THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable /
CASE NO: 77/2003
In the matter between :
IKEA TRADING UND DESIGN AG Appellant
and
BOE BANK LTD Respondent
_______________________________________________________________________
Before: ZULMAN, FARLAM, NUGEN T, LEWIS JJA & PONNAN AJA
Heard: 18 MARCH 2004
Delivered: 1 APRIL 2004
Summary: Meaning of s 1(1) of the Security by Means of Movable Property Act
57 of 1993: description of property in a notarial bond must be such
that it is readily recognisable from the description alone: resort to
evidence that supplements the description is impermissible.
_______________________________________________________________________
J U D G M E N T
_______________________________________________________________________
CH LEWIS JA
2
[1] The meaning of s 1(1) of the Se curity by Means of Movable
Property Act 57 of 1993 is squarely in issue in this appeal. The
section provides:
‘1 Legal consequences of speci al notarial bond over movable
property
(1) If a notarial bond hypothecat ing corporeal movable property
specified and described in the bond in a manner which renders it readily
recognizable, is registered after the co mmencement of this Act in accordance
with the Deeds Registries Act, 1937 (Act 47 of 1937), such property shall-
(a) subject to any encumbrance resting upon it on the date of
registration of the bond; and
(b) notwithstanding the fact t hat it has not been delivered to
the mortgagee,
be deemed to have been pledged to the mort gagee as effectually as if it had
expressly been pledged and delivered to the mortgagee.’
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The central issue is whether a bond registered unde r the section
complied with its requirements su ch that the ‘mortgagee’ had
security in the movable property referred to in the bond, and thus
ranked as a secured creditor when the debtor was liquidated.
[2] The first respondent, BOE B ank, is the holder of a general
covering notarial bond passed in its favour by Woodlam Industries
CC (‘Woodlam’) over the latter’s assets in 1991. Woodlam was
placed in final liquidation on 28 October 1999. BOE Bank applied
to the Eastern Cape High Court fo r an order that the liquidation
and distribution account in respect of Woodlam Industries CC be
redrawn so as to reflect its preference by virtue of that bond. At the
time of liquidation Woodlam ow ed BOE Bank R2 403 852.20. The
first and second respondents are th e liquidators of Woodlam, the
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first respondent having been respon sible for the drawing of the
distribution and liquidation account.
[3] The appellant, the third respondent in the court of first
instance, is Ikea Trading und De sign AG (‘Ikea’), which in 1998
had had registered in its favour a special bond, purportedly under s
1(1) of the Act, over assets of Wo odlam listed in a schedule to the
bond. The basis on which BOE Bank has attacked this bond is that
it did not comply with the requirem ents of the secti on in specifying
and describing the assets refer red to in the bond in a manner
which rendered the assets readily recognisable, and that the bond
accordingly did not confer on Ikea real security over the items
listed. The liquidation and distri bution account reflected the sum
owing by Woodlam to Ikea as R2 619 951.44.
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[4] BOE Bank succeeded befo re Mbenenge AJ in the court
below in obtaining an order (1) di recting the first respondent to
redraw the liquidation and distribut ion account; (2) declaring that
the descriptions of the assets referred to in Ikea’s ‘mortgage bond’
did not specify the relevant asse ts in a manner that rendered them
‘readily recognisable’; and (3) declaring that the bond registered in
1991 in favour of BOE Bank confer red a preference on it such that
BOE Bank’s claim was to rank ahead of Ikea’s, and other preferent
concurrent claims. Ikea now appeal s against the order with the
leave of this court.
[5] The principal contention of Ikea on appeal is that the
property listed in the bond that was registered pursuant to s 1(1) of
the Act can be identified with t he aid of extrinsic evidence: thus, it
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argues, it has a deemed pledge in them, and accordingly ranks as
a secured creditor in the estate of Woodlam.
[6] BOE Bank contends, on the ot her hand, that the assets must
be identifiable from the bond itself, and that extrinsic evidence
cannot be led to establish what they are. If such evidence were
admissible, then creditors of the pledgor, and of course
prospective purchasers, might well be defrauded. The purpose of
the section, argues BOE Bank, is to create a deemed pledge that
gives to third parties the same not ice as would a real pledge – one
that requires actual delivery of the assets secured to the pledgee.
If the bond does not consti tute notice itself – but has to be read
with reference to other documents or identification outside of the
bond – then the object of the legislation would be defeated.
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[7] It is clear that without ref erence to invoices and other
documents in respect of the it ems enumerated, or without the
intervention of some person who is able to say (with or without
reference to Ikea’s documentation) that the particular item listed is
subject to the bond, the items c annot be identified as those listed
in the bond. The assets a llegedly bonded are set out in an
annexure to the bond. It is a sch edule with three columns. The
schedule divides the assets into different categories: ‘machinery’,
‘vehicles’ and ‘factory equipment ’. The headings of the three
columns for machinery are, respectively, ‘Description’, ‘Date of
Acquisition’ and ‘Supplier’. It is perhaps useful to give some
examples, randomly chosen, at this stage.
‘Grecon Optimiser: 1 Aug 1991: Grencor
Weinig Moulder and Infeed: 1 Aug 1990: Weinig
Nipples and Couples: 30 May 1991: Atlas Airpower
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Rip Saw: 1 Aug 1990: Braun Woodwork.’
Vehicles include ‘Mercedes Truck’; ‘Forklift’; ‘Uno X 2’; ‘Truck with
crane’. Factory equipment includes items such as ‘3 roller table
trolleys’, ‘tube caps and steel plates’, ’10 T-bar cramps’. The list of
all these items extends over 12 A4 pages.
[8] How, asks BOE Bank, does on e determine what a ‘Grecon
Optimiser’ is, let alone which one (if there is more than one item of
the same name) is subject to t he bond? How does one determine
which Mercedes truck or Uno vehicle is bonded? Ikea responds by
saying that one must have regard to the invoices for each item,
which together constitute an asset register, and, where necessary,
to the evidence of a former em ployee of Woodlam who is able to
identify the machinery.
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[9] However, it was clear from the evidence of the manager of
BOE Bank and others that ev en where a machine could be
identified, for example as a Grecon Optimiser, there was no way in
which one could tell that it was the particular machine referred to in
the bond. Reference to invoic es, or to the suppliers or
manufacturers, did not assist in this regard. Not a single item,
contended BOE Bank, could be det ermined by reference to the
bond alone. Not only were the desc riptions in many instances
vague, but there was no means of identifying even the most
valuable of machinery and vehi cles as the ones that had been
bonded.
[10] The test for determining whether an item is ‘readily
recognisable’ from the bond in terms of s 1(1), contends BOE
Bank, is whether third parties c an determine the identity of each
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asset without regard to extrinsic ev idence. This is essential, it
argues, to avoid fraud and contro versy, and leave no room for
conflict.
[11] In my view, the correctness of this test is evident from the
wording of the section itse lf: the property must be ‘ specified and
described in the bond in a manner which renders it readily
recognisable’ (my emphasis). Of course the description of the
property in the bond must be related to the reality on the ground. In
dealing with a contract for the sa le of land, where the material
terms are required by statute to be in writing, Watermeyer CJ said
in Van Wyk v Rottcher’s Saw Mills (Pty) Ltd 1948 (1) SA 983 (A) at
990:
‘A contract of sale of land in writing is in itself a mere abstraction, it consists of
ideas expressed in words, but the rela tionship of those ideas to the concrete
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things which the ideas represent cannot be understood without evidence. . . .
In a Court of law, of c ourse, in every case evidence is essential in order to
identify the thing which corresponds to t he idea expressed in the words of the
written contract. The abs tract mental conception produced by the words has
to be translated into the concrete reality on the ground by evidence.’
But evidence of that nature does not supplement the document. It
simply correlates the description with the property.1
[12] In the present case Ikea seeks to interpo se another source
of identification of the property – a person who w ill say from his
own knowledge, or from refere nce to Ikea’s records, whether a
particular item was acquired from a particular supplier on a
particular date. That entails recogn ition by virtue of reference to a
person or another document, and no t recognition from the bond
itself. That kind of extrinsic ev idence is inadmissible because it
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does not explain the bond or relate the description to the property,
but seeks rather to supplement it.
[13] Where one is dealing not just with the interpretation of a
contract between parties, but wi th an instrument creating a real
right, which avails against third parties, there cannot be anything
more added to the instrument. The th ird party must be able to take
the document and identify the ‘rea lity on the ground’ by reference
to the document alone, correlati ng the description in it and the
property that fits the description.
[14] This conclusion is reinforced by having regard to decisions of
the erstwhile Natal courts that dealt with similar legislation
applicable, until the passing of t he Security by Means of Movable
1 See also Vermeulen v Goose Valley Investments (Pty) Ltd 2001 (3) SA 986 (SCA) paras 6
13
Property Act, in that province (the Notarial Bonds (Natal) Act 18 of
1932 (the ‘Natal Act’)). It is not necessary to deal with the history of
that legislation here. Suffice it to say that in Natal the courts had
recognised that a notarial bond could confer on the holder not only
a preference on the insolvency of the debtor (as was assumed to
be the case elsewhere in the count ry) but also a secured right in
the assets bonded. The Natal legi slation was passed in order to
restore the rights that bondholders in Natal had held prior to an
amendment to the Insolvency Act 32 of 1916. The development of
the law relating to the Nata l bondholder’s position, and the
legislation enacted to restore it , are fully discussed in several
cases, including In re Umlaas Wool Washing and Milling Co Ltd (in
liquidation) 1934 NPD 18; Rosenbach & Co (Pty) Ltd v Dalmonte
and 14 and the cases there cited.
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1964 (2) SA 195 (N) and Nedbank Ltd v Norton 1987 (3) SA 619
(N).
[15] The current Act was intended to extend the availability of the
security made possible by the Na tal Act to South Africa as a
whole.2 Case law dealing with the Na tal Act thus remains of some
relevance in interpreting s 1(1) of the current Act. It is significant,
however, that the wording of the Natal Act is different. Section 1
provided that the Act applied ‘only to movables situate within the
Province of Natal, and shall apply to a notarial bond only in so far
as such bond hypothecates movables specially described and
enumerated therein: . . .’ (my emphasis).
2 The Act was passed pursuant to the recommendations of the South African Law
Commission contained in a report entitled ‘Report on the giving of security by means of
movable property’, published in February 1991. Paragraph 5.5.1 of the report expressly states
that the notarial bond in Natal should be extended to the rest of the Republic. See also
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[16] In the Rosenbach case, above, Caney J (delivering the
judgment of the full court) stated that the Natal Act was ‘concerned
to prescribe safeguards in the in terests of other creditors by
requiring definition of the movables hypothecated ‘in order to
render identification as easy as possible with a view to shutting the
door to frauds and reduci ng controversy to a minimum’ (at 201H-
202A). The learned judge thus held (at 204G-205A) that –
‘[I]t is not a compliance with the St atute to describe the assets to be
hypothecated in wide general terms, as “goods, wares, merchandise, stock-in-
trade, fixtures, fittings, furniture and appli ances”. It is necessary to know what
are the goods, wares, merchandise and so on, the nature of them and the
types or kind of each of them, and also the number of them, (eg so many 1 lb
tins of A make of jam, so many of B make, so many 5 lb tins of C make
biscuits, so many rolls of suiting mate rial and of dress material and so on, as
in a stock list) described so that at any given mom ent they may be identified;
Bokomo v Standard Bank van SA Bpk 1996 (4) SA 450 (C) at 454E-F and 17 Lawsa
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so, also, with the fixtures, fittings, furniture and appliances and any other
movables. It is necessary to know particula rs of them, of what they consist, in
detail, . . .’ .
[17] In reaching this conclusion the court had regard to several
English cases dealing with bills of sale, governed by a statute that
required an inventory of chattels ‘specifically described’. In
Carpenter v Dean [1889] 23 QBD 566 Fry LJ said (in a passage
quoted in Rosenbach at 205E-G) that the words ‘specifically
described’ were used
‘ . . . to facilitate the i dentification of the articl es enumerated in the schedule
with those found in the possession of the grantor – that is to say, to render the
identification as easy as possible, and to render any dispute as to the
intention of the parties as rare as possible, and to shut the door to fraud and
controversy, which almost always ar ise when general descriptions are used.
(reissue) para 516. Section 1(3) of the Act regulates the effect of any other notarial bond
17
That is to be done as far as possible; by which I mean, as far as is reasonably
possible – so far as a careful man of bus iness trying to carry the object of the
Act into execution could and woul d do without going into unreasonable
particulars.’
[18] All the more so should this be the case where the written
document is not merely a c ontract, but also an instrument
hypothecating property. The need fo r certainty from the instrument
itself is not only to achieve clarity for the parties: an instrument that
gives rise to a real right of security also constitutes notice to third
parties that the assets are bonded. For such not ice to be effective
third parties must be able to det ermine from its terms that the
property is subject to another’s righ t – that that particular thing is
encumbered.
registered before the commencement of the Act (7 May 1993).
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[19] In my view the learned jud ge in the court below was correct
in finding that the legislature , when enacting the Act, must be
assumed to have been aware of the provisions of the Natal Act,
and the cases that inte rpreted it. The introdu ction of the phrase
‘readily recognisable’, and the us e of the words ‘specified and
described’ (instead of ‘specially enumerated’, the term used in the
Natal Act) indicate that the legisl ature intended a stricter test to be
applied than did the Natal Act. It would thus not be sufficient to
describe the property by reference to quantity and kind (as was
suggested by Caney J in Rosenbach): the property itself must be
‘specified’.
[20] ‘Specify’, according to the Shorter Oxford English Dictionary,
means ‘To mention, speak of, or name (something) definitely or
explicitly; to set down or state cat egorically or particularly; to relate
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in detail’. ‘Describe’ means ‘To set forth in words by reference to
characteristics; to give a detail ed or graphic account of’. ‘Readily’
means ‘Quickly, without delay; also without difficulty, with ease or
facility’. ‘Recognisable’ means ‘Capable of being recognised’, and
‘recognise’ means ‘To know by means of some distinctive feature;
to identify from knowledge of appearance or character’.3
[21] In my view, therefore , for property to be pledged in
accordance with s 1(1) of the Act the unique item of property must
be readily recognisable from its de scription in the bond. Whether
or not expertise is req uired in order to cor relate the property and
the description is not the point. It must be capable of being done
merely from the description in th e bond. Where a generic item is
sought to be pledged it is the unique item that is the subject of the
3 These definitions are appropriate samples of the meanings attributed in the Shorter OED
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pledge and it is not enou gh to describe it only with reference to its
generic characteristics. Nor is it sufficient to describe generic items
with reference to the sour ce or date of acquisition, as in this case,
for then they are recognisable no t from the description in the bond
but rather from an external sour ce. A member of the public must
be able to establish from the information lodged at the deeds office
whether particular assets of a debtor have been pledged (whether
or not he requires expert knowledge to do so).
[22] Section 1(1) states that the movable property bonded is
‘deemed to have been pledged’ as ‘effectually as if it had expressly
been pledged and delivered to t he mortgagee’. In my view,
therefore, the bond must, in so f ar as possible, have the same
characteristics as does a pledge. Th ird parties must be able to tell,
and are not exhaustive.
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without reference to extrinsic evidence, that the creditor has a right
in the property pledged. For a pl edge to be valid the creditor
(pledgee) must be in possession of the property. That is why a
pledge cannot be effected by constitutum possessorium .4 If the
owner of the property were to remain in possession of the
property, the likelihood that third pa rties, such as other creditors or
prospective purchasers, would be deceived would be greatly
increased. The fact of actual physical control of the pledged
property constitutes notice to t he world that someone other than
the owner has a right in the pro perty, and in part icular, the power
to control the property. Thus for property to be deemed to be
pledged, under s 1(1) of the Ac t, the bond in question must,
without reference to the owner or anyone else, make readily
identifiable the property so pl edged. Any person seeking to
4 See, for example, Goldinger’s Trustee v Whitelaw & Son 1917 AD 66 and Vasco Dry
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establish, from information in a deeds office, whether a debtor’s
property is encumbered, must be able to do so from the bond
itself.
[23] The importance of being able to determine the asset pledged
from the bond itself was emphasis ed in relation to the Natal Act in
Durmalingam v Bruce NO 1964 (1) SA 807 (D) at 812G-813B. In
holding that the ‘public generally’ should be able to identify the
property bonded, without recourse to extrinsic evidence, Friedman
AJ stated that the purpose of re quiring movables to be ‘specially
described and enumerated’ was to ‘give notice to the public
generally of the movables specia lly hypothecated under the bond’.
Thus, the court held, a term coul d not be implied into the bond in
question since the implicati on would depend on the leading of
Cleaners v Twycross 1979 (1) SA 603 (A) at 611G-612D.
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extrinsic evidence of facts know n only to the parties – and that
would inevitably be to their prejudice.
[24] The consequence of that is that one cannot simply
enumerate items in a bond and crea te a deemed pledge without
more. The property must be so described that only it, and not other
property of like kind, can be identi fied as that which is pledged. In
my view there should be no difficulty in identifying machinery,
vehicles, even furniture, that is bonded by reference to labels,
numbers or bar codes. The Grecon Optimiser, or the Uno vehicle –
each of the assets enumerated – could be given an identifying
mark referred to in th e bond. The third party would then readily be
able to recognise the thing from th e reference in the bond. What is
essential is that each item pled ged must be recognisable from its
description in the bond.
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[25] The notarial bond registere d by Ikea over the movable
property of Woodlam accordingly does not meet the requirements
of s 1(1) of the Act. The assets enumerated are not specified and
described in the manner required by the section. That some of
them could be, and indeed were, identi fied with the aid of extrinsic
evidence does not help Ikea. Third parties – indeed even the
liquidators – were not able to ta ke the bond and co rrelate the so-
called descriptions with the asse ts on the factory floor. In the
circumstances the bond did not create a deemed pledge over the
property of Woodlam, and Ikea was not a secured creditor.
[26] The appeal is accordingly dismissed with costs.
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C H Lewis
Judge of Appeal
Concur:
Zulman JA
Farlam JA
Nugent JA
Ponnan AJA