Bianca & Jamie ©

Contents
SU 5: Servitudes (Chapter 11).................................................. 1
SU 6: Real security (Chapter 12)............................................ 10
SU 7: Ownership (Chapter 3) .................................................. 66
SU 8: Constitutional limitation of right to ownership
(Chapter 4) .............................................................................. 81

SU 5: Servitudes (Chapter 11)

Kind of servitudes:
∑ Praedial servitudes
∑ Personal servitudes

1. Praedial servitudes:

Praedial servitude definition:

∑ Limited real right
∑ In the land of someone else (servient tenement)
∑ Which grants the holder of the servitude certain entitlements of use
and enjoyment
∑ In his capacity as owner of the dominant servient

Validity requirements:
∑ One piece of land serves another
o There has to be two tenements, a dominant tenement and a
servient tenement, and the servient tenement increases the
usefulness or utility (utilitas) of the dominant tenement on a
permanent basis and these tenements should be situated in the
vicinity of each other
∑ An owner cannot have a servitude over his own land
o Nulli res sua servit
o Where an owner owns two properties, he cannot register a
servitude as a burden over one piece of land in favour of the
other piece of land
o Also applies where the two pieces of land are held by him under
two separate title deeds
o The rights of ownership in the tenements must coincide and be
exactly the same
o Possible for an owner to acquire a servitude over land of which
he is only a co-owner
∑ There cannot be a servitude of a servitude
o Servitudal benefits cannot be severed from the land to which it
is attached

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o Owner of the dominant tenement is not permitted to assign his

servitude or otherwise allow it to be utilised for the benefit of a
tenement other than the dominant tenement
∑ Praedial servitudes are indivisible
o Prima facie imposed on the whole of the servient tenement to the
benefit of the dominant tenement.
∑ A servitude must not impose active or positive duties (duty to do
something) on the owner of the servient tenement
o Exceptions:
ß Servitude to compel the owner of the servient property to
construct a building of a certain height (servitus altius
tollendi)
ß Servitude which imposes a duty on the owner of the
servient land to keep his wall in a good state of repair
(servietus oneris ferendi)
o Schwedhelm v Hauman: (1947)
ß A servitude had been registered which entitled the
plaintiff to draw water from a dam on the defendant’s land
and imposed on the latter the obligation to ‘provide and
suitably maintain any windmill, pipes, etc. necessary to
convey the water over the two properties to such points on
the plaintiff’s property as plaintiff might determine.’
ß Court held that the right to draw water from the dam on
the defendant’s land was a valid servitude to draw water,
but that the ‘great weight of authority in our law’
precludes us from regarding the right to demand that the
defendant should perform the positive duties referred to
above, as of a servitudal character’
o Van der Merwe v Wiese: (1948)
ß Court took the opposite view than in Schwedhelm
ß Facts were substantially the same
ß Held that the maxim servitus in faciendo consistere non
potest is no more than a useful guide in the interpretation
and application of servitudes and with regard to the
question whether, and if so to what extent, a specific
agreement should be classified as a servitude
ß It does not mean that a provision in an agreement which
is binding on successive owners of land is invalid merely
because it contains an obligation in faciendo
o Low Water Properties (Pty) Ltd v Wahloo Sand CC: (1999)
ß Followed Schwedhelm decision
ß Held that positive obligations imposed on the owner of a
servient tenement in a deed of servitude are not real
rights

Types:
∑ Praedial servitudes are divided into rural and urban servitudes
∑ The classification of a servitude as either rural or urban depends on
the use to which the property is put, and not on its locality

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∑ A rural servitude relates to a tenement that is used for agricultural

purposes
∑ An urban servitude relates to a tenement that is used for other –
normally commercial or industrial – purposes

Most important rural servitudes:

∑ Rights of way
o Take the form of the right to walk across another person’s land
or to drive cattle or vehicles across it
o When the right to drive cattle includes the right to allow such
cattle to graze as they cross the land, it is called a servitude of
trek-path
o Nach Investments v Yaldai Investments:
ß The route of a right of way may be specified, or granted in
general terms, depending on the intention of the parties
involved in the creation of the servitude
∑ Water servitudes:
o Most important forms of these servitudes are the right of the
owner of the dominant land to draw water from the servient
land and to lead the water across it in furrows or pipes, the
right to water cattle on the servient land, to discharge surplus
water or to store water on it
∑ Grazing servitudes:
o Confers on the owner of the dominant land the right to graze
cattle on the servient land
o If the number of the cattle is fixed by the servitude the servient
owner may subsequently grant other similar servitudes,
provided that in so doing he does not prejudice the first grantee
in the exercise of his rights
o In the absence of a specific provision, the owner of the dominant
land has no exclusive right to any particular grazing area so
that the servient owner may make use of his land, provided that
he does not interfere with the owner of the dominant tenement’s
grazing rights
o Where the number of cattle is not fixed the servient owner must
restrict the use of his land to such an extent as to give the
owner of the dominant land a reasonable opportunity to exercise
his right while the dominant owner cannot exclude the servient
owner from grazing at least a certain amount of his cattle which
he requires for his farming operations

Most important traditional urban servitudes:

∑ A servitude of light
o Servitus liminibus non officiendi
o A right of access of light from another’s lamp unimpeded by
buildings or trees or both
o A servitude of view (prospectus) is the right to an open view
which restricts the rights of the owner of the servient tenement
to impede the view by buildings or trees or both

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o As in the case of a servitude of light, a servitude of prospect may

take the form of a servitutus altius non tollendi, which is a right
to prevent the owner of the servient tenement from raising the
height of buildings on his land
∑ The right of the owner of the dominant tenement to insert beams into
the servient tenement or to have a window or other opening in a wall
on the servient tenement
∑ The right of the owner of the dominant tenement to prohibit the
erection of any buildings on the servient tenement either at all or
beyond a certain height or to compel the erection of buildings of a
certain minimum height or type
o Generally accompanied with the right to prevent the owner of
the servient tenement from doing anything on his land which
will obscure the view or light from or on the dominant tenement
∑ A servitude for the support of a burden
o Oneris ferendi
o The right to build a house against the wall of a house on the
adjoining tenement and to have it supported by the wall of the
other tenement
o Prevents either owner from demolishing his building and thus
withdrawing the support which the other house receives from it
o The owner of the servient tenement is bound to keep the wall
concerned in good order at his own expense
∑ The right either to build on the soil of the servient property or to have
a balcony or signboard protrude into its airspace; or to have a
rainwater drain discharging such water onto the servient property

2. Personal servitudes:

Personal servitude definition:

∑ Limited real right
∑ To the movable or immovable property of someone else
∑ Which grants the entitlements use and enjoyment (ius utendi) and the
ability to draw fruit (ius fruendi)
∑ In respect of that thing to the servictude holder in his personal
capacity

Traditional common-law forms of personal servitudes:

2.1. Usufruct
2.2. Use
2.3. Habitation

2.1. Usufruct:

Usufruct (usufructus) definition:

∑ A limited real right in terms of which the owner/grantor of a thing
confers on the usufructuary the right to use and enjoy (ius utendi) the

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thing and to draw both the natural and civil fruits (ius fruendi) from
the thing to which the usufruct relates
∑ In turn, the usufructuary must ensure that the thing is returned to
the owner/grantor without impairment of its essential qualities (salva
rei substantia) upon termination of the servitude

Social function:
∑ To confer on the usufructuary an income from the property for the
duration of his lifetime while someone else is the owner of the property

- A usufruct imposes a burden on the entitlements of the bare owner

because, for all practical purposes, he will have almost no use or
benefit from the property during the existence of the servitude
- The acquisition and use of fruits must happen within a reasonable
period of time

Usufructs can be created:

∑ Inter vivos (between living persons)
∑ Mortis causa (in the context of succession in terms of a last will and
testament flowing from the death of a person)

Things than can form the subject of a usufruct:

∑ Movable, immovable or a combination of both
∑ Single or composite thing
∑ A principal thing including the accessory and auxiliary things
o Rural context
ß Usufruct may be established over a farm and include the
farmhouse and other outbuildings, the cattle or livestock,
farming implements and furniture
o Urban context
ß Usufruct may be established over a house or flat and
include the cutlery, crockery and furniture
∑ Non-consumables
∑ Corporeal and incorporeal

- If the thing by nature does not lend itself to the cultivation and
acquisition of fruits (like a painting or chair), the usufruct will be
limited to the aesthetic enjoyment or use value of the thing
- A usufructuary can explicitly be precluded from leasing a thing of this
kind that is the subject of the usufruct to collect civil fruits. It is a
better approach theoretically to create a personal servitude of use over
things of this kind
- As a general rule, a usufruct cannot be created over consumable
things that are destroyed by their normal use and enjoyment (like
apples) because the thing must be returned to the owner salva rei
substantia at the end of the usufruct
- However, it is possible to create a quasi usufructus over a consumable
thing that is inevitably consumed by use (res fungibiles)

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o The servitude holder becomes the owner and the salva rei
substantia requirement is replaced with an obligation to return
the equivalent of the value received or used at the end of the
usufruct

Rights:
∑ Eviction
o Sturdy v Pirezenthal:
ß A usufructuary may evict the owner of the property in
terms of the Prevention of Illegal Eviction from and
Unlawful Occupation of Land Act
∑ Use and enjoyment
o To the extent that it includes the cultivation and acquisition of
both the natural fruits (fructus naturales) and civil fruits (fructus
civiles) of the thing
∑ Draw fruits
o Fructus naturales
o Fructus civiles

Spoliation remedy:
∑ As possessor the usufructuary would have the requisite physical
control over the thing that is the object of the usufruct and the
intention to hold the thing for his own benefit to satisfy the possession
requirement which would allow him to use the spoliation remedy to
reclaim lost possession of the thing

Fructus naturales (natural fruits):

∑ Usufructuary becomes owner of fruits when he collects it
∑ Usufructuary will be responsible for all the costs associated with the
cultivation and collection of these natural fruits
∑ Natural fruits from land include vegetables and crops
∑ Natural fruits from cattle include its capacity to do work, milk, wool,
etc
∑ A usufructuary over a collection of things must ensure that the
number of sheep or vines remain constant
o The use that accrues to the usufructuary would be to slaughter
mature or injured animals; or fell infertile and dead plants
rather than collecting the further offspring or fruits as natural
fruits
∑ When the object of the usufruct is a stand of trees, a distinction is
drawn between
o Silva caedua (felling timber)
ß Like eucalyptus trees
ß May be cut down and sold for firewood in a manner that
behoves a reasonable person
o Silva non caedua (free timber)
ß Usufructuary must refrain from cutting down for personal
gain
ß Trees that provide shade or ornamental trees
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ß May prune and collect dead branches and brushwood

o This distinction is made with reference to the rate at which the
respective kinds of trees grow
o This distinction is pragmatic because after being cut down silva
caedua can grow back to its original dimensions before the
servitude terminates and enables the usufructuary to fulfil his
obligation to return the thing without impairment of its
essential qualities
o The inability to grow back to its original dimensions is the
rationale for prohibiting the cutting down of silva non caedua
o Usufructuary may collect dead trees provided that new trees are
planted in their place

Fructus civiles (civil fruits):

∑ Usufructuary becomes the owner of the fruits when its due (like rental
income, interests or dividends)
∑ Usufructuary is responsible for all the costs associated with the
collection of these civil fruits
∑ Usufructuary may not mine metals or minerals
o The Mineral and Petroleum Resources Development Act
abolished the private ownership of mineral rights
∑ Usufructuary can mine salt as a natural fruit

- A usufruct cannot be transferred or bequeathed

- Personal servitudes are divisible
- A co-owner can create a usufruct that may be exercised over a distinct
undivided area of the co-owned property
- A single owner can similarly create multiple usufructs that may be
exercised over distinguishable parts of the property that have been
indicated on a diagram (like a diary or vineyard or orchard)
- This right is limited in the context of agricultural land:
o No right may be created over a portion of agricultural land in
favour of an individual person for a total or aggregated period of
more than 10 years
o However, it is possible to create a usufruct over the whole of
agricultural land in favour of one person without the consent of
the Minister of Agriculture

Primary obligations imposed upon usufructuary by the salva rei substantia

obligation:
∑ Usufructuary may not destroy, damage or change the nature or
substance of the object, or change the use or economic destination of
the object to increase the income from it or its value
o Geldenhuys v Commissioner of Inland Revenue:
ß Held that a usufructuary had a duty to maintain the size,
quality and integrity of the object by not consuming it
entirely through normal use and exploitation
o Fourie v Munnik:

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ß Cautions against an overly strict, narrow interpretation of

the salva rei substantia requirement
ß Should not insist on such counsels of perfection regarding
the user as to make the enjoyment something
unsubstantial, unproductive or illusory
o A flexible and pragmatic approach would allow some
interference with the object as long as the economic destination
of the object is not altered
∑ Conduct all maintenance work that a reasonable person (bonus
paterfamilias) would have undertaken at his own cost
o Includes costs to produce and harvest natural fruits and to
gather civil fruits
o Includes all normal and regular expenses and charges in
respect of the property
o Usufructuary is not under an obligation to improve the
property, so extraordinary expenses to ensure continued
existence of the property must be paid by the owner
o The usufructuary ahs the right to remove any improvements
(ius tollendi) that he made to ensure the continued existence of
the property or a claim for compensation in terms of the
principles of unjustified enrichments
∑ Draw up an inventory of the property if the owner insists on it
o Inventory can be executed at the commencement of the usufruct
or at a later stage
o Purpose is to inform the owner of the nature, scope and state of
things that he must receive salva rei substantia from the
usufructuary upon termination of the servitude
o Can be ordered by court to draw up inventory, and the court
can order that the object of the usufruct be returned to the
owner if the usufructuary fails to comply
∑ Provide security for the civiliter use of the property and to ensure its
return salva rei substantia upon termination of the servitude
o Can be demanded by owner at any time
o The amount of security that must be provided is determined
with reference to the value of the object of the servitude at its
commencement
o Security for movables:
ß Surety, or
ß Pledge
o Security for immovables:
ß Mortgage
o Right to draw civil or natural fruits of the property may be
suspended in the event that the owner insists on the provision
of security and the usufructuary is slow to acquiesce to this
demand
o A court may order that the object of the usufruct be returned to
the owner if the usufructuary fails to comply
o It is possible for a court to order that the object of the usufruct
be leased and that the civil fruits so generated be used as

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security if the usufructuary is without the means to provide the

security demanded by the owner

2.2. Use (usus):

Use definition:
∑ A personal servitude that, as a limited real right, grants the holder the
right to use someone else’s property for the benefit of himself and his
household while keeping it substantially intact

Differs from a usufruct:

∑ Holder of servitude of use’s rights are far more restricted
∑ Holder may take the fruits of the thing for his daily needs as well as
those of his household, but nothing in excess of that
∑ Holder cannot sell any fruits
∑ Holder may not grant a lease in respect of a building, though this rule
is subject to exceptions

Resembles a usufruct:
∑ Holder may possess and use the thing to which the right relates if it is
a movable and occupy it together with his family and visitors if it
relates to land (occupy, not lease)
∑ Holder’s use must be without detriment to the substance of the
property
∑ Holder may be required to give security for the due fulfilment of his
obligations

2.3.Habitation (habitatio):

Habitation definition:
∑ A personal servitude that, as a limited real right, grants the habitator
the right to occupy a home belonging to the owner while leaving it
substantially intact

Differs from a usufruct:

∑ Rights of the holder is restricted even further in that the holder may
only dwell in the house of another person with his family without
detriment to the substance of the property
∑ Is not entitled to the fruits of the property

Hendricks v Hendricks:
∑ The habitator may even institute eviction proceedings against the
owner of the property in terms of the Prevention of Illegal Eviction
from and Unlawful Occupation of Land Act

Resembles a usufruct:
∑ Occupy immovable property and may grant a lease or sublease to
others

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In case of uncertainty about whether a usufruct, use or habitation was

granted:
Rebuttable presumption that the intention was to create the least onerous
servitude of habitation

SU 6: Real security (Chapter 12)

Property rights

Real rights Personal rights

Limited real
Ownership
rights

Servitudes Real security

Other (sui
generis/quasi-
servitudes)

Primary Secondary
claim claim

Creditor with Creditor with

debtor security

Debtor doesn't
Credit pay and creditor
relationship claims from
security

Creditor claims
repayment of
debt

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Security

Personal Real

Suretyship Guarantee Express Tacit

Context of real security:

∑ Relationship between debtor and creditor where an obligation exists
between them because of contract, delict or unjustified enrichment

- The holder of the real security right has a right in an asset that is
owned by someone else
- The purpose of a limited real right is to serve as security for the
fulfilment of a personal obligation
- The holder of the security right is a creditor that can retain its hold
over the asset until the debtor (who will most often be the owner of the
asset) performs according to the underlying indebtedness

A personal obligation (debt) can be created in the following ways:

∑ Contract
∑ Delict
∑ Unjustified enrichment
∑ Statute (ex. tax liability)

Most typical example of a debt created through contract:

∑ When a duty (on the part of the debtor) to repay a loan and a
concomitant personal right (on the part of the creditor) to reclaim
money lent are established in terms of a loan agreement
∑ Tenant has a duty to pay rent and a purchaser has a duty to pay the
purchase price

Right to claim
outstanding debt

Creditor Credit relationship Debtor

Obligation to repay debt

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- In all instances where a debtor owes performance to a creditor there

will be a risk that the debtor cannot or will not fulfil his duty to pay
according to the terms of the contract
- It may also be that the creditor would have to share with a number of
other creditors and therefore would be able to retrieve only a small
portion of what is owed, particularly if the debtor is sequestrated
- This is where credit security comes in
- To mitigate the risk associated with credit, the law provides ways in
which the creditor can, in addition to its claim for repayment, obtain
an additional right (a security right) to strengthen its chance of
retrieving the money

Creditor has 2 claims:

∑ Primary claim is the personal claim demanding performance of the
debtor’s personal obligation
∑ Secondary claim is the security claim if the debtor fails to perform

Categories of security:
∑ Personal security
∑ Real security

Personal security:
∑ Where another person agrees to stand in as the debtor’s surety
∑ Creates a personal right
∑ Forms part of the law of obligations

Real security:
∑ Solution provided by the law of property
∑ A piece of property serves as the creditor’s backup in the event of the
debtor’s inability to pay
∑ Creates a real right
∑ Forms part of the law of property

Real security can be created

∑ Ex contractu
o Express real security
o In terms of principal debt (secured debt)
o Created through contract when the debtor voluntarily agrees to
grant the creditor such a right in one of his assets
o Security agreement
ß Only creates personal rights and duties
ß Debtor merely created a promise to create a security right
over one of his assets
ß Next step is to fulfil this promise by creating a real
agreement
o Real agreement

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ß Animus
ß Corpus
o Examples:
ß Pledge
ß Notarial bonds
ß Special mortgage bonds
∑ Ex lege
o Tacit real security
o In terms of principal debt (secured debt)
o Created under a rule contained in common law, statute or court
order, regardless of the debtor’s wishes
o Examples:
ß Tacit hypothecs
ß Rights of retention
ß Judicial and other statutory real security rights

Main difference between express and tacit real security:

∑ Express real security involves a real agreement between the parties
that expresses their intention to create the security right; tacit real
security does not involve a real agreement, instead the right is created
by operation of a rule of law regardless of the parties’ intentions
∑ Difference does not relate to the way in which the underlying debt is
created, since the creation of the debt and the creation of the security
right entail two separate juridical acts

Purpose/ function of real security:

∑ Restrain disposal of property
∑ Encourage repayment of debt
∑ Enforce claim by attaching in execution
∑ Preference to proceeds
o Individual debt enforcement by another creditor
o Collective debt enforcement (insolvency)
∑ Other benefits:
o Get a loan easier if you can give security (or at a lower interest
rate)
o Sometimes the only way you can purchase expensive goods is
by providing security

A real security right can vest over any kind of property in the commercial
sphere and capable of being owned and transferred (res in commercio):
∑ Movable or immovable
∑ Corporeal or incorporeal

Categories real security rights are divided into:

∑ Express real security over immovable property
o Mortgages
o Created through the registration of a mortgage bond
o Control of the property remains with the debtor

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∑ Express real security over movable property

o Pledges
o Created either by passing physical control of the property to the
creditor or by registering a notarial bond
o An incorporeal movable asset can be pledged by means of a
cession in securitatem debiti (cession as security for a debt)
∑ Tacit real security created by operation of a common-law principle
o Landlord’s tacit hypothec and right of retention (lien)
o The security right is established by judicial attachment
∑ Tacit real security created by operation of statutory law
o Includes a number of examples of different statutory measures
specially enacted to create forms of real security to fulfil certain
purposes

Stages of the development of real security rights in Roman law:

1. Fiducia cum creditore:
o If one wanted to sue an asset to secure a debt, ownership and
physical possession of the asset had to be transferred to the
creditor and would be transferred back to the debtor after the
debt was discharged
o Involved a transfer of ownership that placed certain fiduciary
duties on the transferee/creditor
2. It was no longer necessary to transfer ownership of a security asset
o Only transfer possession of the asset with effect that the debtor
remained owner while the creditor obtained a limited real right
called pignus
o Origin of modern pledge
3. Hypotheca
o Neither ownership nor possession had to be transferred
o Origin of modern hypothec

Important elements:
∑ Secured debt (principal obligation)
∑ Burdened property (secured object)
∑ Parties involved
o Debtor/creditor
o Security receiver (mortgagee/pledgee)
o Security grantor (mortgagor/pledgor)
∑ Manner of creation

Accessoriness principle:
∑ Security right cannot exist if the underlying debt does not exist
o Killburn v Estate Killburn:
ß For a mortgage to be valid, there must be a legal or
natural obligation to which the hypothecation is accessory
o Thienhaus NO v Metje & Ziegler Ltd:
ß The identity of the person whose liabilities to the
mortgagee were being guaranteed was incorrectly stated
in the mortgage bond

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ß Majority held:
∑ The bond was validly registered
∑ The necessary ancillary obligation intended to be
secured was in existence and creditors had not
been prejudiced in any manner by the error in the
bond
∑ Held that the bond effectively hypothecated the
property
ß Minority held:
∑ The real security in respect of a debt is validly
constituted only where the bond, as registered, by
description therein identifies the particular debt
which it is intended to secure
∑ Exception:
o Covering bonds

1. Express real security:

Express real
security

Over Over
immovables movables

Special Notarial
Pledges
mortgages bonds

Express real security over immovable property:

Mortgage bond definition as in s102 of the Deeds Registries Act:

∑ A bond attested by the registrar specially hypothecating immovable
property
∑ [a written instrument that, through registration, creates a real
security right in specific immovable property]

- Registration of a mortgage bond is also the only way in which

immovable property can expressly be given as security for the
payment of a debt
- A mortgage is a non-possessory form of real security in that it does
not require that physical control of the property pass from the
debtor/owner (mortgagor) to the creditor (mortgagee)
- A mortgage bond can never cover movable property
- Movable property must be given through delivery or registration of a
notarial bond

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Creation of a mortgage:

- The key element of a mortgage over immovable property is the

registration of a mortgage bond

Main purpose of registration:

∑ To give publicity to the creditor’s right and thus render it a limited real
right enforceable against outsiders to the transactions

Elements of the creation of a mortgage:

- A principal debt that the mortgage is intended to secure
- A specific immovable asset over which the mortgage is to be created
- A mortgage agreement in terms of which the parties agree to
constitute the relevant security right
- A real agreement, which involves the intention to create the security
right (animus) and the outward expression of this intention through
registration of the mortgage bond (corpus)

The secured debt and the accessoriness principle:

∑ Real security rights can be used to ensure the fulfilment of any
obligation, but are mostly used to secure repayment of a monetary
debt created in a loan agreement
∑ The secured debt can be an existing or a future debt
∑ An acknowledgement of debt is often included in the bond document
itself, with the effect that the bond is a liquid document that allows
the mortgagee the procedural benefit of being able to apply for
provisional sentence
∑ The extent of the debt covered by the mortgagee must be determined
with reference to the wording of the bond and of the underlying credit
agreement, but it is usually accepted that, in addition to the principal
debt, incidentals like interest, insurance premiums and legal fees are
also covered
∑ A bank may unilaterally amend the interest rate, since such
amendment is in line with modern banking practice, but the bank
must exercise this discretion in a reasonable manner
∑ Accessoriness principle
o A security right is accessory to the valid principal obligation that
it secures
∑ Kilburn v Estate Kilburn and Thienhaus NO v Metje & Ziegler:
o Accessoriness principle
o The security right will exist only if there was a valid underlying
debt
o If the secured debt is invalid or discharged, the security right is
automatically extinguished, and the property must be restored
to the owner
∑ An exception (explained below) exists to the principle in the case of
covering bonds, where it is possible for the security to exist even when
there is no indebtedness
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The encumbered property:

∑ According to the Deeds Registries Act a mortgage bond can be
registered over immovable property only
∑ Immovable property covered by mortgage:
o Limited real rights in land such as servitudes are also regarded
as immovable property, as well as a sectional title unit
o When a piece of immovable property is burdened with a
mortgage, the mortgagee’s security will naturally also cover all
accruals, additions and accessions such as buildings erected on
the land concerned
o The mortgage will not cover unauthorised or illegal structures
that are subject to removal
o Uncollected fruits on the property such as crops still in the
ground will also be covered by the creditor’s security right
o As soon as the fruits are harvested, they become independent
movable objects that are excluded from the mortgage
o Immovable property can be mortgaged only if it is capable of
ownership and alienation (if it is res in commercio)
o If restrictions are applicable to the land, it may be that the
mortgaging of that land is also restricted
o For example, if the land is subject to a fideicommissum, the
property may be mortgaged by the fiduciary only if all the
fideicommissaries consent thereto
∑ Termination of security:
o The creditor’s security comes to an end once the property is
destroyed, which is unlikely in the case of land
o If only the building is destroyed, the mortgage will continue to
exist over the land itself
o Should the mortgaged land be expropriated by the state, it
would automatically be released from all mortgage bonds.
However, the debt will continue to exist and the bank would
enjoy a preference to the compensation payable for the
expropriation
o Land will also be freed of any mortgages should ownership of it
be lost through an original mode of acquisition

The real agreement: intention and registration:

∑ One of the distinguishing factors of express real security is that it can
come into existence only when the parties enter into a real agreement
that expresses their respective intention to burden a specific object as
security for the fulfilment of a specific obligation
∑ Animus element:
o The parties must have consensus regarding the fact that they
wish to constitute a security right (consensus on the nature of
the contract), on the property to be burdened and on the debt to
be secured

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o If there is agreement regarding these aspects and all the normal

requirements of a valid contract are met, then a mortgage
agreement comes into existence between the parties
∑ Corpus element:
o Intention to mortgage the property alone is not enough to render
it effective against third parties
o The agreement is then only binding on the parties to the
agreement
o Intention (the animus element) must be publicised in a way that
enables outsiders to obtain knowledge of the fact the property
has been burdened (the corpus element)
o Thienhaus NO v Metje & Ziegler:
ß In the case of a mortgage of immovable property, publicity
can be achieved only by registering a mortgage bond in
the deed’s registry
o Registration fulfils the publicity principle and justifies the
preference that the mortgagee enjoys regarding that specific
asset over the rights of other creditors
o Other creditors are notified through registration that the
relevant asset is not freely available to them
o The mortgage is enforceable against third parties also in the
case of the debtor’s insolvency
o Registration of mortgage bonds is governed by the Deeds
Registries Act
o The mortgage bond is the instrument that is registered while the
mortgage (or hypothec) is the limited real right that comes into
being upon such registration
∑ Execution of the mortgage:
o The mortgage bond must be executed (signed) by the parties or
their agents in the presence of the registrar of deeds
o A conveyancer appointed by the owner or his agent will execute
the bond on the owner’s behalf
o When the registrar then attests to and registers the bond, the
limited real right is constituted
o The debt is secured from the moment of registration, not from
the moment that it is incurred
o Upon registration of the mortgage bond, the title deed of the
relevant land is usually endorsed with a stamp or seal to
indicate that the property is burdened with a mortgage
o This is not a legal requirement, but a practice to help warn
people
o Standard Bank van SA Bpk v Breitenbach:
ß Failure to endorse the title deed will not invalidate the
security right
∑ The mortgage bond as a document often contains terms that create
personal rights and duties; however, registration of the bond does not
turn these personal rights into real rights
∑ Thienhaus NO v Metje & Ziegler: (majority judgment)

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o Although a bond often includes an acknowledgement of debt,

which renders the bond a liquid document, the idea is not for
the bond to publicise the size of the secured debt
o Its only function is to publicise the fact that the property is
burdened with a mortgage
∑ Termination of the mortgage:
1. Debt discharged
2. Destruction of property
3. Prescription
4. Expropriation
o When it comes to foreclosure, an earlier mortgagee cannot
prevent a later mortgagee from executing against the property
o However, even if a later mortgagee has the property sold in
execution, the normal order of preference must be respected:
the first mortgagee must be paid first, then the second and so
forth
o If a creditor’s security is terminated (for instance, because the
debt is discharged) the mortgage bond must be formally
cancelled and thus removed from the deeds registry
o Cancellation requires the mortgagee’s co-operation, but a court
can authorise the registrar to cancel the bond should the
mortgagee fail to co-operate
o The mortgagee will have no preference if, for instance, the
security right was terminated but the mortgage bond was
mistakenly never cancelled
∑ Cession of the mortgage bond:
o The limited real right that arises when a mortgage bond is
registered is regarded as an immovable incorporeal thing
o The mortgagee as holder of this ‘thing’ might want to transfer its
rights against the debtor (the personal right to receive payment
and the security right) to another person who will therefore take
over as creditor
o This transfer is done by ceding both the personal right and the
mortgage bond to the new creditor
o Lief v Dettman:
ß Permission from debtor required
ß The cession of a mortgage bond must be registered in the
deed’s office
o The mortgagee can even use its right of mortgage as an object of
real security for a debt owed to his creditor
o In such a case the mortgage bond will likewise be ceded (in
securitatem debiti) through registration
o This cession of the real right under the bond must be
accompanied by a security cession (or pledge) or the personal
right to receive payment of the original debt

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Types of mortgage bonds:

Standard mortgage bond:

∑ Establishes a special mortgage for moneys lent and advanced
∑ A mortgage bond registered to secure the payment of a specified
existing debt

Kustingsbrief:
∑ A mortgage bond registered to finance the acquisition of property
∑ It is usually registered along with the registration of transfer of
ownership
∑ Because a kustingsbrief will always be the first mortgage bond over a
piece of property, its holder will naturally enjoy a preference over other
mortgagees

Mortgage bond for future debt:

∑ A mortgage bond as security for moneys to be lent and advanced
∑ For a specific debt that is to be incurred in future
∑ Security right will vest only from the moment that the debt is actually
incurred

Covering bond:
∑ Secures a fluctuating existing and future debt
∑ Debt covered by the bond can be formulated widely and it is even
possible that there is no debt at certain times
∑ Section 51(1) of the Deeds Registries Act:
o For the covering bond to grant the creditor any preference with
respect to debts incurred after registration, it must expressly
stipulate that it secures future debts and set out a maximum
future debt
∑ The date on which the security becomes effective is the date of
registration and not the date on which the debt actually comes into
existence

Participation bond:
∑ A bond registered not in the name of a single creditor but in the name
of a company, referred to as a collective investment scheme, in which
a number of persons have invested
∑ Each investor receives a letter of participation that represents his
share of the loan
∑ Even though the scheme itself is the secured creditor, a special
statutory rule states that each of the individual investors is regarded
as a secured creditor of the debtor to the extent of the relevant size of
that investor’s investment (s56(2) of the Collective Investment
Schemes Control Act)

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Surety bond:
∑ A mortgage bond registered over one person’s property as security for
the debt of another person
∑ The mortgagor and the debtor are not the same person, but the
mortgagor acts as surety for the debtor by offering up his property as
security for the latter’s debt
∑ Differs from an indemnity bond:
o With a surety bond the surety’s liability is secondary to the
original debtor’s liability
o With an indemnity bond the indemnity grantor’s liability is
primary

Collateral bond:
∑ Any bond granted as security in addition to an already existing
security

Sectional mortgage bond:

∑ Used in the context of sectional title schemes to create a right of
mortgage over certain objects regarded as immovable property (land)
under the Sectional Titles Act
∑ Can be registered over the various objects regarded as immovable
property
∑ Can be registered over a sectional title unit or an undivided share
therein
o Such a unit consists of a defined part of the building (a section)
and an undivided share in the common property
o Sectional Titles act deems a sectional title unit to be land
∑ Can also be registered over any registered limited real right in or over
any unit, undivided share in a unit or common property
o Two main examples of such a limited real right are a right to an
exclusive use area and a developer’s right of extension
o An exclusive use area is a part or parts of the common property
for the exclusive use by the owner or owners of one or more
sections
o If it is registered in favour of an owner, it is regarded as
immovable property that can be mortgaged
o Common property of a scheme belongs to all the owners in
undivided shares and therefore cannot be mortgaged by any
individual owner
o However, the common property or any part thereof can be
alienated by the body corporate on the authority of a
unanimous resolution of the owners
o The concept of alienation in this context can include the
mortgaging of the common property

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∑ A long-term lease registered over a unit, exclusive use area or piece of

land also qualifies as immovable property and can be mortgaged as
such

Effect and operation of mortgage:

Standard Bank of SA Ltd v Saunderson:

∑ The basic legal effect of registering a mortgage bond is that the
mortgagee receives a limited right in the bonded property while the
mortgagor’s right of ownership is restricted for as long as the debt
remains unpaid

Mortgagor’s limitation of ownership:

∑ Cannot freely dispose of the property without the mortgagee’s consent
∑ Cannot transfer the property or register a servitude over it without the
mortgagee’s permission

- The bond must first be cancelled before the property can be

transferred (s56(1) of the Deeds Registries Act)
- The mortgagee’s hold over the debtor’s property is not physical as is
the case with a possessory pledge, but it is possible for the parties to
agree that the mortgagee may receive physical control and use of the
property

Clauses:
∑ Pactum anthichresis
o The parties agree that the creditor may use and enjoy the
property and draw its fruits
∑ Pactum commissorium (or lex commissorium)
o Allows the creditor to ‘keep’ the property as payment for the
outstanding debt when the debtor defaults
o If the debtor defaults, the creditor can invoke this clause and
become owner of the property in exchange for discharging the
debt, regardless of the size of the property or the value of the
debt
o Iscor Housing Utility v Chief Registrar of Deeds:
ß A mortgagor remains the owner of the mortgaged property
ß An acceleration clause is permissible and frequently relied
upon by mortgagees after a mortgagor’s default
∑ Entitles the creditor to claim the full outstanding
debt should the debtor default on a single
instalment
ß A pactum commissorium is invalid and therefore a
mortgagee may not become owner upon a mortgagor’s
default, but a mortgagee may ‘by in’ at a sale in execution
ß Creditor cannot take law into his own hands or merely
become the owner of the debtor’s property in the event of
default

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∑ Quasi-conditional sale
o Such a sale entails a clause that allows the creditor to acquire
the property when the debtor defaults, but at a reasonable price
that is determined at the time of default
o The value of the asset is offset against the outstanding debt and
any surplus is paid to the debtor
o Value is determined after debtor defaults

∑ Parate executie (summary execution)

o Allows the creditor to sell the property when the debtor defaults
but without first receiving court authorisation
o Iscor Housing Utility v Chief Registrar of Deeds:
ß Parate executie clauses are invalid in mortgage
agreements in respect of immovable property and a
judicial sale in execution is required
ß Creditor cannot take the law into his own hands and
must follow the court process for foreclosure and
execution of the property to be valid
Consequences:
∑ Limits ownership
∑ Mortgage holder’s rights
Mortgage holder’s rights are affected as follow:
∑ Right to pursue property if it is transferred to someone else
o S56 of Deeds Registries Act and mistakes made:
o Barclays Nasionale Bank Bpk v Registrateur van Aktes,
Transvaal:
ß The mortgagee will retain his right if, for instance, the
mortgage bond is deregistered by mistake
o Standard Bank SA Bpk v Breitenbach:
ß The mortgagee will retain his right if an endorsement
indicating the presence of a mortgage is mistakenly left
out when a lost title deed is replaced, or if no such
endorsement is made on the title deed to begin with
∑ Right of preference to the proceeds
o Highest ranking of all creditors
o Occupation by tenants: huur gaat voor koop-principle
ß ABSA Bank Ltd v Sweet:
∑ The mortgagor does not need the mortgagee’s
permission to conclude a contract of lease in terms
of the property to a tenant
∑ If such property is later sold in execution, it must
be put up for auction subject to the lease
∑ The purchaser will acquire the property with its
tenants
∑ If the highest bid is not enough to satisfy the
mortgage debt, the property must be sold free of the
lease

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∑ Right to call up or foreclose

o Forecloses the security when the debtor fails to comply with his
duties under the loan agreement
o Foreclosure is the use of the legal court process to have the
property attached and sold in execution and to settle the debt
from the proceeds
o Nedcor Bank Ltd v Kindo:
ß A mortgage bond typically includes two clauses that are
essential for this process:
∑ Acceleration clause
o Entitles the creditor to claim the full
outstanding debt should the debtor default on
a single instalment
∑ Foreclosure clause
o Allows the mortgagee to have the burdened
property sold in execution to settle the
outstanding debt
o Must be enforced through court processes only – may not take
law into your own hands
o A clause allowing the mortgagee to become owner should the
debtor default (pactum commissorium) or to sell the property
without a court order (parate executie clause) is invalid in
mortgage bonds (Iscor Housing Utility v Chief Registrar of Deeds)

Enforcement of mortgage:
∑ Law of civil procedure
∑ Step 1:
o Debtor is in default
o National Credit Act (NCA) notifications
o Acceleration clause
∑ Step 2:
o Obtain a court order
∑ Step 3:
o Execution of the order

Foreclosure against residential property:

- Attaching and selling a debtor’s primary residence (home) in execution

amounts to a limitation of the debtor’s fundamental right to have
access to adequate housing (s26(1) of the Constitution)
- This means that the sale can be allowed only if the limitation is
justifiable under s36 of the Constitution (limitation clause)
- Courts are required to conduct a balancing test based on the principle
of proportionality
o The impact that allowing the sale will have on the debtor must
be compared to the impact that denying it will have on the
creditor

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- S26(3) of the Constitution (eviction clause) holds that no one may be

evicted from their home or have their home demolished without an
order of court made after considering all the relevant circumstances.
No legislation may permit arbitrary evictions

- In the past a home could be sold in execution without proper judicial

oversight
- Under circumstances where the debtor did not lodge a defence against
the creditor’s action, the clerk of the magistrate’s court or the registrar
of the high court could grant the judgment by default and issue the
warrant of execution against the property
- In cases where the matter was heard by the magistrate or judge, the
court’s role did not include evaluating the socio-economic effect the
sale would have on the debtor
- The court mostly focussed on whether the creditor had a valid right to
foreclose and had followed the procedural rules
- If the creditor had such a right and complied with those rules, the
order would be granted, and the property would be attached and sold
- This approach changed with the Constitutional Court’s judgment in
Jaftha v Schoeman

Timeline of judicial oversight in execution judgments:

∑ Jaftha v Schoeman (2005):
o Failure to provide judicial oversight over sales in executions
against immovable property of judgment debtors in s66(1)(a) of
Magistrates Court Act (MCA) was declared unconstitutional and
invalid
o This section violated s26(1) of the Constitution to the extent that
it allowed execution against the homes of indigent debtors
where they lost their security of tenure
o In casu, the advantage of the creditor who sought execution
would far outweigh the immense prejudice and hardship caused
to be caused to the debtor and granting an execution order
would be unjustifiable
o The purpose of such oversight is to ensure that no unjustified
limitations of the right of access to adequate housing take place
∑ Gundwana v Steko Development (2011):
o S66(1)(a) of the MCA violated s26(3) of the Constitution which
requires judicial oversight in the case of evictions
o This section violated s26(3) to the extent that it provided for the
issue by the clerk of the magistrate’s courts a writ execution
order
o The registrar is not competent to make execution orders
o The bondholder must approach a court of law for it to make a
proper determination as to whether the sale in execution of a
person’s home is justifiable
o Loss of a home should be the last resort and the court should
therefore consider alternative ways to settle the debt before
granting an execution against a home

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∑ Nedbank v Fraser and Four Other Cases:

o The purpose of judicial oversight is to guard against abuse of
the execution process
o The court is obliged to consider the following:
ß How the debt was incurred and if the specific property is
hypothecated for the judgment debt
ß The amount of the judgment debt
ß The existence of reasonable alternatives to the satisfaction
of the judgment debt without resorting to execution
ß Rule 46A applies to immovable property which constitutes
a home
ß Rule 46A requires that:
∑ Judicial oversight is required
∑ Court can postpone a sale in execution for 6
months, allowing parties to enter into voluntary
agreements

- The proceedings for the sale in execution of residential property is now

set out in High Court rule 46A and Magistrates’ Courts rule 43A

National Credit Act 35 of 2005:

∑ Had a significant impact on mortgage foreclosure in recent years,
since most home loans qualify as credit agreements that fall under the
scope of the Act
∑ Sets out certain special notification requirements in terms of which
the debtor must be notified of his default and given an opportunity to
pay or make use of debt review
∑ Until the time the property is sold in execution, the debtor may get his
arrears up to date in order to have the creditor’s enforcement action
reversed and his property restored
∑ During enforcement proceedings the court has a discretion to refer the
matter to a debt counsellor or to provide relief directly to the debtor
∑ Prior to commencement of debt enforcement, the debtor can apply for
debt review and potentially have his payment obligations rearranged,
which might prevent him from defaulting on the loan
∑ If the mortgage loan was granted recklessly, the court may –
depending on the circumstances and kind of recklessness – suspend
the force and effect of the agreement for a period, set aside the
debtor’s rights and duties in part or in full, or restructure the debtor’s
payment obligations
∑ ABSA v De Beer:
o When Absa made calculations of loan amount, they took
couple’s income and sureties into account.
o This is wrong since surety only becomes liable when the couple
cannot pay, not from the very beginning.
o Held that the loan was reckless, since Absa lost the papers of
the original assessment and the couple did not understand and
appreciate the risks and costs of the applicable credit agreement
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- Another important recent development is that when a house is to be

sold in execution, the court is empowered to set a reserve (or
minimum) price at which the property must be put up for auction
- The purpose is to prevent situations where a home is sold at a price
that is unconscionably lower than its market value

Registration of notarial bonds:

Notarial bond definition as in s102 of the Deeds Registries Act 47 of 1937:

∑ A bond attested by a notary public hypothecating movable property
generally or specially

Difference between notarial bond and mortgage bond as per definitions in

s102 of the Deeds Registries Act:
∑ A notarial bond is a bond attested by a notary public hypothecating
movable property generally or specifically
∑ A mortgage bond is a bond attested by the registrar specially
hypothecating immovable property

Two kinds of bonds to hypothecate movable property:

∑ General notarial bonds
∑ Special notarial bonds

Difference between general and special notarial bonds:

∑ General notarial bonds cover all the debtor’s movable assets, nothing
excluded
∑ Special notarial bonds cover only specified objects

- The same bond can contain a general and special hypothecation of

movables, as long as the movables are clearly distinguished
- It is permissible to register more than one notarial bond over the same
property, and in such a case the order of preference will depend on
the status of each creditor’s rights
- The exact debt covered by the bond will depend on the terms of the
bond
- The bond can cover a fixed or fluctuating debt for instance
- The accessoriness principle also applies to notarial bonds
- The registration of both kinds of notarial bond follows the same
procedure set out in the Deeds Registries Act

Registration of notarial bonds:

∑ Bond must be attested by a notary public
∑ Must be registered within 3 months after the date on which it was
executed (signed by the parties and notary)
∑ If the bond is not registered within this period and if no extension is
obtained, the bond is invalid

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∑ The bond is effective against third parties only from the date on which
it is registered, which is the moment when the bond is signed by the
Registrar of Deeds

According to the DRA the bond must contain certain information:

∑ Place of execution
∑ Date of execution
∑ Place where notary public practises
∑ Place where debtor resides
∑ Place(s) where debtor carries on business

Place of registration:
- The last two points are important because the bond must be
registered in the deed’s registry of the area in which the debtor resides
or carries on business
- If the debtor resides or does business in more than one area, the bond
must be registered in each of those areas
- If the bond is registered in the relevant deeds office(s), it will be
effective throughout SA
- If it is not registered in each area in which the debtor lives or does
business, the bond will be effective in only the areas where it was
registered
- If the debtor is a company, the bond must be registered in the area
where its registered office is located
- Such registration is effective for the whole country
- In instances where it is necessary to register the bond in more than
one deeds office, the second registration must be done within one
month of the first registration, the third within one month of the
second, and so forth

Perfection of the security of a notarial bond:

∑ The mere registration of a notarial bond does not necessarily create a
real security right in the creditor’s favour
∑ The security is not automatically perfected (or completed), since
certain additional requirements might have to be fulfilled, depending
on the circumstances, for it to have a third-party effect
∑ The registration of notarial bonds allows the parties to create a
security right (pledge) subject to certain conditions over movables
without necessarily having to fulfil the delivery requirement
∑ Below general and special notarial bonds are discussed with the focus
on how and when a real security right is created

1. General notarial bonds:

- Covers literally all the movables of the debtor at any given moment in
time
- Covers both corporeal and incorporeal movables

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- The mere registration of a general notarial bond does not grant the
creditor a real security right – a further step must be taken to perfect
or complete the security

Perfection:
∑ The process through which the creditor obtains physical control of
some or all of the property
∑ The creditor may not take the law into his own hands by simply taking
possession of the goods
∑ If the debtor does not voluntarily deliver the movables to the creditor,
the creditor can obtain a court order authorising it to have the
property attached and placed under its control
∑ Perfection can even entail the creditor’s taking control of the debtor’s
entire business

Perfection clause:
∑ A perfection order will be granted only if the bond includes a
clause authorising the creditor to receive control – a so-called
perfection clause
∑ The clause should specify the circumstances under which the creditor
is allowed to receive control of the property
∑ The clause should preferably also set out the exact powers and duties
of the creditor while it is in control of the property and set out the
circumstances in which the property can be returned to the debtor or,
for instance, realised to discharge the debt
∑ The clause could not contain a pactum antichresis, which authorises
the creditor to use and enjoy the property during the period of
possession
∑ The perfection clause entails the debtor incurring a duty to deliver his
movables to the creditor in pledge under certain circumstances
∑ The perfection process accordingly amounts to specific enforcement of
this contractual duty
∑ Contract Forwarding (Pty) Ltd v Chesterfin (Pty) Ltd:
o Courts have a discretion to refuse to grant the order for specific
performance when it comes to perfecting general bonds
o However, they will not easily exercise this discretion against
bondholders, since doing so could deny bondholders their only
remedy

After perfection of the bond:

∑ The creditor is in the position of a normal pledgee to whom the
property has been delivered and will therefore have the same rights
and duties with respect to the property
∑ The creditor will have a full real security right (pledge) for all intents
and purposes, including when the debtor is sequestrated or liquidated

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- This perfection option is rendered quite powerful by the fact that the
bond can be perfected until right before the debtor is sequestrated or
liquidated
- This court-authorised taking of physical possession, as long as it
occurs before the moment of sequestration, usually cannot be set
aside by the trustee or liquidator
- Possession can be taken in terms of an interim order obtained with an
ex parte application
- Contract Forwarding (Pty) Ltd v Chersterfin (Pty) Ltd and
Development Bank of SA Ltd v Van Rensburg:
o Although the order must be confirmed (or overturned) on the
return date, the date of perfection will be the date on which the
property is physically attached and taken into the bondholder’s
possession, not the later date on which the order is confirmed

Findevco (Pty) Ltd v Faceformat SA (Pty) Ltd:

∑ The constitutional validity of perfection clauses was placed in doubt
∑ The court denied the bondholder’s claim of perfection because
perfection would arguably amount to a form of self-help and a
contravention of the right of access to courts provided in s34 of the
Constitution
∑ The court’s reasoning has been criticised by scholars and rejected by
subsequent courts
o If the perfection of a bond is authorised by a court, there can be
no question of self-help or denial of the other party’s right of
access to court
∑ In this regard, a court may refuse to grant a particular perfection
order because of the unjust results perfection may have in the
circumstances of the case

Unperfected general notarial bonds:

∑ Prior to perfection, a general bond does not grant the creditor a real
security right
∑ It grants a mere personal right
∑ Therefore, the creditor cannot prevent the debtor from selling the
bonded property or pledging it to another creditor
∑ Although an unperfected general notarial bond does not seem very
useful, since it amounts to nothing more than an unperformed pledge
contract, it does have a unique benefit in insolvency law
∑ If the debtor is sequestrated, the creditor under an unperfected
general bond will not be a secured creditor but will be a preferent
creditor with reference to the free residue of the insolvent estate
∑ After the secured creditors have been paid and the remaining money
(free residue) is distributed amongst unsecured creditors, the holder of
the general bond will receive payment after the other statutory
preferent creditors but before the normal concurrent creditors

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∑ Although the free residue can contain proceeds derived from both
movable and immovable property, the bondholder’s preference will
extend only to proceeds from the realisation of movable assets
∑ Although an unperfected general notarial bond does not afford the
creditor a real security right, it does not leave the creditor fully
unsecured
∑ The creditor enjoys a quasi-security through preference over
concurrent creditors in the event of the debtor’s insolvency

2. Special notarial bonds:

- Unlike a general notarial bond which covers all the debtor’s movables,
a special notarial bond relates to individual assts that are specifically
singled out as objects of real security
- As is the case with general notarial bonds, the mere registration of a
special notarial bond does not necessarily grant the creditor a real
security right
- The right must be perfected by, for instance, the creditor’s obtaining
physical control
- In the case of special notarial bonds, an additional form of perfection
is provided for in terms of special legislation that grants the creditor a
full real security right through mere registration, provided that certain
requirements are met

History of these security instruments:

∑ Under common law special notarial bonds operated almost exactly as
general notarial bonds and had to be perfected to grant the creditor a
real security right
∑ Without perfection, the holder of a special bond had a special
preference to the free residue of the debtor’s insolvent estate similar to
that of the holder of a general bond
∑ Seeing that these bonds did not provide the kind of real security that
was desired by the commercial world, special legislation was
promulgated in the former Natal Province
∑ The Notarial Bonds (Natal) Act provided that if a special notarial bond
was registered in accordance with the requirements set out in the Act
the mere registration of the bond granted the creditor a real security
right (pledge) as if delivery had taken place
∑ The creditor under such a bond also qualified as a secured creditor for
the purpose of insolvency law
∑ The problem was that this form of real security was available only for
special notarial bonds registered in Natal and only while the movables
were present in Natal
∑ In the rest of the country, the common-law position prevailed
∑ SA Law Commission investigated the matter and suggested certain
reform to unify the law in this regard
∑ Cooper NO v Die Meester:

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o The special preference to the free residue in insolvency law

applied to general notarial bonds only, not to special notarial
bonds
o Consequence was that special notarial bonds that were
registered outside Natal conferred no preference whatsoever
∑ The Security by Means of Movable Property Act was enacted
∑ The SMPA repealed the Notarial Bonds (Natal) Act and in its place
introduced the system that now applies across the entire country
∑ A special notarial bond that complies with the requirements set out in
the SMPA gives the creditor a full real security right (pledge) as if the
property concerned had been delivered to that creditor
∑ The result is a full non-possessory pledge available throughout the
entire country
∑ The SMPA also amended the Insolvency Act to include within its
definition of ‘special mortgage’ the rights created under a notarial
bond that complies with the SMPA, thus establishing the holder of a
special bond as a secured creditor

SMPA sets out 3 requirements for special notarial bonds: (s1(1) of SMPA)
∑ The bond must be registered in accordance with the provisions of the
Deeds Registries Act
∑ It must cover corporeal movable property
∑ The movable property must be specified and described in the bond in
a manner which renders it readily recognizable

- SMPA only applies to special bonds registered after 7 May 1993, when
it came into operation
- Registration fulfils the publicity principle whereas the correct
description of the property fulfils the specificity principle
- Together they justify the status of the holder of a special bond as a
secured creditor
- Remember that a special bond that does not comply with the SMPA
will confer neither a real security right nor a special preference upon
the debtor’s insolvency

Aspects of the requirements of the SMPA:

∑ Does not cover incorporeal movables
o Real security over such assets cannot be achieved through
special notarial bonds
o Instead, a cession in securitatem debiti must be used
∑ The description requirement is the requirement on which the real
(third-party) effect of most special notarial bonds will stand or fall
o The general idea is that a third party, who will be held bound to
the terms of the bond, should, when he consults the register, be
able to know precisely which individual movable objects of the
debtor are subject to the real security right of a creditor
o Ikea Trading und Design AG v BOE Bank Ltd:
ß Deals with requirements in s1(1) of SMPA

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ß SCA was called upon to give content to this requirement

and to decide when it will be fulfilled or not
ß Central conclusion of the court was that the property will
be readily recognizable from the bond if the parties can
determine its identity without reference to extrinsic
evidence
ß The description may not be general or generic but must
be specific enough to enable parties to identify the
relevant encumbered property by reference to the wording
of the bond alone
ß The description must be so specific that only the
encumbered object, and not another object of the same
kind, is identified as the security object
o One of the practical consequences is that a collection of goods,
such as stock-in-trade or a flock of animals, cannot be given in
security with the special notarial bond contemplated in the
SMPA, since the collection would not be susceptible to specific
enough description in the bond
o SMPA is ideal for individual assets that can be identified
through something like an individualised registration number,
barcode or mark but not for assets that are of a generic nature
∑ If all the requirements are met, the relevant property will,
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
o When the secured debt is discharged, the creditor must, at the
request of the debtor, provide the latter, free of charge, with
proof of such discharge to enable the cancellation of the notarial
bond
o Ikea Trading und design AG v BOE Trust Bank Ltd:
ß The result is that, if the SMPA is complied with, the
creditor will enjoy a full real security right for all intents
and purposes, without the need to receive delivery of the
movable – hence the creditor will have a true non-
possessory pledge
∑ Because the registration of such a special notarial bond creates a
pledge in favour of the creditor, and because the SMPA provides no
further detail on the content of this security right, all the normal
common-law principles of pledge apply as far as the application of
such principles is practically possible

Consequence of classifying the bondholder’s right as a pledge:

∑ As a limited real right, it has third-party effect
∑ Accordingly, the creditor can follow the burdened asset into the
hands of even innocent third parties who acquire it from the debtor
∑ A necessary consequence of this fact is that one of the rules that
normally applies to the common-law pledge (the mobila-rule that

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states that hypothecated movables cannot be followed) does not apply

to special bonds under the SMPA

When more than one security right vests over a movable:

∑ The deemed pledge under the SMPA is subject to any encumbrance
resting upon the property on the date of registration of the bond
o This implies that it is possible for more than one security right
to vest over a movable
o For instance, a possessory pledge and one or more special
notarial bonds
o In this regard, the SMPA respects the prior in tempore est potior
in jure (first in time is first in right) rule
∑ It is also possible for a general and a special bond to be registered in
respect of the same assets
o In such cases a special bond that complies with the SMPA will
always be preferred over the unperfected general bond, since the
latter confers no real security but only a personal right
o If the general bond is perfected, it will be treated as a normal
pledge, which means that it will outrank the special bond if it
was perfected before registration of the special bond
∑ It is possible for the same movable assets to be subject to both a
special notarial bond and the tacit hypothec of a landlord
o Before the SMPA came into effect, the bondholder’s claim
ranked below the claim of the landlord (even under the Notarial
Bonds (Natal) Act)
o The SMPA changed this situation and now expressly provides
that any property which is subject to a special notarial bond
that complies with the SMPA is excluded from the operation of a
landlord’s hypothec unless the bond was registered after the
hypothec was perfected
o SMPA also stipulates that the security right created under the
Act does not affect any mortgage, hypothecation, pledge, tacit
hypothec, preference or lien that is acquired by or in accordance
with any law by anybody corporate or association of persons
established under any law and supported wholly or partly by
public funds
o In other words, these rights will always trump rights created in
terms of the SMPA

- Although compliance with the SMPA affords the creditor a full real
security right without having to take physical control of the property,
in principle there is nothing preventing parties from including in the
bond a clause that permits the creditor to take control under certain
circumstances
- However, the purpose of this control cannot be to perfect the bond,
since the security is already perfected through compliance with the
SMPA, but to fulfil another purpose (as stipulated in the bond) such
as protecting the property from damage or preventing it from being
unduly disposed of

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- It is useful to include such a ‘perfection’ clause into the bond in case

for one reason or another the SMPA was not complied with
- In such circumstances the clause would allow the creditor to perfect
the bond to ensure that he becomes a secured creditor

If the SMPA is not complied with:

- The special bond will not be invalid
- It will simply not create a non-possessory pledge
- The bondholder must first perfect the bond by taking possession of
the property before he obtains a real security right
- In this respect a special bond that does not comply with the SMPA is
very similar to a general bond, except that, unlike the general bond, it
does not confer preference to the free residue of the debtor’s insolvent
estate

Express real security over movable property:

- There is only one way in which an express real security right can be
constituted over immovable property, namely through registration
- With movables there is more than one way to create a security right
- The term ‘pledge’ is usually used to refer to the real security right that
can be created over movable property
- Such a real security right can be created through a number of routes
- The focus of this section will be on the first of these, a pledge created
through delivery of the property to the secured creditor
- It is also possible to create real security over movables by registering a
notarial bond, as explained above
- Incorporeal movable property such as personal rights with a monetary
value can also be used as objects of real security
o Through cession in securitatem debiti
- Reservation of ownership or retention of title is not a classic real
security right, but clearly has a security purpose and therefore
functions as a form of security for the amounts owed to the seller

Creation of real security over movables:

- Can be created only by means of a real agreement that comprises the

animus and corpus elements
- Animus element:
o Intention of the debtor (pledgor) and creditor (pledgee) to use a
specified movable as an object of security for a debt
- Corpus element:
o Physical expression of this intention
o Gives publicity to the transaction so that the security right can
have a real effect enforceable against third parties
o Can be achieved either through:
ß physical delivery of the property to the creditor, or
ß the registration of a notarial bond

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ß if the movable is incorporeal, a cession in securitatem

debiti is required
ß some kinds of movables like ships, aircrafts and certain
kinds of intellectual property’s real security right can be
created through a specialised registration procedure only

- Any movable thing can be used as an object of real security, provided

it is tradable (res in commercio)
- It is also possible to pledge a so-called universal thing (rerum
universitas) such as a flock of animals or the stock-in-trade of a
business
- If a collection of goods is subject to real security, it is regarded as one
thing for the purposes of real security and the entire collection will
remain subject to the pledge even if it fluctuates in size
- It is possible to pledge a non-existent future thing, but the real
security right will come into existence only when the corpus element is
satisfied, which is when the property comes into being and the
delivery or registration requirement is met
- Property can be pledged only by its owner or his agent (consequence of
the nemo plus iuris rule)
- The owner must also have the necessary contractual capacity
- When an unauthorised non-owner pledges a movable, the true owner
is not bound by the transaction and the supposed pledgee will
therefore have no limited real right enforceable against the owner
o Exceptions (pledge will then be valid retrospectively):
ß The debt secured by the pledge involves money used in
good faith for the owner’s benefit
ß The pledgor subsequently became the owner of the
pledged property
ß The owner later ratifies the unauthorised pledging of his
property
- The real security covers the movable in question as well as any fruits
that it might produce or any objects that might become attached to it
- Security is indivisible
o The pledge burdens the entire object
o Partial payment of the debt will not release a portion of the
property

Main ways in which the corpus element can be fulfilled:

∑ Delivery
∑ Creation of a notarial bond
∑ Cession of personal rights (in securitatem debiti)

1. Delivery:

- Central idea is that physical control of the asset pass from the debtor
to the creditor
- It is important that the debtor no longer have any direct or indirect
control of or access to the movable, since continued control or access

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could give outsiders the wrong impression regarding the status of the
relevant asset

1.1. Actual delivery (traditio vera):

- Simplest form
- Involves
o Debtor directly handing the thing over to the creditor, from one
hand to another (de manu in manum), so that it is placed in the
latter’s physical control
o Transporting the pledged thing to the pledgee’s premises where
it remains under the pledgee’s control
o Situations where the pledgee’s agent (or someone akin to an
agent) receives and holds physical control on the pledgee’s
behalf (Contract Forwarding (Pty) Ltd v Chersterfin (Pty) Ltd)
- These days actual delivery is probably used only for small short-term
loans like when an object is handed over to a pawnbroker in exchange
for a cash loan
- Law allows certain constructive or fictitious forms of delivery (traditio
ficta) that do not require direct, physical handing over from the
pledgor to the pledgee
- In these instances, the intention of the parties is usually closely
investigated to ensure that the limited or lack of physical delivery is
not part of a scheme that could deceive third parties

1.2. Instrumental (or symbolic) delivery (clavium traditio or

traditio symbolica):

- When the pledgee is given an instrument that places him in a position

to exercise exclusive control over the pledged property
- Examples:
o Key to a warehouse in which objects are stored (Heydenrich v
Saber)
o A bill of lading concerning movables being transported on a ship
o Receipt (like a silo receipt) that entitles the holder to take
physical control of the property
- When something like a key is used to transfer and exercise control
over goods that are stored in a building
o It is important that all the keys are handed over and that they
remain with the pledgee so that the pledgor retains no control
for the duration of the transaction
o The pledge will not be effective if the pledgee receives the key
but then gives it back to the pledgor
o If the pledgor retains a duplicate key, the pledgee does not have
effective control and therefore the pledge will not be recognised
o Heydenrich v Saber:
ß If the pledgor retains a duplicate key in a fraudulent
manner without the pledgee’s knowledge and then
disposes of the property by, for instance, delivering it in

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pledge to another creditor, the first creditor’s pledge might

be recognised by the court if the first pledge transaction
was concluded in good faith

1.3. Delivery with the shorthand (traditio brevi manu):

- Where the object is already under the physical control of the

prospective pledgee but in some other capacity – for instance, as
lessee, employee or agent
- Delivery does not take place through any physical movement of the
object, since it is already with the intended pledgee
- Vasco Dry Cleaners v Twycross:
o The pledge is created through a mere change of intention
between the parties, namely that the holder should no longer
control the property in his previous capacity but henceforth as a
pledgee
- It is important that the creditor be in actual control of the movable at
the moment when the parties’ intention changes
- If prior to the pledge the creditor is in control of a number of items
belonging to the debtor, it is necessary to separate the goods that are
intended to be pledged from the rest
- A court will closely investigate such transaction to ensure that it is
genuine and concluded in good faith

1.4. Delivery with the long hand (traditio longa manu):

- Control of property is transferred from the debtor to the creditor when

the former points the object out to the latter under circumstances
where the creditor, and no longer the debtor, is henceforth able to
exercise exclusive control of the object
- Mere pointing out is usually not enough, since the goods must also be
separated from the debtor’s other assets and the creditor must in
some way take the property into his control
- This form is most appropriate when the property is too heavy or bulky
for actual delivery, but its use normally requires a special explanation
- Courts will closely consider the parties’ intentions and bona fides,
since delivery with the long hand could, if abused, mislead third
parties as to the true state of affairs

1.5. Marking:

- There is no direct authority for the view that the making of a mark on
a thing can be used to deliver it to the pledgee, but there is probably
also no objection to making use of this form of identification under
appropriate circumstances

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- Indirect support of this view can be found in other contexts – in

pledges employing delivery with the long hand, special notarial bonds,
statutory liens, and the transfer of ownership
- Where a certain manner of marking is customarily used to identify
certain characteristics (such as ownership) of movable objects, there is
no reason in principle why it cannot be fruitfully used to create
security rights too
- One must be careful and investigate whether this use would be
appropriate in the particular circumstances
- The overriding question is always whether effective control moved
from the pledgor to the pledgee in such a way that the transaction is
adequately publicised to outsiders

1.6. Attornment:

- Attornment is a specialised form of delivery which makes use of the

notion that physical control can be exercised through an agent of the
legal possessor
- It involves a tripartite agreement between the pledgee, the pledgor and
a third party who is in physical control of the thing on the pledgor’s
behalf
- Takes place when the third party, who physically controls the
property, agrees no longer to do so as the pledgor’s agent but
henceforth on the pledgee’s behalf
- In this way legal control passes from the pledgor to the pledgee while
physical control remains with the third party, who now acts as the
pledgee’s agent
- Payn v Yates:
o It is generally accepted that a pledge can be created in this
manner
- However, the third party must separate the pledged movables from
any other assets that he might be holding on the pledgor’s behalf
- Important requirement:
o All three role players must be in agreement regarding the
changed legal position at the same time, at which moment
delivery happens
- There is, however, authority that the third party can consent in
advance

1.7. Constituted possession:

- Delivery in terms of the doctrine of constitutum possessorium

- Someone, through a mere change of intention, passes legal control to
another while undertaking to retain physical control on the latter’s
behalf
- In a sense, it is the converse of delivery with the shorthand
- It is generally accepted that constitutum possessorium is permissible
when it comes to the transfer of ownership

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- The importance of protecting third parties from being deceived by the

physical location of the asset dictates the general rule that constitutum
possessorium cannot be used to create or maintain a right of pledge
o Lighter & Co v Edwards and Vasco Dry Cleaners v
Twycross:
ß Recognised the only exception to the general rule above
ß When the pledgor continues to control the property in
good faith, not in order to deceive other creditors and not
for the pledgor’s own use and benefit
- Because constitutum possessorium may be used to transfer ownership,
it often happens that parties conclude a transaction in terms of which
they purport to transfer ownership of an asset which, in reality, they
intend to use as an object of real security
- In a sense, they pretend that the debtor sells an asset to the creditor,
which the debtor would then buy back after a while (when the debt is
paid)
- Example:
o A ‘sale and buy-back’ or ‘sale and lease-back’ transaction
ß X sells his asset to Y for cash and then buys or leases it
back under a contract that requires periodic payments
ß X remains in possession of the asset but Y remains its
owner until all payments have been made
- Vasco Dry Cleaners v Twycross:
o Over the years the courts have confirmed that the principle of
‘substance over form’ applies and therefore that a transaction
must be judged according to its true nature and not according
to the terms used by the parties
o Courts will regard a ‘sale and buy-back’ transaction as a credit
agreement secured by a pledge, except that the pledge is
ineffective (granting no real security) because constitum
possessorium was used

2. Registration of notarial bonds:

[Explained above]

3. Cession of personal rights (in securitatem debiti):

- An intangible object can be pledged when control of it is passed to the

secured creditor
- The manner in which control is transferred depends on the nature of
the thing
- An intangible movable asset consists of a personal right (or claim) with
a monetary value
- The object of the claim is another person’s duty to deliver a specified
performance (typically payment in terms of a contract, delict or unjust
enrichment)

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- For present purposes, most valuable intangible assets that are used
for real security purposes consist of personal rights that derive from
contracts or other kinds of investments (credit agreements, insurance
policies, shares etc.)
- In other words, a personal right with a monetary value can itself serve
as an asset that can be pledged as security for a debt owed to a
creditor

Only way control of an intangible movable asset can be transferred to a

creditor:
∑ Cession of the personal right to it

Cession:
∑ A legal phenomenon that is used to transfer personal rights and hence
to replace one creditor with another
∑ Usually has no formalities
∑ Only requirement is the intention to transfer and receive on the part of
the two parties, the cedent (transferor) and the cessionary (transferee)
∑ Legislation or agreement between the parties can create extra
requirements or limitations
∑ Unless agreed otherwise or determined otherwise by law, the original
debtor (the person who owes a duty under the ceded claim) does not
have to consent to or even be informed of the cession
∑ If he is not informed of the cession, he can discharge his debt by
continuing to pay the original creditor
∑ When the personal right is recorded in a document (e.g. contract), the
document does not have to be delivered to the cessionary unless the
personal right does not exist independently of it

Cession in securitatem debiti:

∑ Cession can also be used to pledge a personal right
∑ In this sense, cession is comparable to delivery, which can be used to
transfer ownership or to create a limited real right
∑ When a cession is used to create a security right, it is referred to as a
cession in securitatem debiti

Main theories of the uncertainty regarding the precise legal consequences of

such a cession made for security purposes:
∑ First theory is based on the law of pledge and likens the personal right
to an incorporeal ‘thing’ that can be owned by one person (the debtor)
but controlled (quasi-possessed) by another (the secured creditor)
o Control of the right is defined as the ability to enforce the right
or to collect the debt
o The effect of the security cession is to transfer the ability to
exercise or enforce the personal right to the creditor/pledgee,
who is granted a real security right in that asset, but ownership
(bare dominium) of the right remains with the debtor/pledgor

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∑ Second theory is based on the assumption that the above theory is not
dogmatically sound, because one cannot technically split ownership
and control of a personal right and because it appears nonsensical to
have a limited real right in an asset that consist of a mere personal
right
o Therefore, one can only use a personal right for security
purposes by fully transferring the right to the creditor, but by
making this transfer subject to a fiduciary agreement that the
cessionary retransfer the right to the cedent after the secured
debt has been paid
o Full ownership of the right passes to the secured creditor
(cessionary), while the debtor (cedent) retains only a personal
right to eventually retrieve the right after the secured debt has
been paid
o Often referred to as the ‘out-and-out’ or outright or absolute
security cession theory

Practical difference between the two theories:

∑ Most strikingly in insolvency law
∑ In the case of an absolute security cession:
o The ceded asset would have fully left the cedent’s estate and
thus would not form part of his insolvent estate
o The asset vests in totality with the cessionary, while the trustee
of the cedent would have only a personal right to reclaim asset
only after debt is paid
o Should the cessionary be sequestrated, the ceded right would
fall into the cessionary’s insolvent estate and the cedent would
have only a personal claim for its return
o Even after the debt has been repaid, the ceded claim must first
be receded to the original cedent before it can gain be part of his
estate
∑ If the pledge theory is followed:
o The asset remains in the pledgor’s estate and the cession does
not transfer it in totality to the pledgee
o Instead, the pledgee receives a real security right in that asset,
which means that the pledgee would be a secured creditor
should the pledgor be sequestrated
o Because ownership of the asset remains with the pledgor all
along and the asset does not fall within the pledgee’s estate, the
pledgor would not be prejudiced by the pledgee’s sequestration
o The trustee of the pledgee’s estate can collect on the
outstanding loan by means of the pledgee’s security right in the
pledged asset
o When the debt is repaid, the security right will automatically
cease to exist

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o Nothing extra is needed to return the asset to the pledgor and

the limitation on his asset will simply fall away

- It has been argued that the outright security cession theory is

doctrinally purer and that the pledge theory should therefore be
rejected, while it has been suggested that the pledge theory be
available as an alternative option
- In fact, it has become clear that the pledge construction is more
realistic and in line with the true purpose of the transaction
- It also leads to a more equitable outcome in the case of either party’s
insolvency
- Courts have therefore overwhelmingly found in favour of the pledge
theory, although an outright cession remains possible if the parties
expressly formulate their transaction accordingly

Operation of a pledge:

The main consequences of a perfected security right:

∑ The creditor can prevent the debtor from disposing of or burdening the
property without the creditor’s consent
∑ The secured creditor has preference to the proceeds of the property
should it be realised in the course of insolvency proceedings or debt
execution at the instance of another creditor
∑ The secured creditor may call up (or foreclose) the security by having
the property sold in execution and then using the proceeds to
discharge the outstanding debt

Rights and duties when the creditor is in control of the property:

∑ One of the consequences of passing control to the creditor is that the
debtor may not use or enjoy the property for the duration of the
transaction, otherwise the creditor would not be in effective control
∑ Creditor may not use or enjoy the property
o The reason for this is that the content of its right relates only to
the holding of the property as security and not to suing it
otherwise
o The parties may agree that the creditor may use and enjoy the
property and draw its fruits (as a way of covering the interest on
the lone or even the entire debt)
o Without a term to this effect the creditor may not use the
property
o If there is no pactum antichresis, the creditor must account to
the debtor for the fruits derived from the asset and return them
with the pledged property once the debt is discharged
∑ The creditor has to take care of the property
o This duty is part of the naturalia of the pledge contract and
cannot be excluded by agreement
o The standard of care expected of the creditor is that of the
reasonably careful and diligent person (bonus paterfamilias)

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o The onus is on the creditor to explain why it cannot hand the

property back to the debtor in a proper state
o Necessary expenses incurred by the creditor to preserve the
property may be recovered from the debtor
o Creditor may even refuse to return the property to the debtor
until it is reimbursed for these expenses
o This duty of care is particularly important when a general
notarial bond is perfected to such an extent that the creditor
takes over the debtor’s business or when intangibles like
shares, debts and insurance policies are ceded to the creditor in
securitatem debiti

The right to follow the property:

∑ A creditor who voluntarily gives up control of the property forfeits its
security as a consequences of the maxim mobilia non habent sequelam
ex cause hypothecae
∑ This rule does however not prevent the creditor from regaining control
that was lost involuntarily
∑ Example:
o Creditor may rely on the mandament van spolie if it was
unlawfully dispossessed of the property
∑ Creditor can get an interdict to prevent impending interference with
its control
∑ What happens when a debtor sells and transfers ownership of the
property to a bona fide third party:
o Because such a transfer cannot happen without the creditor’s
co-operation if the creditor is in effective control of the property,
it is more of a problem in the case of non-possessory pledges
like the one created when a special notarial bond is registered in
accordance with the SMPA, or like those established by
operation of law
o It is generally accepted that with such a non-possessory pledge,
the creditor may follow the property into the hands of even
innocent purchasers, and have it attached and sold in
satisfaction of the debt

Enforcing the pledge:

- One of the key features of a real security right is that the secured
creditor has a preference with respect to the proceeds derived from the
sale of the burdened property

This principle can manifest in three ways:

∑ Should the debtor be sequestrated or would-up, the holder of a pledge
would be a secured creditor in terms of the Insolvency Act
o The Act’s definition of security includes pledges
o The Act also provides that when property that is subject to a
pledge is sold during the sequestration process, the proceeds of

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the sale must be used to satisfy the pledgee’s claim after certain
costs are deducted
∑ If the property is attached and sold in execution at the instance of
another (unsecured) creditor, the pledgee’s claim to the proceeds will
enjoy preference over that of the execution creditor
∑ When the debtor commits a breach of the loan agreement, the creditor
can call up the pledge in order to have the property realised and settle
its claim from the proceeds
o If the creditor is not in control of the property, it must obtain an
attachment order to have the sheriff attach and sell the property
at a public auction
o The holder of a special notarial bond would have to follow this
course of action
o However, a pledgee who is already in control of the property
does not require a court order to have it attached
o This does not mean that the pledgee can simply go ahead and
sell the property
o Unless it is contractually authorised to do so, the creditor
requires court authorisation to sell the property
o The property must then be sold at a public auction to the
highest bidder

- Despite the general rule that the creditor may have the property sold
only if it obtains court authorisation, it is possible for the parties to
agree otherwise

Three types of clauses that can be included in a pledge agreement to bypass

the courts:
∑ Pactum commissorium (or lex commissorium):
o A contractual clause that allows the creditor to ‘keep’ the
property as payment for the outstanding debt when the debtor
defaults
o If the debtor defaults, the creditor can invoke this clause and
become owner of the property in exchange for discharging the
debt, regardless of the size of the debt or the value of the
property
o Bock v Duburoro Investments (Pty) Ltd and Vasco Dry
Cleaners v Twycross:
ß A pactum commissorium in a security contract is invalid
o Reason for this prohibition is that such clauses are harsh and
open the door to injustice
ß A vulnerable debtor who is desperate for funding might
agree to unreasonable conditions such as allowing the
creditor to keep the property even if the value of the
property far exceeds the size of the debt
∑ Quasi-conditional sale:
o Seems similar to a pactum commissorium, but does not suffer
from the same objections

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o Such a sale entails a clause that allows the creditor to acquire

the property when the debtor defaults but at a reasonable price
that is determined at the time of default
o The value of the asset is then offset against the outstanding
debt and any surplus paid to the debtor
o Bock v Duburoro Investments (Pty) Ltd:
ß A clause like this will be valid provided that a fair value is
attributed to the asset, whether through agreement, by an
expert or according to a publicly listed market price, and
the value is determined after the debtor defaults and not
when the pledge agreement is concluded
∑ Parate executie (summary execution) clause:
o Allows the creditor to sell the property when the debtor defaults
but without first receiving court authorisation
o Osry v Hirsch, Loubser & Co Ltd:
ß Court concluded that summary execution clauses are
indeed valid in pledge agreements with regard to movable
property, but that the debtor can seek the court’s
protection if the creditor exercised its rights under the
clause in a way that prejudiced the debtor’s rights
o Findevco (Pty) Ltd v Facefromat SA (Pty) Ltd:
ß Relied on the fact that the Constitutional Court recently
declared certain statutory measures unconstitutional
because they permitted the seizure and sale of a debtor’s
property without a court order
ß This HC reasoned that a contractual clause under
common law cannot allow this result either
o Bock v Duburoro Investments (Pty) Ltd:
ß Rejected the Findevco judgment and reaffirmed the
position set out in the Osry case
ß Court’s reasoning was that, unlike the statutory
provisions that were declared unconstitutional for failing
to uphold the right to access to courts, summary
execution clauses do not authorise a creditor to seize and
sell property that is under the debtor’s control or against
the debtor’s will, nor do they entitle the creditor to take
the law into its own hands
ß The current legal position is that summary execution
clauses are lawful with the exception that the debtor can
approach the court for protection if, for instance,
enforcement of such a clause will in the circumstances be
against public policy
o This debate continues, and uncertainty has been addressed by
the fact that the National Credit Act does not permit summary
execution clauses in pledge agreements, except in those that
qualify as pawn transactions

Other forms of registration of security rights over movables:

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- If ownership of movables is recorded in a special register, it makes

sense that security rights over such movables are also recorded in the
same register
- Since publicity is adequately achieved by registration, delivery is
unnecessary
- Examples:
o Ships
o Aircrafts
o Certain kinds of intellectual property like patents, designs and
trademarks

Ships:
∑ A ship can be given a real security by registration of a so-called
mortgage instrument that is recorded by the registrar of ships in the
SA Ships Register
∑ A result of successful registration is that the creditor holds a real
security right (special mortgage) for insolvency purposes
∑ The creditor can enforce its security by applying to court for a
judgment and an order to have the ship sold in execution

Aircrafts:
∑ The mortgaging of aircrafts is regulated by the Convention on the
International Recognition of Rights in Aircraft Act 59 of 1993 and the
Mortgaging of Aircraft Regulations 1997
∑ A security right is established by the recording of a deed of mortgage
by the director for civil aviation in a special register
∑ The creditor can enforce its security by applying to court for a
judgment and an order to have the aircraft sold in execution

Patents, designs and trademarks:

∑ Ownership of these is registered with the companies and Intellectual
Property Commission
∑ These assets can therefore also be given in security by the recording of
a security right in the same register
∑ Another form of intellectual property, namely copyright, is not
registered
∑ It is generally assumed that copyright can be given in security by
means of a cession in securitatem debiti, since the Copyright Act does
not expressly refer to security rights over copyright and allows for the
complete or partial assignment (cession) of copyright

Ownership of movables as a security right:

- Property is usually given in security by the creation of a limited real

right in the creditor’s favour

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- It is sometimes possible to use ownership itself (a complete right) to

this end
- Most common example of using ownership as a security right:
o When an asset is sold on credit but the transfer of ownership is
contractually suspended until the purchase price is paid in full
o This arrangement is typical in instalment agreements in terms
of which the purchaser must pay the purchase price in
periodical instalments to the seller over a certain period
o Because the seller remains owner until the final instalment is
received, his retained ownership functions as a form of real
security
o If the purchaser fails to keep up with his instalments, the seller
can cancel the agreement and institute the rei vindicatio to
repossess the asset

3. Tacit real security:

- Tacit real security rights are created without the presence of a real
agreement between the debtor and the creditor
- They come into existence by operation of law (ex lege) as soon as
certain requirements are met
- The real security right is not a result of a voluntary agreement
between the parties but originates in statutory or common law

Tacit real security in common law:

Tacit real
security

In common law In legislation

Landlord's tacit Rights of

hypothec retention (liens)

Judical
mortgage or
pledge

Landlord’s tacit hypothec:

Definition:
∑ A real security right created by operation of law to secure the lessor’s
claim against the lessee for arrear rental

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Function:
∑ Secure the lessor’s claim for arrear rental by way of attachment of the
lessee’s property and the sale in execution thereof

- Comes into effect by operation of law as soon as, and for as long as,
the lessee is behind with his duty to pay rent

The hypothec is a floating security:

∑ Although the lessee’s hypothec automatically comes into existence
when the lessee false behind with rental payments, the lessor does not
automatically have a limited real right
∑ It is triggered at default, but not yet enforceable
∑ Lessor has to attach property in order for the hypothec to be
enforceable
∑ The security must be perfected in order for a limited real right to vest
in the landlord
∑ In this sense, the lessor’s tacit hypothec functions somewhat like a
general notarial bond
∑ The lessor’s hypothec is regarded as perfected when
o The lessor lawfully obtains physical control of the movables
wither when the tenant voluntarily hands them over on
demand, or
o The landlord attaches and removes them on the authority of a
court order

Mechanisms in the Magistrates’ Courts Act that the lessor can utilise to
ensure lessee doesn’t get rid of property: (2 of the lessor’s 3 mechanisms)
∑ Section31:
o So-called automatic rent interdict
o When a landlord issues a summons claiming payment of the
rent, he can include in the summons a notice prohibiting any
person from removing the movables that are subject to the
hypothec from the premises
o The interdict automatically becomes operative when the
summons is issued, but the interdict operates only against
persons with knowledge thereof
o The interdict does not literally perfect the hypothec in the sense
that a limited real right is established, but it at least provides a
way to prevent the removal of the movables by persons with
knowledge of the interdict
∑ Section 32:
o A magistrate can order the messenger of the court to attach
movables to which the hypothec applies
o The messenger so instructed attaches the movables ‘upon the
premises’, thus not by removing them from the premises but by
making an inventory of the relevant movables and leaving a
copy of the inventory along with the warrant of execution with
the debtor

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o The effect of this attachment is that the movables may not be

removed from the premises by anyone
o The hypothec is considered perfected without the lessor having
to take physical control of the movables

Urgent interdict (lessor’s third mechanism)

∑ Before the hypothec is perfected by taking one of the above-mentioned
steps, it is very weak in that the lessor cannot prevent the lessee from
removing the movables from the premises
∑ The lessor has no right to assets that are removed
∑ When the movables are in the process of being removed and underway
to their new destination, the lessor has a short window of opportunity,
before the movables reach their new destination, to obtain an urgent
interdict to compel the lessee to return them to the leased premises

The subject matter of the lessor’s security:

∑ General rule:
o The movable asset present on the leased premises – the invecta
et illata
∑ Requirements for invecta et illata to be subject to the lessor’s tacit
hypothec:
o Movable property
o Belonging to lessee
o Must be found on lease premises
∑ The emphasis is on movables that were brought onto the premises to
remain there indefinitely
∑ Movables brought there for a temporary purpose are not covered
∑ Assets belonging to other persons may also be present on the
premises
∑ These assets of other persons may be covered by the lessor’s hypothec
to the extent that the tenant’s own movables are insufficient to cover
the outstanding rent
∑ A sublessee’s assets will be covered by the hypothec only to the degree
that the sublessee owes rental to the lessee

Applicability of the hypothec to assets belonging to neither the lessee nor the
sublessee: (exception to general rule mentioned above – invecta et illata)
∑ According to common law, third-party assets are subject to the
landlord’s hypothec provided that certain requirements are met
∑ Bloemfontein Municipality v Jacksons Ltd:
o Extended the lessor’s tacit hypothec to property belonging to
third parties
o The third-party owner will be taken to have consented to
the goods being subject to the landlord’s tacit hypothec and
liable for attachment when:
ß The goods belonging to the third person are brought onto
the leased premises with the knowledge and consent,
express or implied, of the owner of the goods; and

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ß With the intention that they shall remain there

indefinitely for the use of the tenant; and
ß For the use and enjoyment of specifically the lessee, and
ß The landlord is unaware that the goods do not belong to
the tenant
o Court also elaborated on the 1st requirement
o Held that consent and knowledge of the owner of the goods
being subject to the lessor’s tacit hypothec can be implied where
the owner failed to take reasonable steps to protect its property
against the lessor’s tacit hypothec
∑ Paradise Lost Properties v Standard Bank of SA:
o Court elaborated on 4th requirement
o Held lessor couldn’t claim ignorance of the fact that the movable
property belonged to someone other than lessee if reasonable
care on the lessor’s side could reveal that the property belonged
to another
∑ Eight Kaya Stands v Valley Irrigation Equipment:
o Court elaborated on 4th requirement
o Held that where a lessor becomes aware that the property
belongs a third party after default occurred, but before
perfection of the lessor’s tacit hypothec (before attachment by
the lessor of the property) the property will not be subject to the
lessor’s tacit hypothec and cannot be sold in execution to settle
arrear rental

Where a lessor’s tacit hypothec conflicts with a special notarial bond of

another creditor (both apply to the movable property)
∑ S2 of the SMPA provides that a special notarial bond will not be
subject to a lessor’s tacit hypothec unless the hypothec was perfected
before the special notarial bond was registered over the property
∑ Uses the first in time, stronger in right rule
∑ The common-law rule set out in Bloemfontein Municipality-case now
applies only to movables that belong to third parties and that are
present on the leased premises but that are not covered by the
exception in the SMPA

When a lessee is sequestrated (insolvency of the lessee):

∑ No extension of the lessor’s tacit hypothec to property belonging to
third parties
∑ The lessor will be a secured creditor of the lessee’s estate, since the
lessor’s tacit hypothec is included in the definition of security in s2 of
the Insolvency Act
∑ The lessor will be a secured creditor even if the hypothec is not
perfected prior to sequestration
o The granting of the sequestration order itself is enough to
perfect the hypothec
∑ Because the lessor’s secured claim is limited, the hypothec does not
secure the entire outstanding rent
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o S85(2) of the Insolvency Act limits the secured amount

according to the way in which rental payments are structured in
the lease agreement
ß Rent payable at intervals of one month or less, three
months’ worth of rent will be secured
ß Rent payable at intervals between one and three months,
six months’ worth of rent will be secured
ß Rent payable at intervals between three and six months,
nine months’ rent will be secured
ß Rent payable according to another term, the rent secured
is limited to fifteen months’ worth

- Accessoriness principle applies

- Lessor’s hypothec is accessory to the outstanding rental
- When the arrear amounts are paid up or discharged in some other
manner, the hypothec automatically falls away

Right of retention/liens (ius retentionis):

Definition:
∑ Right in terms of which a person is entitled to retain physical control
over the movable or immovable property of another in the event that
this person expended money or money’s worth on that property while
it was under his control
∑ The person in control has a form of security for payment of what is
owed to him by the owner of the property

Purpose:
∑ Serves as security for improver against those who try to claim the
property from the retentor in the circumstances provided to ultimately
ensure that the retentor is reimbursed for the relevant expenses
incurred by him (functions as a defence against the owner’s rei
vindicatio)

- Referred to as a right of retention (ius retentionis) or lien

- Person who retains the property is the lienholder or retentor
- When debt owed to retentor is settled the right to retention will
terminate and the owner will be entitled to return of property (in line
with the accessoriness principle)
- Brooklyn House Furnishers (Pty) Ltd v Knoetze:
o The lienholder cannot use the property, or have it sold in
execution to settle the debt
o He can only keep the property until he is paid
- Right to retention arises when money or money’s worth were extended
on the property of another/improvements were made to the property

Types of expenses:
∑ Necessary

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o Impensae necessariae
o Expenses that prevent the market value of the asset from
decreasing
o Necessary for maintenance or continued existence of the
property
o But for the incursion of expense or undertaking of improvement,
property would have been destroyed, damages or rendered
complete useless
o A lien for necessary expenses is sometimes referred to as a
salvage lien because the lienholder’s expenses salvaged or
‘saved’ the property
o Objective test (what would a reasonable owner have done in the
circumstances)
o Claim in terms of lien is not limited to actual increase in the
value of the property, because in reality the expense is incurred,
or improvement undertaken to obtain value of thing rather than
increase it
o There will be no lien of property perishes
∑ Useful
o Impensae utiles
o Expenses that cause the market value of the property to
increase
o Owner does not have to accept expenditure or improvements
o A lien for useful expenses is often called an improvement lien
because the lienholder’s expenses improved the property by
increasing its value
o Open-ended test takes into account the prevailing uses of
society
o Courts will consider:
ß Financial position of owner
ß Intends to sell or retain for personal use
ß Whether improvement was made in an attempt to
undermine contractual situations
ß Whether owner would have incurred the expense or made
improvement
ß Whether improvement can be separated from property
without causing damage to it
∑ Luxurious
o Impensae voluptuariae
o Expenditure on property that is neither necessary nor useful,
but rather done in pursuance of personal taste and ordinarily
has no impact on the market value of the property
o When an expense or improvement serves this purpose is
determined with reference to the economic and social means of
the community
o General rule:
ß These expenses and improvements will not give rise to an
improvement lien
o Exceptions:

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ß Owner may be liable for an enrichment claim if the

improvement enabled owner to sell property at a
substantial higher price as a result of the fact that it was
impossible to remove the improvement without damaging
property
ß Retentor will be denied the right to remove the
improvement if the owner is willing to reimburse him for
the thing which he wishes to remove
o A lien in respect of luxurious expenses applies only if the
expenses are incurred in terms of a contract between the
creditor and debtor

Brooklyn House Furnishers (Pty) Ltd v Knoetze and Sons:

∑ With necessary and useful expenses, the creditor can exercise a lien
even when there is no contract between the parties

Types of liens:
∑ Contractual lien:
o A creditor spends money on another’s property in terms of a
contract
o Debtor-and-creditor lien or lien ex contractu
o Covers all expenses agreed to under the contract (necessary,
useful and luxurious expenses)
o Can be exercised only against the actual person with whom the
lienholder contracted (enforceable inter partes)
o Commonly regarded as personal liens in nature, since they,
unlike real rights, cannot be enforced against the world at large
(Brooklyn- and D Glaser & Sons-cases)
o Subcategories of debtor-creditor contractual liens:
ß Ordinary debtor-creditor liens
∑ Builder’s lien
∑ Workman’s lien
∑ Warehouse owner’s lien
ß Pseudo liens
∑ Lien that innkeepers or hotel managers have over
the belonging of guests as security for payment
charged for the guests’ stay
ß Liens over documents
∑ Legal practitioners or accountants, etc.
∑ Types of documents:
o Documents that belong to client and in
professional’s physical control in order for
certain work to be done on them specifically
o Documents prepared by professional for client
o Documents belong to client and handed over
to professional for latter to not do work on
them, but use them during course of
preparing other documents or doing other
work for client

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∑ Enrichment lien:
o If the work done on the property is not done in terms of a
contract, or if the person claiming the asset is not the person
with whom the lienholder contracted
o Covers only necessary and useful expenses (not luxurious
expenses)
o Expenses must have unjustifiably enriched the owner of the
property at the lienholder’s expense
o There must be a causal link between the decrease in the
creditor’s wealth and the increase in the owner’s wealth (i.e.
enrichment) without a legal cause
o Can be exercised against anyone who claims the asset from the
lienholder
o Regarded as real in nature because they can be raised against
any third party claiming the property (Brooklyn- and D Glaser &
Sons-cases) (enforceable erga omnes)
o May be used by someone who improves property that he
mistook for his own; when a contract to do certain work was
concluded with someone other than the owner and the owner
now claims his property back; or when, without the owner’s
permission, a person spends money on another’s property to
prevent it from suffering damage
o A person can exercise an enrichment lien over property he has
spent money on regardless of whether he controls the property
lawfully and unlawfully
o Subcategories of enrichment liens:
ß Salvage lien
∑ Payment of enrichment debts arising from
necessary expenses or improvements (apply test to
determine whether an expense constitutes a
necessary expense)
o Repair or re-erection of building
o Repair of things in general
o Provision of feed and stable facilities to cattle
or livestock
o Safekeeping of a thing
o Payments made to maintain a life insurance
policy
o Locate a lost thing
ß Improvement liens
∑ Payment of enrichment debts arising from useful
expenses or improvements (apply test to determine
whether an expense constitutes a useful expense)
o Erection of building
o Sink a borehole
o Building of a dam
o Maintenance of flock of cattle
o Cultivation of agricultural land and planting
of standing crops

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Nature of right of retention:

∑ Control
∑ Control consists of lawful and unlawful control
∑ Unlawful control is distinguished between retentor unlawfully
controlling property bona fide or mala fide
∑ Unlawful control which is mala fide:
o When the retentor knew that he does not own the property in
question and that the owner of the property would disapprove
their actions with regards to the property
o General position is that courts would generally not recognise a
lien in favour such improver who is mala fide when unlawfully
controlling the property
o Such an improver may still have a direct claim against the
owner for the improvements made or the expenses expended on
the property
∑ Lawful controllers:
o Courts will recognise their right of retention
o Exception:
ß Tenants of rural land
ß Tenants of agricultural property who make improvements
on the land they lease and who are called upon to return
the land when their lease ends may not rely on a lien to
retain control of the land until the landlord compensates
them for their expenses
ß They must first vacate the land
ß Thereafter they may institute a claim for reimbursement
of the expenses incurred

Mental and physical element:

∑ The lienholder must be and must remain in direct, uninterrupted and
exclusive control of the property concerned
∑ Animus:
o Intention with which lienholder holds property must be
intention to control for one’s own benefit, in particular, to
control until reimbursed
∑ Corpus:
o Retentor must exercise effective control that excludes other from
taking control away from him
∑ Loss of control:
o A lienholder who voluntarily allows the property to leave his
control loses his security (right of retention cannot be revived
later)
o Involuntary dispossession can be retrieved by means of the
normal spoliation remedy

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o The lienholder cannot prevent another judgment creditor of the

owner from attaching the property in execution, but will retain
his preference to the proceeds even when the property is
attached and sold in this way

Termination of right of retention:

∑ Retentor voluntarily loses control over property
∑ Owner reimburses the retentor the moneys expended on the property

Enforcement:
∑ It is possible to exercise a lien over only a portion of a property, such
as a room, if that portion is capable of being independently controlled
and if the expenses are incurred in respect of that portion
∑ Lienholder has limited entitlement to hold property:
∑ Lienholder may not use or exploit property for own purposes unless
the parties agree at some stage that the lienholder may use the
property (conclude a pactum antichresis)
∑ Retentor has a duty to take care of the property according to the same
principles that apply in the case of a pledge
∑ Right of retention is a defence, not a cause of action
∑ May only be exercised when the owner or another person with an
interest in the property institutes proceedings to recover property from
retentor (rei vindicatio)
∑ Lien is a discretionary remedy and a court decides whether or not to
recognise a lien based on what would be just and equitable after
considering all the relevant circumstances of the case
o Lien recognised:
ß Rei vindicatio/possessory remedy would not succeed
ß Retentor remains in possession
o Lien not recognised:
ß Court has the equitable discretion to deny the creditor’s
reliance on a lien, even if the requirements are met
ß Retentor can be ordered to remove improvements (ius
tolendi) where such removal will not damage property or
material used to make improvements
ß Can order that property must be released in the hands of
the owner if the owner can provide retentor with
alternative security (guarantee)

Requirements retentor must meet in order for a court to recognise the lien:
∑ In control of the property to secure payment of the principal debt
∑ Principal debt must exist in terms of a valid contract or validly under
the unjustified enrichment principle
o Requirements for unjustified enrichment to have taken place for
an enrichment lien to have been created:
ß Expenses expended on improvement of the property must
have unjustifiably enriched the owner at the retentor’s
expense

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ß Causal link between decrease in debtor’s wealth and

increase in owner’s wealth
∑ Would be just and equitable to recognise the lien

Insolvency of the owner:

∑ Lienholder is a secured creditor because the right of retention is
included in the definition of security
∑ If requested to do so by the trustee, the lienholder must hand the
asset over to the trustee, but if the lienholder notifies the trustee of
his rights and proves his claim in due course, he will enjoy preference
to the proceeds of the property
∑ The same asset may be subject to a lien and to another real security
∑ Ranking of creditors in the case of land:
o Enrichment lien first
o Mortgage second (even if the mortgage bond was registered
before the enrichment lien vested)
o Contractual lien third
∑ D Glaser v The Master and Another:
o Issue related to the ranking of enrichment liens and debtor-
creditor liens
o Enrichment lien has preference at insolvency of the debtor
o After enrichment lien mortgage will rank in preference
o After the mortgage the debtor-creditor lien will rank in
preference
∑ Ranking of creditors in the case of movable property:
o Enrichment lien first
o Special notarial bond
o Landlord’s hypothec
o Instalment agreement hypothec
o Contractual lien

Liens where third parties contracted with the improver:

∑ Brooklyn House Furnishers v Knoetze and Sons:
o Shows how courts go about testing for necessary expenses
ß Court sets out the test to determine whether the expenses
constitute necessary expenses
ß Court then looks at the facts of the case to determine
whether the expenses are necessary expenses which gave
rise to an enrichment lien
o Held that the actions of K were responsible for conserving and
protecting the furniture, thereby giving rise to an enrichment
lien, specifically a salvage enrichment lien
o Court held that the question of whether K’s action led to
conservation and protection must be answered in the
circumstances that existed and not on the circumstances that
could have existed had Mrs Bond honoured the contract

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o The existence of a clause or the fact that circumstances could

have been different is not sufficient argument to say that there
was no real enrichment
o Held that where a third party entered into a contract with an
improver or protector to ensure improvement or protection of
property belonging to another, such improver or protector is
entitled to retain the property until he is reimbursed for that
which he expended on the property (necessary and useful
expenses)
o Improver or protector is impoverished and has the right of
retention which can be raised as defence against either the
owner or the third party
∑ Buzzard Electrical v Jan Smuts Avenue:
o This case speaks to the requirement that the owner had to have
been enriched
o Holds that where the owner received more than what he
contracted for, then enrichment liability would suffice
o Where the owner received no more than what he contracted for,
no enrichment liability will suffice
o Work done by the subcontractor indirectly satisfied what the
owner contracted for with the main contractor, although the
subcontractor was not a party to this contract
o The subcontractor and the main contractor had a separate
agreement
o The owner, however, received no more than what he contracted
for
o Held, based on this reasoning, that the enrichment of the owner
was not without cause and therefore not unjust

Judicial real security:

Comes into existence:

∑ In terms of common law principles
∑ When an unsecured judgment creditor manages to have an asset of its
debtor attached for the purpose of having it sold in execution

Types:
∑ Judicial mortgage (immovable property)
o Example: Jaftha v Schoeman
∑ Judicial pledge (movable property)

- Upon such attachment of the property the judgment creditor will have
a real security right in the sense that it will enjoy a preference to the
proceeds of the auction sale
- This security right is not as strong as a conventional mortgage or
pledge, because it is subject to certain limitations

Limitations of judicial pledges or mortgages:

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∑ Does not afford any priority upon the debtor’s insolvency, since all
attachments of property fall away upon sequestration or winding up.
Therefore, the creditor will not have a secured claim against the
debtor’s estate
∑ Other unsecured judgment creditors who also lodge a claim before the
property is sold will share in the proceeds in proportion to the size of
their respective claims
∑ Weaker than traditional real security rights
o The judicial security right always ranks after conventional real
security rights like mortgagees and pledgees held by other
creditors
o However, the judicial security right ranks higher than a
conventional security right that is incomplete (for example an
unperfected general notarial bond)

Statutory real security:

- Comes into existence through the operation of a statutory provision

Instalment-agreement hypothec:
∑ Also called the credit grantor’s tacit hypothec
∑ An instalment agreement is characterised by the fact that a movable is
sold and delivered to the purchase on credit but that the transfer of
ownership is suspended until the final payment is made
∑ The purpose is to ensure that the seller retains ownership so that he
has security in the event that the purchaser cannot pay the full
purchase price (reservation of ownership)
∑ S84 of the Insolvency Act is triggered when the debtor becomes
insolvent
∑ S84 of the Insolvency Act:
o In the event that the debtor becomes insolvent before the last
instalment is paid to the creditor to settle the debt, s84 of the
Insolvency Act provides for the ownership of the movable
property subject to an instalment agreement to pass to the
trustee of the insolvent estate
o Ownership passes to the debtor
o Credit grantor receives a tacit hypothec as security for the
portion of the purchase price that is still outstanding
o Credit grantor’s tacit hypothec renders him a secured creditor
with reference to the proceeds derived from the asset
∑ S83 of the insolvency Act:
o The seller has an option when the purchaser is sequestrated
ß The seller can demand that the trustee deliver the asset to
the seller so that it can be realised through public auction
∑ The seller’s tacit hypothec will transform into a
pledge when he receives physical control over the
property

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∑ The seller must hand the proceeds over to the

estate and lodge a claim for the outstanding
purchase price; or
ß The seller can allow the trustee to realise the asset
∑ The seller will have preference to the proceeds of the
property to settle the remaining amounts owed
under the instalment agreement
∑ Potgieter v Daewood Heavy Industries:
o Concerned whether s84 of the Insolvency Act applies to all
credit agreements or limited to only those credit agreements
recognised by the National Credit Act (NCA) as credit
agreements
o Court found s84 applies to all agreements that fit the definition
of an instalment agreement under s84 of the Insolvency Act and
not only the transactions that fall under the NCA
o This means that the narrow application of the NCA does not
apply to the protection given to credit grantors under s84 of the
Insolvency Act
∑ When the creditor grantor’s tacit hypothec clashes with other real
security rights, like the lessor’s tacit hypothec:
o S2 of SMPA regulates the situation
ß The credit grantor’s tacit hypothec will not give way to the
lessor’s tacit hypothec, unless the credit grantor’s tacit
hypothec came into existence after the lessor’s tacit
hypothec was perfected

S20 of the Alienation of Land Act:

∑ Immovable property is commonly purchased with money borrowed
from a bank under the security of a mortgage bond and then paid as
cash to the purchaser
∑ It is also possible to conclude a sale agreement exclusively with the
seller in terms of which the purchase price is paid in instalments to
the seller over a number of years
∑ Under such an arrangement the seller typically remains owner until
the final instalment is paid
∑ The seller’s retained ownership in effect serves as security for the
payment of the purchase price
∑ One of the difficulties with such contracts is that the seller will remain
the owner even though the purchaser has paid a significant portion of
the purchase price
∑ Should the seller become insolvent or one of his creditors otherwise
attach the property to sell in execution, the buyer will have only a
personal right to retrieve the moneys already paid towards the
purchase price
∑ The Alienation of Land Act has provided a solution for this situation in
cases where the property is used for residential purposes
o Transforms the purchaser’s claim into a secured claim that is
preferred over those of all creditors other than the holder of a

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mortgage that was registered before the sale contract was

contract
∑ S20 of the Alienation of Land Act:
o Provides that such a contract (sale of residential land in
instalments) can be recorded by being endorsed against the title
deed of the relevant property
o Endorsement allows for the personal claim of the purchaser to
transform into a secured claim at insolvency of the seller that is
payable to the purchaser before the other creditors
∑ In this way the Act provides the purchaser of residential property with
a special statutory security right rendering him a secured creditor for
moneys already paid towards the purchase price

Ss30 and 31 of the Land and Agricultural Development Bank Act:

∑ Governs the exercise of the Land Bank
∑ The Land Bank is owned by the state and its aim is to provide low-
cost financial services to high-risk agricultural industries an also
beneficiaries of land reform programs
∑ This Act not only allows the Land Bank to make use of conventional
real security rights to secure payments of debts owed to the bank (like
special mortgages and notarial bonds), but also to make use of the
unique real security rights in ss30 and 31 of the Bank
∑ These sections apply to loans that would otherwise be unsecured
loans
∑ Ss30 and 31 of the Act renders loans otherwise unsecured loans
granted by the Land Bank secured without the parties having to agree
that the provisions must apply
∑ Section 30:
o Statutory possessionless pledge
o Provides that ‘when the Land Bank advances money to a farmer
all agricultural produce and all products manufactured by the
farmer from any agricultural produce with the money so
advanced, and any agricultural produce purchased by the
farmer with the money so advanced are deemed to have been
pledged to the Bank as effectually as if they had been expressly
pledged to the Bank, provided that the goods are in the
possession of or in transit to the farmer or his agent’
o A statutory pledge vests automatically over the movables
specified in this section
o Disposal of the relevant goods without the Bank’s permission is
void
o This pledge is created without any form of delivery and is
therefore silent because there is no publicity
∑ Section 31:
o Relates to immovable property (land): a charge upon the
property
o When the Bank advances money to a farmer to enable him to
erect things on the land, it can create a charge (or burden) upon

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the land, which charge then serves as security for repayment of

the funds advanced
o This statutory charge does not vest through the registration of a
mortgage bond
o The charge vests automatically upon the Bank advancing the
money to the farmer
o Nevertheless, a form of publicity is achieved in the sense that
the Bank can instruct the registrar of deeds to endorse the
records of the relevant land with a notice to the effect that the
Land Bank has a charge over the land
o The effect of such endorsement is to burden the land in the
Bank’s favour until the funds advanced are repaid along with
interests and costs
o After the funds are repaid, the Bank must instruct the registrar
to remove the endorsement
o Entitlements of the Land Bank that arise from the charge can
be equal to that of a special mortgage:
ß In the event of the farmer’s default or failure to use the
funds for the correct purpose, the Bank is able to
accelerate repayment of the entire amount
ß The Bank may also rely on its security right to have the
property sold in execution and receive payment from the
proceeds
ß The burdened land may not be transferred unless the
Bank certifies that the farmer is up to date with all his
payment obligations
∑ Remedies available to the Land Bank when a farmer does not fulfil his
obligations (section 33):
o Provides the Bank with the right of preference to the proceeds
when the debtor’s property is attached and sold in execution in
terms of a court order obtained by another ordinary creditor
o Amount realised by the sale of the property must first be used
to satisfy the expenses incurred for the realisation of the
property, then claims of municipalities and lienholders, and
then the claim of the Land Bank
o Land Bank’s claim however remains preferential as it is ranked
above mortgagees and holders of other real security rights with
regard to the property

Co-operatives Act:
∑ Governs voluntary associations called co-operatives
∑ Co-operatives can be created for various reasons when a group of
persons want to work together to reach certain common economic
and/or social goals
∑ A co-operative is not owned or controlled by outside investors but by
its members (persons who make use of its services)
∑ A co-operative can also lend money and supply goods and services on
credit to its members

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∑ In this regard, the Act provides for a special kind of statutory real
security right to help co-operatives recover the funds advanced
∑ Schedule 1:
o Provides that a co-operative that sells farming-related products
to a farmer remains the owner of the products until the
purchase price has been fully paid
o If the co-operative gives any financial assistance to a farmer,
any products produced or acquired with such funds are deemed
to be pledged to the co-operative as if they were delivered to the
co-operative, under the principles applicable in the law of pledge
ß The co-operative will automatically hold a pledge over the
relevant movables without having to take physical control
of them and without any other form of publicity (like
registration)
ß The co-operative will hold a silent non-possessory pledge
similar to the Land Bank’s statutory pledge

Problems with statutory ‘silent’ pledges:

∑ If the pledge is created without a transfer of control, the creditor
cannot stop transfer to a bona fide third party
∑ The question is, does the creditor lose its security right because the
debtor no longer owns the property, or can the creditor pursue the
property and have it attached in the hands of the third party?
∑ Courts have confirmed that a creditor who holds a statutory pledge
can indeed have transferred property attached in the hands of the
third party and therefore that the creditor does not lose its security
despite the fact that the original debtor is no longer the owner
∑ Although this could lead to harm for the innocent third party, the
reasoning is that, because these special creditors (Land Bank and co-
operatives) fulfil such an important function and take exceptional
risks to provide financing to farmers, they should not easily lose their
security

Customs and Excise Act:

∑ S114 grants SARS a statutory security right (referred to as a lien) as
security for the payment of import taxes (customs and excise duties)
∑ The security right covers the property to which the import taxes relate
that has been detained by SARS
∑ SARS’s claim to the proceeds of the detained assets ranks in priority
above those of all other creditors
∑ The property will be released if, within 14 days of its detention, the tax
debtor proves that he is not its owner
∑ SARS’s security right is not completely non-possessory, since it will
vest only when SARS detains the relevant asset
∑ While the property is detained by SARS, the debtor may not conclude
any contracts to transfer or pledge it to anyone, but SARS may permit
the debtor use it subject to conditions set by SARS

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Local Government: Municipal Systems Act:

∑ Provides local authorities (municipalities) with two forms of tacit real
security to help with the collection of rates, taxes, levies, fees and so
on that relate to immovable property under their jurisdiction
∑ Section 118(1):
o Entails a power to restrain (embargo power) the transfer of the
land until certain amounts are paid
o Stipulates that the registrar of deeds may not register the
transfer of property unless a clearance certificate is issued by
the relevant municipality
o The owner’s entitlement to dispose of his property is suspended
until he pays all the amounts owing for the previous two years
o The municipality’s security is described as sui generis because it
differs from a normal mortgage, lien or hypothec
o Bestows on the municipality a limited real right that cannot be
enforced through sale in execution, but creates preference over
other creditors, because no one can be paid before the property
is sold which cannot take place before the municipality is paid
o If sequestrated, the 2-year debt must be paid first
∑ Section 118(3):
o Charge on the land
o The municipality has a preference with regard to the full
municipal debt (not only for that of the preceding two years) and
that its claim ranks higher than the claims of all normal
mortgagees, even of those with bonds registered before the
charge vested
o Can be used to have the property sold in execution and thus the
municipality can enjoy the privileges of a secured creditor who
is paid before any other creditor

Sectional Titles Act:

∑ Provides bodies corporate of sectional title schemes with a form of real
security to help them collect levies
∑ When a sectional owner wants to transfer ownership of his unit, a
conveyancer must first provide a certificate declaring that, at the date
of registration, the body corporate has certified that all moneys due to
the body corporate by the transferor in respect of the said unit have
been paid, or that provision has been made to the satisfaction of the
body corporate for the repayment thereof
∑ The body corporate’s security lies in its power to prevent the owner
from transferring the unit until all outstanding levies have been paid
∑ The Act does not afford the body corporate a limited real right like a
charge that can be called upon for the property to be sold in execution
∑ The body corporate is therefore not a secured creditor in the
conventional sense, since the mechanism in the Act is a sui generis
security that has the effect of granting a preference without rendering
the body corporate a secured creditor in ranking higher than a
mortgagee

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∑ Upon the debtor’s insolvency, the body corporate has an effective

preference in terms of which the outstanding levies must be paid as
part of the costs of realising the property before the other creditors are
paid

SU 7: Ownership (Chapter 3)
Content of ownership:

Varying nature of the concept of ownership:

- It’s role and content depend on the context
o Needs of society
o Effluxion of time
- Society determines its content in that when society changes, the
concept also changes
- Example:
o During Apartheid, the content of ownership was impacted by
the political agenda and segregation of the time. Certain racial
groups could have ownership, while others could not or could
only have limited ownership
o In today’s constitutional dispensation, the Constitution impacts
and shapes the content of ownership in line with its spirit,
purport and objects
- No single definition of ownership exists

Origin of the context of ownership:

∑ Roman law:
o In early Roman law there was no precise notion of ownership
o The concept of dominium emerged later
o Dominium referred to the relationship of a dominus to a res
o It was a relationship, not a right or bundle of rights
o Dominium was not regarded as an absolute or unrestricted right
o Ownership was limited in various ways:
ß By public law in the interest of public health and safety
ß Owners could voluntarily limit their right of ownership by
giving actual use and enjoyment to others (e.g. usufruct)
ß Power of owners over their land was fettered by their
neighbours’ rights to enjoy their own property
∑ Roman-Dutch law:
o Plena in re potestas principle:
ß Ownership is a power that enables the owner to do with
the property anything he pleases within the limits of the
law
o Principle acknowledges:
ß Ownership is the most extensive real relationship a legal
subject can have over a legal object
ß Owner’s powers are limited by the law

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o Developed on the basis of Bartolus’ definition of ownership as

the right to dispose perfectly over a corporeal object in so far as
is not prohibited by law
o Bartolus’ definition was adopted by Grotius, who views
ownership as the power to make full use of the owned object for
one’s own benefit and according to one’s own will, to the extent
that such use is not prohibited by law
o Grotius’ definition gives rise to the idea that ownership grants
landowners the most comprehensive collection of entitlements
∑ Pandectism:
o German scholars of Roman law
o Supported a strong absolute concept of ownership
o Wanted a solid, strong, absolute nature to be ascribed to the
concept of ownership, to ensure protection of ownership to
prevent their country falling back to the feudal system that
acknowledged fragmented rights rather than ownership
o Windscheid describes ownership as the power, granted by law
and backed up by judicial remedies, to enforce one’s will against
others
o Ownership is the most complete real right, allowing owners to
enforce their will with regard to all aspects of the control and
use of their property
o Ownership is described and understood as absolute in academic
literature, where pandectism had its greatest influence

Summary of origin of SA notion of ownership:

∑ Influenced by:
o Roman-Dutch law
ß Plena in re potestas principle:
∑ Ownership is a power that enables the owner to do
with the property anything he pleases within the
limits of the law
ß Principle acknowledges:
∑ Ownership is the most extensive real relationship a
legal subject can have over a legal object
∑ Owner’s powers are limited by the law
o Pandectists
ß Supported a strong absolute concept of ownership

View of SA courts:
∑ Limitation are considered to be part and parcel of the common law
concept when one looks at the underlined principle plena in re
potestas
∑ In case law, courts refer to the Roman-Dutch law definition
∑ Ownership is the most complete right that allows any use of property
in so far as the law does not prohibit it
∑ Case law indicates that ownership is considered as absolute only in
the sense that it is a more complete right than the limited real rights

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∑ Ownership is not regarded as absolute in the sense that owners can

do what they want, because the exercise of ownership rights depends
on what the law allows
∑ The views of the courts regarding the definition of ownership thus
emphasise the owner’s complete control over property in so far as the
law does not prohibit it

Gien v Gien:
∑ Ownership is the most complete real right a person can have with
regard to a thing
∑ The point of departure is that a person, as far as immovable property
is concerned, can do on and with his property as he likes
∑ However, this apparently unlimited freedom is only partially true
∑ The absolute entitlements of an owner exist within the
boundaries of the law
∑ The restrictions can emerge from:
o Objective law
o From restrictions placed upon it by the rights of others
∑ For this reason, no owner ever has the unlimited rights to
exercise his entitlements in absolute freedom and in his own
discretion

Definition of ownership (derived from Gien v Gien):

∑ The most complete real right that someone can have in relation to a
thing (plena in re potestas)
o All rights and entitlements you have to your property will be
those with the most substance in relation to that property (no
one can have more rights in the thing than the owner)
o No one can transfer more rights than he has (Nemo plus iuris)
∑ Real right with regard to his own property (ius in re propria)
∑ Is not absolute
o Objective law:
ß Involuntary limitations
ß E.g. speed limits – how you ‘use’ your car
o Subjective rights:
ß Voluntary limitations
ß Rights other people have in your property (personal-use
rights like servitudes an owner consented to)
ß Can also be involuntary limitations
o Constitution
ß Involuntary limitations
ß E.g. s36

Characteristics:
∑ Completeness
o The most complete right as opposed to other incomplete rights
(possession and limited real rights)

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o Includes all the entitlements of ownership not suspended or

transferred to a non-owner
(An owner ca transfer some of his entitlements freely without his
ownership being terminated. E.g. upon transfer of a limited use
right to a servient owner loses some aspect of the right to
exclude)
∑ Abstractness
o Ownership constitutes more than the sum total of its
entitlements
o Ownership is not exhausted or eroded by the temporary
granting of limited real rights or the temporary imposition of
restrictions on the exercise of any entitlements
o Ownership resumes its fundamental completeness as soon as
the limitations fall away
o Relates to elasticity of ownership
o Regardless of limitations imposed on ownership, the owner will
retain the residual right
∑ Individuality
o Only one kind of ownership
o Property is held by an individual owner to the exclusion of
others
o Ownership is not divisible, not even in the concept of co-
ownership
o Rather, co-owners merely have a co-ownership share in the
indivisible ownership (These shares are undivided co-ownership
shares)
o Owner’s right is enforceable against the whole world
o Underlies the strong protection afforded to an owner, in terms of
which the owner can vindicate his property from anyone who is
in possession of it without being able to prove a valid legal
cause for his possession
o Sets out the position of the owner regarding his property against
other legal subjects and also indicates the exclusive nature of
the right that an owner holds
∑ Elasticity
o Ownership has a residual character
o Relates to abstractness of ownership
o Embraces the idea that when rights in property that are held by
persons other than the owner are terminated, those rights
automatically revert back to the owner
o Content of ownership is thus flexible and adaptable (will be
contradictory to say that there are a fixed number of
entitlements that accompany such an elastic right)

Entitlements:
∑ Determine the extent of the legal relationship that exists between the
owner and his property and between the owner and others

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∑ No closed list of entitlements that flow from ownership since the

entitlements differ as a result of limitations subjected on ownership
and differ with context
o Ius utendi
ß Entitlement to use and enjoy property
ß Linked to ius fruendi
o Ius fruendi
ß Entitlement to use and enjoy the fruit of the property
o Ius abutendi
ß Entitlement to encumber the thing with a limited real
right or with a personal right (e.g. owner encumbers his
immovable property with a bond)
ß Includes entitlement to ruin, to consume or destroy the
property
o Ius possidendi
ß Entitlement to physically control the property
ß Gives rise to the rebuttable presumption that the person
in possession of the property is the owner thereof
o Ius dispodendi
ß Entitlement to donate, exchange or transfer the thing to
someone else (e.g. selling property)
o Ius vindicandi
ß Entitlement to vindicate or reclaim property from anybody
who is in unlawful control thereof
ß Encompassed by specific remedies
o Ius negandi
ß Entitlement to resist any unlawful infringement of
property
ß Encompassed by specific remedies

Types of ownership:

Individual title/ownership:

- Only one person holds all the ownership entitlements by himself

- However, ownership is not absolute, and limitations do apply

Co-ownership:

- Also known as joint ownership

- Ownership that vests in several persons in undivided shares
- Co-owners shares need not be equal

Two elements:
∑ Undivided co-ownership shares
o Communion pro indivisio
o The commonly held property may not be divided for as long as
the co-ownership endures

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o No co-owner can encumber or alienate the property without the

consent of the other co-owner
o Can be equal or unequal
o The undivided co-ownership share reflects each co-owner’s
interest in the co-owned property
o The undivided share entitles a co-owner to reasonable use of the
co-owned property in proportion to his co-ownership share
(Albert v Ragaven)
o This does however not mean that the property itself is divided
into proportionate shares and that each co-owner is restricted
to the use of his divided part of the property
o An agreement entered into by the co-owners which regulates the
disputes in the future regarding the dissolution of their co-
ownership, divisibility of the property, etc. only creates a
personal right for each co-owner and is binding on them only
inter partes
∑ Commonly owned property
o Flowing from the agreement they entered into, they must decide
how and for what purpose the co-owned property must be used
o The reasonable use of the property is often determined by the
purpose for which the property was constructed

Co-ownership can be created in the following ways:

∑ Contract
∑ Bequest
∑ Marriage in community of property or a universal partnership between
unmarried cohabitants
∑ Partnership
∑ By mixing (commixtio)

Types of co-ownership:
∑ Bound co-ownership
o Instances where there is some other legal relationship between
the co-owners
o E.g. partnership
o Co-owners cannot encumber or alienate their part of the co-
owned property for as long as the underlying relationship
endures
o Co-ownership cannot be terminated unilaterally
o There is no mention of an undivided co-ownership share for the
purposes of bound co-ownership because the value of such a
share will only become relevant when the underlying
relationship is dissolved
∑ Free co-ownership
o The co-ownership is the only legal relationship between the
parties
o The co-owners may encumber (for instance, by granting a real
security right over their undivided share) or alienate their
undivided co-ownership share

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o The relationship may be terminated unilaterally

o The content and the way in which co-ownership operates is not
dependent on the underlying relationship
o Free co-owners may regulate their rights and duties in respect
of the joint property by agreement

Free co-ownership rights and obligations with regard to the thing:

∑ Alienation and encumbrance:
o Cannot alienate or encumber the property without consent
∑ Use of the thing:
o Use proportionate to the size of co-ownership share
o Reasonable use is required (Sauerman v Schultz)
o Sauerman v Schultz
ß Each co-owner is entitled to use the property
proportionately to his interest and in accordance with
which the purpose for which the property is to be used
o Unreasonable use includes:
ß Change in the use and enjoyment of the co-owned
property by one co-owner (Erasmus v Afrikander
Proprietary Mines Ltd)
ß Unilaterally granting use rights to a third party without
the consent of the other co-owners (Pretorius v Nefdt
and Glas)
ß Exercising ownership entitlements to the prejudice of the
other co-owners (disproportionate use of property – co-
owner is eating into the use right of the other co-owners)
∑ Profit/income/fruit:
o General rule: Co-owners are entitled to equal shares of the profit
proportionate to their undivided shares
o Co-owner may agree that the co-owner who uses the property
proportionate to his undivided share and makes a profit may
keep the profit
o However, if such a party who is favoured by such a clause ends
up using the property disproportionate to his undivided share,
such a person will be forced to share the profit (Sauerman v
Schultz)
∑ Maintenance and expenses:
o General rule: Each co-owner is obliged to contribute to the
maintenance and expenses regarding the property proportionate
to their undivided shares
o This obligation only pertains to the necessary expenses
regarding the property (upkeep and conservation) and all other
expenses that the co-owners agreed upon
∑ Right to veto:
o Minority co-owners can veto decisions of the majority co-owners
o Only pertains to decisions regarding the use of the property
o If the minority does not agree with the majority’s decision to
change the use of the property, they can exercise this veto right
o Once exercised, the minority co-owners can decide to:

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ß Terminate the co-ownership; or

ß Use can be tested for unreasonableness (interdict)

Free co-ownership rights and obligations with regard to the undivided co-
ownership share:
[Co-ownership share constitutes an independent legal entity. Co-owner can
do with his co-ownership share as he pleases within the limits of the law
(includes the co-ownership agreement and use agreement)]
∑ Alienate or encumber
o Does not require the consent of other co-owners to alienate or
encumber their undivided co-ownership share
o Must be proportionate to the co-owners undivided share in the
property and should not impact the other co-owner’s
entitlements negatively
o Can alienate only a part of the shares
ß Pretorius v Nefdt and Glass:
∑ Where the registered owner of an undivided half of a
farm, on which there existed a private road used for
transporting lime taken from a quarry on the farm
to the market, utilised such road for the transport
of lime from an adjoining property, he was entitled
to do so provided he did not thereby interfere
with a similar use of the road by the other co-
owners
∑ If a co-owner granted a third party leave to use the
road, it conferred no right on the third party to use
the road and the other co-owners can restrain the
third party from using the road even though he
caused no damage
∑ Unilaterally granting use rights to a third party
without the consent of the other co-owners
constitutes unreasonable use of the thing, not
alienation of only part of the undivided shares of
a co-owner
o No automatic right of pre-emption; co-owners do not have the
right of preference to purchase another co-owner’s share in the
event that such co-owner aims to alienate his share
o Can enter into an agreement to create a right of pre-emption
∑ Entitlement to use
o Proportionate to undivided share
o If the co-owner does not do this, his use would amount to
unreasonable use
o Property as a whole is used proportionately
o However, co-owners can use part of the property proportionately
to their undivided share, but this is not the norm. Only
possible and allowed where:
ß Property is divisible
ß Co-owners agreed to this in a use agreement

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Pretorius v Nefdt and Glass:

∑ Where the registered owner of an undivided half of a farm, on which
there existed a private road used for transporting lime taken from a
quarry on the farm to the market, utilised such road for the transport
of lime from an adjoining property, he was entitled to do so
provided he did not thereby interfere with a similar use of the
road by the other co-owners
∑ If a co-owner granted a third party leave to use the road, it conferred
no right on the third party to use the road and the other co-owners
can restrain the third party from using the road even though he
caused no damage
∑ Facts:
∑ A road on a farm was a private one which had been constructed by
the co-owners for the purpose of transporting lime from a quarry on
the farm itself
∑ One of the co-owners (Glas) gave a non-owner (Nefdt) permission to
use the road across the farm to have access to his (Nedft’s) lime works
∑ P sought to
o Restrain Glas from using the road for the purpose of
transporting Nefdt’s lime
o Interdict Nefdt from using the road at all
∑ Pretorius argued:
o The use of the road by Nefdt constitutes an infringement of her
rights
o Nefdt is not allowed to use the road without the consent of the
other co-owners (Pretorius)
o If an co-owner would be able to make an undue profit without
accounting to the others, and he would be able to delegate his
rights, such conduct would be an infringement of the rights of
the other co-owners, for it would amount to a user which does
not recognise the rights of the other co-owners
o Any co-owner has the right to veto the use of the land in a
particular way
o Glass is not using the road for the purposes of the farm, for
although it is open to him to convey lime quarried across the
road in question, he can be debarred from transporting lime
across the road when the lime is taken from an adjoining
property of Nefdt
o It is sufficient to entitle the applicant to an interdict if it is
shown that a legal right is disturbed
∑ Respondents argued:
o For an interdict pending action it must be proved that
irreparable damage will be sustained, and in the present case
there is no proof of such damage
o The respondent used the road in a reasonable way and not the
exclusion of the other owners
o He was entitled to make a profit out of his rights in the property
provided the other owners suffered no prejudice

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o The right given to Nefdt to use the road amounted at most

to an alienation by Glas of a part of his rights (part of his
undivided co-ownership share)
∑ Legal question:
o Whether a co-owner can use the road for the purposes of riding
lime from a non-owner’s property, and whether such non-owner
can, with the consent of the co-owner, use the road for the
passage of himself and his servants to his lime works on the
other farm
∑ Judgment:
o No damage is being done to the property by the use which is
complained of
o The applicant would be entitled to an interdict if she could
clearly show that a right of hers was being infringed and a right
which she was entitled to enforce by interdict
o With regard to refraining Glas from using the road to transport
Nefdt’s limes:
o Nothing justified that Glas used the road for the transport of
lime from the other farm in such a way as to interfere with a
similar use of the road by the other co-owner or those on whose
behalf she is acting
o Nothing in authorities justify in holding that a co-owner is
limited, so far as the right of passage is concerned, to use of the
surface of a joint farm only for the purposes of the farm
o Pretorius failed in this portion of her claim
o With regard to interdicting Nefdt from using the road:
o Granting Nefdt the right to use the road by Glass is an
infringement of the rights of Pretorius, and she is therefore
entitled to an interdict in respect of Nefdt

Free co-ownership remedies:

∑ Use and control of the co-owned property is usually regulated by a use
agreement
∑ Practical difficulties that flow from the rights and duties of co-
ownership are captured by the expression:
o Communio est mater rixarum
o “Co-ownership is the mother of all disputes”
∑ When the agreement the co-owners entered into does not help them
solve disputes, certain remedies are available to them
1. Damages/division of profit:
o Where a co-owner exceeds the reasonable use of a thing, and by
doing so makes a profit
o Unreasonable use:
ß Change in the use and enjoyment of the co-owned
property by one co-owner
ß Unilaterally granting use rights to a third party without
the consent of the other co-owners (Pretorius v Nefdt
and Glas)

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ß Exercising ownership entitlements to the prejudice of the

other co-owners (disproportionate use of property – co-
owner is eating into the use right of the other co-owners)
o Can claim:
ß Damages for the harm caused by the unreasonable use;
and/or
ß Division of profit where profit was made while property
was used in an unreasonable manner (Oosthuizen v Du
Plessis – [not a prescribed case, but an example where the
court used this remedy])
o Generic requirements in delict that must be complied with:
ß Must be conduct on the part of the co-owner who
unreasonably used the property (i.e. use)
ß Causality – will have to prove there is a link between the
conduct and the harm caused thereby
ß There was actually harm done (i.e. damages to other co-
owner’s use rights)
∑ Circumstances the court will take into account to
determine extent of the co-owners’ claim for
damages:
o Income and profit made from the use
o Damage caused to the property
o Damage caused to the right of the other co-
owners
o All the undivided shares to determine the
proportion of the amount to be awarded to
each co-owner
ß Fault on the part of the co-owner that used the property
unreasonably
∑ Intentional
∑ Negligent
ß Unlawfulness
∑ Contrary to the use rights of the co-owners; or
∑ Contrary to use agreement
2. Interdict:
o When co-owners use the property in an unreasonable manner
ß Exceeds entitlement to use in terms of his/her share in
the property (Erasmus v Afrikander and Pretorius v
Nefdt and Glas)
ß Erasmus v Afrikander Proprietary Mines Ltd:
∑ The co-holder of mineral rights had the right to
mine its proportionate share of the coal deposits
provided it did so without prejudice to the other co-
holders’ rights
ß Pretorius v Nefdt and Glas:
∑ The co-owner cannot unilaterally grant use rights to
a third party without the consent of the other co-
owners

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o Prohibits unreasonable use of the property and forces the co-

owner to act in a manner that constitutes reasonable use
(Pretorius v Nefdt and Glas)
o Basis of an interdict:
ß Right to veto regarding the use of the thing
ß General forms of unreasonable use
o Cannot prevent another co-owner’s reasonable use of the
property
ß Erasmus v Afrikander Proprietary Mines Ltd:
∑ Co-holder was entitled to use the mineral rights
proportionate to his undivided share and could
therefore not be interdicted from using the property
∑ The co-holder of an undivided share in mineral
rights should not be restrained from exercising his
right on the mere ground that the other co-holders
have not consented or given authority thereto
o Requirements: (Erasmus v Afrikander)
ß There must be a clear right in the property
ß Will suffer injury or has suffered injury which is
reasonably apprehended
ß There is an absence of similar protection by any other
ordinary remedy

Erasmus v Afrikander Proprietary Mines Ltd:

∑ The mere title to mineral rights in respect of land does not per se
transfer the ownership of minerals not yet severed from the land to
the holder or joint holders of the mineral rights, such ownership
remaining in the owner of the land itself
∑ The reservation of mineral rights entitles the holder/s of the mineral
rights to go upon the property to prospect for minerals and if they find
them to sever them and take them away
∑ Thus, there can be no question of any joint ownership of minerals
unless or until those minerals have actually been severed from the soil
∑ A co-holder of an undivided share in mineral rights should not be
restrained from exercising his rights on the mere ground that his
other co-holders have not consented or given their authority thereto
∑ Something more than that is required
Facts:
∑ A co-owner of mineral rights in respect of coal had applied for an
interdict restraining the other co-owner from commencing and
carrying on mining operations for coal on the property
∑ Respondent was planning on exploiting the minerals on the farm even
though the applicant refused to consent to this exploitation
∑ Applicant submitted that such exploitation would result in him
suffering irreparable harm since the respondent will be mining and
moving coal from property in respect of which he is a holder of an
undivided share

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∑ Applicant relied on the interdict to prevent interference with his co-

ownership share
Court held:
∑ Requirements for an interdict:
o There must be a clear right in the property
o Will suffer injury or has suffered injury which is reasonably
apprehended
o There is an absence of similar protection by any other ordinary
remedy
∑ First requirement:
o Applicant is still the registered holder of an undivided share in
the mineral rights and has a clear right in the property
o The title to mineral rights confers real rights upon the holder
thereof and therefore the applicant’s right can be argued to be a
clear right
o Requirement is met
∑ Second requirement:
o The co-holder of an undivided share in mineral rights should
not be restrained from exercising his right on the mere ground
that the other co-holders have not consented or given authority
thereto
o The effect or probable effect of the exercise of the right should
be considered to determine if such exercise infringes on the
rights of other co-owners
o Respondent was not planning on mining more than its pro rata
share of the deposits
o The respondent had the right to mine its proportionate
share of the coal deposits provided it did so without
prejudice to the applicant’s rights
∑ Third requirement:
o The applicant had another remedy available to him through an
action of damages and the application for the interdict was
accordingly dismissed
∑ The respondent as co-holder was entitled to use the mineral
rights proportionate to his undivided share and could therefore
not be interdicted from using the property

3. Termination:
o Forms:
ß Termination of the co-ownership agreement and walking
away; terminating the co-ownership relationship
completely
ß Termination of the co-ownership agreement to readjust
the undivided co-ownership shares
o Termination in any of the above forms can be obtained by way
of the actio communi dividundo (a common-law action)
o Requirements for actio communi dividundo:

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ß Co-owners attempted to come to an agreement as to how

they want to terminate their co-ownership
(They must first try to settle outside court and exhaust all
their dispute resolution mechanisms)
ß Court must be approached with a proposal as to how the
termination should take place and how the property
should be disposed of
ß Must be a j and equitable termination order (court has
discretion to change the order)
o Consideration of the court when the parties want to terminate
the co-ownership agreement and the co-ownership relationship
completely:
ß Division of property (if indivisible, dividing the property
among the co-owners would not be possible)
∑ Economical to divide?
∑ Negative effect of division on co-owners’ rights?
∑ Subdivision of Agriculture and Land Act prohibits
division?
ß Sale of the property
∑ When division is not possible, or is possible but not
awarded due to questions above
∑ Can order sale to a co-owner, where the proceeds
would be divided proportionately among other co-
owners
∑ If it would be prejudicial to a co-owner to order the
immediate resale of the property, the court may
postpone date of resale of the property
∑ If not just and equitable (e.g. more than one co-
owner willing to buy the property), sell property at a
public auction against the value an independent
valuator placed on the property
o Order
ß Account is taken of all expenses and losses is set off
against proceeds of the sale of the property
ß Account is taken of all the expenses and losses with
regard to the property and is factored into the final
division of the property or the division of sale of proceeds
in proportion to the undivided shares
o Free co-ownership only terminates once the property is
transferred to the name of the new owner
o A transfer will happen where there is a real agreement (animus
and corpus elements for transfer of ownership has to be
complied with)
o An agreement that co-ownership may never terminate cannot
exclude the actio communi dividundo from being available to co-
owners
o Co-owners may agree that the property may not be divided or
that the co-ownership agreement may not terminate for a
reasonable time

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Acquisition of another co-owner’s undivided share in free co-ownership:

∑ By agreement
o Requirements for transfer of co-ownership shares:
ß Real agreement (animus and corpus elements)
∑ Actio dividundo order
o Termination order
o Court orders undivided share of one co-owner be transferred to
another
∑ Prescription
o Where the co-owner by way of prescriptive title acquire the co-
ownership shares of the other co-owner, acquisition of another’s
co-ownership shares is possible
o Albert v Ragaven:
ß It is possible for a co-owner to acquire another co-owner’s
share in the property through prescription
ß [Today the court will however have to confirm that the
requirements for prescription as set out in the
Prescription Act are met, as this case was decided before
the Prescription Act was promulgated]

Albert and Another v Ragaven (1966):

[Case was decided before the Prescription was Act was promulgated, and
thus common law principles of prescription were applied]
Facts:
∑ The plaintiffs were a co-owner to in an equal one-half share in
property situated in Durban inherited from their late-farther
∑ The other half co-ownership share belonged to respondent (Ragaven)
∑ Plaintiffs sought a declaratory order that they acquired Ragaven’s half
share by prescriptive title
Legal question:
∑ Since the plaintiffs were also co-owners in the property, the court had
to decide whether co-owners can acquire another co-owner’s share by
way of prescription
Court held:
∑ Relied on Sauerman v Schultz where the court set out the extent of
the use right of co-owners in the following terms:
o “Each co-owner is entitled to use the property proportionately to
such co-owner’s interest and in accordance with the purpose for
which the property is to be used”
∑ Plaintiffs not only used the property proportionate to their half share,
but rather used the full benefit of the whole property since 1951
regardless of Ragaven as though he did not exist
o Applicants built a house on the property
o Fenced of the entire property
o Cultivated the land on the property except for one small portion
thereof which was not fit for cultivation

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o Paid the rates and taxes of the property in full to the

municipality since 1951
∑ Since their use was for a period longer than the period of prescription
and disproportionate to their half-share, and since Ragaven did not
object to this use, the plaintiff’s established that they required
Ragaven’s share in prescriptive title

Eskom v Fourie:
∑ It is doubtful whether the right of the owner of land to lateral and
surface support is a right stricto sensu and it is more doubtful
whether it is a right in, over or in respect of land as intended in s43 of
the Electricity Act which can be expropriated
∑ It appears to be merely a capacity arising from ownership or a
capacity of ownership
∑ Even if it is accepted that the surface owner’s claim to support is a
right as intended in s43, it does not necessarily follow that it can be
acquired by a bystander in respect of the land, whether by voluntary
or forced purchase
∑ The relevant right exists only between surface owner and the person
entitled to the mineral rights
∑ It is an incident of the relationship between both of them and the land
in respect of which they have separate and potentially conflicting
claims

SU 8: Constitutional limitation of right to ownership

(Chapter 4)

Section 25 of the Constitution:

∑ Property clause

∑ Protects existing property rights against unlawful interference

Parts of section 25:
∑ Section 25(1) – (3):
1. Protective purpose

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2. To guarantee or protect existing property rights and interests

mainly against unconstitutional state interferences
∑ Section 25(5) – (9):
1. Reform purpose
2. To legitimate and promote land and related reforms (minerals
and water) in property holdings and property law
∑ Section 25(4):
1. Internal interpretation clause for the property clause
“For the purposes of this section –
(a) the public interest includes the nation’s commitment to land
reform and to bring about equitable access to all SA’s natural
resources; and
(b) property is NOT limited to land”
2. Purpose is to resolve various tensions that may arise:
1. In the property clause itself
2. Between the property clause and other fundamental
rights and legislation
∑ Marginality
3. Between the property clause and the common law
∑ Subsidiarity

The property concept:

∑ Property is not limited to land (s25(4)(b))
∑ First Rand Bank of SA t/a Wesbank v Commissioner, South
African Revenue Service; First Rand Bank of SA t/a Wesbank v
Minister of Finance:
1. The CC indicated that it would be practically impossible to
furnish, and judicially unwise to attempt, a comprehensive
definition of property

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2. The court accepted, however, that ownership of land and

ownership of a corporeal moveable lie at the heart of the
constitutional notion of property
∑ While a comprehensive definition has not yet been developed, case law
has extended the meaning of the concept of property beyond the
private-law notion of property

∑ Property rights include:

1. Real rights (ownership and limited real rights) in land and
permanent attachments to land
2. Personal use rights flowing from contract or legislation
3. Intangible property
4. “New property” (debts and claims that are not based on
contract, but rather are claims against the government
including pensions, medical benefits and subsidies)

∑ Courts will generally assign a broader, more generous meaning to the

property concept in s25, thereby enlarging the influence of the
constitutional protection of property in certain cases
∑ However, courts will strictly test whether interference with property
complies with the constitutional requirements set out in s25

Ways how the state can interfere with your property rights:

∑ Deprivation:
1. Section 25(1)
2. This interference is the result of the normal exercise of
government power, called police power
3. Police power refer to the ability of the state to regulate the use of
private property by restricting the exercise of certain
entitlements on the property
∑ Expropriation:
1. Sections 25(2) and (3)
2. This is the result of an extraordinary exercise of government
power, called eminent domain
3. Eminent domain refers to the ability of the state to take private
property from an individual owner without his consent for a
public purpose or in the public interest against the payment of
compensation

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Deprivation: Expropriation:
No compensation Compensation
Generally limits only one Extinguishes all entitlements
entitlement
Individual owner retains rights The state takes over all rights

Section 25:
1) No person may be deprived of property except in terms of law of
general application, and no law may permit arbitrary deprivation of
property
2) Property may be expropriated only in terms of law of general
application –
a. For a public purpose or in the public interest; and
b. Subject to compensation
3) The amount of compensation and the time and manner of payment
must be just and equitable, reflecting an equitable balance between
public interest and the interests of those affected, having regard to
relevant circumstances (discussed below)

Deprivation:
Meaning:

∑ Result of a normal exercise of government power (police power) of the

state
∑ This police power refers to the ability of the state to regulate the use of
the private property by restricting the exercise of certain ownership
entitlements of the property
∑ Owners are however protected from a regulation that is too severe or
arbitrary by section 25(1)
∑ A regulation that deprives an owner of property arbitrarily will be in
conflict with section 25(1) and invalid if it is not justifiable in terms of
section 36(1)
Law of general application:
∑ What qualifies as law of general application:

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1. Constitution
2. Legislation
1. National legislation (full, partial, technical)
2. Provincial legislation
3. By-laws
3. Common law (in principle)
1. Way of necessity
∑ Deprivation and expropriation must be authorised in terms of law of
general application

∑ This requirement ensures that any interference with property takes

place in terms of valid law that is generally applicable, clear, non-
arbitrary and accessible
∑ The law of general application must also specifically authorise the
deprivation
∑ Section 25(1) is not concerned with an administrative action taken on
the basis of the legislation that deprives an owner of property
∑ Rather, the question is whether the law authorises the deprivation in
question
∑ If the law does authorise such deprivation, the requirement is satisfied

∑ For instance:
1. If legislation permits the imposition of building restrictions and
an administrator imposes said restrictions on an owner’s land,
the landowner cannot attach the deprivation on the basis of the
law-of-general-application requirement
2. The deprivation is authorised by the legislation and the relevant
requirement in s25(1) is met
∑ The deprivation can be attacked on the basis that it is arbitrary in
terms of s25(1), or the owner can have the decision to impose the
building restrictions reviewed in terms of the principles of
administrative justice
Non-arbitrariness:
∑ Regulation must not be arbitrary

∑ Arbitrary means ‘being based on random choice or personal whim,

rather than any reason or system’

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∑ A non-arbitrary regulation entails:

1. There should be a connection between a legitimate
governmental purpose and the manner in which it is sought to
be achieved
2. There must be a cause or reason for the regulation

∑ Test for arbitrariness:

1. A procedural safeguard (s33 of the Constitution and PAJA)
2. A substantive safeguard
1. Requires there to be a proportionate balance or nexus to
be established the purpose of the deprivation and the
extent of the interference
2. Level of scrutiny:
∑ Courts have much room for judicial discretion as to
the level of the enquiry that it undertakes
3. “Thin” level of scrutiny / rationality review

∑ Courts will be satisfied if a rational connection

exists between the purpose of the deprivation and
the extent of the interference
∑ Rational means being based on reason or logic
∑ Where limited real rights and incorporeal property
is concerned (FNB-case)
∑ Where the interference affects one or a few of the
ownership entitlements
4. “Thick” level of scrutiny / proportionality review
∑ Courts will be satisfied if a proportional connection
exists between the purpose of the deprivation and
the extent of the interference
∑ Proportional means being corresponding in size or
amount to something else
∑ Where ownership of land or corporeal, moveable
property is concerned
∑ Where the interference affects all the ownership
entitlements

∑ Will overlap with the provisions of s36 of the

Constitution

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First Rand Bank of SA t/a Wesbank v Commissioner, South African

Revenue Service; First Rand Bank of SA t/a Wesbank v Minister of
Finance:
Facts:
∑ Court considered whether section 114 of the Customs and Excise Act
was in conflict with section 25(1) because it permitted SARS to attach
and sell property of an innocent third party to settle the debt of
another
∑ SARS detained and wanted to sell property (motor vehicles) belonging
to Wesbank in order to settle outstanding debt owed to SARS by two
companies
∑ Wesbank had sold the motor vehicles to the companies in terms of an
instalment sale and, in terms of the agreement, retained ownership of
the vehicles until the full outstanding amount was paid
Legal question:
∑ The court had to consider whether the detention and sale of property
belonging to Wesbank, even though Wesbank was not the party who
owed the outstanding taxes to SARS, constituted arbitrary deprivation
of property
Judgment:
∑ The court accepted that the dispossession of all rights, use and benefit
to and of the corporeal movable goods constitutes deprivation
∑ The deprivation was also authorised by the law of general application,
namely the Customs and Excise Act

∑ With regard to arbitrariness, the court elaborated on substantive

arbitrariness (sufficient reason) but not on procedural arbitrariness
∑ The court listed factors that could be employed to determine whether
there is sufficient reason for the deprivation:
1. The relationship between the purpose of the deprivation and the
extent of the interference must be evaluated
2. A complexity of relationships has to be considered
3. Regard must be had to the relationship between the purpose of
the deprivation and the person whose property is affected
4. Regard must also be had to the relationship between the
purpose of the deprivation and the nature of the property as
well as the extent of the deprivation in respect of such property

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5. Where the property in question is ownership of land or a

corporeal moveable, a more compelling purpose will have to be
established in order for the depriving law to constitute sufficient
reason for the deprivation, than in the case when the property is
something different, and the property right something less
extensive (“Thin” v “thick” scrutiny)
6. When the deprivation embraces all the incidents of ownership,
the purpose for the deprivation will have to be more compelling
than when the deprivation embraces only some incidents of
ownership and those incidents only partially (“Thin” v “thick”
scrutiny)
7. Depending on such interplay between variable means and ends,
the nature of the property in question and the extent of its
deprivation, there may be circumstances when sufficient reason
is established by, in effect, no more than a mere rational
relationship between means and ends; in others this might only
be established by a proportionality evaluation closer to that
required by s 36(1) of the Constitution
8. Whether there is sufficient reason to warrant the deprivation is
a matter to be decided on all the relevant facts of each
particular case, always bearing in mind that the enquiry is
concerned with ‘arbitrary’ in relation to the deprivation of
property under s25
∑ The court developed a flexible test to determine whether sufficient
reasons exists for the deprivation (arbitrariness test)
∑ There must at the very least be a rational link between the
deprivation and the purpose of the deprivation

∑ Court held that there was no relation between the person (FNB)
and the transactions that led to the outstanding customs debt, or
between the property (motor vehicles) and the customs debt

∑ Although the court interpreted that the purpose of the provision,

namely, to recoup outstanding debt, serves a legitimate
government purpose in the public interest, the fact that there
was no relation (no relevant nexus) between the person or the
property and the outstanding debt rendered the deprivation
arbitrary
∑ [The court also assumed that a deprivation of property that does
not comply with the requirements in section 25(1) can be
justified in terms of section 36(1)]

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Limitation analysis:
∑ If a deprivation of property does not comply with the requirements in
s25 it is invalid unless it can be justified in terms of s36(1)

∑ Section 36(1):
1. General limitation clause
2. Determines that a right in the Bill of Rights may be limited only
in terms of law of general application to the extent that the
limitation is reasonable and justifiable in an open and
democratic society based on human dignity, equality and
freedom

∑ A court will have to determine whether there is a proportional link

between the purpose of the limitation and the harm that is done in
achieving the said purpose
∑ It appears unlikely that the limitation analysis in terms of s36(1) will
have any meaningful role to play once it has been decided that a
deprivation is either valid or invalid in terms of section 25(1)
1. The law-of-general-application requirement appears in both
section 25(1) and section 36(1)
2. The factors formulated in the FNB-case for determining
substantive arbitrariness are similar to those listed in section
36(1)
3. A deprivation that is procedurally unfair would not be justifiable
in terms of section 36(1)

Special applications: (non-arbitrary deprivations)

∑ Restrictions on planning and building:
1. Land use planning, development and environmental
conservation
∑ Restrictions on eviction and exclusion
1. Evictions in terms of PIE and ESTA (Extension of Security of
Tenure Act)
2. Public accommodations law

∑ Restrictions on foreclosure
1. Sales-in-execution (Jaftha and Gundwana)

∑ Rent control

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1. Rent increases and the grounds for termination

2. Rental Housing Act

∑ Search and Seizure, confiscation and forfeiture

1. Contraband, dangerous materials, instrumentalities used to
commit a crime and the proceeds of crime
2. Tax legislation and POCA (Prevention of Organised Crime Act)

Shoprite Checkers (Pty) Ltd v MEC for Economic Development,

Environmental Affairs and Tourism, Eastern Cape:

∑ The court accepts that what would be required to establish a

deprivation is interference that is significant enough to have a legally
relevant impact on the entitlement to use, enjoy and exploit property
Facts:
∑ The Eastern Cape Liquor Board granted Shoprite Checkers grocer’s
wine licenses between 1989 and 2003, under the Liquor Act

∑ The licensing regime changed in 2004, when the Eastern Cape Liquor
Act came into force
∑ This Act provides that, from its date of operation, grocer’s wine
licences in the Eastern Cape would be valid only until 2014
∑ However, licence holders could also apply for a registration to sell all
kinds of liquor on separate premises five years after the date of
commencement of the new Act
∑ Shoprite Checkers challenged the constitutional validity of these
provisions in the High Court, arguing that the grocer’s wine licences
are property under the Constitution and that the provisions of the new
Act violated its constitutional right not to be arbitrarily deprived of
property
∑ The HC found the grocer’s wine licences constituted property under
the Constitution and that the impugned provisions of the Act
arbitrarily deprived Shoprite of this property and found these
provisions to be constitutionally invalid
∑ The HC decision came before the Constitutional Court for
confirmation
CC judgment:

∑ Held that the grocer’s wine licence constitutes property

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∑ Held that the deprivation of this property by the Act was not
total as Shoprite had the opportunity to convert that right to a
registration under the Eastern Cape Liquor Act to sell all kinds of
liquor, albeit not on the same premises as a grocery business

∑ Because the change in regulatory regime brought about by the

new Act did not extinguish any other fundamental rights of
holders of grocer’s wine licences or fundamental constitutional
values, rationality would be sufficient reason to avoid a finding of
arbitrariness
∑ It held that it was rational to change the regulatory regime of
liquor sales to provide for simplification in the licensing system
and courts should not easily interfere with the choices made by
legislatures
∑ The declaration of constitutional validity should not be confirmed as
there was no arbitrary deprivation of property

Expropriation:
Meaning:

∑ The result of an extraordinary exercise of government power called

eminent domain
∑ Eminent domain refers to the ability of the state to take private
property from an individual without its consent for a public purpose
or in public interest against the payment of compensation

Formal requirements for the validity of expropriation:

1.Law of general application:
∑ Expropriations, unlike deprivations, do not have a constitutional
mandate, only a statutory mandate
∑ Thus, expropriations may only happen in terms of legislation (only
regulated in aspect by the Constitution itself)

∑ What may constitute law of general application

1. Constitution
2. National legislation (full, partial, technical)
∑ Expropriation Act 63 of 1975

∑ Section 11 (deposit of 80%)

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∑ Section 12 (limits and additional payment)

∑ Section 5 read with Schedules 1 and 3 of the

Infrastructure Development Act 23 of 2014
∑ Expropriation Bill
∑ Etc.
3. Provincial legislation
4. By-laws
Expropriation Act 63 of 1975:
∑ “Umbrella Act” for expropriation

∑ Broader Act (for purposes of subsidiarity)

∑ Section 11:
1. Payment of amount offered as compensation
2. The Minister shall pay not less than 80% of an amount that is
offered as compensation to the owner as a deposit
∑ Section 12:
1. Basis on which compensation is determined
2. The amount of compensation shall not exceed:
1. In the case of any property other than a right the
aggregate of –

∑ The amount which the property would have realized

if sold on the date of notice in the open market; and

∑ An amount to make good any actual financial loss

caused by the expropriation
In the case of any property other than a right excepting a registered right to
minerals, the aggregate of-
∑ The amount to make good any actual financial loss
caused by the expropriation of the right
Where the property is of such nature that there is no open market therefor,
compensation may be determined –
∑ On the basis of the amount it would cost to replace
the improvements, or the property expropriated,
having regard to the depreciation thereof for any
reason, as determined on the date of notice; or

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∑ In any other suitable manner

2. There shall be added to the total amount payable
mentioned above (in (1)) an amount equal to –
∑ 10% of such total amount if it does not exceed
R100 000; plus
∑ 5% of the amount by which it exceeds R100 000 if it
does not exceed R500 000; plus
∑ 3% of the amount by which it exceeds R500 000, if
it does not exceed R1 000 000; plus
∑ 1% (but not amounting to more than R10 000) of
the amount by which it exceeds R1 000 000

Infrastructure Development Act 23 of 2014:

∑ Section 5:
1. Presidential Infrastructure Coordinating Commission may for
the purposes of implementing a strategic integrated project
expropriate land or any right in, over or in respect of land in
terms of the Expropriation Act
2. The Commission may only conduct such expropriation after
consultation with an organ of state in whose favour the
expropriation is to be made
3. Such expropriation may be affected –
∑ For a public purpose or in the public interest

∑ By the Commission or, at its request, by the Minister of

Public Works or by such other minister as may be
determined by the Commission
∑ Schedule 1:

∑ Public installations, structures, facilities, systems, services or

processes in respect of which projects may be designated as
strategic integrated projects
o National and international airports
o Communication and information technology installations
o Education institutions
o Electricity transmission and distribution

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o Health care facilities

o Human settlements and related infrastructure and
facilities
o Economic facilities
o Mines
o Oil or gas pipelines, refineries or other installations
o Ports and harbours
o Power stations or installations for harnessing any source
of energy
o Productive rural and agricultural infrastructure
o Public roads
o Public transport
o Railways
o Sewage works and sanitation
o Waste infrastructure
o Water works and water infrastructure
∑ Schedule 3:

∑ Strategic integrated projects which exist when this Act

commences:
1. Unlocking the northern mineral belt with Waterberg as
catalyst
2. Durban-Free State-Gauteng logistics and industrial
corridor
3. South-Eastern node and corridor development
4. Unlocking the economic opportunities in the North West
Province
5. Saldanha-Northern Cape development corridor
6. Integrated municipal infrastructure project
7. Integrated urban space and public transport programme
8. Green energy in support of the South African economy
9. Electricity generation to support socio-economic
development

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10. Electricity transmission and distribution for all

11. Agri-logistics and rural infrastructure
12. Revitalisation of public hospitals and other health
facilities
13. National school build programme
14. Higher education infrastructure
15. Expanding access to communication technology
16. SKA and Meerkat
17. Regional integration for African cooperation and
development
18. Water and sanitation infrastructure
South African Schools Act:

∑ Empowers the Minister of Basic Education to expropriate property to

build schools
2.Public purpose or public interest:
∑ The purpose of this requirement is to prevent expropriation from
benefiting only a private individual

∑ The state is allowed to use its power of expropriation only if the

property concerned is required for a governmental purpose or would
benefit the public at large

∑ It is the prerogative of parliament or provincial legislature to

determine what is for public purpose or in public interest
∑ To ensure government does not abuse its powers, this determination
can also be tested by our courts against the requirements set by the
Constitution

∑ Meaning of public purpose / public interest:

o Section 25(4):
o “The nation’s commitment to land reform and to reforms to
bring about equitable access to all SA’s natural resources”
ß Land reform programmes (s25(5)-(9))
ß Minerals and petroleum resources (Act 28 of 2002)
ß Water (Act 36 of 1998)
3.Compensation:

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∑ The amount, time and manner of compensation can either be agreed

to by the parties concerned or decided or approved by a court
∑ In terms of the Expropriation Act, compensation is calculated
primarily on the basis of market value and is not to exceed the
amount that the property would have realised if it had been sold in
the open market between a willing buyer and a willing seller
∑ The Constitution requires the amount of compensation to be just and
equitable
∑ Haffejee NO v eThekwini Municipality:
o CC held that it is not a requirement that the amount of
compensation be determined before expropriation takes places
o As a required consequence of a valid expropriation, the amount
of compensation can be determined after the expropriation has
taken place, but an unreasonable delay may be objectionable if
it is not just and equitable in the circumstances
∑ Requirements of the authorising legislation:
o Must provide for the amount, time and manner in which
compensation should be paid (Haffejee NO v eThekwini
Municipality)
o Must be paid by the state to private owners
o Must provide for judicial oversight of
ß The determination of the amount; and
ß Payment of the compensation

∑ Calculation of compensation:
o Act of expropriation is followed directly with the duty to
compensate
ß To discourage inappropriate expropriation
ß Protects the freedom, equality and dignity of everyone
ß Aligns with reconciliation function of the country
o Just and equitable
ß Balance the communal interests of the public and the
individual interests of the private owner (Du Toit v
Minister of Transport)

∑ Property Valuation Act 17 of 2014

ß Considerations

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∑ Constitution requires that regard be had to all

relevant circumstances, including: (s25(3))
o The current use of the property
o The history of the acquisition and use of the
property
o The market value of the property (Msiza v
Director General, Department of Rural
Development and Land Reform)
o The extent of direct state investment and
subsidy in the acquisition and beneficial
capital improvement
o The purpose of the expropriation
Du Toit v Minister of Transport:

∑ A matter concerning the manner in which compensation for

expropriation under the National Roads Act should be calculated
∑ Court considered compensation based on what reflected an equitable
balance between public and individual interests
∑ The expropriation of property for building roads serve a public
purpose
Facts:
∑ The Roads Board extracted about 80 000 cubic metres of gravel from
Du Toit’s land for the purposes of upgrading a road close to his farm
in the Western Cape
∑ Du Toit believed that the amount of compensation to be paid to him
should have been calculated on the basis of the market value of his
gravel and not only the financial loss suffered by him because of the
use of his land by the Board
∑ He claimed he should have been paid R801 980 as compensation

∑ The HC awarded Du Toit compensation in the amount of R257 623,

holding that this was a just and equitable estimate
∑ The Minister appealed to the SCA which found that Du Toit provided
unreliable evidence of the market value of the gravel, and the
possibility that he would suffer any financial loss from the
expropriation was speculative, bearing mind that the limited market
that existed for the gravel

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∑ The SCA upheld the appeal and reduced the compensation to R6 060
which it regarded as just and equitable compensation as required by
s25 of the Constitution
∑ Du Toit applied to the CC for leave to appeal, contending that he was
entitled to what he regarded as the full value of the gravel taken,
namely R801 980, and not R6 060, which was the amount calculated
on the basis of his actual loss
Judgment:
∑ Court emphasised that every act of expropriation and all
compensation for expropriation must comply with s25 of the
Constitution
∑ The Roads Act does not include the same range of relevant
circumstances to determine compensation as does the Constitution
∑ However, the Act has not been challenged and therefore cannot be
bypassed
∑ Applying the Act in conformity with the fundamental values of the
Constitution entails considering what compensation is payable under
the Act and then considering whether that amount is just and
equitable with reference to relevant factors listed in s25(3)
∑ Court held that what was expropriated was the right to use the land
which includes the right to extract gravel
∑ Court agreed with SCA’s finding that Du Toit had not established
the market value of his gravel or his actual financial loss

∑ Court concludes that factors such as the current use of the

property, the history of the acquisition and use of the property,
the purpose of the expropriation and other relevant factors
served to confirm that there is no other basis on which Du Toit
can be justifiably compensated
∑ The court held the amount of compensation awarded by the SCA
as just and equitable and reflected an equitable balance between
private and public interests

Msiza v Director-General, Department of Rural Development and Land

Reform (2016):
Facts:

∑ The court had to determine the compensation due to Msiza in

accordance with section 23(1) of the Land Reform (Labour Tenants)
Act

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∑ Msiza was awarded land referred to as Rondebosch in 2004 in terms

of the Act (he qualified as a ‘labour tenant’ within the definition of the
Act)
∑ There is a dispute between Msiza and the DG as to the correct value
to be attached to the awarded land
∑ The powers of the court to determine compensation are set out in s23
of the Act, stating that ‘an owner of affected land shall be entitled to
just and equitable compensation as prescribed by the Constitution’
Judgment:

∑ In determining just and equitable compensation, a balance must

be struck between the interests of the private landowner and the
public interest
∑ Thus, compensation which is below the market value can be
compliant with the Constitution, if it qualifies as just and
equitable
∑ Court used a two-stage method for deciding just and equitable
compensation:
o First, the market value of the affected land; and
o Second, the remaining factors that would be applicable
∑ In doing so, the intention was not to confer market value any
privileged status, put to use it as an entry point

∑ The DG was willing to settle the claim at the market value, provided
that such value is calculated according to the present use of the land
(agricultural use) as opposed to the potential development of the
property (township development use)
∑ Despite the willingness of the state to pay the market value, the
court was not satisfied that the market value of the land as
agricultural is just and equitable and reflected an equitable
balance between the public interest and the interest of those
affected by the expropriation

∑ The court held that the amount must be adjusted downwards for
the following reasons:
o The amount paid by the landowner to acquire a much
greater area and the market value they seek are out of
proportion
o The landowners have not made any significant investments
in the land since they acquired it

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o The use of the land has not changed in 15 years since it was
acquired
o The object of the compensation is land reform, which is
expressly mentioned in the Constitution under the criteria
of public interest
o The applicants have lived and worked on the farm since
1936 as labour tenants. The Labour Tenants Act is to
compensate labour tenants who can prove that they worked
on land in exchange for the right to reside on the land
∑ The court determined the correct amount to be just and equitable was
R1 5000 000

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