SA Bank of Athens Limited v May van Zyl

The respondent (plaintiff) was a widow who was allegedly inveigled by an insurance representative (Joubert) into investing in a trust in which Joubert's family had interests. She was made a trustee without her knowledge. The appellant bank instituted action against her in the magistrate's court for amounts allegedly owing by the trust on its cheque account, citing her both as trustee and in her personal capacity based on a deed of suretyship. She resisted summary judgment, claiming she signed documents without reading or understanding them and had no knowledge of signing a suretyship. While the opposed summary judgment application was pending, the bank called up and retained proceeds of four investment policies held by the respondent with Sanlam (totaling R206,907.00) in November and December 1998. The bank acted in terms of parate executie clauses in deeds of cession whereby the respondent had allegedly ceded the policies as security for the trust's debt. The respondent instituted action claiming the bank's actions were unlawful because parate executie clauses were unconstitutional under section 34 of the Constitution.

• Whether parate executie clauses are per se unconstitutional and invalid under section 34 of the Constitution
• Whether the summary judgment granted in favor of the respondent was sustainable on the facts and legal principles
• Whether the particular parate executie clauses in the cession agreements were valid
• Whether the bank's conduct in executing the parate executie clauses was lawful
• The proper application of the doctrine established in Findevco (Pty) Ltd v Faceformat SA (Pty) Ltd

The appeal succeeded. The order of the court a quo was set aside. The following order was substituted: (1) The application for summary judgment is refused; (2) The defendant is granted leave to defend; (3) The costs of the application for summary judgment are to be costs in the action. No order was made as to costs of the appeal.

Parate executie clauses are not per se unconstitutional or in conflict with section 34 of the Constitution. Such clauses will only be invalid if they are so far-reaching as to be contrary to public policy. The common law does not limit the right of access to courts where parate executie is exercised by a creditor lawfully in possession of security, as the debtor may seek court protection against prejudicial conduct by the creditor. Summary judgment should not be granted where the relevant facts and circumstances have not been fully canvassed before the court, particularly where the failure to present a full case was due to a misunderstanding of the law shared by both parties and the court, apparently occasioned by acceptance of a High Court judgment subsequently held by the Supreme Court of Appeal to be incorrect.

Erasmus AJA expressed reluctance to decide whether the action was properly based on the actio ad exhibendum, as this point was raised for the first time during oral argument in the SCA and was not fully canvassed. The Court noted that an application to strike certain documents from the record had been brought after judgment was reserved, but indicated this application need not delay judgment as the documents had no effect on the decision. The Court noted that the severe censure by the court a quo of the bank's conduct may well prove to be justified, but that this required proper consideration of all relevant facts and circumstances. Regarding public policy challenges to contracts, the Court stated (citing authorities in Sasfin v Beukes) that contractual provisions will only be found contrary to public policy when that is their clear effect, requiring a probability that unconscionable, immoral or illegal conduct will result from implementation according to their tenor.

This case is significant for clarifying the constitutional validity of parate executie in South African law. It confirms that parate executie clauses are not per se unconstitutional or offensive to public policy, expressly rejecting the approach in Findevco. The judgment affirms that section 34 of the Constitution (right to access to courts) does not prohibit parate executie where the creditor is lawfully in possession of the security and the debtor can seek court protection if the creditor acts prejudicially. The case establishes important principles regarding summary judgment procedure: that summary judgment should not be granted where facts have not been fully canvassed, particularly where both parties and the court operated under a mistaken view of the law based on a High Court judgment subsequently overturned by the SCA. It demonstrates the court's willingness to exercise discretion on costs where both parties share blame for the misdirection of proceedings. The case is also important for its discussion of when contractual provisions will be held contrary to public policy, adopting a test requiring probability that unconscionable, immoral or illegal conduct will result from implementation of the provisions.