Jeany Industrial Holdings (Pty) Ltd and Others v Zungu-Elgin Engineering (Pty) Ltd

• Jurisdiction: South Africa
• Judgment Date: 30 July 2019
• Citation: 2020 (2) SA 504 (KZD)

Jeany Industrial Holdings (Pty) Ltd and Others v Zungu-Elgin Engineering (Pty) Ltd
2020 (2) SA 504 (KZD)

2020 (2) SA p504

Citation	2020 (2) SA 504 (KZD)
Case No	D 4936/18
Court	KwaZulu-Natal Local Division, Durban
Judge	Chetty J
Heard	July 30, 2019
Judgment	July 30, 2019
Counsel	JC King SC for the plaintiffs/applicants.; A Laher for the defendant/respondent.

Flynote : Sleutelwoorde

Company — Business rescue — Suretyship — Effect of company's business rescue on its sureties' liability — Sureties not acquiring, before recourse, status to participate in business rescue plans — Not 'contingent creditors' — Companies Act 71 of 2008, s 154.

Headnote : Kopnota

A surety's right of recourse against a principal debtor arises when it pays the creditor, and before this it is not an 'affected person' (as intended in s 128 of the Companies Act 71 of 2008 (the Act)) with the right to participate in business rescue plans in respect of the principal debtor (see [21]).

In the present case the principal debtor, Z-E (the defendant), a company that had gone into and emerged from business rescue, wanted to ward off an application for summary judgment by sureties (the plaintiffs) who, having paid off Z-E's creditor, were exercising their right of recourse. The plaintiffs began paying the creditor on 17 March 2015, after the commencement of Z-E's business rescue on 11 March 2015. Z-E argued that business rescue discharged it from its obligations to both the creditor and the plaintiffs as sureties, and that the plaintiffs should in any event have lodged their claims with the practitioner when business rescue proceedings began. Z-E also argued that the plaintiffs were 'contingent creditors' and precluded, under s 154(2) of the Act, from enforcing any pre-business rescue debt against it.

The principal issue was whether the institution of plaintiffs' action in May 2018 was precluded by the fact that Z-E was placed under business rescue on 11 March 2015. See [4].

Held

The plaintiffs did not at the relevant time (March 2015) have any claims to lodge, or ones that were capable of enforcement: their claims, which were based

2020 (2) SA p505

strictly on the surety's right of recourse, could have arisen only when they made payment to the creditor (see [18]).

Z-E's argument that the plaintiffs would have been 'contingent creditors' in the business rescue plan also lacked traction. Even if they were 'affected persons' as intended in s 128 of the Act (and there was nothing to indicate that they were), contingent claims had to be liquidated, and the plaintiffs would not on 11 March 2015 have had any idea of the liquidated amount of their claims (see [19] – [20]). Moreover, it was generally accepted that a surety did not acquire status to participate in business rescue plans (see [21]).

The court accordingly found that Z-E did not succeed in setting up a bona fide defence to plaintiffs' claim and granted summary judgment (see [22] – [23]).

Cases cited

Absa Bank Ltd v Haremza [2015] ZAWCHC 73: applied

Ellerine Brothers (Pty) Ltd v Vestacor (Pty) Ltd [2019] ZAGPJHC 85: dictum in para [4] applied

Eravin Construction CC v Bekker NO and Others 2016 (6) SA 589 (SCA): dicta in paras [18] – [22] applied

Hitachi Construction Machinery Southern Africa Co (Pty) Ltd v Botes and Another [2019] ZANCHC 7: applied

Investec Bank Ltd v Bruyns 2012 (5) SA 430 (WCC): dicta in paras [15] – [16] applied

Nedbank Ltd v Zevoli 208 (Pty) Ltd and Others 2017 (6) SA 318 (KZP): dictum in para [28] applied

New Port Finance Co (Pty) Ltd and Another v Nedbank Ltd 2016 (5) SA 503 (SCA) ([2015] 2 All SA 1; [2014] ZASCA 210): discussed and applied

Oakdene Square Properties (Pty) Ltd and Others v Farm Bothasfontein (Kyalami) (Pty) Ltd and Others 2013 (4) SA 539 (SCA) ([2013] 3 All SA 303; [2013] ZASCA 68): referred to

Oos-Randse Bantoesake Administrasieraad v Santam Versekeringsmaatskappy Bpk en Andere (2) 1978 (1) SA 164 (W): dictum at 171G – 172A applied

Wilde and Another v Wadolf Investments (Pty) Ltd and Others 2005 (1) SA 354 (W): dictum at 358A – C applied.

Legislation cited

The Companies Act 71 of 2008 s 154(2): see Juta's Statutes of South Africa 2018/19 vol 2 at 1-430.

Case Information

JC King SC for the plaintiffs/applicants.

A Laher for the defendant/respondent.

An application for summary judgment based on applicants' right of recourse against the defendant.

Order

1.

Summary judgment is granted against the defendant/respondent for payment of the sum of R250 000.

2.

Interest on the said sum at the prescribed rate a tempore morae to date of final payment.

3.

Costs of suit on the scale as between attorney and client, such costs to include those of senior counsel where so employed.

2020 (2) SA p506

Judgment

Chetty J:

[1] The plaintiffs instituted an action against the defendant for the amount of R250 000 based on their right of recourse as a surety against the principal debtor in circumstances where the plaintiffs made payment to a creditor (Hollard Insurance) to whom the defendant was indebted. As will appear from what follows, the plaintiffs' action was defended, resulting in an application for summary judgment which was set down on the opposed roll. The determination of that application called for an analysis of what are essentially two legal questions. There were no disputes of fact on the papers which presented themselves.

[2] Central to understanding the basis of the plaintiffs' claim against the defendant is a background to the matter. The defendant operates its business in the engineering sector, in which it manufactures heavy-duty parts and equipment for the sugar and petrochemical industries. The second and third plaintiffs are the erstwhile directors of the defendant, which was formerly called Elgin Engineering (Pty) Ltd. The second plaintiff resigned from the defendant on 30 November 2016, with the third plaintiff resigning on 19 April 2015. This appears from a company search report. According to the defendant, at the time when both the second and third plaintiffs were directors of Elgin an agreement was concluded in September 2013 pursuant to the defendant having been awarded a large contract to carry out the manufacture of a tank at Saldhanha in the Western Cape. The agreement between the defendant and Hollard Insurance contained the provision of a performance guarantee bond by Hollard to Sunrise Energy (Pty) Ltd, the entity which contracted with Elgin to carry out the fabrication and delivery of certain tanks for the storage of liquid petroleum gas.

[3] It is not disputed that Hollard forwarded the performance guarantee to Sunrise in October 2013. A material term of the agreement is that Hollard would, in the event of a breach of the defendant's obligation to Sunrise, upon written demand by Sunrise, pay to Sunrise an amount not exceeding R33 951 466, representing 25% of the contract price. In February 2015 Sunrise furnished a written demand to Hollard pursuant to the terms of the agreement for a performance guarantee for the sum referred to above. Hollard honoured the guarantee and paid the amount to Sunrise over the period 17 – 31 March 2015 in four payments. In terms of a written reciprocal indemnity and suretyship agreement concluded on 20 September 2013 between Hollard as the insurer and seven 'principal' companies, or 'signatories' as they are referred to in the particulars of claim, including Elgin, the signatories undertook to indemnify Hollard from any claims which Hollard may sustain by reason of executing any guarantees on behalf of one of the signatories to the agreement. As a consequence of Hollard's payment of R33 951 466 to Sunrise, Elgin (in terms of the provisions of the indemnity and suretyship agreement as set out above) became indebted to Hollard in the said amount.

[4] A further term of the agreement was that each of the signatories, including the plaintiffs and the first respondent, undertook to indemnify

2020 (2) SA p507

Chetty J

Hollard against all claims of whatever nature which it (Hollard) sustained as a consequence of having executed any guarantees on behalf of any of the signatories. Each of the signatories agreed to bind itself as surety and co-principal debtor jointly and severally with each other for any guarantee executed by Hollard in respect of any debt owed by any of the signatories. Although this term of the contract is expressed in a rather convoluted fashion, as I understood Mr King SC, who appeared for the plaintiffs, where Hollard paid Sunrise, as in this instance, as a result of a breach committed by any of the signatories, each of the other signatories became liable to Hollard as a surety for the other principals' breach. Mr Laher, who appeared for the defendant, did not take issue with that interpretation of the indemnity and surety agreement signed by those representing Elgin. That being the case, the first plaintiff (Jeany) bound itself as surety and co-principal debtor with Elgin for all debts owed by Elgin to Hollard. On the same date as the indemnity and suretyship agreements were entered into, the second and third plaintiffs bound themselves as sureties and co-principal debtors in respect of any debt that Elgin owed to Hollard under the indemnity agreement of...