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[1992] ZASCA 49
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Diocese of Klerksdorp of the Roman Catholic Church v Southern Life Association Ltd. (133/90) [1992] ZASCA 49 (30 March 1992)
Case No 133/90 E du Plooy
IN THE SUPREME COURT OF SOUTH AFRICA
(
APPELLATE
DIVISION
)
In the matter between:
THE DIOCESE OF KLERKSDORP OF THE
ROMAN CATHOLIC
CHURCH
Appellant
and
THE SOUTHERN LIFE ASSOCIATION
LIMITED
Respondent
Coram
: HOEXTER, HEFER, SMALBERGER, MILNE et
F H GROSSKOPF JJA.
Heard
Delivered
27 February 1992 30
March 1992
2
JUDGMENT F H GROSSKOPF JA:
The Master of the Supreme
Court ("The Master") refused to sustain an objection by the appellant to the
second liquidation and distribution
account ("the account") relating to
Interfund Finance (Pty) Limited (in liquidation). The appellant thereupon
brought an application
in the Witwatersrand Local Division in terms of section
407(4)(a) of the Companies Act 61 of 1973 for an order setting aside the
Master's decision. The appellant maintained that the full proceeds of two
insurance policies which had been issued by the respondent
("the Southern") in
favour of Interfund Finance (Pty) Limited ("Interfund") should have been awarded
to the appellant, and it sought
an order directing the Master to amend the
account accordingly. The Master was cited as the first respondent in the
court
3
a quo
, the liquidator of Interfund ("the liquidator") as
the second respondent, and the Southern as the third respondent. The Master and
the liquidator abided the decision of the court, but the Southern opposed the
relief sought by the appellant. The court
a quo
(Goldblatt AJ) dismissed
the application. Leave to appeal was refused by the court
a quo
, but
granted by this court.
The appellant failed to comply with the rules of the
Appellate Division with regard to the prosecution of its appeal. The appellant's
notice of appeal was not filed timeously with the registrar of this court, while
the record of the appeal was not lodged with the
registrar within the period
prescribed by the rules. As a result of its failure to lodge the appeal record
timeously, the appellant
was deemed to have withdrawn its appeal. (AD Rule
5(4A)(b)). The appellant was accordingly obliged to bring an application for
the
4
condonation of the late lodging of the notice of appeal and the
record of appeal, as well as f or an order reinstating the appeal.
The outcome
of such application is dependent upon whether or not the appeal has a reasonable
prospect of success. An enquiry into
the merits of the appeal is therefore
necessary.
On 7 March 1985 the appellant lent and advanced a sum of R500 000
to Interfund. The loan agreement provided for the loan to be secured
by bank
guarantee, but the loan in fact remained unsecured until 10 April 1985 when
Interfund ceded to the appellant its rights under
an insurance policy ("the
first policy"). The first policy was issued by the Southern. It was described as
a "Mastersave 5X5 policy".
Its commencement date was 1 April 1985. In terms of
the first policy Ihterfund, as holder thereof, was to pay an annual premium of
R500 000 for five successive years. The first policy would have matured ten
years from its
5
commencement date, or on the prior death of the surviving life
assured. The lives assured under the first policy were those of one
Schendel and
one Fritzler, both directors of Interfund, but Interfund was the "owner and
beneficiary" of the first policy. Upon payment
of the first annual premium the
first policy acquired a "cash value", and Interfund immediately became entitled
to apply for a "cash
loan" against the security of the first
policy.
Interfund paid the first annual premium of R500 000 to the Southern
on 2 April 1985; and shortly thereafter the Southern gave Interfund
a cheque for
the sum of R300 000 as a loan under the first policy, The Southern maintained
that before handing over its R300 000
loan cheque it required Interfund first to
sign a printed form headed "Acknowledgement of Loan on Policy" ("the first
acknowledgement
of loan").
It was submitted by the appellant that material
6
terms of the agreement, as set forth in the first
acknowledgement of loan, had been left blank, and that it was therefore inchoate
and unenforceable. When Interfund signed the first acknowledgement of loan the
blank spaces on the form had probably not yet been
filled in, but since this was
an agreement which was not by law required to be in writing, it was binding upon
Interfund in the absence
of fraud or error in connection with the subsequent
recording of the terms. (National
and Grindlays Bank Ltd v Yelverton
1972(4) SA 114 (R) at 118 A-D;
Fourlamel (Pty) Ltd v Maddison
1977(1) 5A
333 (A) at 342 A) . Some of the terms were never recorded. The spaces provided
on the form for the amount of the loan,
the applicable rate of interest and the
date of signature have been left blank. There is, however, no dispute about the
amount of
the loan or the rate of interest. The date of signature of the first
acknowledgement of loan cannot be determined with
7
absolute certainty, but it seems highly unlikely that the
Southern would have parted with the R300 000 loan cheque before Interfund
had
placed its signature on the first acknowledgement of loan. The evidence is that
Interfund was in fact informed that the loan
would only be made against
signature of the first acknowledgement of loan. The R300 000 loan cheque was not
placed before the court
a quo
, but the evidence points to the conclusion
that it was probably issued and handed over to Interfund by not later than 3
April 1985.
In my opinion it is in any event inconceivable that the first
acknowledgement of loan had not been signed by 10 April 1985 when Interfund
ceded its rights under the first policy to the appellant. The first
acknowledgement of loan recorded that Interfund had ceded all
its rights under
the first policy to the Southern as security for the repayment of the loan. As
pointed out above this cession was
probably concluded on 3 April 1985, but
certainly prior in time to
8
Interfund's cession of 10 April 1985 to the appellant. It is
common cause that the Southern also retained possession of the first
policy once
it had been processed. Delivery to the cessionary of a written instrument
evidencing the ceded right is required for
the proper completion of a cession,
and it is of particular relevance in determining the rights of competing
cessionaries of the
same right of action.
(Jeffery v Pollak and
Freemantle
1938 AD 1
at 22;
Labuschagne v Denny
1963(3) SA 538 (A) at
543H-544B;
Trust Bank of Africa Ltd v Standard Bank of South Africa Ltd
1968(3) SA 166 (A) at 184H-186B; but see Scott
The Law of Cession
2ed
(1991) 27 et sqq.)
On 12 April 1985 the appellant and Interfund concluded a
second loan agreement in terms whereof the appellant lent and advanced a
further
sum of R350 000 to Interfund. The second loan agreement provided for security in
the form of a guarantee by a bank or other
9
acceptable financial institution. It is the appellant's case
that it was once again "prevailed upon", on some unspecified date, to
accept a
cession of Interfund's rights under an insurance policy ("the second policy") as
security for the loan. The second policy
was again issued by the Southern with
commencement date 1 April 1985. Its terms were the same as those of the first
policy, but the
annual premium was now R350 000. On 16 April 1985 Interfund
handed to the Southern its application for the second policy, together
with a
cheque for R350 000 and a further acknowledgement of loan on policy ("the second
acknowledgement of loan") signed by it in
blank. The second acknowledgement of
loan was dated 16 April 1985. Interfund signed a further document, also dated 16
April 1985,
in terms whereof it ceded its rights under the second policy to the
appellant. There is a duplicate original of such cession bearing
the same date.
Both the original and the
10
duplicate original were retained by the Southern, and it is
common cause that they were never forwarded to the appellant. The appellant
contended that the rights under the second policy had been ceded to it on 16
April 1985 in terms of the cession document, yet there
is nothing to show that
by then the appellant had already agreed to accept such a cession by Interfund
as proper security for the
loan.
The second acknowledgement of loan recording
a cession to the Southern was likewise dated 16 April 1985. It was handed to the
Southern
in anticipation of the issuing of the second policy. There is no
allegation in the papers that the document recording a cession in
favour of the
appellant had been signed by then, or that it was handed to the Southern on the
same occasion. It is unlikely that
the Southern would have allowed a cession to
the appellant before securing its own rights. For what it is worth, the second
acknowledgement
of loan
11
also contained a declaration by Interfund to the effect
that there had been no prior cession to any other person.
The fact that the Southern retained possession of the
instrument evidencing the ceded right (the second policy)
showed that it had the better right. In my judgment the
second cession in favour of the Southern was prior in
time to the second cession in favour of the appellant.
The question was raised whether it was at all
necessary for the Southern to rely on the two cessions in
its favour, seeing that it had the right in terms of both
the first and
the second policy, and the first and second
acknowledgement of loan, to
deduct the amount of the loan
from the proceeds of the policy in priority to
any other
claim. The provisions of the two acknowledgements of
loan are
identical in this respect. Both provided that:
" By the termination of this Policy, howsoever arising, any indebtedness to the
Southern of whatsoever nature
and which is then due and payable
arising
hereunder or otherwise under the said Policy shall be a first charge against any
monies or other benefit payable by the
12
Southern in terms of the said Policy and shall be deducted
from such monies or other benefit." (My emphasis.)
Clause 5 of both the first and second policy contained a
similar provision:
"Indebtedness
Any indebtedness to the Company in respect of this policy will be a first charge
against the proceeds of this policy and the Owner
shall be deemed to have ceded,
assigned, transferred and made over the policy as security to the Company for
such loan and/or any
interest in respect
thereof."
The meaning of the term "first charge" was
considered in
Irwin v Davies
1937 CPD 442
, and Davis J came to the
following conclusion at 447:
"What is the meaning in the words in the Deed of Sale: 'To be a first charge on
and paid out of the book debts?' In my opinion they
mean that the book debts are
in some way to be so bound that the ₤200 is to come out of them in
priority to any other debts;
they are in effect to be mortgaged for that amount.
(If, as would appear, this could only validly be done by means of a cession;
in
that case a cession would be necessary.)"
13
A similar meaning should in my opinion be ascribed to the
words "first charge" where they appear in the above-quoted passages from
the two
policies and acknowledgements of loan. In terms of the provisions set out in
those passages the loan was to be a first charge
against the proceeds of the
particular policy, with the result that the claim of the Southern had priority
to any other claim. Interfund's
right to claim the full proceeds in terms of the
two policies was accordingly curtailed to the extent that the Southern had a
right,
in priority to all other claims,to deduct the amount of the loan as well
as interest from the proceeds of the particular policy.
It should, however, be
borne in mind that the loan could not be deducted until such time as it became
due and payable. When Interfund
ceded its right under each of the policies to
the appellant, the
14
latter could not acquire any better right; its right remained
subject to the right of the Southern to set off the amount of the loan
once it
became due and payable. In terms of both the first and second acknowledgement of
loan the capital amount of the loan did
not become due and payable by Interfund
to the Southern until the happening of the earliest of three events mentioned in
each of
the acknowledgements of loan. None of those events had taken place by 1
July 1985 when Interfund was placed under provisional liquidation.
(The final
order of liquidation was dated 1 October 1985.) The effect of the winding-up
order was to establish a
concursus creditorum
(
Walker v Syfret, NO
1911 AD 141
at 160, 166). Thereafter there could be no set-off unless there
existed, at the date of the order, mutuality between the respective
claims; or
reciprocity of debts as it is also called.
(National Bank of South Africa Ltd
v Cohen's Trustee
1911 AD 235
at 249, 254;
Richter NO v
15
Riverside Estates (Pty) Ltd
1946 OPD 209
at 223-224;
Thome and Another, NNO v The Govemment
1973(4) SA 42 (T) at 45F-G;
The
Government v Thome and Another, NNO
1974(2) SA 1 (A) at 9 E-F.) In the
present case there was no mutuality between the respective claims of the
Southern and Interfund
prior to liquidation inasmuch as neither the loan nor the
policy had become due and payable as at the date of the winding-up order.
(
Richter's
case,
supra
, at 223-224;
Thorne's
case in the
provincial division,
supra
, at 45G-H.) In order to realise Interfund's
assets the liquidator elected to surrender the two policies. In consequence
thereof the
surrender values of the policies became payable, which in turn
caused the respective loans under the policies to become due and payable.
As
a result of Interfund's liquidation the Southern could no longer rely on its
right of set-off, but had to fall back on its security.
In respect of both
16
loans it held a cession securing the debt of Interfund. Each
cession gave the Southern the right to receive from the proceeds of the
particular policy the amount which Interfund then owed the Southern in terms of
its loan agreement. As the Southern held the prior
cession in each instance, its
claim had to be paid out of the proceeds of the respective policies in priority
to that of the appellant.
The appellant contended that the Southern and
Interfund never contemplated a cession "in the real sense of the word", inasmuch
as
Interfund's debt was already regarded as a "first charge" against the
proceeds of the particular policy. I do not agree. It has been
pointed out above
that the right of the Southern to deduct Interfund's loan debt from the proceeds
of the policy as a first charge
in priority to others, could no longer be
exercised once Interfund had been placed in liquidation. It was presumably for
that very
eventuality that the
17
Southern required security recognised by the
Insolvency Act 24
of 1936
, and such security could only be effected by a cession
in securitatem
debiti
.
It was further contended on behalf of the appellant that if the
parties had indeed intended to cede Interfund's rights under the policy
to the
Southern, such transfer of rights would have led to a merger, since the Southern
would thereby have become its own creditor.
It should be borne in mind, however,
that the Southern already had the right to treat each loan as a "first charge"
against the proceeds
of the particular policy, and that the cession, therefore,
was required only to provide security in the event of Interfund's
lïquidation.
It was a cession in
securitatem debiti
and it was not
intended to give the Southern the right forthwith to claim payment of the
proceeds of the policy from itself so as
to bring about a
confusio
or
merger. In my opinion the cession could not at that stage result in a merger
18
since there was not yet any obligation on the part of the
Southern (as debtor) to pay the proceeds of the policy, and the Southern
(as
creditor) had no right to claim payment thereof until such time as it became due
and payable.
(Trust Bank of Africa Ltd v Standard Bank of South Africa
Ltd
,
supra
, at 183H-184E.)
The appellant also contended that
legally there was a duty on the Southern to disclose its prior cession when it
wrote to the appellant
confirming the cession in the latter's favour. The first
letter in this regard was dated 11 April 1985. It related to the cession
of
Interfund's rights under the first policy to the appellant, and was couched in
the following terms:
"CONTRACT NUMBER: 5696696
Our Actuarial Department has confirmed a guaranteed loan facility on the
abovementioned contract of R800 000 on 1st May 1987 subject
to the
following:
1. The contract must be
unencumbered.
2.
The conditions of the contract must be adhered
to.
19
I also confirm that this contract has been duly ceded to your
Diocese by Interfund Finance (Pty) Ltd."
The second letter to the appellant was dated 16 April 1985. It confirmed that
Interfund's rights under the second policy were "in
the process of being ceded"
to the appellant. Otherwise its terms were similar to those of the first letter.
The appellant submitted
that these letters contained negligent
misrepresentations on the part of the Southern. (This is in fact a cause of
action relied
upon by the appellant in a pending action against the Southern.)
The appellant further attempted to invoke the doctrine of estoppel.
The
difficulty in this regard is that these aspects were never pertinently raised on
the papers in the application. The Southern,
therefore, did not have the
opportunity of answering the appellant's allegations in this connection. In my
opinion it would be unfair
to
20
allow the appellant to introduce these matters for the first
time on appeal.
The appellant asked in the alternative that the matter be
referred to the court
a quo
for the hearing of oral evidence. The
appellant did in fact apply to the court a
quo
to refer the matter for
the hearing of oral evidence, as appears from the following observations of the
court
a quo
:
"A further attack on the third respondent's [the Southern's] security was that,
because of the incompleteness of the documents evidencing
the cession, there had
to be doubt as to whether such cession took place, and that I should accordingly
refer the matter for the
hearing of oral evidence so that the evidence of the
third respondent could be tested by
cross-'examination."
The learned judge came to the
conclusion that there was no real dispute of fact and he consequently refused
the appellant's application
in this connection . If there are reasonable grounds
for doubting the genuineness of
21
the cessions relied upon by the Southern then the appellant is
entitled to have the matter referred for the hearing of oral evidence,
or at
least for the Southern's deponents to be cross-examined. (
Moosa Bros. &
Sons (Pty) Ltd v Rajah
1975(4) SA 87(D) at 92A-93H;
Khumalo v
Director-General of Co-operation and Development and Others
1991(1) SA
158(A) at 167D-168C.) In my view, however, there are no reasonable grounds for
doubting the authenticity of the two acknowledgements
of loan which gave rise to
the cessions. The overwhelming probabilities are against any notion that the
acknowledgements of loan
were false documents.
It was submitted on behalf of
the appellant in this court that the proposed oral evidence should also deal
with the question whether
the Southern indeed held the prior cessions. Once it
is accepted that Interfund in fact ceded its rights under the two policies to
the Southern, it follows that the Southern's cessions in any
22
event ranked preferent to that of the appellant, since the
Southern throughout retained possession of the two policies evidencing
the
rights which had been ceded. In the circumstances I am not persuaded that there
are sufficient grounds to send the matter back
to the court a
quo
for the
hearing of oral evidence.
In my judgment the appeal has no reasonable prospect of success. The
application for condonation and reinstatement of the appeal is
accordingly
dismissed with costs, such costs to include the costs of appeal and those of two
counsel.
F H GROSSKOPF JA
HOEXTER JA HEFER JA SMALBERGER JA MILNE JA Concur