post-contractual constitutional rights intervention in mortgage transactions: lessons from south...

Post-Contractual Constitutional Rights Intervention in Mortgage Transactions: Lessons from South Africa.

N e w Y o r k U n i v e r s i t y I n t e r n a t i o n a l L a w & H u m a n R i g h t sF e l l o w s h i p P r o g r a m

F e l l o w s h i p R e s e a r c h P a p e r2 0 1 1 - 2 0 1 2 P r o g r a m

Fellowship Paper Supervisor: Professor Philip G. Alston(John Norton Pomeroy Professor of Law)New York University School of Law40 Washington Square South, 305New York, NY 10012Telephone: (212) 998-6173Facsimile: (212) [email protected]


Contents

I. EXECUTIVE SUMMARY.........................................................................3

II. RESEARCH METHODOLOGY.............................................................5

III. THE RIGHT TO HOUSING: A BRIEF OVERVIEW..................................6

IV. POST-CONTRACTUAL CONSTITUTIONAL RIGHTS INTERVENTION IN

MORTGAGE TRANSACTIONS: THE SOUTH AFRICAN EXAMPLE..................9

a. The Brussons Mortgage Scheme x-rayed.........................................14

b. The unravelling of the scheme and the intervention of the South

African Right to Housing.........................................................................19

V. POSSIBLE ARGUMENTS FOR AND WEAKNESSES OF POST-

CONTRACTUAL CONSTITUTIONAL INTERVENTION IN MORTGAGE

TRANSACTIONS......................................................................................21

a. Possible Arguments for post contractual constitutional intervention

21

i. The nature of constitutional rights...................................................21

ii. Broader sphere of influence.............................................................22

iii. A Mortgagee’s amplified implied duty to investigate the title of the

Mortgagor in South Africa......................................................................22

b. Possible Weaknesses of post-contractual constitutional intervention

24

i. The rights nexus in contract.............................................................25

ii. Possibility of rendering commercial relations otiose and its attendant

economic consequences........................................................................25

VI. CONCLUSION.................................................................................26

Bibliography..............................................................................................30

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I. EXECUTIVE SUMMARY

The conceptualization of public and private law as distinct aspects of

law both in the local and international context is one that has been

recognized for long.1 Public law is viewed as a theory of law governing

the relationship between individuals (citizens, companies) and the

state whereas private law on the other hand is the area of law in a

society that affects the relationships between individuals or groups

without the intervention of the state or government.2 In a sense one

could categorize constitutional law as belonging to the sphere of public

law. Constitutional law deals with the relationship between the state

and the individual, and the relationships between different branches of

the state, such as the executive, the legislature and the judiciary.3 But

labels can be misleading sometimes and we ought to bear this in mind.

There seems to be an increasing convergence between public law and

private law.4 One area where this is most evident is in the vindication

1 One source asserts that this dates back with the emergence of the nation-states and theories of

sovereignty to the sixteenth and seventeen centuries. See “The History of the Public/Private

Distinction” Morton J. Horwitz University of Pennsylvania Law Review Vol. 130, No. 6 (Jun., 1982),

pp. 1423-1428 Published by: The University of Pennsylvania Law Review. Article Stable URL:

http://www.jstor.org/stable/3311976

2 "About Bills, Resolutions, and Laws". LexisNexis. 2007. "About Public Laws" available at http://www.lexisnexis.com/help/CU/Serial_Set/About_Bills.htm. accessed on 9/09/2012

3 “A constitution is a document which contains the most important principles according to which

the organization and functions of the state and of the government are controlled, which means that

strictly speaking, it is part of public law. Private law on the other hand is usually said to be

concerned with the relation between private individuals and not with state functions…” AJ van der

Walt & GJ Pienaar, “Introduction to the Law of Property” Fourth Edition, 2002 ISBN 0 7021 5917 4

35

4 Walt & Piennar (ibid at 335) essentially aligns with this view when they posit that“...However

there is widespread recognition of the fact that the private and public spheres cannot be separated

so easily. This fact was demonstrated very clearly in the old South African law, where apartheid

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of Constitutional rights. An aspect of Constitutional law that does not

share in the definitional limelight is the individual to individual

relationships which often form the focus of Constitutional inquiries. This

aspect rears its head in fundamental rights enforcement procedures

brought by individuals against individuals and usually as a corollary in

the vindication of socio-economic rights. This is especially so in

countries with a history of strife, discrimination or systemic rights

violations.5

Notwithstanding this potential in Constitutional law for convergence

with Private law, in many respects the existence of the public/private

dichotomy is preferred. The convergence is just not taken seriously. For

one it goes against the grain of convenience. How convenient is it to

allow third party intervention on the basis of violation of a

constitutional right to defeat the just expectation of the parties in

contracts? Surely, it doesn’t take a genius to surmise that this would

have a deleterious effect on certainty which is a cornerstone of

commercial relations.

principles and practices, which were introduced as part of public law and on the basis of

government policy, had enormous implications for and effects upon private law….in other words,

apartheid demonstrated very clearly that there is no clear division between the private and the

public spheres, and that the two often overlap.”

5 In Gardener V. Whitaker 1994 (E), at 684D-I; 30G-31C, Judge Froneman recognized this fact when

he adumbrated as follows:

“Our Constitution (referring to the Constitution of the Republic of South Africa, 1996 ) is also,

obviously, primarily concerned with the protection of individual rights against State action…But the

Constitution is also concerned that the entire legal system, including the common law and

customary law, should accord with the broader values of the Constitution…After all , the ‘past of a

deeply divided society characterized by strife, conflict, untold suffering and injustice’ (words used

in the ‘unity and reconciliation’ section of the Constitution) is not merely a history of repressive

State action against individuals, but it is also a history of structural inequality and injustice on

racial and other grounds, gradually filtering through to virtually all spheres of society since the

arrival of European colonists some three and a half centuries ago, and it will probably take

generations to correct the imbalance”

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Then there is the problem of supremacy that goes with any turf fight.

Theoretically speaking in the event of a convergence which should be

given priority? In the broader scheme of things should we sacrifice

commercial certainty for the vindication of societal rights? This may

sound like a no brainer but when we consider that commercial relations

have far reaching implications that extend to Constitutional rights then

we would begin to appreciate the difficulties inherent in blurring the

dichotomy.

Any suggestion that the convergence and interplay between Public and

Private law ought to be taken seriously is bound to raise jurisprudential

protests. But when we consider that private law (in these case

contracts) derives its fons et origo from public laws, we may begin to

change our minds. It is public law through a statute that for instance

may stipulate conditions of formal validity of a contract. Laws that seek

to promote public policy or vulnerable members of the public from

unscrupulous elements are in their conception and by their nature

public laws that constitute the canvass upon which private contractual

relations must take into cognizance and proceed. The argument is

even more forceful if this canvass is painted by the constitution. But

while one may not protest pre-contractual constitutional rights

intervention, how about post-contractual rights intervention? By post-

contractual constitutional rights intervention it is meant those

scenarios where a third party who is not privy to the contract, through

the courts seek to defeat the just expectation of the contracting

parties, by asserting a constitutional right after the consummation of

the contract.

This work seeks to make an argument based primarily on

developments in South African Constitution law that post-contractual

constitutional rights intervention in contractual relations that defeats

the expectations of the parties may be desirable in some cases. It is a

provocative assertion, but one that this work tends to justify mainly

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from the narrow perspective of the South African Constitutional right to

adequate housing.

It is also admittedly very problematic in a multiplicity of ways as it

raises some very fundamental questions. Under which circumstances

should the courts permit such Constitutional intervention? What effect

if any does such a course have on the doctrines of privity? How should

the courts allocate the burden such Constitutional intervention is

bound to engender?

These issues are addressed in this paper from the standpoint of South

African law.

II. RESEARCH METHODOLOGY

This Research paper is inspired primarily by the Brusson Finance

Mortgage Scheme which unraveled in 2009 and has been declared as

nothing but simulated transactions by the Free State High Court,

Bloemfontein Republic of South Africa in Ditshego V. Brusson Finance

(Pty) Ltd6 and the effect of the scheme on over 900 home owners who

in varying respects have lost or face the prospect of losing their homes

against the backdrop of the South African Constitutional right to

housing. It examines the underlying jurisprudential implications of the

right to housing as a just intervener not only in the narrow context of a

Mortgage that can be said to be vitiated by fraud but also explores

whether such intervention can be at large, as regards contracts

generally.

The Research paper would draw from recently decided Constitutional

law cases in South Africa that touch on some aspects of the law of

contract. It would also examine relevant South African legislations

dealing with Mortgages, Alienation of Land, Contracts and

Constitutional Law.

6 Judgment delivered by Jordaan, J on 22nd July, 2010.

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Lastly an attempt would be made as necessary to compare the South

African experience with other common law jurisdictions.

III. THE RIGHT TO HOUSING: A BRIEF OVERVIEW

The right to adequate housing is international and has its origin under

article 25(1) of the Universal Declaration of Human Rights which

stipulates that "Everyone has the right to a standard of living

adequate for the health and well-being of himself and of his family,

including food, clothing, housing and medical care and necessary social

services, and the right to security in the event of unemployment,

sickness, disability, widowhood, old age or other lack of livelihood in

circumstances beyond his control."

The right to adequate housing has also been codified in other major

international human rights treaties. Several nonbinding declarations,

resolutions and recommendations by the UN and its specialized

agencies and also regional instruments refers to housing as a human

right7

7 Some of these include generally: the International Convention on the Elimination of All Forms of

Racial Discrimination art. 5(e) (iii), G.A. res. 2106 (XX), Annex, 20 U.N. GAOR Supp. (No. 14) at 47,

U.N. Doc. A/6014 (1966), 660 U.N.T.S. 195, entered into force Jan. 4, 1969 (requiring the

prohibition of racial discrimination in all forms in the enjoyment of the right to housing); the

Convention on the Elimination of Discrimination against Women art. 14(2) (h), G.A. Res. 34/180, 34

U.N. GAOR Supp. (No. 46) at 193, U.N. Doc. A/34/46, entered into force Sept. 2, 1981 (prohibiting

discrimination on the basis of sex in the enjoyment of adequate living conditions, “particularly in

relation to housing, sanitation, electricity and water supply”); the Convention on the Rights of the

Child art. 27(3), G.A. Res. 44/25, annex, 44 U.N. GAOR Supp. (No. 49) at 167, U.N. Doc. A/44/49

(1989), entered into force Sept. 2 1990 (requiring States Parties to take measures to provide

material assistance with regard to housing for children and those responsible for them who are in

need); International Covenant on Economic, Social and Cultural Rights, art. 11(1), G.A. res. 2200A

(XXI), 21 U.N.GAOR Supp. (No. 16) at 49, U.N. Doc. A/6316 (1966), 993 U.N.T.S. 3, entered into

force Jan. 3, 1976 [hereinafter ICESCR] (recognizing the right of everyone “to an adequate

standard of living for himself and his family, including . . . housing, and to the continuous

improvement of living conditions,” States Parties are required to “take appropriate steps to ensure

the realization of this right, recognizing to this effect the essential importance of international co-

operation based on free consent”) the International Convention on the Suppression and

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Under most constitutions, however, housing is classified under state

policy and not as part of a bill of rights. Therefore, they are said to be

aspirational and nonjusticiable.

Many countries on the other hand have incorporated a right to housing

in their constitutions. Such countries include Belgium, Mexico, France,

U.K. Portugal, Russia, South Africa, Spain and Iran.

In Nigeria for example, Section 16(2) (d) of the Constitution of the

Federal Republic of Nigeria, 1999 falls under the Fundamental

Objectives and Directive Principles of State Policy and states that: “The

state shall direct its policy towards ensuring that suitable and adequate

shelter, suitable and adequate food, a reasonable national minimum

Punishment of the Crime of Apartheid; the International Convention Relating to the Status of

Refugees; the International Labour Organization (ILO) Recommendation No. 115 (1961), principle

2; Declaration on Social Progress and Development (1969), part II, art. 10; Declaration on the

Rights of Disabled Persons (1975), art. 9; Vancouver Declaration on Human Settlements (1976),

section III (8); ILO Recommendation No. 62 Concerning Older Workers (1980), art. 5(g); Declaration

on the Right to Development (1986), art. 8(1); United Nations Sub-Commission on the Prevention of

Discrimination and Protection of Minorities resolution 1994/8 on "Children and the Right to

Adequate Housing" adopted 23 August 23 1994; United Nations Commission on Human Rights

resolution 1993/77 on "Forced Evictions," adopted on 10 March 1993; United Nations Commission

on Human Settlements resolution 14/6 on "The Human Right to Adequate Housing," adopted 5 May

1993; United Nations General Assembly resolution 42/146 on the "Realization of the Right to

Adequate Housing," adopted 7 December 1987, which "reiterates the need to take, at the national

and international levels, measures to promote the right of all persons to an adequate standard of

living for themselves and their families, including adequate housing, and calls upon all States and

international organizations concerned to pay special attention to the realization of the right to

adequate housing in carrying out measures to develop national shelter strategies and settlement

improvement programmes within the framework of the Global Strategy for Shelter to the Year

2000." At the regional level some of the instruments that contain express provisions and refer-

ences to the right to adequate housing are: the Charter of the Organization of American States

(OAS), article 31(k); The European Social Charter, the European Convention on Human Rights and

Fundamental Freedoms art. 8(1), 213 U.N.T.S. 222, entered into force Sept. 3 1953, as amended by

Protocols Nos. 3, 5, 8, and 11 entering into force Sept. 21 1970, Dec. 20 1971, Jan. 1 1990, and

Nov. 1, 1998 (recognizing the respect for private and family life, and requiring no public

interference in those rights except as in accordance with the law and as necessary in the public

interest); the European Convention on the Legal Status of Migrant Workers; the Resolution on

Shelter for the Homeless in the European Community; and the Final Act of Helsinki. See generally

http://www1.umn.edu/humanrts/edumat/IHRIP/circle/modules/module13.htm

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living wage, old age care and persons, and unemployment, sick

benefits and welfare of the disabled are provided for all citizens.” But

Section 6(6) of the same constitution provides that “the judicial powers

vested in accordance with the foregoing provisions of this section shall

not, except as otherwise provided by this constitution, extend to any

issue or question as to whether any act or omission by any authority or

person or as to whether any law or any judicial decision is in conformity

with the Fundamental Objectives and Directive Principles of States

Policy set out in Chapter 11 of this Constitution.” Therefore there exist

no enforceable right to adequate housing in the Nigerian constitution.8

The US Constitution also knows no right to adequate housing.

Narrowing our focus to South Africa, it is worth noting that Section 26

of the Constitution of the Republic of South Africa, 1996 stipulates that:

1) Everyone has the right to have access to adequate housing.

2) The state must take reasonable legislative and other measures,

within its available resources, to achieve the progressive

realization of this right

3) No one may be evicted from their home, or have their home

demolished, without an order of court made after considering all

of the relevant circumstances. No legislation may permit

arbitrary evictions.

In Government of the Republic of South Africa and others v Grootboom

and others9 the Constitutional Court was of the opinion that the three

parts of sec 26 of the Constitution are connected with each other.

8 Other constitutions that suggest the general responsibility of the State to ensure adequate

housing and living conditions for all, based on the rule of law which is non justiciable include:

Bangladesh, Brazil, Colombia, Costa Rica, Dominican Republic, El Salvador, Finland, Guatemala,

Korea (Rep. of), Netherlands, Pakistan, Philippines, Poland, Romania, Sri Lanka, Sweden,

Switzerland, Turkey, Venezuela, and Vietnam etc.

9 2001 (4) SA 46 (CC)

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Section 26(1) delineates the general scope of the right. Section 26(2)

speaks to the positive obligations imposed upon the state. And sec

26(3) spells out aspects of the negative right, by prohibiting arbitrary

evictions.10

The positive obligations imposed upon the state can be unravelled by

positing that it entails on the part of the state obligations to ‘respect’,

to ‘protect’, to ‘promote’ and to ‘fulfil’ the right to housing.11 There is

no doubt that these obligations imposed by the Constitution may

amount to intervening bystander provisions in contractual relations

between individuals. More so because the South African Constitution

provides for the justiciability of the bill of rights, including the right to

adequate housing and expressly confers legal standing to aggrieved

persons and their representatives to approach the courts to enforce

their rights.12

IV. POST-CONTRACTUAL CONSTITUTIONAL RIGHTS INTERVENTION IN

MORTGAGE TRANSACTIONS: THE SOUTH AFRICAN EXAMPLE

While vindication of the right to housing (a public law domain) in itself

should raise no eyebrows, its private law boundaries are murky. Is it

permissible or even convenient to allow post contractual constitutional

rights intervention generally or in Mortgage transactions? If it is, to

what extent is this feasible? What effect if any does such a course have

on the doctrines of privity and estoppel per rem judicata? How should

the courts allocate the burden such Constitutional interventions are

bound to engender?

10 See Grootboom at Para 34 & 38 and also Justiciability Of The Right To Housing -The South African

Experience By Geoff Budlender Legal Resources Centre, Cape Town at page 2 http://www.escr-

net.org/sites/default/files/budlender_housing_ms.pdf accessed on 12/08/2012.

11 See for a detailed exposition of these obligations in relation to the justiciability of the right to

housing, Budlender pages 2-18.12 See generally

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To set the right tone for our discourse let us consider in detail the

tendons and sinews of principles pertaining to mortgages that is

generally applicable to most common law jurisdictions including the

quartet under consideration.

Generally speaking under the common law, a mortgage is a right which

one person has in the property of another which serves to secure an

obligation. The real right of mortgage is constituted when a mortgage

bond, properly drawn up and conforming to the substantive

requirements for the act of hypothecation, is duly registered by the

registrar of Deeds Registries Act13. Registration of a Deed and

Compliance with form of a Mortgage bond speaks to the formal validity

of a mortgage.

However the constitution of the real right of mortgage also takes into

cognizance substantial validity. It requires an intention to mortgage on

the part of a mortgagor possessed of the requisite legal capacity. It

must furthermore be legally possible to constitute the real right over

the property in question and the content of the proposed right must be

certain or ascertainable.14

The right of mortgage is itself merely an accessory right; it is accessory

to an obligation and, unless there is an original or principal obligation,

there can be no mortgage. Thus if the obligation is illegal…the

mortgage will be of no effect15 Likewise, the court may terminate the

mortgage where it amounts to a fraudulent alienation under the

common law. Under South African law, contracts condoning a party’s

13 The Law of South Africa, 2nd Edition, Vol 17 Part 2, Par 351-353 Vol 17: Mortgage and Pledge

page 316.

14 Ibid Page 317. Para 354.

15Ibid at Page 184, Para 184. Also Kilburn V. Estate of Kilburn 1931 AD 501.

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fraud or theft have been held to be contrary to public policy.16

Comparable parallels can be drawn from other common law

jurisdictions.

In principle a mortgage can be granted only by the owner of the land or

the holder of the real right in question. The system of registration

requires the consent of the owner for the registration of the

mortgage.17 Thus where such consent is fraudulently obtained, consent

cannot be said to have been given.18 In such cases, the mortgage must

be set aside, provided, however that there is no room for the operation

of the doctrine of estoppels in favor of interested third parties19.

Though the object of a mortgage is to give the mortgagee a charge

upon the land mortgaged as security for a debt due20, a mortgage is

however also a contract and there exists a contractual nexus. The

mortgage bond, in so far as it is a contractual document serves as a

record not merely of the contractual aspect of the mortgage

relationship, but also of the terms relating to the principal debt and its

settlement by the mortgagor.21 Regard therefore must be had to legal

consequences which the law attaches to the contractual relationship as

16 Wells V. SA Alumenite Co 1927 AD 69 72; Goodman Bros (Pty) Ltd V. Rennies Group Ltd 1997 4

SA 91 (W) 98

17 In South Africa this is by virtue of section 50(1) and s. 3(1) (b) of the Deeds Registries Act 47 of

1937.

18 See for South Africa the following cases: Kristall v. Rowell 1904 TH 66; Faustmann v. Shadrick &

Samantha 1910 OPD 40; Gounder v. Saunders 1935 NPD 219. Cf Sutter v. Scheepers 1932 AD 165;

Tattersall v. Nedcor Bank Ltd [1995] 2 All SA 365 (A); 1995 3 SA 222 (A) 233B.

19 See Kristall v. Rowell supra 71; Sutter v Sheepers supra 171; but see Faustmann v Shadrick

supra

20Lubb and Scott ‘Mortgage and Pledge’ The Law of South Africa, 2nd Edition, Vol 17 Part 2, Page

321, Para 358-360@ 360.

21 Ibid @ Para 356.

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a matter of course without reference to the actual intention of the

parties.22 The fact that parties have a contract does not necessarily

mean that they have a valid contract. For their contract to be valid, the

parties must have the necessary contractual capacity, the

performances undertaken in terms of the contract must be possible at

the time of contracting, the contract itself, its performance and object

must be lawful, and the constitutive formalities (if any) for that contract

must have been complied with. A contract that fails to comply with a

statutory requirement of form, such as under the Alienation of Land

Act23 is void and therefore cannot be rectified.24 So also is contract that

runs afoul of a requirement as to substance. A contract is illegal when

its conclusion, its performance, or its purpose is expressly or impliedly

prohibited by legislative enactment, or is contrary to good morals or

public policy.”25 As a rule if a contract is illegal it is void. The rule is

expressed in the maxim ex turpi causa non oritur action (“from an

illegal cause no action arises”). Since an Illegal contract is void , it

“means that no obligations arise from such contract and that no action

can consequently be founded on it, either for enforcement or for

damages- in other words, the maxim ex turpi causa non oritur actio is

inflexible.”26 It is the duty of a court to take the point of illegality mero

22Ibid at Para 357. Alfred McAlpine & Son (Pty) Ltd V. Tvl Provincial Administration supra 532;

Ebrahim v. Hendriks (1975) 2 All SA 263 (C); 1975 2 SA 78 (C) 81.

23 68 of 1981. S 2 (1).

24 W. A. Joubert, L. T. C. Harms, G. J. Pienaar, P. J. Rabie, T. J. Scott, J. A. Faris, B. Galgut “The Law of

South Africa, 2nd Edition, Vol 5, Part 1 Para 147, Page 234. Greathead V. SA Commercial Catering &

Allied Workers Union 2001 3 SA 464 (SCA) 469; Nuform Formwork & Scaffolding (Pty) Ltd V.

Natscaff CC (2002) 4 All SA 575 (D); 2003 2 SA 56 (D) 62.

25W. A. Joubert, L. T. C. Harms, G. J. Pienaar, P. J. Rabie, T. J. Scott, J. A. Faris, B. Galgut “The Law of

South Africa, 2nd Edition, Vol 17 Part 2, Vol 5, Part 1 Para 165, Page 252. Eastwood V. Shepstone

1902 TS 294 302; Kennedy V. Steenkamp 1936 CPD 113 116; Essop V. Abdullah 1986 4 SA 11 (C)

14.


South Africa”, 2nd Edition, Vol 17 Part 2, Vol 5, Part 1 Para 169, Page 258. Langham V. Milne 1962 4

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motu, even if a defendant does not plead or raise it, where the illegality

appears ex facie the transaction or from evidence before the court.27

A mortgage may also be set aside by an order of court for instance on

the ground that the mortgage was constituted by mistake or on

account of misrepresentation, duress or undue influence28.

From our x-ray thus far, it is clear that there has long been recognition

that statutory intervention regarding the formal validity of a mortgage

is desirable and permissible. A mortgage that does not comply with a

statutory stipulation as to form in most cases is viewed as void. From

the standpoint of public law interaction with private law one cannot

quarrel with the logic behind this. After all one can argue in a sense

that private law derives its source from public law. For as the case of

statutory stipulation as to form has shown many rules of contracts are

pre-contractually prescribed or proscribed by statute. But pre-

contractual prescription or proscription of contractual relations

generally or mortgage transactions in particular is a totally different

proposition to post-contractual intervention of public law in private law

affairs by appeal to statutory provisions. Whereas the former is

regulatory and interactional in nature, the latter is tributary &

interventionist. Whereas the former lays the rules of engagement, the

latter seeks to render those rules irrelevant. Whereas the former is a

purveyor of commercial certainty, the latter is a harbinger of confusion.

The effect of the latter is like awarding a mandatory goal or match

points to a side (in some cases a side that did not even compete in the

game) long after the final whistle. Little wonder that many jurisdictions

SA 574 (N) 578-579; Esop v. Abdullah 1988 1 SA 424 (A) 435-436.

27 Cape Diary & General Livestock Auctioneers V. Sim supra 170; Yannakou V. Apollo Club 1974 1

SA 614 (A) 623; Goodgold Jewellery (Pty) Ltd v. Brevadau CC 1992 4 SA 474 (W) 479-480.

28 Ibid @ Para 383. Cf Kitshoff V. Daly’s Trustees (1866) 5 S 213: Kristal V. Rowell 1904 TH 66; Patel

V. Grobbelaar (1974) 1 All SA 518 (A); 1974 1 SA 532 (A).

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frown upon it and allow it only in very limited cases. It is even peskier

when the intervening statute like the Constitution is one that aspires to

a certain degree of irreverent infallibility- an infallibility that brooks no

opposition and is deemed a sufficient answer to any private law

contractual cries of “blue murder!”

Arguments propelling post-contractual interventions in contracts are

rooted or are variants of Bentham’s utilitarian or greatest good

theory.29It can be argued that since the Constitution properly so called

is the font es origo of a people’s law and in the case of autochthonous

ones represents the collective will and aspirations of the people,

constitutional rights post-contractual interventions should be allowed

for the sake of the greater good. But is this view necessarily correct?

One pointer to the fact that this view is problematic is the fact that

even in jurisdictions that allow post-contractual constitutional rights

intervention like South Africa such intervention is restricted to a finger

full, primarily to give life to the letters of such rights. But before we go

further it is germane however that we consider in greater detail the

South African example of post-contractual Constitutional rights

intervention in mortgage transactions.

Perhaps the intention that the South African Constitution would

demand for a post-contractual pound of flesh in mortgage transactions

is revealed in the fact that the Law of South Africa30 states that a

contract must be constitutionally valid, in the sense that it must not

infringe any of the fundamental rights entrenched in the Constitution.

This bold broad stroke of a statement of intent clearly sets up an altar

of reverence for constitutional rights at the expense of any business

compulsion to be bound by terms of contractual arrangements. It

29 See generally Bentham, Jeremy (1907). [PML] An Introduction to the Principles of Morals and

Legislation. Oxford: Clarendon Press.


South Africa”, 2nd Edition Vol 5, Part 1 Para 159, Page 248

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wreaks a devastating blow on any delusions of grandeur of contractual

privity and other such fancy contractual terms. Thus as far as South

African law goes, it’s almost a lost cause to argue the subordination of

constitutional (public law) rights to contractual (private law) rights.

They are neither at par. There is simply no contest. A plain reading of

that paragraph would lead to the inevitable conclusion that any

infringement of constitutional rights renders the contract between the

parties no matter how well intentioned invalid. It matters not if the

infringement is one that affects a third party who is not privy to the

contract between the parties. Neither is it a requirement that the

contracting parties must have, using all the reasonable diligence

available at their disposal, failed to notice such potential infringements.

The categories of potential infringements are not closed either.

So in what ways has this audacious statement been tested in South

Africa as regards the constitutional right to housing? Let us beam our

focus on the Mortgage scheme that inspired this discourse.

a. The Brussons Mortgage Scheme x-rayed

Brusson Finance CC (“Brusson”) was a closed corporation which was

registered in 2005, under the Companies Act of South Africa with its

registered place of business as 37 Vorster Avenue, Glenanda,

Johannesburg (“Brusson House”). It later became a private company

(Pty) Ltd in 2007.

The directors of Brusson were Ian Lockyear and Michael Basson. At

the time of creating Brusson, the two claimed to collectively have 30

years of experience in the property industry and, together with

Brusson, an asset value exceeding R40 000 000.00 (40 million

Rands).

On their website Brusson promoted itself as part of a property group

that specializes in all aspects of the residential property market, but

they specifically promoted the fact that they have extensive

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experience in the refinancing of residential properties. Brusson

therefore held the opinion that they would determine a prospective

clients’ creditworthiness by the value of the property a client owned.

It held as its objectives the ability to “help” people with blemished

credit records that owned property and met their criteria to obtain

loans (“homeowners”). Brusson advertised itself as offering a

“second chance” finance product, and by offering this “second

chance” finance, homeowners would be able to clear their credit

record and obtain financial stability.

Brusson stipulated that all agreements entered into with Brusson

were standard agreements, accepted to be legally binding and fall

within the full context of the law. They also stipulated that they fully

understand and fully comply with the National Credit Act 34 of 2005

(“NCA”).

The Brusson process gave rise to several transactions that had

direct implications on the eviction of subscribers from their homes.

It is pertinent to set out the common denominators of these

transactions. Homeowners were made to sign “three way”

agreements comprising the Offer to Purchase, the Deed of Sale and

the Memorandum of Agreement and also a fourth Agreement-The

Memorandum of Understanding.

This in a nutshell is how the agreements were structured:

i. The Offer To Purchase Agreement (OTPA):

This agreement records that the applicants, (homeowners)

are in fact selling their property to a third party investor

(purchaser). The OTPA records a purchase price and states

that the purchase price is to be obtained by the purchaser

(investor). On transfer of the (homeowners) seller’s

property, occupation still remains with the (homeowner)

Page | 17


seller, who has to pay monthly occupational rent with

interest to Brusson Finance. The (homeowner) seller

undertakes to pay all transfer costs and appoints Brusson

Finance to administer the costs on the (homeowner)

seller’s behalf. This administration would also cost the

(homeowner) seller an administration fee to be paid to

Brusson Finance.

ii. The Deed Of Sale:

This agreement records the investor as the seller of the

same property and the homeowner as the purchaser that

was transferred in the offer to purchase. The agreement

records a minimum installment which only represents the

interest on the purchase price and not the capital

installments. The (investor) seller then undertakes to pay

Brusson and amount on the transfer of the property, and

Brusson undertakes to provide the seller with 15% of that

amount paid to Brusson. All payments were to be made to

Brusson as appointed agent of the (investor) seller. The

agreement also states that the (homeowners) purchasers

were already in occupation of the property. The

(homeowners) purchasers are also liable to pay taxes,

levies, services, water and electricity to Brusson who would

then pay it over to the relevant authorities. In addition, the

(homeowners) purchasers are once again liable for transfer

costs. The agreement goes on to state, amongst other

things that the (investors) seller shall keep the

homeowner’s property insured but the (homeowners)

purchaser shall be liable to pay the insurance premiums to

Brusson. In terms of this agreement Brusson takes out a

life insurance policy on the life of the (investor) seller, thus

on the death of the (investor) seller, the executor shall

cede the deed of sale to Brusson.

Page | 18


iii. The Memorandum Of Agreement:

This is an agreement between Brusson, the investor and

the homeowner. This agreement states that Brusson will

manage the agreement between all parties, and all

financial issues relating thereto. It mentions the first sale

agreement and the second installment sale agreement. In

terms of this agreement the homeowner acknowledges

that they are not creditworthy and that Brusson has

incurred huge financial risks in standing surety for the loan

and the homeowners agree to make all payments to

Brusson. It also states that Brusson stands as surety and

co-principal debtor in favor of the investor if the

homeowners fail to make any payments to Brusson. If a

homeowner defaults on any payments the investor may

cancel the installment sale agreement (The Deed of Sale)

and then sell the homeowner’s property to Brusson for the

price it was sold on the Offer to Purchase agreement.

The agreement also states that the investor shall authorize

Brusson to sign all necessary documents on their behalf to

affect such sale and transfer on behalf of the investors. The

investor would be required to sign a power of attorney for

this. This document states that the Memorandum of

Agreement, The Offer to Purchase and The Deed of Sale

contain the entire agreement between all three parties.

iv. The Memorandum Of Understanding:

This agreement is entered into between Brusson and the

homeowner. It records that out of the proceeds of the Offer

to Purchase agreement, the transfer costs and an amount

towards future rates and taxes and attorney’s fees for

cancellation of an initial bond, plus the costs of a property

Page | 19


valuation will be deductible from such proceeds. If the

homeowner causes a breach of the initial Offer to Purchase

agreement they shall be liable to pay an amount plus VAT

as a portion of liquidated damages immediately. 31

In order to facilitate the process of sale, Brusson would solicit

through an advertisement process and by word of mouth a

partnership investor (“investor”), an individual with a good credit

record to purchase the homeowner’s house by obtaining a mortgage

bond through one of the four major banks in South Africa as well as

SA Homeloans.

The investor signs an independent agreement with Brusson stating

that he is prepared to invest in the Brusson process. The investor is

told that he/she is purchasing the property for the benefit of the

homeowner.

The entire process for the application of the mortgage bond is done

by Brusson Finance through their in house Bond originators. They

are the ones who apply for the Bond on behalf of the investors.

None of the investors interviewed ever applied directly to the banks.

Further the investors were told clearly that they would not own

these properties and were required to sign agreements stating that

they had no right to dispose of the property registered in their

names. They were never told how many properties would be

registered in their names. 31 See generally Nomfundo Gobundo Director, Legal Resources Centre (as she then was) Memo

(Reference: 1058510J) to Advocate G Budlender SC and Advocate T. Ngcukaitobi of 1st September,

2011 requesting Counsel to draft Summons and Particulars of Claim in the matter between various

homeowners and investors affected by Brusson Finance cc/ (Pty) Ltd. Against Brusson Finance

cc/(Pty) Ltd., the four major banks of South Africa and the Attorneys firms who facilitated the

Brusson Finance cc/(Pty) Ltd. Transactions. At pages 3-7.

Page | 20


Once the bond was approved, some of the investors were contacted

by the Banks to say congratulations of the new purchase, other

claim they were never contacted.

They claim that they were not concerned about this as in their

agreement with Brusson they had been given an undertaking that

there was no risk to them as Brusson had taken security and

furthermore they were not to pay anything towards servicing the

bond but that instead this would be done by the homeowner with

the entire process being administered by Brusson.

The mortgage bond obtained by the investor on the property would

then be paid into Brusson’s attorney’s account and would settle any

previous outstanding mortgage bond on the property, all

outstanding municipal accounts, the transfer costs for the

purchase/sale, Brunson’s fees for administering the process. The

balance would then be given to the homeowner as the loan

requested.

The intention as stated by the agreement is that once the investor

obtains the mortgage bond, he/she would immediately sell the

property back to the homeowner using a Hire Purchase, or Sale by

Installment agreement in terms of the Alienation of Land Act 68 of

1981. Thus, a Deed of Sale is included in the many documents to be

signed by the homeowners and investors. The purchase price (the

Buy Back) on the Hire Purchase agreement was calculated at the

cost of the mortgage bond plus an amount based on how long

Brusson would have to service the mortgage bond. This was

estimated at 15% for the first year and 10% the following years.

Thus homeowners would be made to pay interest rates of 6.58%

more than the interest rate given by the banks. Thus the property

Page | 21


would only be registered back to the homeowner once they have

paid back all installments.

Homeowners are then required to pay exorbitant monthly

installments to Brusson Finance via debit order. From these monthly

installments Brusson would service the mortgage bond, pay any

rates and taxes on the homeowner’s homes, and pay the investor

their income – an amount of 2% per annum on the initial purchase

price or mortgage bond amount and the residue would remain with

Brusson. Brusson undertook to declare these amounts to SARS.

Brusson undertook to stand as a surety if homeowners defaulted

and for the mortgage bonds so that investors would never be at risk

of having to service the mortgage bonds. Brusson made it clear that

all documentation that needed to be completed for the success of

this process would be completed and taken care of by a Brusson

finance consultant.

The Brusson agreements also stated that if the homeowner

defaulted on the installments on the Deed of Sale the investor was

required to sell the property to Brusson for the price on the initial

offer to purchase. Brusson would then make attempts to evict the

homeowner and resell the homeowner’s home to someone else.

b. The unravelling of the scheme and the intervention of the South African

Right to Housing

In 2008 homeowners and investors alike started complaining about

Brusson to the National Credit Regulator (“NCR”). The NCR

investigated Brusson and together with Matile and Lizzie Ditshego, a

homeowner couple launched proceedings in the Bloemfontein High

Court under Matile Joseph, Lizzie Ditshego & The National Credit

Regulator v Brusson Finance (Pty) Ltd, Amanda Boshoff, & The

Registrar of Deeds (case no 5144/2009) (“Ditshego”).

Page | 22


The court HELD that all agreements concluded between Brusson

and the homeowners were illegal and void on two grounds. First, the

entire Brusson process amounts to pactum commissorium in that

the real intention of the homeowners was to obtain a loan from

Brusson against security of their Home and therefore all agreements

concluded between Brusson and the homeowners were simulated

transactions.

Secondly, the agreement was unlawful because Brusson was

essentially providing credit to the homeowners and Brusson was not

a registered credit provider as contemplated in the National Credit

Act 34 of 2005 (“NCA”). The court therefore ordered that the

homeowners’ home be transferred from the investors name back

into their name and that the mortgage bond that was registered

over the home be reduced to an amount specific to the

homeowners’ circumstances.

Subsequent to the Ditshego judgment an application for provisional

liquidation was brought in the North Gauteng High Court under

Yvonne Bella Nkosi v Brusson Finance (Pty) Ltd (Case no. 42986/10).

The liquidation was taken over by Xirimele Trustees. The matter is

now being heard in the North Gauteng High Court as Cloete v

Brusson (case no 48765/10). Due to the liquidation, there are

certain caveats entered in terms of section 18B of the Insolvency

Act, 1936 against the transfer or cancellation of the affected

properties. Such caveats still exist and have not been cancelled in

accordance with the Insolvency Act. Accordingly, such properties

cannot be transferred and the bonds registered in respect of such

properties may not be cancelled without the permission of the

Master of the High Court.

Flowing from the reasoning in the Ditshego judgment, we can safely

posit that by declaring the mortgage transactions under the Brusson

Scheme a sham and in breach of pre-contractual statutory

Page | 23


provisions as to registration of a credit provider, the courts were

positing that the illegality of the scheme taints whatever consent

that may have been claimed to be given by the named investors.

Brusson lacked the requisite legal capacity to transfer the

homeowner’s legal title to the named investors and as such the

named investors lacked the capacity to create a real right of

mortgage. Thus the courts avoided the pitfall of having just on the

strength of a constitutional right to housing without more to defeat

the commercial expectations of a mortgagee and mortgagor.

While Ditshego establishes that the South African courts are willing

to intervene to vindicate a constitutional right infringed by

contractual relations in the presence of fraud or statutory non

compliance, it doesn’t do much to address contractual constitutional

rights intervention without more. It is worth noting that the position

in Ditshego is not radically different from the position of other

common law jurisdiction as regards fraud, illegality, statutory non

compliance, duress, mistake etc all extenuating circumstances that

are pre-contractual and can warrant an intervention. The only

difference being that procedurally Ditshego goes beyond the ambit

of these extenuating circumstances since the proceedings is a rights

based proceedings as opposed to a an action or plea by one of the

mortgaging or contracting parties which is the norm in the other

jurisdictions.

The Ditshego judgement paved way for various homeowners under

the Brusson scheme on the verge of possible eviction from their

homes to seek a vindication of their right to housing. This has

created a scenario where the courts are now being called upon to

pronounce upon the rights of housing to homeowners who have

divested their interests in their homes via a mortgage bond at the

expense of the interest of the Mortgagee banks.

Page | 24


But many of these cases are at its infancy and involve or potentially

involve about 900 homeowners affected under the Brusson

scheme.32

Irrespective of what the South African courts would hold in these

cases, we may still have problems coming to a conclusive view that

post contractual rights intervention in mortgage transactions should

proceed at large. This is because the entire string of cases are likely

to be argued following the Ditshego clue, on the basis that the

underlying mortgage transactions are a scam or have been declared

illegal, null and void which has the effect of avoiding all of the

problems associated with constitutional rights operating to defeat

contractual rights post-contractually.

But suffice it to say that the cases post Ditshego can at least shed

light on possible arguments and weaknesses against post-

contractual constitution intervention.

V. POSSIBLE ARGUMENTS FOR AND WEAKNESSES OF POST-CONTRACTUAL

CONSTITUTIONAL INTERVENTION IN MORTGAGE TRANSACTIONS

In constructing possible arguments for and weaknesses of post

contractual constitutional intervention we would reference the

pleadings filed in one of the Brusson cases Sathekge, Pinkie Charles V.

Nedbank & 2 Ors.33

32 One of the cases flowing from Brussons presently before the South African Courts is Sathekge,

Pinkie Charles V. Nedbank & 2 Ors The High Court Of South Africa (South Gauteng Div) Case No:

31295/1

33 Ibid.

Page | 25


a. Possible Arguments for post contractual constitutional intervention

i. The nature of constitutional rights.

Constitutional rights are by their very nature sacrosanct and

exacting. The constitution is after all the grund norm. Rights that

find themselves embodied in the constitution are rights that

enjoy almost a hallowed like sacredness and thought to be so

germane to a society’s existence that only a constitutional

safeguard would suffice. That is why they find themselves in the

Constitution in the first place. Every effort thus has to be made to

ensure that constitutional rights are given efficacy even if it

means disturbing contractual rights.

ii. Broader sphere of influence.

Constitutional rights are mostly universal in nature thereby

compelling universal adulation. Giving effect to human rights is

central to the progress of mankind. Thus the sphere of influence

of rights generally and constitutionally enshrined rights in

particular is much broader and is of more importance to a society

than private contractual arrangements even though it may be

conceded that these private contractual arrangements may in

the final analysis be conceived as some form of socio-economic

rights in themselves. Be that as it may, if the foregoing is taken

as cogent, then why should a post contractual intervention be an

issue? It makes sense to give effect to constitutional rights and

uphold its supremacy at any time in the event of a conflict with

any perceived contractual rights which at best is private and has

a smaller sphere of influence.

iii. A Mortgagee’s amplified implied duty to investigate the title of the

Mortgagor in South Africa.

Ordinarily one would canvass a view that the existence of a duty

on the part of the Mortgagee to exercise reasonable care in

Page | 26


investigating the root of title of the immovable security

presented as security for the debt by the Mortgagor should be

limited to the Deed Registry where the interests in the security

would normally be registered. While this is the norm in most

common law jurisdictions. The pertinent question would be is the

duty to exercise reasonable care closed? Giving that the duty is

paramount and sacrosanct deriving it’s ambit from the extant

statutory milieu that governs the locus of the Mortgage

transaction as well as judicial decision or common law

precedents, this duty it is submitted, cannot be closed.

Grounds exist to assert that there are indeed strong justifications

under South African extant laws to presume that the Mortgagee’s

duty extend beyond checking the title of the property in the

Deed Registry. Thus a broad as opposed to a narrow construction

of the duty is warranted and gives way to statutorily imposed

additional due diligence responsibilities on the Mortgagee.

In the Sathekge case and indeed all of the Brusson cases34, the

Mortgagee’s duty to exercise reasonable care or due diligence

can be gleaned from a plethora of statutes dealing with banks

and financial institutions. Let us cursorily look at the major ones:

i. National Credit Act 34 of 2005. 35

The NCA applies to all credit agreements between parties

dealing at arm’s length. The NCA affects all credit

agreements entered into after 1 June 2007. Credit

agreements entered into before 1 June 2007 remain

34 Approximately 900 transactions were consummated under the Brussons scheme and

the Legal Resources Centre is handling many of the homeowner’s eviction cases in

pursuance to their constitutional rights to housing.

35 The NCA replaces the Usury Act and the Credit Agreements Act and came into effect on 1 June

2007

Page | 27


unchanged and are governed by their original terms and

conditions. There are however certain provisions of the NCA

which apply to existing agreements.

The relevant provisions are that the NCA requires that credit

providers perform a full credit assessment before entering

into a credit agreement with the customer.36

ii. Financial Intelligence Centre Act 37

The FICA established the Financial Intelligence Centre (FIC)

whose main objectives are “To establish and maintain an

effective policy and compliance framework and operational

capacity to oversee compliance and to provide high quality,

timeous financial intelligence for use in the fight against

crime, money laundering and terror financing in order for

South Africa to protect the integrity and stability of its

financial system, develop economically and be a responsible

global citizen.”38

Of particular relevance to the Mortgage relationship are

sections 21 (1) of the Act which requires accountable

institutions listed in Schedule 1 to the Act39 to establish and

verify the identities of the clients with whom they enter into

business relationships or conduct single transactions;

section 22 which provides that accountable institutions

36 See generally The National Credit Act, 2005 'All you need to know about the National Credit Act as a consumer' Volume 1: 2007 accessible on http://www.ncr.org.za/pdfs/publications/consumer/ENGLISH.pdf. Assessed on 10/9/2012.

37 No. 38 of 2001

38 See https://www.fic.gov.za/Default.aspx accessed on 9/09/2012

39 Accountable institutions include a wide range of financial institutions such as banks, long term

insurance houses, securities brokers and investment advisers; certain professions such as

attorneys and estate agents; and non-financial institutions such as casinos.

Page | 28


must keep record of its clients’ identities and the

transactions entered into with their clients; Sections 23 to

26 which stipulates the period and the manner in which

records are to be kept as well as the admissibility of those

records in court proceedings and "The Centre’s" access to

those records; and sections 42 and 43 which requires

accountable institutions to develop and implement internal

rules on their compliance with their obligations in terms of

the Act and to appoint compliance officers to ensure

compliance with these obligations within the institutions.40

The cumulative effects of these provisions particularly s.

21(1) by necessary implication is to create a statutory duty

on a Mortgagee to holistically access the ownership of the

property being used to secure the loan by verifying the

identity of the owner of the property beyond what is stated

in the Deed Registry.

b. Possible Weaknesses of post-contractual constitutional intervention

There are two major weaknesses in upholding a South African model

where the right to housing is left at large so much so that post-

contractual constitutional intervention is allowed beyond the

traditional fetters in mortgage transactions. They are as follows:

i. The rights nexus in contract.

There exists a rights nexus in contract. This connection proceeds

on the basis that stripped of its commercial wrappings, a contract

is really the expectation of the vindication of the rights conferred

40 In addition to these sections, Regulations 3, 4, 5 and 6 of FICA (the Financial Intelligence Centre

Act, 38 of 2001) stipulates the KYC (Know-Your-Customer) requirements which mandates

accountable institutions to establish (i.e. obtain) and verify (i.e. validate) information for

individuals. Sections 46 (1), 47, 48, 49, 61, 62 and 68(2) of the Act create the offences which

underpin the enforcement of the provisions referred to above. A person convicted of any of these

offences is liable to imprisonment for a period not exceeding 15 years or to a fine not exceeding

R10 000 000.

Page | 29


on the parties to the contract. Contractual relations presuppose a

certain freedom to contract and an assurance that the just

expectations of the parties would be met. Conceived this way,

what would stare a court in the face in post-contractual

constitutional intervention in mortgage transactions is really a

choice between giving efficacy to two rights-one a constitutional

endowed public right to housing and the other a private right in

the mould of a socio-economic right which it must be emphasized

accrued earlier than the former . So in these circumstances, what

justification exists for the court, in the guise of giving vent to a

constitutional right to housing, to post-contractually truncate the

legitimate aspirations of parties to a contract? What justification

exists for so broad an interpretation of the right to housing as to

warrant the stifling of private rights conferred by law as well?

ii. Possibility of rendering commercial relations otiose and its attendant

economic consequences.

Consider the Brusson scenario yet again. It’s not in doubt that a

valid loan agreement was entered into by the named investor

(Mortgagor) and the Mortgagee bank and that pursuant to that a

valid mortgage bond was registered over the property.

Consequently can it be said that the homeowners (who signed off

to a commercial arrangement that saw them being advanced

varying sums to solve their problems and in any event are not

parties to the investor-bank transaction) have a legal basis to

avoid the legal consequences flowing from the transaction, more

so in a situation where the Mortgagee have exercised its rights to

foreclosure under the mortgage and obtained valid judgment by

a court of competent jurisdiction?

Assuming but not conceding that the homeowners have a case,

surely they slept on their rights and should have even in cases of

alleged fraud like was the case in Brussons intervened to enforce

Page | 30


their claims as soon as they realized that the property was no

longer in their names. The homeowners would naturally have

knowledge of this as following standard practice several notices

of outstanding payments in the mortgage and the notice of

foreclosure would be sent to the respective addresses of the

homeowner’s property. Neither should the excuse by the

homeowners that they concluded agreements and signed

documents concerning their homes ignorant of what the

agreements or documents entailed hold any water, in the

absence of duress. Thus allowing the homeowners to assert their

constitutional rights to housing post-contractually has an effect

akin to stirring the hornet’s nest. It has the unsavory effect of

rendering commercial transactions otiose as a contract is not

worth the paper on which it is contained if it cannot be enforced

by aggrieved parties or its conferred rights and duties respected.

Though the court can surmise that there is an implied duty on a

Mortgagee to exercise due diligence or reasonable care in

investigating the title or ownership of the immovable security

presented by the Mortgagor towards obtaining a loan or credit

Agreement, this duty of the Mortgagee ought to be limited to the

Deed Registry where the interests in the security would normally

be registered. Evidence that a property is registered in the name

of an investor in whose name the loan was granted ought to be

sufficient to discharge this duty. If not where do we draw the

line? Are the courts to put mortgagees in an infinite due diligence

loop just because they want to declare that the species of

investigating title of the mortgage security are at large? This is

an absurd proposition whose effect would mean the end of

mortgage or other credit security based transactions as we know

it.

Page | 31


VI. CONCLUSION

Post-contractual constitutional rights intervention is problematic for a

judge in a multiplicity of ways as it raises some very fundamental

jurisprudential questions. There are no easy answers to these

questions.

The major difficulty can be summed up in the question how do we

allocate the burden of post-contractual constitutional rights

intervention among the homeowner who intends to assert his

constitutional rights to housing and hence avoid eviction; the

mortgagor who has acquired the homeowner’s property and has used

it as security for a mortgage; the mortgagee who seeks to enforce his

rights to foreclosure following a default by the mortgagor and in

schemes like Brusson, a middleman who brokers some credit based

deals?

The conundrum would be that the homeowners property through a

scheme like that of Brusson or other credit based schemes have come

into the possession of the Banks as Mortgagees. The Mortgage in

question would be between the named investors and the banks. Thus

the homeowners would not be parties to the Mortgage transactions

concerning their property as such property has evolved into the hands

of the Mortgagee bank who hold their title arguably without notice of

the fraud that creates the defect in title.

The situation may be further complicated by the liquidation of the

entity (the middleman or broker {Brusson}) that set the entire chain of

events in motion in the first place. This means that the homeowners

ordinarily would not have remedial recourse to the party alleged to

have committed the fraud in the first place-Brusson! It is important to

note that as laudatory as Ditshego is, it is distinguishable on the basis

of the fact that the proceeding was against Brusson the source of the

fraud. If the Mortgagee bank succeed in convincing the courts that it

Page | 32


acted diligently in investigating the title of the security presented by

the named Mortgagor (investors) and complied with all relevant laws

they may cast themselves in the light of innocent parties.

The fact that the homeowners seek to overturn private law contractual

relations (which it must be conceded they set in motion in the first

place) by asserting as third parties a public law constitutional right to

housing is one that even in a Constitutional democracy like South

Africa seem to be unprecedented.

No doubt contractual relations which are by nature commercial, have

far reaching implications that extend to Constitutional rights.41 But this

should not prevent a court from doing substantial justice. The common

law already curtails contractual relations post contractually. Traditional

fetters to the freedom to contract and to be so bound exists as we

have earlier noted in the form of public policy, fraud, mistake,

misrepresentation and statutory stipulation. A constitutionally imposed

post contractual constitutional rights intervention in contract is thus

not entirely an anathema. But such intervention should not be a cut

and dried affair. The peculiar facts of the case ought to serve as a

beacon to the judge. In cases where it is proved that homeowners

never intended to part with ownership of their houses, the courts ought

to interpret the right to housing provisions of the constitution liberally

to uphold post contractual intervention. For instance in Brusson

inspired cases; the Mortgage in question is not constitutionally valid. It

is founded on an illegality-namely a fraudulently obtained security and

any judgment of the court obtained by the Mortgagee directing that

the security in question be specially executable to the extent that it

permits the sale in execution of the home of a person is contrary to S.

41 An example of such far reaching implication in our context is the sheer magnitude of the amount

the Mortgagees would tend to lose if the courts were to set aside all 900+ mortgage transactions

flowing from the Brusson scheme on the basis of the homeowner’s constitutional right to housing.

The systemic shock that may be occasioned as a result of such trend setting precedent may result

in a greater majority been deprived of their socio-economic rights.

Page | 33


26 of the Constitution which guarantees a homeowner’s right to have

access to adequate housing.42 Such judgment since it does not take

into cognizance the materially relevant circumstance of the nature of

the security used in the Mortgage transaction and the proprietary

interest of the homeowner does not comply with subsection 3 of

section 26 which is to the effect that “No one may be evicted from their

home, or have their home demolished without an order of court made

after considering all the relevant circumstances. No legislations may

permit arbitrary evictions.”

In the same vein the Mortgagee’s argument that it obtained a valid

judgment in a court of competent jurisdiction pursuant to its right of

foreclosure can be met easily. This argument which is one that speaks

to the issue of estoppel fails because estoppel does not operate as a

bar to setting aside the mortgage. For our purposes the decision in

Klerck v. Van Zyl & Maritz43 is instructive. Here the court declined to

apply the doctrine of estoppel against the trustee of the insolvent

estate of a representor, as estoppel could not be allowed to clothe with

legal efficacy something which the law had decreed was unlawful

(namely the mortgage bond).44

In other cases however the courts should tread with caution so as not

to sacrifice contractual relations on the altar of constitutional rights

enforcement.

42S. 26 (1) Constitution of the Republic of South Africa, Act 108 of 1996.

43 [1989] 1 All SA 23 (SE); 1989 4 SA 263 (SE)

44 In arriving at this conclusion the court relied on the well-known judgments in Trust Bank van

Afrika Bpk v. Eksteen [1964] 3 All SA 507 (A); 1964 3 SA 402 (A) and Strydom v Die Land- &

Landboubank van SA [1972] 2 All SA 22 (A); 1972 1 SA 801 (A).

Page | 34


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Oxford: Clarendon Press.

Justiciability Of The Right To Housing -The South African Experience By Geoff Budlender

Legal Resources Centre, Cape Town

Page | 35


Lubb and Scott ‘Mortgage and Pledge’ The Law of South Africa, 2nd Edition, Vol 17 Part 2,

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Law Review Vol. 130, No. 6 (Jun., 1982), pp. 1423-1428 Published by: The University of

Pennsylvania Law Review. Article Stable URL: http://www.jstor.org/stable/3311976

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consumer' Volume 1: 2007

W. A. Joubert, L. T. C. Harms, G. J. Pienaar, P. J. Rabie, T. J. Scott, J. A. Faris, B. Galgut,

“The Law of South Africa, 2nd Edition Vols 5,17,

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constitutional law deals

private law

area of law

theory of law

sphere of public law

distinct aspects of

mortgage transactions