Birch v Firstrand Bank

• Jurisdiction: South Africa
• Judge: E Revelas J
• Judgment Date: 03 June 2016
• Docket Number: 1050/2011
• Court: Eastern Cape Division
• Hearing Date: 12 May 2016
• Citation: 2016 JDR 1005 (ECG)

Revelas J:

[1]

There are five applications in this matter. The first two applications are for rescission of a court order dated 13 December 2012. Mr Sidney Bonnen Birch ("Birch") and his wife, Verona Birch brought the first application for rescission (under case number 5010/2011). The second application for rescission of the same order, is brought by the Ted and Helen Birch Trust ("the trust") (under case number 1415/2012). FirstRand Bank ("the bank") is the respondent in both applications for rescission. The bank as applicant in the third application, (case number 3774/2015) seeks an order in terms of Uniform Court Rule 46(1)(a)(ii), to the effect that certain immovable property owned by the trust (a farm called Van Aardtskraal), be declared executable.

[2]

In the fourth application, the bank seeks an order to set aside a "Notice to Produce Documents", served by Birch, as an irregular step in motion court proceedings in terms of Uniform Court Rule 30(1). Birch in turn, has brought an application to have the bank's application in terms of Rule 30(1) aforesaid, set aside, also in terms of Rule 30(1). That is the fifth application. These fourth and fifth applications are both also brought under case number 1050/2011.

[3]

The order of 13 December 2012, sought to be rescinded by different applicants, was granted pursuant to an application brought by

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the bank for the sequestration of the estate of Birch (case number 1050/11), as well as an action instituted by the bank against the trust (case number 1415/2012). I will refer to the four defendants as "the trustees" herein.

[4]

Birch does not dispute that the order was made by agreement between himself and the bank in terms of a draft order handed to Sandi J on 13 December 2012. Birch also complied with the order by commencing with the payments in terms of the order. However, he ceased making payments to the bank when at the end of 2014, according to him, it occurred to him that the loan agreement between himself and the bank may have been sold into securitisation. In that case, he believed, the bank would not have the necessary locus standi to sue him and that would be his defence. Had he known about this at the relevant time, Birch stated, he would never have consented to the order in question.

[5]

The applicants (the trustees) in the second rescission application seek rescission of the relevant order on two grounds. Firstly they contend that if the bank lacked locus standi to recover payments from Birch, it was also not entitled to recover payment from the trust by virtue of being surety for Birch's debts to the bank. Secondly, the trustees allege that they had no knowledge of the settlement agreement between Birch and the bank, which resulted in the order of

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13 December 2012. Consequently, they argued, the trustees could not have agreed to the order which they now seek to rescind.

[6]

The relevant terms of the order sought to be rescinded reads as follows:

"IT IS ORDERED: (BY AGREEMENT BETWEEN THE PARTIES)

1.

THAT the Respondent in case number 1050/2011 and the Defendants in their official representative capacities in case number 1415/2012 shall jointly and severally pay the Applicant.

a.

the amount of R2 500 000.00 together with interest at prime (currently 8.5%) per annum calculated daily and compounded monthly in arrears from 7th December 2012 to date of payment, both days inclusive

by way of:

b.

an instalment of R100 000.00 on or before 31st January 2013;

c.

an instalment of R243 113.54 on or before 28th February 2013;

d.

seven equal instalments of R343 113.54 payable at three monthly intervals commencing on or before 7th June 2013 and thereafter on or before 7th September 2013; 7th December 2013; 7th March 2014; 7th June 2014; 7th September 2014 and 7th December 2014.

2.

THAT should Respondent and the Defendants fail to make payment of any instalment envisaged in paragraph 1 hereof, and fails to do so within seven days after receipt of written notice calling upon him to do so, the full outstanding balance will immediately become due and payable.

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3.

THAT the Respondent and Defendants shall make payment of Applicant's party and party bill of costs, to be taxed or agreed.

4.

THAT it is recorded that the obligations set out in paragraphs 1, 2 and 3 above are in full and final settlement of any and all obligations of the above Respondent to the Applicant in respect of account no: 4000016834294 and 62088888585 and Defendants (in their official representative capacities) to the Applicant in respect of its suretyship.

5.

THAT it is ordered that Respondent retains the right(s), subject to prescription, to institute legal proceedings against Applicant pursuant to the alleged damages occasioned by the fire at Van Aardtskraal Farm, Middleton, Eastern Cape in September 2010."

Background

[7]

The facts which gave rise to the aforesaid order are the following: On 01 December 2009, the bank afforded Birch two short term facilities comprising of a working capital facility, available in the form of an overdraft and other facilities, and a pre-settlement facility of R1,000,000.00 and R150,000.00 respectively. In the same facility letter, a long term direct loan for the amount of R1,360,000.00 was also afforded to Birch, and in terms of the facility letter, a written loan agreement was concluded between the bank and Birch on 02 December 2009 in respect of the long term direct loan.

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[8]

Birch breached the terms of the facility letter and the loan agreement by failing to make full and timeous payments in terms of the loan and by committing an act of insolvency, being that he notified the bank on 02 August 2010, that he was unable make repayment. Birch's debt review was terminated by the bank and the bank launched the application for his estate to be sequestrated. Birch contested the sequestration application.

[9]

The factual background to the action instituted under case number 1415/2012 against the trust is the following: The trust owns certain immovable property (referred to earlier) which is a farm, Van Aardtskraal, in the Middleton area, Somerset East. On 17 August 2005 a bond was registered over Van Aardtskraal by the trust, in favour of the bank, as a continuing security and covering bond for every sum in which the trust may then or thereafter become indebted to the bank. The bank subsequently instituted an action against the trust for repayment of Birch's unfulfilled obligations in terms of the loan agreement, by virtue of the trust having bound itself as surety and co-principal debtor in solidum with Birch for the repayment of his loans. As a result of the trust's liability to the bank pursuant to the suretyship, the bank issued summons against the trust for payment in the amount of R1,360,000.00.

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[10]

When the sequestration application and the action became settled, Birch made payments to the bank in terms of the order of 13 December 2012, as from January 2013 until November 2014. Thereafter he ceased making monthly payments. In total, of the R2,5 million that Birch was ordered to pay the bank in the order sought to be rescinded, he paid only R943,113.54.

The applications in terms of Rule 30 (1) and the first rescission application

[11]

It is convenient to deal with the first, fourth and fifth applications first, since they concern the entitlement of Birch to demand discovery of the documents [1] listed in his notice "To Produce Documents" and whether Birch can successfully rely on securitisation as a valid defence. These questions are all closely intertwined.

[12]

There was no formal application for a postponement, but in the event of Birch being successful in his application to have the bank's Rule 30(1) application set aside, the matter would have to be

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postponed. That would enable Ms Carruthers, who presently acts for both Birch and the trust, to scrutinize the documents demanded in the notice.

[13]

Ms Carruthers stated that the purpose of such scrutiny of the documents would allow her to establish whether or not the loan agreement between Birch was sold or ceded into securitisation to an unidentified, undisclosed third principal. The bank has denied that this occurred. Ms Carruthers argued that if the original loan agreement was not forthcoming, the inescapable inference to be drawn therefrom, was that the agreement had indeed been sold into securitisation, despite the bank's protests to the contrary.

[14]

Should the original loan agreement however, be produced by the bank, Ms Carruthers said that she wished to compare the original loan agreement with copies thereof, and with the transparencies of such copies. The purpose thereof would be, according to Ms Carruthers, to find discrepancies in the signatures of the debtor and words on these documents. Such unusual features would, according to Ms Carruthers, indicate the securitisation of the bank's loan to Birch.

[15]

As stated before, the bank denies that the loan agreement in question was ever sold or ceded by it into securitisation and submits that Birch's "Notice to Produce Documents" is an abuse of the process

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of this court, and an irregular step, at least in as much as Rule 35(1) does not apply to applications.

[16]

Birch's entitlement to the documents in question depends entirely on the viability of his so-called securitisation defence. There would be no point in postponing the matter to provide an opportunity for Ms Carruthers to scrutinize the documents if there are no prospects that the proposed defence, if it is a defence, will succeed. At this point there is no indication that the loan agreement was securitized. It is highly significant that...