Grofin SGB (South Africa) Pty Ltd v Nectavision (Pty) Ltd (40053/2019) [2021] ZAGPJHC 705 (19 November 2021)

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, JOHANNESBURG

CASE NUMBER: 40053/2019

REPORTABLE: /No

OF INTEREST TO OTHER JUDGES: No

REVISED:

19 November 2021

In the matter between:

GROFIN SGB (SOUTH AFRICA) Pty Ltd

Applicant

And

NECTAVISION (Pty) Ltd

Respondent

Delivery: Transmitted by email to the parties’ legal representatives. The judgment is deemed to have been delivered on 19 November 2021.

Summary: Application for monetary judgment and leave to perfect security. National Credit Act-not applicable to the Suretyship Agreements in accordance with Section 4 and 7. Principles of surety and the benefit of excussion restated. Principles governing dispute of facts in motion proceedings restated.

JUDGMENT

Molahlehi J

Introduction

[1] This is an application in terms of which the Applicant seeks the following relief:

"5.1 Judgment against the Respondent for the amount of R 13,808,393- 00 (Thirteen Million Eight Hundred and Eighth Thousand, Three Hundred and Ninety Three Rand), together with interest thereon from 1 July 2019;

5.2 Leave to perfect the security granted to it by Respondent, in accordance with the provisions of the Surety Bond, No SN28417/2017 by attaching such property of the Respondent that is subject to the Surety Bond;

5.3 Leave to sell or otherwise dispose of the property of the Respondent that is subject to the Surety Bond."

[2] The Respondent, Nectavision (Pty) Ltd, opposed the application and, in its answering affidavit, contends that the Applicant is not entitled to claim against it pending the search of and execution of the missing assets of the principal debtor, Mukhari Signs and Marketing Enterprises (Proprietary) Limited (Mukhari Signs).

[3] The Applicant filed condonation for the late filing of the replying affidavit, which the Respondent did not oppose. The condonation was granted after the Court was satisfied that the requirement of the interest of justice were satisfied.

Background facts

[4] The indebtedness upon which the Applicant relies on arises from the loan facility agreement concluded between the Applicant and Mukhari Signs. The initial loan was R10 million. In concluding the loan agreement, the Applicant insisted on the surety to which the Respondent agreed to provide and bonded its immovable property as security. The surety was in the sum of R3 750 000.00 registered over the six immovable properties owned by the Respondent. A further loan agreement in R4 500 000.00 was concluded for additional working capital 10 October 2017.

[5] The Respondent registered the surety in December 2017 under the surety bond number SP28417/2017 in favour of the Applicant.

[6] The immovable properties that are the subject of the surety are residential flats and investment property owned by the Respondent.

[7] In its opposition to the application, the Respondent does not dispute the loan and the surety agreements. It, however, contends that the Applicant is not entitled to have recourse against it for two main reasons. The first reason for opposing the application, as was submitted during the argument, is that the Applicant did not plead the provisions of section 129 of the National Credit Act,[1] (the NCA) to show that the provisions of that section did not apply to the transaction. The second reason is that the Respondent does not know the whereabouts of the movable assets of Mukhari Signs, including the value of those that had been sold.

[8] The other point raised by the Respondent in the heads of argument is that a factual dispute exists which cannot be resolved on the papers before the Court.

[9] The assets owned by Mukhari Signs was annexed to the notarial bond valued at R20 475 340. 00.

[10] On 12 December 2017, Semenya AJ granted leave to perfect the security and attach various of the capital and assets of Mukhari Signs. The Applicant was also granted leave to approach the Court for leave to sell those assets.

[11] According to the Respondent, certain assets of Mukhari Signs were sold on 8 February 2018 in the amount of R1 130 500, 00 and the amount was paid to the Applicant to set off against the debt of Mukhari Signs.

[12] The Respondent further contended that the Applicant's conduct caused it prejudice in not attaching and selling the assets listed in the annexure attached to the notarial bond.

[13] The Respondent contended that the allegation of the Applicant that the assets of Mukhari Signs could not be found should be rejected because it failed to prove the following:

"3.2.1. How long did this "diligent" search last?

3.2.2. What measures were taken to locate these attached assets.

3.2.3. What specific assets were sold?

3.2.4. What amounts were realized from the sale of these assets.

3.2.5. Were the assets sold for market-related values.

3.2.6. Could the assets have been sold for more.

3.2.7. Under what circumstances were these assets sold, i.e., during an auction or a private sale.

3.2.8. When were the assets sold, and when was the credit note passed onto TWC7?"

Legal principles

[14] It is trite that a surety would be released from the obligations set out in the contract if the creditor and the principal debtor do anything that would prejudice the surety. However, prejudicial conduct does not perse release a surety from his or her obligations. The consequence of prejudicial conduct was explained in Back and Others v Durburoro Investments (Pty) Ltd,[2] in the following terms:

"upon a contract of suretyship, if the person guaranteed does any act injurious to the surety, or inconsistent with his right, or if he omits to do any act which his duty enjoins him to do and the omission proves injurious to the surety, the surety be discharged."

[15] In Investec Bank Ltd v Lewis,[3] the Court in dealing with the issue of prejudice, observed:

"On the basis of these considerations, I would then suggest that the prejudice required for a successful defence of prejudicial conduct justifying release from a suretyship agreement may be described in the following terms. With reference to all the relevant facts and circumstances, and with due regard to considerations of justice, fairness, reasonableness, good faith and public policy, the alleged prejudice must constitute real and substantial prejudice which has the of increasing the contractual burden of the surety."

The application of the National Credit Act (the NCA)

[16] The Applicant contended that the legal point about the applicability of the NCA was unsustainable because it was not raised by way of a notice as required in terms of rule 6 (5) of the Rules. It was further argued that the point was also not raised in the answering affidavit.

[17] In my view, the point about the applicability of the provisions of the NCA is not sustainable when regard is had to the provisions of section 7 (1) of the NCA.

[18] As a general rule, every credit agreement in South Africa is governed by the provisions of the NCA except for those agreements envisaged in section 4 of the NCA. The distinguishing features that determine whether credit facilities, credit transactions, credit guarantees are either governed by the NCA or not are generally determined by their nature and underlying causa. The monetary threshold may also determine whether or not the NCA should govern a credit agreement. In this respect, section 4 (1) of the NCA excludes credit agreements involving:

"(1) (a) (i) . . . a juristic person whose asset value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons, at the time the agreement is made, equals or exceeds the threshold value determined by the Minister in terms of section 7(1)

(ii) . . .

(iii) . . .

(b) a large agreement, as described in section 9(4), in terms of which the consumer is a juristic person whose asset value or annual turnover is, at the time the agreement is made, below the threshold value determined by the Minister in terms of section 7(1)."

[19] In terms of section 7 (1) of the NCA, the Minister must determine a monetary assets value or annual turnover threshold of not more than R1 000 000 for the transection to fall within the purview of the NCA.

[20] It is common cause that the Respondent is a juristic person, and thus the agreement between the Applicant and the Respondent is a credit agreement. Accordingly, the agreement entered into by the Respondent with the Applicant falls under subsection 4(1) of the NCA. However, the NCA does not apply to the loan agreement between the parties because even on the Respondent's version, the

value of the assets was more than R1 million when the loan agreement was concluded.

Factual dispute

[21] The Respondent raised the issue about a dispute of fact which it alleges has arisen from the affidavits before this Court. It contends that because of this, the matter should be referred to oral evidence.

[22] The approach to adopt when dealing with a dispute of facts in motion proceedings is set out in Plascon Evans Paints Ltd v Van Niekerk

Paints (Pty) Ltd,[4] in the following terms:

"It is correct that, wherein proceedings on notice of motion disputes of fact have arisen on the affidavits, a final order, whether it be an interdict or some other form of relief, may be granted if those facts averred in the Applicant's affidavits which the Respondent has admitted, together with the facts alleged by the Respondent, justify such an order. The power of the Court to give such final relief on the papers before it is, however, not confined to such a situation, In certain instances, the denial by the Respondent of a fact alleged by the Applicant may not be such as to raise a real genuine or bona dispute of fact,. . . where the allegation or denial by the Respondent are so far-fetched or clearly untenable that the Court is justified in rejecting them merely on the papers."

[23] It is trite that a mere assertion of a factual dispute by the Respondent in motion proceedings shall not satisfy the threshold of the dispute of fact justifying the refusal of the relief sought. For a dispute of fact to sustain, the Respondent has to show that the assertion is based on a real genuine and bona fide dispute of fact.[5]

[24] In the present matter I am not persuaded that the dispute of facts alleged by the Respondent is genuine and material. The key issue in this matter concerns more than anything the legal nature of the agreement concluded between the parties. The issue is whether the Applicant should first exhaust its remedies against Mukhari Signs (the principal debtor) before proceedings against the Respondent.

The surety agreement

[25] The main case of the Respondent is that the assets of Mukhari Signs should first be searched for and executed against before the Applicant may seek to enforce its rights against the surety. This proposition is unsustainable when regard is had to the legal principles governing the nature of the surety agreement concluded between the parties.

[26] It is common cause that Mukhari Signs breached the terms of the loan agreement and is thus indebted to the Applicant in the sum of R13 808 393.00. It is common cause that following the conclusion of the loan agreement, the Respondent concluded a written agreement of surety as the principal debtor in solidum with the Applicant for the loan in question.

[27] In terms of clause 13 of the agreement, the Respondent bound itself as a co-debtor and thus its obligations under the contract are the same as those of Mukhari Signs. The consequence of this in law is that the Respondent is liable with Mukhari Signs jointly and severally.[6] The other consequences of the nature of the surety in this matter is that the Respondent renounced all the benefits of excursion and division, and in this respect, and as observed by the Court in Neon and Cold Cathade:[7]

"From the above and other authorities, it appears that generally the only consequences (albeit an important one) that flow from a surety also undertaking liability as a co-principal that is that vis–a-vis the creditor he thereby tacitly renounces the ordinary benefits available to a surety, such as those of expression and division, and he becomes, liable jointly and severally with the principal debtor.…."

[28] In Kilroe-Daley v Barclays National Bank Ltd,[8] the court quoted with approval what was said in Union Government v Van der Merwe,[9] regarding the consequence of signing a surety in solidum and co-principal debtor and said:

"The present case is, however, stronger for the surety has signed as surety and co-principal debtor. We must give some meaning to the words' co-principal debtor'. That the addition of these words operate as a renunciation of the benefits of the surety is clear, but they have a still greater force. The addition of these words shows that the surety intends that his obligation shall be co-equal in extent with that of the principal debtor: or otherwise expressed, that his obligation shall be of the same scope and nature as that of the principal debtor."

[29] In Millman v Materbond Participation Trust,[10] the Court held that the obligation of the surety and the co-principal debtor becomes enforceable in the Court at the very same time and parallel as that of the principal debtor.

[30] In Absa Bank Ltd v Lowting and Others,[11] the Court held that the renunciation of the 'benefit excussion ' has the effect of permitting the creditor to proceed directly against the surety before excussing the principal debtor. The Court

further held that it should be noted that a surety who bind himself or herself as a principal debtor is taken to have tacitly placed

himself or herself in the same position as that of the principle debtor.

[31] In light of the above, the Respondent’s defence that the Applicant should first search for and execute the assets of Mukhari Signs before seeking recourse against it stands to fail. The Respondent has the same obligations as those of Mukhari Signs.

[32] For the above reasons, I find that the Applicant has made a case that the Respondent is indebted to it in the same way as Mukhari Signs.

Order

[33] In the circumstances, the following order is made:

1. The Rule 30 application dated 24 April 2020 is dismissed;

2. The late filing of the Applicant’s replying affidavit is condoned with no order as to costs.

3. The Respondent is ordered to pay to the Applicant:

3.1 The amount of R13,808,393-00 (Thirteen Million Eight Hundred and Eighth Thousand, Three Hundred and Ninety-Three Rand);

3.2 Interest on the amount of R13,808,393-00 at 20,25% per annum from 1 July 2019 to date of final payment.

4. Leave is granted to the Applicant to perfect the security granted to it by the Respondent in accordance with the provisions of registered Surety Bond, No. SB28417/2017, by attaching and taking possession of

all the immovable property stipulated which forms the subject matter of the aforementioned Surety Bond, which belong to the Respondent, as security while the Respondent’s current indebtedness or liability to the Applicant exists.

5. That the Sheriff of the district Krugersdorp where such immovable assets are situated be authorised, empowered and directed to attach such immovable property which belong to the respondent, namely:

a. A Unit consisting of

i.Section number 1 as shown and more fully described on Sectional Plan No. SS3/2007, in the scheme known as PAURUS Court and in respect of the land and building or buildings situate at LUIPAARDSVLEI TOWNSHIP, Local Authority: MOGALE CITY LOCAL MUNICIPALITY of which section the floor area, according to the said sectional plan, is 89 (EIGHTY NINE) SQUARE METERS in the extent; and

ii.an undivided share in the common property in the scheme apportioned to the said section in accordance with the participation quota as endorsed on the said sectional plan.

HELD BY DEED OF TRANSFER ST32850/2012

b. A Unit consisting of

i.Section number 2 as shown and more fully described on Sectional Plan No. SS3/2007, in the scheme known as PAURUS Court and in respect of the land and building or buildings situate at LUIPAARDSVLEI TOWNSHIP, Local Authority: MOGALE CITY LOCAL MUNICIPALITY of which section the floor area, according to the said sectional plan, is 89 (EIGHTY NINE) SQUARE METERS in the extent; and

c. A Unit consisting of

i.Section number 3 as shown and more fully described on Sectional Plan No. SS3/2007, in the scheme known as PAURUS Court and in respect of the land and building or buildings situate at LUIPAARDSVLEI TOWNSHIP, Local Authority: MOGALE CITY LOCAL MUNICIPALITY of which section the floor area, according to the said sectional plan, is 103 (ONE HUNDRED AND THREE) SQUARE METERS in the extent; and

d. A Unit consisting of

i.Section number 4 as shown and more fully described on Sectional Plan No. SS3/2007, in the scheme known as PAURUS Court and in respect of the land and building or buildings situate at LUIPAARDSVLEI TOWNSHIP, Local Authority: MOGALE CITY LOCAL MUNICIPALITY of which section the floor area, according to the said sectional plan, is 103 (ONE HUNDRED AND THREE ) SQUARE METERS in the extent; and

e. A Unit consisting of

i.Section number 5 as shown and more fully described on Sectional Plan No. SS3/2007, in the scheme known as PAURUS Court and in respect of the land and building or buildings situate at LUIPAARDSVLEI TOWNSHIP, Local Authority: MOGALE CITY LOCAL MUNICIPALITY of which section the floor area, according to the said sectional plan, is 103 (ONE HUNDRED AND THREE) SQUARE METERS in the extent; and

f. A Unit consisting of

i.Section number 6 as shown and more fully described on Sectional Plan No. SS3/2007, in the scheme known as PAURUS Court and in respect of the land and building or buildings situate at LUIPAARDSVLEI TOWNSHIP, Local Authority: MOGALE CITY LOCAL MUNICIPALITY of which section the floor area, according to the said sectional plan, is 103 (ONE HUNDRED AND THREE) SQUARE METERS in the extent; and

6 The Respondent is ordered to pay the Applicant’s costs on the attorney-and-own-client scale.

E Molahlehi

Judge of the High Court,

Gauteng Local Division,

Johannesburg,

Representation:

For the Applicant: Adv J C Klopper

Instructed by: DBM Attorneys

For the Respondent: Adv. DJ Coetzee

Instructed by: Dippenaar Attorneys.

Heard: 26 July 2021

Delivered: 19 November 2021.

[1] Act number 34 of 2005.

[2] (2003) 4 All SA 103 (SCA)

[3] 2002 (2) SA 111 (C),

[4] 1984 (3) SA 623 (A).

[5] See Wightman t/a JW Construction v Van Niekerk 2008 (3) SA 371 (SCA).

[6] See Neon and Cold Cathade Illuminations (Pty) Ltd v Ephron 1978 (1) SA 463 (A).

[7] Neon and Cold Cathade at 472B.

[8] (385/82) [1984] ZASCA 90; [1984] 2 All SA 551 (A) ; 1984 (4) SA 609 (A) (4 September 1984).

[9] 1921 TPD 318 at p321.

[10] 1997 (1) SA113 (C).

[11] (39029/2011) [2013] ZAGPPHC 265 (19 August 2013).