First Rand Bank Ltd. v Body Corporate of Geovy Villa (671/2002) [2003] ZASCA 141; [2004] 1 All SA 259 (SCA) (28 November 2003)

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[2003] ZASCA 141
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First Rand Bank Ltd. v Body Corporate of Geovy Villa (671/2002) [2003] ZASCA 141; [2004] 1 All SA 259 (SCA); 2004 (3) SA 362 (SCA) (28 November 2003)

THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
Reportable
Case no: 671/2002
In the
matter between:
FIRST
RAND BANK LIMITED
Appellant
and
THE BODY
CORPORATE OF GEOVY VILLA
Respondent
_______________________________________________________
Coram
:
Harms,
Scott, Navsa, Cloete and Heher JJA
Date of
hearing:
4 November 2003
Date of
delivery:
28 November 2003
Summary: Interaction between
s 15B(3)(a)(i)(aa)
of the
Sectional Titles Act 95 of 1986
and
s 66(2)
of the
Magistrates’ Courts Act 32 of 1944
─ a judgment creditor’s
claim for arrear levies and related costs in respect of a dwelling
unit in a sectional title development
not
preferent
to the
claim of the holder of a mortgage bond.
_______________________________________________________
J U D G M E N T
_______________________________________________________
NAVSA JA:
[1] The appellant is a
registered commercial bank. The respondent is a body corporate
contemplated in s 36(1) of the Sectional Titles
Act 95 of 1986 (‘the
ST Act’). This appeal concerns the interaction between s
15B(3)(a)(i)(aa) of the ST Act and s 66(2) of the
Magistrates’
Courts Act 32 of 1944 (‘the MC Act’) and considers whether the
respondent’s claim as judgment creditor in respect
of arrear levies
and related costs due by an owner of a dwelling unit in a sectional
title development is
preferent
to the claim of the appellant
as holder of a mortgage bond over the unit in question. I will for
the sake of convenience refer to
the appellant as ‘the bank’ and
the respondent as ‘the body corporate’.
[2] Section 15B
(3)(a)(i)(aa) of the ST Act provides:
‘The
registrar [of deeds] shall not register a transfer of a unit or of an
undivided share therein, unless there is produced to
him ─
(a) a
conveyancer’s certificate confirming that as at date of
registration ─
(i)(aa) if
a body corporate is deemed to be established in terms of section
36(1), that body corporate has certified that all
moneys due to
the body corporate by the transferor in respect of the said unit
have been paid, or that provision has been
made to the
satisfaction of the body corporate for the payment thereof;’
I will for the sake of
convenience refer to this sub-section as ‘the statute’.
[3] Section 66 (2) of
the MC Act provides:
‘No
immovable property which is subject to any claim preferent to that of
the judgment creditor shall be sold in execution unless
─
(a) the
judgment creditor has caused such notice in writing of the intended
sale in execution to be served personally upon the preferent
creditor
as may be prescribed by the rules; or
(b) the
magistrate or an additional or assistant magistrate of the district
in which the property is situate has upon the application
of the
judgment creditor and after enquiry into the circumstances of the
case, directed what steps shall be taken to bring the intended
sale
to the notice of the preferent creditor, and those steps have been
carried out,
and unless
(c) the
proceeds of the sale are sufficient to satisfy the claim of such
preferent creditor, in full; or
(d) the
preferent creditor confirms the sale in writing, in which event he
shall be deemed to have agreed to accept such proceeds
in full
settlement of his claim.’
[4] The body corporate
applied to the Transvaal Provincial Division for an order declaring
that the bank, as bondholder over the unit
in question, did not enjoy
a claim preferent to its claim as judgment creditor in respect of
arrear levies and related costs and
that the provisions of s 66(2) of
the MC Act were inapplicable. In addition, it sought an order
directing the sheriff to transfer
to, and register the unit in the
name of, the purchaser who had purchased it at a sale in execution on
12 February 2000. The respondent
sought costs against the sheriff and
the bank only in the event of opposition.
[5] The material facts
on which the bank relied for the relief sought by it are common cause
and are set out in the paragraphs that
follow.
[6] Ms Thisinyana
Augathe Radebe (Radebe) is the registered owner of the unit. The bank
is the only mortgagee. At the time of the
registration of the bond
the amount owing by Radebe to the bank was R108 000-00. On 11
December 2000 the body corporate obtained
judgment against her for
outstanding levies and costs in an amount of R8 600-00. The execution
debt remained unsatisfied and the
unit was sold at a judicial sale in
execution for an amount of R32 000-00. On 15 February 2002 the bank
informed the body corporate
in writing that it was not willing to
accept the purchase price obtained at the sale. The body corporate’s
written response on
27 February 2002 was that it enjoyed a preference
above that of the bank as bondholder and that it did not require the
bank’s approval
for the sale in execution. This attitude was
communicated to the sheriff. In adopting this view the body corporate
relied on the
statute and on the judgment of this Court in
Nel NO
v Body Corporate of the Seaways Building and Another
1996 (1) SA
131 (A). The
Nel
case will be dealt with in due course.
[7] The sheriff
responded and stated that it had been a long-standing practice in
dealing with the provisions of section 66(2) of
the MC Act to regard
a mortgagee as having a claim preferent to that of a body corporate
and suggested that in the event of the dispute
remaining unresolved
the body corporate should approach a court for a
mandamus
. The
approach to the High Court referred to in para [4] followed soon
thereafter, the sheriff and the bank being cited as the first
and
second respondents.
[8] The bank resisted
the application contending that s 66(2) of the MC Act was protective
of its rights as mortgagee and that the
body corporate was not
entitled to sell the unit without regard to the security it enjoyed
in terms of the mortgage bond. It submitted
that the effect of the
order sought by the body corporate would be to render its security
valueless and that all mortgagees in its
position would be exposed to
having their security sold without notice to them for amounts
sufficient only to cover debts due to
the bodies corporate. The bank
contended further that the provisions of the statute and the
ratio
in the
Nel
case were more limited in effect than contended
by the body corporate.
[9] Hartzenberg J
accepted the body corporate’s interpretation of the statutory
provisions and of the
Nel
case. He held in favour of the body
corporate and made the following order:
‘1. A
declaratory order issues to the effect, that for the purposes of
section 66(2) of Act 32 of 1944, the
Magistrates’ Courts Act, the
first bond of the second respondent over Unit No. 8 in the sectional
title scheme
SS204/83
does not rank higher in order of preference
than the applicant’s claim for amounts provided for in
section
15B(3)(a)(i)(aa)
of Act 95 of 1986.
2. The
first respondent is directed to transfer the said unit to the
purchaser, who bought it at the sale in execution on 12 February
2002.
3. No
order as to costs is made either in favour of or against the first
respondent.
4. The
second respondent is ordered to pay the applicant’s costs of the
application.’
[10] The bank appealed
against the judgment and order of the Court below, leave to appeal
having been granted by Hartzenberg J. The
judgment of the Court below
is reported as
Body Corporate of Geovy Villa v Sheriff, Pretoria
Central Magistrate’s Court, and Another
2003 (1) SA 69
(T).
[11] It is the body
corporate’s case that since the provisions of the statute give it
the power to resist the transfer of immovable
property until moneys
due and owing to it have been paid or until arrangements to pay have
been made to its satisfaction by the owner
of a unit in a sectional
title development, it enjoys an effective preference which translates
into a right superior even to that
of a secured creditor such as the
bank. It submits therefore, that the provisions of s 66(2) of the MC
Act, which are protective
of the rights of a
preferent
creditor,
do not operate in favour of the bank and that it has the power to
dispose of the unit without reference to the bank as the
Court below
concluded.
[12] There is nothing
in the provisions of the statute that expressly supports the
far-reaching interpretation contended for by the
body corporate. This
is an aspect to which I will return later in this judgment.
[13] Hartzenberg J
noted that provisions such as those contained in the statute are not
unknown. Similar provisions have long existed
in terms of which local
authorities have the right to resist the transfer of immovable
property until their claims for rates and
other charges are
satisfied. Such provisions have aptly been referred to as
embargo
or
veto
provisions.
[14] I turn to consider
how our courts have interpreted such provisions and determined the
rights flowing from them.
[15] In
Johannesburg
Municipality v Cohen’s Trustees
1909 TS 811
the provision that
stood to be interpreted was to the effect that no transfer of
property could be registered without a certificate
by the
municipality that the rates on the property had been paid. Innes CJ
said, at 817:
‘Now
reading that section in connection with other provisions of the
statute, the intention seems to have been to give to the local
authority a right to veto the transfer of property until its claims
in respect of rates should be satisfied. The result, of course,
was
to create, in effect, a very real and extensive preference over the
proceeds of rateable property realised in insolvency; and
to compel
payment of the burden thus imposed before a sale of such property
could be carried through, even in cases where insolvency
had not
supervened. The hold over the property thus given to the local
authority is entirely the creation of the statute; its object
was to
ensure payment of the liabilities due by ratepayers as such, and one
would therefore think that it was intended to continue
until all
liabilities arising out of rates had been discharged. . .’
[16] Some years later
in
Rabie, NO v Rand Townships Registrar
1926 TPD 286
a similar
provision was considered. It was contended that the local authority
concerned was a preferent creditor in respect of rates
due to it for
the purposes of s 55(2) of the Magistrates’ Courts Act 32 of 1917,
which contained provisions similar to those of
s 66(2) of the MC Act.
Greenberg J, who delivered the judgment of the Full Bench, held that
the effect of the provision was not to
constitute the local authority
a preferent creditor for the purposes of s 55(2). In dealing with
reliance by the applicant on the
Cohen
case
supra
Greenberg
J said at 290:
‘The
extracts quoted, in terms, deal only with the practical result of the
section and in my opinion do not show that the section
creates a lien
in the strict legal sense or, in the words of s 55(2) “a claim
ranking in priority” to other claims’.
And, at 292:
‘I do
not think that one can go any further than to say that the result of
the right is “in effect to create a preference”
or “something
not wholly in the nature of a lien or a hypothec but
sui generis.
”
In my opinion the council’s claim was not one ranking in priority
to the mortgage within the meaning of the section.’
[17] Greenberg J
described the ‘extraordinary results’ in the event of the
applicant’s contentions being upheld (at 290-291):
‘
It is a
fair assumption that a large number of judgment debtors who come to
such a pass that their immovable property is attached
in execution
will be in arrear with the payment of their rates. If an ordinary
trade creditor or the holder of a mortgage bond wishes
to execute on
their immovable property, the existence of the unpaid rates will
constitute a claim ranking in priority to the debts
of these
creditors and the property will not be liable to execution by the
messenger. In all these cases therefore the benefit sought
to be
introduced by the Magistrates’ Courts Act of providing an
inexpensive form of execution will not be available. Thus the council
would not only have the right to prevent transfer being passed but
also to prevent execution being levied in the magistrate’s court
on
immovables in all these cases. No matter how small the claim for
rates or how valuable the property as long as rates were unpaid
there
could be no execution under s 55(2). Moreover, the security afforded
by mortgage investments would be materially decreased
if bonded
property is liable to be sold in execution for a trifling claim for
rates without notice to the mortgagee: the rules of
the magistrate’s
court do not prescribe the precautions afforded by the practice in
the superior courts of requiring notice to
the mortgagee.’
[18] As will be shown
below the reasoning and conclusions in the
Rabie
case,
supra,
have stood the test of further judicial scrutiny over time.
[19] In
South
African Permanent Building Society v Messenger of the Court,
Pretoria, and Others
1996 (1) SA 401
(T) at 403A-B, Curlewis J,
in referring to the
Rabie
case,
supra,
said:
‘The
decision there is correctly put in the headnote and really puts the
respondent out of Court:
“
The
right given to municipal councils by s 47(b) of Ord 9 of 1912 of
preventing transfer of premises until arrear rates have been
paid
does not constitute a ‘claim ranking in priority’ to a mortgage
over such premises within the meaning of s 55(2) of Act
32 of 1917.”
’
Dealing with the then s
15(4)(b) of the ST Act which was in terms similar to the provisions
of the statute, Curlewis J said the following
at
403C-D:
‘I am
not prepared to go an inch beyond what s 15(4)(b) sets out. The right
may be “not wholly in the nature of a lien or a hypothec
but
sui
generis
”, but it is nothing more. I am pleased that this is the
conclusion since commercial undertakings (indeed the public
generally)
requires certainty from our law rather than doctrinal
purity or juristic rightness, and mortgage bonds have enjoyed a
certain and
preferred existence for many years: this should not be
likely disturbed. If Parliament wishes to bring about a change, then
the intention
to do so must be clearly expressed and the ambit of the
change clearly defined.’
[20] There may of
course be legislation that expressly provides for a form of statutory
hypothec in favour of local authorities and
other institutions in
respect of charges owing to them and which expressly states that
their claims enjoy preference above the claims
of a bondholder. See
in this regard
Stadsraad van Pretoria v Letabakop Farming
Operations (Pty) Ltd
1981 (4) SA 911
(T). In the present case we
are not dealing with such a legislative provision.
[21] In the
Nel
case
this Court considered the provisions of the statute. In that case the
appellant was the liquidator of a company which at the
time it was
placed in liquidation was the owner of a number of units in a
sectional title development. These units were mortgaged
in favour of
a bank. The liquidator sold the units by public auction but was
unable to pass transfer to the purchaser because of
a dispute
concerning the interpretation of the provisions of the statute. At
134B-135D EM Grosskopf JA considered the
Johannesburg
Municipality
,
Rabie
and
South African Permanent
Building Society
cases
supra
and said at 135C-D:
‘In
argument before us it was accepted by both sides, rightly in my view,
that the juristic nature of the contested provision is
the same as
that of the measures considered in the above cases. The position then
is that the contested provision, although it did
not create a
preference in the ordinary sense, nevertheless gave the body
corporate a power to resist transfer of units until moneys
due to it
were paid. The question at issue was the exact ambit of this power.’
[22] In the
Nel
case
this Court held that the provisions of the statute must be
understood to create an effective preference in the event of
insolvency
in favour of the body corporate in respect of its claim
for outstanding levies and that such a preference can be accommodated
in
the scheme of insolvency created by the
Insolvency Act 24 of 1936
as being part of the costs of realisation envisaged in
s 89(1)
of
that Act. It otherwise approved of the interpretation given to
embargo provisions in the
Rabie
and
South African Permanent
Building Society
cases. See 135B of the judgment.
[23] The effect of the
judgments referred to in the preceding paragraphs is that the
‘preference’ created by virtue of an embargo
or veto provision is
something less than and something different from the preference
referred to in the MC Act. See in this regard
CG van der Merwe ‘Does
the restraint on transfer provision in the
Sectional Titles Act
accord
sufficient preference to the body corporate for outstanding
levies?’
1996 (59) THRHR 367.
[24] In para [12] above I noted that there was nothing in the
provisions of the statute that expressly elevated the embargo or veto
right of a body corporate above the rights of a holder of a mortgage
bond. If Parliament had intended them to have that effect, why
should
it not have said so in express terms? It is clear that in enacting
the statute and
s 15(4)(b)
, which was its predecessor, Parliament was
aware of the decision in the
Rabie
case
supra
but
nevertheless chose to use words typical of embargo provisions without
more.
[25]
Section 15B(3)(b)
provides that the registrar of deeds shall not
register a transfer of a unit or of an undivided share therein unless
there is produced
a clearance certificate from the local authority
that all rates and moneys due to such local authority have been paid
if provision
is made by law for the separate rating of units or the
transfer will result in the establishment of a body corporate in
terms of
s 36.
This is a typical embargo provision as in the
Rabie
case. There is no specific provision elevating the embargo right
above that of a bondholder as was the case in the
Letabakop
judgment
supra
where the Legislature considered it
necessary to protect the local authority in that manner. In the
present case it did not in the
provisions of the statute or of
s
15B(3)(b)
elevate the position of the body corporate or the local
authority above that of a bondholder. The legislature must have been
aware
of the ‘extraordinary results’ referred to by Greenberg J
of creating a preference such as that for which the body corporate
contends in this case.
[26] The practical
effect of the statute is that, assuming the availability of funds, a
body corporate will be paid before transfer
of immovable property is
effected. A reasonable mortgagee and body corporate might arrive at
an accommodation where there are insufficient
funds available to
cover the total of the debts owing to both parties ─ but neither is
obliged in law to do so.
[27] If the owner of a
unit in a sectional title development is sequestrated or liquidated
the statute in effect creates as against
the insolvent estate a
preference in favour of a body corporate and the payment of
outstanding levies is treated as being part of
the ‘cost of
realisation’ envisaged by
s 89(1)
of the
Insolvency Act 24 of 1936
.
The fact that the debt to the body corporate is satisfied as part of
the process of realisation produces the same result as if the
rights
conferred by an embargo provision were preferent in the strict sense.
See CG van der Merwe
supra
at 385.
[28] Radebe’s estate
was not sequestrated and the bank’s claim as mortgagee is, for the
reasons set out earlier in this judgment,
preferent in terms of the
provisions of s 66(2) of the MC Act. The body corporate consequently
does not have the right to sell the
unit in question in execution
without reference to the security afforded to the bank by the
mortgage bond. It follows that the Court
below erred in making the
order set out above and that the appeal should be upheld.
[29] I have already
dealt with the extraordinary results that would follow and impact
upon bondholders in the event of the body corporate’s
contentions
being upheld. Hartzenberg J who heard the application in the Court
below, in his judgment at 73D-74D, before interpreting
the relevant
statutory provisions, dealt with the reverse side of the coin and
considered the difficulties experienced by bodies
corporate who are
faced with owners who default in their obligations to pay levies and
related costs and the consequent socio-economic
problems. These
problems clearly weighed heavily with the learned judge when he
interpreted the statutory provisions in question.
In an unreported
judgment in the Transvaal Provincial Division in
Regspersoon van
Solitaire v Julian Candice Neeuwfan
(20 May 2002-case no:
22118/2001), Swart J expressed similar concerns.
[30] In the article by CG van der Merwe,
supra
, the learned
author considered whether a body corporate’s claim for outstanding
levies should not be converted into a form of statutory
hypothec that
would qualify as a true preferent right. In respect of insolvency he
submitted that a body corporate’s ability to
recover arrears fully
may be impeded by the existence of a pre-existing mortgage on a unit
justifying the creation of a form of statutory
hypothec in favour of
a body corporate.
[31] The problems and suggested solutions referred to in the
preceding paragraphs are issues beyond our jurisdiction. Bodies
corporate
have to be vigilant and take early steps to recover monies
due to them so as to minimise possible negative effects on owners of
other
units within a development. In the main the problems raised are
for consideration not by the courts but by the Legislature.
[32] I make the following order:
1. The appeal is upheld with costs including the costs of two
counsel.
2. The order of the Court below is set aside and the following
order is substituted:
‘
The application is dismissed with costs including the
costs of two counsel (to the extent employed)’.
_____________
MS NAVSA
Judge of Appeal
CONCUR:
Harms JA
Scott JA
Cloete JA
Heher JA