In several of our blog articles before, we have emphasised the importance of reducing contracts/agreements into writing. Written contracts come in handy when disputes arise, let alone the convenience when its terms and conditions have to be enforced. For these reasons and more, it can never be overemphasised to reduce agreements into writing.

Sometimes the rights under a contract may require to be ceded (transferred) to another party, who had not been part of the contract when it was concluded initially. Where the contract is in writing such a process is much easier, as its provisions will prescribe whether or not it is permissible. However, where the contract was concluded verbally, it may not be a straight-forward case as the conduct of the parties, their express and implied terms will be informative towards the determination of whether a valid cession occurred or not.  

In the case of Imbuko Wines (Pty) Ltd v Reference Audio CC (405 of 2021) [2022] ZASCA 110 (15 July 2022) the Supreme Court of Appeal (SCA) upheld the decision of the High Court, which had been overturned by the Full Court on appeal. The brief facts of the matter are that, sometime in 2012 Dipole CC and Reference Audio entered into a verbal agreement where Dipole CC would supply audio equipment to Reference Audio. Imbuko alleged that, around December 2012, Dipole CC ceded its right to claim payment from Reference Audio, due to Dipole CC’s difficulties in invoicing Reference Audio each month.

Reference Audio admitted that it made two payments to Imbuko, but that it was not aware of any cession of the right to claim for payment (from Dipole CC to Imbuko) because it had an ongoing business relationship with Dipole CC even after the alleged cession. As was held in Lynn & Main Incorporated v Brits Community Sandworks CC 2009 (1) SA 308 (SCA), a cession is not effective against a debtor unless and until the debtor becomes aware of such a cession.

The Judgment

The SCA found in favour of Imbuko Wines, citing that the conduct of the parties pursuant to the alleged cession of the right to claim for payment, asserted the version of Imbuko Wines. Between January and April 2013, there were nine (9) invoices sent to Reference Audio from Imbuko for equipment supplied by Dipole CC, bearing Imbuko as the creditor. At no point did Reference Audio dispute this, nor did it challenge what it was being billed for by Imbuko. In fact, it settled two of the invoices, as would be consistent with a party that is aware of a cession under the circumstances. Consequently, the Court came to a conclusion that Imbuko had successfully established a valid cession of the right to claim payment, on a balance of probabilities.

It is as important as it is convenient to reduce agreements into writing. In the case above, a protracted litigation process would have been avoided had Dipole CC and Reference Audio provided in their ‘written contract’ what the prescripts would be for a cession to take place. The validity of the cession in the above case hinged on two legs, firstly that the conduct of Reference Audio pursuant to the alleged cession was consistent with such an allegation and secondly, that there was no evidence that effectively barred cession without the consent of the debtor.

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