Hsu v Standard Chartered Bank Lesotho Ltd and Another (CIV/APN//96) [2000] LSCA 61 (26 July 2000)

1 C I V / A P N/ /96 CIV/T/670/95 IN T HE H I GH C O U RT OF L E S O T HO In the matter between : Y I N G - K UE H SU A P P L I C A NT and S T A N D A RD C H A R T E R ED B A NK L E S O T HO L TD M E S S E N G ER OF C O U RT ( H I GH C O U R T) 1st R E S P O N D E NT 2nd R E S P O N D E NT For the Applicant : M r. H . E. Phoofolo For the Respondents : M r. S. M a l e b a n ye J U D G M E NT Delivered by the Honourable M r. Justice T. Monapathi on t he 26th d ay of July, 2 0 00 This w as an application for rescission of j u d g m e nt a nd stay of execution of the j u d g m e nt in this proceedings. T he Applicant also applied for costs of the application. T he j u d g m e nt h ad b e en obtained by default of entry of appearance to defend. This application w as opposed a nd the First R e s p o n d e nt h ad duly filed an opposing affidavit. T he Applicant thereafter filed a replying affidavit. T he Applicant h ad been surety in a debt against a Co-defendant D i a na Linda Pritchard (Miss Pritchard). T he debt w as o w ed to R e s p o n d e nt B a nk w ho h ad b e en Plaintiff in the action. T he relevant s u m m o ns w as issued on the 13th D e c e m b er 1995. S u m m a ry j u d g m e nt w as entered against Miss Pritchard on the 18th M a r ch 1996. It b e c a me c o m m on cause that the Applicant w as served with s u m m o ns on the 18th M a r ch 1996 a nd default j u d g m e nt (which is challenged herein) w as entered on 27th M ay 1996. It w as only on the 6th August 1996 w h en the instant application w as filed. I concluded that the Applicant m u st have k n o wn about the j u d g m e nt m o re than twenty o ne (21) days before c o m i ng to this Court. This w as contrary to the requirements of Rule 27(6). He applied m u ch later than w h at w as required. Despite having fallen foul of this rule he h ad not even filed a substantive application for condonation. N or h ad Counsel for the Applicant M r. Phoofolo sought to explain the reasons for the delay. His Counsel w as not even able to do from the bar except to ask for condonation of late filing of the application which w as obviously unsupportable. T h e re w as a firm ground for refusing the application. This application w as premised on the following grounds: Firstly, that before Miss Pritchard h ad disappeared (as it b e c a me c o m m on cause that she h ad r e m o v ed from Lesotho) Applicant h ad approached the Plaintiff B a nk a nd told it that he wanted to cancel his guarantee of repayment of the a m o u nt of M 4 5 , 0 0 0 . 00 (Forty Five T h o u s a nd Maloti) w h i ch he signed in N o v e m b er 1993. By the Applicant's o wn admission the B a nk refused to accede to this request. This I will c o me to later in this j u d g m e n t. T he second g r o u nd w as the following. T h at the Applicant said after he h ad been served with s u m m o ns on the 9th J a n u a ry 1996, Applicant h ad instructed his then attorney, to defend h i m. He then left the matter in the attorney's h a n ds (vide paragraph 6.1 of founding affidavit). F o ur m o n t hs later Applicant w as informed that s o m e o ne h ad called a C o u rt messenger h ad been to the restaurant m a n a g ed by the Applicant w h e re he jotted d o wn something on paper which the Applicant h ad not seen. He then approached his attorney w ho assured h im that there w o u ld be no j u d g m e nt against h im a nd the matter w o uld be settled amicably out of Court. W hy (even if it be true) w o u ld this be a g o od reason for failure on the part of the Applicant to take timeous action to approach the Court? T he Court w as therefore not convinced. This is m o re so w h en delay on the part of the Applicant ensued even after attendance by C o u rt messenger. W h en I remarked during a r g u m e n t, that this matter of instruction a nd consultation by Applicant with his attorney, with w h om he left the s u m m o n s, h ad b e en dealt with s o m e w h at cursorily by Applicant. His Counsel replied to say that: T he criticized attorney's n a me w as a M r. Redelinhuys w ho w as no longer in the country a nd w h o se firm later m e r g ed with that of the Plaintiff. This aspect w as a thing that anchored the Applicant's explanation that he w as not in wilful default of entering a p p e a r a n ce to defend. T he n a me of the attorney w as not stated in the founding affidavit. T he Respondent's opposing affidavit h ad emphasized the point w h en he r e m a r k ed in paragraph 6.1 of the affidavit that he h ad noted that the Applicant did not take the C o u rt into his confidence by not advising of the n a me of the Attorney he h ad instructed to serve him. In the replying affidavit (vide paragraph 6) it w as h o w e v er stated that it w as o ne M r. Stephen Redelinhuys. It could not be correct therefore that the n a me of the attorney w as first k n o wn during argument. I concluded that even if this matter of the conduct of Mr Redelinhuys could be an adequate explanation other things stood out, h o w e v e r, to s h ow that the application could only h a ve b e en m a de for purpose of delay. Thirdly, the Applicant has recorded at paragraph 6 of the founding affidavit that he did not k n ow of the j u d g m e nt in respect of w h i ch the goods w e re later attached on the 3rd M ay 1996. In addition the goods w e re not his but belonged to a c o m p a n y. This would easily be interpreted as an indication that the Applicant h ad been lax. A nd this could not justify his attitude of not following up on the s u m m o ns w h en it h ad b e c o me clear that his co-defendant w as threatened with execution w h i ch the Applicant most probably k n ew w as from a j u d g m e nt obtained in the s u m m o ns in w h i ch both h ad been defendants. W h at took m o st of the time of the a r g u m e nt before the Court w as about the circumstances f r om w h i ch it w as attempted to s h ow that the Applicant w as able to s h ow a b o na fide defence. It centred on that he h ad told the R e s p o n d e nt B a nk that there w as no longer a ny g o od faith n or trust between himself a nd Miss Pritchard in their business. He h ad then a p p r o a c h ed the R e s p o n d e nt b a nk with intention to resile f r om the agreement of suretyship. This b a nk h ad not accepted. I will c o me back to the last aspect above after stating the legal requirements for a rescission application to succeed, which follow. In order for his application to succeed the Applicant m u st s h ow that firstly he w as not in wilful default of entering appearance to defend. Secondly, that he has a b o na fide defence on the merits. A nd lastly, that the application w as not m a de merely for the purposes of delay. I w as referred in that regard to G R A NT v P L U M B E RS (PTY) L TD 1949(2) SA 470(0) and S A N D E R S ON T E C H N I T O OL (PTY) L TD v I N T E R M E N UA (PTY) L TD 1980(4) SA 573(W). I had then asked Counsel, during argument, to assist me with a Lesotho decision which emphasized that three requirements must actually coincide for the success of this kind of application. It was in vain W h en speaking about existence of a bona fide defence Mr. Malebanye submitted that assuming, without conceding, that Applicant was not in wilful disobedience of entering appearance to defend, he had no bona fide defence which if established at a trial it would constitute a good defence. He went on to set out the circumstances as follows: First Respondent's claim was based on a written guarantee in terms of which Applicant bound himself as a surety for the repayment on demand of all sums of money on which the debtor may from time to time owe or be indebted to the First Respondent. It was a further condition of the said guarantee that in addition to his liability the amount of his liability shall also bear interest at the rate and in the manner charged by the Bank to the debtor in respect of the obligation. Applicant also renounced the two benefits namely beneficium ordinis ser excussionis and the beneficium divisionis. The most relevant is the first one which is defined as: "The benefit of order or excussion. It is the right of defence given to a surety, when called upon for payment by creditor, whereby he claims that the principal debtor shall be excussed. The benefit may be renounced farcify tacitly or specially" D I C T I O N A RY OF L E G AL W O R DS A ND P H R A S ES Vol. 1 CJ Claasens, page 176-177. It was contended that the Applicant had not only renounced the benefit of excussion but that prior d e m a nd had, in fact, been m a de from the principal debtor. It was submitted in any event, Applicant had not specifically averred that he was entitled to the benefits of excussion or division. Those defences could not therefore be available to the Applicant. With that I was in most respectful agreement with the Respondents submission. See N E ON A ND C O LD C A T H O DE I L L U M I N A T I O NS (PTY) L TD vs E P H R ON 1978(1) SA 463. By the Applicant's o wn admission, the indebtedness to First Respondent had not been discharged as Applicant only h ad paid Ml0,000.00 (Ten Thousand Maloti) while First Defendant had paid nothing. T he Court would regard the payment as being consistent with the understanding that a surety without the benefit of excussion would to that extent be similar to a co-principal. T he probability was that whatever the interpretation the Applicant felt obligated to pay in m u ch the same w ay as Miss Pritchard. T he applicant spoke about their joint venture as follows: " We borrowed m o n ey from Respondent under Pritchard's n a me though our business association had broken d o w n ." This would readily give a feeling that that must have been the Applicant's state of mind. It w as not denied that Miss Pritchard w as no longer in Lesotho but w as reported to be living in Johannesburg at an address that was u n k n o wn to the Applicant. W h at assumed importance in the Applicant's case was that before Miss Pritchard disappeared he approached the Respondent B a nk and informed the m a n a g e m e nt that he no longer trusted Miss Pritchard. That their business association had broken d o wn "and that I wanted to cancel my guarantee since the Jeep was n ow virtually hers." Applicant had gone on to explain the situation concerning the disappearance of the "sample" Jeep whose similar model vehicles were to be exported to Z a m b i a. It obviously could be a good defence for the Applicant if he w as to prove that he w as released from his obligation. He said he ought to have been released or be d e e m ed in law to have been released. T he law relating to surety can be summarized as follows: T he law required that a plaintiff w ho wishes to claim on a deed of suretyship must comply with the ordinary rules relating to the pleading of contracts. T he party relying on such suretyship must allege and prove the following: (a) a valid contract of suretyship (b) that the causa debiti is o ne in respect of w h i ch the other party understood liability a nd (c) that the indebtedness of the principal debtor, that is the amount, is due. See DU T O IT v B A R C L A YS N A T I O N A LS B A NK 1985(1) SA 563 and S E N E K AL v T R U ST B A NK OF A F R I CA (LTD) 1978 375. It w as submitted on behalf of the R e s p o n d e nt B a nk that it h ad satisfied all the above requirements. T he next issue that arose w as that of alleged release of Applicant from his obligation as surety. H is Counsel argued accordingly that a surety c an only be released from his obligation by acceptance of the creditor or if the creditor acts in a m a n n er w h i ch prejudices the surety. T he surety m u st allege a nd prove the defence of release. See F I S H E R I ES D E V E L O P M E NT C O RP OF SA ( L T D) vs J O R G E N S EM 1980(4) SA 156 ( W ). It w as c o m m on cause that the Respondent B a nk refused to release Applicant from his obligation. T he other side of this issue w as the submission by the Applicant that in refusing to release Applicant the R e s p o n d e nt B a nk h ad acted in a m a n n er prejudiced to the Applicant. T he First R e s p o n d e nt h ad replied thereto by saying that Applicant h ad to state w h at prejudice that he h ad suffered. M r. M a l e b a n ye submitted further that in any event the Applicant w o u ld have a right of recovery against the principal debtor. He referred to R O S S OW A ND R O S S OW v H O D G S ON 1925 AD 97. T he Applicant c o n t e n d ed that the R e s p o n d e nt B a nk acted in a prejudicial m a n n er in the following w a y: Firstly the B a nk h ad refused to cancel the guarantee w h en it w as a p p r o a c h ed a nd informed of the misunderstanding or loss of trust between the Applicant a nd M i ss Pritchard. Secondly the R e s p o n d e nt B a nk h ad failed to recover the s a m p le vehicle from Miss Pritchard before she either sold it or disappeared with it. As it w as contended: " the c o n d u ct of the B a nk in refusing to act against D i a na Pritchard despite applicant's appeal to it to take action is prejudicial to the Applicant. Applicant could himself have, in law, grounds u p on w h i ch to take legal action against Pritchard at that stage. Pritchard left the country taking with her the vehicle a nd her whereabouts u n k n o w n. T he C o u rt should ask itself as to h ow the applicant is to h a ve recover against Pritchard in the circumstances. Applicant did w h at he could h a ve d o ne in the circumstances to protect the B a nk but the B a nk felt there w as no need to take action to recover its debt as long as the applicant w as available." T he a b o ve statement underlines the failure on the part of the Applicant to understand the nature of the renunciation of the benefits of excussion. T he position of a surety without the benefit: " is in the s a me situation as an ordinary debtor, indeed as the principal debtor, a fortiori this is the case w h en a surety has a s s u m ed liability as surety a nd co-principal debtor. He m ay be sued as soon as the principal debtor is in default. It m u st appear h o w e v e r, that p a y m e nt of the debt is actually due; it is necessary that everything shall have h a p p e n ed w h i ch is required to before the principal debtor can be sued." C A N E Y 'S T HE L AW OF S U R E T Y S H IP C. F. Forsyth & J. T. Pretorius, 4th Edition - p a ge 115-116. In effect this renunciation gives a choice on the part of the j u d g m e nt creditor to claim f r om the surety a n d/ or the debtor. I did not therefore see h ow it could be correctly submitted that the R e s p o n d e nt h ad waived its rights to proceed against the Applicant w h en it took j u d g m e nt against Miss Pritchard w h en in fact they w e re both parties to the a g r e e m e nt a nd w e re co-defendants in the action. I did not see h ow the Respondent's action in proceeding against Miss Pritchard a nd getting j u d g m e nt against her first w as "plainly inconsistent with an intention to enforce the right n ow relied u p o n ." By the latter w as m e a nt the right to proceed against the Applicant. W h en R e s p o n d e nt b o na fide m a de his choice to sue Applicant no reasonableness w as required nor could o ne speak of g o od reasons or absence of such g o od reasons. In a w ay the choice w as subjective. T he procedural aspect is e v en clear in that: " T he creditor m ay join the principal debtor a nd surety or sureties in o ne action even sureties w ho have the benefit of excussion, for as we have seen it is for t h em to raise the defence." C A N E Y ' S T H E L AW OF S U R E T Y S H IP (supra) at page 116. To approach the R e s p o n d e nt B a nk as the Applicant did a nd to speak of the circumstances of Miss Pritchard, either of the misunderstanding or the need to take action against her or her having disappeared appears to import a requirement of objectivity, reasonableness or discretion that is not built into the renunciation of the benefit of excussion o n ce it has b e en done. By not doing the things the Applicant thought a nd urged the R e s p o n d e nt B a nk to do it could not be said that the R e s p o n d e nt acted in a w ay prejudicial to the interests of the Applicant. O n ce that prejudice cannot be proved as a matter of fact, the law entitled the R e s p o n d e nt to h a ve adopted the attitude that it took. In a strict sense there cannot h a ve b e en a ny prejudice to the Applicant. It w as submitted by M r. Phoofolo that in the context of the Applicant having approached the R e s p o n d e nt B a n k, with intention to cancel the suretyship agreement that in itself w as e n o u gh to prove that the applicant w as no longer a party in the a g r e e m e nt in that it " m ay by inference be construed as a cancellation of the a g r e e m e nt with Pritchard." T he basis of the submission w as that a D e ed of suretyship m ay be cancelled orally. Reference w as m a de to V I S S ER vs T H E O D O RE S A S S EN ( P T Y) L TD 1982(2) SA 320. This case could only be authority for the proposition that it w as possible to release a surety by oral cancellation of a condition, for e x a m p le in a case w h e re t wo co-sureties h ad executed the s a me deed of suretyship while the other surety remained b o u n d. See the latter case at 3 2 2 E - 3 2 3 A. B ut the case w o u ld not be authority for the situation w h e re there w as no cancellation by agreement between the parties in a consensual agreement to cancel or o ne brought about by the exercise of a right to cancel or terminate. W h e re the right to withdraw, revoke or cancel d e p e n d ed on the creditor's prior written consent or waiver (as in the instant case) it m e a nt w h at it says. T h at in the absence of that consent or waiver the Applicant remained b o u n d. See M O R G AN A ND A N O T H ER vs B R I T T AN B U S T R ED L TD 1992(2) SA 775(A) at 7 8 4. It is clear, in my view, that the Applicant cannot speak of having been released or that it be d e e m ed that he w as released, by reason of the Miss Pritchard's attitude, without the consent of the creditor. T he creditor (First Respondent) h ad to agree to the release. It b e c a me clear in the circumstances that the Applicant could not have a b o na fide defence. Consequently an order of rescission if allowed could only serve to delay the evil day. It should not. T he application w as refused with costs. T. M O N A P A T HI J U D GE 26th July 2000