- September 7, 2023
- |Concise Law Reports (CLR), Contracts
Whereas, the first respondent, the Development Bank of Namibia (the bank) claimed from the appellant, and the second respondent (Brick Warehouse) an amount of N$17 833 279,50 for monies lent and advanced, and whereas, the court a quo gave orders in respect of a claim for payment of N$ 17,833 279,50 with interest by the appellant (surety) to the first respondent, the appellant appealed against those orders contending that he was released from suretyship.
Evaluation
Shivute CJ, Hoff JA and Schimming-Chase AJA
‘[68] … In my view, the bank was not legally required to provide coherent and justifiable reasons for its actions or its omissions since it was for the appellant to prove the oral agreement and the alleged resultant prejudice suffered by him…the onus was on the appellant to prove his special defence of discharge from suretyship. Where a surety raises a special defence such as illegality, fraud, lack of contractual capacity, or as in this instance, prejudice, such a surety must present evidence in support thereof. The reason for this is [that] the facts underlying such special defence are regarded as falling beyond the ambit of the plaintiff’s cause of action (C W H Schmidt and H Rademeyer Bewysreg 4 ed (2000) at p 38-39).
[71] What is a common cause is that the sale of member’s interest agreement was signed between the appellant, Wylie, and Brick Warehouse in terms of which Wylie acquired one hundred per cent member’s interest in Brick Warehouse. Regarding the release of the appellant from suretyship, it was recorded that Wylie ‘would use his best endeavours to procure the release of the [appellant] from all and any suretyships . . . given by [him] on behalf of the corporation (i.e., Brick Warehouse)’, and if necessary, Wylie should offer his guarantee in the appellant’s place.
[72] It is common cause that Wylie never signed any suretyship agreement with the bank [nor] did he pay the loan amount. It is also common cause that the bank was not a party to this sale of the member’s interest agreement.
[73] It is common cause that the bank was a party to the final loan agreement which in clause 22.2 recorded that the new member, Wylie, ‘is assuming responsibility for the entire outstanding debt’ of Brick Warehouse with the bank. Clause 22.4 provided that the appellant would ‘remain responsible for the debt until DBN agree(s) to release him’. The appellant testified that he was not a party to this agreement and was not aware of such an agreement until such time when he received a letter of demand.
[74] It should be kept in mind however that the appellant bound himself jointly and severally as surety and co-principal debtor with Brick Warehouse in favour of the bank in respect of any sums of money from time to time owned by Brick Warehouse to the bank ‘arising from whatsoever cause’.
[75] From the testimony of the appellant, it appears that this oral agreement which allegedly relieved the appellant from his suretyship obligations, was founded on the bank having tacitly consented to the sale of the member’s interest agreement, firstly, by the conduct of the bank’s employees, and secondly, by failing to raise any objection to that sale of member’s interest agreement…
[78] This oral agreement had to be proved by the appellant on a preponderance of probabilities since it was in terms of this oral agreement that the bank was allegedly obliged to ensure that Wylie had signed all the relevant documents. The question is, did the appellant prove that the bank was obliged to ensure that the relevant documents had been signed by Wylie in terms of the alleged oral agreement?
[84] Although the appellant pleaded an oral agreement from which prejudicial conduct by the bank was alleged, it now appears that the appellant was at least in part relying on some provisions of written agreements. In terms of the first written agreement, i.e., the sale of the member’s interest agreement, the bank was under no obligation to ensure that Wylie signed all the necessary forms to transfer liability to Wylie and Brick Warehouse. The second document, the final loan agreement, is silent on whether the bank was obliged to ensure that Wylie signs all the relevant documents to release the appellant from his surety obligations.
[86] What is clear from the testimony of Jacobs during cross-examination was, inter alia, that the bank did not insist that it never knew about the change of ownership from appellant to Wylie, but that it was never allowed to do due diligence on Wylie. Jacobs’ testimony was that because of the lack of due diligence by the bank, the bank was not willing to release the appellant from his suretyship obligations.
[89] It is further trite that when a non-variation clause appears in a contract to the effect that an amendment or variation thereof shall be in writing otherwise same shall be of no force or effect, such a clause may not be amended or varied orally (SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren en andere 1964 (4) SA 760 (A) at 766; Brisley v Drotsky 2002 (4) SA 1 (SCA)). The purpose of the requirement in writing is to limit or avoid disputes and to guard against evidential difficulties which may develop in oral agreements.
[90] The appellant had the burden not only to prove the terms of the alleged oral agreement but also the allegation that he had suffered prejudice as a result of the conduct or omission of the employees of the bank…
Prejudice
[91] In Absa Bank Ltd v Davidson 2000 (1) SA 1117 (SCA) at 1124 para 19 the South African Supreme Court of Appeal had the following to say in respect of the so-called prejudice principle:
‘[19] As a general proposition prejudice caused to the surety can only release the surety (whether totally or partially) if the prejudice is the result of a breach of some or other legal duty or obligation . . . .’
[93] In Di Giulio v First National Bank of South Africa Ltd 2002 (6) SA 281 (C) para 40, the court considered the defence of prejudice justifying the release of a surety. After examining several decided cases, including the Absa and Fry matters and after finding that the principle is rooted in equity and had become firmly entrenched in South African law, remarked as follows in para 40:
‘[40] I respectfully associate myself with the view expressed by Davis J in the said case, namely that an increase in the contractual burden of the surety will, generally speaking, be prejudicial to the surety . . . . It may, however, be appropriate to add a rider that the increase in the surety’s burden should be substantial, unreasonable or undue ….’
The court concluded in para 41:
‘[41] Based on these considerations I would then suggest that the prejudice required for a successful defence of prejudicial conduct justifying release from a suretyship agreement may be described in the following terms. Concerning all the relevant facts and circumstances, and with due regard to considerations of justice, fairness, reasonableness, good faith and public policy, the alleged prejudice must constitute real and substantial prejudice which has the effect of unduly increasing the contractual burden of the surety.’
[94] The appellant in this matter did not discharge his burden of proof. There was no evidence presented in respect of the nature of the prejudice suffered…
[96] In my view, the bank was not precluded in the circumstances of this matter, as contended by the appellant, from claiming money from him. The court a quo did accordingly not err or misdirect itself when it granted judgment against the appellant in the amount expressed in the court order.
As a result, the appellant’s special defence of prejudice was dismissed.