DRUMMOND FARMS (PTY) LTD

Transcription

1 Reportable In the High Court of South Africa (South Eastern Cape Local Division) (Port Elizabeth High Court) Case No 2047/07 Delivered: In the matter between DRUMMOND FARMS (PTY) LTD Applicant and CHARLES ALFRED BEKKER SIDNEY SPILKEN in his capacity as sheriff of the High Court, Port Elizabeth NEDBANK LIMITED REGISTRAR OF DEEDS, CAPE TOWN MARK VICTOR N.O. LIZETTE VICTOR N.O. CRAIG DE LANGE N.O. 1 st Respondent 2 nd Respondent 3 rd Respondent 4 th Respondent 5 th Respondent 6 th Respondent 7 th Respondent SUMMARY: Execution sale of immovable property in execution application for a declaration that the sale was a nullity sale preceded by notice of attachment notice of attachment not served on the judgment debtor by registered post as required by rule 46(3) this was held to be a failure to comply with an essential formality which rendered the attachment and sale in execution a nullity. JUDGMENT JONES J: [1] The chief relief sought by the applicant is a declaration of nullity impeaching an attachment and sale in execution of immovable property following a judgment taken against the applicant by an execution creditor. [2] The applicant was the registered owner of the immovable property, a farm in the Greenbushes area of Port Elizabeth. The farm had been mortgaged to the 3 rd respondent (Nedbank). The applicant was in arrears with its repayments in terms of the bond. In due course Nedbank took judgment against it by default,

2 2 and proceeded to execution. A sale in execution was arranged and held. That is the sale which is sought to be impeached. The 1 st respondent was the purchaser. After the sale, the farm was registered in his name. He has resold to the 5 th, 6 th and 7 th respondents but has not yet transferred the property to them. [3] The 1 st respondent relies upon the common law principles conferring protection from impeachment of a purchaser s title following a judicial sale even though there are irregularities in the execution process. The common law rule is not that a sale in execution is impervious to any impeachment. In the first place an absolute rule giving the purchaser protection would be offensive to constitutional values, and there are sound constitutional reasons why, in certain circumstances, the protection should not be allowed (Japhta v Schoeman; Van Rooyen v Stoltz 2005 (2) SA 140 (CC); Menqa v Markom [2007] SCA 172 (RSA) (not yet reported))1. The parties accept that because the common law rule is not absolute, it passes constitutional muster. The rule is that where immovable property is sold in execution, the sale will not be impeached and the purchaser s title will not be impugned by reason merely of an irregularity in the execution process, but the position is different where the sale is rendered null and void, for example because of fraud or some other serious procedural or substantive causa which goes to the root of its validity (Menqa case supra; Japhta s case supra; Joosub v J I Case SA (Pty) Ltd now known as Construction and Special Equipment Co (Pty) Ltd 1992 (2) SA 665 (N); Van der Walt v Kolektor (Edms) BPK 1989 (4) SA 690 (T)). Although the Menqa decision supra was concerned with the statutory immunity given by section 70 of the Magistrates Courts Act 32 of (which is sometimes, perhaps inaccurately, said to codify the common law), Cloete JA found it necessary to examine the common law principles at length. The old and modern common law authorities analysed in his judgment confirm that in Roman Dutch law and modern South African law if a procedural defect in either the attachment or the sale is material, the sale in execution is of no force and effect from the inception. In the event of the sale being a nullity, the principle of protection from impeachment cannot be inapplicable because there is no sale, title does not change hands, and there is nothing to protect. The question, therefore, is always whether or not the defect results in the sale being a nullity from the outset. Cloete JA sums up the underlying principle at paragraph 46 of the Menqa case supra: 1 The Japhta principle that a forced sale in execution of immovable property without judicial supervision is unconstitutional does not arise in or apply to this case. This case is concerned with procedural defects rather than constitutional issues. 2 The section is headed Sale in execution gives good title and reads: A sale in execution by the messenger shall not, in the case of movable property after delivery thereof or in the case of immovable property after registration of transfer, be liable to be impeached as against a purchaser in good faith and without notice of any defect. An amendment substituting sheriff for messenger has been made but has not yet been brought into operation.

3 3 I therefore conclude that at common law a sale in execution was void for want of compliance with an essential formality, but that non compliance with nonessential formalities did not have this result. [4] In this case the applicant relies on a formal defect in the attachment process.3 Rule 46(1), (2) and (3) provide as follows: (1) A writ of execution against immovable property shall contain a full description of the nature and situation (including the address) of the immovable property to enable it to be traced and identified by the sheriff; and shall be accompanied by sufficient information to enable him to give effect to sub rule (3) hereof. (2) An attachment shall be made by the sheriff of the district in which the property is situate or by the sheriff of the district in which the office of the registrar of deeds or other officer charged with the registration of such property is situate, upon a writ as near as may be in accordance with Form 20 of the First Schedule. (3) The mode of attachment of immovable property shall be by notice in writing by the sheriff served upon the owner thereof, and upon the registrar of deeds or other officer charged with the registration of such immovable property, and if the property is in the occupation of some person other than the owner, also upon such occupier. Any such notice as aforesaid shall be served by means of a registered letter, duly prepaid and posted addressed to the person intended to be served. The execution creditor (Nedbank) caused a valid writ of execution to be issued by the registrar. This brought the provisions of sub rules (2) and (3) into play, which impose certain duties on the sheriff. It is common cause that in performing 3 In fact the applicant relied on two defects. Its second argument was that on the facts the sale was a nullity because of defects in the description of the property in the advertisements. This was not pursued with vigour. In view of my conclusion on the other procedural defect, which was the main point argued and which related to the requirement of notice of attachment by registered post, I prefer not to deal with the advertisement argument in this judgment.

4 4 his duties the sheriff did not serve the notice of attachment on the judgment debtor, the applicant, by registered post as required by sub rule (3). Instead, the sheriff affixed a copy of the writ of execution and the notice of attachment to the main gate of the immovable property in question, portion 42 of the farm Kuyga No 8, Greenbushes, Port Elizabeth, and issued a return of service in terms of rule 4 to that effect. The return also stated that the premises were locked and that no responsible person could be found at the address upon whom documents could be served. There is no dispute (a) that the applicant chose this address as its domicilium citandi et executandi in the mortgage bond which was the initial cause of action against it; (b) that process in that action was also served on it by affixing the summons to the main gate of the property; and (c) that the sheriff s return of service was to similar effect. [5] There are two questions to be asked, which are closely connected in the sense that the reasons for the answer to the first may impact on the answer to the second. The first question is: was what was done in this case substantial compliance with rule 46(3)? Second: if there was non compliance, was it noncompliance with an essential or a non essential formality? [6] The first question is, I believe, not difficult to answer. The weight of authority is that what happened here was not compliance with rule 46(3). After analysing various decisions, some of them conflicting, the full bench of the Transvaal Provincial Division in Ex parte Firstrand Bank Ltd t/a FNB Home Loans v Sheriff, Brakpan 2007 (3) SA 194 (W) issued a declaratory order in the following terms: 1. Service in terms of Rule of Court 46(3) takes place upon post by prepaid registered post of a letter containing the requisite notice to the address of the person intended to be served. Such address shall be either the address chosen or furnished by the addressee as such person's address or the actual postal address of such party. 2. A notice in terms of Rule of Court 46(3) cannot be served in the absence of an appropriate order of Court in terms of Rule of Court 4.

5 5 I am respectfully of the view that the reasons for making this order are sound in all respects, and that the rule of practice authoritatively laid down should apply in the Eastern Cape. Service of the notice of attachment by registered post accords with the letter of rule 46(3), which is couched in peremptory terms, and the requirement that the notice be posted to the address furnished or the actual postal address gives added recognition to the intention of the rule to make sure, in so far as this is reasonable possible, that the notice is brought to the attention of the judgment debtor. Service in terms of rule 4 is inappropriate (Ex parte Firstrand Bank Ltd supra 201G). Rule 4 is designed for service of process by a party initiating legal proceedings and does not apply to the execution of a judgment or to service of a sheriff s notice as distinguished from a document emanating from a party. The result is that service in terms of rule 4 by affixing the notice to the main gate is contrary to the procedure laid in paragraph 1 of the order in the Ex parte Firstrand Bank Ltd case, and impermissible in terms of paragraph 2 unless the court directs otherwise. There has accordingly not been compliance with the requirements of rule 46(3). [7] The next question is whether this is non compliance with an essential formality. Menqa s case supra does not define an essential formality. Cloete JA said in paragraph 46: It is not necessary for the purposes of this appeal to consider what are nonessential formalities. Because of the modern legislation which deals with formalities required for a valid sale in execution, resort to the old authorities would not necessarily be a safe guide. In each case regard would have to be had in particular to the reason for the formality, the extent of the non compliance and the prejudice or potential prejudice caused to interested parties, especially the

6 6 judgment debtor. The terms of the order in the Ex parte Firstrand Bank Ltd case point strongly to the conclusion that compliance with the method of service prescribed by rule 46(3) is a prerequisite for the validity of the execution process. So do the reasons for making an order in those terms. Rule 46(3) and paragraph 1 of the order expressly lay down that the mode of attachment of immovable property is to be by service of the written notice of attachment on the judgment debtor, and they both say that service takes place on posting the written notice to him. They both emphasise the method of service of the notice service by registered post. I believe that if proper regard is had to the purpose of an execution procedure requiring service of the notice of attachment by registered post and the reasons for selecting that method of attachment, the extent of the non compliance, and the potential prejudice to the judgment debtor caused by non compliance,4 it is not possible simply to brush off a failure to comply with the prescribed method of service as being non essential. This position is confirmed by the judgment in Joosub s case supra in which the learned judge (McCall AJ) analyses at length the authorities dealing with the consequences of a failure to serve on the owner of the property in terms of rule 46(3)5 in the context of the inviolability of a judicial sale at common law, and comes to the conclusion (at 673A E) that without service in terms of the rule the properties were never attached, and that if they 4 These are the points mentioned by Cloete JA in the passage from Menqa s case quoted above in paragraph 7 of this judgment, which are not, however, intended to be exclusive. 5 There was no service at all on the owner of the property sold in execution, who turned out not even to be the judgment debtor.

7 7 were never attached, no sale in execution of them could ever have taken place. [8] Mr Beyleveld s argument for the 1 st respondent displays what is perhaps an understandable dislike for a conclusion that penalizes technical noncompliance with a formality with a consequence as serious as nullity. He submitted that strict adherence to the letter of the requirement of service by registered post represents a technical and over formalistic approach which is inconsistent with a proper understanding of the rule and the authorities which interpret it, and which is contrary to common sense. In his submission, if what happened in this case amounted to non compliance with the rule, it was noncompliance with a non essential formality. He attempted to fortify his argument by submitting that it is absurd for the courts to countenance an interpretation of the rule which permits impeachment where the sale is in fact drawn to the judgment debtor s attention, for example after personal service by the sheriff in terms of rule 4. Mr Beyleveld s argument does not meet the principle at stake in the matter. The principle makes a distinction between essential and nonessential defects in the execution process of attachment and sale. Mr Beyleveld s approach side steps this element, and by bringing in the result of personal service, attempts to avoid it entirely. By introducing the example of personal service, his submission becomes an argument that a valid sale in execution is possible although it is not preceded by a valid attachment, because the judgment debtor is in fact made aware, by some means other than an attachment in terms

8 8 of the rule, that his property is to be put up for sale. In my view this cannot be right; there can be no deprivation of property without valid process of law.6 The example of personal service is unhelpful because it substitutes actual knowledge for proper compliance with the rules.7 It also begs the question, and is hence illogical. It assumes that the sale in execution becomes valid by reason of personal service in terms of rule 4, and postulates, in that event, that other methods of service in terms of rule 4, such as leaving a document at a specified address, will also be sufficient for a valid sale in execution. In this way the requirements of rule 46(3) are circumvented. [9] Mr Huisamen for the applicant submitted that strict compliance with the letter of the requirement of service by registered post is not over formalistic and is indeed a prerequisite for the common law immunity against impeachment of a judicial sale. As I have indicated, this argument has the support of the ratio of the Ex parte Firstrand Bank Ltd case, and the terms of its order because the order specifically says that the address for posting shall be either the postal address furnished by the addressee or his actual postal address, and it expressly prohibits service in terms of rule of court 4. Mr Huisamen s argument was, further, that this is consistent with Joosub s case supra at 673A E which held that 6 Menqa s case supra para 30; Joosub s case supra at 673C:... the properties were, in my opinion, never attached. If they were never attached, it stands to reason that no sale in execution of them could ever have taken place. 7Service of the notice of attachment is by posting the notice as required by rule 46(3). Proof of receipt of the registered item is unnecessary. See Stand 734 Fairland CC v BOE Bank Ltd 2001 (4) SA 255 (W)); the Ex parte Firstrand Bank Ltd case supra at 201D G and the passage in Erasmus Superior Court Practice quoted with approval in that judgment op cit.

9 9 failure to serve on the owner in terms of the rule is, without more, fatal because without service there is no attachment in terms of the rule and a valid judicial sale cannot therefore follow; it cannot follow anymore than if the sale were conducted by somebody other than the sheriff (Van der Walt v Kolektor Edms Bpk supra), even if there had otherwise been compliance with all formalities.8 Mr Huisamen s submissions are another way of saying that strict compliance with the requirement of service by registered post is necessary because this is an essential formality; this is unlike the case of a non essential defect, such as an immaterial typographical mistake in the street address. Fundamental to his argument is that compliance with the essence of the rule requires using the method of service prescribed by the rule. I am of the view that this argument is sound. [10] In my judgment, therefore, failure to comply with the service requirements of rule 46(3) must be categorized as non compliance with an essential formality which resulted in the attachment and consequent sale in execution being null and void. The result is that the application must succeed, and the substantive relief sought against the 1 st respondent in paragraphs 1.1, 1.3 and 2 of the notice of motion must be ordered. That relief is an order declaring the attachment and sale to be of no force and effect, and an order interdicting the transfer of the property to the second buyers, the 5 th, 6 th and 7 th respondents pending finalization of the remaining issues in this application. [11] What is to be done in respect of the remaining issues in this application, namely an order for re transfer to the applicant, and an order for costs? The chief opposition to the order re transferring the property into the applicant s name is the absence of a proper tender of repayment of the purchase price. The 1 st respondent paid a purchase price of R for the property, and additional amounts for unpaid rates, commission to the sheriff and improvements to the 8 Joosub s case and Van der Walt v Kolektor Edms Bpk supra are approved in Menqa s case supra (para 44). Though not on all with fours with the facts in this case, they are strong pointers to a proper application of the principles to these facts.

10 10 electrical installations, which come to an estimated total of about R The applicant makes a general tender to do everything necessary in law to have the property re transferred, but this excludes a tender of repayment to the 1 st respondent. It cannot make such a tender because it has not received any payment from the sheriff following the judicial sale of the farm. Then, there are the related issues set out in the conditional counter application. In the event of the property being re transferred, Nedbank has brought a conditional counterapplication for re instatement of its bond as security for its judgment debt. It would appear that the bond was cancelled when the property was transferred to the 1 st respondent, but that Nedbank has not yet been paid the amount of the judgment debt out of the proceeds of the sale. An additional complication may arise from allegations made by the 1 st respondent that the 5 th, 6 th and 7 th respondents are presently in occupation of the property and have made improvements which will unjustly enrich the applicant. This raises questions of compensation and rights of retention. I am aware that the applicant alleges that these are among a number of issues which may arise between the parties and will have to be addressed in due course, perhaps in the course of negotiations or in other legal proceedings. But the applicant submits that they have no bearing on its right to restoration of its ownership of its property. It is not, in my view, as easy as that. [12] An order for re transfer would appear to follow logically from a declaration that the sale was a nullity. But the applicant must make out a case for it, and the 1 st respondent says that it has not done so without a proper tender of repayment or restitution. The common law takes cognizance of the possibility of inequitable results in affording the applicant a remedy in these circumstances, and so do the principles underlying the Constitution (Menqa s case paras 24, 25 and 49). Some of the reasons for these difficulties are raised in paragraph 49 of the Menqa case where Cloete JA echoes Matthaeus s view that at common law if the debtor wishes to have the completed sale set aside for want of compliance with formalities, fairness dictates that he must return to the purchaser the money the latter disbursed. This is the situation, continues Matthaeus, when the debtor sues the purchaser and demands the goods unlawfully awarded to him; because if he sues the creditors, he is not obliged to pay the purchase price to them, but must pay the debt he owes together with accrued interest and in such case the purchaser is required to obtain the money he paid from the creditors. It is not necessary to consider the position at common law any further because to require Markom [the applicant and judgment debtor] to pay Menqa the price paid by the

11 11 latter for the property, or to pay the execution creditor the full debt owed together with accrued interest, as a prerequisite to his being allowed to recover the property, might altogether preclude him from obtaining the property and thereby possibly affect his and his family s constitutional right to access to adequate housing. This would be unconstitutional and therefore impermissible. [13] In the light of these considerations I am unwilling to order re transfer or other relief until (a) I am satisfied that a proper case has been made for this relief; and (b) I have before me sufficient information to be in a position to assess the balance of potential prejudice to all interested parties if the property is retransferred, or re transferred subject to conditions, or not re transferred. As it is, I do not know the amount available from the proceeds of the sale in execution after deduction of the costs of the sale, the precise amount of capital, interest and costs payable to Nedbank, and the amount of the balance, if any, available for repayment to the 1 st respondent. And there is no indication on the papers of the extent of any enrichment for improvements and how that issue is to be addressed. I presume that it was this litigation which caused the sheriff not to make payments out of the proceeds of the sale, either to Nedbank or to the applicant or any other person. Furthermore, I do not know whether any issues arise in respect of the constitutional right of access to adequate housing. I do not know the extent to which any party is out of pocket or will possibly be out of pocket, perhaps through no fault of his or her own, as a result of what happened in this case, and what impact this should have on the proper exercise of my

12 12 discretion on costs. I believe that these uncertainties, or some of them, should be removed before I finally pronounce upon the remaining relief. [14] In the result I propose making an order in respect of paragraphs 1.1, 1.3 and 2 only, and a further order postponing the remaining relief sought in the notice of motion in convention and in the counter application, with leave to any party to approach the court on the same papers for further relief on notice to the other parties. [15] 1. There will be an order in terms of paragraphs 1.1 and 1.3 of the notice of motion declaring the attachment and sale of the property to be null and void. 2. There will be an order in terms of paragraph 2 of the notice of motion interdicting the transfer of the property to the 5 th, 6 th and 7 th respondents pending determination of the issue of re transferring the property to the applicant. 3. The remaining relief claimed in the applicant s notice of motion, and the relief claimed in the 3 rd respondent s counter application, is postponed sine die. 4. The parties, or any one or more of them, are given leave to apply to this court on the same papers, amplified as far as may be necessary, for further relief, including a costs order, on 10 days written notice to the other parties or on such shorter notice period as this court may approve. RJW JONES Judge of the High Court

13 21 June