This case went on appeal to the Supreme Court of Appeal (the “SCA”) wherein the Court upheld an appeal against a decision of the Gauteng Division of the High Court (the “court a quo”).
The issues before the SCA included, inter alia:
1. whether or not the substitution of a party after litis contestatio as a result of a cession of a debt gives rise to a valid special plea of prescription; and
2. the alleged impoverishment of the cessionary in a claim based on the condictio indebiti.
In October 2010, Sentrachem Group Pension Fund (the “Pension Fund”) made an erroneous second payment to Mr. Terrblanche (the “Respondent”), a member of the Pension Fund.
The Pension Fund, relying on the conditio indebiti, caused summons to be issued claiming the amount which the Respondent had allegedly been enriched. The summons was served on the Respondent on 22 August 2011.
Subsequently, the Registrar of Pension Funds sanctioned the voluntary dissolution of the Pension Fund. As such, the liquidator, Jeremy Peter Andrew (the “Liquidator”), was substituted as plaintiff on 27 February 2012. Thereafter, on 27 September 2013, the Liquidator and Sentrachem Limited (the “Appellant”) entered into a cession and assignment agreement, in terms of which the claim against the Respondent was ceded to the Appellant (the “Cession”).
Pursuant to the Cession, on a date after the expiry of the prescription period, the Appellant was substituted as plaintiff in place of the Liquidator.
The Respondent, in an amended plea, raised a special plea of prescription on the basis that the substitution of the Appellant as plaintiff amounted to the institution of new proceedings after the statutory prescription period of 3 (three) years.
In addition thereto, the Respondent contended that the Appellant itself had not been impoverished, only the Pension Fund had suffered impoverishment.
The court a quo upheld the special plea of prescription and, accordingly, did not deem it necessary to consider the issues of locus standi and impoverishment.
The SCA dismissed the special plea of prescription, as the Respondent’s argument failed to draw a distinction between a cause of action and a ‘debt’, as envisaged by the Act, relying on the decision of the SCA in Van Rensburg v Condoprops 42 (Pty) Ltd wherein it was held that the Act ‘prescribes periods of prescription in respect of “debts”, not periods of prescription relating to causes of action.’
The SCA held that the effect of the substitution of the Appellant as plaintiff did not result in institution of new proceedings, as the debt remained unaltered throughout, only the identity of the party which pursued the debt had changed.
Further, the SCA found that the Respondent’s failure to object to the substitution amounts to consent to such substitution. As such, the Respondent’s special plea of prescription was without merit and ought to have been dismissed in the court a quo.
Having regard to the Appellant’s locus standi and impoverishment in terms of same, the SCA held, inter alia:
1. the Appellant, as cessionary, became vested with locus standi to pursue the claim in its own name;
2. the contention that the Appellant itself had not been impoverished, only the Pension Fund had suffered impoverishment, is untenable;
3. it cannot be disputed that the Pension Fund had experienced a diminution in the value of assets as soon as the erroneous payment had been made; and
4. it is trite that upon a valid cession, the underlying obligation and the personal right flowing from it remain unchanged. The transfer of the personal right occurs with all the sureties, real sureties, advantages and disadvantages attached to it.
As such, the SCA found there to be no merit in the argument advanced regarding impoverishment.
Accordingly, the appeal was upheld.
Substitution occurs when a party to legal proceedings is replaced by another party, with no effect on the cause of action. Once a substitution as plaintiff occurs, there can be no dispute concerning the locus standi to sue.
A substitution sanctioned by the Court is a legal procedural step to formalise the transfer of the claim to the cessionary in terms of a cession.
After substitution, the cessionary is entitled, and is in fact in law obliged, to continue legal proceedings in its own name.