IN THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

NOT REPORTABLE
Case no:  252/2006
In the matter between
BOE BANK LTD t/a BOE CORPORATE

APPELLANT

and

THE GRANGE TIMBER FARMING CO (PTY) LTD
1ST  RESPONDENT
THORPE INSURANCE BROKERS (PTY) LTD

2ND RESPONDENT
N.J.T. PROPERTIES (PTY) LTD

3RD RESPONDENT
THE GRANGE PROPERTY OWNING CO (PTY) LTD
4TH RESPONDENT
ROBIN PATRICK THORPE

5TH RESPONDENT

Coram:
STREICHER, HEHER and JAFTA JJA

Heard:
16 FEBRUARY 2007

Delivered: 5 MARCH 2007

Summary: Contract – interpretation – loan agreement conferring power of
review in media res on creditor – time for repayment.

Neutral citation: This judgment may be referred to as BOE Bank v The Grange
Timber Farming Co (Pty) Ltd [2007] SCA 4 (RSA).
____________________________________________________________________
_

JUDGMENT
__________________________________________________________________

HEHER JA

HEHER JA:

[1] This appeal concerns the interpretation of the repayment terms of a written
agreement of loan.

[2] The appellant, a commercial bank (hereinafter ‘the bank’) sued five defendants
in the Durban magistrate’s court for payment of R6 201 739,74. It relied on the
agreement concluded with the first defendant supported by undertakings of suretyship
provided by the other defendants. The proceedings against the second defendant were
adjourned sine die in view of its alleged insolvency. It took no part in the subsequent
trial or appeals. The original first, third, fourth and fifth defendants are the
respondents in this appeal and will hereinafter be referred to as ‘the defendants’. The
defendants put the bank to the proof of its claim. Evidence was led by the parties
relating to the substance and quantification of the claim and the circumstances
surrounding the conclusion of the loan agreement. The magistrate dismissed the claim
with costs. An appeal to the Natal Provincial Division suffered the same fate. That
court granted leave to appeal against the whole of its judgment.

[3] The bank has undergone various commercial transformations which are no
longer in issue. As NBS Bank Ltd it entered into the agreement under consideration
on 19 June 1991. The agreement was an instrument in a tax avoidance scheme
devised by attorneys and accountants and used, in the present case, primarily in the
interest of the fifth defendant, Mr Thorpe, an insurance broker. He controlled the first,
second, third and fourth defendants. Pursuant to the scheme the fourth defendant
acquired a farm near Underberg which it leased to the first defendant. The latter
planted trees on the farm. The whole enterprise was financed by the loan from the

bank.

[4] The commencement date of the agreement was 1 March 1991. The bank agreed
to lend the first defendant money from time to time to enable it to conduct ‘The
Farming Operation’. This was defined in the agreement as ‘the establishment upon
the Property of pine and/or eucalyptus plantations, the general upkeep of such
plantations and the eventual cutting and disposal thereof’.

[5] Clause 6 of the agreement provided as follows:
‘6.1
The Borrower shall repay its entire indebtedness including interest and other charges to
NBS Bank on the Repayment Date.
6.2
All payments in terms hereof shall be made to NBS Bank at its domicilium citandi et
executandi.
6.3
NBS Bank shall be entitled to require that the Borrower repay its entire indebtedness
including interest and other charges as at the Review Date by giving written notice to that
effect at any time prior to 1st September, 1998 in which event NBS Bank’s obligations to
fund the Farming Operation for that period after the Review Date shall cease.
6.4
The Borrower shall be entitled, without notice, to repay its entire indebtedness to NBS
hereunder, or any portion thereof, at any time during the currency of this Agreement.’
The agreement defined ‘The Review Date’ in clause 1.8 thereof as 29 February 1999
and ‘The Repayment Date’, in terms of clause 1.9, is 28 February 2007.

[6] The evidence disclosed that, at the time of concluding the agreement, the bank
and Thorpe contemplated that the defined operation would be the sole business of the
first defendant, that its sole source of income would be the sale of felled timber and
that the probable time at which the proceeds would become available would be early
in 2007. The inference is irresistible that that is why the parties agreed in clause 6.1
that repayment of the entire indebtedness of the first defendant to the bank was to take
place on 28 February 2007.

[7] The bank duly advanced moneys from time to time and the first defendant
proceeded to plant and cultivate the trees. By late 1998 the capital amounts advanced
by the bank were in the region of R3,5 million and the accrued (and capitalized)
interest had assumed similar proportions.
[8] The bank took advantage of the review provision (clause 6.3) of the agreement.
During August 1998 it sent a notice to the first defendant which contained the
following demand:
‘We refer you specifically to clause 6.3 of the said agreement in terms of which the Bank shall be
entitled to call upon you to pay the entire indebtedness, including interest and other charges as at the
review date, provided written notice is given to you prior to 1st September 1998. In terms of clause
1.8 of the said agreement, the review date is the 29th February 1999.
We hereby notify you that the Bank requires the entire indebtedness including interest and other
charges to be paid by the 29th February 1999. The entire indebtedness, including interest and other
charges, at the review date, shall be the sum of R6 201 739,74, calculated as follows:-
CAPITAL

R3 100 869,87
INTEREST

R3 100 869,87
TOTAL

R6 201 739,74’

[9] In calculating the interest the bank capped it at the level of the capital (which it
would otherwise have exceeded) in order to comply with the in duplum rule1.

[10] There was no dispute that the bank was entitled to invoke its review power
even though the first defendant had not breached the agreement. By the time that the
appeal was argued before us the first defendant had also conceded that the bank had
properly and timeously communicated its election to it. The ambit of disagreement
was limited to the meaning and legal consequences of clause 6.3.

[11] The defendant’s contention, which had found favour in both lower courts, was
that the exercise of the election brought the bank’s obligation to advance further

1 As to which see LTA Construction Bpk v Administrateur, Transvaal 1992 (1) SA 473 (A) and Standard

moneys to an end but did not terminate the agreement as a whole; according to the
plain wording the obligation to repay the whole indebtedness on the date fixed by

Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (in liquidation) 1998 (1) SA 811 (SCA).

clause 6.1 remained, no other repayment date being stated or implied in clause 6.3.
The plaintiff’s action to recover its debt was therefore premature.

[12] The bank’s stand, by contrast, was that the exercise of the election terminated
the whole agreement and the full indebtedness at the review date became immediately
due and payable.

[13] The principles of interpretation appropriate to the resolution of the dispute are
those summarised by Joubert JA in Coopers & Lybrand v Bryant2:
‘The correct approach to the application of the “golden rule” of interpretation after having
ascertained the literal meaning of the word or phrase in question is, broadly speaking, to have
regard:
(1)
to the context in which the word or phrase is used with its interrelation to the contract as a
whole, including the nature and purpose of the contract, as stated by Rumpff CJ supra;
(2)
to the background circumstances which explain the genesis and purpose of the contract, ie to
matters probably present to the minds of the parties when they contracted. Delmas Milling
Co Ltd v Du Plessis 1955 (3) SA 447 (A) at 454G-H; Van Rensburg en Andere v Taute en
Andere 1975 (1) SA 279 (A) at 305C-E; Swart’s case supra at 200E-201A and 202C;
Shoprite Checkers Ltd v Blue Route Property Managers (Pty) Ltd and Others 1994 (2) SA
172 (C) at 180I-J;
(3)
to apply extrinsic evidence regarding the surrounding circumstances when the language of
the document is on the face of it ambiguous, by considering previous negotiations and
correspondence between the parties, subsequent conduct of the parties showing the sense in
which they acted on the document, save direct evidence of their own intentions. Delmas
Milling case at 455A-C, Van Rensburg’s case at 303A-C, Swart’s case at 201B, Total South
Africa (Pty) Ltd v Bekker NO 1992 (1) SA 617 (A) at 624G, Pritchard Properties (Pty) Ltd v
Koulis 1986 (2) SA 1 (A) at 10C-D.’

[14] The present contract serves a commercial purpose and should be construed
pragmatically: altruism in the repayment of loan finance is not a characteristic which

2 1995 (3) SA 761 (A) at 768A-E.

may reasonably be expected from a financial institution.

[15] It is clear, as I have indicated, that the parties expected that if the contract ran
its full term the repayment date and the cutting of the timber would sufficiently
coincide to enable the first defendant to use either the proceeds or the imminent
prospect to repay the loan. Clause 6.1 covered that eventuality.

[16] Clause 6.3 catered for an entirely different scenario. After less than eight years
of a sixteen year contract the bank was entitled to reconsider, without let or hindrance
or the necessity to justify itself, its participation in the farming operation.
Circumstances which might influence it to decide to send the notice for which the
clause provides are obvious: deteriorating market conditions (then and as foreseen),
loss of confidence in the farmer, a substantial opportunity to invest elsewhere for
which capital was needed or simply a perceived desire for liquidity. In any of these
circumstances a long delay in the opportunity to recover the investment in the farming
operation might well be very disadvantageous to the bank.

[17] The parties also contemplated other circumstances where the contract would
come to a premature end and the first defendant would nevertheless be able or obliged
to find the resources to repay its obligations immediately. Clause 6.4 provides one
example and clause 11 (the breach clause) another. Both provide specifically for
repayment of the entire indebtedness before the defined repayment date. Clause 6.3
likewise deals with an interim ‘termination’ of the first defendant’s obligations, in
this case at the instance of the bank. After eight years of growth the standing timber
might well have been expected to provide a substantial basis upon which to repay the
debt. There is no need to speculate, however. There is simply no sufficient reason to
treat the proceeds of the crop at the repayment date as the one and only source of
income available to the farmer throughout the duration of the contract and to interpret
the contract as if the proceeds of the mature felled timber were a critical determinant

in relation to obligations arising from early termination, as the Court a quo seems to
have done.

[18] In the light of the considerations to which I have referred in paragraph 16 one
may fairly conclude that the bank was hardly likely to have agreed to the suspension
of repayment for eight years after it had in effect brought to an end its business
relationship with the first defendant. The latter, on the other hand, while it would no
doubt have welcomed such a suspension, could hardly have contemplated the
possibility of consensus in that regard. (Perhaps that explains why this particular
defence was only introduced by amendment shortly before the trial.) It seems to me
that the purpose of clause 6.3 in the context of the overall context of the agreement is
against the defendant’s interpretation. For the reasons which follow, the plain
wording of that clause decisively favours the bank’s interpretation.

[19] Clause 6.3 is constructed in two distinct halves: the first confers on the bank an
election to claim repayment while the second sets out the consequence of the election.
The notice which the bank must give need only set out the election and say nothing
about the consequence (as the bank’s notice quoted above did). A notice in such a
form (and which contains details of the entire indebtedness at the review date) can, in
my view, only amount to a demand to pay the specified amount at that date.
Moreover, it would make no sense to notify the debtor that the entire indebtedness,
including interest and other charges at the review date is to be paid on the defined
repayment date eight years hence. If the agreement continues in existence the capital
amount must, in any event, be repaid on that date in consequence of clause 6.1. But
the rest of the notice would not merely be superfluous but also misleading, since the
obligation under clause 6.1 is to pay not only the interest at the review date but also
all the (substantial) interest which accrues after that date as provided for in clause 5 of
the agreement and the annual administration fee of R250 provided for in clause 15.2.

[20] If clause 6.3 had been intended to have the effect for which the defendants
contend one cannot but conclude that it would have been constructed very differently.
The emphasis would have been on the cessation of the bank’s obligation to advance
moneys for the farming operation after the review date and, if a mention of repayment
had been deemed necessary or desirable, that would surely have been done by
reference to clause 6.1.

[21] A second aspect of the language used by the parties is this. The bank’s
obligation to ‘fund’ the farming operation was discharged at two levels. One involved
the advance of moneys, the other allowed the first defendant to use the moneys for
whatever period the agreement allowed. Where, therefore, clause 6.3 refers to the
cessation of the funding obligation, it embraces, in the absence of any indication to
the contrary, both aspects of the obligation. If the defendant’s interpretation is
applied, the effect of the election would be to bring the bank’s obligation to make
future advances to an end but leave the funding obligation intact in relation to moneys
already in the hands of the first defendant at the review date, a consequence in
conflict with the language chosen by the parties.

[22] A final, unambiguous, indicator of the parties’ intention is to be found in clause
4.5 which reads as follows:

‘The Borrower’s Loan Account shall not exceed:-
4.5.1 the sum of FIVE MILLION FIVE HUNDRED THOUSAND RAND
(R5 500 000,00) for the period terminating on the Review Date; and
4.5.2 the sum of TWENTY ONE MILLION FIVE HUNDRED THOUSAND RAND
(R21 500 000,00) during the period commencing on the Review Date and
terminating on the Repayment Date if this Agreement has not been terminated by
NBS Bank in terms of clause 6.3 herein.

(My emphasis.)
Counsel for the defendants in the appeal was driven to submit that the words ‘this
agreement’ refer only to the agreement to advance money. That submission finds no

home in logic or language. The italicized words would be superfluous if the loan
agreement did not terminate on the review date. Moreover the expression ‘this
Agreement’ unequivocally refers to the agreement of loan as a whole3 and there is no
reason to imply any qualification.

[23] Having regard to the clear indications in the words used by the parties in clause
4.5.2 and the structure, purpose and language adopted in clause 6, I have no doubt
that the bank’s interpretation of its rights and obligations must prevail. The giving of
notice in terms of clause 6.3 had the effect of rendering the entire existing
indebtedness on the review date immediately due and payable. The action was
accordingly not premature.

[24] At the trial the defendants attacked the bank’s calculation of their alleged
indebtedness. Before us counsel for the bank conceded that adjustments needed to be
made to the amounts claimed to cater for debits not proved in evidence, interest
incorrectly added and a payment of R1,4 million made by a surety after the service of
summons in the magistrate’s court. Both counsel agreed that the correct amount for
the purposes of any order by this Court in favour of the bank is R4 371 065,40
(comprised in equal parts of capital and capitalized interest as at the date of issue of
summons) plus interest a tempore morae at the rate of 15,5% per annum from date of
issue of summons to date of payment. Counsel so agreed in the light of the fact that
the in duplum rule is suspended pendente lite from the date of service of the initiating
process until judgment. Once judgment has been granted, interest may run until it
reaches double the capital amount outstanding in terms of the judgment4.

[25] The agreement also contains an acknowledgment by the first defendant that, in

3 It is used in this broad sense in many other clauses of the agreement eg 5.4, 5.6, 7.1, 8.1, 10,14.1,
15.1, 17, 18, 19 and 20. There is no instance of restricted meaning.
4 Standard Bank of SA v Oneanate Investments, above, at 834H-I.

the event of the bank instructing its attorneys to recover any overdue amount, the
borrower will pay such legal costs as the bank may incur on an attorney and own
client basis.

[26] In the result the appeal succeeds. The following order is made:
1.
The order of the Natal Provincial Division dismissing the appeal with
costs is set aside and replaced with the following order:
‘(a)
The appeal succeeds with costs, such costs to be taxed as between
attorney and own client.
(b)
The respondents are ordered jointly and severally to pay to the
appellant:

(i)
the sum of R4 371 065,40;

(ii)
interest a tempore morae thereon at 15,5% per annum from
date of service of the summons until date of payment;
(iii)
costs of suit as between attorney and own client.’
2.
The first, third, fourth and fifth defendants jointly and severally are to
pay the costs of the appeal, such costs to be taxed as between attorney
and own client.

__________________
J A   HEHER

JUDGE OF APPEAL

STREICHER JA )Concur
JAFTA JA
)

THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA STATEMENT – CASE HEARING IN SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:
Monday 5 March 2007
Status:
Immediate

This media statement is released for informational purposes only. It does not form
part of the Court’s judgment.

On 5 March 2007 the Supreme Court of Appeal handed down judgment in BOE Bank v The
Grange Timber Farming Company and Others (Case No 252/06).

The Bank advanced money to the company to finance a forestry operation. During 1998,
after seven years, the bank exercised a contractual power of review of its obligations and
lawfully terminated its obligations. It sued the company and its sureties for repayment of the
indebtedness at the review date. The defendants refused to pay. They contended that the
claim was premature because the contract contained an express provision that the
repayment date would be 28 February 2007. Their defence was upheld in the magistrate’s
court and on appeal to the Natal Provincial Division.

The SCA found however that the repayment date fixed by the contract applied when the
contract ran its full term. The clear words of the review clause showed that the intention of
the parties was that a termination by exercise of the review power resulted in an immediate
right to claim repayment of the debt. The bank’s appeal was upheld with costs.
--ends--