In August 2013, SIG lent R150 million to SIM under a loan agreement with a maturity date of 14 August 2020. Interest was to accrue quarterly, and if SIM had insufficient funds, interest would be capitalised. By 2017, no interest had been paid. SIG, facing capital challenges, decided to exit the loan. A sale agreement was concluded on 22 November 2017 whereby SIG would sell its loan claim and shares to Sagarmatha Technologies Limited in exchange for shares in Sagarmatha before its listing on the JSE and NYSE. On 22 November 2017, SIG's board passed a resolution authorising the sale agreement and related documents. On 1 December 2017, Mr Kriel, SIG's director, signed a subordination agreement at Dr Surve's offices, presented to him without prior discussion or vetting by SIG's advisors. Mr Hove of SIM told Mr Kriel the subordination was needed for the listing and would lapse after listing. The listing failed in April 2018, and SIG subsequently sued for repayment of the loan. SIM defended based on the subordination agreement.
1. The appeal is upheld with costs, including the costs of three counsel. 2. The order of the high court is set aside and substituted with the following: (1) The plaintiff's claim is upheld with costs, including costs of three counsel. (2) Sekunjalo Independent Media (Pty) Ltd is liable to pay to SACTWU Investments Group (Pty) Ltd the amount of R458,606,995.07, calculated as set out in Annexure A attached to the parties' agreement. (3) Sekunjalo Independent Media (Pty) Ltd is liable to pay interest from 29 August 2023 until the date of payment, on any amount then and thereafter outstanding in respect of the amount payable to SACTWU Investments Group (Pty) Ltd at the default interest rate provided in the loan agreement.
1. A director has no inherent authority to bind a company and must act on authority conferred expressly or by implication through board resolutions. 2. Implied actual authority is limited to what is necessary or reasonable to execute express authority; it must be assessed objectively based on the words and conduct of the parties. 3. A subordination agreement that is open-ended and serves to sterilise a loan indefinitely is not "reasonable and necessary" to implement a transaction designed to facilitate exit through a successful listing, and thus falls outside implied authority. 4. For ostensible authority to bind a company, there must be: (a) a representation of authority to the contractor; (b) made by someone with actual authority; (c) reliance by the contractor; and (d) capacity of the company to contract. 5. The in duplum rule applies to capitalised interest under loan agreements. Interest that is capitalised by agreement remains arrear interest in character, and the rule cannot be overridden by contractual provisions. 6. The in duplum rule is grounded in public policy to protect borrowers from excessive accumulation of interest. 7. Where a party is induced to sign an agreement by misrepresentations as to its duration and purpose, and a reasonable person would have been similarly misled, the defence of iustus error (justifiable mistake) is established.
1. The court noted that although the case involved sophisticated commercial parties, this did not diminish the applicability of principles protecting against unauthorised acts and misrepresentation. 2. The court observed that the subordination agreement was presented as part of a "suite of documents" relating to the listing when it was actually a separate process, which contributed to the misleading circumstances. 3. The court remarked that Grant Thornton's own guidelines required that paragraph 5 of the subordination agreement (the open-ended duration clause) be specifically drawn to the creditor's attention, but this was not done. 4. The court noted the absence of evidence that SIG ratified the subordination agreement through subsequent conduct. 5. The court commented that Mr Govender, though the "go-to man" on contracts, lacked legal authority to authorise the signing absent a board resolution. 6. The court observed that Dr Surve's failure to testify left certain evidence uncontroverted, including evidence about discussions regarding the subordination agreement. 7. The court emphasised the importance of courts not arbitrarily interfering with settlement agreements freely reached by parties, citing the principle of pacta sunt servanda. 8. The court noted the dangers of allowing creditors to structure loans with deferred interest payments that could escalate exponentially above the capital amount, which would result in "boundless interest" contrary to public policy.
This case is significant for South African company and contract law as it clarifies the principles governing actual and ostensible authority of company directors. It confirms that directors must act within the scope of board resolutions, and authority cannot be implied where the contested agreement serves a fundamentally different purpose from what was authorised. The judgment reinforces that the in duplum rule applies to capitalised interest and cannot be overridden by contractual agreement. The case also demonstrates the application of iustus error and misrepresentation defences in commercial contracts, particularly where one party is induced by representations as to the limited duration and purpose of an agreement. It serves as a warning about the importance of properly authorising and vetting complex commercial agreements before execution.
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