About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2011
>>
[2011] ZASCA 30
|
|
Meridian Bay Restaurant (Pty) Ltd v Mitchell SC NO (686/2009) [2011] ZASCA 30; 2011 (4) SA 1 (SCA) (23 March 2011)
Links to summary
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no: 686/2009
MERIDIAN
BAY RESTAURANT (PTY) LTD
..................................
First
Appellant
BOE
BANK LIMITED
.................................................................
Second
Appellant
NEDBANK
LIMITED
......................................................................
Third
Appellant
and
D R MITCHELL SC NO
....................................................................
Respondent
(in
his capacity as the duly appointed
curator ad litem
of
HARBOUR’S
EDGE BODY CORPORATE)
____________________________________________________________
Neutral
citation:
Meridian Bay Restaurant v Mitchell
(686/09)
[2011] ZASCA 30
(23 March 2011)
BENCH:
NAVSA, PONNAN and SHONGWE JJA
HEARD: 22 FEBRUARY 2011
DELIVERED: 23 MARCH 2011
SUMMARY:
Sectional title scheme – developer –
fraudulently creating additional units out of common property-
insolvency intervening
– double sales – doctrine of
notice – first purchaser allowed to claim directly from second
purchaser who acquired
with knowledge of first sale.
______________________________________________________________________
ORDER
______________________________________________________________________
On
appeal from
:
Western Cape High Court (Cape
Town) (Uijs AJ sitting as court of first instance).
The appeal
is dismissed with costs to be paid jointly and severally by the
appellants, the one paying the others to be absolved.
______________________________________________________________________
JUDGMENT
______________________________________________________________________
PONNAN JA (NAVSA and SHONGWE concurring):
[1] On 19 July 2000 Wimbledon Lodge (Pty) Ltd, the registered owner
of Unit 91 in the sectional title scheme known as Harbour’s
Edge (the sectional title scheme), launched an application in the
Cape High Court in terms of s 41(3) of the Sectional Titles Act
95 of
1986 (the Act) for an order that a curator ad litem be appointed to
the Harbour’s Edge Body Corporate (the body corporate),
which
controls the sectional title scheme. The case advanced in the
application was that a fraud had been perpetrated on Wimbledon
Lodge
and the other registered owners of units in the sectional title
scheme by one Casper Scharrighuisen, who so the accusation
went, had
secretly appropriated a large part of the common property of the
scheme for the benefit of two corporate entities which
he controlled.
They are, the developer of the scheme, Casisles Coastal Property
Investements CC (Casisles) and Harbour’s
Edge Commercial
Property Holdings (Pty) Ltd (Holdings). Scharrighuisen’s estate
has been sequestrated and those two corporate
entities wound up.
Casisles was since 19 August 1994 the registered owner of Erf 4600,
Gordons Bay, upon which the sectional title
scheme was developed.
[2] The sectional plan was first registered on 19 September 1997. The
body corporate was constituted on 18 November 1997 when transfer
of
the first unit in the scheme was registered. The scheme is a mixed
use scheme comprising several residential and commercial
units but
consisting mainly of units that are equipped as hotel suites to be
operated as such through a rental pool agreement.
Fifty five units
were sold prior to the coming into existence of the body corporate
and 46 of those sales occurred prior to the
registration of the first
sectional title plan. To each of those deeds of sale was annexed a
participation quota and drawings.
All 55 deeds of sale concluded
between Casisles and the purchasers (the purchasers) were in all
material respects in identical
terms. Simultaneously with those deeds
of sale, each purchaser concluded a rental pool agreement with
Casisles. In terms of that
agreement each purchaser undertook to make
his unit available for the purposes of conducting a hotel business.
Each of the rental
pool agreements were also in identical terms. The
deeds of sale and the rental pool agreements envisaged that a
management company
would lease the units from the purchasers and
include them in the hotel apartment business to be conducted by it.
The purchasers
would derive rental income after the deduction of
operating levies imposed by the management company to cover the costs
of operating
the hotel business. The management company would in turn
contract with a suitable expert hotel operator, who would effectively
run the hotel business.
[3] The application by Wimbledon Lodge for the
appointment of the
curator ad litem
failed before Van Reenen J in the Cape High Court,
but succeeded on appeal to this court. Both judgments are reported
sub nom
Wimbledon Lodge (Pty) Ltd v Gore
NO & others
.
1
The facts and the history of the matter are
somewhat complicated. To understand the gist of the complaint though
it suffices for
present purposes to borrow from Schutz JA, who in
writing for the majority of this court, summarised (at para 3) the
position as
follows:
‘
The building was not intended
to be occupied by the unit-holders. It was to be used as a hotel. The
rentals earned were to be placed
in a pool which, after expenses had
been met, was to be distributed according to individual participation
quotas. According to
the plan which was annexed to the deeds of sale,
the common property was to include restaurants, kitchens, a parking
basement,
a squash court, necessary service areas and much more. That
plan showed that there would be 86 sections with a total area of 5
886 square metres. It is not Wimbledon’s case that a fraudulent
misrepresentation was made when the sales took place, in the
sense
that Scharrighuisen then already intended to cheat buyers.
Wimbledon’s case is that the sectional title plan which
Scharrighuisen had registered in the deeds registry subsequently,
without informing buyers, provided for 120 sections with a total
area
of 14 420 square metres. The extra area was achieved, not by
enlarging the building, but by the appropriation of a large part
of
the common property. Of the 34 extra sections, 10 are registered in
the name of Casisles and 12 in the name of Harbour’s
Edge. How
the 12 sections reached Harbour’s Edge (these are the valuable
ones) we are not told, as, despite a challenge to
disclose, there
came only the statement that the sections “were purchased”
from Casisles. As the entries in the deeds
registry stand those 22
sections are owned by the one or the other of the two corporations,
now in liquidation, and their area
has been subtracted from the
common property of the other unit-holders. It is these doings that
Cuninghame [on behalf of Wimbledon
lodge] describes variously as a
fraud or theft. The exact legal categorisation hardly matters. These
allegations stand essentially
unchallenged.’
[4] D R Mitchell, the present respondent, a practising advocate at
the Cape Bar was accordingly appointed to act as
curator ad litem
to the body corporate in terms of s 41(3) of the Act with inter alia
the power to:
1. Conduct an investigation into the grounds and
desirability of the institution of proceedings on behalf of the third
respondent
in order to:
1.1 take such steps as are necessary to obtain
registration of the immovable property listed in the schedule annexed
to this order
as common property of the Harbour’s Edge
Sectional Title Scheme; and/or
1.2 claim such damages as may be legally recoverable as
a result of the alleged misconduct of the developer and any of its
successors
in title as set out in the affidavits filed of record on
behalf of the applicant.
2. Report the results of his investigation and his
recommendations to the Cape High Court on the return day.
[5] Pursuant to his appointment, the
curator ad litem
caused
summons to be issued against various defendants including the
liquidators of Casisles and Holdings. The curator sought,
inter alia,
an order that certain disputed sections in the sectional title scheme
revert to the body corporate as common property
and consequently that
the sectional title plan and deeds be rectified accordingly. The
claim succeeded before Uijs AJ in the Cape
High Court. With the leave
of the learned judge three of the 11 defendants appeal to this Court.
They are Meridian Bay Restaurant
(Pty) Ltd (Meridian Bay), the first
appellant, BOE Bank Limited, the second appellant and Nedbank
Limited, the third appellant.
[6] Meridian Bay is the registered owner of sections 1 (basement
parking), 7 and 120 (conference rooms) and 21 (a hotel suite
(formerly hotel kitchen)), which was transferred to it during
December 2000. The pleaded case against Meridian Bay is that after
the proceedings had been instituted by Wimbledon Lodge for the
appointment of the
curator ad litem
, Holdings represented by
its liquidators, disposed of sections 7, 21 and 120 in the sectional
title scheme to Meridian Bay and
section 1 to Berties Mooring
Investments (Pty) Ltd (Berties Moorings) (the disputed sections).
Berties Moorings, in turn, disposed
of and transferred that section
to Meridian Bay.
[7] Whilst the pleaded case against the banks (the second and third
appellants) is that the one or the other is the registered
holder of
two mortgage bonds registered in its favour by Meridian Bay. The
first in an amount of R 4.5m was registered over sections
7, 21 and
120 on 13 December 2000 and the second in the amount of R 7.1m over
sections 7, 21 and 120 on 5 December 2002. In his
heads of argument,
counsel for the banks makes plain:
‘
As far as the question of who
the relevant bondholder may be is concerned, it is submitted that
nothing turns on this. Neither the
second nor the third appellants
intend taking the point that the judgment of the court a quo was
granted against the incorrect
banking entity.’
Moreover counsel for the banks accepts that ‘the success or
failure of the banks in this appeal depends on the success or
failure
of [Meridian Bay]’.
[8] The particulars of claim further allege that:
’
23 At the time that each
disposal aforementioned took place the entity acquiring the section
had knowledge of the pending proceedings
and took transfer of the
sections knowing that proceedings to recover the sections as common
property might be instituted on behalf
of the body corporate by a
curator ad litem
.
24 In the premises the transferees acquired, and can
assert, no greater right to the sections than Holdings had at the
time of its
disposal of the sections and to assert such greater right
would constitute a species of fraud upon the plaintiff.
25 The mortgage bonds registered in favour of the Bank
referred to in paragraph 3(b) above were registered on 13 December
2000 and
5 December 2002 at which date both the mortgager and the
Bank had knowledge of the pending proceedings referred to in
paragraph
22 above and registered the mortgage bonds in the knowledge
that:
(a) proceedings to recover sections 1, 7, 21 and 120 as
common property might be instituted on behalf of the body corporate
by a
curator ad litem
;
(b) if such proceedings were successful, the said
sections would not constitute security for the debts of the mortgager
referred
to in the said mortgage bonds.’
[9] To complete the narrative. Prior to the institution of the
proceedings the subject of the present appeal, the liquidators of
Casisles and Holdings tendered, without admission of liability, to
transfer to the body corporate sections 15, 20, 27, 42, 50,
55, 61,
83, 87, 92, 116, 117 and 118, which tender the curator accepted.
Those sections indubitably belonged to the body corporate.
[10] Uijs AJ found for the
curator ad litem
. He accordingly
made the following order:
‘
(a) The acquisition by the
Body Corporate of the Harbour’s Edge Sectional Title Scheme of
sections 15, 20, 27, 42, 50, 55,
61, 83, 87, 92, 116, 117 and 119 is
ratified.
(b) Such acquisition of the sections aforesaid are
declared to be acquisitions of land extending the common property of
the Harbour’s
Edge Sectional Title Scheme as envisaged in
section 26(1) of the Sectional Title Act, No 97 of 1986.
(c) It is directed that Sections 1, 7, 21 and 120 of the
Harbour’s Edge Sectional Title Scheme are to revert to the Body
Corporate
of that Scheme as common property, for the benefit of the
owners of the remaining sections in the scheme.
(d) The said sections are to be deleted from the
Sectional Title Deeds ST 21129/2002 and ST 16518/2000 in the name of
the First
Defendant and from Sectional Title Mortgage Bonds SB
9612/2000 and SB 11767/2002 held by the Second Defendant and/or the
Eleventh
Defendant.
(e) The Body Corporate is directed to prepare and submit
to the Ninth and Tenth Defendants an amended Sectional Plan,
reflecting
all of the abovementioned sections as common property,
together with a revised schedule of participation quotas for the
remaining
sections in the scheme.
(f) The Ninth and Tenth Defendants are directed to
register such amended Sectional Plan and schedule of participation
quotas and
to make such consequential entries in their records as may
be necessary to give full effect to this order.
(g) The parties are directed to ensure that there is due
compliance with all of the requirements of both the Ninth and Tenth
Defendants
in giving effect to this order.
(h) The lease agreement between the First Defendant and
the Eighth Defendant in respect of section 120 of the said Sectional
Title
Scheme is declared not to be binding on the Body Corporate of
the said scheme.
(h) First and Eighth Defendants and Second or Eleventh
Defendants are (save as provided for herein) to pay jointly and
severally
Plaintiff’s costs of suit, the one paying, the other
to be absolved. In this regard, Plaintiff’s expert witnesses,
Mellon and Harding are declared necessary witnesses, the costs
occasioned by employing them to be calculated on the appropriate
tariffs and scale, and all other witnesses called by Plaintiff are
declared to have been necessary witnesses.
(j) Second and/or Eleventh Defendants shall not be
obliged to pay any costs occasioned by the Application brought by
First and Eighth
Defendants to separate the issues, or any wasted
costs incurred as a result of the bringing of that application,
which, it is recorded,
they opposed.
(k) Second and/or eleventh Defendants shall not be
obliged to pay the costs occasioned by any amendment to First
Defendant’s
Plea, or any costs occasioned by the opposition of
First and Eighth Defendants to Plaintiff’s application for an
order directing
the order of evidence, which, it is recorded, they
did not oppose.
(l) The matter shall stand down, with leave granted to
the parties to approach the Court to re-open same.’
[11] The thrust of the curator’s case is that the developer
altered the sectional plans that had been annexed to each deed
of
sale in relation to the common property thereby converting portions
into units that could be misappropriated. All of this had
been done
without the knowledge of the purchasers. The developer in giving
transfer of the units to the purchasers pretended to
deliver what
they had contracted for and obtained payment of the purchase price on
that basis. In that way he caused certain portions
of the common
property to cease to exist. He further purported to put those
illegally obtained sections beyond the reach of the
body corporate by
causing them as registered sections to be transferred to an
associated entity, Holdings. The cause of the conversion
of the
common property and thus its disappearance from the sectional plan
was the unilateral act of the developer who caused a
sectional plan
at variance with the purchase and sale agreement with the purchasers
to be registered. It is thus the fraudulent
act of registering a
revised plan, one at odds with the prior purchase and sale
agreements, which founds the respondent’s
action. As the common
property had ceased to exist in consequence of the fraud, the body
corporate, so the submission goes, can
recover it by rectifying the
records of the Deeds Office so that they conform to the prior
purchase and sale agreements concluded
with the purchasers. In
effect, the body corporate seeks, as the entity charged with the
administration and control of the common
property of the scheme, to
recover that which was fraudulently removed from the unit holders in
the scheme, namely, an undivided
share of the common property that
ought in terms of the contracts of sale to have been in existence
when the body corporate was
first established.
[12] It is a basic principle of our law that a
real right generally prevails over a personal right (even if the
personal right is
prior in time) when they come into competition with
each other.
2
Thus, according to Prof van der Walt, ‘in
South African law the distinction between real and personal rights
has acquired
something of a mystical nature, and is often presented
as a problem without a solution’.
3
Accordingly, in the ordinary course, if A sells a
thing – be it movable or immovable - to B and thereafter sells
the same
thing to C, ownership is acquired not by the first purchaser
but by the purchaser who first obtains transfer of the thing sold.
If
the first purchaser, B, is also the first transferee, his right of
ownership is unassailable by C. The legal situation is more
intricate
if the second purchaser, C, is first to obtain delivery. In this
case, the first distinction to be made is whether or
not C, when
contracting with A, had notice of the previous sale to B. For,
according to Professor Scholtens,
4
if C had such notice, he is not entitled to retain
the thing as against B.
[13] As FDJ Brand in an as yet unpublished paper
entitled ‘
Knowledge and
Wrongfulness as Elements of the Doctrine of Notice
‘
,
observes the ‘rather unyielding preference to real rights is
tempered by the doctrine of notice’. Prof Lubbe suggests:
‘
From a dogmatic perspective
the doctrine of notice seems to be anomalous in so far as it permits
the holder of a personal, supposedly
relative, right to a thing to
prevail over the holder of a real right in respect thereof; even to
the extent of requiring the transferee
with notice to give effect to
the contractual undertakings of the predecessor in respect of the
thing.’
5
Ultimately, it is, as Prof McKerron observes, ‘a
purely equitable doctrine running counter to the rule of the strict
law that
a real right takes preference over a merely personal
right’.
6
[14] Under the doctrine of notice, someone who acquires an asset with
notice of a personal right to it which his predecessor in
title has
granted to another, may be held bound to give effect thereto. Thus a
purchaser who knows that the merx has been sold
to another, may, in
spite of having obtained transfer or delivery, be forced to hand it
over to the prior purchaser. Reverting
to my earlier example: if C
had purchased with knowledge of the prior sale to B, B would be
entitled to claim that the transfer
to C be set aside and that
transfer be effected from A to B, or B may perhaps even claim
transfer directly from C.
[15] For many years our courts sought to invoke
mala fides or ‘a species of fraud’ as the inherent
justification for
the doctrine. Thus it was said, for example, by
Wessels JA in
De Jager v Sisana
:
7
‘
[A] purchase of property made
in derogation of the rights of a third party with knowledge of such
rights is a species of fraud upon
the third party and does not defeat
his rights.’
and
‘
If A grants B a servitude, B
has a right to that servitude as . . . against A, and has the right
to have that servitude registered.
If C knows of the grant, then if
he endeavours to get the land free of the servitude he is conspiring
with A to defraud B of a
valid right which he already has against A
and which he can by registration acquire against the whole world. C
is therefore
particeps
fraudis
with
A.’
[16] Likewise, in
Grant
& another v Stonestreet & others
,
8
Ogilvie Thompson JA
stated:
‘
Having regard to our system of
registration, the purchaser of immovable property who acquires clean
title is not lightly to be held
bound by an unregistered praedial
servitude claimed in relation to that property. If, however, such
purchaser has knowledge,
at
the time he acquires the property, of the existence of the servitude,
he will ― subject to a possible qualification, discussed
below,
relating to cases where there has been the intervention of a prior
innocent purchaser ― be bound by it notwithstanding
the absence of registration.
The basis of this obligation is that in attempting, under such
circumstances, to repudiate the servitude,
the purchaser is
mala
fide
,
and that the law refuses to countenance any such attempted
repudiation because, as it is put in some of the cases, it in reality
amounts to a species of fraud (see
Richards
v Nash
,
1 S.C. 312
;
Jansen v Fincham
,
9 S.C. 289
;
Ridler v
Gartner
,
1920
T.P.D. 249
and cf.
De
Jager v Sisana
,
1930 A.D. 71
at p 84).
Mala
fides
is
not readily presumed, and it was emphasised in
Jansen
v Fincham
and
Ridler v Gartner
,
supra
,
that clear proof of knowledge on his part is required before the
Court will hold a purchaser bound by an unregistered servitude.
As
was observed by WESSELS J.,
in
Ridler v Gartner
,
supra
at pp. 259-260:
“
There must be an element of
deceit, an element of chicanery in the transaction, before the Court
will set it aside on the ground
of knowledge. It must be perfectly
clear to the Court that the person who alleges that he bought a clean
transfer knew perfectly
well and did not expect that he would get a
clean transfer except by his fraud. Any other view of the law would
be extremely dangerous
and would dig away the very foundations upon
which our whole system of registration is based.” ’
[17] But with
Associated
South African Bakeries (Pty) Ltd v Oryx & Vereinigte Bäckereien
(Pty) Ltd,
9
came the demise of the fraud construction. The
court held that references to a species of fraud or
mala
fides
on the part
of the acquirer with knowledge in the earlier cases was nothing but a
fiction to provide the doctrine of notice with
theoretical support.
According to Van Heerden AJA, any reference to fraud or
mala
fides
in the
context of the doctrine of notice should be avoided because it only
gives rise to confusion. The only requirement for the
operation of
the doctrine, so he stated, is actual knowledge (or perhaps
dolus
eventualis
) with
regard to the prior personal right on the part of the acquirer. Once
this requirement is satisfied, the holder of the personal
right is
afforded what is in effect a limited real right against the acquirer.
[18] Thus C, the acquirer of the real right, does
not need to have actual knowledge of B’s prior right. It
suffices that C
subjectively foresaw the possibility of the existence
of B’s personal right but proceeded with the acquisition of his
real
right regardless of the consequences to B’s prior personal
right. The reference to
dolus
eventualis
in Van
Heerden AJA’s judgment echoes what was said by Ogilvie Thompson
JA in
Grant v Stonestreet
:
‘
Although, unlike the English
Law, the doctrine of constructive knowledge has, in our law, little
or no application in enquiries
of this kind (
Erasmus
v du Toit
1910 TPD
1037
, Snyman v
Mugglestone
1935
CPD 565)
, the statement made by Bristowe, J in
Erasmus’
s
case,
supra
at p 1049, that, if a person
wilfully shuts his eyes and declines to see what is perfectly
obvious, he must be held to have had
actual notice, appears to me to
be sound in principle and to merit the approval of this Court.‘
10
[19] Perhaps on account of its anomalous aspects
and uncertain pedigree, the doctrine of notice has attracted more
academic discussion
than its practical importance seems to merit.
11
According to Lubbe:
‘
Attempts to locate the
doctrine of notice within the general conceptual framework of our
system of private law, seek to reduce it
either to the law of
obligations or the domain of property. In an echo of attempts
elsewhere, a resort to delictual liability has
been predominant in
attempts to forge an explanation of the doctrine in terms of the law
of obligations.’
12
It may well be, as Brand posits, that we simply
have to accept that the doctrine of notice is a doctrinal anomaly
which does not
fit neatly into the principles of either the law of
delict or property law.
13
Brand poses the question: ‘If the answers do
not lie in a search for the doctrinal basis of the doctrine where
should one
start?’ He proffers the following illuminating
response that no doubt will not only appreciably assist in shaping
and determining
the future debate on the subject, but also in
resolving the various problematic anomalies and dogmatic
classification puzzles:
‘
The key to the solution, I
believe, is to be found in the following statement by Badenhorst
Pienaar & Mostert:
"Infringement of a personal right by an acquirer of
the real right is perceived as unlawful conduct. The criteria for the
determination
of wrongfulness in the law of delict should be
applied."
As I see it, this means two things.
Firstly, that although the doctrine of notice is not founded in
delict, it shares a common element
with delictual liability, namely,
the element of wrongfulness (sometimes also referred to as
unlawfulness). Secondly, that in determining
wrongfulness for the
purposes of the doctrine, we should be guided by the principles that
have become crystallised in delictual
parlance. In this regard the
principles of the law of delict proceed from the premise that conduct
which manifests itself in the
form of a positive act causing physical
damage to the property or person of another is prima facie wrongful.
By contrast, causation
of pure economic loss is not regarded as prima
facie wrongful. Its wrongfulness depends on the existence of a legal
duty. In applying
these principles, the doctrine of notice seems to
fit naturally into the category of pure economic loss. In
consequence, it invokes
the concept of a "legal duty". The
imposition of a legal duty, so it has been explained, is a matter for
judicial determination,
involving criteria of public and legal
policy. When we therefore say, in the law of delict, that conduct
causing pure economic
loss is "wrongful" we mean that
public or legal policy considerations require that such conduct
attracts legal liability
for its consequences. Conversely, when we
say that conduct causing pure economic loss is not wrongful, we
intend to convey that
public or legal policy considerations determine
that there should be no liability; that the potential defendant
enjoys immunity
against such conduct. As I see it this would mean, in
the context of the doctrine of notice, that an infringement of a
prior personal
right through the acquisition of a real right will
only be recognised as "wrongful", if for reasons of public
and legal
policy, the courts determine that such infringement should
attract the consequences of the doctrine.’
14
[20] After
ASA
Bakeries
this court had occasion to
consider the doctrine of notice in
Dream
Supreme Properties 11CC v Nedcor Bank Ltd & others
15
but in the context of an attachment and sale in
execution. The facts were: During June 2000 Nedcor Bank obtained
judgment against
Mr Costas, who was the owner of a holiday house in
Camps Bay. On 15 November 2001 he sold the house to Dream Supreme, a
close corporation
under the control of his mother-in-law. When Nedcor
Bank became aware of the sale, it caused a writ of execution to be
issued in
respect of the house. Pursuant to the writ, the house was
attached and sold at a sale in execution. Dream Supreme sought an
order
in the Cape High Court for the setting aside of the attachment
and the sale in execution. The High Court refused the application
essentially on the basis that the sale agreement between Dream
Supreme and Costas was not a
bona fide
sale, but an attempt to shield the property from
execution by the creditors.
On appeal, this
court held that the court of first instance had erred in holding that
the agreement of sale was not
bona fide
.
Streicher JA, writing for the majority, stated:
‘
However, it does not follow
that because an inference of fraud on the part of a second purchaser
is drawn from the mere fact of
knowledge of a prior sale that an
inference of fraud likewise has to be drawn from such knowledge on
the part of an execution creditor
who attaches property which his
debtor has sold in execution of a judgment. In terms of the common
law such an execution creditor
could, with some exceptions, attach
the assets of which his debtor was the owner in order to obtain
satisfaction of his debt. Effect
is given to that right in s 36
of the Supreme Court Act 59 of 1959 read with Rule 45 of the Uniform
Rules.’
16
And
‘
It follows that, unlike the
purchase of a property with knowledge of a prior sale, the first
respondent did what, according to the
Uniform Rules, he was entitled
to do. There can be no question of regarding his actions as a species
of fraud. To extend the doctrine
of notice to situations such as the
present would open the door to unscrupulous debtors to fabricate
personal rights which would
be difficult for a creditor to expose for
what they are. It will discourage prospective purchasers from taking
part in sales in
execution where a claim to a prior personal right is
made by a third party. Very few such prospective purchasers would be
prepared
to investigate the validity of such a claim by a third party
and even less will be prepared to involve themselves in litigation
against such a third party. In the result, to extend the doctrine of
notice to situations such as the present will create, to the
detriment of the creditor as well as the debtor, uncertainty as to
the title obtained at a sale in execution and so reduce the
effectiveness of such a sale, the purpose of which is to obtain
satisfaction of a judgment debt.’
17
[21] Whether or not mala fides or fraud on the
part of the attaching creditor would render the attachment wrongful
is an issue that
Streicher JA did not decide. What he did decide is
that once a creditor has established a real right known as a
pignus
judiciale
through an attachment in
execution of a judgment, the holder of a personal right cannot rely
on mere knowledge on the part of the
creditor at the time of the
attachment, to set aside the real right acquired by the creditor.
Brand opines that:
‘
What Streicher JA decided . .
. is that for reasons of public and legal policy, an attachment in
execution is not wrongful, in the
context of the doctrine of notice,
merely because the creditor who caused the attachment to be made had
knowledge of an earlier
personal right. What is more, Streicher JA
then proceeded to set out the considerations of legal and public
policy which led him
to the conclusion of wrongfulness. In sum, they
relate to the specific nature and purpose of an execution sale and
the particular
consideration that the purchaser at an execution sale
should as far as possible acquire secure title.’
18
[22]
Dream Supreme
,
it bears noting, considered the doctrine of notice in respect of
attachments and sales in execution. Streicher JA, I daresay,
decided
that the considerations of public and legal policy that are
applicable to attachments in execution are different to those
applicable to double sales. To borrow from Brand it ‘has no
impact on the requirement of knowledge in the application of
the
doctrine of notice outside the ambit of attachments in execution. As
far as these other applications are concerned,
ASA
Bakeries
remains the beacon of
authority.’
19
Dream Supreme
is
thus plainly distinguishable from the present case.
[23] Streicher JA had occasion once again in
Cussons & andere v Kroon
20
to consider the doctrine.
The
facts were: A farm, which constituted an asset in a partnership
between A and B, was registered in the name of A only because
it
would have been in conflict with legislation for it to have been
registered in the names of both. As a partnership asset the
property
could not be alienated by A without the approval of B. A nonetheless
sold and transferred the property to C without informing
B. Relying
on the doctrine of notice B then brought an application to set the
sale and transfer to C aside. On appeal it was argued
on behalf of A
and C that the doctrine did not apply because the right relied upon
by B was not a
ius ad rem acquirendam
.
Streicher JA held that the personal right relied upon by B is so
closely analogous to a right of pre-emption that if the one was
deserving of protection so too was the other. The reason why a right
of pre-emption is deserving of protection, according to Streicher
JA,
is because the conduct of the purchaser in acquiring the property
with knowledge that it was in conflict with an existing right
of
pre-emption, is regarded as wrongful. He thus concluded that a sale
in conflict with the duty not to sell without the consent
of another
is just as improper as a sale in conflict with the rights of a holder
of a right of first refusal.
[24] In arriving at that conclusion Streicher JA said (para 9):
‘
In die geval van dubbelverkope
word ‘n beginsel bekend as die kennisleer toegepas. Waar A sy
goed aan B verkoop en daarna
dieselfde goed verkoop en oordra aan C,
wat bewus was van die regte van B, is B geregtig op kansellasie van
die verkoping en van
die oordrag van die goed, op grond daarvan dat
die verkoper en C geag word op ‘n bedrieglike wyse teenoor hom
op te getree
het (
Tiger-Eye
Investments (Pty) Ltd & another v Riverview Diamond Fields (Pty)
Ltd
1971
(1) SA 351
(K) op 358F-H). Werklike bedrog word nie vereis nie. Blote
kennis aan die kant van C van die bestaan van B se vorderingsreg is
voldoende (
Kazazis v
Georghiades & andere
1979
(3) SA 886
(T) op 893). Die verwysings na bedrog in sake van hierdie
aard dien slegs as aanknopingspunt in die regsisteem ter
onderskraging
van die kennisleer (
Associated
South African Bakeries (Pty) Ltd v Oryx & Vereinigte Bäckereien
(Pty) Ltd & andere
1982
(3) SA 893
SA 893 (A) (
ASA
Bakeries
) op
910E).’
[25] Here the facts are more nuanced than those ordinarily
encountered in what may be described as the classic double sale
scenario.
In this case Scharrighuisen knowingly and deliberately
registered a sectional title plan at odds with the prior purchase and
sale
agreements concluded with the purchasers. The sectional title
scheme so registered established new sections. Those valuable new
sections he appropriated to himself. He then sought to place them
beyond the reach of the prior purchasers by transferring those
from
Casisles to Holdings. All of this occurred without the knowledge of
the prior purchasers and but for the vigilance of one
of the
purchasers may have gone undetected. The court below found that
Scharrighuisen as the controlling mind of both Casisles
and Holdings
acted fraudulently in misappropriating the disputed sections. That
finding was not attacked on appeal. Nor, in my
view, could it be.
[26] The first question therefore is whether the doctrine of notice
avails the prior purchasers, as here, where: first, the dispositive
act has the effect of creating new objects of ownership out of the
property that is already the subject of a prior personal right;
and,
second, insolvency intervenes. I accept, as one must, that extensions
of the operation of the doctrine of notice with reference
to
considerations of public and legal policy must occur incrementally.
To facilitate the fraud Scharrighuisen (through Casisles)
unilaterally reconfigured the common property into units in the
scheme before disposing of it to Holdings (which, like Casisles,
he
controlled) in disregard of the rights of the prior purchasers. Had
he simply disposed of the common property without first
having
reconfigured it (assuming that to have been possible) then surely in
those circumstances the doctrine would have availed
the prior
purchasers. I cannot conceive of any reason why the reconfiguring of
the common property into units to fraudulently place
it beyond the
reach of the prior purchasers would operate as a bar to the
invocation of the doctrine by them.
For, first, as Schutz JA stated in
Wimbledon
Lodge v Gore
(para 10):
‘ “
No one is allowed to
improve his own condition by his own wrongdoing.” This
fundamental principle has been applied expressly
at least twice in
this Court, in
Principal
Immigration Officer v Bhula
1931
AD 323
at 330 and
Parity
Insurance Co Ltd v Marescia and Others
1965 (3) SA 430
(A) at 433 and
435. It finds exact application to this case. Scharrighuisen, through
his corporations, by means of his fraud, obtained
at least apparent
ownership of the contested sections.’
And, second, the liquidators could not acquire
rights greater than the insolvent entity ever had (
Afrisure
CC v Watson
NO).
21
Nor could the liquidators transfer more rights
than they themselves had. This rule, which has been described as the
‘golden
rule of the law of property’, is based on the old
Roman law maxim
nemo plus iuris ad alium
transferre potest, quam ipse haberet
.
22
[27] What then of Meridian Bay? On the authority
of
ASA Bakeries
the
only requirement for the operation of the doctrine is actual
knowledge (or perhaps
dolus eventualis
)
of the prior personal right of the first purchaser on the part of the
second purchaser (the acquirer). Once this requirement is
satisfied
the holder of the real right is afforded what in effect is a limited
real right against the acquirer.
23
The requirement of notice poses no difficulty in
this case, it being common cause that Meridian Bay had knowledge of
the prior personal
right of the purchasers. Indeed each of the
written agreements of purchase and sale concluded by the liquidators
with Meridian
Bay and Berties Mooring, respectively, in respect of
the disputed sections contained a provision to the following effect:
’
DISPUTE AS TO THE SELLER’S
TITLE TO THE PROPERTY
1 It is recorded that it has been disclosed to the
Purchaser who fully understands that:
1.1 the Seller’s title to certain sections forming
part of the immovable property sold has been challenged by the
Harbours
Edge Body Corporate and certain individual members thereof.
Furthermore individual members of the Body Corporate have in their
personal capacities applied and/or indicated their intention to apply
to the appropriate court for an order interdicting this sale
and for
certain relief the effect of which will be to vest ownership of the
immovable property sold in terms hereof in the Harbours
Edge Body
Corporate; and . . .’
[28] Moreover the evidence establishes that Meridian Bay knew, when
it acquired the disputed sections, not just that complaints
were
being levelled by the prior purchasers but also of the exact nature
of those complaints. It nonetheless chose to acquire the
disputed
sections with full knowledge that such acquisition was in conflict
with the prior personal rights of the purchasers. It
follows that in
conducting itself thus, Meridian Bay’s conduct was wrongful.
[29] In a situation such as this, Prof Scholtens
submits that
‘
the only
question to be determined should be whether the first contract of
sale would have entitled the first purchaser to a decree
of specific
performance had the second not been concluded. If the answer is in
the affirmative, the first purchaser has an indefeasible
right and
should be entitled to the assistance of the court without any further
regard to the equities of the second sale.’
24
In this case the prior purchasers would have had a claim for specific
performance against the developer. Thus according to Prof
Scholtens
they have an indefeasible right that entitled them to the assistance
of the court.
[30] Who then can that right be asserted against in this case in the
light of the intervening sequestration of the developer? I
earlier
alluded to the fact that the holder of prior personal right, B, may
claim directly from C, the acquirer of the right. Indeed
Prof
McKerron makes that plain when he states.
‘
It remains to consider the
position where transfer has been passed to the second purchaser. If
C
,
when he bought, had knowledge of the prior sale to
B
,
there is no doubt as to the position. The authorities, both ancient
and modern, are agreed that in such a case
C
is not entitled to retain the
land as against
B
.
The old authorities allow
B
to recover the
res
vendita
direct
from
C
by a personal action
in
factum
[as opposed to the
rei
vindicatio
, only
available to the owner], and there is no reason why in a suitable
case
B
should not be allowed to adopt
this course in the modern law. But in South Africa the usual practice
is for
B
to join
A
as co-defendant, and claim as
against him an order cancelling the transfer, and as against
C
an order to pass transfer into
his (
B’s
)
name.’
25
(See also Voet 6.1.20 and
Bowring
NO v Vrededorp Properties CC
26
).
Bowring NO v Vrededorp Properties CC
(para
17)
put it thus:
‘
The essential quality of the
right that the purchaser acquires from a contract of sale is
therefore no different from the right
of the beneficiary under a
servitude agreement. Both rights are so-called
iura
in personam
ad
rem acquirendam
, ie
personal rights to acquire a real right (see eg Van der Merwe
op
cit
86;
Badenhorst, Pienaar & Mostert
op
cit
70). In the case of a
servitude, application of the doctrine of notice does not require
that the transfer of the property to the
purchaser be set aside so as
to enable the beneficiary under the servitude agreement first to
claim registration of the servitude
against the seller before the
property is retransferred to the purchaser subject to a registered
servitude. The beneficiary’s
claim is allowed directly against
the purchaser (see eg
Grant
& another v Stonestreet & others
(
supra
)
7). That there is no privity of contract between the beneficiary and
the purchaser is not seen as an insurmountable hurdle. Why
then, it
may in my view rightfully be asked, should the position be any
different when the same doctrine is applied in the instance
of double
sales?’
[31] It thus follows that the absence of contractual privity between
Meridian Bay and the prior purchasers is no bar to affording
them the
right to claim directly from Meridian Bay. The manner of application
of the remedy must be determined largely by what
is considered to be
equitable to all concerned in the circumstances of the particular
case (
Bowring
para 18). In this case if both Meridian Bay and
the developer are restored to the positions that they occupied prior
to the transfer
of the disputed sections to the former, then, given
the sequestration of the latter, the prior purchasers will have to
stand in
line with the other creditors in the insolvent estate.
Further that may result in a windfall for the creditors of the
insolvent
to which they may not be entitled. It thus seems to me that
this is one of those cases where the curator should be permitted to
recover directly from Meridian Bay. I may add that in this case the
bondholders were given notice of these proceedings. They advanced
no
additional argument (preferring instead to make common cause with
Meridian Bay) as to why Meridian Bay should not be ordered
to
transfer the disputed sections directly to the curator.
[32] In the result the appeal must fail and it is accordingly
dismissed with costs to be paid jointly and severally by the
appellants,
the one paying the others to be absolved.
_________________
V M PONNAN
JUDGE OF APPEAL
APPEARANCES:
For 1
st
Appellant: W G Burger SC
J C
Swanepoel
Instructed
by:
Joubert
Attorneys
c/o Webber
Wentzel
Cape Town
McIntyre &
Van Der Post
Bloemfontein
For 2
nd
and 3
rd
Appellants: A M Smalberger
Instructed
by:
Herold Gie
Cape Town
McIntyre &
Van Der Post
Bloemfontein
For
Respondent: S Olivier SC
Instructed
by:
Edward
Nathan Sonnenbergs
Cape Town
Webbers
Bloemfontein
1
The
High Court judgment at
2002 (2) SA 88
(C). And the judgment of the
SCA at
2003 (5) SA 315
(SCA).
2
Hassam
v Shaboodien
1996 (2) SA 720
(C) at 724H-I; FDJ Brand
Knowledge
and Wrongfulness as Elements of the Doctrine of Notice.
3
AJ
van der Walt ‘Personal rights and limited real rights an
historical overview and analysis of contemporary problems related
to
the registrability of rights’
1992 (55)
THRHR
170
at
179.
4
CJE
Scholtens ‘Double Sales’
(1953) 70
SALJ
22.
5
G
Lubbe ‘A doctrine in search of a theory: reflections on the
so-called doctrine of notice in South African law’
1997
Acta
Juridica
246
at 249.
6
RG
McKerron ‘Purchaser with notice’ 1935
SA Law Times
Vol
4 178 at 180.
7
1930
AD 71
at 80 and 84.
8
1968
(4) SA 1
(A) at 20A-E.
9
1982
(3) SA 893
(A).
10
At
20F.
11
Lubbe
op cit p258.
12
Lubbe
op cit p258.
13
Brand
para 22.
14
Brand
para 23 - 24.
15
2007
(4) SA 380
(SCA).
16
Para
24.
17
Para
26.
18
Para
26.
19
Para
27.
20
2001
(4) SA 833
(SCA).
21
[2008] ZASCA 89
;
2009
(2) SA 127
(SCA) para 41.
22
Digest
14. 17. 54;
PJ Badenhorst, Juanita M Pienaar and
Hanri Mostert
Silberberg and Schoeman’s
The Law of Property
5 ed 2006 p 73.
23
ASA
Bakeries
910G-H.
Lubbe asserts
that the statement by Van Heerden AJA that the doctrine of notice
results in personal rights being accorded a limited
real effect
exacerbates, rather than resolves, the dogmatic puzzle.
24
Scholtens
op cit 31.
25
McKerron
op cit 180.
26
2007
(5) SA 391
(SCA) para 14 and 15.