Ritz Plaza (Proprietary) Limited v Ritz Hotel Management Company (Proprietary) Limited (20753/17) [2018] ZAWCHC 60; [2018] 3 All SA 583 (WCC) (28 May 2018)

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[2018] ZAWCHC 60
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Ritz Plaza (Proprietary) Limited v Ritz Hotel Management Company (Proprietary) Limited (20753/17) [2018] ZAWCHC 60; [2018] 3 All SA 583 (WCC) (28 May 2018)

IN
THE HIGH COURT OF SOUTH AFRICA
WESTERN
CAPE DIVISION, CAPE TOWN
REPORTABLE
CASE
NO: 20753/17
In
the matter between:
RITZ
PLAZA (PROPRIETARY) LIMITED
Applicant
and
RITZ
HOTEL MANAGEMENT
COMPANY
(PROPRIETARY) LIMITED
First Respondent
JUDGMENT
DELIVERED ON MONDAY 28 MAY 2018
GAMBLE,
J:
INTRODUCTION
[1]
The skyline of Cape Town’s Atlantic
Seaboard is broken by a steel and glass edifice of more than 20
stories in height which
glints at sunrise and glows in the setting
sun. It houses a hotel colloquially known as “The Ritz”
which is notorious
for its revolving restaurant where patrons enjoy a
panoramic view of Table Bay and its surrounds while dining in
exclusive elegance.
Some call the building “
iconic”
while others refer to it as intrusive.
[2]
Be
that as it may, The Ritz in Sea Point takes its name from similarly
eponymous hotels in Europe, England, America and the Far
East and is
intended to reflect the epitome of luxury and opulence.
[1]
The original Hotel Ritz was opened by a Swiss waiter-turned-hotelier,
Cesar Ritz, in Paris in 1898 and since then there have been
any
number of hotels opened in London, New York, Tokyo and Singapore by
The Ritz-Carlton Hotel Group. Even Johannesburg sported
a Ritz in its
early days as a mining town.
[2]
[3]
Cape
Town’s Ritz is owned by the applicant company (“
The
Ritz”)
,
a family owned entity formerly controlled by the late Dr Barney
Hurwitz, a successful businessman and the doyen of privately managed

medical care in South Africa
[3]
.
On 11 October 2016 The Ritz concluded a written lease agreement (“
the
lease”)
with
the respondent (“
the
management company”
)
in terms whereof the hotel and the property on which it is located
[4]
were leased to it for a period of 20 years. Dr Hurwitz and the
management company’s Mr. Nicolaas van der Walt were the
principal
role-players in the conclusion of the lease agreement, more
details whereof will appear hereunder.
[4]
In terms of the lease the management
company was deemed to have taken over the running of The Ritz in
August 2016 but the venture
ran into trouble before the end of that
year. It began defaulting on its monthly rental of R1,3m and other
obligations towards
The Ritz in November 2016 and it is common cause
that since March 2017 it has not paid a cent to the applicant. By
June 2017 the
management company owed The Ritz almost R13m and on 26
June 2017 the latter’s attorneys informed the management
company’s
attorneys that their client had elected to cancel the
lease.
[5]
Notwithstanding the cancellation of the
lease, the management company refused to quit the hotel. In the
circumstances, The Ritz
approached this court urgently on 30 November
2017 for an order of immediate ejectment of the management company
from the hotel.
That application eventually came before this court on
29 March 2018. Prior to launching the application for ejectment The
Ritz
took steps to apply for the provisional winding up of the
management company but those proceedings ran into delays because a
trade
union representing certain of the employees of the management
company had not been given notice of the application. When this
happened
the union sought leave to intervene in the proceedings.
Those proceedings are partly heard before Papier J and have
effectively
been held in abeyance pending this application.
THE MANAGEMENT COMPANY’S
RESPONSE TO THE APPLICATION TO EJECT
[6]
Ordinarily,
one would have thought that a tenant which had admittedly not paid
its rental for a protracted period of time, had evinced
an intention
not to do so in the future, had been duly put to terms in accordance
with the provisions of the lease to comply with
its obligations and
in circumstances where the landlord had thereupon cancelled the
lease, would not have a leg to stand on when
it faced an application
to eject it from the landlord’s premises. The principle is so
fundamental that it hardly needs restating.
The tenant’s
primary obligation under an agreement of lease is the timeous payment
of rental in the agreed commodity to the
landlord. Failure to meet
that obligation constitutes a fundamental breach and after it has
been given contractual notice to remedy
its default, the landlord is
entitled, without more, to cancel the agreement and seek the
ejectment of the tenant.
[5]
[7]
However,
counsel for the management company, Mr. Miller (who appeared with Ms.
Stansfield) advanced a number of arguments justifying
the management
company’s apparent intransigence. In support of the main
defence, it is said that The Ritz’s cancellation
of the lease
was invalid in that the rental which would otherwise have been due
and payable to it by the management company was
in fact not so due
and payable because The Ritz was the cause of the management
company’s failure (in truth its inability)
to pay. Counsel
relied in this regard on the decision in this Division in
Academy
of Learning
[6]
[8]
Next, it was submitted that the application
for ejectment ought to be stayed on the basis of
lis
pendens
, the complaint being that there
were other proceedings pending between the parties in this court
based on the same facts that the
underpin the ejectment application,
in particular the liquidation application. Further, it is said that
there is a pending action
brought by the management company against
The Ritz for substantial damages flowing from the latter’s
alleged breach of a
so-called “
term
sheet”
agreed to by the parties
in September 2016. In addition, the management company claims that
the current proceedings for ejectment
constitute an abuse of process
and that the application should be refused on that basis too.
[9] The Ritz’s
response to these defences is that they are baseless, contrived and
run counter to various of the provisions
of the lease itself. Indeed
in the founding affidavit herein, Mr. Jarren Hurwitz
[7]
complains that “
the
respondent has, through its conduct ‘hijacked’ the
Property and has no intention of paying the rental.”
[8]
I
shall revert to the relevant facts and circumstances which are to be
considered in relation to the management company’s
defences
shortly but first it is necessary to articulate the principal
defence.
THE
ACADEMY OF LEARNING
ARGUMENT
[10] To properly
deal with the management company’s reliance on
Academy
of Learning
it is necessary to refer
briefly to the facts of that case. The matter involved a dispute
between a franchisor and two of its franchisees
in relation to the
establishment of training colleges in Worcester and Somerset West
under the name
Academy of Learning
,
each such franchise being independently owned by the respondents.
When the franchisor sued the franchisees for outstanding monies

arising from a breach of their respective franchise agreements a
number of defences were raised, one of which was that because
the
franchisees’ failure to comply with their contractual
obligations was the result of the franchisor’s own wrongful

conduct, the latter was precluded from relying on, and benefiting
from, its own wrong.
[11]
In support of that contention counsel for
the franchisor sought to rely on a passage in the third edition of
Christie
The
Law of Contract
at pp 148-52 and167-8,
which is recited thus at 951I to 952B in [31] of the judgment of
Brand J (as he then was) :
“
This
principle that a wrongdoer will not be allowed to profit from his own
wrong has other applications in the field of breach of
contract. As
has been seen above, it underlies the doctrine of fictional
fulfilment of conditions, which doctrine has been extended
or adapted
to so-called conditions that are more correctly described as terms of
the contract, so that a party who has been prevented
by the other
from performing his contractual duties will be permitted to enforce
his rights dependent on those duties exactly as
if he had performed
them. Conversely, the party who has caused the other’s breach
by making it impossible or nugatory to
perform or by failing to carry
out the necessary preliminaries which rest upon him cannot found any
claim on the breach he has
thus precipitated, and may himself be
liable for breach of an implied term that he would ‘do nothing
of his own motion to
put an end to that state of circumstances under
which alone the arrangement can be operative’ or a similar
implied term appropriate
to the nature of the contract”.
[12]
Brand J rejected the reliance by counsel on
this passage
simpliciter.
“
[32]
I do not believe, however, that these statements by Christie are
support for the wide proposition contended
for by … [counsel
for the franchisee]. I do not understand the learned author to say
that an impecunious debtor will as
a general principle be excused
from payment if he can show some causal connection between his
impecuniosity and some wrongful act
of commission or omission by the
creditor. The logical consequence of such general proposition would
be that the question whether
a counterclaim for liquidated damages
constitutes a defence to a claim for cancellation on the basis of
non-payment in any particular
case will depend on the financial
situation of the particular debtor. If despite his/her damages
resulting from the creditor’s
conduct, the debtor is still
financially able to perform, the creditor’s conduct will not
constitute a defence to the claim
for cancellation. If as a result of
such damages the debtor is financially unable to perform, the
creditor’s conduct will
constitute a defence. I find these
propositions untenable.”
[13]
The learned judge then went on to consider
three discreet categories in which the approach espoused by Prof
Christie might find
application.
“
[33]
As I see the legal position - and I do not understand the learned
author
Christie t
o
differ fundamentally - a debtor can rely on the creditor’s
wrongful conduct as an excuse for his/her failure to perform
if the
facts of the case fall within the ambit of one or more of the
following three broad categories:
(a)
Where the wrongful conduct of the
creditor made performance by the debtor impossible (see, for example,
National Bank of South Africa
Ltd v Leon Levson Studios Ltd
1913 AD 213
; De Wet and Yeats, Kontrakte en Handelsreg 5
th
ed at 175). I believe, however, that this situation constitutes the
defence of supervening impossibility. In order to succeed with
this
defence, the debtor must prove that his/her performance became
objectively, and not merely subjectively, impossible.(See,
for
example,
Hersman v Shapiro &
Co
1926 TPD 367
;
Yodaiken
v Angehrn and Piel
1914 TPD 254
and
Lubbe and
Murray
Farlam and Hathaway Contracts: Cases, Materials
and Commentary 3
rd
ed at 770)
(b)
Where the creditor’s wrongful
conduct can be ascribed to a
deliberate
intention
on his/her part to
prevent performance by the debtor. This is the type of situation
which is analogous to fictional fulfilment
of a condition. (See, for
example
Koenig v Johnson & Co
Ltd
1935 AD 262
at 273;
Scott
and another v Poupard and another
1971
(2) SA 373
(A);
Design and
Planning Services v Kruger
1974(1)
SA 689 (T) at 699-700.)
(c)
Where the creditor’s conduct
complained of by the debtor in itself constituted a breach of an
express or implied term of the
agreement. This is the type of
situation where the creditor expressly or impliedly bound him/herself
‘
to carry out the necessary
preliminaries which rest upon him’
(Christie
op cit at 550); see also, for example,
Design
and Planning Services
(supra at
695C-E) or to do
‘nothing of his
own motion to put an end to that state of circumstances under which
alone the arrangement can be operative’
(Christie
op cit at 550).
[14] The learned judge went on to
explain the limited ambit of the application of Prof Christie’s
proposition.
“
(c)…The
latter example given by the learned author Christie must, however, be
understood in the context of the quotation
where it comes from,
namely from the dictum by Cockburn CJ in the case of
William
Sterling the Younger v Boyd and Maitland
5 Best and Smith 840
,
which was referred to with approval by Searle JP in the case relied
upon by Christie, namely
Truter v
Hanke
1923 CPD 43
at 50. This
dictum by Cockburn CJ reads as follows:
‘
If a party
enters into an arrangement which can only take effect by the
continuance of a certain existing state of circumstances,
there is an
implied engagement on his part that he should do nothing of his own
motion to put an end to that state of circumstances
under which alone
the arrangement can be operative.’ “
[9]
[15] In argument, Mr. Miller relied
exclusively on the application of category (c) above as forming the
basis for the management
company’s alleged entitlement not to
pay rental and related costs to The Ritz. In so doing, counsel
accepted that the management
company bore the onus of establishing a
tacit term upon which it was permitted to so rely. That takes me then
to the material facts
which are relevant to this defence.
RELEVANT FACTUAL BACKGROUND
[16] Prior to the conclusion of the
lease with the management company, the hotel business at The Ritz was
run by an entity known
as GK Hospitality CC (“GK”) whose
driving force was Mr. Gustav Krampe. In addition to being the tenant,
GK was also
a debtor of The Ritz which had advanced to it a loan
facility of R60m, and which GK drew down as it attended to the
refurbishment
of the hotel. That facility had been sourced by The
Ritz from Nedbank under a so-called “back-to-back” loan
agreement
in terms whereof the funds were advanced to GK on identical
terms to the Nedbank loan to The Ritz.
[17] The papers reveal that the
original intention was that there was to be a joint venture between
GK and an entity known as G5
Investments (Pty) Ltd (“G5”)
- an entity in which Mr. van der Walt also had an interest - to
refurbish and run the
hotel, with a different management company
being the vehicle through which that joint venture would be
conducted. However the joint
venture did not materialise and the
management company (in which Mr. van der Walt was a key participant)
took over the refurbishment
and running of the hotel with GK falling
out of the picture. In the result, the management company effectively
stepped into the
shoes of GK, with effect from 1 August 2016, as the
lease provided.
[18] To facilitate
this change of tenancy, the parties to these proceedings together
with GK and Mr. Krampe agreed, on 15 September
2016, to be bound by a
so-called “
term
sheet”
[10]
.
It is apparent from the terms thereof that the term sheet was
intended to be a binding document the duration whereof was
indefinite
until the occurrence of certain defined events. I shall revert to
this later. Suffice it to say at this stage that the
term sheet
provided for the conclusion of a new lease agreement in relation to
the management of the hotel and the anticipated
capital expenditure
associated therewith.
[19] The hotel closed its doors to the
public on 1 September 2016 in order to permit the refurbishment
already being undertaken
by GK to be completed speedily, it being
contemplated by the management company that the hotel would re-open
on 1 December 2016
in time to attract guests during the lucrative
summer season in the Cape. The management company considered that the
existing Nedbank
facility of R60m was insufficient to meet its needs
for the style and extent of refurbishment it desired. Accordingly, it
sought
a further R30m which it initially attempted to source from
Nedbank via a further back-to-back loan: since the management company

was unable to put up the hotel premises as collateral for any
facility, it was obliged to co-operate with The Ritz (which could

offer adequate security) to procure the capital to finance the
refurbishment.
[20] The parties first recorded in the
term sheet the status of the existing facility with Nedbank.
“
2.4
The Landlord has entered into a loan agreement with Nedbank Ltd for
the advancement by Nedbank Limited
of a capital amount of R 60
million, the proceeds of which the Landlord has agreed to contribute
exclusively to the Hotel for the
utilisation of the Current Tenant
(“
Nedbank loan
”). Part of the
Nedbank Loan has been drawn down by the Landlord and the Current
Tenant has agreed to repay the monthly amounts
under the Nedbank
Loan, which it has been repaying on a monthly basis.”
[21] Then they further stipulated the
following as regards the envisaged additional facility of R30m.
“
2.5
The Parties have agreed that the Landlord shall obtain a further
facility from Nedbank Limited of R30m
(“
Further
Facility
”) and
the New Tenant
[11]
,
Shimmy Luxury Collection (Proprietary) Limited (registration number
2016/319165/07) (“
SLC
”)
[12]
and the Current Tenant
[13]
will grant suretyships jointly and severally for the Further Facility
to Nedbank Limited.”
[22] Finally, they dealt
comprehensively with the future obligations of the parties in regard
to both the existing and future facility.
“
5.1
The Current Tenant, the New Tenant and SLC hereby jointly and
severally guarantee the Landlord’s
future repayment obligations
contained in the Nedbank Loan and the Further Facility provided that-
5.1.1   the Landlord
shall drawdown the proceeds of the Nedbank Loan and Further Facility
for use by the New Tenant in
respect of the Hotel and account or pay
over any previous drawdowns to the New Tenant which have not yet been
received by the Current
Tenant;
5.1.2   the Landlord
shall not amend the terms of either the Nedbank Loan or Further
Facility (including the repayment
terms) without the written consent
of the New Tenant and the relevant sureties (including with regard to
any refinancing); and
5.1.3   there shall be a
straightforward pass through of the repayment costs under the Nedbank
Loan and Further Facility
to the New Tenant which the New Tenant
shall repay by monthly instalments and the Landlord shall not charge
to the New Tenant any
additional commission or charges over and above
those charged by Nedbank Ltd to the Landlord.
5.2
The New Tenant and the Landlord have agreed to enter into a back to
back loan agreement in respect
of the Nedbank Loan and the Further
Facility (“
Ancillary Nedbank Agreement
”).
[23] Implementation of the term
agreement thereafter took place incrementally through the conclusion
of a series of agreements and/or
documents during the last quarter of
2016.
23.1    On 7 October
2016 GK acknowledged its indebtedness to The Ritz as at 24 August
2016 in the amount of R10,
73m.
23.2    On 11 October
2016 The Ritz and the management company concluded the written lease
agreement in respect of
the hotel for 20 years. The lease is a hefty
document and only the clauses which are relevant to this dispute will
be referred
to hereunder.
23.3    On 30 November
2016 The Ritz and the management company completed a further written
agreement recording that
GK had assigned to the management company
the R60m loan from The Ritz and that The Ritz had consented to that
assignment.
23.4    On 30 November
2016 and pursuant to a sale of business agreement between GK and the
management company (in
terms of which,
inter alia
, the
management company agreed to take over GK’s obligations under
the acknowledgement of debt agreement referred to above),
The Ritz
and the management company concluded a written agreement in terms
whereof The Ritz consented to the substitution of the
management
company for GK under that acknowledgement of debt.
[24] Provision of the additional R30m
facility (which the parties had initially agreed in the term sheet
was going to be procured
by The Ritz through a further back-to-back
loan from Nedbank) was in fact handled differently. In the run-up to
the conclusion
of the term sheet Dr Hurwitz and Mr van der Walt had
discussed the provision of additional finance by The Ritz in
principle and
Nedbank’s Mr Calmeyer was included in certain of
those discussions. Shortly after 19 September 2016, Mr van der Walt
enquired
of Mr Calmeyer when that additional finance would be
available and was informed that the loan had been approved in
principle but
was subject to The Ritz’s representatives signing
a facility letter and providing the required security.
[25] Nedbank formally approved the
facility on 7 November 2016 and required, as part of its security,
the registration of a second
bond over the hotel. This was only
effected in February 2017 but in the meantime the management company
needed money to complete
the refurbishment.  Accordingly, on 30
November 2016 The Ritz and the management company agreed orally that,
to this end,
The Ritz would advance an amount of R15m to its new
tenant.
[26] That amount was procured by The
Ritz via another back-to-back loan from a related family entity known
as Hurwitz Farming and
paid to the management company on 1 December
2016. Repayment of the loan was guaranteed by a number of entities
and inviduals,
including Mr van der Walt. Practically speaking, the
R15m loan from The Ritz was bridging finance pending payment of the
second
tranche of the R30m Nedbank facility which could only be
accessed by The Ritz once all the necessary securities were in place.
[27] In terms of the lease, the
management company was required to pay rental in advance by the 7
th
of each month in the following amounts –
·
From 1 August to 31 December 2016 - R1,302m per month;
·
From 1 January to 31 August 2017 - R1,5m per month; and
·
From 1 September 2017 to 31 August 2018 - R1,75m per month.
It was also required to pay for
municipal services (water, electricity, sewerage etc.).
[14]
[28] As stated earlier, it is common
cause that the management company did not pay rent for the periods
November – December
2016 and February to June 2017. On 10 March
2017 The Ritz, relying on clause 17.1.1 of the lease
[15]
,
called for the payment of outstanding rentals for December 2016 and
March 2017 within 14 days as a precursor to the intended cancellation

of the lease. However, this precondition fell away on 7 April 2017
when the management company was in arrears with three months’

rental and it fell foul of the further provisions of that clause. In
the result, The Ritz’s attorneys wrote to the management

company on 26
th
June 2017 cancelling the lease.
[29] The Ritz did not immediately move
for the ejectment of its tenant. Rather, it launched an urgent
application for the winding
up of the management company on 10 July
2017, alleging an inability on the part of the company to pay its
debts in terms of s345(1)(c)
of the Companies Act, 61 of 1973. That
application was brought in the motion court during recess and became
opposed. By agreement
it was postponed for hearing on 30 October 2017
on the semi-urgent roll.
[30] But there were further
developments in the interim. Firstly, a group of 23 subcontractors
(who had been appointed to complete
the refurbishment project)
applied for leave to intervene in the winding up proceedings,
seemingly with a view to putting the management
company into business
rescue. On 13 October 2017, leave to intervene was granted (by
agreement between the parties) by Langa AJ.
When the winding up
application came before Papier AJ (as he then was) on 30 October 2017
it was further postponed to 13 December
2017 for consideration of the
business rescue proceedings and to allow the parties to get their
papers in order.
[31] In the interim the concerns of
the sub-contractors were taken care of and their claims were settled.
Accordingly, by the time
the matter came before Papier J again on 13
December 2017, those intervening parties had fallen out of the
picture. However, there
was a further development.
[32] When the matter came before court
on 30 October 2017, it transpired that the applicant in the winding
up had failed to give
notice to any interested trade union, as it was
required to do. Accordingly, when the application was postponed to 13
December
2017, Papier AJ directed that such notice be given. On the
resumption of the application on that day the South African
Commercial
Catering and Allied Workers’ Union (SACCAWU) sought,
and was granted, leave to intervene on behalf of its members who were

employed at the hotel. Evidently, SACCAWU wished to consider its
position and to that end Papier J postponed the matter to 4 May
2018,
cognisant of the fact that the ejectment application was enrolled for
hearing on 29 March 2018. And on 4 May 2018, having
been informed by
the parties that judgment in this application for ejectment had been
reserved, the learned judge once again postponed
the winding up
application to Friday 25 May 2018. On that day the management company
sought a further postponement of the winding
up application pending
determination of this application and the matter has been postponed
to 28 June 2018.
[33] Undeterred by all that which was
happening around it, the management company went on the offensive and
on 16 October 2017 issued
summons out of this court against The Ritz
for an order declaring that the purported cancellation of the lease
was invalid and
claiming damages in excess of R20m for losses
allegedly suffered as a consequence of it being unable to open the
hotel on time
and enjoy the benefits of a good December 2016 season
and beyond. It is common cause that this is a claim for unliquidated
damages
and that there has been an exception noted to the particulars
of claim therein which is due to be heard on 18 June 2018. I shall

revert to this step later.
[34] The application for intervention
in the winding up application by the subcontractors suggests that the
refurbishment work was
on-going for a large part of 2017 and it is
common cause that the hotel only reopened to the public in December
2017. The Ritz
upped the ante on 13 November 2017 when it launched
the present application for ejectment. These various proceedings are
opposed
and unresolved but all the while, the management company
continues to run the hotel under the name “The Ritz”
claiming
that it was “
An
Iconic Landmark
Reinvented
”
with the by-line that it was “
Design
Driven. Accessible Luxury”
[16]
.
It has also enjoyed the
benefits of the additional Nedbank facility, the repayment costs
whereof must be borne by The Ritz, and
it pays no rent.
RELIANCE ON
THE ACADEMY OF
LEARNING
DEFENCE.
[35] In the heads of argument Mr
Miller articulated the basis of the management company’s
reliance on the
Academy of Learning
defence as follows.
“
The sums which would
otherwise be due, owing and payable to [The Ritz] in terms of clause
17.2 are not due, owing and payable. This
is because, as will be more
fully explained below, [The Ritz] was the cause of [the management
company’s] failure to make
these payments.”
[36] Clause 17.2 of the lease is the
holding-over clause and is to the following effect –
“
17.2   While for
any reason or on any grounds the tenant occupies the leased premises
and the landlord disputes its right
to do so, then, until the dispute
is resolved whether by settlement, arbitration litigation, the tenant
shall (notwithstanding
that the landlord may contend that this lease
is no longer in force) continued to pay (without prejudice to its
rights) an amount
equivalent to the rent provided for in this lease
monthly in advance on the first day of each month, and the landlord
shall be
entitled to accept and recover such payments, and such
payments and the acceptance thereof shall be without prejudice to and
shall
not in any way whatsoever affect the landlord’s claim
then in dispute. If the dispute is resolved in favour of the
landlord,
the payments made and received in terms of this clause
shall be deemed to be amounts paid by the tenant on account of
damages suffered
by the landlord by reason of the unlawful occupation
or holding over by the tenant.”
[37] Later on in the heads of argument
this defence is further amplified as follows-
“
[The management company]
contends that [its] main defence is a complete answer on the merits
of this application as to why the lease
has not been validly
cancelled for the alleged repudiation of the breach of clause 17.2.”
[38] In those heads, counsel readily
accepted that in order to succeed with the main defence the
management company was required
to establish the following –
(i)
“
That it was a term of the September 2016 term sheet that
[The Ritz] was obliged to make the R 30 million Nedbank Ltd loan
available
to [the management company] timeously
”;
(ii)
“
That [The Ritz] breached the September 2016 term sheet by
failing to make the R 30 million Nedbank Ltd loan available to [the
management
company] timeously”;
(iii)
“
That [The Ritz’s] breach of the September 2016 term
sheet was causally connected to [the management company’s]
failure
to make payment of the sums which would otherwise be due to
[The Ritz] in terms of the lease (i.e. rental between November 2016

and June 2017 and in terms of clause 17.2 after the purported
cancellation of the lease by The Ritz);”
and finally
(iv)
“
That [the management company’s] main defence is valid
in law.”
Counsel did not say, however, which
term of the term sheet had been breached.
[39] I have quoted in full from
counsels’ heads of argument because this is the first time in
these proceedings that the
Academy of Learning
defence has
been fully pleaded by the management company. A reader of its
answering affidavit in these proceedings is referred to
the answer in
the winding up application and is required to hunt back and forth
through reams of paper to fully comprehend the
position taken. That
this is so is confirmed by the heads of argument filed on behalf of
The Ritz herein by Mr C.M. Eloff SC (who
appeared with Messer’s
G.W.Woodland SC and A.H.Morrissey) in which the reliance upon
Academy
of Learning
was anticipated in broad terms only.
[40] I should add at this juncture
that The Ritz’s opposition in its heads of argument to the main
argument advanced by the
management company is that, firstly, the
principle does not apply where the inability to perform flows from
the impecuniosity of
the defaulting party. Secondly, it is submitted
that the principle derived from
Academy of Learning
only has
application where the breach that allegedly caused the inability to
perform is a breach of the same agreement under which
the opposing
party is seeking to be excused from performing. It will be noted
futher that there is no reference in the heads to
the nature of the
term relied upon (whether express, tacit or implied) by the
management company for the defence.
RELIANCE ON A TACIT TERM
[41] In argument Mr Miller was pressed
to explain exactly which term of the term sheet was relied on by the
management company in
respect of the submission made in (i) above. In
the result, Mr Miller was driven to submit that the term sheet
contained a tacit
term that there was an obligation on The Ritz to
make available to the management company the proceeds of the
additional facility
of R30m which The Ritz was obliged to procure
from Nedbank, and further that it was obliged to make those funds
available by no
later than the final drawdown date of the R60m
facility or shortly thereafter. Given that it is common cause that
the final drawdown
date was 23 September 2016, it was submitted the
entire additional facility of R30m (which was going to be borrowed by
The Ritz
from Nedbank and immediately on-lent to the management
company) was to be made available to the latter about a week after
the term
sheet was concluded on 16 September 2016.
[42] The first question that springs
to mind in relation to that argument is why such a provision (which
is seemingly at odds with
what a prudent businessperson like Dr
Hurwitz or a reasonable banker like Mr Calmeyer might expect) was not
included in the term
sheet. Surely, it must further be asked, would
such an important term not have come to the mind of the parties and
have merited
express mention, for instance, by stipulating a date or
time period in clause 2.5 thereof, which is set out above? But, I am
running
ahead of myself and need to revert to basics.
[43] As the judgment of Corbett AJA in
Alfred McAlpine
[17]
reminds us,  reference
to implied and tacit terms might on the one hand suggest synonymity
or on the other, ambiguity. The
potential distinction between the two
is accordingly of some importance. In this case, counsel expressly
chose to rely in argument
on a tacit term.
[44] However, before one gets to a
discussion of such a term, there is the concluding sub-clause of the
term sheet where the parties
themselves referred to the nature of the
agreement set forth in the term sheet. In clause 16.3 they expressly
recorded that –
“
This Term Sheet constitutes
the sole record of the agreement between the Parties in relation to
the subject matter hereof. No Party
shall be bound by any express,
tacit or implied term, representation, warranty, promise or the like
not recorded herein.”
[45] Applying the approach of Rumpff
JA in
Pan American
[18]
it is not open to the
management company to rely on the importation of the tacit term
contended for into the term sheet where the
express terms of the term
sheet preclude such an importation, particularly in light of the fact
that the subject matter of the
term sheet expressly included
reference in clause 2.5 thereof to the provision of the “Further
Facility”. That, in
my view, is the simple answer to Mr
Miller’s argument and any reliance on category (c) of
Academy
of Learning
falls down at
the first hurdle.
[46] In the event that I am wrong on
that point, there is more. Category (c) of
Academy of Learning
requires that the wrongful conduct complained of on the part of
The Ritz must be in breach of an express or implied (or tacit) term

of the lease agreement itself. It does not help the management
company to complain of a breach of the term sheet, which is a
separate
agreement. To the extent that it was suggested by Mr Miller
that we are essentially dealing here with linked agreements, as was

the case in
Cash Converters
supra,
it is
important to note, as Brand JA suggested at [61] of that judgment,
that there are in fact two separate agreements which are
at play.
[47] In any event, the lease has its
own express provisions which preclude the importation of a tacit term
therein. As Mr Eloff
so succinctly put it, any breach of clause 2.5
of the term sheet was effectively immunized by clauses 30.1 and 30.4
of the lease
which was concluded pursuant to the term sheet just a
fortnight later.
“
30.1   This
agreement constitutes the whole agreement between the parties
relating to the subject matter hereof…….
30.4    To the
extent permissible by law no party shall be bound by any express or
implied term, representation,
warranty, promise or the like not
recorded during, whether it introduced the contract and all within it
was negligent or not.”
[48] Turning to the alleged tacit
term, it is well established that such a term is not readily inferred
by the court
[19]
and a party seeking to rely thereon draws an
onus
to establish it. That party
must plead the term specifically and set out the facts and
circumstances upon which it relies for the
conclusion of the
importation of the term into the agreement
[20]
.
In motion proceedings such as these a party’s affidavits
constitute both its pleadings and its evidence and it must plead
its
cause of action lucidly, logically and intelligently so that its
opponent is sufficiently alerted thereto and, importantly,
so that
the opponent can respond to the evidential basis relied upon by the
other side.
[21]
[49] In this matter there is not a
word in any of the correspondence exchanged prior to litigation
commencing nor in the management
company’s affidavits in either
these proceedings or the winding up application, of the existence of
or reliance on a tacit
term. In fact, in a letter dated 17 March 2017
the management company wrote to The Ritz unambiguously acknowledging
its liability
for arrear rental in the sum of R3, 95m while stating
that its shareholders needed “
sufficient time to make the
necessary arrangements for funding”.
[50] It is only in the heads of
argument filed on 23 March 2018 that an attempt is made by counsel
for the management company to
dress up the allegations made by Mr van
der Walt in para’s 65 to 73 of the answering affidavit in these
proceedings in the
guise of a tacit term. It is apposite, in the
circumstances, to refer to the remarks of Nienaber JA in
Wilkins
NO
[22]
:
“
Nowhere in the
correspondence or in the affidavits filed during the application
which preceded the trial is there even a hint of
reliance on a tacit
term. What was raised was the plaintiff’s alleged fraud.
Mention of the alleged tacit term was first
made in the plea. The
very fact that a term, supposedly so obvious as to speak for itself,
escaped the attention of the defendant
at the earlier stages of the
proceedings is an indication, in my view a strong one, that it was
nothing more than an afterthought
when it was eventually mooted
during the later stages of the proceedings.”
In my considered view it is not open
to the management company to rely, in these proceedings, on the tacit
term contended for.
[51] Lastly on this point, and for the
sake of completeness, I turn to consider the substance of the tacit
term relied upon. The
point of departure in this regard is to be
found in [19] of
Bourbon-Leftly
[23]
.
“
It follows that a term
cannot be inferred because it would, on the application of the
well-known ‘officious bystander’
test have been
unreasonable of one of the parties not to agree to it upon the
bystander’s suggestion. Nor can it be inferred
because it would
be convenient and might therefore very well have been incorporated in
the contract if the parties had thought
about it at that time. A
proposed tacit term can only be imported into a contract if the court
is satisfied that the parties would
necessarily
have agreed upon such a term if it had been suggested to them at the
time (see eg
Alfred Mc Alpine
(supra) at
532H-533B…). If the inference is that the response by one of
the parties to the bystander’s question might
have been that he
would first like to discuss and consider the suggested term, the
importation of the term would not be justified.”
[52] I consider that it would have
been highly unlikely that an astute and experienced businessman like
Dr Hurwitz would have agreed
to advance the additional R60m required
by the management company to complete the refurbishment almost
immediately after the conclusion
of the term sheet. He knew that the
money had to be borrowed from Nedbank and he would have known only
too well that the bank would
require that adequate security be put in
place before an advance of that magnitude could be made. It is
reasonable to assume a
similar level of business acumen on the part
of Mr van der Walt. But even if Dr Hurwitz had first needed to
discuss the conditions
of the facility (and in particular the bank’s
requirements for security), the term contended for by the management
company
cannot be tacitly imported into the term sheet.
[53] In the circumstances I conclude
that the management company is not entitled to rely on the defence
articulated in category
(c) of
Academy of Learning.
It has not
shown that any conduct on the part of The Ritz constituted a breach
of the lease, nor of the term sheet, to the extent
that there may
have been any residual obligations therein which were not subsumed in
the lease. In the result, I am satisfied that
the management company
was in default of its obligations to pay the rental due in terms of
the lease and The Ritz was entitled
to cancel on the basis that it
alleged.
LIS PENDENS
AND ABUSE
OF PROCESS
[54] It is convenient to deal with
these special defences jointly given that they are interlinked. The
management company further
asks this court to dismiss the ejectment
application on the basis that the substance thereof is similar, if
not identical to, the
issues raised in the winding up application. It
further alleges that in the action proceedings which it has initiated
part of the
relief sought is aimed at determing the validity or not
of The Ritz’s right to cancel the lease. It says further that
the
application for ejectment, coming as it did so late in the piece,
is tantamount to ‘
forum shopping’,
is an abuse of
process and should be dismissed on that basis alone.
[55] In argument Mr Miller referred to
the judgment in
Caesarstone
[24]
in which the principles
applicable to a plea of
lis
pendens
were restated.
“
As the name indicates, a
plea of
lis alibi pendens
is based on the
proposition that the dispute (
lis
) between the
parties is being litigated elsewhere and therefore it is
inappropriate for it to be litigated in the court in which
the plea
is raised. The policy underpinning it is that there should be a limit
to the extent to which the same issue is litigated
between the same
parties and that it is desirable that there be finality in
litigation. The courts are also concerned to avoid
a situation where
different courts pronounce on the same issue with the risk that they
may reach differing conclusions. It is a
plea that has been
recognised by our courts for over 100 years.”
[56] Determination of such a dilatory
plea by the management company potentially involves a two phase
process. Firstly, the court
must decide whether it is dealing with a
situation in which “
the
same plaintiff has instituted action against the same defendant for
the same thing arising out of the same cause”
[25]
.
Then, if it is persuaded of such similarity, it exercises discretion
as to whether to stay the proceedings before it or not. In
so doing
the court exercises a wide discretion considering questions of
convenience and fairness.
[26]
[57] In the particulars of claim in
the action the plaintiff asserts that it has suffered damages on two
distinct bases. The first
is a claim for damages in the amount of
R20,498m allegedly arising from The Ritz’s breach of its
obligations under the term
sheet. The claim in that regard is one for
loss of profits and other amounts accruing due to the late opening of
the hotel. The
second claim, which is brought in the alternative, is
for damages for lost profits in the sum of R17,65m. That claim is
brought
on the assumption that the lease was validly cancelled. The
third claim is for a declaratory order that the cancellation of the

lease was invalid and that it remains
extant.
[58] While The Ritz has not yet
pleaded or advanced any claim in reconvention in the action, it has
noted an exception to the particulars
of claim in which the legal
soundness of the term relied upon by the management company in
advancing the
Academy of
Learing
argument is
challenged, firstly on the basis that the pleading is vague and
embarrassing and secondly, that it does not disclose
a cause of
action. After notice to cure had been given on 13 December 2017 in
terms of Rule 23(1) and the pleading remained unamended,
The Ritz
filed its exception on 16 January 2018. In that pleading it attacked
inter alia
the
fact that the management company had not pleaded the nature of the
breach allegedly committed by The Ritz which had resulted
in the
management company’s inability to pay rental.
[27]
[59] The first point which emerges
from a reading of the particulars of claim is that the management
company makes mention therein
of what it alleges were the “
material
express, alternatively implied, further alternatively tacit terms of
the…term sheet”
[28]
.
But when it pleads the breach of the term sheet by The Ritz it does
so in broad and non-specific terms by alleging that The Ritz
breached
the term sheet by failing to make the additional finance secured
through the further Nedbank loan available to it by no
later than
than the final drawdown date of 23 September 2016. It does not
specifically allege, as was argued in these proceedings,
that there
was a breach of a tacit term in the term sheet.
[60] It is said that one of the ways
to assess the integrity of the defence of
lis
pendens
is to consider
whether a plea of
res
judicata
might subsequently
succeed.
[29]
On that approach I cannot say that disposal of this application in
favour of The Ritz will mean the end of the action for damages.
Not
only has the management company alleged a breach of material and
implied terms by The Ritz (as opposed to the breach of a tacit
term),
it has also alleged that it suffered damages in the event that it is
found that The Ritz was entitled to cancel. In the
result, I cannot
find that we are dealing here with the same plaintiff, the same
defendant and the same cause of action. While
there is certainly some
overlap in respect of the alleged breach of the alleged tacit term,
success for The Ritz in this matter
will certainly not preclude the
management company from proceeding with its claim for damages in the
action.
[61] But what of the application to
wind up the management company, where the parties are the same? Is
the cause of action there
the same?  In
Hassan
Zulman JA observed as follows in an analogous context.
“
[19]… An order of
sequestration is not an ordinary judgment of the court, but is rather
a species of arrest or execution,
affecting not only the rights of
the two litigants but also third parties, and involves the
distribution of the insolvent’s
property to various creditors,
while restricting those creditors’ ordinary remedies and
imposing disabilities on the insolvent.”
[62] An application for ejectment, on
the other hand, is designed to put the landlord back in possession of
its property upon termination
of the contract of lease to enable it
deal therewith as it is entitled to do. It is a claim for specific
performance under the
contract which is vindicatory in nature. The
notice of motion in these proceedings is directed only at prosecuting
this claim and
has nothing to do with the recovery of outstanding
rental, as would be an incident of the winding up of the management
company.
[63] Applying the
res judicata
test
,
I am of the view that success for The Ritz in this
application for ejectment will not necessarily bring the winding up
proceedings
to an end. The Ritz, as the petitioning creditor, will
still be entitled to pursue its claim for outstanding rental in that
matter.
In the circumstances, I am of the view that the plea of
lis
pendens
, both in respect of the liquidation and the action, falls
to be dismissed.
[64] However, if I am wrong in this
regard, and the causes of action are considered, broadly speaking, to
be the same, I would nevertheless
exercise my discretion in favour of
The Ritz and refuse to stay these proceedings: it is a relatively
simple helping of convenience
combined with a large portion of
fairness on the side. The landlord has lawfully cancelled its lease
with the tenant and is entitled
to have its property back, whether
contractually or at common law. It has on-going obligations to
Nedbank which it must service
without the benefit of any income from
its hotel premises. Further, it has been kept out of the premises for
almost a year while
the tenant continues to use them for its own
commercial interests without paying any rental (or even a part
thereof) to the landlord,
while it is essentially saying “
I
will only move when you pay my damages.”
The
late Dr Hurwitz (who according to the obituary referred to above was
a devout member of the Jewish faith born in Eastern Europe)
might
well have termed such a stance
chutzpah
[30]
of the first order.
[65] Moreover, as pointed out above,
the refusal of a stay of the ejectment proceedings will not
compromise the management company
in its claim for damages against
The Ritz. Mr Miller readily conceded in argument that that claim was
one for unliquidated damages
and that no set off could apply in
regard thereto and counsel did not seek to suggest that there would
be any prejudice to the
management company in the pursuit of that
claim in the event of it being ejected from the hotel.
[66] Having found that the there is no
merit in the
lis pendens
argument, there remains little to be
said on the abuse of process point. The Ritz has lawfully taken the
steps which it is entitled
to under the contract (and for that matter
at common law) to regain control of its premises. That it did so at a
time when the
winding up proceedings became mired in applications to
intervene (which proceedings are as yet still unresolved) was not
unreasonable
on its part. Nor can it be criticised for seeking
ejectment of its defaulting tenant when it was confronted by a claim
for damages
which it considered fundamentally flawed in law.
Importantly, too, those proceedings will be controlled, not by it but
by the management
company which will set the pace of the litigation.
[67] The Ritz owns a valuable asset
with which it can generate an income and it is being frustrated in
that regard by an obstinate
tenant whose conduct has the hall mark of
mala fides.
Finally, success in the liquidation proceedings
will not necessarily enable The Ritz to regain occupation of the
premises. It will
have to deal with a liquidator who might wish to
continue with the running of the business. In the circumstances am
not persuaded
that The Ritz has abused any court process in bringing
this application.
CONCLUSION
[68] In the result I am satisfied that
the management company falls to be ejected from the premises. The
notice of motion does not
fix any date or time period for the
ejectment. In argument, Mr Eloff accepted that it would be fair to
give the management company
a month’s grace to take account of
the fact that it may have guest bookings which would need to be dealt
with. I shall accordingly
fashion an order which takes account
thereof and which is in accordance with the customary practice in
this Division. In the event
that the parties wish the order to be
varied in accordance with their own agreed terms, they may approach
the court within one
week of this order to that end.
ORDER OF COURT
A.   The Respondent and all
persons occupying the premises at Erf 1419, Sea Point East, Cape Town
(“the premises”),
and the improvements thereon, also
known as The Ritz Hotel, are ejected from the premises with effect
from midnight on Friday 22
June 2018.
B.   In the event that the
Respondent and all persons occupying under it refuse to vacate the
premises voluntarily as
aforesaid, the Sheriff of this court is
hereby authorised to enter the premises on Friday 29 June 2018 and to
take all reasonable
and necessary steps to eject the occupants
therefrom.
C.   The Respondent is to
pay the Applicant’s costs of this application, including the
costs of 2 counsel where
so employed.
__________________
GAMBLE,
J
[1]
Wiktionary
defines
“
ritzy”
as “
a display of
ostentatious elegance”.
[2]
Wikipedia
Online Encyclopedia
sv
The
Ritz
[3]
Dr Hurwitz died in October 2017 aged 95 in the midst of this
litigation. According to an obituary published in the SA Jewish

Report at the time he was,
inter
alia
, the former chairman
and chief executive officer of Clinic Holdings Ltd, which later
became the Netcare Group, a listed company
which operates private
hospitals throughout South Africa (see
www.sajr.co.za/news-and-articles/2017/10/26/farewell-to-barney-hurwitz

)
[4]
Erf 1419 Sea Point East
[5]
Goldberg v Buytendag
Boerdery Beleggings (Edms) Bpk
1980 (4) SA 775 (A)
[6]
Academy of Learning (Pty)
Ltd v Hancock and others
2001
(1) SA 941 (C)
[7]
A director of The Ritz and evidently a grandson of the late Dr
Hurwitz.
[8]
The reference to “building hijacking” is, no doubt, an
allusion to the scenario described in
City
of Johannesburg v Changing Tides 74 (Pty) Ltd and others
2012 (6) SA 295
(SCA) at 300F.    Given that this
matter involves a contractual dispute between 2 companies, the
principles enunciated
in that case, however, have no application
here.
[9]
In the most recent 7
th
edition of Christie (by GB Bradfield), the original passage referred
to by Brand J is retained and the author cites
Academy
of Learning
with
approval.
[10]
According to Wikipedia Online Encyclopaedia, a term sheet “
is
a bullet-point document outlining the material terms and conditions
of a business agreement. After a term sheet has been ‘executed’,

it guides legal counsel in the preparation of a proposed ‘final
agreement’. It then guides, but is not necessarily
binding, as
the signatories negotiate, usually with legal counsel, the final
terms of the agreement…. A term sheet implies
the conditions
of a business transaction, as proposed by a party. It may be either
binding or non-binding."
[11]
The respondent herein.
[12]
Evidently another entity controlled by Mr van der Walt.
[13]
Then still GK.
[14]
While The Ritz initially relied on the non-payment of these services
in addition to its tenant’s rent default, the payment
of
municipal services was accepted by The Ritz after an affidavit had
been handed up to this effect during the hearing of the
matter.
[15]
The
remedies in the event of breach contained generally in clause 17 of
the lease provide, inter alia, in
clause
17.1.1 thereof that if “
the
tenant fails to pay any rent or any other amounts due by it to the
landlord in terms of this lease on due date and continues
that
failure for more than 14 (fourteen) days after receipt of a notice
requiring payment (but no such notice shall be necessary
in the case
of a third or subsequent failure occurring within any continuous
period of 12 (twelve) months)”,
the
non-defaulting party shall be entitled to cancel the agreement.
[16]
See www.theritz.co.za
[17]
Alfred
McAlpine & Son (Pty) Ltd v Transvaal Provincial Administration
1974 (3) SA 506
(A) at 531D – 533B
[18]
Pan American World Airways
Incorporated v SA Fire and Accident Insurance Co. Ltd
1965
(3) SA 150
(A) at 175C. See also
Rouwkoop
Caterers (Pty) Ltd v Incorporated General Insurance Ltd
1977 (3) SA 941
(C) at 945G;
First
National Bank of SA Ltd v Transvaal Rugby Union
1997 (3) SA 851
(W) at 864J – 865A;
Cash
Converters Southern Africa (Pty) Ltd v Rosebud Western Province
Franchise (Pty) Ltd
2002
(5) SA 494
(SCA) at [46];
GB
Bradfield
Christie’s
Law of Contract in South Africa (7
th
ed) at 197.
[19]
Alfred McAlpine
,
supra,
at 532H
[20]
Wilson NO v Voges
[1994] ZASCA 53
;
1994 (3) SA 130
(A) at 136H – 137D;
City
of Cape Town (CMC Administration) v Bourbon-Leftly and another NNO
2006 (3) SA 488
(SCA) at [19]
[21]
National Director of Public
Prosecutions v Phillips and others
2002 (4) SA 60
(W) at [36]
[22]
At 143C-D
[23]
At
494I-495B
[24]
Caesarstone Sdot-Yam Ltd v
The World of Marble and Granite 2000 CC and others
2013
(3) SA 499
(SCA) at [2]
[25]
Hassan and another v
Berrange NO
2012 (6) SA
329
(SCA) at [19]
[26]
Van As v Appollus en andere
1993 (1) SA 606
(C) at
610F
[27]
“
2. [Paragraph 41 of
the particulars of claim] is impermissibly vague inasmuch as the
plaintiff does not satisfactorily lead how
the defendant's alleged
breach caused the plaintiff's failure to pay.
3. In
the event, it is unclear whether the plaintiff contends that the
defendant's alleged breach caused the plaintiff financial

impecuniosity which in turn rented it unable to pay monies owing
under the Lease Agreement, or whenever the plaintiff's failure
to
pay was caused in some other way."
[28]
See para 19 of the particularsbof claim.
[29]
Caesarstone
supra
at [3]
[30]
According to the Concise Oxford English Dictionary, Yiddish for
“
shameless audacity”