REPORTABLE

IN THE HIGH COURT OF SOUTH AFRICA 
(WESTERN CAPE HIGH COURT, CAPE TOWN)
CASE NO:24832/2009
Before:
The Hon. Mr Justice Binns-Ward

In the matter between:

and
PAUL SMITH 							First Respondent
JENINE SMITH 						Second Respondent

BINNS-WARD, J

[5] Section 40(4) of the NCA provides that a credit agreement entered into by a credit provider who is required in terms of s40(1) to be registered, but is not so registered is an unlawful agreement and void to the extent provided in s 89 of the Act. Section 89(5) of the NCA confirms that the loan agreement(s) are void if the applicant was required by the statute to have been registered as credit provider when the agreement(s) had been concluded, but had not been so registered. The limited exemption from this effect provided in terms of s 89(4) of the NCA is not applicable on the facts of the current matter.
[6] As mentioned, the advances made by the applicant occurred incrementally over a period of time. It was only when the further advance agreed to on 17 March 2009 occurred that the total amount involved exceeded the R500 000 statutory threshold. Therefore, even if the initially concluded agreements qualified as loans within the meaning of s 8(4)(f) of the NCA, there was no obligation on the applicant to have registered as a credit provider at the times when the total amount advanced remained below the statutory threshold. The validity of the agreements concluded at that stage would not be affected by the provisions described in the preceding paragraph.
[7] A complication arises, however, because the applicant and the first respondent concluded an agreement on 17 March 2009 in terms of which, to use the applicant's language, the preceding agreements were novated'. That agreement was in turn also replaced by one concluded on 7 May 2009. which was itself replaced by a further agreement concluded on 14 May 2009. If the characterisation of the aforementioned March and May agreements as novating transactions is correct it means that the earlier agreements ceased to exist and were replaced by the succeeding agreements. The new agreements, each entailing an amount exceeding R500 000, would undoubtedly fall within the reach of the vitiating provisions of the NCA if they were transactions falling within the compass of s 8(4){f) of that Act. It is therefore appropriate to first determine whether the 17 March agreement did indeed novate the earlier agreements.
[8] The agreement in respect of the first advance was recorded in a document dated 21 February 2009, which provided as follows:

The gold will be freighted to a Gold Refinery in Johannesburg, South Africa. Upon being refined the refinery will purchase the gold from Paul Smith at the LME market price, less commissions.
Upon the sale of the gold. Paul Smith will return the Capital of R250 000.00 (Two hundred and fifty thousand Rand) along with a share of the profits amounting to a further R250 000.00 (Two Hundred and Fifty Thousand Rand} Totalling an amount of R500 000,00 (Five Hundred Thousand Rand) to Niall Evans.

[9] The agreement subsequently concluded on 28 February 2009 in respect of an additional advance by the applicant to the first respondent in the sum of R105 000 was in similar vein.
[10] The deed of contract thereafter executed on 17 March 2009 provided as follows:

MEMORANDUM OF AGREEMENT
17 March 2009
This agreement makes alt agreements entered into between Paul Smith and Niall Evans prior to this date, 17 March 2009. null and void and constitutes the only agreement between the said parties. This agreement also excludes any future agreements entered into by the said parties after the said date.

The money is to be used to pay part of the relevant taxes at customs in Casablanca Morocco on 47 kg's of 22 carat gold purchased by Paul Smith. It will also be used to pay relevant costs relating to the 46 stones.
The gold will be freighted to a Gold Refinery in Johannesburg, South Africa. Upon being refined the refinery will purchase the gold from Paul Smith at the LME market price, less commissions.
Upon the sale of the gold. Paul Smith will return the Capital of R540 000,00 (Five hundred and forty thousand rand) along with a share of the profits amounting to a further R540 000.00 (Five hundred and forty thousand rand). Totalling an amount of R1080 000,00 (One million and eighty thousand rand) to Niall Evans. Failing which, Clarex Pty Ltd will refund the Capital amount of R540 000,00 (Five hundred and forty thousand rand) to the said Niall Evans by the 7* April 2009. after which, interest will be calculated at prime plus 2.
Paul Smith will run the process in Casablanca to safeguard both parties' (Paul Smith and Niall Evans) investments.

[13] The applicant's counsel contended that the agreements were not loan agreements, but rather what he labelled as 'investment agreements'. That for different reasons, was also the argument of the first respondent. The difficulty with that argument is the label 'investment agreement' does not connote any form of recognised nominate agreement and therefore by itself does not objectively define the legal character of the transactions. One has to look at the substance of the arrangements to characterise the contracts. According to the tenor of the agreements concluded on 21 and 28 February 2009, the money advanced by the applicant was not repayable unless and until the gold had been sold. The ostensibly contingent nature of the debt that the literal meaning of the wording of the agreement documents conveys might indeed detract from the characterisation of the contracts as loan agreements, but as I shall expatiate below, construed in a businesslike manner and seen in the context of the overall history of the parties' contractual relationship, I have concluded that they were indeed loan agreements. Certainly, there is no doubting that the deed of agreement executed by the parties on 17 March 2009 recorded a loan agreement It is apparent from that deed of contract that the parties intended that the advance and the stipulated return thereon were to be paid by the first respondent by 7 April 2009, failing which Clarex (Pty) Ltd, presumably as the first respondents agent - because the company was not party as a principal to the agreement - would refund the applicant the capital sum of the advance together with interest thereon at 'prime plus 2'. The expression 'invest with Paul Smith' or words to similar effect, read in the context in which it was used by the parties, plainly denotes nothing more than 'advance to Paul Smith'.

of the same kind, quality and quantity as the one he or she receives	At common

[19] The reference to the consideration payable by the first respondent as a profit share does not detract from its true nature as interest on the capital amount lent and advanced. As I have pointed out, there is nothing about the agreements that makes the applicant a partner or joint venturer in the ownership, or disposition of the gold. If one has regard to the content and history of the parties' contractual relationship in its various stages between February and May 2009, it is clear that the purpose of the advance was to enable the applicant to secure the release of the gold for expeditious realisation. It was evidently initially conceived that this would take no more than a matter of a week or two. As soon as it became clear that the initially conceived idea was not being achieved, fixed dates for the repayment of the capital and return were stipulated irrespective of the achievement of the object for which the capital had been advanced to the first respondent by the applicant. In my view, the behaviour ofthe parties in respect ot the conduct of their contractual relations confirms - to the extent any ambiguity in their written agreements might render necessary - the character of their relationship as that of loan creditor and receiver, respectively. 

[20] In the circumstances it seems to me that the agreement concluded on 17 March 2009 failed to novate the two preceding agreements because it was void by reason of the non-registration of the applicant as a credit provider. The validity and enforceability of the preceding agreements executed on 21 and 28 February 2009, respectively, is not in question, however, and is not affected by the evident voidness of the later agreements.

[22] It does seem evident that the stipulated return represents interest in an amount exceeding the prescribed maximum rate of interest. That characteristic does not, however, render the agreement invalid, or prohibit the recovery of interest up to the maximum legally recoverable amount
[23] The applicant has thus proved that he has a liquidated claim against the first respondent in the amount of the capital sum of the first two advances totalling R355 000. He has thereby satisfied the first of the aforementioned three requirements of s 12(1) of the Insolvency Act.

[25] I have already found that upon a proper construction of the deeds of contract executed in February 2009 the debt fell to repaid on the sale of the gold, or, failing that, within a reasonable period of time What constitutes a reasonable time is a question of fact. It is a measure which is meaningless in abstract, and which can be given meaning only within the context of the peculiar circumstances which give rise to the need for its length to be determined. I have already indicated that the nature of the object of the loan and the manner in which the parties conducted themselves in respect of the formulation of their subsequent agreements when the object for making the advances had not been achieved by mid-March 2009 makes it apparent that the parties contemplated that the loan would be repaid within a matter of weeks, not months I am in no doubt therefore that the capital advanced by the applicant in February 2009 was repayable upon demand by the applicant by October 2009. [26] During October 2009, the following exchange of correspondence took place between the applicant and the first respondent by email:

Wednesday 7 October 2009 16:05:05 + 0200 Subject Money Owed Dear Paul

Your promises to pay (mostly with reference to the foreign transactions) appear to be empty and my impression is that you simply do not have the ability to pay (you are now more than 4 months overdue).
Please respond
Regards.
Or Niall Evans

8 October 2009 11:21 AM Dear Niall
I am really sorry for the delay When I arrived I paid demurrage and the next customs phoned us eight times to sign off the docs and collect the refund. Sanna messed up everything since he did not have access to his passport It was held by the hotel. By the time I released his passport at the hotel, one of the owners of the gold flew in to Casablanca, blocked everything at customs and met with Sanna. 1 was present at the meeting and he made it clear to Sanna, that because of the delay they want an advance of at least $25 000 before they release the goods at customs.

I am waiting now for Sanna now to sort things out with them. As yet he only paid them part of the requested amount. He is still in Casablanca. Once sorted I will have to return to collect the refund and stones.

Thursday. 8 October 2009 13:48:17 +0200 Subject: Re: overdue amount Dear Paul
I don't know if you received my last email. According to our agreement you have owed the money to me since end of May.
Please confirm whether you are now in a position to repay me.
Regards
Dr Niall Evans
8 October 2009 12:34 PM
I will be in a position to settle with you as soon as my goods are released. I am working on it daily.

Thursday, 8 October 2009 14:49:00 + 0200 Dear Paul
Can you please settle at least half the amount you owe me now as I am now four months without the funds that I have transferred to you and urgently now need these funds.
Please outline, apart from the dealings in Morocco, whether you can do this.
Regards.
Dr Niall Evans

I am waiting for your reply to my question when you van pay me I cant wait for your dealings in Morocco anymore and need payment now.
Please respond.
12 October 2009 12:08 PM Dear Niall
Nothing will please me more that to start paying you. However all my money is tied up in this deal hence my commitment to completing the deal. I am strapped for cash at the moment and can't even assist Sanna. If Sanna completes the money he must give the supplier, the goods can leave immediately. Customs is all paid up.
I will be in a position to settle with you as soon as my goods are released. I am working on it daily.

12 October 2009 11.23 am Dear Paul.
So if I understand you correctly, you currently have no funds available to make any payment to me as per the agreement between us?
Regards
Dr Niall Evans
12 October 2009 15:16:18 +0200
To: Niall Evans
Subject; Re: overdue amount
For now yes, I am trying my best to sort things out.

Whether a particular notice is such as to constitute an act of insolvency within the meaning of s 8(g) depends on a construction of its contents, read as a whole. The question when considering the letter is not whether the debtor is in fact unable to pay or whether he is solvent or insolvent. Inability to pay must be distinguished from unwillingness to pay. If the debtor is merely saying that he is unwilling to pay. the letter does not constitute an act of insolvency. Construing the written notice involves deciding how the reasonable person in the position of the creditor receiving the notice would understand it. To such a reasonable person must be attributed the creditor's knowledge at the time of the relevant circumstances.
[28] Applying that test, I consider that the first respondent's indication of his inability to pay the debt was unequivocal. It is also significant that he did not take issue in the exchange of emails with the applicant's assertions that payment was due at the end of May. That allegation had its origin in the stipulations in the agreements concluded between the parties in respect of the advances made during May. Those stipulations referred to the repayment by 31 May 2009 of the total of the amounts advanced up to that stage. Even if those stipulations were not applicable to the repayment of the amounts advanced in terms of the agreements concluded in February on account of their incidence in transactions that were void by virtue of their legal invalidity, it is plain that the applicant was demanding repayment of the exigible portion of the debt at a time when he was entitled to do so; and that the first respondent accepted as much.

[30] I am therefore satisfied that the applicant has satisfied the requirements of s 12(b) of the Insolvency Act

[32] In the circumstances the rule is made final and an order is made in terms of s12(1) of the Insolvency Act 24 of 1936 sequestrating the estate of the first respondent. It is directed, insofar as might be necessary, that the applicant's costs of suit, as taxed or agreed, shall be included in the costs of the sequestration.

Date of hearing : 	5 May 2011
Date of judgment:	19 May 2011

Applicant's counsel:

First Respondent's counsel:    J. Buurman

					Cape Town

First respondent's attorneys    Potgieter Attorneys
					Bellville