STANBIC BANK ZIMBABWE LTD v CEEZED CONSTRUCTION (PVT) LTD & ORS
HIGH COURT, HARARE
[Civil Trial HH 716-15]
September 2, 2015
MTSHIYA J
Practice and procedure - High Court Rules - Import of Order 3 rule 13(5) of the High Court Rules considered - Effect of rule where surety sued - Principal debtor having already had judgment taken against it.
Contract law - Deed of settlement - Deed of settlement concluded between creditor and principal debtor - Whether discharges the liability of sureties.
Company law - Judicial management - Principal debtor against whom judgment taken placed under judicial management - Whether circumstance bar to the plaintiff proceeding against sureties.
Plaintiff had obtained judgment against a principal debtor consequent upon the conclusion of a deed of settlement. The principal debtor had subsequently been placed under judicial management. In an action to recover from the sureties what the principal debtor owed, the sureties objected to the proceedings raising in limine three defences viz, (i) That Summons Commencing action did not comply with provisions of O 3 r 13(5) of the High Court of Zimbabwe Rules, (ii) That the deed of settlement concluded between plaintiff and the principal debtor being the basis upon which plaintiff had taken judgment against the principal debtor amounted to a novation and therefore discharged the sureties from their obligations and (iii) That the principal debtor having been placed under judicial management, proceedings against the sureties had become stayed by operation of law.
In dismissing the three points in limine
Held, that whilst a point of law can be taken at any time, the Rules of Court clearly provide for the procedure of excepting to a claim. It is clumsy for a party who has pleaded to a claim to turn around on the eve of the trial and object to supposed imperfections in a pleading.
Held, further, that a suretyship is governed by its own terms. The fact that the creditor and a principal debtor have entered into a deed of settlement does not on its own discharge a suretyship.
Held, further, that the effect of an order taken against a principal debtor is to confirm the liability of a surety to the creditor. Where judgment is taken against a principal creditor for purposes of enforcement, that circumstance cannot constitute a basis upon which a surety is released from liability.
Held, further, that by our law, a novation does not necessarily discharge a surety particularly if the novation does not result in the alteration of the nature of the liability. The judgment in Zimbabwe Football Association v Mafurusa 1985 (1) ZLR 244 (H), followed.
Held, further, that the fact that a principal debtor has subsequent to the grant of judgment against it been placed under judicial management has no effect on the proceedings brought by the creditor against the sureties calling upon their guarantee.
Cases cited:
North American Bank Ltd (In Liquidation) v Granit 1998 (3) SA 557 (W), applied
Swadif (Pty) Ltd v Dyke NO 1978 (1) SA 928 (A), applied
Trust Bank of Africa Ltd v Dhooma 1970 (3) SA 304 (N), applied
Trust Merchant Bank Ltd v Lewis Murodzo Enterprises (Pvt) Ltd & Anor 1998 (2) ZLR 387 (H), applied
Zimbabwe Football Association v Mafurusa 1985 (1) ZLR 244 (H), followed
Zygos Corporation v Salen Rederierna AB 1984 (4) SA 444 (C), applied
Legislation considered:
High Court Rules, 1971 (RGN 1047 of 1971), O 3 r 13(5), O 21 r 137
T Mpofu, for the plaintiff
T Magwaliba, for the second and third defendants
MTSHIYA J:
This matter was set for trial on 6 July 2015. At the commencement of the trial, the second and third defendants raised three preliminary issued. The issues were:
(a) Whether or not the summons commencing action was in compliance with r 13(5) of the High Court Rules, 1971
(b) Whether or not the Deed of Settlement executed between the plaintiff and the first defendant on 14 November 2013 released the sureties from their obligations under the surety agreements executed on 28 March 2011; and
(c) Whether or not the placing of the first defendant under Judicial Management should lead to a stay of the trial proceedings in this matter.
The brief background to this matter is that on 2 March 2011, the plaintiff availed an overdraft facility to the first defendant amounting to US$ 2 500 000. The general terms of the facility were:
{mprestriction ids="1,2,3,4,5"}
"8.2 That the overdraft facility would be repayable strictly on demand in which event monies outstanding would become immediately due and payable;
8.3 That interest on the facility would be charged at 10 per cent per annum above the Bank's Base Rate prevailing from time to time and penalty interest for borrowings in excess of the overdraft facility would be charged at 20 per cent per annum above the Bank's Base Rate;
8.4 The default interest would be charged for any amount not paid when due at the rate of 20 per cent per annum above the Bank's Base Rate;
8.5 The interest would be compounded monthly;
8.6 That an establishment fee of 4 per cent would be debited to the defendant's account;
8.7 That security for the facility would be provided by unlimited guarantees by the second and third defendants;
8.8 That in the event that the plaintiff instituted legal proceedings for the recovery of money due and outstanding it would be entitled to claim legal costs on the legal practitioner and client scale;
8.9 The first defendant would commit a breach of the terms and conditions of Annexure 'B' if it failed to pay any amount on the due date."
Indeed as per agreement, on 28 March 2011, the second and third defendants signed surety agreements binding themselves as sureties and co-principal debtors with the first defendant. The first defendant, however, breached the agreement by failing to make payment on demand.
On 12 July 2012, the plaintiff issued summons against first, second and third defendants claiming:
"(a) Payment of the sum of US$ 3 070 207.04.
(b) Interest on the sum of US$ 3 070 207.04 at the rate of 20 per cent per annum above the Bank's Base Rate calculated from the 2 May 2012 to the date of payment in full.
(c) costs of suit on the legal practitioner and client scale."
The second and third defendants were being sued as sureties.
On 14 November 2013, the first defendant entered into a Deed of Settlement with the plaintiff in which it was, in part, agreed as follows:
"IT IS AGREED BETWEEN THE PARTIES THAT:
1. The first defendant is liable to pay the plaintiff the sum of US$ 4 700 000.
2. For the purposes of this settlement the plaintiff has agreed to write off interest in the sum of US$ 700 000 and the parties have agreed that the first defendant shall pay off the debt by paying a sum of US$ 4 000 000 in full and final settlement the manner stipulated in paragraph 3 hereunder subject to the following condition:
(a) That should the first defendant default on paying any of the instalments in subparagraphs (a) to (c) paragraph 3 and fails to remedy the breach within 14 days of receiving written notice then the amount due shall revert to the sum stated in paragraph 1 above, being the sum of US$ 4 700 000 and the plaintiff shall proceed in terms of paragraph 4."
The Deed of Settlement was, by consent, made a court order. The court order, issued on 8 May 2014, read as follows:
"IT IS ORDERED THAT:
1. The 1st defendant shall pay to the plaintiff the sum of US$ 4 100 000.00.
2. The 1st defendant shall pay interest on the sum of US$ 4 100 000.00 at the rate of 20% per annum calculated from the 28th of February 2014 to date of payment in full.
3. The 1st defendant shall pay collection commission in terms of the Law Society of Zimbabwe By-laws."
Following the above court order, on 19 January 2015, at the pre-trial conference, the second and third defendants amended their plea which was filed on 24 October 2012, by adding the following:
"1A.1 Plaintiff and first defendant entered into a deed of settlement in respect plaintiff's claim in this matter, HC 7641/12 on the 15 November 2013. A copy of the deed is attached hereto marked Annexure '1'.
1A.2 First defendant consented to judgment on the terms set out in the deed of settlement. A copy of the consent is attached hereto marked Annexure '2'.
1A.3 It is averred that the deed of settlement is a compromise and that same has a direct bearing on plaintiff's claim against the second and third defendants. The deed is a new agreement between plaintiff and the first defendant and it is on the basis of that new agreement that the rights and obligations of all parties to this litigation stand to be determined.
1A.4 It is common cause that the second and third defendants are being sued as sureties.
1A.5 It is averred that for as long as there is no actionable cause of action against the first defendant, plaintiff shall not have a valid actionable claim against the second and third defendants.
1A.6 The effect of the deed of settlement was to extinguish/terminate plaintiff's claims against the second and the third defendants in this matter, HC 7641/12.
1A.7 Plaintiff may only institute fresh proceedings against first defendant on the ground of a breach of the deed of settlement.
1A.8 Second and third defendants seek an order declaring proceedings against them in matter HC 7641/12 terminated by reason of the deed of settlement that was entered into by and between plaintiff and first defendant on 15 November 2013. Second and third defendants also pray for costs on a legal practitioner and client scale against plaintiff."
It will be noted that the second point in limine raised by the second and third defendants is anchored on the above amendment.
It appears, from the papers, that on 8 July 2014 the plaintiff had also filed proposed amendments to the summons and declaration to incorporate contents of the Deed of Settlement dated 14 November 2013. The proposed amendments were never formally granted but were, however, captured in the consent order of 8 May 2014. I believe the proposed amendments were necessitated by the stance taken by the second and third defendants, which stance has led to the need for trial in this matter.
The issues for determination in the trial are:
"1. Whether or not the effect of deed the deed of settlement executed by and between plaintiff and first defendant on the 15 November 2013 and the order granted by the court against first defendant on 20 May 2014 was to terminate/extinguish the plaintiff's claim against the second and third defendants?
2. Whether or not any monies were lent and advanced by the plaintiff to the first defendant in terms of the banking facility agreement supposedly executed by and between the plaintiff and first defendant on the 28 March 2011.
3. If so, whether or not valid legally binding deeds of suretyship were executed by the second and third defendants on the 4 July 2006 and on the 28 March 2011.
4. If valid and legally binding deeds of suretyship were executed by the second and third defendants, are the second and third defendants liable to pay any amount of money to the plaintiff and if so, in what amount?"
The first issue indicated above is what has been raised as the second point in limine by the second and third defendants.
I shall now deal with each of the three points in limine raised by the second and third defendants.
1. Whether or not the summons commencing action was in compliance with rule 13(5) of the High Court Rules, 1971 (the Rules)
Rule 13(5) of the Rules referred to above reads as follows:
"(5) where the claim relates to a bank overdraft, the particulars endorsed on the summons in terms of subrule (1) shall state clearly –
(a) the total amount claimed; and
(b) the total capital amount lent by the bank to its client; and
(c) the total amount of interest claimed on the capital amount referred to in subparagraph (b) as at the date of summons or at an earlier date specified in the particulars; and
(d) any amount claimed in respect of bank charges, cheque books and similar matters; and
(e) any interest claimed on any amount referred to in subparagraph (d) as at the date of the summons or as at an earlier date specified in the particulars; and
(f) any payments by the client or respondent, and whether such payments have been appropriated to capital or interest."
Since the second and third respondents are challenging the format and content of the summons as a whole, it is also necessary to reflect on O 21 of the Rules which allows a party to except to a summons.
Rule 137 under O 21 of the Rules provides as follows:
"137 Alternatives to pleading to merits: forms
(1) A party may –
(a) take a plea in bar or in abatement where the matter is one of substance which does not involve going into the merits of the case and which, if allowed, will dispose of the case;
(b) except to the pleading or to single paragraphs thereof if they embody separate causes of action or defences as the case may be;
(c) apply to strike out any paragraphs of the pleading which should properly be struck out;
(d) apply for a further and better statement of the nature of the claim or defence or for further and batter particulars of any matter stated in any pleading, notice or written proceeding requiring particulars.
(2) A plea in bar or abatement, exception, application to strike out or application for particulars shall be in the form of such part of Form No 12 as may be appropriate mutatis mutandis, and a copy thereof filed with registrar. In the case of an application for particulars, a copy of the reply received to it shall also be filed." (my emphasis).
For reasons not explained, the second and third defendants did not proceed in terms of the above rule but chose to raise their objection as a preliminary issue at the commencement of the trial.
I agree that, since what they are raising, at the trial stage is an issue of law, it is their right to so raise it. However, it is clumsy for a party to wait until the trial date without indicating to the other party that it has an objection to the format of the pleading served on it. The rules, apart from allowing for an exception, even go to the extent of allowing for such information or objection to be relayed through correspondence. Such a move would definitely give the other party the opportunity to examine whether or not its pleadings or court processes require attention before trial.
The plaintiff's cause of action herein is premised on the facility letter dated 12 March 2011. The facility letter is attached to the plaintiff's declaration, which declaration should be read together with the summons.
The summons and declaration were dully served on the second and third defendants, who, on 24 October 2012, filed their plea without raising any special plea. Their plea was subsequently amended on 30 January 2014 as a result of the Deed of Settlement entered into between the plaintiff and first defendant and signed on 15 November 2013. The Deed of Settlement was later converted into a consent order between the plaintiff and the first defendant on 8 May 2014. The amendment of the plea on 30 January 2014 did not also raise any of the issues permitted to be raised under r 137.
Through the papers filed, it cannot be doubted that the second and third defendants are being sued on the basis of the surety agreement they signed. That fact has not been disputed. To that end, they are only entitled to raise defences relating to the surety agreements. They cannot, in my view, tell the first defendant what defence it should avail itself against the plaintiff's claim. The first defendant has admitted what it owes the plaintiff. That admission was made without any objection by the first defendant to the particulars of the plaintiff's claim. The admission led to the consent order of this Court dated 8 May 2014, which court order I cannot review. It is the first defendant who borrowed money under the facility and it is the first defendant who should tell the world what it owes the plaintiff. The first defendant has just done that but has failed to pay the amount owed and hence the need on the part of the plaintiff to call upon the sureties to pay on the basis of the agreements they signed.
It is important to note that the following appears in the surety agreement:
"1. SURETYSHIP
1.1 The surety binds itself with immediate effect as surety and co-principal debtor for due payment of the Debtor's present and future indebtedness to Stanbic however arising (whether or not such indebtedness is now contemplated by the Surety or the Bank) including, without limiting the generality of the aforegoing, any indebtedness due to the Bank as a result of cession or novation (including the novation of indebtedness for which the surety remains liable after termination of this suretyship) and any indebtedness which is not a type which arises from ordinary banking business and nothing elsewhere in this document will be deemed to limit indebtedness covered by this clause.
1.2 As the Surety is also bound as a co-principal debtor, the Surety may not require the Bank to try to recover the indebtedness covered by this suretyship from Debtor before Stanbic the Bank may recover from the surety.
2. RECOVERABILITY OF CAPITAL, INTERESTS AND COSTS
2.1 The amount recoverable by the Bank from the Surety under the suretyship shall be unlimited and shall include all unpaid interests and the costs mentioned in paragraph 2.
2.2 The Bank may recover from the Surety all legal costs (including sales tax and collection commission) on the attorney and own client scale in any legal proceedings against the Debtor whether or not the Debtor is liable to pay such and/or the Surety for the payment of the indebtedness concerned."
I am in full agreement with the plaintiff's submissions on what r 13(5), as it relates to overdraft facilities, requires. In its submissions the plaintiff states:
"2.2 This is all that plaintiff claimed. The manner in which the claim is particularised is what is required under r 13(5). It is difficult to understand why defendants allege that there had been non-compliance with the rules under the circumstances. The issue is put beyond doubt when one considers provisions of r 13(5) side by side with the claim brought to court.
(a) Rule 13(5)(a) requires that the total amount claimed be set out. Plaintiff sets out the total amount claimed (then) as US$ 3 070 207.04 as at the 2nd of May 2012.
(b) Rule 13(5)(b) requires that the capital amount lent by the bank be set out. Plaintiff sets out the total amount lent as US$ 2 500.
(c) Rule 13(5)(c) requires that the total amount of interest on the capital be set out. Plaintiff sets out that amount as US$ 570 207.04.
(d) Rule 13(5) requires that any amount claimed as bank charges be set out. There is no such claim in casu. Plaintiff is not required to set out an amount which it does not claim.
(e) Rule 13(5)(e) requires that any interest on any amount referred to in (d) be particularised. There is no claim for amounts falling under r 13(5)(d) in this matter and so this rule does not apply.
(f) Rule 13(5)(f) requires any payments made by client be set out as well as whether they have been applied to interest or capital. Plaintiff has pleaded that defendants did not pay any amount.
2.3 So it is clear that the Summons as read together with the particulars complies with r 13(5). Everything that needs to be pleaded has been pleaded. There is not a single claim made by plaintiff which has not complied with the rules. It is regrettable that this point had to be taken."
In any case, in Trust Merchant Bank Ltd v Lewis Murodzo Enterprises (Pvt) Ltd & Anor 1998 (2) ZLR 387 (H), while the court said a pleading need not contain evidence but a summary of the material facts backing a claim, it also went on to say at 388G-389E:
"There is in fact no formal rule that a party should attach any document to his pleadings, even a document upon which is claim his founded. The practice that has subsisted for ages is that:
'a pleader who relies upon a written document [ought] to do one of three things:
(a) to annex the document on which he relies; or
(b) to set forth the material portions thereof; or
(c) to "refer to" the material portions thereof.'
By 'referring to' the material portion is meant that the document and its material portion should be sufficiently identified in the pleading to inform the other party of the case.
This practice is reflected in, or is consistent with, two rules of court.
First that:
'Whenever the contents of a document are material, it shall be sufficient in pleading to state the effect thereof as briefly as possible, without setting out the whole or any part thereof, unless the precise words of the document or any part thereof are material.'
This expressly excludes any duty (that might otherwise be thought to exist) to attach documents. The decision whether or not to attach a document, or merely to set forth its material portions or even simply refer to it, will depend generally upon the bulk of the document or documents in question and more importantly upon the desirability or otherwise of having the whole document available on the pleadings. Thus where it is essential to attach a document in order to set out the cause of action, then that should be done if it can be done without surplusage. As an example, consider a standard form deed of suretyship - a document upon which a cause of action is based which contains the material terms and will generally not contain unnecessary matter. Where the cause of action can be set out by reproducing the material portion of a document, and where that document contains much that is unnecessary, then a reproduction or summary of that term, or a referral to the document, will be preferable. As an example, consider an insurance policy that covers risks to household, farming, crop, livestock and motor vehicles. Such a bulky contract, even if it forms the basis of the cause of action in respect of one particular risk, would not advantageously be attached to a pleading because of all the unnecessary matter it contains."
In casu, I am unable to say it was unwarranted to attach the documents sued upon, namely the facility letter and the surety agreements. Given the foregoing, I cannot uphold the first point in limine. The summons and declaration are, in my view, in compliance with r 13(5) of the High Court Rules, 1971.
2. Whether or not the Deed of Settlement executed between the plaintiff and the first defendant on 14 November 2013 released the sureties from their obligations under the Surety Agreement executed on 28 March 2011.
It will seem that in dealing with the first issue, I have, at p 6 herein, already referred to what is covered under the surety agreement.
Furthermore, on termination, cancellation, release and variation, the surety agreements provide as follows:
"7.1 This suretyship is in addition and without prejudice to any other suretyship or security which the Sureties or any other person has given or hereafter gives to Stanbic in respect of all or part of the Debtor's indebtedness.
7.2 This suretyship shall not be terminated by any intermediate settlement of account or by death or legal disability of any Sureties or the debtor or any other occurrence and shall remain in force as a continuing suretyship until seven days after Stanbic receives written notice from the Sureties terminating the Surety's liability for the Debtor's future indebtedness accompanied by proof of the copy thereof by registered post to the Debtor; but such notice shall not have the effect of terminating the liability of the Sureties for the Debtor's actual and contingent indebtedness, if any up to and on the date of termination of such seven days period or for interest thereafter on such indebtedness or for the costs or indebtedness envisaged in 2 and 8 respectively.
7.3 ...
7.4 Subject to 8, the liability of the Sureties hereunder shall only cease if:
7.4.1 Stanbic in writing releases the Sureties from liability hereunder or cancels this suretyship.
7.4.2 On or after the date of expiry of any notice given in terms of 7.2 the Debtor has no actual contingent indebtedness to the Bank.
7.4.3 The amount recoverable under this suretyship is limited and the Sureties pays the full amount of such and the amounts, if any, for which the Sureties are liable in terms of paragraph 2.2
7.5 Save as aforesaid this suretyship is irrevocable."
None of the events quoted in the above provisions of the surety agreements has occurred. The Deed of Settlement does not interfere with the surety arrangements. It only confirms the first defendant's liability, which liability is guaranteed by the second and third defendants, however, arising as a result of the first defendant having accepted the facility from the plaintiff. The Surety Agreements clearly define the nature of the liability each of the two defendants (ie second and third defendants) were guaranteeing. Novation or no novation, the Deed of Settlement, which became a consent order, did not in any way release the sureties from their obligations. What happened was a confirmation of the extent of their liability under the surety agreement. To that end, I agree with the plaintiff when it makes the following submission:
"3.7 The effect of the order by consent is simple, it is to record the fact that first defendant owes. Paragraph 1 admits, 'the first defendant is liable to the plaintiff.' That then activates the operation of the guarantee. Our law on the subject is adequately set out in Zimbabwe Football Association v Mafurusa 1985 (1) ZLR 244 (H) to wit:
'What is the effect of this novation on the defendant's liability as guarantor - does it mean, as he says, he is discharged from all his obligations under the deed of undertaking? I do not think so. The plaintiff agreed to lend money to principal debtors on condition that someone guaranteed repayment. The defendant provided this guarantee. The extent of his liability as guarantor was co-extensive with the liability of the principal debtors, namely that as the whole amount was payable by him on the agreed date by principal debtors, so the whole amount was payable by him at once in the event of the principal debtors defaulting. The principal debtors defaulted, but the plaintiff, instead of pressing for its milligram of flesh under the existing agreement, not only granted an extension of time to the principal debtors but allowed them to pay the debt in monthly instalments and without any penalty clause. But this new repayment agreement between the plaintiff and the principal debtors did not and could not discharge the defendant as guarantor. The new agreement only affected the extent, not the nature, of his obligation to the plaintiff, because the plaintiff still needed a guarantee that it would be paid. But instead of being liable for the whole amount at once in the case of default, the defendant became under the new agreement only liable to the extent of unpaid instalment(s).'
3.8 It is clear at any rate that the judgment constitutes compulsory novation and the application of the principle relied upon by defendants cannot arise - Trust Bank of Africa Ltd v Dhooma 1970 (3) SA 304 (N), Swadif (Pty) Ltd v Dyke NO 1978 (1) SA 928 (A) and Zygos Corporation v Salen Rederierna AB 1984 (4) SA 444 (C). In North American Bank Ltd (In Liquidation) v Granit 1998 (3) SA 557 (W) it was held:
'Where the only purpose of taking judgment is to enable the judgment creditor to enforce his right to payment, that judgment does not novate the obligation but rather strengthens or reinforces it; the enforceable right remains the same'."
Accepting the principles, enunciated in the above quoted passages, and the cases therein cited, I find it difficult to entertain the second point in limine raised by the second and third defendants. It cannot therefore be upheld. The Deed of Settlement did not release the sureties from their obligations.
3. Whether or not the placing of the first defendant under Judicial Management should lead to a stay of the trial proceedings in this matter.
In dealing with this issue, which, in my view, has no merit at all, the first point to take into account is that the plaintiff's action against the second and third defendants is based on the surety agreements they signed. The surety agreements, in my view, cover the problems the guaranteed entity may face and those problems would include being placed under judicial management. Prior to Judicial Management, this Court had, through a consent order, confirmed the debt owed by the first defendant to the plaintiff. The second and third defendants, who the plaintiff is entitled to look to for the payment of the debt, are not under Judicial Management. There is therefore nothing to stop the current process. That argument could have made sense if the process between the plaintiff and the first defendant had not been sealed through the court order of 8 May 2013. Clearly therefore the third point in limine has no merit and is also dismissed.
I therefore order as follows:
1. The three points in limine raised by the second and third defendants be and are hereby dismissed.
2. Costs shall be costs in the cause.
3. The trial of this case (HC 7641/12) shall proceed on a date and time to be agreed between the parties during the third term.
Messrs Mawere & Sibanda, plaintiff's legal practitioners
Messrs Wintertons, defendants' legal practitioners
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