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REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

 

CASE NO: 6855/2020

 

REPORTABLE: YES

Of interest to other judges: YES

DATE: 16/11/2021

 

In the matter between:

 

INDUSTRIAL DEVELOPMENT CORPORATION

OF SOUTH AFRICA                                                                                 Plaintiff

 

and

 

ENERGY FABRICATION (PTY) LTD                                                       First defendant

 

SOUTHERN PALACE GROUP OF

COMPANIES (PTY) LTD                                                                         Second defendant

 

HARVEY SICELO BUTHELEZI                                                               Third Defendant

 

LEFU LUCAS TSEKI                                                                               Fourth Defendant

 

MATJYANYANA GLADYS MATITOANE                                                 Fifth Defendant

 

PAULOS SELLO MAHLANGU                                                               Sixth Defendant

 

JUDGMENT

 

FLATELA AJ

 

Introduction

 

[1]          This is an application for summary judgement against the second defendant for the payment of the sum of R122 008 447.30, the original basis for which was a Facility Agreement (hereinafter, the “loan agreement”) entered into by the plaintiff and the first defendant on 16^th February 2018 based on an Offer Letter from the plaintiff to the first defendant dated 2^nd November 2017. In addition, the plaintiff sues for R64 487 779.72; the original basis for which was a Revolving Credit Facility Agreement on the basis of a Facility Letter that was extended to the first defendant 08 March 2018. The plaintiff also seeks interest on the above amounts at 4% above the publicly quoted basic rate interest per annum and costs of suit on an attorney and client scale.

 

[2]          The plaintiff alleges that first defendant has breached the terms of the agreements. On 27 February 2020 the plaintiff issued summons against the defendants for the repayment on the Facility agreement, the Revolving Facility Agreement and interest thereon. The plaintiff also sought certain properties especially executable. The plaintiff alleges that after the commencement of these proceedings the first defendant resolved to commence business rescue proceedings. As a result, the plaintiff is not pursuing any relief in these proceedings against the defendants other than second defendant.

 

[3]           The plaintiff’s claim against the second defendant arises now from the Guarantee Agreement that the second defendant entered into with the plaintiff on 16^th February 2018 wherein the second defendant bound itself to the plaintiff for the guaranteed liabilities of the first defendant. The application is opposed by the second defendant.

 

[4]          For convenience’s sake the parties to this matter will be referred to as the plaintiff and defendants as cited in the particulars of claim.

 

[5]          The plaintiff is the Industrial Development Corporation of South Africa incorporated and established under Section 2 of the Industrial Development Corporation Act 22 of 1940.

 

[6]          The first defendant is Energy Fabrication (Pty) Ltd a company duly registered and incorporated in terms of the company laws of the Republic of South Africa. The first defendant is the subsidiary of the second defendant.

 

[7]          The second defendant is the Southern Palace Group of Companies (Pty) Ltd, a company duly registered and incorporated in terms of the company laws of the Republic of South Africa.

 

[8]          The third defendant is Harvey Sicelo Buthelezi an adult male director of the first defendant.

 

[9]          The fourth defendant is Lefu Lucas Tseki an adult male and a director of the second defendant.

 

[10]       The fifth respondent is Matjanyana Gladys Matitoane an adult female and a director of the second defendant.

 

[11]       The sixth defendant is Paulos Sello Mahlanguan adult male and a director of the second defendant.

 

Action Proceedings

 

[12]       On 27 February 2020, the plaintiff issued summons against the defendants seeking an order in the following terms:

 

12.1.             An order against the first and second defendants declaring that they are jointly and severally, as co-principal debtors, liable for payments of the sums of:

a.         R122 008 447.38

b.         R64 487 779.72

12.2. Interest on the sums aforesaid from date of the certificates of balance, at the rate of 4% above the publicly quoted basic rate of interest per annum, compounded monthly in arrears and calculated on a three hundred and sixty-five-day year (irrespective of whether or not the year is a leap year) from time to time published by FirstRand Bank Ltd as being its prime overdraft rate as certified by any manger or divisional director of its First National Bank or Rand Merchant Bank divisions;

 

12.3. An order declaring that the third to sixth defendant are personally liable together with the first and second defendants for the indebtedness of the first defendant to the plaintiff;

 

12.4. That the following immovable properties are declared especially executable to the extent of R180 000 000.00 (one hundred and eighty million rand) and in the further sum of R54 000 000.00 (fifty-four million rand):

 

a.         portion 209 of Erf 534, Wadeville Township, Gauteng is declared to be especially executable;

b.         that Erf 277, Wadeville Township, Gauteng is declared to be especially executable;

 

12.5 The plaintiff, through the sheriff of the court or his/her deputy, is authorized, empowered and instructed, for purposes of perfecting and protecting the plaintiff’s security in terms of General Notarial Covering Bond No.BN02166/13 dated 12 March 2019, to enter upon the first defendant’s premises situated at 1 Sandton Drive, Sandhurst and any other premises at which the first defendant’s movables may be found and to there to attach, take control of and secure all of the movable property listed in the Annexure to the said bond;

 

12.6 That the plaintiff is entitled to execute upon the following Deeds of Cession:

a.         The first defendant’s debtors in terms of the Deed of Cession between the plaintiff and the first defendant dated 16 February 2018;

b.         The second defendant’s Shareholders Loans in the first defendant in terms of the Deed of Cession between the second defendant and the plaintiff dated 16 February 2018;

c.          Cession of the second defendant’s shares held in the first defendant in terms of the Deed of Cession between the plaintiff and the second defendant dated 16 February 2018;

 

12.7  The third to sixth defendants are declared to be delinquent directors, within the meaning contemplated by Section 162 of the Companies Act 71 of 2008;

 

12.8  The declaration of delinquency in prayer is unconditional and subsists in perpetuity, alternatively, is subject to such conditions as this court deems appropriate as per Section 162(6)(b) of the Companies Act 71 of 2008;

 

12.9  Costs of suit on the scale as between attorneys and own client against the defendants;

 

12.10            Further and/or alternative relief.

 

[13]       The plaintiff filed comprehensive particulars of claim wherein the basis of the claim was laid. The copies of all the written contract were annexed to the pleadings. The agreements and the relevant conditions as pleaded in the particulars of claim are outlined below. The second defendant filed its plea and the plaintiff filed an application for summary judgement.

 

The Facility Agreement

 

[14]       On 2^nd November 2017, the plaintiff extended an offer to the first defendant at an amount of R125 000 000.00 (one hundred and twenty-five million rand). The Offer Letter carried with it several terms and conditions intended to be applicable to further contracts which would be of material value to the extended offer. The offer was duly accepted on 16^th February 2018. On the same day, a Facility Agreement between the plaintiff and the first defendant was entered into the effect of the Offer Letter. The purpose of the Facility was to fund property acquisition at a value of R65 000 000.00 (sixty-five million rand) and a further R60 000 000.00 (sixty million rand) was extended for the working capital and operational expenses of the first defendant. The Facility, collectively with the property and working capital loan was subject to a six-month payment moratorium from date of its terminal withdrawal date by the first defendant. Thereafter, in terms of the contract, the first defendant would repay the Facility in 120 equal monthly instalments annuity as determined by the plaintiff, the first which would be paid on the first day of the seventh month after the first drawdown date (the date of any other drawing under the loan as specified in the Facility), and the remainder thereafter, on the first day of each succeeding month until those debts were discharged. The Facility would bear interest at 3.5% above the prime rate from the first drawdown date for as long as the first defendant was not in any breach of any of its development obligations.

 

[15]       It was further stated if the first defendant were to breach any of its development obligations (to maintain a BEE rating of at least 4, maintain its current employment level of 701 employees and procure that the second defendant holds a minimum of 85% of the shareholding in the first defendant), then the Facility, would, at the sole discretion of the plaintiff bear interest of up to 4% above the prime overdraft rate. The plaintiff also made provision to, at its sole discretion, adjust the interest rate to the interest rate in the preceding paragraph should the first defendant remedy the breach of its development obligations within 14 days from date of it being notified of its breach, in writing by the plaintiff.

 

[16]       The Facility was subject to the plaintiff’s standard terms and conditions. For present purposes, I consider the below (though I do not intend to suggest in any way that they are exhaustive) standard terms and conditions applicable to the Facility Agreement to be of relevance:

 

16.1. Clause 12.1: stipulated that if the first defendant, for any reason failed to make payment on the due date, or if it committed any breach, or failed to observe any of the provisions of the Finance Documents, then:

 

a.         Sub-clause 12.1.1, without prejudice to plaintiff, the interest rate applicable to the loans would be increased to the default rate for the duration of the breach or failure;

 

b.         Sub-clause 12.1.2, the full amount owing under the Facility plus all other amounts and costs would, failing such rectification of such breach or failure where remedy was possible, within 14 days of the first defendant having been given notice in writing by the plaintiff of such breach or failure, forthwith and without any further notice, would become repayable to the plaintiff and it would be entitled to withhold any amount not yet advanced to the first defendant.

 

16.2. Clause 12.2: without prejudice to the rights which the plaintiff may have under the Facility letter and in law, any amount owing under the Facility letter, or any other Finance Document shall immediately and without notice become payable upon the occurrence of any of the following events which would be the first defendant’s breach of the Offer Letter, namely, if:

 

a.         Sub-clause 12.2.1, a material adverse event occurs;

b.         Sub-clause 12.2.5, any indebtedness of the first defendant’s was not paid when due, or within any applicable grace period (save if the failure is due to an administrative or technical error, in which event the relevant amount would be paid within 5 (five) business days of the due date for payment); or any creditor of the first defendant becomes entitled to declare any indebtedness due and payable prior to its specified maturity as a result of any event of default (howsoever described);

c.          Sub-clause 12.2.7, the first defendant did not comply with any provision of any material agreement to which it is a party.

 

16.3. Clause 13.4: the amount of the first defendant’s indebtedness to the plaintiff in terms of the Facility would be determined and proved by a mere production of a certificate purported to have been signed by any official or authorized signatory of the plaintiff.

 

The Warranty, Representations, and Undertaking’s clauses:

 

[17]       Clause 8.1: stipulated that on Signature Date, and for the duration of the Offer Letter, and save as otherwise disclosed by the first defendant to the plaintiff in writing, the first defendant represents and warrants to the plaintiff that:

 

a.         Sub-clause 8.1.2, it has the capacity to its own assets and carry on its business as it is currently conducted;

 

b.         Sub-clause 8.1.3, the obligations expressed to be assumed by the first defendant in the Finance Documents to which it is a party are legal, valid, binding and enforceable obligations;

 

c.         Sub-clause 8.1.4, It has the power and the authority to enter into and perform and take all necessary action to authorise its entry into, and performance, in terms of the Finance Documents.

 

[18]       Clause 8.2: stipulated that the plaintiff entered into the Finance Documents to which it is a party on the strength of and relying on the representations and warranties given to it by the first defendant in the Offer Letter, and on the basis that such representations and warranties will, save as specifically stated otherwise, be true and correct. Each representation and warranty shall be deemed to be a separate representation and warranty given without prejudice to any other representations and warranty and deemed to be a material representation inducing the plaintiff to enter into the Offer Letter or any other Finance Document of which it is a party. And that the first defendant will promptly inform the plaintiff of any event or any circumstance whatsoever to which it is likely to affect the accuracy or modify any representation, warranty, undertaking or convent of them in terms of the Facility terms and conditions and to the extent necessary, the Offer Letter.

 

The Revolving Credit Facility

 

[19]       On 06 March 2018, the plaintiff extended to the first defendant an additional aggregate amount of R60 000 000.00 (sixty million rand). Thus, a Revolving Facility Agreement was entered in by the parties, two days later, on 08 March 2018. The purpose of the Revolving Credit Facility was to fund the working capital requirements of the first defendant in respect of the contracts. It was agreed that first defendant was to fully repay the Revolving Credit Facility by not later than six months after the terminal drawing date. Further agreed was that the Revolving Credit Facility would bear interest at a rate of 3.5% above the prime overdraft rate from the first drawdown date (the date of any other drawing under the loan as specified in it) for as long as the first defendant was not in breach of any of its development obligations.

 

[20]       Further stated, was that if the first defendant were to breach any of its development obligations (to maintain a BEE rating of at least 4, maintain its current employment level of 701 employees and procure that the second defendant holds a minimum of 85% of the shareholding in the first defendant), then the Revolving Credit Facility, would, at the sole discretion of the plaintiff bear interest of up to 4% above the prime overdraft rate. The plaintiff also made provision to, at its sole discretion, adjust the interest rate to the interest rate in the preceding paragraph should the first defendant remedy the breach of its development obligations within 14 days from date of it being notified of its breach in writing by the plaintiff.

 

[21]       The Revolving Credit Facility was subject to the plaintiff’s standard terms and conditions. For present purposes, I consider the below (though I do not intend to suggest in any way that they are exhaustive) standard terms and conditions applicable to be of relevance:

 

21.1. Clause 15.1: If the first defendant failed for any reason whatsoever to make any payment under the Finance Documents when due and payable or if they committed any breach or failed to observe any of the provisions of the Finance Documents then, without prejudice to the rights, which the plaintiff may have under the Revolving Credit Facility and the terms and conditions or any other Finance Document or at law, then by written notice to the first defendant:

 

a.         Sub-clause 15.1.1, the interest rate applicable to the loan would be increased to the default rate for the duration of such breach or failure; or

 

b.         Sub-clause 15.1.2, the plaintiff would have right to declare any amount owing under the Revolving Credit Facility or any other Finance Document immediately due and payable (whereupon same would become payable together with the accrued interest but unpaid interest on each loan calculated up to and including the default rate;

 

Breach

 

[22]       It was determined that should any of the below provisions occur, they would be deemed to be a breach of the Revolving Credit Facility by first defendant, namely, if:

 

a.         Sub-clause 15.1.4, a material adverse event occurs;

 

b.         Sub-clause 15.1.8, any indebtedness of the first defendant was not paid when due or within any applicable grace period (save if the failure is due to an administrative or technical error, in which event the relevant amount would be paid within 5 business days of the due date for payment); or any creditor of the first defendant becomes entitled to declare any indebtedness of the first defendant due and payable prior to its specified maturity as a result of any event of default (howsoever described);

 

c.         Sub-clause 15.1.10, the first defendant did not comply with any provision of any material agreement to which it was a party.

 

[23]       Further stipulated was that the amount of the first defendant’s indebtedness to the plaintiff in terms of the Revolving Facility Agreement would be determined and proved by a mere production of a certificate purported to have been signed by any official or authorized signatory of the plaintiff.

 

The Guarantee Agreement

 

[24]       Clause 3 of the Guarantee Agreement concluded by the plaintiff and the second defendant stipulated that with effect from the Effective Date, the second defendant irrevocably and unconditionally guaranteed as a primary obligation, in favour of the plaintiff the due and proper performance by the first defendant of the guaranteed liabilities including the full, prompt and complete payment of all guaranteed liabilities when and as the same would become due whether or not or all of the guaranteed liabilities were enforceable against the first defendant. It bound itself further that each time the plaintiff delivered a guarantee claim notice to it, they would within 3 business days pay all sums claimed in such guarantee claim notice.

 

[25]       Clause 6.5 defined the Guarantee Agreement as an unlimited guarantee in contradistinction to a suretyship and shall be construed as a primary undertaking giving rise to a principal obligation of the second defendant.

 

[26]       Clause 5.1 stipulated that the Guarantee is a continuing covering security and will commence on the Effective Date and remain in force until the Release Date.

 

[27]       In sub-clause 5.2.1, the second defendant bound itself to remain liable for all debts secured thereunder the Release Date (including any variation or novation of those debts which may subsequently be agreed on, or which may take effect by operation of law or otherwise.

 

[28]       In clause 6.2 the second defendant waived their rights to demand the plaintiff first make any demand or proceed against any claim against the first defendant before demanding or proceeding on the same from the second defendant.

 

[29]       Clause 9.1. stipulated that the Guarantee Agreement shall be in addition to, and not in substitution for any other undertaking or other security held or thereafter to be held by the plaintiff from both first and/or second defendant or any third party in connection with the guaranteed liabilities or otherwise, and the rights of the plaintiff under the agreement will not be affected or diminished thereby. It was also reserved that without prejudice to any other rights of the plaintiff under the Agreement it can, at its sole discretion, release any such additional security held by it.

 

[30]       In clause 10.1, the second defendant acknowledged and agreed that their obligations under the agreement are absolute and, without in any way limiting or derogating from any of the other provisions of the Agreement, it shall on the Effective Date, remain and be bound to the full extent of the Agreement which shall always be fully and immediately enforceable in accordance with its terms, notwithstanding:

 

a.         Sub-clause 10.1.1, any dispute or defence which may be raised by them in regard to any amounts or other performance claimed from them in terms of and pursuant to the provisions of the Guarantee Agreement;

 

b.         Sub-clause 10.1.3, any invalidity or unenforceability or lack of authorisation of or other defect in the Guarantee Agreement, the Loan Agreement, or any other agreement to which the plaintiff, the first and/or second defendant is or are a party to relating to the subject matter thereof;

 

c.         Sub-clause 10.1.6, any time or other indulgences being granted or agreed to be granted to the first and/or second defendant, or the plaintiff not exercising any one or more of its rights in the Guarantee Agreement or under the guaranteed liabilities.

 

[31]       Clause 10.2 stipulated that if the Loan Agreement and/or the guaranteed liabilities were to become amended or varied in any manner whatsoever, the Guarantee Agreement would apply in respect of said amended or varied loan agreement or guaranteed liabilities.

 

The Guaranteed Liabilities

 

[32]       Clause 1.1.8 defined the guaranteed liabilities as any present and future moneys and liabilities (whether actual or contingent and whether owed jointly and severally or in any other capacity whatsoever) whereupon on signature or thereafter whether actual, contingent and whether owed jointly or severally or in any other capacity whatsoever) owing by the first defendant to the plaintiff in terms of the Finance Documents and which the plaintiff was entitled to recover from it in terms of the Finance documents, including all items which would be guaranteed liabilities, but for the winding up, absence of legal personality or incapacity of the first defendant or any other statute of limitation; and a reference to guaranteed liability would be to any one or more of the guarantee liabilities as the context requires.

 

The Offer Letter (dated 16^th February 2018) terms and conditions

 

[33]       For present purposes, I consider the below (though there may be other) terms and conditions supplied with the Offer Letter to be of relevance. They provided interpretative definitions applicable to the contract:

 

a.         Clause 1.1. defined “Advance” as any moneys lent and advanced by the plaintiff to the first defendant pursuant to the Offer Letter and its terms and conditions so as to finance the needs of the first defendant as represented to the plaintiff wherein the aggregate of all advances shall not exceed the Facility;

 

b.         Clause 1.27 defined “the Offer Letter” as the Facility Letter/s entered into by the first defendant and the plaintiff in respect of any loan(s) / facilities provided to the first defendant made by the plaintiff from time to time;

 

c.         Clause 1.25 defined the “Loan(s)” as each loan made or to be made under the Offer Letter or the principal amount outstanding for the time being of that loan and advanced by the plaintiff to the first defendant where the aggregate of all loans shall not exceed the Facility.

 

d.         Clause 1.21 defined the “Finance Documents” as:

i.            The Offer Letter (sub-clause 1.21.1);

ii.          Any one or more security provided by the first defendant in favour of the plaintiff in terms of the Offer Letter (sub-clause 1.21.2); and

iii.         Any other written agreement designated as a Finance Document by the plaintiff and the first defendant (sub-clause 1.21.3);

 

e.         Clause 1.36 defined the “Signature Date” as the date on which the Offer Letter is signed by the last party;

 

f.          Clause 1.28 defined the “Parties’” as the first defendant and the plaintiff or any one of them as the context requires.

 

[34]       Clause 2.1.4 stipulated that unless a contrary indication appeared otherwise, the Finance Documents also extended to any other agreement or instrument as a reference to that Finance Document as amended, novated, supplemented, executed or resisted.

 

[35]       Clause 2.3 stipulated that unless a contrary indication appeared otherwise, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document, has the same meaning in that Finance Document or notice as in the Offer Letter.

 

[36]       Clause 2.7 stipulated that the ‘Schedule’ to any Finance Document forms an integral part thereof and a reference to a “Clause” or a “Schedule” is a reference to a clause of, or a schedule to the Offer Letter.

 

[37]       Finally, clause 13.13 stipulated that the Offer Letter may be executed in any number of counterparts and by different parties thereto its separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.

The Revolving Credit Facility Agreement terms and conditions

 

[38]       For present purposes, I consider (though there may be other) terms and conditions supplied with the Revolving Credit Facility Agreement to be of relevance. They provide interpretative definitions applicable to the contract: They are in many respects, almost identical to the interpretive definitions in the terms of the aforesaid Offer Letter.

 

a.         Clause 1.1 defined “Advance” as any monies lent and advanced by the plaintiff to the first defendant by way of a loan pursuant to the Offer Letter, its terms and conditions to finance the needs of the first defendant as represented to the plaintiff where the aggregate amount of all advances shall not exceed the Facility amount;

 

b.         Clause 1.27 defined the “Finance Documents” as the:

i.           The Revolving Credit Facility terms and conditions (sub-clause 1.27.1)

ii.          The Offer Letter (sub-clause 1.27.2)

iii.         Each Individual Loan Authorisation (ILA) – (sub-clause 1.27.3);

iv.        Each request for advance form to be completed by the first defendant prior to any advance, a specimen of which is contained in annexure B attached to the Offer Letter (sub-clause 1.24.4)

v.          Any one or more documents evidencing the security provided by the security provider(s) in favour of the plaintiff IDC as required in terms of the Offer Letter (sub-clause 1.27.5);

vi.        Any amendments to the above documents (sub-clause 1.27.6); and

vii.       Any other agreement or document designated as a Finance Document by written agreement between the plaintiff and the first defendant (sub-clause 1.27.6);

 

c.         Clause 1.36 defined the “Signature Date” as the signature date of the party last signing the Offer Letter in time;

 

d.         Clause 1.28 defined “Parties’” as the first defendant and the plaintiff and any one of them as the context requires.

 

The Guarantee Agreement (dated 16^th February 2018) master terms and conditions

 

[39]       For present purposes, I consider (though there may be other) terms and conditions supplied with the Guarantee Agreement to be of relevance. They provide interpretative definitions applicable to the contract:

 

a.         Clause 1.1.6 defined the “Guaranteed amount” as any amount calculated from time to time with reference to the guaranteed liabilities, and payable by SPG r pursuant to the Agreement.

 

b.         Clause 1.1.7 defined the “Guarantee Claim Notice” as being a written notice delivered by the plaintiff to the second defendant setting out the aggregate amount claimed by the plaintiff at that time.

 

c.         Clause 1.1.8 defined the “Guaranteed Liabilities” as any present and future moneys and liabilities (whether actual or contingent and whether owed jointly and severally or in any other capacity whatsoever) whereupon on signature or thereafter whether actual, contingent and whether owed jointly or severally or in any other capacity whatsoever) owing by the first defendant to the plaintiff in terms of the Finance Documents and which the plaintiff was entitled to recover from the first defendant in terms of the Finance documents, including all items which would be Guaranteed Liabilities, but for the winding up, absence of legal personality or incapacity of the first defendant or any other statute of limitation, and a reference to Guaranteed Liability would be to any one or more of the guarantee liabilities as the context requires.

 

d.         Clause 1.1.11 defined the “Loan Agreement” as being the loan agreement to be concluded by the first defendant and the plaintiff on or about the Signature Date.

 

e.         Clause 1.1.15 defined the “Signature Date” as the date of the Agreement by the party last signing the Guarantee Agreement.

 

f.          Clause 1.1.8 defined the “Release Date” as the date upon which the plaintiff, in writing, notifies the second defendant that they are released from their obligations in terms of the Guarantee Agreement.

 

g.         Clause 1.1.4 defined the “Effective Date” to bear the meaning ascribed to it in terms of the Loan Agreement (above).

 

Warranties, Representations and Undertakings

 

[40]       Clause 12.1 stipulated that each warranty, representation and undertaking set out in the Guarantee Agreement was deemed to be a separate warranty, representation and undertaking and would in no way be limited or restricted by reference to or inference from the terms of any other warranty, representation or undertaking.

 

[41]       Furthermore, in clause 12.2 the second defendant accepted that the plaintiff entered into the Guarantee Agreement and the Loan Agreement based on, and in full reliance on each of such warranty, representation and undertaking.

 

The Application for Summary Judgement

 

[42]       I now turn to deal with the pleadings filed in support of the application for summary judgment particulars of claim and plea respectively, and similarly the affidavit filed in support of, and against the relief sought in the application.

 

[43]       The applicant has filed comprehensive particulars of claim regarding this matter. Initially the plaintiff sought various orders against the first to the sixth defendant much of which were subsequently abandoned in their heads and during oral argument. The applicant avers that soon after these proceedings were launched, on 11 May 2020, the first defendant was placed into business rescue. As a result, the plaintiff is no longer pursuing relief against the first defendant.

 

[44]       At present, the plaintiff is only seeking relief against the second defendant. Its claim against the second defendant is based on the Guarantee Agreement.

 

[45]       An affidavit by Tokelo P. Moloi was used in support of the application. Mr Moloi described himself as a Senior Legal Adviser in the Legal Service Department of the plaintiff. He stated that the facts contained in the affidavit, save for where the context indicate otherwise, fell within his personal knowledge.

 

[46]       In line with the new Rule 32, he stated that he positively verified the cause of action and amounts claimed in the summons by the plaintiff. Furthermore, he identified the points of law and facts upon which the plaintiff’s claim is based on, and he explained why the defences, as pleaded by the second defendant do not raise a triable issue.

 

[47]       For convenience, it is incumbent on me to quote paragraph 4, 6 and 7 of Molio’s affidavit to illustrate how the plaintiff pleaded its case in the application for summary judgement. The relevant averments are couched as follows:

 

‘Plea (Para 4)

Claim against the second defendant

 

4.1    On 16 February 2018, at Johannesburg, the second defendant duly represented, in writing, bound itself as a guarantor to the plaintiff for the guaranteed liabilities of the first defendant.

 

4.2    The first defendant has failed, despite, due demand, to settle its debt on the Facility and Revolving Credit Facility agreements within the time for repayment contemplated by those agreements.

 

4.3    In the light of the first defendant’s indebtedness, the second defendant is liable to the plaintiff to settle the debts of the first defendant, which despite demand, it has failed to settle.

 

4.4    The guarantee is a principal obligation in its own right and not an accessory obligation to which, the second defendant is liable thereto as a co-principal debtor.

4.5    the second defendant has pleaded a bare denial to the plaintiff’s claim and failed to put up an defence or place facts before the court why it is not liable to the plaintiff.

….

(Para 6)

Capital Sum

 

6.1    The defendants have pleaded a bare denial to the capital sum claimed by the plaintiff.

6.2    The second defendant has made payment towards the capital sum in the amount of R12 400 000.00

6.3    Therefore, the plaintiff moves for summary judgement on the reduced amount in respect of the sum of:

6.3.1             R122 008 447.38

6.3.2             R64 487 779.72

 

Plus interest on the sums aforesaid from the date of certificate of balance, at the rate of 4% above the publicly quoted basic rate of interest per annum, compounded monthly in arrears and calculated on a three hundred and sixty five day year (irrespective of whether or not the year is a leap year) from time to time published by First Bank Ltd as being its prime overdraft rate as certified by any manager or a divisional director of its First National Bank or Rand Merchant Bank divisions.

 

6.4    The sums claimed are liquidated sums, verified by the certificate of balance.’

 

[48]       The plaintiff alleges that the conditions precedent in the agreements were fulfilled, and the plaintiff duly complied with its own obligations in terms of the agreement and advanced the full extent of the facilities offered on both the Facility and Revolving Credit Facility agreements.

 

Resistance to summary judgement

 

[49]       The application is opposed by the second defendant. Whilst it admits the Facility Agreement (the loan), it denies the Guarantee Agreement. The second defendant raised several merit and technical defences in resistance to the summary judgement application.

 

The technical defences

 

Alleged non-compliance with Uniform Rule 32(2)(a) – the personal knowledge defence

 

 

[50]       The second defendant submits that Moloi, the deponent of the affidavit in support of the application for summary judgement, has no knowledge of any of the fact set out in the particulars of claim nor in the application for summary judgement. The submission goes on to state that this is evidenced by Moloi’s qualifier of the affidavit by inclusion of the words, ‘save for the context indicates otherwise’ the facts set out therein fell within his personal knowledge.

 

[51]       It avers that Moloi was not involved in the conclusion nor in the implementation of any of the agreement referred to in the application, or in any of the averments made against the third to fourth defendant. He only deals with the litigation on behalf of the plaintiff and only became involved in the disputes between plaintiff and the defendants when the matter became litigious. The fact that he has no knowledge of the averments set out in his affidavit is demonstrated by his failure to properly verify the plaintiff’s cause of action in which respect the summary judgement is sought on (the defendant ventilates this more fully below).

 

Alleged non-compliance with Uniform Rule 32(2)(b) – the verification defence

 

[52]       The second defendant states that the particulars of claim and the application for summary judgement contain distinctly different causes of action. For instance, in paragraph 3 of his affidavit, Moloi verifies “the cause of action and the amount claimed in the summons” in the singular. The second defendant states that it is unclear what “cause” of action and amount claimed Moloi has verified as the verification of a singular cause of action could very well apply to the plaintiff’s claim for summary judgement against second to sixth defendant, but of which has been since withdrawn. Consequently, the affidavit is not in compliance with rule 32(2)(b) and therefore defective.

 

[53]       The second defendant submitted further, that the affidavit in support of the application for summary judgement fails to identify and verify all the facts supporting the causes of action on which the summary judgement is sought.

 

The merit defences

 

[54]       On the purported merit defences, the crux of the second defendant’s argument is that the Guarantee Agreement never came into effect. This argument is lies on the allegation that one of the conditions’ precedents in the Facility Agreement was not fulfilled or waived in writing by the plaintiff. It goes on to argue that the Guarantee Agreement was only to come into existence “with effect from the Effective Date”. The “Effective Date” is described as “a date which is one business day after the date on which the conditions’ precedent are fulfilled or deemed to be fulfilled or waived by the plaintiff.” This argument is made despite the second defendant’s concession that the Facility Agreement contained not only one, but several conditions’ precedent.

 

[55]       The premise of the above averment lies on clause 5.1 read together 5.1.20 of the Facility Agreement which says, ‘the advance of any Loan by the Lender is subject to the following conditions precedent being fulfilled (or waived by the Lender in writing) to the satisfaction of the Lender, namely that, there be receipt by the Lender of proof of the Borrower’s name change from “Energy Fabrication (Pty) Ltd” to Generic Engineering (Pty) Limited’.

 

[56]       The second defendant alleges that the name of the first defendant was never changed to “Generic Engineering (Pty) Limited” and the said condition precedent was never fulfilled or deemed to be fulfilled or waived in writing.

 

[57]       In sum, the second defendant’s argument is that the guarantee was supposed to only take effect when all the conditions’ precedent in the Facility Agreement are fulfilled or deemed to be fulfilled or waived by the plaintiff in writing. Therefore, because this one condition precedent was not fulfilled or deemed to be fulfilled or waived in writing, the Guarantee Agreement did not come into force.

 

[58]       The second defendant argued that in the event that I find that the Guarantee Agreement came and/or is of force and effect, then it should only be limited to the Facility Agreement and not extended to cover the liabilities under the Revolving Credit Facility, of which they argue, is a separate agreement as it was concluded on 8 March 2018 and not on the signature date of the Facility Agreement, namely being 16^th February 2018.

 

[59]       In stressing the point that the Guarantee Agreement was allegedly never intended to extend to the Revolving Credit Facility, the second defendant argues that the inclusion of clause 9 read with 9.4 in the Revolving Credit Facility letter which reads that the plaintiff is required to provide security for the Facility in the form of an unlimited guarantee from the second defendant in favour of the plaintiff Lender. The submission goes on to say that if in fact the Guarantee Agreement was intended to be extended to Revolving Credit Facility, then there would have been no need for this clause. As such, the plaintiff’s claim that the Guarantee Agreement extends to the Revolving Credit Facility is ill-founded.

 

[60]        I was called by the parties to interpret the Revolving Credit Facility agreement to determine whether it forms part of the original Facility Agreement of which the second defendant underwrote or whether it is a separate contract.

 

[61]       But even if I were to find that the Guarantee Agreement extends to the Revolving Credit Facility or vice versa, the second defendant argues the Revolving Credit Facility agreement is also of no force and effect because one or more of the conditions’ precedents in it were not fulfilled by the first defendant. For instance, the guarantee from the second defendant in favour of the plaintiff for the obligations of the first defendant to the plaintiff and clause 9.7 of the Revolving Credit Facility (“a Pledge and Cession of Shares held by Shareholders in the first defendant”) were allegedly not furnished to the plaintiff. As the security was not provided to the plaintiff, the second defendant did not comply with the peremptory requirements of Section 45 of the Companies Act. Thus, due to the non-compliance with the conditions’ precedent in the Revolving Credit Facility, it too did not come into existence and therefore, is of no effect and force.

 

[62]       Lastly, the second defendant avers that particulars of claim do not articulate the basis of which the plaintiff is claiming accelerated payment on the equal monthly instalments and the basis of which the plaintiff claiming interest at the rate of 4% above the publicly quoted basic rate of interest per annum. The aforesaid clause provides that the plaintiff is only entitled to claim interest on the default rate or accelerated payment only whereby it has given written notice to the first defendant of its breach and having done so, the first defendant fails to remedy the breach within 14 days of having received said notice. The argument goes on to say that the plaintiff has not in its particulars of claim indicated that they have given the required written notice to the first defendant.

 

The issue

 

[63]       The issue to be determined by this court is whether second defendant has raised triable issues, and whether it has raised a bona fide defence.

 

The law

 

Summary judgement legal principles

 

[64]       The legal principles applicable to the determination of whether to grant a summary judgment have long been settled. Despite the changes introduced by the amendment of rules governing summary judgement, Maharaj v Barclays National Bank Limited[1] remains authoritative. Corbet JA said the following:

 

Accordingly, one of the ways in which a defendant may successfully oppose summary judgment is by satisfying the Court by affidavit that he has a bona fide defence to the claim. Whether the defence is based upon facts in the sense that material facts alleged by the plaintiff in his summons or combined summons are disputed or new facts are alleged constituting a defence, the Court does not attempt to decide these issues or to determine whether or not there is a balance of probabilities in favour of the one party or the other. 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 facts so disclosed the defendant appears to have as either whole or part of the claim, a defence which is both bona fide and good in law.

 

Uniform Rules of Court applicable to summary judgements

 

[65]       Rule 32 of the Uniform Rules of Court was amended with effect from 19 July 2019. The new Rule 32 now stipulates 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;

(c)       for delivery of specified movable property; or

(d)       for ejectment;

together with any claim for interest and costs.

 

(2)       (a) Within 15 days after the date of delivery of the plea, the plaintiff shall deliver a notice of application for summary judgment, together with an affidavit made by the plaintiff or by any other person who can swear positively to the facts;

(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;

(c)     If the claim is founded on a liquid document a copy of the document shall be annexed to such affidavit and the notice of application for summary judgment shall state that the application will be set down for hearing on a stated day not being less than 15 days from the date of the delivery thereof.

 

(3) The defendant may-

(a) give security to the plaintiff to the satisfaction of the court for any judgment including costs which may be given; or

(b) satisfy the court by affidavit (which shall be delivered five days before the day on which the application is to be heard), or with the leave of the court by oral evidence of such defendant or of any other person who can swear positively to the fact that the defendant has a bona fide defence to the action; such affidavit or evidence shall disclose fully the nature and grounds of the defence and the material facts relied upon therefor.

(4) No evidence may be adduced by the plaintiff otherwise than by the affidavit referred to in subrule (2), nor may either party cross-examine any person who gives evidence orally or on affidavit: Provided that the court may put to any person who gives oral evidence such questions as it considers may elucidate the matter.

 

[66]       Maswazi AJ in Chris Hani District Municipality v HJT Transport Mining Civils (Pty) Limited[2], an unreported case of the Eastern Cape Division, neatly summarised the principles of the new rules as follows:

 

The other innovation introduced by the new rule is the requisite allegations that the plaintiff must make in the supporting affidavit. Whilst in the old rule, the plaintiff was required to verify the cause of action and merely state that in his view the defendant does not have a bona fide defence, under the new rule, he must in addition deal with any points of law raised in the plea to explain why the plea does not raise a triable issue. Under the old rule, it was the defendant who was required to elaborately set out his defence in such manner that the nature of the defence is fully disclosed and the facts underpinning such a defence point to the existence of a defence. Under the new rule, the plaintiff for his part is required, since the summary judgment is filed after the defendant has filed a plea, to deal with the allegations made in the plea in his own affidavit, to which the defendant must answer.[3]

 

What is apparent from the new rules is that the defendant must file a plea first so that if summary judgment is sought, any affidavit filed by the defendant to resist the summary judgment is consistent with the defence set out in his plea. In my view this gives the summary judgment remedy its true value from its original and classical inception, as a remedy against a defenceless defendant who files a spurious defence just so that the proceedings are delayed at the expense of a plaintiff with a meritorious claim. What is then called for, in my view, at a minimum, is the consistency between the plea where the defendant alleges his defence and affidavit filed on the basis of which the latter resists summary judgment. A defendant who pleads a particular defence in his plea and alleges vastly different facts in his affidavit filed to resist summary judgment can hardly be said, in the absence of a plausible explanation, to have a bona defence. What is more, were such tendency were to be countenanced, summary judgment would lose its true value and purpose.[4]

 

[67]       In Tumileng Trading CC v National Security and Fire (Pty); E & D Security Systems CC v National Security and Fire (Pty) Ltd, Binns-Ward J provided a narrative overview of the summary judgment; its intended purposes and the standard that must be met by the litigants to enjoy the benefit of it. It is prudent to extract it as is given in that judgement:[5]

As the object of the amendments does not emerge altogether clearly from the wording, which might easily be read to have introduced purely mechanical changes, it is relevant to refer to the Memorandum published by the Task Team constituted by the Rules Board[6] when it advertised for comment as to whether rule 32 should be amended.[7]

 

The Task Team had concluded that the existing procedure was unsatisfactory because (i) ‘deserving plaintiffs were frequently unable to obtain expeditious relief because of an inability to expose bogus defences (either in their supporting affidavit or in any further affidavit – further affidavits not being permitted)’, (ii) ‘opportunistic plaintiffs were able to use the procedure to get the defendant to commit to a version on oath and thus obtain a tactical advantage for a trial in due course’ and (iii) the constitutional challenges to which it reportedly had given rise. The Team considered that the identified causes for concern might ‘best be alleviated and addressed’ by (a) providing that an application for summary judgment be brought after the defendant had filed its plea rather than after it had given notice of intention to defend and (b) replacing the essentially pro forma (‘formulaic’) style of supporting affidavit in summary judgment applications with a supporting affidavit that ‘should instead identify any point of law relied upon and explain briefly why the defence as pleaded does not raise any triable issues’. (Emphasis in the original extract).

 

Paragraph 8 of the Memorandum gave the following ‘brief overview’ of the Task Team’s reasoning:

 

8.1     A plaintiff at present does not have to indicate what exactly its cause of action is, or what facts it relies on, or why a defendant does not have a defence. Instead, the plaintiff is merely required (and permitted) to file a brief affidavit, taken from a template, “verifying the cause of action” in the vaguest possible way, opining that the defendant has no bona fide defence, and stating that “a notice of intention to defend has been delivered solely for the purpose of delay” (rule 32(2). This formulaic affidavit is unsatisfactory in many respects.

 

8.1.1  The plaintiff, when deposing to its affidavit under the current rule, may well not be aware what defence the defendant is intending to advance.

8.1.2  The deponent of the affidavit (who could, for example, be an accounts manager in a bank) is also likely to have little idea as to why exactly the defendant is opposing: the defendant could for example believe (wrongly) that it has a viable defence, or that there is some impediment to the plaintiff succeeding irrespective of the merits (e.g. prescription, jurisdiction or lack of standing), or that the equities are such that a court could well be minded not to grant judgment for the plaintiff.

8.1.3  The current founding affidavit in summary judgment proceedings therefore invariably involves speculation on the part of the plaintiff’s deponent. The lack of specificity as to the plaintiff’s claim, and the complete lack of detail as to why the defendant’s envisaged defence is bogus, coupled with the absence of any replying affidavit, also means that the plaintiff can easily be frustrated by a defendant who is prepared to construct or contrive a defence, or rely on technical points.

 

8.2.    The best way of addressing these shortcomings would seem to be to require the founding affidavit in support of summary judgment to be filed at a time when the defendant’s defence to the action is apparent, by virtue of having been set out in a plea. This course is better than allowing a replying affidavit to be filed (as was suggested by a report prepared a few decades ago by the Galgut Commission). Merely including provision for a replying affidavit would not address the problems with the formulaic nature of the founding affidavit, and the speculation inevitably contained therein.

 

8.3     In the event of a plaintiff applying for summary judgment after the delivery of a defendant’s plea, the plaintiff would be able to explain briefly in its founding affidavit why the defences proffered by the defendant do not raise a triable issue; and should indeed be required to do so in order that the question of whether there is a bona fide defence which is capable of being sustained could be considered by the Court in a meaningful way. Requiring the plaintiff to set out why, in its view, it has a valid claim and why the defendant’s defence is unsustainable, would also remove the criticism that the defendant is being required to commit itself to a version when the plaintiff is not similarly burdened. Obliging the plaintiff to engage meaningfully with the case in its founding affidavit would moreover have the added benefit of reducing the temptation for a plaintiff to seek summary judgment as a tactical move (and as a way of forcing the defendant to commit to a version on oath, which can be subsequently used in cross-examination to discredit a witness of the defendant).

 

8.4     A stipulation that a plaintiff can only apply for summary judgment after delivery of a plea (rather than a notice of intention to defend) would also mean that the summary judgment application would be adjudicated on the basis of the defendant’s pleaded defence and thus hopefully avoid a situation (such as not infrequently occurs under the current rule) where a defendant’s version in its opposing summary judgment application diverges materially from its subsequently delivered plea. The summary judgment debate will thus hopefully be a more informed, and less, artificial, one, and engage with the real issues in the matter.’[8]

 

[68]       Referring to the extraordinary and drastic nature of the summary judgment remedy in Maharaj[9], Corbett JA reasoned that, ‘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’.

 

[69]       In Shepstone v Shepstone[10], Miller J said the following:

 

The court will not be disposed to grant summary judgment where, giving due consideration to the information before it, it is not persuaded that the plaintiff has an unanswerable case” and that… “a defendant may successfully resist summary judgment where his affidavit shows that there is a reasonable possibility that the defence he has advanced may succeed on trial.

 

[70]       Thus, where the court has a doubt as to whether the plaintiff’s case is unanswerable at trial, such doubt should be exercised in favour of the defendant and summary judgment should be refused. Furthermore, the court has an unfettered discretion, to grant or refuse the application for summary judgement even if, in the latter, the standard requirements resisting it have not been met.

 

Legal principles applicable to Guarantee Agreements

 

[71]       I now turn to the legal status of Guarantee Agreements .

 

[72]       In Loomcraft Fabrics CC v Nedbank Ltd & another[11] (later endorsed by Lombard v Landmark & others[12] below), the court described the nature of irrevocable letters of credit in the following terms:

 

The system of irrevocable documentary credits is widely used for international trade both in this country and abroad. Its essential feature is the establishment of a contractual obligation on the part of a bank to pay the beneficiary under the credit (the seller) which is wholly independent of the underlying contract of sale between the buyer and the seller, and which assures the seller of payment of the purchase price before he parts with the goods forming the subject matter of the sale. The unique value of a documentary credit, therefore, is that whatever disputes that may subsequently arise between the issuing bank’s customer (the buyer) and the beneficiary under the credit (the seller) in relation to the performance or, for that matter, even the existence of the underlying contract, by issuing or confirming the credit, the bank undertakes to pay the beneficiary provided only that the conditions specified in the credit are met. The liability of the bank to the beneficiary to honour the credit arises upon presentation to the bank of the documents specified in the credit, including typically a set of bills of lading, which on their face conform strictly to the requirements of the credit. In the event of the documents specified in the credit being so presented, the bank will escape liability only upon proof of fraud on the part of the beneficiary.

 

[73]       In Lombard v Landmark & others[13] the appellant (Lombard) entered into a Guarantee Agreement with SA Maritime Training Academy (the Academy) in favour of Landmark (the company whom the guarantee is given for). In terms of the guarantee, Landmark would conclude a “construction contract” with the Academy to build a two-storey centre for the Academy. It is of importance to note that the Guarantee Agreement was an independent contract between the Academy and Lombard, whereas the construction contract was a contract between Landmark and the Academy.[14]

 

[74]       The construction contract records that the Academy shall have the right to select security for the fulfilment of the contractor’s obligations. A certain clause 14.5 of the contract records that the security ‘shall be for the due fulfilment of the contractor’s liability in terms of the agreement’. The guarantee was the security selected by the Academy. It is in the form of a variable construction guarantee in terms of which the maximum liability is limited to the diminishing amounts of the guaranteed sum in relation to certificates of completion, as provided for in the guarantee itself.[15]

 

[75]       Subject to the maximum liability provided for, Lombard bound itself as principal debtor in favour of the Academy. It undertook to pay the Academy, on demand, the guaranteed sum, or the full outstanding balance upon the occurrence of one of two eventualities, namely, default by Landmark resulting in cancellation, or a liquidation order being granted against Landmark.[16]

 

[76]       Landmark was placed in liquidation.[17]

 

[77]       In the High Court, before Potgieter AJ, Lombard argued that, that the documents executed by Lombard, namely the Guarantee Agreement, were self-contained and created obligations distinct and separate from those created by the construction contract. But in terms of the guarantee, Lombard undertook to pay upon the occurrence of an event that materialised, namely, the liquidation of Landmark. It was submitted that Lombard was obliged to pay when called upon to do so by the Academy and the three respondents were in turn obliged to pay Lombard.[18]

 

[78]       The court decided the matter on the basis that the guarantee must be interpreted in conjunction with the construction contract. With reference to clause 14.5 referred to above, the court held that Lombard was only obliged to pay a claim under the guarantee if the claim was within the terms of the construction contract. It reasoned that, because the claim did not fall within that purview, Lombard was not obliged to pay and, consequently, neither was any one of the respondents.[19]

 

[79]       In the Supreme Court of Appeal, Navsa JA disagreed. He held that the High Court misconstrued the nature of the guarantee and the indemnities provided by the three respondents. In his view, the guarantee was to protect the Academy in the event of default by Landmark and it is to the guarantee that one should look to determine the rights and obligations of the Academy and Lombard.[20]

 

[80]       He further stated that, ‘the guarantee by Lombard is [the same as] irrevocable letters of credit issued by banks and used in international trade, the essential feature of which is the establishment of a contractual obligation on the part of a bank to pay the beneficiary (seller). This obligation is wholly independent of the underlying contract of sale and assures the seller of payment of the purchase price before he or she parts with the goods being sold. Whatever disputes may subsequently arise between buyer and seller is of no moment insofar as the bank’s obligation is concerned. The bank’s liability to the seller is to honour the credit. The bank undertakes to pay provided only that the conditions specified in the credit are met. The only basis upon which the bank can escape liability is proof of fraud on the part of the beneficiary. This exception falls within a narrow compass and applies where the seller, for the purpose of drawing on the credit, fraudulently presents to the bank documents that to the seller’s knowledge misrepresents the material facts.[21]

 

[81]       He continued to say that ‘Lombard undertook to pay the Academy upon Landmark being placed in liquidation. Lombard, it is accepted, did not collude in the fraud.[22]

 

[82]       Therefore, the Guarantee Agreement is an overriding agreement, a stand-alone agreement, wholly independent from whatever following contracts between the guaranteed (Landmark) and the Academy. The agreement records that Lombard would pay in the occurrence of an event, which did happen, and that was the liquidation of Landmark.

 

[83]       Similar cases relevant to the matter at hand are First Rand Bank Ltd v Brera Investments CC[23]; Guardrisk Insurance Company Ltd v Kentz (Pty) Ltd[24] and Investec Bank Ltd v Lombard Insurance Company Ltd and another[25].

 

[84]       First Rand Bank Ltd v Brera Investments CC:[26] On 3^rd October 2007 First Rand Bank issued a payment guarantee to the respondent Brera Investments CC to the amount of R12 997 972,36 including VAT. The guarantee recorded in a certain clause 1.1 that any reference to the agreement between the contractor and the respondent was for the purpose of convenience and – ‘shall not be construed as any intention whatsoever to create an accessory obligation or any intention whatsoever to create a suretyship.’[27]

 

[85]       Briefly, the facts in that case were on First Rand Bank lending necessary funds on a mortgage bond to Spirit of Africa for the development of the township. The sub-contract between the respondent (Brera Investments CC) and the developer provided for interim payments to the respondent on the issue of payment certificates by the principal agent (clause 31 of the sub-contract). The principal agent was obliged to issue an interim certificate every month until the issue of the final certificate (clause 31.1) and the contractor required to apply to the principal agent for payment to be made to a sub-contractor. The latter had to co-operate with and assist the contractor in the preparation of the claim by providing all the relevant documents and assessments of quantified amounts of works completed and materials and goods supplied (clause 31.2).[28]

 

[86]       The payment guarantees therein envisaged two situations where First Rand Bank could incur liability to the respondent. The first is where the sum certified in a payment certificate was not paid by the contractor within seven days. The second situation arises where the contractor fails to issue a payment certificate within seven days of a demand for it. The contractor failed to issue the payment certificate within the stipulated timeframe. Consequently, Brera Investments CC demanded payment from First Rand Bank in terms of the Guarantee Agreement. With First Rand Bank not budging to the demand, the Brera Investments CC launched an application in the High Court stating that both the situations covered by the Guarantee Agreement occurred, and therefore First Rand Bank was liable to make good on the debt of the contractor as per the contract clauses of the agreement.[29]

 

[87]       In the High Court, Nicholas J stated that since it was common cause that “the trigger events” occured, that is, the default on the certificates, First Rand Bank was liable to make good on payment in terms of the Guarantee Agreement.[30]

 

[88]       Aggrieved by this decision, First Rand Bank appealed to the Supreme Court of Appeal. They contended that they were entitled to rely upon events that occurred after demand had been made. In particular it was argued that the word ‘still’ in clause 3.2 had the effect that, if at any stage after the expiry of the seven day period referred to in clause 3.1 a payment certificate was issued, the respondent’s entitlement to demand payment would fall away and it would only be entitled to the certified sum, if any. Liability is thus based, so the argument went, on the continued failure by the principal agent to issue a payment certificate.[31]

 

[89]       Malan JA found that the arguments (above) of First Rand bank means that
liability depended, not on the conditions set out in clause 3, but on the continued
failure to provide the payment certificate. This he said, was strained and artificial reasoning for it would mean that the subsequent provision of a payment certificate (that is, after the seven day period set out in clause 3.1) would extinguish or exclude the guarantor’s liability or limit it to the amount certified.

 

[90]       In dismissing the appeal, Malan JA reiterated that,

 

a)         The autonomy of letters of credit, demand guarantees, performance bonds and similar documents is well recognised. It is only where fraud is involved that the issuing institution may decline liability.[32]

b)         A guarantee of this nature was thus of the same nature as a performance guarantee, performance bond or letter of credit and consists of an undertaking to make payment of an amount of money on the occurrence of a specified event.[33]

c)         This guarantee must be paid according to its terms, and liability under it is not affected by the relationship between other parties to the transactions that gave rise to its issue, particularly not with the question whether the sub-contractor performed in terms of his contract with the contractor.[34] (footnotes omitted).

 

[91]       Guardrisk Insurance Company Ltd and Others v Kentz (PTY) LTD:[35] This case turned on the interpretation and application of two construction guarantees that were issued by Guardrisk in favour Kentz (the respondent) at the behest of Brokrew Industrial (Pty) Ltd (the insured contractor). Kentz was one of the contractors involved in the construction of a new power generation plant, the Medupi Power Station, for Eskom. During September 2008, Kentz entered into a written construction contract (the construction contract) with Brokrew (the contractor) relating to the supply of ducting at Medupi. In terms of clause 4.2 of the construction contract, Brokrew was obliged, at its own cost, to secure ‘an irrevocable, on demand bank guarantee or a demand guarantee from a recognized financial institution’ for proper performance. This guarantee was referred to as the performance guarantee.[36]

 

[92]       A second construction contract which related to advance payment guarantees contained word almost identical to the performance guarantee. The advance payment was to facilitate commencement of the works by Brokrew, under the contract. This is typical of what is commonly referred to as construction guarantees.[37]

 

[93]       Theron JA held that the purpose of the guarantees was to protect the Lender in the event that Borrower could not perform its obligations in terms of the construction contract. Furthermore, the terms of the guarantees are clear. They create an obligation on the part of the guarantor to pay the Lender on the occurrence of a specified event. In that case, Brokrew was unable to service their debt in terms of the second construction contract.[38]

 

[94]       Of further importance (to be ventilated further below), Theron JA endorsed[39] Edward Owen Engineering Ltd v Barclays Bank International Ltd to the effect that performance guarantees are virtually promissory notes payable on demand, very similar to letters of credit.

 

[95]       In that case, Lord Denning stated that, ‘A bank which gives a performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the supplier has performed his contracted obligation or not; nor with the question whether the supplier is in default or not. The bank must pay according to its guarantee, on demand if so stipulated, without proof or conditions. The only exception is when there is a clear fraud of which the bank has notice.’[40]

 

[96]       It was recorded in the guarantees that, notwithstanding the reference to the construction contract, the liability of the bank as principal is absolute and unconditional and should not be construed to create an accessory or collateral obligation. The guarantees go further and specifically state that the bank may not delay making payment in terms of the guarantees by reason of a dispute between the contractor and the employer. Thus said Theron JA that Gaurdrisk was liable to the respondent in terms of the Guarantee Agreement.[41]

 

[97]       Similarly, in Investec Bank Ltd v Lombard Insurance Company Ltd and another,[42] Swanepoel AJ held that a performance guarantee is the same as a construction guarantee in our law, and they are the same as performance or construction bonds referred to as such in English law. Furthermore, the purpose of a performance guarantee is to assure a contracting party that it will be paid, or that it will receive value for its performance. The party requiring a performance guarantee wants to be unaffected by controversies or disputes that are extraneous to the performance guarantee.

 

Discussion

 

[98]       I now deal with the defences raised by the second defendant to determine if they raise any triable issue, and if so whether they raise a bona fide defence.

 

The Plea

 

[99]       The second defendant filed its plea. The plea is a bald denial. This is a far cry from the requirements of Rule 32 of the Uniform Rules of Court and the bar set by Maharaj.[43] Therein, Corbett JA said for a defendant to successfully resist summary judgement, he must satisfy the Court by affidavit that he has a bona fide defence to the claim. As such, he must (a) fully disclose 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 either whole or part of the claim, a defence which is both bona fide and good in law.

 

[100]    Maswazi AJ in Chris Hani District Municipality[44] elucidates this further. He states that compliance with the new Rule 32 is done by way of defendant filing a plea first, so that if summary judgment is sought, any affidavit filed by the defendant to resist the summary judgment is consistent with the defence set out in his plea. This he says, ’gives the summary judgment remedy its true value from its original and classical inception, as a remedy against a defenceless defendant who files a spurious defence just so that the proceedings are delayed at the expense of a plaintiff with a meritorious claim’.[45] Put differently, Navsa JA in Joob Joob v Stocks[46] stressed that, ‘ the summary judgment procedure was not intended to “shut (a defendant) out from defending”, unless it was very clear indeed that he had no case in the action. It was 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.’

 

[101]    Binns-Ward J in Tumileng Trading CC v National Security and Fire (Pty)[47]states that:

 

What the amended rule does seem to do is to require of a plaintiff to consider very carefully its ability to allege a belief that the defendant does not have a bona fide defence. This is because the plaintiff’s supporting affidavit now falls to be made in the context of the deponent’s knowledge of the content of a delivered plea. That provides a plausible reason for the requirement of something more than a ‘formulaic’ supporting affidavit from the plaintiff. The plaintiff is now required to engage with the content of the plea in order to substantiate its averments that the defence is not bona fide and has been raised merely for the purposes of delay.[48]

It seems to me, however, that the exercise is likely to be futile in all cases other than those in which the pleaded defence is a bald denial. This is because a court seized of a summary judgment application is not charged with determining the substantive merit of a defence, nor with determining its prospects of success. It is concerned only with an assessment of whether the pleaded defence is genuinely advanced, as opposed to a sham put up for purposes of obtaining delay. A court engaged in that exercise is not going to be willing to become involved in determining disputes of fact on the merits of the principal case. As the current applications illustrate, the exercise is likely therefore to conduce to argumentative affidavits, setting forth as averments assertions that could more appropriately be addressed as submissions by counsel from the bar. In other words, it is likely to lead to unnecessarily lengthy supporting affidavits, dealing more with matters for argument than matters of fact.[49]

 

[102]    Having considered the amended rules on summary judgement, the assessment of the defences advanced by the defendant in his plea and in his affidavit, I am of the view that the defences put by the second defendant have no substantive merits , this basis alone, the plaintiff’s application for summary judgement ought to succeed. However, for sake of completeness, I shall in turn make findings on each of the defences raised by the defendant.

 

[103]    The second defendant avers that Moloi was not involved in the conclusion or implementation of any of the agreement made against third to fourth defendants. He only deals with the litigation on behalf of plaintiff and on became involved in the disputes between plaintiff and the defendants when the matter became litigious. Therefore, the facts upon which the summary judgement is claimed on could not possibly be within the “personal knowledge of Moloi”.

 

[104]    This defence in my view lacks merit. The certificates of balance are signed by Moloi and according to clause 13.4 of the Facility Agreement, the parties agreed that it is sufficient for the plaintiff to prove the first defendant’s indebtedness by the production of said certificate by any official purported to have been authorized by the plaintiff. Moloi is such an official and/or authorised signatory.

 

Alleged non-compliance with Uniform Rule 32(2)(b) – the verification defence

 

[105]    The second defendant argues that the particulars of claim and the application for summary judgement contain distinctly different causes of action and they are unclear what “cause” of action and amount claimed that Moloi has verified. Furthermore, the affidavit in support of the application for summary judgement fails to identify and verify all the facts supporting the causes of action on which the summary judgement is sought.

 

[106]    This defence is also of no substance. The plaintiff’s particulars of claim are in minute detail as to the debt claimed. In response, save for certain concessions and admittance to some of the plaintiff’s averments, the second defendant has not substantiated its denial to the claims adduced by the plaintiff. I stress, they are duty obliged to do for reasons set out in both Maharaj and Chris Hani District Municipality (discussed above).

 

Conditions precedent in the Facility Agreement and the Revolving Credit Agreement

 

[107]    Though the defendant admits that there were several conditions stipulated in the Facility Agreement, but because one (or more) of them was allegedly never fulfilled, the Guarantee Agreement never came into effect because of the stipulation that the Guarantee Agreement was to come into existence “with effect from the Effective Date” and the “Effective Date” being described as “a date which is one business day after the date on which the conditions precedent is fulfilled or deemed to be fulfilled or waived in writing by the plaintiff”. The same line of argument is employed to deny the existence of the Revolving Credit Facility as well because, even thereto, several conditions’ precedent were also never fulfilled, hence it being of no force and effect.

 

[108]    To the above , Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] 1 All ER 976 (CA)[50] as endorsed by Theron JA in Guardrisk Insurance Company Ltd[51] is apposite. In Edward Owen Engineering Ltd case, Lord Denning held that,

 

‘A bank which gives a performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the supplier has performed his contracted obligation or not; nor with the question whether the supplier is in default or not. The bank must pay according to its guarantee, on demand if so stipulated, without proof or conditions. The only exception is when there is a clear fraud of which the bank has notice.’[52] (my emphasis).

 

[109]    In any event, clause 10.1 read together with sub-clause 10.1.6 of the Guarantee Agreement, the second defendant acknowledged and agreed that their obligations under the Guarantee Agreement are absolute and, without in any way limiting or derogating from any of the other provisions of the agreement, shall on the Effective Date, remain and be bound to the full extent of the agreement which shall always be fully and immediately enforceable in accordance with its terms, notwithstanding any indulgences being granted or agreed to be granted to the first defendant and or them by the plaintiff or by the plaintiff not exercising any one or more of its rights in the Guarantee Agreement or under the guaranteed liabilities. (My emphasis).

 

[110]    The argument that if one or more of the conditions precedent not being fulfilled, and therefore vitiating the Guarantee Agreement speaks to the same line of argument, which was rejected by Malan JA in First Rand Bank Ltd v Brera Investments CC.[53] Malan JA found that such an argument, if it were allowed to succeed, would mean, then liability would depend, not on the conditions set out in the Guarantee Agreement, but on the continued failure to fulfil any one or more of them. By analogous reasoning, this would very well apply to the guaranteed liabilities. If the second defendant’s argument was to stand, then that would mean that liability would only ensue upon fulfilment of the condition’s precedent rather than the underwritten guaranteed liabilities themselves. Such a reading is untenable especially wherein the plaintiff has honoured their obligations to the first defendant in terms of the Facility(s) agreement.

 

[111]    The last remaining leg of enquiry is to determine whether the Guarantee Agreement is limited to only the Facility Agreement, or whether it also extends to the Revolving Credit Facility. But before I do, allow me to first dispose of the argument that there would have been no need for the inclusion of clause 9 read with 9.4 in the Revolving Credit Facility letter if it was thought to be that the same was covered by the Guarantee Agreement. The clauses extraction and quoted in the second defendant’s heads of argument is put as follows: ‘the plaintiff is required to provide security for the Facility in the form of an unlimited guarantee from the second defendant in favour of the plaintiff”. The extraction is factually incorrect. The correct wording in the letter is actually put as follows:

 

‘9. Security held or to be provided to the Lender

The following security is held by the Lender or is to be provided to the Lender (my emphasis):

…

9.4. Unlimited Guarantee from the Southern Palace Group of Companies (Pty) Ltd in favour of the Lender for the obligations of the Borrower to the Lender’

 

[112]    Clause 5.1 of the Guarantee which stipulates that the Guarantee is a continuing covering security and will commence on the Effective Date and remain in force until the Release Date that shall, on clause 10.2 of the same Guarantee, be in addition to, and not in substitution for any other undertaking or other security held or thereafter to be held by the plaintiff from the first defendant and/or the Guarantor (the second defendant) or any third party in connection with the guaranteed liabilities or otherwise, and the rights of the plaintiff will not be affected or diminished thereby. In my view, the “is held” refers to the security(s), such as the Guarantee Agreement already signed in favour of the plaintiff. And where the “to be provided” is given, then that would refer to any other security called for, but of which the plaintiff has not, at that point in time, yet secured from the first defendant.

 

[113]     Coming back to the Guaranteed Agreement provisions, I consider the below (but not exhaustively) to be of relevance.

 

a.         Clause 6.5 defined the guarantee as an unlimited guarantee in contradistinction to a suretyship and shall be construed as a primary undertaking giving rise to a principal obligation of the second defendant.

 

b.         Clause 5.1 stipulated that the guarantee is a continuing covering security and will commence on the Effective Date and remain in force until the Release Date.

 

c.         In clause 5.2.1, the second defendant bound themselves to remain liable for all debts secured thereunder at the Release Date (including any variation or novation of those debts which may subsequently be agreed on, or which may take effect by operation of law or otherwise.

 

[114]    On a section termed, ‘the binding nature’ of the Guarantee Agreement, the second defendant further bound itself as follows:

 

116.1.              Clause 10.1, from effect of the Effective Date and up to the Release date (inclusive), the second defendant is/would be liable for all debts of the first defendant Fabrication secured thereunder, notwithstanding:

 

a.         Sub-clause 10.1.1 any dispute or defence which they may raise with regards to any amounts or other performance claimed from them in terms of, and pursuant to the provisions of the Guarantee Agreement; and;

 

b.         Sub-clause 10.1.3. any invalidity, unenforceability or lack of authorisation of; or other defect in the Guarantee Agreement, the Loan Agreement, or any other agreement to which the plaintiff, the first defendant, and/or the second defendant (as the guarantor) is or are a party to relating to the subject matter thereof;

 

116.2.              Clause 10.2 stipulated It was also provided for that if the Loan Agreement and/or the Guaranteed Liabilities were to become amended or varied in any manner whatsoever, the Guarantee Agreement would apply in respect of say said amended or varied loan agreement or guaranteed liabilities.

 

[115]    The above stipulations give a fatal blow to the second defendant’s case. Furthermore, at all material times, and in any of the transactions between the plaintiff and the first defendant, the second defendant was at all times, informed thereof. Had they expressed any objections to the variations and novation, then perhaps there would have been a different case to argue. But even there, the amendments, variations and novation clauses covering the contract stipulate the same, if any were to be made, of which was here in fact made, to be part and parcel of the same Guarantee Agreement, and not only that, but also incorporative to the Offer Letter, Finance Documents and relevant and Facility(s) flowing from it.

 

[116]    The above, read with clause 12.2’s designation of the “Guaranteed Liabilities” tied the second defendant liability and obligations to the plaintiff to include any present and future moneys and liabilities (whether actual or contingent and whether owed jointly and severally or in any other capacity whatsoever) whereupon on signature or thereafter whether owing by the first defendant to the plaintiff in terms of the Finance Documents and which the plaintiff is entitled to recover from the first defendant in terms of the Finance Documents. In underwriting the original Facility Agreement read together with the Offer Letter preceding it, the second defendant accepted that any facilities extended to the first defendant, in the latter acting in reliance of the Guarantee Agreement, they would be liable thereto. This was as much as expressed and implied by the clause provisions in the warranties, representations and undertaking section of the Guarantee Agreement.

 

[117]    To drive the point home, something ought to be said in refence to the Finance Documents. Although they are as much as repeated, almost verbatim in all the agreements discussed, I shall for the benefit of the second defendant I limit my reading to only those terms provided of them in the Facility Agreement, namely being:

 

a.         Clause 1.21.1 – the Offer Letter;

b.         Clause 1.21.2 - any one or more security provided by the first defendant in favour of the plaintiff in terms of the Offer Letter of the Facility Agreement; and

c.         Clause 1.21.3 – any other written agreement designated as a Finance Document by the plaintiff and the first defendant.

 

[118]    Furthermore, it was stipulated that the Finance Documents, unless a contrary indication appears, also extended to any other agreement or instrument as a reference to that Finance Document as amended, novated, supplemented, extended, or resisted.[54] In simple terms, the Finance Documents contemplated the debts and contractual transactions entered or to be entered into, upon the Signature date, or even thereafter, between the plaintiff and the first defendant. Insofar as this goes, I find that second defendant insured the same and bound itself to be liable thereto.

 

[119]    Even if second defendant did not contemplate having itself bound to the Revolving Credit Facility, its mere rejection of liability in terms of it does not succeed for two reasons. The first is, they were at all material times, abreast of the agreements amended and into by the plaintiff and the first defendant. And the second is reason is grounded in terms of the authorities cited in this judgement. Loomcraft Fabrics CC v Nedbank Ltd & another[55] holds that the essential feature of the establishment of a contractual obligation on the part of a bank to pay the beneficiary under the credit (the seller), which is wholly independent of the underlying contract of sale between the buyer and the seller, is that whatever disputes that may subsequently arise between the issuing bank’s customer (the buyer) and the beneficiary under the credit (the seller) in relation to the performance or, for that matter, even the existence of the underlying contract, by issuing or confirming the credit, the bank undertakes to pay the beneficiary provided only that the conditions specified in the credit are met.

 

[120]    In this regard, Theron JA in Guardrisk Insurance Company Ltd v Kentz (Pty) Ltd[56] and Investec Bank Ltd v Lombard Insurance Company Ltd and another[57] is clear:

 

A bank which gives a performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the supplier has performed his contracted obligation or not; nor with the question whether the supplier is in default or not. The bank must pay according to its guarantee, on demand if so stipulated, without proof or conditions. The only exception is when there is a clear fraud of which the bank has notice.

 

[121]    In this case, the “trigger event” occurred. The first defendant defaulted on their repayment terms and as such, the plaintiff is entitled to call on the second defendant to pay in terms of the Guarantee Agreement.

 

[122]    The same is applicable to the interest defence. The argument that the plaintiff has no right to claim interest at 4% above the basic prime interest rate for it on allegation of its failure to notify, in writing, the first defendant of its breach is fictious. Notwithstanding the written notice provision, the interest rate consequence comes into automatic operation not because plaintiff has or has not given the first defendant notice of its breach, but because of the occurrence of the breach itself. In any event, save for whereby it is an administrative error, the first defendant, as the party in breach would have first-hand knowledge the breach even before the plaintiff acquires the same knowledge thereof. And even if the plaintiff had notified the first defendant of the breach and say that the first defendant had remedied such breach in the 14 day window period, the interest would not naturally default to 3.5%, for this too was reserved to be at the sole discretion of the plaintiff. In my view, the notification provision is an indulgence.

 

Conclusion

 

[123]    In summary, I find that the second defendant has not raised any triable issue nor bona fide defence in resistance of the summary judgement as claimed in the plaintiff’s pleaded case. The defences which it has raised are both bogus and bad in law.

 

[124]    Regarding costs, although the plaintiff insisted on punitive costs against the second to sixth defendants, that submission was not pursued during argument. I will therefore grant the costs on a party and party scale.

 

[125]    In the result I make an order in the following terms:

 

1.         Summary judgment is granted against the second defendant in favour of the plaintiff for payment of

1.          

a.         R122 008 447.38

b.         R64 487 779.72

 

2.         Interest on the sums aforesaid from date of the certificates of balance, at the rate of 4% above the publicly quoted basic rate of interest per annum, compounded monthly in arrears and calculated on a three hundred and sixty-five-day year (irrespective of whether or not the year is a leap year) from time to time published by FirstRand Bank Ltd as being its prime overdraft rate as certified by any manger or divisional director of its First National Bank or Rand Merchant Bank divisions.

 

3.         Costs of suit on a party and party scale.

 

 

FLATELA L

ACTING JUDGE OF THE HIGH COURT

 

This Judgment was handed down electronically by circulation to the parties’ and/or their representatives by email and by being uploaded to CaseLines. The date and time for the hand down is deemed to be 10h00 on 16^th November 2021

 

Date of Hearing:                   13 October 2021

Date of Judgment:                16^th November 2021

Counsel for Applicant:           Adv Cassim SC wihY. Alli

Instructed by:                         Shaheem Samsodien Attorneys (011 784 5156)

Counsel for Respondent        Adv Kaplan SC

W. Moeketsane (wmoeketsane@ramslaw.co.za)

Instructed by:                         Rams Incorporated (Second to Sixth Defendants Attorneys)

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