THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Case No:  661/09

In the matter between:

J C DA SILVA V RIBEIRO                                                             First Appellant
L D BOSHOFF                                                                          Second Appellant

v

SLIP KNOT INVESTMENTS 777 (PTY) LTD                                     Respondent

Neutral citation:
Da Silva v Slip Knot Investments (661/2009) [2010] ZASCA
174 (2 December 2010).

Coram:
Mpati P, Cachalia, Tshiqi JJA, R Pillay and K Pillay AJJA
Heard:
18 November 2010
Delivered:
2 December 2010

Summary:  Where an initial loan agreement is a ‘credit transaction’ to which the
National Credit Act 34 of 2005 (NCA) does not apply, and the parties enter into a
new agreement to guarantee the obligations under the initial loan agreement, the
new agreement is a credit guarantee to which the NCA does not apply.

________________________________________________________________

ORDER
________________________________________________________________
On appeal from: South Gauteng High Court, Johannesburg (Van der Walt AJ
sitting as court of first instance).

The following order is made:

The appeal is dismissed with costs.

________________________________________________________________

JUDGMENT
________________________________________________________________
CACHALIA JA (Mpati P, Tshiqi JA, R Pillay and K Pillay AJJA concurring):

[1] The respondent sought and obtained an order in the South Gauteng High
Court on 18 September 2009 against the first and second appellants jointly and
severally for payment of the sum of R10 659 157.18 and certain ancillary relief.
The appellants now come before this court with leave of the high court. It will be
convenient to refer to the parties as they were referred to in the high court: the
respondent was the applicant, the first and second appellants were the first and
second respondents to whom I shall refer together as the respondents. It will,
however, be preferable to refer to the third respondent (R B Merit Investments
(Pty) Ltd), who has no interest in these proceedings, as R.B. Merit.

[2] The applicant’s claim is based on a written agreement, which was
concluded on 10 January 2008, but which had its genesis in two previous loan
agreements. Under the loan agreements, concluded in May 2007 and July 2007,
the respondents had bound themselves as sureties for two loans that R.B. Merit
had obtained from the applicant for a hotel development. After R.B. Merit and the

two sureties (the respondents) had failed to repay these loans when they
became due, and were thus in breach of their obligations under the loan
agreements, the parties negotiated a settlement of their dispute by concluding
the current agreement.

[3] In terms of this agreement it was recorded that:

(i)
the applicant had lent and advanced amounts of R22,5m and R1m to
R.B. Merit in terms of the loan agreements;
(ii)
the outstanding amount still owing under those agreements was an
amount of R35 641 117.69;
(iii)
R.B. Merit would, on 11 January 2008, pay R7,6m to the applicant and the
balance would be apportioned towards repayment of the outstanding
amounts under the two loan agreements;
(iv)
R.B. Merit would provide a bank guarantee to the applicant in an amount
of R20,4m before 18 January 2008;
(v)
the respondents would then be liable to pay the balance of the amount of
R28 196 336.48 as follows: by 15 May 2008 an amount of R800 000, and
by 1 December 2008, the balance together with any interest.

[4] R.B. Merit met its commitments under the agreement; the respondents
were unable to meet theirs. The applicant then demanded payment from them of
the total amount due under the agreement, but they paid only R158 754.88 on 24
September 2008. They were thus in breach of their contractual obligations. The
applicant sought to enforce the agreement by claiming the outstanding amount in
the high court. This comprised the amount of R800 000, which the respondents
had failed to pay on 15 May 2008, and the balance, after deducting the 24
September 2008 payment, which had become due and payable as of 25
September 2008.

[5] The respondents opposed the claim by seeking refuge in the National
Credit Act 34 of 2005 (the NCA). Their main ground of opposition was that the
agreement constituted a ‘credit agreement’ as contemplated by s 8 of the NCA.
The consequence of this, they contended, was that the agreement was void
because it was concluded contrary to s 89(2)(d), read with s 89(5),1 which
requires a credit provider to be registered as such before entering into an
agreement to which the NCA applies. It is common cause that the applicant is not
a registered credit provider.

[6] The applicant on the other hand asserted that the agreement was
concluded because of R.B. Merit’s failure to fulfil its undertakings under the initial
loan agreements, and the respondents’ failure to meet their obligations in terms
of their guarantees. So, it contended, the agreement was a ‘credit guarantee’ and
not a credit agreement. And further, that the NCA did not apply to it because, by
virtue of s 8(5), read with s 4(2)(c),2 the NCA is applicable to a credit guarantee
only to the extent that it also applies to a credit agreement in respect of which the
guarantee was granted. Accordingly, so it contended, because the agreement
was nothing more than a continuing guarantee to satisfy R.B. Merit’s original
obligation under the loan agreements – to which the NCA did not apply – the

1Section 89 ‘Unlawful credit agreements
(1)
. . .
(2)
. . . a credit agreement is unlawful if –
(a)  . . .
(b)  . . .
(c)  . . .
(d)  at the time the agreement was made, the credit provider was unregistered and this
Act requires that credit provider to be registered.
(5)
. . .
(a)  the credit agreement is void as from the date the agreement was entered into.’
2 Section 8(5) provides: ‘An agreement, irrespective of its form . . . constitutes a credit guarantee
if, in terms of that agreement, a person undertakes or promises to satisfy upon demand any
obligation of another consumer in terms of a credit facility or a credit transaction to which this Act
applies.’
Section 4(2)(c) provides that the NCA: ‘. . . applies to a credit guarantee only to the extent that
this Act applies to a credit facility or credit transaction in respect of which the credit guarantee is
granted.’

agreement, properly construed, was a credit guarantee, which also fell beyond
the ambit of the NCA.

[7] The high court (Van Der Walt AJ) dismissed the respondents’ defence and
upheld the applicant’s contention that the NCA did not apply to the agreement
because it was a credit guarantee – not a credit agreement – to which the NCA
did not apply. The respondents appeal against this finding. The outcome of this
appeal therefore turns on whether the agreement is a credit agreement, as the
respondents contend, or a credit guarantee as the applicant asserts.

[8] The respondents do not dispute that the initial loan agreements were
credit transactions (credit agreements) as contemplated by s 8(4)(d)3 of the NCA
because they were mortgage agreements or secured loans, which entitled the
applicant to register mortgage bonds over the property on which R.B. Merit was
to build the hotel and, as further security, the respondents were to guarantee
R.B. Merit’s obligations. But because the loans were made to a juristic person, ie
R.B. Merit, the loan agreements were not subject to the NCA for two reasons:
first, by virtue of s 4(1)(b)4 the loans were large agreements because they were
mortgage agreements as contemplated in s 9(4), and secondly, because the
principal debts in both loans were above the higher threshold of R250 000
established in terms of s 7(1)(b) under General Notice 713, published in
Government Gazette 28893 of 1 June 2006.5 So, because the NCA did not apply
to the loan agreements, by virtue of s 4(2)(c) and s 8(5), it did not apply to the
respondents’ accessory obligations (guarantees) under those agreements either.
This much, as I have said, is common cause.

3 Section 8(4)(d): ‘. . . a mortgage agreement or secured loan.’ In terms of s 1 a ‘credit
transaction’ means ‘an agreement that meets the criteria set out in s 8(4)’.
4 Section 4(1)(b): ‘. . . a large agreement, as described in section 9(4), in terms of which the
consumer is a juristic person whose asset value or annual turnover is, at the time the agreement
is made, below the threshold value determined by the Minister in terms of section 7(1).’
5 Section 9(4): ‘A credit agreement is a large agreement if it is-
(a) a mortgage agreement; or
(b) any other credit transaction except a pawn transaction or a credit guarantee, and the principal
debt under that transaction or guarantee falls at or above the higher of the thresholds established
in terms of section 7(1)(b).’

[9] The respondents contended in the high court, as they did before us, that
once R.B. Merit fulfilled its obligations flowing from the agreement, and had no
further commitments towards the applicant, they became principal debtors under
the agreement. This meant that their obligations to the applicant were no longer
of an accessory nature. They were now the true borrowers or credit receivers
under the agreement. And the fact that they had guaranteed R.B. Merit’s loans
under the previous loan agreements had no bearing on the current agreement.
Accordingly, they contended, the agreement, properly construed, is a credit
transaction – not a credit guarantee – as contemplated by s 8(4)(f) of the NCA.6
This is because it involves the payment of an amount owed by the respondents
to the applicant, which has been deferred, and is payable together with interest
and an administration fee. We are thus required to consider whether the
agreement was merely an undertaking or a promise by the respondents to satisfy
R.B. Merit’s debts, as the applicant contends, or a new and separate obligation,
as the respondents would have it. The answer depends on what the parties
intended by the agreement.

[10] The applicant, the respondents and R.B. Merit were all parties to the
agreement. In terms of the agreement the following was recorded:

(i)
The initial loan agreements were concluded so that R.B. Merit could fund
a hotel development;
(ii)
in order to complete the development R.B. Merit required additional
funding, which has now been secured from certain third parties;
(iii)
the additional funding is, however, subject to the lender (the applicant)
releasing R.B. Merit and the sureties (the respondents) from their
obligations and undertakings in terms of the initial loan agreements;

6 Section 8(4)(f): ‘. . . any other agreement, other than a credit facility or credit guarantee, in terms
of which payment of an amount owed by one person to another is deferred, and any charge, fee
or interest is payable to the credit provider in respect of-
(i)  the agreement; or
(ii) the amount that has been deferred.’

(iv)
at the request of R.B. Merit and the sureties, the lender has, subject to the
fulfilment of the terms and conditions of the agreement, agreed to the
cancellation of the pledges, cessions and suretyships concluded in terms
of the initial loan agreements. It was, however, specifically recorded that
the agreement does not constitute a novation of the initial loan
agreements. (Emphasis added.);
(v)
it is agreed that the obligations and undertakings as accepted by the
sureties in terms of the agreement have as their origin the initial
undertakings and obligations attributable to the sureties in the initial loan
agreements;
(vi)
the agreement shall be the sole record of the subject matter contained in
it;
(vii)
the outstanding amount owing as at 11 January 2008 under the initial loan
agreements would be R35 641 117.69.

[11] The outstanding amount was to be settled by R.B. Merit paying the sum of
R7,6m to the applicant on 11 January 2008 and providing a guarantee in the sum
of R20,4m before 18 January 2008. Once the sum was paid and the guarantee
furnished, R.B. Merit and the respondents would be released from their
obligations under the initial loan agreements and R.B. Merit would incur no
further obligations under the agreement. The respondents would then be
responsible for settling the outstanding balance, together with interest, as
provided for in the agreement. It is common cause that R.B. Merit met its
obligation to pay the applicant and also provided the guarantee in terms of the
agreement.

[12] The high court rejected the respondents’ contention that the initial loan
agreements were irrelevant to determining the issue in this case. The learned
judge pointed out that the agreement specifically referred to the respondents’
obligations under the loan agreements and also that at the time the agreement
was concluded the respondents still had the obligation to guarantee R.B. Merit’s

commitments to the applicant. It was therefore not, the judge held, a credit
transaction. And if it was not a credit transaction at the time the agreement was
concluded, it could not have become one subsequently, after R.B. Merit was
released from its obligations. For, if it could have, this would mean that the
agreement was not void at the time that it was concluded, but became so once
R.B. Merit had discharged its obligations under the very agreement. This result,
said the high court, would be absurd.

[13] I respectfully agree with the high court’s reasoning. To this I wish to add
that the parties ‘specifically recorded’ that the agreement ‘does not constitute a
novation of the initial loan agreements’ and that the ‘obligations and undertakings
as accepted by the sureties in terms of the agreement have as their origin the
initial undertakings and obligations attributable to the sureties in the initial loan
agreements’. The fact that the parties also recorded that ‘this agreement shall be
the sole record of the subject matter contained herein’ – a point the respondents
relied upon to avoid the consequences of the initial agreements – does not
detract from the fact that the parties explicitly intended not to extinguish, but
rather to confirm, the obligations arising from the initial agreements. The
obligations under the loan agreements and those under the new agreement were
thus interdependent.7 This can only mean that the agreement was, in substance,
an agreement to guarantee R.B. Merit’s obligations under the initial loan
agreements – and was therefore a credit guarantee to which the NCA did not
apply.

[14] The appeal must therefore fail. The following order is made:

The appeal is dismissed with costs.
______________
A CACHALIA
JUDGE OF APPEAL

7 Cf Adams v SA Motor Industry Employers Association 1981 (3) SA 1189 (A) 1199G-H.

APPEARANCES

APPELLANTS:

P L Carstensen
Instructed by Ross Munro Attorneys c/o A le Roux
Attorneys, Johannesburg
Honey Attorneys, Bloemfontein

RESPONDENT:

A C Botha
Instructed
by
Sim
&
Botsi
Attorneys
Inc,
Johannesburg
Symington & De Kok, Bloemfontein
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:
2 December 2010
Status:
Immediate

Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal.
* * *
DA SILVA V SLIP KNOT INVESTMENTS

The Supreme Court of Appeal (SCA) today held that where the National Credit Act 34 of
2005 does not apply to an initial loan agreement, the Act also does not apply to a new
agreement (credit guarantee) subsequently entered into to guarantee the obligations under
the initial loan agreement.

Mr Joao da Silva and Mr Louis Dirk Boshoff argued that the new agreement entered into by
them with Slip Knot Investments, in terms of which they had guaranteed the repayment of
two loans advanced to R B Merit Investments (Pty) Ltd by Slip Knot, was void for failure
to comply with the National Credit Act, because Slip Knot was not a registered credit
provider. They argued that their obligations flowing from the new agreement were
independent of the initial loan agreements and replaced their obligations under them. The
new agreement was, so they argued, therefore a credit transaction and not a credit
guarantee.

The SCA held that if the agreement was not a credit transaction at the time it was
concluded, it could not have become one after R B Merit was released from its obligations.
It further held that the obligations under the loan agreements and those under the new
agreement were interdependent. This could only mean that the agreement was, in
substance, an agreement to guarantee R B Merit’s obligations under the initial loan
agreements – and was therefore a credit guarantee to which the Act did not apply. It
dismissed an appeal by Mr da Silva and Mr Boshoff against an order of the Johannesburg
High Court.