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IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

Case No. 31188/19

In the matter between:

ANT ADVANCED NETWORKING TECHNOLOGY CC                                          Applicant

and

BAYNE, IAN DUNCAN                                                                                       Respondent

Application for payment not stayed pending determination of counter-applications

 

JUDGMENT

DE VILLIERS, AJ

[1] This is first an application for payment under a loan (linked to a sale of a business) and second, a counter-application also for payment, but of damages pertaining to the sale agreement.

[2] The main application is relatively uncomplicated. The applicant sold an information technology business to the respondent on 1 January 2017, and the respondent has been in possession, and has had the full benefit, of the business since 21 February 2017. The purchase price was R8 304 809.80, payable in terms of a loan for the full amount by the applicant to the respondent. The agreement of sale had the usual clauses pertaining to no warranties having been given, no representations having been made, that the sale was voetstoots, and the like.

[3] It is common cause between the parties that the applicant ought to have been registered as a credit provider in terms of section 40(1) as read with section 42(1) of the National Credit Act 34 of 2005 (“the NCA”), but was not so registered and that the loan agreement is void. This view is based on Du Bruyn NO and Others v Karsten 2019 (1) SA 403 (SCA) as read with section 40(4) which provides that such a credit agreement is an unlawful agreement and void to the extent provided for in section 89. Section 89(2)(d) provides that such a credit agreement is unlawful. Section 89(5) states that if a credit agreement is so unlawful, I must make a just and equitable order, including that the (unlawful) credit agreement is void.

[4] The Constitutional Court in Chevron SA (Pty) Limited v Wilson t/a Wilson’s Transport and Others [2015] ZACC 15 declared the then section 89(5)(b) of the NCA inconsistent with the Constitution and invalid. The wording of the current section 89(5) is the result of this judgment. The current section does not limit my discretion to see that justice is done. Para 23 of the judgment lists factors that a court could consider in ensuring that justice be done:

“ … the conduct of the parties to the transaction; their respective financial positions; their levels of business and financial acumen; the possible apportionment of blameworthiness to the parties in relation to the unlawfulness of the agreement; and the extent to which the credit receiver has profited from the transaction.”

[5] This is not a restrictive list, as the intent is that a court must, on the facts of each case, ensure that justice is done to make a just and equitable order as set out in para 33.

[6] The agreement is void, but there was no turpitude. In my view, a form of restitution would be the fair solution. The applicant sought payment to the value of the outstanding balance of the loan amount, and did not seek (invalid) interest.  I should consider the value received by the respondent. The applicant’s argument is that the parties have agreed on a purchase price, and thereby have established the value received by the respondent in terms of the loan agreement. The respondent made no attempt to address the value it received under the loan agreement or what an equitable repayment should be. It seems to me that the respondent received the value of the loan, or the value of the business, whichever is the lesser amount. The respondent further received the benefit of an unenforceable contract pertaining to interest payable and the beneficial impact of the time value of money through a delayed payment not linked to interest obligations. By ordering the repayment of the value, the value of the loan, or the value of the business, whichever is the lesser amount, an equitable remedy would be ordered. This is not the same as reviving an invalid loan.

[7] I also took into account in reducing the amount payable by the respondent, all payments made by him, and all credits received by him. Until September 2019 the respondent made payment and/or received credits in the sum of R3 087 149.52, leaving an unpaid balance of R5 237 460.38. In addition, in May 2019 the parties negotiated a reduction in the selling price of R1 000 000.00, and by implication to reduce the loan by this amount too. There is some debate if the R1 000 000.00 was formally agreed to, but due to the order to be made, this matters little. It reflects (at least in principle) an agreed, reduced value of the business received by the respondent. In the face of those negotiations, I cannot, in the absence of further evidence, find that the business was valued at its original selling price.

[8] The founding papers were issued on 4 September 2019. The answering affidavit includes counterclaims being the only real defences to payment. The further point taken in the answering affidavit is that no notice was given in terms of the sale agreement before the whole purchase price was claimed (which defence missed the point that the claim was based on the loan agreement). The acceleration clause in the (invalid) loan agreement in case of non-payment is common cause, and so is non-payment. But in the end the case before me is no based on an agreement, but on the effect of the NCA.

[9] The respondent has not cancelled the sale agreement but alleges that it has three counterclaims. They are quoted in full (excluding the terms of the sale agreement):

“60 The Applicant has breached the terms of the Agreement, in inter alia, the following manner:

60.1 During or about July 2017 ANT provided a "dedicated Hong Kong based server" to a client named Andre Pretorius. ANT charged a premium for this server to be dedicated. However, it was subsequently discovered, upon my takeover, that the server was not a dedicated server but a shared server. A copy of the email correspondence with the client is annexed hereto marked annexure "IB 2". By virtue of the actions by Davies, the client demanded compensation and terminated their business with ANT. A copy of the email is annexed hereto and marked as Annexure "1B 3". By virtue of the actions of Davies and/or ANT, I have suffered damages in the amount of R9000.00 (NINE THOUSAND RAND);

60.2 Further to this, Davies bought a licence key from Microsoft that allowed him to install Office for Mac and PC at no additional charge. He did this so that ANT could charge R650.00 (Six Hundred and Fifty Rand) per licence and it was pure profit. However, this licence was only valid for a period of three (3) years, which he included as part of the deal at no charge. When I found out that this was a Microsoft corporate licence, intended for use at one site only as part of a Microsoft agreement, I stopped using this licence and had to attend to re-install Microsoft at clients, some of whom, based on their software expiring, no longer continued with our services and the reinstallation was a risk at my personal cost. Correspondence to this effect is attached hereto marked as Annexure "1B 4". By virtue of Davies' and/or ANT's conduct, I suffered damages in the amount of R513 435 (Five Hundred and Thirteen Thousand, Four Hundred and Thirty Five Rand).

61. …

62 The Applicant misrepresented the expected revenue stream of the business by not disclosing his prior knowledge that clients would be terminating with ANT after he left the company. A large number of clients terminated, creating significant financial and reputational loss to the business. The list of clients lost is contained in Annexure "1B 5". As a result of this, I suffered damages in the sum of R 10 542 884.25· (Ten million five hundred and forty two thousand eight hundred and eighty four rand and twenty five cents)”.

[10] These counterclaims are contested. The first counterclaim, for R9 000.00, relates to the period after the respondent took possession of the business and prima facie is of no merit. The second counterclaim, for R513 435.00, is factually contested and lacks material factual averments and evidence to sustain it. The respondent failed to allege and prove the material facts for the conclusions it sought to draw. See Radebe and Others v Eastern Transvaal Development Board 1988 (2) SA 785 (A) at 793C-F. The third counterclaim, for R10 542 884.25 also lacks material averments and evidence to sustain a cause of action. The annexure does not assist in the computation of the alleged claim for alleged misrepresentation. It reflects that an unspecified number of clients terminated their services since “I took over”, presumably a reference to the respondent taking over the business. These customers allegedly resulted in a loss of annual revenue of R2 108 576.85 before they took their custom elsewhere. No link has been alleged between this amount and the claim for five times more. The averments about alleged misrepresentation upon which this claim is based, are contradicted by the terms of the contract, WhatsApp messages about how great the business is, continued payments, the failure to cancel the sale, and the facts that the alleged counterclaims have been raised only in the answering affidavit. It is not alleged that the applicant had anything to do with the alleged loss of custom. The order in which the three alleged counterclaims were pleaded, tell a story too.

[11] Kirk-Cohen J in Willowvale Estates CC and Another v Bryanmore Estates Ltd 1990 (3) SA 954 (W) simply dismissed a counter-application where the respondent ought to have foreseen factual disputes. The same would apply in this case, but in addition, no proper counterclaims have been alleged and proven even on only the respondent’s version. The learned judge held at 961H-J:

“However, I would dismiss the counter-application on another ground. At the time it was launched the respondent was aware that it was based upon a then existing and irresoluble dispute of fact. It was aware of this both from the correspondence between the parties' attorneys prior to the launching of the application and from the allegations in the founding affidavit. The respondent concedes that the counter-application cannot be decided on the papers and seeks an order that the matter proceed to trial. In the light of the principles laid down in Room Hire Co (Pty) Ltd v Jeppe Street Mansions (Pty) Ltd 1949 (3) SA 1155 (T), the counter-application must be dismissed with costs.”

[12] I did consider the judgment by van Dijkhorst J in Truter v Degenaar 1990 (1) SA 206 (T). The learned judge also dealt with a matter where the only real defence were disputed counter-applications, which had to be determined in an action. As the headnote indicates (and freely borrowed from), the Common Law position is that an application and a counter-application should be adjudicated at the same time, or the application should be suspended pending finalisation of the unliquidated counter-application. However, the Court has a discretion to depart from the normal position. Such a discretion is not (even) limited to cases where the counter-application is frivolous or vexatious and instituted merely to delay judgment on the application. The discretion is wider and the good reasons which would move a court to exercise it in favour of an applicant are not capable of pre-definition. The learned judge at 209 A-B referred to the practice in the Common Law, as set out by Voet, to order security de restituendo should the questionable counterclaim succeed:

“'n Voorbeeld was die geval genoem deur Voet Commentarius ad Pandectas 5.1.88 waar die geldigheid van die eis glashelder vir die Hof is terwyl die teeneis troebel en uitgerek voorkom. Die praktyk was egter volgens Voet om waar vonnis op die eis toegestaan is sekerheid te vereis de restituendo vir geval die teeneis suksesvol is.”

[13] This is not an invariable rule, but an offer for security could swing the exercise of a discretion in the applicant’s favour not to order that the application should be suspended pending finalisation of the counter-application. In the end, the learned judge ordered payment, and that security be provided against payment as determined by the Registrar, and put further conditions in place to ensure that the alleged counter-claim would be proceeded with in action proceedings.

[14] I also considered the position in summary judgment proceedings where a plaintiff, entitled to judgment, is met with an alleged counterclaim. In Soil Fumigation Services Lowveld CC v Chemfit Technical Products (Pty) Ltd 2004 (6) SA 29 (SCA) at para 11, the court made the point that even if summary judgment were granted, the defendant could still pursue the counterclaim by issuing summons and held at para 25:

“What remains to be considered is whether, in these circumstances, the Court a quo should have exercised its overriding discretion to refuse summary judgment in the defendant's favour. I think not. For the reasons I have stated (in para [11] above) a Court should be less inclined to exercise its discretion in favour of a defendant in a matter such as this where the answer to the plaintiff's claim is raised in the form of a counterclaim as opposed to a defence to the plaintiff's claim in the form of a plea. Moreover, and in any event, a Court can only exercise its discretion in the defendant's favour on the basis of the material placed before it and not on the basis of mere conjecture or speculation. On the material before the Court, there is in my view no reason to think that the defendant's counterclaim has any merit. For these reasons I believe that summary judgment was rightly granted for the whole amount of the plaintiff's claim.”

[15] The Supreme Court of Appeal did not order security de restituendo. Under these circumstances, it seems to me that this is not a case where I should order that judgment in the application be delayed or be made subject to security de restituendo. Indeed, a stay of the main application was not even sought. The relief claimed was for dismissal and for payment under the counter-claims.

[16] Wherefore I make the following order:

1. The agreement of loan concluded between the parties dated 3 January 2017 is declared void;

2. The respondent is ordered to make payment to the applicant of R4 237 460.38;

3. The outstanding balance of the amount of R4 237 460.38 shall bear interest at the rate of 10.25 % per year from 5 September 2019, until paid in full;

4. The counter-applications are referred to trial;

5. The answering affidavit herein (excluding the annexures thereto) shall stand as a simple summons and the replying affidavit (excluding the annexures thereto) as a notice of intention to oppose;

6. The respondent is ordered to deliver a declaration within twenty days from date of this order, failing which, the counter-applications are dismissed with costs;

7. The normal rules of court will apply from date of service of the declaration;

8. The respondent is ordered to pay the costs of this application.

 

                                                                      _______________________

                                                                      DP de Villiers AJ

 

 

On behalf of the Applicant: Adv AJ Reyneke

Instructed by: Fasken

On behalf of the Respondent: Adv S Jackson

Instructed by: Myers Attorneys

Heard on: 19 February 2020

Delivered on: 6 March 2020

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