THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case No:  680/07

In the matter between:

PICARDI HOTELS LTD
APPELLANT

v

THEKWENI PROPERTIES  (PTY) LTD                                    RESPONDENT

Neutral citation:    Picardi Hotels Ltd v Thekweni Properties (Pty) Ltd
(680/07) [2008] ZASCA 128 (30 September 2008)

Coram:
MPATI P, FARLAM, CLOETE JJA, BORUCHOWITZ et
KGOMO AJJA

Heard:

27 AUGUST 2008

Delivered:

30 SEPTEMBER 2008

Summary:
Cession in securitatem debiti – of all cedent’s rights to rentals and
other revenues of whatsoever nature – clause providing that
cession shall not be acted upon until certain conditions met –
cession not conditional - transfer of rights to cessionary not
suspended, only the exercise thereof – cedent divesting itself of
right to sue for rentals – special plea disputing cedent’s locus
standi to sue for rentals, upheld.

_______________________________________________________________

ORDER
_______________________________________________________________

On appeal from: High Court, Durban & Coast Local Division (Levinsohn DJP
sitting as court of first instance).

[1] The appeal is upheld with costs including those occasioned by the
employment of two counsel.
[2] The order of the court a quo is set aside and the following is substituted
in its stead:
‘(i)
The defendant’s special plea is upheld;
(ii)
The plaintiff’s claim is dismissed;
(iii)
The plaintiff is ordered to pay the costs of the action including those
occasioned by the employment of two counsel.’

______________________________________________________________

JUDGMENT
______________________________________________________________

BORUCHOWITZ AJA (MPATI P, FARLAM, CLOETE JJA, KGOMO AJA
concurring):

[1] The respondent instituted action against the appellant in the Durban
High Court claiming payment of arrear rentals in terms of an agreement of
lease. In a special plea the appellant alleged that the respondent had divested
itself of the power to sue it for rental by virtue of a cession in securitatem
debiti executed by the respondent in favour of a bank. The matter came
before Levinsohn DJP who dismissed the special plea and granted judgment
in favour of the respondent for R845 726.98 with interest and costs. The
appellant appeals against this judgment with leave of the court a quo.

[2] The respondent’s claim against the appellant arises from the latter’s

occupation of certain immovable properties owned by the respondent which
are situate at West and Gillespie Streets, Durban. When the respondent
acquired the properties it entered into a number of related agreements with
Investec Bank Ltd (the bank). These included a loan agreement and a
covering mortgage bond (the bond) that was registered over the properties on
18 July 1996. Clause 8 of the bond reads as follows:

‘8.
CESSION OF RENTALS AND REVENUES

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

8.1
to institute proceedings against lessees for the recovery of unpaid rentals,
and/or eviction from the mortgaged property;

8.2
to let the mortgaged property or any part thereof, to cancel or renew and
enter into leases in such manner as the Bank decides, to evict any trespasser
or other person from the mortgaged property;

8.3
to collect on behalf of the Mortgagor any moneys payable in respect of the
alienation by the Mortgagor of the mortgaged property or any portion thereof;

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

[3] It is settled law that unless otherwise agreed, a cession in securitatem
debiti results in the cedent being deprived of the right to recover the ceded
debt, retaining only the bare dominium or a ‘reversionary interest’ therein. See
Bank of Lisbon and South Africa Ltd v The Master;1 Land- en Landboubank
van Suid-Afrika v Die Meester;2 Goudini Chrome (Pty) Ltd v MCC Contracts
(Pty) Ltd;3 Louw v WP Koöperatief Bpk;4 Standard General Insurance Co Ltd
v SA Brake CC.5

[4] The learned judge held that the proviso to clause 8 of the mortgage
bond had the effect of suspending the operation of the cession pending
fulfilment of the conditions therein mentioned. He also held that as neither of
the conditions had been fulfilled, the cession had not come into effect and the
appellant was not deprived of its right to recover the ceded debts. It is the
correctness of this finding that falls to be determined in the present appeal.

[5] The matter is essentially one of interpretation. It is incumbent upon the
court to ascertain the intention of the parties which, in the first instance, must
be gathered from the language of the clause itself. The words of the cession
must be given their plain, ordinary, popular and grammatical meaning, unless
it clearly appears from the context that the parties intended them to have a
different meaning. Absent ambiguity, the meaning conveyed by the words
themselves must be given effect to unless this would give rise to absurdity,
repugnancy or inconsistency with the rest of the bond. In order to ascertain
what the parties intended by the language used the court is required to
consider the bond as a whole rather than isolated expressions and is to have
regard to its object. The relevant provision must also be construed in
accordance with sound commercial principles and good business sense so
that it receives a fair and sensible application. These well established
principles are encapsulated in Jaga v Dönges NO; Bhana v Dönges NO;6

1 1987 (1) SA 276(A) at 294C.
2 1991 (2) SA 761 (A) at 771C-F.
3 1993 (1) SA 77(A) at 87G-H.
4 1994 (3) SA 434 (A).
5 1995 (3) SA 806(A) at 814I-815B.
6 1950 (4) SA 653 (A) at 662G-H.

Swart en ‘n ander v Cape Fabrix (Pty) Ltd7and Coopers & Lybrand  v Bryant.8
.

[6] The first sentence of clause 8 of the covering mortgage bond is of
particular importance. The relevant portion provides:

‘ . . . the Mortgagor cedes, transfers and assigns to the Bank all the Mortgagor’s
rights, title and interest in and to all rentals and other revenues of whatsoever nature
. . . .’

[7] The phrase ‘cedes, transfers and assigns’ incorporates all of the
constituent elements of a cession, and is sufficient to constitute an effective
transfer of rights.  The use of the present tense is also a strong indication that
an immediate transfer of rights was intended. See Standard General
Insurance Co Ltd (supra).

[8] The central question is whether the proviso to clause 8 has the effect of
overriding the clear indication in the first sentence that an immediate and
unconditional cession and transfer of rights was intended.

[9] The relevant portions of the proviso provide as follows:

‘. . . that the cession, transfer, assignment and the authorities and powers specified
above shall not be acted upon by the Bank without the consent of the Mortgagor
unless the Mortgagor has failed to comply with any term or condition of this bond or
any loan secured thereby or has otherwise committed a breach thereof . . . .’

The court a quo found that these words were an indication that the cession
was conditional and became effective only upon the happening of one or the
other of the events stated in the proviso. I do not agree with this finding. Such
interpretation strains the plain language that is used. The phrase ‘shall not be
acted upon’ connotes nothing more than that the bank shall not be entitled to

7 1979 (1) SA 195 (A) at 202B-C.
8 1995 (3) SA 761 (A) at 767E-768C.

exercise any of the rights ceded to it including the powers specified in sub
clauses 8.1, 8.2 and 8.3 until the happening of one or other of the stated
events. What is suspended is the right to act upon the cession and not the
cession itself. The words ‘acted upon’ imply the existence of some fact or
state of affairs upon which an action could be effected. In context, this can
only be a reference to the completed cession.

[10] In the case of P G Bison Ltd and others v The Master and another9 this
court had occasion to consider a clause which provided that:

‘This cession will not be implemented unless the account is overdue by 30 days, and
seven days’ notice of the intention to implement this cession has been given.’

In commenting on the ordinary grammatical meaning of the word ‘implement’
Grosskopf JA said the following:

‘The verb “carry out” is one of the dictionary meanings of “implement” and, in my
view, that is what “implement” in the present context probably connotes. The
additional clause accordingly provides that the cession will not be carried out (by the
cessionary) unless the account is overdue and notice has been given (to the cedent).
It certainly does not follow that the actual transfer of the rights is suspended. The
appellants as cessionaries are merely prevented from personally exercising those
rights until the corporation defaults and notice has been given.’

[11] The same reasoning is apposite to the interpretation of the words
‘acted upon’ in this matter. In their respective contexts ‘acted upon’ and ‘carry
out’ and ‘implement’ (as considered in P G Bison supra) are all intended to
connote the same thing, namely that a transfer of rights has been effected by
means of the cession but that the right to act in accordance with such cession
or to enforce such rights has been suspended.

[12] To interpret the cession in the manner contended for by the respondent

9 2000 (1) SA 859 (SCA).

would be destructive of the very purpose for which the cession in securitatem
debiti was entered into, which was to provide security for the loan that the
bank was to advance to the respondent. That purpose is specified in the first
part of clause 8 which provides that the cession was to operate ‘as additional
security for the due repayment by the Mortgagor of all amounts owing to or
claimable by the Bank at any time in terms of this bond . . . .’ The evidence
shows that the bank required the respondent to furnish the maximum
conceivable security for the loan. Were the respondent’s interpretation
correct, the bank would enjoy no security from the cession in the event of the
respondent’s insolvency. The bank’s representatives conceded that it could
never have been the intention of the parties that the bank would not be a
secured creditor in respect of the respondent’s rental revenues in the event of
its insolvency.

[13] Counsel for the respondent submitted that the interpretation contended
for by the appellant would have the following consequences: the transaction
between the parties would be stultified, as the respondent would be unable to
collect the rentals which it needed to be able to service the payments under
the mortgage bond and to meet its expenses; the bank would have to change
its methods of doing business including its standard agreements; and the
bank would also have to create a rent collection department for the collection
of the ceded rentals and would then have to account to the respondent in
respect of such collections. I do not agree with these contentions. On the
evidence neither the bank nor the respondent understood the transaction to
operate in this way. There is no practical bar to the respondent in such a
situation from simply continuing to collect the rentals, the cession
notwithstanding. This is a question of mandate. It is not unusual for a creditor
to permit a debtor to collect ceded debts. See for example Goudini Chrome
(Pty) Ltd10 and Springtex Limited v Spencer Steward & Company.11  If
however the respondent wished to sue for unpaid rentals it would have to
obtain a recession of the ceded claims from the bank.

10 supra at 87H.
11 1991 (1) PH A.7 (C).

[14] I am of the view therefore that an effective and unconditional transfer of
rights occurred when the cession in securitatem debiti was executed. The
consequence is that the respondent was divested of the power to sue the
appellant in respect of the unpaid rentals. In order to sue for the recovery of
the ceded debts the respondent should have taken recession of them from the
bank.

[15] It follows that the court a quo should have upheld the special plea and
dismissed the respondent’s claim. It only remains to add that the decision in
Solomon NO v Spur Cool Corporation (Pty) Ltd,12 which is inconsistent with
this conclusion, was wrongly decided and it is overruled.

[16] In the result the following order is made:

(1)
The appeal is upheld with costs including those occasioned by the
employment of two counsel.
(2)
The order of the court a quo is set aside and the following is substituted
in its stead:

‘(i)
The defendant’s special plea is upheld;
(ii)
The plaintiff’s claim is dismissed;
(iii)
The plaintiff is ordered to pay the costs of the action including those
occasioned by the employment of two counsel.’

________________________

P BORUCHOWITZ

ACTING JUDGE OF APPEAL

Appearances:

12 2002 (5) SA 214 (C).

For Appellant:

D A Gordon SC

R D E Gordon

Instructed by

Bernadt Vukic Potash & Getz, Cape Town

Lovius Block, Bloemfontein

For Respondent:

C G Marnewick SC

Instructed by

Murugasens, Chatsworth, Durban

McIntyre & Van Der Post, Bloemfontein
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal

Date:
30 September 2008

Status:
Immediate

Please note that the media summary is intended for the benefit of the media
and does not form part of the judgment of the Supreme Court of Appeal

PICARDI HOTELS LTD

v

THEKWENI PROPERTIES (PTY) LTD

MEDIA STATEMENT

Today the Supreme Court of Appeal (SCA) upheld an appeal by Picardi
Hotels Ltd (Picardi) against the judgment of the Durban High Court in favour
of Thekweni Properties (Pty) Ltd (Thekweni).

Thekweni had successfully sued Picardi for payment of arrear rentals under a
lease. In a special plea Picardi alleged that Thekweni had executed a cession
in securitatem debiti in favour of a bank and in consequence had divested
itself of the power to sue Picardi for the unpaid rentals. In dismissing the
special plea the High Court found that a clause which provided that the
cession would not be acted upon until certain conditions were met, had the

effect of suspending the operation of the cession. It accordingly granted
judgment in favour of the respondent for R845 726.98 with interest and costs.
The SCA held that upon a proper construction of the cession there had been
an effective transfer of rights to the bank but that the exercise of such rights
was suspended pending fulfilment of the stated conditions.  Consequently the
appeal was upheld with costs.