Thekweni Properties (Proprietary) Limited v Picardi Hotels Limited and Others (5516/2000) [2007] ZAKZHC 9; [2008] 1 All SA 172 (D); 2008 (2) SA 156 (D) (26 September 2007)

REPORTABLE CASE NO 5516/2000

IN THE HIGH COURT OF SOUTH AFRICA

DURBAN AND COAST LOCAL DIVISION

In the matter between

THEKWENI PROPERTIES (PROPRIETARY) LIMITED Plaintiff

and

PICARDI HOTELS LIMITED Defendant

CONFIELD HOLDINGS (PROPRIETARY) LIMITED First Third Party

THOMAS JAMES SMIT Second Third Party

Delivered :

26 September 2007

J U D G M E N T

LEVINSOHN DJP :

[1] On 28th June 2000 the plaintiff instituted an action claiming an amount of R845 726,98 in respect of arrear rentals owing to it by the defendant. This is alleged to arise from an agreement of lease.

[2] The defendant delivered its plea on 17th May 2000. At the same time it joined two third parties claiming that these are obliged to indemnify it if the Court found that the defendant was obliged to pay the rentals claimed.

[3] In due course the respective third parties delivered their pleas and upon the plaintiff filing a replication in 2001 the pleadings closed. The respective third parties have now fallen completely out of the picture and it is agreed that nothing more need be said about them in this litigation.

[4] According to the Court file the trial was set down for hearing on 29th January 2007. A letter written by “Docex” on 1 July 2004 explains why there was a delay in the matter coming to trial. It appears that “Docex” acting as agents of the plaintiff’s attorneys had omitted to file with the Registrar a notice setting the matter down on the trial register. In the result the trial action was only set down for the first time on 29th January 2007. On that date it was adjourned by consent to a date to be arranged.

[5] The next event of significance occurred in June 2007 when the defendant delivered a special plea to the plaintiff’s particulars of claim. In essence the defendant alleged that the plaintiff did not possess the necessary locus standi to sue for rentals since it had ceded its right, title and interest in and to these rentals when in 1996 it executed a mortgage in favour of Investec Bank Ltd. The decision in this trial ultimately hinges on the proper interpretation of the relevant clause of the mortgage bond concerned and I will presently turn to deal with it in more detail.

[6] The plaintiff objected to the introduction of the special plea and the defendant was obliged to apply to amend its plea. That application was opposed and it came before me on 3rd September 2007.

[7] In support of the application the defendant’s attorney testified that he caused investigations to be made in regard to the mortgage bond in question during May 2007.

Upon perusing a copy of the bond he noted that in terms thereof the plaintiff had ceded its rights to Investec Bank Ltd. He thereupon caused a subpoena duces tecum to be issued calling upon Investec to produce the bond documents at the trial. Investec agreed to furnish the defendant with the documents which were received on 8th June 2007. Counsel were then instructed to draft a special plea.

[8] In opposition to the application to amend the plaintiff’s attorney took the point that the proposed amendment was excipiable and in any event even if it could be said that a cession had taken place, the plaintiff would be irreparably prejudiced inasmuch as if the amendment had been made at an earlier stage the plaintiff would have been able to obtain a recession of rights from Investec. At the present time it is too late to do so as the claim has now become prescribed.

[9] The Court has a wide discretion to grant amendments. In one of the leading cases on the point Trans-Drankensberg Bank Ltd (Under Judicial Management) v Combined Engineering (Pty) Ltd and Another 1967 (3) SA 632 (D) the principle is set forth as follows (I quote the headnote) : -

“The aim in allowing amendments to pleadings should be to do justice between the parties by deciding the real issues between them. The mistake or neglect of one of them in the process of placing the issues on record is not to stand in the way of this: his punishment is in his being mulcted in the wasted costs. The amendment will be refused only if to allow it would cause prejudice to the other party not remediable by an order for costs and, where appropriate, a postponement. It is only in this relation that the applicant for an amendment is required to show it is bona fide and to explain any delay there may have been in making the application, for he must show that his opponent will not suffer prejudice.

If a litigant has delayed in bringing forward his amendment, this in itself, there being no prejudice to his opponent not remediable in the manner indicated above, is no ground for refusing the amendment.

The authorities on when the Court should grant or refuse an amendment reviewed.”

[10] Mr Marnewick on behalf of the plaintiff did not with any enthusiasm pursue the issue of the excipiability of the proposed amendment. In my view his attitude to that aspect is clearly correct. At the level of pleading the allegations made are certainly reasonably open to the construction contended for by the defendant. The principle has been put as follows : The onus rests on the excipient who alleges that the amended pleading does not disclose a defence; he or she must establish in all its possible meanings no defence is disclosed.

(See Amalgamated Footwear & Leather Industries v Jordan & Co Ltd 1948 (2) SA 891 (CPD); Erasmus : Superior Court Practice B1 – 152)

[11] That has not been shown in this case. In the result there is no merit in the excipiability argument.

[12] Finally, I turn to the point in regard to irreparable prejudice. For the purposes of assessing the merits or demerits of this submission, I must assume in favour of the plaintiff that the cession in question effectively divested it of its locus standi to sue the defendant. The concept of prejudice in this context implies that the grant of the amendment will cause the plaintiff to suffer an irreparable injustice. The reason for this is simply that had the point been taken at a point of time before the onset of prescription, the plaintiff could have obtained a recession from Investec.

[13] I shall assume for present purposes that it is probable that such recession would have been obtained although there is only a bare allegation to this effect in the attorney’s opposing affidavit. The difficulty I have is that the plaintiff should have ensured when it instituted the action that it possessed the necessary locus standi. It is the plaintiff and not the defendant who ought to have been aware of the existence of a cession in the mortgage bond. In the nature of things the defendant would only become aware of such matters when it obtained discovery of the plaintiff’s documents and that would happen during the course of preparation for trial. There was as indicated above a very substantial delay in obtaining trial dates. This delay must surely be laid solely at the plaintiff’s or its agent’s door and certainly not the defendant’s. I am satisfied that the defendant had timeously taken the point when it first became aware of it. I attribute no fault to the defendant whatsoever. It is a somewhat novel suggestion in regard to the concept of prejudice to assert : -

“When I issued summons I did not take care to ensure that I had the necessary locus to sue. I rely on you, my opponent, to timeously apprise me of any difficulty whereupon I would be able to rectify the defect, and re-issue summons before my claim prescribes.”

[14] Weighing all the factors and in the exercise of my discretion I granted the amendment. In the interests of properly defining the issues before the Court there was no point in deferring the decision until all the evidence had been adduced as urged by counsel for the plaintiff.

[15] Following this decision the parties advised me that the issue of the outstanding rentals had now been agreed upon the footing that if it was found that the plaintiff had the necessary locus standi to sue the defendant conceded it was liable to pay the plaintiff an amount of R838 588,48 plus interest.

[16] In the result, as it now turns out, the issue raised in the special plea read with the replication is the only one which falls to be decided which I now turn to consider.

[17] At the outset, and to avoid possible confusion I should indicate that the plaintiff executed a cession of rental prior to the registration of a mortgage bond in favour of Investec. This is dated 18 June 1996. It is common cause between counsel that for present purposes nothing turns on this document and I need say no more about it. The crucial document is the mortgage bond executed on 18 July 1996 which contains a cession of rentals in clause 8. It reads as follows : -

“8. CESSION OF RENTALS AND REVENUES

Should the Bank give its consent to the letting of the mortgaged property, the Mortgagor cedes, transfers and assigns to the Bank all the Mortgagor’s rights, title and interest in and to all rentals and other revenues of whatsoever nature, which may accrue from the mortgaged property as additional security for the due repayment by the Mortgagor of all amounts owing to or claimable by the Bank at any time in terms of this bond, with the express right in favour of the Bank irrevocably and in rem suam –

to institute proceedings against lessees for the recovery of unpaid rentals, and/or eviction from the mortgaged property;

to let the mortgaged property or any part thereof, to cancel or renew and enter into leases in such manner as the Bank decides, to evict any trespasser or other person from the mortgaged property.

To collect on behalf of the Mortgagor any moneys payable in respect of the alienation by the Mortgagor of the mortgaged property or any portion thereof;

Provided, however, that the cession, transfer, assignment and authorities and powers specified above shall not be acted upon by the Bank without the consent of the Mortgagor unless the Mortgagor has failed to comply with any term or condition of this bond or any loan secured thereby or has otherwise committed a breach thereof. The Bank is further entitled to charge a commission of five (5) percentum of the gross amount of all rentals and other revenues collected and to recover such commission under this bond.”

[18] The factual position is that when this mortgage bond was registered the mortgaged property was already let in terms of an existing lease. By operation of the doctrine of “Huur gaat voor koop”, the mortgagor (plaintiff) would have simply stepped into the shoes of the existing lessor. Indeed it was the plaintiff’s evidence that the property was bought for purposes of deriving a profit from rental received from tenants.

[19] Nothing really turns on the first part of clause 8 which speaks about the bank giving its consent to the letting of the mortgaged property. It is clear that that consent was certainly given either expressly or by clear implication.

[20] The plaintiff plainly intended to create an additional security in favour of Investec and to this end executed a cession in securitatem debiti in favour of its creditor.

[21] The consequences of a cession in securitatem debiti are set forth by our highest Court in a series of cases commencing with National Bank of South Africa Ltd v Cohen’s Trustees 1911 AD 253 especially at page 231.

[22] Generally speaking the consequences of such a cession are that it is the cessionary alone who has the necessary locus standi to sue for enforcement of the ceded debt. See National Bank of South Africa Ltd v Cohen’s Trustee 1911 AD 235 at 251 where Innes J (as he then was) said :-

“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.”

[23] Subsequent cases have emphasised the principle that the cedent retains the bare dominium or a reversionary interest in the right which has important consequences insofar as insolvency law is concerned. The question in this case is whether on a proper interpretation of the cession these consequences ensued with the result that the plaintiff could not institute action against the defendant in its own name. Counsel for the plaintiff has referred me to a decision of Binns-Ward AJ in Solomon NO and Others v Spur Cool Corporation (Pty) Ltd and Others 2002 (5) SA 214 CPD. The learned acting judge was called upon to interpret precisely the same clause. The ratio of this case is correctly summed up in the headnote as follows : -

“Although the ordinary consequences of a cession in securitatem debiti is that the cedent is deprived of the ceded right, and retains only the bare dominium or a ‘reversionary interest’ therein, the ordinary consequences may be varied in the context of the parties’ agreement. Thus, for example, where the cession provides that it shall not be acted upon by cessionary without the consent of the cedent, such provision is inconsistent with the retention by the cedent of only a reversionary interest in the right. It suggests that the substance of the right remains vested in the cedent, and that he may exercise it in the ordinary course, despite the fact that it has been made subject to the cession. It also follows that the cedent is not deprived of locus standi to enforce the right in the ordinary course.”

[24] At page 221 the learned acting judge said : -

“[16] In terms of the provision to clause 8 of the mortgage bond, the mortgagee was not entitled, without the consent of the mortgagors, to exercise any of the ordinary rights of a cessionary such as notifying the debtors of the cession and requiring payment from them, unless the mortgagors were in default in respect of their relevant obligations to the mortgagee. Ordinarily, the only title a cedent in securitatem debiti retains in the rights that have been ceded is the bare dominium or ‘reversionary interest’. The provision in clause 8 that the mortgagee might act on the cession only with the consent of the mortgagors is inconsistent with the retention by the mortgagors of only a ‘reversionary interest’ in the relevant ‘rentals and other revenues’. The provision is inconsistent with an effective transfer of the subject rights. An effective transfer of the rights did not occur if the rights could not be exercised without consent, the grant or refusal of which was entirely within the discretion of the mortgagors.

[17] The additional and alternative provision that the mortgagee could exercise any of the rights described in sub-clauses 8.1 – 8.3 of the bond in the event of the mortgagors failing to comply with any term or condition of the bond or any loan secured thereby or being otherwise in breach thereof falls, particularly when considered in its juxtaposition to the consent provision, to be characterised as a suspensive condition. There was no suggestion in the evidence that the condition to which the effective transfer of rights was subject was fulfilled.

[18] Accordingly, I consider that the mere conclusion of the mortgage contract, including the ancillary agreement in terms of clause 8 thereof, did not, without more, achieve an effective transfer by the plaintiffs to the mortgagee of the rights which the plaintiffs sought to exercise by the institution of this action. I am fortified in this conclusion by the following additional considerations.

[25] Mr Gordon who appears on behalf of the defendant strenuously submitted that Solomon NO’s case, supra, is wrongly decided. Counsel contended that the learned acting judge appeared to ignore the plain wording of the clause which proclaims that the cession has taken effect. However, it would not be implemented (“acted upon”) unless certain conditions wee fulfilled. According to counsel the factual situation in casu closely resembles that which was considered in the case of P. C. Bison Ltd and Others v The Master and Another 2001 (1) 859 SCA. Counsel reminded me that the parties’ object was to create an additional form of security in the mortgagees’ favour. There is no doubt therefore that the rights of action to collect rentals from tenants had been effectively transferred to Investec in securitatem debiti. Therefore, subject only to the aforesaid reversionary interest, the plaintiff was deprived of locus to sue for rentals.

[26] Binns-Ward AJ in Solomon’s case correctly emphasised that the parties to a cession by their agreement may vary the usual consequences of a cession in securitatem debiti (see paragraph [13], page 220).

[27] At the end of the day the Court is called upon to apply the time-honoured principles of interpretation of written contracts.

This was succinctly set forth in the P. G. Bison case, supra, at 863, paragraph [7] as follows : -

“[7] The outcome of the appeal depends mainly upon the interpretation of the additional clause, read in context. The first step in construing the additional clause is to determine the ordinary grammatical meaning of the words in order to ascertain the common intention of the parties. (See Cinema City (Pty) Ltd v Morgenstern Family Estates (Pty) Ltd and Others 1980 (1) SA 796 (A) at 803G - H, 804C - D; Coopers & Lybrand and Others v C Bryant [1995] ZASCA 64; 1995 (3) SA 761 (A) at 767E-F.) In interpreting the words used the Court must also have regard to the nature and purpose of the contract (Swart en 'n Ander v Cape Fabrix (Pty) Ltd 1979 (1) SA 195 (A) at 202C). '(I)t is the duty of the Court to construe their language in keeping with the purpose and object which they had in view, and so render that language effectual' (per Kotzé JA in West Rand Estates Ltd v New Zealand Insurance Co Ltd 1925 AD 245 at 261).”

(My emphasis.)

[28] Before considering clause 8 in isolation one is reminded that that clause forms part of a covering mortgage bond principally hypothecating certain immovable property as security for amounts which Investec has or will advance to the mortgagor from time to time.

[29] Clause 9 of the mortgage bond records that in the event of breach the full amount of any moneys would become due, owing and payable. In the event that this occurs clause 9.1 empowers the mortgagee to realise assurance policies ceded to it as security.

[30] Clause 8 itself can I think for purposes of reaching a conclusion as to its proper construction be conveniently looked at without the proviso in 8.3 and then to read it and contrast it with the proviso.

[31] If the first exercise is performed there can in my view be no doubt that the parties would have intended to create a cession in securitatem debiti and to confer an authority on the bank to step into the mortgagor’s shoes to sue for unpaid rentals. In other words, the normal consequences that flow as alluded to above.

[32] However, by introducing the proviso the parties must be presumed to have intended to vary these said consequences. They must be taken to have been aware that the hypothecated properties were acquired for purposes of deriving a rental income therefrom.

[33] It is in the highest degree improbable that the parties intended from the outset to deprive the plaintiff of the right to receive and collect rentals during the currency of the covering mortgage bond.

[34] In interpreting this contract one would strive to give it business efficacy. Indeed to render it practical and consistent with good sound commercial common sense.

[35] One would therefore interpret the words in the proviso : -

“provided however that the cession ………….

shall not be acted upon by the bank without the consent of the mortgagor unless the mortgagor has failed to comply …………………………………”

as importing a condition suspending the operation of the cession and the bank’s rights to collect rentals pending the occurrence of particular events, namely the mortgagor’s consent or the mortgagor being in breach of its obligations in terms of the mortgage bond.

[36] On a proper interpretation the right to collect and enforce payment of rentals would remain vested in the plaintiff pending the fulfilment of the condition. In other words, the security would be realised only in that event. If it were otherwise the contract would put the mortgagor into a proverbial contractual straitjacket - each time having to obtain the mortgagor’s consent to take action to claim rentals.

[37] This interpretation appears to lend business efficacy to the agreement consistent with the parties’ intention and indeed with the intention of parties who enter into this type of security.

[38] It follows that I respectfully agree with the conclusion in Solomon’s case.

[39] The plaintiff is therefore entitled to judgment in its favour and the following order issues :-

(1) The defendant is directed to pay to the plaintiff the sum of R838 588,48 together with interest on the sum of R838 588,48 at the rate of 15,5% per annum from 1 July 2000 to the date of payment.

(2) The defendant shall pay the costs of the action including all reserved costs and the costs of the amendment save that there shall be no order for costs in respect of the postponement on 29 January 2007.

DATE OF JUDGMENT : 26 SEPTEMBER 2007

DATES OF HEARING : 3 and 4 SEPTEMBER 2007

COUNSEL FOR THE PLAINTIFF : MR C. G. MARNEWICK SC

INSTRUCTED BY : MURUGASENS INC, DURBAN

COUNSEL FOR DEFENDANT : MR D. A. GORDON SC with him MR R. D. E. GORDON

INSTRUCTED BY : BERNADT VUKIC POTASH & GETZ, CAPE TOWN

C/O DITZ INC

C/O RAJEEV SINGH & ASSOCIATES, DURBAN