African Bank Limited t/a ab Commerce v Covmark Marketing cc t/a Covmark Marketing and Others (9238/2005, 10785/2005) [2008] ZAKZHC 36; 2008 (6) SA 46 (D) (4 April 2008)

REPORTABLE

IN THE HIGH COURT OF SOUTH AFRICA

DURBAN AND COAST LOCAL DIVISION

CASE NO 9238/2005

(together with Case No. 10785/2005)

In the matters between

AFRICAN BANK LIMITED t/a AB COMMERCE Applicant

and

COVMARK MARKETING CC t/a COVMARK MARKETING

(Registration No. CK2000/022539/23) Respondent

and:

VISHNUDUTH SOODHOO First Respondent

ROSHINA SOODHOO Second Respondent

LOVIS SALES CC Third Respondent

COVENENT MARKETING CC Fourth Respondent

(Registration No. CK1994/032138/23)

JUDGMENT Delivered on: 4 APRIL 2008

MOOSA AJ

Two separate but not unrelated applications came before me for the hearing of oral evidence on issues defined by the parties and filed of record with the Registrar of the Court. To those issues, a further issue, for determination in both applications, was included pursuant to an Order granted by me, on 23 April 2007, following on an application therefor made by the Respondent in the application under case no. 9238/2005 and by the Respondents in the application under case no. 10785/2005. The Respondent and Respondents aforesaid will be hereinafter be collectively referred to as the Respondents.

The application under case no. 9238/2005 was one brought by the Applicant seeking the winding-up of Covmark Marketing CC t/a Covmark Marketing (“Covmark”) (“the liquidation application”) whereas the application under case no. 10785/2005 was one in terms of which the Applicant seeks a Judgment sounding in money (“the money application”). The money application was brought against the alleged sureties of Covmark including against the Fourth Respondent in that matter, Covenent Marketing CC, which is not to be confused with Covmark.

In the money application, the Applicant seeks Judgment in the sum of R4,508,380.70 alternatively in the sum of R1,600,000.00. The

application is premised on an alleged acknowledgment of indebtedness entered into by Covmark in favour of the Applicant in the sum of R4,654,556,70 against which amount it is alleged one sum of R50,000.00 was paid by Covmark and certain other credits due to Covmark were set off resulting in the nett claim in the amount of R4,508,380.70. Included in the acknowledgment of indebtedness is a sum in respect of three cheques drawn by Covmark and of which the Applicant claims to be the holder in due course. These cheques are in the amounts respectively of R750,000.00, R1,500,000.00 and R875,000.00.

In both applications, the Applicant effectively proceeded on the basis that it was relying on the acknowledgment of indebtedness but that, in the alternative, if it were to be found that the acknowledgment of indebtedness was either invalid or that it had been cancelled, the Applicant sought to rely on the cheques aforesaid. While there was a faint suggestion in the papers that the subsequent acknowledgment of indebtedness had the effect of novating the cheques, both sides to the dispute clearly approached the matter on the basis that the claim based on the cheques was very much a live issue between the parties.

Quite apart from the special defences which the Respondents in the money application raised in their capacities as sureties, the fate of the liquidation application brought against Covmark really hinges upon a determination or finding in regard to the alleged indebtedness upon which the Judgment in the money application has been sought against those sureties considering that the Applicant relies on the same alleged indebtedness to found its claims in both applications. Although not evident to me at the time of the hearing of the matter, it appears that that is probably the reason why the Applicant agreed to the hearing of oral evidence in respect of, inter alia, a provisional order for the winding-up of Covmark, a generally most unusual step.

At the commencement of the hearing, the Respondents moved an application, pursuant to the provisions of Rule 33(4) of the Uniform

Rules of Court, for a separate determination of the question as to whether or not the Applicant was the holder in due course of the three cheques relied upon by the Applicant, inter alia, to found its claims in both applications. The application for separation was opposed. After hearing argument from Mr Tobias, who appeared on behalf of the Respondents, and from Mr Voormolen, who appeared on behalf of the Applicant, I ruled that I was persuaded to grant the application for a separation but that before doing so I would afford Mr Voormolen an opportunity of taking instructions and, if so instructed, to move an application for an adjournment of the hearing. I furnished reasons for my ruling and in order to contextualise what transpired in the further conduct of the matter thereafter I consider it useful to briefly summarise herein the reasons aforesaid.

Respondents sought the separation in question on the grounds that the issue sought to be separated called for a determination on a question of law, namely whether or not the Applicant was indeed a holder in due course of the three cheques relied upon. This, in turn, was premised on two challenges to the Applicant’s assertion that it was a holder in due course. The first was that the cheques which had been negotiated to the Applicant were post-dated cheques and the negotiation had occurred prior to the arrival of the post date. The second was that the cheques were not regular, for the purposes of satisfying the jurisdictional requirement in Section 27(1) of the Bills of Exchange Act 34 of 1964 (“the Act”), in that on the face of the cheques it appeared that there had been an attempt to convert bearer instruments into order instruments.

For purposes of the Rule 33(4) application, the Respondents adopted the position that they would conditionally abandon all other defences to Applicant’s claims relating to whether the Applicant had taken the cheques in good faith and for value, to the balance of the indebtedness on the acknowledgment of debt beyond the value of the three cheques and to all the other defences relating to the suretyships which had been raised in the money application. Respondents tendered that if I were to find for the Applicant on the legal issue raised, and subject to my Judgment being confirmed by a Court of Appeal pursuant to any leave to appeal sought and obtained by the Respondents, that would be the end of the dispute and Applicant could obtain the relief which it sought in both applications. If, on the contrary, I were to find for the Respondents on the separated issue, the applications would then

effectively proceed to the hearing of oral evidence on the remaining issues.

The general principle in law would appear to be that, notwithstanding the wide powers conferred on a Court under Rule 33(4) of the Uniform Rules of Court, it is ordinarily desirable, in the interests of expedition and finality of litigation, to have one hearing only at which all issues are canvassed so that the Court, at the conclusion of the case, may dispose of the entire matter. Minister of Agriculture –v- Tongaat Group Ltd 1976 (2) SA 357D at 362G-H and Denel Eiendoms Beperk –v- Voster 2004 (4) SA 481 (SCA) at 485B-C have reference. In some instances, however, the interests of the parties and the ends of justice are better served by disposing of a particular issue or issues before considering other issues which, depending on the result of the issue singled out, may fall away. (Minister of Agriculture supra at 362H).

Against those fundamental principles, several other issues arose for consideration prior to my determination that a separation should be directed subject to the Respondents’ right to apply for an adjournment. The first was that Mr Tobias argued that the import of Rule 33(4), premised on the use of the word “shall” therein, is that a Court must grant a Rule 33(4) application if it is convenient to do so and that there is an onus on the party opposing same to persuade the Court not to do so. Mr Voormolen sought to reject the suggestion that there is any onus on a party opposing a Rule 33(4) application to persuade the Court against the grant of that application.

Whether or not the party opposing a Rule 33(4) Application carries an onus in the classical sense, it is clear from the authorities that it is incumbent upon such a party to satisfy the Court that the application should not be granted and that the balance of convenience favours him. (Braaf –v- Fedgen Insurance Ltd 1995 (3) SA 938 (C)). The authorities also appear to be clear that convenience means convenience to the Court in the first instance and to the litigants

in the second. (Braaf supra).

In all the circumstances, I was called upon, inter alia, to weigh up and to gauge the extent of the advantages and disadvantages which would flow from the grant of the separation sought by the Respondents. (Minister of Agriculture supra : Sharp –v- Victoria West Municipality 1979 (3) SA 510 (NC) at 512A). Whilst I was persuaded that the question of law sought to be separated was a discreet one, it was evident that, depending on the finding on that issue, the separation might or might not lead to an expeditious resolution of the dispute. I was very alive to the salutary remarks of the Supreme Court of Appeal in Denel’s case supra where that Court said the following at 485B:-

“And even where the issues are discreet, the expeditious disposal of the litigation is often best served by ventilating all the issues at one hearing, particularly where there is more than one issue that might be readily dispositive of the matter.”

I was conscious of the fact that it could well transpire that I could find for the Applicant on the legal issue and that my finding might be overturned by an Appeal Court with the result that the matter would have to revert to this Court in order that the balance of the litigation might be completed. This would lead to a piecemeal approach to the matter which, on its terms, did not commend itself. Bearing that in mind I would, in the normal course, have been persuaded that an overall consideration of the litigation in the applications before me dictated that I refuse the Rule 33(4) application.

There was, however, a further consideration, which militated strongly in favour of my granting the application for separation. The authorities are clear that by the use of the word “convenience” is included, perhaps foremost, the convenience of the Court. The following was said in Braaf supra at 939H-I:-

“There are obvious advantages and disadvantages to the Court and to the parties. As far as concerns the Court, part-heard matters are at the very least a nuisance to the Judge concerned who may, for instance, find that the hearing of the quantum issue has been set down on a date when he is in the middle of hearing another matter. It also adds another burden to the already exacting task on the Judge President (or his delegate) of arranging the roll and allocating Judges.”

This is clearly a consideration which featured in the Judgment of Optimprops 1030 CC –v- First National Bank of Southern Africa Limited [2001] 2 ALL SA 24 at 26f-g. What exacerbated the matters before me was the fact that I was sitting as an Acting Judge and the difficulties and hurdles attendant

upon continuing a matter before an Acting Judge are well-known. Neither Mr Tobias nor Mr Voormolen was able to provide me with an assurance that the matter would be completed within the days allocated. Having regard to the prolixity of paper before me and to the various issues placed in dispute, I was, in any event, convinced that the matter had no prospect of being completed within the allotted days for which it had been set down.

A factor which also militated in favour of the grant of the Rule 33(4) application was the fact that the Respondents were prepared, albeit conditionally, to abandon all their other defences in both applications.

Arising then from the practical exigencies of the matter, its set down and its fortuitous allocation to me, I was inclined to grant the Respondents’ Rule 33(4) application. Were it not for those exigencies, I would have been disinclined to do so. I resolved, in the circumstances, to offer the Applicant an opportunity of moving for an adjournment of the matter, with all questions of costs to be reserved, before I granted the Rule 33(4) application. This on the basis that even if the Applicant were met with the same application for separation on the next occasion, the Applicant might well persuade the next Court to refuse the Rule 33(4) application on the basis that the considerations which weighed heavily with me might not necessarily be attendant on that occasion. Mr Voormolen was accordingly directed by me to take instructions from his client and to make an election at the commencement of the hearing on 24 April 2007 as to whether the Applicant wished to move for an adjournment or to proceed with the matter on the basis of a separation of the issues.

At the commencement of the hearing on 24 April 2007, Applicant elected to proceed with the matter on the basis that I would grant the Respondents’ Rule 33(4) application. Following on that election, I requested the parties to prepare an Order which would

give expression not only to the separation in question but which would clearly spell out the consequences of a finding by me, either

way, in regard to the separated issue. In order, then, to properly understand the final Order made by me at the end of this Judgment it is important that I set out the Order which I granted on 24 April 2007 in regard to the Rule 33(4) application. That Order reads as follows:-

“ 9238/05

10785/05

It is Ordered That:

The issues to be decided separately and before any other issues in terms of Rule 33(4) are:

Whether the applicant is a holder in due course of the three cheques (JC3, JC4 and JC5 in case number 9238/05) having regard to:

The endorsements thereon and whether they are ‘regular’ within the meaning of Section 27(1) of the Bills of Exchange Act No. 34 of 1964.

The fact that they were post-dated at the time of acquisition by the Applicant.

If the Court finds that the Applicant is a holder in due course of the cheques then the Respondents consent to Judgment as follows:

Under case no. 9238/05:

An Order in terms of paragraphs 1, 2, 3 and 4 of the Notice of Motion subject to the Respondent’s right to request that the return date be extended for the purpose of the finalisation of any appeal on the rulings above.

Under case no. 10785/05

That the Respondents, jointly and severally, the one paying the other to be absolved, pay to the Applicant:

The sum of R4,508,380.70.

Interest thereon at 15.5% per annum from 5 July 2004 to date of payment.

Costs on the scale as between attorney and own client (including any costs reserved when the matter was adjourned on previous occasions).

If the ruling in terms of paragraph 1 is that the Applicant is not a holder in due course of the cheques, then the matter is to be adjourned sine die with such Order as to costs as this Court may determine after hearing argument on the issue of costs.

It is recorded that the consent in paragraph 2 above is subject to the condition that the Court finds that the Applicant is a holder in due course.

It is further recorded that any abandonment inherent in the consent recorded in this Order is conditional upon the Court determining the issue in paragraph 1 in favour of the Applicant and that failing such favourable finding for the Applicant, the Respondents’

rights to rely on any and all defences raised in the papers are fully reserved.”

Before the parties commenced arguing on the issue set out in paragraph 1 of the Order that I made on 24 April 2007, a further skirmish arose between Mr Tobias and Mr Voormolen concerning the question as to who had the right to begin arguing first. After hearing argument I gave a ruling, with reasons, as to why Mr Tobias should start. In the end nothing much turned on this ruling and I accordingly refrain from dealing with that issue any further in this Judgment.

Before dealing with the two aspects of Respondents’ challenge on the Applicant being a holder in due course, it would be useful to say something about the cheques in dispute. I annex to this Judgment copies of annexures “JC3”, “JC4” and “JC5” to the application under case no. 9238/2005. These annexures reflect three cheques dated 30 April 2004, 31 May 2004 and 31 May 2004, in the amounts respectively of R750,000.00, R1,500,000.00 and R875,000.00. The annexures reflect the front and reverse of these cheques. Although Section 27(1) of the Act refers to a bill which is “complete and regular on the face of it” (underlining added), it was held in Arab Bank Ltd –v- Ross [1952] 1 ALL ER 709 at 715 by Denning LJ that:-

“Strangely enough, no one doubts that the ‘face’ of a bill includes the back of it. I say strangely enough, because people so often insist on the literal interpretation of Acts of Parliament, whereas here everyone agrees that the literal interpretation must be ignored because the meaning is obvious. The meaning is that, looking at the bill, front and back, without the aid of outside evidence, it must be complete and regular in itself.”

The particular extract in question was cited with approval in Silcan Estate and Finance Co Ltd –v- Astra Café 1973 (3) SA 7 (N) at 9A.

The cheques in question were drawn by Covmark and were made payable to “Wilmington”. It is apparent from the front of the cheque that the printed words “or Bearer/of Toonder” were not deleted. It is also clear from the front of the cheques that payment on each cheque was stopped. The reverse of the first cheque carries a special endorsement in the following terms:-

“Endorsed as a special endorsement in full and without restrictions or conditions to the order of African Bank Ltd t/a AB Commerce by Wilmington Personal CC.”

The reverse of the other two cheques carry a special endorsement in almost the same terms:-

“Endorsed as a special endorsement in full and without restrictions or conditions to the order of African Bank t/a AB Commerce by Wilmington Personal Care CC.”

At this juncture it should be noted that no issue was sought to be made by the Respondents of the fact that whilst the payee is described as “Wilmington”, the endorser of the cheques is either Wilmington Personal CC or Wilmington Personal Care CC.

APPLICANT AS A HOLDER IN DUE COURSE OF POST-DATED CHEQUES

Although this is the second attack, as it were, on the Applicant’s assertion that it is a holder in due course, I find it convenient to deal with this issue first. It is not in dispute between the parties that when the cheques were negotiated to the Applicant, they were post-dated cheques and the post date thereof had not yet arrived.

Respondents contend that it is a misnomer to refer to the cheques as cheques as the cheques in issue, as indeed is the case with all post-dated cheques, do not meet the definition of a cheque as provided for in Section 1 of the Act. The Act defines a cheque as meaning a bill drawn on a bank payable on demand. The Applicant’s reposte to this is that the Respondents admitted in their papers that the bills in question were indeed cheques. The Applicant refers to paragraph 10.1 of the answering affidavit in the liquidation application where the following was, inter alia, said: “It is admitted that Respondent drew cheques in favour of Wilmington Personal Care CC as stated in sub-paragraphs 8.1, 8.2 and 8.3 of the founding affidavit.” Applicant argues that in application proceedings affidavits take the place not only of pleadings but also of the essential evidence and that the Respondents are bound by that admission. (Hart –v- Pinetown Drive-In Cinema (Pty) Ltd 1972 (1) SA 464 (D) at 469C-E).

I do not consider that there is any merit in that argument. All the texts dealing with bills of exchange, even when suggesting that a post-dated cheque is not a cheque (at least not until the post date arrives) still describe the instrument in question as a post-dated cheque. (See for example Chalmers and Guest, Bills of Exchange 15th and 16th Editions and Cowen, the Law of Negotiable Instruments in South Africa 4th Edition). The Supreme Court of Appeal in Standard Bank of South Africa Ltd –v- Sham Magazine Centre 1977 (1) SA 484 (AD) at 505E said the following:-

“I would add that it was not disputed that this post-dated cheque became valid as a cheque on or after the period of the post date.”

It is accordingly evident that the fact that a post-dated cheque is referred to as a cheque does not signify that such reference amounts to an acceptance that the bill in question, for that reason, is indeed a cheque as countenanced by the Act. Rather, in my view, the question of whether a post-dated cheque is indeed a cheque under the Act is a question of law in regard to which the Respondents are unable to make any factual concession.

Reverting to the Respondents’ contention that a post-dated cheque is not a cheque in law, the Respondents rely, inter alia, on the text William Hedley, Bills of Exchange and Bankers’ Documentary Credits, 2nd Edition, 1994 at p199 where the learned author says:-

“We have seen that a cheque is a bill of exchange which is drawn on a banker and payable on demand. If, therefore, the drawer dates a form of ‘cheque’ and the payee accepts it with a date of some time in the future the document is clearly not payable ‘on demand’ and hence is not a cheque.”

Respondents argue that it is beyond contention that a post-dated cheque is not payable on demand. They refer to Cowen and Gearing, The Law of Negotiable Instruments in South Africa, General Principles, 5th Edition (1985) (1) at p190 where the learned authors say:-

“… in the case under discussion the conclusion would seem to be irresistible that there is no question of the instrument being payable on demand. In terms of Section 8(1)(b) of the Act, a bill is payable on demand ‘if no time for payment is expressed therein’. But here a fixed due date for payment is expressed.”

They also contend that a post-dated cheque, although not a cheque when issued becomes a cheque on the post date. Here they rely on Malan and Pretorius: Malan on Bills of Exchange, Cheques and Promissory Notes in South Africa, 4th Edition, 2002 at para 199 where the learned authors say the following:-

“A post-dated cheque is a bill payable on a future date and becomes a cheque on that future date.”

The said authors in turn rely on the Standard Bank of South Africa Ltd supra at the afore quoted extract.

In my view there is no force or substance in this argument. The Act itself, I believe, makes it plain that a post-dated cheque is indeed a cheque as countenanced by the Act. Section 1 of the Act defines a bill as meaning a bill of exchange as defined in Section 2 of the Act. Section 2(1) of the Act defines a bill of exchange as an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to a specified person or his order, or to bearer. A cheque, as already indicated, is defined in Section 1 of the Act as meaning a bill drawn on a bank payable on demand. In effect, then, a cheque is a type of bill which, drawing on the definition in Section 2(1) of the Act, is a demand instrument which is addressed to a bank.

In the absence of any provision within the Act providing for the post dating of cheques, an altogether frequent and daily occurrence, doubt would arise as to the status of such instruments. It is for that reason that Section 11(2) of the Act provides, inter alia, that a bill will not be invalid by reason only of the fact that it is post-dated.

The Applicant adopted the position that post-dated cheques were provided for and accommodated within the definition of bills of exchange under the provisions of Section 2(1) of the Act. This on the basis that Section 2(1) provides, inter alia, for a bill of exchange to be payable at a fixed or determinable future time. When I pointed out that on that construction of Section 2(1) of the Act, the provisions of Section 11(2) of the Act appeared to be redundant, the Applicant initially contended that Section 11(2) was surplusage. I indicated to Mr Voormolen that based on established principles of statutory interpretation I was required to have due regard to every word and provision in the Act and afforded him a further opportunity of tendering argument in this regard. He availed himself of that opportunity and submitted such further argument in terms of which the Applicant abandoned any reliance on its contention re surplusage. Instead, the Applicant sought to argue that whilst Section 2(1) of the Act is concerned with when a bill is payable Section 11(2) of the Act is concerned with the dating of a bill. While that might be superficially correct, it is very far from providing an answer as to why the need for Section 11(2) of the Act if in fact a post-dated cheque is accommodated and provided for within Section 2(1) of the Act.

The fallacy in the Applicant’s argument is that it considers that a post-dated cheque is one which is payable, inter alia, on a fixed future date. The Applicant’s view, which I consider to be erroneous, is supported by Cowen, 5th Edition supra, quoted earlier where the learned authors say, inter alia, “but here a fixed due date for payment is expressed”. The correct position is that a date on which a cheque is payable is seldom expressed in it and in terms of Section 8(1)(b) of the Act such an instrument is payable on demand. (Malan and Pretorius supra at para 191). The authors of Cowen, 4th Edition supra say the following at p60:-

“In order to qualify as a cheque, a bill drawn on a banker must be drawn payable on demand. Somewhat anomalously, a cheque is nevertheless

valid as such although post-dated.… and it is treated in practice as payable on demand on or after the post date.”

It must also be borne in mind that pursuant to the provisions of Section 43(2)(b) of the Act, if a bill is payable on demand it must be presented within a reasonable time after its issue in order to render the drawer liable. Furthermore, pursuant to Section 43(3) of the Act, in determining what a reasonable time is for the purposes of Section 43(2)(b) of the Act, regard must be had to the nature of the bill, the usage of trade with respect to similar bills and the facts of the particular case. No doubt in deciding whether a post-dated cheque has been presented for payment within a reasonable time after its issue, regard will be had to the fact, inter alia, that the cheque was post-dated and was only payable on demand effective from the date of its post date.

It is clear that without Section 11(2) of the Act, the status of a post-dated cheque would remain doubtful as aforesaid. Not only does Section 11(2) of the Act make it plain that a post-dated cheque is not invalid by reason only of such post dating but, when read together with the definition of a bill of exchange in Section 2(1) of the Act and the definition of a cheque in Section 1 of the Act, it has the effect of rendering such an instrument a demand instrument notwithstanding that the effective date of demand may be sometime in the future. In this context “demand” must be contrasted with a “fixed” or “determinable” future time.

The Respondents’ reliance on the decision of the High Court of Australia, given on appeal to it from the Supreme Court of New South Wales, in the matter of Brien –v- Dwyer [1978] 141 Common Wealth Law Reports 378 does not really advance Respondents’ argument that a post-dated cheque is not a cheque as countenanced by the Act. As summarised in the head note it was held, inter alia, by the Chief Justice, and concurred in by three of the other Appeal Judges, that a post-dated cheque, although a bill of exchange, was not a cheque within the meaning of the contract sued upon. In effect the learned Judges of Appeal found that the contract contemplated an immediate payment by the purchaser albeit that such payment could be made by way of cheque. (It is only in the Judgment of Aickin J that there is a suggestion that there is no authority for the proposition that a post-dated cheque becomes a cheque properly so-called when the date which it bears arrives. From my reading of that Judgment, that suggestion was not supported by any of the other Judges of Appeal.).

By contrast the Court of Appeal of New South Wales concluded, in the matter of Hodgson and Lee (Pty) Ltd –v- Mardonius (Pty) Ltd (1986) 5 NSWLR 496, that since a post-dated cheque is not payable at a fixed or determinable future time, it was payable on demand and was therefore a cheque. The learned authors in Chalmers and Guest, 15th Edition supra at para 240 express the view that the position taken in Hodgson and Lee supra is to be preferred.

In Stegmann –v- London and Scottish Assurance Corporation Ltd 1924 OPD 290 at 292 De Villiers J P said the following:-

“In the case of Foster –v- MacKreth (L.R. 2 Exchequer 166) the facts were somewhat similar…. Kelly, C.B. in a concurring

Judgment put it that ‘so far as regards its practical effect, a post- dated cheque is the same thing as a bill of exchange at so many days as intervene between the date of delivering the cheque and the date marked upon the cheque.’

It is to be observed that the Court did not lay down that a post-dated cheque is not a cheque, nor did it lay down that a post-dated cheque is a bill of exchange as distinguished from a cheque. All that it lays down is that a post-dated cheque is ‘in substance’ or ‘in practical effect’ equivalent to a bill of exchange payable on the post date. Subsequent decisions have apparently established the proposition that by virtue of Sec. 13(2) of the English Bills of Exchange Act a post-dated cheque is in fact a cheque, not a bill of exchange, in spite of the definition of a cheque as being a bill payable on demand (see for instance Royal Bank of Scotland –v- Tottenham, 1894, 2 QB 715).”

I also do not think that what was said in the Standard Bank of South Africa supra at 505E avails the Respondents. With all due deference to the status of the Court in question, it is clear that the then Appellate Division was not called upon to decide the issue which is before me. Nor do I think that what was said by the Appellate Division is necessarily

even obiter. All that the Court was recording, for the sake of completeness, was that it was not disputed that the post-dated cheque became valid as a cheque on or after the period of the post date. Firstly, the then Appellate Division could never have intended to suggest that the post-dated cheque was invalid as an instrument prior to the post date having regard to the express provisions of Section 11(2) of the Act. Secondly, to read into the words of the Appellate Division a necessary inference or implication that Court intended to say that the post-dated cheque was invalid as a cheque prior to the post date thereof is simply unwarranted.

In all the circumstances, I find that there is no merit in the Respondents’ contention that post-dated cheques are not cheques

as countenanced by the Act, whether as contemplated in Section 1 thereof or otherwise. Based on my conclusion that a post-dated

cheque is a bill as countenanced under the Act, it follows that a party such as the Applicant in this matter may indeed become a holder in due course of such an instrument even if the instrument is negotiated before the date which the instrument bears arrives.

However, even if I am wrong in regard to my finding that a post-dated cheque is a cheque as countenanced under the Act, I can still find no impediment to a party becoming a holder in due course of such an instrument. There can be no doubt that, at the very least, the instrument becomes a cheque on the arrival of the post date thereof (Standard Bank of South Africa Ltd supra at 505E: Malan and Pretorious supra para 190) although its status may be unclear prior to that date (Chalmers & Guest, 15th Edition supra para 239). There is nothing to suggest that such an instrument is not complete and regular on the face of it.

Malan and Pretorius supra para 191 say:-

“A post-dated cheque is a bill payable on a future date and becomes a cheque on that future date. It can be negotiated before the date, and, if he acquired it in good faith and for value, its purchaser will be a holder in due course.”

Chalmers and Guest, 15th Edition supra para 240 say:-

“Thirdly, a person who takes a post-dated order or bearer cheque in good faith and for value may become a holder in due course: the instrument is not incomplete or irregular on the face of it because it is post-dated.”

It is also worth noting that in the matter of North Coast Plastic and Packaging Industry (Pty) Ltd –v- Haynes Industries (Pty) Ltd 1981 (1) SA 913 (A), the then Appellate Division assumed, although it was not directly required to decide the issue, that a party could become a holder in due course of post-dated bills.

Respondents rely on one foreign Judgment to contend that it is not possible, as a matter of law, for a person to become a holder in due course of a post-dated cheque. This is a Canadian authority reported as Money Mart Cheque Cashing Centre Ltd –v- Reis Lighting Products and Services Inc (1994) 16 BLR (2d) 184 (Manitoba Court of Queens Bench). The ratio of this Judgment was:-

“On the facts of this case, it is clear that the maker of a cheque had the right to countermand it prior to its due date. Anyone, including a holder for value, who negotiated such a post-dated cheque before its due date, is not a holder in due course and does not have the rights or protection afforded under the Act but rather takes the cheque at the risk of such countermand.”

The weakness in the reasoning of the Court is self-evident. In any situation where a person is party to the negotiation of a cheque,

whether the cheque be post-dated or not, the party so negotiating is always at risk that the cheque may be countermanded. Depending on the status of the holder of the cheque to whom it has been negotiated, such countermand may or may not constitute an impediment

to recovery under the cheque. It does not, however, affect the ability of the party in question to have such cheque negotiated to him.

It is accordingly unsurprising that the aforesaid Judgment was not followed in a number of subsequent decisions in Canada. These

Judgments are National Money Mart Company –v- Sidhu 2006 ABPC 233 (Can LII) (Provincial Court of Alberta); BCLTD operating as Money Mart –v- 304983 BC Ltd operating, 1998 (Can LII) 4281 (BCSC) (Supreme Court of British Columbia); 2203850 Nova Scotia Ltd v Sarkar 1995 (Ca LII) 4427 (NSSC) (Supreme Court of Nova Scotia); Wheatland Investments Ltd (c.o.b. Money Mart Regina) –v- SaskTel, 1994 Can LII 5209 (SKQB) (Queen’s Bench); National Money Mart Co. –v- Load Runner Logistics Ltd 2002 MBQB 24 (Can LII) (Queen’s Bench of Manitoba).

English Judgments on this matter are also to the effect that there is no impediment to a person becoming a holder in due course of a post-dated cheque by virtue only of the fact that the cheque is post-dated. These Judgments are Hitchcock –v- Edwards (1889) 60 LT 636; Carpenter –v- Street (1890) 6 TLR 410; Guildford Trust Ltd –v- Goss and Another (1927) 43 TLR 167 (KB); Robinson –v- Benkel (1913) 29 TLR 475 at 476; Royal Bank of Scotland –v- Tottenham [1894] 2 QB 715.

In all the circumstances, I find in favour of the Applicant on the issue of whether the Applicant was entitled to become a holder in due course of cheques which were post-dated at the time of acquisition of those cheques by the Applicant.

THE EFFECT OF THE SPECIAL ENDORSEMENTS ON THE CHEQUES

There was no argument between Mr Voormolen and Mr Tobias that regularity is a very distinct thing from validity under the Act. The point was succinctly articulated by Denning LJ at 715F in Arab Bank supra in the following terms:-

“Now, regularity is a different thing from validity. The Act itself makes a careful distinction between them. On the one hand, an endorsement which is quite invalid may be regular on the face of it.… Conversely, an endorsement which is quite irregular may, nevertheless, be valid…. Regularity is also different from liability. The Act makes a distinction between these two also.”

That extract was approved of by the Court in A Melamed Finance (Pty) Ltd –v- VOC Investments Ltd [2006] SCA 75 (RSA) at para 9.

There was also no dispute that there was a purported attempt to convert the post-dated cheques in dispute from bearer instruments to order instruments regard being had to the special endorsements thereon. Now while Section 6(2) of the Act provides that an order instrument may be converted into a bearer instrument (“or if the only or last endorsement on it is an endorsement in blank” – Section 6(2) of the Act), there is no provision in the Act to convert a bearer instrument into a bill payable to order. This was confirmed in both Interlease Ltd –v- Massyn 1979 (3) SA 801 (O) and in Pienaar –v- Maritz 1985 (1) SA 547 (T).

The effect of Section 62(1) of the Act is, inter alia, that if a bill is materially altered, the liability of parties who are parties to the bill at the date of alteration and who did not assent to it must be regarded as if the alternation had not been made. Respondents argued that whilst the alteration, as it were, and assuming it to be material, of the instruments from bearer cheques to order bills would not necessarily result in the cheques becoming invalid in law, the jurisdictional requirement for becoming a holder in due course under Section 27(1) of the Act is regularity and not validity. They argued furthermore that the alteration in question renders the cheques in dispute irregular regard being had to the relevant test for regularity in law.

The Applicant, by contrast, approached this leg of the enquiry on the basis that, since as a matter of law (following on the Judgments in Interlease and Pienaar supra), it is simply not possible to change the status of bearer instruments into order bills, a banker would not be suspicious about an endorsement purporting to do so and would simply regard the endorsement as superfluous. Applicant relies on the dictum of the

then Appellate Division in Sappi Manufacturing (Pty) Ltd –v- Standard Bank of South Africa Ltd [1996] ZASCA 123; 1997 (1) SA 457 at 465D where the Court said the following:-

“Admittedly the Appellant’s name was not inserted in the qualification, but such a banker would, in my view, construe the bills in the same way that I have; and he would have no doubt about the singularity of the payee and the indorser.”

In my view, Applicant’s characterisation of what has transpired with regard to the cheques in dispute as being a case of an

endorsement which would not be irregular, in that it would not give rise to suspicion, is misconceived. The Applicant appears to have fallen into the error which the Court did in the matter of Mobeni Supersave –v- Suleman 1992 (3) SA 660 (N) when that Court confused the test for irregular endorsements with that for material alterations as pointed out by the Supreme Court of Appeal in its Judgment in A Melamed Finance supra at para 11.

The Supreme Court of Appeal in A Melamed Finance supra said the following at paras 8 and 9:-

“Two types of irregularity occur in bills: Irregular endorsements and material alterations. They are not treated by the law in the same way. An endorsement is considered to be irregular when its form is such as to reasonably put the holder on enquiry.… An alteration need not give rise to suspicion before it leads to the irregularity of a bill. It need only be apparent and material….

The alterations to the cheques were patent and were immediately noticed by the person who took them on behalf of the Appellant. The validity of the cheques was unaffected by the alterations to the dates, but that is irrelevant. Validity and regularity are different concepts, as Denning LJ explains in Arab Bank –v- Ross. A bill could be valid but irregular or invalid but nevertheless regular.”

The Court also rejected the contention that the then Appellate Division in Sappi Manufacturing supra had effectively made the reasonable suspicion test one which applied to endorsements as well as to material alterations. (Ad paras 10 and 11 of A Melamed Finance supra). An alteration need not give rise to suspicion before it leads to the irregularity of bill. It need only be apparent and material. (Ad para 9 of A Melamed Finance supra).

Without deciding the issue, it appears to me, prima facie, that an irregular endorsement is one that is confined to the question of whether there is doubt as to whether an endorsement is that of the named payee. This following on Arab Bank supra at 716A-B as cited with approval in A Melamed Finance supra at para 8.

In contrast to that, the test for an alteration is much wider. The answer proposed by Brett LJ in Suffell –v- The Bank of England (1882) 9 QB 555 at 568 was accepted by the Court in Mobeni Supersave supra at 667H and by the Court in A Melamed Finance supra at para 12. That answer is:-

“Any alteration of any instrument seems to be material which would alter the business effect of the instrument if used for any ordinary

business purpose for which such instrument or any part of it is used.”

There can be no doubt that attempting to convert a bearer instrument into an order one meets the aforesaid test for a material alteration.

Converting a bearer bill into an order one increases the liabilities of the drawer. The Court in Hallmark Motor Group (Pty) Ltd –v- Phillip Motors CC [1997] 4 ALL SA 707 (W) said the following at 710-711:-

“In the celebrated case of Charles and Another –v- Blackwell and Others 1876 (1) CPD 548… confirmed on appeal 1877 (2) CPD 151 at 158 Lord Cockburn said:

‘He has taken the cheque in payment, and cannot call upon his debtor for a second payment so long as the latter is in no default as regards payment of the cheque on presentation… and the matter is equally clear on principle; for where the banker paid the bearer of such a cheque, he obeyed the mandate of his customer, the drawer, and could charge him accordingly; while, on the other hand, the customer was protected, and this even though the bearer so paid had no property in the cheque, but was himself a thief who had stolen it. The drawer was entitled to say to the payee: ‘I gave you an instrument which you were willing to take in satisfaction of your debt if the drawee paid its amount to the bearer, and this the drawee has done.’”

If a drawer makes out a bearer instrument which is then converted into an order instrument, the drawer might well not be discharged if he pays the holder of the instrument if the holder in question was not entitled thereto. If the instrument remains a bearer one, the drawer is clearly discharged if he pays the party in possession of the instrument. (Any alteration to the liability of parties to a bill would amount to a material alteration – A Melamed Finance supra at para 17).

It must be borne in mind that less evidence is required to establish irregularity under Section 27(1) of the Act than is required to establish the fact of a material alteration under Section 62 of the Act. This appears from the extract from Britton Handbook on the Law of Bills and Notes 2nd Edition 1961 at 286, cited with approval by the Court in Mobeni Supersave supra at 667A-C. The reason for this is that not all apparent changes on the face of the instrument are in fact material alterations within the meaning of Section 62 of the Act. An example is changes made by the maker or drawer prior to issuance. Such an alteration would not amount to an alteration within the context of Section 62(1) of the Act (A Melamed Finance supra at para 16). In the words of the Court in A Melamed Finance supra at the last mentioned reference “That, however, does not mean that a material alteration made before the issue of a bill does not affect the position of a holder in due course.”.

Furthermore, for purposes of regularity under Section 27(1) of the Act, the document must be immaculate and orthodox in point of law. (Mobeni Supersave supra at 666E-F).

In the present matter I have already found that the purported conversion of the bearer cheques into order instruments meets the test of a material irregularity because it alters the liability of the parties to the bill. In the circumstances, it is clear that the Applicant cannot be a holder in due course of the post dated cheques in question.

On my reading of the Judgment in the matter of Cutfin (Pty) Ltd –v- Sangio Pipe CC 2002 (5) SA 156 (D), Richings AJ held, inter alia, that an alteration converting a bearer instrument into an order instrument was not material in nature but that even if it was the liability on the instrument remained unaltered regard being had to the provisions of Section 62(1) of the Act. This appears to have led him to conclude that such an alteration did not preclude the negotiability of the cheque to a holder in due course. If I understand the Judgment of Richings AJ correctly, then I am bound to follow that Judgment unless I am convinced that the Learned Judge was clearly wrong. I am so convinced. It is quite apparent that the Learned Judge conflated the test for irregularity under Section 27(1) of the Act with the test for a material alteration, and its impact upon the liability of the parties to the instrument, under the provisions of Section 62(1) of the Act.

In all the circumstances I find for the Respondents on the second leg of the enquiry, namely, that the endorsements on the cheques in dispute are not regular within the meaning of Section 27(1) of the Act and the Applicant is accordingly precluded from being a holder in due course of the cheques in question.

ORDER

In the light of my findings and pursuant to the Order granted by me on 24 April 2007, I adjourn both applications sine die. In regard to the question of costs, I will make an Order in regard thereto after hearing argument on the issue and, being an accessory Order on which I have not heard argument and which I expressly presently refrain from dealing with, I will duly supplement the Order which I have already made in order to deal with the issue of costs.

DATE OF HEARING: 23, 24, 25 and 26 April 2007

DATE OF JUDGMENT: 4 April 2008

FOR THE PLAINTIFF: Mr Voormolen

INSTRUCTED BY: Cox Yeats

(Ref: R Hoal)

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FOR THE DEFENDANT: Mr D G Tobias

INSTRUCTED BY: Kushen Sahadaw Attorneys

(Ref: K Sahadaw)

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