---

 

IN THE HIGH COURT OF SOUTH AFRICA

NORTH WEST DIVISION – MAHIKENG

 

APPEAL NO.: CIV APP FB 16/2021

CASE NUMBER: M44/2020

Reportable:                                 NO

Circulate to Judges:                                  YES

Circulate to Magistrates:                     NO

Circulate to Regional Magistrates:              NO

 

In the matter between:

MASSBUILD (PTY) LTD                                                 APPELLANT

 

AND

 

MEC FOR THE DEPARTMENT OF

CO-OPERATIVE GOVERNANCE,

HUMAN SETTLEMENTS AND

TRADITIONAL AFFAIRS, NORTH WEST

PROVINCE                                                                     FIRST RESPONDENT

 

TAWANA BUSINESS PROJECTS

(PTY) LTD                                                                       SECOND RESPONDENT

 

CIVIL APPEAL

 

CORAM: PETERSEN J, REDDY AJ AND MALOWA AJ

 

ORDER 

 

The appeal is dismissed with costs, which costs shall include the costs of the application for leave to appeal.

 

 

JUDGMENT 

 

 

PETERSEN J

 

Introduction

 

[1]        This is an appeal with leave of Nomcembu AJ (as she then was) (the court a quo) against the whole of the judgment and order handed down on 15 April 2021, in which the appellants application was dismissed with costs.

 

[2]        The appellant (applicant in the court a quo - Massbuild) launched an application on 30 January 2020 in which it sought relief in the following terms:

       

“1.        The Department of Co-operative Governance, Human Settlements and Traditional Affairs, North West Province (“The Department”), is directed to pay any amounts due by the Department to the Second Respondent instead to the Applicant until all amounts owed by the Second Respondent to the Applicant, currently being the sum of R2 139 626.39, have been settled in full.

        

            2.       The First Respondent is to pay the costs of this application on the attorney and client scale and in the event of opposition by the Second Respondent, the Second Respondent is to pay the costs of the application, on the attorney and client scale, jointly and severally with the First Respondent.

 

3.         Further and/or alternative relief.”

 

[3]        The application was opposed by the first respondent (“the MEC”). The application was neither opposed by the second respondent (“Tawana”) nor was any notice to abide filed by Tawana.

 

Background

 

[4]        The relevant evidence on which this appeal turns relates to cession clauses in two separate and distinct contracts, wherein Tawana is a party to both agreements. The first contract is an agreement entered into on 7 December 2017, between the Department of Co-operative Governance, Human Settlements and Traditional Affairs, North West Province (“The Department”) and Tawana, for the construction of 150 housing units in Klein Soutpan (Witpan 2) Village: Tswaing Local Municipality. The non-cession clause (Clause 13.2) in this agreement, which is central to this appeal, reads as follows:

 

“NON-CESSION

 

          The Developer shall not be entitled to cede or assign any of its rights and obligations under and in terms of this agreement without specific written consent of the Department and on good cause shown.”   

 

[5]        The second contract is an agreement entered into between Massbuild and Tawana on or about 12 December 2017, five (5) days  after the Department/Tawana contract, in terms of which Tawana, inter alia, ceded, transferred and made over to Massbuild its right, title and interest in and all of its book debts, both future and present of whatsoever nature and from whatsoever cause arising, as continuing covering security for its indebtedness to Massbuild in terms of an Account Opening Agreement. 

 

[6]        The genesis of the dispute between Massbuild and the MEC has its origins during or about September 2018 to October 2019, when Tawana ordered goods from Massbuild which goods Massbuild supplied and/or delivered on specific instruction of Tawana in the total amount of R2 139 626.39. There is no dispute on the computation of this amount and there has never been any dispute on the part of Tawana as to its indebtedness to Massbuild.

 

[7]   Before engaging Tawana and its director Ms Ivy Malebo Magasa (“Magasa”), who signed as surety for the debts of Tawana, Massbuild engaged the Department by way of e-mail correspondence dated 4 and 17 October 2019. In the letter of 4 October 2019 Massbuild advised the Department that Tawana was indebted to it in the amount of R2 139 626.39 which was due, owing and payable to it. Massbuild further informed the Department of the Massbuild/Tawana agreement and the pledge and cession contained therein and Massbuild was accordingly invoking the pledge and cession against any monies due to Tawana, and in particular requested that the sum of R2 139 626.39, be paid to Massbuild within seven (7) days of receipt of the letter.

 

  [8]       When no payment was forthcoming from the Department, Massbuild on 17 October 2019 informed the Department that it would be proceeding with summons and that the Department would be cited therein. On 28 October 2019, the Department’s “Director: Legal Services”, Thabo Lerefolo, replied to the letters of 4 and 17 October 2019 in the words: “Proceed and we shall vehemently defend and you shall bear the costs.”

 

[9]        Massbuild, not satisfied with the Department’s cryptic response, caused its attorneys Gjersőe Inc Attorneys, through its director Carl Fagelund – Gjersőe (“Gjersőe”), to send a further letter to the Department on 30 October 2019. This letter, the contents which is set out infra, was met with no response from the Department:

 

“1.        We represent Massbuild (Pty) Ltd and have been instructed to address you as we do herein below.

 

2.         At the outset we record that it is not our intention or instruction to canvass and/or raise all of the relevant issues relating to this matter in this communication. Accordingly, our failure to do so at this time should not be construed as a waiver by our client of its right to raise same in due course and in the appropriate forum should it so choose.

 

3.         We are instructed that your office is a debtor of Tawana Business Projects (Pty) Ltd ("Tawana”).

 

4.         On 4 October 2019 our client addressed your offices informing you of the pledge and cession of book debts Tawana had provided in our client’s favour. A copy of the pledge and cession was provided to you at the same time. Accordingly, at the very latest, you have had knowledge of the pledge and cession since 4 October 2019.

 

5.         You are of course aware that from the date that you had knowledge of the pledge and cession, payments due to Tawana had to be paid to our client and that, if you, notwithstanding knowledge of the pledge and cession, made payment to Tawana and not to our client, such payment does not discharge your liability towards our client.

           

6.         Considering the above we notify you again (as was notified to you under cover of our client’s letter of 4 October 2019) that Tawana is currently indebted to our client in the sum of R2 139 628.39 (two million one hundred and thirty nine six hundred and twenty six Rand and thirty nine cents).

 

7.         We accordingly demand the following from you, in writing, and by no later than 17h00 on Wednesday, 6 November 2019:

 

7.1       an undertaking that you shall not make any payments to Tawana until its indebtedness to our client has been settled in full and we have notified you of same, in writinq; and

 

7.2       your advices of all amounts that the department owes to Tawana and/or all amounts that have been claimed for payment by Tawana; and

 

7.3       an undertaking that you shall not make payment of any amounts due to Tawana, to Tawana, but instead to our client, in accordance with the terms of the pledge and cession, until Tawana’s indebtedness to our client has been settled in full.

 

8.         Should you not provide our offices with the requested undertakings and information you will leave our client with no alternative but to approach the court for urgent relief, the costs of which will be sought from your offices on a punitive scale.

 

9.         Our client’s rights are strictly reserved.”

 

[10]     On 31 October 2019, one day following the last letter sent to the Department, Massbuild caused Gjersőe to deliver a letter of demand for payment of the amount of R2 139 626.39 to Tawana in terms of section 345 of the Companies Act 61 of 1973. A letter was further delivered to Ms Ivy Malebo Magasa (“Magasa”), the director of Tawana, who acted as surety for the debt in terms of sections 129 and 130 of the National Credit Act 34 of 2005.

 

[11]     Magasa contacted Gjersőe telephonically on even date, being 31 October 2019. During the telephonic conversation Magasa admitted the indebtedness of Tawana to Massbuild. Magasa further informed Gjersőe that the only reason for non-payment of the amount was because the Department had not yet made payment to Tawana for work Tawana had performed for and on behalf of the Department.

 

[12]     Gjersőe was further advised by Magasa that the Department owed Tawana approximately R5.2 million for work that had been performed by Tawana for and/or on behalf of the Department. Magasa was however unable to explain the delays in receiving payment from the Department.

 

Massbuild’s case in the founding affidavit predicated on its pledge and

cession agreement with Tawana

 

[13]     Massbuild based on the background sketched supra, alleges that by virtue of the correspondence of 4, 17 and 30 October 2017 sent by it to the Department, the Department was made aware of the Massbuild/Tawana agreement. The Department, it alleges, is therefore evidently indebted to Tawana in the amount of approximately R5.2 million, which is due and payable by the Department to Tawana, and is as such, a debtor of Tawana in such amount. Such indebtedness constitutes a book debt of Tawana in terms of the Massbuild/Tawana agreement, which debt has been ceded to Massbuild by Tawana in terms of the agreement. The Department it asserts is therefore in terms of the aforesaid agreement to make payment to Massbuild, and Tawana ceased to be entitled to collect and receive from the Department any sums of money for and on behalf of Massbuild. Notwithstanding the aforesaid being the de facto position, the Department refuses to make payment to Massbuild.

 

The central issue on appeal

 

[14]     Against the background above, the issues which are common cause and the issues to be determined on appeal, appear to be common cause insofar as it is predicated on the issues identified by the MEC in the answering affidavit, and further identified in the judgment of the court a quo.

 

[15]     For purposes of this appeal, however, the central issue to be considered is the conclusion of the court a quo that Clause 13.2 of the written agreement between the Department and Tawana constituted an enforceable pactum de non cedendo. The court a quo did not pronounce on the indebtedness of the Department to Tawana and that issue should not detain this Court.

 

The law

 

[15]     The Constitutional Court judgment in University of Jhb v Auckland Park Theological Seminary[1], decided on 11 June 2021, (nearly two months after the judgment by the court a quo) explores all authorities relevant to the issue in dispute in this appeal, which is slightly distinguishable from the facts of this appeal, but is instructive as to the approach to contractual disputes predicated on cessions. The following sentiments by Khampepe J writing for the Court is apposite:

   

                       “Introduction

 

[1]        I make bold to say that it is not just for the sake of poetry that the old adage, context is everything, holds true.  In so many scenarios, words alone ring hollow.  Context gives life and meaning to what is said or written.  Is a court of law then entitled, or required, to take cognisance of context when interpreting a contract?  That is the question that this Court is called upon to answer.

 

[2]        At the core of this matter is a dispute over the permissibility of the cession of rights in a long-term lease agreement.  The solution to the dispute lies in the answer to whether or not the rights in question are personal to the first respondent (delectus personae) and therefore incapable of cession.  This requires the Court to consider an antecedent question: can contextual evidence be brought, and used, to demonstrate the personal nature of rights in an agreement to support an argument that the rights therein may not be freely ceded?  The judgment of the Supreme Court of Appeal answered this in the negative and held that the contract was unambiguous and that the words should therefore be read objectively.  Further, it held that the evidence the applicant sought to adduce to show that the rights in the contract were delectus personae was, in fact, brought to vary, add to or contradict the contract and was therefore inadmissible in terms of the parol evidence rule.  This matter therefore requires this Court to consider the interplay, in the delectus personae setting, between the interpretative injunction on courts to interpret contracts within their context, having regard to relevant contextual evidence, and the accepted legal principles that form part of the parol evidence rule.  In particular, it requires this Court to consider whether the Supreme Court of Appeal conflated the relevant legal principles and thus applied the incorrect principles to the determination before it.  More on this later.

           …

                       Issues for determination

 

[39]      The main issues for determination are as follows… the first question on the merits is whether the Supreme Court of Appeal erred in how it approached the question of delectus personae. Connected to this is whether that Court adopted the incorrect approach to contractual interpretation.  This raises the question, if it did err: what is the correct approach to interpreting contracts when determining whether rights are delectus personae?  And is the lease agreement in this matter personal to ATS?  Following this, this Court will need to determine whether ATS was entitled to cede the rights under the lease agreement to Wamjay and whether or not this constituted a repudiation of the lease agreement…

        

                       Merits

 

[55]      Was ATS allowed to cede its rights in the lease agreement to Wamjay without UJ’s consent?  This is ultimately the question that this Court must determine.  It is trite that, in general, rights may be freely ceded. Thus, “any right arising out of a contract may be ceded by the party entitled thereto to a third party without the knowledge or consent of the party liable”. 

       

It is equally uncontroversial that an exception to this general position is that –

      

“[a]       right arising out of a contract cannot be ceded without the consent of the party liable, if the parties intended that the promisee alone should be entitled thereto.  Such an intention is presumed, if the nature of the transaction involves personal confidence between the parties or is otherwise such that personal considerations are of the essence of the contract (delectus personae).”

 

[56]      It is this exception to the general transferability of rights –delectus personae –on which UJ seeks to rely in this case.  Scott describes this exception as arising in two circumstances:

 

“[This] restriction [on freely ceding rights] applies to cases where the nature of the contract is such that the rights flowing from it may not be ceded, and also where the contract itself is not of such a nature that the rights flowing from it are non-transferrable, but where special circumstances create a delectus personae, thereby rendering the rights flowing from the contract non-transferrable.”

                       …

                      

Delectus personae

 

[58]      The delectus personae exception to the general principle that rights are freely transferrable was explicated over a century ago by Innes CJ as follows:

 

“Now, speaking generally, the question of whether one of two contracting parties can, by cession of his interest, establish a cessionary in his place without the consent of the other contracting party depends upon whether or not the contract is so personal in its character that it can make any reasonable or substantial difference to the other party whether the cedent or the cessionary is entitled to enforce it.  Subject to certain exceptions founded upon the above principle, rights of action may, by our law, be freely ceded.” (fn 34: Eastern Rand Exploration Co Ltd v A J T Nel, J L Nel, S M Nel, M M E Nel’s Guardian and D J Sim 1903 TS 42 at 53 (Eastern Rand Exploration).

 

[59]      More recently, in Propell, the Supreme Court of Appeal reiterated that “all contractual rights can be transmitted unless their nature involves a delectus personae or the contract itself shows that they were not intended to be ceded”. (fn 35: Propell Specialised Finance (Pty) Ltd v Attorneys Insurance Indemnity Fund NPC [2018] ZASCA 142;  2019 (2) SA 221 (SCA) (Propell) at para 17.  See also Friedlander v De Aar Municipality  1944 AD 79 at 93 where Greenberg JA held that, “prima facie, all contractual rights can be transmitted unless their nature involves a delectus personae or the contract itself shows that they were not intended to be ceded”…

                        …

[64]      The Supreme Court of Appeal famously set out the position in the following widely quoted statement in its decision in Endumeni:

 

“Interpretation is the process of attributing meaning to the words used in a document, be it legislation, some other statutory instrument, or contract, having regard to the context provided by reading the particular provision or provisions in the light of the document as a whole and the circumstances attendant upon its coming into existence.  Whatever the nature of the document, consideration must be given to the language used in the light of the ordinary rules of grammar and syntax; the context in which the provision appears; the apparent purpose to which it is directed and the material known to those responsible for its production.  Where more than one meaning is possible each possibility must be weighed in the light of all these factors.  The process is objective, not subjective.  A sensible meaning is to be preferred to one that leads to insensible or unbusinesslike results or undermines the apparent purpose of the document.  Judges must be alert to, and guard against, the temptation to substitute what they regard as reasonable, sensible or businesslike for the words actually used.  To do so in regard to a statute or statutory instrument is to cross the divide between interpretation and legislation; in a contractual context it is to make a contract for the parties other than the one they in fact made. The ‘inevitable point of departure is the language of the provision itself’, read in context and having regard to the purpose of the provision and the background to the preparation and production of the document.”

 

[65]      This approach to interpretation requires that “from the outset one considers the context and the language together, with neither predominating over the other”. In Chisuse, although speaking in the context of statutory interpretation, this Court held that this “now settled” approach to interpretation, is a “unitary” exercise. This means that interpretation is to be approached holistically: simultaneously considering the text, context and purpose.

 

[66]      The approach in Endumeni “updated” the previous position, which was that context could be resorted to if there was ambiguity or lack of clarity in the text. The Supreme Court of Appeal has explicitly pointed out in cases subsequent to Endumeni that context and purpose must be taken into account as a matter of course, whether or not the words used in the contract are ambiguous.  A court interpreting a contract has to, from the onset, consider the contract’s factual matrix, its purpose, the circumstances leading up to its conclusion, and the knowledge at the time of those who negotiated and produced the contract.

 

[67]      This means that parties will invariably have to adduce evidence to establish the context and purpose of the relevant contractual provisions.  That evidence could include the pre-contractual exchanges between the parties leading up to the conclusion of the contract and evidence of the context in which a contract was concluded.  As the Supreme Court of Appeal held in Novartis:

 

“This court has consistently held, for many decades, that the interpretative process is one of ascertaining the intention of the parties – what they meant to achieve.  And in doing that, the court must consider all the circumstances surrounding the contract to determine what their intention was in concluding it…. A court must examine all the facts – the context – in order to determine what the parties intended.  And it must do that whether or not the words of the contract are ambiguous or lack clarity.  Words without context mean nothing.”

     

[68]      Let me clarify that what I say here does not mean that extrinsic evidence is always admissible.  It is true that a court’s recourse to extrinsic evidence is not limitless because “interpretation is a matter of law and not of fact and, accordingly, interpretation is a matter for the court and not for witnesses”. It is also true that “to the extent that evidence may be admissible to contextualise the document (since ‘context is everything’) to establish its factual matrix or purpose or for purposes of identification, one must use it as conservatively as possible”. I must, however, make it clear that this does not detract from the injunction on courts to consider evidence of context and purpose.  Where, in a given case, reasonable people may disagree on the admissibility of the contextual evidence in question, the unitary approach to contractual interpretation enjoins a court to err on the side of admitting the evidence. There would, of course, still be sufficient checks against any undue reach of such evidence because the court dealing with the evidence could still disregard it on the basis that it lacks weight.  When dealing with evidence in this context, it is important not to conflate admissibility and weight.

                       …

[71]      … As I see it, the true focus of the inquiry is reflected in the statement quoted above from Innes CJ’s judgment in Eastern Rand Exploration more than 100 years ago, which has withstood the test of time.  That is, that the principal question in each case is “whether or not the contract is so personal in its character that it can make any reasonable or substantial difference to the other party whether the cedent or the cessionary is entitled to enforce it”…

                        …

[74]      To my mind, the interpretive injunction on courts to take the contextual approach postulated above is the same whether one considers the principal question in Innes CJ’s formulation (i.e. whether the rights are so personal that it makes a reasonable or substantial difference to the debtor whether the cedent or the cessionary is entitled to enforce them), or whether one considers the correlative question which Botha JA in Densam implores us to ask (i.e. whether the nature of the debtor’s obligations, which are the counterpart of the cedent’s rights, is such that it establishes that those rights are personal to the cedent). Botha JA’s formulation is really just another way of asking the same question.  The crisp point I make in this judgment is that the question falls to be answered by taking the firmly established contextual approach to interpreting the contract in question, and determining the nature of the rights and obligations that flow from it.

                        …

[78]      What is clear from these cases is that the inquiry requires more than the kind of abstract determination advanced by the respondents.  On the respondents’ approach, the question before the Appellate Division in these cases would simply have been whether, generally, option rights are capable of being ceded. To the contrary, the question posed and answered by that Court in each case was whether, notwithstanding the fact that option rights are generally considered to be cedable, the specific option rights before it were incapable of cession on the proper interpretation of the specific option contract in question, in the light of its context and circumstances.

                       …

[86]      The inquiry in all cases, including in respect of a lease (long or otherwise), is the one postulated in Innes CJ’s articulation of the inquiry into delectus personae quoted above.  That is, whether the rights flowing from the contract in question are so personal in nature that it makes a reasonable or substantial difference to the debtor whether the cedent or the intended cessionary is entitled to enforce them.  That applies to all contracts, including lease agreements…”

 

Discussion

 

[16]      It is common cause that Clause 13.2 of the agreement between the Department and Tawana constitutes a pactum de non cedendo. What is the nature and effect of this pactum de non cedendo? In Capespan (Pty) Ltd v Any Name 451 (Pty) Ltd[2], a decision with no annotations to date, Thring J writing for the Full Court provides a useful exposition of the nature and effect of two kinds of pacta de non cedendo, of which the second kind is of relevance to the present appeal:

 

“For these reasons I conclude, first, that a distinction must be drawn between a pactum de non cedendo which prohibits the cession of an existing right, ie one which pre-existed the conclusion of the pactum, on the one hand, and a pactum de non cedendo of a right which, by means of the pactum itself, was created ab initio as a non-transferable right, on the other…However, in the case of the second pactum, that which relates to a right which was created ab initio as a non-transferable right, the pactum is valid and enforceable against the world because the right is simply inherently incapable of being transferred by anyone; and a cession of such a right contrary to the pactum will be putative, and of no force or effect, even if it is a so-called ‘involuntary’ cession;…”

 

[17]     In the present matter, the pactum is not of the kind that is not transferable. Tawana, in terms of the agreement with the Department, in terms of Clause 13.2 makes provision for cession or assignment of any of its rights and obligations under and in terms of the agreement, subject to obtaining specific written consent from the Department on good cause shown. It is common cause that Tawana was aware of the pactum in Clause 13.2 at the time it concluded the agreement with Massbuild some five days after the conclusion of the agreement with the Department. Notwithstanding this knowledge, Tawana ceded it rights specifically in respect of the Department’s indebtedness to it, when such indebtedness arises. This is the extent of the rights vested in Tawana which were ceded.

 

[18]     Adv Hollander, with reliance on four (4) decisions of which three (3) are decisions of the Appellate Division which continues to be authority in our jurisprudence, submits in his heads of argument that a pactum de non cedendo will not be enforceable if to do so would not serve a useful purpose to the debtor (in casu the Department). The submission has as its basis the following dictum in Paiges v Van Rhyn Gold Mines Estates Ltd[3]:

 

“In others words, if the stipulation can be shown to serve a useful purpose to the debtor, it is valid and binding upon the parties to the contract.”     

 

[19]      In Trust Bank of Africa Ltd v Standard Bank of SA Ltd[4] the Appellate Division elaborates on the dictum in Paiges supra as follows:

 

“The rule of our law is that all rights in personam, subject to certain exceptions based principally upon the personal nature of the rights, not here relevant, can be freely ceded, but an owner’s rights of free disposal of his property may be restricted by a pactum de non cedendo. The effect of such a pactum depends upon the circumstances. Voet, 2.14.20 and  Sande, Restraints, 4.1.1, and 4.2.1, point out that an agreement whereby an owner deprives himself of the free right to deal with his own property, is without effect unless the other contracting party has an interest in the restriction, and Windscheid, Pandektenrechts, 8th ed., p. 358, note 5, refers to the fact relied upon by Seuffert that also in the case of corporeals a contractual prohibition against alienation does not render the alienation void. These principles do not, however, apply where the right is created with a restriction against alienation, and the restriction is contained in the very agreement recording the right, for in such a case the right itself is limited by the stipulation against alienation and can be relied upon by the debtor for whose benefit the stipulation was made. (Paiges v Van Rhyn Gold Mines Estates Ltd., 1920 AD 600 at pp. 615 and 617, and see Windscheid, op. cit., para. (C) and note 5, and Dernburg, Pandekten, 7th ed., vol. II, p. 141).”

 

[20]     The dictum in Paiges supra and elaborated upon in Trust Bank of Africa Ltd supra is echoed with approval in Dage Properties (Pty) Ltd v General Chemical Corp Ltd[5] as follows:

 

“The right to cede or assign is frequently restricted by the terms of an agreement. Such restrictions are binding where they serve a useful purpose to the debtor…”

 

[21]     The court a quo dealt with the restriction in Clause 13.2 of the agreement between the Department and Tawana, on whether or not it served a useful purpose as follows:

 

“[21]    The first respondent further argued that the purported cession is not valid and binding upon it due to clause 13.2 of Annexure NS1 which was entered into between the first and second respondents, prohibiting the second respondent from ceding any of its rights or obligations in terms of that agreement without specific written consent of the first respondent (the Pactum de non cedendo). The argument by the applicant is that this raises policy concerns as it amounts to a restraint on alienation and parties are free to contract as they please. Both parties referred me to the case of Paiges v Van Rhyn Mines Estate ltd, with the applicant relying on the dissenting judgments of Gregorowski and Wessels JJ whilst the first respondent based its argument on the majority decision. It follows however that the majority decision is the authority that is binding on this Court and I am therefore enjoined to follow same in this matter.

                       …    

[23]      The underlying principle from the above decision is that a pactum will only be valid if the debtor has some legitimate interest in restricting the freedom of the creditor to cede the right or claim. In the absence of a legitimate interest the restriction serves no purpose and will not be enforced on grounds of public policy.” 

 

[22]     Adv Hollander submits that since the Department sought to enforce Clause 13.2 of the agreement between it and Tawana, the Department had to establish that the enforcement of Clause 13.2 would serve a useful purpose to it. This submission follows from the decision in Adams v SA Motor Industry Employers Association[6] where Jansen JA said:

 

“All contractual rights are prima facie capable of being ceded unless there is an element of personal confidence involved inter partes or personal circumstances are of the essence of the contract or the terms of the document indicate that the rights are not cedable. The onus is on the person challenging the right of cessions to show the above considerations prohibiting cession. Dettman v Goldfain and Another 1975 (3) SA at 395E - F; Paiges v Van Ryn Gold Mining Estates Ltd 1920 AD at 614; Administrator Estate Cachalia Trust and Another v Dabhel Madressa 1940 WLD at 19; Wessels Law of Contract in SA vol 1 para 1696ff.”

 

[23]     It is correct that the answering affidavit of the Department is silent on why Clause 13.2 of the agreement between itself and Tawana would serve a useful purpose. The court a quo is challenged on appeal by Massbuild for having relied on the heads of argument of the Department, where counsel put forward a reason why the agreement would serve a useful purpose to it and where such reason is not set out the answering affidavit of the Department. The following is said in paragraphs [24] and [25] of the judgment of the court a quo:

 

“[24]    The first respondent contends that it is common cause that there are internal control systems in place that prescribe how the flow of cash should happen or payment to service providers should be made. It was for this reason therefore that the second respondent had to first seek written permission to cede its rights or obligations to the applicant in order to enable the first respondent to provide for deviation from the norm in terms of settling the second respondent’s debt, if any and hence the restriction on the cession (the pactum). In other words, the pactum served a legitimate interest in that the first respondent had to find ways to deviate from the prescribed internal control systems if payments were to be made otherwise than the agreed contract between the first and second respondents.

 

[25]      I am therefore inclined to accept that the restriction on the alienation of the first respondent’s rights is not against public policy as it served a legitimate interest of ensuring that the first respondents followed all the proper procedures and controls in place for cash flow in dealing with public funds, and that the pactum was not to the disadvantage of the applicant since it was part and parcel of the agreement creating the right and as such the right was limited and not transferable from its inception. The fact that the second respondent misrepresented this aspect to the applicant cannot be held against the first respondent.”      

 

[24]     In advancing this argument, Adv Hollander further takes issue with the decision in Du Plessis v Scott[7] insofar as Blackwell J held that:

 

“Two questions appear to arise: I. Did the Court of Appeal intend to lay down the same rule in regard to agreements not to cede or assign, as Sande and Voet appear to indicate in regard to restraints upon the alienation of property generally? and 2. Assuming that question 1 is answered in the affirmative, does a person seeking to enforce a prohibition against cession have to allege and prove that the prohibition served a useful purpose to him, or can the Court, especially in a case like the present, look to the contract itself, and form its own conclusions upon the matter, if there are sufficient data?

 

In Paiges’ case, it would seem, though it is not clear, that evidence was taken in the magistrate's court, and that evidence convinced the Court of Appeal that, to a company employing numbers of workmen, it may be a matter of serious concern whether it is liable only to its workmen, or whether it can be called upon by strangers to pay the workmen's wages. In the present case it seems to be obvious why the building owner should make a stipulation of the sort contained in para. 10. He has chosen a particular contractor to build his house, and he wishes to look to him, and him alone, for the building's due completion, and to pay him, and him alone. In other words, it is quite unnecessary, so far as I can see, for the defendant in this case, before he can stand upon his rights under clause 10, to allege and prove that this was no mere idle stipulation on his part, but that he had a genuine interest in confining his dealings and obligations to the contractor. If therefore the judgment of the Court of Appeal in Paiges’ case means that an agreement by one of the parties to a contract not to cede his rights thereunder cannot be enforced without some proof that it was made for the benefit, not of a stranger, but of an interested party, then I hold that the Court is entitled to look to the nature of the contract itself in order to determine this point, and if this appears sufficiently from the contract then formal averment and proof is unnecessary.”

 

[25]      The issue taken with Du Plessis supra, is premised on an argument that the effect of the judgment that a party seeking to enforce a pactum do non cedendo need not allege or prove that the enforcement of the pactum serves a useful purpose to it, and the court can mero motu determine this by simply looking at a particular contract. The argument is then advanced that this is contrary to well-established principles that parties are bound by their pleadings and that a party who relies on a particular contention in litigation must plead such contention, and that in motion proceedings it is well established that the affidavits constitute not only the evidence, but also the pleadings.

 

[26]      In my view, nothing turns on the criticism of Du Plessis supra by Adv Hollander, when regard is had to the fact that what is in dispute in the matter is a matter of interpretation of Clause 13.2 and the conduct of Tawana in concluding an agreement with Massbuild contrary to Clause 13.2, five days after agreeing to Clause 13.2 in its agreement with the Department. To this end, therefore, regard may be had to the other provisions in the contract between the Department and Tawana.

 

[27]      In this regard, the following sentiments expressed in the University of Johannesburg judgment supra, which accords with the authorities in Endumeni and Novartis, are apposite and repeated:

 

“[66]    The approach in Endumeni “updated” the previous position, which was that context could be resorted to if there was ambiguity or lack of clarity in the text. The Supreme Court of Appeal has explicitly pointed out in cases subsequent to Endumeni that context and purpose must be taken into account as a matter of course, whether or not the words used in the contract are ambiguous.  A court interpreting a contract has to, from the onset, consider the contract’s factual matrix, its purpose, the circumstances leading up to its conclusion, and the knowledge at the time of those who negotiated and produced the contract.

 

[67]      This means that parties will invariably have to adduce evidence to establish the context and purpose of the relevant contractual provisions.  That evidence could include the pre-contractual exchanges between the parties leading up to the conclusion of the contract and evidence of the context in which a contract was concluded.  As the Supreme Court of Appeal held in Novartis:

 

“This court has consistently held, for many decades, that the interpretative process is one of ascertaining the intention of the parties – what they meant to achieve.  And in doing that, the court must consider all the circumstances surrounding the contract to determine what their intention was in concluding it…. A court must examine all the facts – the context – in order to determine what the parties intended.  And it must do that whether or not the words of the contract are ambiguous or lack clarity.  Words without context mean nothing.”

 

[68]      Let me clarify that what I say here does not mean that extrinsic evidence is always admissible. It is true that a court’s recourse to extrinsic evidence is not limitless because “interpretation is a matter of law and not of fact and, accordingly, interpretation is a matter for the court and not for witnesses”. It is also true that “to the extent that evidence may be admissible to contextualise the document (since ‘context is everything’) to establish its factual matrix or purpose or for purposes of identification, one must use it as conservatively as possible”. I must, however, make it clear that this does not detract from the injunction on courts to consider evidence of context and purpose.  Where, in a given case, reasonable people may disagree on the admissibility of the contextual evidence in question, the unitary approach to contractual interpretation enjoins a court to err on the side of admitting the evidence. There would, of course, still be sufficient checks against any undue reach of such evidence because the court dealing with the evidence could still disregard it on the basis that it lacks weight.  When dealing with evidence in this context, it is important not to conflate admissibility and weight.”

  

[28]     Further, the Du Plessis judgment has not been overturned in any judgments of courts of higher authority to date and remains good authority, which accords with the ratio highlighted in University of Johannesburg, supra.

 

[29]     The issue which Massbuild ultimately takes with the judgment of the court a quo is what is said at paragraphs [24] and [25] of the judgment. Even if the explanation proffered by counsel for the Department in the heads of argument why the pactum de non cedendo is enforceable, the fact that the court a quo latched onto this in the absence of evidence to this effect in the answering affidavit means that regard may be had to other provisions of the agreement between the Department and Tawana in respect of the involvement of third parties in the agreement.

 

[30]     The following clauses deal either directly or by implication with third parties. Clause 8 under the heading “Other Agreements” provides that the parties acknowledge that Tawana did not enter into any joint venture, for purposes of the project. The most telling clauses of the agreement which have a direct bearing on the present matter, are found at Clauses 11, 12.3 and 18.5. Clause 11 provides as follows:

 

                       “11. FINANCIAL ARRANGEMENTS, PRICE AND PAYMENT TERMS

 

11.1    The total cost rendered payable by the Department to the Developer for the work completed in terms of this agreement and to complete the project will be the total sum of R18 991 800.00.

 

11.2    Payments shall be made to the Developer upon receipt by the Department of a detailed itemized invoice, inspected and approved by the Departments authorized personnel setting out the nature of the deliverable/milestones performed. The Developer shall receive payment within 30 (thirty) days from the date of submission of each invoice to the Department;

 

11.3    Invoices must comply with the standard requirements of the Department and must in addition, be itemized as to unit, person, rate, nature of work completed, as to enable the Department to understand the nature of what services and disbursements are being charged for.

 

11.4    Invoices should be designed in such a way as to enable the Department to easily verify their contents and monitor expenditure and in such be accompanied by a detailed monthly progress report detailing actual progress achieved as against milestones agreed upon and claimed for;

 

11.5    Should the Department request the Developer to redo or resubmit any deliverable or milestones provided in terms of this Agreement because the deliverable was not completed to the required standard, no additional cost shall be charged by the Developer to the Department in respect of that deliverable/milestone. The Developer shall be liable for any loss of damages occasioned to the project due to the Developer failing to complete any deliverable/milestone to the required standard;

 

11.6    In the event of the Developer being unable to carry out or complete its obligations under this Agreement, or the termination of the Agreement for breach, the Department shall be entitled to withhold all outstanding monies payable as damages, without prejudice to any other remedy, claim or action it may lawfully have against the Developer;

 

11.7    In the event that the Department makes payment to the Developer that is in excess of the amount due, owing, and payable by the Department to the Developer, then the Developer undertakes to refund the excess amount of money to the Department within 7 (seven) days of this event coming to the Developer’s notice. The Department may at its sole discretion, elect not to claim the refund in terms of this paragraph, but to set off excess monies paid in error to the Developer against any future payments due and payable by the Department to the Developer;

 

11.8    The Department shall not be responsible for any expenses which are not covered in this Agreement, and the Developer shall be responsible for paying of all materials including payment of all monies due to third parties and/or appointed teams and other costs necessary to carry out the work which it is responsible to carry out in terms of this Agreement;

 

11.9    The Developer shall not incur expenses exceeding the agreed amount as contained in this Agreement, unless prior written approval has been obtained from the Department;

 

11.10  No adjustment to the approved budget shall be effected without the prior written approval of the HOD of the Department;

 

11.11  Payment shall be carried out in accordance with the procurement policies and procedures of the Department of Human Settlement, Housing Code, as well as applicable legislative and other legal requirements;

 

11.12  As soon as it appears that the cost for any part of the work to be carried out in terms of this Agreement or the preparation of any of the deliverables, shall exceed the amount specified in the budget set out in the Agreement, the Developer shall notify the Department in writing thereof, providing reasons for the anticipated overspending and detailing the amounts involved;

 

11.13  Prior written consent shall be obtained from the Department for all decisions and activities that have financial implications and which have not been implicitly contemplated within the budget set out in this Agreement. If it is not clear whether or not a decision or activity which has financial implications has been implicitly contemplated within the budget set out in this Agreement, the Developer should err on the side of caution and seek the Department’s consent regarding such a decision;

 

11.14  All fruitless, wasteful and irregular expenditure (as defined the Public Finance Management Act, Act No. 1 of 1999) incurred by the Developer outside of the approved budget must be recorded, and a detailed report explaining the reasons for such expenditure must be submitted to the Department as soon as practicable after the Developer becomes aware thereof;

 

11.15  Fruitless, wasteful and irregular expenditure incurred on account of the negligence of the Developer shall, in consultation with the Developer be recoverable from the Developer.”

 

[31]     Clause 12.3 provides that:

 

“12.3   The developer specifically warrants that s/he has the necessary financial capital and/or undertakings to deliver the project, and further that the Department will not be required to sign cessions in favour of third parties on behalf of the developer.”

 

[32]     Clause 18.5 provides that:

 

“18.5   Save where permitted in this agreement, or agreed to in writing, the parties undertake not to assign or cede their obligations in terms of this agreement.”

 

[33]      Tawana, notwithstanding the clear and unambiguous terms of its agreement with the Department, five (5) days later concluded an agreement with Massbuild in which it pledged and ceded its book debts to Massbuild, which included that of the Department. This was contrary to its agreement with the Department and in particular Clause 13.2, that prior written consent on good cause shown had to be obtained. The pledge and cession agreement with Massbuild further was in clear breach of Clause 11.8 of the agreement with the Department. This is further exacerbated by the warranty given by Tawana in Clause 12.3 of its agreement with the Department, which specifically warranted that it had the necessary financial capital and that the Department would not be required to sign cessions in favour of third parties on behalf of Tawana.        

 

[34]      The Massbuild/Tawana cession agreement was in direct breach by Tawana which just five days earlier had agreed, inter alia, to the terms of Clause 13.2.[8]

 

[35]      Clause 11.11 accords with the submission of Adv Mongale in respect of the manner of payment which is set out in peremptory terms: “Payment shall be carried out in accordance with the procurement policies and procedures of the Department of Human Settlement, Housing Code, as well as applicable legislative and other legal requirements.” Tawana had no legal basis on which it could circumvent this provision which it had agreed to, when it ceded its rights in respect of payment to Massbuild. The restriction on the alienation of the right to payment of Tawana by Clause 13.2 was correctly found by the court a quo, not to be against public policy.

 

Conclusion

 

[36]      The court a quo was accordingly correct in its finding that the cession was not valid and could not be enforced against the Department. The appeal therefore stands to be dismissed.

 

 

Costs

 

[37]      Costs follow the result. There is no basis to order otherwise. The appellant (Massbuild) is accordingly liable for the costs of appeal, which shall include the costs of the application for leave to appeal.

 

Order

 

[38]      In the result, the following order is made:

 

The appeal is dismissed with costs, which costs shall include the costs of the application for leave to appeal.

 

 

 

A H  PETERSEN

JUDGE OF THE HIGH COURT

NORTH WEST DIVISION, MAHIKENG

 

 

I agree

 

 

A REDDY

ACTING JUDGE  OF THE HIGH COURT

NORTH WEST DIVISION, MAHIKENG

 

 

I agree

 

 

 

M MALOWA

ACTING JUDGE OF THE HIGH COURT

NORTH WEST DIVISION, MAHIKENG

 

 

APPEARANCES:

For the Appellant:	Adv L Hollander
Instructed by:	Gjersöe Inc. Attorneys
	c/o Smit Stanton Inc.
	29 Warren Street
	MAHIKENG
For the Respondents:	Adv K Mongale
Instructed by:	State Attorneys
	1st Floor East Gallery , Mega City
	Cnr Sekame & Dr James Moroka
	MMABATHOD
Date of Hearing:	11 November 2022
Date of Judgment:	12 April 2023

---

---