Paulsen and Another v Slip Knot Investments 777 (Pty) Ltd

• Jurisdiction: South Africa
• Judgment Date: 25 March 2014
• Citation: 2014 (4) SA 253 (SCA)

Paulsen and Another v Slip Knot Investments 777 (Pty) Ltd
2014 (4) SA 253 (SCA)

2014 (4) SA p253

Citation	2014 (4) SA 253 (SCA)
Case No	434/2013; [2014] ZASCA 16
Court	Supreme Court of Appeal
Judge	Mpati P, Shongwe JA, Wallis JA, Willis JA and Mathopo AJA
Heard	March 4, 2014
Judgment	March 25, 2014
Counsel	WG Burger SC (with JC Swanepoel) for the appellants.; R Stockwell SC (with JF Pretorius) for the respondent.

Flynote : Sleutelwoorde B

Credit agreement — Consumer credit agreement — Credit agreement to which NCA not applicable — Credit agreement not invalidated because credit provider not registered in terms of Act — National Credit Act 34 of 2005, C ss 40(1) and 89(2)(d).

Interest — In duplum rule — Interest to stop running when equal to unpaid capital — Conclusion of loan agreement for short-term bridging finance — Application of rule where surety and not principal debtor sued for repayment. D

Headnote : Kopnota

Company W had concluded a loan agreement with Slip Knot, a provider of mezzanine financing (short-term bridging finance) for the shortfall in funding in a property-development venture. W defaulted and Slip Knot sued the Paulsens who had bound themselves as sureties and co-principal E debtors with W for repayment. The stipulation of interest in terms of the agreement exceeded the capital amount. Slip Knot's claim succeeded in the high court, but the full bench (on appeal) limited the payment of interest to the fixed amount through the application of the in duplum rule on the basis of the accessory nature of the suretyship agreement. Still not satisfied, the sureties attempted to defeat the claim entirely in the Supreme Court of F Appeal (SCA), contending that the loan, despite being an 'excluded agreement' in terms of the NCA, [*] was invalid in terms of s 89(2)(d) read with s 40(1), as Slip Knot was not registered as a credit provider. Slip Knot obtained leave to cross-appeal the dismissal of its claim for interest over and above the fixed amount.

After considering the relevant provisions in the context of the NCA as a whole, the G SCA concluded that s 89(2)(d) did not apply to the loan agreement between Slip Knot and W, and did not serve to invalidate it. It was not thought necessary in the circumstances to consider whether Slip Knot was required to register as a credit provider under the regulatory provisions of the NCA. (Paragraphs [6] and [13] at 256H – J and 258H – 259A.) H

The court further rejected the reasoning of the full bench in the application of the in duplum rule, holding that the fact, that the interest had reached the duplum before the surety was sued, was no reason for not permitting it to commence running again, once litigation had commenced in accordance with the ordinary application of the rule. Appeal dismissed and cross-appeal succeeding. (Paragraphs [23] and [26] at 262A – D and 263A – E.) I

The minority supported the conclusions of the full bench, albeit by a different route. (Paragraph [57] at 273F – G.)

2014 (4) SA p254

Cases Considered

Annotations A

Case law

Southern Africa

African Dawn Property Finance 2 (Pty) Ltd v Dreams Travel and Tours CC and Others 2011 (3) SA 511 (SCA): distinguished

Aktiebolaget Hässle and Another v Triomed (Pty) Ltd 2003 (1) SA 155 (SCA) ([2002] 4 All SA 138): referred to B

Amalgamated Packaging Industries Limited v Hutt and Another 1975 (4) SA 943 (A): referred to

Davehill (Pty) Ltd and Others v Community Development Board 1988 (1) SA 290 (A): referred to

Ethekwini Municipality v Verulam MediCentre (Pty) Ltd [2006] 3 All SA 325 (SCA): distinguished C

Jans v Nedcor Bank Ltd 2003 (6) SA 646 (SCA) ([2003] 2 All SA 11): referred to

Kilroe-Daley v Barclays National Bank Ltd 1984 (4) SA 609 (A): dictum at 622H – 623H applied

KPMG Chartered Accountants (SA) v Securefin Ltd and Another 2009 (4) SA 399 (SCA) ([2009] 2 All SA 523): referred to D

LTA Construction Bpk v Administrateur, Transvaal 1992 (1) SA 473 (A): referred to

Millman and Another NNO v Masterbond Trust Managers (Pty) Ltd (under Curatorship) and Others 1997 (1) SA 113 (C): referred to

Nedbank Ltd v National Credit Regulator 2011 (3) SA 581 (SCA): referred to E

Neon and Cold Cathode Illuminations (Pty) Limited v Ephron 1978 (1) SA 463 (A): referred to

Norex Industrial Properties (Pty) Ltd v Monarch SA Insurance Co Ltd 1987 (1) SA 827 (A): referred to

Pfeiffer v First National Bank of SA Ltd 1998 (3) SA 1018 (SCA): referred to F

Sanlam Life Insurance Ltd v South African Breweries Ltd 2000 (2) SA 647 (W): distinguished

Slip Knot Investments 777 (Pty) Limited v Project Law Prop (Pty) Limited and Others [2011] ZAGPJHC 21: referred to

Standard Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (in Liquidation) 1998 (1) SA 811 (SCA) ([1998] 1 All SA 413): considered G

Thorpe and Others v Trittenwein and Another 2007 (2) SA 172 (SCA): referred to

Traub v Barclays National Bank Ltd; Kalk v Barclays National Bank Ltd 1983 (3) SA 619 (A): referred to

Union Government v Jordaan's Executors 1916 TPD 411: referred to H

Van Coppenhagen v Van Coppenhagen 1947 (1) SA 576 (T): considered.

England

R v Secretary for the Home Department, Ex parte Daly [2001] 3 All ER 433 (HL): referred to.

Statutes Considered

Statutes I

The National Credit Act 34 of 2005, ss 40(1) and 89(2)(d): see Juta's Statutes of South Africa 2012/13 vol 2 at 1-460 and 1-474.

Case Information

WG Burger SC (with JC Swanepoel) for the appellants.

R Stockwell SC (with JF Pretorius) for the respondent. J

2014 (4) SA p255

An appeal from the Western Cape Division, Cape Town (Louw, Ndita J A and Dolamo AJ sitting as court of appeal). The order is in para [32].

Order

1.

The appeal is dismissed with costs, such costs to include those consequent upon the employment of two counsel. B

2.

The cross-appeal succeeds with costs, such costs to include those consequent upon the employment of two counsel.

3.

Paragraph 2 of the order of the court below is amended to read as follows: the orders made by the court a quo are set aside and the following substituted orders are made:

'1.

The eighth and ninth respondents are ordered to pay, jointly C and severally, the following amounts:

(a)

The sum of R12 million.

(b)

Interest on the sum of R12 million up until 10 February 2010 in the amount of R12 million.

(c)

Further interest on the capital sum of R12 million at a D rate of 3% per month from 10 February 2010 to 24 February 2012.

(d)

Interest on the total of the amounts set out in paras (a), (b) and (c) above at a rate of 3% per month from 25 February 2012 to date of payment thereof, such interest to be limited to the total of the said amounts. E

(e)

Costs of suit on the party and party scale, such costs to include the costs of two counsel.'

Judgment

Wallis JA (Mpati P, Shongwe JA and Mathopo AJA concurring): F

[1] In 2006 a company, optimistically named Winskor 139 (Pty) Ltd (Winskor), had the opportunity to purchase a portfolio of properties in Pretoria and resell them at what it anticipated would be a substantial profit. It had obtained a loan for the bulk of the purchase price, but there was a shortfall of R12 million. In order to obtain this amount it approached Slip Knot Investments 777 (Pty) Ltd (Slip Knot), which G conducts business as a provider of what is termed mezzanine finance, an expression meaning nothing more than short-term bridging finance. Such finance is high risk and those who provide it demand commensurately high returns. How high, will be seen when I come to examine the provisions of the agreement in relation to the return that Slip Knot H required on this loan. Needless to say, Winskor's dreams of a speedy and substantial profit dissipated during the course of the world economic downturn that commenced in 2007, and the result is the present litigation. In it Slip Knot seeks to recover what it lent, together with interest, from Mr and Mrs Paulsen (the Paulsens), who bound themselves as sureties for and co-principal debtors with Winskor for the repayment of the loan. I

[2] The litigation commenced in the Western Cape Division before Blignault J. He upheld all of Slip Knot's claims. The Paulsens sought and obtained leave to appeal to the full court of that division. There they enjoyed substantial success, in that their liability for the payment of J

2014 (4) SA p256

Wallis JA (Mpati P, Shongwe JA and Mathopo AJA concurring)

A interest was held to be limited by virtue of the operation of the in duplum rule. In addition Slip Knot's claims for the payment of interest over and above a fixed amount were dismissed. The judgment was delivered by Louw J, and concurred in by Ndita J and Dolamo AJ. However, that did not entirely satisfy the Paulsens, who believed that they had grounds, in B terms of the provisions of s 40(4)(a), read with s 89(2)(d), of the National Credit Act 34 of 2005 (the NCA), for defeating the claim in its entirety. They accordingly sought and obtained the special leave of this court to appeal against the full court's judgment. Slip Knot likewise was dissatisfied and sought and obtained special leave to appeal in regard to the dismissal of its claims for interest. It is that appeal and the C cross-appeal that are before us.

[3] My colleague Willis JA has prepared a judgment that I have had the opportunity of reading. I agree with it in part and disagree with it in part. On the parts where we agree on the result, my reasoning is different from his. I accordingly express my views separately. For convenience I have D adopted his nomenclature to refer to the parties.

[4] The Paulsens bound themselves as sureties for and co-principal debtors with Winskor for the latter's liabilities arising from the loan agreement concluded with...