Tuning Fork (Pty) Ltd t/a Balanced Audio v Greeff and Another

• Jurisdiction: South Africa
• Citation: 2014 (4) SA 521 (WCC)

Tuning Fork (Pty) Ltd t/a Balanced Audio v Greeff and Another
2014 (4) SA 521 (WCC)

2014 (4) SA p521

Citation	2014 (4) SA 521 (WCC)
Case No	18136/13
Court	Western Cape Division, Cape Town
Judge	Rogers J
Heard	May 19, 2014
Judgment	May 28, 2014
Counsel	A Subel SC for the plaintiff.; A Ferreira for the defendants.

Flynote : Sleutelwoorde D

Company — Business rescue — Business rescue plan — Release of company E from debts — Business rescue provisions of Act not containing term preserving creditor's rights against sureties where rescue plan releasing company from its debts — Companies Act 71 of 2008, ss 128 – 154.

Headnote : Kopnota

Tuning Fork (Pty) Ltd sold audio-visual equipment to a company, with the F defendants as sureties for the company's debt. The company was ultimately placed in business rescue and a business rescue plan adopted. The plan provided that creditors such as Tuning Fork were to receive a dividend of 28 cents in the rand in full and final settlement of their claims. Tuning Fork then instituted action against the sureties for payment of the debt. The sureties delivered notice of intention to defend and Tuning Fork served an G application for summary judgment. The sureties opposed on the basis that the compromise between the company and its creditors released them from liability. (Paragraphs [3], [6] and [12] at 524B – D, 524G – I and 525F – G.)

Held: The compromise provisions of the Companies Act 71 of 2008 (s 155) expressly provided that a compromise did not affect the liability of a surety of the company. But the business rescue provisions (ss 128 – 154) included H

2014 (4) SA p522

A no such express stipulation. Nor did they contain an implied term preserving creditors' rights against sureties where the company had been released from its debts pursuant to a business rescue plan. The legislature had simply not dealt with the issue. The effect of this was that it was for the stakeholders to regulate the position of sureties in the business rescue plan. And creditors could safeguard themselves against the effects of a compromise B or release by including appropriate terms in their suretyships. The legislature's silence meant that in this case regard had to be had to the common law to assess the liability of the sureties. (Paragraphs [38], [41], [43](iv) – (v) and [45] at 531D – H, 532B – F, 533I – 534F and 534I – 535A.)

The common-law principle was that extinction of the principal debtor's obligation extinguished the surety's obligation. This applied where discharge of C the principal debt was by a release or compromise that was voluntary or statutory. The principle had to be applied to the terms of the business rescue plan. (Paragraphs [46], [49], [55], [62], [70] and [85] at 535B – E, 535H – 536B, 537I – J, 539H – J, 542I – 543C and 546I – 547C.)

The correct interpretation of the plan was that the company's payment of the dividend to the affected creditors discharged its debts to them. The plan contained no provisions preserving the creditors' rights against sureties. D (Paragraphs [78] – [79] at 545B – F.)

Accordingly, applying the common law, the sureties' debts had been discharged. (Paragraph [79] at 545E – F.)

Given this the court refused summary judgment and granted leave to defend the main action. (Paragraph [94](a) at 548G.)

Cases Considered

Annotations E

Case law

Southern Africa

Absa Bank Ltd v Scharrighuisen2000 (2) SA 998 (C): referred to

African Banking Corporation of Botswana Ltd v Kariba Furniture Manufacturers (Pty) Ltd and Others2013 (6) SA 471 (GNP) ([2013] ZAGPPHC 259): criticised and not followed F

American Natural Soda Ash Corporation and Another v Competition Commission and Others2005 (6) SA 158 (SCA) ([2005] 3 All SA 1): referred to

Barclays National Bank Ltd v Traub; Barclays National Bank Ltd v Kalk1981 (4) SA 291 (W): referred to G

Berg River Municipality v Zelpy 2065 (Pty) Ltd2013 (4) SA 154 (WCC): dictum in para [29] applied

BOE Bank Ltd v Bassage2006 (5) SA 33 (SCA): referred to

Cape Produce Co (Port Elizabeth) (Pty) Ltd v Dal Maso and Another NNO2002 (3) SA 752 (SCA): referred to

Caroluskraal Farms (Edms) Bpk v Eerste Nasionale Bank van Suider-Afrika Bpk; Red Head Boer Goat (Edms) Bpk v Eerste Nasionale Bank van Suider-Afrika Bpk; Sleutelfontein (Edms) Bpk v Eerste Nasionale Bank van Suider-Afrika Bpk1994 (3) SA 407 (A): dictum at 422B – G applied H

Colonial Government v Edenborough and Others (1886) 4 SC 290: dictum at 296 applied

DH Brothers Industries (Pty) Ltd v Gribnitz NO and Others2014 (1) SA 103 (KZP): considered I

Friedman v Bond Clothing Manufacturers (Pty) Ltd1965 (1) SA 673 (T): referred to

Gruhn v M Pupkewitz & Sons (Pty) Ltd1973 (3) SA 49 (A): referred to

Investec Bank Ltd v Bruyns2012 (5) SA 430 (WCC): referred to

Kilroe-Daley v Barclays National Bank Ltd1984 (4) SA 609 (A): referred to J

2014 (4) SA p523

Leipsig v Bankorp Ltd1994 (2) SA 128 (A): referred to A

Makda v Kalsheker 1954 (4) SA 185 (SR): referred to

Malmesbury Board of Executors & Trust Co v Duckitt & Bam 1924 CPD 101: referred to

Millman and Another NNO v Masterbond Participation Bond Trust Managers (Pty) Ltd (under Curatorship) and Others1997 (1) SA 113 (C): referred to

Moti and Co v Cassim's Trustee1924 AD 720: considered and applied B

Natal Bank v Bansfield & Co (1885) 6 NLR 178: referred to

Nedbank Ltd v Wedgewood Village Golf and Country Estate (Pty) Ltd and Others (WCC case No 20896/2010): considered

Nel NO v Body Corporate of the Seaways Building and Another1996 (1) SA 131 (A): referred to

Proksch v Die Meester en Andere1969 (4) SA 567 (A): referred to C

Rennie NO v Gordon and Another NNO1988 (1) SA 1 (A): dictum at 22E – H applied

Standard Bank of SA Ltd v Lewis 1922 TPD 285: referred to

Standard Bank v Lowry & Another 1926 CPD 328: referred to

Summit Industrial Corporation v Claimants against the Fund Comprising the Proceeds of the Sale of the MV Jade Transporter D 1987 (2) SA 583 (A): dictum at 596J – 597D applied

Traub v Barclays National Bank Ltd; Kalk v Barclays National Bank Ltd1983 (3) SA 619 (A): referred to

Trust Bank van Afrika Bpk v Ungerer1981 (2) SA 223 (T): referred to

Wides v Butcher & Sons (1905) 26 NLR 578: criticised. E

England

Muir v Crawford 1875 LR 2 HL: referred to.

Statutes Considered

Statutes

The Companies Act 71 of 2008, ss 128 – 154: see Juta's Statutes of South Africa 2012/13 vol 2 at 1-344 – 1-354. F

Case Information

A Subel SC for the plaintiff.

A Ferreira for the defendants.

An application for summary judgment. G

Order

(a)

The application for summary judgment is refused and the defendants granted leave to defend the main action.

(b)

The plaintiff shall pay the defendants' costs of opposing the application for summary judgment. H

Judgment

Rogers J:

Introduction I

[1] The crisp but important issue in this case is whether a creditor loses its claim against a surety if a duly adopted and implemented business rescue plan provides for the creditor's claim against the principal debtor to be compromised in full and final settlement of such claim. A suretyship may stipulate that the claim against the surety will survive a compromise with the principal debtor but this is not such a case. J

2014 (4) SA p524

Rogers J

The facts A

[2] The question arises here in an opposed application for summary judgment. The facts appearing from the answering affidavit are the following.

B [3] The company which was later to become the subject of the business rescue plan began to purchase audio and visual equipment from the plaintiff during 2000. On 15 November 2011 the defendants, who are and have at all material times been the directors of the company, signed unlimited suretyships for the company's debts, present or future, in C favour of the plaintiff. The terms of the suretyships were identical. The obligation undertaken by each surety was as surety and co-principal debtor and with the renunciation of the usual benefits, including excussion. The suretyship provided that a certificate under the hand of the creditor would be prima facie proof of the amount due and owing by D the company.

[4] The suretyship was a continuing one which was not to be affected by any change in or temporary extinction of the company's obligations. Mr Subel SC, who argued the matter for the plaintiff, accepted that this did not change the accessory nature of the surety's obligation. If the E principal debt was 'changed', the surety would, in terms of the provision I have summarised, be liable for the changed debt. If the company at any time discharged its existing liability to the plaintiff but subsequently incurred a new liability, the surety would be liable for the new liability despite the 'temporary extinction' of the principal debt.

F [5] On 31 July 2013 the company was placed in business rescue pursuant to ch 6 of the Companies Act 71 of 2008 (the Act). The business rescue practitioners prepared a business rescue plan as envisaged by s 150. The plan was considered and adopted by a meeting of the relevant stakeholders on 4 October 2013.

G [6] The purpose of the plan was to allow the company to continue trading. An amount of R6 million was to be paid on account to a particular supplier (an entity named Group Appliance) which had been the company's largest trade creditor by far. This would allow the company to continue receiving stock. Group Appliance's claim was not H to be compromised though it was evidently willing to await a revival of the company's fortunes before demanding payment of the balance of its claim. Two banks with secured claims were to receive a specified amount. The remaining concurrent creditors, including the plaintiff, were to receive a dividend of 28,2 cents in the rand in full and...