Stewarts and Lloyds Holdings (Pty) Ltd v Solid Steel Construction (Pty) Ltd (A 3070/21) [2021] ZAGPJHC 177 (10 November 2021)

SUMMARY

The appellant sued the respondent in the Magistrates Court for payment of the outstanding capital balance owing to it, together with interest and costs, for goods sold and delivered to the respondent pursuant to the grant by the appellant of an Incidental Credit Facility to the respondent in terms of a written agreement concluded between the parties. When the action remained undefended, the appellant applied for default judgment to be entered against the respondent in respect of the capital claim, interest thereon a tempore morae and costs.

The presiding magistrate granted default judgment as sought in respect of the capital sum claimed and costs, but granted interest at his own discretion at the prescribed rate of interest, being 8.75% per annum, payable as from date of demand, as opposed to the rate sought by the appellant, being the contractually agreed rate of 2% per month (24% per annum) a tempore morae as from the date that the debt became overdue for payment.

Aggrieved by the award of interest, the appellant lodged an appeal, contending that the magistrate erred in ordering interest to be paid on the overdue indebtedness at a different rate and from a different date to that which was provided for in the agreement. The respondent did not oppose the appeal.

Held: as the agreement stipulated a time for performance, a failure to make payment by the time fixed for performance in the contract created mora ex re and no demand (interpellatio) was thus necessary to place the debtor in mora;

Held: The demand contained in the notice delivered by the appellant in terms of s129 of the National Credit Act (NCA) was not required in order to place the respondent in mora. The notice was ostensibly sent in compliance with the statutorily prescribed procedural requirements of the NCA for purposes of debt enforcement, in so far as the credit facility granted to the respondent in terms of the agreement fell within the purview of the NCA;

Held: The principle of pacta sunt servanda, which means that agreements must be honoured by the parties, underscores the notion that parties exercise their constitutional right of freedom to contract when they freely and voluntarily enter into agreements. A failure by courts to uphold the principle may lead to an imposition of the court’s own sense of fairness and, as a result, the creation of a contract that was not initially agreed to or intended by the parties.

Held: The court below erred in imposing an interest rate contrary to the rate that was agreed upon by the parties and in exercising a discretion for purposes of deviating from the contractually agreed rate, being a rate in any event expressly sanctioned by statute (the NCA), being the statute that regulates the species of contract that formed the subject of the present matter, namely, an incidental credit agreement. The court below further erred in adopting a moralistic approach sympathetic to the debtor as regards the interest rate awarded, which called for correction on appeal.

Held: The appellant was entitled to its costs of appeal on the scale provided for in the agreement, notwithstanding that the respondent had not opposed the appeal.

Not followed: The approach adopted by the Full Bench in this division as to costs in Consolidated Steel Industries (Pty) Limited t/a Global Roofing Solutions v Carrack In re: Consolidated Steel Industries (Pty) Limited t/a Global Roofing Solutions v Sonstep Trading (Pty) Limited and Another (A3031/2020) [2021] ZAGPJHC 422 (30 August 2021), departed from in the light of the pervading commercial realities, which included the broader economic impact and knock-on effect that a loss of interest would ultimately have on the profitability and sustainability of the appellant’s business; the fact that the interest order of the court below effectually forced the appellant to finance the respondent’s default for a period in excess of 8 months in circumstances where the appellant had performed its obligations under the agreement; the reality that the appellant was impelled by the respondent’s ongoing default to pursue its rights of recovery under the agreement; and the fact that the appellant was further impelled, by the incorrect application of the principles of mora by the court below, to vindicate its right to payment of interest at the contractually agreed rate as from the date fixed by contract.