D Bisnath NO and Others v Absa Bank Limited

The litigation involved protracted disputes between Absa Bank and Mr and Mrs Bisnath (the Bisnaths) as trustees of the Gita Family Trust. The Trust owned one property (the trust property) secured by mortgage bonds in favour of the Bank, and the Bisnaths personally owned nine properties also secured by mortgage bonds. The Bisnaths executed suretyships for the Trust's debts. The Trust fell into arrears, and the Bank obtained default judgment against the Trust and the Bisnaths as sureties on 8 December 1998 under case 8912/98, declaring the trust property executable. The property was sold in execution in October 2000 and bought by the Bank, later sold to third parties. The Bank credited the Trust's account with net proceeds of R165,980.20. Separately, the Bisnaths fell into arrears on their own properties under case 8857/98, but settled on 22 November 2000 under case 957/2000, admitting liability and providing consents to judgment. Three Bisnath properties were sold and proceeds applied to arrears. In September 2000, the Bank attached the remaining six Bisnath properties under case 8912/98. The Trust and Bisnaths obtained a rule nisi from Niles-Dunèr J on 2 December 2002 to set aside the attachment. Jappie J confirmed part of the rule on 10 November 2003 and referred issues for oral evidence before Swain J, including whether: (i) the Trust was entitled to a R66,000 credit; (ii) the Trust was entitled to R280,000 credit; and (iii) the sale in execution should be set aside. Swain J found against the Trust on the R280,000 claim on 6 April 2004, and on 5 September 2006 found against the Trust on the R66,000 claim and the setting aside of the sale. The Trust also claimed the Bank failed to collect rentals after taking possession. Meanwhile, on 30 May 2006, Hugo J granted judgment by consent against the Bisnaths under case 957/2000 declaring their six remaining properties specially executable. The Bisnaths obtained a rule nisi from Msimang J on 15 March 2007, confirmed by Radebe AJ on 1 August 2007, setting aside Hugo J's judgment and staying execution. Two appeals followed: (i) the Trust and Bisnaths appealed Swain J's findings (first appeal 117/07); and (ii) the Bank appealed Radebe AJ's order (second appeal 674/07).

• Whether the Trust was entitled to a credit of R66,000 based on an alleged agreement with the Bank to allocate sale proceeds to the Trust's account
• Whether the sale in execution of the trust property should be set aside due to an incorrect description of the property in the order declaring it executable (extension 1 vs extension 7)
• Whether the Bank was obliged to collect rentals from the trust property after attachment and whether the Trust was entitled to credit for uncollected rentals
• Whether proper notice was given to the Bisnaths of the Bank's intention to apply for judgment by consent
• Whether the Bank was entitled to refuse cancellation of covering bonds over the Bisnaths' properties against tender of amounts outstanding on each individual bond
• What obligations does a mortgagee owe in respect of fruits (rentals) of mortgaged property when not in possession

First appeal (117/07): Dismissed with costs on the attorney-client scale to be paid by the Trust and the Bisnaths jointly and severally. Second appeal (674/07): Upheld with costs on the attorney-client scale to be paid by the respondents (the Bisnaths) jointly and severally. The order of Radebe AJ was set aside and substituted with an order discharging the rule nisi and ordering the applicants (Bisnaths) to pay the respondent's (Bank's) costs.

The binding legal principles established are: (1) The obligations owed by a pledgee to the pledgor at common law in regard to fruits of the property pledged are owed by a mortgagee of immovable property to the mortgagor only where the mortgagee is in actual possession of the mortgaged property. A mortgagee not in possession has no obligation to collect rentals or account for fruits. (2) The onus of proving that a mortgagee was in possession of mortgaged property and therefore obliged to collect fruits rests on the party asserting this, namely the mortgagor. (3) In describing property in an order declaring it executable, minor inaccuracies that do not create ambiguity and do not affect the identification of the correct property (such as incorrect reference to a township extension number where only one erf with that number exists) do not invalidate the order or the subsequent execution. (4) Covering bond clauses that secure 'future debts generally' and 'generally any indebtedness to the Bank from whatsoever cause arising' are valid, enforceable, clear and not contrary to public policy. Such bonds have been recognized in South African law for over a century. (5) A mortgagee holding covering bonds is entitled to refuse cancellation of the bonds against tender of the amount outstanding under a specific bond when the bonds also secure other indebtedness (such as liability as surety) that remains in dispute.

The court made several obiter observations: (1) The court noted that it did not need to decide whether clause 5 of the settlement agreement (relating to attorney-client costs) was limited to costs incurred prior to the settlement, as punitive costs were justified on other grounds. (2) Cloete JA expressed the view that a clause in a mortgage bond purporting to exempt a mortgagee from obligations does not necessarily provide exemption from legal obligations - the court interpreted the clause in question as conferring rights rather than exempting from obligations, though this was not essential to the decision. (3) The court observed that the need for accurate property description in execution orders is 'obviously to ensure that the correct property is attached and sold' - this purposive statement went beyond what was strictly necessary for the ratio. (4) The court's criticism of C G van der Merwe's statement in one text that 'the mortgagor has to account for fruits' as likely being a misprint for 'mortgagee' was obiter commentary on academic writing. (5) The court's observation about the protracted nature of the litigation and the conduct of the Bisnaths over ten years, while relevant to costs, contained obiter criticism of litigation conduct.

This case is significant for establishing the important distinction between the obligations of pledgees and mortgagees regarding fruits of secured property in South African law. It clarifies that while a pledgee (who is by definition in possession) must account for fruits of the pledged property, a mortgagee of immovable property owes this obligation only when actually in possession of the mortgaged property. The judgment provides important guidance on: (i) the interpretation and enforceability of covering bond clauses; (ii) the requirements for proper description of immovable property in execution orders; (iii) the application of attorney-client costs in vexatious litigation; and (iv) procedural requirements for consent to judgment applications. The case also demonstrates the court's willingness to impose punitive costs where litigation is plainly without merit and pursued vexatiously or frivolously.