Judge scolds firms for lack of transparency

A WESTERN Cape High Court judge has chastised two companies involved in a legal spat over written loan agreements, concluded in February 2013 and April 2015, for not being transparent about the terms of the deal.

At issue was whether R1.6 million, which estate agency Eazi Access lent to Cape Town medical billing service Netpractice, was repayable or not.

The first loan agreement was concluded in February 2013. In terms of this agreement, Eazi Access lent Netpractice R1.2m The money was to be repaid as and when possible, but by no later than April 2015.

This loan would attract interest only if not repaid on the due date. One of the default events which would entitle Eazi Access to take earlier enforcement action would be Netpractice’s failure to provide Eazi Access with certain documents, which Eazi Access needed for its BEE audits.

Netpractice also gave a guarantee that the full value of the loan, multiplied by 1.25, would be recognised as an enterprise development contribution, in terms of the BEE Act.

Meanwhile, the second loan agreement was concluded in April 2015. In terms of that agreement, Eazi Access lent Netpractice R400 000 under similar terms, except that it had to be repaid within 18 months, by October 2015.

The parties agreed to extend the repayment dates of the loans to August 2017 for the first loan and October 2017 for the second loan.

However, when the time came to repay the loans, discussions on further written extensions were unsuccessful.

The complications over the loans arose as a result of the terms of an enterprise development agreement (ED agreement), which both firms concluded in September 2017, and the proper interpretation of this agreement.

Court papers showed the purpose of the ED agreement was two-fold. First, it had the same purpose as the loan agreements, namely to provide financial support to a BEE beneficiary on favourable terms, while allowing the lender to earn BEE points.

Second, it was intended to formulate the parties’ contract in terms acceptable to Eazi Access’ BEE auditors.

Judge Owen Rogers found that in September 2017, both companies backdated the ED agreement for the benefit of the BEE auditors to show that the parties had committed themselves to act, for a one-year period, in accordance with the rules.

“In truth, the ED agreement was concluded at a time when only slightly more than five months of the repayment period remained.

“Even then, both parties seem to have disregarded the terms of the ED agreement, and their contract proclaimed the existence of annexures which did not in truth exist,” Judge Rogers said.

He ordered that Netpractice pay Eazi Access R1 354 765 for the first loan, including interest, at the rate of 7.25% per annum, calculated from June 1, 2020 to date of final payment, and R451 588 with regard to the second loan and with similar conditions.