Dominick v Nedbank Limited

Nedbank granted overdraft facilities totaling R1,250,000 to Puricare CC, a water purification business. The three appellants (Uwe Dominick, Heiner Dominick, and Charmaine Lynn Dominick) signed suretyships as co-principal debtors for these facilities, with liabilities limited to R510,000, R510,000, and R1,200,000 respectively. Uwe and Heiner Dominick were managing directors and shareholders of Puricare along with the "Harris group" (Kenneth Harris and others). After disputes arose in February 2010, the Dominicks' directorships were terminated by the Harris group. The Harris group then instructed Puricare's debtors to pay moneys owed into a separate "Agri account" rather than the overdraft account. When Uwe Dominick alerted Nedbank that substantial funds had been paid into the Agri account, Nedbank initially transferred R913,000 from the Agri account to the overdraft account. However, under threat of legal action from Puricare's attorneys, Nedbank reversed R749,155 of this transfer on 17 March 2010. Subsequently, on 30 April 2010, Nedbank transferred R280,269 from the overdraft account to the Agri account at the request of one of Puricare's directors. Large sums were then transferred from the Agri account to private accounts at another bank. Puricare subsequently went into liquidation. Nedbank sued for payment under the suretyships. The appellants claimed they should be released from their suretyship obligations on grounds that Nedbank's conduct in reversing transfers and allowing funds to be diverted from the overdraft account prejudiced them.

• Whether sureties could be released from their obligations under suretyship agreements on grounds of prejudice caused by the creditor's conduct
• Whether Nedbank's failure to apply set-off provisions in the principal agreement constituted a breach of legal duty towards the sureties
• Whether Nedbank's reversal of transfers from the Agri account to the overdraft account, and subsequent transfers in the opposite direction, constituted prejudicial conduct warranting release of the sureties
• Whether extensions of overdraft facilities beyond the original expiry dates affected the sureties' obligations
• Whether the creditor's failure to exercise rights as cessionary against the principal debtor's debtors constituted grounds for releasing sureties

The appeal was dismissed with costs. The order of the Western Cape Division of the High Court (Rogers J) was upheld, which had ordered each appellant to pay to Nedbank the sums limited by their respective suretyships (R510,000 each for the first and second appellants, R1,200,000 for the third appellant), with interest at 11.5% per annum and costs on the scale as between attorney and client.

A surety can only be released from suretyship obligations (whether totally or partially) if the prejudice suffered is the result of a breach of some legal duty or obligation by the creditor. If the alleged prejudice was caused by conduct falling within the terms of the principal agreement or the deed of suretyship, the prejudice suffered was one which the surety undertook to suffer. Where a suretyship agreement grants the creditor discretion to determine the extent, nature and duration of banking facilities, and binds the surety for all amounts the principal debtor may owe at any time, the creditor does not breach any legal duty by: (1) exercising its discretion not to apply set-off provisions (where set-off is discretionary, not mandatory); (2) extending overdraft facilities in accordance with the terms of the suretyship; or (3) acceding to requests from the principal debtor regarding transfers between accounts. A failure to exercise a discretionary right (such as set-off or rights as cessionary) does not constitute a breach of the agreement and therefore cannot provide grounds for releasing a surety.

The court noted, without deciding the point definitively, that the argument regarding Nedbank's failure to exercise its rights as cessionary under the cession of Puricare's debtors was not properly pleaded or dealt with in the court below, and in any event would not have constituted a breach of the agreements even if it had been properly raised. The court also observed that Puricare's instruction to its debtors to pay proceeds into the Agri account rather than the designated account constituted a breach by Puricare of clause 13 of the principal agreement, which entitled Nedbank (but did not oblige it) to exercise set-off. The court cited with approval the principle from Estate Liebenberg v Standard Bank of SA Ltd regarding extensions of time and novation, noting that not every extension of time effects a novation, particularly where the extension is given after the debt becomes payable and the debtor is in mora.

This case is significant in South African suretyship law as it clarifies and reaffirms the strict requirements for releasing a surety on grounds of prejudice. It emphasizes that a surety can only be released if the creditor breaches a legal duty or obligation, and that where the creditor's conduct falls within the discretionary powers granted by the suretyship agreement or principal agreement, the surety has undertaken to accept any resulting prejudice. The judgment reinforces the principle that suretyship obligations are not easily discharged and that creditors retain considerable discretion in managing their relationships with principal debtors, including decisions about whether to exercise rights of set-off, extend facilities, or enforce cession rights. The case serves as a reminder that sureties bear significant risk when signing comprehensive suretyship agreements with broad discretionary clauses favoring the creditor.