Trinity Asset Management (Pty) Ltd v Grindstone Investments 132 (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Mogoeng CJ, Nkabinde ADCJ, Cameron J, Froneman J, Jafta J, Khampepe J, Madlanga J, Mhlantla J, Mojapelo AJ, Pretorius AJ and Zondo J
• Judgment Date: 05 September 2017
• Citation: 2018 (1) SA 94 (CC)
• Docket Number: CCT 248/16 [2017] ZACC 32
• Hearing Date: 05 September 2017
• Counsel: DM Davis for the applicant. LG Nkosi-Thomas SC (with O Ben-Zeev) for the respondent, instructed by the chairperson of the Johannesburg Society of Advocates, at the request of the court.
• Court: Constitutional Court

The court

[1] This is an application for leave to appeal against a decision of the Supreme Court of Appeal (hearing an appeal from the High Court of H South Africa, Western Cape Division, Cape Town), which dismissed an application in which an order provisionally liquidating the respondent was sought. In the three judgments that follow, the court considers three primary questions:

(a)

Given the provisional nature of the proceedings, is the defence of prescription properly before this court?

(b)

I Does the parties' contract point to an intention to defer the date when the debt became 'due' and thus to delay the onset of prescription?

(c)

Did the applicant's claim prescribe?

[2] The factual background and issues are set out in the first judgment J by Mojapelo AJ. All members of the court concur in his exposition of the

Mojapelo AJ (Mogoeng CJ, Nkabinde ADCJ, Jafta J and Zondo J concurring)

facts and issues. The court unanimously concludes, though for different A reasons, that leave to appeal should be granted. By a majority of 10 judges to one, it further holds that the defence of prescription is properly before the court. Froneman J disagrees, on the basis that the parties failed to deal adequately with the 'Badenhorst principle'. He sets out his reasoning in the third judgment. B

[3] The court, by a majority of six to five, finds that the parties to the contract did not intend to defer when the debt became due and hence to delay prescription. The debt is found to have prescribed. The appeal is consequently dismissed. The second (majority) judgment is written by Cameron J with Khampepe J, Madlanga J, Mhlantla J and Pretorius AJ concurring. C

[4] Froneman J, the sixth member of the majority, concurs in the dismissal of the appeal, first, because of the Badenhorst principle. He holds that, in the absence of a finding that the Badenhorst principle does not apply to disputed legal issues, there is no ground for faulting the D High Court's dismissal of the application for provisional liquidation. The appeal must fail and the refusal of the provisional liquidation application in the High Court should be confirmed on this ground.

[5] Second, however, if he is wrong in his view that the failure to deal adequately with the Badenhorst principle precludes final determination of E the prescription issue, Froneman J concurs in the second judgment's construction of the parties' contract, with additional reasons. Cameron J, Khampepe J, Madlanga J, Mhlantla J and Pretorius AJ concur in these additional reasons.

[6] Mojapelo AJ, with Mogoeng CJ, Nkabinde ADCJ, Jafta J F and Zondo J concurring, finds that the parties to the contract intended to defer when the debt became due, and thereby the running of prescription, until demand was made for payment of the debt. They would therefore have upheld the appeal.

[7] In the result, the following order is granted: G

1.

Leave to appeal is granted.

2.

The appeal is dismissed.

3.

The applicant is to pay any taxed costs incurred by the respondent.

Judgment

Mojapelo AJ (Mogoeng CJ, Nkabinde ADCJ, Jafta J and Zondo J concurring): H

Introduction

[8] This matter concerns the interaction between prescription and contractual freedom. More specifically, it raises the issue of whether a policy consideration of not allowing an inactive creditor to delay I prescription should override the intention of the contracting parties to give the right to the creditor to determine the date of repayment by demand.

[9] The applicant is Trinity Asset Management (Pty) Ltd (Trinity) and the respondent is Grindstone Investments 132 (Pty) Ltd (Grindstone). J

Mojapelo AJ (Mogoeng CJ, Nkabinde ADCJ, Jafta J and Zondo J concurring)

Factual A background

[10] On 1 September 2007 the parties entered into a written loan agreement in terms of which the respondent borrowed a capital amount of R3 050 000 (loan capital) from the applicant. At the time of the conclusion of the agreement, the directors who represented the applicant B and the respondent were Mr Quinton George and Mr James Deane, respectively.

[11] The applicant paid the loan capital in three tranches of R1,5 million, R1 million and R500 000 on 13 February 2008, 15 February 2008 and 21 February 2008, respectively. The three tranches were paid C into the bank account of Mr Deane. On 2 June 2009 Mr Nicholas Cunningham-Moorat also became a director of the respondent. Then, on 6 April 2011, the respondent resolved to enter into a covering mortgage bond in favour of the applicant. On the same day a power of attorney was signed by Mr Cunningham-Moorat on behalf of the respondent in favour of Mr Thomas Gunston and various others to D register a covering mortgage bond in favour of the applicant.

[12] On 19 September 2013 Mr George requested repayment in an email which he sent to Mr Cunningham-Moorat. In response, on 25 September 2013, Mr Cunningham-Moorat acknowledged and accepted E the request as a call on the loan and stated that he would start liquidating assets in order to make repayment. [1] However, no payment was made by the respondent to the applicant. Accordingly, on 9 December 2013, a letter of demand was served by the sheriff on the respondent as contemplated in s 345(1)(a)(i) of the then Companies Act. [2] In terms of the letter the applicant claimed payment of R4 613 310,52 within 21 days. In response the respondent denied indebtedness to the applicant.

Litigation history

High Court

[13] On 18 July 2014 the applicant applied in the High Court of South Africa, Western Cape Division, Cape Town (High Court), [3] for the provisional liquidation of the respondent on the basis of the respondent's failure to pay its debts, as provided for in s 345 of the Companies Act. The applicant alleged that the respondent was indebted to it in the

Mojapelo AJ (Mogoeng CJ, Nkabinde ADCJ, Jafta J and Zondo J concurring)

amount of R4 613 310,52 together with interest thereon. It sought an A order for the provisional liquidation of the respondent on the grounds that: the respondent was unable to pay its debts; [4] the respondent was commercially insolvent; and it was just and equitable that it be wound up. [5]

[14] The respondent raised the preliminary defence of prescription to B the applicant's claims. It raised further defences that are not of immediate relevance to this judgment. [6] With regard to prescription, the respondent contended that the amounts lent and advanced during February 2008 prescribed in October 2010, [7] alternatively, on 13 March 2011, 15 March 2011 and 21 March 2011, being three years after the C loan amounts were lent and advanced.

[15] The High Court considered only the defence of prescription; [8] referred to the law relating to defences in liquidation applications as set out in Hülse-Reutter; [9] and held that prescription raised by the respondent D was indeed a valid defence. [10] It held further that it was not required to determine the merits of the defence or whether the defence raised was likely to succeed at trial. [11] Accordingly, the application for provisional liquidation was dismissed.

[16] The High Court granted leave to appeal to the Supreme Court of E Appeal (SCA).

Mojapelo AJ (Mogoeng CJ, Nkabinde ADCJ, Jafta J and Zondo J concurring)

Supreme A Court of Appeal

[17] The SCA dismissed the appeal with a majority judgment written by Willis JA, with Theron JA and Swain JA concurring (majority). A dissenting minority judgment was written by Dlodlo AJA, with Bosielo JA concurring (minority).

[18] B The majority found that the claim had prescribed. It held that the debt was due 'the moment it was lent and therefore, in terms of section 11(d) of the 1969 Prescription Act, prescription begins to run from that date'. [12] On whether there is or should be an exception to the general rule that debts payable on demand are due immediately upon advance, the C majority held that it was 'not necessary . . . to express itself finally on the correctness of this proposition' as, in its view, it was 'far from clear' that the parties had this intention. [13] Further, the majority held that clause 2.3 was 'merely a procedural term of the agreement' and thus not a necessary condition for the cause of action. [14]

[19] The minority held that the debt had not prescribed. It reasoned that D in order to determine when a debt is 'due', regard must be had to, (1) the intention of the parties; and (2) the policy considerations concerning a supine creditor delaying prescription. [15] As per Deloitte Haskins, [16] a debt is due (and thus prescription starts to run) when it is immediately claimable or when the debtor is under an obligation to perform E immediately.

[20] The minority agreed with the general principle that, where no time for repayment is stipulated, the debt is due immediately. [17] However, it recognised an exception to the rule: where the parties expressly agree otherwise. [18] In this case, it reasoned, the agreement clearly and F unequivocally provided that performance is due on demand. [19] In other words, demand is a condition precedent for the debt to become payable. Accordingly, prescription would 'only begin to run from the date of the demand'. [20]

[21] The applicant applied on 18 October 2016 to this court for leave to G appeal.

Mojapelo AJ (Mogoeng CJ, Nkabinde ADCJ, Jafta J and Zondo J concurring)

Further developments A

[22] While the appeal processes were under way, the respondent was provisionally liquidated in the High Court by FirstRand Bank Ltd on 28 November 2016 on the basis that it was unable to pay its debts (FirstRand application). A rule nisi was initially issued returnable on 10 January 2017. Following an intervention in the application by the B applicant in this matter (Trinity), a...