Construction Law - Contractor's Lien and the Bona Fide Possessor

Knowledge

Construction Law - Contractor’s Lien and the Bona Fide Possessor

A lien can be described as the common law right of retention of property to secure payment for its improvement.  In a construction dispute, it is often available to the contractor to secure payment for work executed on a building site where the employer fails to make payment for building work executed.

This general principle was discussed and clarified in the recent case of Builder’s Depot cc v Damian. The matter was heard in the High Court on appeal from the Magistrates Court and, importantly, clarifies the legal position where property is transferred to a bona fide third party whilst the contractor is in possession and exercising its lien.

Background

Builder’s Depot alleged that it had performed building works for one Yan Bin Wu, the owner of a property, who failed to make payment therefore. The Builder’s Depot accordingly exercised its builder’s lien by taking possession of the property, locking it and proceeding to institute action against Wu.

In due course, a warrant of execution was obtained and the Sheriff was instructed by Builder’s Depot to sell the property in execution. The property was attached by the Sheriff during February 2010.

A bond was registered over the property in favour of ABSA Bank Limited, who also obtained a judgment against Wu. A second warrant of execution was issued instructing the same Sheriff to sell the property on ABSA’s behalf. The property was again attached during August 2010. Builder’s Depot was not aware of the second warrant of execution against Wu.

The Sheriff issued a notice which referred to the case number of the matter where ABSA obtained judgment against Wu. The Sheriff, who intended to sell the property on behalf and for the benefit of both Builder’s Depot and ABSA, sold the property in execution to Damian on 28 October 2010. Builder’s Depot gained knowledge of the sale on the same day.

Builder’s Depot’s attorney subsequently advised the Sheriff that Builder’s Depot was in possession of the property and that it intended to retain possession until the full amount of its judgment debt had been paid.

After the sale in execution the locks were changed and Damian gained access to the property. This caused Builder’s Depot to believe that its peaceful and undisturbed possession of the property had been lost and that it was entitled to a Spoliation order against Damian. Builder’s Depot claimed that the spoliator was Damian, and not the Sheriff.

The Conditions of the Sale in Execution contained a clause which read as follows:

“The property may be taken possession of immediately after payment of the initial deposit, and shall after payment be at risk and profit of the purchaser.”

The Sheriff accordingly advised Damian that possession of the property could be taken immediately after the necessary payments had been made.

The Court found that there was no evidence that Builder’s Depot was in possession of the property at the time when Damian took possession of the property. Prior to the letter received by the Sherrif from Builder’s Depot’s Attorney, nothing indicated that it had possession of the property and that it had obtained the judgment whilst exercising a builder’s lien. Builder’s Depot also did not allege that Damian was aware of its possession of the property. Builder’s Depot accepted that Damian obtained possession in a bona fide manner which it derived from the Sheriff’s actions following the sale in execution.

In terms of the Rules of Court it is not a requirement that the Sheriff must take immovable property into his possession. The property is attached by notice as prescribed by the Rules and, as such, does not dispossess the possessor.  The Conditions of the Sale in Execution required and obliged the Sheriff to give possession of the property to Damian once all payments had been received.

The Court determined that Builder’s Depot had lost its possession on the day the Sheriff sold the property in execution (28 October 2010) by accepting payment from Damian and by authorising the latter to take possession of the property by changing the locks. The Court also ruled that the Sheriff was not taking the law into his own hands and that he was bona fide when he gave possession of the property to Damian. Thus possession of the property passed onto a bona fide possessor. The Sheriff also acted on ABSA’s instructions to sell the property in execution and, knowing of Builder’s Depot’s claim, had the intention that it would also benefit from the sale.

If the Sheriff had dispossessed Builder’s Depot in a mala fide manner, the question arises whether a Spoliation Order could be granted against him. The current position seems to be that a Spoliation Order cannot be granted where possession has passed to a bona fide third party.

The Court ordered that a Spoliation Order cannot be granted against a spoliator who has given possession to a bona fide possessor.  It also ruled that Builder’s Depot cannot seek the return of the property from the bona fide third party. Damian did not take the law into his own hands, was entitled to remain in possession and did not perform an act of spoliation.  The Appeal was dismissed with costs in favour of Damien.

 

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