IN THE SOUTH GAUTENG HIGH COURT

CASE NO: 09/26823
DATE: 18/11/2009

In the matter between:

and

JUDGMENT

[1] By way of motion proceedings ABSA Bank Ltd (ABSA) sues Zurich Risk Financing SA Ltd (Zurich) for R50 million as a guarantor in respect of the indebtedness of Teejay Motors (Pty) Ltd (in liquidation) (Teejay).

[2] ABSA's case is based on a document which is common cause between the parties. The document is Annexure FA1 to ABSA's founding papers. It is at page 26 of the record and is reproduced below; (emphasis added)

POLICY NUMBER: CONSAE50019JHB GUARANTEE NUMBER: ZUR500185JHB

This guarantee is neither negotiable nor transferable and must be returned to the Guarantor upon payment or expiration whichever event occurs first.

(Sgd) Mrs. Use Becker
(Sgd) Mr Eugene Louis Becker
As witnesses:

Valuline 155 (Pty) Ltd t/a Fusion Guarantee Underwriting Agency Company Registration number 2006/027372/07 Authorised Financial Service Provider FSP 17604
Johannesburg Office: 18 Hennie Alberts Street. Brackenhurst, Alberton, Tel: (011) 867-2746 Fax (011) 867-2745

Zurich Risk Financing SA Limited DIRECTORS: NV Beyers (Chairman) DM Burton, C Schmidt, P Stols"
[3] It is common cause between the parties that prior to the execution of FA1, S A Eagle Financing Ltd of which Zurich is the successor-in-title had provided Valuline 155 (Pty) Ltd t/a Fusion Guarantee Underwriting Agency (Fusion) with the following document which is FA4 to the papers and which is reproduced below.
"SA Eagle Risk
Financing Limited
Registration No. 1997
Authorised Financial Services Provider No.
SA EAGLE
Head Office

Telephone 011 370 9111 Facsimile 011 370 9610
Our reference
Your reference
Date     22 June 2007
TO WHOM IT MAY CONCERN
We hereby confirm that Fusion Guarantee Underwriting Agency has a Cell Captive Facility with SA Eagle Risk Financing Limited, and is duly authorized to issue guarantees on behalf of SA Eagle Risk Financing Limited to a maximum limit of R50 000 000 on any one guarantee, any one facility. Share Reference No.: A57.
Trust you find this to be in order.
Yours faithfully.
(Sgd) pp
STEPHEN ANDERSON
EXECUTIVE MANAGER - MARKETING
cc. Use Bekker
Fax: (011) 867-2745
Directors: NV Beyers (Chairman), DM Burton. C Schmidt, PJ Stols

FRAUDLINE

[4] It is not in dispute that the two Beckers who signed FA1 on behalf of Fusion were authorised to do so on behalf of that entity. It is also not in issue between the parties that as at the date the present application was launched and as at today's date Teejay is liable to ABSA in an amount in excess of R50 million and is not in a position to pay any portion of this amount to it, as it has been wound up in the hands of the Master of this Court.

[5] The real issue in the case between the parties is whether Zurich is liable to ABSA for R50 million in terms of FA1. In this regard the nature of the liability created by FA1 as regards Zurich, turns not on what the document is named or styled as. Its label is unimportant. What matters is the kind of liability sought to be created by the parties, as evidenced by the language they elected to employ in the context in which their wording appears.

[6] The first issue to be.decided is whether FA1 can be said to impose any liability on Zurich as opposed to Fusion, and if so what is the nature of this liability.

[7] On behalf of Zurich it was submitted that it is only Fusion that has attracted any liability in terms of FA1. Counsel's argument in this regard can be summarised as follows:

[9] It is Zurich's further argument that such authority has not been proved. In this regard counsel has argued that as ABSA relies on Zurich being a guarantor and not a surety as I have found, it is confined to proving a guarantee on the part of Zurich and not a suretyship. In my view there is no substance in this argument in the present case.

'The very notion of a guarantee requires that there shall be two sources of security to the creditor, the original source and the guarantor.'
Coming to more recent times STRATFORD CJ had stated in Hazis v Transvaal & Delgoa Bay Investment Co Ltd 1939 AD 372 at 384 that:
'The word (guarantee) is usually and more properly employed by a surety who promises to saddle himself with an obligation if the principal obligator defaults.'
It was further submitted that the ordinary meaning of a word was an important factor in determining what was meant by its use and there should not be a departure from the sense in which it was commonly used without cogent reason."

"It is, in my view, an unrewarding and misleading exercise to seize on one word in a document, determine its more usual or ordinary meaning, and then, having done so, to seek to interpret the document in the light of the meaning so ascribed to that word. Apart from the fact that to decide on the more usual or ordinary meaning of a word may be a delicate task - so for example STRATFORD CJ and GREEN BERG J gave differing 'ordinary meanings' to the word 'guarantee' in the cases noted above - it is clear that the context in which the word is used is of prime importance. I find the words of Kriek J as reported in Hermes Ship Chandlers (Pty) Ltd v Caltex Oil (SA) Ltd 1973 (3) SA 263 (D) at 267 apposite:
'The passages from the various judgments I have mentioned deal with the popular or ordinary meaning of the word 'guarantee', but it seems to me that they demonstrate only that the word is capable of bearing different meanings depending upon the context in which it is used. It seems to me also that when the meaning of the word in a particular document is being considered, it is undesirable to commence the enquiry on the basis that any one of its possible meanings predominates, and that the proper approach to the question is to be alive to the various meanings which it can bear and by a consideration of the context in which it is used (together with such other circumstances as may be permissible) to decide which meaning must be attributed to it in that context.'
More recently RUMPFF CJ emphasised that, in seeking to interpret a contract, words must not be examined in isolation and divorced from the context in which they are used:
'Wat natuurlik aanvaar moet word, is dat, wanneer die betekenis van woorde in 'n kontrak bepaal moet word, die woorde onmoontlik uitgeknip en op 'n skoon stuk papier geplak kan word en dan beoordeel moet word om die betekenis daarvan te bepaal. Dit is vir my vanselfsprekend dat 'n mens na die betrokke woorde moet kyk met inagmening van die aard en opset van die kontrak, en ook na die samehang van die woorde in die kontrak as geheel.'
(Swart en 'n Ander v Cape Fabrix (Pty) Ltd 1979 (1) SA 195 (A) at 202)."

[13] A reading of FA1 makes it plain that Fusion, duly authorised, acts on behalf of Zurich in this context and has bound Zurich as a surety and co-principal debtor for the indebtedness of Teejay, being payment of R50 million to ABSA.

[14] Zurich's further argument is that if it is found that FA1 constitutes a suretyship undertaking, as I have found, it was not signed by or on behalf of Zurich and therefore falls foul of the requirements of section 6 of General law Amendment Act, Act 50 of 1956 which reads:
"No contract of suretyship entered into after the commencement of this Act shall be valid, unless the terms thereof are embodied in a written document signed by or on behalf of the surety ..."
As has already been stated Fusion signed for and on behalf of Zurich in FA1, and this submission is therefore without merit. One must bear in mind that it was Fusion, represented by the Beckers, who signed on behalf of Zurich, as it claimed it was authorized to do. This authority is confirmed by Zurich in FA4, which is an undisputed letter of authority.

"Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority. Thus, when the board appoint one of their number to be managing director, they invest him not only with implied authority, but also with ostensible authority to do alt such things as fall within the usual scope of that office. Other people who see him acting as managing director are entitled to assume that he has the usual authority of a managing director. But sometimes ostensible authority exceeds actual authority. For instance, when the board appoints the managing director, they may expressly limit his authority by saying he is not to order goods worth more than ￡500 without the sanction of the board. In that case his actual authority is subject to the ￡500 limitation, but his ostensible authority includes all the usual authority of a managing director. The company is bound by his ostensible authority in his dealings with those who do not know of the limitation. He may himself do the 'holding-out'. Thus if he orders goods worth ￡1,000 and signs himself 'Managing
Director for and on behalf of the company', the company is bound to the other party who does not know of the ￡500 limitation. …"

"[25] As Denning MR points out, ostensible authority flows from the appearances of authority created by the principal. Actual authority may be important, as it is in this case, in sketching the framework of the image presented, but the overall impression received by the viewer from the principal may be much more detailed. Our law has borrowed an expression, estoppel, to describe a situation where a representor may be held accountable when he has created an impression in another's mind, even though he may not have intended to do so and even though the impression is in fact wrong. Where a principal is held liable because of the ostensible authority of an agent, agency by estoppel is said to arise. But the law stresses that the appearance, the representation, must have been created by the principal himself. The fact that another holds himself out as his agent cannot, of itself, impose liability on him. Thus, to take this case, the fact that Assante held himself out as authorized to act as he did is by the way. What Cape Produce must establish is that the NBS created the impression that he was entitled to do so on its behalf. This was much stressed in argument, and rightly so. And it is not enough that an impression was in fact created as a result of the representation. It is also necessary that the representee should have acted reasonably in forming that impression: Connock's (SA) Motor Co Ltd v Sentraal Westeiike Ko-operatiewe Maatskappy Bpk 1964 (2) SA 47 (T) at 50A-D. Although an intention to mislead is not a requirement of estoppel, where such an intention is lacking and a course of conduct is relied on as constituting the representation, the conduct must be of such a kind as could reasonably have been expected by the person responsible for it, to mislead. Regard is had to the position in which he is placed and the knowledge he possesses."

[19] The unchallenged evidence adduced by ABSA is that its representative, Lawrence Booysen, relied on FA4 as a document which authorized Fusion to represent Zurich in a guarantee or suretyship undertaking as described in FA1. In my view this reliance was justified. There can be no question but that ABSA was entitled to look to Zurich for payment of the R50 million referred to in FA1.

[21] Counsel for both parties in this matter were in agreement that each of their clients was entitled to employ two counsel to represent them in this matter because of its importance to them. I agree. The following order is made:
There will be judgment for the applicant against the respondent in the following terms:

P BLIEDEN 
JUDGE OF THE HIGH COURT

DATE OF HEARING 
DATE OF JUDGMENT