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SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy

IN THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE DIVISION, CAPE TOWN)

Case No.: 13119/2019

In the matter between:

CARMICHAEL AUTOMOTIVE (PTY) LIMITED                                                            Plaintiff

(Registration No. 2016/275493/07)

and

SEAN KEITH GEHLIG                                                                                                     Defendant

(Identity No. […])

Heard:  20 September 2019

Delivered:  16 October 2019

JUDGMENT

 

MYBURGH AJ:

 

Introduction

[1] In this matter the plaintiff, by way of a provisional sentence summons, claims payment of R500 000.00, together with interest calculated at 10.25% per annum, a tempore morae and costs of suit.

[2] The claim is based on an acknowledgement of debt entered into by the parties on 27 June 2018. The defendant raises the defence, inter alia, that the acknowledgement of debt is conditional and thus not a liquid document as required by rule 8 of the Uniform Rules of Court and the applicable case law. For this reason, the defendant argues that provisional sentence must be refused with costs on a punitive scale.

 

The acknowledgement of debt

[3] The acknowledgement of debt, upon which the plaintiff relies, contains the usual terms one would expect in such a document.  However, it is unusual in two respects.  In terms of clause 2, it recorded that:

‘I hereby undertake to liquidate my above indebtedness in the following manner:

2.1 by way of payment of R500 000,00, payment to be made on or before 5 August 2018 depending on transfer[1].  Payment is to be made to the creditor directly at its offices or via e.f.t and proof thereof to be sent to the creditor at

___________;’. [emphasis added]

[4] Clause 7 provides that:

‘No extension of time or other indulgence granted by the creditor to me in respect of my obligations hereunder will constitute a waiver of the creditor’s rights to enforce compliance with the terms hereof nor will it constitute a novation of this acknowledgement.  (Upon transfer)’.[2]  [emphasis added]

[5] It is trite that an acknowledgement of debt can be relied upon in provisional sentence proceedings as it is usually a liquid document.  However, in this case, the manuscript additions require careful consideration. 

[6] The defendant, in his opposing affidavit, states the following:

‘The Acknowledgement of Debt

Near the end of June 2018 I became disgruntled by the failure of Grassie and Westcott[3] to honour their undertaking to me to transfer one-third of the shares in the new business venture company to me.  I was led to believe by Grassie and Westcott that the new company was “Carmichael Cape Town”, trading as “We Pay More”.  During a meeting with Grassie on 27 June 2018 (Westcott was on an overseas holiday and Grassie was on an overseas holiday at the end of June 2018) at our premises in Montague Gardens he again advised me that they would transfer the shares to me against payment of the amount of R500 000,00 to the Plaintiff, which would be the purchase price for my one-third of the shares in the company.  As far as I was concerned Grassie and Westcott had already contributed the amount of approximately R500 000,00 each to the new venture company.  My payment of R500 000,00 would be paid by 5 August 2018, as this was the approximate amount that I expected to receive as my share of the profits of the new business venture partnership.

During the meeting Grassie advised me that Westcott was on holiday overseas and was getting concerned that I had not transferred any funds into the new business.  He therefore presented me with a typed document with blank spaces at clause 2.1 and 5 thereof, which is annexure “A” to the provisional sentence summons (“the acknowledgement of debt”), and he said that he and Westcott needed confirmation from me that I was still committed to the new business venture.  I therefore agreed to sign the acknowledgement of debt.

Before signing the acknowledgement of debt I advised Grassie that I would make payment by 5 August 2018 to the Plaintiff against transfer of the shares to me.  For this reason I inserted the said date at clause 2.1 thereof on the first page of the document, as well as inserting the words “Depending on the transfer” after the date in clause 2.1, and I also inserted the words “Upon transfer” in brackets after clause 7 thereof.  I also inserted the address of the business premises in clause 5.

The amount of R500 000,00 was never lent and advanced by the Plaintiff to me, as stated in clause 1.1 of the acknowledgement of debt.  I did not notice this incorrect wording on the document, as I was focused on the amount stated in that clause.

The payment of the amount of R500 000,00 to the Plaintiff was therefore conditional upon the transfer of one-third of the shares in the new business venture company to me, which has not materialised.  Transfer of the shares has also not been tendered to me.  I therefore deny that the amount of R500 000,00 or any other amount whatsoever is payable to the Plaintiff’. [Emphasis added]

[7] The defendant thus argues that the acknowledgement of debt on which the claim is based is not a liquid document in that it is conditional and the conditions have not been fulfilled by the plaintiff.

[8] It was argued on behalf of the plaintiff that the acknowledgement of debt is a liquid document in that it is payment, and not liability that is dependent on a future date. In plain terms it is argued that the condition relates to when the money must be paid rather than if it must be paid or not.

 

Legal principles and their application

[9] In Basil Read (Pty) Ltd v Beta Hotels (Pty) Limited[4], his Lordship Justice Moosa held as follows:

‘[12] Provisional sentence is an extraordinary remedy designed to enable a creditor who has liquid proof of his claim to obtain a speedy judgment therefor without resorting to the more expensive and dilatory machinery of an illiquid action (see Erasmus on Superior Court Practice B1-62; Ashersons v Panache World (Pty) Ltd 1992 (4) SA 611 (C) at 612J-613B).

[13] If the document in question upon a proper construction thereof evidences by its terms, and without resort to evidence extrinsic thereto, an unconditional acknowledgement of indebtedness in an ascertained amount of money, the payment of which is due to the creditor, it is one upon which provisional sentence may properly be granted (Rich and Others v Lagerwey 1974 (4) SA 748 (A) at 754H).

[14] The plaintiff’s title and defendant’s liability must appear ex facie the summons and the document upon which the claim is founded without resort to extrinsic evidence.  Regard, however, could also be had to the allegations in the summons and the defendant’s response thereto.  Support for this approach is found in Coetzee & Solomon Real Estate (Pty) Limited v Texeira 1970 (1) SA 94 (D) at 95 where the court pointed out that the document must be read with the summons and if the identity of a creditor, who is indicated but not named in the acknowledgement of debt, is alleged in the summons, the fate of the action for provisional sentence may well depend on the defendant’s response to that allegation.  This approach was approved in Morgenster Development and Finance v Metelerkamp and Others 1986 (2) SA 453 (C) at 457A-B and Navidas (Pty) Limited v Essop [1994] ZASCA 84; 1994 (4) SA 141 (A) at 154A-B’.[5]

[10] Thus, as per His Lordship Justice Moosa in Basil Read, a plaintiff must provide liquid proof of his claim and the defendant’s liability must appear ex facie the document on which the claim is founded and this without the resort to extrinsic evidence.  However, a court may have regard to allegations in the summons and the defendant’s response. 

[11] In this case the defendant’s liability is not clear ex facie the acknowledgement of debt, which document makes it clear that payment is on 5 August 2018 depending on transfer.  It thus does not meet the requirement that it be a liquid document.

[12] However, I was referred to other cases which also bear mention.  In Joosub v Edelson[6], his Lordship Justice Horwitz AJ, in a claim for provisional sentence based on an undertaking to pay, held as follows:

‘Mr Subel clung tenaciously to his submission that the question whether the sale had proceeded or not was a simple one and that the condition contained in the undertaking was therefore a simple one.  This of course begged the question: was the undertaking to pay an unequivocal and unconditional one?

The simplicity or complexity of a condition such as the one in issue cannot render unconditional an otherwise conditional debt.  The enquiry, when provisional sentence is sought, is a two-fold one: one must first determine whether the debt in question falls within the parameters set in cases such as Union Share Agency & Investment Ltd v Spain (supra) and Inglestone v Pereira (supra).  If it does, one then examines the condition to ascertain whether it qualifies as a simple condition.  If it is, then one can merely allege in the summons and, if necessary prove, fulfilment thereof.  If the claim fails the first test, however, one does not proceed to the second phase of the enquiry.  Mr Blou, for the defendant, hit the nail on the head with this submission of his in his written argument:

“If a document does no more than evidence a potential liability, the existence of which is dependent on the happening of some future state of affairs (as opposed to a document where the liability is not conditional but payment depends on the coming into existence of a future state of affairs) then the document is not a liquid document.  In such a case the question of payment being dependent upon the fulfilment of a so-called simple condition does not arise.  In fact, the simplicity or otherwise of the condition upon which the liability (as opposed to the payment) will arise is entirely irrelevant!”

This, in my view, is a correct statement of the law.’[7]  [Emphasis added]

[13] From the Joosub v Edelson case we can glean the following principles.  A document that only evidences a potential liability that is dependent on the happening of something in the future, is not a liquid document and thus does not meet the requirements of rule 8.  This accords with the Basil Read judgment.  However, if payment (as opposed to liability) is dependent on a future event, it will meet the requisites for provisional sentence.

[14] In this instance, the acknowledgement of debt was payable on a certain date.  If that was where it ended, the plaintiff might have prevailed.  However, it was not.  Liability, as opposed to payment alone, was dependent on transfer and for this reason the plaintiff falls foul of the principles enunciated in Joosub v Edelson. 

[15] Finally, His Lordship Wessels, J.A. in Rich and Others v Lagerwey held as follows:

‘Counsel referred to a practice of long standing which authorised the grant of provisional sentence on bilateral contracts such as deeds of sale and leases.  Such a practice would be unobjectionable, provided the document relied upon clearly evidences an unconditional undertaking to pay and ascertained a sum of money and that payment is due.  If payment is dependent upon the fulfilment of a condition or the happening of an event, which can only be proved by extrinsic evidence, provisional sentence can only be granted if the case falls within the rule formulated in Pepler v Hirschberg, supra.  Therefore, if, e.g., payment is conditional upon the performance by the plaintiff of obligations in terms of the document relied upon, it does not, in my opinion, without more, entitle him to rely on an averment in the summons that he has performed his obligations in order to render liquid a document which on the face of it is illiquid.  The Court will of necessity enquire into the nature of the performance upon which the payment is conditional in order to determine whether the case falls within above-mentioned rule.  As I have already stated, it is not the type of transaction but the liquidity of the document which determines whether provisional sentence procedure is appropriate or not’.[8]  [Emphasis added]

[16] Rich v Lagerwey enjoins a court to look beyond the form or nature of the document relied on and determine whether it fits the description of a liquid document.  In my view the acknowledgement of debt in this matter does not.  Liability to pay R500 000.00 is conditional upon ‘transfer’ and it does not appear ex facie the acknowledgement of debt, or the summons, that transfer in fact took place.

[17] The plaintiff pleads its case in the following manner:

‘Plaintiff's claim is based on the following grounds:

i. Plaintiff is the legal holder of a written acknowledgement of debt, dated 27 June 2018, drawn by Defendant in favour of Plaintiff for the sum of R500 000,00 (five hundred thousand rand);

ii. A true copy of the acknowledgement of debt is annexed hereto marked “A”, the content of which Plaintiff prays to be incorporated herein as if specifically set out hereunder;

iii. In terms of the acknowledgement of debt, Defendant undertook to pay R500 000,00 on or about 5 August 2018;

iv. Defendant failed, alternatively refuses, to do so and he has neglected to make any payments to the Plaintiff;’.

[18] The summons is curiously silent regarding the condition that the liability to pay depends on transfer, as indicated in two places on the document.  In my view, while I make no finding that it is intentional, it is a convenient omission which perhaps renders the summons excipiable.  The defendant did not agree to pay on 5 August 2018, it agreed to do so on that date depending on transfer. This should have been dealt with in the summons.

[19] Thus, it is not clear, on the face of the summons and the acknowledgement of debt attached to the summons, that the condition has been fulfilled, and that the amount of R500 000.00 is thus due and payable. 

[20] In the circumstances, the plaintiff has not discharged the onus of proof of a liquid claim and it is thus it not entitled to the speedy remedy that is provisional sentence.

 

Refusal of provisional sentence: the appropriate order

[21] Having found that the plaintiff has not made out a case for provisional sentence, it is necessary to decide on the appropriate order. In this regard,  Van Loggerenberg in Erasmus Superior Court Practice[9] opines as follows:

‘May order the defendant to file a plea.  ‘The use of the word ‘may’ in the subrule indicates that the court’s power to order a defendant to file a plea is discretionary and that the right to deliver a plea is exercisable if the court makes an order to that effect.[10]  If provisional sentence is refused and no order is made in terms of which the defendant is permitted to file a plea, the provisional sentence is dismissed and the proceedings are at an end.[11]  The court clearly will exercise its discretion to order a plea to be filed by the defendant where the defendant has discharged the onus of showing that the probabilities in the principal case are in his favour.[12]  The court will, so it seems, not exercise its discretion to order the defendant to file a plea where the plaintiff’s claim for provisional sentence is refused on the ground that the document sued on is not liquid: ‘[W]here he sues for provisional sentence upon an illiquid document and his action is dismissed, it is finally dismissed’.[13]

It is not clear whether or not a judgment refusing provisional sentence renders the matter res judicata and precludes the plaintiff from issuing an illiquid summons to prosecute his claim to final judgment.  It has, on the one hand, been suggested that the word ‘provisional’ in the phrase ‘provisional sentence’ relates to the sentence only if it is granted and not to the unqualified refusal thereof.[14]  On the other hand, it has been stressed that proceedings for provisional sentence are interlocutory in their nature[15] and that the composite nature of a provisional sentence summons may have masked the essential nature of provisional sentence as a form of interim relief.[16]  It is submitted[17] that where a plaintiff is barred from entering the principal case on a provisional sentence summons after provisional sentence was refused and no order was made as to the future conduct of the proceedings, the plaintiff is entitled to prosecute his claim by way of an illiquid action’.

[22] As discussed by Van Loggerenberg with reference to various authorities, there is perhaps some uncertainty as to whether the refusal of provisional sentence renders the matter res judicata and precludes a plaintiff from issuing an illiquid summons.  The learned author expresses the view that a plaintiff is entitled to prosecute the claim, subsequent to a refusal, by way of an illiquid action. In my view, certainly in the context of the present matter, this is the correct position. However, it is not necessary for me to make a definitive finding in this regard.

[23] The question for determination in the present case is whether the plaintiff’s claim for provisional sentence was based on a liquid document and if not provisional sentence must be refused. What follows the refusal, for example, whether the plaintiff prosecutes its claim by way of an illiquid action, and if so, the response to such a claim, are not questions the court need determine at this stage.

 

Costs

[24] Van Loggerenberg in Erasmus Superior Court Practice states the following regarding costs in the present context:

‘“Make such order as to the costs of the proceedings as to it may seem just.” This provision merely confirms the general discretion of the court in matters of costs.  This means that the ordinary principles which govern awards of costs also apply in provisional sentence proceedings.[18]  Thus a successful action for provisional sentence will generally carry costs and an unsuccessful action will generally be dismissed with costs.[19]  If provisional sentence is refused the court may, in the exercise of its discretion, reserve the question of costs for decision at the trial of the principal case’[20].

[25] Furthermore, in Cohen v Louis Blumberg (Pty) Ltd and Another[21], His Lordship Ramsbottom J held as follows:

‘The question of costs remains.  Mr. Frankel contended that the plaintiff was entitled to proceed by way of summons for provisional sentence, and that until the defendants’ affidavits were not filed he had no knowledge of the defence; he asked therefore that the costs should be reserved.  Mr. Kuper, while conceding that the plaintiff was justified in starting by way of provisional summons and that costs up to the date of the hearing should be reserved, argued that the plaintiff should, at that stage, have offered to go into the principal case, and he asked that the defendants should be given the costs of the hearing in any event’.[22]

[26] In the present case the plaintiff was not entitled to proceed by way of provisional sentence summons due to the fact that its claim was based on a document that was conditional and it was not shown that the condition had been met, neither ex facie the document nor by way of allegations in the summons.  Therefore, the plaintiff's case suffered from a terminal defect from the outset.  What is more, to the extent that there is any uncertainty in this regard, once the opposing affidavit was filed, it was clear that the matter was not appropriate for provisional sentence proceedings.

[27] It was argued by counsel for the plaintiff that costs should be reserved for determination at the trial.  I do not think that there is merit in this submission. The provisional sentence proceedings are distinct from whatever follows.  It might be that the plaintiff prevails at a trial, but this will not override the fact that the plaintiff elected to proceed by way of provisional sentence summons when it was inappropriate to do so.

[28] Counsel for the defendant called for a punitive costs order. Under the heading ‘Circumstances in which attorney and client costs may be awarded’, A C Cilliers states the following:

‘Vexatious and frivolous proceedings

Conduct which is vexatious[23] and an abuse of the process of the court[24] may form the basis for an order that costs should be paid on an attorney and client scale, even though there is no intention to be vexatious.[25] 

. . .  A punitive costs order requires ‘exceptional circumstances’.  Allegations of ‘inferred misconduct’ are not enough’.[26] 

[29] Thus, a court must apply an objective test. An award of punitive costs does not necessarily turn on the existence of vexatious intent. That being said, an award of punitive costs requires exceptional circumstances. It is more than mere success or failure in the case that justifies punitive costs.

[30] In this matter the plaintiff instituted proceedings by way of provisional sentence based on an illiquid document.  There was thus no prospect of success from the outset. Furthermore, if it did not realise this at the time of instituting proceedings, it was brought to its attention by the defendant when he filed his opposing affidavit. Thus, while it may be that there was no intention to be vexatious, the plaintiff’s conduct constitutes an abuse of the process of court. In the circumstances the defendant is entitled to an order that costs be paid on an attorney and client scale.

 

Order

[31] In the circumstances, I make the following order:

1. Provisional sentence is refused.

2. The plaintiff is to pay the costs of the provisional sentence proceedings on an attorney and client scale.

 

 

____________________________

P A MYBURGH

Acting Judge of the High Court

 

Appearances:

For the plaintiff: D Van der Linde

Instructed by Randall Titus of Thomson Wilks

Inc.

For the defendant: Vaughan Ulyate

Vaughan Ulyate & Associates

 

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