Ndubu v First Rand Bank Limited t/a Wesbank

On 17 October 2007, Wesbank entered into four instalment sale agreements with Sizwe Personnel Service (Pty) Ltd for two trucks and two trailers. The four appellants bound themselves as sureties and co-principal debtors for Sizwe's liability. The first appellant was a director of Sizwe, the second appellant was managing director of Sizwe and other entities, including Tube-Mech (the fourth appellant). On 6 April 2010, Sizwe was placed under voluntary liquidation. Before and after liquidation, the appellants attempted to reduce or eliminate the debt through various means including continuing monthly payments and seeking finance to purchase the vehicles. Between May and October 2011, three offers to purchase the vehicles were made: (1) Truck-World made an offer on 31 May 2011 which was withdrawn on 14 June 2011; (2) Tube-Mech made an offer on 23 June 2011 subject to finance which it failed to obtain; (3) PF Business Services made an offer on 10 October 2011 but it was only brought to the liquidator's attention on 18 October 2011, after the vehicles had been sold at public auction on 12 October 2011. The liquidators authorized Wesbank to repossess and sell the vehicles. The auction sale resulted in a shortfall of approximately R694,042. Wesbank sued the appellants as sureties for the shortfall and obtained judgment in the Gauteng Local Division. The appellants appealed.

• Whether the appellants as sureties should be released from their suretyship obligations due to alleged prejudicial conduct by Wesbank in not accepting offers to purchase the vehicles
• Whether Wesbank breached obligations under the credit agreements or suretyship agreements by allegedly refusing the offers
• Whether Wesbank failed to mitigate its damages
• Whether public policy required release of the sureties
• Whether Wesbank's reliance on sections 83 and 84 of the Insolvency Act was valid
• Whether the sale of the vehicles was valid
• What is the onus of proof for sureties raising defences based on alleged prejudicial conduct by the creditor

The appeal was dismissed. The appellants were ordered to pay the costs of the appeal jointly and severally, the one paying the others to be absolved.

A surety bears the onus of proving defences that seek to release them from their suretyship obligations on the basis of alleged prejudicial conduct by the creditor. Where offers to purchase secured assets are withdrawn by offerors, fail due to unfulfilled conditions, or are submitted after assets have already been sold, the creditor cannot be said to have wrongfully rejected such offers or acted prejudicially toward the surety. Section 83(10) of the Insolvency Act, which requires a creditor who has realized security to pay net proceeds to the trustee or liquidator, contains a general reference to the realization of securities contemplated in earlier subsections and does not import a requirement of strict compliance with all preceding subsections as a precondition. Section 157 of the Insolvency Act operates to excuse formal defects or irregularities unless substantial injustice results that cannot be remedied by court order.

The court observed that the trial court regrettably did not furnish reasons for granting leave to appeal. The court noted that in this matter there was no reasonable prospect of success and no compelling or other justifiable reason for leave to appeal to have been granted. The court emphasized that inappropriate granting of leave to appeal to the SCA increases litigant costs and results in cases involving greater difficulty and which are truly deserving of the attention of the court having to compete for a place on the roll with matters which are not deserving of such attention. The court also noted that even if Wesbank and the liquidator would have looked favourably at the third offer if it had been brought to their attention timeously, such views were irrelevant given that the offer was submitted too late after the vehicles had already been sold.

This case is significant in South African suretyship law for clarifying: (1) That sureties bear the onus of proving defences based on alleged prejudicial conduct by creditors; (2) That creditors are not obliged to accept offers to purchase secured assets where those offers are withdrawn, fail due to conditions not being met, or are submitted after the assets have already been sold; (3) The proper interpretation of section 83(10) of the Insolvency Act, confirming the principle from Venter NO v Avfin that the reference to 'as hereinbefore provided' is a general reference and not a precondition requiring strict compliance with all preceding subsections; (4) The application of section 157 of the Insolvency Act to excuse formal defects or irregularities; (5) The inappropriateness of granting leave to appeal where there is no reasonable prospect of success. The case reinforces the stringent requirements for sureties seeking to be released from their obligations.