IN THE HIGH COURT OF SOUTH AFRICA 
(WESTERN CAPE HIGH COURT, CAPE TOWN)

Reportable
CASE NO: 11435/2012
In the matter between:

And

CORAM:  D M DAVIS J
JUDGMENT BY :	 D M DAVIS J
FOR THE APPLICANT: ADV G WOODLAND SC 
INSTRUCTED BY: EDWARD NATHAN 
SONNENBERGS

FOR THE RESPONDENTS: ADV F JOUBERT SC, 
ADV M GARCES

INSTRUCTED BY: DAVIDSON ENGLAND ATTORNEYS

DATE OF HEARINGS: 05 SEPTEMBER 2012 

DATE OF JUDGMENT: 08 OCTOBER 2012

IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE HIGH COURT, CAPE TOWN)

Reportable

CASE NO: 11432/2011

In the matter between:

And

JUDGMENT: 08 October 2012

DAVIS J Introduction
[1] The applicant a financial institution through a division thereof, Rand Merchant Bank, lent and advanced the sum of R 832 639 979 to a company called Monteriva Investments 17 (Pty) Ltd ('Monteriva'). The purpose of the loan was to fund a large housing and commercial development near George known as Destiny Africa. It appears that the property, on which this development was to take place, is bare land and is completely underdeveloped. The applicants claim against Monteriva was secured by a mortgage bond.
[2] Monteriva was obliged to repay the loan amount by no later than 31 August 2010. It failed to so pay and a winding up application was launched against it on 13 May 2011. Monteriva has now been liquidated on the basis that it is unable to pay its debts and hence its affairs have been wound up. A provisional order was granted on 6 September 2011 and a final order on 9 November 2011. The applicant lodged a claim against Monteriva in the amount of R 83 146 246, 45 which has been duly admitted to proof. No dividend has been paid to the applicant. According to the joint provisional liquidators, Monteriva is 'hopelessly insolvent' and there is no prospect of it being rescued.

[3] The claim against the respondents is in respect of the surety obligations towards the applicant on behalf of Monteriva. According to the applicant, between 1 April 2011 and 7 April 2011 attorneys for applicant made due demand on respondent's sureties for the requisite payment. Notwithstanding their demands, the sureties failed to pay. The present action follows from this refusal. Given the nature of the dispute between first respondent and applicant (it having been established at the hearing that there was no appearance from second respondent and, further, third respondent is in the process of being liquidated), it is necessary to sketch the background facts to the principal debt.

The principal debt

[4] On 11 April 2006 applicant and Monteriva concluded a loan agreement for the sum of R 40 million. The loan had to be repaid within twelve months but was apparently extended by agreement.

[5] On 30 September 2009, applicant and Monteriva concluded a loan facility agreement which replaced the 2006 agreement. This loan facility amount was not to exceed R 80 million and had to be repaid by 31 August 2010. It was in respect of this loan obligation that the suretyships, to which I have made reference, and which are critical to this dispute, were concluded.

[6] On 27 September 2010, an addendum to the 2009 loan facility agreement was concluded. In terms of this addendum the loan was stipulated to be repayable on 31 August 2010. It appeared from first respondent's answering affidavit that he had signed a 'new deed of suretyship' on 27 September 2010, that is on the same day as that upon which the addendum was concluded.

[7] On 3 December 2010 applicant addressed a letter to Monteriva in which it noted that the loan term had expired on 31 August 2010. It offered to extend the facility subject to certain conditions which proved to be unacceptable to Monteriva.
[8] Notwithstanding the second suretyship agreement, it was common case that on 30 September 2009 the suretyship agreement was concluded. From Clause 1.2.7 of that agreement which constitutes a definition of loan agreement, it is clear that the suretyship agreement was concluded in contemplation of the loan facility agreement which was concluded on 30 September 2009 for an amount not exceeding R 80 million.

First respondent's defence
[9] First respondent's defence is based upon the second suretyship which was concluded on 27 September 2010. Its significance needs to be examined within the context of the addendum. Although the applicant claimed that it could not locate a signed copy of the addendum, its terms were accepted by the parties and implemented. This was confirmed in the founding affidavit deposed to by Mr Du Preez on behalf of applicant. It appears that this agreement was signed by first applicant as chairman of Monteriva. In terms of the addendum, a new clause 1.2.61 A was inserted into the 2009 agreement and it read thus:
"'van der Westhuizen Limited Suretyship' means the suretyship agreement entered into or to be entered into between van der Westhuizen and the Lender, in terms of which van der Westhuizen binds himself as surety and co-principle debtor in solidum with the Borrower (subject to a limit of R10,000,000.00 (ten million rand) exclusive of interest and costs)- for the due, proper and punctual performance by the Borrower of its obligations to the Lender under and in terms of this Agreement, all on the terms and conditions contained therein".
[10] As noted in the addendum, a second suretyship was concluded on 27 September 2010. The only copy made available to the court was provided by first respondent. This version of the agreement was only signed by first respondent. In this case, there has been no acknowledgement by the applicant that it signed this suretyship agreement. In terms of this second agreement, the first respondent bound himself to a suretyship to be limited in the amount of R 10 million. By contrast, in terms of Clause 4 of the first suretyship agreement, the first respondent had agreed to a suretyship to a maximum of R 19.2 million. First respondent contends that it is clear from the wording of the second suretyship agreement, in particular paragraph 24.1.2 thereof, that this agreement cancelled the first suretyship agreement. By virtue of the applicant having chosen not to rely on the second suretyship agreement for the purposes of the present dispute, respondent contends that this application, based as it is on the first suretyship agreement stands to be dismissed.

The issues
[11] Mr Woodland, who appeared on behalf of the applicant, correctly characterised the dispute between applicant and first respondent thus:
1. In terms of clause 22.2 of the first suretyship agreement, a standard provision was included, namely that "no addition to or variation, deletion, or agreed cancellation of all or any clauses or provisions of this Agreement will be of any force or effect unless in writing and signed by the parties." In Mr Woodland's view therefore, the question' arose as to whether the first suretyship had been cancelled by way of an agreement signed in writing by both parties, including the applicant. 
2. On the basis that there had been a variation of the first suretyship agreement in writing, the question arose as to the meaning of the second suretyship agreement and, in particular, whether it replaced the first suretyship agreement or whether it needed to be read together with its predecessor, in effect increasing the liability of first respondent's surety obligations to R 29 million.

[13] Mr Joubert submitted that it had been the applicant which had prepared the second suretyship agreement and, further, that in terms of Clause 22 of the addendum, to which reference has already been made, the probabilities were that both agreements was signed at the same time as they had formed part of the same contractual scheme. To the extent that the applicant averred that the two agreements had to be read together, he questioned as to why the applicant had not proceeded against first respondent in the amount of R 29 million, that is the R 19 million guaranteed in terms of the first suretyship agreement together with R10 million in terms of the second such agreement. Furthermore, there was never a suggestion that the second agreement was in any way invalid, a point that could arguably have been taken by the applicant in its replying affidavit but which was not. Relying on the General Law Amendment Act of 1956, Mr Joubert noted that the contract of a suretyship was valid once it had been entered into in writing and had been signed by or on behalf of the surety.

"I deny that Clause 24.1.2 of J1.2 limits the first respondent's liability to R10 million. If one has regard to Clause 9 it states that the suretyship attached as J 1.2 is in addition to and without prejudice to any other suretyship and securities granted.

This means that the first respondent is in fact indebted to the applicant in an additional amount of R10 million (over and above the amount of R19, 200, 000claimed)."

[15] It is significant that neither the addendum attached to papers nor the connected suretyship agreement was signed by the applicant. The applicant however claims that an original of the addendum cannot be located but confirms it was so signed. As the two agreements were part of one contractual structure and prepared by applicant, absent some evidence and the agreed confirmation of the lost file, it can be assumed, on the probabilities that the second suretyship was also so signed. Indeed, in his further affidavit , Mr Du Preez refers to the second suretyship as being in addition to the first suretyship, which appears to constitute a further recognition of the inapplicability of Clause 22 to the present dispute.

[16] I therefore turn to the second argument, namely the relationship between the first and second suretyship agreements.

The first and second suretyship agreements
[17] There are two clauses which were the subject of dispute. Clause 9 of the second suretyship agreement reads thus:
"9.     Continuing Covering Security
The Surety agrees and declares that the suretyship herein granted is to be in addition to and without prejudice to any other suretyship/s and security/ies now held or hereafter to be held by the Lender, and that it shall remain in force as a continuing covering security for the past, present and future obligations of the Principle Debtor in terms of the Secured Obligations notwithstanding any partial or intermediate settlement of the Principle Debtor's indebtedness."

Clause 24.1.2 of the same agreement reads as follows:
"This Agreement supersedes and replaces any and all agreements between the parties (and other persons, as may be applicable) and undertakings given to or on behalf of the Parties (and other persons, as may be applicable) in relation to the subject matter hereof."

[19] Unsurprisingly Mr Woodland relied heavily on Clause 9 of the second suretyship agreement which, in his view, made it clear that first respondent had bound himself as surety over and above the obligations which were created by the first suretyship agreement. This clause was couched in express terms:
"The surety agrees and declares as the suretyship herein granted is to be in addition to and without prejudice to any other suretyship/s and security/ies. now held and hereafter to be held by the Lender."

[20] Mr Woodland contended that the meaning of this particular clause was clear from a reading of the addendum. A further suretyship was required by the applicant in connection with the conclusion of the addendum to the loan agreement. In terms of clause 5.1.5 of the addendum, first respondent was required to execute a suretyship subject to the limit of R 10 million. The clear intention was therefore to provide the applicant with an additional suretyship in return for its consent to the agreement encapsulated in the 2010 addendum." In Mr Woodland's view, it was simply unthinkable that the applicant would have agreed to reduce its suretyship against the first respondent when 'the writing was already on the wall' for Monteriva, the principal debtor.

[22] Mr Woodland submitted that an explanation which amounted to a version that applicant sought to hold on to a 10% share in Monteriva at a time when this company was in serious financial difficulty and therefore, in effect, had waived its rights to R 22 million but somehow further agreed to a reduction in the suretyship of first respondent made absolutely no commercial sense and should be rejected as completely untenable.

"Institutions such as banks do not likely release sureties while the debt of the principal debtor remains extent. If there is release it is in the interest of both parties that it be readily capable of proof."

[26] The problem in this case is that Clause 24.1.2 is phrased in very wide terms. A similar clause does not appear in the first suretyship agreement. Clause 24.12 provides that 'this agreement supersedes and replaces any and all agreements between the parties... in relation to the subject matter hereof.' Its meaning is clear and it is manifestly at war with Clause 9.

[27] It may well be that the explanation provided by the first respondent as to why the applicant would have agreed to a reduction of suretyship admits of no credence. Furthermore, when he signed the second suretyship agreement, he must have known by way of Clause 9 that there was a specific provision that this suretyship was in addition to the first suretyship that he had concluded. However the same argument can be employed when Clause 24.12 is examined. This clause also admits of no ambiguity. It clearly evinces a purpose: it replaces all agreements between the parties in relation to the subject matter of the second agreement. That means in plain English that, once concluded, the entire earlier suretyship agreement is replaced.

The Second Respondent
2. The second respondent is directed to pay the applicant the sum of R19 200 000.
3. Interest is to be paid on the above sum at 2% above the applicant's prevailing prime overdraft rate, from time to time, such interest to be calculated daily and compounded monthly, from 31 August 2010 until date of payment.
4. The second respondent is directed to pay the applicant's costs on an attorney and client scale.

The Fourth Respondent

6. Interest is to be paid on the above sum at 2% above the applicant's prevailing prime overdraft rate, from time to time, such interest to be calculated daily and compounded monthly, from 31 August 2010 until date of payment.
7. The fourth respondent is directed to pay the applicant's costs on an attorney and client scale.

DAVIS J