Fedsure Participation Mortgage v Sandlundlu (Pty) Limited

• Jurisdiction: South Africa
• Judge: Kruger J
• Judgment Date: 18 October 2013
• Docket Number: AR409/12
• Court: KwaZulu-Natal High Court, Pietermaritzburg
• Hearing Date: 05 August 2013
• Citation: 2013 JDR 2341 (KZP)

Kruger J:

[1]

The Appellants (collectively referred to as "Fedbond"), having obtained leave from the Supreme Court of Appeal, appeal against the judgment of van Heerden AJ granted on the 20th September 2011. The order appealed against is one directing the Appellants, jointly and

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severally, the one paying the other to be absolved, to pay to the Respondent:

(a)

The sum of R2 584 682,58;

(b)

Interest on the amount of R3023 832,41 calculated at the rate of 15,5% per annum from 23rd July 2007 to 8th February 2010;

(c)

Interest on the amount of R2 584 682,58 calculated at the rate of 15,5% per annum from 9th February 2010 to date of payment;

(d)

Costs of suit.

BACKGROUND

[2]

Pursuant to a written loan agreement, Fedbond loaned to the Respondent ("Sandlundlu") the sum of R5 600 000,00. The loan was secured by the registration of a first mortgage bond over the property previously described as Lot 1094 Port Edward, then owned by Sandlundlu. This mortgage bond was registered, in favour of Fedbond, on the 22nd January 1998. Sandlundlu was unable to meet its obligations in terms of the said mortgage bond and, as a result, Fedbond obtained judgment against it for payment of the sum of R7 855 439,77 together with interest at the rate of 16,99% per annum calculated from 1st December 1999 to date of payment. The aforesaid immovable property was also declared executable.

[3]

An agreement was subsequently reached whereby the aforesaid property was sub-divided on the 7th February 2002. The one portion of the sub-division incorporated the land on which an existing hotel stood. This was described as Portion 1 of Lot 1094 Port Edward (the "hotel

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property"). The other portion of the sub-division consisted of land upon which Sandlundlu was in the process of constructing a number of chalets as part of a sectional title development. This sub-division, known as the Remainder of Lot 1094 Port Edward, was registered in the name of Secprop (Pty) Limited ("Secprop").

[4]

Sandlundlu remained the owner of the hotel property. The Secprop property was released from the existing mortgage bond and a new mortgage bond of R5 000 000,00 was registered, in favour of Fedbond, over this property. It is common cause that simultaneously, the existing mortgage bond over the hotel property would be reduced by R5 000 000,00. Sandlundlu then became liable for payment of the balance of this mortgage bond.

[5]

Sandlundlu leased the hotel property to a company known as "Biz Afrika" for a period of ten years. Simultaneously, it had entered into an agreement to sell the property to a company called "Slipknot Investments". Both Biz Afrika and Slipknot Investments were controlled by Messrs Kotter and Michaelides. Given Slipknot's refusal or procrastination in procuring transfer of the property and as a result of protracted litigation relating to the rental payable by Biz Afrika, the mortgage bond payments fell into arrears. Fedbond foreclosed on the mortgage bond and obtained judgment, on the 5th August 2002, against Sundlundlu, in the sum of R8 865 285,88 together with interest at the rate of 14.99% calculated from 1st June 2002 to date of payment. The immovable property was also declared executable. It is common cause that the amount of R8 865 285,88 included the sum of R5 000 000,00 in respect of which Secprop had assumed liability.

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[6]

The property however was not sold in execution as Biz Afrika, Slipknot and the trustees of the Ark Trust (Kotter and Michaelides) sought a rescission of the judgment. These proceedings were protracted and costly. It is common cause that during the course of these legal proceedings, Fedbond, from time to time, debited the legal fees incurred against Sandlundlu's mortgage bond account. At the conclusion of these proceedings, these legal costs amounted to the sum of R686 934,90. Thereafter Sandlundlu requested a settlement figure in order to discharge and cancel the bond. A dispute arose and Sandlundlu ultimately paid what Fedbond demanded "under protest", in order to secure cancellation of the bond.

[7]

Sandlundlu then instituted an action to recover the amounts it alleged it had overpaid. Judgment was accordingly granted in its favour as set out in paragraph 1 supra.

[8]

In the judgment, Van Heerden AJ dealt with five issues, viz:

(a)

The Secprop issue – this related to the assumption of R5 000 000,00 by Secprop and the failure by Fedbond to reduce Sandlundlu's indebtedness in respect of the hotel property. The Court a quo ultimately found that the sum of R585 819,87 had been overpaid by Sandlundlu as a result of Fedbond's failure to credit the account and the resultant interest which had then accrued. The Appellants have accepted the Court a quo's findings and do not appeal against this issue.

(b)

The second issue relates to the costs incurred in the rescission application. The Court a quo held that Fedbond was entitled to recover these costs from Sandlundlu. However, it held further

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that Fedbond was only entitled to debit Sandlundlu's mortgage bond account after a demand for payment was made and payment not being effected. It is against this finding that the Appellants have appealed.

(c)

The third issue is termed the "FS Trust Issue". This related to the rate of interest Sandlundlu was entitled to receive on monies which it paid to Fedbond and which, by agreement, was not reflected as a credit on the mortgage bond statements. The Court a quo determined this issue in favour of the Respondents. The Appellants appeal against this finding as well.

(d)

The Fourth issue relates to the interest charged by Fedbond after it had obtained judgment against Sandlundlu on the 5th August 2002. The Court a quo held that the interest was simple interest and that Fedbond did not have the right to vary the rate of interest or to compound or capitalise same. The Appellants appeal against this finding as well.

(e)

The final issue concerned the costs of the application proceedings before and reserved by Nicholson J. The Court a quo held that these costs be borne by Sandlundlu. Sandlundlu has accepted this finding and there is no cross-appeal.

[9]

I turn now to consider the issues on appeal.

(a) COSTS

[10]

As stated earlier in this judgment, the appeal on this issue is limited to...