank account of the principal debtor after 13 February 2016 were made by the principal debtor in reduction of its indebtedness with the Applicant;

38.2 The payments constituted an acknowledgment of the principal debtor’s indebtedness to the Applicant;

38.3 The payments therefore interrupted prescription as intended in Section 14 of the Prescription Act;

38.4 The claim against the Respondents had therefore not prescribed by the time this application was launched on 13 March 2019;

38.5 No disputes of fact existed in this matter. As such, these proceedings by way of motion are not an abuse of court process; and

38.6 The Applicant had an election to launch this application in the magistrate’s Court or the High Court.

ORDER

[39] In the premises, I make the following order:

1. Judgment is granted in favour of the Applicant against the First, Second and third respondents, jointly and severally, the one paying the others to be absolved, for:

1.1 Payment of the amount of R9 579 444.33;

1.2 Payment of interest on the amount of R9 578 444.33 at prime plus 2.00% per annum, compounded monthly from 1 February 2019 to date of payment;

1.3 Payment of the amount of R5 354 273.52;

1.4 Payment of interest on the amount of R5 354 273.52 at prime plus 5.00% per annum, compounded monthly from 22 February 2019 to date of payment;

2. The First, Second and Third respondents are directed to pay the costs of this application on the scale as between attorney and client, jointly and severally, the one paying the others to be absolved.

B A MASHILE

JUDGE OF THE HIGH COURT OF SOUTH AFRICA

MPUMALANGA DIVISION, MBOMBELA

This judgment was handed down electronically by circulation to the parties’ and/or parties’ representatives by email. The date and time for hand-down is deemed to be 10h00 on 06 November 2020.

APPEARANCES:

Counsel for the Applicant:

Adv N Louw

Instructed by:

Rorich Wolmarans Luderitz Inc

Counsel for the Respondent:

Adv G Bensch

Instructed by:

Desire Koch Attorneys

Date of Hearing:

28 July 2020

Date of Judgment:

06 November 2020