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[2008] ZAWCHC 46
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Standard Bank of South Africa Limited v D Florentino Construction CC and Others (1416/2007) [2008] ZAWCHC 46; 2008 (5) SA 534 (C) (18 February 2008)
JUDGMENT
IN THE
HIGH COURT OF SOUTH AFRICA
(
CAPE
OF GOOD HOPE PROVINCIAL DIVISION)
CASE NO
:1416/2007
DATE:
18
FEBRUARY 2008
In the
matter between:
THE STANDARD
BANK OF
SOUTH AFRICA
LIMITED Applicant
and
D
FLORENTINO CONSTRUCTION CC
1
st
Respondent
ALEX
VERNIER
2
rd
Respondent
THE
MASTER OF THE HIGH COURT 3
rd
Respondent
J U D G M
E
N T
DAVIS
J
Introduction
[1] The
applicant held first and second mortgage bonds over the
property
situated at 14 Bakker Street, Welgemoed, Cape Town ("the
property"). The bond secured loans in the amount of
R2 462
500.00 which were advanced to the owner of the property, Mr Douw
Wessels ("Wessels") during 2004. Wessels
has since
passed away with the result that he is now represented in the
application by second respondent in his capacity as the
duly
appointed executor of Wessels' estate. It would appear that other
than to confirm the contents of the founding affidavit
and to
express support for the relief sought, second respondent has not
been active in any way in this application.
[2] Around
the time of the registration of the first of the mortgage bonds on 2
July 2004, Wessels concluded a JBCC minor works
agreement with first
respondent in terms of which first respondent agreed to complete
substantial alterations to the home situated
on Wessels' property
("the JBCC contract"). In terms of 2.5 and 2.6 of that
contract it was expressly stated that first
respondent would retain
a right of retention over the building works as security for payment
under the contract unless a JBCC
payment guarantee was provided by
Wessels within 14 days of the conclusion of the contract. It appears
to be common cause that
no such payment guarantee was ever provided.
[3] Between
July and October 2004, first respondent completed a large portion of
the building work required of it in terms
of the contract.
Notwithstanding first respondent's performance of these
obligations, Wessels failed to honour obligations
to pay first
respondent the sun of R123 561,07 which was owed in respect of the
completed improvements to the property. On 1
October 2004, first
respondent exercised a builder's
lien
over
the property in an effort to secure payment of the amounts owing to
it.
[4]
AttachAttached to the founding affidavit is an Annexure "I"
which incorporates a calculation of first respondent's
claims
against Wessels' estate as at December 2006. According to this
calculation, respondent claims to have incurred further
losses since
the calculations undertaken but the amounts reflected there, in his
view, suffice for the purposes of the
liens
which
he claims over the property, In terms of the calculation he has
alleged that he has the following rights in respect of the
property:
1. A
debtor/creditor
lien
in
respect of the following amounts:
1.1. R123
561.07 owing to first respondent for the building work undertaken to
Wessels' home under the JBCC contract;
R111
282,22 in respect of interest that has accrued on overdue amounts
owing under the JBCC contract between October 2004 and
December
2006.
2. A
common law salvage and improvement
lien
(Jus retentionis)
in
respect of the following amounts:
2.1
.
R123
561,07 being the market value of the improvements effected by first
respondent to Wessels' property during the building
works. First
respondent submits that it is legally entitled to claim both an
improvement
lion
and
a debtor and creditor
lien
in
respect of this amount and as authority therefor cites
D_
Glaser
& Sons v The Master & Another N.O.
1979(4) SA 780 (C) at 788G-H;
2.2
.
R254
448,00 in respect of necessary expenses
(impensae
necessarise)
incurred
by first respondent in maintaining the property on Wessels'
behalf and in respect of the value of Wessels' enrichment
as a
result thereof;
2.3
R123
120 in respect of necessary expenses incurred by first respondent in
ensuring the security of the property during the
period
October
2004 and December 2006.
[5]
Applicant, as a bond-holder, has now come to court seeking an order
"that the property be relinquished to the second
respondent
subject to the preservation of such rights and/or entitlements as to
liens
and/or
rights of retention as the first respondent may enjoy prior to
relinquishing the property to the second respondent".
In
addition, applicant seeks an order compelling first
respondent to institute proceedings against second respondent
for
the recovery of its claims within a period of one month from the
date of the final order, failing which the preservation
of the first
respondent's rights in and to the property shall lapse.
[6] Mr
Van
Helden
,
who appeared on behalf of the first respondent, raised a series of
reasons as to why this Court should not grant the relief
so sought.
In particular, he raised the following:
1. There
is in his view no authority in South African law which condones the
common law substitution of lien-holders rights
of retention at the
instance of anyone other than the registered owner of the
property concerned.
2. The
applicant has no contractual entitlement to insist that the
possession of the property be relinquished and its rights under
the
mortgage bonds be ranked below those of the first respondent.
3. Rights of
retention which are conferred by salvage or improvement
Hens
cannot
be substituted by the provision of alternative security. The
discretion is only capable of being exercised to substitute
rights
of retention conferred by a debtor/creditor
lien.
4. The
substitution of a right to retention conferred by the express terms
of the contract cannot under any circumstances be substituted
by
application of the common law discretion to order the provision of
alternative security. First respondent's JBCC contract
expressly
confers upon it an express contractual right to retain possession of
the property until it has received full payment.
[7] It
would appear in examining the authorities cited in support of these
arguments that in every decided case in South African
law in which
substitution of the right to retention has been ordered, the
applicant appeared to be the owner of the property
in issue. It is
correct, as Mr
Sievers.
,
who appeared on behalf of the applicant said, the authors of LAWSA
Vol. 15 paragraph 85 contend:
"The
owner of the property over which a right of retention is
exercised may defeat the
lien
by
furnishing adequate security for payment of the debt secured and in
principle so may any debtor who has a possessory right
to the
res
action
held. Whether the court will exercise its discretion to order
restoration of the property to its owner (or the person with
the
right to possession) will depend on the particular facts of each
case, The security need not cover the costs of a possible
action by
the
lien
holder
since the security is regarded as a mere substitution for the
lien
and
not as an additional security".
[8] No
authority is cited by the authors for the extension of the
proposition beyond that which appears to have been decided in
the
courts.The judgment in
Hoch
Metals Africa Ltd v Otavi Mining Company Ltd
1968(1) SA 571 (A) at 582 is therefore of particular importance in a
dispute of this kind. It therefore necessitates some comprehensive
treatment.
Ogilvie-Thompson,
JA
(as he then was) said at 582-583:
"In
every one of the above long line of cases relied upon by counsel for
applicant, the question was whether the Court should,
in its
discretion, release - against the provision of adequate security â
the property in issue from a right of retention which
had arisen
over the property by operation of law. With one possible
exception...the applicant in all these cases was the owner
of the
property in issue.
In the
present case, if - as was submitted by counsel for applicant,
but concerning which express no opinion - it would
be correct
that in the events that have happened the bills of lading in the
hands of respondent constitute no more than a security
equivalent to
a right of retention over the flint clay, it is nevertheless
indisputable that such security derives not from operation
of law
but from the very agreement between the parties whereunder the bills
of lading were made out in the name of and
delivered
to the respondent. Accordingly in attempting to invoke the
Spitz
v Kesting
principle, counsel for applicant thus seeks to extend the operation
principle to cover the case of a party
(applicant)
who repudiates ownership in the article (the flint clay) over which
the security (the bills
of
lading)
is claimed to exist, even although such security is not an ordinary
right of retention arising by operation of law but
the rights of an
express agreement between the parties. The only authority cited in
support of such an extension was Van Leeuwen...That
passage, deal
ing as it does with the
rights of a
pledgor, does not appear to me to relate to the subject of the
present enquiry which , as already indicated, is specifically
dealt
with by Van Leeuwen in 1.4.37,13...
In terms of
the contract between the parties the bills of lading were, as
explained at the outset of this judgment, to be handed
over by the
respondent to applicant against payment by the latter of the
purchase price in full. In short, this was a contractual
stipulation. The general rule of course is that in a contract of
purchase and sale the party who seeks to enforce performance
must
first fulfil or be ready and able to fulfil his own contractual
obligations...To accede to applicant's present demand for
delivery
of the bills of lading, not against payment in full but against
partial payment plus security, would be to run directly
counter to
the express agreement of the parties and in effect to make a new
contract for them".
[9] In
the present case the relevant passages of the
agreement
become important for the same reason that in the
Hoch
Metals'
case it was the agreement which formed much of the basis of the
reasoning of
Ogilvie-Thompson,
JA
as is apparent from the passage that I have just read. The relevant
parts of the agreement for the purpose of this dispute
are:
"2.5
The employer (second respondent) shall provide a JBCC
payment guarantee to the
contractor
(first respondent) for the duefulfilment of his
liability in terms of this agreement within 14 calendar
days of
his acceptance of the tender. Such guarantee shall be issued
by a guarantor to the reasonable approval of
the contractor;
2,6 the
contractor shall provide a JBCC waiver of
lien
to
the employer on receipt of the JBCC payment guarantee". It is
clear in this case that, as the guarantee was not provided,
it is
the common law
lien
that
continues to operate. There is no provision in this contract for
any
lien
of
a kind which was not a common law
lien.
In
other words, this case is distinguishable from the reasoning in
Hoch
Metals
because in this case, were a JBCC payment guarantee not to have been
provided, the default position was that the common
law
continued to operate. Therefore, were the owner (second
respondent) in this cases to offer security, the Court would
have
been able to exercise a discretion and grant relief. That much is
clear from the authorities which have been cited to me
as well as
from the
Hoch
Metals'
case.
[10] That
conclusion leads to the second objection raised by
second
respondent. Mr
van
Helden
submitted that the applicant has failed to establish on the papers
that it has any contractual right enforceable against the
first
respondent to claim the substitution of the first respondent's
rights as a
lien
holder.
Notwithstanding this fact, applicant alleged at paragraph 7.4 of its
replying affidavit that;
"The
applicant's application is an independentapplication where in
the applicant seeks
to
give
effects to its rights".
Mr
van
Helden
contended that the applicant does not rely on any rights of
ownership in respect of the property but rather has attempted to
make out a cause of action on the basis of its rights under the
mortgage bond registered over the property, He further submitted
that a bond
holder has no common law rights to claim substitution
of a
lien
holder's
security. It is therefore evident, in his view, that the
applicant can respect of the property as are bond. have only
such
rights in,contained in the mortgage
[11]
Insofar as it was relevant to the current application, Mr van Helden
submitted that the applicant's rights in terms of :he
mortgage bond
registered over the property were limited to the following. In the
event of a default in the payment of the monthly
instalments owing
under the bond the applicant was entitled to claim the full
outstanding balance and to take legal steps for
a court order
declaring the property executable. Once it has successfully obtained
an order declaring the property to be executable,
the applicant was
entitled to demand that Wessels vacate the property if requested to
do so by applicant. In his view it was
immediately apparent that
neither of these rights afforded the applicant an entitlement to the
relief which had been sought in
the current application. In
particular, there had been no order obtained declaring the property
executable and, even if such
an order had been obtained, first
respondent's retention of its possession of the property would not
prevent a sale in execution
and would accordingly not frustrate
applicant's rights under the mortgage bond to execute against
the property.
[12]
The applicant complained that the first respondent's continued
occupation of the property would diminish the value at
which the
property could be sold. However, mortgage bonds confer a right to
execute against the property not a right
to sell the
property in ideal conditions and for the best attainable selling
price. While the mortgage bonds afforded
the applicant the right to
request that Wessels vacate the property, Mr
van
Helden
submitted that no such right was created with reference to the first
respondent.
[13] This
application is, however, brought in a particular fashion which is
somewhat different from the arguments which I have
summarised and
which were raised by Mr
van
Helden
.
The application is brought by applicant as abond holder to compel
first respondent to relinquish the property to second respondent,
which supports the relief. If successful, second respondent will
then be restored to ownership. What applicant has effectively
sought to achieve in this application as an interested party is to
assist second respondent to obtain restoration of the estate
property. From the papers, it appears that the object is to enable
second respondent to sell the property and with the proceeds
discharge the estate's obligations.
[14]
Although the determination of the
lien
and
the claims which underpin the
lien
are
not for decision in this application, it should be noted that
Wessels disputed, and second respondent continue to
dispute, first respondent is entitled to a
lien
over
the property on the basis of a counter-claim of approximately the
same amount. As Mr
Sievers
noted, the longer that first respondent continues to refuse to hand
over control and possession of the property, the greater
the
prejudice to applicant as the value of the applicant's security will
be ercded by ever-amounting finance charges which are
evident from
the papers, both insofar as applicant and the first respondent are
concerned.
[15] A
Further point pressed by Mr
Sievers
was that even should the first respondent have a
lien,
which
is denied by the applicant and second respondent, such
lien
would
only outrank applicant's security to the extent that it was a lien
for improvements to the property.
[16] In my
view, this is a case where the Court needs to consider an exercise
of a discretion. In
Spitz
v Kesting
1923
WLD 45
at 49,
Tindall.
J
(as he then was) said the following in regard to the nature of the
discretion:
"The
weight of authority seems to me to be in favour of the view that
even where the claim in respect of which the use
ius
retentionis
is
asserted is made in good faith, the Court has the power to order
delivery to the owner against adequate security. Each
case
will depend on its particular facts and the Court in exercising its
discretion, will have regard to what is equitable under
all the
circumstances bearing in mind that the owner
should not
be left out of his property unreasonably and, on the other hand,
should not be given possession if his object is, after
getting
possession, to delay the claimant's recovery of expenses".
In
S
andton
Square Finance Ltd v Vigliotti
1997(1) SA 826 (W) at 833,
De
Villiers, J
considered that this approach to discretion should also be applied
in respect of improvement
liens
and
not only with regard to debtor and creditor
liens.
[17] In
the present case the following pro-pointers exist in favour of an
exercise of discretion by this Court in favour of
the applicant:
1.
Relief can be crafted to provide adequatesecurity for first
respondent. Ultimately a
lien
is
a form of security for the claim. If first respondent satisfies
his claim he must be in the position where the claim is paid
in full
and therefore that his right is not rendered illusory.
2. The
only asset insofar as I could infer from these papers is erf 753
Bellville. If the
impasse
which
presently exists continues between a determined li
en
holder
(being first respondent) and an estate (being second
respondent) which disputes the claim and it
can only
discharge its obligation if it sells the property, interest charges
against the property will continue to escalate to
the detriment of
the estate and, indeed, all the parties concerned.
3,
By
means of a sale the various claims can be paid to best advantage of
all.
4.
The
claim is clearly disputed, both in respect of a counter-claim
and on prescriptiongrounds, which were raised by Mr
Sievers
and which I do not intend to traverse save to mention that they have
been cogently argued before this Court.
[18] What
are the counter-pointers? The only counter-pointer is that if the
first respondent relinquishes his
lien
he
may fine that part thereof is not ranked above the bond and that
further he may not have quite the level of pressure which
continues
to exist to date. In my view, once it is accepted that the present
dispute ranks in similar fashion to an owner and
a
lien
holder
for the reasons that I have already advanced, and once it is
accepted that this Court can exercise a discretion, both in
relation
to debtor and creditor
liens
and
improvement
liens,
the
Court is at large to exercise its discretion,
[19] In the
exercise of this discretion, the doctrine of proportionality always
offers guidance. When the Court sets out the pro-pointers
against
the counter-pointers, it is manifest that this is a case which calls
for judicial intervention. The balance is therefore
in favour of the
applicant. Accordingly this Court will exercise its discretion to
make the following order.
[20]
I must raise the question of costs which was hotly disputed. Given
the order that I am about to make is one not dissimilar
from an
offer which was made by the attorney for applicants some while ago
(19 December 2003) there appears to be no reason why
costs should
not follow the result. Had that offer been accepted this case
would never have reached court, interest charges
would not have
escalated and the matter could have been settled.
The
following order is therefore made:
1.
First
respondent is to forthwith relinquish possession and control of erf
753 Bellville in the City of Cape Town, Cape
Division,Western Cape Province in extent 1833m
2
and situate at 14 Bakker Street, Welgemoed (the property) to second
respondent subject to the preservation of such rights as
the first
respondent may presently enjoy in law as to security, rankings and
preference,
2.To the
extent that the first respondent's claim outranks applicant's claim,
that applicant jointly and severally with second
respondent
guarantees payment of the first respondent'sclaim as may be
proved in the action contemplated in paragraph
4 below.
3.
To
the extent that the proceeds of the realisation of the property
exceed that portion of any of the first respondent's
claimoutranking applicant's claimplusthe applicant's claim, the
second respondent shallretain in trust such surplus (less
applicablecosts of realisation and administration) to
thesatisfaction of any claim preferent to other creditors which may
be
proved by the first respondent in terms of clause 4 below.
4.
First
respondent is granted leave to institute proceedings against the
second respondent joining applicant as a party by virtue
of its
interest therein for recovery of the claim it alleges are
secured/preferred as aforesaid within a period of one month
from the
date of this order. In such action the first respondent shall be
required to prove to what extent, if any, its claim:
4.1 Outranks
that of the applicant; and/or
4.2. enjoys
any preference over the claims of any other creditors.
5.
The
guarantee and preservation of rights detailed there under shall
lapse in the event of the first respondent failing to
institute
action as aforesaid.
6.
First
respondent shall pay the costs of this application.
IN
THE HIGH COURT OF SOUTH AFRICA (CAPE OF GOOD HOPE PROVINCIAL
DIVISION)
Reportable
Case
No: 1416/2007
In
the matter between:
The
Standard Bank of South Africa Limited
Applicant
and
D
Florentino Construction CC
First
Respondent
Alex
Venter NO
Second
Respondent
The
Master of the High Court
Third Respondent
CORAM D
M DAVIS J
JUDGMENT
BY DAVIS J
FOR
THE APPLICANT ADV. F S G SIEVERS
INSTRUCTED
BY WILLIAM INGLIS ATT.
FOR
THE RESPONDENT S ADV. R VAN HELDEN
INSTRUCTED
BY MAURICE PHILLIPS WEISENBERG
DATE
OF HEARINGS 11 FEBRUARY 2008
DATE
OF JUDGMENT 18 FEBRUARY 2008