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IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)

In the matter of:
THE BANK OF LISBON AND SOUTH
AFRICA LIMITED ,

Appellant

versus

THE MASTER OF THE SUPREME COURT

(TRANSVAAL PROVINCIAL DIVISION) ... First respondent
G H J VENTER JUNIOR, N O
Second respondent

IMPERIAL MOTOR COMPANY (PROPRIETARY) LIMITED .

Third respondent

NORTON ABRASIVES (PROPRIETARY)
LIMITED

Fourth respondent

M J DE PONTES
Fifth respondent

CORAM: RABIE, CJ, JANSEN, CORBETT, GALGUT, AJA.

DATE OF HEARING: 19 May 1986 DATE OF JUDGMENT: 30 September 1986.
JOUBERT. JJA, et

JUDGMENT

GALGUT, AJA:

A company, George de Pontes and Partners (Pty)

/ Ltd.......

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Ltd ("the company"), was, because of its inability to pay its debts, wound up by order of court dated 29 May 1979. Second respondent was initially appointed as provisional liquidator and thereafter as liquidator of the company. I shall refer to him as the Liquidator. Third, fourth and fifth respondents are creditors of the company. The first respondent is the Master of the Supreme Court (Transvaal Provincial Division). The only creditors who proved claims in the estate of the company were the appellant and third, fourth and fifth respondents. In the affidavit in proof of its claim for R58 327,77 appellant, to which I shall refer as "the Bank", stated that it had received security from the company in the form of

" . . . . a general Pledge and Cession signed by the Company in favour of the Bank in terms whereof the Company pledged to the Bank, inter alia, all present and future book debts. A copy of the Pledge and Cession is annexed hereto marked 'B', but the Bank is unable to value its security at this stage with the information at its disposal."

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In para 7 of the affidavit the following is stated:

"The Bank relies entirely on its security and all suretyships that it may hold for the said debt for the satisfaction of its claim."

The Master, after considering written representations which were made to him (as to which more later) directed, on 20 October 1981, that the Liquidator should, in the relevant Liquidation and Distribution accounts, reflect the Bank's claim as a concurrent claim.

The Bank challenged this ruling and applied in the Transvaal Provincial Division for an order —

"calling upon first respondent to show cause why his decisions of 20 October 1981 in the Estate of George de Pontes and Partners (Proprietary) Limited ('the Estate') should not be reviewed and corrected so as to direct second respondent to amend the first liquidation account and the second and final liquidation and contribution accounts respectively in the Estate so as to reflect that applicant is not liable for any costs of realisation nor any costs of administration in the Estate."

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The matter came before ACKERMANN J and he dismissed the application. The Bank then appealed to the Full Court of that Division. That appeal failed and the present appeal before us is against the decision of the latter Court.

The third, fourth and fifth respondents were cited because of their respective interests in the matter. No relief was sought against them if they did not oppose. They did not in fact oppose.

The security upon which the Bank relied in its proof of claim is clearly a cession of book debts in securitatem debiti executed by the company in favour of the Bank on 10 December 1977. Prior to the above cession the company had executed, also in securitatem debiti, a cession of its book debts in favour of Nedbank Limited. Nedbank at the date of the winding-up order was in the

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process of collecting the debts and continued to do so with the consent of the Liquidator. It collected approximately R6 530 in excess of the amount owing to it. This sum was handed to the Liquidator. I shall refer to the Nedbank cession as the first cession and the Bank's cession as the second cession.

Provision was made in clause 23 of the second cession for the contingency of a prior cession. The clause reads:

"'(23) without derogation from any warranty given by me/us to the BANK in terms hereof, should it transpire that any security(ies) promised or purported to be given in terms hereof is/are subject to any prior pledge and/or cession with the result that the BANK is in whole or part deprived of such security(ies) or precluded from taking delivery thereof, these presents shall, insofar as the particular security (ies) subject to such prior pledge and/or cession is/are concerned, or insofar as the particular part(s) of such security(ies)

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is/are concerned as the case may be, operate as a pledge and cession to the BANK, upon all the terms and conditions herein set out, of all my/our reversionary rights and all my/our remaining right(s), title and interest in and to such particular security(ies) and the subject matter thereof, as well as all my/our rights of action and recourse against the prior pledgee(s) and/or cessionary(ies) thereof."

Prior to proving its claim the Bank had written to the Liquidator confirming that he (the Liquidator) had

"knowledge of our (the Bank's) pledge over debtors and

debts that you would be collecting the book/and would account

to us in due course". The Liquidator replied stating:

"I confirm my knowledge of the fact that you hold a pledge over the sundry debtors and in this regard I must inform you that the claim of the Netherlands Bank, who hold the first pledge over the sundry debtors, has now been settled in full and consequently the total proceeds of the debtors will now be subject to your pledge."

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At the time when the winding-up order was made the company was in the process of performing certain contracts. The Liquidator decided to have these contracts completed. The ultimate cost of so doing was in the order of R97 000 whereas the amount which accrued to the company therefrom was approximately R55 000. He then adopted the attitude that the Bank was liable for the R97 000 and that it could collect the R55 000 from the debtors.

Pursuant thereto the Liquidator framed a First Liquidation and Distribution Account. It was advertised as lying for inspection. He thereafter drew a Second Liquidation and Distribution Account. The second account does not, as far as affects this case, alter anything in the first account. Neither account has been confirmed. In the first account the Bank was reflected as a secured creditor but the cost of completing the executory contracts was shown as an amount to be deducted from any sum due to

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the Bank. The Bank lodged an objection to that account with the Master and with the Liquidator. It contended that it was not liable for the costs occasioned by the completion of the executory contracts and submitted that the shortfall resulting from the Liquidator's decision to complete those contracts should not be confused with the costs of realisation of its security. The Liquidator responded to the objection in a letter dated 4 March 1981 to the Master. He wrote:

"On the information furnished me, I accepted that the objector (the Bank) was to be treated as a secured creditor after Nedbank Limited released its security and treated it as a secured creditor. It was also specifically arranged between the objector and myself that as soon as Nedbank Limited had realised sufficient security to satisfy its claim, I would realise the balance of claims against debtors on behalf of the objector for the benefit of the objector."

The Liquidator also submitted that he was "now" of the view that at the date of liquidation the

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Bank was not in possession of any security and was not a secured creditor because at that time the cessionary of the book debts was Nedbank which was, at the relevant time, in possession and control of the security.

A great deal of correspondence followed.

It appears therefrom that the Bank, in a letter to the Master, eventually conceded that it held no security for its claim and was not a secured creditor. It, however, stressed that in its proof of claim it had specifically relied on its security; that "since the Bank relied on its security only there would be no concurrent claim proved by it even if (as is the case now) there is in fact and in law no security"; that it was accordingly not liable to contribute towards costs which had been occasioned by the completion of the executory contracts; that such costs were not costs of realisation of the security but were costs of administration for which it

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was in any event not liable.

The Master in a letter dated 20 October 198l then ruled:

"As you and the Liquidator have conceded that your client does not have a secured claim, I am directing the Liquidator to amend the account to reflect your client's claim as concurrent. Under the circumstances it is no longer necessary for me to rule on your submissions as to the extent of your client's security or for which costs he would or would not have been liable as a secured creditor in terms of Section 89(1) of the Insolvency Act No 24 of 1936 as amended."

It was this decision which the Bank brought on review before the Court of first instance. The relief which it sought has been set out above.

I pause to mention that in terms of section 339 of the Companies Act No 61 of 1973 the provisions of the law relating to insolvency shall, in so far as they are applicable, be applied mutatis mutandis in the winding up of a company unable to pay its debts.

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It is necessary to refer to the following sections of the Insolvency Act No 24 of 1936 ("the Act").

The relevant definitions in sec. 2 are as follows:

"Security", in relation to the claim of a creditor of an insolvent estate, means property of that estate over which the creditor has a preferent right by virtue of any special mortgage, landlord's legal hypothec, pledge or right of retention;

"property" means movable or immovable property wherever situate within the Republic, and includes contingent interests in property other than the contingent interests of a fidei commissary heir or legatee;

"movable property" means every kind of property and every right or interest which is not immovable property.

Sec. 44(4) provides that a claim shall be proved, at a meeting of creditors, by affidavit setting out the relevant facts and particulars in support of the claim and

if the creditor holds security therefor "the nature and

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particulars of that security".

Sec. 45(2) requires the trustee to examine all claims for the purpose of ascertaining whether the estate in fact owes the amount claimed.

Sec. 45(3) provides that if a trustee disputes a claim after it has been proved, he shall report to the Master giving his reasons. The Master thereupon, after affording the claimant an opportunity to substantiate his claim, may confirm, reduce or disallow the claim.

Sec 52(5) precludes a proved secured creditor from voting at meetings of creditors, on matters not affecting his security.

Sec. 89(1) sets out that any costs occasioned by the maintenance or realisation of the property which is subject to the security is to be paid out of the proceeds of such property.

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Sec. 89(2) reads:

"If a secured creditor states in his

affidavit submitted in support of his claim against the estate that he relies for the satisfaction of his claim solely on the proceeds of the property which constitutes his security, he shall not be liable for any costs of sequestration other than the costs specified in sub-section (1), and other than costs for which he may be liable under paragraph (a) or (b) of the proviso to section one hundred and six."

The relevant portion of sec. 106 provides:

"Where there is no free residue in an in
solvent estate, or where the free residue
is insufficient to meet all the expenses,
costs and charges mentioned in section
ninety seven, all creditors who have
proved claims against the estate shall
be liable to make good any deficiency, the
non-preferent creditors each in proportion
to the amount of his claim, and secured
creditors each in proportion to the amount
for which he would have ranked upon the
surplus of the free residue if there had
been any "

Then follow certain provisos which have no application to the present case.

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In the Court of first instance only the Liquidator appeared to oppose. The Master, in his report to the Court intimated that he was not appearing to oppose and stated inter alia that:-

"The applicant agrees that he has no security. For this reason he is therefore a concurrent creditor."

ACKERMANN J analysed the relevant sections of the Act. He then quoted sec. 89(2) and went on to say:

"In Section 106 the phrase 'all creditors who have proved claims against the estate shall be liable to make good any deficiency' is likewise in the widest and clearest terms, as is the next succeeding phrase: 'the non-preferent creditors, each in proportion to the amount of his claim, and secured creditors, each in proportion to the amount for which he would have ranked upon the surplus of the free residue, if there had been any'.

In these sections provision is only made for two classes of creditors, secured and non-preferent creditors. There seems to me to be no basis for incorporating a third class, namely concurrent creditors who mistakenly claim to have security for their claims and state that they rely solely on the proceeds of their security for satisfaction of their claim,

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when no indication whatsoever exists in the Act for the acceptance of such a third class

In my view the applicant is to be

treated as any other concurrent or non-preferent creditor would be in terms of the Insolvency Act."

>He accordingly dismissed the application and made an appropriate order as to costs.

The Bank then noted the appeal to the Full Court. It detailed the grounds of appeal- Their importance will appear later in this judgment. Summarized they are that the learned Judge had erred in holding that the Bank was a concurrent creditor; that he had erred in not holding that the Bank had specifically limited its claim to its security and had never looked to the free residue for payment; that he ought to have held that the Bank was not obliged to contribute towards making good the deficiency. The notice of appeal was served on the Master and on the third, fourth and fifth respondents. They did not appear to resist the appeal.

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It appears from the judgment of KIRK-COHEN J who delivered the majority judgment of the Court a quo that the following issues were urged on behalf of the Bank in that Court.

A. that the Court of first instance had erred in
holding that the Bank was a proved concurrent
creditor;

B. that the concession made by the Bank to the

. Master and in the Court of first instance to the effect that it was not a secured creditor was incorrect and that since the concession was based on a mistaken view of the law the Bank was free to withdraw the concession;
C. that despite the wording of the notice of
motion and the way in which the matter had
been argued in the Court of first instance,
the Liquidator would not be prejudiced if the

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Bank were allowed to argue the issue raised in D below;

D. that due regard being had to the terms of the

cession in favour of the Bank and in particular to clause 23 thereof (as to which see above), the Bank was in fact a secured creditor and it follows

that the Master's ruling cannot stand. Ad A above:

The Court a quo held that inasmuch as the case had been presented and argued before ACKERMANN J on the basis that the Bank was not a secured creditor, he had correctly rejected the submission that the proof of claim was not a proof of claim at all- It agreed with ACKERMANN J's reasons for holding that the Bank was a proved concurrent creditor.

This issue was again raised in this Court. I find it convenient to set out, at this stage, my reasons

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for disagreeing with this finding of the Court a quo. In ray view it is an oversimplification to say that the Act provides for only two types of creditors, viz, non-preferrent or secured creditors and that a creditor who has proved a claim in terms of sec. 44(4) must fall into one or other of these categories- The mere admission to proof of a claim does not ratify the claim or make it res judicata. See in this regard Mars: The Law of Insolvency, 7th ed. at p 263 and the authorities there cited. A creditor seeking to prove his claim has to comply with sec. 44(4). If he alleges he holds security he must, in terms of that section furnish the nature and particulars thereof to prove that his security exists. If he then acts in terms of sec. 89(2), and declares that he relies for the satisfaction of his claim solely on the proceeds of the property which constitutes "his security", the section provides, save for certain exceptions not here relevant, that he shall not

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be liable for any costs of sequestration. The underlining is mine.

Secs. 44(4) and 89(2) must be read together.
The intention is clear. A creditor who claims that he is a secured creditor and who does not wish to share in the free residue and who looks only to the proceeds of his security is not liable for any costs of sequestration, nor can he receive more than his security or its proceeds, whether or not there is a free residue. "His security", i.e. the security designated as such by the creditor, may prove to be valueless or may have ceased to exist. There is nothing in the wording of sec. 89(2) which suggests that that fact will render such a proved creditor liable for any costs of sequestration. As indicated above the whole purpose of the section is to enable a creditor, who believes when lodging his claim that his security has a value, to limit his claim to the value of his security and to free him from

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liability for costs- If it should transpire that his security has become valueless the basis on which he proved his claim would fall away. He would not have a claim against the estate. The position cannot be different in the case of a creditor who bona fide believes that he holds security and specifically limits his claim and his potential liability. He for all practical purposes ceases to be a creditor of the estate. The Bank was in fact in that position. Paragraph 7 of the affidavit of proof of claim, quoted above, is clear and unequivocal.

It follows that the Court a quo should have found that the Court of first instance had in fact erred and should have upheld the appeal only on this ground. It, however, also considered the issues set out in B, C and D above. I proceed now to discuss them.

Ad B above:

The Court a quo held that the concession was

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based on a mistaken view of the law and could be withdrawn. That such a concession can be withdrawn is clear; see De Beers Holdings (Pty) Ltd v Commissioner for Inland Revenue 1986 (1) SA 8 (A) at p 33 E-G; In this regard I draw attention to the safeguards mentioned in Paddock Motors (Pty) Ltd v Igesund 1976 (3) SA 16 (A) at p 23 B-F. As to this aspect more in C below.

Ad C above:
Counsel for the Liquidator in the Court a quo did not contend that the concession could not be withdrawn. He did however contend that that Court should not permit the Bank to argue the issue in D. His submissions were that, in the Court of first instance, the Bank's case as there argued and as made out in the founding affidavit, was that it was for all practical purposes not a proved creditor; that the Bank should not be allowed on appeal to raise a new cause of action; that the Liquidator would be pre-

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judiced and had not had occasion to study the First cession; that the third, fourth and fifth respondents had not appeared to oppose the case as presented in the Court of first instance; that even though the notice of appeal to the Court a quo had been served on them there was nothing in that notice which would alert them to the fact that the Bank intended changing its whole cause of action and ask for an order declaring that the Bank was in fact a secured creditor; that they would be prejudiced if the Court a quo allowed the Bank to argue the issue in D.

Counsel for the Liquidator asked for and was given the opportunity to study the first cession. He did so. That cession was then placed before the Court a quo. It is not an out-and-out cession but is a cession of the company's book debts in securitatem debiti.

The Court a quo decided to allow counsel for the Bank to argue the issue in D. It gave as its reasons

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for so doing that —

"no prejudice would follow and in

the peculiar circumstances of this case we have decided to do so as unnecessary duplication of proceedings ought to be avoided."

I am of the view that the Court a quo erred in permitting the issue in D to be argued before it. The third, fourth and fifth respondents had not been given notice of the new cause of action; they might well have wished to appear to contest that issue; the Bank's cause of action in the Court of first instance was that it was not a secured creditor; it would not have lost its right to do so if the Court a. quo had not entertained the new cause of action; it was not precluded from withdrawing its wrong concession at any time; it could then have again written to the Master objecting to the first and second accounts or it could have waited until the Liquidator had redrawn the account and objected thereto in terms of sec. 407

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of the Companies Act 61 of 1973.

Ad D above:
The first cession was a cession of book debts in securitatem debiti. Counsel for the Liquidator examined it and was satisfied that it was not an out-and-out cession. That this is so is borne out by the fact that Nedbank, having collected R6 530 in excess of the company's liability to it, handed that sum to the Liquidator and further that it was the Liquidator and not Nedbank who proceeded to collect monies in respect of the book debts which were owing to the company at the date of the winding up. The Court a quo had regard to the definitions of "security" and "property" in the Act and also to the many cases in which the effect of a cession in securitatem debiti was discussed. The majority of the Court came to the conclusion (SLOMOWITZ AJ dissenting) that the reversionary right which the company

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had in respect of the first cession was a "spes or expectation", hence "there existed no res or 'property' of the insolvent (ie, the company) which was, or could be, subject to 'security'". It accordingly dismissed the appeal.

The Bank thereafter sought leave from the Court a quo to appeal to this Court. The wording of the Notice of Application for Leave to Appeal is important. It sets out that leave to appeal against the whole of the judgment of the Court a quo is being sought on the grounds that it had erred in holding that:-

"1. The cession of book debts by GEORGE DE PONTES (PROPRIETARY) LIMITED (IN LIQUIDATION) ("the company") in favour of appellant does not render appellant's claim against the company secured in terms of the provisions of the Insolvency Act No. 24 of 1936;

2. appellant is an unsecured concurrent creditor of the company;

3. appellant is not entitled to receive the proceeds of the said book debts (all of which arose prior to the liquidation of

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the company but were paid after liquidation to Nedbank Limited) after satisfaction of the company's indebtedness to NEDBANK LIMITED in terms of the prior cession of the said book debts in favour of the latter."

Pursuant to that application leave to appeal was granted against "the whole of the Judgment" of the Court a quo "on all the issues set out in the majority judgment"

In his written heads of argument and in this Court counsel for the appellant urged as his first and main ground of appeal the issue in D above. As a second ground of appeal, in the event of this Court finding that the Bank was not a secured creditor, he submitted that the Court a quo had erred in finding that the Bank was a proved concurrent creditor. It will be seen that the second ground of appeal was not raised in the notice of application for leave to appeal. However that may be, the Full Court granted leave to appeal "on all the issues set out in the majority judgment" . I have earlier in this judgment,

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when dealing with the issue in A above, set out my view on this second ground of appeal. There is no need to repeat what is there said.

Counsel for the Liquidator submitted in this Court that the Bank should not have been permitted by the Court a quo to argue the issue in D above. My views in that regard are set out in C above. He further urged that the Bank should not be allowed to argue that issue in this Court. As stressed above, the third, fourth and fifth respondents were not alerted to the fact that the issue in D above was to be argued in the Court a quo. The position in this Court is different. The Notice of Application for Leave to Appeal was served on all the respondents. Its terms were clear. They were advised that the Bank was going to urge that it was a secured creditor. They did not appear to oppose the grant of leave to appeal They were also given notice of the grounds of appeal to

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this Court. Furthermore, a copy of the Bank's heads of argument was served on them. They have not appeared in this Court and they have not intimated that they object to the issue being dealt with in this Court. I will hereafter refer to this issue as the new point.

It is the duty of an appellate tribunal to ascertain whether the Court below came to a correct conclusion on the case submitted to it. For this reason the raising of a new point of law on appeal is not precluded provided that certain requirements are met. If the point is covered by the pleadings and if its consideration on appeal involves no unfairness to the party against whom it is directed, a court, in an appeal, can deal with it. See Paddock Motors (Pty) Ltd v Igesund (supra) at p 23 D. The new point was not raised in the notice of motion or in the founding affidavit; the first cession had not been placed before the Court of first instance; the third,

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fourth and fifth respondents were not notified that the new point would be argued in the appeal to the Court a quo. Hence, as already emphasized, it should not have been dealt with by that Court. The position in this Court, as already stated, is different. The third, fourth and fifth respondents were well aware that the new point was to be argued before this Court. As far as one can judge its consideration in this Court involves no unfairness to the Liquidator or to the third, fourth and fifth respondents or to the Master (who has intimated that he does not wish to appear in this Court). The facts upon which the new point is to be decided are clear; there is no ground for thinking that further or other evidence would have been produced had the point been raised at the outset of the proceedings; cf. Paddock Motors case, sup. cit. at p 23 E. Having regard to the particular facts of this case it seems clear that unnecessary duplication of proceedings can be

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avoided by this Court deciding the new point. It is for all the above reasons that I have come to the conclusion, although after some hesitation, that this Court should deal with the new point.

I proceed now to consider whether the Bank is a secured creditor. It was not disputed, nor indeed could it have been, that an incorporeal right falls within the meaning of "property" and "movable property" and can constitute the subject-matter of "security" as defined in the Act.

The submissions on behalf of the Bank can be summarized. They were as follows:

1. In National Bank of SA Ltd v Cohen's Trustee

1911 AD 235, at pp 246, 252 and 254 it was said that the cedent of a right in securitatem debiti retains dominium in the right concerned. I pause to say that this dominium has been described as a "sort of reversionary interest". See Van Zyl v

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Strandfontein Namaqualand Estates (Pty) Ltd 1930 CPD 270 and Barclays Bank (C.D. & O.) and Another v Riverside Dried Fruit Co (Pty) Ltd 1949 (1) SA 937 (C) at p 946.

2. That despite dicta in decisions such as Lief NO v Dettmann 1964 (2) SA 252 (A) at 271 E; Trust Bank of Africa Ltd v Standard Bank of South Africa Ltd 1968 (3) SA 166 (A) at 173 D-A and 189 A; Holzman N 0 and Another v Knights Engineer-ing and Precision Works (Pty) Ltd 1979 (2) SA 784 (W) at 791-792, this Court recently in Leyds N O v Noord-Westelike Koöperatiewe Landboumaatskappy Bpk en Andere 1985 (2) SA 756 at 780 reaffirmed the principle stated in the National Bank case, sup, cit.

3. That accordingly the first cession being a cession in securitatem debiti, the company retained its dominium in the book debts so ceded

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to Nedbank and it is this dominium, ie, the reversionary right to which the company was entitled that it ceded to the Bank in terms of clause 2 3 of the second cession.

4.	That the Bank had acquired the right to receive such of the book debts, incurred prior to the winding up, as remained after Nedbank had been paid.
5.	That this reversionary interest has a money value. This has been recognised in Big Sixteen (Pty) Ltd v Trust Bank of South Africa Ltd and Another 1978 (3) SA 1032 (C) at p 1035 H.
6.	That it follows that the Bank as cessionary of the reversionary right was at all times a secured creditor.

Alternatively to the above:

7. That even on the approach adopted in the first

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three cases cited in para. 2 above the Bank, at the date of the second cession, acquired from the company the right to receive cession from Ned-bank of such of the book debts remaining after Nedbank had been paid in full.

8. That this was a personal right which falls within the definition of movable property and which at all times had a value.

9. That on this basis also the Bank was a secured creditor.

In Rothschild v Lowndes 1908 T S 493 at p 501 INNES CJ said:

"The cession of a right of action in securitatem debiti transfers that right to the cessionary as completely, so far as third parties are concerned, as an absolute cession would do. While the cession stands no right remains vested in the cedent which he can enforce against the debtor. His remedy is against the cessionary for payment of the balance, or for cancellation of the cession."

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In the National Bank case, sup. cit.,Lord DE VILLIERS CJ said at p 246:

"That a right of action can be pledged does not admit of a doubt (see Voet, 20, 3,1). To make such a pledge effectual, the right of action is frequently ceded to the pledgee, but if the cession is made with the avowed object of only securing a debt owing by the cedent to the cessionary, it is, in my opinion, impossible to hold that the cession, whatever its form, takes the dominium out of the cedent".

INNES J at p 250 of the same case stressed that "The essential feature of a pignus is that the dominium in the subject-matter remains in the pledgor", and at p 252 went on to say :

"That, however extensive may be the right of a cessionary to enforce in his own name an obligation ceded to him by way of security, still the mere fact that the cession was in terms absolute, would not suffice to take the dominium out of the cedent, if it was clear that the parties did not intend it to pass".

Both learned Judges (see p 246 and p 252) stated that the

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law had been too widely stated in Rothschild v Lowndes, sup. cit.
Professor Scott in her The Law of Cession at p 138 states that in South African law a pledge of incorporeals is generally accepted. She lists a series of cases in our courts in which a pledge of personal rights has been accepted. See also her comments in her doctoral thesis -Sessie in die Suid-Afrikaanse Reg at p 313. De Wet and Yeats - Kontraktereg en Handelsreg, 4th ed. at p 370, criticise what is said in the National Bank case, sup. cit. Their objection to a pledge of personal rights is that a real right cannot extend to a personal right. T.K. Pahl in his thesis Die Aanwending van Vorderingsregte ter Ver-sekering van Skulde in chapters eight and ten is of the same view as De Wet and Yeats. Ellison Kahn in his Contract and Mercantile Law Through the Cases at p 991 disagrees with De Wet and Yeats, as does Prof. Scott at p 137 of her The Law of Cession.

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In Lief N 0 v Dettmann sup. cit. at p 271 E WESSELS JA, who delivered the judgment of the Court, says:

"The only manner in which a right of action (either secured or unsecured) can be furnished as security for a debt is by way of cession, i.e. by a transaction which in our law results in the cedent being divested of his rights and those rights vesting in the cessionary. Where the cession is said to be made as security for a debt, it does not, in my opinion, signify that the cedent in fact retains any right in the subject matter of the cession; his continued interest therein flows from the agreement, either express or implied, with the cessionary that the right of action will be ceded back to him upon the discharge of his debt".

The National Bank case was not referred to in this judgment. Nor did counsel draw the Court's attention to it, see pages 253 to 259 of the report.

In the Trust Bank of Africa case, sup. cit. VAN BLERK JA says at p 173 E-F:

"Die effek van 'n uit-en-uit cessie is om al die regte van die cedent op die gecedeerde vorderingsreg aan die cessionaris oor te dra;

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die cedent is ontdaan van alle aanspraak op die gecedeerde regte en in die geval van die cessie in securitatem debiti is, wat derdes betref, die oordrag van die gecedeerde reg ewe volkome. Solank die cessie staan het die cedent geen afdwingbare reg teen die skuldenaar nie. Al wat hy het is die reg van terugcessie (Rothschild v Lowndes, supra, op bl. 501) vir geval die skuldenaar die versekureerde skuld betaal, of die opbrengs van die gecedeerde vorderingsreg meer is as wat nodig is vir die delging van die versekureerde skuld, in watter geval die balans aan die cedent terugval. Wat derdes, soos die respondent, betref, kan dit dus geen verskil maak nie of die cessie uit-en-uit is dan of dit in securitatem debiti is".

The learned Judge then goes on to refer to the following passage from the judgment of INNES J at p 254:

"If the parties intended that the bare ownership should remain in the cedent, it is not taken out of him by the cession" .

The learned Judge does not, however, comment on the above statement by INNES J. It is to be noted that the learned Judge does not mention that both Lord DE VILLIERS CJ and INNES J stated in the National Bank

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case that the rule had been too widely stated in the Rotschild case. At page 173 in fine VAN BLERK JA goes on to say:

"Ek wil my egter vereenselwig met wat Reg-ter STRATFORD sê in Frankfurt v Rand Tea Rooms Ltd. and Sheffield, 1924 W.L.D. 253 op bl. 256, naamlik:

'In examining the nature of the rights of a pledgor of a right in personam the analogy of the position of a pledgor of a movable should not be pressed too far"."

At page 189 A of the same case BOTHA JA says:

"While a right of action may properly be used to secure a debt, it can effectively be so used only by way of a cession of the right of action to the creditor coupled with an agreement, as between cedent and cessionary, that, on payment of the 'secured' debt, the cessionary shall be obliged to recede to the cedent the ceded right of action. The effect of such a cession, generally known as a cession in securitatem debiti, is in all respects the same as that of an ordinary cession, but coupled with the agreement mentioned".

OGILVIE THOMPSON JA, at page 186, in a dissenting judgment, points out that there is a considerable body of authority

that —

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"a cession of an incorporeal in securitatem debiti is to be distinguished from an out-and-out cession; that in the case of the former, our law recognises a measure of residual dominium, however tenuous and ill-defined, in the cedent; and that, in relation to the aspect under discussion, the rights of the cedent under a cession in securitatem debiti of an incorporeal approximate, in some measure, to those of a pledgor of a corporeal".

In Moola v Estate Moola 1957 (2) SA 463 (N) at p 464 BROOME JP having referred to the National Bank case, said:

"The law is now settled that a cession in securitatem debiti leaves the dominium in the cedent".

The learned Judge goes on to say:

"Ownership of a right of action would seem to imply the right to sue, and if the right to sue has passed to the cessionary it is difficult to imagine what can remain with the cedent. The truth probably is that the cedent by way of security retains only his 'reversionary right', that is to say his right to enforce the ceded right of action after the debt to secure which the cession was given has been discharged."

/ In

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In the Holzman case sup. cit. NESTADT J at

pages 789 to 791 reviews the cases mentioned above and several others. He then concludes by saying:-

"In the result, it seems to me that it is now established that the effect of a cession in securitatem debiti is the same as far as the debtor is concerned as an out-and-out cession. If reference is still to be made to the cedent retaining dominium, it must be confined to the ownership of a personal right that he has against the cessionary arising from the contract between them, inter alia, that, on payment of the secured debt, the ceded right will be returned to the cedent. This involves the notion of a real right in a personal right. There is some controversy as to whether this is possible. (See Kahn: Contract and Mercantile Law Through the Cases at 991. ) It is, however, unnecessary to pursue this matter. I mention it only in connection with any suggested justification for the continued reference to the cedent retaining dominium".

The vexed question was again before this Court

in Leyds N O v Noord-Westelike Koöperatiewe Landboumaatskappy 1985 (2) SA 769. HEFER JA who delivered the judgment of the Court referred to all the above cases and certain

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others. He also had regard to what was said by De Wet and
Yeats and Prof. Scott. He then went on, at p 780 E, to
say of the basis on which the National Bank case was de-

cided —

"Selfs al sou aanvaar word dat daardie basis nie korrek is nie (ek spreek geen me-ning daaroor uit nie) meen ek nie dat dit rede bied vir hierdie Hof om van die be-slissing in die Cohen-saak af te wyk nie. Die reël daarin neergelê, is n handige een wat, sover ek kan nagaan, konsekwent vir meer as 70 jaar toegepas is. (Die reeks beslissings verskyn in Susan Scott se The Law of Cession op 137-8 en ek her-haal dit nie.) Dit kom nie voor dat dit aanleiding gegee het tot enige onreg of tot praktiese probleme nie aangesien die sessio-naris sy voorkeurreg behou op betaling uit die opbrengs van die gesedeerde vordering en terselfdertyd voorsiening gemaak word vir die belange van die boedel en van ander skuldeisers ten opsigte veral van enige oorskot wat daar mag wees na betaling van die sessionaris se eis. Myns insiens is dit by uitstek 'n geval waarin hierdie Hof die stare decisis-beginsel behoort toe te pas en te weier om sy vorige beslissing in her-oorweging te neem".

As we have seen from what was said by Lord DE

/ VILLIERS CJ

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VILLIERS CJ and INNES J in the National Bank case, a right of action can be pledged. It follows, so it was decided in that case, that the cedent, ie, the pledgor, retained his dominium in the right of action. In that case the Court was dealing with the cession of an insurance policy. When book debts are ceded in securitatem debiti, as in the cession to Nedbank, the cedent cedes to the cessionary the exclusive right to claim and receive from the existing and future "book debtors" the amounts owing by them. The amounts so collected by the cessionary are credited to the account of the cedent. Any amount collected in excess of the cedent's debt belongs to the latter. Thus it cannot be said that by such a cession it was intended to pass ownership. As was said in the National Bank case at p 252,even if the terms of a cession are in terms ab-solute,that does not suffice to take the dominium out of the cedent "if it was clear that the parties did not intend it to pass". Lord DE VILLIERS CJ at p 246 also

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stressed that if the cession was made "with the avowed object" of only securing a debt it would be impossible to hold that dominium had passed to the cessionary. At p 247 he pointed out that on payment of his indebtedness all Cohen had to do was to strike out his previous en-dorsement ceding the policy to the bank. There was thus no need for a recession. In cessions in securitatem debiti, as in all contracts, the purpose and object which the par-ties had in mind must not be ignored.

As indicated earlier counsel for the Bank made submissions in the alternative, based on what was said in the Leiff N O case, the Trust Bank of Africa Ltd case and the Holzman N O case (all cited above). It follows from what I have said above that there is no need to con-sider those submissions.

The company in clause 23 of the second cession pledged and ceded to the Bank all its reversionary rights in the first cession. That a reversionary right so

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44

pledged and ceded has a value cannot be doubted - cf.
the Bix Sixteen case, sup. cit. at p 1035 H where
WATERMEYER J is reported as saying:

"There can be no doubt that this rever-sionary interest constitutes a right which the cedent has against the cessionary and which, although not enforceable until the secured debt has been repaid, certainly has a money value".

The company in clause 23 of the second cession pledged and ceded to the Bank all its reversionary rights in the first cession. This reversionary right, pledged and ceded by clause 23, was owned by the company before it was wound up. This right the company, before its winding up, ceded in securitatem debiti to the Bank. It was not ceding a "spes or expectation". It was ceding an existing right. This right had a money value. It was this right which constituted the security on which the Bank relied when proving its claim. It was thus a secured creditor.

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Counsel for the Liquidator referred this Court

to sec. 407 of the Companies Act, 61 of 1973, and sub-
mitted that the Bank had launched its application in the

Court of first instance prematurely. Sec. 407 (1) reads:

"Any person having an interest in the company being would up may, at any time before the confirmation of an account, lodge with the Master an objection to such account stating the reasons for the objection."

There is no merit in the submission. The Master having

considered the submission made by the Bank and the Liqui-

dator gave a ruling, on 20 October 198l, to the effect

that the Liquidator was to reflect the Bank, in the

liquidation accounts, as a concurrent creditor. This

ruling was challenged by the Bank. The Bank then decided

to take the Master's decision on review. It sought the

appropriate relief, as it was entitled to do, in the

Court of first instance. There was no need for, nor in-

deed could any purpose be served by, waiting till the

Liquidator carried out the ruling and reflected it in

/ the

46

the accounts. There is thus no merit in this submission.

The Liquidator decided to complete certain executory contracts. He maintains that this was done pursuant to discussions with the Bank. He maintains that the Bank is liable for the costs of completing these con-tracts. He drew the liquidation account accordingly. The Bank denies that it asked directly or indirectly that these contracts be completed and maintains that it is not liable for any of the costs incurred. Nothing in this judgment is to be read as having any bearing on that dispute.

It follows from all the above that the Court of first instance erred in dismissing the application with costs and that the Court a quo erred in dismissing the ap-peal with costs. When granting leave to appeal to this Court the Court a quo ordered that the costs occasioned by the application for leave to appeal were to be costs in the appeal and that such costs were to include the costs of two counsel. Senior counsel conceded in this

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Court that the appellant was not entitled to the costs of two counsel in respect of the application for leave to appeal.

In the result the following orders are made:

1. (a) The appeal is allowed with costs, such

costs to include the costs of two counsel.

(b) Second respondent is to pay the

appellant's costs occasioned by the application to the Court a quo for leave to appeal. Such costs are not to include the costs of two counsel.

2. (a) The order of Court of first instance

is set aside.

(b)	The ruling by the Master of the Supreme Court (Transvaal Provincial Division) dated 20 October 1981) is set aside.
(c)	The second respondent is to pay the appellant's (applicant in that Court) costs in the Court of first instance.

/ 3. The

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3. The claim, dated 4 September 1979,

proved by appellant (applicant in the Court of first instance) in the estate of the company GEORGE DE PONTES AND PARTNERS (PTY) LTD (in Liquidation) is declared to be a properly proved secured claim as provided for by sec-tions 83 and 89(2) of the Insolvency Act No. 24 of 1936, such security arising from the deed of cession, dated 10 December 1977 and which is attached to the aforesaid proof of claim.

0. GALGUT.

RABIE, CJ)
JANSEN, JA)
CORBETT JA) CONCUR.
JOUBERT, JA)

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