Smit and Others v Origize 166 Strand Real Estate (Pty) Ltd and Others

Mr Jacobs purchased real rights in a sectional scheme in Port Edward for R4.1 million through his company Origize. After paying a R410,000 deposit, Origize could not provide guarantees for the remainder of the purchase price. Mr Jacobs approached Mr Smit, an attorney, for assistance. They agreed Mr Smit would advance R1 million to prevent cancellation and arrange finance for the balance, in exchange for sharing equally in the profits from resale. On 21 July 2016, Origize passed a resolution granting Mr Smit an "irrevocable" power of attorney as security for the advances. The power authorized Mr Smit to complete the purchase, obtain finance, maintain and improve the property, market and transfer the units. Mr Smit advanced R1 million and secured a loan from Business Partners for the balance. Transfer was secured but attempts to sell the units were unsuccessful, with Mr Jacobs refusing offers secured by Mr Smit. The relationship deteriorated and on 15 March 2018, Mr Jacobs purported to revoke the power of attorney. The appellants sought declaratory relief that Mr Smit could accept offers and sign documents to transfer the property.

• Whether a power of attorney granted as security for a debt can be irrevocable in South African law
• Whether the purported revocation of the power of attorney was valid
• Whether the terms of the resolution authorized Mr Smit to accept offers and execute transfer documents on behalf of Origize

The appeal was upheld with costs, including costs of two counsel. The high court order was set aside and replaced with a declaratory order that Mr Smit may accept and sign any written offer on behalf of Origize and sign all documents required to give effect to the offer and transfer the real rights. The first and second respondents were ordered to pay the costs of the application jointly and severally.

A power of attorney granted by a company (or person) to secure a debt owed to the grantee is irrevocable in law for as long as the debt remains unpaid. The purported revocation of such a power of attorney is invalid and of no legal effect. This principle has been consistently applied in South African courts for over 125 years and is now firmly established as part of contemporary South African law, regardless of its origins in English rather than Roman-Dutch law. Where a power of attorney contains express terms authorizing the agent to sell property, execute contracts and transfer documents, and such power was given as security for financial advances made by the agent in a joint venture arrangement, the agent has authority to accept offers and execute all necessary documents to effect transfer.

The Court acknowledged that scholarly writing (particularly in LAWSA) argues that the exception to revocability was not part of Roman-Dutch law and that courts may have misunderstood Voet's teaching on procuratio in rem suam. However, the Court stated that vested rights have accrued to parties reliant on the enduring principle affirmed in South African courts over 125 years, and a ruling that the exception was never part of South African law would have ripple effects with concomitant impact on existing rights and obligations. The Court noted that it was common banking practice since at least 1908 for banks to accept powers of attorney to register bonds as security for loans, and there is no reason to believe this practice has materially changed. The Court commented that in the context of a joint venture where parties share profits, an agent advancing substantial funds has as great an interest, if not greater, in securing the highest possible price as the principal.

This case is significant in South African law as it definitively establishes that a power of attorney given as security for a debt is irrevocable for as long as the debt remains unpaid, despite scholarly arguments that this principle may not have been part of original Roman-Dutch law. The judgment affirms over 125 years of consistent case law development and recognizes the principle as part of contemporary South African law. The decision has important practical implications for commercial and banking transactions where powers of attorney are commonly used as security instruments. The Court's reasoning that changing this established principle would have ripple effects on vested rights and existing commercial practices demonstrates the importance of legal certainty and the doctrine of stare decisis. The case also provides guidance on the interpretation of powers of attorney and the extent of authority conferred on agents in joint venture arrangements.