THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

Reportable
Case no: 485/02

In the matter between:

HNR PROPERTIES CC &
ANOTHER

Appellants

and

STANDARD BANK OF SA LTD

Respondent
_____________________________________________________

Coram:
SCOTT, NAVSA, NUGENT, LEWIS JJA et
MOTATA  AJA

Date of hearing: 11 NOVEMBER 2003
Date of delivery:   28 NOVEMBER 2003

Summary:

Suretyship agreement requiring release by creditor to be in writing –
meaning of requirement. Release by waiver or estoppel constituting a
release other than in writing and therefore ineffective.

_____________________________________________________

JUDGMENT
_____________________________________________________

SCOTT JA/…

SCOTT JA:

[1] The respondent, Standard Bank of South Africa Ltd (‘the
bank’), instituted action in the High Court, Cape Town, against the
two appellants in their capacity as sureties. They had previously on
29 July 1993 bound themselves in two separate deeds of
suretyship to the bank for the due and proper payment by a
company called HNR Computers (Pty) Ltd of its indebtedness to
the bank. The liability of the first appellant was limited to a
maximum of R1 000 000 while that of the second appellant was
unlimited. The two deeds of suretyship were otherwise in identical
terms. Clause 15 of both provided that ‘the surety shall not be
released from any liability of the surety hereunder or from any of
the debtor’s obligations unless such release be in writing signed on
behalf of the bank by a duly authorised signatory.’ Certain
defences raised by the appellants in their plea were not pursued in
this Court. The defence in which they persist is that they were
released by the bank from their obligations in terms of their
respective suretyship agreements. In this regard, they contend,
first, that a letter dated 20 April 1998 signed on behalf of the Bank,
and referred to in evidence as a ‘facilities letter’, on a proper
construction, constituted a written release within the meaning of
clause 15 of the deeds of suretyship. Second, and in the

alternative, they contend that they were released by virtue of the
conduct of the bank coupled with a waiver of the requirement that
the release be in writing and third, in the further alternative, that
the bank is estopped from relying on the terms of clause 15 of the
suretyship agreements. The trial Court (Foxcroft J) held that the
appellants had failed to discharge the burden of proving a release
on any of the grounds advanced. Judgment was accordingly
granted in the sum of R1 000 000  against    the     first    appellant
and    in   the  agreed  sum  of R11 759 456,20 against the second
appellant, together with ancillary relief. The appeal is with the
leave of the Court a quo.
[2] In this Court counsel for the appellants sought an
amendment to the plea which would have the effect of introducing
a defence, based on the reliance theory of contract, that an
agreement had been concluded which provided for the release of
the appellants from their obligations under the suretyship
agreements. There was no suggestion that the introduction of the
defence at this stage would cause prejudice to the bank and the
amendment was granted without opposition.
[3] The facts are largely common cause. The second appellant,
Mr Rasheed Hargey, and his partner, Dr H Gajjar, established
HNR Computers (Pty) Ltd (‘HNR’) in 1987. Initially the business of

HNR was confined to the importation of computer software but with
the passage of time it increased the range of computer services
offered to its clients. It operated from premises in the Cape owned
by the first appellant, HNR Properties CC. The latter was a
property owning corporation whose assets in 1993 were valued at
R1 000 000. In that year the business of HNR expanded rapidly
and additional funding was required. The bank afforded it overdraft
and other facilities and, as security for HNR’s indebtedness to the
bank, the deeds of suretyship referred to above were signed on 29
October 1993. On the same day HNR ceded its book and other
debts to the bank. Dr Gajjar did not bind himself as a surety as he
was about to become a sleeping partner in the business.
[4] By May 1994 the facilities afforded by the bank had been
increased to include a short term overdraft facility of R3 million, a
facility of R7 million for ‘forward exchange contracts’ and a facility
of R3 million from the bank’s factoring division. That year and the
next were difficult years for HNR and its financial position was of
great concern to the bank. It pressed for better security. It wanted
an unlimited suretyship from Gajjar but settled for an agreement in
terms of which the latter subordinated his loan account in favour of
the bank in terms of a so-called backranking agreement. In the
meantime, Hargey had ceded his loan account to the bank.

[5] In about 1996 HNR moved its head office to Johannesburg,
where an employee, Kassiem Parak, had previously established a
branch. At about the same time Hargey acquired Gajjar’s
shareholding in HNR and Parak became a 20 per cent shareholder
in the company.
[6] Notwithstanding the move to Johannesburg, it was
convenient for HNR to maintain its account with the bank at the
latter’s branch in Claremont, Cape. However, the bank appointed a
Mr David Linnell to liaise with HNR regarding its banking
requirements. Linnell was a commercial manager in the bank’s
relationship department whose main function was to obtain
business for the bank. In that capacity he was obliged to keep
abreast of the affairs of clients and to liaise with them. But he had
no authority to grant overdraft or other facilities, nor did he have
authority to release sureties. Only the credit division of the bank
had such authority. If facilities were required, Linnell would apply to
that division on behalf of the client for the facilities in question. If
they were sanctioned, he was authorised to convey that
information to the client. He would do so by letter referred to as a
‘facilities letter’. Such letters were also sent to the client on a
regular basis to confirm the facilities available to them.

[7] In 1997 Hargey and Parak became involved in negotiations
which culminated in the sale of their entire shareholding in HNR to
a company, Front Page Holdings (Pty) Ltd, which in due course
changed its name to Infiniti Technologies Ltd (‘Infiniti’) and on 19
February 1988 was listed on the Johannesburg Stock Exchange.
The shareholders of four other computer companies concluded
similar agreements so that Infiniti became the holding company of
a group of computer companies including HNR.
[8] Clause 6.3 of the purchase agreement in terms of which the
shares of Hargey and Parak were sold to Infiniti, dealt with existing
guarantees. It provided that subject to certain exceptions, which
are irrelevant for present purposes, -
‘all guarantees, sureties or indemnities provided by the Vendor in a personal
capacity to any third party for and on behalf of the company shall be fully
discharged and/or satisfied by the Purchaser within 30 business days of the
listing date and the Purchaser shall provide written proof of such a discharge
and/or satisfaction to the Vendor upon request by the Vendor ……’
Hargey testified that prior to the conclusion of the agreement he
had given a draft to Linnell. Subsequently, early in February 1998,
Hargey and Mr Kevin Berthold met with Linnell, principally to
discuss the granting of a group facility for all the companies in the
Infiniti group. By that time Hargey had been appointed the chief

executive officer of Infiniti with effect from the date of listing, 19
February 1998. Berthold had become the financial director.
According to Hargey he made it clear to Linnell during the
discussion that ‘the suretyship issue should be sorted out from the
bank’s point of view and that Mr Berthold was going to handle it
from the company’s point of view’. This evidence was confirmed by
Berhold who emphasized that it was made clear to Linnell that the
sureties were to be released. Linnell was not a witness at the trial;
he had died shortly before it commenced.
[9] Subsequently Linnell and Berthold met on a number of
occasions. Their discussions centred around the terms of the
group facility and it appears that little, if any, mention was made of
the existing securities held by the bank. Berthold’s attitude was
that since Infiniti was a listed company it should not offer any of its
assets as security. He was also anxious to obtain an overdraft and
other facilities not only from the respondent bank but also from a
competitor, Nedbank Ltd. It appears that ultimately he had no
option but to agree to Nedbank taking a cession of the group’s
book debts. As far as the respondent bank was concerned, he was
prepared to offer no more than unlimited interlinking suretyships by
the subsidiaries and ‘downward’ unlimited suretyships by Infiniti in
favour of the subsidiaries. The events leading to the respondent

bank ultimately affording Infiniti a group facility are briefly the
following. By letter dated 19 February 1998 Linnell sought approval
from the credit division of the bank for an overall credit facility of
R41 million. Mr Charles Moon, who was then the assistant general
manager of the credit division, had little confidence in Infiniti and
the application was rejected on 4 March 1998. It was reinstated
and again considered by the credit division. On 11 March 1998
Linnell wrote a letter to that division further motivating the
application. In it, he ‘suggested’ that facilities be granted to Infiniti
subject to confirmation that all existing security be cancelled.
According to both Moon and Mr Anthony Walker, then a manager
in the credit division, the suggestion was unacceptable and simply
ignored. On 17 March 1998 the application was again declined by
Moon. On this occasion, however, it was referred to a Mr
Godlonton who was a senior manager in the bank and who
considered the application in a capacity akin to that of an
arbitrator. He upheld Moon’s decision but thought that with
additional information regarding the prospects of the group the
bank could ‘try and structure something around [the application]’.
On 23 March 1998 Linnell met with Hargey and Berthold and on
the same day addressed a further letter to the credit division in
which he sought approval for a reduced facility. The application

was finally approved and on 17 April 1998 a letter, referred to in
evidence as a ‘sanction letter’, was sent to Linnell authorising the
facilities that were to be afforded to Infiniti. On the strength of this
letter Linnell addressed a facilities letter dated 20 April 1998 to
Infiniti in which he set out the facilities to be granted to the group
and recorded the terms on which they were to be so granted.
[10] The letter requires closer scrutiny. It commences with an
unnumbered paragraph which reads:
‘we refer to our recent discussions and are pleased to confirm our agreement
to the following facilities which would be subject to the terms and conditions
on the reverse side of this page and those indicated elsewhere in this
agreement.’
Paragraph 1, under the heading ‘types of facility’, records the
facilities granted. They are a group overdraft with a limit of R17,5
million as well as facilities in respect of ‘Stannic liquidating credit’
and ‘forward exchange contracts’. Thereafter there is a reference
to the specific terms and conditions applicable to Stannic facilities.
Paragraph 2 is headed ‘Security’ and reads:
‘Security offered/proposed
>  Unlimited interlinking suretyships by all the trading entities.
> Downward Unlimited suretyships by Infiniti Technologies Limited in favour of
the trading entities.’
Another relevant paragraph is headed ‘Availment’ and reads:

‘In terms of normal practice, we shall only permit drawdown of the facilities
sought once all the security documents have been signed and found to be in
order.’
The letter was signed by Linnell on behalf of the bank and
subsequently on 22 April 1998 by Hargey and Berthold on behalf
of each of the five trading entities.
[11] According to Berthold, on receipt of the letter of 20 April 1998
and following a conversation with Linnell at the time, the details of
which he could no longer recall, he was satisfied that he had
achieved his goal and that the sureties had been released.
However, his conclusion in this regard was inconsistent with
subsequent events. Some difficulty was experienced in putting the
interlocking suretyships in place. This was finally achieved in
November 1998. Nonetheless, both before and after April 1998,
HNR continued to utilise its existing overdraft facilities on the
strength of the securities held by the bank. Indeed, during the
period February 1998 to December 1998, and in pursuance of
applications by HNR to the bank, the former’s overdraft and other
facilities rose from R5 million to approximately R8.6 million. It is
clear that the increases were both sought and granted on the
strength of the suretyship agreements signed by or on behalf of
the appellants. This was readily conceded by Hargey.  Berthold’s

assertion that the facilities were afforded in pursuance of the
interlocking securities which were not yet in place, is clearly
untenable.
[12] Little more need be said to complete the picture. Hargey
stepped down from his position as chief executive of Infiniti in
August 1998 following a disagreement between the members of
the board. He remained on as non-executive chairman of the
company until May 1999 when he resigned and ceased to have
anything further to do with the company. In the meanwhile, the
fortunes of the group declined rapidly and it ultimately went into
liquidation owing millions of rands.
[13] Against this background, I turn to the grounds advanced on
behalf of the appellants in support of their contention that they
were released as sureties. The first is that the facilities letter of 20
April 1998, properly construed, amounted to a release in writing
within the meaning of clause 15 of the deeds of suretyship. Such a
release, it was argued, was apparent from a reading of the first
(unnumbered) paragraph and paragraph 2 of the letter (both of
which are quoted in para 10 above) in the light of the background
circumstances. In short, counsels’ contention was that the security
referred to in paragraph 2 had to be construed as the exclusive
security for the group facility and that by implication any other

security which the bank may have held in respect of the
indebtedness of any of the trading entities had to be regarded as
cancelled.
[14] At the outset it is necessary to say something about clause
15.  Being a provision in a suretyship agreement it must be
construed restrictively and in favour of the surety.  But that does
not mean it must be construed in a manner other than sensibly. If
the language is clear effect must be given to it.
[15] There can be little doubt as to the object of the clause. In
Tsaperas and Others v Boland Bank Ltd 1996 (1) SA 719 (A) at
724D-E Harms JA observed in relation to a similar provision:
‘The object of a clause such as the one under consideration is fairly obvious.
It protects the creditor. It enables the creditor to determine its rights with
reference to the documents in its possession. The creditor does not have to
rely on the memory of employees or ex-employees. It protects the creditor
against spurious defences and unnecessary litigation.’
I would add that the need for a provision such as clause 15 is all
the greater where the creditor, as in the present case, is a large
organisation comprising different divisions and employing a large
number of people. The surety, on the other hand, is unlikely to be
prejudiced. Institutions such as banks do not lightly release
sureties while the debt of the principal debtor remains extant. If

there is release, it is in the interest of both parties that it be readily
capable of proof.
[16] The clause, of course, requires that the release ‘be in
writing’. This does not mean that when construing the writing it is
impermissible to have regard to background circumstances or, in
the event of ambiguity, surrounding circumstances. Nonetheless,
in every case the intention to release must appear from the writing
itself. It may be explicit or implicit. But if the latter, the intention to
release must be apparent from the writing on an ordinary
grammatical construction of the words used or, stated differently,
the release of the surety must be a necessary implication of the
words used. It is therefore not permissible to import into the
writing, whether by reference to background or surrounding
circumstances or any other source, an intention to release which is
otherwise not ascertainable from the actual language of the
document relied upon. If the position were otherwise the very
object of the requirement of writing would be frustrated.
[17] Returning to the facts, the letter of 20 April 1998 contains no
reference whatsoever to the existing suretyships, let alone to the
release of the appellants as sureties. The security referred to in
paragraph 2 of the letter is security ‘offered/proposed’, ie security
not yet in existence. That does not as a matter of linguistic

construction justify, in my view, the inference that sureties under
any existing suretyship were released; nor does a reference to
background circumstances assist the appellants. As I have said, a
release which is not in writing cannot be imported into the writing
from some other source.
[18] It is necessary to add that the evidence does not, in my view,
establish an intention on the part of the bank to release the
appellants as sureties. The matter was discussed at a meeting in
February 1998 between Linnell, Berthold and Hargey. Although the
latter wished to procure his release, no agreement was reached.
This was conceded by Berthold. Both he and Hargey were aware
that only the credit division of the bank had authority to release
sureties and that Linnell had no such authority. It was also
common knowledge that any such release had to be in writing. It is
true that in a letter dated 11 March 1998 addressed to the credit
division, Linnell suggested that the existing security be cancelled.
According to Moon and Walker, the suggestion was simply
ignored. Both insisted that it was never the bank’s intention to
release the appellants as sureties. This is hardly surprising. The
bank was  increasing its exposure considerably by granting the
facility. The security offered, namely interlinking suretyships, was
described by Berthold as ‘technical’. In these circumstances, the

bank would not lightly have abandoned the existing security it held
in respect of the debts of one of the main trading entities of the
group. The first ground of appeal advanced on behalf of the
appellants must therefore fail.
[20] The further grounds upon which the appellants rely in
support of their contention that they were released as sureties are
waiver, estoppel and the reliance theory of contract. I shall deal
with each in turn. Clause 16 of the suretyship agreements provides
as follows:
‘No cancellation or variation of this suretyship shall be of any force or effect
whatsoever unless and until it is recorded in writing signed by or on behalf of
the Bank and the surety.’
In SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren en Andere
1964 (4) SA 760 (A) this Court held that a term in a written contract
providing that all amendments to the contract have to comply with
specified formalities is binding. The principle has been consistently
reaffirmed, most recently by this Court in Brisley v Drotsky  2002
(4) SA 1 (SCA). (A non-variation clause is not necessary in a
contract of suretyship by reason of the provisions of s 6 of Act 50
of 1956 - Tsaperas and Others v Boland Bank Ltd, supra, at 725B-
C - but that does not detract from the legal force of such a clause
where it exists.) Courts have in the past, often on dubious grounds,

attempted to  avoid  the  Shifren  principle  where  its
application would result in what has been perceived to be a harsh
result. Typically, reliance has been placed on waiver and estoppel.
No doubt in particular circumstances a waiver of rights under a
contract containing a non-variation clause may not involve a
violation of the Shifren principle, eg where it amounts to a pactum
de non petendo or an indulgence in relation to previous imperfect
performance. (For an interesting discussion on the topic, see Dale
Hutchison Non-variation Clauses in Contract : Any Escape from
the Shifren Straitjacket (2001) 118  SALJ  720.)  But nothing like
that arises in the present case.
[21]  The appellants contend that they were released as sureties
by virtue of the conduct of the bank, coupled with a consensual
waiver of the provisions of clause 15. In my view, a factual basis
for such a contention was not established on the evidence. But
even if it had been, it would have amounted, in the circumstances
of the present case, to no more than a variation of clause 15 which
was not in writing. This is precluded by clause 16. To hold
otherwise, would be to render the principle in Shifren wholly
ineffective.
[22] The same applies to the appellants’ reliance on estoppel. In
their plea, the appellants alleged that Linnell had represented to

Berthold that the appellants were released from their suretyship
obligations and that, relying on such a representation, the
appellants had acted to their prejudice. The representation was
clearly not established and in argument counsel sought to rely on
a representation based more generally on the bank’s conduct
together with the letter dated 20 April 1998. But even if there had
been such a representation, it would not assist the appellants.
Where a release is required to be in writing, as in the present
case, it may perhaps be possible, in limited circumstances, to
frame an estoppel in such a way as not to violate the Shifren
principle.  It is unnecessary to consider what those circumstances
would have to be. What is clear is that an estoppel cannot be
upheld when the effect would be to sanction a non-compliance
with  provisions in a suretyship agreement of the kind contained in
clauses 15 and 16. It follows that the appellants’ reliance on
waiver and estoppel must similarly fail.
[23] Finally I turn to the defence, based on the reliance theory of
contract, that the agreement recorded in the facilities letter
contained a term releasing the appellants from their obligations
under the suretyship agreements. The contention, shortly stated, is
this : the facilities letter contained a representation that it was the
bank’s intention that the appellants would be released as sureties

once the ‘proposed/offered’ security was in place; the subsidiary
companies (represented by Hargey and Berthold) which accepted
the offer understood the facilities letter to reflect that to be the
intention of the bank; in so accepting the offer they intended to
confer on the appellants the benefit of the agreement to the extent
that it related to the latter’s release; the fact that the declared
intention of the bank, as reflected in the facilities letter, was not its
true intention, does not assist it as the letter was such as to lead
the accepting parties reasonably to believe that the declared
intention was the bank’s actual intention.
[24]  The reasonableness of the accepting parties’ belief is crucial
to the success of the appellants’ submission. This is apparent from
the following passage in the judgment of Botha JA in Steyn v LSA
Motors Ltd 1994 (1) SA 49 (A) at 61C-E:
‘Where it is shown that the offeror’s true intention differed from his expressed
intention, the outward appearance of agreement flowing from the offeree’s
acceptance of the offer as it stands does not in itself or necessarily result in
contractual liability. Nor is it in itself decisive that the offeree accepted the
offer in reliance upon the offeror’s implicit representation that the offer
correctly reflected his intention. Remaining for consideration is the further and
crucial question whether a reasonable man in the position of the offeree would
have accepted the offer in the belief that it represented the true intention of
the offeror, in accordance with the objective criterion formulated long ago in

the classic dictum of Blackburn J in Smith v Hughes (1871) LR 6 QB 597 at
607. Only if this test is satisfied can the offeror be held contractually liable.’
For the purpose of this leg of counsels’ argument it is accordingly
unnecessary to consider, as a separate issue, the meaning to be
attributed to the offer. It is enough, following the approach adopted
by Botha JA in the Steyn case (at 62B-E), to pose what is
ultimately the ‘decisive question’, namely whether a reasonable
person in the position of Hargey and Berthold would have believed
without further ado that upon acceptance of the offer, the release
of the appellants as sureties would be procured, whether then or
sometime in the future.
[25]  It was common knowledge that in terms of clause 15 of the
suretyship agreements the release of the sureties had ‘to be in
writing signed on behalf of the bank by a duly authorised
signatory’.  As I have said, the facilities letter contains no reference
whatsoever to the existing suretyships or to the release of the
appellants as sureties. In these circumstances a reasonable
person, in my judgment, would not simply have assumed that his
or her understanding of the offer was the correct one. The obvious
and reasonable step to have taken was to obtain clarity on the
issue. Had this been done, any misunderstanding would have
been removed. In the event, neither Hargey nor Berthold made

any such inquiries. They simply signed the acceptance. Hargey, in
his capacity as chief executive officer of Infiniti, thereafter
permitted HNR to continue to utilise its overdraft facilities on the
strength of the existing suretyships.
[26] In the result, the bank cannot be held to the accepting
parties’ understanding of the facilities letter regarding the release
of the sureties. It follows that this defence, too, must fail.
[27] The appeal is dismissed with costs.

D G SCOTT

JUDGE OF APPEAL

CONCUR:

NAVSA
JA
NUGENT JA
LEWIS
JA
MOTATA  AJA