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NOT REPORTABLE

IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE LOCAL DIVISION, PORT ELIZABETH                        

                        CASE NO:  605/2013

                  

 

In the matter between

 

SAPPHIRE DAWN TRADING 154 CC                                                   First Applicant

ANDREW CHARLES JORDAAN                                                            Second Applicant

 

and

 

ABSA BANK LIMITED                                                                                 Respondent

 

 

 

 

 JUDGMENT

 

 

 

HARTLE J

 

1. On 12 April 2013 the registrar granted a default judgment in the sum of R679 587,19 against the applicants; the first applicant in its capacity as principal debtor and the second by virtue of his obligation as a surety of the principal debtor.  The applicants seek rescission of the judgment. 

 

2. According to the respondent’s particulars of claim in the main action the first applicant’s liability arose as principal debtor for monies loaned by the respondent to it on overdraft in terms of a cheque account banking facility, repayable on demand.  The respondent called up the account on 13 August 2010.  The outstanding balance on the cheque account, at the time of closing, included a contentious sum of R500 000,00 which had been paid to Engen Petroleum Limited (“Engen”) in terms of a so-called retail insurance guarantee which the respondent, at the special instance and request of the first applicant, had provided to Engen.  (Even at the time the payment was made, however, the account was already overdrawn to the tune of R7 418, 77, an aspect the applicants do not deal with on the papers at all.) 

 

3. On 1 April 2010 Engen (with whom the first applicant was involved in a franchise deal) had called upon the respondent to pay the guarantee - which was honoured only later on 31 May 2010, by making payment of the guaranteed sum to Engen.  Regard being had to the annexures attached to the particulars of claim in the main action, it is apparent that the first applicant’s indebtedness to Engen escalated quite rapidly from the R280 764.59 owing on 1 April 2010 when the guarantee was first called up, to 19 May 2010, which is the date of the final certificate furnished by Engen reflecting the first applicant’s then indebtedness to it in the total sum of R694 654.61, on the face of the certificate for “goods sold and delivered”.

 

4. The first applicant was, subsequent to the issue of the main action, finally deregistered and it was accepted by the time of the hearing that it had no legal standing to bring the application or to authorize the second applicant to do so on its behalf.  The second applicant however persists with the relief sought.

 

5. The applicants appear in effect to rely on the common law for the relief sought. In this regard the second applicant contends that “good cause” exists to justify the rescission sought and purports to give reason for for this on the papers.

 

6. It is trite that in order to show good or sufficient cause[1] an applicant must give a reasonable and acceptable explanation for his default, demonstrate that the application is made bona fide and show that on the merits he has a bona fide defence which prima facie carries some prospect of success.[2]

 

7. The applicants - in attempting to explain away their default, allege that the summons did not come to the attention of either of them.  Evidently proper service was effected at the first applicant’s registered office in terms of the rules of court. The second applicant (the sole member of the first applicant) avers that he intended to defend the action but did not have knowledge of the summons served at his elected domicilium until April 2013 when he was informed of it by a person effecting renovations to his property at that address.  He claims that the summons was attached to the door of the premises, yet the return of service reveals that the sheriff had, on his third attempt to serve the summons on the second applicant on 18 March 2013, been telephonically instructed by him to leave a copy thereof in the letterbox.

 

8. Leaving aside for a moment the question whether the second applicant at least has furnished a reasonable and acceptable explanation for his default (which at best is weak and unconvincing), the application can in my view be dispensed with on the basis that his case is not sufficiently made in respect of the third requirement for rescission, namely that an applicant ought to have a bona fide defence which prima facie carries some prospect of success.

 

9. In this regard the sole basis of the first applicant’s defence is that it was not indebted to Engen; that the respondent paid on the guarantee “without enquiring from (them) if (they) owed the said amount” and that it was therefore “negligent in safeguarding (their) interest”.  The second applicant claims that Engen (not the Respondent) had made itself party to a fraud.  In essence if any monies were owing to Engen they were owed by the first applicant’s successor who had, early in January 2010 already, been substituted as the franchise dealer. The latter was however to open a separate account with Engen and furnish it with his own insurance guarantee.  The second applicant avers that in terms of the first applicant’s own franchise deal with Engen, it dealt with it strictly on a cash basis. No products were supplied on credit to it by Engen, hence it was difficult to reconcile the inscription on the certificate of indebtedness on which Engen relied when it called in the guarantee that the liability had been incurred in respect of goods sold and delivered.  (I mention however that the respondent in its answering affidavit provides a reason for the first applicant’s rapidly increasing liability to Engen at the relevant time, albeit such liability may have been incorrectly labeled in the certificate as arising strictly from goods sold and delivered within the narrow meaning of this phrase. The respondent pleads in this regard that, despite the second applicant’s averment that since January 2010 the first applicant stopped trading, the close corporation (not their successor) was sued by Engen in a separate application for eviction from the trading premises relating to its (supposed) occupation thereof beyond 28 May 2010, which was the agreed upon date to which its (supposed) tenancy had been extended.  The first applicant’s eviction from the premises was ordered in that application, together with a costs order in favour of Engen.  Beyond that there is the suggestion of rentals owed by the close corporation as well.)

 

10. It is not in dispute that in terms of the retail guarantee the respondent bound itself jointly and severally as surety and co-principal debtor in favor of Engen for payment on demand of “all sums of money” which the first applicant may now or from time to time hereafter owe or be indebted to Engen from “whatever cause arising”, although limited to the sum of R500 000.00.  The guarantee further provides that a certificate by the stipulated offices of Engen “shall be conclusive proof of the liability of (the first applicant) to Engen and shall be final and binding on (them)”.  Further, the guarantee provided that:

 

“Notwithstanding anything to the contrary herein contained the respondent’s obligation shall be construed as principal and not as accessory to that of the principal debtor and shall not be delayed or discharged by the fact that a dispute exists between the (first applicant) and ENGEN herein.”

 

11. It appears probable from the papers that a dispute apparently exists between Engen and the first applicant (ostensibly because its successor continued for whatever reason to trade under the name of the close corporation after January 2010), but the question which arises (in order to determine whether in this application the first applicant has put up a bona fide defence which prima facie has some prospect of success), is whether the Respondent had any duty of care to verify the authenticity of the certificate before it paid Engen in terms of the guarantee, and whether it was negligent in paying as it did.

 

12. In my view both these questions must be answered in the negative. The terms of the guarantee make it clear that the respondent was obliged as principal debtor to make payment of the amount certified by Engen without any obligation to first enquire whether any dispute might exist between Engen making the demand and itself as guarantor. Indeed any dispute as to the underlying contract is entirely irrelevant to the respondent’s obligation to pay. It therefore does not avail the first applicant to claim that it may have had a defence against Engen’s claim as a defence against the claim of the respondent.  Moreover, the second applicant does not (and cannot) aver that the respondent had knowledge of any supposed defence that the first applicant may have had, but relies merely on the bald allegation that the respondent was negligent in not enquiring from the applicants and not verifying the certificate. (I mention that this is contrary to the respondent’s version that even though it had no lawful responsibility to do so, it did indeed make contact with the second applicant to advise him that the guarantee was being called up.  The respondent was requested to hold back on the payment until information was forthcoming from the first applicant’s attorneys, but such instructions never materialized. This appears to be consistent with the lapse of time between the first demand for payment under the guarantee, and the eventual payment by the respondent to Engen 2 months later).  Absent any legal obligation to have made the enquiry or to verify the certificate of indebtedness, the respondent could not have been negligent in the circumstances.  Ms Naran who appeared for the applicants accepted ultimately that the respondent could not be faulted for paying out on the guarantee.

 

13. It was however suggested by her that I should on the basis of expediency allow the relief sought by the second applicant  so that he might join Engen in the proceedings (I mention however that – on the face of it, any claim the applicants may have against Engen or their  successor has become prescribed),  but this in my view is not a proper basis on which to consider an application for rescission, neither does it constitute a  “good reason” to allow the application as contended for by Ms. Naran.  The requirements for a judgment to be rescinded are trite and of longstanding application. In this instance there is a weak explanation by the second applicant for his default; it is of concern that beyond the R500 000,00 advanced by Engen in terms of the guarantee he avoids dealing at all with the first applicant’s liability to the respondent for the balance on overdraft, and the supposed defence relied upon the first applicant relating to the respondent’s payment under the guarantee is bad in law.

 

14. In conclusion the applicants have failed in the circumstances to establish good cause for the rescission.

 

15. In the result I issue the following order:

 

1.     The application is dismissed with costs.

 

 

_________________

B  HARTLE

JUDGE OF THE HIGH COURT

 

 

 

 

DATE OF HEARING  :        28 November 2013

 

DATE OF JUDGMENT:         28 January 2014

 

 

 

APPEARANCES:

 

FOR APPLICANTS :                                      Ms B Naran, instructed by Maci Incorporated, Port Elizabeth.

 

 

FOR RESPONDENT:                                     Mr J G Richards, instructed by McWilliams & Elliot Inc., Port Elizabeth

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