Intercontinental Exports (Pty) Ltd v F T Fowles

The appellant (Intercontinental Exports) sought default judgment against the respondent (F T Fowles) for rectification of a deed of suretyship and payment of R2,178,844.43 allegedly owed by Security Depot (Pty) Ltd. The suretyship document was ineptly adapted from a bank form and contained errors: it identified 'Mr Frank Fowles' as the debtor in clause 1.2 instead of Security Depot (Pty) Ltd, and included clause 2 referencing 'banking facilities' despite the appellant not being a bank. The document was signed by 'Frank Turner Fowles' as surety. The appellant alleged these errors arose from a common mistake and sought rectification. The Witwatersrand Local Division (Malan J) refused the application. The respondent did not appear on appeal.

• Whether a deed of suretyship that appears ex facie to identify the same person as both principal debtor and surety is formally valid under section 6 of the General Law Amendment Act 50 of 1956
• Whether a formally invalid contract of suretyship can be rectified
• Whether extrinsic evidence may be led to determine the formal validity of a suretyship
• Whether a court retains residual discretion regarding costs despite an agreement between parties for attorney and client costs

The appeal was allowed with costs. The court a quo order was set aside and substituted with: (a) an order rectifying the deed of suretyship by substituting 'Security Depot (Proprietary) Limited' for 'Mr Frank Fowles and' in clause 1.2 and deleting clause 2 entirely; (b) payment of R2,178,844.43; (c) interest at 24% per annum from 1 August 1997 to date of payment; (d) costs on the party and party scale (not attorney and client scale as originally claimed).

The binding legal principles established are: (1) The formal validity of a deed of suretyship must be determined ex facie the document itself, without reference to extrinsic evidence or allegations in pleadings. (2) A deed of suretyship is formally valid under section 6 of the General Law Amendment Act 50 of 1956 if it identifies ex facie the document a creditor, principal debtor and surety, even if the names of the principal debtor and surety are similar but not identical. (3) Where a suretyship document is reasonably capable of an interpretation consistent with formal validity, it should not be held formally invalid. (4) A formally invalid contract of suretyship cannot be rectified, but a formally valid suretyship that fails to reflect the true agreement can be rectified if common law requirements are satisfied. (5) Courts retain a residual discretion regarding costs awards and cannot be ousted of this discretion by agreement between parties, though courts should normally give effect to such agreements in the exercise of their discretion unless good grounds exist not to do so.

The Court made several non-binding observations: (1) The Court acknowledged academic criticism of the principle that formally invalid contracts cannot be rectified but considered the matter settled law (referring to De Wet en Van Wyk and Tager's criticism). (2) The Court noted the tension between the Legislature's formality requirements for suretyships and the equitable remedy of rectification, cautioning that formality requirements should not become unnecessary stumbling-blocks to rectification. (3) The Court expressed the view that if two parties with identical names were father and son, a suretyship naming them as debtor and surety would be formally valid. (4) The Court respectfully disagreed with dicta in Republican Press regarding the admissibility of evidence to show that a suretyship lacks formal validity contrary to what appears ex facie the document. (5) On costs, the Court observed that while parties' freedom to contract should normally be recognized, a court should not give its imprimatur to a costs order it considers entirely inappropriate or undeserved, and that good grounds may exist to deprive a party of agreed costs or award less than agreed.

This case establishes important principles in South African law regarding: (1) the formal validity requirements for suretyships under section 6 of the General Law Amendment Act 50 of 1956; (2) the distinction between formal validity (assessed ex facie the document) and substantive validity in rectification applications; (3) the interpretive approach to determining formal validity - a document should not be held invalid if reasonably capable of an interpretation consistent with validity; (4) confirmation that formally invalid suretyships cannot be rectified, but formally valid suretyships can be rectified if common law requirements are met; (5) clarification that courts retain residual discretion over costs awards despite contractual agreements, though such discretion should be exercised judicially and normally give effect to party autonomy unless circumstances warrant otherwise.