THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

REPORTABLE
Case no: 30/2014
In the matter between:
NEW PORT FINANCE COMPANY (PTY) LTD        First Appellant
DAVID CARL MOSTERT

Second Appellant
and
NEDBANK LIMITED

Respondent
(WCHC Case No 20896/2010)
and in the matter between:
DAVID CARL MOSTERT

First Appellant
NEW PORT FINANCE COMPANY (PTY) LTD    Second Appellant
and
NEDBANK LIMITED

Respondent
(WCHC Case No 22331/2010)
Neutral citation: New Port Finance Company (Pty) Ltd v Nedbank Ltd
(30/2014)[2014] ZASCA  210 (1 December 2014)
Coram:
Navsa ADP, Majiedt, Wallis, Saldulker and Zondi JJA
Heard:
25 NOVEMBER 2014
Delivered: 1 December 2014
Summary: Companies undergoing business rescue in terms of
Companies Act 71 of 2008 – effect of business rescue on obligations of
sureties discussed – section 154 of Act – interpretation of deed of
suretyship

ORDER

On appeal from: Western Cape High Court (Blignault J sitting as court
of first instance):
The appeals are dismissed with costs such costs to include those
consequent upon the employment of two counsel.

JUDGMENT

Wallis JA (Navsa ADP, Majiedt, Saldulker and Zondi JJA
concurring)
[1] Wedgewood Village Golf and Country Estate (Pty) Ltd
(Wedgewood) and Danger Point Ecological Development Company (Pty)
Ltd (Danger Point) both borrowed money from the respondent, Nedbank
Ltd (Nedbank) for the purposes of pursuing two property developments.
The loans in both instances were secured by deeds of suretyship executed
by the appellants, New Port Finance Company (Pty) Ltd (New Port) and
Mr David Mostert, the sole director of New Port.1 Wedgewood and
Danger Point defaulted on their obligations to Nedbank and in 2010 it
instituted separate proceedings against each of them and New Port and
Mr Mostert. On 27 September 2011, judgments were entered in favour of
Nedbank against Wedgewood and the two sureties jointly and severally,
the one paying the other to be absolved, for some R55 million, interest
and costs, and against Danger Point and the two sureties, also jointly and
severally, for a little over R10 million, interest and costs. Thereafter
Nedbank obtained provisional and final liquidation orders against
Wedgewood and Danger Point.

1 In the case of Wedgewood there were other sureties but that is irrelevant for present purposes.

[2] On 29 March 2012 Nedbank launched an application for Mr
Mostert’s sequestration and on 17 May 2012 it launched an application
for New Port’s liquidation. The present appeals arise because Mr Mostert
and New Port sought to prevent Nedbank from pursuing those
applications. They relied for the relief they sought on the fact that both
Wedgewood and Danger Point had been taken out of liquidation, placed
under supervision under orders of court granted in terms of s 130(1) of
the Companies Act 71 of 2008 (the Act), and business rescue plans had
been adopted, become final and were being implemented in respect of
both companies. In those circumstances, in separate applications, the one
relating to Wedgewood and the other to Danger Point, Mr Mostert and
New Port applied for orders interdicting Nedbank from taking any further
steps against them in relation to the enforcement or execution of the two
judgments, including pursuing the applications for their respective
sequestration and liquidation. The orders were to be final unless the
business rescue plans proved unsuccessful and were terminated in one of
the ways provided in terms of the Act. Blignault J dismissed their
applications in the high court, but granted leave to appeal to this court.

[3] Two arguments were advanced on behalf of Mr Mostert and New
Port. The first was that the terms of the business rescue plans, which were
binding on Nedbank, altered the obligations of the principal debtors,
Wedgewood and Danger Point. This, so it was argued, had the effect as a
matter of law of altering the obligations of Mr Mostert and New Port as
sureties for the debts of Wedgewood and Danger Point, so as to render
them liable for no more than the obligations of Wedgewood and Danger
Point under the business rescue plans. Accordingly, the argument
proceeded, they were no longer liable immediately to satisfy the

judgments taken against them, because the principal debtors had been
given time to pay the same debts, and if the business rescue proved
successful in each case their obligations to Nedbank would be discharged
because the obligations of Wedgewood and Danger Point would have
been discharged.

[4] The alternative argument was that the court should in any event
grant a stay of execution on the two judgments, either in terms of its
common law powers, or in terms of rule 45A of the Uniform Rules of
Court, in order to prevent them suffering a grave injustice. They said that
it would be unfair to permit Nedbank to pursue execution on the
judgments
when
there
was
a
possibility
that the
successful
implementation of the business rescue plans would result in the complete
discharge of the debts by Wedgewood and Danger Point. In addition Mr
Mostert claimed that his own and New Port’s involvement in the business
rescue plans was integral to their success and his sequestration would
hinder that.

[5] An immediate difficulty confronted both Mr Mostert and New
Port arising from events subsequent to the hearing in the court below.
According to affidavits delivered shortly before the appeal and admitted
without opposition, the business rescue in relation to Wedgewood had
failed and Nedbank had given notice to the business rescue practitioner to
terminate it and to dispose of the assets. In the order sought in the court
below it was accepted that in that eventuality there could be no bar to the
sequestration of Mr Mostert’s estate and the liquidation of New Port.

[6] Mr Mostert and New Port sought an interdict against execution
being levied against them and particularly an interdict prohibiting the

continuation of the sequestration and liquidation applications. The
interdict was to be made conditional (‘unless’) on certain events
occurring, in which event it would fall away. Two of those events were
the business rescue proceedings being terminated in terms of s 132(2)(a)
of the Act or Nedbank becoming entitled to call on the business rescue
practitioner to dispose of the assets of Wedgewood where there had been
a failure to pay it in accordance with the business rescue plan, or the plan
had not been complied with, or the conditions in the plan had not been
fulfilled. Nedbank delivered an affidavit saying that these events had
occurred and that they rendered the appeals moot. In an affidavit
delivered in response to this, Mr Mostert accepted that there had been a
default under the Wedgewood business rescue plan. This meant the
fulfilment of the conditions that would cause the proposed interdict to fall
away. All that he could proffer as a reason for continuing with the appeals
was the possibility or more accurately the hope that some fresh
compromise could be reached with Nedbank.

[7] These events effectively spelled the end of the appeal so far as the
Wedgewood business rescue plan was concerned. In turn that meant that
Nedbank can pursue Mr Mostert’s sequestration and New Port’s
liquidation on the basis of the judgment it obtained against them jointly
with Wedgewood. That destroyed the underlying rationale for the
application for an interdict, in similar terms and subject to similar
conditions, based on the Danger Point judgment. In the founding affidavit
in the Danger Point application, Mr Mostert said that the application was
precipitated by Nedbank’s election to continue with the sequestration and
liquidation applications. Once Nedbank was free to pursue those
applications, based on the judgments in relation to the Wedgewood
development, no purpose would be served by an order interdicting it from

doing so, in the wording suggested by counsel ‘in reliance on any claim
made under’ the judgment in the Danger Point case. If Nedbank is free to
pursue these applications it cannot be prevented from doing so by an
order in the terms suggested. That order would amount to a pointless
restraint – a brutum fulmen.

[8] The appeals must therefore be dismissed on that ground alone.
However, the matter has been fully argued, the issues are of some general
importance and that would in any event have been their fate, even had
intervening circumstances not rendered the two applications pointless. In
those circumstances it is appropriate to state briefly why that would have
been the result. At the heart of the submissions on behalf of Mr Mostert
and New Port was the proposition that the successful outcome of the
business rescue proceedings would be that the sureties would have been
relieved of any indebtedness to Nedbank over and above the payment of
the amounts already received by Nedbank under those two plans. For
various reasons that would not have been the case.

[9] The first reason is that Nedbank had obtained judgments that
served to fix the liability of the sureties. There were no grounds for
rescinding those judgments nor any attempts to do so and they had
become final, with no avenue open for them to be challenged on appeal.
Even if it is accepted that they did not novate the claims under the deeds
of suretyship, but merely strengthened those claims and replaced the right
of action on the deeds of suretyship by a right to execute on the
judgment,2 the fact remained that the liability of the sureties was thereby
established. If any payment was made by the principal debtor thereafter
that would enure to the benefit of the sureties, but that would follow from

2 Swadif (Pty) Ltd v Dyke NO 1978 (1) SA 928 (A) at 942C-E.

the fact that the judgment established joint and several liability so that, in
the time honoured expression, if the one paid the others would be
absolved. But we were referred to no authority and I have discovered
none, in which it has been held that a compromise of the principal
debtor’s liability under the judgment, whether as a result of business
rescue or otherwise, would accrue to the advantage of the surety after
judgment had been taken against them. There can be no question of the
surety’s rights or interests being prejudiced thereby,3 because the extent
of the surety’s liability for the debt in question has been fixed and
determined. How the creditor thereafter sets about executing the
judgment against the principal debtor does not affect either the nature or
the extent of the surety’s liability.

[10]  The second reason is that the terms of the deeds of suretyship in
this case, as is frequently the situation, had been drafted so as to cater for
this very eventuality. Clauses five, six and seven entitled the bank to
pursue the sureties notwithstanding their dealings with the principal
debtor and the grant of any extension of time, or any compromise in
relation to the scope and extent of the principal debtor’s indebtedness.
Any default on the part of the principal debtor entitled the bank to sue the
sureties. The benefit of excussion was waived. I will not lengthen this
judgment by quoting the clauses. They were relatively standard clauses to
be found in most commercial deeds of suretyship.

[11] Clause five is in similar terms to the clause in the deed of
suretyship that was in issue in Cape Produce Co (Port Elizabeth) (Pty)

3 Bock and Others v Duburoro Investments (Pty) Ltd 2004 (2) SA 242 (SCA) paras 18-21.

Ltd v Dal Maso and Another NNO.4 There, a power to give time to or
release the principal debtor ‘without prejudice to its rights hereunder’ was
held to entitle the creditor to demand immediate payment from the surety,
notwithstanding its having subordinated its claim against the principal
debtor in favour of other creditors. Similarly here, the fact that the bank
agreed, by way of its agreement to the business rescue plans, to give
Wedgewood and Danger Point time to pay their indebtedness to it and,
conditional on them doing so, agreed to limit the amounts that would be
paid to them, fell squarely within clause five.

[12] Of necessity therefore it had to be argued that the liquidation of
Wedgewood and Danger Point had altered the situation. But that only
brought clause six into sharper focus. It identified four broad situations
when its terms would apply. They were liquidation, judicial management
under the Companies Act 61 of 1973, the submission of an offer of
compromise by the debtor and the submission of a scheme of
arrangement by the debtor. If any of those events occurred, clause six
entitled Nedbank to accept any dividend on account or any alternative
securities arising out of that event and ‘to recover from the surety, to the
full extent of this suretyship’ any sums remaining owing thereafter. In
other words, the fact that in any of those situations the principal debtor
would be released in whole or in part from its obligations would not
disentitle the bank from recovering the outstanding amount from the
sureties. Neither suggestion by counsel as to ways in which this could be
avoided held water. In particular the suggestion that a clause in these
terms did not encompass business rescue – an institution that did not exist
under that name when the deeds were executed – was incorrect.

4 Cape Produce Co (Port Elizabeth) (Pty) Ltd v Dal Maso and Another NNO 2002 (3) SA 752 (SCA)
paras 9 to 11.

[13] Counsel eschewed any contention that the sureties were entitled to
the benefit of the statutory moratorium afforded Wedgewood and Danger
Point under s 133(1) of the Act. He was right to do so.5  He also did not
go so far as to contend that the effect of the business rescue provisions in
ss 128 to 154 of the Act is to deprive creditors of the company of their
rights against sureties under the deeds of suretyship by which they have
bound themselves for the debts of the company, although that was
implicit in his argument that the debts owed by the sureties were altered
by the terms of the business rescue plans and would ultimately be
discharged if the plans succeeded. He fortified this argument by reference
to the judgment of Rogers J in Tuning Fork,6 which in turn was largely
based on the learned judge’s reading of the decision in Moti and Co v
Cassim’s Trustee.7

[14] As the case will be disposed of on the grounds already set out
above it is inappropriate to explore in detail the reasoning of Rogers J. I
simply record that it is by no means clear to me that it is correct. Moti and
Co v Cassim’s Trustee was decided on the basis of the court’s
interpretation of a specific provision in the 1916 Insolvency Act8 that has
no direct counterpart in the Act. The key provision in that regard is s 154,
which, in subsec 1, simply says that in certain circumstances a creditor
will not be able to enforce a debt against a company in business rescue
and, in subsec 2, says that the company may enforce a debt in accordance
with and to the extent permitted by the terms of the business rescue plan.
That section is capable of the construction that it deals only with the

5 Investec Bank Ltd v Bruyns 2012 (5) SA 430 (WCC) paras 17-19.
6 Tuning Fork (Pty) Ltd t/a Balanced Audio v Greeff and Another 2014 (4) SA 521 (WCC) paras 14(i)
and (ii).
7 Moti and Co v Cassim’s Trustee 1924 AD  720.
8 Section 126(2)(b) of the Insolvency Act 32 of 1916.

ability to sue the principal debtor and not with the existence of the debt
itself. If that is the case then the liability of the surety would be
unaffected by the business rescue, unless the plan itself made specific
provision for the situation of sureties.

[15] There was also a contention that the court should have exercised a
discretion to stay the enforcement of the judgments granted against Mr
Mostert and New Port pending the outcome of the business rescue plans.
That became academic once the Wedgewood plan failed and, if the large
debt in that case can be enforced, there seems to be little reason to
postpone enforcement of the far smaller debt in Danger Point.

[16] On every ground advanced before us therefore the appeals must
fail. It is unnecessary therefore to consider the criticism directed at the
judgment of the high court, as the result it reached was correct. We were
asked to award Nedbank the costs of three counsel on the grounds that the
case involved a lot of money; that there was an attack on its standard
form of suretyship and that the implications of business rescue are
important to the bank and the wider commercial community. Whilst all
that is correct it is true of much litigation that comes to this court and it
does not warrant the employment of three counsel. The additional costs
incurred thereby are an expense that the bank must bear.

[17] The appeals are dismissed with costs, such costs to include those
consequent upon the employment of two counsel.

M J D WALLIS
JUDGE OF APPEAL

Appearances

For appellant:
Paul Farlam (with him Grant Quixley)
Instructed by:
John Taylor & Associates Inc, Cape Town;
Webbers, Bloemfontein

For respondent:
Schalk Burger SC (with him Brendan Manca
SC and Stephan Wagener)

Instructed by:

Cliffe Dekker Hofmeyr, Cape Town;

Honey Attorneys Inc, Bloemfontein.

Supreme Court of Appeal of South Africa

MEDIA SUMMARY– JUDGMENT DELIVERED IN THE SUPREME
COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
1 December 2014
Status:
Immediate
Please note that the media summary is intended for the benefit of the
media and does not form part of the judgment of the Supreme Court of
Appeal.
New Port Finance Company (Pty) Ltd v Nedbank Ltd
The SCA today delivered judgment in one of the first cases
involving the new provisions of the Companies Act 71 of 2008 dealing
with business rescue. The case arose from the failure of two property
development schemes, one at Wedgewood near Port Elizabeth and one at
Danger Point. The two appellants, New Port and Mr Mostert, its sole
director, had bound themselves as sureties for the repayment of the loans
form Nedbank taken to finance the developments.  When the schemes
collapsed the bank took judgment against the property development
companies and the sureties. Thereafter the companies were liquidated and
the bank commenced proceedings to wind up New Port and sequestrate
Mr Mostert.

After
these
proceedings
had
commenced
both
property
development companies were taken out of liquidation, placed under
supervision and business rescue plans were adopted in respect of each of
them. Based on that New Port and Mr Mostert brought applications in the
Western Cape High Court to interdict Nedbank from executing on the
judgments it had obtained against them, and in particular from pursuing
the liquidation and sequestration applications, pending the outcome of the

business rescue plans. The applications were dismissed but leave to
appeal was given.

By the time the appeal was heard the one business rescue plan had
failed and there were accordingly no longer any grounds for the interdict
that had been sought. However, the court nevertheless dealt with the
merits and held that the appeal would in any event have failed. In the first
instance judgment had been granted against the sureties prior to the
commencement of business rescue and those judgments had finally
determined the scope and extent of the liability of the sureties in regard to
these debts. That liability would not be affected by the subsequent
business rescue of the property development companies.

Secondly, the terms of the deeds of suretyship provided that the
liability of the sureties would be unaffected by the bank affording the
property development companies time or even compromising the extent
of their liability. Thirdly, while not expressing a final view, the court
expressed reservations as to the correctness of a high court decision in
which it had been suggested that the effect of a debtor being wholly or
partially discharged from liability for a debt under a business rescue plan
was to release the surety from liability. The court drew attention to s 154
of the Act and said that it was capable of an interpretation that it merely
operated to preclude the creditor from recovering the full amount of the
debt from the debtor, leaving the liability of the surety unaffected.