Mrs Anne-Marie De Lange bought 1,000 shares in Highveld Syndication No 21 Ltd (HS 21) on 25 June 2009 under an investment agreement embodied in a registered prospectus. The investment agreement included a reference to a buy-back agreement dated 13 December 2008, concluded between HS 21, Zephan (Pty) Ltd, the N Georgiou Trust, and Mr Nicolas Georgiou. In terms of the buy-back agreement, Zephan, the Trust and Mr Georgiou jointly and severally undertook to buy shares from investors five years after the investment date at R1,000 per share (R1 plus R999 linked loan account). The investment was marketed as an assured investment with guaranteed yields of 12.5% per annum. Mrs De Lange was one of 46 investors who instituted action against the appellants when the five-year term expired, seeking specific performance. The aggregate amount claimed in all 46 actions was R29,955,000. The appellants filed notice to defend and Mrs De Lange applied for summary judgment for R520,000. In 2010, HS 21 and HS 22 were placed under business rescue following financial difficulties. A business rescue plan was adopted in 2011 which reduced the interest payable to shareholders and provided for Orthotouch Limited to buy the properties.
The appeal was dismissed with costs, including costs consequent upon the employment of two counsel where applicable. The summary judgment granted by the Gauteng Division, Pretoria against the five appellants jointly and severally for R520,000 plus interest was upheld.
The binding legal principles established are: (1) In summary judgment applications under Rule 32(3), a defendant must set out facts in the answering affidavit which, if proved at trial, would constitute a defence. Where all facts pleaded in the particulars of claim are admitted and no further facts are alleged in the answering affidavit, the bona fide defence can be determined on the papers based on legal principles alone. (2) A stipulatio alteri creates enforceable rights in favour of a third party beneficiary where the agreement manifests an intention to benefit that third party. Once the third party accepts the benefit, they acquire direct enforceable rights against the promisor and the promisee is relieved of the corresponding obligation. (3) Business rescue proceedings affecting the promisee in a stipulatio alteri contract do not affect the enforceability of the third party beneficiary's rights against the promisor, who remains the primary obligor. The business rescue plan of one contracting party cannot constitute a novation or waiver of another party's contractual obligations without their agreement, particularly where the contract contains a non-variation clause.
The court made observations about the marketing of property syndication investments as 'insurance' with guaranteed yields and peace of mind for investors. The court noted that the head lease and buy-back agreements were advertised as providing such assurance. While not strictly necessary for the decision, the court appeared to view with approval the enforcement of such undertakings to protect investors who relied on these representations. The court also noted, without deciding, that evidence suggested a second meeting of creditors that was supposed to occur under sections 150 and 152 of the Companies Act 71 of 2008 to consider the business rescue plan may not have taken place, though this was not determinative of the appeal.
This case establishes important principles regarding the application of stipulatio alteri (contracts for the benefit of third parties) in South African law, particularly in the context of investment agreements and property syndication schemes. It clarifies that: (1) once a third party accepts a benefit under a stipulatio alteri, they acquire direct enforceable rights against the promisor regardless of the position of the promisee; (2) business rescue proceedings affecting one party to a stipulatio alteri do not affect the third party beneficiary's rights against other obligors; (3) in summary judgment applications, defendants must set out facts (not merely legal arguments) that could constitute a defence, and where all material facts are admitted, the court can determine the legal issues on the papers. The case is significant for investors in syndication schemes and demonstrates that buy-back agreements create enforceable obligations that survive business rescue of the syndication company.