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IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

CASE NO: 56611/12

DATE: 14 OCTOBER 2015

In the matter between:

RF GEVERS (PTY) LIMITED.........................................................................................First Plaintiff

WOOD BASKET (PTY) LIMITED..............................................................................Second Plaintiff

TRUSTEES OF ROBERT GEVERS FAMILY TRUST,

HOGARD GEVERS FAMILY TRUST and

JURGEN GEVERS FAMILY TRUST......................................................Third to Eleventh Plaintiffs

ROBERT FRIEDERICH GEVERS.............................................................................Twelfth Plaintiff

And

THE LAND AND AGRICULTURAL DEVELOPMENT

BANK OF SOUTH AFRICA...................................................................................................Defendant

JUDGMENT

Tuchten J:

1     The plaintiffs borrowed money from the defendant (the Land Bank), in each case on the security of mortgage bonds passed over property owned by one or other of the plaintiffs. Two such loan agreements, both in writing, are relevant. The first was concluded on 17 December 1996. All the plaintiffs, with the exception of the eleventh plaintiff were parties to the first agreement. The second such agreement was concluded in March 1997. The first and second plaintiff were parties to the second agreement.

2     The issue before me is whether the interest raised by the Land Bank on the amounts outstanding from time to time was lawfully levied. This depends on express terms of the agreements between the parties from which I shall later quote or to which I shall refer. The plaintiffs were exemplary clients of the Land Bank and always paid instalments by their due dates. Ultimately the plaintiffs decided to pay the loans in full before their due dates. The Land Bank supplied the plaintiffs with bond cancellation figures. The plaintiffs did not agree with the method by which the Land Bank calculated interest but paid under protest the amounts the Land Bank demanded. Thus the present action, which is in the form of a condictio indebiti.

3     In 2010 a group of farmers instituted action against the Land Bank, claiming that they had been charged interest in excess of that to which the Land Bank was entitled. The case came before Prinsloo J in this division as Ryton Estates (Pty) Limited and Others v the Land and

Agricultural Development Bank of South Africa under case no 33482/2010. Prinsloo J gave judgment in favour of the farmers on 28 February 2012. The case went on appeal to the Supreme Court of Appeal. In a judgment delivered on 13 September 2013, the SCA partially reversed Prinsloo J and sent the case back to the learned judge for finalisation. When the case again served before Prinsloo J, the Land Bank asked for leave to reopen its case. It claimed that its expert had erroneously accepted the correctness of a calculation by the plaintiffs’ expert described in those proceedings as the oomagberekening. The oornagberekening was made as a result of a request by the learned judge and at an advanced stage of the trial. As its name suggests, the calculation was made during the hours between the end of one court day and the commencement of proceedings on the next.

4     Prinsloo J refused to allow the Land Bank to reopen and resolved the case in a second judgment in accordance, as the learned judge saw it, with the directions from the SCA. There the matter rested because the Land Bank did not appeal the order made pursuant to the second judgment. But, in a letter dated 29 May 2014 to the attorney who acted for many farmers with interest grievances against the Land Bank including the plaintiffs in the Ryton case and who is the attorney of record for the present plaintiffs, the Land Bank complained bitterly about the second judgment of Prinsloo J. The Land Bank said that the second judgment was based on an incorrect factual premise. The Land Bank warned that it would try to have what it perceived as an error set right in any further litigation arising from claims that it had charged excessive interest.

5     The issue in the present case is whether the factual premise relied upon by the plaintiffs’ expert is indeed correct, so nothing in the Ryton case is directly relevant from the perspective of precedent. Certain important evidence upon which the Land Bank presently relies was either not before or was of no moment in regard to the issues considered by Prinsloo J.

6     To get to the facts of the present case. The interest provision in the first agreement reads:

At present the rate of interest is 17 percent per annum and the loan is repayable with interest, reckoned from the date of registration of the bond, at the rate of 17 percent per annum on the balance capital outstanding from time to time in 18 equal instalments of R1 069 148,00 each and a final instalment consisting of the balance capital then owing together with the interest thereon. The aforesaid instalments are payable yearly in arrear, the first instalment being payable one year after registration of the bond. The Bank reserves the right to increase the rate of interest at any time without your consent in which event the abovementioned terms of payment shall be adjusted accordingly.^[1]

7     The interest provision in the second agreement, contained in clause 3(f) reads:

Interest is calculated on the daily balance owing under the loan at a rate of interest as determined by the Board [of the Land Bank] from time to time. Such interest is brought to account annually on the due date and on full repayment of the debt. The rate of interest is at present 18,5% per annum.

8     With effect from 1 July 1999, the Land Bank issued a notice (the variation decision) to its customers in which it announced changes to the rate of interest it would from that date charge its customers for loans. The notice was undated but was apparently sent out during 1996. The changes related both to the nominal rate and the method of capitalisation. In the notice, the Land Bank stated that while it had previous capitalised long term loans at 19,0% monthly, it intended from 1 July 1999 to capitalise interest at 17,5% monthly.

9     I must immediately make this observation: although the Land Bank had indeed before 1 July 1999 been compounding the interest which it charged its customers, the effect of the Ryton decisions is that it was not entitled to do so. Whether this regime was changed by the variation decision was not in issue in the Ryton cases.

10  The variation decision notice read in relevant part:

Please be advised that the Land Bank’s interest rates and method of calculation has been amended for the benefit of clients. This is in recognition both of client requests and current best practice in the banking sector.

As from 01/07/1999 interest has been capitalised on a monthly instead of an annual basis. In order to ensure that all clients were not adversely affected in the process, all interest rates were decreased. In the event of long-term loans, the rate was decreased from 19,0% to 17,5%.

The change in the way the bank capitalises interest is an administrative adjustment to which the Bank is empowered in terms of the Mortgage Bond which reads as follows:

... At the rate to be fixed by the Bank from time to time, on such dates and upon such conditions as the Bank may determine;...’

These adjustments are to the advantage rather than the disadvantage of clients.

11  After 1999, the Land Bank sent a further undated letter to customers in which the Bank explained the change in its interest charges in the following terms:

Ou berekeningsmetode

Voor 1 Julie 1999, toe die vorige rekenaarstelsel nog gebruilk is, het die Land Bank rente op ‘n jaarlikse basis gekapitaliseer - d.w.s. op die vervaldatum en teen ‘n koers van 19,0%. Die rentekoers wat gebruik is was die geldige koers soos op 30 Junie 1999.

Probleme wat ondervind is

Die vorige berekeningsmetode het verskeie probleme meegebring, veral in gevalle waar kliente verkies het (of verplig was) om hul paaiemente maandeliks te betaal. Voorts het die Land Bank versoeke van kliente ontvang wat die Land Bank se rentekoerse met die van kommersiele banke wou vergelyk. Op hierdie stadium kon die koerse nie vergelyk word nie weens die verskillende maniere wat gebruik is om rente te kapitaliseer.

‘n Nuwe metode vir beter diens

Om hierdie kwessies te hanteer en as deel van ‘n strategie om meer meddingend te wees, het die Land Bank die praktyk van maandelikse kapitalisering van rente vanaf 1 Julie 1999 geTmplementeer. Ten einde verder te voorkom dat kliente dubbele rente betaal (rente op rente), is die Land Bank se rentekoers van 19,0% tot 17,5% verlaag.

12  The Land Bank sent a further circular dated 25 October 2000 to its customers. This read, in relevant part:

Voortspruitend uit die feit dat die Bank van tyd tot tyd navrae ontvang in verband met die gewysigde metode van renteberekening vanaf 01/07/1999, word die volgende verduideliking verskaf ten einde enige moontlike onduidelikhede uit die weg te ruim.

Daar bestaan onder andere twee metodes van renteberekening:

1. Onder die Bank se vorige rekeningstelsel is rente jaarliks op die vervaldatum gekapitaliseer teen 19,0%

(die rentekoers wat op 30/06/1999 van toepassing was).

Hierdie metode van renteberekening het egter verskeie probleme tot gevolg gehad in gevalle waar kliente verkies het (of verplig was) om hulle paaiemente op ‘n maandelikse basis te betaal. Bo en behalwe hierdie probleem het die Bank ook verskeie klagtes ontvang in verband met die feit dat sy rentekoerse, as gevolg van die metode van kapitalisering nie met die van handelsbanke vergelykbaar was nie.

2.    Ten einde hierdie probleme op te los sowel as meer markverwant te wees, is daar besluit om rente vanaf 01/07/1999 maandeliks te kapitaliseer. Om die duplisering van rente (rente op rente) te verhoed, is die rentekoers vanaf 01/07/1999 verlaag vanaf 19,0% tot 17,52%.

13  I shall now describe, to the extent relevant, how the present case was pleaded. As I have said, the plaintiffs alleged the facts of the two agreements and their payments, the last of which was under protest to enable them to cancel the mortgage bonds which the Land Bank held as security over their farms. The plaintiffs’ particulars of claim as amended then proceeded to allege that within these payments there were components of interest demanded by the Land Bank which, according to the plaintiffs, were in fact not owing but were paid, in the case of the last payments under protest and in the cases of the earlier payments in the bona fide and reasonable belief that they were in fact owing. This belief, the existence of which was not disputed, arose because the Land Bank sent them statements of account in which the interest components were said to be owing.

14  The Land Bank in its plea raised the change of interest regime as from 1 July 1999 which I have described above. It also raised a special plea of prescription which was not argued before me.

15  There was no replication. Of particular relevance to the case as argued on behalf of the plaintiffs, it was not alleged that the variation decision or the notices I have described were invalid, either in whole or in part.

16  In paragraph 11 of the minutes of the pre-trial conference held between the parties and signed on 1 October 2015, the parties agreed that documents used at the trial would serve as evidence of what they purported to be unless challenged and that correspondence would be deemed to have been drawn by the author, to have been sent and/or transmitted and to have been received by the addressee.

17  There was no challenge in this regard to the notices of the Land Bank which I have described above. It is therefore proven that they were drawn by the Land Bank and received by the plaintiffs.

18  Against this background I shall identify the issues which were presented to me by counsel for decision. When opening the case for the plaintiffs, counsel for the plaintiffs told me that I was asked to determine only the appropriate interest rate (ie the percentage number) and whether the interest to be calculated should be simple interest or compound interest. Compound interest is interest on capital plus accrued interest.

19  Evidence was then led of the calculations produced by the experts on both sides, Mr Whelpton and Mr Strydom respectively, in support of the respective contentions. Both experts used 17,52% as the applicable rate (in the narrow sense of the word) for the period immediately after 1 July 1999. But Mr Whelpton used simple interest while Mr Strydom compounded the interest monthly.^[2]

20  Counsel for the plaintiff submitted that Mr Whelpton’s basis of calculation was justified on the ground that the provisions of the loan agreements which I have described permitted the Land Bank only to vary the rate of interest in the narrow sense. On this logic, counsel submitted, the decision of the Land Bank to lower the rate (in the narrow sense) from 19% to 17,52% was effective but the decision to charge compound interest after 1 July 1999 was not. Counsel for the Land Bank, on the other hand, submitted that full effect should be given to the variation decision.

21  I do not think that on the plaintiffs’ case as pleaded and as outlined before me by counsel when he opened the case, the plaintiffs are entitled to argue that the variation decision was invalid in part. However, I shall deal with the arguments made by counsel.

22  It was common cause between counsel that if Mr Whelpton’s basis of calculation were correct, the plaintiffs would be entitled to judgment for the amounts claimed and that if the basis for Mr Strydom’s calculation were correct, the plaintiffs’ claims should fail.

23  In my view, the contractual provisions conferring on the Land Bank power to vary the interest rate must be interpreted in the same way as the documents contemplated in Dexgroup (Pty) Ltd v Trustco Group

International (Pty) Ltd and Others 2013 6 SA 520 SCA para 16 and the SCA decisions which both preceded and followed it:

Chartered Accountants (SA) v Securefin Ltd and Another and Natal Joint Municipal Pension Fund v Endumeni Municipality ... make it clear that in interpreting any document the starting point is inevitably the language of the document but it falls to be construed in the light of its context, the apparent purpose to which it is directed and the material known to those responsible for its production. Context, the purpose of the provision under consideration and the background to the preparation and production of the document in question are not secondary matters introduced to resolve linguistic uncertainty but are fundamental to the process of interpretation from the outset.

24  The purpose of the variation decision is palpable: to vary the method of calculating interest without effecting substantially the amounts of interest which the Land Bank had considered itself entitled to levy before the date of the implementation of the variation decision. The calculations generated by Mr Strydom show that this result was indeed in substance achieved, at least for customers who were not in arrears with their payments. I do not think that the fact that the belief of the Land Bank that it was entitled to charge compound interest before 1 July 1999 was a mistaken belief makes any difference. The purpose of the Land Bank in taking the variation decision was to change the interest regime to 17,52% compounded monthly.

25  Nor does it matter, as I see it, that the variation decision was taken by the Land Bank unilaterally. It has long been established that such provisions are valid and the exercise of the power permissible provided that in exercising the power the party vested with it exercises the arbitrium boni viri: the judgment of a reasonable person. Benlou Properties (Pty) Ltd v Vector Graphics (Pty) Ltd 1993 1 SA 179 A 187J-188C.

26  I incline strongly toward the view that the variation decision was valid.

I do not think that the expression interest rate (rentekoers) should be interpreted in the narrow way for which counsel for the plaintiffs contends. The narrow interpretation would do violence to the intention of the Land Bank as expressed in the Land Bank’s circular documents communicated to the customers and articulating and explaining the motivation behind the variation decision. In any event, the evidence establishes that the mortgage bonds passed by the plaintiffs in favour of the Land Bank allowed the variation of both the rate in the narrow sense and the conditions applicable to the interest calculation.

27  But I do not think that I need to come to a final conclusion on this point. If that part of the decision pursuant to which the Land Bank decided to charge compound interest after 1 July 1999 was invalid, the other part of the decision, dropping the interest rate from 19% to 17,52% can only survive the postulated invalidity of the compounding part if the two can be severed. In a contractual context, severability is only possible where the bad can be separated from the good while still leaving intact the intention of the parties as it appears in or can be inferred from the terms of the contract as a whole.^[3] As I have explained, this is not possible in the present case. So if the variation decision is invalid, the interest rate of 19% would have remained in force. The evidence demonstrated that if interest had been calculated in accordance with the regime applicable ante variation decision, the plaintiffs would not have overpaid in this regard. As counsel for the plaintiffs correctly put it, the plaintiffs were contending that the variation decision provided them with a windfall.^[4] In my view, properly construed and applied it did not.

28  In these circumstances the action cannot succeed. I make the following order: There will be judgment for the defendant with costs, including those costs consequent upon the employment of both senior and junior counsel.

NB TuchtSn Judge of the High Court

14 October 2015

For the plaintiffs:

Adv J Brand SC

Instructed by Schalk Botha Attorneys Pretoria

For the defendant:

Adv M van der Nest SC and Adv M Sawyer

Instructed by Edward Nathan Sonnenbergs Johannesburg

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