Small Enterprise Finance Agency SOC Limited v Notley (933/2021) [2021] ZAFSHC 265 (4 November 2021)

IN THE HIGH COURT OF SOUTH AFRICA

FREE STATE DIVISION, BLOEMFONTEIN

CASE NO. 933/2021

In the matter between:

SMALL ENTERPRISE FINANCE APPLICANT/PLAINTIFF

AGENCY SOC LIMITED

And

MARGARETHA ALETTA NOTLEY RESPONDENT/DEFENDANT

JUDGMENT BY: MATSHAYA AJ

HEARD ON: 21 OCTOBER 2021

DELIVERED ON: 4 NOVEMBER 2021

INTRODUCTION

[1] This is an application for summary judgment in terms of which the Applicant claims from the Respondent an amount of R40 451 989.90 plus interest at the rate of 2% per annum and costs. The application is opposed by the Respondent.

THE PARTIES

[2] The Applicant is SMALL ENTERPRISE FINANCE AGENCY SOC LIMITED (SEFA), a state owned company that is registered and incorporated in terms of the laws of the Republic with its principal place of business at Bylsbridge Office Park, Building 14,Block D, 11 Bylsbridge Boulevard, c/o Jean and Olivenhoutbosch Roads, Centurion.

This company is in the business of lending loans to other on-lenders at a minimal interest rate who then in turn lend loans to small, medium and macro enterprise businesses and charge interest.

[3] The Respondent (the surety) is sued in her capacity as surety and co-principal debtor of RETMIL FINANCIAL SERVICES (Pty) Ltd (Retmil), a registered company whose domicilium citandi et executandi at 18 Dersley Street, Bayswater, Bloemfontein. Retmil is in the business of lending money from the Applicant and in turn acts as intermediary by giving out loans to small, medium and macro enterprises.

FACTUAL BACKGROUND

[4] On 18 September 2012 SEFA concluded a written business loan agreement (the principal agreement) with RETMIL in Bloemfontein in terms of which SEFA loaned and advanced to Retmil an initial amount of R30 000 000 at 2% interest rate which would be payable in 57 monthly instalments.

[5] On 28 September 2012 the Respondent, who was the sole director of Retmil, bound herself in her personal capacity as surety for Retmil through a written Deed of Surety (the Deed of Surety) in terms of which she would be a co-debtor in Retmil’s financial obligations towards SEFA.

[6] During 2015, subsequent to Retmil’s failure to comply with its financial obligations towards SEFA, the Applicant applied before this court to perfect its security in terms of a Deed of Pledge and Cession. This culminated in a Deed of Settlement in terms of which Retmil admitted its indebtedness towards SEFA in the amount of R45 000 000 at 2% interest rate per annum. The said amount would be repaid firstly, in 6 monthly instalments of R500 000 and thereafter monthly instalments of R250 000 until the whole outstanding amount is paid in full. The settlement agreement was subsequently made an order of court on 28 July 2016.

THE APPLICANT’S CASE

[7] The Applicant alleges that Retmil has since fallen into arrears towards repayments in terms of the Deed of Settlement. Aggrieved by the alleged breach of contract, the Applicant instituted an action for damages against the Respondent as surety for Retmil suing for an amount of R40 451 989.90 and filed a certificate of balance to prove the said amount. It then moved this application against the Respondent arguing that the Respondent has no bona fide defence and that she is merely defending this matter for purposes of delay.

THE RESPONDENT’S CASE

[8] In her answering affidavit, the Respondent alleges that she has been released from her responsibility as surety because of the conduct of the Applicant in one or more of the following ways:

8.1 That the Applicant acted in contravention of the conditions of their contract in that it opened an outlet in Bloemfontein and acted as a financier in direct competition with Retmil since December 2013;

8.2 That the Applicant interfered with Retmil’s existing clients and financed them;

8.3 That one Mr Sipho Marala and Paul Mabao who were employees of the Applicant expressly declared that it intended to close down Retmil’s business;

8.4 That the Applicant’s representatives did not honour scheduled meetings with the representatives of Retmil;

8.5 That the Applicant demanded that Retmil should transfer shareholding from itself to third parties and in addition thereto, that such third parties were not required to sign any suretyship for any debts that Retmil might have;

8.6 That the loans advanced to Retmil were advanced at later dates than agreed upon; and

8.7 That the Respondent disputed the amount allegedly owed by her to the Applicant.

[9] Furthermore, the Respondent referred to clause 23 of the principal agreement which was an undertaking by the Applicant warranting that it would use the utmost care in its dealings with Retmil and in particular, in relation to matters that might have an impact on Retmil’s financial reputation or the way it is perceived in the market place and industry. Once more, reference was made to the above 7 factors and concluded by averring that she was severely prejudiced

by the Applicant’s conduct as her business was no longer profitable. In essence, the Respondent submitted that she has a bona fide defence that raises a genuine triable issue for trial and prayed for the application to be dismissed with costs.

COMMON CAUSE FACTS

[10] The following aspects are common cause:

10.1 That the Applicant and Retmil entered into the principal agreement on 18 September 2012 at Bloemfontein in terms of which the Applicant advanced an initial amount of R30 000 000 at 2% interest rate to Retmil who would then act as an intermediary and lend out loans to small, medium and macro enterprise businesses within the Free State and charge them interest;

10.2 That whatever monies that were lent out to Retmil by the Applicant would be payable monthly in terms of the principal agreement;

10.3 That the said contract between the parties would constitute the whole agreement between them;

10.4 That the Respondent as a sole shareholder of Retmil, bound herself in her personal capacity as surety for Retmil for all its financial obligations in terms of the Deed of Suretyship;

10.5 That on 28 July 2016 a Deed of Settlement which was made an order of court was entered into between the Applicant and Retmil perfecting the Applicant’s security in terms of a Deed of Pledge and Session. The material terms of the said settlement were that Retmil admitted its indebtedness to the Applicant in the amount of R45 000 000 which was payable in certain monthly instalments and that the said settlement resolved all the disputes between the parties at the time; and

10.6 That Retmil failed to honour its obligations in terms of the above mentioned Deed of Settlement.

THE ISSUES

[11] The central issue for my determination is whether the Respondent has a bona fide defence to the Applicant’s claim and or whether she’s defending the matter only for purposes of delay.

LEGAL PRINCIPLES PERTAINING TO SUMMARY JUDGMENTS

[12] Uniform Rule 32[1] stated that:

(1)”The plaintiff may after the defendant has delivered a plea, apply to court for summary judgment on each of such claims in the summons as is only-

(a) on a liquid document;

(b) for a liquidated amount in money;

together with any claim for interest and costs.

(2)(a)…

(b)The plaintiff shall, in the affidavit referred to in subrule (2)(a), verify the cause of action and the amount, if any, claimed, and identify any point of law relied upon and the facts upon which the plaintiff’s claim is based, and explain briefly why the defence as pleaded does not raise any issue for trial.”

[13] Summary judgment is a procedure that is intended to prevent sham defences from defeating the rights of parties by delay, and at the same time causing great loss to plaintiffs who were endeavouring to enforce their rights.[2]

[14] In Maharaj v Barclays National Bank Ltd[3], the court stated that:

“All that a Court enquires to is:

(a)Whether the defendant has fully disclosed the nature and grounds of his defence and the material facts upon which it is founded, and

(b) Whether on the facts so disclosed the defendant appears to have, as to either the whole or part of the claim, a defence which is both bona fide and good in law. If satisfied on these matters the Court must refuse summary judgment either wholly or in part, as the case may be.”[4]

[15] On the subject of summary judgment, Erasmus[5] states that:

“While it is not incumbent upon the defendant to formulate his opposition to the summary judgment application with the precision that would be required in a plea nonetheless when he advances his contention in resistance to the plaintiff’s claim he must do so with a sufficient degree of clarity to enable the court to ascertain whether he has deposed to a defence which if proved at the trial would constitute a good defence to the 20 action.”

ANALYSIS

[16] The Respondent based her argument mainly on clause 23 of the principal agreement under the heading, “DUTY OF CARE”. The said clause reads as follows:

“Each party warrants and undertakes that it shall use the utmost care in its dealings with the other party, specifically in relation to matters that might have an impact on either party’s financial reputation or the way it is perceived in the marketplace and industry.”

[17] In amplification of her case, counsel for the Respondent, Mr Reinders, submitted that the aspects listed in paragraph 8.1 to 8.7 above pertaining to the Applicant’s alleged conduct amounted to breach of clause 23. Counsel for the Applicant, Mr Van der Merwe, disagreed. He submitted first, that there was no factual basis to sustain those averments and secondly, that in any event, the Applicant was not prohibited in terms of the principal agreement to conduct itself in the manner alleged.

[18] Upon a careful analysis of the principal agreement, it is evident that the Applicant was indeed not prohibited in terms of the said agreement to perform the alleged transgressions as alluded to above. This is where ABSA[6] finds relevance where the court stated the following:

“…it was submitted that there is a general so-called ‘prejudice principle’ in our law to the effect that, if a creditor should do anything in his dealings with the principal debtor which has the effect of prejudicing the surety, the latter is fully released. That such a wide and unqualified principle exists in our law cannot be correct, as the facts of this case illustrate.”

And further at 1124-1125:

“As a general proposition prejudice caused to the surety can only release the surety (whether totally or partially) if the prejudice is the result of a breach of some or other legal duty or obligation. The prime sources of a creditor’s rights, duties and obligations are the principal agreement and the deed of suretyship. If, as is the case here, the alleged prejudice was caused by conduct falling within the terms of the principal agreement or the deed of suretyship, the prejudice suffered was one which the surety undertook to suffer.”

[19] The significance of the above is that if this court were to entertain the alleged facts by the Respondent which were prejudicial to her business according to her version, that would be tantamount to this court inserting those clauses to the principal agreement thereby contracting for the parties. My main focus should be on the terms of the principal agreement whether the Applicant breached any of its obligations or duties of which my answer is in the negative. On that score alone, the Respondent’s argument cannot be sustained.

[20] The Respondent also raised an issue regarding the calculation of the amount owed to Retmil. The purpose of the certificate is to create an evidential onus on the surety to negate the bank’s allegations as to the quantum and the cause of any debt in any proceedings in which it seeks to make a recovery against the surety. The certificate stands as prima facie proof of the substance of its contents in any litigation to exact payment under the deeds of suretyship. It has that effect not as an incident of any law of general application, but only because the parties have agreed in their contract that it should do.[7] Subsequent to the filing of the most recent certificate of balance during the hearing, the Respondent’s objection to the

application based on this aspect stands to be rejected.

[21] The Respondent further contended that she was released from the suretyship agreement based on the Applicant’s alleged breach of the principal agreement. Mr Van der Merwe submitted that if that was the case, the Respondent did not give notice of the alleged breach to the Applicant calling upon it to rectify the alleged breach as required by clause 13 of the principal agreement. He also submitted that the alleged transgressions by the Applicant date as far back as 2013 and the Respondent never raised such defences prior to the signing of the Deed of Settlement. The latter view is indeed correct and therefore the Respondent’s alleged transgression of the principal contract is belated and regrettably, rejected.

[22] In amplification of his case, counsel for the Applicant submitted that the Respondent could only be discharged from the suretyship through clause 10 of the Deed of Suretyship but the said clause was never activated. The said clause states the following:

“I acknowledge that I may only be released from my obligations hereunder by written notice from me to sefa or from my executors, trustees or other legal representatives, as the case may be, requesting sefa to release me from this suretyship which shall only be determined on written notice from sefa to me, acknowledging that such suretyship has been terminated, but such termination would only come into effect when the sum or sums already due or accruing at date of such notice together with interest and costs thereon have been paid.”[8]

[23] Indeed from the pleadings before me, there is no such averment by the Respondent and without same, the Respondent is still bound by the suretyship agreement.

[24] The next aspect to be considered is the Respondent’s bona fides. It is evident from the pleadings that the clients that the Applicant allegedly poached or encouraged not to repay Retmil are not mentioned (except BBT). The Respondent neither mentions the dates nor the manner in which they were encouraged by the Applicant to act in the manner alleged. In my view, this shows that the Respondent’s defence lacks material facts upon which it is based.

[25] To sum up, in Maharaj[9] the court stated the following:

“The grant of the remedy is based on the supposition that the plaintiff’s claim is unimpeachable and that the defendant’s defence is bogus and bad in law.”

The court continued by stating that:

“Accordingly, one of the ways in which a defendant may successfully oppose a claim for summary judgment is by satisfying the Court by affidavit that he has a bona fide defence to the claim… All that

the Court enquires into is (a) whether the defendant has ‘fully’ disclosed the nature and grounds of his defence and the material facts upon which it is founded, and (b) whether on the fact so disclosed the defendant appears to have, as to either the whole or part of the claim, a defence which is both bona fide and good in law”.[10]

[26] Accordingly, I am satisfied on a balance of probabilities that the Respondent has no bona fide defence to the Applicant’s claim and that she is only defending this matter for purposes of delay. Furthermore, it is evident from the above that the surety has not been released from her responsibility as surety and co-debtor to Retmil since there was never a notice to that effect as contemplated in clause 10 of the Deed of Suretyship. Therefore, the application for summary judgment has to succeed with costs. In the circumstances I make the following order:

ORDER

1. Summary judgment is granted against the Respondent in the amount of R 40 451 989.90(Forty million four hundred and fifty-one thousand nine hundred and eighty-nine hundred rands and ninety cents) plus interest at the rate of 2% per annum.

2. Costs are awarded in favour of the Applicant.

MATSHAYA, AJ

APPEARANCES

For the Plaintiff : Adv R. Van der Merwe

Instructed by : Tim Du Toit & CO Incorporated

Lynwood, Pretoria

For the Defendant: Adv S.J. Reinders

Instructed by : Van Wyk & Preller Inc

Universitas, Bloemfontein

[1] Uniform Rules of the Superior Courts.

[2] Majola v Nitro Securitisation 1 (Pty) Ltd 2012 (1) SA 226 (SCA), at 232F-G. See also Joob Joob Investments (PTY) Ltd v Stocks Mavundla Zek Joint Venture 2009 (5) SA 1 (SCA), para 32-33.

[3] 1976 (1) SA 418 (A).

[4] See also Breitenbach v Fiat SA (Edms) Bpk 1976 (2) (TPD)226 at 229E-H.

[5] Superior Court Practise, D1-409. See also Wright v Van Zyl 1951 (3) SA 488 (C) and Maharaj, supra.

[6] Absa Bank ltd. v Davidson 2000 (1) SA 1117 (A)at 1123-1124.

[7] Absa Bank Ltd v Le Roux and Others (5842/13) [2013] [2013] ZAWCHC 148 (7 OCTOBER 2013).

[8] My underlining.

[9] Supra, page 423G.

[10] Maharaj supra, page 426A-B.