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1995
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[1995] ZASCA 62
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Millman NO v Twiggs and Another (610/93) [1995] ZASCA 62; 1995 (3) SA 674 (AD); [1995] 2 All SA 611 (A) (26 May 1995)
CASE NO 610/93
IN THE SUPREME COURT OF SOUTH AFRICA
APPELLATE DIVISION
In the matter between
MILLMAN NO
APPELLANT
AND
E F TWIGGS
1 st RESPONDENT
TUNA MARINE FOODS
(PTY)LTD
2nd RESPONDENT
CORAM
: HEFER, VIVIER, STEYN, F H GROSSKOPF et SCHUTZ
JJA
HEARD
: 12 MAY 1995
DELIVERED
: 26
MAY 1995
JUDGMENT
HEFER JA/
2
HEFER JA
:
When a right is ceded with the avowed object of securing
a debt the cession is regarded as a pledge of the right in question:
dominium
of the right remains with the cedent and vests upon his
insolvency in his trustee who is under the common law entitled to administer
it
"in the interests of all the creditors, and with due regard to the special
position of the pledgee". (Per Innes J in
National Bank of South Africa Ltd v
Cohen's Trustee
1911 AD 235
at 250.) These principles have recently been
reaffirmed
inter alia
in
Leyds NO v Noord-Westelike Koöperatiewe
Landboumaatskappy Bpk en Andere
1985(2) SA 769(A),
Bank of Lisbon and
South Africa Ltd v The Master and Others
1987(1) SA 276(A) and
Land- en
Landboubank van Suid-Afrika v Die Meester en Andere
1991(2) SA 761(A).
3
In the present case a right was ceded as security for two separate debts -
the one owing to the cessionary by the cedent and the other
owing to him by an
outsider. The parties are agreed that, upon the insolvency of the cedent, the
cessionary is entitled to preferential
treatment in regard to the cedent's own
debt. The issue is whether he is entitled to similar treatment in regard to the
outsider's
debt.
When the cession was executed during March 1991
(1)
Continental Foods (Pty) Ltd
("Continental") owed the present first respondent ("Twiggs") an amount of R200
000;
(2)
Brian Harry Cohen ("Cohen") owed
Twiggs an amount of R300 000;
and
4
(3) Tuna Marine Foods (Pty) Ltd ("Tuna
Marine") owed Continental an amount of
R500 000.
These debts will hereinafter be referred to as
"Continental's debt", "Cohen's debt", and "the ceded
debt" respectively.
They were all payable on 30 June
1992. The relevant part of the cession reads as
follows:
"1. Continental Foods hereby cedes, assigns and makes over to Twiggs
in
securitatem debiti
all Continental Foods' right, title and interest in and
to 2/5ths of the claim for the sum of five hundred thousand rand (R500 000,00)
which is so payable by Tuna Marine to Continental Foods on 30 June 1992.
2.
Continental Foods hereby
cedes, assigns and makes over to Twiggs
in securitatem debiti
all
Continental Foods' right, title and interest in and to 3/5ths of the claim for
the sum of five hundred thousand rand (R500 000,00)
which is so payable by Tuna
Marine to Continental Foods on 30 June 1992.
3.
Pursuant to and in implementation of clauses 1 and 2, it is agreed
that the said cession, assignment and making over
in
5
securitatem debiti
are for the sum of five hundred thousand rand (R500
000,00)."
Continental was wound up by order of court
during
September 1991 on account of its inability to
pay its debts. The appellant is
the liquidator.
Twiggs proved a claim for R200 000 in respect
of
Continental's debt which the appellant admitted as a
secured claim by
virtue of the security afforded by
clause 1 of the cession. His disclaimer of Twiggs's
right to similar treatment in relation to a further
amount of R300 000 by virtue of clause 2 of the
cession led to an application for a declaration of
rights brought by Twiggs in the Cape Provincial
Division. While the application was pending it came
to Twiggs' s knowledge that Tuna Marine had paid the
entire ceded debt to the appellant. Precisely when
this occurred does not emerge from the papers; nor
has it been revealed how it came about that Tuna
6
Marine followed this course after it had been notified of the cession. Be
that as it may, the order granted was one declaring that
Twiggs was "entitled to
payment ... of his claim of R300 000 on the footing that he has a secured
claim". The appeal is directed
at this order.
The court
a quo's
judgment has been reported
sub nom Twiggs v
Millman NO and Another
in 1994(1) SA 458(C). As appears from 462B-C of the
report the appellant challenged the validity of the cession in his opposing
affidavit
and in argument in that court. This line of defence has now been
abandoned and the outcome of the appeal depends entirely on the
effect of the
cession. The sole issue at this stage is whether Twiggs is to be treated as a
secured creditor in respect of the remaining
R300 000 which the appellant has
received, but of which (until a late stage of his counsel's
7
argument in this court, as will presently be seen) he denied Twiggs any
share.
The case advanced in the appellant's opposing affidavit in regard to
clause 2 of the cession is a simple one. It is to the effect
that Twiggs is not
a creditor of Continental because clause 2 merely secures Cohen's debt and
creates no obligation towards Twiggs
on Continental's part. This is also the
main drift of his counsel's written heads of argument where great play is made
of a concession
in Twiggs's founding affidavit that he does not have a
liquidated claim under clause 2 of the cession as contemplated in
sec 44
(1) of
the
Insolvency Act 24 of 1936
read with sec 366 of the Companies Act 61 of 1973.
(Cf 462 G-J of the reported judgment where the concession is quoted.)
It is obvious that the matter cannot be disposed of on this narrow basis
which entirely
8
ignores Twiggs's rights as pledgee. By the act of cession the right to
receive payment from Tuna Marine was pledged to him as effectively
as if a
corporeal movable asset of the company had been delivered to him in pledge.
(
Smith v Farrelly's Trustee
1904 TS 949
at 955-956;
Guman and Another
v Latib
1965(4) SA 715(A) at 721G - 722B;
Oertel, NO v Brink
1972(3)
SA 669(W) at 674D-E;
Muller NO v Trust Bank of Africa Ltd and Another
1981(2) SA 117 (N) at 125C-F.) That he thus acquired a
ius in re aliena
,
equally effective against creditors as against the owner in respect of both
debts, is beyond dispute. (Wille & Millin:
Mercantile Law of South
Africa
(18th ed) 345; Van der Merwe:
Sakereg
(2nd ed) 650-651, 660,
662;
Britz NO v Sniegocki and Others
1989(4) SA 372 (D & CLD) at
376H-377A;
Oertel, NO v Brink supra
at 674H;
Land- en Landboubank van
Suid-Afrika v Die Meester en Andere supra
at 771E-F. ) For this very reason
the
9
appellant rightly admitted the claim for R200 000 to proof as a secured claim
by virtue of clause 1 of the cession and, as far as
the rights which they
conferred are concerned, there is no distinction between the two clauses; as
appellant's counsel readily conceded,
property may validly be pledged to secure
an obligation of someone other than the pledgor (Voet 13.7.2., 20.1.8. 20.4.2.
and the
other writers cited in
Wille's Mortgage and Pledge
(3rd ed by
Scott and Scott) 7; Van der Merwe
op cit
654). There are accordingly no
conceivable logical or legal grounds for applying the established principles to
the one but not to
the other.
In seeking to resist what thus appears to be an obvious conclusion
appellant's counsel urged upon us the provisions of sec 391 of
the Companies
Act, on the one hand, and the concession that Twiggs is not a creditor as
contemplated in sec 44 of the
10
Insolvency Act, on
the other. In
sec 391
a liquidator is charged with the
duty to recover and reduce into his possession all the assets of the company in
liquidation. This,
appellant's counsel submitted, entitled the appellant to
receive payment from Tuna Marine in spite of the cession and to apply the
money
so received as part of the free residue towards the payment of concurrent
claims, thereby entirely excluding Twiggs because
he is not a creditor as
contemplated in
sec 44.
For this submission to be sustained we need to be persuaded that, in the
absence of any express provision, it is a necessary implication
from the
relevant provisions of the two Acts, not only that a pledgee in Twiggs's
position is obliged to surrender the object of
his pledge, but also that the
advantage accruing to such a pledgee is in effect to be forfeited for the
eventual benefit of concurrent
11
creditors. I am by no means convinced that such a pledgee is indeed obliged
to surrender the object of his pledge; but, even if he
is, what we have been
urged to do, is to deprive the pledgee of his lawful rights and to grant to
concurrent creditors a benefit
to which they are not entitled. I cannot find any
justification for, or any indication of an intention to achieve such a startling
result in either Act. Apart from the presumption against the forfeiture of
rights which generally affects the interpretation of statutes,
one finds, in
respect of property pledged to secure the cedent's own debt, provisions (such as
secs 19(1)
,
19
(3) (a) and
83
of the
Insolvency Act read
with sec 366 of the
Companies Act) plainly preserving the rights of the pledgee and in fact
extending them so that he may himself
realize the pledged property before the
second meeting of creditors. Moreover, until that meeting he is not
12
obliged to surrender it to the trustee (
Wells NO v Molin and Another
1965(4) SA 480(T) at 483B-C;
Soane v Lyle NO
1980(3) SA 183 (D & CLD)
at 186G-187A). And even where he does surrender it his security is not lost; he
remains entitled to
treatment as a secured creditor. Bearing in mind the extent
of the protection thus afforded to the pledgee in respect of the insolvent
cedent's own debt and the absence of any logical or legal grounds for
differentiation mentioned earlier, I find it inconceivable
that it could ever
have been intended that he is to be treated differently, in respect of an
outsider's debt, to the extent that
his rights are to be forfeited.
Realizing the inherent weakness of his contention appellant's counsel later
adopted a different stance by conceding a pledgee in such
a case a right to
share in the proceeds of the assets
13
as a concurrent creditor. For this submission he suggested no logical
foundation and offered by way of authority only the decision
in
Cooper NO en
Andere v Die Meester en 'n Ander
1992(3) SA 60(A). That decision does not
assist him. The list of preferences in
secs 96
to
102
of the
Insolvency Act
which
this court found to be exhaustive (see 82G-I and 85F-G) were expressly
stated to be applicable to the free residue and has no bearing
on the proceeds
of encumbered assets. (See the discussion at 80G-82F.)
How does Twiggs's concession that he is not a creditor as contemplated in
sec
44
of the
Insolvency Act affect
the situation? In my view it does not affect his
claim to preferential treatment at all. Admittedly he cannot claim such
treatment
by virtue of the provisions of
sec 83
unless he has a claim capable of
proof under
sec 44
, and admittedly
14
he does not have such a claim. But his right to
preferential treatment
does not derive from
sec 83
;
it derives from the common law. What the appellant
has overlooked, is that
the law of insolvency has not
been codified entirely. As was pointed out
in
Fairlie v Raubenheimer
1935 AD 135
at 146
"...[ons] insolvensie wet maak geen inbreuk op die Gemenereg nie insover die
Gemenereg bestaanbaar is met die voorsieninge van die
insolvensie wet. As dus
die statuut oor lets swyg of twyfelagtig is, moet ons ons toevlug na die
Gemenereg neem."
HOLMES JA's
dictum
in his minority judgment in
Cornelissen NO v Universal Caravan Sales (Pty)
Ltd
1971(3) SA 158(A) at 170B-C which the majority did
not disavow, is to same effect, namely:
"... (I) t has been well recognised for a century that the Insolvency Acts in
this country have not ousted the relevant common law
unless the latter is
inconsistent with the statute..."
15
(See also
Fey NO and Whiteford NO v Serfontein and Another
1993(2) SA
605(A) at 613B-F.) The present situation is one of those not covered by the
Insolvency Act. A
resort to the common law is accordingly justified.
In my
view the court
a quo's
conclusion that Twiggs is entitled to be treated
as a secured creditor is correct.
The appeal is dismissed with costs, including the costs of two counsel.
J J F HEFER JA.
VIVIER JA )
STEYN JA ) Concur
F H GROSSKOPF JA )
SCHUTZ JA )