This controversial principle has been the centre of much attention (and of course of particular interest to lenders and the like) in recent years as it has come under judicial scrutiny for potentially infringing section 34 of the Constitution of the Republic of South Africa, 1996, as was the position in Findevco (Pty) Ltd v Faceformat SA (Pty) Ltd [2001]. In its decision in Bock v Duburoro Investments (Pty) Ltd [2004], however, the Supreme Court of Appeal indicated that it viewed the Findevco decision as wrong in so far as it regarded parate executie clauses in pledges of movables as unconstitutional. Since the debtor may seek the protection of the court at any stage of the proceedings where the creditor takes parate execution of a movable, and if the debtor can show that the creditor acted in a manner which prejudiced him in his rights, the creditor cannot be said to be the judge in its own case.

This legal principle was brought to the fore again this year, in the case of Vantage Goldfields SA (Pty) Ltd & Another v Arqomanzi (Pty) Ltd and Others [2023]. While the constitutionality was not questioned this time, other interesting facts about the principle were confirmed.

The facts of the case relevant for current purposes are that the rights to certain loan claims were ceded in securitatem debiti to a bank by the appellants as security for funding received by the debtor. The cession agreements entitled the bank, upon any breach which was not remedied, to sell or otherwise realise such security. The loan claims were eventually sold by the bank to a third party during a breach scenario in an effort to realise the security it held, noting that the sale of the loan claims was only conducted after due notice of demand was provided to the appellants and the necessary remedy periods had lapsed.

The appellants claimed, amongst other things, that the sale of the loan claims were invalid because they caused prejudice and in particular that the operation of the parate executie clause in the cessions in securitatem debiti agreements caused them unacceptable hardship.

The court confirmed that the parate executie principle permits a cessionary, upon the cedent’s default, to realise the ceded property, without following any judicial procedure. It went further to say that in the Bock case the court reaffirmed the common law rule that parate executie is valid as long as it is not enforced in a manner that is against public policy. In the case at hand, the bank was entitled to realise its security when the appellants failed to remedy the breach they were duly notified about. The court also held that the process of realisation of security would often result in a change of the identity of the creditor but that is neither unexpected, nor prejudicial.

The court went further to cite the Bock case, stating that a debtor may, when the creditor seeks to invoke the parate executie clause in an agreement, “seek the protection of the court if, upon any just ground, he can show that, in carrying out the agreement and effecting a sale, the creditor has acted in a manner which has prejudiced him in his rights”. The appellants, despite being notified by the bank, did not act or take any steps to prevent the sales or have them declared invalid.

The parate executie principle is something that is closely monitored by financiers and finance lawyers alike as it is so widely and heavily relied upon as a means of realising security and any judgement in relation thereto will always be of interest. Through the recent Vantage case, we are once again reminded that the parate executie principle in respect of security over movables is still alive and well in South Africa.