Builder’s Depot CC v Testa 2011 (4) SA 486 (GSJ)

This is a recent decision of the South Gauteng High Court, Johannesburg.  The case is summarised in this article as the facts underlying the decision demonstrate how a Contractor, in exercising a builder’s lien over property as security for outstanding payment, may lose possession to a third party who acquires possession in good faith (the bona fide possessor), thereby foregoing the right to retain the lien.  The court applied established law.

the case:

The Contractor was hired by the Employer to carry out construction works on the Employer’s property.  A payment dispute arose between the Contractor and the Employer.  The Contractor duly exercised a builder’s lien over the Employer’s property (as security for payment for work done) by retaining possession of the property, locking the property and retaining the keys (in its sole possession and to the exclusion of the Employer).

The Contractor thereafter obtained a judgment against the Employer for arrear payment and instructed the sheriff to attach and  sell the property in order to meet the judgment debt.  The sheriff attached the Employer’s property in February 2010.  The sale in execution of the judgment proceeded slowly.  On 7 October 2010 the Contractor’s attorney wrote to the sheriff instructing him to proceed with the sale of the property in execution of the judgment debt.

Over the same period of time, and unbeknown to the Contractor, a bank (to which the property was bonded) also obtained a judgment against the Employer.  The bank instructed the same sheriff to attach and sell the Employer’s property in order to meet the judgment debt.  The sheriff then attached the property for the second time (during August 2010), on this occasion on behalf of the bank.

In response to the letter from the Contractor’s attorney of 7 October 2010, the sheriff notified the Contractor’s attorney that its matter “will participate in the sale in execution which will be held on 28 October 2010...”, the sheriff’s intention being to sell the property on behalf of and for the benefit of both parties.

The sheriff sold the property in execution on 28 October 2010 to the Purchaser.  The Purchaser immediately changed the locks and took possession of the property.

The Contractor claimed that it only found out about the sale after the sale had taken place (maintaining that its attorney had not received the sheriff’s notification of the sale), and after the Purchaser had already taken possession of the property.  The Contractor claimed that its peaceful and undisturbed possession of the property was lost and it accordingly applied to court for an order that it had been unlawfully dispossessed of the property (by the Purchaser) and for an order restoring possession of the property to it.

The court found that the Purchaser’s possession derived from the sheriff’s actions following the sale in execution; was obtained in good faith and there was no reason for the Purchaser to believe that he was acting unlawfully.  To quote from the judgment:

“When the [Purchaser] took possession, there was, other than for the need to change the locks, no evidence that anybody else was in possession of the property.  Specifically, the [Contractor] did not erect any signs to advertise his possession, and he also did not employ a guard to protect his possession.  There was no reason for the [Purchaser] to think he was doing anything unlawful or against the will of the [Contractor] when he changed the locks and the [Contractor] did not allege that the [Purchaser] was aware of its possession of the property.  The [Purchaser’s] intention was to obtain possession of the property pursuant to the purchase of the property and payment of the fees and terms and conditions of sale.”

After an analysis of the legal authorities, the court concluded that a restoration order cannot be granted in favour of a party “who has parted with possession to a bona fide possessor.”  Accordingly, the Contractor’s application had to fail, as the Purchaser had obtained possession of the property in good faith and had also done nothing unlawful, and because the Contractor had lost possession “by virtue of the sheriff’s actions in selling the property in question in execution, accepting payment from the [Purchaser] and by authorising the [Purchaser] to take possession by changing the locks”.

There was also no evidence to show that the sheriff had acted in bad faith or had done anything unlawful.  In terms of the relevant rule of court, the property had to be attached by notice, which it was.  That action did not dispossess the Contractor of the property.  In terms of the conditions of sale in execution, the sheriff had to give possession of the property to the Purchaser immediately after the initial deposit was paid, which is exactly what was done.

comment :

  • A Contractor has a common law right to exercise a builder’s lien over property as security for payment for work carried out on the property, until paid. He may exercise this right provided that he has not waived the right.
  • How is a Contractor to exercise his lien?
    • He must exercise possession over the property.
    • He exercises possession by clearly exhibiting his intention of remaining in possession and by exercising the rights of possession (these elements may amount to one and the same).  It is important to note that he is not required to be physically present on the property.
    • He must necessarily exercise his possession by way of an overt act, thereby demonstrating to any would-be possessor that he retains possession.  Such overt act might encompass retaining a physical presence on the property, informing any would-be possessor (ordinarily the owner but not necessarily limited to the owner) that he is exercising a lien over the property;  fencing and/or locking the property;  erecting a sign proclaiming that he exercises a lien over the property;  employing a guard to protect his possession or a combination of these measures.  He must take such action as would be sufficient to be able to negate a contention by a would-be possessor that he has taken possession of the property in good faith, (and has therefore acted lawfully).
  • He may be lawfully dispossessed (and thereby forego the right to retain his lien) where he loses possession to another person acting in good faith (the bona fide possessor), as this decision demonstrates :
    • It may not be sufficient to simply fence or lock the property in question, in exercising a builder’s lien.
    • A prudent possessor, ought also to erect a sign proclaiming his possession and/or appoint a guard to protect his possession.
  • The decision in this matter was based on the important principle that where possession is obtained by a party in good faith, a restoration order cannot be granted in favour of the person who has lost possession.  Therefore, where the dispossessor obtains possession in good faith, he does not act unlawfully.  The question of lawfulness, in this context relates to the manner in which dispossession has taken place, and not to the title or right of the person having been dispossessed.
  • Where a possessor exercising a builder’s lien is unlawfully dispossessed, because for instance he is physically removed from the property or is shut out from the property, or because the dispossessor is not in good faith, possession may be restored by court order.  Legal action would need to be instituted promptly.