About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2016
>>
[2016] ZASCA 173
|
|
Urban Hip Hotels (Pty) Ltd v KCarrim Commercial Properties (Pty) Ltd (1177/2015) [2016] ZASCA 173 (25 November 2016)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not
reportable
Case
No: 1177/2015
In
the matter between:
URBAN
HIP HOTELS (PTY)
LTD
APPELLANT
and
KCARRIM
COMMERCIAL PROPERTIES (PTY) LTD
RESPONDENT
Neutral
citation:
Urban
Hip Hotels v KCarrim
(1177/2015)
[2016] ZASCA 173
(25 November 2016)
Coram:
Lewis,
Shongwe, Petse, Willis and Van der Merwe JJA
Heard:
9
November 2016
Delivered:
25
November 2016
Summary:
Contract ─
interpretation ─ term contended for by the appellant excluded
by clear terms of the agreement ─ clear
terms cannot be altered
by contextual evidence of implementing the contract.
ORDER
On
appeal from
Gauteng
Division of the High Court, Pretoria (Ismail J sitting
as
court of first instance):
The
appeal is dismissed with costs including the costs of two counsel.
JUDGMENT
Van
der Merwe JA (Lewis, Shongwe, Petse and Willis JJA concurring):
[1]
The issue in this appeal is whether the appellant, Urban Hip Hotels
(Pty) Ltd, was entitled to deduct certain operating costs
from rental
income payable to the respondent, KCarrim Commercial Properties (Pty)
Ltd, in terms of an agreement between them. The
appellant had in fact
made such deductions and when it discovered this, the respondent
applied for an order in the Gauteng Division
of the High Court,
Pretoria that the appellant pay it the sum that had been deducted
plus interest. Ismail J in the court a quo
ordered the appellant to
pay the amount of R2 248 156,29 plus interest and costs to
the respondent. It granted leave
to the appellant to appeal to this
court. The quantum of the respondent’s claim is not in issue.
The issue is whether, on
a proper interpretation of the contract
between the parties, the appellant was entitled to make the
deductions that it did.
[2]
The appellant operates a number of hotels in sectional title
complexes. In terms of its standard business model, a rental pool
is
established in which the owners of sectional title units in the
particular complex participate. The units in the rental pool
are
marketed and administered by the appellant.
[3]
A participating owner becomes a member of the particular rental pool
and is liable to pay an annual membership fee. The owner
is generally
required to enter into the appellant’s standard memorandum of
agreement (standard agreement). In terms of the
standard agreement
the participating owners share in the total net rental income of all
the units in the pool, in proportion to
the percentage of interest
that they have in the rental pool, as determined by the surface area
of the respective units.
[4]
The net rental income is determined by the deduction of expenses
specified in the standard agreement from the gross rental income
of
the units in the pool. These expenses are a monthly rental pool levy
per unit, a monthly management fee payable to the appellant
calculated at 20 per cent of the gross income derived from the
letting of the unit and a proportion of the operating costs of the
pool determined by the percentage interest of the unit in the pool.
The rental pool levy is intended to cover what the appellant
terms
fixed costs. The fixed costs include only the costs of provision of
DSTV to a unit and a proportionate share of the salaries
of the
appellant’s staff in the particular complex. The amount of the
levy would fluctuate in accordance with the costs of
the fixed cost
items. The operating costs are regarded by the appellant as variable
costs and include expenses in respect of cleaning
of units, repairs
and maintenance, electricity and administration costs. In short, the
owner of a participating unit receives a
monthly amount consisting of
its proportionate share of the total rental pool income, less the
rental pool levy, the management
fee and a proportionate portion of
operating costs.
[5]
The appellant managed such a hotel rental pool at the ICON building
in Cape Town (ICON). By March 2011 approximately 36 residential
units
in the ICON formed part of the appellant’s rental pool. Its
offices were situated on the fourth floor of the building
and it had
only a reception desk at the entrance to the residential units. The
respondent owned 50 residential units and 12 corporate
and retail
units (for offices and shops) in the ICON. Its residential units were
managed by an entity called VIP Living. The respondent
had an
attractive reception area at the entrance to the residential units in
the ICON. As a result there were effectively two competing
hotels in
the ICON, namely the appellant’s operation and the respondent’s
units managed by VIP Living.
[6]
It is common cause that the appellant was keen to obtain the
respondent’s residential units and superior reception area
at
the ICON for its rental pool. It accordingly entered into
negotiations with the respondent. During the negotiations the
appellant
was represented by its managing director, Mr Kobus Botha.
Mr Zaheed Carrim, the director and chief executive officer of the
respondent,
acted for the respondent, assisted by its operations
manager, Mr Dick Putter. There can be no doubt that during these
negotiations
the respondent was in a strong bargaining position.
[7]
On or about 31 March 2011 the negotiations resulted in the conclusion
of a written agreement between the parties entitled Memorandum
of
Understanding (MOU). The MOU was to serve as an interim arrangement
for the period from 1 April 2011 to 31 January 2012, in
anticipation
of entering into a more comprehensive and lasting agreement.
[8]
In terms of the MOU the respondent placed 48 of its residential units
in the appellant’s rental pool at the ICON and the
respondent
let its reception area to the appellant. The respondent thus became
entitled to a proportionate share of the rental
pool income. Clause
3.4 of the MOU provided that the repairs and maintenance in respect
of normal wear and tear of the units would
be for the account of the
appellant. In respect of the financial obligations of the respondent
the MOU provided as follows:
‘
4.3
Expense Contribution
The
parties agreed that a levy rate of R1,250.00 per rentable unit will
apply for the duration of the agreed initial term of the
arrangement
based on the number of units made available by KCarrim Commercial
Properties and defined in the monthly Residential
list to be supplied
by Carrim for the month in advance. No other expense or payment would
be allowed and any deviation or adjustment
hereof must be recorded in
writing with a reference to this provision, dated and signed by both
parties.
4.4
Management Fee
The
parties agreed that the monthly management fee payable to Urban Hip
will be calculated on a rate of 14% of the turnover, excluding
VAT
and will be recorded on a VAT Invoice submitted to Carrim for payment
not later at the 25
th
of each month of operation.’
[9]
Clause 4.7 of the MOU read:
‘
Final
Agreement
The
parties agreed to honour and respect these recorded terms, business
standards and practises until it would be replaced or confirmed
by an
Agreement of which the final terms would be defined and agreed to not
later than 20 January 2012 and that the objective of
the arrangement
would be to establish a profitable arrangement as the basis thereof.
The final implementation date is agreed and
set for 1 February 2012.’
Clause
6.2 provided as follows:
‘
Variation
No
variation or consensual cancellation of this MOU shall be of any
force or effect unless reduced to writing and agreed by all
parties.’
The
MOU was amended by two written agreements entered into on 31 May
2011, but it is not necessary to refer to their provisions.
[10]
The MOU was thus very different from the standard agreement used by
the appellant. A fixed and not variable levy rate and a
reduced
management fee were agreed upon. Importantly, according to the
respondent it was, in terms of clause 4.3 of the MOU, also
not liable
for operating costs in respect of the rental pool.
[11]
The envisaged comprehensive agreement did not materialise. It is
common cause that the MOU was terminated on 29 February 2012.
The
respondent said that during March 2012, Mr Putter ascertained that
over the period from 1 April 2011 to 29 February 2012, the
appellant
had deducted operating costs from income due to the respondent, over
and above the expense contributions/levy rate in
terms of clause 4.3
and the management fee. As a result the accounts of the appellant
were analysed with greater care by the respondent.
It determined that
the deductions in respect of operating costs for the duration of the
MOU amounted to R2 248 156,29
– hence the application
against the appellant for payment of this sum, interest thereon from
date of demand and costs.
[12]
As I have said, the correctness of the amount is not in dispute. The
appellant opposed the application essentially on the ground
that the
standard agreement formed part of the agreement between the parties.
Its case was that the relationship between the parties
was governed
by the standard agreement save as otherwise provided for in the MOU.
Therefore, so the appellant averred, the respondent
was in fact
liable for operating costs and the appellant was entitled to deduct
the amount of R2 248 156,29.
[13]
The application was referred for the hearing of oral evidence on the
following questions:
‘
1.1
Did the Respondent’s standard memorandum of agreement . .
. form part of the contract
between the parties?
1.2
Did the three MOU’s constitute the exclusive memorial of what
was agreed between the
parties?’
Only
Mr Carrim and Mr Botha testified in the court a quo. It found for the
respondent in the following terms:
‘
I
am therefore of the view that the MOU was the sole memorial between
the parties for the period that it existed, albeit for a short
duration of time, and that the respondent’s standard pool
agreement did not form part of the agreement between the parties.’
It
granted the relief claimed in the notice of motion.
[14]
Before us, the appellant did not challenge the finding that the
standard agreement did not form part of the agreement between
the
parties. This stance is no doubt correct. Although the standard
agreement had been sent to the respondent at the initial stage
of the
negotiations, it was never referred to again. It is clear from the
evidence that Mr Carrim would under no circumstances
have bound the
respondent to the standard agreement. For this reason the respondent
prepared the MOU, which after the signature
thereof by Mr Botha,
constituted the only document evidencing the contract between the
parties.
[15]
The argument before us was that on an interpretation of the MOU, the
appellant was entitled to deduct operating costs. It was
submitted
that the appellant’s normal practice in respect of deduction of
operating costs applied to the MOU as did its standard
practice of
allocating rental income. (The respondent has no quarrel with the way
in which rental income was determined.) For this
argument the
appellant relied on an interpretation of clause 4.3 read with clause
4.4, together with clause 4.7 and on the alleged
conduct of the
respondent subsequent to the MOU.
[16]
As I understood it, the argument went along the following lines.
Because clause 4.4 dealt with the payment of management fees,
the
phrase ‘no other expense or payment would be allowed’ in
clause 4.3, could not mean what it says. Clause 4.3 deals
only with
the rental pool levy for fixed costs. As the MOU therefore contained
no mechanism for determination of the net rental
income, it must have
been intended that the appellant’s normal practice in respect
of both allocating rental income and deducting
operating costs
applied. It was submitted that this conclusion was supported by
clause 4.7 and evidenced by the subsequent conduct
of the respondent.
[17]
There is no merit in this argument. It is trite that the MOU must be
read as a whole. The subject of clause 4.3 is contribution
to
expenses and that of clause 4.4 is the management fee. The wording of
clause 4.3 makes it abundantly clear that, apart from
the levy rate
of R1 250 per unit, the respondent would not be liable for any
other expense or payment unless otherwise agreed
in writing and
signed by both parties. Seen thus, the MOU indeed contained a method
of determination of the net amount payable
to the respondent, ie its
proportionate gross rental income less the expense contribution and
the management fee.
[18]
In the final analysis the appellant relies on nothing other than a
tacit term of the MOU to the effect that the appellant’s
normal
practice in respect to operating costs would apply. Reliance on such
a tacit term is unfounded for a variety of reasons.
It was not
pleaded nor raised in the court a quo. As I have pointed out, the MOU
is complete and efficacious. The parties applied
their minds to the
subject of operating costs. They excluded liability for operating
costs on the part of the respondent by the
express provisions of
clause 4.3 and the deliberate exclusion of the standard agreement
from their agreement. In these circumstances
there is no room for
this tacit term. See
Robin
v Guarantee Life Assurance Co Ltd
[1984] ZASCA 72
;
1984 (4) SA 558
(A) at 567B-F. In any event, on the evidence it can
be stated with confidence that had the officious bystander during the
negotiations
raised the question as to whether the respondent would
be liable for operating costs, Mr Carrim would have firmly answered
in the
negative.
[19]
On a proper interpretation of clause 4.7, the words ‘terms,
business standards and practices’ are all qualified
by the
words ‘these recorded’. Clause 4.2 for instance provides
as follows:
‘
Service
Delivery Standard
The
parties agreed that the operational co-operation standard to be
applied would be similar to those standards that make up the
total
business of Urban as exercised in all its rental pool premises.’
The
submission that clause 4.7 refers to extraneous business standards
and practices can therefore not be accepted. The appellant’s
interpretation in any event takes its case no further. The alleged
extraneous business standards and practices are unidentified,
but can
certainly not refer to the standard agreement.
[20]
It remains to deal with the appellant’s submission in respect
of the alleged subsequent conduct of the respondent. The
appellant
relied upon the evidence that for the duration of the MOU, the
appellant furnished the respondent with monthly accounts
that
reflected deductions of operating costs. It is undisputed that
despite discussions of these accounts by Mr Putter with the
appellant, the respondent did not, during the contract period, object
to the accounts on the ground that the deduction of operating
costs
was impermissible.
[21]
It is now well established that the meaning of a contract must be
ascertained by consideration of the words used, the contract
as a
whole and the context or factual matrix in which the contract was
concluded, irrespective of whether there is an ambiguity
in the
meaning thereof. See
Novartis
SA (Pty) Ltd v Maphil Trading (Pty) Ltd
[2015] ZASCA 111
;
2016 1 SA 518
(SCA) para 28. I accept that in an
appropriate case the manner in which the parties to a contract
carried out their agreement,
may be considered as part of the
contextual setting in which the terms of the contract are to be
determined. See
Unica
Iron and Steel (Pty) Ltd & another v Mirchandani
[2015] ZASCA 150
;
2016 (2) SA 307
(SCA) para 21 and G B Bradfield
Christie’s Law
of Contract in South Africa
,
7 ed, at 254. The use of such evidence is, however, subject to three
provisos. First, the evidence must be indicative of a common
understanding of the terms and meaning of the contract. Second, as
pointed out by Bradfield, (supra) at 254, the evidence may be
used as
an aid to interpretation and not to alter the words used by the
parties. See also
Comwezi
Security Services (Pty) Ltd & another v Cape Empowerment Trust
Ltd
(759/2011)
[2012] ZASCA 126
(21 September 2012). Third, as Harms JA cautioned in
KPMG Chartered
Accountants (SA) v Securefin Ltd & another
[2009] ZASCA 7
;
2009 (4) SA 399
(SCA) para 39, the evidence must be
used ‘as conservatively as possible’.
[22]
In this matter the evidence by no means established that the conduct
of the respondent is consistent only with acceptance of
liability for
operating costs in terms of the MOU. The failure of both Mr Putter
and the accounts department of the respondent
to raise the question
of operating costs before March 2012, may simply be ascribed to a
mistake or misunderstanding. This appears
to be supported by the fact
that the impermissible deduction by the appellant of operating costs
in respect of repairs and maintenance,
was also not picked up. It is
clear that Mr Carrim was the directing mind of the respondent. His
evidence that he was not furnished
with the appellant’s
accounts and that he was therefore unaware of the deduction of
operating costs before March 2012, cannot
be rejected, to say the
least. In any event, as I have said, the clear meaning of clause 4.3
of the MOU cannot in the circumstances
be varied by evidence of
conduct subsequent to the entering into of the MOU.
[23]
Accordingly, as the court a quo found, the appellant was not entitled
to deduct the operating expenses that it did and the
respondent is
entitled to payment of the sum underpaid.
[24]
The appeal is dismissed with costs including the costs of two
counsel.
__________________
C
H G van der Merwe
Judge
of Appeal
APPEARANCES:
For
Appellant:
B H Swart SC
Instructed by:
Joubert Swart Attorneys,
Randburg
Rossouw & Conradie
Inc, Bloemfontein
For
Respondent:
A Gautschi
SC (with him J Myburgh)
Instructed by:
Errol Goss Attorneys,
Pretoria
Eugene Attorneys,
Bloemfontein