Ithala Limited v Rokwil (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Lopes J
• Judgment Date: 03 December 2013
• Docket Number: 1416/2011
• Court: KwaZulu-Natal High Court, Durban
• Hearing Date: 16 September 2013
• Citation: 2013 JDR 2735 (KZD)

Lopes J:

[1]

The plaintiff in this matter sues on an agreement of loan, a mortgage bond and a suretyship agreement for payment of the sum of R6 832 471,64 together with interest thereon calculated at 9% per annum from the 1st September 2013 to date of payment together with an order declaring certain immovable property executable and

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costs. The loan was to facilitate the building of a mini-factory development by the defendants.

[2]

The relevant documents substantiating the plaintiff's cause of action are:

(a)

a loan agreement (the loan agreement) concluded between the plaintiff and the first defendant (Ithala and Rokwil respectively) on the 29th May 2008;

(b)

a mortgage bond in favour of Ithala over the immovable property owned by Rokwil which was registered on the 26th June 2008 (the mortgage bond);

(c)

a deed of suretyship by the second defendant, Roderick Robert Stainton (Mr Stainton) in favour of Ithala in which he binds himself as surety for and co-principal debtor with Rokwil for the due payment of all present and future debts owed by Rokwil to Ithala, dated the 19th August 2008 (the suretyship);

(d)

an agreement of variation dated the 4th December 2009 which varied the terms of the mortgage bond, (the variation agreement);

(e)

a letter of demand dated the 1st September 2010 (the letter of demand) addressed by Ithala's attorneys to Rokwil notifying the company that as at the 26th December 2009, it was in default of the loan agreement, and that a sum exceeding R7 000 000 remained unpaid, and that unless payment of that amount was made in less than fourteen days, legal proceedings would be instituted against Rokwil;

(f)

a certificate of balance dated the 26th January 2011 certifying that the amount outstanding and due by Rokwil to Ithala was R7 137 219,15 together with interest thereon calculated from the 22nd January 2011 to date of payment.

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[3]

The following matters are common cause on the pleadings:

(a)

the conclusion of the loan agreement and the variation agreement;

(b)

the registration of the mortgage bond;

(c)

the terms of the two agreements and the mortgage bond as set out in those documents;

(d)

that the letter of demand was sent by Ithala and received by Rokwil/Mr Stainton.

[4]

The defendants have taken three special pleas, the third of which has been abandoned. I am accordingly required to decide the first two special pleas and the merits, which are :

(a)

that the terms of the loan agreement took precedence over the mortgage bond, and in terms of Clause 14.1 of the loan agreement Ithala was required to give Rokwil fourteen days notice to remedy a breach, and failing the remedy of the breach, Ithala would be entitled to institute proceedings for the full balance outstanding. Ithala failed to comply with this provision and its claim is premature and stands to be dismissed with costs;

(b)

in terms of Clause 4 of the loan agreement all amounts owing to Ithala would be repaid by Rokwil within eighteen months, with the first payment to be made by an agreement concluded with the conveyancers attending to the transfer of the units of scheme known as Rockwood Business Park (Rockwood). As no such agreement was concluded, nor was it pleaded, nothing is due by Rokwil to Ithala;

(c)

on the merits, Rokwil and Mr Stainton have raised the further defence that the parties conducted themselves and their dealings in a manner entirely

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inconsistent with the loan agreement and the mortgage bond. They did this by concluding an oral agreement (the oral agreement), cancelling the loan agreement and the variation agreement, and recognising that the mortgage bond was in fact a development bond in terms of which Rokwil was to develop Rockwood, selling the sectional title units in that scheme and repaying the finance advanced by Ithala from the proceeds of the sales of the units as they took place. A term of the oral agreement was that in the event that any sectional title units could not readily be sold after completion they would be leased to tenants, the mortgage bond would be cancelled, and a ten year commercial bond would be concluded in its stead. As additional security Mr Stainton's wife would provide a first covering surety mortgage bond (hereinafter referred to as 'the surety bond') in an amount of R2 700 000 over their matrimonial home which was owned by Mr Stainton's wife, and Mr Stainton would cede his Old Mutual life assurance policy to Ithala in securitatem debiti. When Rockwood was completed, with the building risk having been removed and the completed buildings constituting tangible security, Ithala would cancel the surety bond and the cession of Mr Stainton's life policy;

(d)

Rokwil and Mr Stainton then plead that they used the finance advanced by Ithala, and their own funds, to develop Rockwood, repaid portions of the finance to Ithala from the proceeds of the sale of certain units, and let out unsold sectional title units to tenants. In addition the surety bond was registered over Mr Stainton's wife's property;

(e)

by way of a claim in reconvention, Rokwil pleads that it has suffered loss and damages in the sum of R6 615 000 as a result of Ithala's breach of contract in

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failing to cancel the surety bond as well as the cession on Mr Stainton's life policy. It claims payment of that amount together with an order directing Ithala to cancel the surety bond and the cession of Mr Stainton's life policy to Ithala. I am not required to consider causation and the quantum of the claim in reconvention, which only arises in the event that Ithala's claim is dismissed.

[5]

Two witnesses gave evidence at the hearing of the trial. The plaintiff called Laura Merle Powys (Ms Powys) whose evidence may be summarised as follows :

(a)

she is the manager of collections in the credit risk division of Ithala, and has worked for Ithala for eleven years in that position. All loans by Ithala are considered by the credit committee (this was also referred to by Ms Powys as the credit risk committee);

(b)

the role of the credit committee was to consider loans in excess of R1 500 000 and to assess the merits of the loan with regard to the client's ability to repay, the project being considered, etc, and ultimately to make the decision whether or not to grant the loan. No loans could be advanced without the consent of the credit committee;

(c)

in the present case the application was submitted to the credit committee by Ms S Khumalo. That information was gleaned from a document reflecting the credit committee's decision that the loan to Rokwil was approved. Ms Powys knew nothing about the compilation of the documents and she testified that Ms Khumalo no longer worked for Ithala. She was, however, able to say that the document was put before the credit committee in order to enable them to

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determine whether the loan should be granted or not. That document was signed by various members of the credit committee on the 13th March 2008;

(d)

although Ms Powys was not a party to making the decisions, she attended the meetings of the credit committee which were recorded by a secretary;

(e)

it is perhaps relevant to set out the aspects of the document which came before the credit committee on the 13th March 2008 insofar as that document relates to what subsequently transpired. It records that :

(i)

a loan of R10 000 000 would be advanced to Rokwil;

(ii)

a development bond would be registered over the immovable property to be developed;

(iii)

Mr Stainton was to sign a joint and several suretyship with Rokwil for the repayment of the monies loaned;

(iv)

a cession in favour of Ithala would be signed ceding all Rokwil's income derived from the property;

(v)

the scheme envisaged the development of 25 sectional title units in the form of mini-factories, and construction was to commence within six months of the registration of the bond;

(vi)

construction could not, however, commence without 120% of the development costs being covered by pre-sales with signed bond letters;

(vii)

Ithala would share in the profits of the scheme (subject to the condition that it finance all the units) at the level of a minimum of R1 000 000 or 20% whichever is the higher;

(viii)

the terms of repayment of the development bond would be eighteen months and it was envisaged that the source of the repayment would be from the sale of the twenty five units;

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(f)

the report of the credit committee of the 21st January 2009 recorded that Sifiso Radebe (Mr Radebe) reported to the committee that the terms of commencement for construction draws and the allowing of draw downs, which were to have been made at the secured pre-sales value of 120% of development cost, had been approved by the credit committee to be downgraded to 53% of development cost. It was further recorded that at the third week of December 2008 the development progress was at 44%. A further report on the 16th March 2009 by Mr Radebe recorded that sales of six units amounting to 53% of the development cost had been confirmed;

(g)

by the end of December 2009 the construction of the sectional title units had been completed, the sectional title register had been opened and the transfer of twelve units had taken place and Ithala had received payment for those units. The payments were made via Rokwil's conveyances, Mason Weinberg Inc via guarantees;

(h)

on the 15th April 2010 a credit committee minute shows that a submission to extend the loan term by four months had been prepared for consideration. It was common cause that that was granted;

(i)

in January of 2011 a further meeting was held by the credit committee recording the state of the...