Standard Bank of SA Ltd v Develex 876 CC and Another; In re: Develex 876 CC and Another v Standard Bank of SA Ltd and Another (70053/14) [2017] ZAGPPHC 675 (21 September 2017)

IN THE REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURTOF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

CASE NO: 70053/14

DATE: 21/9/2017

REPORTABLE: NO

OF INTEREST TO OTHER JUDGES: NO

STANDARD BANK OF SA LTD PLAINTIFF

and

DEVELEX 876 CC 1ST

DEFENDANT

KHUMALO AMOS SANDILE 2ND

DEFENDANT

In re:

DEVELEX 876 CC 1ST

APPLICANT

KHUMALO AMOS SANDILE 2ND APPLICANT

STANDARD BANK OF SA LTD 1ST

RESPONDENT

SHERIFF OF THE HIGH COURT- JOHANNESBURG 2ND

RESPONDENT

JUDGMENT

KHUMALO J

Introduction

[1] This is an application for rescission of a default judgment that was granted on 14 November 2014 by Makhubela AJ in favour of Standard Bank of South Africa ("the Bank"), the 1st Respondent, against Delevex 876 CC ("Develex") as the principal debtor and Mr Amos Sandile Khumalo ("Mr Khumalo"), as surety and co-principal debtor with Develex, who are the 1st and 2nd Applicant respectively (together referred to as Applicants). The judgment was for the payment of a sum of R595 846-10 together with interests and costs ("the debt"), to be paid by the Applicants jointly and severally, the one paying the other to

be absolved, and also authorised the issuing of the Writ against Unit 147 West Side Ridge, corner Korea and Banbury Road, Melville, a property owned by Delevex (" the property").

[2] The debt was owed by Develex arising from a breach of a home loan agreement it concluded with the bank on 10 May 2008 in terms of which it was granted a loan of R637

200.30 (Six Hundrend and Thirty Seven Thousand Two Hundrend Rand and Thirty Cents), "the loan") to purchase the property. Develex had passed a mortgage bond over the property as security for the payment of the loan. In terms of the mortgage agreement on breach of the home loan agreement the property could be declared specially executable.

[3] Mr Khumalo, a practising attorney and the sole member of Develex had signed a personal suretyship in favour of the bank for due payment of the loan. He is together with his family residing in the property as his primary residence and pays the instalments to the bond.

[4] It is common cause that the bond was on or about 23 September 2014 in arrears when the bank instituted action proceedings against the Applicants. The bank's summons was served on the Applicants at the mortgaged property as per the chosen domicilium in the mortgage bond, by affixing. There was no appearance to defend as a result the bank obtained Default Judgment and an order declaring the property especially executable also authorising the issuing of a writ against the property. A writ subsequently issued against the property which was on 4 December 2014 attached by the sheriff of the court. The sheriff is cited as the 2nd Respondent and is not opposing the Application.

Application

[5] In the Applicants' founding affidavit deposed to by Khumalo, he alleges that he never received the summons that were served on him and Delevex by affixing on the door of his residence and submit that they were therefore not in wilful default when they failed to defend the matter: He speculates that the summons may have been removed before he had sight of them.

[6] He also alleges that the bank did not comply with the relevant provisions of the National Credit Act 34 of 2005 ("the NCA"),

as the Notices in terms of sections 129 and 130 of the Act were not received by either of the Applicants, in view of the fact that the notice on Delevex was served at a wrong postal address and the registered slip to collect the notice probably not delivered on him due to a strike that took place from 18 August 2014 to November 2014 which strike was confirmed by the bank to have taken place at the time. On that basis he submits that they also have a bona fide defence. The gist of the Applicants' contention is that the bank is barred from proceeding with the enforcement of the debt until it has complied with s 129 and 130 of the NCA, seeing that the requirement for compliance is in terms of s 130 mandatory. Consequently the Applicants argue that, for that reason the judgment was erroneously sought and granted and as a result rescindable in terms of s 42 (1) of the Uniform Rules of Court.

[7] Khumalo submits that the non-compliance of the bank with the NCA that compels compliance with s 129 before the enforcement of the debt renders a bona fide defence to the Applicants as required in terms of Rule 31 (2) (b). He argues that their defence has good prospects of success.

[8] He further submitted that in view of the fact that they have not received the summons and the s 129 notices, they have a reasonable

explanation for their default and a good defence as required under common law. He further submitted that in the meantime the arrears

owed to the bank were settled by the end of July 2015.

[9] The bank in its Answering Affidavit challenged the Applicants' allegation of absence of wilful default on the basis that there was no confirmation or proof of Khumalo's speculation about what might have happened to the summons that were fixed at the door of his residence. The point needs no further deliberation as this was a mere assumption by Khumalo.

[10] With regard to the contention Khumalo raised in respect of s 129 and s 130 Notices, the bank alleged that there was proof of the Notices dispatched to the relevant post offices, and delivery to the intended recipient's or address. Proof of the Notice sent to Delevex having gone to Hillbrow post office and back to Cresta is attached. However the postal address is in accordance with the records of the Companies and Intellectual Property Commission (CIPC) in Braamfontein, which its code is 2017. The address in the bond document was therefore incorrect. The notice to Khumalo was sent to Ayr Road in Melville. Its argued however that the notices were thereafter attached to the summons that were served by affixing which also the Applicants allege to have not received.

[11] In the alternative, that is in the instance the court finds that the Notice was necessary and was not received by the Applicants, the bank contends that the Applicants' reliance on their non-compliance with the NCA is purely a dilatory defence that

suspends the enforcement proceedings rather than precludes the cause of action. It is argued that the defence is not an irregularity that establishes that a judgment has been erroneously sought and/or granted, justifying rescission under Rule 42 (1) (a). Nor is it a bona fide defence to the default judgment that is not intended to delay the bank's claim. The dilatory defence also has no prospects of success.

[12] In their reply, the Applicants rehashed mostly the submissions already made in their Founding Affidavit.

[13] Although the issues between the parties appeared in the papers to be crystallized, when the parties filed their heads of argument there was a shift of position by the bank. It abandoned the contentions in its answering affidavit about the s 129 and 130 notices, on the ground that the provisions of the NCA were not applicable to the Applicants since the loan was extended to a juristic person who is not a consumer as intended by the Act as they had concluded an agreement as contemplated in terms of s 4 (1) (a) of the Act, in terms of which Delevex is a juristic person whose asset value or annual turnover together with the combined asset value at the time the agreement is made, equals or exceeds the threshold value determined by the Minister in terms of s 7 (1) of the Act; or alternatively

[14] The bank and Delevex concluded a credit agreement as contemplated in terms of s

(4) (1) (b) of the Act, which is a large agreement as described in s 9 (4) of the Act, in terms of which Delevex (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 s 7 (1) of the Act.

[15] The Applicants heads were superseded by that of the banks', as a result they applied for condonation and it was granted. The

Applicants had explained that when the bank pre­ emptively served their heads on 16 April 2014 on the date they were supposed to file theirs and changed its stance on the Notices, they had to reconsider their position which they had thought until that time was clear. It was until 11 July 2015 when Khumalo came upon what they allege is a constitutional challenge to s 4 (1) (b) of the Act. They conceded that the relevant provisions of the Act were not applicable and were now challenging their exclusion on the basis that it was discriminatory and therefore unconstitutional. Considering the matter from that perspective, the issue of the banks' non-compliance with the provisions of the National Credit Act as a form of defence was no longer viable. Therefore the submission that the judgment was erroneously sought or granted fell away.

[16] The court had now to consider whether or not the Applicants were in wilful default when the application was granted weighing if they had shown sufficient cause for Judgment that was granted and the order attaching the property in execution to be set aside, by showing that they have a bona fide defence raised in good faith, finding solace in the Rule 32 (1) or common law.

[17] It was argued by Ms Van Tonder, counsel on behalf of the bank that, as the bank did not have to prove compliance with the provisions of the NCA to obtain default judgment on 14 November 2014, and seeing that the Applicants have conceded that the amount was owing when the judgment was obtained, the rescission application should therefore be dismissed with costs. Further that the provisions of the Act cannot be raised as a bona fide defence.

[18] As indicated the Applicants in its heads of argument raised a new defence/ issue that of unconstitutionality of their exclusion in terms of s 4 (1) (b) of the Act read with s 9 (4) (a) to the extent that the NCA applies to mortgage loans involving a primary residence, alleging that these provisions are discriminatory and amount to an unjustifiable limitation of their rights to equal protection and benefit of the law.

[19] In reference to the agreements to which the Act does not apply, section 4 (1) (b) reads:

(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 s 7 (1), . . .

The threshold value of the turnover or asset s as determined by the Minister is R1 000

000.00 whilst the threshold value for defining a large agreement is R250 000.00 and s 9 (4) (a) refers to large agreement s that are mortgage agreements, irrespective of the value of the loan.

[20] Therefore a large agreement which is an agreement that involves a mortgage agreement in terms of which the consumer is a juristic

person irrespective of the loan value is excluded from the provisions of the Act. Whilst an agreement for a mortgage bond entered into by a natural person constitutes a credit agreement and the NCA is applicable to afford protection to the natural person. The Applicants argue that the effect of s 4 (1) (b) read with s 9 (4) is to exclude from the protection of the NCA, all transactions between

juristic persons and financial institution s, involving a mortgage loan, irrespective of whether they are large agreements or not.

[21] Counsel argued that the exclusion/distinction is arbitrary and irrational in the circumstances where the juristic person is a non trading entity and the property in question constitutes a primary dwelling place for the shareholders or members of the juristic person as the case may be. On the ground that the right to housing/shelter is protected under s 26 of the Constitution that provides in s 26 (3) that:

"No one may be evicted from their home, or have their home demolished, without an order of the court made after considering of all the relevant circumstances. No legislation may permit arbitrary evictions."

[22] Its further argued by counsel that the section places an obligation on the State to take measures to ensure that the right to housing is progressively realised over time: A reference is made to Government of South Africa v Grootboom 2001 (1) SA 46 (CC) at para 45. Its alleged also that where the right to housing is already vested it creates a negative right to housing that it might not be interfered with other than in terms of general limitations clause.

[23] The Applicants" further proposition being that s 9 (1) of the Constitution provides tat everyone is entitled to equal protection and benefit of the law. The state having in part given effect to its obligations to respect, protect and promote and fulfil the right to housing, through the enactment of the NCA, s 4 (1) (b) thereof, however, fails to extend this protection to persons who choose to use juristic persons as a vehicle to purchase their primary residence, an arbitrary distinction to those persons who do so personally. The distinction is alleged not to be reasonable or justifiable in terms of s 36 of the Constitution. and to infringe the Applicants' rights to equal protection and the benefit of the law and the right to housing, protected in s 9 and 26 of the Constitution.

[24] The court was instead implored, when considering Applicants circumstances vis a vis the requirement for a creditor to comply with s 129 and 130, to declare the provisions of s 4 (1) (b) read with s 9 (1) to be unconstitutional. In essence the Applicants wanted procedural rights afforded to natural persons by the NCA in the two sections to be extended to juristic persons and their sureties as well (or persons in their circumstances).

[25] I have taken into account the Applicants reasons for raising the Constitutional issues at this late stage of the proceedings, that it had not contemplated the position that was taken by the bank in its heads of argument, ousting the application of the provisions of the NCA in their circumstances, hence they have also failed to comply with the uniform Rules of Court where issues of constitutionality are raised which they undertook to do when rescission is granted.

[26] Whether s (4) (1) (a)'s exclusion of the juristic person from the application of the provisions of s 129 is unfair can be determined

from the purpose of the exclusion. The purpose that is required to be reasonable. In Standard Bank of South Africa v Hunkydory Investments 194 (Pty) Ltd and Another (No1) 2010 (1) SA 627 (C} it was held that on being found that the impugned provisions differentiated between the people or categories of people, in order to fall foul of equality provisions in the Constitution, there had to be a rational connection between the differentiation in question and the legitimate governmental purpose it was designed to further or achieve. if it is justified in that way then it does not amount to a breach of the relevant section.

[27] In was further in Hunkydory indicated that it is the impact of discrimination on a complainant that is the determining factor regarding the unfairness of the discrimination. In establishing fairness in that context various factors are to be considered, inter alia, the nature of the provision and purpose sought to be achieved by it, the position of the complainants in society and whether they have suffered in the past.

[28] In enacting the NCA, the legislature intended to prevent reckless provision of credit by institutions to people who could not afford credit and also avoid contractual default by such consumers. Also to promote equity in the credit market by balancing the respective rights and responsibilities, especially to those who have historically been unable to access credit under the sustainable

market conditions; See s 3 of the NCA.

[29] In dealing with this issue, it must be highlighted that the contractual circumstances of each of the Applicants are not the same and each one's contractual circumstance need to be considered carefully before the contentions raised are interrogated. Delevex is the holder of a mortgage bond and the principal debtor in the loan agreement. It therefore holds the principal obligation to pay the debt. Khumalo's obligations as surety (not rights as he only signs up to liabilities) are ancillary to Delevex's, consequently not determinative of the processes and the rules applicable in the recovery or enforcement of the debt. The relevance of Khumalo as a surety is only in respect of obligations. He does not derive any rights from the principal agreement that he is entitled to enforce against the creditor or entitles him the protection of the law against the creditor.

[30] It is also a fact that a juristic person like Delevex being a company may own immovable property upon which mortgage loans are registered, however it cannot occupy premises especially for residential purposes therefore exercise such rights through its members or shareholders. The attachment of its property and its sale in execution will negatively affect such occupants who may occupy the property as their primary residence or home. That is secondary to the right of enforcement of the debt which therefore does not justify the doctrine of notice applicable in terms of NCA to be extended to them. However it is significant that this is a choice that individuals make to hold the ownership of their property through a juristic person, which they do for different reasons. The consequences are simple, If they transact as individuals they have the protection of the NCA but, they make a conscious choice to forego that protection and transact under the umbrella of a juristic person that is excluded. Therefore their discrimination cannot be regarded as unfair but intentional. The debt is therefore held by the juristic person in this instance by Delevex.

[31] The rules of engagement are different due to the commercial power difference that exists that justifies the differentiation. In the instance of s 129 of the NCA, juristic persons have the equivalent of business rescue proceedings in terms of the Companies Act whereby the debtor is given a chance to be rehabilitated from their unmanageable state of indebtedness, through the aid of a business rescue practitioner who takes over the management of their monetary affairs. The processes can be applied voluntarily or at the behest of a creditor. On the other hand a natural person who is a consumer under the NCA is notified of his right to apply for debt review, which he can then exercise voluntarily. The process under NCA can be avoided only if it is not promising to yield any positive results or its processes have failed. The difference is that the NCA's application is mandatory to the creditor prior to the enforcement of the debt, as the purpose is to eradicate or minimise the impact of reckless credit through debt review or rescheduling. The differentiation is rationally connected to the purpose for which the NCA was enacted.

[32] Having taken into consideration the purpose of the NCA and the Applicants' failure to establish the unfairness of their exclusion, I find the applicants' defence in that regard to be of no merit of no prospects of success.

[33] It must be pointed out that leave to appeal this constitutional challenge in the matter referred to in Hunkydory was refused by the SCA and Constitutional Court on the basis of no prospects of success. A point the Applicants should have divulged to the court and proceeded to make submissions why what was decided in Hunkydory should be overturned.

[34] The Application is therefore to be decided upon in terms of the common law or Rule 31 (2) (b) that requires the Applicant to show good cause to justify the granting of the rescission of judgment, with the court having a wide discretion in evaluating what constitutes a good cause. The requirements of showing good cause being stated to be as foll ows:

[34.1] a reasonable explanation of the default;

[34.2] a bona fide application, not made with the intention to delay;

[34.3] a bona fide defence to plaintiff 's claim, setting out averments if proved at the trial will entitle the defendant to the relief asked for.

see De Witts Auto Body Repairs (Pty) Ltd v Fedgen Insurance Co Ltd 1994 (4) SA 705(E) ; PE Bosman Transport Works Committee and Others v Piet Bosman Transport (Pty) Ltd) 1980 (4) SA 794 (A).

[35] Khumalo's explanation for not having received the summons lack any connotation of wilfulness and cannot be challenged by the bank since the summons were affixed at the door. The banks argument on there being no confirmation of his speculation

about what may have happened to the summons does not affect his version. As indicated it was mere speculation that does not

carry any weight and not relevant to the wilfulness of his default. I find the explanation sufficient to indicate that at the time of default judgment he had no knowledge that an action has been brought against him and his absence not deliberate. His alleged immediate attendance to the rescission application as soon as he had knowledge of the judgment can be regarded as proof that his absence was not deliberate .

Bona fide defence

[36] The non-compliance of the bank with the NCA that compels compliance with s 129 before the enforcement of the debt had been referred to initially as a bona fide defence to the Applicants' claim as required in terms of Rule 31 (2) (b). As indicated the defence is not available to the Applicants. Khumalo then argued that the debt has however been settled therefore there is no justification for the judgment not to be set aside.

[37] The most important fact is that at the time judgment was obtained the loan was in arrears and therefore except for the fact that the Applicant was denied its right of notice to the impending legal proceedings against him by way of, therefore could not exercise whatever rights he had at the time, judgment seem to have been justified. The allegations that he has settled the debt are tantamount to a defence that has arisen after judgment has been obtained.

[38] It is obvious that there are no facts that the Applicants could put before the court that will constitute a defence to the banks' claim at the time that judgment was granted. Can therefore judgment be set aside due to failure to notification even though at the time the judgment was obtained the debt was owing? see Swart T v Absa Bank Ltd 2009 (S) SA 219 (C).

[39] In Saphula v Nedcor Bank Ltd 1999 (2) SA 76 Wat 79, the court held that there is no reason for a court to participate in granting rescission to a party who does not wish to defend in respect of a claim which, because it was settled, the plaintiff has no wish to prosecute further. Once it is shown that the judgment was correctly granted there is no reason to falsify the past to make life easier for the defendant, as the object of rescinding a judgment is to restore an opportunity to defend the matter: see Lazarus v Nedcor Bank Limited; Lazarus v Absa Bank 1999 (2) SA 782 (W).

[40] Applicant has not shown any prejudice it has suffered as a result of having not have had an opportunity to receive the summons. He has not argued that he could have prevented the granting of the judgement. Instead it has confirmed that at the time it was not able to settle the debt.

[41] In Harris on par [5], Moseneke J (as he was then) in a full bench appeal explained that a reasonable and an acceptable explanation of the default must co-exist with the evidence of reasonable prospects of success on the merits. He made a reference to Muller JA's explanation of the rule in Chetty v Law Society (At 7650-E) that:

"It is not sufficient if only one of these two requirements is met; for obvious reasons a party showing no prospect of success on the merits will fail in an application for rescission of a default judgment against him, no matter how reasonable and convincing the explanation of his default. An ordered judicial process would be negated if, on the other hand, a party who could offer no explanation of his default other than his disdain for the Rules was nevertheless permitted to have a judgment against him rescinded on the ground that he had reasonable prospects of success on the merits." (my emphasis)

[42] The court has however taken the fact that Applicants absence has not been found to have been deliberate, and submissions that the

arrears have been settled after the fact were not contested and that at the time of hearing of the matter, a period of more than a year after judgment was obtained, the bond was still being serviced by the Applicants into

account, for the purpose of setting aside the warrant of execution and attachment issued pursuant to the default judgment being obtained.

[43] Under the circumstances I make the following order:

1. The Applicants' rescission application is dismissed. The default judgment granted against the Applicants on 14 November 2014 is hereby confirmed;

2. The Warrant of execution and attachment issued pursuant to the aforesaid judgment is cancelled and set aside;

3. The Applicants to pay the costs

___________________

NV KHUMALO J

JUDGE OF THE HIGH COURT

GAUTENG DIVISION, PRETORIA

On behalf of Applicant: AMOS KHUMALO

Instructed by:

C/O POTGIETER, PENZHORN & TAUTE INC

REF: MR A M Khumalo

TEL: 011431-4028/4034

On behalf of Respondents:

Instructed by:

LE ROUX VIVIER ATTORNEYS

Ref: Joe Celliers/HSD145/rvd

C/O VAN STADE VAN DER ENDE INC

REF: Mr D Van Stade TEL: 012 342 0006