Suretyship agreement – Defence of mistake

In Voltex (Proprietary) Limited v Super Team Electrical (Proprietary) Limited t/a Electric World and others [2015] JOL 33416 (KZD), the court had to determine if the Respondent’s defence was valid.

In a written credit application to the applicant, the Respondent bound himself as surety and co-principal debtor in solidum with Super Team. Although admitting having signed the credit agreement, the surety argued that he was not bound by a suretyship document, because he signed it by mistake and without any intention to incur contractual liability. He further averred that he did not read the document when he signed it.

The court found that the respondent’s mistake in this case was a unilateral one. Having regard to the nature of the agreement signed by the respondent and the clear wording thereof, there could be no doubt that the respondent knew what he was signing. The document was clearly recognisable as a suretyship undertaking. By affixing his signature to the document, the respondent had effectively assented to the terms contained therein unless he could show that he was fraudulently deceived by the applicant into signing it. No such fraud was established. The Court held that the legal maxim “caveat subscriptor” found application herein and the respondent was bound to the terms contained in the agreement.

On that basis, the court described the defences raised by the Respondent as fictitious, far-fetched and untenable, and granted judgment in the applicant’s favour.

Can a defendant ask a plaintiff company to put up security?

Until the arrival of the Companies Act 71 of 2008 (the Act) a defendant could request an incorporated company as plaintiff in litigation, to put up security for costs (provided that there was reason to believe that the plaintiff company was unable to pay the defendant's costs, if successful).

The Act does not provide for that any longer, so when can a Defendant call for security for costs?

The Supreme Court of Appeal ("SCA") answered that question in Boost Sports Africa (Pty) Ltd v The South Africa Breweries (Pty) Ltd [2015] ZASCA 93.

It held that corporate plaintiffs must be treated the same as natural plaintiffs, and the defendant can only call for security for costs it can show that an action is vexatious or reckless. This is a difficult onus to discharge. Our courts have attempted to define vexatious litigation:

In the words of Holmes JA in African Farms & Townships v C.T. Municipality 1963 (2) SA 555 (A) at 565D-E, "an action is vexatious and an abuse of the process of Court … if it is obviously unsustainable". In Golden International Navigation SA v Zeba Maritime 2008 (3) SA 10 (C) para 18, Griesel J posited that an action is vexatious and frivolous, "where on the face of the pleadings it is shown that the action cannot be maintained".

Thus it is possible to call for security, no longer as a right, but if the Plaintiff’s action is vexatious or reckless.

Significant change to the in duplum rule

The Constitutional Court recently developed the common law regarding the in duplum rule in its judgment in Paulsen and Another v Slip Knot Investments 777 (Pty) Limited 2015 (3) SA 479 (CC).

The in duplum rule provides that arrear interest stops accruing when the sum of the unpaid interest equals the amount of the outstanding capital. This was to cap the interest creditors could claim from debtors.

Until the judgment in Paulsen, the in duplum rule had one exception, namely that the prohibition against claiming interest in excess of the capital fell away when a creditor instituted proceedings to recover the debt and the interest, so interest would then run at a fixed rate for as long as the litigation persisted.

In Paulsen – to the relief of debtors (borrowers) - the Constitutional Court has now abolished the exception to the in duplum rule while litigation persists.

The effect of the Paulsen judgment is thus that until judgment (after which interest will once again run on the 'judgment debt' at the agreed rate), lenders will only be able to recover 1) the capital advanced to a debtor and 2) the interest equal to that capital amount and no more.

The Court found that the post-judgment "…interest runs on – and is limited to an amount equal to – the whole of the judgment debt, including the portion which consists of previously accrued interest." 

Party married according to Islamic law entitled to share of spouse’s pension

The Office of the Pension Funds Adjudicator has reiterated it will not discriminate against parties married under the terms of Islamic law.  

This position was made clear by Muvhango Lukhaimane in a determination in which she ordered Sanlam's Staff Umbrella Pension Fund to reverse its earlier decision not to pay a complainant, Ms Z Paulse, a 50% share of the pension interest in a divorce settlement.  Sanlam Staff Umbrella Pension Fund (first respondent) and its administrator, Sanlam Life Insurance Limited (second respondent), submitted that the parties were not married in terms of the Marriage Act, the Recognition of Customary Marriages Act or the Civil Union Act, but in terms of the tenets of the Islamic religion.  They claimed the Divorce Act was not applicable to the dissolution of the marriage as it had to be dissolved in terms of the tenets of the Islamic religion.  But, a decree of divorce as contemplated in terms of the Divorce Act was not possible, since there was no marriage as contemplated in terms of the Divorce Act.  In her determination, Lukhaimane said that prior to 28 February 2014, parties who divorced after having married in terms of the Islamic religion confront a challenge when a non-member spouse intends to claim pension interest held by a fund in respect of the member spouse.  The first respondent was ordered to compute and pay the complainant her share of pension interest as provided in the divorce settlement agreement.

When can a CCMA award be set aside?

In terms of section 145 of the LRA, a party may apply to the Labour Court on the basis of an alleged defect with a commissioner's rulings or awards. The party who alleges such a defect must apply to the Labour Court to set aside the award within six weeks of the award being served.

A defect means:

• that the commissioner committed misconduct in relation to the duties of the commissioner as arbitrator;
• that the commissioner committed a gross irregularity in the conduct of the arbitration proceedings;
• that the commissioner exceeded his powers; and
• that the award was improperly obtained.

The above criteria refer to misconduct and irregularities, including, but not limited to:

• Taking into account evidence that was not put before the arbitrator;
• Refusing to allow valid and relevant evidence to be brought;
• Ignoring statutory requirements or legal principles;
• Unduly assisting one or other party with his/her case;
• Delivering a biased award;
• Taking a bribe; and
• Failure to apply his/her mind to the facts in evidence.

It is important to note that the review is not an appeal, and therefore it is not related to the merits of the matter but to the commissioner's conduct. The Applicant must show cause (based on factual and legal grounds) why the decision or proceedings should not be reviewed and corrected or set aside.

The test for the review of arbitration awards involves the court determining whether the decision reached by the arbitrator was one that that a reasonable commissioner could not reach, given the oral evidence led on the material facts in dispute.

Thus, where an arbitrator commits misconduct in relation to his/her duties or there is a gross process-related irregularity in the arbitration, this is not - in and of itself - a sufficient ground to warrant interference by our courts on review. The irregularity must be of such a nature that it renders the decision reached unreasonable in the circumstances.

In terms of recent case law, it is not good enough for employers or employees wishing to review an award based on one of the procedural defects provided for in section 145(2)(a), to only establish the existence of the defect, i.e. misconduct by an arbitrator in relation to his/her duties, a gross irregularity committed by the arbitrator in the conduct of the arbitration proceedings or the arbitrator exceeding his powers.  It is now also necessary to show that the defect caused the ultimate result of the award to be unreasonable. Thus, the two stage test adopted by the LAC in such instances is:

a.     Was there a section 145(2)(a) defect?; and

b.     If so, can the defect be said to be such that resulted in the decision reached being unreasonable (in the sense that it was one that a reasonable arbitrator could not have reached)?

In the absence of these criteria, it will not be possible to successfully prosecute review applications in the Labour Court.