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[2013] ZASCA 166
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Born Free Investments 364 (Pty) Limited v Firstrand Bank Limited (973/2012) [2013] ZASCA 166 (27 November 2013)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
.
Case
no: 973/2012
Reportable
Date:
27 November 2013
In
the matter between:
BORN
FREE INVESTMENTS 364 (PTY) LIMITED
.......................
Appellant
and
FIRSTRAND
BANK
LIMITED
..........................................................
Respondent
Neutral
citation:
Born Free Investments 364
(Pty) Ltd v Firstrand Bank Ltd
(973/12)
[2013] ZASCA 166
(27 November 2013)
Bench:
.............
Ponnan,
Bosielo and Pillay JJA, Van der Merwe and Zondi AJJA
Heard:
.............
14
November 2013
Delivered:
........
27
November 2013
Summary:
.......
Pactum
de non cedendo
–
enforceability
of –
pactum
created
in contract creating non-transferable right – enforceable
against liquidator in insolvency.
ORDER
On
appeal from
:
South Gauteng High Court, Johannesburg (Wepener J
sitting as court of first instance):
The
appeal is dismissed with costs, such costs to include those
consequent upon the employment of two counsel.
JUDGMENT
Ponnan
JA (Bosielo and Pillay JJA, Van der Merwe and Zondi AJJA concurring)
[1]
The appellant, Born Free Investments 364 (Pty) Limited (Born Free),
sued the respondent, Firstrand Bank Limited (FRB), as the
cessionary
of two claims from the liquidators of two companies in liquidation.
The two companies, Summer Season Trading 49 (Proprietary)
Limited
(Summer Season) and Central Lake Trading 256 (Proprietary) Limited
(Central Lake), had borrowed moneys from FRB and at
the time of their
liquidation owed the latter R49.2 million and R25.1 million,
respectively. FRB, whose claims were admitted by
the liquidators, is
a major creditor in each insolvent estate. Born Free alleges that FRB
repudiated the loan agreements that had
been concluded by it (FRB)
with each of Summer Season and Central Lake and that as a result
those companies suffered losses of
R109.2 million and R69.1 million,
respectively. It is those claims that Born Free, pursuant in each
instance to the cession to
it from the liquidators of those
companies, asserts against FRB.
[2]
Born Free accordingly instituted action against FRB in the South
Gauteng High Court. It alleged in its particulars of claim:
“
3.1 On 6 June 2009 and at
Pretoria, Summer Season Trading 49 (Proprietary) Limited (‘Summer
Season’) ceded to the plaintiff
all rights of performance and
all claims that Summer Season had against the defendant arising from
agreements between Summer Season
and the defendant and arising from
the defendant's breaches of those agreements and/or from
misrepresentations made by the defendant
to Summer Season (‘the
claims’). A copy of a memorandum of cession recording the
cession is annexed hereto as Annexure
‘SS1’.
“
3.2 On 6 June 2009 and at
Pretoria, Central Lake Trading 256 (Proprietary) Limited (‘Central
Lake’) ceded to the plaintiff
all rights of performance and all
claims that Central Lake had against the defendant arising from
agreements between Central Lake
and the defendant and arising from
the defendant's breaches of those agreements and/or from
misrepresentations made by the defendant
to Central Lake (‘the
claims’). A copy of a memorandum of cession recording the
cession is annexed hereto as Annexure
‘SS2’.
“
3.3 Summer Season was placed
in voluntary liquidation in terms of section 352 of the Companies Act
61 of 1973 by means of a special
resolution duly registered by the
Registrar of Companies on 18 September 2009.
“
3.4 Central Lake was placed
under final winding up by order of court on 1 September 2009.
“
3.5 On 3 December 2010 the
North Gauteng High Court, Pretoria, on the application of Summer
Season's and Central Lake’s duly
appointed liquidators and
under cases numbers 42315/10 and 42316/10, set aside the aforesaid
cessions on the basis that they amounted
to dispositions without
value.
“
4.1 On 1 July 2011,
alternatively, on 11 July 2011 and at Alberton, alternatively,
Bedfordview, Summer Season (in liquidation)
and Central Lake (in
liquidation), both duly represented by their duly appointed
liquidators, in writing, ceded, transferred and
made over the claims
to the Plaintiff, duly represented by D. Perkins.”
[3]
The memorandum of agreement recording the cession of the claims
reads:
“
1.
WHEREAS
:
1.1 the cedents have claims against First Rand Bank
Limited (‘FRB’) arising out of breach by FRB of
agreements with
the cedents and/or arising out of breach by FRB of
agreements with the cedents and/or arising out of misrepresentations
made by
FRB to the cedents (‘the claims’);
1.2 the cedents, prior to their liquidation, ceded the
claims to the cessionary (‘the first cessions’);
1.3 the North Gauteng High Court set aside the first
cessions on the basis that they amounted to dispositions without
value in
terms of
section 26(1)(b)
of the
Insolvency Act 24 of 1936
;
1.4 the cedents have, thereafter, agreed to sell the
claims to the cessionary so as to enable the cessionary to prosecute
the claims.
“
2.
NOW,
THEREFORE, IT IS AGREED AS FOLLOWS:
2.1
Cession
In execution of the abovementioned
sale the cedents hereby cede, transfer and make over to the
cessionary the cedents' right, title
and interest in and to the said
claims.
2.2
Authority
The cedents hereby authorize the
cessionary to notify FRB of this cession.
2.3
Warranty and liability for damage
It is understood and agreed that the
cedents do not warrant the validity of the said claims and shall not
be liable to the cessionary
in respect of any fees, costs or charges
that may be sustained by the cessionary in the event of the said
claims proving irrecoverable
for any reason whatsoever.
2.4
Acceptance
The cessionary hereby accepts the
said cession upon and subject to the terms and conditions of this
agreement.”
[4]
In answer to Born Free’s claims, FRB: (a) denied the validity
of the cession on the basis that its contract with each
of Summer
Season and Central Lake contained in clause 15.1 was a
pactum de
non cedendo
in these terms: “You shall neither cede any of
your rights nor assign any of your obligations under this agreement
without
our prior written consent”; (b) contended that the
Central Lake resolutions were ineffectual and could not be relied
upon
by the Central Lake liquidators for their authority to conclude
the Central Lake cession inasmuch as they had not been agreed to
'by
meetings of creditors and members' as required in terms of
s
386(3)
(a)
of the Companies Act 61 of 1973; and (c) that,
properly construed, the resolutions of both Summer Season and Central
Lake did not
authorise the liquidators to conclude the cessions
relied upon since the agreements upon which the cessions depended are
not ‘sales’
within the meaning of that expression as
contained in those resolutions.
[5]
FRB's first two contentions found favour with the high court (per
Wepener J). The third did not. The high court accordingly
dismissed
Born Free’s claims with costs, but granted leave to it to
appeal to this court in respect of its conclusion on
the first two
contentions raised and leave to FRB to cross-appeal in respect of its
conclusion on the third. However, as counsel
accepted from the bar in
this court, FRB’s cross-appeal is, in truth, a conditional one.
[6]
For present purposes I shall restrict myself to a consideration of
only the first of the three contentions raised by FRB. For,
on the
view that I take of the matter, that contention, if upheld, is
dispositive of the appeal. The question that this appeal
therefore
raises is whether the right, title and interest in and to the claims
in question were capable of being ceded by the duly
appointed
liquidators of Summer Season and Central Lake to Born Free in view of
the stipulation in clause 15.1.
[7]
It seems to have been accepted that each cession was the result of
the sale of an asset and that in each instance it was the
mode of
transfer to Born Free of the said right so as to enable Born Free to
institute the action. The submission on behalf of
Born Free is that
the liquidators entered into each sale and cession in accordance with
their duties in terms of the insolvency
law and that clause 15.1 of
the agreement is therefore in law inapplicable to and of no effect as
against them. Accordingly, so
it was contended, a
pactum de non
cedendo
does not bind a liquidator who cedes a contractual right
pursuant to his duties as liquidator.
[8]
Counsel for Born Free sought support for that submission in the
following dictum of Olivier J in
Lithins v Laeveldse Koöperasie
Bpk & another
1989 (3) SA 891
(T) at 895G–I:
“
I think it can safely be
deduced from these cases that there is a general principle in our law
to the effect that the
pactum
de non cedendo
does
not bind the trustee or liquidator in insolvency, unless it appears
in a lease, in which case
s 37(5)
of the
Insolvency Act applies
, or
unless it appears from the
pactum
that it would also be applicable in
the case of insolvency.”
Olivier
J accordingly concluded (at 897C–D):
“
In my view, the principle of
the non-applicability of the
pactum
de non cedendo
extends
to all cases where a trustee or liquidator in insolvency sells and
cedes a claim in his discretion, irrespective of whether
he had other
options of dealing with the claim.”
[9]
However, in
Capespan (Pty) Ltd v Any Name 451 (Pty) Ltd
2008
(4) SA 510
(C), a full court of the Cape Provincial Division (per
Thring J (Allie and Waglay JJ concurring)) expressed the view that
Olivier
J’s approach in
Lithins
was flawed. Thring J
stated (at 518C–D):
“
It seems to me, with respect,
that the learned judge failed in this case to draw the distinction
which Prof Scott says should be
drawn between
pactum
de non cedendo
in
relation to existing rights, on the one hand, and
pacta
in relation to rights which have been
created
ab initio
as non-transferable rights, on the
other.”
Thring
J added (at 518H–519C):
“
For these reasons I conclude,
first, that a distinction must be drawn between a
pactum
de non cedendo
which
prohibits the cession of an existing right, ie one which pre-existed
the conclusion of the
pactum
,
on the one hand, and a
pactum
de non cedendo
of a
right which, by means of the
pactum
itself, was created
ab
initio
as a
non-transferable right, on the other. In the case of the first
pactum
,
that which relates to an existing right, it will not always be
enforceable; in particular, it will not bind the trustee in
insolvency
or the liquidator of the creditor and prevent him from
executing a valid ‘involuntary’ cession of the right to a
third
party in the course of carrying out his duties as trustee or
liquidator. However, in the case of the second
pactum
,
that which relates to a right which was created
ab
initio
as a
non-transferable right, the
pactum
is valid and enforceable against the
world because the right is simply inherently incapable of being
transferred by anyone; and
a cession of such a right contrary to the
pactum
will be putative, and of no force or
effect, even if it is a so-called ‘involuntary’ cession;
in other words, it will
bind even a trustee in insolvency or a
liquidator of the creditor. I hasten to add that I do not use the
term ‘insolvency
cession’ to include the vesting of an
insolvent's assets in his trustee, which takes place, not by an act
of cession, but
automatically, by operation of law, as was mentioned
in
Paiges’
case: the term as I
understand it refers now to an attempt by a trustee or liquidator to
transfer the right concerned, by means
of cession, to a third party.”
[10]
It needs be noted, as Thring J did in
Capespan
, that no
reference had been made by Olivier J in
Lithin’s
case to
the judgments of this court in
Paiges v Van Ryn Gold Mines Estates
Ltd
1920 AD 600
;
MTK Saagmeule (Pty) Ltd v Killyman Estates
(Pty) Ltd
1980 (3) SA 1
(A); or
Trust Bank of Africa Ltd v
Standard Bank of South Africa Ltd
1968 (3) SA 166
(A). Thring J
consequently opined that the “law [was] too widely stated”
by Olivier J in
Lithin’s
case.
[11]
In
Trust Bank
, Botha JA held (at 189D–G):
“
The rule of our law is that
all rights
in
personam
, subject
to certain exceptions based principally upon the personal nature of
the rights, not here relevant, can be freely ceded,
but an owner's
rights of free disposal of his property may be restricted by a
pactum
de non cedendo
. The
effect of such a
pactum
depends upon the circumstances.
Voet
,
2.14.20 and Sande,
Restraints
,
4.1.1, and 4.2.1, point out that an agreement whereby an owner
deprives himself of the free right to deal with his own property,
is
without effect unless the other contracting party has an interest in
the restriction, and Windscheid,
Pandektenrechts
,
8th ed., p. 358, note 5, refers to the fact relied upon by
Seuffert
that also in the case of corporeals a
contractual prohibition against alienation does not render the
alienation void. These principles
do not, however, apply where the
right is created with a restriction against alienation, and the
restriction is contained in the
very agreement recording the right,
for in such a case the right itself is limited by the stipulation
against alienation and can
be relied upon by the debtor for whose
benefit the stipulation was made. (
Paiges
v Van Ryn Gold Mines Estates Ltd
.,
1920 AD 600
at. pp.615 and 617, and see
Windscheid
,
op. cit
.,
para. (C) and note 5, and Dernburg,
Pandekten
,
7th ed., vol. II at 141).”
Some
five decades earlier that principle was expressed thus in
Paiges
(at 617): “The stipulation against cession is part and
parcel of the agreement creating the right, and the right is limited
by the stipulation.”
[12]
Capespan
, it would seem, renewed Prof Scott’s interest
in the topic of agreements prohibiting cession. According to her (S.
Scott
'Once again: Agreements prohibiting cession’
(2008) 19
Stellenbosch Law Review
483
at 487):
“
Approached from a law of
obligations perspective, the principle of freedom of contract allows
the parties to a contract to determine
the content of their agreement
as they wish, within the boundaries set by the law. They can thus
create the claim as an intransferable
claim. By its very nature the
claim then cannot be transferred. It has never been
in
commercio
.
Generally such agreements are valid and also effective against third
parties. This kind of agreement prohibiting cession is the
bone of
contention since it inhibits the smooth operation of factoring and
securitisation. The interests of the creditor, as well
as other third
parties (such as the creditors of the cedent and cessionary) are
affected by such prohibitions.
“
Agreements prohibiting cession
could be invalid,
inter
alia
, because they
are contrary to public policy. There may be various reasons why a
contract may be against public policy. The validity
of the contract
may, of course, also be influenced by the unequal bargaining
positions of the parties in principle, however, I
can see no reason
why agreements prohibiting cession should be against public policy.
Once the validity of these agreements has
been established, the
parties to these agreements are bound to their agreements in terms of
the principle of
pacta
sunt servanda
. This
approach was also followed in
Capespan
.
The contentious issue is really whether it is against public policy
for parties to a contract to re-instate the personal nature
of their
obligation in such a way that their agreement is effective against
third parties.”
[13]
Christie in
The Law of Contract in South Africa
(6 ed, 2011)
at 482 expresses the view that
Capespan
“…
convincingly showed that although rights vest in a liquidator or
trustee in insolvency by operation of law, not
by cession, a
pactum
de non cedendo
incorporated in the contract that creates the
right is as binding on the liquidator or trustee as on anyone else”.
[14]
It remains to consider whether the rights which the liquidators of
each of Summer Season and Central Lake had ceded to Born
Free had
been created
ab initio
as non-transferable rights. If they
were, then it would follow from what has been set out above that the
cession in each instance
was invalid and would thus be of no force or
effect. Clause 15.1 of each agreement, which contains the
pactum
de non cedendo
, is couched in fairly wide terms. The language
could not have been clearer – it proclaims in emphatic terms:
“You shall
neither cede any of your rights nor assign any of
your obligations under this agreement without our prior written
consent.”
The prohibition is thus directed in each instance at
the other party to the contract, being Summer Season and Central
Lake. It
stipulates that neither of them shall cede nor assign any of
their obligations under their respective agreements with FRB without
the prior written consent of the latter. The old adage,
nemo
plus iuris ad alium transferre potest quam ipse habere
(no one
can transfer more rights to another than he himself has), as
formulated by Ulpian (
Digest
50.17.54), applies (see
Oriental Products (Pty) Ltd v Pegma 178 Investments Trading CC
2011 (2) SA 508
(SCA) para 26). De Villiers JA put it thus in
Paiges
at 616:
“
Finally, it is said that a
trader who, relying on the common law of the country in regard to
cession, gives credit, ought not to
be prejudiced by an agreement to
which he was no party and of which he was not aware. But this
argument loses sight of the cardinal
fact that at most the cessionary
only steps into the shoes of the cedent, and can have no greater
rights than the cedent himself
has.”
[15]
The court’s task, as Holmes JA observed in
Oerlikon South
Africa (Pty) Ltd v Johannesburg City Council
1970 (3) SA 579
(A)
at 590F, “is one of interpretation: in the absence of clear
indications to the contrary it cannot depart from the plain
meaning,
even if it were to think that certain provisions are unusual or drive
a particularly hard bargain”. Here, on the
plain and ordinary
meaning of the words used, it cannot be doubted, I consider, that it
was the intention of the parties to the
agreements, when they
concluded them, to render all rights acquired by Summer Season and
Central Lake under those agreements non-transferable.
I accordingly
conclude that the cession in each instance of the claims of Summer
Season and Central Lake against FRB to Born Free
by the liquidators
of those companies in liquidation was invalid and is of no force or
effect.
[16]
It follows that the appeal must fail and in the result it is
dismissed with costs, such costs to include those consequent
upon the
employment of two counsel.
_________________
V M Ponnan
Judge of Appeal
APPEARANCES:
For
Appellant:
.............................
MvR
Potgieter SC (with SJ van Niekerk)
…
................................................
Instructed
by:
…
................................................
Senekal
Simmonds Inc, Johannesburg
…
................................................
Phatshoane
Henney Inc, Bloemfontein
For
Respondent:
..........................
MduP
van der Nest SC (EA Limberis SC)
…
.................................................
Instructed
by:
…
.................................................
Fluxmans
Inc, Johannesburg
…
.................................................
Lovius
Block, Bloemfontein