Crane v Land & Agricultural Development Bank in South Africa (1381/04) [2005] ZANWHC 17 (23 February 2005)

IN THE HIGH COURT OF

SOUTH AFRICA

BOPHUTHATSWANA PROVINCIAL

DIVISION

CASE NO: 1381/04

In the matter between:

ROBERT JAMES CRANE Plaintiff

and

THE LAND & AGRICULTURAL DEV. Defendant

BANK IN SOUTH AFRICA

_____________

JUDGMENT

LANDMAN J:

The plaintiff, Mr R J Crane, a farmer residing at Sendelingsplaats, district Groot Marico, sues the defendant, the Land and Agricultural Development Bank of South Africa, trading as the Land Bank for at least R10 334 629,17.

The nub of the plaintiff’s complaint is that the Land Bank did not lend him more money in circumstances where it foresaw that, if it did not do so, the Bank would suffer a loss and the plaintiff would suffer:

(1) Loss of income in the amount of R660 000.

(2) Loss to plaintiff’s fixed property and movable assets and the loss of fixed property in the amount of R1152 000.

(3) Loss of the expectation of a pay out of a Sanlam endowment policy of R553 227; loss of a fair income until plaintiff turns 65 totalling R1 965 485, 55; loss of the expectation of acquiring a retirement package by age 65 of R3 000 000; the loss of expectation of owing a fully paid up and well developed property equal to defendant’s claim in case 1271/04.

(4) Debts which the plaintiff is unable to pay in the amount of R353 916,62.

The Land Bank has excepted to the five claims set out in the particulars of claim. The exception was argued before me on 3 February 2005. The plaintiff appeared in person. The Land Bank was represented by Mr L Lever.

I shall first deal with the exception in relation to the first four claims which are based on “pure economic loss”.

If a duty rests upon the Land Bank to lend money and so prevent the loss suffered by the Plaintiff it can only be so because the convictions of society require that these be such a duty. See Boe Bank Ltd v Ries 2002 (2) SA 39 (SCA) at 46.

Mr Lever contended that no such legal duty exists. He submitted that as a matter of common sense no bank or financial institution can ever be under a legal duty to consider or grant a loan. This is especially so where there is an existing loan agreement. If such a legal duty existed banks would be unable to operate as it is central to the administration of a bank that it is within their sole discretion to determine the risk criteria they will apply in order to consider or grant a loan. If the situation were otherwise it would be impossible to run a bank or financial institution as a business. Society as a whole recognises and accepts this. No matter what individuals may think of banks or financial institutions society as a whole accepts that they play a vital role in the administration of the economy on which society depends.

Mr Lever went on to submit that a bank cannot be forced to consider or grant a loan. Where there is an existing loan, it is entirely within the banks prerogative to determine at what point is cuts its losses and stops throwing good money after bad.

Mr Lever contends that as the plaintiff has not pleaded facts or circumstances which disclose a cause of action that his claims ought to be dismissed with costs.

Mr Lever, dealing with the Land Bank’s second ground of exception stated that it is based on the requirements of its governing statute. The Land Bank was created by statute, its powers are granted and limited by such statute. Section 28 of the Act determines when it can consider or grant a loan. Plaintiff has not pleaded facts or circumstances which would bring him within the requirements of such section. On this ground also, he submits, plaintiff has not pleaded facts or circumstances which disclose a cause of action and submits that his claims ought to be dismissed with costs.

Plaintiff filed heads of argument, I will quote the relevant portions verbatim. He submits:

“From the aforegoing it is clear that no one can escape the imposition of a Legal Duty where:

(a) The interest of a party is worthy of Protection.

(i) In this case the investment of the Plaintiff amounted to R740,000 and that of the Defendant to R540,000.

Combined the total investment amounted to ±R1, 300, 000. An investment surely Worthy of Protection.

(b) The losses and / or damage was reasonable foreseeable. It is my contention that this was the case considering the Plaintiffs approach as well as the role that the Defendant played in the liquidation of the Industry which would cause the foreseeable damage.

(c) That such a Legal Duty should not entail on additional burden on any party.

(i) In this case the burden, had the Plaintiff’s proposal been accepted, would have been of no consequence. It would nearly have entailed an additional entry, administratively and the forwarding of an interest bearing, repayable loan.

(ii) No alternative, whatsoever, was forthcoming from the Defendant whilst the remedy was basic and simple in nature.

Therefore Plaintiff prays that the Exception be dismissed with costs and that the matter be referred to an Open Trail (sic).

CONSIDERING

AND GRANTING OF LOANS

Defence Council’s (sic) Exception Par. 2. refers

(a) As stated at 1 + 2 of the above exception the Plaintiff accepts that the Defendant has a Discretion and Limitation as reflected in Sect. 28 of Act 15 of 2002.

(b) It should be noted that the Delictual Breaches took place before the present Act was promulgated.

(i) The Plaintiff will however accept if so suggested that the equivalent of Sect. 28 would have been contained in the relevant Act at the time, being Act 13 of 1944 as amended.

Considering that conditions would have

applied in the previous Act it is further indicative of the claimed negligence by Mr Stenvert (See Historic Overview para. F), in not complying with the equivalent of Sect. 28 (a) in Act 13/1944 thus frustrating the Plaintiff’s prospect’s for a loan. (See Ries vs Boland Bank Pks Ltd and Another at 970 H + I this documents page 2 at H + I.)

(j) Considering the nature of the Defendants business as governed by Act 15 of 2002 (previously Act 13 of 1944) where the creation f the Defendant as a financial Institution was for the exclusive purpose of financing the Agricultural Sector’s requirements. The aforegoing does not necessarily imply the unchecked advancing of loans but does imply the Due Consideration of a Bona Fide application. In neglecting to allow the Plaintiff the right of an application and access to the prescribed procedure thus Senvert was grossly negligent in following his own course of action and deceiving the Plaintiff in this manner.

(k) The above Statutorily created Bank cannot be likened to a Standard type of Commercial Bank as it does not:

(i) Serve the community at large

(ii) Is restricted in its Spectrum of Services

rendered.

Is governed by a separate Act, limiting it’s operation to the Agricultural Sector.

(l) Therefore its service merely a Financial Support Service to the Agricultural Sector and does not supercede the importance of the role that the Agricultural Sector plays in its contribution to the National Economy. Therefore claiming that it should be immune to a Legal Duty due to its importance is, to say the least, wrong. Defence’s Heads of Argument is irrelevant as the claim does not pertain to whether or not a loan was forwarded, but rather whether the Defendant’s PROSPECTS for loan were frustrated by Gross Negligence and to a degree Malicious Wrongfulness (See the Ries Case of 970 H + I This document page 2 at H + I)

(m) Further the content of Para 12 of Defence’s Heads of Argument insinuates that a consideration had been exercised and that it was conduced that the Plaintiff represented a bad risk. It serves to state that at the time of initial approach by the Plaintiff in February 2000, the Plaintiff was in fact;

(i) A well paying client with no default whatsoever.

(ii) Enjoying the Client Status of GOLD, attributed by the Defendant itself.

(iii) Asset wise qualified for a loan.

And that the Defendant has no “Losses to Cut (sic)”.

(n) Therefore at the time of approach the Prospects for a loan were very good, but severely frustrated by Stenvert.

(o) Further that the procedure as dictated by the relevant Act was not followed.

(p) Therefore the unfair reference to “throwing Good Money after Bad, is slanderous to say the least, presumably to diminuse the standing of the Plaintiff as a Layman, before the Honourable Court. It suffices that no such instruction could fairly have been given to Defence Council, as it is my contention that no such declaration under Oath would be forthcoming form any reasonably minded official of the Defendant, considering the danger of Perjury.

(q) Wherefore the Plaintiff prays for the dismissal of the Defendant’s Exception with costs and that the matter be referred to an Open Trail (sic).

The loan of money involves a degree of risk for the lender and the borrower. It is foreseeable, in the most circumstances, that a borrower may not be able to repay the loan because of circumstances beyond the borrower’s control and that the borrower’s fortunes including the borrower’s estate and personal life may be adversely affected. But the lender generally bears no duty to compensate the borrower for these losses.

The particulars of claim, I assume, were drafted by the plaintiff, a lay person. They are amplified by several annexures which must be read with the particulars of claim. The allegations are not easy to follow. What I have done is to seek the gist of the plaintiff’s complaint.

The plaintiff complains that Land Bank which had advanced monies to him under a loan secured by a mortgage bond should have advanced further funds when it foresaw that if it did not do so it and the plaintiff would suffer “pure economic loss”.

For the purposes of clarity I should mention that part of the exception was based on the plaintiff’s failure to allege compliance with section 28 of the Land and Agricultural Development Bank Act 15 of 2002 which repealed Act 13 of 1944 with effect from 10 June 2002.

However, as the plaintiff accepts that the equivalent sections in the repealed Act applied I will regard the exception as one referring to the 1944 Act.

The plaintiff accepts that the Land Bank, assuming it was obliged to lend him additional funds, would only be obliged to do so once the prerequisite of ss 24(1), 31(1), 52, 53 of the Land Bank Act 13 of 1944 have been complied with.

These purport of these sections are summed up by Prof Leonard Gering in LAWSA Vol 1, 1st ed, para 194 as follows:

“Applications for and making of advances

Before an advance is made, there must be a written application accompanied by the prescribed fees, by a person entitled to apply, in the form prescribed by the board, indicating the purpose for which it is required. The advance is made if the board, after considering the application, so resolves, and if the security proposed to be given has been duly registered or completed.”

The plaintiff does not allege that there has been compliance with the sections of the 1944 Act nor the 2002 Act. This means that the exception should be up held.

However, I intend approaching this matter on the assumption that there was compliance with above sections.

I am of the opinion that if the Land Bank lends money to a person, such the plaintiff (to whom it may lawfully lend money) that it is not responsible for economic loss suffered if it refuses to make a further advance to the borrower when the Bank foresees that economic loss could be suffered if more money is not lent.

I arrive at this conclusion for the following reasons:

the convictions of a society do not require the lender of money to lend money. Nor does society’s convictions require a lender to make a further advance to a borrower otherwise in terms of a contract of loan and subject to applicable legislation.

If such a liability were to be imposed it would increase the costs of borrowing money for lenders including the Land Bank. The Land Bank would, as an economic necessity, seek to protect itself against liability by taking out

insurances against such eventualities. The cost of such insurance would be borne by borrowers.

In the result I would uphold the exception as regards claims 1 to 4.

I turn to deal with claim 5. It reads:

“ 7.1 Due to a Series of Damage Causing Events arising from the Wrongful and Negligent actions over a period of 4 years and 11 months the Plaintiff and his family were subjected to Insult, Embarrassment, Insomnia, Night Sweats, Marital difficulties etc. (See attached Interpretation “A5 of the Historic Overview “A6”)

7.2 Attached is a Councilling Report by The Rev J Ekkard, Dutch Reformed Church, Zeerust, in support of this claim. (See “A7”).”

The plaintiff does not set out the wrongful and negligent actions which he relies upon. The averments are, however, vague and embarrassing but the exception is not based on this ground. The plaintiff does not claim pure economic loss.

The exception must fail as regards claim 5.

Claims 1 - 4 are novel therefore I do not intend awarding costs in this matter.

In the result:

The exception is upheld as regards claims 1 to 4 inclusive.

The exception is dismissed as regards claim 5.

The plaintiff is granted leave to amend claim 1 - 5 and, should he wish to do so, an amendment must be delivered within 20 days of the date of this order failing which the action will be deemed to have been dismissed.

There will be no order as to costs.

___

A

A LANDMAN

JUDGE

OF THE HIGH COURT

APPEARANCES

DATE OF HEARING: 3 FEBRUARY 2005

DATE OF JUDGMENT: 23 FEBRUARY 2005

COUNSEL FOR PLAINTIFF: IN PERSON

COUNSEL FOR DEFENDANT: ADV. L. LEVER

ATTORNEYS FOR DEFENDANT: KGOMO, MOKHETLE & TLOU ATT.