Unlawful application of a lien clause

A service provider can rely on a debtor/creditor as security for its claim. This type of lien, conferred by virtue of an agreement between the creditor and the debtor, is a sub-species of a broader right to retain physical control of another’s property, whether movable or immovable, as a mechanism for securing payment of a claim, until the claim has been met. In other words, the service provider, who makes provision for such a lien in its contract, can refuse to release goods which are in its possession until it has received payment.

An example of the clause which introduces this right into a contract is that often used by clearing and forwarding agents and which might be worded along the following lines: “All goods shall be subject to a special and general lien either for moneys due in respect of such goods or for any other moneys due to the company from the customer, sender, owner, consignee, importer or the holder of the bill of lading or their agents, if any.” Such clause would go on to deal with the right of the clearing and forwarding agents to sell the goods after notice has been given to the debtor, if the debt remains unpaid. Other examples of creditors who may make provision for a lien in their contracts would be builders, motor vehicle repairers, warehousemen, transporters and professionals such as lawyers, accountants and architects.

A clause with wording similar to that quoted above has been tested and applied in cases which have come before our courts in the past – see for example Section 27 Ridgeprop CC t/a Tile Distributors SA v Sharaf Cargo (Pty) Ltd 2009 JDR 1022 (KZN).

The point which immediately jumps out, on reading this clause, is that it envisages a lien which can be exercised over goods which are unrelated to the debt.

Our law accepts that it is reasonable for a creditor to require security for its claim – much commercial activity is entirely dependent on this construct. Our courts recognise the validity of a lien which can be exercised over goods of a debtor in the possession of the lien holder even where the debt relates to other goods of that debtor which may no longer be in the possession of the lien holder. See for example the case of Danzas Trek (Pty) Ltd v du Bourg and Another 1979 (4) SA 915 (W).

Our law, relating to all types of lien, dictates that possession of the goods which constitute the subject matter of the lien is an intrinsic prerequisite for the exercise of this right by the lien holder. It is worth noting that our courts have found, most recently in Oceana Leasing Services (Pty) Ltd v BG Motors (Pty) Ltd 1980 (3) SA 267 (W), that where a lien holder voluntarily releases the property subject to the right, the lien is lost and remains irrevocably extinguished, and it does not revive if the property at a later stage reverts to his control. Hence, a service provider may well have to look to other goods in its possession where it has already delivered or released the goods in respect of which the debt arose.

There is little for the debtor to complain about if the goods which are subjected to the lien are owned by that debtor, who has failed to pay the debt, even if the debt relates to other goods of that debtor.

A more problematic application of such a clause arises when the lien holder contracts with an agent who acts for several principals. In that scenario one may find that a debt relating to goods owned by principal “A” are secured by a lien over goods belonging to principal “B”.

The fact that the clearing and forwarding agent is appointed by an agent who is not the owner of the goods over which the lien is exercised will not ordinarily be a problem for the service provider seeking to enforce its lien, because the agent will have been authorised to bind his principal, the owner, to the terms of the contract concluded with the clearing and forwarding agent. It is only when he acts as agent for several owners that issues of ownership are put in the spotlight.

The lien discussed above is a personal right which the lien holder can exercise against its debtor. This type of lien is not one which can be exercised against the world at large, because of its personal nature.

This personal right can be exercised by the service provider against the agent and accordingly also against its principal, the owner of the goods which are the subject of that lien and who owes the debt, but not against another person who owns goods which happen to be in the possession of the service provider, by virtue of another contract between them.

Because of the personal nature of the lien, where an agent acts for two different principals, the goods belonging to principal “B” cannot lawfully, we submit, be the subject of a lien arising from a debt due in respect of the goods of principal “A”, despite the wording of the clause.

ENS - Edward Nathan Sonnenbergs

Janine Lee

South Africa

Source: Lexology

Is self-help allowed under our new constitution?

Many of us are far too quick to enter into agreements without paying close enough attention to their terms. The folly of this laissez faire approach becomes all too clear when things go wrong and we are surprised to find ourselves at the wrong end of the bargain.

It is at this point that we are reminded of the principle of South African law to the effect that a contracting party is bound by the terms of any contract which has been concluded by him/her. The correct time to complain about a contractual term is before the conclusion of the deal, and not later when the effects of this term are felt.

Our courts recognize that people’s right to freedom of contract should be respected and that this entails giving effect to the terms of agreements reached between the parties, even if these terms are onerous or prejudicial to the interests of one of the parties. We are free to agree to any terms, as long as these are not unlawful. Having agreed to a set of terms, we must be held to this bargain. Our law has also always recognised that, notwithstanding the aforesaid principle, effect ought not to be given to contractual terms which are contrary to public policy. The effect of the new Constitution of South Africa has been, inter alia, to flesh out the meaning of “public policy”. In short if a clause constitutes an unwarranted infringement of a right guaranteed in terms of the Bill of Rights, that clause may be susceptible to attack on the basis that it is contrary to public policy.

The approach of our courts is to conduct an enquiry where the first question is: Is the contractual clause in question per se contrary to public policy? If the answer is in the affirmative then the enquiry need not go any further - the clause is invalid. A contractual term may appear innocuous but its effect in particular circumstances may well offend public interest. Therefore, even if the first question is answered in the negative, the enquiry is not necessarily complete and a further question is posed, namely - Does the operation of the clause in the prevailing circumstances render it contrary to public policy?

In order to answer the questions relating to public policy regard must be taken of our Bill of Rights. One of the rights enshrined in the Bill of Rights is the right of access to our courts, which reads: “Everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum.” This right is directed against a tendency for parties to take the law into their own hands.

Our courts are constantly working through a massive backlog of civil cases and legal process can drag on for years before any result is achieved. It is not surprising, therefore, that attempts are made to obviate the need to refer issues to the courts. For example, a company which repairs a motor vehicle or electronic equipment may seek the power to sell off the car or tv if the repair costs are not paid on time. A trucking company wants the right to sell off goods which it has transported, if its charges are not paid when due. Do contractual clauses which are aimed at allowing the repairer or transporter to auction goods, without obtaining a court order, fall foul of public policy because they amount to an abuse of the right to access to our courts?

This argument was made in the case Juglal NO and Another v Shopright Checkers (Pty) Ltd t/a OK Franchise Division1 where the court analysed the contractual clause in question and concluded that it regulated the rights of the parties vis-á-vis each other but said nothing about ousting the authority of the courts or restricting the parties’ access to the courts or making a court application unnecessary before action could be taken to perfect the security contemplated in the clause. However, the court did say “That the respondent subjected the terms of the contract and its implementation to the intervention and oversight of the court takes much of the sting out of the appellant’s complaint about the arbitrary, unreasonable and oppressive nature of the contractual powers conferred on it.”

In other words, when considering the second leg of the test discussed above, the court was positively influenced by the fact that the appellant had sought the authority of the court before proceeding to sell the goods which represented his security, even though the clause did not necessarily compel the appellant to do so.

A clause which seeks to oust the jurisdiction of the court would be unconstitutional. If the clause does not prohibit an approach to the court or expressly make an application to court unnecessary, it is probably not, per se, contrary to public policy.

However, an attempt to sell the goods without first seeking court authorisation would often be found to be an infringement of the right of access to court which is enshrined in the Constitution. In other words it may be found to be contrary to public policy in its effect, especially where the debt is in dispute. It is in respect of the second leg of the test highlighted above, concerning the implementation of the clause in these circumstances, where such a clause may fail the test imposed by our new Constitution.

ENS - Edward Nathan Sonnenbergs

Janine Lee

South Africa

Source: Lexology