Ikea Trading Und Design AG v BOE Bank Ltd

• Jurisdiction: South Africa
• Court: Supreme Court of Appeal
• Judge: Zulman JA, Farlam JA, Nugent JA, Lewis JA and Ponnan AJA
• Judgment Date: 01 April 2004
• Citation: 2005 (2) SA 7 (SCA)
• Hearing Date: 18 March 2004
• Docket Number: 77/2003
• Counsel: F van Zyl SC for the appellant. M J Lowe SC for the respondent.

Lewis JA: B

[1] The meaning of s 1(1) of the Security by Means of Movable Property Act 57 of 1993 is squarely in issue in this appeal. The section provides:

'1 Legal consequences of special notarial bond over movable property

(1) If a notarial bond hypothecating corporeal movable property specified and described in the bond in a manner which renders it readily recognisable, is registered after the commencement of this Act C in accordance with the Deeds Registries Act 47 of 1937, such property shall -

(a)

subject to any encumbrance resting upon it on the date of registration of the bond; and

(b)

notwithstanding the fact that it has not been delivered to the mortgagee,

be deemed to have been pledged to the mortgagee as effectually as if it had expressly been pledged and delivered to the mortgagee.' D

The central issue is whether a bond registered under the section complied with its requirements such that the 'mortgagee' had security in the movable property referred to in the bond, and thus ranked as a secured creditor when the debtor was liquidated. E

[2] The first respondent, BOE Bank, is the holder of a general covering notarial bond passed in its favour by Woodlam Industries CC ('Woodlam') over the latter's assets in 1991. Woodlam was placed in final liquidation on 28 October 1999. BOE Bank applied to the Eastern Cape High Court for an order that the liquidation and distribution account in respect of Woodlam Industries F CC be redrawn so as to reflect its preference by virtue of that bond. At the time of liquidation Woodlam owed BOE Bank R2 403 852,20. The first and second respondents are the liquidators of Woodlam, the first respondent having been responsible for the drawing of the distribution and liquidation account. G

[3] The appellant, the third respondent in the Court of first instance, is Ikea Trading und Design AG ('Ikea'), which in 1998 had had registered in its favour a special bond, purportedly under s 1(1) of the Act, over assets of Woodlam listed in a schedule to the bond. The basis on which BOE Bank has attacked this bond is that it did not comply with the requirements of the section in specifying and H describing the assets referred to in the bond in a manner which rendered the assets readily recognisable and that the bond accordingly did not confer on Ikea real security over the items listed. The liquidation and distribution account reflected the sum owing by Woodlam to Ikea as R2 619 951,44.

[4] BOE Bank succeeded before Mbenenge AJ in the Court below in I obtaining an order (1) directing the first respondent to redraw the liquidation and distribution account; (2) declaring that the descriptions of the assets referred to in Ikea's 'mortgage bond' did not specify the relevant assets in a manner that rendered them 'readily recognisable'; and (3) declaring that the bond registered in 1991 in favour of BOE J

Lewis JA

Bank conferred a preference on it such that BOE Bank's claim was to rank ahead of Ikea's, and other preferent A concurrent claims. Ikea now appeals against the order with the leave of this Court.

[5] The principal contention of Ikea on appeal is that the property listed in the bond that was registered pursuant to s 1(1) of the Act can be identified with the aid of extrinsic evidence: Thus, it argues, it has a deemed pledge in them, and accordingly ranks as a B secured creditor in the estate of Woodlam.

[6] BOE Bank contends, on the other hand, that the assets must be identifiable from the bond itself, and that extrinsic evidence cannot be led to establish what they are. If such evidence were admissible, then creditors of the pledgor, and of course prospective C purchasers, might well be defrauded. The purpose of the section, argues BOE Bank, is to create a deemed pledge that gives to third parties the same notice as would a real pledge - one that requires actual delivery of the assets secured to the pledgee. If the bond does not constitute notice itself - but has to be read with D reference to other documents or identification outside of the bond - then the object of the legislation would be defeated.

[7] It is clear that without reference to invoices and other documents in respect of the items enumerated, or without the intervention of some person who is able to say (with or without reference to Ikea's documentation) that the particular item listed is E subject to the bond, the items cannot be identified as those listed in the bond. The assets allegedly bonded are set out in an annexure to the bond. It is a schedule with three columns. The schedule divides the assets into different categories: 'machinery', 'vehicles' and 'factory equipment'. The headings of the three columns for machinery are, respectively, 'Description', 'Date of Acquisition' and F 'Supplier'. It is perhaps useful to give some examples, randomly chosen, at this stage.

'Grecon Optimiser: 1 Aug 1991: Grencor

Weinig Moulder and Infeed:

1 Aug 1990: Weinig

Nipples and Couples:

30 May 1991: Atlas Airpower G

Rip Saw:

1 Aug 1990: Braun Woodwork.'

Vehicles include 'Mercedes Truck'; 'Forklift'; 'Uno X 2'; 'Truck with crane'. Factory equipment includes items such as '3 roller...