Division: The Supreme Court of Appeal
Case No: 671/2002
Date of hearing: 4 November 2003
Date of delivery: 28 November 2003
Coram: Harms, Scott, Navsa, Cloete and Heher JJA
Relationship between s15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 and s 66(2) of the Magistrates' Courts Act 32 of 1944 in which the court had to consider whether a body corporates' claim for arrear levies and related costs owed to it by an owner of one of the units under the scheme was preferent to the claim of a bank as mortgagee over the unit.
Briefly, FNB was the mortgagee of the unit and the body corporate had obtained judgment against the owner for outstanding levies and costs owed to it. After selling the unit in execution (for R32 000; R8 600 was owed to the body corporate and the amount owed on the bond was R108 000), the debt was unsatisfied and FNB refused to accept the purchase price obtained at the sale.
The body corporate replied by contending that it enjoyed a preference above that of the bank as bondholder and that it did not require the bank's approval for the sale in execution. The body corporate then applied to the Transvaal Provincial Division for an order declaring that the bank did not enjoy a preferent claim.
FNB submitted that the effect of the order would render its security valueless and that all mortgagees in its position could be exposed to having their security sold without notice to them for amounts sufficient only to cover the debts due to the bodies corporate. The court found for the body corporate and FNB appealed.
En passant, section 15B(3)(a)(i)(aa) of the Sectional Titles Act states that transfer shall not be given to a purchaser unless a conveyancer's certificate is produced which inter alia states that all moneys due to the body corporate have been paid or arrangements have been made to secure such payment. Section 66(2) of The Magistrates' Courts Act states that no immovable property which is subject to any claim preferent to that of a judgement creditor shall be sold in execution ... unless the proceeds of the sale are sufficient to satisfy the claim of such preferent creditor in full.
Navsa JA (Harms, Scott, Cloete and Heher JJA concurring) - after looking at a number of cases in which a preference had been created by virtue of an embargo or veto provision - held that the Sectional Titles Act has nothing in its provisions that expressly elevated the embargo or veto right of a body corporate above the rights of a holder of a mortgage bond. He asked that if Parliament had intended the provisions to have this effect, why did it not say so in express terms?
The practical effect of the statute is that, assuming the availability of funds, a body corporate will be paid before transfer of immovable property is effected. A reasonable mortgagee and body corporate might arrive at an accommodation where there are insufficient funds available to cover the total of the debts owing to both parties - but neither is obliged in law to do so.
Because the defaulting owner was neither sequestrated nor liquidated (where the Insolvency Act 24 of 1936 would have created a preference in favour of the body corporate as the outstanding levies would have been treated as being part of the 'cost of realisation'), FNB's claim was preferent and the appeal was upheld.