First National Bank - A Division of FirstRand Bank Limited v Clear Creek Trading 12 (Pty) Ltd and Lucky Solomon Selemela

FNB loaned money to Clear Creek Trading 12 (Pty) Ltd secured by a mortgage bond, with the second respondent standing as surety. FNB sued for breach of the loan agreement and sought to foreclose on the mortgage bond. The respondents defended the claim solely on the basis that the agreement was unlawful because it contravened sections 90(2)(a)(ii) and 81(2) and (3) of the National Credit Act 34 of 2005 (the Act). The agreement would ordinarily not be subject to the Act because Clear Creek was a juristic person - section 4(1) of the Act excludes juristic persons either above or below a threshold value, and mortgage agreements are defined as large agreements under section 9(4). However, Clause 1 of the loan agreement stated that the agreement was governed by the Act, and various provisions of the agreement made reference to specific sections of the Act. At the commencement of trial, the parties informally agreed to deal with whether the Act applied to the agreement as a separated issue under Rule 33(4) of the Uniform Rules. No formal order separating the issues was made, no agreed statement of facts under Rule 33(1) was filed, and no evidence was led. The High Court (Kollapen J) ruled that the provisions of the Act were applicable to the agreement and ordered FNB to pay the costs. FNB appealed with leave.

• Whether the High Court properly invoked and applied Rule 33(4) of the Uniform Rules in dealing with a separated issue without making a formal order and without clearly defining the issue to be determined
• Whether it was competent and appropriate to determine the issue of the applicability of the National Credit Act without any factual basis being laid through agreed facts or evidence
• Whether the National Credit Act 34 of 2005 applied to the loan agreement between the parties by virtue of contractual incorporation
• Whether parties may contractually incorporate statutory provisions that would otherwise not apply to their agreement, and if so, which provisions may be incorporated
• Whether the factual matrix and circumstances in which the agreement came into being were relevant and necessary to properly interpret the contractual provisions purporting to incorporate the Act

The appeal was upheld. The order of the High Court was set aside and replaced with an order that no order is made on the separated issue, save that the costs arising from the separated issue shall be costs in the cause. Each party was ordered to pay its own costs of the appeal.

The binding principles established by this judgment are: 1. Rule 33(4) of the Uniform Rules requires that a formal order must be made when separating issues for determination, and the court cannot simply allow a matter to proceed on an informal agreement between parties that issues have been separated. 2. When separating issues under Rule 33(4), the issues to be tried must be clearly circumscribed in the court's order and stated with clarity and precision to avoid confusion. 3. Rule 33(4) applies only to questions of law or fact arising in a pending action, which must mean issues that arise on the pleadings. 4. Procedural shortcomings in the application of Rule 33(4) can, at a certain point, cross the line and render the procedure incompetent, to be judged on the merits of each case. 5. The modern approach to contractual interpretation requires consideration of relevant and admissible context, including the circumstances in which the document came into being, as part of one unitary exercise (applying Bothma-Batho Transport). 6. Where the factual matrix and circumstances of how an agreement came into being are relevant to its interpretation (particularly in standard form contracts with anomalies), it is not appropriate to determine an issue of interpretation without evidence or agreed facts establishing that context. 7. While parties may incorporate "appropriate" statutory provisions into their agreements by reference (Tuckers Land), they cannot incorporate provisions that would bind non-consenting third parties or statutory bodies whose powers are derived from the legislation itself, as this would be ultra vires those bodies' statutory powers.

The court made several non-binding observations: 1. The court noted that the law is not settled as to the effect of attempting to make legislation as a whole applicable to an agreement if certain parts of the legislation cannot be invoked. It may be necessary for parties to specify which provisions are to apply. The court specifically declined to decide this point given its view of the matter. 2. The court commented on the anomaly created by the respondents' pleaded defence - relying on section 81(2) and (3) while those provisions fall under Part D of Chapter 4 which section 6(a) and section 78(1) expressly exclude from applying to juristic persons. This anomaly suggested that the simple issue as formulated could not be answered without addressing selective application of the Act. 3. The court observed that it could not specify in general terms where the line would be crossed such that procedural shortcomings render a procedure under Rule 33(4) incompetent, noting that each case must be judged on its own merits. 4. The court noted that the failure to distinguish between "background circumstances" and "surrounding circumstances" has been recognized as artificial, and that the terms "context" or "factual matrix" should suffice (citing KPMG v Securefin). 5. The court indicated that evidence as to how the document came to take its form seemed "highly relevant" given it appeared to be a standard form document, though this was not essential to the ratio. 6. The court acknowledged that not in every case will procedural shortcomings result in the procedure being incompetent, recognizing some flexibility in the application of Rule 33(4). 7. The court expressed gratitude to the amicus curiae who was the only party to express reservations about whether a finding could properly be arrived at in the circumstances, noting that neither the appellant nor respondents raised the procedural concerns that ultimately decided the appeal.

This case is significant for establishing important principles regarding the proper use of Rule 33(4) of the Uniform Rules for separated issues. It reinforces that: (1) Courts must make a formal order when separating issues; (2) The issues to be tried separately must be clearly circumscribed and stated with clarity and precision; (3) The court must be satisfied that it is convenient to try the issue separately before making such an order; (4) Issues under Rule 33(4) must arise from the pleadings in the pending action. The judgment is also important for its application of the modern contextual approach to contractual interpretation established in Bothma-Batho Transport. It confirms that even when interpreting written agreements, the factual matrix and circumstances in which a document came into being are relevant and may be essential, particularly where there are anomalies or ambiguities in standard form contracts. The case provides guidance on the limits of contractual incorporation of legislation, confirming that while parties may incorporate "appropriate" statutory provisions by agreement, they cannot bind third parties (such as statutory bodies like the National Credit Regulator or consumer tribunals) whose powers derive from the legislation itself. The case serves as a cautionary tale about informal procedural shortcuts and emphasizes the need for proper preparation, clear formulation of issues, and presentation of necessary factual foundations when seeking to have discrete issues determined separately from the main action.