Smit v Origize 166 Strand Real Estate (Pty) Ltd

SCA considered our law stretching back more than 125 years to the point where it was developed and established the principle that a power of attorney given as security for a debt owing, is irrevocable, at least for as long as the debt remains unpaid.

Essence

Irrevocable power of attorney coupled with an interest considered by SCA and decided that resolution was irrevocable at least until secured debt was repaid.

Decision

(SCA 710/19) [2020] ZASCA 132 (19 October 2020)

Order:

Allowed appeal and set aside and replaced the order of the high court.

Judges

Eksteen AJA (Petse DP, Makgoka and Nicholls JJA and Ledwaba AJA concurring)

Heard: 25 August 2020
Delivered: 10 October 2020

Reasons

“[28]   These decisions, stretching back more than 125 years, set out the development of our law and the establishment of the principle that a power of attorney given as security for a debt owing, is irrevocable, at least for as long as the debt remains unpaid. The courts have repeatedly considered the pronouncement by Voet and have consistently attributed to it their understanding. I accept that they may have misunderstood his teaching, however, as the law has developed in this country over an extended period the principle has been firmly laid down and the time has come to recognise that it is part of our contemporary law.[1]

[29]   I have alluded earlier to the case law. Solomon J noted in Natal Bank, in 1908, that it was common banking practice for a bank to accept a power of attorney to register a bond if and when so advised, as security for a loan. There is no reason to believe that the practice has materially changed. Vested rights have accrued to parties reliant on the enduring principle affirmed in our courts and a ruling now that the exception has never been part of our law would have a ripple effect, with a concomitant impact on existing rights and obligations. For these reasons I conclude that the resolution of 21 July 2016 was irrevocable, at least until the debt secured was repaid, and its purported revocation is therefore invalid.”

Quotations from judgment

Note: Footnotes omitted and emphasis added

[1] The issue in this appeal relates to the interpretation, enforcement and revocability of two powers of attorney granted to Mr Sybrand Smit, the first appellant, by Origize 166 Strand Real Estate (Pty) Limited (Origize), the first respondent, pursuant to two company resolutions marked ‘irrevocable’.

Relying on these resolutions the appellants sought an order authorising Mr Smit to sign any written offer from any offeror and all documents required to give effect to the offer, on behalf of Origize, and to transfer to the offeror the real right of extension in respect of 33 units in the scheme known as Ocean View Villas (the sectional scheme), held under certificate of real right number SK1206/217 (the real rights). The application was dismissed in the Western Cape Division of the High Court, Cape Town (the high court). The appeal to this court is with the leave of the high court.

[2] In order to understand the dispute it is necessary to set out briefly the material history thereof. Mr Smit, an attorney, and Mr Jacobs, an estate agent, had been business associates. During 2016, Mr Jacobs purchased the real rights in the sectional scheme, which is situated in Port Edward, KwaZulu-Natal, from the liquidators of CLA Projects (Pty) Ltd for R4.1 million in the name of Origize. Mr Jacobs was the sole shareholder and director in Origize and he paid the deposit of R410 000 immediately upon signature of the agreement. Origize was required to provide guarantees for the remainder of the purchase price within a stipulated period.

When it was unable to do so the liquidators threatened to cancel the contract. This prompted Mr Jacobs to approach Mr Smit for assistance. He advised Mr Smit that he had purchased 33 sectional title units and that he had already secured a buyer who would purchase the units from him immediately for R9.5 million. It was accordingly imperative to ward off the threatened cancellation.

[3] They agreed that Mr Smit would engage with the liquidators to stave off the cancellation and, if necessary, to arrange that the remainder of the purchase price be paid by a further R1 million in cash, payable immediately, in exchange for an extension of time to provide guarantees in respect of the outstanding balance. They further agreed that Mr Smit would advance the R1 million to Origize and in exchange he would be entitled to share equally with Origize in the profits upon the sale of the units.

. . . .

[15] That brings me to the central issue in the appeal, whether the resolution was revocable and, if not, whether the relief sought was justified by virtue of the terms thereof. In respect of the former, the high court concluded that a power of attorney authorising another to act on one’s behalf can, in law, never be irrevocable. It relied on a passage in Lawsa.

The essence thereof is summarised in the final paragraph, quoted by the high court:

‘The position then can be summed up as follows: according to Roman-Dutch law, an authority to another person to conclude juristic acts in one’s name or on one’s behalf could not be irrevocable; the exception mentioned by Voet is apparent and not real, as Voet refers to a cessionary and not to a representative who acts on behalf of another person; the so-called authority coupled with an interest or forming part of a security is nothing but a cession; cases in which it is suggested that an authority can be irrevocable so as to render valid a juristic act concluded by a person purporting to act on behalf of another person after the other person had revoked his or her authority cannot be regarded as authoritative.’

[16] The view expressed in Lawsa is not universally held.

Thus, The Law of Agency in South Africa (Silke) records the current position in South Africa as follows:

‘A principal may at any time terminate the authority he has conferred on his agent, whether the agent has commenced to act on it or not, and whether or not it has been expressly or impliedly agreed that the authority will be irrevocable, unless
(a) it was granted for the purpose of protecting or securing some interest of the agent;
(b) it forms one of the terms of a contract between the parties;
(c) it was given to secure the performance of the promise made by the principal to the agent.’

[17] The Law of Agency (Kerr) recognises the general rule that authority given to another may be revoked at any time and that the mere agreement by the parties that a power granted by the one to the other or a mandate given by the one to the other shall be ‘irrevocable’ or ‘in rem suam’ does not deprive the grantor or the mandator of his power to revoke. The author then proceeds to opine:

‘However, grants of power and mandates which are given to enable the grantee or mandatary to obtain security are not revocable by the grantor or mandator while the debt sought to be secured is unpaid.’

[18] Lawsa argues that the statement by Voet (17.1.17) has long been misunderstood and misapplied. Indeed, it would appear as if, and I accept for purposes of this judgement that the exception to the general rule (the exception), alluded to by Kerr, was not part of the Roman-Dutch law and that it has its origin in English law. However, the exception, which lies at the heart of the contentions by Silke and Kerr, has a long history in reported case law in South Africa.

[19] The first reference thereto was in Koch v Mair (1894) 11 SC 71 at 83, wherein De Villiers CJ stated:

‘There can be no doubt, that by our law a principal may effectually bind himself by contract not to revoke his power. Such a contract would be implied where the power is given to secure the performance of a promise made by the agent for valuable consideration, whether the power on the face of it purports to be irrevocable or not.’

De Villiers CJ did not cite any authority for his assertion.

[20] It arose again in Marcus’ Executor v Mackie Dunn & Co (1896-1897) 11 EDC 29 where Solomon J, after analysing a number of English decisions concluded:

‘The effect then of the English decisions is that the principle that an authority coupled with an interest is irrevocable, applies only to those cases where the authority is given for the purpose of being a security, or as part of the security. The same rule prevails in our law; it is laid down in Burge’s “Colonial Law” in words identical with those quoted above, “(A mandate) terminates when the mandant himself revokes the authority. But this rule admits of an exception when the mandate forms part of a security for a debt” (Burge’s Comment,’ Juta’s edition, p. 282, and Voet 17.1.17, there quoted).’

[21] Lawsa argues, however, that Solomon J simply accepted, on the authority of Burge, that the exception forms part of our law. Burge, it is argued, relies on Voet, who deals with the procuratio in rem suam, or cession, and not with the power of attorney to sell things belonging to another person. This criticism may be accepted for purposes of the debate. The significance of the statement by Soloman J, as I shall show, lies in the acceptance of the exception and its consistent application in our courts.

[22] In Van Niekerk v Van Noorden (1900) 17 SC 63, the plaintiffs had conferred a wide authority on the defendant which was given ‘specially, irrevocably and in rem suam’ as security for a loan advanced.

De Villiers CJ, at 65, remarked:

‘It appears to me an important point on the case that this power was given for the protection of the defendant. He was going to some risk in assisting the plaintiffs, and in consideration of that risk he wished to hold control of this business for so long as the debt was still owing to him, and it was for that purpose that the irrevocable power was given.’

He went on to conclude at 66:

‘There has been a great deal of argument as to whether this power is revocable or not, but my idea is that it is revocable to this extent, that the plaintiffs could at any time by paying the whole amount of the debt due to the defendant claim that the power given should be revoked, but so long as the debt remains it is really irrevocable.’

[23] Natal Bank Ltd v Natorp and Registrar of Deeds 1908 TS 1016 followed. There, Natorp had given the bank an ‘irrevocable’ power of attorney which entitled it to pass a bond of £7 000 over certain property named therein. It was clear from the terms of the power of attorney that it was given in connection with a debt due by Natorp to the bank ‘arising from and being for money lent and advanced or to be lent and advanced by the said bank to Natorp and Ireland, merchants, Pietersburg’.

On 4 October 1908 Natorp purported to revoke the power by notice to the bank. A few days thereafter the bank proceeded to act on the power but the Registrar of Deeds, who had been notified of the purported revocation, rejected the bond. However, the court ordered that the power of attorney be treated as binding.

Solomon J stated at 1019-1022:

‘The object of the transaction was that Natorp should give security to the bank for this overdraft, or for any overdraft which might become due in the future from the firm of Natorp & Ireland. The transaction . . . is a comparatively common banking transaction between a customer and a bank, under which certain facilities are given to the customer, and he in turn grants a power of this nature as security, to be retained by the bank and acted upon by it when it thinks necessary . . . [I]n the circumstances . . . the power cannot be revoked until the firm [Natorp and Ireland] have discharged their liabilities to the bank.’

[24] The position expounded by Voet (17.1.17), that there must be a cession of action before the authority can be deemed to be irrevocable, was advanced. The argument was considered and rejected, whether rightly or wrongly. Natal Bank was followed in Hunt, Leuchars and Hepburn Ltd: In Re Jeansson (1911) 32 NPD 493.

In Hunt, Jeansson had borrowed money from Hunt, Leuchars and Hepburn and given them an irrevocable power of attorney to let, sell, acquire, mortgage, manage, and generally to administer: a certain piece of land. After Jeansson’s death Hunt Leuchars and Hepburn approached the court for leave to act upon the power of attorney. Leave was granted on the ground that the power, having been given as security, was irrevocable and did therefore not terminate at Jeansson’s death.

[25] Glover v Bothma 1948 (1) SA 611 (WLD) was next. Roper J considered the argument based on Voet 17.1.17. He concluded:

‘The effect of the rule as stated by Voet appears to be substantially the same as that of the English rule that an agency cannot be revoked where it is coupled with an interest.

The following passage occurs in Wille and Millin’s Mercantile Law of S.A. (11th Ed., p. 362):

“An authority coupled with an interest is one given for the purpose of protecting or securing any interest of the agent. Such an authority or power is usually styled ‘irrevocable’ in the instrument conferring it, and it often takes the form of what is called a procuratorship in rem suam, i.e., an agency in which the agent is given authority to sue in his own name and in which he transacts the business committed to him for his own benefit and not for the benefit of the principal. In a case of this sort, as well as in every other case where the power has been given by way of security, irrevocability will be implied, even if the power is not express on the point. On the other hand, merely to call a power ‘irrevocable’ is not to make it so. Subject to an action for damages an ordinary power styled irrevocable may be revoked . . . The test is whether it is intended for the protection or securing of an interest of the agent. If it is, it is irrevocable, until such time as the protection or security is no longer needed”.’

[26] Caney J was called upon again to consider the revocability of a power of attorney in Ward v Barrett, NO, and Another 1962 (4) SA 732 (NPD).

He opined at 737D-E:

‘Generally, the authority of an agent is revocable by his principal and terminates on the death or insolvency of himself or of the principal. The question whether a power of attorney or the authority of an agent howsoever conferred is irrevocable depends, it seems to me, upon an interpretation of the transaction into which the principal has entered with the agent and an application of the general principles of law to that transaction. There seems to be no particular magic in the use of the terms “irrevocable” or “procuratio in rem suam” or “a power coupled with an interest”; it is essential to discover precisely what was the transaction.’

[27] Caney J proceeded to refer to Natal Bank and stated (at 737G-H):

‘[A] power of attorney (expressed to be irrevocable) to pass a mortgage bond was given, not for the purpose of then and there passing a bond, but for the bank to hold as security for overdraft facilities and to be acted upon by the bank when it thought necessary. The principal’s attempt to revoke the power would have been, as INNES, C.J., said of a bond in similar circumstances, in National Bank of SA Ltd v Hoffman’s Trustee, 1923 AD 247 at p. 249, “a fraudulent act which the law could not countenance”.’

[28] These decisions, stretching back more than 125 years, set out the development of our law and the establishment of the principle that a power of attorney given as security for a debt owing, is irrevocable, at least for as long as the debt remains unpaid.

The courts have repeatedly considered the pronouncement by Voet and have consistently attributed to it their understanding. I accept that they may have misunderstood his teaching, however, as the law has developed in this country over an extended period the principle has been firmly laid down and the time has come to recognise that it is part of our contemporary law.

[29] I have alluded earlier to the case law.

Solomon J noted in Natal Bank, in 1908, that it was common banking practice for a bank to accept a power of attorney to register a bond if and when so advised, as security for a loan.

There is no reason to believe that the practice has materially changed. Vested rights have accrued to parties reliant on the enduring principle affirmed in our courts and a ruling now that the exception has never been part of our law would have a ripple effect, with a concomitant impact on existing rights and obligations. For these reasons I conclude that the resolution of 21 July 2016 was irrevocable, at least until the debt secured was repaid, and its purported revocation is therefore invalid.

[30] The remaining question is whether the terms of the resolution entitled the appellants to the order sought. The high court said not. It reasoned that it would be wrong to permit Mr Smit to accept ‘any offer’ as an agent is in law obliged to act in the best interest of his principal and he could therefore not accept an offer of which Mr Jacobs did not approve. The reasoning does not do justice to the relationship between the parties.

The history of the dispute demonstrates that they were partners in a joint venture. Mr Smit has assumed a substantial financial risk to assist Mr Jacobs and the power to sell the property was specifically given to secure this risk .As a partner sharing in the profit, if any, he has as great an interest, if not greater, in securing the highest possible price as Mr Jacobs has.

[31] Clauses 1.12-1.15 of the resolution confer extensive powers on Mr Smit to sell the property, to receive or to make, as the case may be, contracts and deeds of transfer relating to the property and to sign any deed or instrument in writing as effectually as Mr Jacobs could. In my view the express terms of the power of attorney confer on Mr Smit the authority to accept an offer to purchase and to sign the deed of sale and all documents necessary to pass transfer to the purchaser.

[32] On behalf of the respondents it was argued that the power of attorney was time bound and once the transaction with the liquidators had been completed and transfer of the rights effected the power lapsed.

The argument ignores the provisions of clause 1.9 which authorises Mr Smit to do maintenance and effect improvements to the property to get it to a sellable condition and to undertake any activities to market the units and transfer the units to new owners. Moreover, once it is accepted that the power of attorney was given as security for the loan, as I have, it is irrevocable for as long as the debt which it sought to secure remains unpaid. The argument can therefore not succeed.

[33] In the result:

1 The appeal is upheld with costs, including the costs of two counsel.
2 The order of the high court is set aside and replaced with the following:
‘1 It is declared that the first applicant may, in terms of the resolution adopted by the first respondent on 21 July 2016:
1.1 Accept and sign on behalf of the first respondent any written offer from an offeror; and
1.2 Sign on behalf of the first respondent all documents required to give effect to the abovementioned written offer and to transfer to the offeror:
The real right of extension in respect of 33 units of the scheme known as Ocean View Villas, held under certificate of real right number SK1206/2017 (the real rights).
1.3 The first and second respondents shall pay the costs of the application, jointly and severally.’

Court summary

Court summary

“Principal and agent – power of attorney granted by company to secure a debt owed to the grantee – Power of attorney given as security for a debt owed is irrevocable for as long as the debt remains unpaid – purported revocation of power of attorney invalid.”

Media summary

Please note that the media summary is for the benefit of the media and does not form part of the judgement of the Supreme Court of Appeal.
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“The Supreme Court of Appeal today upheld an appeal against the dismissal by the high court of an application for a declaratory order that Mr Smit is entitled, in terms of a resolution adopted by Origize 166 Strand Real Estate (Pty) Ltd (Origize) on 21 July 2016, to:

1. Accept and sign on behalf of Origize, any written offer from any offeror; and
2. Sign on behalf of Origize, all documents required to give effect to such offer and to transfer to the offeror the real right of extension in respect of 33 units of the scheme known as Ocean View Villas, situated in Port Edward, KwaZulu-Natal, held under certificate of real right number SK1206/2017 (the real right).
The first and second respondents were ordered to pay the costs of the appeal, including the costs of two counsel.

Mr Smit, an attorney, and Mr Jacobs (the second respondent), an estate agent, were business associates. Mr Jacobs was the sole shareholder and director of Origize. It purchased the real right from the liquidators of CLA Projects (Pty) Ltd for R4.1 million with the intension to resell it quickly at a profit.

Mr Jacobs paid the deposit, but was unable to provide security for the remainder of the purchase price. He engaged Mr Smit to negotiate with the liquidators to avert the cancelation of the contract. An agreement was reached that Origize would pay a further R1 million, which would be non-refundable, immediately, and an extension would be granted in respect of the provision of security in respect of the balance of the purchase price.

Mr Smit undertook to advance the R1 million to, and to raise the balance of the purchase price on behalf of, Origize in exchange for a 50 percent share in the venture. Origize, for its part, provided Mr Smit with a power of attorney, as recorded in the resolution of 21 July 2016, as security for the money lent and advanced. The resolution authorised Mr Smit to deal with and to sell any immovable property of Origize, and ‘to receive and to make and give, as the case may be, the necessary contracts or acts and deeds of transfer’ relating to the immovable property.

Mr Smit paid the R1 million to the liquidators and raised the remainder of the purchase price by way of a loan. The real right was transferred to Origize but, the parties were unable to find a purchaser at a price satisfactory to Mr Jacobs. In time the units were vandalised with a concomitant diminution in value. When Mr Smit insisted they sell Mr Jacobs purported to rescind the resolution of 21 July 2016, which Mr Smit contended he was not allowed to do.

The high court held that an authority given to another to act on one’s behalf is revocable at any time. It therefor dismissed the application.

After hearing argument from both sides the SCA upheld the appeal finding that Mr Smit had established that the power of attorney had been given as security for money lent and advanced .In these circumstances it held that it was irrevocable for as long as the debt remained unpaid.”