THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not reportable

Case No: 1303/18

In the matter between:

ZEPHAN (PTY) LTD
FIRST APPELLANT
NICOLAS GEORGIOU N.O.
SECOND APPELLANT
MAUREEN LYNETTE GEORGIOU N.O.
THIRD APPELLANT
JOE CHEMALY N.O.
FOURTH APPELLANT
NICOLAS GEORGIOU N.O.
FIFTH APPELLANT

and

SURAIYA BEGUN NOORMAHOMED
RESPONDENT

Neutral Citation:
Zephan (Pty) Ltd & others v Noormahomed (1303/18)
[2019] ZASCA 162 (29 November 2019)
Coram:
Navsa and Nicholls JJA and Tsoka, Gorven and Weiner AJJA
Heard:
20 November 2019
Delivered:
29 November 2019
Summary:  Practice and Procedure – application for rescission of default
judgment – whether defence prima facie established – whether application for
rescission correctly refused.

______________________________________________________________

ORDER
______________________________________________________________

On appeal from: The Gauteng Division of the High Court, Pretoria
(Swanepoel AJ sitting as court of first instance):
The appeal is dismissed with costs including costs consequent on the
employment of two counsel, where applicable.
______________________________________________________________

JUDGMENT
______________________________________________________________

Tsoka AJA (Navsa and Nicholls JJA and Gorven and Weiner AJJA
concurring):

[1] This appeal, with leave of this court, is against an order and judgment
of the Gauteng Division of the High Court, Pretoria (Swanepoel AJ) in terms of
which an application for rescission launched by the appellants against a
judgment granted in favour of the respondent was dismissed with costs. In
terms of the default judgment the appellants were ordered to pay Ms Suraiya
Begun Noormahomed (the respondent) the sum of R6 000 000, together with
interest at 15,5 per cent per annum with effect from 9 August 2014, and costs,
jointly and severally against delivery to them of share certificate HSF 2234137
in Highveld Syndication (Pty) Ltd (HS22).

[2] Default judgment was obtained by the respondent on the basis of a
buy-back agreement (the agreement) in terms of which the first appellant had
irrevocably agreed to repurchase the respondent's shareholding held in HS22
at a specified price and after an agreed period of five years. The second to
the fifth appellants guaranteed the first appellant's performance in terms of the
said agreement.

[3] The issue in the application for rescission and in the appeal was
whether the appellants disclosed a bona fide defence to the respondent’s

claim in the sense of setting out averments, which, if established at trial,
would entitle them to relief. The court below, having held that the appellants
failed to establish such a defence, dismissed the application for rescission of
the judgment, with costs.

[4] In the founding affidavit the appellants contended that the respondent's
claim had been novated by way of a duly adopted business rescue plan in
relation to associated entities and/or by way of a scheme of arrangement in
terms of s 155 of the Companies Act 71 of 2008 (the Act). The appellants
contended that HS22 investors voted in favour of accepting the scheme of
arrangement (the arrangement) in respect of a third party company namely
Orthotouch Ltd (Orthotouch). It was contended that the effect of the
arrangement was that HS22's liabilities to its creditors had been re-arranged
and sanctioned by the court. It was submitted further on behalf of the
appellants that an acceptance by the respondent of payments of interest in
terms of that arrangement had the effect of the respondent accepting that the
agreement had been novated.

[5] The respondent disputed the appellants' defence. She was adamant
that whatever arrangements had been made, involving others, court
sanctioned or not, her claim for specific performance for the repurchase of the
shares at a specified rate by the first appellant was unaffected. She insisted
that the agreements between her and the appellants were not novated. It is
the respondent's evidence that her claim is unaffected by the arrangement nor
had it been novated by her receipt of interest received from Orthotouch.
According to her, she was entirely unaware of the arrangement and the
interest payments arrived without her requesting them. She maintained that
her claim is against the first appellant in terms of the agreement and that the
court below was correct in refusing the appellants' application for rescission
with costs.

[6] It is now necessary to have regard to the detailed, factual background.
As alluded to earlier, the respondent instituted a claim against the appellants
for specific performance. Her claim was founded on the agreement read

together with the prospectus issued by HS22. The agreement formed part and
parcel of the prospectus so issued. On 9 August 2009, the extended date of
the offer to subscribe for shares in HS22, the first appellant took up and
acquired all the unsubscribed shares in HS22. The first appellant then
mandated PIC Syndication (Pty) Ltd (PIC) to offer these shares for sale to the
general public on the same terms and conditions as set out in the prospectus.
In May 2010, the respondent accepted the first appellant's offer and bought
3 000 shares from the latter worth R3 000 000.

[7] In terms of the agreement the first appellant contracted to buy the
shares back from the respondent after a period of five years from the initial
investment date at the pre-agreed repurchase price of a 100 per cent
premium. This essentially meant that upon maturity she would receive double
the amount invested. The second appellant, Nicholas Georgiou, the third
appellant, Maureen Lynette Georgiou, the fourth appellant, Joe Chemaly, the
joint trustees of the N Georgiou Trust and the fifth appellant, Nicholas
Georgiou, guaranteed the due performance by the first appellant of its
obligations in terms of the agreement towards the respondent. During 2014
the five year period in terms of the agreement expired. This is the basis of the
respondent's claim against them. The respondent demanded that the first
appellant repurchase the shares, as agreed, against tender of the share
certificate in respect of the shares acquired earlier but the first appellant
failed, despite demand, to fulfil its obligations in terms of the agreement. The
respondent approached the high court to enforce the terms of the agreement
against the first appellant and the other appellants. As stated above, the
respondent obtained judgment by default. This was followed by the
application for rescission by the appellants. The only issue before the court
below and before us was whether or not a triable issue was raised by the
appellants.

[8] Prior to determining whether the appellants' affidavit raised a bona fide
defence, it is necessary to deal with a preliminary issue. It is common cause
that on 7 November 2019, the first appellant resolved in terms of s 129 of the
Act to voluntarily begin business rescue proceedings. Further steps envisaged

in s 129(3) of the Act were taken. Conventionally, a moratorium in respect of
legal proceedings, in terms of s 133 of the Act then takes effect. It may,
however, be lifted by leave of a court.

[9] At the commencement of the hearing of the present appeal, we were
informed that the first appellant, as well as the Business Rescue Practitioner
appointed, were agreed that the appeal be proceeded with and finalised. That
appeared to us to be in the interests of justice.

[10] I now turn to determine whether the court below correctly refused the
application for rescission of judgment on the basis that the first appellant did
not establish a bona fide defence. In relation thereto, see Grant v Plumbers
(Pty) Ltd 1949 (2) SA 470 (O) at 476 and Chetty v Law Society, Transvaal
1985 (2) SA 756 (A) at 764I-765H.

[11] The appellants' reliance on the arrangement and in particular the
provisions of s 155 of the Act for the assertion that the respondent's claim
against the first appellant was novated when HS22 was placed under
business rescue or when the arrangement was sanctioned by the court, is
misconceived.

[12] The respondent's evidence is that her claim is founded on the
agreement guaranteed by the three trustees and the fifth appellant. In terms
of this agreement, on expiry of the period of five years, the first appellant was
obliged to repurchase her shares at double the amount she paid for the
shares. According to her, the agreement reached between HS22 and
Orthotouch, the third party company, which was also placed under business
rescue, is irrelevant to the enforcement of the specific performance
guaranteed in terms of the agreement.

[13] That the respondent's claim in terms of the agreement is unassailable,
is clear from the terms of the agreement. In terms of this agreement, to which
neither HS22 nor Orthotouch, a related entity, were a party, there was an
irrevocable undertaking to repurchase all of the shares in HS22 sold by the

first appellant to the respondent. That the undertaking is independent and
insulated from the affairs of HS22, is clear.

[14] Counsel on behalf of the appellants submitted that the respondent's
conduct in receiving interest as a result of the business rescue and re-
arrangement of the debts of HS22 is indicative of novation of the agreement
on which her claim was based. The respondent's claim is for specific
performance against the first appellant to enforce the terms of the agreement.
In this context, the receipt of interest from Orthotouch is irrelevant to her claim
against the first appellant. This court, in dealing with a similar issue in Zephan
(Pty) Ltd & others v De Lange1, in the context of an application for summary
judgment, said the following:
'The BRP relates only to the restructuring of the business of the HS companies and
not the appellants. When the HS companies went into business rescue the
appellants were the primary carriers of the obligation to buy back Mrs De Lange's
shares. The fact that the HS companies might have been in business rescue was
irrelevant to the appellants' discharge of their obligations under the buy-back
agreement. Neither was the fact that she had accepted payments of the reduced
annual interest. Such interest was never part of the buy-back agreement. There
could be no basis for a finding that Mrs De Lange had compromised her rights under
the buy-back agreement.' (My emphasis.)

[15] The court below correctly refused the application for rescission. In the
result, the appeal is dismissed with costs including costs consequent on the
employment of two counsel, where applicable.

________________________
M Tsoka
Acting Judge of Appeal

1 Zephan v De Lange (1068/2015) [2006] ZASCA 195 [2 December 2016] para 19.

APPEARANCES:

For appellant:
A Bester SC

M Mostert

Instructed by:

Kyriacou Inc, Melrose North

EG Cooper Majiedt Inc, Bloemfontein

For respondent:
L Bolt

Instructed by:

D P du Plessis Attorneys,

Lovius Block, Bloemfontein