Agreements in Restraint of Cession: Time for a new Approach

• Jurisdiction: South Africa
• Date: 27 May 2019
• Pages: 273-291
• Published date: 27 May 2019
• Author: Dale Hutchison
• Citation: (2016) 27 Stell LR 273

AGREEMENTS IN RESTRAINT OF CESSION:

TIME FOR A NEW APPROACH

Dale Hutchison

BCom LLB PhD

Professor, University of Cape Town*

1 Introduction

Retirement, like old age, tends to creep up on one. In the case of some

scholars one feels that it has come all too soon, and this is certainly so in the

case of Gerhard Lubbe. This dist inguished successor to the venerable JC de

Wet has already deeply enriched our private law, particularly in the elds of

contract, cession, and e stoppel, in all of which he is an acknowledged master.

One can but hope, though his te aching days may be over, that we can still look

forward to beneting from his insightful contributions to the doctrinal debates

that continue to resonate in these elds; all the more so a s South African law

undergoes a long and necessar y process of introspection and tran sformation.

Much has been written in recent times on agreements prohibiting or

restricting the transfer of rights by cession ( pacta de non cedendo)1 and

there have been t wo signicant recent decisions by the cour ts,2 but the matter

remains a complex one on which opinions can and do differ. Indeed, it seems

to me that our law in this r egard has been rendered unnecess arily complicated

by the adoption of an ar ticial distinction between a re straint which is

superimposed upon an existing right, as opposed to one forming par t of the

agreement that creat es the right. In this article I attempt t o shed some light on

the topic by tracing its development in our law through the cases, with due

regard to the contribut ions of various academ ic writers, and by offering some

thoughts of my own.

Agreements in rest raint of cession raise two disti nct though related

questions: Should they be accorded validity as between the parties to the

* I am indebted t o Dr Saul Miller for his helpf ul comments on ea rlier drafts of thi s article, many of which

have been incor porated in the t ext, and to my son, Ass ociate Professor An drew Hutchison, for r eviewing

the article i n its final form .

1 See in par ticular S Scott “ Once Again: Agre ements Prohibit ing Cession” (2008) 19 Stell LR 483; S Sco tt

“Sessieverbied ende Ooreenkomst e en die Posisie van die Kura tor of Likwidateu r by Insolvensie” (200 8)

TSAR 776, KD Sun kel “A Comprehensive Suggestion t o Bring the Pactum de n on Cedendo into the 21st

Centur y” (2010) 21 Stell LR 463. Se e also S Scott The Law of Cessi on 2 ed (1991) 205 ff; SW van de r

Merwe, LF van Huys steen, MFB Reinecke & GF Lub be Contract General Principles 4 ed (2012) 406-

407; PM Nienaber “C ession” in WA Joubert (ed) Law of South Africa I I 2 ed (2003) para 37; NL Joube rt

Die Regsbetrekkinge by Kredietfaktorering LLD the sis Randse Afrika anse Universiteit (1985); GF Lubbe

& CM Murray Farla m & Hathaway Contra ct Cases Material s Commentary (1988) 654-656; N L Joubert

“Boeksku ldfinansier ing en Pacta de non Cedendo” (1986) Mo dern Business La w 109; S Scott “Pacta de

non Cedendo” (19 81) THRHR 148; S S cott “Sessie e n Factoring i n die Suid-Af rikaanse Reg” (1987) De

Jure 15; KD Sunkel The Pa ctum de non Ceden do: A Re-evaluati on LLM thesis Univers ity of the Western

Cape (2009); SR Roussouw “ Pacta de non Cedendo” (1991) Responsa Meridiana 52.

2 Capespan (P ty) Ltd v Any Name 451 (Pty) Ltd 2008 4 SA 510 (C); Born Fre e Investments 364 (Pt y) Ltd v

Firstrand Ba nk Limited [2014] 2 All SA 127 (SCA).

273

(2016) 27 Stell LR 273

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agreement, as a mat ter of contract law, so that a breach of the agreement gives

rise to th e usual remedies for bre ach? And, if so, should they als o be effective

against third pa rties, so that any purported cession of the right concerned in

contravention of the restrai nt is ineffectual?

Ever since 1920, the position in our law has been that, provided the

stipulation against transfer can be shown to serve a legitimate interest or

purpose of the debtor (or of the p erson in whose favour it is inserted), it

is valid and binding upon the pa rties to the contract, and by reason of the

nemo plus iuris pr inciple,3 is effective also against third parties. Over the

years, this position has at tracted much criticism, particularly in regard to the

requirement that the debtor should have an interest in the rest riction, which

is seen as an unnecessary and undesirable fetter on the par ties’ freedom of

contract. At the forefront of these cr itics has been Susan Scott, whose views

were largely accepted as correct in the recent High Court case of Capespan

(Pty) Ltd v Any Name 451 (Pty) Ltd (“Capespan”).4 The effect of this decision

was to reinforce the pri nciple that parties are generally free to render thei r

contractua l rights non-transferable by means of a pactum de non ceden do.

In an ironic twist, however, Scott has now come to accept that restr ictions

on cession constitute an u ndesirable clog on commercial activity, by impeding

the free ow of nancial assets in the modern globalised economy.5 Fact ori ng6

and securitisation7 have become hugely impor tant na ncial transac tions or

institutions (indeed, “powerhouse industries”)8 here and abroad, enabling a

company or business to nance its operations through the sale or pledging

of its trade accounts receivable (book debts). Agreements in restraint of

cession present obvious problems in this rega rd, so much so that in America

they are banned outright in relation to the assign ment of book debts,9 and

other countries are coming to appreciate the wisdom of this approach.10 On

an international level, attempts have been made to address these problems

3 Nemo plus iuri s ad alium transfe rre potest quam i pse haberet (nobody ca n transfer any g reater right th an

he himself ha s).

4 See text to n 2 above.

5 Scott (2008) Stell L R 483.

6 Factoring ca n take many forms, b ut essentially it is a f inancial tr ansaction and a t ype of finance i n which

a bu siness s ells its account s receiva ble (book debts) at a discount to a th ird-party fund ing sou rce to

raise capit al, or uses its accounts rec eivable as collate ral securit y for a loan. See Joubert (1986) Moder n

Business La w 109.

7 Essentially, sec uritisat ion is the process of co nverting ill iquid claims agai nst one’s debtors into a se curity,

that is, into a f inancial i nstrume nt that can be tr aded. Cf Wikiped ia “ Securitiza tion” (04-04-2016)

Wikipedia (accessed 25- 04-2016):

“Securit ization is the f inancial prac tice of pooling var ious types of cont ractual debt s uch as residential

mortgages, c ommercial mortg ages, auto loans or cre dit card debt obligation s (or other non-debt asse ts

which gener ate receivables) a nd selling their related cash flows to third party inve stors as se curities,

which may be described a s bonds, pas s-through se curities, or collateraliz ed debt obligatio ns (CDOs).

Investors ar e repaid from the pri ncipal and intere st cash flows collect ed from the underly ing debt and

redistr ibuted through t he capital stru cture of the new f inancing. … Secu ritization ha s evolved from its

beginni ngs in the late 18th centu ry to an estimate d outstanding of $10.24 tril lion in the United Stat es

and $2.25 tri llion in Europe as of t he 2nd quarter of 200 8.”

8 Sunkel (2010) Stell LR 474.

9 Art 9 of the Uniform Commercial Code; for deta ils, se e Sunkel (2010) Stell L R 472 and Sunkel The

Pactum de non Ce dendo 48 and 67ff.

10 See Scott (200 8) Stell LR 491-492.

274 STELL LR 2016 2

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