Nurcha Development Finance (Pty) Ltd v Emfuleni Municipality and Another (35173/15) [2018] ZAGPJHC 96 (8 May 2018)

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

Case number: 35173/15

Not reportable

Not of interest to other judges

Revised.

8 May 2018

In the matter between:

NURCHA DEVELOPMENT FINANCE (PTY) LTD Applicant

And

EMFULENI MUNICIPLITY First Respondent

HALIFAX GROUP (PTY) LTD Second Respondent

Summary: Claim based on cession. Cession not properly pleaded. No averment of the delivery of the evidentiary document related to the right ceded. No evidence that the debtor had knowledge of the cession. Principles governing reliance on documents annexed to the papers when conclusion drawn therefrom have not been canvassed in the affidavit.

JUDGMENT

Molahlehi J

Introduction

[1] The applicant, Nurcha Development (Pty) Ltd, in this matter seeks an order directing the first respondent, Emfuleni Municipality (the municipality) to pay it the sum of R2 400 000.00 including interest at the prescribed rate. The payment is demanded on the bases of a loan agreement concluded between the second respondent, Halifax and the applicant through what is referred to as “payment

instructions.”

[2] Initially, the applicant claimed the amount of R3 269 155.53 but has now been amended to R2 400 000.00. The application to amend was not opposed by the respondents. It subsequently applied to amend the sum to the above. The application was not opposed by the respondents.

[3] The first respondent opposed the applicant’s claim.

The parties

[4] The applicant is a company duly incorporated in terms of the Company Laws of South Africa.

[5] The first respondent is Emfuleni Local Municipality, the local government authority established in terms of s 12 of the Local Government

Structures Act, 17 of 1998.

[6] The second respondent, Halifax Group (Pty) Limited is a company registered in terms of the Company law of South Africa.

The case of the applicant

[7] The case of the applicant is that it concluded a loan agreement with Halifax during September 2012. The loan was granted after the

municipality granted a tender for a building construction in Sebokeng during August 2012 at the cost of R15 172 277.50.

[8] The bridging finance to the second respondent depended on the irrevocable instruction for payment from the municipality, and that would be made into the second respondent’s bank account. The account referred to as the “Repayment Account, defined in the loan agreement as “the bank account in the Republic of South Africa opened in the name of the Borrower.”

[9] After the conclusion of the loan agreement and the advancement of bridging finance by the applicant, the second respondent commenced rendering the construction services to the municipality.

[10] In terms of the loan agreement the payment was to be effected in terms of what is referred to as “Irrevocable Payment Instruction and Undertaking to Pay,” which is defined in the loan agreement as:

“written, irrevocable unconditional, valid and binding payment instruction by the Borrower to the Employer and undertaking by the Employer, for the benefit of and in favour of the Lender . . .”

[11] The process of payment in terms of the loan agreement is explained in paragraph 17 of the first respondent’s founding affidavit as follows:

“17 In terms of the Loan Agreement, the monies so advanced to Halifax by the Applicant are secured by payment certificate issued by the Respondent. The certificates are issued and authorized by the Respondent after the inspection and assessment of the work done by Halifax in respect of the Project. Once a payment certificate is issued by the Respondent payment of the amount of payment certificate is secured, however, is only paid by the Respondent within 30 to 90 days after the date of issue. During this 30 to 90 day period, the Project cannot be completed without the bridging finance provided by the Applicant in terms of the drawdown requests submitted to it. As such and against the issue of a payment certificate, the Applicant, in terms of the Loan Agreement, advanced funds to Halifax on the understanding that payment of the amounts so advanced would be paid by the Respondent, being the amounts due in terms of the payment certificate issued. The payments made by the Respondent where to be paid into the nominated account known as the Repayment Account."

[12] The amount claimed by the applicant is based on the complaint that the municipality has failed to make payment in respect of certificates 8, 9 and 11, in the amount stated above. This resulted in the breach of the undertaking in that the municipality “failed to pay all monies due to Halifax into the Repayment Account.” The certificates are issued and authorized by the municipality after inspection of the work done by the second respondent.

[13] The applicant contends that the municipality was bound by the instruction note signed by Ms Van Oselen, the executive secretary of the municipal manager to pay it. The note reads as follows:

“NOTED AND ACEPTED BY THE EMPLOYER, THE EMPLOYER HEREBY CONFIRMING THAT ALL TERMS OF THIS INSTRUCTION SHALL BE COMPLIED WITH FULLY AND FURTHER UNDERTAKING IN FAVOUR OF NURCHA, THAT IT SHALL PAY ALL MONIES DUE AND PAYABLE IN TERMS OF THE CONSTRUCTION CONTRACT INTO THE AFOREMENTIONED REPAYMENT ACCOUNT (INCLUDING ANY SUCH MONIES DUE AND PAYABLE AS A RESULT OF OR ARRISING FROM A TERMINATION THEREOF) UNTIL SUCH TIME THAT ALL MONIES OUTSTANDING TO NURCHA BY THE BORROWER IN RESPECT OF THE ABOVE OUTSTANDING TO NURCHA BY THE BORROWER IN RESPECT OF ALL THE ABOVE HAS BEEN PAID IN FULL.”

[14] The applicant contends that the “breach” occurred because notwithstanding the “Undertaking” issued, the

municipality, “failed to pay all monies due to Halifax into the Respondent Account, resulting in the Applicant not being paid for monies advanced to Halifax against the security of the particular certificate.”

The municipality’s case

[15] The municipality has raised the following defenses in opposition to the applicant’s application;

(a) there is no legal nexus between it and the applicant;

(b) motion proceedings are inappropriate to resolve the present dispute;

(c) the applicant could not sue on behalf of the second respondent;

(d) there was no decision by the municipality to underwrite the debt of the second respondent;

(e) the municipality is prohibited by the Public Finance Management Act (PFMA) and the Municipal Finance Act (MFA) from paying the applicant.

[16] The PFMA and MFA defence are based on the contention that the two statutes prohibit payment when there is no contractual relation

between the alleged debtor and the municipality.

[17] The other defence raised by the municipality is that the deponent to the answering affidavit was the person with authority in terms of s 55 (1) (a) and (2) (a) of the Local: Government: Municipal Systems Act, who could in the context of this dispute conclude a binding agreement on its behalf. In this respect, the argument is that Ms Van Oselen did not have the authority to bind the municipality by signing the instruction note. The only person who had the authority was the municipal manager.

[18] The municipality further pleaded that it has made full contractual payment to the second respondent and thus there cannot be a dispute

about payment between the two parties and that it does not owe any one in relation to the work done by the second respondent.

Evaluation/analysis

[19] In my view the municipality is correct to say that there is no nexus between it and the applicant. It is apparent from the applicant’s papers that it bases its alleged relationship with the municipality on the “instruction note.”

[20] The instruction note, signed by Ms Van Oselen, which is quoted above refers to the payment of “MONIES DUE AND PAYABLE IN TERMS OF THE CONSTRUCTION CONTRACT.” In the replying affidavit, the applicant states that it relied on “the conduct of the

municipality, continued to its prejudice to advance money to the second respondent, believing the municipality would keep its word.”

[21] There is no allegation as to on what bases in law does the instruction create an obligation on the municipality to pay as per the contract concluded between the applicant and the second respondent. The municipality is not a party to that contract. It would appear this allegation is based on the cession which, as appears later in this judgment, was not properly pleaded.

[22] It is important to note that the “Instructions” issued on 13 September 2012, is issued on the letter head of the second respondent - Halifax Supplies CC. There is no indication in this document as to on what bases in law is the municipality required to pay the money as instructed.

Principles governing cession

[23] The principles governing the contract of cession are briefly set out in Lynn & Main Incorporated v Brits Community Sandworks CC,[1] as follows:

“[6] It is trite that a cession is a method by which incorporeal rights are transferred from one party to another. It is an act of transfer from a creditor, as cedent, to the cessionary, of a right to recover a debt (vorderingsreg) from a debtor. Although it entails a triangle of parties, viz the cedent, cessionary and debtor, the cession takes place without the concurrence of the debtor. The transfer of the right is effected by the mere agreement between the transferor (cedent) and the transferee (cessionary). Notice to the debtor is not a prerequisite for the validity of the cession ‘but a precaution to pre-empt the debtor from dealing with the cedent to the detriment of the cessionary.” (Footnotes omitted).

[24] The applicant raised the issue of the contract of cession in its heads of argument. In the founding affidavit, it states that:

"The whole case rests on this instruction and its effect."

[25] This means that its cause of action is based on the instruction issued to the respondent. The contract of cession is not pleaded in the founding affidavit. I have already stated earlier in this judgment the claim based on the instruction is unsustainable.

[26] In the replying affidavit, the applicant contends that the defence of the first respondent is unsustainable because “it advanced or allowed draw-downs to be made by the second respondent, based on certificates issued and authorized by Proplan, the municipality’s

agents.”

[27] In paragraph 4.3 of the affidavit in support of the application to amend the applicant states:

“The matter currently before this Honourable Court is a claim for damages by the Applicant against the First Respondent based on breach of contract by the First Respondent.”

[28] In paragraph 40 of the founding affidavit, the applicant refers to various clauses of the loan agreement between it and the second

respondent. In this respect, reference is among others made in clause 16 of the loan agreement which deals with the issue of cession.

[29] In my view, the above does not advance the case of the applicant because it does not satisfy the principles governing motion proceedings. Put in another way the above does not assist the case of the applicant because cession has not been properly pleaded. The prohibition

against the approach adopted by the applicant is set out in Minister of Land Affairs & Agriculture v O & F Wevell Trust[2], as follows:

"It is not proper for a party in motion proceedings to base an argument on passages in documents which have been annexed to the papers when the conclusions sought to be drawn from such passages have not been canvassed in the affidavits. The reason is manifest - the other party may well be prejudiced because evidence may have been available to it to refute the new case on the facts. In motion proceedings, the affidavits constitute both the pleadings and the evidence:. . . and the issues and averments in support of the parties' cases should appear clearly therefrom. A party cannot be expected to trawl through lengthy annexures to the opponent's affidavit and to speculate on the possible relevance of facts therein contained. Trial by ambush cannot be permitted."

[30] The same approach was followed in Swissborough Diamond Mines (Pty) Ltd and Others v Government of the Republic Of South Africa And

Others[3], where the court in dealing with the law relating to the content of affidavits in general said:

"It is trite law that in motion proceedings the affidavits serve not only to place evidence before the Court but also to define the issues between the parties. In so doing the issues between the parties are identified. This is not only for the benefit of the Court but also, and primarily, for the parties. The parties must know the case that must be met and in respect of which they must adduce evidence in the affidavits.”

[31] The other defence raised by the first respondent is that the contract of cession relied upon by the applicant is incomplete because there is no averment in its papers that alleges the delivery of the document evidencing that the alleged right has been ceded. In in this respect reliance is based on the decision Botha v Fick,[4] where the court held that the ownership of shares could not pass from the cedent to the cessionary in the absence of delivery of the instrument recording the rights and without the application of the “all effort” doctrine.

[32] In Oertel N.O. v Brink[5], the court held that:

“Where the evidence of the right is contained in a written instrument which records it, then the right cannot be completely effectively ceded as far as the third parties are concerned unless the instrument is delivered to the cessionary.”

[33] The essential aspect of the municipality’s defence is that it does not know the alleged contract of cession between the cedent and the cessionary. The defence is sustainable when regard is had to the above and what was said by the Supreme Court of Appeal in Lynn & Main Inc v Brits Community Sandworks.[6] In that case Mpati P, stated the following in para 12 of the judgment:

“It has been held, correctly so in my view, that a cession of rights is ineffective as against a debtor until such time as he has knowledge of it and that payment by him to the cedent, without knowledge of the cession, renders him immune to a claim by the cessionary. See Pillay v Harichand 1976 (2) SA 681 (D) at 684F-H. Put differently, for a cession to be effective as against a debtor, the debtor must have had knowledge thereof, which would serve to pre-empt him from dealing with the cedent to the detriment of the cessionary. Where the debtor pays the cedent without knowledge of the cession and the surety is subsequently sued for payment of the debt, the surety would be entitled to plead that the debt had been discharged and this at a time when the debtor had no knowledge of the cession, a defence which the debtor would have been entitled to raise. But such defence would not be grounded on absence of knowledge of the cession on the part of

the surety, but of the debtor.”

[34] In light of the above discussion I find that the applicant has failed to plead a cause of action relating to cession or any cause of action which in law would form the bases for the claim against the municipality. The claim stands to fail even if cession was to be inferred, because the applicant has not shown in its papers that the first respondent as a debtor had knowledge of the cession and thus was not entitled to pay the project money to the second respondent.

[35] In light of the above, I find that the applicant has failed to make out a case for its claim.

Order

[36] In the premises, the applicant’s application is dismissed with costs.

E Molahlehi

Judge of the High Court;

Johannesburg

Representation:

For the Applicants: Adv C Cremen

Instructed by: DMO Attorneys

For the Respondents:

Instructed by: Ramatshila-Mugeri Attorneys

Heard: 05 February 2018

Judgment delivered: 08 May 2018

[1] (348/2007) [2008] ZASCA 100 (17 September 2008)

[2] 2008 (2) SA 184 (SCA) at 200C-E

[3] 1999 (2) SA 279 (T) at 323-325

[4] 1952 [2] SA 750 [A]

[5] 1972 (3) SA 669 (W)

[6] CC [2008] ZASCA 100; 2009 (1) SA 308 (SCA).