LTA Engineering Co Ltd v Seacat Investments (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Ogilvie Thompson CJ, Rumpff JA, Wessels JA, Jansen JA and Trollip JA
• Judgment Date: 27 November 1973
• Citation: 1974 (1) SA 747 (A)
• Hearing Date: 10 September 1973
• Court: Appellate Division

Jansen, J.A.:

This is an appeal against the Witwatersrand Local Division's upholding of an exception to an alternative plea. The respondent (hereinafter referred to as Seacat Investments) sued the appellant in that Court for four amounts, totaling in all R91 747, 85, being the balance of the purchase prices in respect of goods alleged to have been sold and delivered to the E appellant during 1971 by another company, Stonestreet and Hansen (Pty.) Ltd. Seacat Investments also claimed railage charges paid by Stonestreet and Hansen, in the sum of R2 281, 39, which it alleged was repayable by the appellant to Stonestreet and Hansen in terms of the various contracts of sale, as well as interest a tempore morae on each of the five F amounts involved in the proceedings. It founded its title to sue on an alleged cession to itself by Stonestreet and Hansen, on 2nd May, 1972, of all these claims for a consideration of R91 678, 52.

The main defence pleaded by the appellant was a denial of the cession - it conceded that it owed Stonestreet and Hansen G certain substantial amounts, but less than those claimed. An alternative plea, the subject of the present dispute, reads as follows:

"6. (b)

... In the event of this Honourable Court finding that Stonestreet and Hansen (Pty.) Ltd. ceded its said claims to the plaintiff, the defendant pleas as follows:

(i)

Stonestreet and Hansen (Pty.) Ltd. sold and delivered to the defendant the goods H referred to in paras. 3 and 4 above and the defendant became liable to make payment to Stonestreet and Hansen (Pty.) Ltd. in the amounts referred to in paras. 3 and 4 above and the railage charges referred to in para. 5 of the plaintiff's declaration.

(ii)

Stonestreet and Hansen (Pty.) Ltd. was at all relevant times aware of the fact that the defendant had a claim for damages for breach of contract against it in an amount greatly exceeding the amount of its own claim, and that, in the event of its issuing summons against the defendant to enforce its own claim, the defendant would institute a counterclaim against it for an amount in excess

Jansen JA

of its claim against the defendant, and that its own action would be stayed.

(iii)

Stonestreet and Hansen (Pty.) Ltd. on or about 2nd November, 1971, purported to cede part of its claim against the defendant to certain Mannesmann Engineering and Tubes (Pty.) Ltd. which instituted action against A the defendant in the above Honourable Court for payment of the amount of R37 110, 26 and applied for summary judgment in respect of that claim.

(iv)

The said application for summary judgment was opposed by the defendant on the grounds that the alleged cession was a fictitious and simulated one entered into in an attempt to frustrate the defendant's counterclaim for damages against Stonestreet and Hansen (Pty.) Ltd.

(v)

B On 2nd February, 1972 the said application for summary judgment was refused by this Honourable Court. [*]

(vi)

Mannesmann Engineering and Tubes (Pty.) Ltd. thereupon withdrew its action against the defendant and tendered the costs of the proceedings referred to in para. (iii) above.

(aa)

On 24th October, 1972 and after service of the notice of taxation and bill of costs in the matter withdrawn and referred to in sub-para. (vi) above, the attorneys acting on behalf of C Mannesmann Engineering and Tubes (Pty.) Ltd. informed the attorneys acting on behalf of the defendant in writing that Mannesmann Engineering and Tubes (Pty.) Ltd was possessed of no funds wherewith to pay the amounts of the bill as might be taxed or any portion thereof and that the attorneys would accordingly not be attending to oppose taxation.

(aa)

on 8th November, 1972, the bill of D costs was taxed in the amount of R1 206, 69.

(vii)

Mannesmann Engineering and Tubes (Pty.) Ltd. purported to recede its claim to Stonestreet and Hansen (Pty.) Ltd.

(viii)

Thereafter Stonestreet and Hansen (Pty.) Ltd. executed the cession on which the plaintiff herein relies.

(ix)

At the time when the said cession was executed the plaintiff knew the facts set out in sub-para. (i) to (viii) above.

(x)

E The defendant on or about 25th May, 1972, issued summons against Stonestreet and Hansen (Pty.) Ltd. for the amount of R618 937, 77 being damages sustained by the defendant as a result of the breach of contract by Stonestreet and Hansen (Pty.) Ltd. arising from the agreements referred to in paras. 3 and 4 above.

(xi)

The said cession was intentionally designed by the cedent and the cessionary to frustrate the defendant's rights arising from its counterclaim against Stonestreet F and Hansen (Pty.) Ltd. and was accordingly executed in bad faith.

(xii)

In the premises the defendant prays that judgment upon the plaintiff's claim be postponed until the final judgment is given in the defendant's action against Stonestreet and Hansen (Pty.) Ltd.

7. Ad para. 7.

(a)

The defendant admits that it owes certain amounts to Stonestreet and Hansen (Pty.) Ltd., but that it has a G claim against Stonestreet and Hansen (Pty.) Ltd. which exceeds the amount of defendant's indebtedness to that company.

(b)

In view of the allegations contained in para. 6 above, the defendant states that the plaintiff is not entitled to enforce a claim against the defendant.

Wherefore... the defendant prays that judgment upon the plaintiff's claim be postponed until the final judgment is H given in the defendant's action against Stonestreet and Hansen (Pty.) Ltd."

Seacat Investments excepted to para. 6 (c) " as lacking averments to sustain a defence or disclosing no defence". (An alternative motion to strike out is of no concern).

In allowing the exception, the Court a quo (IRVING STEYN, J.) considered itself bound by the decision in National Bank v Marks and Aaronson, 1923 T.P.D. 69, and held that our law did not enable a debtor,

Jansen JA

even in the circumstances here pleaded, to assert against a cessionary an illiquid claim it has against the cedent.

Before considering the contentions on appeal, a few salient features of the alternative plea should, however, be stressed. The plea accepts the validity of the cession (the possibility A of simulation being covered by the main plea, viz. the denial of the cession); it does not raise the defence of ipso jure compensation nor the exceptio non adimpletae contractus (even though it would appear that the appellant's claim for damages might flow ex eadem causa as the claims Seacat Investments is seeking to enforce). There is no allegation that any damages B that might be awarded to the appellant in its action against Stonestreet and Hansen would not be recovered. On the other hand, it is clear that the appellant had instiuted its action on 25th May, 1972, that is, before Seacat Investments instituted the present action on 12th June, 1972.

Counsel for the appellant does not contend that the Marks and Aaronson case is not in pari materia, but seeks to show that it C was wrongly decided as a result of an incorrect assumption that there is no Roman-Dutch law authority allowing, in the case of the cession of a debt, the debtor to assert against the cessionary an illiquid claim which he has against the cedent. Counsel invokes three well-known writers who were not brought D to the attention of that Court. They are J. à Sande, Commentarius de Actionum Cessione, 10.2; published in 1623; Ulric Huber, Heedendaegse Rechtsgeleertheyt, 3.13.36; published in 1686, and J. Voet, Commentarius ad Pandectas, ad D.5.1, para. 84; published in 1698. According to counsel for the appellant, they establish, as a rule of our law, that where a cession is effected with the object of depriving a debtor of an E opportunity of asserting a contra claim by way of reconvention, the cessionary must "defend the cedent", i.e. suffer the contra against the cedent to be asserted in reconvention against himself, should he sue on the cession - provided he was aware at the time of the cession of the cedent's motive. This rule, it is contended, fully supports the alternative plea, which, it is said, postulates an a fortiori case.

F The counter-argument for the respondent may conveniently be stated by way of a number of alternative contentions:

(1)

the rule stated by Sande, Huber and Voet was neither widely known nor applied in Holland;

(2)

properly understood, the rule only fixes the cessionary with the reconvention where the cession is G employed as a fraudulent device to defeat the contra- claim itself, by rendering it ineffectual, and not merely as a device to deprive the debtor of the right to assert the claim by way of reconvention, and thus of the advantages flowing from that procedure;

(3)

the rule has not been recognised in South Africa and H should not now be applied;

(4)

the rule has been abrogated by disuse;

(5)

the rule, in any event, does not support a plea in the form here presented.

As an assessment of the first two contentions requires an investigation of the old authorities, some introductory remarks will not be out of place, in view of the real difficulties encountered by a modern lawyer

Jansen JA

in understanding the reasoning and distinctions drawn by the various old writers in this sphere. A cession is now considered to be a bilateral juristic act (agreement) whereby the cedent transfers his right of action to the cessionary, the latter A taking the place of the former as creditor (De Wet and Yeats, Kontraktereg en Handelsreg, 3rd ed., p. 178); and the procedure of asserting a contra- claim by way of claim in reconvention is well-known and recognised by the Rules of Court (cf. Supreme Court Rule 24). Both concepts were, however, foreign to classical Roman law and represent the culmination of a long process of evolution.

B The development of the legal concept of...