P G Bison Limited and Others v The Master of the High Court, Grahamstown and Another

The three appellants were creditors of Pats Planks CC ('the corporation'), which purchased products from them. On 7 April 1995, approximately one year before its liquidation, the corporation executed a 'General Covering Cession' ceding its book debts to the appellants in securitatem debiti (as security for debt). The cession ranked second to a prior cession to the corporation's bank. The corporation's attorney inserted an additional clause into the deed of cession stating: 'This cession will not be implemented unless the account is overdue by 30 days and 7 days notice of the intention to implement this cession has been given.' At the date of liquidation, the account was overdue by 30 days but the 7 days notice had not been given. The second respondent was appointed liquidator. The first liquidation and distribution account reflected part of the appellants' claims as 'secured claims'. Following an objection, the Master (first respondent) directed the liquidator to amend the account to reflect the proceeds of book debts in the free residue account, ruling that the transfer of rights had been suspended by the additional clause and the cession conferred no security. The appellants applied to the Eastern Cape Division to set aside this direction, but the court a quo upheld the Master's ruling and dismissed the application.

• Whether the additional clause in the deed of cession suspended the transfer of rights to the cessionaries
• What is the proper interpretation of the word 'implement' in the context of a cession in securitatem debiti
• Whether the cession provided valid security to the appellants despite the 7 days notice not having been given

The appeal was upheld with costs to be a cost of administration in the winding up of Pats Planks CC (in liquidation). The order of the court a quo was set aside and substituted with an order: (i) setting aside the Master's direction to amend the first liquidation and distribution account to reflect proceeds of book debts in the free residue account; (ii) confirming the encumbered asset account number 4 as prepared by the liquidator; and (iii) ordering costs of the application to be a cost of administration in the winding up.

In a cession in securitatem debiti, a clause providing that the cession 'will not be implemented' until certain conditions are met (such as notice being given) does not suspend the actual transfer of rights from cedent to cessionary. Rather, it suspends only the cessionary's ability to personally exercise those rights until the specified conditions are fulfilled. The word 'implement' in such a clause means 'to carry out' or 'put into effect' (i.e., to exercise the rights), not to complete or effect the transfer of rights. The rights are transferred immediately upon execution of the cession, and the cessionary acquires security at that time, even though the cessionary cannot exercise the rights until the conditions are met. The construction of such clauses must accord with the parties' purpose and object in entering the cession as a security arrangement.

The Court made reference to the general principle that in a cession in securitatem debiti, the cessionary would ordinarily not be entitled to recover directly from the cedent's debtors until such time as the cedent is in default (citing Land- en Landboubank van Suid-Afrika v Die Meester en Andere 1991 (2) SA 761 (A) at 771 D). The Court also distinguished the case of Ovland Management (Tvl) (Pty) Ltd and Another v Petprin (Pty) Ltd 1995 (3) SA 276 (N), noting that in that case the full court had held on construction that the cedent had not denuded itself of the right to sue, but that on proper construction of the deed in the present matter, the right to sue did not remain vested in the corporation as cedent.

This case is significant for establishing the proper interpretation of conditional clauses in cessions in securitatem debiti. It clarifies that a clause providing that a cession 'will not be implemented' until certain conditions are met does not necessarily suspend the transfer of rights itself, but rather suspends the exercise of those rights by the cessionary. The judgment affirms the principle that courts must construe contractual language in keeping with the purpose and object the parties had in view, and emphasizes the importance of giving effect to security arrangements in insolvency contexts. It provides important guidance on distinguishing between the transfer of rights and the exercise of those rights in the context of security cessions.