2
to be paid for the goods and services it was bound to supply under the
contract. The cession was to operate as security for the supply of the inventory
Blue Future needed to perform on its obligations to the NHLS.
2 Despite securing a written undertaking to honour that cession from one of the
NHLS’ employees, a Mr. Motsepe, Drive Control was never paid. Instead, the
NHLS continued to pay Blue Future. Aggrieved, Drive Control sued the NHLS
in the court below for the payments it says were due under the cession. Those
payments amounted to just over R33.75 million.
3 The court below absolved the NHLS from the instance at the end of Drive
Control’s case. The court concluded that Drive Control had failed to lead
evidence upon which a reasonable court could give judgment for it. There was
accordingly no need to put the NHLS on its defence. The primary bases on
which the court below reached that conclusion were that the contract entered
into between Blue Future and the NHLS stipulated that Blue Future would not
cede any of its rights under the contract without the NHLS’ prior written
consent, and that the NHLS’ prior written consent to the cession was never
secured.
4 It was common cause before the court below that Blue Future ceded its rights
to Drive Control on 22 August 2016. It did so without having first obtained the
NHLS’ consent – whether in writing or at all. It was not until 24 August 2016
that Mr. Motsepe, the NHLS’ Head of Supply Chain Management, signed a
document that purported to acknowledge the cession on the NHLS’ behalf,
and that contained an undertaking that the NHLS would pay Drive Control
pursuant to it.
3
5 The gist of the decision of the court below was that Drive Control could only
succeed in the face of Blue Future’s failure to secure the NHLS’ prior written
consent to the cession of its right to payment if it could be shown that the
NHLS had waived the prohibition on cessions without its prior consent, or if
the contract had been varied to delete that prohibition. The court below found
that the only person authorised to vary the contract or to waive the NHLS’
rights was the NHLS’ Chief Executive, Ms. Mogale, who had signed the
contract on NHLS’ behalf, and who had been authorised by the NHLS’ board
to implement the board’s resolution to award the contract to Blue Future. Since
no evidence had been led that Ms. Mogale had agreed to vary the contract, or
had waived the prohibition on the cession of Blue Future’s rights without the
NHLS’ consent, absolution had to be granted.
6 The court below also dealt with Drive Control’s argument that the NHLS was
estopped from denying Mr. Motsepe’s authority to consent to be bound by the
cession on the NHLS’ behalf. The court below found that Drive Control had
not led evidence upon which it could conclude that Drive Control’s reliance on
Mr. Motsepe’s authority was reasonable. Drive Control’s own evidence was
that it had done nothing to acquaint itself with the terms of the contract out of
which Blue Future’s rights were being ceded, and had made no more than the
most cursory inquiries about whether Mr. Motsepe was employed at the
NHLS, and what his position was. In these circumstances, Drive Control could
not reasonably rely on Mr. Motsepe’s ostensible authority.
7 The court below refused Drive Control’s application for leave to appeal, but
the appeal is now before us with the Supreme Court of Appeal’s leave.
4
8 On appeal, Drive Control renewed its contentions that Mr. Motsepe had actual
or ostensible authority to acknowledge the cession on the NHLS’ behalf, and
to bind the NHLS to it. Mr. Sawma, who appeared together with Mr. Roeloffze
for Drive Control before us, also advanced the argument that the written
acknowledgement of the cession Mr. Motsepe signed created a basis upon
which NHLS is indebted to Drive Control that is separate and independent
from the underlying contract out of which Blue Future ceded its rights.
9 The argument, as I understood it, was that the contractual prohibition on Blue
Future ceding its rights without the NHLS’ prior consent was only operative
between Blue Future and the NHLS. Assuming he had the authority to do so
(whether actual or ostensible), Mr. Motsepe’s acknowledgement of the
cession and his agreement on the NHLS’ behalf to make payment under it
was enough, in itself, to ground Drive Control’s claim. It is, in other words, not
necessary to consider whether the cession was consistent with the prohibition
on cessions without the NHLS’ prior written agreement in the underlying
contract, because that prohibition is not binding on Drive Control. It
accordingly mattered not whether Mr. Motsepe’s conduct amounted to a
waiver of the NHLS’ rights under contract. All that mattered was whether Mr.
Motsepe had actual authority to acknowledge the cession or whether, if he did
not, the NHLS was estopped from denying his authority.
10 In my view, the court below reached the correct conclusion. I also find it difficult
to fault much of the reasoning the court adopted. That said, the approach I
prefer to take to this matter is slightly different.
5
11 Mr. Berger, who appeared together with Mr. Manchu for the NHLS, argued
that Blue Future’s cession of its right to payment was void from the outset. It
follows, Mr. Berger submitted, that Mr. Motsepe’s acknowledgement of the
cession and his agreement to be bound by its terms was likewise void,
because there was in truth no cession to acknowledge. It therefore makes no
difference what Mr. Motsepe’s true authority was, or whether he waived any
of the NHLS’ rights under the contract, or whether the acknowledgem ent of
the cession could have amounted to a variation of the contract’s terms. The
mere fact that the cession was invalid from the outset means that the rights of
which Drive Control says it took cession never actually passed to it.
12 It seems to me that Mr. Berger’s argument must be correct. Its correctness
follows, I think, from the decision of the Supreme Court of Appeal in Born Free
Investments 364 (Pty) Ltd v FirstRand Bank Limited [2013] ZASCA 166 (27
November 2013) (“Born Free”). There, the unanimous court drew a distinction
between two types of prohibition on cession. The first type is an agreement
not to cede a pre-existing right – viz. a right that came into being separately
and independently from the prohibition on cession itself. For example, if A
loans B a sum of money to be repaid over 20 years, and A agrees in year 10
of the term of the loan not to cede his right to repayment, the prohibition on
cession is separate and distinct from the underlying right to repayment.
13 The second type of prohibition is one created at the same time and in the
same agreement as the underlying right. Such a prohibition exists, for
example, if A buys goods and services from B and stipulates in the contract of
sale that none of B’s rights under the contract may be ceded to anyone else.
6
In that event, the prohibition against cession is fused into the rights and
obligations between the parties at their inception. The prohibition against
cession is part of the character of the rights themselves.
14 In Born Free, the Supreme Court of Appeal held that the second type of
prohibition applies not just between the parties to the contract, but against
third parties too. The theory animating the court’s approach was that where a
right is created as non-transferable – in other words, where it is designed to
adhere to one of the parties to a contract and to no-one else – a cedent who
attempts to cede such a right tries to pass to the cessionary more rights than
the cedent really has (see Born Free, paragraph 14). That, of course, cannot
be done.
15 In my view, the prohibition on cession contained in the contract between Blue
Future and the NHLS was of this, second, type. The prohibition on cession
was fused into the right to payment the contract itself created. In other words,
the payments due under the contract were not objects of commerce in
themselves. They were merely undertakings to pay Blue Future on the terms
set out in the contract.
16 It follows from all of this that the cession upon which Drive Control relies was
never a cession at all, because the right to treat the payments due under the
contract as objects of commerce capable of transfer to third parties was not a
right that Blue Future really had. Blue Future did not have that right because
the NHLS’ prior consent was a condition for its very creation, and the NHLS’
prior consent was never given. There was, therefore, nothing for Mr. Motsepe
to acknowledge when he signed the document Drive Control forwarded to him
7
on 24 August 2016, and no cession to which Mr. Motsepe could have bound
the NHLS.
17 It is accordingly impossible to accept Mr. Sawma’s argument that the
acknowledgement of cession Mr. Motsepe signed created a separate and
free-standing basis on which Drive Control’s claim against the NHLS can be
pressed. Besides the fact that a cession generally has no life of its own, as it
is always accessory to the rights ceded, the cession in this case was invali d
because it purported to pass on a right that did not really exist.
18 Mr. Sawma’s argument derived much of its force from the judgment of this
court in Hilsage Investments v National Exposition 1974 (3) SA 346 (W)
(“Hilsage”) and the Appellate Division’s decision on appeal in that matter:
Hillock v Hilsage Investments 1975 (1) SA 508 (A) (“Hillock”). In that case,
both this court (see Hilsage at pages 354F to 355C) and the Appellate Division
(see Hillock at page 515A -C) appear to express themselves against the
proposition that a prohibition on assignment in a contract of lease could apply
to third parties. The facts of the matter were that one company, Hilsage, had
let premises to another company, Hirba. Hirba later assigned its rights and
obligations as lessee to a third company, National Exposition. Hilsage then
sued National Exposition for rent. National Exposition denied liability, partly
because the lease between Hilsage and Hirba contained a prohibition on
assignment.
19 Both this court and the Appellate Division nonetheless held National
Exposition liable for the rent. But neither court actually concluded that the
prohibition on assignment in the lease between Hilsage and Hirba could not
8
have rendered the assignment invalid. Both courts instead concluded that,
whatever the effect of the prohibition on assignment, National Exposition had
in any event later concluded a new contract, directly with Hilsage, in terms of
which National Exposition assumed all of Hirba’s rights and obligations under
Hirba’s lease with Hilsage. That superseding contract was the basis on which
both courts held National Exposition liable (see Hilsage, at page 355H and
Hillock, at page 516A-D).
20 This case is different, for two reasons. The first reason is that we are bound
by the decision in Born Free, which makes clear that a prohibition on cession
of the type agreed to between Blue Future and the NHLS does in fact void any
cession purportedly executed in breach of its terms. The second reason is that
Mr. Motsepe’s apparent acknowledgement of the cession executed between
Blue Future and Drive control did not supersede the original agreement
between Blue Future and the NHLS. It pre-supposed the validity of the cession
and had no effect independently of it.
21 During argument, Mr. Sawma also adverted to the injustice of a third party
being bound by a prohibition on cession in a contract “of which he knows
nothing”. But the answer to this is simple. The third party is only bound where
the prohibition on cession is created at the same time as, and is fused into,
the rights purportedly ceded. A cessionary wishing to protect itself against a
prohibition on cession need do no more than examine the contract under
which the cedent’s rights were created. If that contract creates a prohibition
on cession, then the cessionary is bound by it. If it does not, the cessionary is
not bound by it. If the court below was correct when it found that Drive Control