- October 11, 2023
- |Concise Law Reports (CLR), Contracts
Adforce Namibia CC, the plaintiff, sought payment of N$4,854,893 plus interest and costs from Blackthorn Investments (Pty) Ltd, the first defendant, and other individual defendants. The plaintiff, a close corporation registered in Namibia, alleged that it had paid this amount to the first defendant, with acknowledgment of debt (AOD) signed by the first, second, third, and sixth defendants on October 9, 2016. The AOD stipulated that repayment terms would be determined upon the opening of a store, which was set for December 10, 2016.
The plaintiff claimed that the defendants breached the contract by not agreeing to repayment terms and failing to open the store as agreed. Consequently, the plaintiff demanded repayment as per the AOD, which had become due. Alternatively, the plaintiff claimed to have cancelled the repayment terms.
During the legal proceedings, the plaintiff withdrew its claims against the second, third, and sixth defendants, as well as the claims against the fourth and fifth defendants in their personal capacities. The primary claim for adjudication remained. In their plea, the first, fourth, and fifth defendants acknowledged receiving the money but denied owing the plaintiff. They argued that the money was not a loan but payment for shares in a joint venture, and that the second, third, and sixth defendants had no authority to bind the first defendant in the AOD. They also claimed that the plaintiff should have known about the resignation of the second and third defendants and the lack of a prescribed majority in the first defendant’s shareholder agreement. The first defendant initially had a counterclaim for consequential damages due to the plaintiff’s alleged breach, but later withdrew it.
The central legal issue revolved around the validity of the AOD and the plaintiff’s entitlement to demand performance based on it. The main contentions focused on the authority to bind the AOD, the plaintiff’s alleged obligation and failure, and the alternative claim of repayment cancellation.
The court referred to the criteria for provisional sentence established in the Basil Read case, emphasizing that an unconditional acknowledgment of debt in an ascertained amount triggers an obligation and, consequently, provisional sentence. The court referenced the legal principle that, under South African law, a valid contract emerges when two or more sound-minded parties enter into a lawful agreement with the intention of it being accepted, based on consensus within proper limits.
The AOD in question was signed by a majority of the first defendant’s shareholders. It detailed the funds received from the plaintiff for setting up a Centurion store, initially meant as share capital but later converted to a debt. The terms and conditions for debt repayment would be agreed upon after the store’s opening.
The plaintiff had disbursed funds to the first defendant based on a written offer, and the terms of the agreement were outlined. During a shareholders’ meeting in September 2016, the plaintiff expressed concerns and presented various options. The fourth and fifth defendants later withdrew their support for converting shareholding into a loan, but the majority decision prevailed. The court found no merit in the argument that this violated the shareholders’ agreement.
The court also addressed the question of resignation of directors, emphasizing that oral intentions to resign did not meet the formal written resignation requirements. The AOD was considered a legally binding document. The court noted that, despite various contentions and expectations around additional payments, the AOD constituted an obligation to pay back the debt. This obligation was not contingent on future events, but rather on the time of payment, which depended on the opening of the store. Consequently, the court found the first defendant liable for repayment as stipulated in the AOD.
CLAASEN J
‘[76] In these premises, I come to the conclusion that the plaintiff has discharged the onus on it and grants judgment in favour of the plaintiff on the main claim.
‘[77] The court having noted a discrepancy in the date on which interest arose, in the particulars of claim and that prayed for in the heads of argument, invited parties to file brief supplementary heads on that. The first defendant used the opportunity to argue, consistent with its stance, that liability does not arise nor does the issue of interest. The court having arrived at a different conclusion is satisfied that the plaintiff demanded payment and will thus grant interest from the date of the letter of demand.
The court held that:
a) The second and third defendant had not tendered formal written resignation letters at the time of the execution of the AOD and the evasion of liability on the strength of resignations by certain directors does not hold water.
b) Held further that the clause in the shareholders agreement that deals with loans by the first defendant requires a decision by the majority of the shareholders. It does not require an 80 percent majority. Three out of five directors signed the AOD, which constitutes a majority of the shareholders. There is thus no merit in the first defendant’s argument that the signatories to the AOD had no mandate or violated clause 6 of the shareholders agreement.
c) Held further that the court has to be mindful of the parole evidence rule in the interpretation of contracts and in this case, there was no mention of an expectation of N$ 2 million in the AOD.
d) Held further that an AOD, is evidence of a debt which is due, but differs from a promissory note, as it does not contain an express promise to pay. Where the AOD is coupled with an undertaking to pay, it will give rise to an obligation in terms of that undertaking. When liability is agreed upon, the debt becomes payable on demand, which performance has not been rendered by the first defendant.
As a result, the first defendant must pay the plaintiff the amount of N$4 854 893 with an interest at the rate of 20 percent per annum from 23 March 2019 until date of final payment, as well as pay the plaintiff’s cost, which includes the costs of one instructing and one instructed counsel.