THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

CASE NO:  392/2002
Reportable
In the matter between

STANNIC
APPELLANT

and

SAMIB UNDERWRITING
RESPONDENT
MANAGERS (PTY) LTD

CORAM:      MARAIS, FARLAM, LEWIS JJA

HEARD:           8 MAY 2003

DELIVERED:    30 MAY 2003

SUMMARY:  Claim by cessionary of rights under insurance policy where
insurer not notified of cession;  onus of proving knowledge; distinction
between actual and deemed (constructive) knowledge.

JUDGMENT

LEWIS JA

[1] The appellant, Stannic, is a division of the Standard Bank of
South Africa Ltd. The respondents are insurers and underwriters. The
first respondent, Samib, on behalf of the second respondent,
Guardrisk, underwrote risks in terms of insurance agreements and
saw to claims administration and settlement.

[2] On 5 November 1997 Stannic, in terms of an agreement of hire
purchase, sold a Volvo truck to a close corporation, Noordwes
Brandstof Verspreiders BK (Noordwes). Stannic reserved ownership
of the vehicle until the full purchase price (R892 341, including
finance charges) was paid. Noordwes undertook, under the
agreement, to insure the truck against, inter alia, damage and

destruction; and to keep the truck fully insured, paying all insurance
premiums due, until it had paid the final instalment of the purchase
price.

[3] An unusual feature of the hire purchase agreement, and on
which this appeal ultimately turns, is that it incorporated a clause in
terms of which Noordwes ceded to Stannic, as security for the
performance of its obligations under the contract, its rights and
interests in the insurance contract that it was obliged to enter into. I
shall return to the terms of the cession later.

[4] Noordwes took delivery of the truck and on 5 November 1997
insured it with Guardrisk, represented by Samib. (I shall, however, for
the sake of convenience, refer generally to Samib in this judgment

since the interests of the two respondents coincide and Guardrisk
was represented at all times by Samib.) The value of the truck was
agreed to be R651 908.

[5] Some eight months later the truck was involved in a collision
and was damaged beyond repair. In September 1998, shortly after
the collision had occurred, Samib, represented by a Dr Beetge, and
Noordwes, represented by a Mr Potgieter, who was a member of
Noordwes, and indeed of a variety of other corporate entities which
ran transport operations, agreed that the claim of Noordwes under
the insurance policy would be settled in an amount of R651 908, less
excess, salvage costs and unearned premiums. The settlement
amount was, in the result, R553 043.

[6] Pursuant to this agreement, Guardrisk paid to Stannic the sum
of R173 745. The balance of R345 027 it purported to set-off against
unpaid premiums owed by Noordwes. Noordwes was liquidated after
the alleged set-off  had occurred.

[7] Stannic sued Samib and Guardrisk for payment of the sum that
was purportedly set-off against the outstanding premiums. The basis
for its claim was that as cessionary of the rights under the insurance
policy it was entitled to the full proceeds. It alleged that Samib had
had full knowledge of the cession and had nonetheless paid the
cedent. The debt had thus not been discharged. It alleged that
Samib, if it had not actually had knowledge of the cession, had
constructive knowledge of the right of Stannic to be paid the proceeds
of the policy. In the alternative, Stannic claimed in delict on the basis

that
Samib,
with
full
knowledge
of
Stannic’s
rights,
had
misappropriated the sum of R345 027. Stannic further contested the
validity of the set-off.

[8] The Pretoria High Court (per Botha JA) dismissed the action,
finding that Samib had had no knowledge, actual or constructive, of
the cession, and accordingly that the debt under the insurance
contract had been validly discharged. The appeal against the
decision lies with the leave of the court below.

[9] Counsel for Stannic conceded at the hearing that it could not be
shown that the representative of Samib, Beetge, who had dealt with
the insurance of the vehicle in question, amongst many others, had
ever seen the contract of sale, with the cession clause in it, or had

ever been formally advised that the cession existed.  Stannic
conceded also that it would have to be shown that Samib had at least
constructive knowledge of the cession, and not only of Stannic’s
ownership of the truck, in order for it to rely on the cession as against
Samib. Stannic also did not seek to rely on any agreement between
itself and Samib in terms of which Samib had undertaken to pay any
settlement amount to Stannic.1

[10] The argument in so far as set-off was concerned was also
abandoned. Stannic’s appeal thus proceeded only on the basis that
Beetge had had constructive knowledge of the rights of the bank to
the proceeds of the insurance claim, and that when the set-off against

1 This was the basis on which Marine and Trade Insurance Co ltd v J Gerber Finance (Pty) Ltd
1981 (4) SA 858 (A) was decided.

Noordwes’ debts had taken place, the debt had not been validly
discharged.

[11] The clause in the hire purchase agreement providing for the
cession reads:
‘Die koper sedeer hiermee aan die verkoper, as sekuriteit vir die behoorlike
nakoming van die koper se verpligtinge ingevolg hierdie ooreenkoms, al die
koper se reg, aanspraak en belang op en by enige versekeringspolis wat
ingevolge hierdie ooreenkoms aangegaan is en onderneem om sodanige polis
op aanvraag aan die verkoper to lewer.’
Stannic contended that where a right has been ceded, and the debtor
pays the cedent rather than the cessionary, the onus lies upon the
debtor to show that he had no knowledge of the cession and thus
paid the cedent in the bona fide belief that the obligation would

thereby be discharged. In Brook v Jones2 James J expressed this
principle and added a gloss. He said:
‘In general it can be said that when the debtor has knowledge of the cession,
from whatever source he may derive it, then he will not discharge his debt if he
pays the cedent rather than the cessionary. As I understand the law this is
because such a payment would not normally be a bona fide one. If, however, the
debtor is able to establish that although he had some knowledge of a claim by
the cessionary that the debt had been ceded to him, he has nevertheless paid his
debt to the cedent in good faith, this payment will free him of liability to the
cessionary. ‘
The gloss relates to payment in good faith even where the debtor
does have knowledge of the cession. That proposition has yet to be
determined and, as will be seen, does not arise in this matter.

2 1964 (1) SA 765 (N) at 767D—F.

[12] In Trust Bank van Afrika Bpk v Oosthuizen3 the court held that
where a debtor against whom an action is brought raises as a
defence that in ignorance of the cession he has already paid the
cedent, the onus is on the debtor to prove that he had no notice of the
cession. This approach requires the debtor to prove a negative: that
he did not have notice of the cession. Whether this is the correct
approach is dubious. The cessionary has full knowledge of the
cession. The debtor does not necessarily have any.  The cessionary
is in a position to notify the debtor, and so avoid payment to the
cedent in discharge of the debt. Risk of such payment should thus be
on the cessionary, and the onus should rest on him to prove
knowledge.4  In view of the conclusions reached later in this
judgment, however, it is not necessary to decide finally the question

3 1962 (2) SA 307 (T).
4 See P M A Hunt in 1962 Annual Survey of South African Law 128—9.

where the onus lies in proving knowledge, or the lack thereof, of the
cession on the part of the debtor.

[13] Stannic contends that although there was no proof that Beetge,
as the controlling mind and representative of Samib, had ever seen or
had formal notice of the cession, Beetge had constructive knowledge
of it. The argument is based on the following evidence. Beetge had
been asked to ‘note an interest’ of Stannic in the vehicle, and while it
was not common cause that he had done so at the time when the
insurance was taken out, it became clear that he had been made
aware of the interest before the set-off was effected. Secondly,
Beetge had said on several occasions, both in an enquiry following
the liquidation of Noordwes, and in giving evidence at the trial, that he
knew the money (the moneys paid in settlement of the insurance

claim) belonged to the bank (‘behoort aan die bank’). Thirdly, Samib
had paid a part of the settlement amount to Stannic and must have
known that Stannic was entitled to the balance.

[14] Although it was not disputed that Samib had at some stage
become aware of the  ‘interest’ of Stannic, Stannic conceded that
Samib did not, by virtue of that fact alone, have knowledge of the
cession. The interest usually noted by insurers is that of a bank in the
vehicle: the insurer recognizes that the bank has reserved ownership
until it has been paid in full. It knows therefore that the bank has
rights in the vehicle, and that, in the normal course, if the vehicle is
destroyed, the bank will be entitled to be paid the proceeds of the
insurance policy. Samib argued, correctly in my view, that such
knowledge means only that the insurer is entitled to assume that

when it discharges its debt to the insured, the insured has an
obligation to pay the bank. There was nothing in the evidence which
suggested that Samib knew that Stannic, as cessionary of the rights
under the insurance policy, was entitled to be paid the settlement
amount directly by Samib. On the contrary. The settlement amount
was negotiated with Potgieter of Noordwes. It was agreed by
Noordwes and Samib that a portion would be paid to Stannic, and
indeed it was. That does not lead to any inference that Samib knew
or believed that the balance of the settlement was payable to Stannic.

[15] Similarly, when Beetge testified that he knew that the money
belonged to the bank, this did not mean that he knew that Samib had
an obligation to pay Stannic as cessionary. One can infer nothing
more from such evidence than that he was aware that Stannic, which

had an interest in the vehicle, might be entitled to claim from the
insured whatever proceeds were recovered from the insurer. It is also
not clear from the evidence when Beetge formed the view that the
money ‘behoort aan die bank’. It may well have been after the
insolvency enquiry had commenced.

[16] Samib contended, however, that the evidence taken as a whole
led to the conclusion that Beetge must have suspected that Stannic,
rather than Noordwes, was entitled to payment: and that he had
deliberately refrained from making enquiries such that knowledge of
the cession had to be imputed to him. Warning lights had flashed, it
was argued, and Beetge had deliberately ignored them. Counsel for
Stannic placed great reliance in this regard on Frankel Pollak

Vinderine Inc v Stanton NO.5 After a comprehensive account of cases
dealing with constructive or imputed knowledge in a variety of
different contexts, Wunsh J said:

‘In all the examples I have given, where knowledge is essential, there is a
common thread. What is required is actual knowledge. Where a person has a
real suspicion and deliberately refrains from making inquiries to determine
whether it is groundless, where he or she sees red (or perhaps amber) lights
flashing but chooses to ignore them, it cannot be said that there is an absence of
knowledge of what is suspected or warned against. In the absence of direct
evidence, a court has to determine the existence of knowledge as an inference
from the established facts and circumstances. If a person’s professed ignorance
is so unreasonable that it cannot be accepted that he or she laboured under it,
evidence of the ignorance will not be believed in the absence of some acceptable
explanation. But this amounts to a finding of actual, subjective knowledge made
when a person willfully precludes himself or herself from acquiring it.

5 2000 (1) SA 425 (W) at 438B—G.

We are, here, in the field of dolus eventualis. . . .’
Dolus eventualis would be present, Wunsh J said, where a person
deliberately ignored the risk – that is, ‘shut its eyes to it or reconciled
itself to and took the risk’.

[17] One must be careful to distinguish between an inference of
actual knowledge from the established facts, on the one hand, and
the attribution of knowledge because of the application of the  ‘shut-
eyes’ doctrine on the other. It appears to me that the learned judge, in
the passage quoted, conflated these concepts. Actual knowledge
may be proved in a number of different ways. It may be inferred from
the facts proven:  the facts and circumstances may be such that the
only reasonable inference to be drawn is that the person whose
conduct is in issue had actual knowledge of a matter – in this case  of

the existence of the cession. That is quite different from finding that
there has been a ‘sedulous avoidance of all possible avenues to the
truth’.6 In the case where a person has deliberately avoided
establishing the truth, despite the flashing of warning lights, it cannot
be said that he or she has actual knowledge. In such a case, a court
will impute knowledge to him or her – constructive knowledge. The
consequences are generally the same, however.

[18] In my view there is no evidence from which one can draw an
inference that Beetge had actual or constructive knowledge. His
evidence (and that of the broker who placed the insurance with
Samib) was consistent: he had not ever seen the hire purchase
agreement between Stannic and Noordwes (and there was no

6 Halsbury 2 ed vol 23 (1936) para 59, referred to by Greenberg JA in R v Myers 1948 (1) SA 375
(A).

evidence to the contrary); he had not been advised by Stannic or
Noordwes that Stannic had taken cession of rights under any
insurance policy in respect of the vehicle; Samib had paid portion of
the settlement figure to Stannic pursuant to an agreement with
Noordwes; and he knew that Stannic had an interest in the vehicle,
but not that it was entitled to be paid the proceeds of any policy by
Samib. There was also no evidence at all that it is normal practice for
banks to take cession of rights under insurance policies and that
Beetge would have been aware of such a practice if it existed.

[19] In the circumstances, the overwhelming weight of the evidence
is that Beetge, and through him Samib, had no knowledge, actual or
constructive, of the cession to Stannic of the rights of Noordwes.
Accordingly, when the set-off between Samib and Noordwes

occurred, the debt to Noordwes was discharged. The decision of the
court below should thus be confirmed.

[20] The appeal is dismissed with costs.

________________

C H LEWIS
JUDGE OF APPEAL
Concur:
Marais JA
Farlam JA