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[2021] ZAWCHC 1
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Platterkloof RMS Broedery (Pty) Ltd v Dahlia Investment Holdings (Pty) Ltd and Another (7836/2020) [2021] ZAWCHC 1; 2021 (2) SA 527 (WCC) (4 January 2021)
IN THE HIGH COURT OF SOUTH AFRICA
WESTERN CAPE DIVISION, CAPE TOWN
Case number: 7836/2020
Before: The Hon. Mr Justice Binns-Ward
Hearing: 6 October 2020
(Supplementary written submissions were made later.)
Judgment: 4 January 2021
In the
matter between:
PLATTEKLOOF
RMS BOERDERY (PTY) LTD
Applicant
and
DAHLIA
INVESTMENT HOLDINGS (PTY) LTD
First Respondent
REGISTRAR
OF
DEEDS
Second
Respondent
JUDGMENT
(Delivered by email to the parties’ legal representatives
and posting on SAFLII.
The judgment shall be deemed to have been handed down at 10h00 on
4 January 2021.)
BINNS-WARD J:
[1]
The first respondent company owns a farm
near Riversdale called Plattekloof.
[1]
It consists of eight separately registered portions of land.
The applicant rents two of them, namely Remainder of the
Farm
Hottentots Bosch, Farm 80 Riversdale, in extent 424,76 ha, and
Portion 5 of Farm 90 Riversdale, in extent 443,1839 ha.
The lease runs for a five-year period, terminating on 1 April 2023.
[2]
Clause 10 of the lease agreement affords
the applicant a right of pre-emption. It provides:
10.
Right of First Refusal
10.1 Provided
that the Lessee has complied with all of its obligations under this
agreement,
the lessee shall have the right of first refusal to
purchase the Premises on terms and conditions the same as nor (
sic
)
no less favourable than those offered by a bona fide third party to
the Lessor and the Lessor shall deliver written notice to
the Lessor
(
sic
) specifying the terms and conditions of such offer, and
the Lessee shall have 14 (fourteen) days thereafter in which to
accept
or reject the offer by written notice, failing which the
Lessor shall be entitled, subject to the Lessor (
sic
)
commitments under this agreement, to dispose of the property to any
third party on the terms originally offered for a period of
60 (Sixty) days, failing which this right of first refusal shall
revive.
[3]
On 7 April 2020, the first respondent
entered into a deed of sale in terms of which it sold the entire farm
(i.e. all eight
portions) to Swellendam Plase (Pty) Ltd for
R17 million. The agreement was a globular transaction; it
did not ascribe
a price to each of the constituent portions of the
farm individually. It is therefore not possible to discern a
transactional
value for the two portions of the farm that are the
subject of the right of pre-emption.
[4]
The character of the different portions
making up the farm is not uniform. The land hired to the
applicant does not have any
buildings on it, but it contains a
proportionately greater extent of arable land than the other
portions. The arable land,
or at least part of it, has
apparently been improved and well maintained by the applicant since
it took possession in terms of
the lease. If anything, the
portions leased by the applicant are likely to have improved in value
since the commencement
of the lease by virtue of the land having been
worked on since then, while the land on the other portions, which has
been left
idle, has probably deteriorated in quality and therefore
diminished in value during that time.
[5]
The other portions, however, have building
improvements on them. There are two dwelling houses, a number
of labourers’
cottages, a dairy and a shed on the other
portions of the land. The buildings are in varying states of
repair.
[6]
The individual portions consequently do not
lend themselves to valuation on a pro rata basis according to their
hectarage.
It is worthy of mention, however, that were the
whole farm nevertheless to be indiscriminately valued per hectare
with reference
to the agreed selling price of R17 million for
the whole, the result would be a value of R7 615,46 per
hectare,
[2]
and the combined value of the two portions subject to the applicant’s
right of pre-emption would consequently be R6 609 106,66.
[7]
The first respondent put in evidence a
formal valuation and correspondence pertaining to the negotiation of
the possible sale of
the farm or portions thereof to other interested
parties to show that the portions leased by the applicant were more
valuable per
hectare than the other portions. The formal
valuation, which was done as of 26 March 2020, attributed a
market value
of R6,14 million to the pre-emption property.
The correspondence shows that a value as high as R7 million has
been
mooted for the two portions in the context of the first
respondent’s efforts to sell them. The effect of these
indications
of value only confirms the impression already formed,
based on the distinguishing features of the various portions, that it
would
not be feasible or appropriate to apportion the price
stipulated in the deed of sale per land measurement unit in relation
to the
whole.
[8]
Upon learning of the sale of the farm to
Swellendam Plase, the applicant sought to enforce the right of first
refusal clause in
its lease agreement by demanding that the leased
property be sold to it. It proposed that the matter might be
settled amicably
on the basis that it would acquire the leased
portions for R4 million and Swellendam Plase would take the
other six portions
for R13 million. Those figures were not
plucked from thin air. They were predicated on Swellendam
Plase’s
expressed interest, as recently as mid-March 2020, in
acquiring the six portions for R13 million and on previous
discussions
between the shareholders of the applicant and the first
respondent about the purchase of the two leased portions by the
former
for R4 million. They are, in essence, the formula
for the relief sought by the applicant in these proceedings.
[9]
The notice of motion was divided into two
parts. In Part A, the applicant sought interim
interdictory relief pending
the determination of the final
substantive relief applied for in Part B. The parties took
an order by agreement from
Le Grange J on 3 July 2020
disposing of the application for interim relief. The costs
associated with the
proceedings in respect of Part A were ‘stood
over for later determination’. In the absence of any
argument to
the contrary, I have taken that to imply that such costs
would follow on the result of the application in Part B that is
currently
before the court.
[10]
The applicant sought the following relief
under Part B of the notice of motion:
1.
That the first
respondent is ordered to comply with his contractual obligation to
applicant in terms of clause 10 of the lease agreement
between the
parties (attached to the founding affidavit as ‘JAV1’) by
delivering to applicant, within seven days of
this order, a written
notice offering to sell the leased properties to applicant for R4
million on the same terms and conditions
as those contained in the
sale of farm agreement attached to the founding affidavit as ‘JAV2’.
2.
That applicant will
have 14 days after receipt of the written offer contemplated by
paragraph [B]1 , above, to accept or reject
it by written notice to
the first respondent.
3.
That the first
respondent be ordered to pay the costs of this application which
includes the wasted costs occasioned by the June
4th cancellation.
[3]
4.
That the Honourable
Court grant such further and /or alternative relief as it deems fit.
[11]
Mr Gunther Schmitz, the sole director and
sole shareholder of the first respondent company, had agreed in
principle with Mr Albert
Vermaak, a director and the sole shareholder
of the applicant company, as long ago as early 2018 (before the
execution of the deed
of lease) that Vermaak or the applicant company
would purchase the two portions for R4 million. (Vermaak
had actually
first indicated his interest in buying the land a year
earlier, in February 2017, when he wrote to Schmitz saying ‘
Albert
Engelbrecht
[the then longstanding
tenant of the whole farm, and also a neighbouring landowner]
also
told me that you are considering to sell the small portion of the
farm which are mainly field. I can maybe help you to
sell if
you are willing to work around R5000 to R6000 per hectare, which is
the current value of field in the area.
’
[4]
)
Schmitz had made it clear, however, that he expected to realise
R18 million (nett of agent’s commission) for
the farm as a
whole, and that he was not prepared to proceed with the mooted sale
until the water rights that he believed attached
to the two
portions
[5]
had been transferred to the remainder of the farm. It is
evident that Schmitz was advised by his brother in March 2018 (also
before the execution of the deed of lease) that it would be imprudent
to sell off the two portions separately unless he also had
a
committed buyer for the rest of the farm.
[12]
Schmitz’s efforts to dispose of the
entire farm continued throughout the entire period between the
execution of the deed of
lease of the two portions to the applicant
on 13 April 2018 and that of the deed of sale to Swellendam Plase two
years later, in
April 2020. Vermaak was an active and engaged
role player in the exercise. Consideration was given during
that time
to the alienation being effected either by the sale of the
land or by way of Schmitz selling the shares in the first respondent
company.
[13]
In November 2018 Schmitz sold the entire
shareholding in the first respondent company to one Louis Botha, who
thereafter took occupation
of part of the farm. Botha failed to
perform in terms of that agreement, however, and the transaction was
cancelled, which
precipitated long drawn out proceedings for his
eviction.
[14]
In April 2019, Vermaak spoke to Schmitz
about the submission of a so-called ‘combined offer’ for
the shares in the first
respondent company in the amount of
R16,5 million, with the idea that he (Vermaak) would thereafter
sell the remainder of
the farm out of the company. On 1 June
2019, he indicated in an email to Schmitz that the applicant would be
amenable
to buying the whole farm for R17 million subject to
various conditions. He sent an email to Schmitz on 8 June 2019
referring
to his (Vermaak’s) endeavours to reach an arrangement
with one ‘Piet’ (Uys) to buy the ‘main section’
of the farm for R11 million, which would leave him (Vermaak) ‘
in
for R6 million for the remainder
’.
Vermaak at that stage offered to buy the pre-emption property for
R5 million with an option until the end of
2019 to also buy the
main portion for R12 million. It was apparent that
Vermaak’s intention was to exercise the
option only if he could
find a buyer for the remainder for at least R12 million during
that period.
[15]
On 18 July 2019, Schmitz replied to Vermaak
that he was happy with the price offered for the two portions but
found the idea of
granting an option on the remainder of the farm
problematic. He pointed out that it would be difficult to sell
the remainder
if the portions that the applicant was leasing were
sold separately. Schmitz suggested that Vermaak go in with
R5 million
and get someone referred to as ‘Takkies’
(elsewhere referred to by Vermaak as ‘Piet Takkies’) to
go in
for the rest with R11 million.
[16]
All of these ideas and proposals came to
nought. I have described them in some detail to show that
Vermaak was aware at the
time the right of first refusal was granted
that Schmitz wanted to dispose of the entire farm and that there
might be issues with
his ability to do so on the basis that the two
portions let to the applicant be sold separately from the remaining
portion.
I think it is noteworthy in the circumstances that the
pre-emption clause did not make provision that in the event of an
acceptable
offer being received for the whole farm, the first
respondent would be obliged first to offer the two portions to the
applicant
separately on some or other determined basis. The
lease was drafted by the first respondent’s attorneys. On
its
face the right of first refusal appears to have been worded in a
way that would not constrain the first respondent’s ability
to
dispose of the farm as a whole. Whether it actually had that
effect is, of course, a question of construction. The
pre-emption clause certainly did not bind the first respondent to
offer the two portions to the applicant at any price if it received
an acceptable offer for the remaining six portions on their own.
[17]
Vermaak heard from a local property agent,
one Cornelis van Tonder, on or about 12 March 2020, that
Swellendam Plase was going
to purchase the six portions for
R13 million. An email by Cornelis van Tonder to the first
respondent’s attorney
on the same date, a copy of which was
included as part annexure GS 19 to the answering affidavit made by
Schmitz on behalf of the
first respondent in these proceedings,
suggested that Lourens van Eeden (Swellendam Plase) had an option to
purchase the remainder
of the farm for R13 million that he
wished to exercise. No such option agreement has been produced,
however, and Schmitz
has denied that a firm agreement was in place.
Van Tonder had previously been informed by Schmitz that Vermaak was
willing
to buy the two portions rented by the applicant for
R5 million. Van Tonder deposed to a confirmatory affidavit
that,
amongst other matters, confirmed the following averments in
Schmitz’s answering affidavit:
63.
On 27 February 2020 Mr van Tonder informed me that his client (Mr van
Eeden, via Swellendam Plase (Pty) Ltd) was interested in buying the
remaining six portions for R13 million. This appears
from
the email attached hereto as “
GS 19
”.
64.
We proceeded to engage in negotiations. After a further visit
to
the farm Mr van Eeden informed me that the value of the two
portions leased by the applicant was higher than R5 million,
while
the remaining six portions were not worth R13 million.
He would prefer buying the whole farm. Mr van Tonder
subsequently
informed me that the buyer wanted to purchase the whole
farm and not only the remaining six portions separately (the relevant
email
correspondence is attached as “
GS20
”).
It would
therefore appear that even if Van Eeden or Swellendam Plase had been
granted an option as stated in Van Tonder’s
email, they were
not willing to exercise it because Van Eeden had concluded that the
six portions were not worth R13 million.
[18]
According to Schmitz, whose evidence in
this respect is confirmed by Van Eeden, it was after the two men had
inspected the farm
together on 25 March 2020, when Schmitz, who lives
in Cape Town, was there for the eviction from the property of the
abovementioned
Louis Botha, that agreement was reached on the sale of
the whole farm for R17 million. Schmitz testified that the
price
represented a reduction of R1 million on the amount that
he had hoped to realise for the farm. He stated ‘
We
agreed to reduce the price for the whole farm to R17 million
based on the bad condition of the remaining six portions. In
agreeing
on the purchase price for the farm as a whole, we did not
differentiate between the six remaining portions on the one
hand, and
the two leased portions, on the other hand, save to the extent that
the six remaining portions were, because of their
condition and the
funds that would be required to rehabilitate them, regarded as having
a lower value as opposed to the two leased
portions. As subsequently
reflected in the Swellendam contract, the eight portions were sold as
an indivisible transaction.
’
[19]
Mr
Potgieter
SC, who appeared for the applicant, submitted that reference to the
surrounding circumstances showed that it was obvious that the
price
of R17 million offered by Swellendam Plase comprised the
R13 million that it had previously been willing to pay
for the
six portions and the R4 million that the applicant had indicated
to the first respondent it would be willing to pay
for the two leased
portions. In my judgment the history summarised above does not
bear out that contention. On the
contrary, it is apparent that
at the time that Schmitz was favourably inclined to disposing of the
six portions to Swellendam Plase
for R13 million, he (and Van
Tonder, who was responsible for introducing Van Eeden to the
proposition) were under the impression
that Vermaak would buy the two
portions leased by the applicant for R5 million. It was
only by selling the whole farm
to Swellendam Plase at a reduced price
that Schmitz would be able to achieve his longstanding object of
disposing of the property
entirely. Schmitz had inherited his
shareholding in the first respondent from his late mother, and had no
interest in farming.
[20]
The first respondent and Swellendam Plase
were not amenable to the applicant’s settlement proposal that
it take the pre-emption
property for R4 million and Swellendam
Plase the rest for R13 million, but they had second thoughts,
possibly for tax
reasons, about the manner in which the transaction
that they had concluded had been structured. Therefore, even
before the
institution of the current application, but at a stage
when papers had already been prepared for proceedings to be
instituted by
the applicant (hence the claim for ‘wasted costs’
mentioned below), the first respondent and the third-party purchaser
executed a deed of cancellation in terms of which the sale was
cancelled.
[6]
It is no secret that they intend to substitute the cancelled sale of
land agreement with a contract whereby Swellendam Plase
will instead
acquire Schmitz’s shares in the first respondent. The
substitute agreement, if concluded, would not impact
on the
pre-emption agreement for it would not involve the sale by the first
respondent of any part of the farm. The applicant
contends,
however, that the cancellation of the sale agreement is irrelevant to
its claim because its right to be offered the leased
portions was
triggered when Swellendam Plase indicated its preparedness to
purchase the property on the terms and conditions set
forth in the
deed of sale. (The applicant did not assert any entitlement to
an interdict prohibiting the sale by Schmitz
of his shares in the
respondent company.)
[21]
The primary question in this case therefore
calls for the determination of the applicant’s position in
terms of clause 10
of the lease when ‘the premises’ in
respect of which it enjoys a right of pre-emption become the subject
of an offer
to purchase or a contract of sale as an integral part of
a larger package. Counsel were agreed that there is no South
African
authority directly in point. They were also agreed,
correctly so in my judgment, that the so-called ‘Oryx
mechanism’,
whereby the holder of a right of pre-emption may
step into the shoes of a third party who contracts to acquire the
subject property
was not available in the circumstances of the
applicant wishing to acquire only the leased portions.
[7]
Leaving aside any possible difficulties attendant on compliance with
the statutory formalities in respect of agreements in
respect of the
alienation of land, this was because the contract concluded between
the first respondent and Swellendam Plase was
not for the sale of
‘the premises’, but was a globular transaction (or
‘package deal’) for the whole farm
of which ‘the
premises’ were just part. Furthermore, the concluded
transaction did not determine a price for
the pre-emption property
considered on its own.
[22]
The only reported judgment in the South
African jurisprudence that bears to some extent informatively on the
type of situation presented
in the current case appears to be
Sher
v Allan
1929 OPD 137.
The facts
in that matter were that the plaintiff-lessee had leased a portion of
land in Kroonstad that constituted only part
of a registered erf.
Clause 5 of the lease provided ‘
The
lessor further agrees to give the lessee the first option to purchase
the leased property, should he desire to sell the same
during the
continuance of this lease. Should the lessee not decide within
fourteen days after receiving written notice to purchase,
the lessor
shall have the right to sell to any third party but such sale to a
third party shall not interfere with the validity
of this lease or
any of the conditions thereof.
’
The lessor sold the entire erf to a third party without first
offering the leased portion in the manner stipulated
in clause 5, and
the lessee sued in damages for breach of contract. The court
rejected the lessor’s contention that
the sale of the entire
erf to a third party in disregard of the lessee’s right of
pre-emption in respect of the leased moiety
did not, on a proper
construction of clause 5, entail a breach of the lessee’s right
of first refusal.
[23]
McGregor AJP defined the lessor’s
position in the circumstances as follows: ‘
What
in fact was the subject of stipulation was the leased property - the
half erf : it was in respect of this that the lessee had
a privilege
under the clause - and this had to be recognised by the lessor, who
could not, as it were, derogate from his own concession,
or defeat
its operation by his own act. If he wished to sell the whole,
he could do so - provided, as to half of what he
was willing to sell,
he had respect to his undertaking to plaintiff; and his conduct would
have to be regulated accordingly.
He might either (if he could)
arrange to sell the whole erf to plaintiff, or he might expressly
give the lessee the preferent call
in respect of the leased property,
or he might seek to sell in such a way as to have a specific offer in
respect of the leased
moiety regarding which the plaintiff might
interpose his preference, or he might hold his hand until no longer
fettered by the
lease. But, if the lessor chose to act during the
pendency thereof, he could only do so in conformity with its terms
and with due
recognition of the plaintiff’s rights thereunder.
If we took a different view we might have this result: that, if the
owner chose to sell all his properties at Kroonstad to a substantial
purchaser
in globulo
,
it might still be contended that the plaintiff had no cause to
complain in that there was no desire to sell the leased half -
which
might seem to bring one into a somewhat metaphysical sphere.
’
[8]
[24]
The dicta in
Sher
v Allan
might afford support for the
notion that the first respondent might have incurred a liability in
damages to the applicant had it
disposed of the leased property to
Swellendam Plase without first allowing the applicant the opportunity
to acquire it. They
also imply that the first respondent could
not ignore the applicant’s right of first refusal in respect of
the leased premises
when it entered into a contract with a third
party for the sale of the whole farm that included those premises.
By extension,
they would also support the notion that the applicant
could interdict the transfer of the leased premises to Swellendam
Plase if
it could show that the contract concluded by the first
respondent with Swellendam Plase did not cater for or respect its
right
of pre-emption. They do not, however, afford authority
for the remedy sought in paragraph 1 of Part B of the notice of
motion,
which is for the enforcement of a sale of the leased premises
to the applicant at a price determined not by the terms of the sale
to a third party but rather at a price to be fixed by deduction from
the circumstances that surrounded the conclusion of the contract
with
the third party.
[25]
It is important to note that the terms of
the right of first refusal clause in
Sher
v Allan
were materially different from
those involved in the current matter. In
Sher
v Allan
, the clause required the lessor
to offer the pre-emption property to the lessee should he desire to
sell it during the continuance
of the lease. It was for the
lessor, and not a third party offeror, to determine the terms upon
which he wished to sell his
property. I consider that it was
the different wording of the clause in issue in that case that
informed the court’s
decision that the lessor could not sell
the pre-emption property as part of a package because that would
defeat the preference
he had granted in terms of clause 5 of the
lease agreement. The distinction between the effect of the
pre-emption clause
in the current case, which might be said to have
imposed a negative obligation on the lessor, viz. an obligation not
to conclude
an agreement of sale with a third party offeror without
first offering the property to the lessee on the same terms and
conditions
as had been offered to it, and that involved in the matter
of
Sher v Allan
,
which imposed what might be called a positive obligation on the
lessor, viz. an obligation, if he wished to sell the pre-emption
property, to first offer it to the lessee on the terms he proposed to
dispose of it, is confirmed, I think, by the analogy that
McGregor AJP considered fell to be drawn between the latter case
and the nature of the ‘first refusal’ analysed
by Vaughan
Williams LJ in
Manchester Ship Canal Co
v Manchester Race Course Co
[1901] 2
Ch. 37
(CA).
[9]
In other words, the clause in
Sher v
Allan
required the grantor to go to the
holder if he wanted to sell the pre-emption property and say I have
decided to sell the property
for such and such amount and therefore,
as required by our agreement, I hereby give you the opportunity to
exercise your right
of first refusal. The wording of clause 10
of the lease in the current matter does not have that import.
[26]
The difference in the character of
grantor’s obligations under the contrasted preference clauses
affects the type of remedy
that would be indicated if the grantor
were to act in breach of them. In the example in
Sher
’s
case, the obviously appropriate remedy (before the conveyance of the
property to a bona fide third party had occurred)
would be a
prohibitory interdict. In the current case, ignoring for the
moment the complicating effect of the package deal
sale to Swellendam
Plase, the indicated remedy would be a claim for specific performance
– in effect, the implementation
of the ‘Oryx mechanism’.
[27]
Mr
Potgieter
,
recognising the novelty in the applicant’s claim in the context
of the sale of the pre-emption property as part of a package
deal
including adjoining property that was not subject to the preference
agreement, sought support for it in the approach favoured
by
Professor Tjakie Naudé in an article published in the South
African Law Journal, ‘
Which
transactions trigger a right of first refusal or preferential right
to contract?
’.
[10]
Naudé framed the following questions for the purpose of the
discussion: ‘
What is the effect of
the sale of the pre-emption property as part of a larger package of
properties (the so called ‘package
deal’ situation)? Does
such a sale trigger or breach the right of pre-emption? If so,
must the holder be prepared to
buy the entire package in order to
exercise her right of pre-emption, because she must step into the
shoes of the third party?
Does she in any event have a right to
buy the entire package, or only the pre-emption property, and if the
latter, how is the price
calculated? Or would a proposed
package deal merely entitle the holder to an interdict prohibiting
the grantor from selling
until he receives a third party offer for
the pre-emption property alone, which the holder can match?
’
[28]
Professor Naudé acknowledges that
South African case law gives no clear answers to these questions.
It is apparent
from his review of cases in the United States, which
appears to have the richest jurisprudence on the topic, that they can
be,
and have been, addressed in a variety of ways. Naudé
states that there are four conflicting views in the US case law
on
the effect of the package deal on the holder of the pre-emption
right’s position.
[11]
It is crucial, of course, when considering any of these various
approaches, to remember that each one of them departs from
or is
founded upon a construction of the peculiar terms of the pre-emption
agreement in issue in the given case. As the English
Court of
Appeal aptly emphasised in
Bircham &
Co, Nominees (2) Ltd & Anor
v
Worrell Holdings Ltd
[2001] EWCA Civ
775
(22 May 2001) in para 22, ‘
the
effect of a pre-emption clause depends upon its own particular
terms
’. The various
approaches described in Naudé’s article do nevertheless
afford a useful basis for a critical
analysis of the conceptual
considerations involved in determining the applicant’s claim.
[29]
The first approach, favoured by the Supreme
Court of Nevada,
[12]
is that the package deal does not trigger the right of pre-emption
because it entails the sale of something completely different.
It is an approach that was contended for by the defendant in
Sher
v Allan
, and would appear to have been
propounded by the first respondent in the current matter because it
also took the line that the
sale of the whole farm did not trigger
the right of pre-emption pertaining to only two portions thereof.
I have to agree
with McGregor AJP’s rejection of the
approach as contrived, or as the learned judge put it, one that, on
the facts of
a case like the current matter, might ‘
bring
one into a somewhat metaphysical sphere
’.
A sale of the whole of a farm comprised of a number of sections or
portions must, in and of itself, entail the sale
of each and every
one of those portions. The Nevada approach therefore does not
commend itself.
[30]
The second approach in the United States
identified by Naudé holds that the package deal does not
trigger the holder’s
right of pre-emption, but it does entitle
him to interdictory relief prohibiting the grantor from selling the
pre-emption property
as part of the package.
[13]
It is not necessary to determine the question because the applicant
has not sought interdictory relief other than on a
pendente
lite
basis, but in my view it is not an
approach that commends itself on principle. Interdictory relief
is, after all, predicated
on the infringement (actual or threatened)
of a right. That begs the question then, if interdictory relief
is available,
as to the character of the right that is said to be
infringed. If one is not to be taken into ‘a somewhat
metaphysical
sphere’, one must surely accept, as the court did
in
Sher v Allan
,
that the sale of something that includes the subject matter of the
pre-emptory right necessarily also entails the sale of the
matter
that is the subject of the right, and therefore acts as a trigger for
the exercise of the right.
[14]
It is a right to buy if the grantor wants to sell; not a right
(
unless the terms of the conferring
contract provide otherwise
) to prohibit
the sale if the grantor is selling the property in terms of a package
deal contract.
[15]
(Being a restraint of alienation, a pre-emption clause must be
narrowly construed in favour of the preservation of the grantor’s
liberty to alienate his or her property; cf.
Robinson
v Randfontein Estate Gold Mining Co. Ltd
1921
AD 168
at 188 and
Owsianick v African
Consolidated Theatres (Pty) Ltd
1967
(3) SA 310
(A) at 321E.) I consider that the holder would be entitled
to a prohibitory interdict in such circumstances only if he or she
could
show that the package deal was a
male
fide
manoeuvre to avoid honouring the
right of pre-emption. It would be different, of course, if the
terms of the contract bound
the grantor to hold the pre-emption
property available to be sold only on its own and not as part of a
package with some of the
grantor’s other property.
[16]
I am unaware of any authority that holds such a rider falls to be
implied in the grant of a right of first refusal.
Whether a
tacit term to that effect might be imputed would depend on the
peculiar facts of the given case.
[31]
I accept though that this reasoning does
not answer the questions whether the holder whose right has been
triggered by the sale
of the pre-emption property as part of a larger
package is then required to buy the whole package or only the
component that is
subject of the right of first refusal, and if the
latter, how the price of the component is to be determined. I
shall come
to those questions presently.
[32]
The third approach by the US courts
discussed in Naudé’s article is that the holder’s
right to exercise his right
of pre-emption embraces the whole
package.
[17]
My own view is that that would depend on the terms in which the right
of pre-emption was conferred, and also, perhaps, the
nature of the
things being sold. As to the latter consideration, it seems to
me in principle that if the nature of the things
being sold readily
permits of a pro rata allocation between the parts of the whole,
particularly as to quantity and price, there
is much to be said for
the idea that the holder’s right can be exercised in respect of
the part of the package to which it
relates without it being
necessary for the holder to buy the whole of it. The imputation
of a tacit term to that effect could
quite readily suggest itself in
those circumstances, but again the answer would depend on the
peculiar facts of the given case.
In the current matter the
wording of clause 10 of the lease implies that if the pre-emption
properties were the subject of a package
deal offer by a third party,
the applicant would be entitled to purchase them on the same terms
and conditions as the package deal.
[33]
Professor Naudé, citing Daskal,
[18]
says however, that ‘
requiring the
holder to buy the entire package to exercise his right may prejudice
the holder unfairly. It has also been said
that the risk taken
by the holder in respect of unconventional terms relates to the
counter-performance undertaken by the third
party and the method of
payment, not to a collateral agreement with respect to other
properties which has nothing to do with the
pre-emption property
’.
‘Fairness’ is the wrong criterion in my view. The
issue is rather what the effect of the terms
of the contract under
consideration is. If the contract is unfair or prejudicial to
one of the parties, that party has made
a bad bargain. It is
only when the unfairness is so unconscionable that it would be
against public policy to enforce or uphold
the term or contract that
a court will relieve the affected party of it. And it does so
by holding the contract, or the provision
concerned if it is
severable, unenforceable, not by crafting a new and fairer contract
for the parties. Furthermore, I consider
that it would not be
an accurate characterisation to describe the sale of the farm as a
package to Swellendam Plase as entailing
the sale of the pre-emption
property in one transaction and the sale of the other portions in
terms of a ‘collateral agreement’.
[34]
As to the fourth approach, which Naudé
says is ‘
preferred by the writers
’
including himself, and is also the one contended for by counsel for
the applicant: It gives the holder the right to purchase
the
pre-emption property alone upon the conclusion by the grantor of a
package deal with a third party. The approach raises
the
obvious difficulty as to how the price of the pre-emption property is
to be determined. Its supporters have argued that
by
entertaining a package deal the grantor has caused the impossibility
of ascertaining the price he would have accepted for the
pre-emption
property alone, ‘
so that the
grantor should not be able to complain about losing control over the
price when the court fixes it at a reasonable amount
’.
[35]
The difficulty I have with that argument is
that it entails the court making a contract for the parties for the
sale of the pre-emption
property at a reasonable price, when the
right of pre-emption did not vest the holder with a right to buy it
at a reasonable price,
but rather at a price determined by a third
party offer that the grantor would be willing to accept.
[19]
The approach also seems necessarily to imply that the sale of the
pre-emption property as part of a package was a breach
of the
pre-emption provision. If it is a breach which, as already
mentioned, would depend on the terms of the actual contract
in issue,
then the remedy must surely be in damages or by way of a prohibitory
interdict, not by way of some form of fair alternative
performance
that is not specific performance.
[36]
Reverting then to the relief sought by the
applicant. For the reason given above, and assuming that the
applicant was not
in breach at the time of any of its obligations
under the lease, I consider that the right of first refusal conferred
in terms
of clause 10 of the lease was triggered when Swellendam
Plase made an offer to purchase the entire farm on terms and
conditions
that were acceptable to the first respondent. I have
explained why there was no merit in the first respondent’s
contention
that the sale of the whole farm did not entail the sale of
the pre-emption properties for the purposes of clause 10 of the
lease.
The respondent’s allegation that the applicant had
waived its rights under clause 10 is not supported by the evidence.
[37]
Upon the triggering of the right, the first
respondent became obliged, according to the tenor of clause 10 of the
lease, to give
the applicant written notice specifying the terms and
conditions of the offer it had received from Swellendam Plase and the
applicant
would thereafter have 14 days in which to indicate by
written notice to the first respondent whether or not it intended to
acquire
the property on same terms and conditions. In other
words, in exercising the right to acquire the two erven on the same
terms
and conditions as the third party was prepared to do, the
applicant would, in the circumstances of the offer made by Swellendam
Plase, have to purchase the whole farm for R17 million. It
would have to take the whole package because the package
deal
reflected the terms and conditions upon which Swellendam Plase would
acquire the pre-emption property. That would be
to give effect
to the plain meaning of the language of clause 10. The
character of the constituent portions of the farm was
such that the
property did not lend itself to a pro rata allocation between the
parts of the whole. The parties to the pre-emption
agreement
must have appreciated that when they concluded the agreement of lease
including the right of first refusal.
[38]
The relief sought by the applicant is
inconsistent with the remedy to which I think it became entitled when
the first respondent
received what it considered to be an acceptable
offer from Swellendam Plase, again assuming that the applicant was
not in breach
of the lease at the time. I do not consider that
the applicant, on any approach, became entitled to acquire the
pre-emption
properties for R4 million. Its contention that
the R17 million purchase price for the whole farm was
constituted
by the R13 million that Swellendam Plase had
initially indicated it might be willing to pay for the six portions
and the premium
on that figure that it offered for all eight was not
supported by the evidence.
[20]
Applying the rule in
Plascon-Evans
,
as I have to in the context of the final relief sought by the
applicant, I am bound to proceed on the basis of accepting the
evidence that by the time that agreement was clinched between the
first respondent and Swellendam Plase, the latter had come to
the
view that the six portions were not worth R13 million and that
the pre-emption properties were worth more than the R5 million
that its representative (Van Eeden) believed the applicant was
willing to pay for them.
[39]
It is also clear that even if the court
were to have adopted the approach favoured by some of the
commentators, described above
as typified by the fourth of the
differing approaches by the US courts to the problem of package deals
including components subject
to rights of pre-emption, the price of
R4 million for which the applicant seeks by these proceedings to
be able to obtain
the pre-emption properties would not be a fair
one. On the contrary, the indications are that the two portions
of the farm
leased by the applicant are probably worth between six
and seven million rand. I think it may also be reasonably be
inferred,
although I acknowledge that this is speculative, that if
the first respondent and Swellendam Plase were required to
restructure
their contract to give a separate price for the two erven
leased by the applicant, the price that would be given would probably
be in the R6 to 7 million range, and that the
applicant would find it well-nigh impossible to establish that a
determination of the price for the pre-emption properties at that
level was not bona fide.
[40]
For all these reasons the relief sought by
the applicant cannot be granted and the application must be
dismissed. It is therefore
strictly unnecessary in the
circumstances to consider the various preliminary points taken by the
first respondent, but I shall
do so briefly for completeness and in
case the litigation is taken further. I did not deal with any
of them at the outset
of this judgment as their preliminary nature
might ordinarily have warranted because I do not consider that any of
them had any
merit.
[41]
The first respondent took the point that
the applicant should have referred the dispute for informal dispute
resolution, and if
that failed, to arbitration. It relied on
clause 2.2.7.9 of the lease agreement in support of the contention.
The clause
is to be found in the ‘definitions’ provision
of the deed of lease. It purports to provide a definition of
the
term ‘
dispute resolution
procedure
’. The term is not
employed anywhere in the operative part of the agreement, however.
There was consequently nothing
in the point.
[42]
The next preliminary point was that the
application was premature. Schmitz pointed out that the sale of
the farm to Swellendam
Plase was subject to a suspensive condition
and contended that as the condition had not been fulfilled, the right
of pre-emption
had not been triggered. There was no merit in
the contention. The first respondent became obliged, in terms
of clause
10 of the lease, to offer the premises to the applicant on
the same terms
and conditions
as those offered to it by a bona fide third party that it was willing
to accept. It became obliged to make the offer to the
applicant
before concluding any agreement with the third party offeror.
[43]
The first respondent also alleged that the
applicant had not complied with all of its obligations under this
agreement, which was
a condition precedent to its entitlement to
preference in terms of the right of pre-emption clause. In this
regard, Schmitz
alleged that the applicant had been in breach of
clauses 3.4.1 and 3.4.3 of the ‘General Conditions’ set
forth in annexure
A to the lease agreement. Clause 3.4.1
obliged the lessee to ‘
prevent the
spreading of alien plant species on the property
’
and clause 3.4.3 obliged it to ‘
use
the arable land for agriculture, bring in fertilizer, plant and
harvest and maintain it as arable land
’.
The only evidence that the first respondent adduced in support of its
allegation that the applicant had been in breach
of the lease in the
aforementioned respects was the following statement by Vermaak in an
email to Schmitz dated 8 June 2019 (annexure
GS 2 to the answering
affidavit):
The
value Dolf [a property agent] worked out for the portion I’m
currently renting a year ago was R1m for the piece of mountain
and
R30k [per hectare] for dryland which was then 90 Ha of just usable
dryland. So the total came to R3,7m. When I
started there
with the mindset you gave me [of] buying the farm I opened another
30Ha of the 70Ha available to open of dryland
at my cost and
obviously raised the value with R900k. When Louis [Botha]
arrived I withdrew all my machinery and currently
only farms (sic)
the 120Ha of dryland.
The applicant
denies having been in breach of the lease agreement. Vermaak
testified that the withdrawal of the earthmoving
machinery that he
had been using to increase the area of land that could be used for
dry crop planting merely meant that the applicant
ceased its efforts
to increase the area of arable land that was being worked. That
does not imply that the applicant was
not maintaining and using the
arable land that was available to be used when the lease was taken.
On the contrary, it is
apparent that the applicant’s use and
maintenance of the land since it took occupation had improved the
land and increased
the value of the leased portions of the farm.
Evidence in support of the allegation that the applicant had failed
to prevent
a spread of alien species on the land was lacking.
It is furthermore notable that there is no evidence that the first
respondent
ever complained that the applicant was in breach of the
lease in the respects alleged. A breach of the lease in the
aforementioned
respects has not been made out.
[44]
The first respondent also alleged that the
applicant had been in breach of clause 3.10.1 of the General
Conditions of the lease
which forbade the lessee from subletting or
permitting anyone else to occupy ‘the Premises’.
The first respondent
claims that the applicant was in breach of this
clause by having allowed the aforementioned Louis Botha to occupy one
of the dwelling
houses on the property. The applicant has
denied the allegation. Vermaak testified in reply that Botha
had obtained
access to the dwelling house using a set of keys
obtained from a property agent, one Van Rensburg, to whom they had
been surrendered
by the previous tenant of the farm, Albert
Engelbrecht. Van Rensburg confirmed this. Vermaak
furthermore pointed out
that when he had complained to Schmitz about
Botha trespassing on the portions of the farm leased by the applicant
he had been
told to take the matter up directly with Botha, whom
Schmitz described as the applicant’s ‘new landlord’.
It is notable that in relation to this matter too there is no
evidence that the first respondent ever protested to the applicant
about Botha’s occupation of the dwelling house. I am
inclined to accept the veracity of Vermaak’s evidence.
[45]
The issue can be disposed of adversely to
the first respondent on an objective basis, however. As
mentioned earlier, the leased
property did not contain any building
improvements. Both of the dwelling houses on the farm were on
the area thereof that
was not let to the applicant. The
expression ‘
The Premises
’
is defined in clause 1.2 of the General Conditions as meaning ‘
the
Property
let in terms of this
Lease
and all the LESSOR’s
fixtures and fittings therein or appertaining thereto
’.
Clause 3.10.1 did not pertain to the land on which the dwelling
houses stood, and therefore even if Vermaak did permit
Botha to
occupy one of them that would not constitute conduct in breach of the
lease.
[46]
The first respondent also applied for the
striking out of certain matter in the applicant’s founding
affidavit. It persisted
with the application only in respect of
parts of paragraphs 28 and 29 of the affidavit, which contained some
hearsay evidence concerning
the aforementioned Mr van Eeden of
Swellendam Plase. It is not necessary to determine the
application. The allegations
were in any event implicitly
denied by Van Eeden in the supporting answering affidavit that he
deposed to.
[47]
I also do not propose to make any order as
to the so-called wasted costs allegedly incurred by the applicant as
a consequence of
having to amend its papers to address the
cancellation of the sale agreement between the first respondent and
Swellendam Plase.
As mentioned, the amendments were made to the
draft founding papers before the application papers were issued by
the registrar.
In my view, the costs therefore in any event did
not form part of the applicant’s recoverable costs of suit.
If I am
wrong in that view, I in any event see no reason why the
costs should not follow the result of the litigation in the ordinary
course
and be borne by the unsuccessful applicant.
Order
[48]
In the result an order is made as follows:
The
application is dismissed with costs, including the costs reserved for
later determination in terms of the interlocutory order
made by Mr
Justice Le Grange on 3 July 2020.
A.G. BINNS-WARD
Judge of the High Court
APPEARANCES
Applicant’s
counsel:
T.D. Potgieter SC
Applicant’s
attorneys:
MJ Vermeulen Inc.
Riversdale
Walkers Inc.
Cape Town
First
respondent’s counsel:
P.S. van Zyl
First
respondent’s attorneys:
Barnaschone Attorneys
Cape Town
[1]
There is more than one farm bearing the name
Plattekloof in the Riversdale area. The applicant is the owner
of another farm
of that name, which adjoins the first respondent’s
farm.
[2]
The total area of the eight portions of the farm
taken together is 2 232,3 ha.
[3]
The wasted costs were those related to the
preparation of application papers before the sale agreement was
cancelled. Amended
papers had to be drawn when it became
known, very shortly prior to the issue of the application, that the
sale to Swellendam
Plase had been cancelled.
[4]
A sale of the pre-emption property at the figures
mentioned by Vermaak would give a purchase price in the range
between R4 340 000
and R5 200 000, but this is
not necessarily an accurate indication of Vermaak’s estimation
of the value of the
land as not all of it was ‘field’,
i.e. arable.
[5]
In terms of the
National Water Act 36 of 1998
.
[6]
This explains why it was not necessary for
Swellendam Plase (Pty) Ltd to be joined as a respondent in the
current proceedings.
[7]
The label ‘
Oryx
mechanism
’ is derived from the
name of the decision of the late Appellate Division in
Associated
South African Bakeries (Pty) Ltd v Oryx & Verenigte Bäckereien
(Pty) Ltd en
Andere
[1982] ZASCA 1
(28 May
1982); 1982 (3)
SA 893
(A), in which it was held, differing in this respect from the
view expressed by two of the judges of appeal (Botha and
Potgieter JJA)
in
Owsianick v
African Consolidated Theatres (Pty) Ltd
1967 (3) SA 310
(A);
[1967] 3 All SA 367
(A), that the holder of a
right of pre-emption had a right to specific performance to acquire
the subject property if the contingency
to which the right had been
granted was realised. (
Owsianick
was a decision on an exception taken to the rights grantor’s
plea in that case, which was essentially to the effect that
the
exercise of the right had not been triggered on the facts. The
court therefore did not have to determine whether the
plaintiff in
that case should be awarded the specific performance that he
claimed. Ogilvy Thompson and Williamson JJA,
having regard to
the wording of the right of pre-emption clause, thought that
specific performance was an available remedy, whilst
the fifth judge
on the panel, Wessels JA, refrained from voicing an opinion on
the point as the nature of the plaintiff’s
exception did not
directly raise it for determination.) In
Associated
South African Bakeries
(at pp.
907D-908D), Van Heerden JA, consistently with his findings as
to the position in the Roman-Dutch law, held that
our law allows
that (i) in the event of a seller concluding a sale with a
third party in breach of a right of first refusal
agreement, the
grantee of the right of pre-emption can by unilaterally declaring
its intention step into the shoes of the third
party, with an
agreement of sale thereupon deemed to come into being between the
seller and the grantee and (ii) if transfer
of the property has
to the third party has already taken place, the grantee cannot
pursue its right to obtain the property against
the third party
unless the latter took transfer of the property with knowledge of
the right of pre-emption. The stepping
into the shoes remedy
involves the so-called ‘Oryx mechanism’; see T. Naudé,
The Rights and Remedies of the Holder
of a Right of First Refusal or Preferential Right to Contract
,
(2004) 121 SALJ 636
at 637.
[8]
At pp. 144-145.
[9]
See
Sher v Allan
at p. 142. A clearer exposition of the relevant passage in the
Manchester Ship Canal Co
case is to be found in
Soteriou v Retco
Poyntons (Pty) Ltd
1985 (2) SA 922
(A)
at 933.
[10]
(2006) 123 SALJ 461.
[11]
The article by Bernard Daskal on which Naudé
draws heavily for his own contribution (Bernard Daskal, ‘
Rights
of first refusal and the package deal
’,
Fordham Urb.L.J. 461 (1995), accessible at
https://ir.lawnet.fordham.edu/ulj/vol22/iss2/10
) identifies
five
different approaches, some of them with subsets within them.
Naudé furthermore suggests, with reference to Robert
Flannigan, ‘
The legal
construction of rights of first refusal
’
(March-June
1997) 76 Canadian Bar Review 1
, that there is also a
discordant approach to the questions in the Canadian jurisprudence.
Flannigan’s article introduces
his discussion of the
situation with the following observation: ‘
Rights
of first refusal tend to be drafted in seemingly straightforward
terms. The typical provision requires the vendor to give
the holder
of the right the first opportunity to purchase the subject property
on terms the vendor is willing to accept, usually
terms specified in
a bona fide offer from a third party. The ostensible simplicity of
the typical provision, however, masks an
expansive and often
problematic default jurisprudence. In fact, a great deal of
elaboration is required before it is possible
to identify, even in a
tentative way, the respective legal positions of the parties
involved
’. Professor
Flannigan’s review of the Canadian jurisprudence led him to
conclude (at p. 36) that ‘
Canadian
courts have been hesitant to award specific performance as a remedy
in the package sale context
’.
[12]
In
Crow-Spieker #23
v Helms Constr. and Dev. Co.,
731 P2d
348
(Nev. 1987). The judgment in
Crow-Spieker #
,
in which ‘Tract B’ was the pre-emption property that was
sold by the grantor (Robinson) to a third party (Helms)
in a
globular transaction involving a larger piece of land of which Tract
B was a part, advanced the following alternative route
to the Nevada
Supreme Court’s conclusion that the holder’s claim had
to fail: ‘
If, in the alternative,
we viewed Helms’ offer as an offer to purchase Tract B, # 23
did not match the terms and conditions
of that offer. Robinson had
no desire to sell only the smaller portion of his land. An offer for
Tract B alone, and for less
than its market value, was less
favorable than the Helms’ offer to purchase Tract B and all
the other property, taking
into account the relative values of the
various portions of the tract. Thus, even if the right of first
refusal was implicated,
it was not validly exercised.
’
[13]
This was the approach adopted by the New York
Supreme Court in
New Atlantic Garden v
Atlantic Garden Realty Corp.
201 App.
Div. 404.
[14]
In
New Atlantic
Garden
supra, the court took the view
that the sale of the package did not trigger the right of
pre-emption. It granted injunctive
relief on the grounds that
the package deal was of itself a transaction that would defeat the
pre-emotion agreement and that
a grantor was in principle not
permitted to so order its affairs as to defeat its ability to carry
out a pre-existing contractual
obligation. In our law a
pre-emption agreement generally does not impose a positive
obligation on the grantor to to sell
the property see
Aronsen
v Sternberg Brothers (Pty) Ltd
1985
(1) SA 613
(A) at 622A-B, citing the following statement in
Owsianick v African Consolidated
Theatres (Pty) Ltd
1967 (3) SA 310
(A)
at 321F-G), ‘
A right of
pre-emption, moreover, does not normally impose any enforceable
obligation upon the grantor of the right, but merely
restrains him
from selling to a third party, save under the conditions prescribed
in the agreement creating that right (
Sher
v Allan
1929 OPD 137
at 144)
’.
[15]
Naudé states (
op
cit
at 488) that a holder seeking
interdictory relief to prohibit the sale of the pre-emption property
‘
cannot expect to prevent a
package deal more profitable to the grantor without being willing to
buy the property at a fair price
’.
The difficulty that I have with that approach is that it goes
outside the terms of the contract in terms of which
the right of
pre-emption was conferred. Those terms ordinarily provide that
the sale of the pre-emption property will occur
at the price that
the grantor would be able to sell it at the time to a bona fide
third party purchaser. That price would
not necessarily
correspond to what might objectively be determined to be ‘a
fair price’. And what would ‘a
fair price’
connote? The market price? Or a price determined by also
taking into account matters peculiar to
the affected parties’
idiosyncratic interests? In the circumstances apparently
applied by some American courts, the
injunctive remedy would appear
to be based on a notional right that is different from that
contractually conferred. It
seems to me that the only way in
which one could rationalise the approach in principle would be by
holding it to be based on
the implied or tacit implications of the
grant of the right of first refusal particularly in issue. I
believe that it would
be difficult to do on a generalised basis.
[16]
Which was how the court interpreted clause 5 of
the contract in issue in
Sher v Allan
supra.
[17]
The decision of the New York Supreme Court for
Tomkins County in
Capalongo v Giles
425 N.Y.S. 2d 225;
102 Misc 2d 1060
(1980) is cited as exemplifying
this approach. The facts of a particular case might render
this approach impracticable;
see Keith T Smith and Shawn HT
Denstedt,
Preemptive Rights and the
Sale of Resource Properties: Practical Problems and Solutions
,
1992 30-1 Alberta Law Review 57
, 1992 CanLIIDocs 224,
http://canlii.ca/t/sl9b
, retrieved on 2020-12-20, in which the authors
opined ‘
The result in the
Capalongo
case becomes absurd where more than one party holds a right of first
refusal in different portions, must the vendor then offer
the whole
package to each of the holders of rights of first refusal?
’
In my respectful opinion it is misconceived to characterise
the result of a judgment in one case as ‘absurd’
in the
context of the postulate of entirely different facts in another
notional case. The context will inform not only
the question
of the proper construction of the contracts concerned, but also the
determination of the appropriate remedy.
[18]
Daskal, ‘
Rights
of first refusal and the package deal
’
supra (note 7).
[19]
Flannigan op cit supra, at pp.
32-33, expresses the following opinion in support of the imputation
of a fair market price: ‘
The
remedy should be granted and the price to the holder should be the
fair market value. This price standard is implicit in the
nature of
a right of first refusal. The parties originally agreed that the
price to the holder was to be what a third party would
be bona fide
willing to pay and what the vendor is willing to accept. This is
nothing more than an expression of the notion of
fair market
value
’
.
The reasoning is superficially attractive, but it does not accord
with reality or the plain import of most pre-emption
clauses.
It is notorious that bona fide contracts of sale of land commonly
occur at prices at variance with the prevailing
market value.
It is the price stipulated in a bona fide offer that the grantor is
willing to accept that generally applies
if the right of pre-emption
is exercised, not the fair market value of the pre-emption property.
[20]
See paragraphs [17]
-[19]
above.