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[2017] ZAWCHC 4
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K2012150042 (South Africa) (Pty) Ltd v Zitonix (Pty) Ltd (17200/2016) [2017] ZAWCHC 4; [2017] 2 All SA 232 (WCC); [2017] 1 CPLR 76 (WCC) (7 February 2017)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case no:
17200/2016
Dates Heard:
1/11/2016; 2/11/2016; 1/12/ 2016
Date delivered:
7/2/2017
Reportable
K2012150042
(SOUTH AFRICA) (PTY)
LTD
Applicant
and
ZITONIX
(PTY)
LTD
Respondent
JUDGMENT
DELIVERED ON 7 FEBRUARY 2017
HOLDERNESS AJ
INTRODUCTION
[1] The applicant
seeks an order confirming the cancellation of five written lease
agreements concluded between it and the respondent
(“the lease
agreements”), and an order directing the respondent to vacate
the leased premises, failing which the deputy
sheriff be authorised
to eject it from the premises.
[2] The application
was launched, on an urgent basis, on 26 September 2016, and was
initially enrolled for hearing on 6 October
2016.
[3]
By agreement between the parties, the application was postponed for
hearing on the semi-urgent roll on 6 October 2016. On 6
October 2016
the matter was postponed to 10 October 2016, and by agreement between
the parties, was further postponed for hearing
on the semi-urgent
roll on 1 November 2016.
[4] After hearing
argument on the merits, the respondent requested an opportunity to
consider whether to persist with the competition
law defence raised
in the answering papers, and the matter was adjourned for this
purpose.
[5]
The parties agreed to a further postponement to 8 December 2016.
After further written submissions had been delivered, the parties
presented oral argument on the issue of referral of the competition
law issue raised by the respondent to the Competition Tribunal
(“the
Tribunal”).
URGENCY
[6]
The sole grounds for urgency relied upon by the applicant are the
following:
6.1 the respondent
and the tenants were withholding occupation of the leased premises,
notwithstanding the fact that their occupation
is unlawful, given
that the lease agreements had been validly cancelled;
6.2 Gateway Theatre
of Shopping (“Gateway”) is a shopping centre that is
extremely busy over the festive season, and
the applicant has
substitute tenants who are eager to occupy the leased premises at
rentals favourable to the applicant;
6.3 The new tenants
require time to remodel and fit out the premises, and this needed to
be done by November 2016 to meet the demands
of the festive season
trading period; and
6.4 If the
respondent could not be ejected from the leased premises by the end
of October 2016, it would not be possible to give
the new tenants
occupation of the premises by the start of December 2016.
[7] These grounds
for urgency, to extent that they properly constituted grounds for
urgency in the first place, fell away when the
parties requested that
the competition issue be postponed for hearing in December 2016, in
the second last week of term.
[8]
I indicated to the parties, after argument had closed, that I would
endeavour to deliver judgment by the end of term, if my
workload
permitted.
[9] In breach of the
newly established protocol for parties requesting updates of reserved
judgments to approach the Judge President
or Deputy Judge President
if they are of the view that the handing down of a judgment has been
unduly delayed (usually not before
three months have elapsed since
the matter was heard), the applicant’s attorneys contacted my
registrar on several occasions
before the start of the new court
term, demanding details of when they could expect judgment to be
handed down.
[10] This practice
is to be deprecated, particularly in circumstances where the grounds
for urgency have ceased to exist, and the
litigants have elected to
only have the matter finally heard almost three months after the
application was first launched.
BACKGROUND
[11] The material
facts, which are largely common cause, are as follows:
11.1 In February
2016 and at Cape Town, the respondent, represented by Marcel Joubert
(“Joubert”) concluded the lease
agreements with the
applicant, in terms of which it leased certain commercial premises in
the Gateway Theatre of Shopping in Umhlanga
(“Gateway”),
from which it traded under the brands Aca Joe, Vertigo, Urban Degree,
Hilton Weiner and Jenni Button (“the
brands”);
11.2 The respondent
is an entity within the Platinum Group (Pty) Ltd (“the Platinum
Group”), the holding company which
owns the brands. The
registered office of the respondent is 2 Ruyterplaats Lane, Hout Bay,
Western Cape, and its chosen
domicilium citandi et executandi
is at the leased premises of the respective tenants;
11.3 Joubert is the
controlling mind behind the Platinum Group, and was its sole
director, until he was disqualified, by the sequestration
of his
estate, from holding any directorships;
11.4 Last year,
several companies in the Platinum Group experienced significant
financial difficulties, and were either placed under
business rescue,
wound up, or became dormant;
11.5 Because of
these difficulties, most of the retail leases held by entities in the
Platinum Group were terminated;
11.6 During the
negotiations leading up to the conclusion of the lease agreements, it
was agreed that the lease agreements would
be backdated to August
2015, to allow the applicant to recover certain of the losses which
it suffered when the previous Platinum
Group leases with the
applicant were terminated;
11.7 At the
applicant’s insistence, Joubert signed a limited deed of
suretyship in favour of the applicant in respect of all
five stores,
up to a maximum of R1,000,000 per store, and R5,000,000 in total;
11.8 The respondent
fell into arrears shortly after the lease agreements were concluded,
and the applicant consequently cancelled
the lease agreements. A
dispute regarding the cancellation resulted in the parties entering
into written reinstatement agreements
in April 2016, in terms of
which the lease agreements were reinstated on the same terms and
conditions;
11.9 In May 2016,
the respondent once again fell into arrears. The applicant notified
it of its breaches, and afforded it an opportunity
to remedy such
breaches, as it was required to do in terms of section 16.1(a) of the
lease agreements, as amended by the written
addendums entered into by
the parties on the same day as the lease agreements;
11.10 In August 2016
the respondent was, once again, in arrears in respect of four of the
five leased premises, namely Jenni Button,
Hilton Weiner, Urban
Degree and Vertigo.
11.11 On 6 May 2016
the applicant sent notices by registered mail to the respondent in
terms of clause 16.1(a) of the lease agreements,
informing it of the
breaches. The respondent took issue with the fact that the breach
letters do not distinguish between amounts
due in respect of rental,
utility charges, interest and operating costs, and yet does not deny
that it was in arrears in the amounts
claimed by the applicant;
11.12 The respondent
failed to remedy its breach, and remained in arrears in the
amount of approximately R790,000;
11.13 On 25 August
2016, the applicant sent letters of cancellation to the respondent in
respect of three of the five premises,
namely Hilton Weiner, Urban
Degree and Aca Joe. The respondent failed to remedy its breach and
the applicant cancelled the lease
agreements in respect of these
premises;
11.14 On 31 August
2016, the applicant sent further cancellation letters to the
respondent in respect of all five premises, based
on a new ground for
cancellation, provided for in clause 16.1(e) of the lease
agreements;
11.15 Clause 16.1(e)
of the lease, read with 16.1.1, is as follows:
“
16.
Breach
16.1 (e) should
any surety of the Tenant be sequestrated or placed in liquidation;
then and in any
such event the Landlord shall have the right but shall not be obliged
either:
16.1.1 forthwith
to cancel the Lease and to resume possession of the Premises but
without prejudice to its claim for arrears of
rental and costs and
other amounts owing hereunder and/or damages which it may have
suffered by reason of the Tenant’s breach
of contract or of the
premature cancellation;”
11.16 Joubert’s
estate was placed under final sequestration on 22 August 2016,
triggering the further ground of cancellation
in terms of clause
16.1(e).
11.17 For reasons
which are self-explanatory, the respondent was not afforded an
opportunity to remedy its default under section
16.1(e). Upon the
sequestration of Joubert’s estate, the applicant had the right
to cancel the lease agreement forthwith.
THE DEFENCES
RAISED BY THE RESPONDENT
[12] The respondent
raised a plethora of defences. Several of the defences are procedural
or dilatory in nature.
[13] The respondent
contended that this court does not have concurrent jurisdiction,
together with the
forum rei sitae,
to entertain the
application. The further defences are the following: i) the deponent
to the founding affidavit was not authorised
to depose thereto; ii)
the lack of detail in the breach letters rendered the application
fatally defective; iii) Joubert was unaware
of clause 16.1(e) with
the result that the agreement falls to rectified by the striking out
of such clause; and, iv) that the applicant
has engaged in
anti-competitive conduct, and that this issue requires a referral to
the Competition Tribunal (“the Tribunal”).
JURISDICTION
[14] The respondent
contended that as this matter involves title to immovable property,
the Court where the property is situated,
the
forum rei sitae,
has exclusive jurisdiction to entertain the application.
[15] The answering
affidavit was deposed to by Moira Tanya O’Reilly (“O’Reilly”)
on behalf of the respondent.
O’Reilly is the sole director of
the respondent following Joubert’s disqualification, by virtue
of the sequestration
of his estate, from continuing to act as a
director.
[16]
The general, common law principles in respect of which a provincial
or local division of the High Court will exercise territorial
jurisdiction, in the absence of any jurisdictional limitations
imposed by statute or the common law, are the doctrine of
effectiveness
and submission, and
actor
sequitur forum rei.
[1]
[17] Section 21(1)
of the Superior Courts Act 10 of 2013 (“the
Superior Courts
Act&rdquo
;) gives effect to this principle by providing that:
“
A
Division has jurisdiction over all persons residing or being in, and
in relation to all causes arising and all offences triable
within,
its area of jurisdiction and all other matters of which it may
according to law take cognisance…”
[18]
The respondent relied on renowned writers, Pollak and Forsyth, and
the authorities cited by them, including
Hugo
v Bekker
[2]
and
Hugo
v Wessels
[3]
,
for
its contention that the
forum
rei sitae
has
exclusive jurisdiction to make orders where title to immovable
property is concerned.
[19] The applicant’s
claim is founded in contract, and is not a possessory remedy
involving title to immovable property. Accordingly,
in my view these
cases do not find application.
[20] It is trite
that as the lessee in terms of the lease agreements, the respondent
is only entitled to the temporary use and enjoyment
of the property.
One of the
naturalia
of any lease agreement is that upon
termination of the agreement, the lessee is obliged to return the
property to the lessor (who
may or may not be the owner), in the
condition in which it was received, fair wear and tear excepted.
[21] If the lessee
fails to comply with its duty to return the property to the lessor,
the lessor is entitled to the normal contractual
remedies, namely to
an order for specific performance, in the present case an order
directing the respondent to vacate the property,
failing which it may
be evicted therefrom, and to damages for any financial loss suffered.
[22]
In the full bench decision in
Ebrahim
v Pretoria Stadsraad
[4]
,
the
court confirmed that an occupier (or lessee) cannot dispute the title
of the lessor.
[23]
This issue was authoritatively decided by the Constitutional Court in
Mighty
Solutions t/a Orlando Service Station v Engen Petroleum Ltd and
another
[5]
,
where
the Court cited, with approval, the following passage from
Boompret
Investments (Pty) Ltd and Another v Paardekraal Concession Store
(Pty) Ltd,
[6]
:
‘
It
is an established rule that when being sued for eviction at the
termination of a lease, a lessee cannot raise as a defence that
the
lessor has no right to occupy the property. This flows naturally from
the rule that a valid lease does not rest on the lessor
having any
title..’
[24] The respondent
does not allege that it has any right, independent of the lease
agreements, to occupy the properties. Therefore
if I find that the
lease agreements have been validly cancelled, no issue of title
arises.
[25]
As observed in
Brisley
v Drotsky
[7]
,
where commercial leases are concerned the common law applies, and the
only relevant considerations are that the lessor is the
owner and
that the lessee is unlawfully holding over.
[26] The argument
raised by the respondent that this matters falls outside of the
jurisdiction of this court is accordingly without
merit.
[27] The respondent
has its registered office in the Western Cape, and for the purposes
of jurisdiction is therefore regarded as
having its domicile in the
Western Cape.
[28] The lease
agreements were entered into in the Western Cape, and the
reinstatement agreements appear to have been last signed
on behalf of
the respondent in the Western Cape.
[29]
As envisaged in
section 42(1)
and (2) of the
Superior Courts Act
[8
]
,
any order granted by this Court directing the respondent to vacate
the property, failing which it will be evicted, can be enforced
by
the Sheriff for the Kwa-Zulu Natal High Court, ensuring that should
the application succeed, the order can be executed in Natal.
[30] In the
circumstances, I am satisfied that this court has concurrent
jurisdiction with the KwaZulu Natal High Court, and that
there is no
merit to the respondent’s contention that the
forum rei
sitae
has exclusive jurisdiction to determine the contractual
remedy sought by the applicant.
LACK OF AUTHORITY
[31] The second
defence relied upon by the respondent is the alleged lack of
authority of the deponent to the founding affidavit
on behalf of the
applicant, Lanton Joseph Foster (“Foster”).
[32] Foster is a
legal advisor in the employ of Old Mutual Property Management
Services (Pty) Ltd (“OMP”), the previous
property
managers of Gateway.
[33] As proof of his
authority to act for the applicant, Foster annexed a power of
attorney (“POA”), signed on 25 November
2013, by the
senior legal adviser for OMP, in terms of which he delegates to
Foster the power,
inter alia,
to institute legal proceedings
in respect of any rental agreement concerning or pertaining to
immovable property owned by the applicant
and administered by OMP.
Foster annexed proof of his acceptance of the delegated powers.
[34] The
respondent’s objections to Foster’s authority are as
follows:
34.1
The POA purports to be the third consecutive delegation between legal
advisers in the employ of OMP is concerned, and refers
to a
resolution dated 23 May 2013, which is not annexed. It is accordingly
not possible to ascertain whether further delegations
of this kind
are permitted, having regard to the maxim
delegatus
delegare non potest;
34.2 The POA states
that it is only effective while the property is administered by OMP,
and that it is common cause that OMP is
no longer the property
manager of Gateway;
34.3 In the
circumstances the applicant has failed to show that Foster has
authority to bring the application.
[35]
The leading decision on the authority to institute proceedings is
Ganes
and Another v Telecom Namibia
[9]
,
which
followed the decision in
Eskom
v Soweto City Council
[10]
.
[36] The upshot of
these decisions is that the deponent to an affidavit in motion
proceedings need not be authorised by the party
concerned to depose
to the affidavit. It is the institution of the proceedings and the
prosecution thereof which must be authorised.
[37] In this
application, as in the
Ganes
and
Telkom
decisions
supra
, the proceedings were instituted by a firm of attorneys
purporting to act on behalf of the applicant. Indeed, it is common
cause
that the applicant’s attorney of record, Mr. Grant Ford
(“Ford”) of Cliffe Dekker Hofmeyr, acted for the
applicant
at all material times, including during the pre-contractual
negotiations leading up to the conclusion of the lease agreements
after
the previous Platinum tenants defaulted.
[38] In the absence
of a proper challenge to the authority of the applicant’s
attorney to institute the proceedings, through
the mechanism provided
by Rule 7 of the Uniform Rules of Court, it must be accepted that the
applicant’s attorney is properly
authorised, and it matters not
whether Foster is specifically authorised, nor whether OMP are the
current property managers.
[39] The respondent
has not challenged the authority of the applicant’s attorney in
terms of Rule 7, and, in the premises,
I am satisfied that the
proceedings have been properly brought and that there is no merit to
the respondent’s objection to
the authority of the deponent to
the founding affidavit.
THE BREACH AND
CANCELLATION NOTICES
[40] The respondent
contends that the breach notices issued by the applicant in terms of
section 16(1)(a) of the addendum to the
lease agreements were
defective because they were stated ‘
in broad terms’.
[41] The essence of
this objection appears to be that the breach letters set out the
balance claimed, but fail to distinguish between
the various types of
charges and to give any ‘
explanation’
as to how
the outstanding amount is calculated, or in respect of what period it
accrued.
[42] The respondent,
relying on this objection, concludes that the notices suffer from
‘
material defects which are fatal to the application’
.
[43] There is no
merit to this point. It was always open to the respondent to request
details of how the amounts claimed were made
up. The lack of detail
as to how amounts outstanding have been calculated does not amount to
a defect, and even if, at best for
the respondent, it did constitute
a defect, it does not follow that such defect is in any way fatal to
the relief sought.
[44] It is apparent,
from the fact that the respondent paid approximately R700,000 to the
applicant after the lease agreements had
been cancelled, that
the respondent does not dispute that it was in arrears at the time
the notices were issued, and has
not requested an accounting or
debatement of the amounts claimed.
[45] To my mind find
the respondent was properly notified of its breach in terms of clause
16.1(a) of the agreement. In any event,
in view of the
applicant’s reliance for cancellation on the alternative ground
set out in clause 16.1(e), it is not
necessary to decide this point,
nor the further point raised by the respondent that the first breach
notices were short served.
THE SURETYSHIP
[46] As regards the
suretyship which Joubert signed to secure the respondent’s
obligations to the applicant, the respondent
contended that, as it
had paid a ‘
premium’
of almost R10 million to
‘
secure’
the leases, both parties must have
envisaged a long-term tenancy.
[47] The respondent
alleges that Ford knew that a judgment for R30 million had been taken
against Joubert in October 2015, and as
the negotiator on behalf of
the applicant, he had a duty to bring clause 16.1 (e) to Joubert’s
attention at the time of the
conclusion of the lease agreements and
suretyships.
[48] It is common
cause that Joubert, an experienced businessman, was represented by
his attorney of record, Mr. Reid Corin (“Corin”),
at all
material times during the negotiations leading up to the conclusion
of the lease agreements, and that Joubert had, on behalf
of the
Platinum Group, signed approximately 25 leases with Old Mutual over a
seventeen-year period, and that all of these agreements
included the
term which the respondent now applies to have struck out.
[49] The respondent
seeks to distinguish the lease agreements in this case on the basis
that in previous OMP leases, there was no
suggestion that suretyships
were asked for, nor given, nor that the sequestration of the
sureties, to the knowledge of the applicant’s
attorney, was
imminent. It is noteworthy that Joubert is silent on whether he read
the agreement.
[50] Essentially the
respondent seeks to impute knowledge of Joubert’s impending
sequestration to Ford, and rely on this as
a basis to claim
rectification of the lease agreements.
[51] An unfortunate
finger pointing between the parties’ respective attorneys
ensued. Ford denied any knowledge of Joubert’s
sequestration,
and cited numerous instances, attaching excerpts from agreements as
examples, which demonstrated that it was Joubert’s
habit to go
through agreements with a fine-tooth comb, to change the wording of
clauses, and to even correct typographical errors.
[52] To sum up the
respondent’s argument, it claims that Joubert was misled into
signing the lease agreements, and the clauses
should accordingly be
‘
struck out’
from the contracts, and that, in any
event ‘
it would be
dolus
for the applicant to rely on
such clause and that under such circumstances the Respondent is
entitled to rectification of the contract’.
[53] Ford’s
evidence is that, in light of virtual collapse of the Platinum Group,
the applicant, insisted that Joubert, whom
he believed to have a
property portfolio worth R75 million, to be ‘
personally on
the hook’
for the respondent’s obligations in terms
of the lease agreements.
[54] It was not
suggested in argument that Ford acted in any way fraudulently or
unconscionably. The respondent’s counsel
made it clear that no
such allegations were being levelled against him.
[55] It is
immaterial whether Ford had knowledge of Joubert’s pending
insolvency, and this factual dispute need not
be resolved
either way.
[56] The legal
position, as accepted by both parties, is that where a party attempts
to enforce a contract affected by common mistake,
the other party may
rely on the mistake as a defence without counterclaiming for
rectification, if it proves such facts as would
entitle it to
rectification.
[57] Even if one
accepts that Joubert was unaware of clause 16.1(e), there is no
suggestion that the applicant was unaware of its
inclusion in the
lease agreement. Any error in this regard is, at best for the
respondent, unilateral.
[58] Rectification
is a remedy which is available where there has been a common, and not
a unilateral mistake, where the court is
asked to rectify the
agreement to bring it in line with the parties’ true intention.
[59] Should the
respondent successfully prove that it alone was mistaken, and that
such mistake was both material and reasonable,
the Court may declare
the agreement void
ab initio
for want of consensus.
[60]
The learned author Christie points out that there are conflicting
dicta
regarding
whether rectification can be granted in cases of unilateral mistake
induced by fraud or unconscionable conduct, however
there is no
suggestion that Ford acted fraudulently or unconscionably and
therefore this case does not constitute such an exception.
[11]
[61]
Similarly to the binding decision of
Slipknot
Investments 777 (Pty) Ltd v Du Toit,
[12]
in
which the surety also relied on a unilateral mistake
,
this
case is not concerned with a misrepresentation, whether innocent or
not, by the applicant inducing Joubert to sign the lease
agreements,
but an alleged omission by the applicant’s agent to inform the
respondent of the inclusion of a specific clause
in the agreements it
was called upon to sign.
[62] Joubert states
that he was not aware of the inclusion of the impugned clause, and
therefore never intended to be bound by such
clause, which he argues
should be struck out.
[63] It is trite
that contractual liability, however, arises not only where there is a
meeting of minds, but also by the doctrine
of quasi-mutual assent.
[64] Per Malan JA in
Slipknot supra,
the decisive question to be asked in cases
such as this has been formulated as follows:
“
(D)id
the party whose actual intention did not conform to the common
intention expressed
(Joubert)
,
lead the other party, as a reasonable man, to believe that his
declared intention represented his actual intention?..
To answer this
question, a three-fold enquiry is usually necessary, namely, firstly,
was there a misrepresentation as to one party’s
intention;
secondly, who made that misrepresentation; and thirdly, was the other
party misled thereby? The last question postulates
two possibilities:
Was he actually misled and would a reasonable man have been misled?”
[65] Clearly
distinguishable from facts in the present case, in
Slipknot supra
the party seeking to escape a suretyship agreement was a farmer,
not a businessman. The basis of his defence was that he was placed
under considerable pressure to sign the suretyship, was led to
believe that it would not affect him, and that it was enclosed in
a
bundle of documents and was not specifically pointed out to him.
[66] The Supreme
Court of Appeal (“the SCA”) held that a contracting party
is generally not bound to inform the other
party of the terms of the
proposed agreement. He must do so, however, where there are terms
that could not reasonably have been
expected in the contract.
[67] Differing from
the court
a quo,
the SCA in
Slipknot supra
found that,
notwithstanding that the suretyship agreement appeared to be “hidden”
in the bundle of documents, even a
cursory glance would have alerted
the respondent that he was signing a suretyship, and that it’s
among the documents was
not unexpected.
[68] As an
experienced businessman, who has signed several lease agreements in
his career in retail fashion, and who was shown to
have been in the
habit of very carefully reading and considering any agreement before
appending his signature to it, I am of the
view that the inclusion of
clause 16.1 (e), which featured in all the previous agreements which
Joubert had signed with OMP, was
neither unexpected nor surprising.
It was, in any event, incumbent on Joubert to carefully read the
lease agreements before appending
his signature to it.
[69] Moreover, in
light of the financial hardships which had befallen the Platinum
Group, and the fact that previous tenants had
defaulted leaving
millions of rands in arrear owing, one would have expected the
applicant to have a safeguard in place, such as
the clause in
question, entitling it to cancel the agreement forthwith if its
security was compromised, as is the case in the sequestration
of a
surety.
[70] For the reasons
set out above, the respondent has failed to make out a case for
rectification by the deletion of clause 16.1(e).
COMPETITION
DEFENCE
[71] The respondent
avers that the declaratory relief sought by the applicant, to eject
the respondent in order to give occupation
to H&M, amounts to a
prohibited abuse of dominance ‘
in one or more of the forms
set forth in section 8 of the Competition Act’.
The
respondent asked for the matter be referred to the Tribunal in terms
of Section 65(2) of the Competition Act 89 of 1998 (“the
Competition Act&rdquo
;)
[72]
Section 65(2)
of the
Competition Act, which
deals with referral by a civil court to
the Tribunal, provides as follows:
“
Civil
actions and jurisdiction
(2)
If,
i
n
any action in a civil court, a party raises an issue concerning
conduct that is prohibited in terms of this Act,
that
court must not consider that issue on its merits, and-
(a)
if the issue raised is one in respect of which
the Competition Tribunal or Competition Appeal Court has made an
order, the court
must apply the determination of the Tribunal or the
Competition Appeal Court to the issue; or
(b)
otherwise,
the court must refer that issue to the Tribunal to be considered on
its
merits, if the court is satisfied that-
(i)
the issue has not been raised in a frivolous or
vexatious manner; and
(ii) the
resolution of that issue is required to determine the final outcome
of the action.
[73] The evidence
tendered by the respondent in support of its defence of
anti-competitive conduct is the affidavit of one Michael
Rodel
(“Rodel”), who annexed his LinkedIn profile as proof of
his qualifications and experience.
[74] Rodel has
extensive experience in property management, specifically in the
retail industry, and was employed by OMP as ‘
Project
Executive for the development of the iconic Gateway Theatre of
Shopping, a 120,000m2 super-regional centre in Umhlanga,
changing
roles to General Manager of the centre to grow it through its early
years.”
[75] Rodel was
approached by Joubert, whom he had come to know over the years, to
provide an opinion as to whether the actions by
the owners of the
Gateway Centre with regard to the ‘
sudden purported
ejectment of the Platinum brand stores (in order to facilitate, so I
have been advised, the substitution (at least
in part) of these
stores by H&M), constitutes a prohibited abuse of dominance
within the meaning of section 8 of the Competitions
Act.’
[76] Rodel stated
that, having considered the affidavits of O’Reilly and Joubert,
the actions of the applicant constitute
a prohibited abuse of
dominance in that:
76.1 Gateway is the
largest shopping centre in Africa, is also the largest mall in the
southern hemisphere and is one of the top
50 largest malls in the
world;
76.2
In his opinion, the market, within the meaning of the
Competition
Act, is
indeed the centre itself,
alternatively
,
at best for the applicant, the Durban North region;
76.3 In either case,
the applicant has dominance, within the meaning of the
Competition
Act, in
such market;
76.4 H & M is a
Swedish multinational retail company with a presence of over 3,700
stores in 61 countries. It aims to be one
of the largest participants
in the fashion retail market in South Africa, whilst the Respondent
is one of the smallest;
76.5
Rodel quoted a statement allegedly made last year by one Paul Simpson
(“Simpson”), who is described as the former
managing
director of Woolworths Properties, as follows: ‘…
Four
of the five (Platinum brands) are the best independents in the
country, from a customer standpoint, and we are losing retail
diversity in a market of overwhelming sameness”,
and
concluded that the actions of the Applicant herein will clearly
aggravate this situation. There was no confirmatory affidavit
by
Simpson;
76.6 To his
knowledge, the Platinum stores housing these brands played a major
role in the establishment of the Gateway Centre to
the level that it
is now, and have always traded very successfully there;
76.7 The lease
agreement, and in particular clause 15 thereof, provides, in his
opinion, for the remedy available to a landlord
in circumstances such
as these. The ‘accommodation’ of H & M within the
centre would clearly involve a large scale
renovation within the
meaning of clause 15.1. Rodel said that he had been advised that this
avenue was indeed attempted, and then
abandoned, by the applicant;
and
76.8 In all these
circumstances, the ejectment of the respondent, effectively in favour
of H & M, constitutes a refusal to give
a competitor access to an
essential facility when it is economically feasible to do and /
amounts to an exclusionary act in circumstances
where the
anti-competitive effect of that act outweighs its technological
efficiency or pro-competitive gain.
[77] There is no
direct evidence that the applicant intends entering into a new lease
with H&M in respect of the premises currently
occupied, or that
any such leases have already been concluded.
[78] The
anti-competitive conduct is thus not alleged to be the conclusion of
a new lease with a competing retailer, but rather
the steps taken by
the applicant to terminate the lease agreements and to require the
respondent to vacate the leased premises.
[79] The applicant
contended, correctly in my view, that neither Rodel, nor Joubert, nor
O’Reilly, are qualified to give opinions
on competition law
issues. The applicant filed an affidavit by Ford indicating that it
would apply at the hearing for the striking
out of these allegations,
however no such application was made.
[80] The respondent
relied on a memorandum by Mr. Pretorius (“Pretorius”),
who was asked to comment on the conclusion
drawn by the applicant’s
legal advisors that the competition issues raised by the respondent
is precisely the type of frivolous
and vexatious allegations that
section 65(2)(b)
of the
Competition Act is
designed to combat.
[81] The memorandum
was unfortunately of limited assistance, as it was limited only to
those averments made by the parties in regard
to the alleged
contravention by the applicant of the provisions of
section 8(c)
of
the
Competition Act, and
was further limited as it did not attempt to
draw any conclusions on the correct market definition, the nature of
the applicant’s
dominance therein, or the exact
anti-competitive effects in such defined market.
[82] Pretorius
states that, if one accepts that that geographical market dimension
is Gateway, then the product market dimension
may very well be found
to the ‘
the allocation of retail space in the shopping
centre for the sale of a specific form of clothing.’
Pretorius
does not state that this is the correct market definition, but rather
that it is more plausible that this definition or
a derivative
thereof will constitute the product dimension of the market in this
matter, and that the dimension of a relevant market
‘
is
often a complicated endeavour which requires considerable evidence to
be placed before the Competition Commission and/or the
Tribunal.’
[83] Pretorius
suggests that although there is no ‘
rigorous market
definition’
by either party, any attempt to do so would be
inappropriate at this juncture, having regards to the import of
section 65(2)(b)
of the
Competition Act.
[84
] Pretorius
concludes that if the market definitions set out in [81]
above
are eventually accepted, it would follow that the applicant will, at
the very least, have a market share in excess of 50%
and therefore be
regarded as dominant in such a defined market. On this basis, he
concludes that it cannot be said that this issues
has been raised in
a frivolous or vexatious manner. I am not persuaded that this is
correct, for the reasons set out more fully
below.
[85] In addition to
the memorandum by Pretorius filed on behalf of the respondent, the
applicant’s attorneys annexed a memorandum
setting out the
relevant principles applicable to the competition law issue raised,
together with supplementary submissions by
their counsel briefed to
argue the competition law defence. The Court is grateful to both
parties for the detailed submissions
and memoranda furnished on their
behalf.
[86] The difficulty
with the definition of the market according to Pretorius, is that it
is premised entirely on the assumption
that the applicant allocates
all the rental space in Gateway, however this is not founded upon any
averments in the papers.
Referral by a
civil court
[87] A civil court
does not have jurisdiction to determine whether conduct contravenes
the Act, however it does have the power to
determine whether such an
issue raised in the course of civil proceedings should be referred to
the Tribunal in terms of
section 65
(2) of the
Competition Act,
provided
that certain requirements are met.
[88]
In
Leonard
v Nedbank
[13]
(“Leonard”),
the
Tribunal described a referral under
section 65(2)
as a ‘
drastic
step’,
which
has a significant impact upon litigants who ‘
in
seeking to recover their debt in one forum, have now been drawn into
another at great expense and inconvenience’,
and
underscored the civil court’s role in ‘
identifying
opportunistic litigants who may seek to stay civil proceedings by
finding some inkling of competitive harm lurking in
the civil dispute
to which they are a party.’
[14]
[89] A party seeking
a referral must clearly set out what the prohibited conduct is for
the court, and for the opposing party, to
appreciate whether a case
for referral has been properly made out.
[90]
The opposing side and the court are entitled to know ‘
what
was unlawful, why it was unlawful and why its remedy before the
Competition Tribunal requires a stay of the Court’s
proceedings’.
[15]
[91]
In
Platinum
Holdings (Pty) Ltd v Victoria & Alfred Waterfront (Pty) Ltd
[16]
,
which
concerned a
s 65(2)
referral claim by none other than the holding
company of the Platinum group, the SCA explained the court’s
role as follows:
“
It
is clear that the prohibition [in
section 65]
against consideration
of the merits of a competition issue does not mean that a court can
give no consideration to the issue at
all. It merely means that it
may not resolve the issue; but the question whether the competition
issue is frivolous or vexatious
is an issue for the court, not for
the Competition Tribunal.”
[92] Pertinently,
the SCA held that an issue can be said to have been raised in a
frivolous manner ‘
if it is clearly groundless or
insufficient’.
[93] Unsurprisingly,
the applicant objected to Rodel purporting to furnish an expert
opinion on issues of competition law without
providing any
qualification to do so, and contended that Rodel’s opinion
regarding the relevant market, the applicant’s
dominance in
such market and that the applicant’s actions constitute a
prohibited abuse of dominance, are inadmissible.
[94]
Also inadmissible, as hearsay and opinion evidence, is the statement
attributed by Rodel to ‘
one
Paul Simpson’,
as
described more fully above
[17]
.
[95] Regarding the
statements in the memorandum by Pretorius (which are not under oath)
the applicant contends that:
95.1
Firstly, the views expressed fail to assist the respondent in
overcoming the hurdles presented by
s 65(2)
; and
1.25
cm; margin-bottom: 0cm; line-height: 150%">
95.2
Secondly, Pretorius purports only to ‘
comment’
on the aforementioned issues ‘
in
order to conclude whether the case made out by the Respondent in
relation to a contravention by Applicant of Section 8(c) of
the Act
is plausible and therefore cannot be said to be frivolous or
vexatious.’
95.3
However, the question whether the issue raised by the respondent has
been raised frivolously or vexatiously is the very issue
which the
Court must determine, and is pre-eminently an issue which the Court
can determine without recourse to opinion evidence,
as it involves
the application of legal provisions to facts. For this reason,
opinion evidence is inadmissible because of its irrelevance.
[18]
The prohibited
conduct relied upon by the respondent
[96] Rodel narrows
the respondent’s competition issue down to two types of
prohibited practices under
section 8
of the
Competition Act:
96.1 the
refusal to
give a competitor access to an essential facility, when it is
economically feasible to do so, in contravention of s
8(b) of the Act
(the exclusion complaint); and
96.2
an ‘
exclusionary act’,
in
circumstances where the anti-competitive effect of that act outweighs
its technological efficiency or other pro-competitive gain,
in
contravention of section 8(c) of the Act (the exclusion complaint).
[97] The respondent
notably has failed to aver facts to support the elements of each
complaint, to enable the court to determine
whether the applicant’s
conduct is prohibited in terms of the
Competition Act.
[98
]
Section 8
of
the
Competition Act regulates
the conduct of dominant firms. As a
precursor to determining whether the applicant’s conduct amount
to an abuse of dominance,
it must first show that the applicant is
dominant, as defined in the
Competition Act.
Market
determination
[99] In terms of
section 7
of the
Competition Act, a
firm is dominant if:
99.1 Its market
share is at least 45% of that market;
99.2 it has at least
35%, but not less than 45% of market, unless it can show that it does
not have market power; or
99.3 it has less
than 35% of that market, but has market power.
[100]
The term ‘
market
power’
is
defined as the ‘
the
power of a firm to control prices, or to exclude competition or to
behave an appreciable extent independently of its competitors,
customers or suppliers.’
[19]
[101] The starting
point is therefore the identification of the market in which the
respondent is alleged to meet one of the criteria
in
section 7
of the
Competition Act.
[102
]
Once the relevant market has been identified, the boundaries of that
market must be determined before a market share (or market
power) can
be attributed to a firm. The relevant market, and its boundaries, are
typically determined according to the dimensions
of product and
territory.
[20]
[103] Rodel states
that the respondent and H&M are participants in the fashion
retail market in South Africa, but does not allege
that the applicant
is a participant in this product market. Rodel purports to identify a
geographical dimension, namely Gateway
or the Durban-North region,
but neither Rodel nor O’Reilly clearly identify a product
dimension or product market in which
the applicant is alleged to be
dominant.
[104] Moreover Rodel
has not averred any facts upon which the court can determine that the
applicant has either market share or
market power.
[105] I am persuaded
by the applicant’s contention that the respondent’s
failure to set out any facts to support the
allegation that the
applicant is dominant in a relevant market is fatal to its claim for
a referral under
section 65(2)
of the
Competition Act.
>
The essential
facility complaint
[106] I turn now to
deal with the complaint raised by the respondent in terms of
section
8(b)
of the
Competition Act.
[107
] The applicant
has not alleged facts to sustain its conclusion that the respondent
is dominant, as defined in the
Competition Act. Even
if I were to
find that the respondent had set out facts sustaining such
conclusion, it has not made averments which might establish
the
remaining elements of a contravention of
section 8(b)
of the
Competition Act, namely
refusing to give a competitor access to an
essential facility when it is economically feasible to do so.
[108] The applicant
is a competitor in the (upstream) market of letting out space in
shopping malls. The respondent and H&M
are competitors in the
(downstream) market of clothing retail. The relationship between the
applicant and the respondent is –
in competition terms –
vertical, not horizontal. It therefore cannot be said that the
applicant is refusing access to an
entity which is a competitor in
relation to it.
[109] Whilst it is
not necessary to make a determinative finding on this point, it can
never be said to be economically feasible
to rent retail space to a
tenant which repeatedly defaults on its rental obligations, and where
the lessor’s security has
been materially compromised by the
sequestration of the estate of its surety.
[110] The respondent
fails in other respects, namely that it does not allege that the
premises are an essential facility, which
is defined in
section
1(1)(viii)
of the
Competition Act as
meaning ‘
an
infrastructure or resource that cannot reasonably be duplicated, and
without access to which competitors cannot reasonably provide
goods
or services to their customers’,
and it is neither
alleged nor suggested that the respondent cannot carry on business
elsewhere. In this regard, there are
no facts alleged to support a
conclusion that the ejectment of the respondent from the leased
premises ‘
will..almost certainly mean the end of the
respondent’s brands.’
Even if it did, it would not be
as result of any anti-competitive conduct on the part of the
applicant.
The exclusion
complaint
[111]
Section 8(c)
of the
Competition Act prohibits
a dominant firm from engaging in an
exclusionary act if the anti-competitive effect of that act outweighs
its technological, efficiency
or pro-competitive gain.
[112] An
‘
exclusionary act’
is defined in the
Competition
Act as
‘
an act that impedes or prevents a firm from entering
into, or expanding within, a market.’
[113] The
requirement of an exclusionary act is separate from the requirement
of an anti-competitive effect.
[114]
An anti-competitive effect will be established ‘
if
there is (i) evidence of actual harm to consumer welfare or (ii) if
the exclusionary act is substantial or significant in terms
of its
effect in foreclosing the market to rivals.’
[21]
[115] Even if one
assumes that, if evicted from the leased premises the respondent will
be prevented from expanding within the fashion
retail market, the
respondent has not alleged that it is unable to find alternative
premises from which to conduct business.
[116] If the
otherwise lawful ejectment of a lessee from commercial premises could
constitute an exclusionary act in terms of
section 8(c)
of the
Competition Act, it
would have the absurd result that, most, if not
all, commercial evictions would qualify for referral to the Tribunal,
which is
certainly not what could have been intended.
[117] It is apparent
that the assumption in [115] above is correct, such an assumption is
bedevilled by a conflation of different
markets. If it is the
respondent’s case that the market in which the applicant is
dominant is the market for the allocation
of retail space in the
Gateway, then the applicant’s dominance is in a different
market to the market in which the respondent
is a competitor, namely
the fashion retail market, which is also the market from which the
respondent claims it will be excluded,
and in which the effects of
such exclusion would occur.
[118]
The legal position is that whilst the
Competition Act allows
for the
possibility that a firm may be dominant in one market and abuse its
dominance or cause anti-competitive effects in a different
market,
such conduct has rarely been found to constitute an abuse of
dominance, and only in situations ‘
where
the dominant firm does, or intends to do, business in the second
market.
[22]
’
This
exception has not been relied upon by the respondent and is, as
stated by the applicant, dispositive of any case which it might
advance under
section 8(c).
[119] In any event,
the respondent has failed to make averments to sustain a single
element of the exclusion complaint.
Failure by the
respondent to make out a case for referral in terms of
section 65(2)
of the
Competition Act
[120
] I am of the
view that the respondent has failed to raise an issue concerning
conduct prohibited in terms of the Act, and the issues
which it has
raised are groundless. The issues have clearly been raised in a
frivolous and vexatious manner, which in my view leads
to the
inescapable conclusion that they have been raised opportunistically r
in order to delay the final determination of the matter.
[121]
This court is in a position to finally determine the application
without resolution of the competition issue raised and without
recourse to the Tribunal. The respondent has therefore failed to meet
the second requirement for a section 65(2) referral, namely
that the
resolution of the issue raised ‘
is
required to determine the final outcome of the action.
[23]
’
CONCLUSION
[122] For these
reasons, I am satisfied that the lease agreements have been validly
cancelled and it follows that the applicant
is entitled to an order
directing the respondent to vacate the leased premises, and the
respondent has failed to allege any facts
on which the matter should
be referred. It has furthermore failed to point to any authority for
the proposition that there is any
basis upon which the Tribunal may,
on the facts of this case, prevent an otherwise lawful ejectment.
[123] Cancellation
is a remedy available to a contracting party, if proper grounds exist
for cancellation in terms of the agreement
between the parties. It is
not for the Court to confirm cancellation, however since this relief
has specifically been sought, I
will grant an order in terms of
prayer 2 of the notice of motion.
[124] The
application for a referral to the Tribunal in terms of
section 65(2)
of the
Competition Act must
, accordingly, be refused.
COSTS
[126] In terms of
clause 16.3 of the lease agreements the applicant is entitled to
recover all legal costs incurred by it, including
attorney and own
client costs, from the respondent.
ORDER
[127] In the
circumstances, I make the following order:
1. The cancellation
of the written agreements of lease concluded on or about 4 February
2016 (which were cancelled on 23 March 2016
and subsequently
reinstated in and during April 2016) in respect of Shop F107 (Aca
Joe); Shop F116 and F117 (Vertigo); Shop G313
(Hilton Weiner); Shop
F105 (Urban Degree) and Shop G134 (Jenni Button), situated in the
Gateway Theatre of Shopping Centre, No
1 Palm Boulevard, Umhlanga
Ridge, Newtown Centre, Umhlanga (‘the leased premises’)
are hereby confirmed;
2. The respondent
and all those occupying the leased premises under it (“the
tenants”) are ordered to vacate all the
relevant abovementioned
leased premises within fourteen days of the date of service
this order;
3. In the event that
the respondent and the tenants fail to vacate the leased premises,
the Sheriff or Deputy Sheriff of this Court
is authorised to eject
the aforesaid persons from the leased premises; and
4. The costs of this
application are to be paid by the respondent on the scale as between
attorney and own client.
______________________
M HOLDERNESS
Acting Judge of the
High Court
APPEARANCES
For
the applicant: I Jamie SC with K
Reynolds, instructed by Cliffe Dekker Hofmeyr
M
Norton SC with K Reynolds (Competition law issue)
For
the respondent: R S van Riet SC, instructed by Reid Corin
Attorneys
[1]
Herbstein
and Van Winsen,
The
Civil Practice of the High Courts of South Africa,
Vol
1, p 63
[2]
(1909)
3 Buch AC 366
[3]
1987
(3) SA 837 (A)
[4]
1980
(4) SA 10 (T)
[5]
2016
(1) SA 621 (CC)
[6]
1990
(1) SA 347 (A)
[7]
2002
(4) SA 1 (SCA)
[8]
42
Scope and execution of process
(1) The process of
the Constitutional Court and the Supreme Court of Appeal runs
throughout the Republic, and their judgments
and orders must,
subject to any applicable rules of court, be executed in any area in
like manner as if they were judgments or
orders of the Division or
the Magistrates' Court having jurisdiction in such area.
(2) The civil
process of a Division runs throughout the Republic and may be served
or executed within the jurisdiction of any
Division.
[9]
2004
(3) SA 615
at 624G-I
[10]
1992
(3) SA 703
(W) at 705C-J
[11]
GB
Bradfield,
Christie’s
Law of Contract
,
7
th
ed,
p 375
[12]
Slipknot
Investments 777 (Pty) Ltd v Du Toit
2011
(4) SA 72 (SCA)
[13]
Case
number 841/CR/AUG07
[14]
Leonard,
p
5
[15]
Leonard
supra,
pp 6 & 7
[16]
Unreported,
Case number: 428/2003, 28/5/2004
[17]
See
section 3(1)
of the
Law of Evidence Amendment Act 45 of 1988
[18]
Ruto
Flour Mills Ltd v Adelson
1958
(4) SA 235
(TPD) at 237B
De
Klerk v Scheepers NO
2005
(5) SA 244
(TPD) at [3]
[19]
Section
1
of
the Act
[20]
Sutherland
PJ,
Competition
Law of South Africa,
para
7.7.4.1
[21]
Competition
Commission v South African Airways (Pty) Ltd
18/CVR/Mar01
(‘SAA’)
para
110
[22]
Sutherland
PJ,
Competition
Law of South Africa,
para
7.11.4; See also
York
Timbers Ltd v South African Forestry Company Limited
15/lR/Feb01
para 71
[23]
Section
65(2)(b)(ii) of the Act