Abstract

Nedbank, as a recognized commercial bank, seems to have taken great care to ensure the amount of more than R14 million that it made available as credit provider on 7 May 2013 according to a credit agreement signed on request to a trust known as the Patrick Malabela Family Trust (IT752/01). As primary security, a covering bond for a total future loan amount of up to R16 005 700 was registered against immovable property of the trust located at Hyde Park in Sandton, Johannesburg. It was registered as “a continuing covering security for all and any amounts advanced, or to be advanced, by the plaintiff from time to time for whatsoever cause arising to or on behalf of the Trust or otherwise owing by the Trust to the plaintiff in terms of the loan agreement and the bond”.
On or about “23 April 2013 and 21 June 2014 and at Hyde Park and Edenvale, respectively, the third, fourth, fifth, sixth and seventh defendants each signed a separate deed binding themselves jointly and severally in solidum with the Trust unto and in favour of the plaintiff as surety and co-principal debtors for the due performance of the Trust in terms of the loan agreement unto the plaintiff” (par 2 of the court a quo’s judgment – emphasis added).
The appellants argued in the supreme court of appeal, as was also done in the court of first instance, that the underlying credit agreement was void because, in contravention of a clause in the trust deed governing the authority of the trustees to act on behalf of the trust and requiring at least three trustees. At the time of the conclusion of that agreement in 2013, only two trustees held that office on behalf of the trust. Since Land and Agricultural Bank of South Africa v Parker it is accepted that a provision requiring that a specified minimum number of trustees must hold office is a “capacity-defining condition”. When fewer trustees than the number specified are in office, the trust suffers from an incapacity that precludes action on its behalf. Consequently the trust was not legally bound by the credit agreement and in accordance with the principle of accessoriness, the covering bond as well as any suretyship agreement is void.
In the court a quo Nedbank successfully relied on estoppel as defence and pleaded that the trustees were estopped to rely on the incapacity of the signatories. Those two trustees, one of whom happens to be the founder of the trust, provided the bank with a resolution purporting to have been adopted in a meeting of trustees held on 19 March 2013 to the effect that the first and second defendants are authorised to complete and sign all documents incidental to the conclusion of the loan agreement on behalf of the trust. The first and second defendants had reprehensibly presented the resolution submitted to the bank as indicating that they were the representatives of the trust authorised to act and bind the trust. The bank submitted that it could not have been expected to have known that the trust deed was not complied with. It was within the first and second defendants’ knowledge that only two and not three trustees were in office at the time of the conclusion of the agreement. Apparently all the primary requirements for estoppel were met.
The supreme court of appeal, however, upheld the appellants’ appeal against the successful reliance on estoppel as defence, without spelling out why. Clearly it was not because Nedbank’s plea lacked any of the primary requirements for a successful reliance on estoppel. It is submitted that the ratio lies in the last qualification, not mentioned in the decision, that estoppel can never be relied on successfully if it will result in a negation of a fundamental principle of the law, one of which is that a lack of competency to act can never be rectified with estoppel. The representation must be maintainable, and this was not the case.
It is submitted that it was correctly decided by the supreme court of appeal to uphold the alternative claim of Nedbank founded on the unjustified enrichment of the appellant. The appellants, however, were ordered to forthwith condict according to the condictio indebiti to Nedbank the outstanding capital amount of R5 436 347,57, ie, without acknowledging Nedbank’s claim that it had been unjustifiably impoverished by having forgone R6 880 284,80 in interest due on the credit used over a period of more than a decade. It is submitted that this is unconvincing. No credit is available in the marketplace to be enjoyed interest-free for a decade without resulting in the unjustified enrichment of the credit receiver. This principle had been acknowledged more than 17 years ago already in English law in Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v Inland Revenue Commissioners (2007 4 All ER 657 (HL) by the house of lords and applied since by the supreme court. It is high time that the South African supreme court of appeal takes note and either readjusts its application of the principles or at least motivates why it does not do so. Ignorance is no excuse, because if the recognised textbooks were consulted this would have been glaringly obvious.
Of even more concern is the fact that apparently the legal advisors for Nedbank (as did the justices of appeal) outright missed the opportunity to recognise that a claim for the full amount due under the credit agreement lies against all the co-debtors who had signed the agreement in April 2013 binding themselves as co-principal debtors for all debts due to Nedbank. Although that agreement signed in April 2013 purportedly mentions their liabilities as “co-principal debtors and as sureties”, the latter designation could not have had any meaning because the principal agreement with the trust was not even in existence at that date and no suretyship can come into existence while ignoring the requirement of accessoriness. They bound themselves as co-debtors and were liable irrespective of whether the trust was bound or not. Those signatories bound themselves personally as co-debtors and nothing was amiss with their legal capacity to bind themselves in this primary capacity. The judgment by Wallis JA and Rogers AJA in Van Zyl v Auto Commodities (Pty) Ltd (2021 5 SA 171 (SCA)) should have been noted and applied: “Where the surety signs as co-principal debtor, as Mr Van Zyl did, the addition of those words shows that the surety is assuming the same obligations as the principal debtor. In other words, the obligation of the surety is the same as that of the principal debtor” (par 11). The principle of stare decisis cannot be disregarded selectively merely by feigning convenient ignorance to avoid a motivated refutation of the argument.
It is submitted that credit providers lending their depositors’ money should be held accountable for carelessly squandering money due to them as credit providers because of slack bad-debt procedures and relying on legal advice not displaying mastery of the applicable principles.