High Court Rules, 1971 (RGN 1047 of 1971), O 3 r 11 (c), O 4 r 20

Books cited:

Christie RH and Bradfield G Christies The Law of Contract in South Africa (6th edn, LexisNexis, Durban, 2011) p 487

Cilliers AC, Loots C and Nel HC Herbstein and Van Winsen, The Civil Practice of the High Courts and the Supreme Court of Appeal of South Africa (5th edn, Juta & Co Ltd, Cape Town, 2009) p 1313

Van Bynkershoek Cornelius Observationes Tumultuariae Vol 3 obs 2448

T Mpofu, for the plaintiff

L Uriri, for the defendant

DUBE J:

This is an application for provisional sentence brought in terms of O 4 r 20 of the High Court Rules, 1971 (RGN 1047 of 1971) ("the Rules").

The defendant is a subsidiary company of Croco Holdings Ltd ("Croco"). In September 2016, Croco borrowed some money from Tetrad Investment Bank ("Tetrad") through a facility letter. As security for the loan, Stand No 118A Salisbury Township, a property belonging to the defendant, was mortgaged as security for the loan. In December 2012, Croco applied for additional security increasing its limit to three million United States dollars and a facility letter was issued incorporating most of the terms and conditions of the original facility letter entered into. The surety mortgage bond was subsequently ceded to the plaintiff by Tetrad and both the mortgage bond and the consent to cession of a mortgage bond were registered. The plaintiff claims that the capital amount payable under the mortgage bond is 1.5 million United States dollars
(US$ 1 500 000) and seeks an order for that amount. The plaintiff's claim is based on the surety mortgage bond and not the facility letter. During argument, the plaintiff urged the court to grant a partial order in the sum of US$ 155 799 which it avers was acknowledged as being owed by the defendant. The court was asked to refer the balance outstanding from the sum claimed to trial.

The respondent is opposed to the claim. The respondent submitted that the provisional sentence summons does not concisely state the cause of action. That no allegation was made to the effect that the principal debtor has defaulted by failing to fulfil its obligations and pay any amounts due to the bank in terms of the facility letter and that the mortgagor shall be liable for the debt.

On the merits, the respondent submitted that the certificate of indebtedness produced in support of the claim relates to an amount allegedly owing in terms of the mortgage bond when there is no amount owing in terms of the bond but the facility letter. No basis has been laid for the amount claimed. It contended that the certificate of indebtedness should relate to amounts owing in terms of the facility letter. The respondent argued that the cession of the bond is void ab initio and cannot found this action. The respondent further submitted that the plaintiff has no locus standi to sue defendant given that the facility letter under which funds were disbursed precludes cession. The parties agreed in clause 2.7 of the facility letter that the defendant's prior consent was a pre-requisite to cession. Croco did not consent to the cession and therefore the cession is invalid. It submitted further that the cession is also void on the basis that the cession does not acknowledge Croco's substantial part payment, creating room for Tetrad to increase its indebtedness to Zimplow Ltd ("Zimplow"). The defendant insisted that the principal debtor has not defaulted and that there is no basis for the claim. It argued that Tetrad ceded the bond to secure its indebtedness to Zimplow and that the cession was not an out and out cession for value, meaning that Tetrad only ceded the security that vests in the bond. The respondent maintained that Tetrad remains vested with the dominium over the bond and recovery under it and that the defendant is exposed to the possibility of a double jeopardy in that having met Tetrad's claim, it then must also meet the plaintiff's claim. The respondent's last challenge relates to the causa of the cession. The respondent argued that the deed of cession does not state its causa and is therefore invalid.

In its response to the point related to the deficiencies in the summons, the plaintiff submitted that the record shows that there has been a default and that there is a balance due to Tetrad which was acknowledged by the defendant in its paras 7 and 9 of the notice of opposition.

Order 3 r 11 (c) of the Rules specifies that a summons should contain:

"(c) a true and concise statement of the nature, extent and grounds of the cause of action and of the relief or remedies sought in the action;"

This position was emphasised in Chitanda v Mutasa & Ors HH 16-08 (unreported) where the court emphasised that pleadings are meant to inform the other party in concise terms of the nature of the claim it is required to answer. The effect the defective summons has is of utmost importance. In Jowell v Bramwell-Jones and Others 1998 (1) SA 836 (W) at 905E-H, the court dealing with an exception to a summons stated as follows:

"I must first ask whether the exception goes to the heart of the claim and if so, whether it is vague and embarrassing to the extent that the defendant does not know the claim he has to meet..."

A summons should set out concisely the nature, extent and grounds of the claim preferred. It is inappropriate to merely state the relief claimed. A respondent is entitled to be advised of the nature of the claim that it faces. The pleadings require to be thoughtfully drafted. Failure by a litigant to disclose a full cause of action in a summons may result in dismissal of the application where it can be shown that the defect goes to the root of the claim and where a litigant will suffer prejudice resulting from the defective or irregular summons. Leave to amend the summons in order to cure the defect may only be allowed where it is shown that the other side will not be prejudiced by such an amendment.

It is trite that the liability of a surety depends on that of the principal debtor. The summons was required to make a specific allegation that the principal debtor has defaulted. It is difficult for the court without the ground upon which the action is based to deduce from the summons, whether judgment should be granted. The cause of action is set out in para 3 of the summons. The clause makes reference to annex "D" which is a notice calling up the security. The notice states that if full payment is not made by a specified date, legal proceedings shall be instituted to recover amounts owed. The notice does not specifically allege that the principal debtor was in default. Paragraph 3 of the summons states the amount is due and payable following the defendant's failure to make payment towards the capital amount. The summons does not state the specific ground entitling it to the claim, which is the principal debtor's failure to service the debt. The plaintiff's claim is for US$ 1.5 million. There is no narration of how that figure was arrived at. The claim is not properly computed in the summons. The summons does not concisely set out its cause of action making it difficult for the court to grant the provisional sentence sought. All the applicant did in response to the challenge is submitting that a cause of action exists and is supported by other pleadings. The defects complained of are material. The failure to allege that the principal debtor has defaulted in its payments has a bearing on whether the claim can be granted. The applicant did not apply for an amendment of the summons. The application ought to be dismissed. Even if I am wrong in my view, I do not view that the cession agreement entered into is invalid.

The purpose of provisional sentence was defined in AC Cilliers, C Loots and HC Nel Herbstein and Van Winsen, The Civil Practice of the High Courts and the Supreme Court of Appeal of South Africa (5th edn, Juta & Co Ltd, Cape Town, 2009) at page 1313 as follows:

"The essence of the procedure then and now is that it provides a creditor who is armed with sufficient documentary proof (a liquid document) with a speedy remedy for the recovery of money due without having to resort to the more expensive, cumbersome and often dilatory machinery of an illiquid action."

Provisional sentence is granted where the defences raised against it cannot be sustained. A mortgage bond is a liquid document and hence can be used to support an application for provisional sentence.

The concept of a cession was defined in Johnson v Incorporated General Insurances Ltd 1983 (1) SA 318 (A) at 319F-G where the court described a cession as:

"...an act of transfer ('oordragshandeling') to enable the transfer of the right to claim (translatio juris) to take place... accomplished by means of an agreement of transfer ('oordragsooreenkons') between the cedent and the cessionary arising out of a justa causa from which the intention of the cedent to transfer the right to claim to the cessionary (animus transferendi) and the intention of the cessionary to become the holder of the right to claim (animus acquirendi) appears or can be inferred."

A cession has been defined as a contract between a cedent and a cessionary where the cedent agrees to give up his rights. It is a transfer of rights to a claim, from one creditor to another of a debtor's obligations. The debtor is not involved in the cession. As soon as the cession agreement is concluded, the cedent falls out of the picture. The cessionary derives rights and interest on conclusion of the cession contract.

The nature of the cession was put in issue. RH Christie and G Bradfield Christies The Law of Contract in South Africa (6 edn, LexisNexis, Durban, 2011) at page 487 state the following on the effect of a cession:

"The effect of a cession depends upon whether it is absolute or by way of security (in securitatem debiti). The effect examined first. It divests the cedent of all the rights ceded, the extent and nature of these rights, being a matter of interpretation of the contract of cession and vests them in the cessionary, so that thereafter only the cessionary and not the cedent are entitled to sue for the enforcement of those rights."

In Zimbabwe Banking Corporation & Anor v Shiku Distributors (Pvt) Ltd & Ors 2000 (2) ZLR 11 (H), CHINHENGO J defined a cession and went on to distinguish between an out and out cession from a cession in securitatem debiti. The learned judge at 14G-15A made the following remarks:

"The contract of cession is one whereby a personal right and not a real right against a debtor is transferred from the creditor (cedent) to the new creditor (cessionary). In Johnson v Incorporated General Insurances Ltd 1983 (1) SA 318 (A), which is a judgment in Afrikaans, the headnote reads as follows:

'Cession, in our modern law can be seen as an act of transfer to enable the transfer of a right to claim (translatio juris) to take place. It is accomplished by means of an agreement of transfer (...) between the cedent and the cessionary arising out of a justa causa from which the intention of the cedent to transfer the right to claim to the cessionary (animus transferendi) and the intention of the cessionary to become the holder of the right to claim (animus acquirendi) appears or can be inferred. The agreement of transfer can coincide with or be preceded by, a justa causa which can be an obligatory agreement (...) such as e.g. a contract of sale, a contract of exchange, a contract of donation, an agreement of settlement or even a payment (solutio).'"

Another case on point is Merchant Bank of Central Africa & Ors v Liquidators, Tirzah (Pvt) Ltd & Ors 2000 (2) ZLR 163 (H) at 170F-G, where BLACKIE J made the following observations:

"The important difference between the two types of cession is that, in the case of pledge, ownership of the item pledged remains with the cedent. In an out and out cession, ownership passes to the cessionary."

In an out and out cession, all rights in personam are ceded: Trust Bank of Africa Ltd v Standard Bank of South Africa Ltd 1968 (3) SA 166 (A).

The difference between the two types of cession is basically that an out and out cession involves a total transfer of rights, whilst a cession in securitatem debiti is basically a pledge of the right and no transfer of the right takes place.

A mortgage bond constitutes an acknowledgement of debt and is passed by a debtor who owes a principal obligation. A mortgage bond is capable of being ceded. A mortgagee may cede his or her rights under a mortgage without the consent of the mortgagor - see Corinth Properties (Pty) Ltd v Firstrand Bank Ltd 2002 (6) SA 540 (W). In Nhlapo v Nhlapo [2013] ZAFSHC 59 (unreported) the court held that a mortgagee can cede to his creditor a claim for payment of a debt due to him together with his rights as a mortgagee in respect of a property mortgaged to him by his debtor. One of the requisites of a valid bond is that every cession of a bond must set out the causa for the cession - see Thienhuis NO v Metje & Ziegler Ltd and Another 1965 (3) SA 25 (A).

The discussion on the nature of a cession only helps one understand the concept of a cession. I am not going to define the nature of this particular cession and will concentrate on whether the requirements of a cession were satisfied.

The requirements for a valid cession are:

"(a) An agreement between the cedent and cessionary to give and accept transfer of right.

(b) A right inhering to the cedent.

(c) The claim must be legal and identifiable.

(d) The rights of the debtor must not be prejudiced although he need not consent to the cession.

(e) All legal requirements of a cession must be met."

The onus is on the party seeking to rely on the cession to show on a balance of probabilities that the cession is valid. A cession must have a valid causa.

The next enquiry is whether the cession entered into between the parties has a valid causa and is enforceable against the respondent. The causa for a cession must be identifiable from the agreement of cession or should be explicit from the cession document. In Thienhaus (supra), the court held that a valid mortgage bond must set forth the causa for the cession. It must be shown that the causa for the cession is valid at law. In Nhlapo v Nhlapo (supra), a mortgagee agreed to cede a mortgage bond to her husband because he kept assaulting her and forced her to cede her rights to him. The husband failed to disclose what the causa for the cession was. The court dealt with the requirement for a causa in a cession of a mortgage bond and the following remarks were made:

"In this matter, no antecedent agreement to transfer between the respondent, described as the cedent, and the applicant, described as the cessionary, premised on the justa causa whatsoever was recorded in the so called cession agreement. As a result of the omission it could not be established ex facie the document whether the cedent signed the purported cession cum animus trensferendi. In much the same way it could not be established, ex facie the document, whether the cessionary signed it cum animus acquirendi."

The court held that there was no justa causa on which the cession was based and that therefore there was no quid pro quo in the transaction as there was anything in it for the cessionary.

Causa refers to the cause or reason for the cession, the motive or ground for entering into the cession. For a cession to be valid there must be a justa causa for the cession from which the cession arises. The cession agreement must arise out of an identifiable justa causa between the cedent and the cessionary. In First National Bank of SA Ltd v Lynn NO and Others 1996 (2) SA 339 (A) the court held that the transfer of rights must arise out of a justa causa from which the cedent's intention to transfer the right and the cessionary intention to become the holder of the right appears or can be inferred. The reason why both parties are entering into the cession must be identifiable. The agreement of transfer can coincide with or may be preceded by a justa causa which can be an obligatory agreement. Cornelius van Bynkershoek (1673-1743), a Dutch jurist and legal theorist, states in Observationes Tumultuariae Vol 3 obs 2448, that a non-existent right of action or a non-existent debt can never in law be transferred as the subject matter of a cession and the intention of the parties must be clear ex facie the cession document or should be capable of being inferred. The cession agreement should make it clear that the cessionary intends to become the holder of the right.

The justa causa determines the nature and extent to which the right is transferred between the parties. The justa causa of a cession can be an obligatory agreement as in a loan agreement, lease agreement, donation or contract of sale entered into between the debtor and the cedent. An agreement to provide security by means of a cession is adequate justa causa. Where a cession takes place, it is the justa causa that gets transferred to the cessionary. The consequence of each cession is determined by its terms and conditions. Where an obligatory agreement is being ceded, the intention to cede the obligatory agreement must be apparent on the face of the cession or it must be capable of being inferred from the cession agreement. The cessionary derives its locus standi from the cession agreement. There must be outlined in the cession agreement the reason or basis for the cession. If there is any agreement to transfer a claim or rights, this agreement must be recorded in the cession agreement. In the case of a loan agreement between the cedent and a cessionary, the agreement is the causa for the cession. In simpler terms, a causa for the cession agreement is the reason or reasons why that claim is being ceded which reasons should be recorded in the cession document or be clear ex facie the document.

The consent to cession document does not make reference to the debt between the cedent and the cessionary. A cession which does not outline the obligation intended to be secured opens avenues for abuse and may turn out to be prejudicial to third parties, especially to the original debtor who is left in the dark regarding the debt sought to be secured by the cession. It is imperative for every cession document or agreement to fully outline its justa causa. Where the justa causa is not expressly stated it must be capable of being inferred from the cession agreement in order for the agreement to be valid. A non-existent right of action or a non-existent debt cannot at law be transferred as a subject matter of a cession.

The cession document does not reveal that the cessionary has an existing right of action against the cedent. The causa or object of the cession has not been shown to exist as between the cessionary and the cedent. The causa of the cession agreement before me is reportedly a debt owed by Tetrad to Zimplow. The debt may be the motivation for the cession and must be recorded in the cession agreement or at least this position should be capable of being inferred from the cession document itself. The causa for the cession is not apparent on the face of the cession document and cannot be inferred from it. It has not been shown that there is something in this cession for the plaintiff who is the cessionary. The benefit that a cessionary stands to get from the transfer must always be apparent from the cession document or be capable of being inferred. All the cession agreement records are the details of the mortgage bond. The cession document states that 1.5 million United States dollars (US$ 1 500 000) was owed under the surety bond by the debtor. The mortgage bond between the debtor and Tetrad is not the causa for the cession. These details only serve to show why the cedent is able and prepared to cede the bond. A justa causa for the cession was not shown to exist between the cessionary and the cedent. The cession agreement fails to address the causa for the cession between the cedent and the cessionary. No valid causa has been shown to exist for the cession.

Having found that there is no valid causa for the cession, the court is not going to burden itself by exploring further the other grounds for challenging these proceedings. I am not satisfied that the applicant has established a basis for the provisional sentence procedure adopted. The respondent has an arguable defence to the claim of the applicant.

In the result it is ordered as follows.

The application is dismissed with costs.

Dube Manikai & Hwacha, plaintiff's legal practitioners

Atherstone & Cook, defendant's legal practitioners