6 July 2021 by and Dispute Resolution Alert

Cession versus cession: Dates and wording matter

When faced with competing cessions, first in time does not automatically mean first in line.

In Silostrat (Pty) Ltd and Others v Strydom NO and Others [2021] (SCA) 93 the Supreme Court of Appeal (SCA) first had to interpret the competing cessions before it could consider the relevance of their timing. The lesson to be taken from this judgment is that it’s important to ensure the wording of security documents is correct. This is especially so as we increasingly rely on precedents to achieve efficiency.

The Silostrat case involved a heavily indebted maize farmer (Kirsten) who had continued to execute cession agreements over his future maize crops in favour of his various creditors. In 2010 he began executing annual cessions in favour of Suidwes Landbou in order to secure a revolving credit loan. The last of these cessions was concluded on 28 October 2014, in which he ceded his 2015 maize harvest. In 2011 he ceded to Standard Bank his right to the future income he would earn from “agricultural producers” in respect of agricultural produce purchased from these producers and sold on to buyers. Finally, on 5 October 2014, he ceded his right to the income he would earn from his 2015 maize harvest to Technichem Oesbeskerming.

Despite these cessions, Kirsten concluded three forward contracts in which he agreed to sell his 2015 maize harvest to Silostrat. Silostrat, in turn, agreed to sell the harvest on to a third party. Kirsten, however, failed to deliver the harvest to Silostrat, and rather delivered it to Suidwes in terms of the 28 October 2014 cession. To fulfil its obligation to the third party, Silostrat was forced to buy maize from another supplier and sell this on, making a loss in the process.

Kirsten’s sequestration followed. As a result, there were four claims in the High Court against his insolvent estate’s 2015 crop and/or the proceeds received from the sale of the crop to Suidwes.

Standard Bank contended that, despite its cession recording its entitlement only to Kirsten’s right to income from the selling on of produce he received from agricultural producers, this should be interpreted as a cession of his future maize crops. Suidwes argued that its annual cessions were evergreen, and, since these went back to 2010, predated Technichem and Standard Bank’s cessions. Technichem claimed that the Standard Bank cession was void for vagueness, the Suidwes cessions were not evergreen, and its 5 October 2014 cession predated the 28 October 2014 cession. Silostrat meanwhile claimed contractual damages for the loss it had suffered due to Kirsten’s breach of contract.

The High Court upheld Silostrat’s claim, but determined that this would be administered by the trustees of Kirsten’s insolvent estate. The court also rejected Standard Bank’s interpretation of its 2011 cession, and rejected the argument by Suidwes that its annual cessions were evergreen. The High Court found that the competing claims to Kirsten’s 2015 maize harvest were in terms of the 5 October 2014 cession in favour of Technichem and the 28 October 2014 cession in favour of Suidwes. In light of this, it ruled that Technichem’s cession predated the Suidwes cession, and was thus the stronger claim.

On appeal, the SCA upheld the High Court’s decision. With regard to Standard Bank’s appeal, the SCA found that on an ordinary interpretation of the wording of the cession, Standard Bank’s right was limited to that portion of future income derived from the selling on of produce Kirsten had received from “agricultural producers”. With regard to the Suidwes appeal, it found that the annual cessions executed in favour of Suidwes were not evergreen, and instead expired at the end of the year for which they were executed. Thus, any claim Suidwes had to Kirsten’s 2015 maize harvest was on the basis of its 28 October 2014 cession.

Therefore, as in the High Court, the SCA found Technichem’s claim to be stronger as the cession of Kirsten’s 2015 maize harvest was executed in its favour before the cession in favour of Suidwes. This decision serves to illustrate the confluence of legal principles relevant to contractual interpretation and the ranking of personal rights.

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