Two Decades of Special Notarial Bonds in terms of the Security by Means of Movable Property Act

• Jurisdiction: South Africa
• Citation: (2015) 27 SA Merc JL 246
• Author: Reghard Brits
• Published date: 25 May 2019
• Date: 25 May 2019
• Pages: 246-274

TWO DECADES OF SPECIAL NOTARIAL

BONDS IN TERMS OF THE SECURITY BY

MEANS OF MOVABLE PROPERTY ACT

REGHARD BRITS*

Postdoctoral Fellow, South African Research Chair in Property Law,

University of Stellenbosch**

I INTRODUCTION

It has been just over two decades since the Security by Means of Movable

Property Act 57 of 1993 (SMPA) came into operation on 7 May 1993.

1

For someone who knows little about its historical context and f‌ield of

application, the Act’s title might create the impression that it is a

comprehensive piece of legislation that is at the pinnacle of the South

African legal regime regarding the use of movable property as objects of

credit security. However, the Act only deals with a specif‌ic real security

right, namely a pledge that vests in favour of the creditor if the notarial

bond is registered in compliance with the requirements of the SMPA.

The bond must be registered in accordance with the Deeds Registries Act

47 of 1937

2

and the object of security must be ‘specif‌ied and described in

the bond in a manner which renders it readily recognizable’.

3

Unlike the

traditional common-law pledge, the special notarial bond requires no

delivery of the hypothecated movable in order to constitute a real right

in favour of the creditor. Instead, the creation of a right of pledge is

deemed to be as effective as if there had been valid delivery, notwith-

standing that there was none.

* BComm LLB LLD (Stell). Postdoctoral Fellow at the South African Research Chair in

Property Law, University of Stellenbosch. I presented this article during a seminar held at the

Research Chair on 12 May 2014. It also forms the basis of a paper delivered in Durban on 31

October 2014 during the annual South African Property Law Teachers’ Colloquium at the

University of KwaZulu-Natal. I therefore express my gratitude for helpful discussions and

comments provided at these occasions. A special word of thanks to André van der Walt for

reading and commenting on the article, as well as to the anonymous reviewer.

** The South African Research Chair in Property Law (SARCPL) is funded by the South

African national Department of Science and Technology, administered by the National

Research Foundation and hosted by Stellenbosch University. The views expressed in this

article are those of the author and should not be attributed to any of these institutions.

1

See GN 783 in GG 14786 of 7 May 1993.

2

See especially ss 61–62. For a summary of the process, see Kritzinger, Principles of the Law

of Mortgage, Pledge & Lien (Juta 1999) 60–61; Nel, Jones Conveyancing in South Africa 4ed

(Juta 1991) 468–471.

3

Section 1(1) of the SMPA.

246

(2015) 27 SA Merc LJ 246

© Juta and Company (Pty) Ltd

Perhaps the Act was intended to transform this registered ‘nonposses-

sory’ or ‘possessionless’ pledge into the primary form of real security

over movables in South Africa, particularly in light of the well-rehearsed

disadvantages of the traditional common-law pledge, namely the strict

delivery requirement that divests the debtor of the use of the object and

burdens the creditor with its care. Nonetheless, despite this ostensible

ambition of the SMPA, there are still many uncertainties and it is unclear

how effective the Act is in satisfying the needs of commerce.

It is surprising that only a small number of judgments dealing with the

interpretation of the SMPA have been reported. The only signif‌icant

ones are Bokomo v Standard Bank van SA Bpk,

4

Senwes Ltd v Muller,

5

Ikea

Trading und Design AG v BOE Bank Ltd

6

and Farmsecure Grains (Edms)

Bpk v Du Toit.

7

It is furthermore interesting to consider that, during the

six decades that the Notarial Bonds (Natal) Act 18 of 1932 (the Natal

Act) — the SMPA’s predecessor in the former Natal Province — was in

force, an equally small number of decisions were reported on the

interpretation of that Act.

8

What are the reasons for the scarcity of reported case law on the

SMPA? Either there are hardly any uncertainties and the Act functions

so well that disputes rarely reach the point of litigation, or principles are

so unclear that, in the event of disputes, parties settle instead of

litigating. Another option is that the registration of this kind of notarial

bond as a way of achieving real security is underutilised. If this latter

hypothesis is correct, I suspect that this underexploitation of the Act

(despite the clear need for it and its potential benef‌its) is due to the fact

that the legal principles surrounding the Act — its requirements and

consequences — are still largely underdeveloped, undertheorised

and/or misunderstood. Another reason may be that the present registra-

tion system is not convenient enough, but in fact too costly and

cumbersome to justify the registration of such bonds in many types of

transactions where, in reality, nonpossessory security would be desir-

able. It may be therefore that there is a disconnect between what the Act

provides and what the commercial world needs. Even so, my purpose

4

1996 (4) SA 450 (C).

5

2002 (4) SA 134 (T).

6

2005 (2) SA 7 (SCA).

7

2013 (1) SA 462 (FB).

8

For example, see In re Umlaas Wool Washing and Milling Co Ltd (In Liquidation) (1) 1934

NPD 18; Mahomed v Karim 1948 (3) SA 626 (N); Milne NO and Du Preez NO v Diana Shoe

and Glove Factory (Pty) Ltd 1957 (3) SA 16 (W); Goldberg v Di Meo 1960 (3) SA 136 (N);

Durmalingam v Bruce NO 1964 (1) SA 807 (D); Rosenbach & Co (Pty) Ltd v Dalmonte 1964 (2)

SA 195 (N); Barclays National Bank Ltd v Natal Fire Extinguishers Manufacturing Co (Pty) Ltd

1982 (4) SA 650 (D); Nedbank Ltd v Norton 1987 (3) SA 619 (N).

TWO DECADES OF SPECIAL NOTARIAL BONDS 247

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