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[1986] ZASCA 121
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Bank of Lisbon and South Africa Ltd. v Master of the Supreme Court (Transvaal Provincial Division) (127/86) [1986] ZASCA 121; [1987] 1 All SA 286 (A) (30 September 1986)
IN THE SUPREME COURT OF SOUTH AFRICA
(APPELLATE DIVISION)
In the matter of:
THE BANK OF LISBON AND SOUTH
AFRICA LIMITED
,
Appellant
versus
THE MASTER OF THE SUPREME
COURT
(TRANSVAAL PROVINCIAL DIVISION) ... First respondent
G H J VENTER
JUNIOR, N O
Second respondent
IMPERIAL MOTOR COMPANY
(PROPRIETARY) LIMITED .
Third respondent
NORTON ABRASIVES (PROPRIETARY)
LIMITED
Fourth respondent
M J DE PONTES
Fifth respondent
CORAM: RABIE, CJ, JANSEN, CORBETT, GALGUT, AJA.
DATE OF HEARING
: 19 May 1986 DATE OF JUDGMENT: 30 September
1986.
JOUBERT. JJA, et
JUDGMENT
GALGUT,
AJA:
A company, George de Pontes and Partners (Pty)
/ Ltd.......
2
Ltd ("the company"), was, because of its inability to pay its debts,
wound up by order of court dated 29 May 1979. Second respondent
was initially
appointed as provisional liquidator and thereafter as liquidator of the company.
I shall refer to him as the Liquidator.
Third, fourth and fifth respondents are
creditors of the company. The first respondent is the Master of the Supreme
Court (Transvaal
Provincial Division). The only creditors who proved claims in
the estate of the company were the appellant and third, fourth and
fifth
respondents. In the affidavit in proof of its claim for R58 327,77 appellant, to
which I shall refer as "the Bank", stated
that it had received security from the
company in the form of
" . . . . a general Pledge and Cession signed by the Company in favour of the
Bank in terms whereof the Company pledged to the Bank,
inter alia, all present
and future book debts. A copy of the Pledge and Cession is annexed hereto marked
'B', but the Bank is unable
to value its security at this stage with the
information at its disposal."
/ In
3
In para 7 of the affidavit the following is stated:
"The Bank relies entirely on its security and all suretyships that it may
hold for the said debt for the satisfaction of its claim."
The Master, after considering written representations which were made to him
(as to which more later) directed, on 20 October 1981,
that the Liquidator
should, in the relevant Liquidation and Distribution accounts, reflect the
Bank's claim as a concurrent claim.
The Bank challenged this ruling and applied in the Transvaal Provincial
Division for an order —
"calling upon first respondent to show cause why his decisions of 20 October
1981 in the Estate of George de Pontes and Partners (Proprietary)
Limited ('the
Estate') should not be reviewed and corrected so as to direct second respondent
to amend the first liquidation account
and the second and final liquidation and
contribution accounts respectively in the Estate so as to reflect that applicant
is not
liable for any costs of realisation nor any costs of administration in
the Estate."
/ The
4
The matter came before ACKERMANN J and he dismissed the application. The
Bank then appealed to the Full Court of that Division. That
appeal failed and
the present appeal before us is against the decision of the latter Court.
The third, fourth and fifth respondents were cited because of their
respective interests in the matter. No relief was sought against
them if they
did not oppose. They did not in fact oppose.
The security upon which the Bank relied in its proof of claim is clearly a
cession of book debts
in securitatem debiti
executed by the company in
favour of the Bank on 10 December 1977. Prior to the above cession the company
had executed, also in
securitatem debiti
, a cession of its book
debts in favour of Nedbank Limited. Nedbank at the date of the winding-up order
was in the
/ process
5
process of collecting the debts and continued to do so with the consent
of the Liquidator. It collected approximately R6 530 in excess
of the amount
owing to it. This sum was handed to the Liquidator. I shall refer to the Nedbank
cession as the first cession and the
Bank's cession as the second cession.
Provision was made in clause 23 of the second cession for the contingency of
a prior cession. The clause reads:
"'(23) without derogation from any warranty given by me/us to the BANK in terms
hereof, should it transpire that any security(ies)
promised or purported to be
given in terms hereof is/are subject to any prior pledge and/or cession with the
result that the BANK
is in whole or part deprived of such security(ies) or
precluded from taking delivery thereof, these presents shall, insofar as the
particular security (ies) subject to such prior pledge and/or cession is/are
concerned, or insofar as the particular part(s) of such
security(ies)
/ is/are
6
is/are concerned as the case may be
,
operate as a pledge and cession to
the BANK, upon all the terms and conditions herein set out, of all my/our
reversionary rights and
all my/our remaining right(s), title and interest in and
to such particular security(ies) and the subject matter thereof, as well
as all
my/our rights of action and recourse against the prior pledgee(s) and/or
cessionary(ies) thereof."
Prior to proving its claim the Bank had
written to the Liquidator confirming that he (the Liquidator) had
"knowledge of our (the Bank's) pledge over debtors and
debts that you would be collecting the book/and would account
to us in due course". The Liquidator replied stating:
"I confirm my knowledge of the fact that you hold a pledge over the sundry
debtors and in this regard I must inform you that the claim
of the Netherlands
Bank, who hold the first pledge over the sundry debtors, has now been settled in
full and consequently the total
proceeds of the debtors will now be subject to
your pledge."
/ At
7
At the time when the winding-up order was made the company was in the
process of performing certain contracts. The Liquidator decided
to have these
contracts completed. The ultimate cost of so doing was in the order of R97 000
whereas the amount which accrued to
the company therefrom was approximately R55
000. He then adopted the attitude that the Bank was liable for the R97 000 and
that it
could collect the R55 000 from the debtors.
Pursuant thereto the Liquidator framed a First Liquidation and Distribution
Account. It was advertised as lying for inspection. He
thereafter drew a Second
Liquidation and Distribution Account. The second account does not, as far as
affects this case, alter anything
in the first account. Neither account has been
confirmed. In the first account the Bank was reflected as a secured creditor but
the
cost of completing the executory contracts was shown as an amount to be
deducted from any sum due to
/ the
8
the Bank. The Bank lodged an objection to that account with the Master
and with the Liquidator. It contended that it was not liable
for the costs
occasioned by the completion of the executory contracts and submitted that the
shortfall resulting from the Liquidator's
decision to complete those contracts
should not be confused with the costs of realisation of its security. The
Liquidator responded
to the objection in a letter dated 4 March 1981 to the
Master. He wrote:
"On the information furnished me, I accepted that the objector (the Bank) was
to be treated as a secured creditor after Nedbank Limited
released its security
and treated it as a secured creditor. It was also specifically arranged between
the objector and myself that
as soon as Nedbank Limited had realised sufficient
security to satisfy its claim, I would realise the balance of claims against
debtors
on behalf of the objector for the benefit of the objector."
The Liquidator also submitted that he was "now" of the view that at the date
of liquidation the
/ Bank
9
Bank was not in possession of any security and was not a secured
creditor because at that time the cessionary of the book debts was
Nedbank which
was, at the relevant time, in possession and control of the security.
A great deal of correspondence followed.
It appears
therefrom that the Bank, in a letter to the Master, eventually conceded that it
held no security for its claim and was
not a secured creditor. It, however,
stressed that in its proof of claim it had specifically relied on its security;
that "since
the Bank relied on its security only there would be no concurrent
claim proved by it even if (as is the case now) there is in fact
and in law no
security"; that it was accordingly not liable to contribute towards costs which
had been occasioned by the completion
of the executory contracts; that such
costs were not costs of realisation of the security but were costs of
administration for which
it
/ was
10
was in any event not liable.
The Master in a letter dated 20 October 198l then ruled:
"As you and the Liquidator have conceded that your client does not have a
secured claim, I am directing the Liquidator to amend the
account to reflect
your client's claim as concurrent. Under the circumstances it is no longer
necessary for me to rule on your submissions
as to the extent of your client's
security or for which costs he would or would not have been liable as a secured
creditor in terms
of
Section 89(1)
of the
Insolvency Act No 24 of 1936
as
amended."
It was this decision which the Bank brought on review before the Court of
first instance. The relief which it sought has been set
out above.
I pause to mention that in terms of section 339 of the Companies Act No 61 of
1973 the provisions of the law relating to insolvency
shall, in so far as they
are applicable, be applied
mutatis mutandis
in the winding up of a
company unable to pay its debts.
/ It
11
It is necessary to refer to the following sections of the
Insolvency Act No
24 of 1936
("the
Act").
The
relevant definitions in
sec. 2
are as follows:
"
Security
", in relation to the claim of a creditor of an insolvent
estate, means property of that estate over which the creditor has a preferent
right by virtue of any special mortgage, landlord's legal hypothec, pledge or
right of retention;
"
property
" means movable or immovable property wherever situate within
the Republic, and includes contingent interests in property other than
the
contingent interests of a f
idei commissary
heir or legatee;
"
movable property
" means every kind of property and every right or
interest which is not immovable property.
Sec. 44(4)
provides that a claim shall be proved, at a meeting of creditors,
by affidavit setting out the relevant facts and particulars in
support of the
claim and
if the creditor holds security therefor "the nature and
/ particulars
12
particulars of that security".
Sec. 45(2)
requires the trustee to examine all claims for the purpose of
ascertaining whether the estate in fact owes the amount claimed.
Sec. 45(3)
provides that if a trustee disputes a claim after it has been
proved, he shall report to the Master giving his reasons. The Master
thereupon,
after affording the claimant an opportunity to substantiate his claim, may
confirm, reduce or disallow the claim.
Sec 52(5)
precludes a proved secured creditor from voting at meetings of
creditors, on matters not affecting his security.
Sec. 89(1)
sets out that any costs occasioned by the maintenance or
realisation of the property which is subject to the security is to be paid
out
of the proceeds of such property.
/
Sec. 89(2)
13
Sec. 89(2)
reads:
"If a secured creditor states in
his
affidavit submitted in support of his claim against the estate that he relies
for the satisfaction of his claim solely on the proceeds
of the property which
constitutes his security, he shall not be liable for any costs of sequestration
other than the costs specified
in sub-section (1), and other than costs for
which he may be liable under paragraph (a) or (b) of the proviso to section
one hundred and six
."
The relevant portion of
sec. 106
provides:
"Where there is no free residue in an in
solvent estate, or where the free
residue
is insufficient to meet all the expenses,
costs and charges
mentioned in section
ninety seven
, all creditors who have
proved
claims against the estate shall
be liable to make good any deficiency,
the
non-preferent creditors each in proportion
to the amount of his claim,
and secured
creditors each in proportion to the amount
for which he would
have ranked upon the
surplus of the free residue if there had
been any
"
Then follow certain provisos which have no application to the present
case.
/ In
14
In the Court of first instance only the Liquidator appeared to oppose. The
Master, in his report to the Court intimated that he was
not appearing to oppose
and stated
inter alia
that:-
"The applicant agrees that he has no security. For this reason he is
therefore a concurrent creditor."
ACKERMANN J analysed the relevant sections of the
Act. He
then quoted
sec.
89(2)
and went on to say:
"In
Section 106
the phrase 'all creditors who have proved claims against the
estate shall be liable to make good any deficiency' is likewise in the
widest
and clearest terms, as is the next succeeding phrase: 'the non-preferent
creditors, each in proportion to the amount of his
claim, and secured creditors,
each in proportion to the amount for which he would have ranked upon the surplus
of the free residue,
if there had been any'.
In these sections provision is only made for two classes of creditors,
secured and non-preferent creditors. There seems to me to be
no basis for
incorporating a third class, namely concurrent creditors who mistakenly claim to
have security for their claims and
state that they rely solely on the proceeds
of their security for satisfaction of their claim,
/ when
15
when no indication whatsoever exists in the
Act for
the acceptance of such a
third class
In my view the applicant is to be
treated as any other concurrent or non-preferent creditor would be in terms
of the
Insolvency Act."
>He accordingly dismissed the application and made an appropriate order as to
costs.
The Bank then noted the appeal to the Full Court. It detailed the grounds of
appeal- Their importance will appear later in this judgment.
Summarized they are
that the learned Judge had erred in holding that the Bank was a concurrent
creditor; that he had erred in not
holding that the Bank had specifically
limited its claim to its security and had never looked to the free residue for
payment; that
he ought to have held that the Bank was not obliged to contribute
towards making good the deficiency. The notice of appeal was served
on the
Master and on the third, fourth and fifth respondents. They did not appear to
resist the appeal.
/ It
16
It appears from the judgment of KIRK-COHEN J who delivered the majority
judgment of the Court a
quo
that the following issues were urged on
behalf of the Bank in that Court.
A. that the Court of first instance had erred in
holding that the Bank was a
proved concurrent
creditor;
B. that the concession made by the Bank to
the
. Master and in the Court of first instance to the effect that it was not a
secured creditor was incorrect and that since the concession
was based on a
mistaken view of the law the Bank was free to withdraw the concession;
C. that despite the wording of the notice of
motion and the way in which the
matter had
been argued in the Court of first instance
,
the
Liquidator would not be prejudiced if the
/
Bank
17
Bank were allowed to argue the issue raised in D
below;
D. that due regard being had to the terms of
the
cession in favour of the Bank and in particular to clause 23 thereof (as to
which see above), the Bank was in fact a secured creditor
and it
follows
that the Master's ruling cannot stand.
Ad
A above
:
The Court a
quo
held that inasmuch as the case had been presented and
argued before ACKERMANN J on the basis that the Bank was not a secured creditor,
he had correctly rejected the submission that the proof of claim was not a proof
of claim at all- It agreed with ACKERMANN J's reasons
for holding that the Bank
was a proved concurrent creditor.
This issue was again raised in this Court. I find it convenient to set out,
at this stage, my reasons
/ for
18
for disagreeing with this finding of the Court a
quo
. In ray
view it is an oversimplification to say that the
Act provides
for only two types
of creditors, viz, non-preferrent or secured creditors and that a creditor who
has proved a claim in terms of
sec. 44(4)
must fall into one or other of these
categories- The mere admission to proof of a claim does not ratify the claim or
make it
res judicata
. See in this regard Mars:
The Law of
Insolvency
, 7th ed. at p 263 and the authorities there cited. A creditor
seeking to prove his claim has to comply with
sec. 44(4).
If he alleges he holds
security he must, in terms of that section furnish the nature and particulars
thereof to prove that his security
exists. If he then acts in terms of
sec.
89(2)
, and declares that he relies for the satisfaction of his claim solely on
the proceeds of the property which constitutes "
his
security", the
section provides, save for certain exceptions not here relevant, that he shall
not
/ be
19
be liable for any costs of sequestration. The underlining is mine.
Secs. 44(4) and 89(2) must be read together.
The intention is clear. A
creditor who claims that he is a secured creditor and who does not wish to share
in the free residue and
who looks only to the proceeds of his security is not
liable for any costs of sequestration, nor can he receive more than his security
or its proceeds, whether or not there is a free residue. "His security", i.e.
the security designated as such by the creditor, may
prove to be valueless or
may have ceased to exist. There is nothing in the wording of
sec. 89(2)
which
suggests that that fact will render such a proved creditor liable for any costs
of sequestration. As indicated above the whole
purpose of the section is to
enable a creditor, who believes when lodging his claim that his security has a
value, to limit his claim
to the value of his security and to free him from
/ liability
20
liability for costs- If it should transpire that his security has become
valueless the basis on which he proved his claim would fall
away. He would not
have a claim against the estate. The position cannot be different in the case of
a creditor who
bona fide
believes that he holds security and specifically
limits his claim and his potential liability. He for all practical purposes
ceases
to be a creditor of the estate. The Bank was in fact in that position.
Paragraph 7 of the affidavit of proof of claim, quoted above,
is clear and
unequivocal.
It follows that the Court a
quo
should have found that the Court of
first instance had in fact erred and should have upheld the appeal only on this
ground. It, however,
also considered the issues set out in B, C and D above. I
proceed now to discuss them.
Ad B above
:
The Court a
quo
held that the concession was
/ based
21
based on a mistaken view of the law and could be withdrawn. That such a
concession can be withdrawn is clear; see
De Beers Holdings (Pty) Ltd v
Commissioner for Inland Revenue
1986 (1) SA 8
(A) at p
33
E-G; In
this regard I draw attention to the safeguards mentioned in
Paddock Motors
(Pty) Ltd v Igesund
1976 (3) SA 16
(A) at p 23 B-F. As to this aspect more
in C below.
Ad C above
:
Counsel for the Liquidator in the Court
a
quo
did not contend that the concession could not be withdrawn. He did however
contend that that Court should not permit the Bank to argue
the issue in D. His
submissions were that, in the Court of first instance, the Bank's case as there
argued and as made out in the
founding affidavit, was that it was for all
practical purposes not a proved creditor; that the Bank should not be allowed on
appeal
to raise a new cause of action; that the Liquidator would be pre-
/ judiced.
22
judiced and had not had occasion to study the First cession; that the third,
fourth and fifth respondents had not appeared to oppose
the case as presented in
the Court of first instance; that even though the notice of appeal to the Court
a
quo
had been served on them there was nothing in that notice which
would alert them to the fact that the Bank intended changing its whole
cause of
action and ask for an order declaring that the Bank was in fact a secured
creditor; that they would be prejudiced if the
Court a
quo
allowed the
Bank to argue the issue in D.
Counsel for the Liquidator asked for and was given the opportunity to study
the first cession. He did so. That cession was then placed
before the Court a
quo
. It is not an out-and-out cession but is a cession of the company's
book debts in
securitatem debiti
.
The Court a
quo
decided to allow counsel for the Bank to argue the
issue in D. It gave as its reasons
/ for
23
for so doing that —
"no prejudice would follow and in
the peculiar circumstances of this case we have decided to do so as
unnecessary duplication of proceedings ought to be avoided."
I am of the view that the Court a
quo
erred in permitting the issue in
D to be argued before it. The third, fourth and fifth respondents had not been
given notice of the
new cause of action; they might well have wished to appear
to contest that issue; the Bank's cause of action in the Court of first
instance
was that it was not a secured creditor; it would not have lost its right to do
so if the Court a.
quo
had not entertained the new cause of action; it
was not precluded from withdrawing its wrong concession at any time; it could
then
have again written to the Master objecting to the first and second accounts
or it could have waited until the Liquidator had redrawn
the account and
objected thereto in terms of
sec. 407
/ of
24
of the Companies Act 61 of 1973.
Ad D above
:
The first cession was a cession of book debts in
securitatem debiti
. Counsel for the Liquidator examined it and was
satisfied that it was not an out-and-out cession. That this is so is borne out
by
the fact that Nedbank, having collected R6 530 in excess of the company's
liability to it, handed that sum to the Liquidator and
further that it was the
Liquidator and not Nedbank who proceeded to collect monies in respect of the
book debts which were owing
to the company at the date of the winding up. The
Court a
quo
had regard to the definitions of "security" and "property" in
the Act and also to the many cases in which the effect of a cession
in
securitatem debiti
was discussed. The majority of the Court came to
the conclusion (SLOMOWITZ AJ dissenting) that the reversionary right which the
company
/ had
25
had in respect of the first cession was a "
spes
or expectation",
hence "there existed no
res
or 'property' of the insolvent (ie, the
company) which was, or could be, subject to 'security'". It accordingly
dismissed the appeal.
The Bank thereafter sought leave from the Court a quo to appeal to this
Court. The wording of the Notice of Application for Leave
to Appeal is
important. It sets out that leave to appeal against the whole of the judgment of
the Court a
quo
is being sought on the grounds that it had erred in
holding that:-
"1. The cession of book debts by GEORGE DE PONTES (PROPRIETARY) LIMITED (IN
LIQUIDATION) ("the company") in favour of appellant does
not render appellant's
claim against the company secured in terms of the provisions of the
Insolvency
Act No. 24 of 1936
;
2. appellant is an unsecured concurrent creditor of the company;
3. appellant is not entitled to receive the proceeds of the said book debts
(all of which arose prior to the liquidation of
/ the
26
the company but were paid after liquidation to Nedbank Limited) after
satisfaction of the company's indebtedness to NEDBANK LIMITED
in terms of the
prior cession of the said book debts in favour of the latter."
Pursuant to that application leave to appeal was granted against "the whole
of the Judgment" of the Court a quo "on all the issues
set out in the majority
judgment"
In his written heads of argument and in this Court counsel for the appellant
urged as his first and main ground of appeal the issue
in D above. As a second
ground of appeal, in the event of this Court finding that the Bank was not a
secured creditor, he submitted
that the Court a
quo
had erred in finding
that the Bank was a proved concurrent creditor. It will be seen that the second
ground of appeal was not raised
in the notice of application for leave to
appeal. However that may be, the Full Court granted leave to appeal "on all the
issues
set out in the majority judgment" . I have earlier in this judgment,
/ when
27
when dealing with the issue in A above, set out my view on this second ground
of appeal. There is no need to repeat what is there
said.
Counsel for the Liquidator submitted in this Court that the Bank should not
have been permitted by the Court a
quo
to argue the issue in D above. My
views in that regard are set out in C above. He further urged that the Bank
should not be allowed
to argue that issue in this Court. As stressed above, the
third, fourth and fifth respondents were not alerted to the fact that the
issue
in D above was to be argued in the Court a
quo.
The position in this
Court is different. The Notice of Application for Leave to Appeal was served on
all the respondents. Its terms
were clear. They were advised that the Bank was
going to urge that it was a secured creditor. They did not appear to oppose the
grant
of leave to appeal They were also given notice of the grounds of appeal
to
/ this
28
this Court. Furthermore, a copy of the Bank's heads of argument was served on
them. They have not appeared in this Court and they
have not intimated that they
object to the issue being dealt with in this Court. I will hereafter refer to
this issue as the new
point.
It is the duty of an appellate tribunal to ascertain whether the Court below
came to a correct conclusion on the case submitted to
it. For this reason the
raising of a new point of law on appeal is not precluded provided that certain
requirements are met. If the
point is covered by the pleadings and if its
consideration on appeal involves no unfairness to the party against whom it is
directed,
a court, in an appeal, can deal with it. See
Paddock Motors (Pty)
Ltd v Igesund
(
supra
) at p 23 D. The new point was not raised in the
notice of motion or in the founding affidavit; the first cession had not been
placed
before the Court of first instance; the third,
/ fourth
29
fourth and fifth respondents were not notified that the new point would be
argued in the appeal to the Court a
quo
. Hence, as already emphasized, it
should not have been dealt with by that Court. The position in this Court, as
already stated, is
different. The third, fourth and fifth respondents were well
aware that the new point was to be argued before this Court. As far
as one can
judge its consideration in this Court involves no unfairness to the Liquidator
or to the third, fourth and fifth respondents
or to the Master (who has
intimated that he does not wish to appear in this Court). The facts upon which
the new point is to be decided
are clear; there is no ground for thinking that
further or other evidence would have been produced had the point been raised at
the
outset of the proceedings; cf.
Paddock Motors
case,
sup
.
cit
. at p 23 E. Having regard to the particular facts of this case it
seems clear that unnecessary duplication of proceedings can be
/ avoided
30
avoided by this Court deciding the new point. It is for all the above reasons
that I have come to the conclusion, although after some
hesitation, that this
Court should deal with the new point.
I proceed now to consider whether the Bank is a secured creditor. It was not
disputed, nor indeed could it have been, that an incorporeal
right falls within
the meaning of "property" and "movable property" and can constitute the
subject-matter of "security" as defined
in the Act.
The submissions on behalf of the Bank can be summarized. They were as
follows:
1. In
National Bank of SA Ltd v Cohen's Trustee
1911 AD
235
, at pp 246, 252 and 254 it was said that the cedent of a right in
securitatem debiti
retains
dominium
in the right concerned. I
pause to say that this
dominium
has been described as a "sort of
reversionary interest". See
Van Zyl v
/
Strandfontein
31
Strandfontein Namaqualand Estates (Pty) Ltd
1930 CPD 270
and
Barclays Bank (C.D.
& O
.) and Another v Riverside Dried Fruit Co
(Pty) Ltd
1949 (1) SA 937
(C) at p 946.
2. That despite
dicta
in decisions such as
Lief NO v Dettmann
1964 (2) SA 252
(A) at 271 E;
Trust Bank of Africa Ltd v Standard Bank of
South Africa Ltd
1968 (3) SA 166
(A) at 173 D-A and 189 A;
Holzman N 0
and Another v Knights Engineer-
ing and Precision Works (Pty) Ltd
1979 (2) SA
784
(W) at 791-792, this Court recently in
Leyds N O v Noord-Westelike
Koöperatiewe Landboumaatskappy Bpk en Andere
1985 (2) SA 756
at 780
reaffirmed the principle stated in the
National Bank
case,
sup
,
cit
.
3. That accordingly the first cession being a cession
in securitatem
debiti
, the company retained its dominium in the book debts so ceded
/ to
32
to Nedbank and it is this
dominium
, ie, the reversionary right to
which the company was entitled that it ceded to the Bank in terms of clause 2 3
of the second cession.
4.
That the Bank had acquired
the right to receive such of the book debts, incurred prior to the winding up,
as remained after Nedbank
had been paid.
5.
That this reversionary interest has a money value. This has been
recognised in
Big Sixteen (Pty) Ltd v Trust Bank of South Africa Ltd and
Another
1978 (3) SA 1032
(C) at p 1035 H.
6.
That it follows that the Bank as cessionary of the reversionary right
was at all times a secured creditor.
Alternatively
to the above:
7. That even on the approach adopted in the first
/ three
33
three cases cited in para. 2 above the Bank, at the date of the second
cession, acquired from the company the right to receive cession
from Ned-bank of
such of the book debts remaining after Nedbank had been paid in full.
8. That this was a personal right which falls within the definition of
movable property and which at all times had a value.
9. That on this basis also the Bank was a secured creditor.
In
Rothschild v Lowndes
1908 T S 493
at p 501 INNES CJ said:
"The cession of a right of action
in securitatem debiti
transfers that
right to the cessionary as completely, so far as third parties are concerned, as
an absolute cession would do. While
the cession stands no right remains vested
in the cedent which he can enforce against the debtor. His remedy is against the
cessionary
for payment of the balance, or for cancellation of the cession."
/ In
34
In the
National Bank
case,
sup.
ci
t.,Lord DE VILLIERS CJ
said at p 246:
"That a right of action can be pledged does not admit of a doubt (see
Voet
, 20, 3,1). To make such a pledge effectual, the right of action is
frequently ceded to the pledgee, but if the cession is made with
the avowed
object of only securing a debt owing by the cedent to the cessionary, it is, in
my opinion, impossible to hold that the
cession, whatever its form, takes the
dominium
out of the cedent".
INNES J at p 250 of the same case stressed that "The essential feature of a
pignu
s is that the dominium in the subject-matter remains in the
pledgor", and at p 252 went on to say :
"That, however extensive may be the right of a cessionary to enforce in his
own name an obligation ceded to him by way of security,
still the mere fact that
the cession was in terms absolute, would not suffice to take the
dominium
out of the cedent, if it was clear that the parties did not intend it to
pass".
Both learned Judges (see p 246 and p 252) stated that the
/ law
35
law had been too widely stated in
Rothschild v Lowndes
,
sup.
cit
.
Professor Scott in her
The Law of Cession
at p 138 states
that in South African law a pledge of incorporeals is generally accepted. She
lists a series of cases in our courts
in which a pledge of personal rights has
been accepted. See also her comments in her doctoral thesis -
Sessie in die
Suid-Afrikaanse Reg
at p 313. De Wet and Yeats -
Kontraktereg en
Handelsreg
, 4th ed. at p 370, criticise what is said in the
National
Bank
case,
sup.
cit
. Their objection to a pledge of personal
rights is that a real right cannot extend to a personal right. T.K. Pahl in his
thesis
Die Aanwending van Vorderingsregte ter Ver-sekering van Skulde
in
chapters eight and ten is of the same view as De Wet and Yeats. Ellison Kahn in
his
Contract and Mercantile Law Through the Cases
at p 991 disagrees with
De Wet and Yeats, as does Prof. Scott at p 137 of her
The Law of
Cession
.
/ In
36
In
Lief N 0 v Dettmann sup.
cit
. at p 271 E WESSELS JA, who
delivered the judgment of the Court, says:
"The only manner in which a right of action (either secured or unsecured) can
be furnished as security for a debt is by way of cession,
i.e. by a transaction
which in our law results in the cedent being divested of his rights and those
rights vesting in the cessionary.
Where the cession is said to be made as
security for a debt, it does not, in my opinion, signify that the cedent in fact
retains
any right in the subject matter of the cession; his continued interest
therein flows from the agreement, either express or implied,
with the cessionary
that the right of action will be ceded back to him upon the discharge of his
debt".
The
National Bank
case was not referred to in this judgment. Nor did
counsel draw the Court's attention to it, see pages 253 to 259 of the
report.
In the
Trust Bank of Africa
case,
sup.
cit.
VAN BLERK JA
says at p 173 E-F:
"Die effek van 'n uit-en-uit cessie is om al die regte van die cedent op die
gecedeerde vorderingsreg aan die cessionaris oor te dra;
/ die
37
die cedent is ontdaan van alle aanspraak op die gecedeerde regte en in die
geval van die cessie
in securitatem debiti
is, wat derdes betref
,
die oordrag van die gecedeerde reg ewe volkome. Solank die cessie staan het
die cedent geen afdwingbare reg teen die skuldenaar nie.
Al wat hy het is die
reg van terugcessie (
Rothschild v Lowndes
,
supra
, op bl. 501) vir
geval die skuldenaar die versekureerde skuld betaal, of die opbrengs van die
gecedeerde vorderingsreg meer is as
wat nodig is vir die delging van die
versekureerde skuld, in watter geval die balans aan die cedent terugval. Wat
derdes, soos die
respondent, betref, kan dit dus geen verskil maak nie of die
cessie uit-en-uit is dan of dit in
securitatem debiti
is".
The learned Judge then goes on to refer to the following passage from the
judgment of INNES J at p 254:
"If the parties intended that the bare ownership should remain in the cedent,
it is not taken out of him by the cession" .
The learned Judge does not, however, comment on the above statement by INNES
J. It is to be noted that the learned Judge does not
mention that both Lord DE
VILLIERS CJ and INNES J stated in the
National Bank
/ case
38
case that the rule had been too widely stated in the
Rotschild
case.
At page 173 in
fine
VAN BLERK JA goes on to say:
"Ek wil my egter vereenselwig met wat Reg-ter STRATFORD sê in
Frankfurt v Rand Tea Rooms Ltd. and Sheffield
,
1924 W.L.D. 253
op bl.
256, naamlik:
'In examining the nature of the rights of a pledgor of a right
in
personam
the analogy of the position of a pledgor of a movable should not be
pressed too far"."
At page 189 A of the same case BOTHA JA says:
"While a right of action may properly be used to secure a debt, it can
effectively be so used only by way of a cession of the right
of action to the
creditor coupled with an agreement, as between cedent and cessionary, that, on
payment of the 'secured' debt, the
cessionary shall be obliged to recede to the
cedent the ceded right of action. The effect of such a cession, generally known
as a
cession in
securitatem debiti
, is in all respects the same as that
of an ordinary cession, but coupled with the agreement mentioned".
OGILVIE THOMPSON JA, at page 186, in a dissenting judgment, points out that
there is a considerable body of authority
that —
/ "a cession
39
"a cession of an incorporeal in
securitatem debiti
is to be
distinguished from an out-and-out cession; that in the case of the former, our
law recognises a measure of residual
dominium
, however tenuous and
ill-defined, in the cedent; and that, in relation to the aspect under
discussion, the rights of the cedent under
a cession
in securitatem
debiti
of an incorporeal approximate, in some measure, to those of a pledgor
of a corporeal".
In
Moola v Estate Moola
1957 (2) SA 463
(N) at p 464 BROOME JP having
referred to the
National Bank
case, said:
"The law is now settled that a cession
in securitatem debiti
leaves
the
dominium
in the cedent".
The learned Judge goes on to say:
"Ownership of a right of action would seem to imply the right to sue, and if
the right to sue has passed to the cessionary it is difficult
to imagine what
can remain with the cedent. The truth probably is that the cedent by way of
security retains only his 'reversionary
right', that is to say his right to
enforce the ceded right of action after the debt to secure which the cession was
given has been
discharged."
/ In
40
In the Holzman case sup. cit. NESTADT J at
pages 789 to 791 reviews the cases mentioned above and several others. He
then concludes by saying:-
"In the result, it seems to me that it is now established that the effect of a
cession in
securitatem debiti
is the same as far as the debtor is
concerned as an out-and-out cession. If reference is still to be made to the
cedent retaining
dominium
, it must be confined to the ownership of a
personal right that he has against the cessionary arising from the contract
between them,
inter alia,
that, on payment of the secured debt, the ceded
right will be returned to the cedent. This involves the notion of a real right
in
a personal right. There is some controversy as to whether this is possible.
(See Kahn:
Contract and Mercantile Law Through the Cases
at 991. ) It is,
however, unnecessary to pursue this matter. I mention it only in connection with
any suggested justification for
the continued reference to the cedent retaining
dominium
".
The vexed question
was again before this Court
in
Leyds N O v Noord-Westelike Koöperatiewe Landboumaatskappy
1985 (2) SA 769.
HEFER JA who delivered the judgment of the Court referred
to all the above cases and certain
/ others
41
others. He also had regard to what was said by De Wet and
Yeats and Prof.
Scott. He then went on, at p 780 E, to
say of the basis on which the
National Bank
case was de-
cided —
"Selfs al sou aanvaar word dat daardie basis nie korrek is nie (ek spreek
geen me-ning daaroor uit nie) meen ek nie dat dit rede bied
vir hierdie Hof om
van die be-slissing in die
Cohen
-saak af te wyk nie. Die reël daarin
neergelê, is n handige een wat, sover ek kan nagaan, konsekwent vir meer
as 70 jaar
toegepas is. (Die reeks beslissings verskyn in Susan Scott se
The
Law of Cession
op 137-8 en ek her-haal dit nie.) Dit kom nie voor dat dit
aanleiding gegee het tot enige onreg of tot praktiese probleme nie aangesien
die
sessio-naris sy voorkeurreg behou op betaling uit die opbrengs van die
gesedeerde vordering en terselfdertyd voorsiening gemaak
word vir die belange
van die boedel en van ander skuldeisers ten opsigte veral van enige oorskot wat
daar mag wees na betaling van
die sessionaris se eis. Myns insiens is dit by
uitstek 'n geval waarin hierdie Hof die
stare decisis
-beginsel behoort
toe te pas en te weier om sy vorige beslissing in her-oorweging te neem".
As we have seen from what was said by Lord DE
/ VILLIERS CJ
42
VILLIERS CJ and INNES J in the
National Bank
case, a right of action
can be pledged. It follows, so it was decided in that case, that the cedent, ie,
the pledgor, retained his
dominium
in the right of action. In that case
the Court was dealing with the cession of an insurance policy. When book debts
are ceded in
securitatem debiti
, as in the cession to Nedbank, the cedent
cedes to the cessionary the exclusive right to claim and receive from the
existing and
future "book debtors" the amounts owing by them. The amounts so
collected by the cessionary are credited to the account of the cedent.
Any
amount collected in excess of the cedent's debt belongs to the latter. Thus it
cannot be said that by such a cession it was intended
to pass ownership. As was
said in the
National Bank
case at p 252,even if the terms of a cession
are in terms ab-solute,that does not suffice to take the
dominium
out of
the cedent "if it was clear that the parties did not intend it to pass". Lord DE
VILLIERS CJ at p 246 also
/ stressed
43
stressed that if the cession was made "with the avowed object" of only
securing a debt it would be impossible to hold that
dominium
had passed
to the cessionary. At p 247 he pointed out that on payment of his indebtedness
all Cohen had to do was to strike out his
previous en-dorsement ceding the
policy to the bank. There was thus no need for a recession. In cessions in
securitatem debiti
, as in all contracts, the purpose and object which the
par-ties had in mind must not be ignored.
As indicated earlier counsel for the Bank made submissions in the
alternative, based on what was said in the
Leiff N O
case, the
Trust
Bank of Africa Ltd
case and the
Holzman N O
case (all cited above).
It follows from what I have said above that there is no need to con-sider those
submissions.
The company in clause 23 of the second cession pledged and ceded to the Bank
all its reversionary rights in the first cession. That
a reversionary right
so
/ pledged
44
pledged and ceded has a value cannot be doubted - cf.
the
Bix
Sixteen
case,
sup
.
cit
. at p 1035 H where
WATERMEYER J is
reported as saying:
"There can be no doubt that this rever-sionary interest constitutes a right
which the cedent has against the cessionary and which,
although not enforceable
until the secured debt has been repaid, certainly has a money value".
The company in clause 23 of the second cession pledged and ceded to the Bank
all its reversionary rights in the first cession. This
reversionary right,
pledged and ceded by clause 23, was owned by the company before it was wound up.
This right the company, before
its winding up, ceded in
securitatem
debiti
to the Bank. It was not ceding a "
spes
or expectation". It was
ceding an existing right. This right had a money value. It was this right which
constituted the security
on which the Bank relied when proving its claim. It was
thus a secured creditor.
/ Counsel
45
Counsel for the Liquidator referred this Court
to
sec. 407 of the Companies Act, 61 of 1973, and sub-
mitted that the Bank had
launched its application in the
Court of first instance prematurely. Sec. 407 (1) reads:
"Any person having an interest in the company being would up may, at any time
before the confirmation of an account, lodge with the
Master an objection to
such account stating the reasons for the objection."
There is no merit in the submission. The Master having
considered the submission made by the Bank and the Liqui-
dator gave a ruling, on 20 October 198l, to the effect
that the Liquidator was to reflect the Bank, in the
liquidation accounts, as a concurrent creditor. This
ruling was challenged by the Bank. The Bank then decided
to take the Master's decision on review. It sought the
appropriate relief, as it was entitled to do, in the
Court of first instance. There was no need for, nor in-
deed could any purpose be served by, waiting till the
Liquidator carried out the ruling and reflected it in
/ the
46
the accounts. There is thus no merit in this submission.
The Liquidator decided to complete certain executory contracts. He maintains
that this was done pursuant to discussions with the Bank.
He maintains that the
Bank is liable for the costs of completing these con-tracts. He drew the
liquidation account accordingly. The
Bank denies that it asked directly or
indirectly that these contracts be completed and maintains that it is not liable
for any of
the costs incurred. Nothing in this judgment is to be read as having
any bearing on that dispute.
It follows from all the above that the Court of first instance erred in
dismissing the application with costs and that the Court a
quo
erred in
dismissing the ap-peal with costs. When granting leave to appeal to this Court
the Court a
quo
ordered that the costs occasioned by the application for
leave to appeal were to be costs in the appeal and that such costs were
to
include the costs of two counsel. Senior counsel conceded in this
/ Court
47
Court that the appellant was not entitled to the costs of two counsel in
respect of the application for leave to appeal.
In the result the following orders are made:
1. (a)
The appeal is allowed with costs, such
costs to include the costs of two counsel.
(b) Second respondent is to pay the
appellant's costs occasioned by the application to the Court a
quo
for
leave to appeal. Such costs are not to include the costs of two counsel.
2. (a) The order of Court of first instance
is set aside.
(b)
The ruling by the Master of
the Supreme Court (Transvaal Provincial Division) dated 20 October 1981) is set
aside.
(c)
The second respondent is to pay the
appellant's (applicant in that Court) costs in the Court of first
instance.
/ 3. The
48
3. The claim, dated 4 September 1979,
proved by appellant (applicant in the Court of first instance) in the estate
of the company GEORGE DE PONTES AND PARTNERS (PTY) LTD
(in Liquidation) is
declared to be a properly proved secured claim as provided for by sec-tions 83
and 89(2) of the
Insolvency Act No. 24 of 1936
, such security arising from the
deed of cession, dated 10 December 1977 and which is attached to the aforesaid
proof of claim.
0. GALGUT.
RABIE, CJ)
JANSEN, JA)
CORBETT JA) CONCUR.
JOUBERT, JA)