The decision of the Constitutional Court, in the case of ABSA Bank Limited v Moore and Another [2016] ZACC 34 has far-reaching implications and the implementation of the decision has posed several challenges. 

In this case, the Moores (ex-owners) owed money to ABSA Bank Limited (ABSA), which debt was secured by five mortgage bonds registered over their property. Unable to meet their bond repayments, the Moores, like many other property owners in similar dire straits, approached Brusson Finance Proprietary Limited for a loan and signed three agreements. 

The agreements simply provided for the sale of the Moores’ property to an unknown investor, followed by a resale of the property back to the Moores. 

Pursuant to the sale of the property the following occurred:

  • ABSA advanced a loan to the investor to finance the purchase of the property from the Moores. The investor’s debt was secured by a mortgage bond registered over the same property; and
  • Cancellation of the Moores’ five mortgage bonds.

When the investor defaulted on the bond repayments, ABSA obtained default judgment, which allowed ABSA to sell the property in execution of the debt that the investor owed. Upon discovering that their property was to be sold in execution, the Moores instituted action to prevent the sale. They also applied to the High Court for an order declaring that they were entitled to the return of their property, submitting that they had no intention of transferring ownership to the investor, as they simply applied for a loan from Brusson. The respective Courts held as follows. 

The High Court

The High Court found that the memorandum of agreement, concluded between the Moores and Brusson, and the offer to purchase and the sale agreement concluded between the Moores and the investor, were invalid, unlawful, and of no force and effect. Importantly, the court also ordered the reinstatement of the five mortgage bonds, which had been previously registered over the property.

The Supreme Court of Appeal

On appeal by ABSA, the Supreme Court of Appeal (SCA) similarly held that the Brusson agreements were void and no ownership could be transferred due to the Moores’ lack of genuine intention to transfer ownership. The mortgage bond registered at the investor’s instance was also found to be invalid. Distinguishably, the SCA was silent on the reinstatement of the previously registered bonds. 

The Constitutional Court

On appeal to the Constitutional Court, ABSA accepted the restitution of the property to the Moores, but appealed against the SCA’s decision to grant restitution to the Moores unconditionally. The Constitutional Court dismissed the application for leave to appeal and endorsed the findings of the SCA, finding that the five mortgage bonds were lawfully cancelled by virtue of our law dealing with payment of debts, irrespective of fraud. 

However, the Constitutional Court judgment has created several practical challenges:

  • The transfer of the property back into the Moores’ name without a “causa” 

A change to the Deeds Register cannot be effected without an order in terms of either s6 or s33 of the Deeds Registries Act, No 47 of 1937. These two sections facilitated the revival of ownership in the name of the ex-owners. This is a challenge for those ex-owners who do not have legal representation or the funds to bring an application to court. The Legal Resources Centre are presently assisting 100 of the ex-owners, but their resources are limited. 

  • The accumulation of the arrear rates and taxes on the property

Who is responsible for the payment of the arrears? In the majority of the cases, the ex-owner has not vacated the property, but at the same time has not paid for the consumption of the utilities. Some of the ex-owners have entered into an agreement with their respective municipalities to pay off the arrears, but as it stands, the judgment is silent on this issue.

  • The position of “the purchaser” who is the present owner of the property, but is not the investor

The judgment did not canvas the situation where the property has been on-sold. The purchaser now has to return the property to the ex-owner, but who is to reimburse him for the loss? One of the larger banks decided to refund the purchaser with the purchase price, transfer duty and ancillary costs, but this is an issue that remains to be dealt with.

The wake of the Brusson scheme still creates real and unresolved issues for ex-owners and disenfranchised purchasers. Since affected ex-owners will still have to apply to court to have their properties registered in their names, the courts have surely not seen the end of this matter.