Lodhi 2 Properties Investments CC v Bondev Developments (Pty) Ltd

The two appellant close corporations (with the same sole member) each purchased separate properties from the respondent developer in March 2001 under identical sale agreements. The agreements required the purchasers to erect buildings on the properties within 18 months of township proclamation (approximately April 2001), failing which the seller could claim retransfer against repayment of the original purchase price. The appellants failed to erect any buildings within the 18-month period and for two years thereafter. On 4 March 2005, the respondent served applications for retransfer at the appellants' registered address. However, the appellants had changed auditors in September 2001 but failed to update their registered address - the applications were served at their former auditor's address. The appellants only learned of the applications on 24 March 2005 after default judgments had already been granted in favor of the respondent. They then applied to have the default judgments rescinded.

• Whether default judgments were granted 'erroneously' within the meaning of Rule 42(1)(a) where the party was procedurally entitled to judgment
• Whether a notice to rectify breaches was required under clause 8 before the seller could claim retransfer under clause 11
• Whether subsequently disclosed defenses (including alleged forfeiture of rates, taxes, levies and interest, and potential moderation under the Conventional Penalties Act) render a validly obtained default judgment 'erroneous'
• The proper interpretation of 'erroneously granted' in Rule 42(1)(a) and whether a court may have regard to facts not on the record when the judgment was granted

The application for leave to appeal was dismissed with costs.

A judgment to which a party is procedurally entitled cannot be considered to have been granted erroneously within the meaning of Rule 42(1)(a) merely by reason of facts (including a defense on the merits) of which the judge who granted the judgment was unaware. A court granting default judgment does so on the basis that the defendant has been properly notified as required by the rules, has not defended, and the plaintiff is entitled to the order sought - not on the basis that no defense exists. The existence or non-existence of a defense on the merits is an irrelevant consideration in granting default judgment and, if subsequently disclosed, cannot transform a validly obtained judgment into an erroneous judgment. However, where there is a procedural irregularity (such as lack of proper notice), a judgment may be erroneously granted even if this only becomes apparent from facts not appearing on the original record.

The court expressed the view that Erasmus J in Bakoven Ltd v G J Howes (Pty) Ltd adopted too narrow an interpretation of 'erroneously granted' by confining the inquiry solely to the record of proceedings. The court also indicated that Nepgen J in Stander v Absa Bank went too far in the opposite direction by holding that a judgment could be erroneous based on subsequently disclosed facts showing lack of wilful default, even where the plaintiff was procedurally entitled to the judgment. The court observed that the principle generalia specialibus non derogant (general words do not derogate from special ones) applies equally to the interpretation of contracts. The court noted that there was no evidence before it that the appellants had actually paid any interest, rates, taxes or levies, making their forfeiture argument purely theoretical.

This case is significant in South African civil procedure law as it clarifies the scope and proper interpretation of Rule 42(1)(a) regarding rescission of default judgments granted 'erroneously'. It establishes an important distinction between procedural irregularities (which may render a judgment erroneous) and subsequently disclosed defenses on the merits (which do not). The judgment provides authoritative guidance on when courts may look beyond the record in rescission applications and limits the potentially broad interpretation of 'erroneously granted' that had developed in some earlier cases. It reinforces the principle that where a plaintiff has complied with all procedural requirements and is entitled to judgment, the mere existence of a potential defense that was not disclosed cannot retrospectively render that judgment erroneous.