THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case no: 686/2009

MERIDIAN BAY RESTAURANT (PTY) LTD
First Appellant
BOE BANK LIMITED
Second Appellant
NEDBANK LIMITED
Third Appellant

and

D R MITCHELL SC N O
Respondent
(in his capacity as the duly appointed curator ad litem of
HARBOUR‟S EDGE BODY CORPORATE)
____________________________________________________________

Neutral citation:

Meridian Bay Restaurant v Mitchell

(686/09) [2011] ZASCA 30 (23 March 2011)

BENCH:

NAVSA, PONNAN and SHONGWE JJA

HEARD:

22 FEBRUARY 2011
DELIVERED:
23 MARCH 2011

SUMMARY:
Sectional title scheme – developer – fraudulently creating additional units

out of common property- insolvency intervening – double sales – doctrine

of notice – first purchaser allowed to claim directly from second purchaser

who acquired with knowledge of first sale.

______________________________________________________________________

ORDER
______________________________________________________________________

On appeal from:
Western Cape High Court (Cape Town) (Uijs AJ sitting as court of
first instance).

The appeal is dismissed with costs to be paid jointly and severally by the appellants, the
one paying the others to be absolved.
______________________________________________________________________

JUDGMENT
______________________________________________________________________

PONNAN  JA  (NAVSA and SHONGWE concurring):

[1] On 19 July 2000 Wimbledon Lodge (Pty) Ltd, the registered owner of Unit 91 in
the sectional title scheme known as Harbour‟s Edge (the sectional title scheme),
launched an application in the Cape High Court in terms of s 41(3) of the Sectional
Titles Act 95 of 1986 (the Act) for an order that a curator ad litem be appointed to the
Harbour‟s Edge Body Corporate (the body corporate), which controls the sectional title
scheme. The case advanced in the application was that a fraud had been perpetrated
on Wimbledon Lodge and the other registered owners of units in the sectional title
scheme by one Casper Scharrighuisen, who so the accusation went, had secretly
appropriated a large part of the common property of the scheme for the benefit of two
corporate entities which he controlled. They are, the developer of the scheme, Casisles
Coastal Property Investements CC (Casisles) and Harbour‟s Edge Commercial Property
Holdings (Pty) Ltd (Holdings). Scharrighuisen‟s estate has been sequestrated and those
two corporate entities wound up. Casisles was since 19 August 1994 the registered
owner of Erf 4600, Gordons Bay, upon which the sectional title scheme was developed.

[2] The sectional plan was first registered on 19 September 1997. The body
corporate was constituted on 18 November 1997 when transfer of the first unit in the
scheme was registered. The scheme is a mixed use scheme comprising several
residential and commercial units but consisting mainly of units that are equipped as

hotel suites to be operated as such through a rental pool agreement. Fifty five units
were sold prior to the coming into existence of the body corporate and 46 of those sales
occurred prior to the registration of the first sectional title plan. To each of those deeds
of sale was annexed a participation quota and drawings. All 55 deeds of sale concluded
between Casisles and the purchasers (the purchasers) were in all material respects in
identical terms. Simultaneously with those deeds of sale, each purchaser concluded a
rental pool agreement with Casisles. In terms of that agreement each purchaser
undertook to make his unit available for the purposes of conducting a hotel business.
Each of the rental pool agreements were also in identical terms. The deeds of sale and
the rental pool agreements envisaged that a management company would lease the
units from the purchasers and include them in the hotel apartment business to be
conducted by it. The purchasers would derive rental income after the deduction of
operating levies imposed by the management company to cover the costs of operating
the hotel business. The management company would in turn contract with a suitable
expert hotel operator, who would effectively run the hotel business.

[3] The application by Wimbledon Lodge for the appointment of the curator ad litem
failed before Van Reenen J in the Cape High Court, but succeeded on appeal to this
court. Both judgments are reported sub nom Wimbledon Lodge (Pty) Ltd v Gore NO &
others.1 The facts and the history of the matter are somewhat complicated. To
understand the gist of the complaint though it suffices for present purposes to borrow
from Schutz JA, who in writing for the majority of this court, summarised (at para 3) the
position as follows:
„The building was not intended to be occupied by the unit-holders. It was to be used as a hotel. The
rentals earned were to be placed in a pool which, after expenses had been met, was to be distributed
according to individual participation quotas. According to the plan which was annexed to the deeds of
sale, the common property was to include restaurants, kitchens, a parking basement, a squash court,
necessary service areas and much more. That plan showed that there would be 86 sections with a total
area of 5 886 square metres. It is not Wimbledon‟s case that a fraudulent misrepresentation was made
when the sales took place, in the sense that Scharrighuisen then already intended to cheat buyers.
Wimbledon‟s case is that the sectional title plan which Scharrighuisen had registered in the deeds registry

1 The High Court judgment at 2002 (2) SA 88 (C).  And the judgment of the SCA at 2003 (5) SA 315
(SCA).

subsequently, without informing buyers, provided for 120 sections with a total area of 14 420 square
metres. The extra area was achieved, not by enlarging the building, but by the appropriation of a large
part of the common property. Of the 34 extra sections, 10 are registered in the name of Casisles and 12
in the name of Harbour‟s Edge. How the 12 sections reached Harbour‟s Edge (these are the valuable
ones) we are not told, as, despite a challenge to disclose, there came only the statement that the sections
“were purchased” from Casisles. As the entries in the deeds registry stand those 22 sections are owned
by the one or the other of the two corporations, now in liquidation, and their area has been subtracted
from the common property of the other unit-holders. It is these doings that Cuninghame [on behalf of
Wimbledon lodge] describes variously as a fraud or theft. The exact legal categorisation hardly matters.
These allegations stand essentially unchallenged.‟

[4] D R Mitchell, the present respondent, a practising advocate at the Cape Bar was
accordingly appointed to act as curator ad litem to the body corporate in terms of s
41(3) of the Act with inter alia the power to:

1. Conduct an investigation into the grounds and desirability of the institution of proceedings on

behalf of the third respondent in order to:

1.1
take such steps as are necessary to obtain registration of the immovable

property listed  in the schedule annexed to this order as common property of the

Harbour‟s Edge Sectional Title Scheme; and/or

1.2
claim such damages as may be legally recoverable as a result of the alleged

misconduct of the developer and any of its successors in title as set out in the affidavits

filed of record on behalf of the applicant.

2. Report the results of his investigation and his recommendations to the Cape High Court on the

return day.

[5] Pursuant to his appointment, the curator ad litem caused summons to be issued
against various defendants including the liquidators of Casisles and Holdings. The
curator sought, inter alia, an order that certain disputed sections in the sectional title
scheme revert to the body corporate as common property and consequently that the
sectional title plan and deeds be rectified accordingly. The claim succeeded before Uijs
AJ in the Cape High Court. With the leave of the learned judge three of the 11
defendants appeal to this Court. They are Meridian Bay Restaurant (Pty) Ltd (Meridian
Bay), the first appellant, BOE Bank Limited, the second appellant and Nedbank Limited,
the third appellant.

[6] Meridian Bay is the registered owner of sections 1 (basement parking), 7 and
120 (conference rooms) and 21 (a hotel suite (formerly hotel kitchen)), which was
transferred to it during December 2000. The pleaded case against Meridian Bay is that
after the proceedings had been instituted by Wimbledon Lodge for the appointment of
the curator ad litem, Holdings represented by its liquidators, disposed of sections 7, 21
and 120 in the sectional title scheme to Meridian Bay and section 1 to Berties Mooring
Investments (Pty) Ltd (Berties Moorings) (the disputed sections). Berties Moorings, in
turn, disposed of and transferred that section to Meridian Bay.

[7] Whilst the pleaded case against the banks (the second and third appellants) is
that the one or the other is the registered holder of two mortgage bonds registered in its
favour by Meridian Bay. The first in an amount of R 4.5m was registered over sections
7, 21 and 120 on 13 December 2000 and the second in the amount of R 7.1m over
sections 7, 21 and 120 on 5 December 2002. In his heads of argument, counsel for the
banks makes plain:
„As far as the question of who the relevant bondholder may be is concerned, it is submitted that nothing
turns on this. Neither the second nor the third appellants intend taking the point that the judgment of the
court a quo was granted against the incorrect banking entity.‟
Moreover counsel for the banks accepts that „the success or failure of the banks in this
appeal depends on the success or failure of [Meridian Bay]‟.

[8] The particulars of claim further allege that:
‟23
At the time that each disposal aforementioned took place the entity acquiring the section had
knowledge of the pending proceedings and took transfer of the sections knowing that proceedings to
recover the sections as common property might be instituted on behalf of the body corporate by a curator
ad litem.
In the premises the transferees acquired, and can assert, no greater right to the sections than
Holdings had at the time of its disposal of the sections and to assert such greater right would constitute a
species of fraud upon the plaintiff.
The mortgage bonds registered in favour of the Bank referred to in paragraph 3(b) above were
registered on 13 December 2000 and 5 December 2002 at which date both the mortgager and the Bank

had knowledge of the pending proceedings referred to in paragraph 22 above and registered the
mortgage bonds in the knowledge that:
(a)
proceedings to recover sections 1, 7, 21 and 120 as common property might be instituted on
behalf of the body corporate by a curator ad litem;
(b)
if such proceedings were successful, the said sections would not constitute security for the debts
of the mortgager referred to in the said mortgage bonds.‟

[9] To complete the narrative. Prior to the institution of the proceedings the subject
of the present appeal, the liquidators of Casisles and Holdings tendered, without
admission of liability, to transfer to the body corporate sections 15, 20, 27, 42, 50, 55,
61, 83, 87, 92, 116, 117 and 118, which tender the curator accepted. Those sections
indubitably belonged to the body corporate.

[10] Uijs AJ found for the curator ad litem. He accordingly made the following order:
„(a)
The acquisition by the Body Corporate of the Harbour‟s Edge Sectional Title Scheme of sections
15, 20, 27, 42, 50, 55, 61, 83, 87, 92, 116, 117 and 119 is ratified.
(b)
Such acquisition of the sections aforesaid are declared to be acquisitions of land extending the
common property of the Harbour‟s Edge Sectional Title Scheme as envisaged in section 26(1) of the
Sectional Title Act, No 97 of 1986.
(c)
It is directed that Sections 1, 7, 21 and 120 of the Harbour‟s Edge Sectional Title Scheme are to
revert to the Body Corporate of that Scheme as common property, for the benefit of the owners of the
remaining sections in the scheme.
(d)
The said sections are to be deleted from the Sectional Title Deeds ST 21129/2002 and ST
16518/2000 in the name of the First Defendant and from Sectional Title Mortgage Bonds SB 9612/2000
and SB 11767/2002 held by the Second Defendant and/or the Eleventh Defendant.
(e)
The Body Corporate is directed to prepare and submit to the Ninth and Tenth Defendants an
amended Sectional Plan, reflecting all of the abovementioned sections as common property, together
with a revised schedule of participation quotas for the remaining sections in the scheme.
(f)
The Ninth and Tenth Defendants are directed to register such amended Sectional Plan and
schedule of participation quotas and to make such consequential entries in their records as may be
necessary to give full effect to this order.
(g)
The parties are directed to ensure that there is due compliance with all of the requirements of
both the Ninth and Tenth Defendants in giving effect to this order.
(h)
The lease agreement between the First Defendant and the Eighth Defendant in respect of section
120 of the said Sectional Title Scheme is declared not to be binding on the Body Corporate of the said
scheme.

(h)
First and Eighth Defendants and Second or Eleventh Defendants are (save as provided for
herein) to pay jointly and severally Plaintiff‟s costs of suit, the one paying, the other to be absolved. In this
regard, Plaintiff‟s expert witnesses, Mellon and Harding are declared necessary witnesses, the costs
occasioned by employing them to be calculated on the appropriate tariffs and scale, and all other
witnesses called by Plaintiff are declared to have been necessary witnesses.
(j)
Second and/or Eleventh Defendants shall not be obliged to pay any costs occasioned by the
Application brought by First and Eighth Defendants to separate the issues, or any wasted costs incurred
as a result of the bringing of that application, which, it is recorded, they opposed.
(k)
Second and/or eleventh Defendants shall not be obliged to pay the costs occasioned by any
amendment to First Defendant‟s Plea, or any costs occasioned by the opposition of First and Eighth
Defendants to Plaintiff‟s application for an order directing the order of evidence, which, it is recorded, they
did not oppose.
(l)
The matter shall stand down, with leave granted to the parties to approach the Court to re-open
same.‟

[11] The thrust of the curator‟s case is that the developer altered the sectional plans
that had been annexed to each deed of sale in relation to the common property thereby
converting portions into units that could be misappropriated. All of this had been done
without the knowledge of the purchasers. The developer in giving transfer of the units to
the purchasers pretended to deliver what they had contracted for and obtained payment
of the purchase price on that basis. In that way he caused certain portions of the
common property to cease to exist. He further purported to put those illegally obtained
sections beyond the reach of the body corporate by causing them as registered sections
to be transferred to an associated entity, Holdings. The cause of the conversion of the
common property and thus its disappearance from the sectional plan was the unilateral
act of the developer who caused a sectional plan at variance with the purchase and sale
agreement with the purchasers to be registered. It is thus the fraudulent act of
registering a revised plan, one at odds with the prior purchase and sale agreements,
which founds the respondent‟s action. As the common property had ceased to exist in
consequence of the fraud, the body corporate, so the submission goes, can recover it
by rectifying the records of the Deeds Office so that they conform to the prior purchase
and sale agreements concluded with the purchasers. In effect, the body corporate
seeks, as the entity charged with the administration and control of the common property

of the scheme, to recover that which was fraudulently removed from the unit holders in
the scheme, namely, an undivided share of the common property that ought in terms of
the contracts of sale to have been in existence when the body corporate was first
established.

[12] It is a basic principle of our law that a real right generally prevails over a personal
right (even if the personal right is prior in time) when they come into competition with
each other.2 Thus, according to Prof van der Walt, „in South African law the distinction
between real and personal rights has acquired something of a mystical nature, and is
often presented as a problem without a solution‟.3  Accordingly, in the ordinary course, if
A sells a thing – be it movable or immovable - to B and thereafter sells the same thing to
C, ownership is acquired not by the first purchaser but by the purchaser who first
obtains transfer of the thing sold. If the first purchaser, B, is also the first transferee, his
right of ownership is unassailable by C. The legal situation is more intricate if the
second purchaser, C, is first to obtain delivery. In this case, the first distinction to be
made is whether or not C, when contracting with A, had notice of the previous sale to B.
For, according to Professor Scholtens,4 if C had such notice, he is not entitled to retain
the thing as against B.

[13] As FDJ Brand in an as yet unpublished paper entitled „Knowledge and
Wrongfulness as Elements of the Doctrine of Notice„, observes the „rather unyielding
preference to real rights is tempered by the doctrine of notice‟. Prof Lubbe suggests:
„From a dogmatic perspective the doctrine of notice seems to be anomalous in so far as it permits the
holder of a personal, supposedly relative, right to a thing to prevail over the holder of a real right in
respect thereof; even to the extent of requiring the transferee with notice to give effect to the contractual
undertakings of the predecessor in respect of the thing.‟5

2 Hassam v Shaboodien 1996 (2) SA 720 (C) at 724H-I; FDJ Brand Knowledge and Wrongfulness as
Elements of the Doctrine of Notice.
3 AJ van der Walt „Personal rights and limited real rights an historical overview and analysis of
contemporary problems related to the registrability of rights‟ 1992 (55) THRHR 170 at 179.
4 CJE Scholtens „Double Sales‟ (1953) 70 SALJ 22.
5 G Lubbe „A doctrine in search of a theory: reflections on the so-called doctrine of notice in South African
law‟ 1997 Acta Juridica 246 at 249.

Ultimately, it is, as Prof McKerron observes, „a purely equitable doctrine running counter
to the rule of the strict law that a real right takes preference over a merely personal
right‟.6

[14] Under the doctrine of notice, someone who acquires an asset with notice of a
personal right to it which his predecessor in title has granted to another, may be held
bound to give effect thereto. Thus a purchaser who knows that the merx has been sold
to another, may, in spite of having obtained transfer or delivery, be forced to hand it
over to the prior purchaser.  Reverting to my earlier example: if C had purchased with
knowledge of the prior sale to B, B would be entitled to claim that the transfer to C be
set aside and that transfer be effected from A to B, or B may perhaps even claim
transfer directly from C.

[15] For many years our courts sought to invoke mala fides or „a species of fraud‟ as
the inherent justification for the doctrine. Thus it was said, for example, by Wessels JA
in De Jager v Sisana:7
„[A] purchase of property made in derogation of the rights of a third party with knowledge of such rights is
a species of fraud upon the third party and does not defeat his rights.‟
and
„If A grants B a servitude, B has a right to that servitude as . . . against A, and has the right to have that
servitude registered. If C knows of the grant, then if he endeavours to get the land free of the servitude he
is conspiring with A to defraud B of a valid right which he already has against A and which he can by
registration acquire against the whole world. C is therefore particeps fraudis with A.‟

[16] Likewise, in Grant & another v Stonestreet & others,8 Ogilvie Thompson JA
stated:
„Having regard to our system of registration, the purchaser of immovable property who acquires clean title
is not lightly to be held bound by an unregistered praedial servitude claimed in relation to that property. If,
however, such purchaser has knowledge, at the time he acquires the property, of the existence of the
servitude, he will ― subject to a possible qualification, discussed below, relating to cases where there has
been the intervention of a prior innocent purchaser ― be bound by it notwithstanding the absence of

6 RG McKerron „Purchaser with notice‟ 1935 SA Law Times Vol 4 178 at 180.
7 1930 AD 71 at 80 and 84.
8 1968 (4) SA 1 (A) at 20A-E.

registration. The basis of this obligation is that in attempting, under such circumstances, to repudiate the
servitude, the purchaser is mala fide, and that the law refuses to countenance any such attempted
repudiation because, as it is put in some of the cases, it in reality amounts to a species of fraud (see
Richards v Nash, 1 S.C. 312; Jansen v Fincham, 9 S.C. 289; Ridler v Gartner, 1920 T.P.D. 249 and cf.
De Jager v Sisana, 1930 A.D. 71 at p 84). Mala fides is not readily presumed, and it was emphasised in
Jansen v Fincham and Ridler v Gartner, supra, that clear proof of knowledge on his part is required
before the Court will hold a purchaser bound by an unregistered servitude. As was observed by
WESSELS J., in Ridler v Gartner, supra at pp. 259-260:
“There must be an element of deceit, an element of chicanery in the transaction, before the Court will set
it aside on the ground of knowledge. It must be perfectly clear to the Court that the person who alleges
that he bought a clean transfer knew perfectly well and did not expect that he would get a clean transfer
except by his fraud. Any other view of the law would be extremely dangerous and would dig away the
very foundations upon which our whole system of registration is based.” ‟

[17] But with Associated South African Bakeries (Pty) Ltd v Oryx & Vereinigte
Bäckereien (Pty) Ltd,9 came the demise of the fraud construction. The court held that
references to a species of fraud or mala fides on the part of the acquirer with knowledge
in the earlier cases was nothing but a fiction to provide the doctrine of notice with
theoretical support. According to Van Heerden AJA, any reference to fraud or mala fides
in the context of the doctrine of notice should be avoided because it only gives rise to
confusion. The only requirement for the operation of the doctrine, so he stated, is actual
knowledge (or perhaps dolus eventualis) with regard to the prior personal right on the
part of the acquirer. Once this requirement is satisfied, the holder of the personal right is
afforded what is in effect a limited real right against the acquirer.

[18] Thus C, the acquirer of the real right, does not need to have actual knowledge of
B‟s prior right. It suffices that C subjectively foresaw the possibility of the existence of
B‟s personal right but proceeded with the acquisition of his real right regardless of the
consequences to B‟s prior personal right. The reference to dolus eventualis in Van
Heerden AJA‟s judgment echoes what was said by Ogilvie Thompson JA in Grant v
Stonestreet:

9 1982 (3) SA 893 (A).

„Although, unlike the English Law, the doctrine of constructive knowledge has, in our law, little or no
application in enquiries of this kind (Erasmus v du Toit 1910 TPD 1037, Snyman v Mugglestone 1935
CPD 565), the statement made by Bristowe, J in Erasmus’s case, supra at p 1049, that, if a person
wilfully shuts his eyes and declines to see what is perfectly obvious, he must be held to have had actual
notice, appears to me to be sound in principle and to merit the approval of this Court.„10

[19] Perhaps on account of its anomalous aspects and uncertain pedigree, the
doctrine of notice has attracted more academic discussion than its practical importance
seems to merit.11 According to Lubbe:
„Attempts to locate the doctrine of notice within the general conceptual framework of our system of private
law, seek to reduce it either to the law of obligations or the domain of property. In an echo of attempts
elsewhere, a resort to delictual liability has been predominant in attempts to forge an explanation of the
doctrine in terms of the law of obligations.‟12
It may well be, as Brand posits, that we simply have to accept that the doctrine of notice
is a doctrinal anomaly which does not fit neatly into the principles of either the law of
delict or property law.13 Brand poses the question: „If the answers do not lie in a search
for the doctrinal basis of the doctrine where should one start?‟ He proffers the following
illuminating response that no doubt will not only appreciably assist in shaping and
determining the future debate on the subject, but also in resolving the various
problematic anomalies and dogmatic classification puzzles:
„The key to the solution, I believe, is to be found in the following statement by Badenhorst Pienaar &
Mostert:
"Infringement of a personal right by an acquirer of the real right is perceived as unlawful conduct. The
criteria for the determination of wrongfulness in the law of delict should be applied."

As I see it, this means two things. Firstly, that although the doctrine of notice is not founded in delict, it
shares a common element with delictual liability, namely, the element of wrongfulness (sometimes also
referred to as unlawfulness). Secondly, that in determining wrongfulness for the purposes of the doctrine,
we should be guided by the principles that have become crystallised in delictual parlance. In this regard
the principles of the law of delict proceed from the premise that conduct which manifests itself in the form
of a positive act causing physical damage to the property or person of another is prima facie wrongful. By
contrast, causation of pure economic loss is not regarded as prima facie wrongful. Its wrongfulness

10 At 20F.
11 Lubbe op cit p258.
12 Lubbe op cit p258.
13 Brand para 22.

depends on the existence of a legal duty. In applying these principles, the doctrine of notice seems to fit
naturally into the category of pure economic loss. In consequence, it invokes the concept of a "legal duty".
The imposition of a legal duty, so it has been explained, is a matter for judicial determination, involving
criteria of public and legal policy. When we therefore say, in the law of delict, that conduct causing pure
economic loss is "wrongful" we mean that public or legal policy considerations require that such conduct
attracts legal liability for its consequences. Conversely, when we say that conduct causing pure economic
loss is not wrongful, we intend to convey that public or legal policy considerations determine that there
should be no liability; that the potential defendant enjoys immunity against such conduct. As I see it this
would mean, in the context of the doctrine of notice, that an infringement of a prior personal right through
the acquisition of a real right will only be recognised as "wrongful", if for reasons of public and legal policy,
the courts determine that such infringement should attract the consequences of the doctrine.‟14

[20] After ASA Bakeries this court had occasion to consider the doctrine of notice in
Dream Supreme Properties 11CC v Nedcor Bank Ltd & others15 but in the context of an
attachment and sale in execution. The facts were: During June 2000 Nedcor Bank
obtained judgment against Mr Costas, who was the owner of a holiday house in Camps
Bay. On 15 November 2001 he sold the house to Dream Supreme, a close corporation
under the control of his mother-in-law. When Nedcor Bank became aware of the sale, it
caused a writ of execution to be issued in respect of the house. Pursuant to the writ, the
house was attached and sold at a sale in execution. Dream Supreme sought an order in
the Cape High Court for the setting aside of the attachment and the sale in execution.
The High Court refused the application essentially on the basis that the sale agreement
between Dream Supreme and Costas was not a bona fide sale, but an attempt to shield
the property from execution by the creditors. On appeal, this court held that the court of
first instance had erred in holding that the agreement of sale was not bona fide.
Streicher JA, writing for the majority, stated:
„However, it does not follow that because an inference of fraud on the part of a second purchaser is
drawn from the mere fact of knowledge of a prior sale that an inference of fraud likewise has to be drawn
from such knowledge on the part of an execution creditor who attaches property which his debtor has
sold in execution of a judgment. In terms of the common law such an execution creditor could, with some
exceptions, attach the assets of which his debtor was the owner in order to obtain satisfaction of his debt.

14 Brand para 23 - 24.
15 2007 (4) SA 380 (SCA).

Effect is given to that right in s 36 of the Supreme Court Act 59 of 1959 read with Rule 45 of the Uniform
Rules.‟16
And
„It follows that, unlike the purchase of a property with knowledge of a prior sale, the first respondent did
what, according to the Uniform Rules, he was entitled to do. There can be no question of regarding his
actions as a species of fraud. To extend the doctrine of notice to situations such as the present would
open the door to unscrupulous debtors to fabricate personal rights which would be difficult for a creditor to
expose for what they are. It will discourage prospective purchasers from taking part in sales in execution
where a claim to a prior personal right is made by a third party. Very few such prospective purchasers
would be prepared to investigate the validity of such a claim by a third party and even less will be
prepared to involve themselves in litigation against such a third party. In the result, to extend the doctrine
of notice to situations such as the present will create, to the detriment of the creditor as well as the debtor,
uncertainty as to the title obtained at a sale in execution and so reduce the effectiveness of such a sale,
the purpose of which is to obtain satisfaction of a judgment debt.‟17

[21] Whether or not mala fides or fraud on the part of the attaching creditor would
render the attachment wrongful is an issue that Streicher JA did not decide.  What he
did decide is that once a creditor has established a real right known as a pignus
judiciale through an attachment in execution of a judgment, the holder of a personal
right cannot rely on mere knowledge on the part of the creditor at the time of the
attachment, to set aside the real right acquired by the creditor.
Brand opines that:
„What Streicher JA decided . . . is that for reasons of public and legal policy, an attachment in execution is
not wrongful, in the context of the doctrine of notice, merely because the creditor who caused the
attachment to be made had knowledge of an earlier personal right. What is more, Streicher JA then
proceeded to set out the considerations of legal and public policy which led him to the conclusion of
wrongfulness. In sum, they relate to the specific nature and purpose of an execution sale and the
particular consideration that the purchaser at an execution sale should as far as possible acquire secure
title.‟18

[22] Dream Supreme, it bears noting, considered the doctrine of notice in respect of
attachments and sales in execution. Streicher JA, I daresay, decided that the

16 Para 24.
17 Para 26.
18 Para 26.

considerations of public and legal policy that are applicable to attachments in execution
are different to those applicable to double sales. To borrow from Brand it „has no impact
on the requirement of knowledge in the application of the doctrine of notice outside the
ambit of attachments in execution. As far as these other applications are concerned,
ASA Bakeries remains the beacon of authority.‟19 Dream Supreme is thus plainly
distinguishable from the present case.

[23] Streicher JA had occasion once again in Cussons & andere v Kroon20 to consider
the doctrine. The facts were: A farm, which constituted an asset in a partnership
between A and B, was registered in the name of A only because it would have been in
conflict with legislation for it to have been registered in the names of both. As a
partnership asset the property could not be alienated by A without the approval of B. A
nonetheless sold and transferred the property to C without informing B. Relying on the
doctrine of notice B then brought an application to set the sale and transfer to C aside.
On appeal it was argued on behalf of A and C that the doctrine did not apply because
the right relied upon by B was not a ius ad rem acquirendam. Streicher JA held that the
personal right relied upon by B is so closely analogous to a right of pre-emption that if
the one was deserving of protection so too was the other. The reason why a right of pre-
emption is deserving of protection, according to Streicher JA, is because the conduct of
the purchaser in acquiring the property with knowledge that it was in conflict with an
existing right of pre-emption, is regarded as wrongful. He thus concluded that a sale in
conflict with the duty not to sell without the consent of another is just as improper as a
sale in conflict with the rights of a holder of a right of first refusal.

[24] In arriving at that conclusion Streicher JA said (para 9):
„In die geval van dubbelverkope word „n beginsel bekend as die kennisleer toegepas. Waar A sy goed
aan B verkoop en daarna dieselfde goed verkoop en oordra aan C, wat bewus was van die regte van B,
is B geregtig op kansellasie van die verkoping en van die oordrag van die goed, op grond daarvan dat die
verkoper en C geag word op „n bedrieglike wyse teenoor hom op te getree het (Tiger-Eye Investments
(Pty) Ltd & another v Riverview Diamond Fields (Pty) Ltd 1971 (1) SA 351 (K) op 358F-H). Werklike

19 Para 27.
20 2001 (4) SA 833 (SCA).

bedrog word nie vereis nie. Blote kennis aan die kant van C van die bestaan van B se vorderingsreg is
voldoende (Kazazis v Georghiades & andere 1979 (3) SA 886 (T) op 893). Die verwysings na bedrog in
sake van hierdie aard dien slegs as aanknopingspunt in die regsisteem ter onderskraging van die
kennisleer (Associated South African Bakeries (Pty) Ltd v Oryx & Vereinigte Bäckereien (Pty) Ltd &
andere 1982 (3) SA 893 SA 893 (A) (ASA Bakeries) op 910E).‟

[25] Here the facts are more nuanced than those ordinarily encountered in what may
be described as the classic double sale scenario. In this case Scharrighuisen knowingly
and deliberately registered a sectional title plan at odds with the prior purchase and sale
agreements concluded with the purchasers. The sectional title scheme so registered
established new sections. Those valuable new sections he appropriated to himself. He
then sought to place them beyond the reach of the prior purchasers by transferring
those from Casisles to Holdings. All of this occurred without the knowledge of the prior
purchasers and but for the vigilance of one of the purchasers may have gone
undetected. The court below found that Scharrighuisen as the controlling mind of both
Casisles and Holdings acted fraudulently in misappropriating the disputed sections.
That finding was not attacked on appeal. Nor, in my view, could it be.

[26] The first question therefore is whether the doctrine of notice avails the prior
purchasers, as here, where: first, the dispositive act has the effect of creating new
objects of ownership out of the property that is already the subject of a prior personal
right; and, second, insolvency intervenes. I accept, as one must, that extensions of the
operation of the doctrine of notice with reference to considerations of public and legal
policy must occur incrementally. To facilitate the fraud Scharrighuisen (through
Casisles) unilaterally reconfigured the common property into units in the scheme before
disposing of it to Holdings (which, like Casisles, he controlled) in disregard of the rights
of the prior purchasers. Had he simply disposed of the common property without first
having reconfigured it (assuming that to have been possible) then surely in those
circumstances the doctrine would have availed the prior purchasers. I cannot conceive
of any reason why the reconfiguring of the common property into units to fraudulently
place it beyond the reach of the prior purchasers would operate as a bar to the
invocation of the doctrine by them.

For, first, as Schutz JA stated in Wimbledon Lodge v Gore (para 10):
„ “No one is allowed to improve his own condition by his own wrongdoing.” This fundamental principle has
been applied expressly at least twice in this Court, in Principal Immigration Officer v Bhula 1931 AD 323
at 330 and Parity Insurance Co Ltd v Marescia and Others 1965 (3) SA 430 (A) at 433 and 435. It finds
exact application to this case. Scharrighuisen, through his corporations, by means of his fraud, obtained
at least apparent ownership of the contested sections.‟
And, second, the liquidators could not acquire rights greater than the insolvent entity
ever had (Afrisure CC v Watson NO).21 Nor could the liquidators transfer more rights
than they themselves had. This rule, which has been described as the „golden rule of
the law of property‟, is based on the old Roman law maxim nemo plus iuris ad alium
transferre potest, quam ipse haberet.22

[27] What then of Meridian Bay? On the authority of ASA Bakeries the only
requirement for the operation of the doctrine is actual knowledge (or perhaps dolus
eventualis) of the prior personal right of the first purchaser on the part of the second
purchaser (the acquirer). Once this requirement is satisfied the holder of the real right is
afforded what in effect is a limited real right against the acquirer.23 The requirement of
notice poses no difficulty in this case, it being common cause that Meridian Bay had
knowledge of the prior personal right of the purchasers. Indeed each of the written
agreements of purchase and sale concluded by the liquidators with Meridian Bay and
Berties Mooring, respectively, in respect of the disputed sections contained a provision
to the following effect:
‟DISPUTE AS TO THE SELLER‟S TITLE TO THE PROPERTY
It is recorded that it has been disclosed to the Purchaser who fully understands that:
1.1
the Seller‟s title to certain sections forming part of the immovable property sold has been
challenged by the Harbours Edge Body Corporate and certain individual members thereof.
Furthermore individual members of the Body Corporate have in their personal capacities applied
and/or indicated their intention to apply to the appropriate court for an order interdicting this sale

21 2009 (2) SA 127 (SCA) para 41.
22 Digest 14. 17. 54; PJ Badenhorst, Juanita M Pienaar and Hanri Mostert Silberberg and Schoeman’s
The Law of Property 5 ed 2006 p 73.
23 ASA Bakeries 910G-H. Lubbe asserts that the statement by Van Heerden AJA that the doctrine of
notice results in personal rights being accorded a limited real effect exacerbates, rather than resolves, the
dogmatic puzzle.

and for certain relief the effect of which will be to vest ownership of the immovable property sold
in terms hereof in the Harbours Edge Body Corporate; and . . .‟

[28] Moreover the evidence establishes that Meridian Bay knew, when it acquired the
disputed sections, not just that complaints were being levelled by the prior purchasers
but also of the exact nature of those complaints. It nonetheless chose to acquire the
disputed sections with full knowledge that such acquisition was in conflict with the prior
personal rights of the purchasers. It follows that in conducting itself thus, Meridian Bay‟s
conduct was wrongful.

[29] In a situation such as this, Prof Scholtens submits that „the only question to be
determined should be whether the first contract of sale would have entitled the first purchaser to a decree
of specific performance had the second not been concluded. If the answer is in the affirmative, the first
purchaser has an indefeasible right and should be entitled to the assistance of the court without any
further regard to the equities of the second sale.‟24
In this case the prior purchasers would have had a claim for specific performance
against the developer. Thus according to Prof Scholtens they have an indefeasible right
that entitled them to the assistance of the court.

[30] Who then can that right be asserted against in this case in the light of the
intervening sequestration of the developer? I earlier alluded to the fact that the holder of
prior personal right, B, may claim directly from C, the acquirer of the right. Indeed Prof
McKerron makes that plain when he states.
„It remains to consider the position where transfer has been passed to the second purchaser. If C, when
he bought, had knowledge of the prior sale to B, there is no doubt as to the position. The authorities, both
ancient and modern, are agreed that in such a case C is not entitled to retain the land as against B. The
old authorities allow B to recover the res vendita direct from C by a personal action in factum [as opposed
to the rei vindicatio, only available to the owner], and there is no reason why in a suitable case B should
not be allowed to adopt this course in the modern law. But in South Africa the usual practice is for B to
join A as co-defendant, and claim as against him an order cancelling the transfer, and as against C an
order to pass transfer into his (B’s) name.‟25

24 Scholtens op cit 31.
25 McKerron op cit 180.

(See also Voet 6.1.20 and Bowring NO v Vrededorp Properties CC26).
Bowring NO v Vrededorp Properties CC (para 17) put it thus:
„The essential quality of the right that the purchaser acquires from a contract of sale is therefore no
different from the right of the beneficiary under a servitude agreement. Both rights are so-called iura in
personam ad rem acquirendam, ie personal rights to acquire a real right (see eg Van der Merwe op cit 86;
Badenhorst, Pienaar & Mostert op cit 70). In the case of a servitude, application of the doctrine of notice
does not require that the transfer of the property to the purchaser be set aside so as to enable the
beneficiary under the servitude agreement first to claim registration of the servitude against the seller
before the property is retransferred to the purchaser subject to a registered servitude.  The beneficiary‟s
claim is allowed directly against the purchaser (see eg Grant & another v Stonestreet & others (supra) 7).
That there is no privity of contract between the beneficiary and the purchaser is not seen as an
insurmountable hurdle. Why then, it may in my view rightfully be asked, should the position be any
different when the same doctrine is applied in the instance of double sales?‟

[31] It thus follows that the absence of contractual privity between Meridian Bay and
the prior purchasers is no bar to affording them the right to claim directly from Meridian
Bay. The manner of application of the remedy must be determined largely by what is
considered to be equitable to all concerned in the circumstances of the particular case
(Bowring para 18). In this case if both Meridian Bay and the developer are restored to
the positions that they occupied prior to the transfer of the disputed sections to the
former, then, given the sequestration of the latter, the prior purchasers will have to stand
in line with the other creditors in the insolvent estate. Further that may result in a
windfall for the creditors of the insolvent to which they may not be entitled. It thus seems
to me that this is one of those cases where the curator should be permitted to recover
directly from Meridian Bay. I may add that in this case the bondholders were given
notice of these proceedings. They advanced no additional argument (preferring instead
to make common cause with Meridian Bay) as to why Meridian Bay should not be
ordered to transfer the disputed sections directly to the curator.

[32] In the result the appeal must fail and it is accordingly dismissed with costs to be
paid jointly and severally by the appellants, the one paying the others to be absolved.

26 2007 (5) SA 391 (SCA) para 14 and 15.

_________________
V M  PONNAN
JUDGE OF APPEAL

APPEARANCES:

For 1st Appellant:

W G Burger SC

J C Swanepoel

Instructed by:

Joubert Attorneys

c/o Webber Wentzel

Cape Town

McIntyre & Van Der Post

Bloemfontein

For 2nd and 3rd Appellants:
A M Smalberger

Instructed by:

Herold Gie

Cape Town

McIntyre & Van Der Post

Bloemfontein

For Respondent:

S Olivier SC

Instructed by:

Edward Nathan Sonnenbergs

Cape Town

Webbers

Bloemfontein

THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

23 March 2011

STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form
part of the judgment.

Meridian Bay Restaurant v Mitchell NO
(686/09) [2011] ZASCA 30 (23 March 2011)

Today the Supreme Court of Appeal (SCA) dismissed an appeal by Meridian Bay Restaurant
(Pty) Ltd and two other appellants against a judgment of the Western Cape High Court that
certain disputed sections in the Harbour’s Edge Sectional Title Scheme in Gordon’s Bay
revert to the Body Corporate of such scheme as common property for the benefit of the
owners of the remaining sections of the scheme.

During 2000 Wimbledon Lodge (Pty) Ltd, the registered owner of a unit in the sectional title
scheme known applied to the Cape High Court for an order that a curator ad litem be
appointed to represent the interests of the body corporate. The case advanced in that
application was that a fraud had been perpetrated on Wimbledon Lodge and the other
registered owners of units in the sectional title scheme by the developer, who so the
accusation went, had secretly appropriated a large part of the common property of the
scheme for the benefit of two corporate entities which he controlled. That application failed
before the high court but succeeded on appeal to the SCA. The developer’s estate has since
been sequestrated and the two corporate entities that he controlled wound up. The liquidators
appointed to the insolvent estates of the developer and his two corporate entities thereafter
caused the disputed sections to be sold to, amongst others, Meridian Bay.

Following his appointment as curator ad litem, the respondent, a Senior Advocate at the Cape
Bar caused summons to be issued against, amongst others, the liquidators and Meridian Bay.
He sought an order that the disposed sections in the sectional title scheme revert to the body
corporate as common property and that the sectional title plan and deeds be rectified

accordingly. The thrust of the curator's case was that at the time of opening the sectional title
register the developer had lodged sectional title plans at odds with the prior deeds of sale
concluded with the purchasers. He thus converted portions into units that could be
misappropriated.  The cause of the conversion of the common property and its disappearance
from the sectional plan was the unilateral fraudulent act of the developer.

Applying the doctrine of notice, the SCA held that someone who acquires an asset with notice
of a prior personal right to it, which his predecessor in title had granted to another, may be
held bound to give effect thereto. Thus a purchaser who knows that property has been sold to
another, may in spite of having obtained transfer or delivery, be forced to hand it over to the
prior purchaser. In such a situation, according to the SCA, the prior purchaser may claim
directly from the second purchaser. The court held that the only requirement for the operation
of the doctrine is actual knowledge on the part of the second purchaser of the prior personal
right of the first purchaser. In this case it was common cause that Meridian Bay had
knowledge of the personal right of the prior purchaser. Given the sequestration of the
developer, if Meridian Bay and the developer are restored to the positions they occupied prior
to the transfer of the disputed sections to the former, the prior purchasers will have to stand in
line with the other creditors in the insolvent estate of the developer and his two companies. It
may also result in a windfall for the creditors in those insolvent estates to which they would
not be entitled. The SCA accordingly held that the curator should be permitted to recover the
disputed sections directly from Meridian Bay. The court consequently dismissed the appeal
with costs.

--- ends ---