Maleth Investment Fund (Pty) Limited v Paget

• Jurisdiction: South Africa
• Judge: Weiner J
• Judgment Date: 02 May 2014
• Docket Number: 13/32676
• Court: South Gauteng High Court, Johannesburg
• Hearing Date: 22 April 2014
• Citation: 2014 JDR 0968 (GSJ)

Weiner J:

Background

[1]

In 2011, the Applicant ("Maleth") Loaned monies to Scarab

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Investments Holdings (Pty) Ltd ("Scarab") and its subsidiaries in terms of various loan agreements.

[2]

Scarab is the holding company of, inter alia, Cemlock (Pty) Ltd ("Cemlock"), one of the companies to which reference is made in the present application.

[3]

As at the date of signature of the first agreement, the Mezzanine Loan agreement ("the Mezzanine Loan"), the respondent ("Paget") was the sole director and shareholder of Scarab.

[4]

Maleth alleges that the Scarab Group, and Paget, in his personal capacity, are indebted to Maleth, jointly and severally, as at 10 August 2013, in the sum of R119 054 822.96.

[5]

The indebtedness of the Scarab Group arises from the various agreements concluded between Maleth on the one hand and various other subsidiaries in the Scarab Group, on the other. Paget's indebtedness arises from the Deeds of Suretyship referred to below.

The agreements

[6]

The agreements relevant to this application are the following:

6.1

The Mezzanine Loan, concluded between Maleth and Scarab on 21 April 2011. In terms thereof, Maleth made available to Scarab

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a facility of US$15 million. Scarab has benefitted from six advances made pursuant to this agreement, which advances are not disputed by Paget.

6.2

The Senior Term Loan Sheet ("The Senior Loan"), dated 21 July 2011. The agreement sets out Cemlock's obligation to pay to Maleth a commitment fee, a break up fee and a maintenance fee in respect of the loan to be advanced to Cemlock in terms of the Senior Term Facility Agreement ("The Senior Facility"). The commitment fee was payable immediately upon signature of the Senior Loan. In terms of this agreement, Paget, as well as all members of the Scarab Group, are bound as sureties.

6.3

The Senior Term Facility Agreement ("the Senior Facility"), dated 14 August 2011, in terms of which Maleth agreed to advance to Cemlock an amount up to a value of US$13 million in South African Rand for the purposes of refinancing Cemlock's debt with Standard Bank. This agreement was signed by Paget, who also signed as surety;

6.4

The Senior Term Loan Fee Letter ("the Senior Letter"), dated 14 August 2011. It recorded the fees payable by Cemlock as a quid pro quo for the advance of the Senior Loan. In particular it dealt with the maintenance fee, the redemption fee and the break-up fee;

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6.5

The Deeds of Suretyship, dated 21 April 2011 and 18 December 2011, which were executed in favour of Maleth by Paget in his personal capacity;

6.6

The Release and Assumption Deed ("the Release Deed"), dated 27 June 2012, which was signed on two occasions. Cemlock undertook, as a co-borrower with Scarab, liability for all of Scarab's payment obligations in terms of the Mezzanine Loan;

6.7

Supplement number 1 to the Mezzanine Loan, concluded between Maleth, Paget and two companies in the Scarab Group as sureties. Supplement number 1 related to 24 Promissory Notes ("the Promissory Notes") signed by Paget on 27 July 2012 for and on behalf of the members of the Scarab Group as further security for the indebtedness of Scarab and Cemlock.

6.8

Deeds of Cession and Pledge ("the Deeds of Cession") dated 21 April 2011 and 17 June 2011, in terms of which Paget ceded and pledged in securitatem debiti his shares in Scarab. Various other members of the Scarab Group also ceded and pledged their shares in the subsidiaries to Maleth. These deeds of cession and pledge are the agreements which Maleth alleges enabled it to exercise its "step-in" rights, in relation to the Scarab Group (dealt with below).

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[7]

Maleth seeks payment from Paget in his capacity as surety and co-principal debtor. In this regard, Maleth refers to:-

7.1

the first suretyship agreement in terms of which Paget bound himself as surety for and co-principal debtor in solidum for the payment of all monies and the due performance of all obligations which Scarab owed or would owe to Maleth in terms of, inter alia, the Mezzanine loan and ancillary agreements ("the first suretyship").

7.2

the second suretyship agreement ("the second suretyship") in terms of which Paget bound himself to Maleth as surety and co-principal debtor in solidum for the payments of all monies and for the due performance of all obligations which were owing and would become owing by Cemlock in terms of the Release Deed, the Senior Loan, the Senior Facility and the Senior Letter. [For the purpose of convenience, the latter three agreements will be referred to as the Senior Loan agreements, when dealt with collectively.]

Admission

[8]

In a letter dated 4 August 2013, Paget admitted, on behalf of the Scarab Group, the indebtedness to Maleth in the amount of UDS12.5

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million. Paget offered Maleth payment of USD12.5 million "…in full and final settlement of the debt owed to [Maleth]". This amount is in excess of the amount claimed in this application, but does not include amounts Maleth contends are due in the future.

[9]

Maleth contends that on the basis of the above agreements and the admission of the 4 August 2013, the Scarab Group, and Paget (as surety and co-principal debtor) are indebted to Maleth in the amount claimed. The detailed calculation of the amount owing is not challenged by Paget.

Defences raised in the Answering Affidavit

[10]

Paget deposed to the answering affidavit on 1 October 2013. In the answering affidavit, Paget raised two defences:

10.1

The Mezzanine Loan Agreement is unconscionable and / or falls to be set aside as it was concluded in circumstances of actual / presumed undue influence and duress. Paget argues that therefore the suretyship agreements entered into pursuant to the Mezzanine Loan are also unenforceable. Paget stated that the Mezzanine Loan was governed by English law and that such law, based on equity, would render such agreement unenforceable.

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10.2

The Senior Term Loan Sheet and the Senior Loan Agreement (sic.) are unenforceable because they never became unconditional in their respective terms due to non-fulfilment of various conditions precedent contained in the agreements. Paget contends that it was a condition precedent that Maleth obtain the requisite exchange control approval from the South African Reserve Bank or authorized dealer (as per clause 11.1(l) of the Facility Agreement). He contends this condition was not fulfilled.

[11]

In the Answering Affidavit, although Paget referred to English law, he failed to prove same by way of expert evidence.

[12]

Paget, after the present proceedings had been set down for hearing, launched an application to refer the matter to trial on the basis that:-

12.1

There are 'disputes of fact' relating to several issues; and

12.2

As the loan agreements are governed by English law, the necessary expert evidence regarding the English law should be presented at a trial.

[13]

Paget has taken the position that it is not possible to determine the English law on affidavit. He does not say why this is so. He failed to furnish the Court with any factual basis or expert evidence for the

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conclusion that the English law would hold that the Mezzanine Loan was unconscionable.

[14]

Maleth had argued that the correspondence after 4 August 2013, the defences raised in the affidavits and the application to refer the matter to trial contradicts the earlier acknowledgement of indebtedness in the amount of US$12.5 million. Maleth contends that such later documentation relating to the defences raised was initiated by Paget in an attempt to create a dispute of fact where none exists.

Events subsequent to the filing of the answering affidavit

[15]

Subsequent to the filing of the answering affidavit, the parties agreed to suspend the time periods for the filing of the replying affidavit, in order to discuss the settlement of the matter. It was agreed that such suspension would operate until the 30th of October 2013.

[16]

The settlement discussions were unsuccessful. As a result, Maleth took the decision to exercise the 'step-in' rights it held pursuant to the Deeds of Cession. In terms of the Deeds, Maleth was entitled, in the event of a default or breach of the Mezzanine Loan to exercise voting rights in Scarab as if it were the sole shareholder.

[17]

The Applicant relied on various breaches and events of default in terms of the Mezzanine Loan in order to exercise its step-in rights, inter alia:

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17.1

Repayment of the loan was late,

17.2

The Standard Bank of South Africa Limited, as a creditor of Cemlock:

17.2.1

had applied for the liquidation of Cemlock;

17.2.2

had perfected its security in the form of general notarial bonds over the properties of Cemlock;

17.2.3

had taken cession of all of Cemlock's book debts; and

17.2.4

had disposed of all Cemlock's assets.

[18]

Maleth submitted that these events constituted breaches and/or events of default in terms of the Mezzanine Loan. As a result, Maleth demanded repayment of the indebtedness from the Scarab Group members and subsequently applied for liquidation of various of these companies, including Cemlock. On Paget's own version, Maleth will not be able to recover any monies from Cemlock. Maleth accordingly exercised its "step-in" rights.

The urgent application

[19]

When Maleth elected to exercise the step–in rights, the Scarab Group launched an urgent application ("the urgent application") in terms of which Paget, purportedly acting for and on behalf of the Scarab Group companies, sought to interdict Maleth from "continuing in its unlawful

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