South Africa: Unlawful Application Of A Lien Clause

Last Updated: 25 April 2012
Article by Janine Lee

Most Read Contributor in South Africa, September 2018

A SERVICE provider can rely on a debtor/creditor lien as security for its claim. This type of lien, conferred by virtue of an agreement between the creditor and the debtor, is a subspecies of a broader right to retain physical control of another's property, whether movable or immovable, as a mechanism for securing payment of a claim, until the claim has been met. In other words, the service provider, who makes provision for such a lien in its contract, can refuse to release goods which are in its possession until it has received payment.

An example of the clause which introduces this right into a contract is that often used by clearing and forwarding agents and which might be worded along the following lines: "All goods shall be subject to a special and general lien either for moneys due in respect of such goods or for any other moneys due to the company from the customer, sender, owner, consignee, importer or the holder of the bill of lading or their agents, if any". Such clause would go on to deal with the right of the clearing and forwarding agents to sell the goods after notice has been given to the debtor, if the debt remains unpaid. Other examples of creditors who may make provision for a lien in their contracts would be builders, motor vehicle repairers, warehousemen, transporters and professionals such as lawyers, accountants and architects.

A clause with wording similar to that quoted above has been tested and applied in cases which have come before our courts in the past – see for example Section 27 Ridgeprop CC t/a Tile Distributors SA v Sharaf Cargo (Pty) Ltd 2009 JDR 1022 (KZN).

The point which immediately jumps out on reading this clause is that it envisages a lien which can be exercised over goods which are unrelated to the debt.

Our law accepts that it is reasonable for a creditor to require security for its claim – much commercial activity is entirely dependent on this construct. Our courts recognise the validity of a lien which can be exercised over goods of a debtor in the possession of the lien holder, even where the debt relates to other goods of that debtor which may no longer be in the possession of the lien holder. See for example the case of Danzas Trek (Pty) Ltd v du Bourg and Another 1979 (4) SA 915 (W).

Our law, relating to all types of lien, dictates that possession of the goods which constitute the subject matter of the lien is an intrinsic prerequisite for the exercise of this right by the lien holder. It is worth noting that our courts have found, most recently in Oceana Leasing Services (Pty) Ltd v BG Motors (Pty) Ltd 1980 (3) SA 267 (W), that where a lien holder voluntarily releases the property subject to the right, the lien is lost and remains irrevocably extinguished, and it does not revive if the property at a later stage reverts to his control. Hence a service provider may well have to look to other goods in its possession where it has already delivered or released the goods in respect of which the debt arose.

There is little for the debtor to complain about if the goods which are subjected to the lien are owned by that debtor, who has failed to pay the debt, even if the debt relates to other goods of that debtor.

A more problematic application of such a clause arises when the lien holder contracts with an agent who acts for several principals. In that scenario one may find that a debt relating to goods owned by principal "A" are secured by a lien over goods belonging to principal "B".

The fact that the clearing and forwarding agent is appointed by an agent who is not the owner of the goods over which the lien is exercised will not ordinarily be a problem for the service provider seeking to enforce its lien, because the agent will have been authorised to bind his principal, the owner, to the terms of the contract concluded with the clearing and forwarding agent. It is only when he acts as agent for several owners that issues of ownership are put in the spotlight.

The lien discussed above is a personal right which the lien holder can exercise against its debtor. This type of lien is not one which can be exercised against the world at large, because of its personal nature.

This personal right can be exercised by the service provider against the agent and accordingly also against its principal, the owner of the goods which are the subject of that lien and who owes the debt – but not against another person who owns goods which happen to be in the possession of the service provider, by virtue of another contract between them.

Because of the personal nature of the lien, where an agent acts for two different principals, the goods belonging to principal "B" cannot lawfully, we submit, be the subject of a lien arising from a debt due in respect of the goods of principal "A", despite the wording of the clause.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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