C & T Products (Pty) Ltd v MH Goldschmidt (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Friedman J
• Judgment Date: 01 April 1981
• Citation: 1981 (3) SA 619 (C)
• Court: Cape Provincial Division

Friedman, J.:

Plaintiff carries on business in Port Elizabeth as a steel merchant and manufacturer of steel products. In the course of its business plaintiff purchases steel from the South African Iron and Steel Industrial Corporation Ltd ("Iscor"). Iscor was prepared to supply plaintiff with steel on credit up to a certain maximum limit which at all H relevant times was R200 000. For purchases in excess of that limit, Iscor required a bank or insurance guarantee or confirmation by an acceptable confirming house. This is where defendant comes into the picture.

Defendant is a firm which carries on business as a shipper and confirming house and was - as far as Iscor was concerned - acceptable as a confirmer. In September 1972 an arrangement was concluded between plaintiff and defendant in terms of which defendant was appointed as plaintiff's shipper and confirmer. In a letter addressed by defendant to plaintiff on 22 September 1972, the terms of the

Friedman J

arrangement, in so far as they are relevant, are recorded as follows:

"I would like to confirm to you that our arrangements as far as local confirmations are concerned is to charge you a confirming fee of 1¾ per cent and bank interest at the rate of 9 per cent per annum, which A however is flexible according to official changes of bank overdraft rates. It has been arranged that all bills will be drawn with an approximate 120-days currency.

As far as overseas confirmations are concerned, J Gerber & Co Ltd, London, charge a confirming fee of 2½ per cent on all drafts, which are payable at sight or at your option, up to 120 days after sight.

In terms of our arrangements I am enclosing deed of suretyship forms, in triplicate, in respect of your own personal surety and also B inter-company sureties, which kindly sign and return to us in due course. After stamping we will forward you a copy for your own references."

That arrangement continued for some years. The period with which this action is concerned is one of three years commencing in February 1977 and terminating in January 1980. During that period defendant confirmed C plaintiff's orders, not only with Iscor but with other suppliers as well. However, most of the orders were those with Iscor which was plaintiff's main supplier. The manner in which the arrangement between plaintiff, defendant and Iscor worked illustrates how the agreement concluded between plaintiff and defendant in September 1972 was given effect to in practice. D It will therefore be convenient to refer to the Iscor transactions in some detail.

Plaintiff would place an order with Iscor and, if it was an order requiring confirmation, plaintiff would state on the order: "To be confirmed by M H Goldschmidt". When plaintiff forwarded the order to E Iscor it sent a copy of the order to defendant who immediately wrote to Iscor stating that it confirmed plaintiff's order. It should be noted that plaintiff's order was invariably for delivery some months later. Upon receipt of the order Iscor would issue a notice advising that it had received the order. The notice recorded the name of defendant as the customer and plaintiff as the consignee. It also stated the expected F production date and the price of the steel to be supplied and indicated what percentage discount would be allowed for settlement during the month following dispatch. The percentage was usually 2½ per cent. Prior to receipt of Iscor's advice note and more particularly at the stage when G defendant confirmed the order, only an approximate value was known.

Upon execution of the order, Iscor issued an invoice and in due course rendered a statement to defendant. Copies of the invoice and statement were sent to plaintiff. When the statements had been reconciled with the deliveries, plaintiff wrote to defendant, enclosing copies of the statements for payment by defendant. Defendant then paid Iscor and drew a H bill on plaintiff payable approximately 120 days later. The face value of the bill was the aggregate of the amount paid by defendant to Iscor (ie the net amount after deduction of the discount), a 2 per cent "confirming commission" calculated on such net amount, interest at rates which varied between 12½ per cent and 14 per cent calculated on the net amount paid to Iscor plus the 2 per cent confirming commission, as well as bank charges and stamps. A typical example of such a bill (exh 4A) is the one for R22 234,07 drawn by defendant on plaintiff on 14 September 1979 payable on 31 December

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1979. Defendant's statement which is dated 31 August 1979 and under cover of which the bill was sent to plaintiff for acceptance, reads as follows:

"To: Our confirming your local purchases ex Iscor Statement No 2349 dated 31:7:79	R21 421,08
Less discount	535,53
		R20 885,55
To: 2 per cent confirming commission		417,71
		R21 303,26
To: Interest at 12 per cent for 123 days		897,36
		R22 200,62
To: Bank charges and stamps		33,45
		R22 234,07

Draft No 8790062 due 31 December 1979

Kindly accept attached draft and return same to us at your earliest convenience."

At the back of the bill the following is recorded:

"Bill No	8790062
Advanced	R21 303,26
Stamps	11,15
Principal debt	R21 314,41
Finance charges	919,66
Percentage annual rate	12½ per cent."

In addition to paying Iscor in respect of orders confirmed, as explained E above, which transactions will, for convenience, be referred to as "confirmed transactions", defendant also paid other accounts on plaintiff's behalf without the order having been confirmed. The latter transactions will, for convenience, be referred to as "unconfirmed F transactions". The way in which this came about was that about the 17th of the month plaintiff, having assessed its cash flow, would submit certain creditors' statements to defendant and request defendant to pay those statements and to draw a bill on plaintiff for approximately 120 days from the date of payment of the statement. Defendant then wrote to the creditors concerned stating that, at the request of its client, ie plaintiff, it would be forwarding a cheque in settlement of the amount G owing by plaintiff in respect of the statements mentioned. When defendant paid those amounts, it would draw a bill on plaintiff in the same way as it did in the case of the confirmed transactions, ie the bill would be for approximately 120 days, the interest being calculated on the aggregate of the amounts paid to plaintiff's creditors and the 2 per cent confirming fee.

H At all relevant times the maximum permissible finance charge rate in terms of the Limitation and Disclosure of Finance Charges Act 73 of 1968 (hereinafter referred to as "the Act") was 14 per cent per annum. If the 2 per cent confirming fee charged by defendant were to be regarded as part of the finance charges levied by defendant, the amount paid by plaintiff to defendant would exceed the maximum amount it was permissible to charge in respect of finance charges under the Act, although not necessarily to the full extent of the 2 per cent.

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It is necessary at this stage to refer to the pleadings. In its particulars of claim plaintiff alleged that, during the period in question, ie February 1977 to January 1980, defendant lent and advanced money to it, the details of which are set out in a schedule. Each of the A occasions referred to was one in which defendant paid Iscor (or another creditor of plaintiff's) and in respect of which defendant drew a bill on plaintiff for the amount so paid plus the confirming fee. Plaintiff alleged that each loan was a money lending transaction as defined in the B Act and for the purposes of each loan plaintiff was a borrower as defined in the Act. Plaintiff went on to allege that plaintiff paid defendant, in respect of each loan, finance charges at an annual rate greater than that permitted by s 2 (1) (c) of the Act and that the aggregate of such excess payments amounted to R62 364,53 which amount defendant was liable to pay to plaintiff in terms of s 7 of the Act. Plaintiff accordingly claimed C payment of the amount of R62 364,53, together with interest thereon at the rate of 11 per cent per annum a tempore morae.

Defendant filed a plea in which it admitted that the payments made by it to Iscor constituted money lending transactions in respect of which plaintiff was the borrower. Defendant denied, however, that the D confirming fee which it charged in respect of those transactions constituted finance charges. Defendant accordingly denied that the finance charges stipulated for and received exceeded the maximum rate prescribed by the Act and denied that plaintiff was entitled to recover the amount claimed.

At the trial defendant amended its plea by inserting an alternative plea E in which it pleaded set-off. Defendant alleged that, in terms of another transaction between the parties, plaintiff was indebted to defendant in an amount of R81 006,02 which was due and payable on 29 February 1980. Instead of paying that amount to defendant on due date, plaintiff paid only R17 182,33 and withheld the balance of R63 823,69. With regard to F the R62 364,53 of the amount held back, plaintiff notified defendant that it was setting off that amount (being the same amount as that claimed in the action) against the amount due by it to defendant. Defendant accordingly alleged, in its alternative plea, that even if plaintiff established the allegations contained in its particulars of claim, it G would not be entitled to payment of the amount claimed "as this would constitute a second payment of the same amount".

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