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Last Updated: 4 September 2004
THE SUPREME COURT OF APPEAL
OF SOUTH
AFRICA
CASE NO: 155/03
In the matter between
UKUBONA 2000 ELECTRICAL CC First Appellant
ABB SOUTH AFRICA (PTY) LIMITED
Second Appellant
and
CITY POWER JOHANNESBURG
(PTY) LIMITED
Respondent
CORAM: HOWIE P, CLOETE, LEWIS, HEHER JJA, PATEL
AJA
HEARD: 17 MAY
2004
DELIVERED:
Summary :
Section 84 of the Insolvency Act 24 of 1936 does not create a
statutory hypothec for a creditor who does not own the merx at time
of the insolvency of the debtor. Definition of ‘instalment sale
transaction’ in s 1 of the Credit Agreements
Act 75 of 1980 interpreted to
include a sale in terms of which the purchase price is payable in one lump sum
in the future.
JUDGMENT
PATEL AJA
[1] Drivecor (Pty) Ltd
(Drivecor), prior to its final liquidation on 17 September 2002, carried on
business as a manufacturer and
supplier of electrical and electronic equipment.
The first appellant, Ukubona 2000 Electrical CC, and the second appellant, ABB
South Africa (Pty) Ltd, applied to the Johannesburg High Court (Trengove AJ) for
an order declaring, inter alia, that they held security
in respect of certain
electronic components in the possession of Drivecor by virtue of s 84 read with
s 83 of the Insolvency Act
24 of 1936 (‘the Act’). The respondent,
on the other hand, claimed ownership of these components.
[2] The
appellants’ claims were dismissed with costs. This is an appeal against
that portion of the judgment of the court a quo dismissing the
appellants’ claims to be declared secured creditors of Drivecor, as
contemplated by s 84 of the Act.
[3] In the court below, the appellants
also sought an order declaring an action commenced by the respondent in the same
court, in
which it had claimed ownership of the various goods, to be frivolous
and vexatious. That part of the relief claimed was also dismissed.
The action
by the respondent relates to the very goods over which the appellants are
claiming a statutory hypothec. That action
has not yet proceeded to trial.
[4] The factual background, very briefly, is the following. In 2001
Drivecor entered into a contract with the respondent in terms
of which it
undertook to manufacture, supply, install and commission control panels at two
electrical substations run by the respondent
on behalf of the municipality of
Johannesburg
[5] Drivecor purchased from the appellants some of the
electrical and electronic equipment it required for the manufacture of the
control panels. The appellants had, in turn, acquired these components from
various suppliers. It is over these components that
the parties lay competing
claims. Besides purchasing components from the first appellant, Drivecor also
subcontracted the first
appellant to perform a part of the work required for the
manufacture and the commissioning of the panels. To this end, it delivered
the
control panels to the first appellant’s premises. Once the first
appellant had completed its part of the work, it would
have returned the control
panels to Drivecor for completion and installation at the power station.
[6] At the time of Drivecor’s liquidation, the control panels were
still being assembled and some of these panels were located
at the premises of
the first appellant. The components supplied by the first appellant had been
built into the incomplete panels.
At all material times Drivecor had not fully
paid the appellants for the components although the outstanding amount is not
clear
from the record.
[7] The respondent had made substantial payments
to Drivecor and claimed to have acquired ownership over the panels. It is the
respondent’s
case that it had entered into an agreement with Drivecor
whereby ownership was transferred to it by attornment.
[8] The
liquidators of Drivecor, whilst supporting the claims of the appellants, elected
to abide the decision of the court both in
the application and in this
appeal.
[9] The crisp question to be answered now is the contention by
the appellants that they have statutory hypothecs over the components
in terms
of s 84 of the Act, in that their contracts with Drivecor for the supply of the
components were ‘instalment sale transactions’
as contemplated by s
1 of the Credit Agreements Act 75 of 1980.
[10] The documents relating
to these transactions between the appellants and Drivecor show that the purchase
price was payable in
one lump sum on a future date. It is common cause that
Drivecor had not fully paid the appellants for the parts which were used
in the
panels.
[11] In the court below it became common cause that the
appellants are not the owners of the electronic parts over which they seek
the
hypothec since the suppliers from whom they had purchased them had reserved
ownership and these suppliers had not been paid.
[12] Can non-owners,
in the position of the appellants who have sold goods where the purchase price
is payable in one lump sum on
a future date, claim to have a statutory hypothec
in terms of s 84 of the Act? If the answer is in the negative, the appellants
must fail.
Section 84 (1) of the Act provides as
follows:
‘ If any property was delivered to a person (hereinafter
referred to as the debtor) under a transaction which is an instalment
sale
transaction contemplated in paragraphs (a) and (b) of the definition of
“instalment sale transaction” in section
1 of the Credit Agreements
Act, 1980, such a transaction shall be regarded on the sequestration of the
debtor’s estate as
creating in favour of the other party to the
transaction (hereinafter referred to as the creditor) a hypothec over that
property
whereby the amount still due to him under the transaction is secured.
The trustee of the debtor’s insolvent estate shall, if
required by the
creditor, deliver the property to him, and thereupon the creditor shall be
deemed to be holding that property as
security for his claim and the provisions
of section 83 shall apply.’
Paragraphs (a) and (b) of the
definition of “instalment sale transaction’ in s 1 of the Credit
Agreements Act 75 of 1980,
read as follows;
‘ “instalment
sale transaction” means a transaction in terms of which-
(a) goods are sold by the seller to the purchaser against payment by the purchaser to the seller of a stated or determinable sum of money at a stated or determinable future date or in whole or in part in instalments over a period in the future; and (b) the purchaser does not become owner of those goods merely by virtue of the delivery to or the use, possession or enjoyment by him thereof.’
[13] In
Sandoz Products (Pty) Ltd v Van Zyl NO 1996 (3) SA 726 (C), Blignault AJ,
in my view correctly, held that that a transaction for the sale of goods in
terms of which the
purchase price is payable by way of one lump sum at a future
date would be covered by the terms of para (a) of the definition of
‘instalment sale transaction’ in s 1 of the Credit Agreements Act.
The effect of this judgment is that the definition
encompasses a sale where the
purchase price is payable in a lump sum at a future date as well as one where
the purchase price is
payable, in whole or in part, in instalments. The
contrary view by Professor J M Otto[1]
cannot be supported as it results in an interpretation of the Afrikaans version
of the definition which is irreconcilable with the
English version. It is
unnecessary to repeat the interpretive analysis in Sandoz of the meaning of
para (a) of the definition of
‘instalment sale transaction’. In my
view it is persuasive. It is only necessary to add that if the interpretation
were
to exclude the instance where the purchase price is payable in one lump
sum, then it would have this anomalous consequence. A seller
in such a case
would be accorded no rights in terms of s 84 of the Act. By contrast s 36 of
the Act allows the seller to reclaim
property sold for cash where ownership has
passed, and s84 (1) of the Act grants the seller a hypothec where the purchase
price is
payable in instalments. On this leg of the enquiry, I find that the
transactions of both the appellants fall within the ambit of
para (a) of the
definition of ‘instalment sale transaction’.
[14] Section
84(1) creates a statutory hypothec in favour of the seller of the goods sold
whereby the balance still due under the
transaction is secured. Where the
creditor/seller is the owner of the goods, ownership over the goods of necessity
passes to the
trustee of the buyer’s insolvent
estate.[2] The reason is that no-one
may have a hypothec over his own property. If authority is required for this
obvious proposition it is
to be found in D13.7.29 and 50.17.45; Voet ad
Pandectas 20.6.1 and SA Loan, Mortgage, and Mercantile Agency v Cape of
Good Hope Bank and Littlejohn 6 SC 163 at 187) . It is contrary to
principle for the owner of the merx to be given a restricted real right
in the form of a statutory hypothec over property he owns. The effect of s 84
(1) therefore
is that the seller’s ownership in the goods sold is replaced
with a hypothec over the merx. His right is thus diminished.
[15 ] The essential question, however, is whether the legislature when
drafting s 84(1) contemplated a non-owner of the merx enjoying a
statutory hypothec over the property.
[16] As to whether a non-owner
of the merx can qualify as a creditor in terms of s 84(1), the section
was first introduced to regulate what were, in effect, common law hire-purchase
agreements. The relevant portion of s 84(1) in its original formulation
read:
‘ If any property was delivered to a person (hereinafter
referred to as the debtor) under an agreement which provided for the
passing of
the ownership of that property when certain payments prescribed in the agreement
have been made, such agreement shall
be regarded on the sequestration of the
debtor’s estate as creating in favour of the other party to the agreement
(hereinafter
referred to as the creditor) a hypothec over that property whereby
the amount still due to him under the agreement is secured. ‘
That
formulation clearly envisaged only a creditor/owner enjoying a hypothec since it
is only a creditor who is the owner who would
be in a position to pass
ownership.
[17] Section 84 was amended by the Hire Purchase Act 36 of
1942 by the substitution in subsection (1) for the words ‘provided
for the
passing of the ownership of that property when certain payments prescribed in
the agreements have been made’ of the
words ‘ is a hire-purchase
agreement in terms of section one of the Hire-Purchase Act, 1942’. Under
the Insolvency Amendment
Act 101 0f 1983 the subsection was made to refer to
‘instalment sale transactions’ as defined in s 1 of the Credit
Agreements
Act. The creditor/ seller was not further defined. Both forms of
hire-purchase agreement defined in the Hire-Purchase Act, as well
as an
instalment sale agreement as defined in the Credit Agreements Act, contemplated
that when ownership passes to the buyer it
passes from the seller. If the
original reason of the law is to be the life of the law then
‘creditor’ can have no meaning
in s 84(1), other than the owner
of the merx.
[18] I accordingly conclude that the legislative intent in
s 84(1) was to allow only a creditor/seller who is the owner of the merx
to be secured for the amount due to him which is achieved by replacing
his ownership with a hypothec.
[19] Because the appellants were not
owners of the components when Drivecor’s insolvency intervened, their
appeal must fail.
It may be mentioned in passing that the first appellant would
in any event have failed on the ground that it did not reserve ownership
in the
goods as is required by part (b) of the definition of ‘instalment sale
transaction’.
[20] It is not necessary to deal with the various
other matters raised on the papers or in argument since those matters are not
decisive
of the appeal and could properly be ventilated, in so far as necessary,
at the trial where the respondent seeks to vindicate the
components.
[21] The respondent asked for costs of two counsel. I am
satisfied that the appeal has raised an issue of law sufficiently complex
as to
warrant the employment of two counsel. Because two counsel were not employed at
all stages of the appeal process, this must
be reflected in the
order.
[22] Accordingly the appeal is dismissed with costs, such costs to
include costs of two counsel where two counsel were employed.
________________
C N PATEL AJA
Concur:
Howie P
Cloete
JA
Lewis JA
Heher JA
[1] Lawsa vol 5 Part 1(First
Reissue) p8 para 7.
[2] Williams
Hunt (Vereniging) Ltd v Slomowitz 1960 (1) SA 499 (T) at 501 E-G; Van
Zyl NO v Bolton 1994 (4) SA 648 (C) at 652 E-G; E Spiro The
Hire-Purchase Agreement in South African Law and its Problems (1940) 57
SALJ 263 at 273; Mars The Law of Insolvency in South Africa 8
ed (1988) at 152 (para 8.15); LAWSA vol 11 (First Issue) 163 para 177;
Meskin, Insolvency Law 5-72 para 5.2.1.8.2; Smith, The Law of
Insolvency 3rd ed (1988) at 166-8; Wille’s Mortgage and
Pledge 3 ed (1987) 105.
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.RTF of original document