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[2015] ZAGPJHC 78
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Superstrike Investments 53 (Pty) Ltd v Siyakha Management Services (Pty) Ltd and Others (2006/2035) [2015] ZAGPJHC 78 (29 April 2015)
REPUBLIC
OF SOUTH AFRICA
IN THE HIGH COURT
OF SOUTH AFRICA
GAUTENG LOCAL
DIVISION, JOHANNESBURG
CASE
NO:
2006/2035
DATE:
29 APRIL 20105
In
the matter between:
SUPERSTRIKE
INVESTMENTS 53 (PTY)
LTD
....................................................................
Plaintiff
And
SIYAKHA
MANAGEMENT SERVICES PTY
LTD
...................................................
First
Defendant
BONILE
SIMON
JACK
.............................................................................................
Second
Defendant
OPTIMA
PROPERTY SOLUTIONS PTY
LTD
........................................................
Third
Defendant
JUDGMENT
A.C.
BASSON, J
The
parties
[1]
The
plaintiff, Superstrike Investments 53 (Pty) Ltd is a private company
incorporated with limited liability and the developer of
the Palm
Springs Mall (hereinafter referred to as “the mall”)
situated in the broader Orange Farm area. The first defendant
is
Siyakha Management Services (Pty) Ltd a private company incorporated
with limited liability. The second defendant is Mr Bonile
Simon Jack
a director of the first defendant. At all material times the second
defendant represented the first defendant in its
dealings with the
plaintiff. The third defendant is Optima Property Solutions Pty Ltd
and was the broker/agent who introduced the
first defendant to the
plaintiff as a prospective tenant of the mall. The third defendant
has not entered an appearance to defend
and no order is sought
against the third defendant.
[1]
The
dispute
[2]
The plaintiff sues the first and second
defendants for damages arising from the cancellation of a lease
agreement. The second defendant
is sued because he signed as surety
for the first defendant. In essence it is the case for the plaintiff
that the defendants expressly
orally represented to the plaintiff
that the first defendant was the franchisee of Fruit & Veg City
and that the business to
be operated from the premises would be a
Fruit & Veg City shop. This representation was repeated by the
first and second defendants
in writing in the offer to lease and in
the signed lease agreement. It is further the plaintiff’s case
that the said representation
was made with the intention to induce
the plaintiff to enter into the offer to lease and the lease
agreement. The plaintiff claims
that it was so induced to enter into
the lease agreement to its prejudice. As a result of the
misrepresentation the plaintiff became
entitled to cancel the lease
agreement and indeed did so by entering into an agreement of
cancellation on 21 July 2006. The plaintiff
alleges that the
representation was to the knowledge of the defendants false in that
the second defendant was aware of the fact
that the first defendant
was not the franchisee of Fruit & Veg City and that Fruit &
Veg City had not approved the premises
for purposes of a Fruit &
Veg City store.
[3]
The quantum and merits of the
plaintiff’s claim have been separated. The first and second
defendants seek a dismissal of the
plaintiff’s claim.
The
Offer to Lease 1 June 2006
[4]
Miss Annalise Manichkum (the Managing
Director of the third defendant – hereinafter referred to as
“the agent”)
introduced the first defendant as a
prospective tenant for a shop in phase 2 of the mall. Mr Richard
Herring (hereinafter referred
to as “Richard”) explained
that the plaintiff was looking for an anchor tenant in the second
phase of the development
of the mall. Shoprite Checkers is already
the anchor tenant in the first phase of the development. He explained
the importance
of having an anchor tenant as the anchor tenant draws
customers to the mall and ultimately benefits the line shops. Line
shops
around or near the anchor tenant therefore feed off the anchor
tenant and usually conclude their lease agreements on the back of
the
anchor tenant’s lease. Richard explained that if an anchor
tenant withdraws it has catastrophic consequences as that
could
result in the line shops withdrawing from the mall.
[5]
On 10 January 2006 the second defendant
wrote to the agent stating that he would like to confirm their
interest to open a Fruit
& Veg City store at the mall. In this
email the second defendant specifically recorded that –
“
We
have a standing agreement with Fruit & Veg City to identify
feasible sites for this purpose. The training space required
is about
1200 m² with access to about 2000 m² parking.
The
final lease agreement will be subject to satisfactory negotiations in
terms of rental per square metre as well as other matters
relating to
the responsibility for costs relating to the maintenance of the
facility.
All
these matters will be dealt with together with Mr Mike Coppin of
Fruit& Veg City.”
[6]
Richard explained that the plaintiff had
requested to receive an offer to lease from Fruit & Veg
(the franchisor) and
that they were keen to conclude a so-called
“corporate lease” with Fruit & Veg as opposed to a
lease agreement
with the franchisee (the first defendant). Ultimately
the lease agreement was concluded with the first defendant.
[7]
On 7 March 2007 the agent sent through
the first offer to lease. This offer to lease was a corporate lease.
On 22 March 2006 a signed
offer to lease was returned to the
plaintiff. This offer to lease was no longer a corporate lease but
was signed by the second
defendant on behalf of the first defendant.
The gross rental rate was reduced from R52 to R42 per square metre.
Richard explained
that he did not sign this offer as this was now a
franchisee lease and no longer a corporate lease. The tenant is
indicated as
Fruit & Veg and the shop is indicated as per the
attached plan in phase 2 of the mall.
[8]
On 29 May 2006 Richard sent an offer to
lease directly the first defendant bypassing the agent. This offer
identified the tenant
as the first defendant trading as Fruit &
Veg City (represented by Bonile Jack - the second defendant). The
shop is identified
as shop number 68 in phase 2 at Palm Spring Mall
measuring 1200 m². The offer contains the following
paragraph:
“
I
also confirm that Fruit & Veg City have approved my entering into
this deal and the Landlord is hereby requested to proceed
with the
building of 1200 m² store as per the specifications given to the
landlord.”
[9]
This paragraph was manually amended by
the second defendant to read as follows:
“
I
also confirm that Fruit & Veg have approved the site for trading
purposes and that the Landlord is hereby requested to proceed
with
the building of our 1200 m² store as per the specifications
given to the landlord.”
The
offer to lease (as amended) was signed on 1 June 2006. Although the
parties refer to this as “an offer” it is in
fact an
agreement.
[10]
Two facts
emerge from the signed offer to lease: Firstly, the first defendant
confirmed that Fruit & Veg approved the “site”
for
trading and secondly, the second defendant expressly instructed the
landlord to proceed with building the store as per the
specifications
given to it. No mention is made in this offer of the fact that the
first defendant is not in possession of a franchise
agreement from
Fruit & Veg granting it the right to open and trade as a Fruit &
Veg City store and no mention is made of
the fact that Mr Coppin of
Fruit & Veg City first had to approve the location of the shop
before the first defendant would
be entitled to trade as a Fruit &
Veg.
Lease
Agreement 15 June 2006
[11]
It is common cause that the
plaintiff (represented by Mr Steven Herring - a director) and the
first defendant (represented by the
second defendant) entered into a
lease agreement on 15 June 2006. In terms of this agreement the first
defendant rented a property
in the mall and more specifically in
phase 2 of the development.
The
relevant stamp duties in the amount of R 50 065.56 was paid over
to SARS by the plaintiff.
[12]
In terms of clause 3.2 of lease
agreement it is specifically recorded that the shop will trade as a
Fruit & Veg City and that
its permitted use is the sale of fresh
fruit and vegetables, fresh milk, fresh juice, pasta and related
items, dry fruits and nuts
and dry spices. The plaintiff first had to
obtain permission from Shoprite Checkers to waive their exclusivity
to sell food and
to allow the plaintiff to put approximately 1000 m²
at the disposal of Fruit & Veg City in phase 2 of the mall.
Shoprite
Checkers subsequently waived their exclusivity and therefore
paved the way for the plaintiff to conclude a lease agreement with
the first defendant.
[13]
Various
annexures are attached to the agreement. Annexure “C”
refers to the Architectural Outline Specifications of
Fruit & Veg
City. This document provides for the general specifications in
respect of,
inter
alia
,
ventilation gutters; down pipes; doors; internal wall and partitions;
floor finishes; ceilings; general fittings and fixtures;
plumbing and
installation; juice and milk bar; the water bar and the receiving
area. Also attached is the floor plan of the shop
depicting,
inter
alia,
the
main entrance offices and trading area; the milk bar; the water bar
and the housewives corner. Clause 2.1.12 specifically refers
to the
detailed specifications contained in Annexure “C”. The
following is specifically recorded in clauses 3.3 and
3.4:
“
3.3
The Lessor has agreed to lease to the lessee who has agreed to hire
the Premises which lease shall be subject to the terms and
conditions
of this lease.”
“
3.4
The shop will trade as FRUIT AND VEG CITY and is permitted use is the
sale of fresh fruit and vegetables, fresh milk, fresh
juice, pasta
and related items the two, dry fruits and nuts, and dry spices.”
Annexure
“D” refers to the proposed floor plan. Fruit & Veg is
depicted on the plan as shop 68.
[14]
Mr Coppin of
Fruit & Veg (hereinafter referred to as “Coppin”)
only visited the mall
after
the lease agreement was signed. Coppin is a founder of Fruit &
Veg and is the Franchise Director of Fruit & Veg. He explained
that he had met the second defendant when the second defendant was
still on the board of the Johannesburg Fresh Produce Market.
After
negotiations with the second defendant a successful franchise
agreement was concluded with the first defendant in respect
of a shop
in Mabopane. Coppin explained that in the case of the Mabopane store
the second defendant showed him the site and only
after negotiations
with the landlord - which included the relocation of the store to a
more favourable location - was a lease agreement
signed. The second
defendant was thereafter requested by Coppin to find more business
opportunities – especially in the so-called
township areas - to
open further Fruit & Veg stores. On one occasion the second
defendant had identified a possible opportunity
in Midrand but after
Coppin had visited the site it was rejected by Coppin as a possible
business opportunity.
[15]
Coppin
explained that although the second defendant was in fact granted the
franchise to open a store in the Orange Farm area he
was not aware of
the fact that the second defendant had indeed signed a lease
agreement in respect of the mall. He also testified
that he had not
seen the premises until after the lease agreement had been signed and
that he did not know what the location of
the store was. In fact he
testified that had he known about the lease agreement he would have
told the second defendant not to
sign a lease agreement until he
(Coppin) had seen the location of the store.
[16]
On 7 July 2006
Mr Grant Steenkamp (the tenant coordinator) sent an e-mail to Coppin
requesting the specifications for the store.
Coppin responded on 9
July 2006 that he will send it over the weekend. He testified that he
was surprised when he received the
e-mail because he had not seen a
lease agreement nor has he seen the site plans. After this email
Coppin then decided to visit
the site together with Mr Woods (the
Area Manager). He testified that he walked around on the site which
was still in its foundation
phase. He then met with Steven. He
testified that he had informed Steven that he could not allow the
first defendant to open the
store in the mall because he was not
happy with the location of the store. According to Steven, Coppin was
extremely arrogant.
Coppin told him that he did not like Orange Farm
because it was a low income area and that he did not like the site
and that he
would not take the store. Although Coppin could not
recall the contents of the conversation in great detail he did
concede that
he may have told Steven that he did not like the
shopping centre. According to Coppin he would have considered the
mall if was
offered an alternative location but that did not happen
as a result of the altercation. Neither Coppin nor Steven contacted
each
other to discuss the possibility of an alternative arrangement.
The outcome of this altercation was that Richard contacted the second
defendant to cancel the agreement as it was clear that Fruit &
Veg would not open a store in the mall.
[17]
In
an e-mail following the meeting, Coppin confirmed that “[w]e
have decided that the site would not be suitable for a FVC
[Fruit &
Veg City]..”. Coppin explained that he intended the word “the
site” to mean the location of the
shop in the mall. He
testified that he had telephoned the second defendant and informed
him that he was not prepared to allow him
to trade a shop form that
location. The result was that the first defendant was unable to
perform in terms of the lease agreement.
I am in agreement that this
constituted an anticipatory breach that clearly went to the heart of
the contract.
[2]
The second
defendant also conceded that the first defendant could not perform in
terms of the lease agreement unless it was amended.
Cancellation
of the lease agreement 20 July 2006
[18]
On 20 July
2006 the plaintiff (represented by Steven) and the first defendant
(represented by the second defendant) concluded an
agreement of
cancellation. This agreement contains only two clauses and reads as
follows:
“
1.
On the 15
th
June 2006 an Agreement of Lease was entered into between the above
parties.
2.
It has been mutually agreed that the lease be cancelled with
immediate effect.”
[19]
This agreement
does not expressly provide that the agreement is in full and final
settlement. This much was also conceded by the
second defendant. The
second defendant, however, testified that he would not have signed
the agreement had he been made aware of
the fact that the plaintiff
intended to sue him for misrepresentation. On 20 July 2006 the first
defendant also informed the plaintiff
in writing that the lease had
been cancelled with effect from date of signature. Steven explained
that it was necessary to have
such a letter in order to claim back
from SARS the stamp duties paid in respect of the agreement of lease.
The
relationship between Fruit & Veg and the first defendant
[20]
It is for
purposes of this judgement important to point out what the
relationship between Fruit & Veg and the first and second
defendants was at the time when the lease agreement was signed. It is
clear from the evidence of Coppin that he (in his position
as
Franchise Director of Fruit & Veg City) would not allow a
franchisee to open a store if he was not satisfied that the store
would be in a favourable location. Although it was the evidence of
Coppin that the second defendant did have permission to open
a store
in Orange Farm it is clear from his evidence that if he was not happy
with the location of the store he would not allow
the franchisee to
open a store. This is consistent with his evidence that he had told
Steven that he would not allow the franchisee
to open a store in the
mall. It was also the evidence of Coppin that he was surprised when
he was asked in an email to submit site
plans as he had not seen the
site nor had he been made aware of the fact that the second defendant
had signed a lease agreement.
Coppin also explained that a franchisee
must have a written franchise agreement before it can open a store
although he stated that
this can be signed at any stage. Of
important, however, is Coppin’s evidence that, although it was
correct that the second
defendant was allowed to look for possible
locations for new stores, he must first look at the store and approve
whether a store
can be placed in a specific location. In fact, Coppin
expressly stated that the second defendant could not trade in a
specific
shop if he did not approve of the location and that the
second defendant could not open a shop without his approval. I have
already
referred to the fact that prior to the email from Steenkamp
dated 7 July 2006, Coppin was not even aware of the fact that the
second
defendant had signed a lease agreement. In this regard Coppin
testified that if the second defendant had brought him the lease
agreement he would have told him that they first had to look at the
location and that a lease agreement can only be signed after
he has
approved the location. After Coppin informed Steven that he would not
allow the defendants to open a Fruit & Veg in
the mall he sent an
email informing Steven that they will not send the tenant specs as
the site was not suitable for a Fruit &
Veg City store.
What
was represented to the plaintiff?
[21]
Three
documents are important: The offer to lease, the lease agreement and
the cancellation agreement. It is now settled law that
all documents
are interpreted within its particular factual matrix. This contextual
approach was summarised by the Court in
Joint
Municipal Pension Fund v Endumeni Municipality
as
follows:
[3]
“
The
present state of the law can be expressed as follows: Interpretation
is the process of attributing meaning to the words used
in a
document, be it legislation, some other statutory instrument, or
contract, having regard to the context provided by reading
the
particular provision or provisions in the light of the document as a
whole and the circumstances attendant upon its coming
into existence.
Whatever the nature of the document, consideration must be given
to the language used in the light of the
ordinary rules of grammar
and syntax; the context in which the provision appears; the apparent
purpose to which it is directed
and the material known to those
responsible for its production. Where more than one meaning is
possible each possibility must be
weighed in the light of all these
factors. The process is objective, not subjective. A sensible meaning
is to be preferred
to one that leads to insensible or unbusinesslike
results or undermines the apparent purpose of the document. Judges
must be alert
to, and guard against, the temptation to substitute
what they regard as reasonable, sensible or businesslike for the
words actually
used. To do so in regard to a statute or statutory
instrument is to cross the divide between interpretation and
legislation;
in a contractual context it is to make a contract for
the parties other than the one they in fact made. The 'inevitable
point of
departure is the language of the provision itself',
16
read in context and having regard to the purpose of the provision and
the background to the preparation and production of
the
document.”
[22]
This
does not, however, mean that the
parol
evidence
rule no longer applies. See
[zRPz]
KPMG
Chartered Accountants (SA) v Securefin Ltd and Another
2009
(4) SA 399 (SCA)
[4]
“
[39]
First, the integration (or parol evidence) rule remains part of our
law. However, it is frequently ignored by practitioners
and seldom
enforced by trial courts. If a document was intended to provide a
complete memorial of a jural act, extrinsic evidence
may not
contradict, add to or modify its meaning (
Johnson
v Leal
1980
(3) SA 927
(A)
at
943B). Second, interpretation is a matter of law and not of fact and,
accordingly, interpretation is a matter for the court and
not for
witnesses (or, as said in common-law jurisprudence, it is not a jury
question: Hodge M Malek (ed)
Phipson
on Evidence
(16 ed 2005) paras 33 - 64). Third, the rules about
admissibility of evidence in this regard do not depend on the nature
of the document, whether statute, contract or patent (
Johnson
& Johnson (Pty) Ltd v Kimberly-Clark Corporation and
Kimberly-Clark of South Africa (Pty) Ltd
1985 BP 126 (A) ([1985] ZASCA 132 (at www.saflii.org.za)). Fourth, to
the extent that evidence may be admissible to contextualise
the
document (since 'context is everything') to establish its factual
matrix or purpose or for purposes of identification, 'one
must use it
as conservatively as possible' (
Delmas
Milling Co Ltd v Du Plessis
1955
(3) SA 447 (A)
at
455B - C). The time has arrived for us to accept that there is no
merit in trying to distinguish between ‘background
circumstances'
and 'surrounding circumstances'. The distinction
is artificial and, in addition, both terms are vague and confusing.
Consequently,
everything tends to be admitted. The terms 'context' or
'factual matrix' ought to suffice. (See
Van
der Westhuizen v Arnold
2002
(6) SA 453 (SCA)
([2002]
4 All SA 331)
paras 22 and 23, and
Masstores
(Pty) Ltd v Murray & Roberts Construction (Pty) Ltd and Another
[2008] ZASCA 94
;
2008
(6) SA 654
(SCA)
para
7.)”
[23]
More
recently the Supreme Court of Appeals in
Shakawa
Hunting & Game Lodge (Pty) Ltd v Askari Adventures CC
[5]
endorsed
the approach of the Court in
Endumeni
as follows:
“
[11]
As to the evidence of the witnesses on what they believed or thought
the agreement meant, it needs be remembered that we are
here dealing
with the interpretation of a contract.
Consequently,
what the parties and their witnesses ex post facto think or believe
regarding the meaning to be attached to the clauses
of the agreement,
and thus what their intention was, is of no assistance in the
exercise
.
[6]
In
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012
(4) SA 593
;
[2012] ZASCA 13
(SCA) this court (per Wallis JA) said
this with regard to the construction of a document:
‘
The
present state of the law can be expressed as follows: Interpretation
is the process of attributing meaning to the words used
in a
document, be it legislation, some other statutory instrument, or
contract, having regard to the context provided by reading
the
particular provision or provisions in the light of the document as a
whole and the circumstances attendant upon its coming
into existence.
Whatever the nature of the document, consideration must be given to
the language used in the light of the ordinary
rules of grammar and
syntax; the context in which the provision appears; the apparent
purpose to which it is directed and the material
known to those
responsible for its production.’
And
further:
‘
Unlike
the trial judge I have deliberately avoided using the conventional
description of this process as one of ascertaining the
intention of
the legislature or the draftsman, nor would I use its counterpart in
a contractual setting, “the intention of
the contracting
parties”, because these expressions are misnomers, insofar as
they convey or are understood to convey that
interpretation involves
an enquiry into the mind of the legislature or the contracting
parties. The reason is that the enquiry
is restricted to ascertaining
the meaning of the language of the provision itself.’
(Footnotes omitted.)
[12]
What was said in
Endumeni Municipality
regarding the
expression ‘the intention of the parties’ is in line with
what was expressed by Greenberg JA more than
six decades ago in
Worman v Hughes & others
1948 (3) SA 495
(A) at 505,
namely:
‘
It
must be borne in mind that in an action on a contract, the rule of
interpretation is to ascertain, not what the parties’
intention
was, but what the language used in the contract means . . . .’
It
follows that the testimony of the parties to a written agreement as
to what either of them may have had in mind at the time of
the
conclusion of the agreement is irrelevant for purposes of
ascertaining the meaning of the words used in a particular clause.”
[24]
There
was some debate over the meaning of the word “site” and
whether it should be interpreted in light of what is contained
in the
earlier draft. Suffice to point out that the fact that the initial
draft which was amended by the second defendant is only
relevant to
show that the offer to lease was a negotiated document. The signed
offer to lease cannot be properly interpreted using
the earlier draft
because firstly, the draft forms part of the prior negotiations
between the parties and is accordingly inadmissible,
[7]
and, secondly, the deleted words or phrases in an earlier document
cannot be used to interpret a subsequent document.
[8]
[25]
The
authors of
Contract:
General Principles
[9]
state the following in respect of representations made during
negotiations:
“
A
representation is any conduct which creates a particular impression
in the mind of the other contractant, The conduct may be a
commission
(representation
per
commissionem
,
that is by a positive act, doing something) or an omission
(representation
per
omissionem
,
that is by refraining from doing something). A representation by
commission may be made in so many words (orally or in writing)
or by
conduct alone.”
[26]
What did the
first and second defendants, if any, represent to the plaintiff?
Having regard to the principles set out hereinabove,
I am persuaded
that when the second defendant recorded in the offer to lease that
Fruit & Veg City have approved “the
site” for trading
purposes he in fact conveyed and represented to the plaintiff that he
had the necessary authority to trade
a Fruit & Veg City store
from shop no 68 in phase 2 of the mall. This representation is
reinforced by the fact that the second
defendant then specifically
instructed the landlord to proceed with the building of the store as
per the specifications. This representation
is repeated in the lease
agreement where the second defendant signed the lease again expressly
conveying to the plaintiff that
the first defendant “will trade
as a FRUIT AND VEG CITY”. The fact that specific reference is
made in the attachments
to Fruit & Veg City Architectural
specifications could not have left any doubt in the mind of the
plaintiff that the first
and second defendants intended to trade as a
Fruit & Veg and that they had the necessary authority to do so.
[27]
Did the second
defendant know that he did not have the authority to open a Fruit &
Veg City store without the go-ahead of Coppin?
I am persuaded on the
evidence that the second defendant knew that he did not have the
authority to open a Fruit & Veg City
store. It is clear from the
evidence of the second defendant and especially that of Coppin that a
person or franchisee will not
be allowed to trade as a Fruit &
Veg City store unless and until Coppin has approved the site and the
location of the store.
At the time of the signing of the offer to
lease and the subsequent lease agreement Coppin has not yet approved
the location of
the store and could have vetoed the site and the
location of the shop. The second defendant knew that there was such a
possibility.
In fact, in a letter dated 10 January 2006, the second
defendant expressly mentioned that any agreement will be “dealt
with
together with Mr Coppin”. Despite this statement the
second defendant concluded the contract without Coppin. Furthermore,
at the time of the signing of the lease agreement the defendants have
not yet concluded a written franchise agreement with Fruit
& Veg.
In fact, Coppin only became aware of the lease agreement and only saw
a copy of the lease agreement for the first time
in Court. At the
time of the signing of the lease agreement there therefore was no
guarantee that the defendants would be able
to perform in terms of
the lease agreement and the second defendant must have known this.
[28]
Although the
second defendant testified that Steven and Richard were aware of the
fact that he was not in possession of a written
franchise agreement,
this fact was never put to either of them. In fact, it was the
evidence of Steven that had he known this he
would not have signed
the agreement. The second defendant also tried to persuade the Court
that Steven knew or ought to have known
when he read the offer to
lease that Fruit & Veg City had only approved the “site”
and not the “deal”.
I am not persuaded. At no stage was
the plaintiff made aware that the Fruit & Veg City store was
conditional upon the approval
of Coppin. Furthermore, any reasonable
person reading the offer and the lease agreement would have
been brought under the
impression that the defendants had the
necessary approval to open and trade as a Fruit & Veg City store
in the mall especially
in light of the fact that the landlord was
specifically instructed to construct the shop according to Fruit &
Veg City specifications.
Why would a prospective tenant instruct a
landlord to proceed with the building of a store in accordance with
Fruit & Veg City
store specifications if it did not have the
necessary authority to trade as a Fruit & Veg City store in a
specific location?
Furthermore, why did the second defendant not
inform the plaintiff that the offer to lease was conditional upon the
approval of
Fruit & Veg City and more in particular that of
Coppin before the defendants would be able to trade? When the lease
agreement
was ultimately signed the second defendant equally did not
inform the plaintiff that the lease was conditional upon the approval
of Coppin. In fact, the lease agreement is completely silent on this
issue and also silent on the fact that the defendants still
had to
conclude a franchise agreement with Fruit & Veg. What compounds
matters further is the fact that the lease agreement
expressly
records that the shop will trade as a Fruit & Veg City. Again,
any reasonable person reading the lease agreement
would have been
entitled to accept that the defendants had the necessary authority
from Fruit & Veg City to open a shop and
trade under the brand
name of Fruit & Veg City. To a question why the second defendant
did not include such a condition in
the lease agreement, the second
defendant merely testified that it was an oversight. Richard also
testified that he believed the
second defendant when he was told that
he could open a Fruit & Veg store. More in particular,
Richard testified that
he was not informed that Coppin first had to
approve the site before the second defendant could trade as a Fruit &
Veg City
store. He further testified that the second defendant knew
where the store was located and that he did not believe that anyone
would have signed a lease agreement if they did not know the location
of the shop. In this regard Steve also testified that it was
common
practice that tenants would ask about the shop layout and the
location of the shop prior to signing a lease agreement. He
testified
that he has been involved in the development of approximately 20
malls in South Africa and various in Zambia and that
in each instance
the tenant knew where the store was located.
[29]
It was further
also not disputed that the intended Fruit & Veg City shop would
have been an anchor tenant and that the lease
of the various line
shops was concluded on the back of the lease agreement with the
defendants. In this regard it was the evidence
of Steven that he
would not have signed the lease agreement if the first defendant
intended to trade under another brand name.
He explained that he
signed the lease agreement in the belief that Fruit & Veg had
approved the deal. Steven was also adamant
that he would not have
signed the lease had he known that the second defendant did not have
the necessary approval from Fruit &
Veg City. He also testified
that he would not have signed the lease agreement if the parties
still had to agree on the exact location
of the store. The lease
agreement does not contain a provision that the agreement is subject
to negotiations or discussions as
to where the shop would be located.
Did
the second defendant acting on behalf of the first defendant make a
fraudulent or intentional misrepresentation?
[30]
The plaintiff
relies on the following three representations and allege that this
amounted to fraudulent misrepresentations:
(i)
that the first
defendant was the franchisee of the Fruit & Veg City franchise;
(ii)
that the first
defendant was authorised to open our Fruit & Veg City franchise
at the mall; and
(iii)
that the
business to be operated from the premises would be a Fruit & Veg
City shop.
An
assessment of whether the plaintiff has proven that the second
defendant knew that he did not have authority to open the store
must
be done taking into account the objective facts.
[31]
In essence the
argument on behalf of the defendants was that although it admitted
that the defendants made a representation, that
representation did
not constitute a fraudulent misrepresentation simply because the
second defendant fully intended opening a Fruit
& Veg City Store.
The fact that it did not materialise only results in a contractual
claim. It was submitted that because a
contractual claim is not made
out in the Particulars of Claim, the plaintiff’s cause of
action is limited to that of fraudulent
misrepresentation.
[32]
On behalf of
the plaintiff it was submitted that the claim arises from a false
statement made prior to the conclusion of the contract
and later
repeated in two written agreements. This claim based on fraudulent
misrepresentation is a claim in delict. The contractual
claim is
founded on the anticipatory breach of a material term of the contract
namely the inability of the first defendant to trade
as a Fruit &
Veg City store and the acceptance thereof. It was submitted on behalf
of the plaintiff that the Particulars of
Claim contain sufficient
averments of fact to also make out a cause of action based on the
cancellation following the anticipatory
breach. In any event, so it
was submitted, the evidence has canvassed this issue and that the
Court should decide the matter on
the evidence before it.
[33]
In
order to determine whether the representations amounted to fraudulent
representations the Court will consider whether the representations
was false or not and whether it was made knowingly, without an honest
belief in the truth of the statement or recklessly.
In this
regard
the
Court in
Rex
v Myers
[10]
the Appellate Division (as it then was) held as follows:
“
I
think it can be summed up, for the purposes of the present case, by
saying that if the maker of a representation which is false
has no
honest belief in the truth of his statement when he makes it, then he
is fraudulent.”
[11]
Kerr
[12]
explains as follows:
“
To
prevent a false [i.e an incorrect] statement being fraudulent they
must, I think, always be an honest belief in its truth.
A
representor who knows that his representation is incorrect has no
belief in its truth.
…
.
The
party alleging that a misrepresentation is fraudulent has to prove
the absence of honest belief. This he may do, said Lord Herschell,
by
showing that a false [i.e incorrect] representation has been made (1)
knowingly, (2) without belief in its truth, or (3) recklessly,
careless whether it be true or false. Although I have treated the
second and third as distinct cases, I think the third is but
an
instance of the second, for one who makes a statement under such
circumstances can have no real belief in the truth of what
he
states.”
[13]
[34]
[zRPz]I
am not persuaded on the evidence that the second defendant had an
honest belief that he would be able to obtain permission
from Coppin
to open the Fruit & Veg Store. At the very least he knew from
past experience that there was a very definite possibility
that
Coppin would not approve of the shop. This must be considered
together with the fact that he chose not to disclose to the
plaintiff
that his authority was conditional upon the go-ahead from Coppin. At
the very least the second defendant had a duty to
disclose this
material fact to the plaintiff.
[14]
Instead of doing so he instructed the plaintiff to continue with the
construction of the shop. In these circumstances I am not
persuaded
that the second defendant had an honest belief in the representations
made to the plaintiff. See
[zRPz]
Ruto
Flour Mills (Pty) Ltd v
Adelson:
[15]
“
Generally
speaking fraud is proved when it is shown that a false representation
has been made, (i) knowingly or, (ii) without belief
in its truth or,
(iii) recklessly careless whether it be true or false. If there is an
honest belief in the truth of the false
statement then fraud is not
established. Negligence or unreasonableness in itself, however gross,
does not constitute an absence
of honest belief in questions of
fraud;
R
v Myers
,
1948
(1) SA 375
(AD)
at
pp. 382 - 384. In the ordinary case of fraud, apart from such factors
as materiality and inducement, a plaintiff has to prove,
(a)
a false representation or misrepresentation and,
(b)
the state of mind of the defendant in respect of such
representation.”
[35]
It
wasItMore in particular it was submitted that the
first
defendant did not represent that he was a franchisee of Fruit &
Veg City in light of the fact that the first defendant
had a general
right to open a Fruit & Veg City store in the area. This may be
so but this is not what was represented to the
plaintiff. It was
represented in both the offer to lease and the lease agreement that
the first defendant was the franchisee in
respect of the specific
mall/shop. This much is clear from clause 3.4 of the lease
agreement.
[16]
I have already
referred to the fact that it was submitted that the second defendant
honestly believed that he would be the franchisee
in the mall and
that this was not a representation as even Coppin confirmed that the
first defendant was a franchisee. I have already
indicated that I do
not accept this submission. I do not accept that the first defendant
could have had such an honest belief:
Firstly, from past experience
the second defendant knew that if Coppin did not approve the site and
premises a lease agreement
will not be concluded. In Mabopane a lease
agreement was only concluded after Coppin had approved the premises
and the location
of the store. Secondly, in Midrand Coppin refused to
give his permission to open the store. In the present circumstances,
the second
defendant knew fully well that Coppin had not yet
authorised the site but nonetheless represented to the plaintiff
firstly that
it had the authority to trade from the site and secondly
that the shop will trade as a Fruit & Veg City store. By
representing
that the business to be operated from the premises would
be a Fruit & Veg City shop, the second defendant necessary
implied
that the first defendant was lawfully able to do so. This
representation was false and the second defendant knew that it was
false.
This false representation induced the plaintiff to conclude
the lease agreement.
[36]
In the event,
taking into account that the second defendant knew fully well that
Coppin had not gone to the site and approved the
site, including the
location, and the fact that he knew that Coppin could – and had
in fact done so in the past - simply
reject the location as it
ultimately did, the second defendant could not have had an honest
belief in the statement that the first
defendant would trade as a
Fruit & Veg City store. Despite the fact that the second
defendant knew that Coppin could reject
the site, no suspensive
condition was included in the lease agreement to provide for this
eventuality whilst knowing that this
was a possibility.
[37]
Lastly,
in respect of the cancellation agreement the oral negotiations that
preceded the conclusion of this contract are inadmissible
as the
parol
evidence
rule applies. This document contains only two terms and does not
expressly record that it is in full and final settlement of the
disputes between the parties. It should also be pointed out that an
earlier argument of the defendant that a mutual cancellation
agreement
per
se
extinguishes any claim for damages was also rejected by Victor, J in
an earlier judgment in this matter. I also do not accept that
the
plaintiff had waived its right to claim damages. See in this regard
Laws
v Rutherford
[17]
“
I
proceed to consider whether, even then, they establish the waiver
relied upon. The
onus
is strictly on the appellant. He must show that the respondent, with
full knowledge of her right, decided to abandon it, whether
expressly
or by conduct plainly inconsistent with an intention to enforce it.
Waiver is a question of fact, depending on the circumstances.
It is
always difficult, and in this case specially difficult to establish
.”
[38]
In the
premises I am persuaded that the representations were fraudulent, and
that there was an intention to induce the plaintiff
to enter into a
lease agreement. There can be no doubt that the fraudulent
misrepresentation was material. The plaintiff
has therefore proven
the merits of its claim based on fraudulent misrepresentation. In
respect of costs, the lease agreement provides
for costs on an
attorney and client scale.
[39]
In the event
the following order is made:
1.
The first and
second defendants are jointly liable for the damages suffered by the
plaintiff as a result of the cancellation of
the lease agreement.
2.
The defendants
are jointly liable to pay the costs on an attorney and client scale.
A.C.
BASSON
JUDGE
OF THE HIGH COURT
GAUTENG
LOCAL DIVISION
Counsel
for the Plaintiff: Adv S. Vivian
Counsel
for the Defendants: Adv W. Strobl
Attorney
for the Plaintiff: T. G. Fine Attorneys
Attorney
for the Defendants: Ramsey Webber Attorneys
Trial
took place from 13 – 16 April 2015
Judgment
was delivered on 29 April 2015
[1]
On
26 May 2011 an order was granted in terms of which the plaintiff’s
claim against the third defendant was separated from
the plaintiff’s
claim against the first and second defendants in terms of Rule
33(4).
[2]
Nash
v Golden Dumps (Pty) Ltd
1985 (3) SA 1
(A) at 22D-F: “
I
come now to the final issue in the case, viz the applicability of
the principle laid down in the Crest Enterprises case (
1972
(2) SA 863 (A)
).
Where one party to a contract, without lawful grounds, indicates to
the other party in words or by conduct a deliberate and
unequivocal
intention no longer to be bound by the contract, he is said to
"repudiate" the contract (see Van Rooyen
v Minister van
Openbare Werke en Gemeenskapsbou
1978
(2) SA 835 (A)
at
845A - B). Where that happens, the other party to the contract may
elect to accept the repudiation and rescind the contract.
If he does
so, the contract comes to an end upon communication of his
acceptance of repudiation and rescission to the party who
has
repudiated (see Joubert Law of South Africa vol 5 para 226).
The consequence of this is that the rights and obligations
of the
parties in regard to the further performance of the contract come to
an end and the only forms of relief available to
the party aggrieved
are, in appropriate cases, claims for restitution and for damages.”
[3]
2012
(4) SA 593
(SCA) at 603F
[4]
2009
(4) SA 399 (SCA)
[5]
(44/2014)
[2015] ZASCA 62
(17 April 2015). Footnotes omitted.
[6]
My
emphasis
[7]
Van
Aardt v Galway
2012
(2) SA 312
(SCA): “
[
9]
Evidence was led at the trial from Mr Van Aardt, Mr De la Harpe (the
draftsman of the agreement and at the time a practising
attorney),
Mr Galway and Mr Parker. Almost all of this evidence was plainly
inadmissible. It concerned the intention of the parties
in regard to
various issues and in particular whether the purchase price was
inclusive or exclusive of VAT and whether the property
subject to
the sale was inclusive or exclusive of the dairy and the equipment
in the dairy. That evidence was inadmissible because
it was evidence
of the intention of the parties and their prior negotiations and it
is clear on the authorities that such evidence
is inadmissible.
3
If
there had been a prayer for rectification directed at these issues
then it might have been relevant and admissible to
explore the
parties' intentions and discussions at the time of concluding the
lease. However, there was no such prayer and it
was not, contrary to
counsel's submissions, relevant and therefore admissible as
'context' in relation to either the interpretation
of the documents
or the importation of implied or tacit terms into the lease.”
[8]
[zRPz]
Pritchard
Properties (Pty) Ltd v
Koulis
1986 (2) SA 1 (A)
[9]
Van
der Merwe, Van Huyssteen, Reinecke & Lubber
Contact:
General Principes
(3
rd
edition) at page 108.
[10]
1948
(1) SA 375 (A)
[11]
At
page 382
[12]
AG
Kerr The Principles of the Law of Contract (6
th
edition).
[13]
At
pages 280 – 281 Footnotes omitted.
[14]
Van
der Merwe, Van Huyssteen, Reinecke & Lubber
Contact:
General Principes
(3
rd
edition) at page 108 and 112 - 113:
“
The
wrongfullness of a representation by commission is more readily
apparent than the wrong fullness of an omission. The latter
will
only be wrongful if the representing breach some duty to act
positively in order to prevent a wrong impression from arising
or to
remove any existing wrong impression. …. A representation is
not regarded as wrongful merely because it is false
and actually
misleads the other contracting party; the fact or facts to which the
representation relates must fall within the
compass of the norm
protecting negotiating parties against misrepresentation. This
qualification is usually expressed by requiring
that the
representation must be material, or as it is often phrased, must
relate to material facts. Facts will generally be material
if there
are reasonably likely to induce someone to enter into the contract.
A representation may also be material if it is made
with the
intention to mislead the other part and induce him to conclude the
contract.
”
[15]
1959
(4) SA 120
(T) at 122G – H
[16]
Supra
at paragraph [13]
[17]
1924
AD 261
at 263