Norex Industrial Properties (Pty) Ltd v Monarch South Africa Insurance Co Ltd

• Jurisdiction: South Africa
• Judge: Rabie CJ, Jansen JA, Joubert JA, Botha JA and Boshoff AJA
• Judgment Date: 28 November 1986
• Hearing Date: 10 November 1986
• Court: Appellate Division

Botha JA:

The appellant was the plaintiff and the respondent the defendant in an action brought in the Transvaal Provincial Division by the former against the latter for payment of R604 J 878, interest thereon and

Botha JA

A costs. The trial Judge (Curlewis J) dismissed the appellant's claim, with costs. The present appeal is directed at that order, the trial Judge having granted leave to the appellant to appeal against it to this Court.

The facts are common cause and can be summarised briefly.

The appellant's case against the respondent was founded upon a B document which bears the heading 'Letter of Guarantee', and which was executed by the respondent in favour of the appellant on 8 February 1983. It is addressed to the directors of the appellant and the body of it reads as follows:

'We the undersigned

Monarch South Africa Insurance Co Ltd, 57 Commissioner Street, C Johannesburg, do hereby guarantee that throughout the first three years of the deed of lease about to be entered into between yourselves as lessor and Spiral Industries (Pty) Ltd as lessee in respect of erf 99, Waltloo, Pretoria, with buildings thereon, Spiral Industries (Pty) Ltd will promptly and faithfully fulfil all the obligations and undertakings by it in terms of the said deed of lease.'

The deed of lease which was contemplated in the letter of D guarantee was concluded on 9 February 1983. In terms of it the appellant let erf 99, Waltloo, Pretoria, with the buildings and improvements thereon, to Spiral Industries (Pty) Ltd, for a period of nine years and 11 months, from 1 February 1983 to 31 December 1992, at a monthly rental which was R22 000 per month for the first year of the lease and which was to escalate from time to time thereafter (it is not necessary to enter upon the details).

E The name of the lessee was later changed to Tomlyn Industries (Pty) Ltd (hereinafter abbreviated to 'Tomlyn'). On 10 February 1984 Tomlyn was placed in provisional liquidation by an order of the Transvaal Provincial Division, which order was made final on 22 March 1984, on the ground that Tomlyn was unable to F pay its debts. At all material times since February 1984 Tomlyn has been and still is insolvent and unable to pay its debts.

In its particulars of claim the appellant made the following allegation, which was admitted by the respondent in its plea:

'On 17 February 1984 the provisional liquidators of Tomlyn G duly cancelled the lease in terms of s 37(1) of the Insolvency Act 24 of 1936, read with s 386 of the Companies Act 61 of 1973, from which time they have failed to perform the terms of the lease.'

The appellant alleged further in its particulars of claim that by virtue of the cancellation and the non-performance of the H lease it had suffered loss in an amount of R604 878, being the amount of the rental that was payable in terms of the lease from 18 February 1984 to 31 January 1986, less a certain amount received by the appellant from the liquidators of Tomlyn in respect of the use of the property for storage purposes. The calculation of the appellant's loss was based on the further allegation, contained in the appellant's further particulars, I that it had been unable to re-let the premises. The appellant's allegations regarding its loss were placed in issue in the respondent's plea, but shortly before the trial it was agreed between the parties that the appellant had in fact suffered loss in the amount alleged by it and that the appellant would be entitled to judgment in that amount if the J defence to its claim on which the respondent relied were not to be upheld.

Botha JA

The defence to the appellant's claim on which the respondent A relied was set forth in the following terms in the respondent's plea:

'4.1

The cancellation of the lease by the provisional liquidators of Tomlyn resulted in the creation of liabilities not flowing from the lease itself.

4.2

In terms of the letter of guarantee, the defendant is B liable to the plaintiff for the fulfilment only of the obligations and undertakings of Tomlyn in terms of the deed of lease.

4.3

In the premises, no liability attaches to the defendant as a result of the cancellation of the lease in terms of s 37(1) of the Insolvency Act 24 of 1936, C read with s 386 of the Companies Act 61 of 1973.'

The defence thus raised was based squarely on the decision in the case of Strydom v Goldblatt 1976 (2) SA 852 (W). The trial Judge in his judgment came to the conclusion that it would be out of the question for him to say that the judgment in that case was clearly wrong. In the result he found that the judgment was binding upon him, and upon that footing he upheld D the respondent's defence and dismissed the appellant's claim.

In this Court it was common cause between counsel that the fate of the appeal hinged on the question whether or not Strydom v Goldblatt (supra ) was correctly decided. Counsel for the appellant urged us to find that it was not and to overrule it, while counsel for the respondent argued to the contrary. It E will be convenient, therefore, to discuss the judgment in that case in some detail: to do so will at the same time determine whether or not the respondent's defence in the present case is sound in law.

In Strydom v Goldblatt the Court (Franklin J) was concerned with an application by a defendant in an action for an order setting aside a judgment by default granted against him on a summons in which the plaintiff has claimed payment of an amount F as owing by the defendant to the plaintiff arising out of a deed of suretyship signed by the defendant in favour of the plaintiff. In the deed of suretyship the defendant had bound himself 'as surety for and co-principal debtor with' a certain company ('the lessee') to and in favour of the plaintiff ('the lessor'),

'for the due fulfilment by the lessee of all its obligations in G terms of the annexed lease and the due payment of all amounts claimable thereunder....'

In order to succeed in his application the defendant was required to show that he had a bona fide defence to the action, and the only issue that Franklin J was called upon to decide was whether the defendant had done so. The defence that was put H forward was the following: the lessee company for which the defendant had stood surety had been placed in liquidation; a lease is not terminated ipso jure by insolvency, but the liquidator had terminated the lease by virtue of the provisions of s 37(1) of the Insolvency Act 24 of 1936, read with s 386(4) of the Companies Act 61 of 1973; the amount in issue was not claimable under the lease but on account of a statutory I intervention by the liquidator; and by reason of the liquidation of the company and the consequent intervention of the liquidator, a different statutory liability for compensation for loss (and not for damages) had arisen, which did not flow from the agreement itself but arose from extrinsic causes, viz from the statutory act of intervention of the liquidator. Franklin J found that this was a valid defence in J law. The

Botha JA

A ratio decidendi appears from the following passage in his judgment (at 855H - 856B):

'... I have come to the conclusion that the act of the liquidator in terminating the lease in this case resulted in the creation of liabilities not flowing from the lease itself but from extrinsic causes, namely the statutory act of intervention which conferred on the plaintiff a right differing B in its juristic nature from the rights which it had previously enjoyed and which flowed directly from the non-performance by the lessee of...