IN THE HIGH COURT OF SOUTH AFRICA (EASTERN CAPE DIVISION) CASE NO: 2159/97 In the matter between: LESLIE NEIL SACKSTEIN N.O. FLORIS JOHANNES LORDAN N.O FIRST PLAINTIFF SECOND PLAINTIFF and THE DIRECTOR GENERAL DEPARTMENT OF EDUCATION AND TRAINING, BISHO FIRST DEFENDANT THE DIRECTOR GENERAL DEPARTMENT OF PUBLIC WORKS, BISHO SECOND DEFENDANT JUDGMENT VAN RENSBURG, J: This action was set down for trial on 25 th February 2002. On the morning of the trial, before the trial commenced, I was called upon to adjudicate on an application brought by David James Kruger and Johannes Gysbertus Roos as first and second applicants respectively, in which application the applicants seek an order substituting them as plaintiffs in the action in their capacities as trustees for the time being of the H & H Trust.
2 The application was opposed by the first and second defendants, who are the respondents in the application. In the Notice of Motion which is dated 25 th February 2002 the applicants seek an order in the following terms: (a) substituting as Plaintiffs in the present proceedings, Johannes Gysbertus Roos N.O. and David James Kruger N.O. in their capacities as Trustees for the time being of the H&H Trust in the name, place and stead of the present Plaintiffs, Floris Johannes Lordan N.O. and Lesley Neil Sackstein N.O. in their capacities as Joint Liquidators of Thaba Construction (Proprietary) Limited; b) directing that Respondents costs incurred in connection with and incidental to this Application on the basis of an unopposed Applicant, be paid by the said Kruger and Roos in their capacities aforesaid, alternatively and in the event only of First and Second Respondents opposing this Application c) directing that the costs of and incidental to any opposition to these proceedings be paid by First and Second Respondents, jointly and severally, the one paying the other to be absolved; d) granting the Applicants, David James Kruger and Johannes Gysbertus Roos (in their capacities as Trustees of the H&H Trust
3 aforesaid) such further or alternative relief as my be appropriate; In order to deal with the application it is necessary to set out the background facts: a) On 21 st July 1998 the Master of the High Court in Grahamstown duly registered the H&H Trust under number IT 1267/98. b) The present applicants were duly appointed as trustees of the trust. c) During December 1997 the plaintiffs, in their capacities a liquidators of Thaba Construction (Pty) Ltd. (in liquidation) instituted action against the respondents as defendants. The action comprised two claims. The first claim is for an amount of R31360 80 together with interest and costs. The second claim is for an amount of R175670 58 plus interest and costs. The said two claims were in respect monies allegedly owed by the respondents to Thaba Construction in respect of building work undertaken by Thaba construction in terms of certain building contracts entered into between Thaba construction and the respondents. d) Summons in the said action was issued on 8 th December 1997 and it is not in dispute that the summons was served on the respondent s on 18 th December, 1997. e) The respondents initially contested both claims. They did not, however, persist with their defence in respect of the first claim and Summary Judgment was granted in favour of the Plaintiffs on that claim. f) The action has now come to court on the second claim, namely the claim
4 for R175 670 58. g) On 22 nd July 1998, before litis contestatio, the plaintiff s ceded their right, title and interest in and to the second claim to the applicants. It is on these facts that the applicants, as cessionaries, now seek to be substituted as plaintiffs in the action. The application is opposed by the respondents. Mr. Smuts, who appeared on behalf of the respondents, argued that the effect of an order substituting the cessionaries for the cedents as plaintiffs would be that the cessionaries would become the plaintiffs in the action nunc pro tunc. He went on to argue that bearing in mind that the cession of the plaintiffs claim took place on 22 July 1998 and that the application for substitution was only served on the defendants attorneys on 25 th February 2002, some three and a half years after the session had taken place, the claim of the cessionaries has prescribed. In these circumstances, (so the argument went) the granting of an application for substitution at this stage would be prejudicial to the defendants because it would deprive them of the right to raise the defence of prescription against the cessionaries. For this reason it was argued that the application for substitution should be dismissed. Mr. Louw, who appeared on behalf of the applicants, argued that the cession took place after the plaintiffs had issued a valid summons in respect of the claim, which they subsequently ceded. He argued that the service of the summons interrupted the running of the prescription in respect of the claim contained in the summons. He submitted that what was bestowed on the applicants by the
5 cession was a claim in respect of which the running of prescription had been interrupted by the service of the summons. Mr. Louw argued that in circumstances where the service of summons interrupts the running of prescription, such interruption does not come to an end unless the court dismisses the action on account of delay in the prosecution thereof. He accordingly submitted that the application for substitution should be granted. Where, as in the present matter, there has been an out and out cession by a plaintiff of his claim, after the issue of summons, the cessionary is thereafter the only person entitled to enforce the claim against the debtor. This is so because the effect of an out and out cession is to transfer all the plaintiff s right, title and interest in the claim to the cessionary, thereby depriving the cedent of any further interest in the claim. Kotsopoulos v Bilardi 1970 (2) SA 391 (c) at 398 F. Thos. Barlow & Sons (Natal) Ltd v Dorman Long (Africa) Ltd. and Another 1976 (3) SA 97 (D&CLD) at 103 E F. Standard General Insurance Co. Ltd v Eli Lilly (SA) (Pty) Ltd (FBC Holdings (PTY)Ltd, Third Party 1996 (1) SA 382 (w) at 385 F H. Goodwin Stable Trust v Duohex (Pty) Ltd and Another 1998 (4) SA 606 (c) at 622 J 623D. In such circumstances it is necessary for the cessionary to approach the court for an order substituting him as plaintiff before the action can proceed. The court will grant an order for substitution unless the granting thereof will cause
6 prejudice to the defendant. Friedman v Woolfson 1970 (3) SA 521 (D&CLD) at 526 H 527 A. In support of his argument that the granting of an order for substitution would cause prejudice to the defendant in that the effect of such an order would be to deprive the defendant of the right to raise the defence of prescription, Mr. Smuts referred me to Barrie Marais & Seuns and Another v Eli Lilly (SA) (Pty) Ltd and others 1995 (1) SA 469 (W) at 472 B C. The passage referred to by Mr. Smuts does not, however, support his argument. That passage merely sets out the argument advanced by counsel for the defendant and does not reflect the decision of the court. In the Barrie Marais case the plaintiffs ceded their claim to Standard and General Insurance Company Limited (Stangen) before the issue of summons. Thereafter summons was issued in the name of the plaintiffs notwithstanding the fact that they had already ceded their claim and accordingly had no further interest in the claim. The defendant filed a special plea contesting the locus standi of the plaintiffs to have instituted the action. The plaintiffs thereafter brought an application for the amendment of their summons by substituting the cessionary of their claim, Stangen, as plaintiff in their stead. The application was opposed by the defendant on the basis that the summons was a nullity. It was further argued on behalf of the defendant that the granting of an order for substitution would be prejudicial to the defendant in that the effect thereof would be to deny the defendant the right to raise the defence of prescription, the claim having already prescribed. Notwithstanding the defendant s opposition, van Schalkwyk, J held that the action instituted by the
7 plaintiff s was not a nullity and the learned Judge granted the application for the substitution of Stangen as Plaintiff. The defendant subsequently filed a special plea to the claim, as amended, in terms of which the defendant alleged that the only process within the meaning of section 15 (1) of the Prescription Act 68 of 1969 whereby Stangen, as plaintiff, claimed payment of the debt was the amendment and that by the date of the amendment the debt had already prescribed. In these circumstances the defendant sought an order dismissing the plaintiff s claim. The special plea was adjudicated on by Streicher, J in Standard General Insurance Co Ltd v Eli Lilly (SA) (Pty) Ltd 1996 (1) SA 382 (W). Streicher, J after considering several authorities found that he was unable to support the finding of Van Schalkwyk, J in the Barrie Marais case (supra) to the effect that a cedent can institute action as agent for the cessionary. In the Standard General Insurance Co case (supra) at 385 G H Streicher, J has the following to say in this regard: The question to be decided is therefore whether the claim in the summons by which action was instituted in the name of Barrie Marais & Seuns en Skoukop (Pty) Ltd against the defendant was a claim by the creditor of the debt. By ceding the debt Barrie Marais & Seuns and Skoukop (Pty) Ltd transferred all their rights in respect of their claims against the defendant to Stangen. As from the time that the debt was ceded they were no longer creditors of the defendant. Stangen became the creditor and only Stangen could sue upon the debt (see Katz v Katzenellenbogen and Others 1955 (3) SA 188 (T) at 190H LTA Engineering Co Ltd v Seacat
8 Investments Ltd 1974 (1) SA 747 (A) at 762A; Goudini Chrome (Pty) Ltd v MCC Contracts (Pty) Ltd 1993 (1) SA 77 (A) at 87G H). It follows that unless the summons issued in the name of Barrie Marais & Seuns and Skoukop (Pty) Ltd constituted a process whereby Stangen claimed payment of the debt, the summons did not constitute a process whereby the creditor claimed payment of the debt and the service of the summons could not have interrupted the running of prescription in respect of the debt. The learned Judge continues as follows at 387H: As I have already indicated prescription can only be interrupted by process whereby the creditor claims payment of the debt. Before the amendment the creditor of the debt had not claimed payment of the debt and by the time that the amendment was applied for the debt had already become prescribed. In the result Streicher, J upheld the special plea and dismissed the plaintiff s claim with costs. I am in respectful agreement with the conclusions arrived at by Streicher, J. The Standard General Insurance Co case (supra) is distinguishable from the present matter in that the cession in that case took place before the issue of summons and accordingly the summons issued in the names of the cedents was from the outset incapable of interrupting prescription. In the present matter at the time of the service of the summons, the plaintiffs were the creditors of the defendant. It was only at a later stage that the plaintiffs ceded their claim to Stangen.
9 I proceed now to consider whether on the facts of the present matter the applicants, as cessionaries of the plaintiffs claim, are at this stage entitled to an order substituting them as plaintiffs in the action. The case of Grindrod (Pty) Ltd v Seaman 1998 (2) SA 347 (c), to which neither counsel referred me during argument, is very much in point where this issue is concerned. In that case the plaintiff had issued summons and served it on the defendant on 1 st November 1994, seeking to hold the defendant liable as surety for an amount owing to the plaintiff by Republic Shoes (Pty) Ltd. On 9 th November 1994 the plaintiff and credit Guarantee entered into an agreement which purported to cede the plaintiff s rights to Credit Guarantee. For purposes of the judgment it was assumed that the agreement constituted a cession. In its plea the defendant denied the plaintiff s locus standi to sue. The plaintiff thereafter sought to amend its particulars of claim to aver that during March 1997 Credit Guarantee ceded back to the plaintiff all its right, title and interest to its claims against the defendant. The defendant objected to the amendment contending that the plaintiff acquired a new cause of action as a result of the recession to it of the original claim. It was argued on behalf of the defendant that in the circumstances the summons had not interrupted the running of prescription and that the claim which the plaintiff sought to enforce on the strength of the recession had prescribed. Foxcroft, J dismissed the application to amend. In dismissing the application the learned Judge had the following to say at p 352 I J: What has happened in the present matter, in my view, is that although plaintiff is the same company which issued the summons in 1994, a new party was indeed introduced into this case in March 1997 when plaintiff, which had lost its right of action, regained it. This was no different than
10 some other party becoming plaintiff, and entitled to an award by the Court if successful. Foxcroft, J after analysing the judgment in the Standard General Insurance Co case (supra), continues as follows at 354 D 355 A: In the matter before me plaintiff as creditor issued summons and thereby interrupted the running of prescription. The moment plaintiff ceded its rights, it divested itself of its right of action. Put simply, it was no longer the creditor. I agree, with respect, with the view of Streicher J and with the submissions by Mr Seligson that s 15(1) of the Prescription Act must be interpreted to mean that the running of prescription will be interrupted by service on the debtor of any process whereby the creditor claims payment of the debt, so long as the true creditor continues to proceed with the litigation which has been commenced. If a creditor sues and then loses its right of action it is highly artificial to treat its service, when possessed of the right, as an interruption of the running of prescription which will continue for its benefit after the loss of its right of action. I also agree with the submission that, once the cause of action is ceded to the cessionary, the cessionary is obliged to take steps to regularise his position as a new party by way of, at least, an application to be substituted as plaintiff. The cessionary is the holder of the cause of action by reason of the cession, but has no right of action to proceed in the case already instituted by the cedent until he becomes substituted as plaintiff. It was common cause before me that the cessionary, Credit Guarantee, had not made any application to substitute itself as plaintiff and had not
11 served another summons against defendant. Indeed, the argument of Mr Van Blerk was that no cession had ever occurred. Once the cessionary was in a position to interrupt the running of prescription against it as the new holder of the cause of action and did not do so for the period of prescription which started running in February 1994, it lost its potential right of action. When it therefore purported to cede back to plaintiff the cause of action which it had acquired from plaintiff in November 1994, the period of prescription had run and the debt had become extinguished. Credit Guarantee could naturally not cede back to plaintiff an effective right of action which it had already lost. No purpose would be served in allowing the amendment sought, only to have it dismissed after the success of a special plea. As Flemming DJP put it in Stroud v Steel Engineering Co Ltd, it would make no sense to permit a claim which is known to have prescribed. I respectfully agree with the views expressed by Foxcroft, J. In the present matter it is not in issue that the period of prescription of the claim had long since elapsed by the date on which the application for substitution was served on the defendants, it being contended on behalf of the applicants that the applicants were entitled to rely on the fact that service of summons had interrupted the running of prescription and continued to do so even after the plaintiffs had ceded their claim to the applicants. The present applicants find themselves in the same position as the plaintiff found itself in the Grindrod case (supra).
12 The plaintiffs as creditors issued summons against the defendants. The service of summons on the defendants on 18 th December 1997 had the effect of interrupting the running of prescription against the plaintiffs in terms of section 15 (1) of Act 68 of 1969, the debt not yet having become prescribed by the date of service. Had the plaintiffs proceeded with their claim under the summons to final judgment, there would have been no problem. However, on 22 nd July 1998 the plaintiff s ceded all their right, title and interest to the claim to the applicants. By so doing the plaintiffs divested themselves of their right of action. In terms of section 15 (2) of Act 68 of 1969, the plaintiffs, not having successfully prosecuted their claim under the summons to final judgment, the interruption of prescription lapsed when they ceded their claim and it was thereafter deemed that prescription had never been interrupted by the service of summons. This being so, the argument that the service of summons continued to interrupt the running of prescription even after the plaintiffs had ceded their claim cannot be upheld. Once the claim had been ceded new parties in the form of the applicants were introduced into the case. They had not previously been parties to the action and there was a duty on them to take the necessary steps to have themselves substituted as plaintiffs, or to issue a new summons citing them as plaintiffs, before the claim prescribed. In these circumstances, should I grant the application for the applicants to be substituted as plaintiffs at this stage, the defendants would be seriously prejudiced in that they would be denied the right to raise the defence of prescription. See Associated Paint and Chemical Industries (Pty) Ltd t/a Albestra Paint and Lacquers v Smit 2000 (2) SA 789 (SCA).
13 I have not been persuaded that the applicants have made out a case on the papers to support the argument advanced by Mr. Louw to the effect that the defendants have by their conduct waived the right to rely on the defence of prescription. In all the circumstances, I am of the view that the application should be refused and that the costs should follow the result. Without a substitution of the applicants as plaintiffs the action cannot proceed because the present plaintiff s, having ceded their claim, do not have the necessary locus standi to continue with the action. In the circumstances I have no option but to dismiss the action with the customary costs order. In the result I make the following order: a) The application is dismissed with costs; b) The Plaintiffs action is dismissed with costs. J F J VAN RENSBURG JUDGE OF THE HIGH COURT