Zephan (Pty) Ltd & others v Noormahomed

The respondent invested R3 million in shares in Highveld Syndication (Pty) Ltd (HS22) pursuant to a prospectus and an associated buy-back agreement. In terms of that agreement, the first appellant, Zephan (Pty) Ltd, irrevocably undertook to repurchase the respondent’s shares after five years at a price equal to double the investment. The remaining appellants bound themselves as guarantors for Zephan’s obligations. When the five-year period expired in 2014, Zephan failed to repurchase the shares despite demand. The respondent obtained default judgment in the Gauteng Division of the High Court for R6 million plus interest and costs. The appellants applied for rescission of the default judgment, alleging that the respondent’s claim had been novated or compromised through a business rescue plan and a scheme of arrangement under s 155 of the Companies Act 71 of 2008 involving related entities, and through the respondent’s receipt of interest payments. The High Court dismissed the rescission application, leading to this appeal.

The appeal was dismissed with costs, including the costs of two counsel where applicable.

The case reaffirms the principles governing rescission of default judgments, particularly the requirement that a bona fide defence be established. It also clarifies that business rescue proceedings or schemes of arrangement involving related companies do not, without clear novation or compromise, affect independent contractual obligations such as buy-back agreements, and that acceptance of unrelated payments does not necessarily compromise contractual rights.