Standard Bank of South Africa Ltd v Renico Construction (Pty) Ltd

• Jurisdiction: South Africa

Standard Bank of South Africa Ltd v Renico Construction (Pty) Ltd
2015 (2) SA 89 (GJ)

2015 (2) SA p89

Citation	2015 (2) SA 89 (GJ)
Case No	2011/33789
Court	Gauteng Local Division, Johannesburg
Judge	Sutherland J
Heard	August 3, 2012
Judgment	September 20, 2012
Counsel	AJ Michael for the applicant.; WF Wannenburg for the respondent.

Flynote : Sleutelwoorde B

Set-off — General principles — Requirement that both debts be liquidated — Contractual damages not constituting liquidated debt — No set-off possible.

Set-off — Requirements — Requirement that both debts be liquidated — Earlier decisions espousing use of judicial discretion in fact-finding exercise to C determine liquidity criticised.

Headnote : Kopnota

Roofcrafters sold its invoices to Standard Bank. One Roofcrafters' debtor was the respondent, Renico, who refused to pay Standard Bank on the ground that Roofcrafters owed it more than it owed Roofcrafters and that these D reciprocal debts were extinguished by set-off. The primary question before the court was whether these debts were capable of set-off. Among the 'debts' Renico wanted to set off were claims for contractual damages for a lease breached by Roofcrafters.

Held: The flaw in Renico's case was that the computation of contractual damages was not a matter of mere arithmetic: a value judgment had to be made in determining the effects of a reasonable effort to mitigate the damages. Until E that debate was exhausted — as a rule before a court — the quantum of damages could not be determined. Hence contractual damages were not a liquidated debt for the purpose of set-off. (Paragraphs [17], [25] and [30] at 93J – 94B, 95C – I and 96G.)

Cases Considered

Annotations F

Case law

Ackermans Ltd v Commissioner, South African Revenue Service; Pep Stores (SA) Ltd v Commissioner, South African Revenue Service 2011 (1) SA 1 (SCA): dictum in para [8] applied

Fatti's Engineering Co (Pty) Ltd v Vendick Spares (Pty) Ltd 1962 (1) SA 736 (T): G doubted but followed

Frank v Premier Hangers CC 2008 (3) SA 594 (C): applied

Joint Municipal Pension Fund (Transvaal) v Pretoria Municipal Pension Fund 1969 (2) SA 78 (T): dictum at 86B applied

Lester Investments (Pty) Ltd v Narshi 1951 (2) SA 464 (C): dictum at 470F – 472A applied H

Maharaj v Sanlam Life Assurance Ltd and Others 2011 (6) SA 17 (KZN): compared

Oos-Randse Bantoesake Administrasieraad v Santam Versekeringsmaatskappy Bpk en Andere (2) 1978 (1) SA 164 (W): I dictum at 168H – 169C approved but not followed

Quality Machine Builder v MI Thermocouples (Pty) Ltd 1982 (4) SA 591 (W): doubted but followed

Solomon NO and Others v Spur Cool Corporation (Pty) Ltd and Others 2002 (5) SA 214 (C) ([2002] 2 All SA 359): dicta in paras [34] and [46] approved

Thorne and Another NNO v The Government 1973 (4) SA 42 (T): dictum in para [45] applied J

2015 (2) SA p90

Thoroughbred Breeders' Association v Price Waterhouse 2001 (4) SA 551 (SCA) ([2001] 4 All SA 161): dictum in para [86] compared A

Western Cape Housing Development Board and Another v Parker and Another 2003 (3) SA 168 (C): applied.

Case Information

AJ Michael for the applicant. B

WF Wannenburg for the respondent.

An application for an order directing the respondent to pay a sum of money to the applicant.

Order C

1.

Respondent shall pay the applicant R811 501,13, together with interest a tempore morae, at the rate as prescribed from time to time, calculated from 9 November 2009.

2.

Respondent shall pay the applicant's costs.

Judgment

Sutherland J: D

Introduction

[1] The applicant wants the respondent to pay it R953 599,91. There is no contractual privity between the parties. Their only connection is their E distinct and separate commercial dealings with Roofcrafters (Pty) Ltd (Roofcrafters).

[2] The applicant factored invoices for money owing to Roofcrafters. Among such invoices were those evidencing the respondent's indebtedness to Roofcrafters. The respondent's invoices are owned by the F applicant either through purchase from Roofcrafters (clause 4 of the factoring agreement) or by cession (clause 13 of the factoring agreement). Roofcrafters is now extinct, with effect from 'about' November 2009.

[3] On 13 November 2009 the applicant demanded payment of a sum G from respondent based on the purchase and cession. The accounts of Roofcrafters recorded respondent as indebted to Roofcrafters in a sum of R2 441 791,67. Respondent refused to pay. The right of the applicant per se to make such a claim based on the aforementioned facts is not disputed. The respondent's justification for not paying is that it alleges that when demand was made by applicant, it no longer owed anything to H Roofcrafters.

[4] The reason why respondent says it owes nothing to Roofcrafters is because the relationship between respondent and Roofcrafters involved I reciprocal indebtedness. Respondent says that Roofcrafters owed it more than it owed Roofcrafters and that these reciprocal debts were extinguished by set-off, leaving a balance owed to respondent by Roofcrafters, and nothing to pay over to the applicant.

[5] The controversies that were raised on the papers were:

•

What debts and in what sum could applicant legitimately claim from J respondent based on its factoring agreement with Roofcrafters?

2015 (2) SA p91

Sutherland J

•

What were the characteristics of the debts owed by Roofcrafters to A respondent and, more particularly, were they liquidated and thereby capable of set-off?

•

In any event, was the applicant wrong to sue by motion when it knew of the alleged dispute of fact about the set-off? Such knowledge is not disputed. B

[6] It is common cause that prior 30 September 2009 the respondent had no notice of the applicant's interest.

The applicant's claim

[7] The sum claimed is composed of two sums representing different C debts owed by Roofcrafters to the applicant. R811 501,13 is for factored debts owed by respondent to Roofcrafters and a certificate of balance evidences this fact. R151 424,72 is for an overdraft facility. As pointed out by the respondent, there is no averment on the papers that exposes the respondent to any liability in respect of the overdraft owed by Roofcrafters to the applicant. D

Can set-off be applied by respondent?

The law

[8] The defence of set-off to a claim for payment of a debt is what Roman-Dutch lawyers called compensatio. What is it? Gerard Noordt E Commentarius in Digesta 16.2 articulated compensatio to mean that obligations are expunged brevu manu, a formulation applauded by Trollip J in Joint Municipal Pension Fund (Transvaal) v Pretoria Municipal Pension Fund 1969 (2) SA 78 (T) at 86B.

[9] What attributes must each debt possess to qualify for set-off? The elements are: F

•

Both debts must be due to and owed by the same pair of persons.

•

Both debts must be liquidated.

•

Both debts must be due and payable.

[10] In a case where a cessionary steps into the shoes of the creditor, G element 1 remains satisfied. Usually the difficulties arise with efforts to establish the existence of elements 2 and 3.

[11] Cloete JA remarked in Ackermans Ltd v...