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[2017] ZASCA 68
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Brayton Carlswald (Pty) Ltd and Another v Brews (245/2016) [2017] ZASCA 68; 2017 (5) SA 498 (SCA) (31 May 2017)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 245/2016
In
the matter between:
BRAYTON
CARLSWALD (PTY) LTD
FIRST APPELLANT
MARTINA
BREWS
SECOND APPELLANT
and
GORDON
DONALD BREWS
RESPONDENT
Neutral
citation:
Carlswald
& another v Brews
(245/2016)
[2017] ZASCA 68
(31 May 2017)
Coram:
Theron,
Majiedt, Dambuza and Mathopo JJA and Coppin AJA
Heard:
9
May 2017
Delivered:
31
May 2017
Summary
:
Contract: cession: may be oral: where parties agree to reduce
contract to writing there will be no contract until
terms have been
reduced to writing: once cession reduced to writing parties bound by
the terms of the deed of cession and cannot
rely on oral
negotiations.
At
time of execution of deed of cession the judgment debt had been
extinguished by payment: cession is a nullity: a non-existent
debt
cannot be transferred.
ORDER
On
appeal from:
Gauteng
Local Division of the High Court, Johannesburg (Makume, Makhanya and
Mokgoatlheng JJ sitting as court of appeal):
1
The appeal is upheld with costs.
2
The order of the court a quo is set aside and replaced with the
following:
‘
The
appeal is dismissed with costs.’
JUDGMENT
Theron
JA (Majiedt, Dambuza, Mathopo JJA and Coppin AJA concurring):
[1]
The issue on appeal is whether, as a matter of law, it is competent
to effect cession of a claim after the underlying obligation
has been
extinguished by payment.
[2]
The facts giving rise to this matter are largely common cause. On 18
October 2004, judgment under case number 21149/2002, was
granted in
favour of Firstrand Bank Limited t/a Origin (the bank) against
Brayton Carlswald (Pty) Ltd (the first defendant in that
matter and
the first appellant in this appeal) and Mr Jonathan Paul Brews (the
second defendant) (hereinafter referred to as the
defendants) for,
inter alia, payment of the sum of R3 227 582,44.
[3]
In execution of this judgment, the bank caused certain immovable
properties owned by the first appellant, to be attached. In
order to avoid a sale in execution of the immovable properties, the
defendants approached the respondent, Mr Gordon Donald Brews,
with a
request that he pay their indebtedness to the bank. On 26 April 2005,
the respondent and the defendants concluded a loan
agreement in terms
of which the respondent agreed to pay the full debt due to the bank.
The defendants agreed, as security
for the loan, to procure a pledge
of shares in the company, KGM 74 Investments (Pty) Ltd, in favour of
the respondent, to pass
a covering mortgage bond over the properties
attached pursuant to the judgment and that the respondent would take
cession of the
judgment from the bank.
[4]
Prior to payment, there had been a series of discussions between the
respondent and the bank relating to the cession of the
judgment debt
to the respondent. The bank agreed to cede the judgment debt to the
respondent once the latter had made full payment
of the debt. On 3
May 2005 and 10 August 2005, the respondent paid a total amount of R4
439 675,80 to the bank in settlement of
the defendants’
indebtedness to it, which comprised the judgment debt and an
additional claim.
[5]
The Deeds Office refused to register a covering mortgage bond as the
bank’s attachment in respect of the properties had
not been
uplifted. On 29 June 2007 and after the upliftment of the attachment,
the mortgage bond was again lodged for registration
in the Deeds
Office. The registration could not proceed as there was an amount of
R234 320,29 owing to the City of Johannesburg
in respect of
rates and municipal charges. The defendants sought and were granted
further financial assistance from the respondent.
By then, their
indebtedness to the respondent had increased to more than R10
million. On 29 August 2008, the bank, in writing,
ceded its rights to
the judgment and any additional claims against the defendants, to the
respondent.
[6]
On 23 February 2011, the respondent brought an ex-parte application
in the South Gauteng High Court, Johannesburg (the high
court) for an
order directing that he be substituted as execution creditor in all
execution documentation issued or re-issued in
the action between the
bank and the defendants under case number 21149/2002. The second
appellant, Mrs Martina Brews (the former
wife of Mr Jonathan Brews),
applied for leave to intervene in the application. The basis for her
intervention was set out as follows
in her affidavit filed in support
of the application to intervene:
‘
4.
I am a beneficiary of the Narica Trust, which trust is the sole
shareholder of the
First Defendant in this matter. The Second
Defendant was the previous sole director of the First Defendant and
he was removed there
from in terms of an application brought before
this Honourable Court. The Second Defendant is also a cousin of
Gordon and they
have undertaken many business ventures between them.
I believe that the Second Defendant deliberately, and knowing the
effect on
the First Defendant, colluded with Gordon in obtaining this
judgment for Gordon's benefit. I believe that the First Defendant has
been the victim of a fraudulent plot by Gordon and the Second
Defendant. These allegations and many more will be more fully dealt
with in my answering affidavit should I be granted leave to
intervene.
5.
I currently reside on the property 267 Papenfus Road, Beaulieu, which
property
is owned by the First Defendant. Furthermore the property is
the sole asset of the First Defendant and the Narica trust.
6.
I am financially dependent on the abovementioned property, as I earn
a living
from the property by keeping an equestrian training academy
thereon which academy is and has been for the past 7 (seven) years my
sole and only source of income. Furthermore at all times the property
was intended to be mine and my two daughter's source of financial
security in the future. Should I be deprived of this it will
effectively leave me indigent and homeless.
7.
In the circumstances, I stand to suffer direct and severe financial
loss should
the ex parte Application be granted. However as will
become more apparent from my Answering Affidavit, Gordon has no right
to be
substituted instead of First Rand Bank Limited (Plaintiff).
8.
Not only will I suffer direct and severe financial loss, I will not
be able to
provide for my minor daughter and older daughter who are
both financially dependant on me. However in the event of me being
granted
leave to intervene, no other party, including Gordon, will
suffer any prejudice of any nature whatsoever.’
The
application to intervene was opposed by the respondent.
[7]
The high court (Kades AJ) dismissed the respondent’s
application with costs. An appeal by the respondent to the full court
(court a quo), was upheld and an order of substitution, together with
costs, was granted in favour of the respondent. The
appellants’
appeal against this judgment is with special leave from this court.
[8]
It was common cause that the high court had made no order in respect
of the application to intervene. Similarly, the court a
quo also did
not pronounce upon this matter, save to record in its judgment that:
‘
The
appellant filed a notice to appeal and set out lengthy grounds of
appeal which included an attack on the right of the intervening
party
to be heard. However, this challenge was not pursued in the Heads of
Argument, correctly so’.
At
the hearing of this appeal, the respondent accepted, for purposes of
this judgment and to prevent any further delay, that the
second
appellant was a party to these proceedings.
[9]
Cession has been defined as a bilateral juristic act in terms of
which a right is transferred by agreement between the transferor
(cedent) and transferee (cessionary).
[1]
Generally,
no formalities are required for the antecedent obligatory agreement
or the act of cession.
[2]
The
parties may agree on the formalities with which the cession is to
comply.
[3]
A
cession may thus be either express or tacit, or may be inferred from
the conduct of the parties.
[4]
While
the cession does not have to be reduced to writing
,
the
parties may agree that the cession will only be valid if reduced to
writing.
[5]
[10]
The deed of cession in this matter contains both the antecedent
obligatory agreement (the agreement to cede) as well as the
act of
cession. The Preamble of the Cession records in relevant part:
‘
1.2
On 3 May 2005 the CESSIONARY settled the JUDGMENT on behalf of the
DEBTOR.
1.3
After the JUDGMENT was settled, there remained an additional claim in
favour of the BANK
against the DEBTOR in the amount of R238 891,51,
together with interest on the amount of R209 882,48 at the rate of
8,25% per annum
from 3 June 2005 to date of payment, calculated daily
an[d] compounded monthly, both days inclusive, (“the ADDITIONAL
CLAIM”)
1.4
On 10 August 2005, the CESSIONARY made a final payment to the BANK on
behalf of the DEBTOR
in settlement of the ADDITIONAL CLAIM.
1.5
In return for the payments made by the CESSIONARY on behalf of the
DEBTOR, the BANK agreed
to cede the JUDGMENT and the ADDITIONAL CLAIM
to the CESSIONARY.’
[11]
The act of cession reads:
‘
2.1
The BANK hereby cedes, transfers and makes over unto and in favour of
the CESSIONARY, all of the
BANK’S right, title and interest in
and to the JUDGMENT and the ADDITIONAL CLAIM.’
The
cession is accepted by the respondent in the following terms:
‘
The
CESSIONARY hereby accepts the cession upon and subject to the terms
of this Agreement.’
[12]
In this court and in the court a quo, it was contended, on behalf of
the appellants, that at the time when the deed of cession
was
executed and fulfilled on 9 September 2008, there was nothing to cede
because the debt had been extinguished by payment. This
argument was
rejected by the court a quo which reasoned as follows:
‘
[25]
In my view the first respondent’s argument is without merit
because shortly before the appellant paid the judgment debt
the
respondents acknowledged their indebtedness to the appellant and
agreed on the 26
th
April 2005 that the appellant should take cession of the judgment
debt. This was before the appellant settled the judgment debt
on the
3
rd
May 2005.
[26]
It is clear from the ratio of the above cited cases that the
appellant stepped in as a form of surety for the respondents’
debt at a time when the respondents’ immovable property was
under judicial attachment and was due to be sold. The fact that
the
deed of cession between plaintiff and the appellant was only executed
three years later and after payment of the judgment debt,
does not in
my view divest the appellant of the right to the judgment debt which
was ceded to him prior to payment.
[27]
Transfer of the right to the judgment debt was achieved by the
interactive meeting of the minds of the respondents and the
appellant. By their mere agreements when the loan was advanced
transfer of the right to the judgment was effected irrespective
of
the date of signing of the deed of cession which was a mere formality
confirming what had been agreed upon on the 26th April
2005 prior to
payment of the debt.’
[13]
The reasoning of the court a quo is flawed in a number of respects.
The defendants could not transfer a right in the judgment
debt to the
respondent. They could not cede something that did not belong to them
and to which they had no right. This is in accordance
with
the
common law adage that nobody can transfer more rights to another than
he himself has (
nemo
plus iuris ad alium transferre potest quam ipse haberet
).
[6]
The
right could only be transferred from and by the bank to the
respondent or any other party it chose. There could therefore not
have been a ‘transfer of the right to the judgment debt . . .
by the interactive meeting of the minds’ of the appellants
and
the respondent as the court a quo found
.
[7]
[14]
The cession was not a ‘mere formality’ as found by the
court a quo. The deed of cession was a juristic act in terms
of which
the cession was executed. Whatever happened prior to the execution of
the cession was of an obligatory nature and a duty
to cede arose on
account of a promise made by the Bank. That duty was fulfilled by the
execution of the deed of cession.
[15]
The court a quo failed to distinguish between the agreement to cede
(the obligatory agreement whereby an obligation is created)
also
referred to as the
pactum
de cedendo
and the cession itself (the real agreement whereby rights are
bilaterally transferred) also known as the
pactum
cessionis
.
In
Grobbelaar
& others v Shoprite Checkers Ltd
,
[8]
Brand
JA explained that ‘[a]
cession
is an abstract legal act that is independent of the underlying,
obligationary, agreement’.
[9]
Justice
P M Nienaber puts it well in his contribution to the Law of South
Africa, aptly distinguishing between these two types of
agreements:
‘
The
undertaking to cede and the actual cession will often coincide and be
consolidated in a single document, yet they remain discrete
juristic
acts. However, because they are frequently merged into one
transaction the clear distinction between the obligatory agreement
to
cede and the actual cession sometimes tend to be smudged. They are
nevertheless distinct in function and can be so in time:
by the
former a duty to cede is created, by the latter it is
discharged.’
[10]
[16]
It has already been stated that while a cession does not have to be
reduced to writing, the parties may agree that the cession
will only
be valid if reduced to writing.
[11]
The
leading judgment on this point is that of Innes CJ in
Goldblatt
v Fremantle
[12]
where
the learned Chief Justice said that the question in each case is one
of construction.
[13]
He
stated, in a passage that is often referred to with approval:
[14]
‘
Subject
to certain exceptions, mostly statutory, any contract may be verbally
entered into; writing is not essential to contractual
validity. And
if during negotiations mention is made of a written document, the
Court will assume that the object was merely to
afford facility of
proof of the verbal agreement, unless it is clear that the parties
intended that the writing should embody the
contract. (
Grotius
3.14.26
etc.). At the same time it is always open to parties to agree that
their contract shall be a written one (see
Voet
5.1.73. V.
Leeuwen
4.2., sec. 2,
Decker's
note); and in that case there will be no binding obligation until the
terms have been reduced to writing and signed’.
[15]
[17]
The deed of cession, far from being a ‘mere formality’,
as found by the court a quo, is critical in determining
the intention
of the parties. When interpreting documents, words must be read in
their context and in application of the subject
matter to which they
relate.
[16]
The
ordinary meaning of the words must be determined in the context of
the document, read as a whole.
[17]
[18]
It is clear from the deed of cession that the parties intended that
the written document embody their contract. The words of
clause 2.1,
‘The BANK hereby cedes, transfers and makes over’ make
plain what was intended by the bank and the respondent.
In terms of
the deed of cession, the respondent accepted the ‘cession upon
and subject to the terms of this [a]greement.’
The parties
intended that upon signature thereof, transfer of the right would
take effect.
[19]
When the deed of cession was executed and fulfilled, there was
nothing to cede because the debt had been extinguished by payment.
Payment usually serves to extinguish a debt. The author JC Sonnekus
in
Unjustified
Enrichment in South African Law
states that ‘a debt is after all fulfilled and extinguished
through payment.’
[18]
Brand
JA in
Grobler
v Oosthuizen
[19]
held
that a cession cannot stand without a principal debt and ‘it
matters not whether the principal debt is extinguished or
never
existed at all’.
[20]
The
learned judge quoted and found support for this view in the following
dictum by Watermeyer J in
Standard
Bank of SA Ltd v Neethling NO
:
[21]
‘
.
. . [T]he next point which arises is whether the cession of the
policy and the security created thereby was rendered null and
void on
the extinction of the principal debt. In this regard I refer first to
Kilburn
v Estate Kilburn
,
1931 AD 501
at p. 506, where WESSELS, A.C.J., said:
“
It
is therefore clear that by our law there must be a legal or natural
obligation to which the hypothecation is accessory. If there
is no
obligation whatever there can be no hypothecation giving rise to a
substantive claim.”
Kilburn’s
case
was not a case where a principal obligation subsequently became
extinguished. It was a case where there never had been a principal
obligation. It seems to me however that there is no distinction in
principle between the two cases . . . After . . . the principal
debt
was extinguished . . . there remained no obligation to support the
cession by way of security.’
[22]
[20]
It follows that when ‘transfer’ of the real right was
effected, there was no right which could be transferred.
The
respondent had paid the bank all that was due to it. Transfer of a
‘right’ which has been extinguished is a nullity
as there
is nothing which can be transferred. I agree with the principle that
as a matter of logic, a non-existent right can never
in law be
transferred as the subject matter of a cession.
[23]
The
respondent, the bank and their legal representatives, ought to have
considered the effect of the payment of a debt, which had
been ceded
where the cessionary was not a surety.
[21]
The court a quo relied on and applied principles of the law of
suretyship (para 26 of the judgment quoted above). The respondent
was
not a surety for the debt of the defendants. It was common cause that
they had not concluded a suretyship agreement. The court
a quo’s
reasoning in this regard is thus based on an incorrect premise.
[22]
Cession of an action is an
ex
lege
benefit afforded to a surety who pays a creditor and that entitles a
surety to claim cession of action from the creditor. This
is a clear
exception to the principle that once a liability has been
extinguished by payment, the right to payment is extinguished
and
cannot be transferred.
[24]
[23]
It was contended, on behalf of the respondent, that the
correspondence exchanged between the legal representatives of the
respondent and the bank, contains the cession itself and is not
merely an intention to cede. It was further contended that the
intention of the parties should be ascertained with regard to such
correspondence and that the deed of cession was merely a recordal
of
their previous agreement.
[24]
It would appear that negotiations between the aforementioned legal
representatives commenced during April 2005. On 3 May 2005
the
respondent’s attorneys, Stanley Brasg & Associates, wrote a
letter to Routledge Modise Moss Morris, who acted on
behalf of the
bank, in which they recorded that they had paid an amount of R4,2
million into the bank account nominated by the
respondent. The
concluding sentence of that letter reads:
‘
Kindly
confirm that your client will sign the required Cession of Judgment
in favour of our client’
The
reply from Routledge Modise, reads, in relevant part:
‘
We
confirm that your Mr Brasg will draft the cession of the judgments
obtained by our client on a basis suitable to your client
and which
will be signed by our client once the balance of the monies owing to
our client, have been paid’.
This
exchange of correspondence is not without significance. Despite the
fact that the respondent had paid R4,2 million to the bank,
the
latter still refused to sign the draft deed of cession on the basis
that further monies were owed to it by the defendants.
[25]
On 1 June 2005 Stanley Brasg wrote a letter to Routledge Modise in
which they recorded that they had been placed in funds,
they were in
a position to make payment and requested details of the final amount
due. They attached a draft Agreement of Cession
of the judgment in
favour of the bank, to the respondent. The response to that letter,
dated 6 June 2005, recorded the amount due
and stated:
‘
Upon
receipt of payment of the aforesaid amount into our client’s
account . . . we will arrange for our client to sign the
agreement of
cession attached to your telefax of 1 June 2005.’
[26]
The contention advanced on behalf of the respondent cannot be
sustained. It is clear from the correspondence that the deed
of
cession would be executed after payment was made by the respondent
and was not to be contemporaneous with payment. The correspondence
between the parties is consistent with an intention on the part of
the bank to execute the deed of cession
after
payment of the judgment debt.
[27]
In his Founding Affidavit, the respondent relied on the written deed
of cession for the relief of substitution. He made the
following
averment in support of his application:
‘
In
settlement of the Defendants’ total indebtedness to the
Plaintiff, I made payment to the Plaintiff's attorneys of the sum
of
R4 439 675,80. Against such payment, the Plaintiff, on 29 August
2008, signed an Agreement ceding its rights to the Judgment
and its
additional claims against the Defendants, to me. I attach hereto
marked “FA6”, a copy of the Agreement of Cession’.
A
copy of the deed of cession was attached to his affidavit.
[28]
In his Replying Affidavit, the respondent’s version was altered
to encompass a contemporaneous cession upon payment of
the judgment
debt. He stated that:
‘
The
condition precedent to my paying the Plaintiff the amount of the
judgment, was that I take cession of the judgment from the
Plaintiff.
Only after the Plaintiff had agreed to my condition and had agreed to
cede the judgment to me, was payment made. I effectively
purchased
the Plaintiff’s rights in and to the judgment.’
[29]
In my view, there are two insurmountable hurdles in the ‘new’
version being accepted. First, the general rule in
motion proceedings
is that an applicant must stand or fall by the averments made out in
its founding affidavit.
[25]
It
is not permissible to make out a new case in the replying
affidavit.
[26]
Secondly,
the terms of the deed of cession are inconsistent with the ‘new’
version. The parties thereto, having elected
to reduce their
agreement to writing, are bound by such election and the resultant
agreement.
[30]
For these reasons the following order is made.
1
The appeal is upheld with costs.
2
The order of the court a quo is set aside and replaced with the
following:
‘
The
appeal is dismissed with costs.’
_________________
LV
Theron
Judge
of Appeal
APPEARANCES:
For
the Appellants:
P Pauw SC
Instructed
by:
Botoulas Krause & Da Silva Inc, Johannesburg
McIntre
& Van der Post, Bloemfontein
For
the Respondent:
S M Katzew
Instructed
by:
Stanley Brasg & Associates, Johannesburg
Lovius
Block, Bloemfontein
[1]
P M Nienaber
in the title on ‘Cession’ 3 Lawsa 3ed para 128;
LTA
Engineering Co Ltd v Seacat Investments (Pty) Ltd
1974
(1) SA 747
(A) at 762A;
1974 (2) ALL SA 6
(A).
[2]
National
Sorghum Breweries Ltd v Corpcapital Bank Ltd
2006 (6) SA 208
(SCA);
[2006] 2 ALL SA 376
(SCA) para 1.
[3]
National
Sorghum Breweries supra
para
1.
[4]
Botha
v
Fick
[1994] ZASCA 184
;
1995 (2) SA 750
(A) at 762B-H and 778F-G.
[5]
S Scott,
The
Law of Cession
2ed (1991) at 26 fn 16.
[6]
Oriental Products (Pty) Ltd v
Pegma 178 Investments Trading CC & others
(2011
(2) SA 508
(SCA);
[2011] 3 All SA 173
(SCA))
[2010] ZASCA 166
;
126/2010 (1 December 2010) para 26.
[7]
P
ara
12 above.
[8]
Grobbelaar
& others v Shoprite Checkers Ltd
(710/2008)
[2011]
ZASCA 11
(11 March 2011).
[9]
Ibid, para
18.
[10]
2
Lawsa
2ed Part 2 para 8;
Botha
supra fn 4 at 765A-B.
[11]
S Scott,
The
Law of Cession
2ed (1991) at 26 fn 16.
[12]
Goldblatt
v Fremantle
1920 AD 123.
[13]
Ibid at 129.
[14]
See
Weinerlevin v
Goch Buildings Ltd
1925
AD 282
;
Sapro v
Schlinkman
1948 (2)
SA 637
(A);
Morgan &
another v Brittan Boustred Ltd
[1992] ZASCA 39
;
1992 (2) SA 775
(A);
Lambons
(Edms) Bpk v BMW (Suid-Afrika) (Edms) Bpk
[1997] ZASCA 51
;
1997 (4) SA 141
(SCA);
Pillay
& another v Shaik & others
[2008]
ZASCA 159
; 2009(4) SA 74 (SCA) ; [2009] 2 All SA 435 (SCA).
[15]
Goldblatt
supra fn 10
at
128-129.
[16]
Consolidated
Diamond Mines of South West Africa Ltd
v
Administrator,
SWA & another
1958 (4) SA 572
(A) at 599A-C.
[17]
Liebenberg
NO & others v Bergrivier Municipality
[2013] ZACC 16
;
2013 (5) SA 246
(CC);
2013 (8) BCLR 863
(CC) para
39. See
Natal
Joint Municipal Pension Fund v Endumeni Municipality
[2012] ZASCA 13
;
2012 (4) SA 593
(SCA) paras 17-26; A
ir
Traffic and Navigation Services Company v Esterhuizen
(668/2013)
[2014] ZASCA 138
(25 September 2014) para 22;
Nelson
Mandela Bay Municipality v Amber Mountain Investments 3 (Pty) Ltd
(576/2016)
[2017] ZASCA 36
(29 March 2017) para 14.
[18]
J C Sonnekus,
Unjustified
Enrichment in South African Law
,
(2008) at 237.
[19]
Grobler
v Oosthuizen
[2009]
ZASCA 51; 2009 (5) SA 500 (SCA); [2009] 3 All SA 508 (SCA).
[20]
Ibid para 21.
[21]
Standard
Bank of SA v Neethling NO
1958
(2) SA 25 (C).
[22]
Ibid, at 30A-D
.
[23]
See
Joubert
JA in
First National
Bank of SA Ltd v Lynn NO & others
[1995] ZASCA 158
;
1996
(2) SA 339
(A) at 346C (minority judgment).
[24]
S
Scott,
The Law of Cession
2ed (1991) at 218 and C F Forsyth and J T Pretorius
Caney’s
The Law of Suretyship in South Africa
,
6ed (2010) at 154 fn 69.
[25]
Betlane v Shelly Court
CC
[2010] ZACC 23
; 2011(1) SA 388 (CC) para 29;
2011 (3) BCLR 264
(CC);
National Council of
Societies for the Prevention of Cruelty to Animals v Openshaw
[2008]
ZASCA 78
;
2008 (5) SA 339
(SCA) paras 29-30.
[26]
Betlane
supra
ibid;
Director of
Hospital Services v Mistry
1979 (1) SA 626
(A) at 636A-B.