Development Bank of Southern Africa Ltd. v Van Rensburg NO and Others (490/2000) [2002] ZASCA 39; [2002] 3 All SA 669 (SCA) (14 May 2002)

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Development Bank of Southern Africa Ltd. v Van Rensburg NO and Others (490/2000) [2002] ZASCA 39; [2002] 3 All SA 669 (SCA); 2002 (5) SA 425 (SCA) (14 May 2002)

IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
Case
No:
490/2000
In the
matter between:
THE
DEVELOPMENT BANK OF SOUTHERN AFRICA LIMITED
Appellant
and
J
H J VAN RENSBURG N O
F
ZONDAGH N O
N
SIMON N O
Respondents
(in their
capacities as joint provisional liquidators of
SERIOUS
MILLS (PTY) LTD (IN LIQUIDATION)
Coram
:
Nienaber,
Streicher and Navsa, JJA
Heard
:
8 March 2002
Delivered
:
14
May 2002
Cession
in securitatem
debiti
– general notarial bond - cessionary may enforce ceded
rights upon default of mortgagor - mortgagee who acquired possession
before
commencement of winding-up of mortgagor a secured creditor as
if a pledgee.
J
U D G M E N T
STREICHER,
JA
/
STREICHER
JA
:
[1] On
24 August 2000 the Bophuthatswana Provincial Division (‘the court
a
quo’) discharged a rule
nisi
in terms of which Serious Mills (Pty) Ltd (‘Serious Mills’) was
called upon to show cause why a provisional order made against
it
should not be made final. The order provisionally authorised the
appellant, ‘in order to perfect its security under notarial
bond BN
770/99’ (‘the notarial bond’) to take ‘possession of all the
movable property and assets covered by the said notarial
bond’. On
the return day the court
a quo
discharged
the rule
nisi
because
subsequent to the granting of the rule
nisi,
a
provisional winding-up order had been granted against Serious Mills
.
With the necessary leave the appellant appeals against
the order by the court
a quo
and contends that the rule
nisi
should have been confirmed.
[2] On
10 March 1999 the appellant, the Agricultural Bank and Serious Mills
entered into a number of related transactions. They included:
An
agreement between appellant and the Agricultural Bank in terms of
which the appellant lent and advanced to the Agricultural Bank
an
amount of R7 200 000.
An
agreement between the Agricultural Bank and Serious Mills in terms
of which the Agricultural Bank agreed to lend and advance
R7 200 000
to Serious Mills (‘the agreement of loan’). The agreement
provided that, in the event of Serious Mills failing to
make payment
of any amount on due date, the Agricultural Bank would be entitled
to demand immediate payment of all amounts outstanding
in terms of
the agreement.
A
power of attorney by Serious Mills to an attorney to register the
notarial bond in favour of the Agricultural Bank, hypothecating
all
its movable property to the Agricultural Bank, as security for the
performance by it of its obligations in terms of the agreement
of
loan. The notarial bond provided that, in the event of Serious Mills
failing to make payment of any amount, the full amount
payable in
terms of the agreement of loan would become payable and the
Agricultural Bank would become entitled to foreclose the
bond and to
take possession of the property hypothecated.
An
agreement between the Agricultural Bank and the appellant in terms
of which the Agricultural Bank, as security for the performance
by
it of its obligations to the appellant, pledged and ceded to the
appellant, among others, all its rights in terms of the notarial
bond (‘the deed of pledge and cession’).
[3] Serious
Mills failed to make payment of the interest instalment payable on 31
March 1999 or to make any other payments in terms
of the agreement of
loan. On 9 September 1999 it came to the appellant’s notice that an
application for the winding-up of Serious
Mills would be moved the
following day. The appellant, thereupon, on the same day, pursuant to
an urgent application by it, obtained
the aforesaid rule
nisi
and
interim order which,
inter alia,
provided as follows:
‘2 In order to perfect its security under notarial bond BN770/99
the Applicant is provisionally declared to be entitled and authorized
to take possession of all the movable property and assets covered by
the said notarial bond, which assets are situate at the premises
of
Serious Mills (Pty) Ltd, corner of Aerodrome Crescent and Agro Road,
Industrial Sites, Mafikeng, or wherever else they may be
found.
The
applicant is authorized to hold the assets as security for the
payment of all amounts owing by the Respondent to the Applicant
and
to retain possession thereof until such time as all amounts so owing
have been paid.
The
applicant is authorized to deal with the asets in terms of powers
conferred upon it by the said notarial bond and in accordance
with
law, save that prior to confirmation of the Rule Nisi the Applicant
shall not sell, alienate or otherwise dispose of any of
the assets.
The
Respondnet is ordered to deliver all the assets in its possession to
the Applicant.
The
Deputy Sheriff is authorized to attach and remove all assets and
place them in the possession of the Applicant.
That
a Rule
Nisi
do issue returnable on Thursday the 30
th
September 1999 at 10:00 or so soon thereafter as Counsel may be
heard calling upon the Respondent to show cause why:
the
Orders contained in paragraphs 1 to 6 above should not be made
final; and
the
Respondent should not be ordered to pay the costs of this
application.’
[4] Instructed
by the appellant, the Sheriff, on 10 September 1999, attached the
movable property of Serious Mills. After such attachment
an
application for the winding-up of Serious Mills was served at its
premises. The application was subsequently issued by the registrar
of
the court
a quo
and a
provisional winding-up order was granted on the same day.
[5] On
the return day of the rule
nisi
the
respondents, who had been appointed as joint provisional liquidators
of Serious Mills, opposed the confirmation of the rule.
[6] The
court
a quo
held that
inasmuch as the provisional order of attachment and the grant of the
provisional winding-up order took place on the same
day (which did
not happen) the provisional winding-up order had to take precedence
over the order of attachment. Furthermore, that
the rule had to be
discharged in the light of the decisions in
International
Shipping Company (Pty) Ltd v Affinity (Pty) (Ltd) and Another
1
(‘
International
Shipping’
) and
Trisilino
v De Vries
2
(‘
Trisilino’
).
[7] The
grant of the provisional order of attachment and of the provisional
winding-up order did not take place on the same day. The
court
a
quo
probably meant to say that inasmuch as
the attachment of the movable property of Serious Mills took place on
the day on which the
provisional winding-up order was granted, the
provisional winding-up order had to take precedence over the
attachment. In their heads
of argument the respondents contended that
this finding of the court
a quo
was correct. Before us they did not press this submission but did not
abandon it either.
[8] Sections
348 and 359(1)(b) of the Companies Act 61 of 1973 provide as follows:
‘
348 A winding-up of a company by the Court shall be
deemed to commence at the time of presentation to the Court of the
application
for the winding-up.’
‘
359 (1) When the Court has made an order for the
winding-up of a company . . .
(b) any attachment or execution put in force against the
estate or assets of the company after the commencement of the
winding-up
shall be void.’
The attachment took place before the
presentation to the court of the application for the winding-up of
Serious Mills. However, the
respondents submitted that the phrase ‘at
the time’ in s 348 should be interpreted to mean ‘on the date’.
They submitted
that to interpret the phrase as referrring to the
specific time of the day would lead to insurmountable disputes. In my
view the
ordinary meaning of the phrase ‘at the time’ is ‘at a
specific point in time’ and there is no reason to interpret the
phrase
as used in the section, differently. If the intention was that
the winding-up should commence on the day of the presentation of the
winding-up it could easily have been said. Furthermore, the section
should be interpreted restrictively in that it retrospectively
avoids
transactions that may have been perfectly legitimate at the time they
were entered into. I cannot agree that to interpret
the phrase as
referring to the specific time of the day would lead to
insurmountable disputes.
[9] Before
dealing with the second ground on which the court
a
quo
discharged the rule
nisi,
another submission advanced by the respondents should be dealt with
first. It is convenient to do so in that in terms of that submission
the rule
nisi
and
interim order should not have been granted.
[10] In
terms of clauses 2.1 and 2.2 of the deed of pledge and cession the
Agricultural Bank, as security for the proper and timeous
performance
by it of all its obligations under the principal agreement, pledged
and ceded to the appellant
all
rights, benefit, monies and interest which it had relating to and
arising out of the pledged securities. The pledged securities
included
the notarial bond. The respondents submitted that the
cession only entitled the appellant as cessionary to enforce the
rights ceded
in the event of the Agricultural Bank’s (i.e. the
cedent’s) failure to perform its obligations. As authority for this
proposition
they relied on
Volhand &
Molenaar Ltd v Ruskin and Another NNO
3
(‘
Volhand &
Molenaar’
) in which Hiemstra J said in
respect of a cession
in securitatem debiti
of
debts:
4
‘The
cessionary may not start collecting immediately. He may only do so if
and when his own debtor (the cedent) defaults.’
However,
that statement was made in the light of a specific agreement to that
effect. Earlier on in that judgment Hiemstra J said:
5
‘The
normal - or in any case not unusual - position where debts are ceded
as security for a debt owed by the cedent, is that the
cessionary
(who is the creditor in respect of the secured debt) can immediately
proceed to recover the ceded debts if they are due
and payable. When
he has recovered an amount equal to the secured debt, he is normally
obliged to re-cede the balance, if any, and
to pay to his debtor any
excess he may have collected.’
[11]
In
the instant case the appellant lent and advanced an amount of R7 200
000 to the Agricultural Bank and the Agricultural Bank in
turn lent
and advanced that amount to Serious Mills. As security for its
indebtedness to the Agricultural Bank, Serious Mills passed
the
notarial bond in favour of the Agricultural Bank. The Agricultural
Bank in turn as security for its indebtedness to the appellant
ceded
and pledged
all its rights
in terms of the notarial bond to the appellant. In effect the
notarial bond afforded security in respect of both the aforesaid
debts.
Having ceded all its rights in terms of the notarial bond to
the appellant the Agricultural Bank no longer had the right to
enforce
the rights of the mortgagee in terms of the notarial bond
until such time as it had paid its debt to the appellant. It follows
that
the Agricultural Bank could not perfect the security afforded by
the notarial bond by foreclosing the bond when Serious Mills
defaulted.
See in this regard
National Bank of
South Africa Ltd v Cohen’s Trustee
6
in which Innes J said in respect of a cession
in securitatem debiti:
7
‘
The
secured creditor
, so far as the enforcement of the right is
concerned,
would seem to occupy a position practically equivalent
to that of an owner
. He alone can sue upon the ceded obligation:
and he may do so for the full amount, however much in excess of the
secured debt. (
Wetzlar vs General Insurance Co., 3, J., p.86).
Nor
need he excuss the pledgor before taking steps to realise the
security (
Sande’s
Decis. 3, 12, Def. 25). As was said in
Van
der Byl vs Findlay and Kihn (9 J., p. 181):
“
Until the debt
for which the original security was given has been paid, he is
entitled to all the rights of a cessionary
.”’ (My
underlining.)
See
also
Bank of Lisbon and South Africa Ltd v The
Master and Others
8
.
[12] The respondents submitted that the appellant
did not have the right to foreclose the notarial bond either in that,
on a proper
interpretation of the deed of pledge and cession, Serious
Mills’ rights were ceded subject to a condition that they could not
be
exercised unless and until Serious Mills had failed to perform its
obligations secured by the pledge and cession. They could not
point
to any express provision in the deed of pledge and cession to this
effect but contended that such a condition was implicit
in the
wording of clauses 2.3 and 2.4 thereof.
[13] Clause
2.3 authorises the appellant to do certain things in the event of the
Agricultural Bank failing to perform its obligations
to the
appellant. The appellant would have been entitled to perform some of
these actions without any specific authority to do so
and others not.
The clause, furthermore, absolves the appellant from liablility
should the Agricultural Bank suffer any loss or damages
arising from
or related to the exercise of its rights in terms of the clause. On
the face of the agreement of pledge and cession
clause 2.3 was
inserted with the intention of confirming and conferring certain
rights and not with the intention of curtailing rights
ceded to the
appellant in terms of clauses 2.1 and 2.2 of the agreement. The
confirmation of certain rights, which the appellant
had in terms of
the cession is in my view an insufficient basis for inferring that
the parties intended to restrict the appellant’s
rights to those
specifically confirmed. No other basis for interpreting clause 2.3 so
as to restrict the appellant’s rights to
those specifically
referred to in the clause was suggested by the respondent.
[14] Clause
2.4 authorises the appellant to realise the pledged securities in the
event of the appellant becoming entitled to exercise
its rights in
terms of the agreement of pledge and cession. What those rights are
has to be determined by reference to the other
terms of the
agreement. This clause therefore does not assist the respondents.
[15] It
could not have been the intention of the parties that the appellant
would, like the Agricultural Bank, not have the right
of perfecting
the security by foreclosing the notarial bond in the event of Serious
Mills defaulting. Such an intention would have
diminished the value
of the notarial bond as security substantially without any reason for
doing so. It must therefore have been
the intention of the
Agricultural Bank and the appellant that by ceding ‘
all
the rights’
of the Agricultural Bank in
terms of the notarial bond as security for its indebtedness to the
appellant, the appellant would, for
so long as the debt by the
Agricultural Bank to the appellant remained unpaid, have the right to
foreclose the notarial bond in the
event of Serious Mills defaulting.
That that was the intention of the appellant and the Agricultural
Bank is borne out by the fact
that the Agricultural Bank requested
the appellant to take action when Serious Mills defaulted.
[16] It
remains to deal with the second ground on which the court
a
quo
discharged the rule
nisi.
In my view the court
a quo’s
reliance
on
International Shipping
and
Trisilino
was
misplaced. In
International Shipping
an
application for provisional liquidation and an application for an
order authorising the applicant to take possession of assets
hypothecated in terms of a notarial general bond was heard at the
same time. In respect of the latter application the court issued
a
rule
nisi
and granted
an interim order authorising the applicant to take possession of the
movable property and assets including the business
of the respondent.
In respect of the former the court granted a provisional liquidation
order. In order to safeguard the position
of the applicant the court
ordered that the rule
nisi
was to issue forthwith but that the provisional order of liquidation
was to issue only at 9 am on the next morning. In terms of s
348 of
the Companies Act the winding-up of a company by the court shall be
deemed to commence at the time of the presentation to
the court of
the application for the winding-up. Such presentation occurred before
the rule
nisi
and
interim order were granted i.e. the winding-up commenced before the
rule
nisi
and interim
order were granted. Section 341(2) of the Companies Act provides that
every disposition of its property by any company
being wound-up and
unable to pay its debts made after the commencement of the
winding-up, shall be void unless the court otherwise
orders.
Grosskopf J held
9
:
‘
The effect of the filing of the application for
liquidation was therefore to change the nature and purpose of the
order of Court which
the applicant sought (and still seeks). Prior to
the filing, the applicant was
prima facie
entitled to insist
that Affinity should perform its obligations under the bond. After
the filing, Affinity was
prima facie
unable validly to perform
its obligations if the application was pursued to finality. In the
former event, a Court order would merely
have enforced existing
rights. In the latter event, a Court order would have created rights
and obligations - it would have rendered
valid what would or might
otherwise have become void. Obviously the approach of the Court in
granting or refusing an order would
differ completely in the two
different sets of circumstances.’
[17] Grosskopf
J therefore held that the court which granted the rule
nisi
and interim order, after the filing of the application for
liquidation, was not concerned with the enforcement of existing
rights
in terms of the notarial bond. As to whether that court
intended to authorise a disposition of the respondent’s property
after
the winding-up had commenced he found that the court had no
such intention either but merely intended to preserve the applicant’s
rights pending the return day
10
.
Grosskopf J was therefore not dealing with the question whether a
rule
nisi
and interim
order, which had been executed before the commencement of
liquidation, should be confirmed. He had to decide whether
or not to
order a disposition of the property of a company after the winding-up
of that company had commenced i.e. at a time when
such a disposition
would otherwise, in terms of s 341(2), have been void. Assuming that
he had a discretion in this regard Grosskopf
J stated that he could
see no reason why he should exercise it in the applicant’s favour
11
.
Grosskopf J added that if, despite the fact that the company was
under liquidation he had a discretion to order specific performance
of the applicant’s claim, he would not have exercised the
discretion in favour of the applicant.
[18] It
follows that
International Shipping
is no authority for the proposition that an interim order of
attachment in terms of a notarial bond granted
ex
parte
and executed before the commencement of
the winding-up of a company may or should not be confirmed after the
commencement of the
winding-up.
[19] In
Trisilino
the
applicant applied for the enforcement of its rights in terms of a
notarial general bond and obtained a rule
nisi
and an interim order to take immediate possession of the hypothecated
movable property. He took possession in terms of the interim
order
but a provisional order of sequestration was granted before the
confirmation of the rule. The rule was subsequently discharged
on the
basis that any right to delivery which the applicant may have had in
order to transform his interest in movable property into
a real right
similar to that of a pledgee could only have been exercised against
the respondent prior to sequestration. The court
held that the fact
that the applicant had taken possession of the movable goods in terms
of the interim order before sequestration
did not assist him in that
the interim order was not intended to enforce rights but simply to
preserve the applicant’s rights.
As authority for these findings
the court relied on the decision in
International
Shipping
to the effect that the rule
nisi
and interim order which were granted in that
case was not intended to enforce rights but simply to preserve the
applicant’s rights.
However, the court
erred
in doing so. In
International Shipping
the court was, as was shown above, not dealing with the effect of a
rule
nisi
and interim
order made before the commencement of a winding-up but was dealing
with an application for authority to dispose of property
after the
commencement of winding-up proceedings. Edeling J who gave the
judgement in
Trisilino
said:
‘
The effect and intention of the interim
order was clearly only to preserve the applicant’s rights pending
the return day.’
12
If that is the intention of giving a mortgagee in
terms of a general notarial bond immediate possession it would not
make sense to
discharge the rule when it is subsequently established
that the mortgagee’s right to possession was unassailable at the
time when
the provisional order was made.
[20] In
terms of the present notarial bond the mortgagor bound all its
movable property as security for the repayment of all amounts
payable
in terms of the notarial bond. However, that did not constitute the
mortgagee a secured creditor. In order to qualify as
a secured
creditor the mortgagee had to obtain possession of the hypothecated
property. Once such possession was obtained by the
mortgagee he
would have been in the position of a pledgee, with all the security
attaching to a pledge
13
.
The notarial bond recognizes the mortgagee’s need to acquire such
security in the event of a failure by the mortgagor to perform
its
obligations in terms thereof in that it provides ‘that should the
Mortgagor commit any breach of the terms and conditions of
this Bond,
then the Mortgagee shall have the right whenever he considers it
advisable or necessary for perfecting his security under
this Bond,
to take and retain possession of any property hypothecated
hereunder’.
[21] Serious
Mills failed to make payment in terms of the notarial bond as a
result of which the appellant as cessionary of the rights
of the
Agricultural Bank became entitled to take possession of its movable
property before commencement of the winding-up of Serious
Mills. As a
result the appellant applied for the order referred to above. The
purpose of the application was clearly to obtain possession
of the
movable property in order to convert the appellant’s rights to that
of a secured creditor. The interim order, therefore,
authorized the
appellant to take possession of the movable property and assets
covered by the notarial bond ‘in order to perfect
its security’.
[22] The appellant was, in contrast to International
Shipping, when the latter applied for a provisional order, purporting
to enforce
a contractual right. The order granted to the appellant
was only a provisional order i.e. it could later be discharged if it
should
not have been granted in the first place because of the
retrospective operation, in terms of s 348, of a subsequent
winding-up order
(as in the case of International Shipping) or
otherwise. However, no valid basis was advanced for holding that the
appellant was
not entitled, immediately before the commencement of
the winding-up of Serious Mills, to take possession of the
hypothecated property
and that the provisional order should for that
reason not have been granted. The fact that the order authorising the
appellant to
take possession of the movables was provisional
therefore does not detract from the fact that the moment the
appellant obtained possession
of the movable property hypothecated in
terms of the notarial bond he was in the position of a pledgee who
had obtained possession
of the movable property before the
commencement of the winding-up of Serious Mills.
[23] After
the commencement of the winding-up Serious Mills could no longer hand
over any of its movable assets as such a handing
over would have
constituted a disposal of its movable assets prohibited in terms of s
341(2) unless a court otherwise ordered. By
that time the appellant
was, therefore, no longer entitled to take possession of the movable
property of Serious Mills.
[24] It
follows that, to the extent that the appellant obtained possession of
Serious Mills’ movable property before the commencement
of the
winding-up, the appellant was a secured creditor at the commencement
of the winding-up proceedings and as such entitled to
remain in
possession of such movable property subject to the provisions of the
law in relation to the winding-up of Serious Mills.
To that extent
the court
a quo
erred in discharging the rule
nisi
. The
proper order would have been to confirm the appellant’s entitlement
to possession of the movable property which had been hypothecated
in
terms of the notarial bond and was attached on 10 September 1999 and
to discharge the rule
nisi
in other respects.
[26] The
following order is made:
The
appeal is upheld with costs including the costs of two counsel.
The
order made by the court
a quo
is set aside and the following
order is substituted therefore:
‘
1 To the extent that the applicant on 10 September
1999 attached movable property and assets covered by Notarial Bond
BN770/99 the
rule
nisi
granted to the applicant on 9 September
1999 is hereby confirmed.
2 Save as aforesaid the rule
nisi
is discharged.
3 The respondents are
ordered to pay the costs of the application.’
__________________
P
E Streicher
Judge
of Appeal
Navsa, JA) concur
NIENABER JA
:
[1] I
have read the judgment prepared by Streicher JA. I regret that I am
unable to agree with either its reasoning or its result.
[2] The
two principal points argued in the appeal were:
(1) whether the appellant, as a cessionary of a general
notarial bond containing a perfection clause, by the expedient of an
interim
order of attachment, obtained
ex parte
and executed
the next day,
ipso jure
acquired a real right over the
attached movables prevailing over a provisional order of liquidation
of the debtor obtained from the
same court, prior to the return day
of the interim order of attachment, by other creditors of the debtor.
That was an issue that
went to the nature of the appellant’s
entitlement;
(2) whether the appellant, as a cessionary
in
securitatem
debiti
of the notarial bond, was entitled to
take action against the debtor even though the cedent was not in
default, then or at any time
thereafter, with its obligations to the
appellant. That was an issue that went to the appellant’s
locus
standi
.
[3] Before
elaborating on the legal principles occasioned by these questions it
may be opportune to review some salient facts:
(1) The debtor, Serious Mills (Pty) Ltd (‘Serious
Mills’), was anxious to obtain a loan from the appellant (‘the
Development
Bank’). For a reason not fully explained in the papers
this was done through the medium of the North-West Agricultural Bank
(‘the
Agri-Bank’). The Development Bank advanced R7,2 million to
the Agri-Bank which it in turn advanced to Serious Mills. The loan
was secured, inter alia, by a notarial general covering bond which
the Agri-Bank in turn ceded to the Development Bank in
securitatem
debiti
.
(2) The notarial bond in favour of the Agri-Bank was
approved on 10 March 1999 and registered on 5 May 1999. Clause
14(b) thereof
authorised the bondholder, in the event of the
mortgagor failing to make payment of the amounts due, to foreclose
and
‘to
seize and take possession of the property hypothecated and to sell
the same or any portion thereof and to convey valid title
to the
purchaser and to have it excussed by legal process …’
(3) The cession
in securitatem debiti
, entitled
‘Deed of Pledge and Cession’, between the Agri-Bank and the
Development Bank was concluded on the same day.
(4) On 31 March 1999
Serious Mills fell in arrears with its repayments in terms of the
loan. No payments were thereafter effected
by Serious Mills to
either the Agri-Bank, as cedent, or the Development Bank, as
cessionary.
(5) Neither the Agri-Bank nor the Development Bank took
any steps at the time to ‘perfect’ their rights, such as they
were, in
terms of the notarial bond. It is trite that such a bond
does not, by itself, vest the bondholder with a real right over the
hypothecated
movables. Such a real right is vested only if the bond
contains a so-called perfection clause (cf Joubert (ed)
The Law of
South Africa,
first reissue, vol 17, para 517) and the
bondholder, prior to the insolvency of the mortgagor, takes
possession of such movables,
either with the consent of the mortgagor
or pursuant to a court order. The order of court obtained at the
instance of the bondholder
normally authorises the Deputy Sheriff to
attach the goods in question for delivery to the bondholder. Upon
such delivery the bondholder
acquires a real right over the movables
that can be maintained against all comers in the event of the
subsequent liquidation or sequestration
of the mortgagor. Failing
such ‘perfection’ (by assuming possession of the movables), the
bondholder merely obtains a preference
over concurrent creditors in
the event of the mortgagor’s subsequent insolvency.
(6) It was only on 10
August 1999 that the Agri-Bank wrote to the Development Bank
informing it that Serious Mills had ‘cash flow
problems and had not
paid interest for the past three months on capital advanced to it’.
The letter continued:
‘Agri-Bank
has ceded all rights and title to the Development Bank of South
Africa and therefore we would like you to intervene.’
What immediate steps, if any, were taken by the
Development Bank at that stage does not appear from the papers.
On 8 or 9 September
1999 four of Serious Mill’s other
creditors resolved to
launch urgent liquidation proceedings against it.
Through their attorneys,
Messrs Van der Merwe & Ferreira (‘M&F’) they
approached Minchin &
Kelly Incorporated, attorneys at Mafikeng
(‘M&K’), to act
for them. The immediate further history appears from a
letter, written by Mr
Minchin and annexed to the Development Bank’s
answering affidavit in
the subsequent application for the rescission of the
confirmation of the
rule. The letter itself was not confirmed under oath.
Nevertheless I shall
accept it as a true reflection of what happened during
that period. The
creditors’ attorney, M&F, instructed M&K to launch the
urgent application for
liquidation of Serious Mills. M&K accepted the
mandate and instructed a
candidate attorney, a Mrs Steenkamp, to prepare
the necessary security
bond and to arrange for a Master’s certificate in
terms of s 346(3) of the
Companies Act 61 of 1973. The letter then
proceeds:
‘Unfortunately
the Master was not in office that whole afternoon and Mrs Steenkamp
returned without the signed Master’s Certificate.’
The application for liquidation could accordingly
not be lodged with the Registrar. (Section 348 of the Companies Act
1973 provides
that ‘a winding-up of a company by the Court shall be
deemed to commence at the time of the presentation to the Court of
the application
for the winding-up’. That has been interpreted to
refer to the moment of lodging of the application papers with the
Registrar
of the Court (cf Henochsberg on the Companies Act, issue
14, p 740).
(8) The Development
Bank got wind of the proposed winding-up when a Mr Zondach (later
appointed as one of Serious Mills’ three co-provisional
liquidators
and as such the second respondent) telephoned a Mr Rees, the
Development Bank’s Sandton attorney. Paragraph 17 of
the
Development Bank’s founding affidavit reads:
‘At
approximately 14h50 on 9 September 1999 Dean Rees (‘Rees’) of the
applicant’s attorneys of record was contacted by one
Ferdinand
Zondach (‘Zondach’) who introduced himself as a liquidator.
Zondach advised Rees that a liquidation application was
about to be
launched against the respondent and he sought the applicant’s
support for his appointment as the liquidator therein.
Zondach
advised Rees that it was anticipated that the application for
liquidation would be moved at 10h00 on Friday 10 September
1999.’
(9) It was on this
information that the Development Bank relied for its averment of
‘extreme’ urgency and prejudice since, failing
an order, so it
stated, it would ‘lose the security for its claim and will be
merely a preferent as opposed to a secured creditor
in the winding-up
of the respondent’.
(10) Rees thereupon
telephoned M&K and spoke to Minchin. He instructed him to
launch an urgent application for an order authorising
an attachment
of movables covered by the notarial bond. Minchin, in the letter
referred to earlier, stated that he was at that stage
unaware that
his firm had already accepted instructions to act on behalf of the
creditors in the impending liquidation proceedings.
He nevertheless
became aware of the true situation at about 16:50. He says:
‘Only
after returning to the office at approximately 16:50 was writer
made aware of the existence of the instructions from Van
der Merwe &
Ferreira Attorneys. Writer then telephoned Mr Rees to inform him of
our dilemma. Mr Rees assured us that the application
would be
brought that night, with or without us, but strongly indicated that
he wanted us involved since we had played an instrumental
role in the
negotiations, drafting and finalising the contracts between Serious
Mills (Pty) Ltd, Agri-Bank and the Development Bank
of South Africa.’
An attempt, so it was stated, to make contact with
M&F at the time was unsuccessful. The letter continues:
‘After
some mental gymnastics we summed up the situation that nothing was
going to stop DBSA [the Development Bank] bringing the
application
that night. Since nothing could be done about the liquidation
application until the Master returned to office to sign
the Master’s
Certificate, we decided to remain involved in the DBSA application
and appeared before Mr Justice Hendler at his house
at approximately
22:00 that night when the interim order was granted.’
(11) Paragraph 2 of the interim order thus granted
reads as follows:
‘In
order to perfect its security under notarial bond BN770/99 the
Applicant is
provisionally
declared to be entitled and
authorized to take possession of all the movable property and assets
covered by the said notarial bond
… ‘ (my emphasis).
Paragraph 4 provides :
‘The
Applicant is authorized to deal with the assets in terms of the
powers conferred upon it by the said notarial bond and in accordance
with law, save that prior to confirmation of the Rule Nisi the
Applicant shall not sell, alienate or otherwise dispose of any of
the
assets.’
(12) The letter
proceeds:
‘The
Deputy Sheriff, who had the previous evening been alerted of the
urgent application by DBSA arranged for the Assistant Deputy
Sheriff
to fetch the Order at our office early Friday 10
th
September 1999 for service.’
(13) The attachment then commenced. The Deputy
Sheriff drew an inventory which,
inter alia
, reads as
follows:
‘At
12H00 I had completed to compile an inventory of the respondent’s
assets and I took possession of the keys to all the vehicles
… and
thereafter took constructive possession of the plant and building by
engaging the services of a security company by the name
of Singobile
Security Guards to look after the building and other movable property
mentioned in the inventory.
I
handed over to the above-mentioned security firm to guard the
property mentioned in the inventory after I had locked the gates to
the premises at 13H00.’
(Nowhere in the papers is it stated that the
property so secured was handed to the Development Bank by the
security firm or that the
Development Bank ever assumed or purported
to exercise control over the attached goods, but no point was made,
in the argument for
the respondents, of this omission.)
(14) Meanwhile, and
some time during the course of the morning of 10 September, the
Master’s certificate was obtained. Exactly
when the application
for liquidation was eventually lodged with the Registrar of the Court
does not appear from the papers but according
to Minchin it was
served at about 12:30 and heard that afternoon when a provisional
order for the liquidation of Serious Mills was
duly granted.
[4] This history is related in full since it
constitutes material that was relevant to the discretion the Court a
quo exercised on
the return day of the provisional order of
attachment. I return to this issue later in this judgment.
[5] From the above resumé it is plain:
(1) that the
creditors’ decision to liquidate Serious Mills preceded the
Development Bank’s decision to apply for an attachment
order;
(2) that it was the
creditors’ decision to liquidate that prompted the Development Bank
to jump the gun by applying for a provisional
attachment order
without notice and as a matter of extreme urgency;
(3) that it was
largely fortuitous that the provisional order for attachment was
granted and the attachment commenced before the application
for
liquidation was lodged with the Registrar of the Court.
[6] On 30 September the rule was confirmed but
such confirmation was afterwards, after an opposed application for
its rescission in
terms of Supreme Court Rule 42, set aside. On the
extended return day Hendler J discharged the provisional order for
attachment
he had earlier granted. It is against that decision,
discharging the rule, that this appeal is directed, leave to do so
having
been granted on petition.
The first issue:
[7] The first question, then, is whether an
attachment pursuant to an
ex parte
provisional order of
attachment is
ipso jure
immune to a provisional order of
liquidation that is issued prior to the return day of the provisional
order of attachment. This
question, involving concurrence between
provisional orders of liquidation and attachment, has arisen in three
relatively recent judgments,
on two of which the Court
a quo
sought to rely in discharging the rule. These decisions, not being
judgments of this Court, are not binding on it. They should
as such
be examined for their reasoning rather than their authority.
[8] The first of these matters is
International
Shipping Company (Pty) Ltd v Affinity (Pty) Ltd and Another
1983
(1) SA 79
(C), a decision of Grosskopf J. I deal with it perhaps a
little more fully than I would otherwise have done since Streicher JA
in
his judgment is at pains to show that it is not applicable. I
respectfully disagree; I believe that it is both in point and
helpful.
[9] There are differences as well as similarities
between the facts in the
International Shipping
case and the
present one. One difference was that it was the bondholder
(International Shipping Co) and not an unsecured creditor
(Factors)
of the debtor (Affinity) which initiated the process culminating in
the creditor’s opposition to the confirmation of
the provisional
order of attachment. On 6 July 1982 the bondholder sought by consent
to take possession of the hypothecated goods
in terms of the
perfection clause in its general notarial bond. When that attempt
failed it applied urgently on 7 July 1982 for
an order authorising
such attachment. The creditor, unlike the creditors in the instant
case, found out about the proposed application
for attachment and
intervened, thereby causing the matter to be postponed to 8 July,
while immediately lodging the security for its
own application for a
provisional order of liquidation. In our case it was the proposed
liquidation that prompted the application
for attachment; in that
case it was the proposed attachment that prompted the application for
liquidation. As it happens the urgent
application for liquidation,
(contrary to our case) was filed with the Registrar of the Court on
the same day, thereby anticipating
the actual hearing of the
application for leave to attach. Both applications (for a
provisional order for attachment and for a provisional
order for
liquidation respectively) were heard on the same day, which in our
case might also have happened had the Master been on
his post the day
before or if MK had succeeded in alerting M&F of the impending
application for attachment, thereby enabling
the unsecured creditors
to intervene.
[10]
Although the application for the provisional order of liquidation
took effect, in terms of s 348 of the Companies Act 1973, before
the
application for the provisional order for attachment was heard the
Court hearing both applications staggered the issuing of its
orders,
the provisional order for attachment to issue forthwith and the
provisional order for liquidation only with effect the day
thereafter. The two orders accordingly brought about a situation that
was comparable to the one under discussion: a provisional
order of
attachment that was first issued, followed by a provisional order of
liquidation that was issued prior to the return day
of the first
order.
[11] The two major differences in the facts of
that case and the present one are:
that the lodging of the application for
liquidation preceded the application for attachment in that case and
not in this one;
that the commencement of the actual physical
attachment of the hypothecated movables preceded the application for
liquidation in
this case and not in that one.
There are precursors to both these differences in
the judgment of Grosskopf J in the
International Shipping
case
who, like Hendler J, was concerned with the return day of the
provisional order of attachment.
[12] As to the first of the differences mentioned
in para [11] above, the reasoning, as I read the judgment, was as
follows: a bondholder
who applies for leave to attach the
hypothecated goods in terms of a perfection clause is in effect
asking for specific performance
(84E-H and cf
Barclays National
Bank Ltd and Another v Natal Fire Extinguishers Manufacturing Co
(Pty) Ltd and Others
1982 (4) SA 650
(D) at 654H-655A). As in
other cases where specific performance is asked for so too in this
case (so the Court was prepared to
assume) the court had a
discretion whether or not to grant the order. Leaving aside for the
moment the intrusion of insolvency,
a court
‘would
in my view be reluctant to deny the mortgagee all claims to security
under the bond if it is sought to be enforced prior
to the
mortgagor’s insolvency’ (84H).
But when liquidation does intrude, s 341(2) of the
Companies Act 1973 would not as a matter of course neutralise a
subsequent application
for leave to attach, even if the attachment
should qualify as ‘a disposition’ in terms of the section. That
is because of the
concluding words in s 341(2): ‘… unless the
court otherwise orders’. And that would be so even when, as in
that case, the
lodging of the application for liquidation preceded
the application for attachment (85A-H).
[13] As to the second difference mentioned in para
[11] above (i e where an application for attachment and the
consequent attachment
precede the application for liquidation), there
is of course a distinction: if the actual attachment took place
pursuant to or was
sanctioned by a confirmed rule
nisi
the
bondholder would have acquired a real right that would be immune to
any subsequent liquidation (84D-G). But where the attachment
took
place pursuant to but before the hearing of the return day of a rule
nisi
that was obtained without notice and as a matter of urgency
(as happened in the
International Shipping
case as well as in
this one), the position would be different. Thus it was said:
‘The
rule
nisi
was granted as a matter of urgency. All interested
parties were not before the Court, and interested persons were
accordingly called
upon in para 1 to show cause why the order should
not be made final. To enable such persons to be apprised of the
matter, publication
in two local newspapers was ordered. It would be
strange if, in these circumstances, the Court were to have granted
any order which
had a greater effect than the preservation of the
applicant’s rights pending the return day’(85J-86A).
And again:
‘The
purpose of the order must have been the more limited one of
protecting the applicant’s position
pending the return day
;
the Court apparently sought to anticipate a possible argument that
the granting of a provisional order of liquidation would
ipso jure
avoid the grant of interim possession to the applicant’ (86E-G).
The interim order, according to the above
dicta
,
therefore had no more than a mere holding effect in respect of the
attachment that took place in terms thereof. It did not have
the
additional effect of converting the possession resulting from the
attachment into a real right that, per se, would enjoy preference
over the claims of other creditors. That this is what the Court had
in mind appears further from what was stated at 86H:
‘I
have pointed out that an order in favour of the applicant would not
merely be the enforcement of an existing right, but would
amount in
effect to the grant of rights which the applicant would otherwise not
have had. More particularly, it would bestow upon
the applicant a
right of security which would disturb the distribution of Affinity’s
assets if Affinity were finally liquidated.’
[14] This conclusion,
that the rule
nisi
did not have finite and definitive
effect, is patently
correct. An interim order is by its very nature both
temporary and
provisional; its purpose is to preserve the
status quo
pending the return day.
Thus it was said by Corbett CJ in
Shoba v Officer
Commanding, Temporary
Police Camp, Wagendrift and Another;
Maphanga v Officer
Commanding , South African Police and Murder and
Robbery Unit,
Pietermaritzburg and Others
1995 (4) SA 1
(A) at 18J-19B:
‘The
term “rule
nisi”
is derived from the English law and
practice, and the rule may be defined as an order by a Court issued
at the instance of the applicant
and calling upon another party to
show cause before the Court on a particular day why the relief
applied for should not be granted
(see Van Zyls’s
Judicial
Practice
3 ed 450
et seq; Tollman v Tolmann
1963 (4) SA
44
(C) at 46H). Walker’s
Oxford Companion to Law
sv
“nisi”
, states that a decree, rule or order is made
nisi
when it is not to take effect unless the person affected fails within
a stated time to appear and show cause why it should not take
effect.
As
Van Zyl
points out, our common law knew the temporary
interdict and a “curious mixture of our practice with the practice
of England”
took place and the practice arose of asking the Court
for a rule
nisi
, returnable on a certain day, but in the
meantime to operate as a temporary interdict.’
(See too,
Safcor Forwarding (Johannesburg)
(Pty) Ltd v National Transport
Commission
1982 (3) SA 654
(A) at 674H-675C.) If the order
authorising attachment is provisional and subject
to confirmation it must
follow that an attachment effected and any
entitlement acquired on the strength thereof must likewise be
provisional and subject
to confirmation.
[15] I agree with Grosskopf J’s conclusion that
the interim order of attachment had a mere holding effect. For
otherwise it would
mean that in all kindred cases a real right
supposedly vesting in a bondholder on the execution of a provisional
order of attachment
would thereafter
be abrogated should the
provisional order be discharged on the return date, be it at the
instance of the liquidator or a third party
or because the Court for
good reasons resolved to exercise its discretion against the
bondholder. Grosskopf J in effect decided
that an attachment
pursuant to a rule
nisi
that was issued
ex parte
and
which is in competition with a provisional winding-up order issued
before its return day, is not to be equated in law with an
attachment
sanctioned by a confirmed rule
nisi
.
[16] Accordingly, so it was held, neither the
provisional order of liquidation nor the provisional order of
attachment precluded the
Court from exercising the discretion it
assumed it had:
‘On
this interpretation, it seems to me, I am not limited in any way by
the terms of the rule
nisi
in deciding what would be the
appropriate course to adopt. I should approach the matter as
res
nova
to be decided on a consideration of the full facts and
arguments now presented to me’ (86F-G).
The position, then, was that each of the
provisional orders (for attachment and for liquidation respectively)
survived the other.
The entire situation had to be reviewed on the
return day of the provisional order of attachment when the respective
claims of the
bondholder in question, other bondholders, third
parties with claims of ownership and the like over the attached
goods, and the general
body of creditors, involved as a result of the
provisional order of liquidation, came to be assessed.
[17] Having made certain assumptions in favour of
the applicant for attachment (namely, that the Court had a discretion
and that the
Court was not precluded by s 359 of the Companies Act
1973 from exercising it), Grosskopf J said at 87A-E:
‘If,
despite the provisions of s 359 of the Companies Act relating to the
suspension of civil proceedings against companies under
liquidation,
I still have the power to grant specific performance of the
applicant’s claim, I would exercise my discretion whether
to do so
in much the same way as I would under s 341(2) of the Act. And,
since I propose exercising my discretion adverse to the
applicant, I
need not consider whether I may not possibly be completely precluded
by law from granting the order which the applicant
seeks.
Assuming
then that I have a discretion, I can see no reason why I should
exercise it in the applicant’s favour. On the papers
before me the
applicant’s conduct prior to the commencement of Affinity’s
winding-up does not give it any equitable claim to
be placed in a
better position than other creditors, such as for instance Affinity’s
employees. The applicant took a business
risk which failed and, like
other creditors, must now be satisfied with its share of Affinity’s
assets as determined by law. And,
as is also laid down by law, the
provisional liquidators should in my view be enabled to administer
Affinity’s estate. No sound
reason has, in my view, been shown to
allow the applicant in effect to take it over.
My
view is accordingly that the rule
nisi
should be discharged
and the applicant ordered to hand over possession of Affinity’s
assets to the provisional liquidators, as
they have claimed in what
amounts to a counter-application.’
[18] This is the very passage on which Hendler J
sought to rely in discharging the rule in the instant case. It is
clear that, following
the lead of Grosskopf J in the
International
Shipping
case, the Court
a quo
exercised what it believed
to be a discretion in exactly the same manner and for the same
fundamental reasons. In addition there
was the history recounted
earlier, which was before it when it dealt with the matter, and in
particular that it was the contemplated
application for the debtor’s
winding-up that precipitated the application for attachment.
[18] Like Grosskopf J I prefer to leave open the
two issues on which he made assumptions in the bondholder’s favour
(i e that s
359 of the Companies Act 1973 was not conclusive of the
entire matter and that he was invested with a discretion to authorise
attachment
‘if it is sought to be enforced prior to the mortgagor’s
insolvency’ (84H)). These aspects were not as fully argued before
us as perhaps they should have been and I prefer to express no views
on them.
[19] Hendler J, following Grosskopf J in the
International Shipping
matter, exercised his discretion in the
provisional liquidators’ favour. I am unable to say that he erred
in doing so, the more
so in the light of the history preceding the
issue of the two potentially competing orders. In my view the
International Shipping
case accordingly provided direct and
strong support for the conclusion reached by the Court
a quo
.
[20] The second judgment on which Hendler J placed
reliance was
Trisilino v De Vries
1994 (4) SA 514
(O), a
decision of Edeling J. The facts in that case closely resemble those
of the present one. On an application for attachment,
a rule was
issued on 14 April 1994, returnable on 19 May 1994, but with
immediate interim effect, although subject to a duty imposed
on the
bondholder to keep records of and to account for his administration
of the assets that were placed in his possession in terms
thereof.
One day before the return date of the rule other unsecured creditors
of the debtor brought an urgent application for a
provisional order
of sequestration. This was granted, returnable on 16 June 1994. On
the return day of the return date of the order
of attachment, the
Court held, in my view correctly:
(a) that a bondholder’s security over the
hypothecated moveable property is forthwith converted into a real
right, akin to that
of a pledgee, only if possession of the movables
is acquired by the bondholder prior to sequestration; and
(b) that possession acquired in terms of an
interim order issued without notice functioned only ‘to preserve
the applicant’s rights
pending the return day’ (at 519J).
All other things being equal a provisional order
of sequestration issued prior to the return date of a rule
nisi
would therefore defeat the interim order of attachment, causing the
rule to be discharged.
[21] Similar reasoning followed in a decision
reported after the Court
a quo
gave its judgment
,
viz
Chesterfin (Pty) Ltd v Contract Forwarding (Pty) Ltd and Others
2002 (1) SA 155
(T), a judgment of Moseneke AJ. On 11 April 2001 the
Court issued a rule
nisi
in favour of a notarial bondholder,
returnable on 24 April 2001, authorising it to take possession of
the moveable assets covered
by the notarial bond. On 20 April
2001 (i e after the provisional order was issued but before its
return date) the debtor was
placed under provisional liquidation.
The Court held, at the instance of an earlier bondholder who sought
leave to intervene, that
the order of attachment was an interim one;
that (as in the
International Shipping
matter) it had to
approach the issues on the return day as being
res nova
; and
that, inasmuch as the perfection of a notarial bond, being all about
possession, is open to review on the return day, so too
is the
perfection of the bond (166H). Furthermore, since the prior
winding-up order brought about a
concursus creditorum
, there
was no cause for the Court to exercise its discretion in favour of
the earlier bondholder simply because it managed to obtain
an interim
order followed by an attachment (which was in itself in dispute)
before the return date of the provisional order of attachment.
[22] In my view all three these cases were
correctly decided. The current appeal to which the same reasoning
applies, should in the
event be dismissed.
The second issue:
[23] The argument advanced on behalf of the
respondents, if I understood it correctly, was this: because a
cessionary
in securitatem debiti
may not enforce the principal
debt for as long as the cedent is not in default in respect of the
secured debt, so too he may not,
while that remains the position,
perfect his ceded security. The analogy in my view is neither exact
nor in point. The proper question
in this case is whether the
Development Bank as a cessionary
in securitatem debiti
of a
notarial general bond had the requisite
locus standi
not so
much to enforce the debt as to seek to perfect its security,
regardless of whether the cedent is in breach. The answer to
that
question is clearly in the affirmative. The Bank can do so
qua
mortgagee, even though he is only a mortgagee for the time being
i e for as long as the secured debt remains unsatisfied.
(Thereafter,
should a rule
nisi
in a case such as the present
be confirmed and the real right vest in the cessionary, such a
cessionary may recoup himself from the
proceeds of the sale of the
goods in execution - but he would once again do so not so much
qua
cessionary as
qua
mortgagee.) The different issue of when and
to what extent a cessionary who is not a mortgagee will have a right
to
collect
the debt, even if the cedent is not in default, is
a factual and not a legal issue; it is governed by the terms, express
and tacit,
of the obligationary agreement between the cedent and the
cessionary. The dictum at 753D-E of
Volhand & Molenaar Ltd v
Ruskin and Another NNO
1959 (2) SA 751
(W), quoted by Streicher
JA, says no more than that.
[24] Ever since
National Bank of South Africa v
Cohen’s Trustee
1911 AD 235
it has been held, notwithstanding
fundamental doctrinal difficulties with this construction (cf De Wet
& Van Wyk,
Kontraktereg en Handelsreg
, 5 ed, 415-424; Van
der Merwe,
Sakereg,
2 ed, 673-688; Kleyn & Boraine,
Law
of Property
, 3 ed 435, Scott,
Cession
, 2 ed para 12) that
a cession
in securitatem debiti
resembles pledge. (See, for
instance,
Leyds v Noord-Westelike Koöperatiewe
Landboumaatskappy Bpk
1985 (2) SA 769
(A) at 780E-G,
Marais v
Ruskin
1985 (4) SA 659
(A) at 669H,
Sasfin (Pty) Ltd v Beukes
1989 (1) SA 1
(A) at 9H-J,
Incledon (Welkom) (Pty) Ltd v Qwaqwa
Development Corporation Ltd
[1990] ZASCA 85
;
1990 (4) SA 798
(A) 804H-805A, (1) SA
77 (A),
Millman NO v Twiggs and Another
1995 (3). S
tandard
General Insurance Company Ltd v SA Brake CC
[1995] ZASCA 46
;
1995 (3) SA 806
(A),
P G Bison Ltd and Others v The Master and Another
2000 (1) SA
859
(SCA) 864.) In common with pledge the cedent as the
security-giver is not
wholly
divested of an interest in the
asset he surrenders to the cessionary as the security-receiver; he
retains, notwithstanding the cession,
what has variously been
described as ‘the bare dominium’ and ‘a reversionary interest’
(cf
Trust Bank of Africa Ltd v Standard Bank of SA Ltd
1968
(3) SA 166
(A),
Land- en Landboubank van Suid-Afrika v Die Meester
1991 (2) SA 761
(A) at 771D-G) . This reversionary interest,
properly understood, refers to the cedent’s interest in the
debtor’s performance
(i e satisfaction of the principal debt by the
debtor) rather than to his interest in the cessionary’s performance
(i e re-cession
of the principal debt on satisfaction of the secured
debt – which is a right
ex contractu
against the
cessionary). It is that reversionary interest that vests in the
cedent’s trustee upon his insolvency, to be administered
‘in the
interests of all the creditors and with due regard of the special
position of the pledgee’ (
Millman NO v Twiggs and Another
,
supra
, at 676H-I); that can itself be attached or ceded; that
invests him with the
locus standi
to sue or be sued or apply
for the debtor’s sequestration; and may conceivably entitle the
cedent, in an appropriate case and notwithstanding
the cession, to
perfect in order to protect the ceded security.
[25] What the cedent may
not
as of right
do, in the absence of a stipulation to that effect (cf
Ovland
Management (Tvl) (Pty) Ltd and Another v Petrin (Pty) Ltd
1995
(3) SA 276
(N), is to recover performance from the debtor. Only the
cessionary has the standing to enforce the principal debt (cf
Millman
NO v Twiggs and Another, supra,
at 678C-G;
Goudini Chrome (Pty
) Ltd v MCC Contracts (Pty) Ltd
1993 (1) SA 674
(A) at 87G-I);
and he may as a rule do so (on pain of a claim for damages if by
doing so he breaches the terms of the obligationary
agreement) only
if and when the cedent defaults on the secured debt. The primary
purpose of the exercise, after all, is for the cession
to serve as a
form of collateral security: for the cessionary to retain, to restore
and not to redeem the principal debt (cf
Vassen
v
Garrett
1911 EDL 188
at 198). As it was stated by F H Grosskopf JA in
P G
Bison Ltd and Others v The Master and Another
2000 (1) SA 859
(SCA) at 864I-J):
‘It
should be borne in mind that we are here dealing with a
cession in
securitatem debiti.
As a rule the appellants as cessionaries
would in any event not be entitled to recover directly from the
corporation’s debtors until
such time as the corporation is in
default. (See
Land- en Landboubank van Suid-Afrika
v
Die
Meester en Andere
1991 (2) SA 761
(A) at 771D.)’
[26] Even so, there is a potential problem when
the cedent is not in breach but the principal debtor is. So too,
when the principal
debt falls due during the subsistence of the
security and it becomes imperative for someone to take action, for
instance to avert
prescription (cf De Wet & Van Wyk,
Kontraktereg
en Handelsreg
, 5 ed, 416). In those circumstances the terms of
the obligationary agreement, express and tacit, will have to provide
the answer
whether it is permissible for the cessionary forthwith to
institute proceedings against the debtor, and thereafter to account
to
the cedent for the proceeds so recovered. It is accordingly not
accurate to assert that for as long as the cedent is not in default
of his obligations towards the cessionary, the latter is invariably
precluded from taking action pursuant to the cession.
[27] The following order should in my opinion be
made, essentially for the reasons discussed in paras 7-19 above:
The appeal is
dismissed with costs, including the cost of two counsel.
…………………
P M NIENABER
JUDGE OF APPEAL
1
1983 (1) SA 79
(C)
.
2
1994 (4) SA 514
(O)
.
3
1959 (2) SA 751
(W).
4
At 753F.
5
At 753D-E.
6
1911 AD 235.
7
At 251.
8
1987 (1) SA 276
(A) at 294C.
9
At 85F-G.
10
At 86E-F.
11
At 87C.
12
At 519J.
13
See
International Shipping at 84C-H.