The Constitutional Court has found that an acknowledgement of the debt agreement, which bound property mogul Roux Shabangu and a number of other high-powered names to the repayment of R82m to the Land and Agricultural Development Bank is unenforceable, on the basis that it stemmed from a loan agreement that was declared invalid, says a Daily Maverick report.

The issue concerned a loan agreement concluded in July 2006 between Westside Trading 570 (Pty) Ltd (Westside) and the Land Bank in terms of which Westside would receive an amount of R100m to finance a proposed urban township development in the North West.

The agreement required security and nine shareholders of Westside entered into a mortgage bond and a written suretyship agreement with the Land Bank, in terms of which they stood surety for the loans advanced to them.

In its finding, the Constitutional Court held that at no point was there a suggestion that the money advanced was used improperly or that any of the sureties gained an unjustified benefit from the payments to Westside.

Full Daily Maverick report

Shabangu v Land and Agricultural Development Bank of South Africa and Others

Following negotiations between the bank and Westside, the company agreed to pay back R82m in 2009. But, notes a Cape Argus report, the entity was then liquidated and wound up in 2012, before it could return the money, triggering a civil claim by the bank against individual shareholders of the company who had signed a deed of surety and mortgage bond, and who included Shabangu.

The Gauteng High Court (Pretoria) dismissed arguments by Shabangu and fellow shareholders that they could not be held personally liable as the principal loan advanced to them was invalid, making the deed of surety also invalid as a supporting agreement.

The court also ruled that the shareholders were jointly and severally liable for the R82m, and Shabangu’s appeal against the ruling was subsequently dismissed by the SCA, forcing him to launch an appeal in the Constitutional Court.

Shabangu had earlier told the court that the claim by the bank would bankrupt him if enforced.

Delivering the unanimous judgment, Justice Johan Froneman said Shabangu and fellow shareholders could not be held liable for the funds, as their acknowledgement of debt in the deed of surety was tainted by the invalidity of the loan agreement.

Froneman said the acknowledgement of debt sought to perpetuate the original invalidity of the loan agreement, and that the bank had also wanted to benefit off the invalid contract as it initially sought to be paid interest from the loan.

‘The court accordingly holds that there is no valid claim against Westside in terms of acknowledgement of debt, and thus also no valid claim against the sureties. As a result, the appeal is upheld with costs,’ he ruled.

Full Cape Argus report (subscription needed)