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[2017] ZAGPJHC 330
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Cook v Morrison and Another (A5058/16) [2017] ZAGPJHC 330 (18 August 2017)
REPUBLIC
OF SOUTH AFRICA
HIGH
COURT, SOUTH GAUTENG LOCAL DIVISION (JOHANNESBURG)
Case
No: A5058/16
In
the matter between:
GEOFFREY
COOK
Appellant
and
MURRAY
MORRISON
First
Respondent
SEABUSH
INVESTMENTS (PTY)
LTD
Second
Respondent
Case
Summary
: Prescription –
Extinctive prescription – Debt - the remedy of
restitution or of damages for breach
of contract following rescission
of a contract resulting from the defaulting party’s repudiation
has its correlative the
obligation to restore performance received –
that obligation constitutes a debt to which the extinctive
prescription of the
Prescription Act 68 of 1969 applies.
Period
of prescription
–
when it commences
–
innocent
party’s right of action for restitution or for restitutional
damages resulting from the defaulting party’s
repudiation of a
contract only accrues, and the correlative obligation or debt to make
restitution or to pay damages becomes due
in terms of s 12(1) of the
Prescription Act, when the innocent party exercises his or her
election to accept the repudiation, rescind
the contract and the
election is communicated to the party who has repudiated.
Section
11(d) of the Prescription Act applying – debts had prescribed
after three years. Appeal dismissed.
JUDGMENT
MEYER
J (KATHREE-SETILOANE and TWALA JJ concurring)
[1]
This is an appeal against the whole judgment and order of the Gauteng
Local Division of the High Court (Moshidi J) delivered
on 4 August
2016, upholding the special plea of prescription raised by the first
respondent, Mr Murray Morrison Morrison), and
the second respondent,
Seabush Investments (Pty) Ltd (Seabush), against the claims as
formulated by the appellant, Mr Geoffrey
Cook (Cook), in his
particulars of claim. Since 2 August 2010, Morrison has been
the sole director of and shareholder in
Seabush. The appeal is
with the leave of the trial court.
[2]
Cook’s summons was served on 22 April 2014. Apart from
Morrison and Seabush, six other parties are also cited as
defendants,
but no relief is claimed against most of them. Morrison and
Seabush filed a special plea and pleaded over on
the merits.
Cook did not raise any answers to the special plea in a replication.
The matter came to trial before Moshidi
J in the Gauteng Local
Division of the High Court, Johannesburg. The trial court
ordered, under rule 33(4) of the Uniform
Rules of Court, that the
only question to be tried initially was the question of
prescription. The trial court upheld the
special plea with
costs.
[3]
In considering the special plea of prescription, the postulation is
that the factual basis, the set of material facts, that
begets Cook’s
claim had in fact been established. (See
Barnett and Others
v Minister of Land Affairs and Others
2007 (6) SA 313
(SCA), para
20.) Background information is first set out in the
particulars of claim, followed by a statement of the
material facts
upon which Cook relies for his claims, essentially against Morrison.
[4]
In the background part, Cook avers that during February 2003, the
second defendant, Mr Nicholas Fox (Fox), Morrison and he concluded
an
oral joint venture agreement to establish the Sibuya Game Reserve
near Kenton-on-Sea in the Eastern Cape. The game reserve
was
established in February 2003 and operated on land held by him, Fox
and Morrison in various land-owning entities. Seabush
is one of
these land-owning entities. The shares in Seabush were owned
50/50 by Cook and Morrison. The seventh defendant,
Hesber
Impala (Pty) Ltd (Hesber), was another. Fox owns 50% shares in
Hesber and Cook and Morrison 25% each. Then there
are also
other entities that are central to the operation of the game
reserve; the sixth defendant, Sibuya Game Reserve &
Lodge
(Pty) Ltd (SGR&L), operates tented camps in the reserve and the
eighth defendant, Salisbury Trading CC, owns game.
[5]
In pleading his cause of action, Cook avers that by 2010 Morrison and
he were the only two directors of, and shareholders in,
both Seabush
and SGR&L. Differences between them culminated in the two
of them concluding an oral agreement on 2 August
2010, referred to as
the ‘swop agreement’, which provided the terms and
conditions upon which Cook would exit both
Seabush and SGR&L.
In terms of the swop agreement, Cook was obliged to transfer his
shares in both Seabush and SGR&L
to Morrison, to resign his
directorship in both companies, to settle a debt of about R1.1
million owed by Seabush to Inverstec
and to pay Morrison an
additional sum of R900 000. (These terms were subject to
Morrison being able to sell his shares in
Sibuya to Fox on terms
agreeable to Morrison.) In exchange for this Morrison was
obliged to assist Cook with sub-dividing
a portion of Seabush’s
land situated in the game reserve, which had a house on it (the swop
land). Once the swop land
had been sub-divided out from the
rest, it was to be transferred to Cook.
[6]
Cook avers that ‘[i]n partial fulfilment of the ‘Swop
Agreement’ he transferred his shareholding in Seabush
and in
SGR&L to Morrison ‘
as agreed
’, he ‘resigned
as a director’ of Seabush and of SGR&L ‘
as
agreed
’, he ‘settled the debt’ owed by Seabush
to Investec, which was an amount of R1, 161, 984 ‘
as
agreed
’, the share register of Hesber ‘was corrected’
to reflect Cook as the holder of 25% of the shareholding in that
company ‘
as agreed
’ and Morrison ‘reached an
agreement with Fox on the sale of’ SGR&L ‘
as
agreed
’. However, so Cook avers, the sub-division was
never procured and the swop land was never transferred to him.
[7]
On 8 September 2010, ‘Morrison purported to impermissibly sever
and cancel part of the Swop Agreement’ by refusing
to perform
those obligations and by nevertheless retaining the performance that
he had received from Cook under the swop agreement.
He retained
for himself all of the shareholding in both Seabush and SGR&L as
transferred to him by Morrison, he retained for
himself and/or
Seabush the sum of R1 161 984 as paid by Cook to settle the debt owed
to Investec and he retained for himself and/or
Seabush the swop land
which should have been created out of the sub-division and
transferred to Cook. In acting as aforesaid,
so Cook’s
particulars of claim continue, ‘Morrison’s conduct is
unconscionable
and
contra bonos mores
and
amounts to a
breach and/or repudiation of the Swop Agreement’. And
then he avers:
’
28. On 29 September 2010 the
plaintiff accepted Murray Morrison’s breach and/or repudiation
of the Swop Agreement and cancelled
the Swop Agreement, alternatively
the plaintiff hereby cancels the Swop Agreement.’
[8]
It is then averred that, in addition to the express terms, it was an
implied and/or tacit term of the swop agreement that if
the swop land
could not be sub-divided and transferred to Cook then Morrison ‘would
be obliged to make restitution to the
plaintiff of whatever
performance he had received from the plaintiff including the
performance retained by him’; and that
in breach of the implied
and/or tacit term Morrison has failed to make restitution. Cook
then repeats the contents of paragraph
28, which I have quoted above.
[9]
Cook concludes by averring that he suffered loss and/or damages as a
result of not being restored to his former position because
Morrison
was retaining his performance. He, therefore, claims his
shares back, his directorships reinstated and repayment
of the money
that he had spent on settling the Investec debt. He frames the
relief which he seeks in the following terms:
‘
(a)
As against Murray Morrison, that 50% of the shares in Seabush
Investments (Pty) Ltd be delivered to him and that he be re-instated
as a director of that company together with his loan account and
claims against the company alternatively should restitution and/or
vindication be impossible or impractical then Murray Morrison and/or
Seabush Investments (Pty) Ltd pay the plaintiff an amount
of R6.3
million (which is 50% of the market value of Seabush Investments (Pty
Ltd) further alternatively that he be directed to
produce a statement
of account in respect of the assets and liabilities of Seabush
Investments (Pty) Ltd and that he be directed
to debate such with the
plaintiff and thereafter pay the plaintiff whatever damages the
plaintiff is found to have suffered in
lieu of restitution and/or
vindication;
(aa)
Additionally, and if restitution and/or vindication in respect of 50%
of the shares in Seabush Investments (Pty) Ltd is possible
and
practical as contemplated in (a) above:
(i)
declaring
that the plaintiff is the lawful owner of 50% of the shares in
Seabush Investments (Pty) Ltd;
(ii)
directing
that Seabush Investments (Pty) Ltd rectify the company's share
register to reflect the plaintiff as a 50% shareholder
in the
company.
(b)
As against Murray Morrison and/or Seabush Investments (Pty) Ltd, that
50% of the shares in Sibuya Game Reserve & Lodge (Pty)
Ltd be
delivered to him and that he be re-instated as a director of that
company together with his loan accounts and claims against
the
company alternatively should restitution and/or vindication be
impossible or impractical then Murray Morrison and/or Seabush
Investments (Pty) Ltd pay to the plaintiff R9 million (which is 50%
of the market value of Sibuya Game Reserve & Lodge (Pty)
Ltd)
further alternatively that they be directed to produce a statement of
account in respect of the assets and liabilities of
Sibuya Game
Reserve & Lodge (Pty) Ltd and that Murray Morrison be directed to
debate such with the plaintiff and thereafter
pay him whatever
damages he is found to have suffered in lieu of restitution and/or
vindication;
(bb)
Additionally, and if restitution and/or vindication in respect of 50%
of the shares in Sibuya Game Reserve & Lodge (Pty)
Ltd is
possible and practical as contemplated in (b) above;
(i)
declaring
that the plaintiff is the lawful owner of 50% of the shares in Sibuya
Game Reserve & Lodge (Pty) Ltd;
(ii)
directing
that Sibuya Game Reserve & Lodge (Pty) Ltd rectify the company's
share register to reflect the plaintiff as a 50%
shareholder in the
company.
(c)
As against Murray Morrison and/or Seabush Investments (Pty) Ltd,
payment of R1,161,984;
(d)
Interest on any amounts found to be due to the plaintiff at 15.5% per
annum from the date upon which they became due until the
date of
payment;
(e)
Alternatively to claims (a), (b), (c) and (d) above the plaintiff
claims as against Murray Morrison an amount of R6,3 million
(which is
50% of the market value of Seabush Investments (Pty) Ltd) plus R9
million which is 50% of the market value of Sibuya
Game Reserve &
Lodge (Pty) Ltd plus R1,161,984 (the Investec loan paid) plus
interest at 15.5% found to be due to the plaintiff.
(f)
Costs of suit;
(g)
Further and/or alternative relief.
’
[10]
The special plea of prescription raised by Morrison and Seabush,
reads thus:
‘
1
In paragraph 28 of the particulars of claim the Plaintiff alleges
that he accepted the First Defendant’s breach and/or
repudiation of the “Swop Agreement” and cancelled the
“Swop Agreement” on 29 September 2010.
2
Prayers (a), (b), (c), (d) and (e) on amended pages 16 and 17 of the
particulars of claim arise from the so-called “Swop
Agreement”
and its purported cancellation by the Plaintiff on 29 September 2010.
3
The Plaintiff’s summons was issued on 17 April 2014, being a
date which is more than 3 years after the date of the purported
cancellation of the “Swop Agreement” by the Plaintiff.
4
To the extent that the Plaintiff has any claims or causes of action
against the Defendants (which is denied), same have prescribed.’
[11]
In separating the question of prescription, the trial court held that
the separation application has ‘profound merit’
and that
the special plea of prescription is one of law ‘which may
decide the outcome of the trial, one way or the other,
without the
expensive necessity of leading of evidence’. The trial
court thus directed that the question of prescription
be tried
first. In upholding the special plea of prescription, the trial
court held that all the claims set out in prayers
(a) to (e) of
Cook’s particulars of claim are debts as envisaged in s 11 of
the Prescription Act 68 of 1969 (the Prescription
Act). It held
that Cook had a complete cause of action in respect of its claims
upon the acceptance of Morrison’s repudiation
and
cancellation of the agreement in September 2010.
Furthermore, that
‘
[i]t is common
cause that since the acceptance of the repudiation and the
cancellation of the agreement in September 2010, no further
action
took place’.
[12] Cook argues that the trial court
erred on two fundamental bases: First, in finding that the
issue of prescription could
be determined separately from the rest of
the trial without evidence. A trial is needed, so he argues, to
establish whether
a partnership exists, whether Cook is the owner of
the shares and whether and when the swop agreement was cancelled.
The
existence of a partnership, the ownership of the shares and
whether and when the swop agreement was cancelled, according to Cook,
are disputed facts. If there is a partnership, Cook argues,
then the claims have not prescribed by virtue of s 13(1)(d) of
the
Prescription Act, which provides that ‘[i]f the creditor and
debtor are partners and the debt is a debt which arose out
of a
partnership relationship, the period of prescription shall not be
completed before a year has elapsed after . . . the day
on which the
relevant impediment [the partnership] has ceased to exist.’
Cook argues that if he is the owner of the
shares, he can vindicate
them at any time within 30 years. If the evidence establishes
that the swop agreement was only cancelled
by means of the averment
in his particulars of claim, then prescription only started to run at
the time of service of his summons.
[13] The second fundamental basis,
according to Cook, on which the trial court erred was the finding
that all his claims are ‘debts’
falling within the ambit
of s 10 read with s 11(d) of the Prescription Act. He argues
that restitution pursuant to the cancellation
of a contract or the
vindication of shares or the rectification of a company’s share
register or a claim for a statement
and debatement of account is not
a ‘debt’ as contemplated in the Prescription Act.
It is to the latter question
- whether the obligation that Cook seeks
to enforce in this case is a debt within the meaning of that term in
the Prescription
Act - that I now turn.
[14]
Section 10 of the Prescription Act provides for a ‘debt’
to be extinguished by prescription after the lapse of
the relevant
prescriptive period. In terms of s 12(1) prescription begins to
run when the debt is due. Section 11 stipulates
the different
periods of prescription of debts. It is trite that not all
rights of action give rise to a debt capable of
being extinguished by
extinctive prescription under s 10 of the Prescription Act.
(See for example
Makate v Vodacom Ltd
2016 (4) SA 121
CC, paras 189-192 and
196-197;
Off-Beat Holiday Club and
Another v Sanbonani Holiday Spa Shareblock Limited and Other
[2017]
ZACC 15
, paras 46-53 and 72-73;
Off-Beat
Holiday Club v Sanbonani Holiday Spa Shareblock Ltd
2016
(6) SA 181
(SCA), paras 32-36; and the various authorities
referred to in these judgments.) I need not elaborate on the
examples
where a debt is not constituted within the meaning of the
Prescription Act.
[15] Prescription, as was said by
Nugent JA in
Duet and Magnum Financial Services CC (in
liquidation) v Koster
2010 (4) SA 499
(SCA), paras 9 and 23-24,
‘. . . is about rights that have come into existence but have
ceased to exist by the passage of
time’. Indeed, said
Nugent JA, -
‘
.
. . it is not unusual when dealing with prescription for courts to
ask only when the ‘right of action’ arose, leaving
it to
implication that its complement is a ‘debt’. Thus
in
Mazibuko
v Singer
[1979
(3) SA 258
(W) at 265D-F], which has often been cited in this court,
Colman J referred to the ‘right of action’ prescribing,
implying
that its compliment was a ‘debt’. Trollip
JA said that expressly in
Evins
V Shield Insurance Co Ltd
[1980
(2) SA 814
(A) at 825F-H], when he said:
“”
Cause
of action” is ordinarily used to describe the factual basis,
the set of material facts, that begets the plaintiff’s
legal
right of action and, complementarily, the defendant’s “debt”,
the word used in the Prescription Act.”
.
. . A “debt” for purposes of the Act is sometimes
described as entailing a right on the one side and a corresponding
‘obligation’ on the other.’
(Footnotes omitted.)
[16] The meaning that the
Constitutional Court unanimously attributed to the word ‘debt’
as contemplated in ss 10, 11
and 12 of the Prescription Act in
Makate
, paras 85-86, 93 and 187, is the meaning ascribed to it
in the
Shorter Oxford English Dictionary
, namely:
‘
1.
Something owed or due: something (as money, goods or service)
which one person is under an obligation to pay or render
to another.
2. A liability or obligation to pay or render something; the
condition of being so obligated.’
,
which meaning was first adopted by the
Supreme Court of Appeal in
Electricity Supply Commission v
Stewarts and Lloyds of SA (Pty) Ltd
1981 (3) SA 340
(A) at
344E-G. The Constitutional Court held (para 93) that to the
extent that the Supreme Court of Appeal in
Desai NO v Desai
[1995] ZASCA 113
;
1996
(1) SA 141
(SCA), at 146I, (there it was held that the term ‘debt’
in the context of the Prescription Act ‘has a wide and
general
meaning, and includes an obligation to do something or to refrain
from doing something’) -
‘
.
. . went beyond what was said in
Escom
,
it was decided in error. There is nothing in
Escom
that
remotely suggests that ‘debt’ includes every obligation
to do something or refrain from doing something, apart
from payment
or delivery.’
[17] Wallis AJ, in the second of the
two judgments in
Makate
, said the following:
‘
[188]
The correlative of a debt in this sense is a right of action vested
in the creditor in which the payment of money, or
the delivery of
goods, or the rendering of services is claimed. And, when
payment, delivery or the rendering of services
extinguishes the debt,
the right of action is likewise extinguished. That is why s
12(1) of the Prescription Act provides
that prescription will
commence to run once the debt is due. If the debt is not due
then prescription cannot run. Debts
become due when they are
immediately claimable and recoverable.
.
. .
[195]
. . . As Corbett JA said in
Evins
[
Evins v Shield Insurance
Co Ltd
1980 (2) SA 814
(A) at 842E-F ] and Van Heerden JA said in
Oertel
[
Oertel en Andere NNO v Direkteur van Plaaslike
Bestuur en Andere
1983 (1) SA 354
(A) at 370B-C] a debt is the
correlative of a right of action, and when one is extinguished so is
the other. That is why
debt has been defined by reference to
the means by which the debtor can discharge it, namely payment, or
the delivery of goods,
or the provision of services. The
obligation that underlies the existence of the debt must be one that
is capable of
being discharged by one or other of these means.
. . . ‘
(Footnotes omitted.)
[18]
In
Sanbonani
,
the Constitutional Court re-affirmed its decision in
Makate
that the meaning of the word ‘debt’,
as adopted in
Desai
,
was too wide to the extent that it went beyond the narrow meaning of
‘that which is owed or due; anything (as money, goods
or
services) which one person is under obligation to pay or render to
another’, ascribed to it in
Escom
.
(See the main judgment prepared by Mhlantla J, particularly paras
47-49 thereof, para 70 of the second judgment prepared
by Froneman J
and para 102 of the third judgment prepared by Madlanga J.)
[19]
The three judgments are aligned on the acceptance of the correlative
right of action/debt requirement for a claim to constitute
a debt in
terms of the Prescription Act. Also, that substance must
prevail over form in determining whether a claim gives
rise to a debt
capable of being extinguished by extinctive prescription under ch
III, ss 10-12, of the Prescription Act.
In this regard Mhlantla
J said the following (paras 32-34):
‘
In this case, we are not
dealing with relief of the nature discussed in
Koster
[
Duet
and Magnum Financial Services CC (in liquidation) v Koster
[2010]
ZASCA 34
;
201 (4) SA 499
(SCA)] where declaratory relief immediately
precedes a claim that practically is a “debt” under the
narrow construction
of the term in
Escom
. In this sense
the declaratory would be a mere litigatory framing technique that
fetters even the narrow application of the
Act. . . .
However, before an analysis can be
undertaken as to whether the applicant’s claim constitutes a
debt for purposes of the Prescription
Act, it must be established
first what the correct characterisation of the claim is.
Because a given claim can be characterised
in different ways, it can
constitute a debt on one characterisation but not another. The
applicants argue that their claim
is not a debt because it is a claim
for declaratory relief, which is not a debt in the ordinary sense of
the term according to
Escom
. However, the respondents
argue that the claim is a debt, because alteration of the articles
would lead in effect to a new
contract. Thus, there is a need
for there to be an objective characterisation of the claim
independent of the averments of
the parties that can be easily
identified by a court and that advances rather than diminishes the
purposes of the Prescription
Act. . . .
In order to identify what the relevant
claim is, the court should use the applicants’ cause of action
as guidance. However,
the court is not beholden to the
applicants’ characterisation of the claim, which might be at
variance with the relevant
legal provision. The latter
governs.’
(Footnotes
omitted.)
[20]
And Madlanga J said this:
‘
[100] Not all claims
prescribe under the Prescription Act; only claims that are “debts”
within the meaning of
that Act do. If we were to look to the
remedy sought to establish whether a claim at issue is a “debt”,
an ingenious
applicant or plaintiff could use the simple stratagem of
concealing the true nature of the underlying claim. For
example,
the litigant could do this by seeking relief that is not
specific beyond a generalised prayer for whatever a court might find
to
be just and equitable relief. An example is the section
252(3) relief. [A reference to s 252 of the Companies Act 61
of
1973, which ‘provides a remedy to minority members of companies
in cases where the majority are guilty of oppressive conduct
that has
unfairly prejudiced them’(fn 7).] An unsuspecting
respondent or defendant would easily find her- or himself
defending
the merits of the claim and not raising an otherwise available
defence of prescription. Because in our law the
defence of
prescription may not be raised by a court of its own accord, the
respondent or defendant may end up being prejudiced.
Surely,
the shield of prescription cannot be pierced so easily.’
And:
‘
[103] The very essence of
prescription is that ordinarily the merits of debts that have
prescribed should not be adjudicated.
That much is plain from
the words of this Court in
Mdeyide
. [
Road Accident
Fund v Mdeyide
[2010] ZACC 18
;
2011 (2) SA 26
(CC), para
8.] If, because of how the relief has been couched, a claim
that is, in fact, founded on a debt would end up being
adjudicated
even if it would otherwise have prescribed, that would defeat the
objectives of the Prescription Act.’
(Footnotes
omitted.)
[21]
In this case Cook primarily sues Morrison for
restitution of his own performance consequent upon the cancellation
of the swop agreement.
His cause of action is founded in
contract, the swop agreement. He pleaded the swop agreement;
the performance which he rendered
in terms thereof; Morrison’s
material breach and repudiation of the swop agreement on 8 September
2010; the subsequent cancellation
thereof on 29 September 2010; the
obligation on Morrison created by the cancellation to restore to him
such performance that he
had made in terms of the swop agreement.
[22]
The main relief which he consequently claims, is restitution, and, in
the alternative, damages for breach of contract, or,
as it is
sometimes referred to, restitutional or restitutionary damages (see
Probert v Baker
1983
(3) SA 229
(D) at 233H-236E). Prayers (a) and (b) relate to the
alleged obligation upon Morrison to re-transfer to Cook 50% of the
shares
in Seabush (prayer (a)) and 50% of the shares in SGR&L
(prayer (b)). The main claims are for re-delivery of shares and
restitution
of ‘board’ seats. Ancillary relief in
the form of a declarator to the effect that Cook is ‘the lawful
owner’
of 50% of the shares in Seabush and of 50% of the shares
in SGR&L and for rectification of each company’s share
register
to reflect him as a 50% shareholder is claimed in prayers
(aa) and (bb). Damages in quantified amounts equivalent to 50%
of the market value of each company are claimed in the alternative to
each main claim for restitution. In the alternative
to awards
of damages in the quantified claimed amounts (in other words, if it
is found that the quantified amounts do not constitute
50% of the
true market value of each company) then in each instance an account
is claimed from Morrison, a debate thereof and payment
of the amount
of damages found to be due. Prayer (c) is a claim for
restitution of Cook’s performance in paying the
debt owed to
Investec. Prayer (d) is a claim for ‘interest on any
amounts found to be due’. Prayer (e)
is merely a repeat
of Cook’s damages claims for specified amounts.
[23]
The obligation to restore arises on cancellation of a contract as a
matter of law and the claim for restitution is a contractual
remedy
(see
Baker v Probert
1985 (3) SA 429
(A) at 438J-439C and
446E). In an article published in the Journal of Contemporary
Roman-Dutch Law (MM Loubser
Is a right of rescission subject to
extinctive prescription?
(1990) 53 THRHR 43
at 53), Prof Loubser
undertook a comprehensive analysis of the legal nature of ‘the
right of rescission’. He
states:
‘
There
are various grounds upon which a right to rescind a contract can
arise. The contract itself may provide for such a right
as an
express or implied term of the contract; or such a right may arise on
the ground of material breach of contract; or as a
result of
repudiation of the contract by one party, which repudiation is then
accepted by the other party; or on the ground of
misrepresentation by
one party which induced the other party to enter into the contract.
In the last-mentioned case the representee
exercises his right of
rescission either by way of a defence or by way of an action. A
party exercising a right of rescission
must make his election to
rescind the contract within a reasonable time, or run the risk that
his conduct may justify the inference
that he has waived his right of
rescission; and once he has made his election he must abide by it.
The
party who has a right to rescind the contract can elect to do so by
his own act and does not have to ask the court to rescind
the
contract. He must communicate his election to the other party
by means of a clear and unambiguous notification of the
election to
rescind the contract. However, if either the ground for the
rescission or the manner in which it is utilized
is in dispute, the
party electing to rescind the contract may have to ask the court to
declare that he had a right of rescission
and that it was properly
exercised. In addition, he would have to ask the court to
enforce the remedies following upon his
rescission.
The
principal effect of the exercise of a right of rescission is that the
party exercising the right is no longer bound to performance
in terms
of the contract; and he can claim restitution of any performance
which he has already rendered, because after rescission
such
performance is retained by the other party without proper cause.’
(Footnotes
omitted.)
[24]
Cook’s right to rescind the swop agreement arose on the ground
of material breach or as a result of repudiation of the
agreement by
Morrison. Cook elected to rescind the swop agreement by his own
act. In the present action, he seeks to
enforce the common-law
remedies following upon his rescission and he thus claims restitution
of the performance which he had already
rendered or the payment of
damages if restitution is impossible or impractical. Cook’s
claims for an account, a debate
thereof and payment of the amount of
damages found to be due in the alternative to his claims for damages
in the specified quantified
amounts
is
merely a mechanism for calculating his damages. A court will
have to determine his entitlement to damages in order to grant
this
relief.
The complement to
Cook’s common-law right to restitution or to damages, which
arose on cancellation of the swop agreement
as a matter of law, is a
‘debt’ (the obligation to restore to Cook the performance
which he had made or to pay him
damages for breach of contract)
against which prescription begins to run once Cook’s right had
accrued. It is the remedy
of restitution or of damages
following rescission that has its correlative the obligation to
restore performance received and it
is this obligation that is the
debt to which the extinctive prescription of the Prescription Act
applies.
[25]
Each claim for restitution (delivery of shares and restitution of
‘board’ seats) and each alternative claim for
damages has
the creditor (Cook) and the debtors (Morrison or Morrison and Seabush
or Morrison and SGRL) clearly identified and
the factual matrix
underlying the correlative rights and obligations set out in the
particulars of claim. The means by which
the debtor, Morrison,
could discharge each debt is by delivery or payment. Delivery
or payment would extinguish the debt,
and likewise the right of
action. All that is required is conduct on the part of the
debtor, Morrison, alone.
[26]
The
inclusion of the further claims in prayers (aa) and (bb) for
declaratory orders that Cook is the ‘lawful owner of 50%
of the
shares’ in Seabush and in SGR&L and the claims for Seabush
and SGR&L to rectify their share registers to reflect
Cook as a
50% shareholder in each company is, to borrow the words of Mhlantla J
in
Sanbonani
,
‘a mere litigatory framing technique that fetters even the
narrow application of the Act’, which the majority judgment
and
the third judgment in
Sanbonani
were
at pains to condemn. First, no factual basis is set out in the
particulars of claim to beget each such claim. Second,
the
claims for declaratory and vindicatory relief are entirely at odds
with the particulars of claim.
[27]
The case put up by Cook in terms of his particulars of claim is not
that he retained ownership of the shares in Seabush or
in SGR&L
irrespective of their sale and transfer by him to Morrison nor is it
his pleaded case that the share register of each
company was
inaccurate or that there were any errors therein. What is
alleged is that by agreement he transferred the shares
to Morrison in
partial fulfilment of his obligations under the swop agreement and
that he became entitled to their re-transfer
from Morrison upon the
cancellation of the swop agreement. Each declarator and each
claim for the rectification of the company's
share register is merely
a thinly disguised repetition of Cook's claim that the shares that he
transferred to Morrison be re-transferred
to him pursuant to the
cancellation of the swop agreement.
[28]
The true relief sought by Cook in this matter, therefore, is
restitution (
delivery of shares and
restitution of ‘board’ seats)
or,
should restitution be impossible or impractical, damages for breach
of contract. Stripped of the ‘litigatory framing
technique’, Cook’s claims are all debts as envisaged in
section 11 of the Prescription Act within the narrow meaning
of the
term in
Escom
.
For the reasons that follow I furthermore agree with the contention
of Morrison and Seabush that the
debt
became ‘due’ in terms of s 12(1) of the Prescription Act,
by the latest on 29 September 2010 when Cook accepted
the repudiation
and cancelled the swop agreement. The prescription period of
three years in terms of s 11(d) of the Prescription
Act applies, and
Cook’s claims, therefore, prescribed on 28 September 2013, some
seven months before the issue of summons.
[29]
It is
now trite that debts in terms of the 1969 Prescription Act become due
when they are immediately claimable and recoverable.
In
Deloitte
Haskins & Sells Consultants (Pty) Ltd v Bowthorpe Hellerman
Deutsch (Pty) Ltd
[1990] ZASCA 136
;
1991
(1) SA 525
(A) at 532G-H, the Supreme Court of Appeal held that for
prescription to commence running,
‘
there
has to be a debt immediately claimable by the creditor or, stated in
another way, there has to be a debt in respect of which
the debtor is
under an obligation to perform immediately.’
[30]
In
Culverwell
and Another v Brown
1990
(1) SA 7
(A), at 28A-F, Hefer JA said the following:
‘
Presumably because it found
itself unable to decide the present case on authority the Court a quo
decided it on principle. For convenience
I quote the relevant passage
from Friedman J's judgment at 477A - D. It reads as follows:
“
The
purchaser's wrongful repudiation does not per se bring the contract
to an end. The seller is not obliged to accept it immediately;
he has
an election and may take a reasonable period of time in order to
decide whether to accept the purchaser's repudiation. During
that
time, i e until he has exercised his election, it is open to the
purchaser to retract his repudiation and tender performance
of his
obligations. It is only when the seller has exercised his election to
accept the repudiation that the contract is cancelled.
Only when the
date of cancellation has been crystallised can any question of
damages arise. It would be entirely artificial in
a case such as this
to assess the plaintiff's damages by reference to an anterior date,
viz the date of repudiation, on which date
the contract was still
alive and no claim for damages had yet arisen. It seems, moreover,
that those cases in which it has been
held that the decisive date is
the date of repudiation have proceeded on the unwarranted basis that
the innocent party is obliged
to accept the repudiation immediately,
which is clearly not so.'
No
fault can be found with Friedman J's exposition of the law relating
to repudiation. A repudiation, as was once said, is 'a thing
writ in
water' (per Asquith LJ in
Howard v Pickford Co Ltd
[1951] 1 KB
417
at 421; see also
HMBMP Properties (Pty) Ltd v King
1981
(1) SA 906
(N) at 910B - D). It merely affords the injured party an
election to terminate the agreement by accepting the repudiation
(
Nash v Golden Dumps (Pty) Ltd
1985 (3) SA 1
(A) at 22D -
F), and unless and until that happens the repudiator's obligation to
perform and the other party's right to receive
performance remain
wholly unaffected. The latter is not obliged to decide whether to
accept the repudiation immediately but is
allowed a reasonable period
of time to consider and exercise his election (
Segal v Mazzur
1920 CPD 634
at 644,
Potgieter and Another v Van der Merwe
1949
(1) SA 361
(A) at 372;
Mahabeer v Sharma NO and Another
1985
(3) SA 729
(A) at 736E - H).
[31]
Furthermore, n
Datacolor International (Pty) Ltd v Intamarket
(Pty) Ltd
[2000] ZASCA 82
;
2001 (2) SA 284
(SCA), para 29, Nienaber JA said the
following:
‘
The
innocent party to a breach of contract justifying cancellation
exercises his right to cancel it (a) by words or conduct manifesting
a clear intention to do so (b) which is communicated to the guilty
party. Except where the contract itself otherwise provides,
no
formalities are prescribed for either requirement. Any conduct
complying with those conditions would therefore qualify
as a valid
exercise of the election to rescind.’
Nienaber
JA, then continues to say that ‘the election to cancel,
provided that it is unambiguous, need not be explicit and
may be
implicit’ and the ‘actual communication of the decision
to cancel, once made and manifested may be conveyed
to the guilty
party by a third party.’
[32]
The election possessed by the creditor to the contract in
Standard
Bank of South Africa Ltd v Miracle Mile Investments 67 (Pty) Ltd and
Another
2017 (1) SA 185
(SCA) arose from an acceleration clause
contained in the loan facility, which entitled the creditor bank,
upon the occurrence of
a breach by the principal debtor, at its
election and upon notice of its election, to claim the full amount
outstanding.
The question was whether the debt is ‘. . .
due when the principal debtor breaches the obligation to pay the
monthly instalment,
or is it due when the creditor elects to enforce
the acceleration clause, in order to render the whole amount
payable?’ (para
2). The reasoning and finding of the
Supreme Court of Appeal that, because of the provisions of s 12(1) of
the current Prescription
Act - which provide that prescription begins
to run when the debt becomes ‘due’ and not when it first
accrued as was
the position under s 5(1) of the Prescription Act 18
of 1943 - the debt in terms of an acceleration clause that affords
the creditor
the right of election to enforce the clause upon default
by the debtor, only becomes due when the creditor has elected to
enforce
the clause, are equally applicable to the running of
prescription in a case such as the present one of repudiation of a
contract
where the innocent party is vested with an election to
accept the repudiation and to cancel the contract.
[33]
Indeed, the reasoning of the Supreme Court of Appeal included a
comparison of the effect of other forms of election possessed
by a
party to a contract on the commencement of the running of
prescription (when the debt becomes ‘due’ in terms of
s
12(1) of the Prescription Act). In this regard, Mbha JA said
:
‘
[20] The effect of an election
possessed by a party to a contract, on the running of
prescription, was considered in the decisions
of
HMBMP Properties
(Pty) Ltd v King
1981 (1) SA 906
(N) at 910 – 911 —
in respect of an anticipatory breach of a contract — and
Big
Rock (Pty) Ltd v Hoffman
1983 (1) SA 534
(T) — in the
context of the giving of notice in terms of s 13 of the Sale of Land
on Instalments Act 72 of 1971. In
HMBMP Properties
, it
was held that the innocent party's cause of action for damages
resulting from the defaulting party's repudiation of an obligation
which is to be performed by him at some future date, only accrues (ie
the 'debt' of the defaulting party only becomes due) when
the
innocent party elects to cancel the contract and to treat it as at an
end. Prescription, consequently, commenced to run
from that
date. In
Big Rock (Pty) Ltd v Hoffman
1983 (1) SA
534
(T) it was held that the furnishing of a notice in terms of s 13
of the Land Instalment Act to remedy a default and a failure to
comply, was a condition precedent to the seller's right to claim
payment of the full balance owing under the contract. Prescription
therefore only began to run after the expiry of the prescribed notice
period.’
[34]
Mbha JA concluded thus:
‘
[26] Compliance with the
jurisdictional requirements for acceleration of the outstanding
balance is not simply a procedural
matter but is essential in
establishing a cause of action. Hence, it is no answer for the
respondents to suggest that the failure
by Standard Bank to exercise
the election to claim the outstanding balance, is an instance of the
creditor delaying the running
of prescription by its own act. As
pointed out in
Bankorp
, there is no sense in looking for the
moment in time when the debt is due, if the debt does not even exist.
It is not a case of
delaying an existing claim. The creditor cannot
be said to be in default, or guilty of dilatoriness, until he has
made his election.
The election and communication thereof in the form
of the requisite notices are essential preconditions to create a
cause of action
in the first place. The election is one which
Standard Bank does not have to take at all. Prescription would
therefore commence
to run only from the date of a notice claiming the
outstanding balance in terms of clause 12.2.’
[35]
Therefore, the innocent party’s right of action for restitution
or for restitutional damages resulting from the defaulting
party’s
repudiation of a contract only accrues, and the correlative
obligation or debt to make restitution or to pay damages
becomes due
in terms of s 12(1) of the Prescription Act, when the innocent party
exercises his or her election to accept the repudiation,
rescind the
contract and the election is communicated to the party who has
repudiated.
[36]
Finally, I do not agree with Cook’s contention that a trial was
required to resolve the disputes of fact relating to
the existence of
a partnership, the ownership of the shares and whether and when the
swop agreement had been cancelled. Disputed
issues of fact
relating to the existence of a partnership, the ownership of the
shares and whether and when the swop agreement
had been cancelled
simply did not arise in the proceedings before the trial court.
Morrison and Seabush, for purposes of
their special plea of
prescription, maintained that the claims, debts and obligations
alleged by Cook in his summons to be due
and owing to him, had, on
his own averments in his particulars of claim, prescribed.
They, therefore, as did the trial court,
postulated that the facts
set out in the particulars of claim that underpin Cook’s
claims, are correct.
[37]
Cook did not raise as an answer to the special plea of prescription
that the completion of prescription had been delayed by
reason
thereof that the creditor and the debtor are partners and that the
debt is one which arose out of the partnership relationship.
Moreover, the particulars of claim fall neatly into two parts:
Background information concerning a joint venture agreement
(paragraphs 1 to 18), which, irrespective of its label, I accept may
or may not be proved to be a partnership (see
Botha v Coetzee
(459/09)
[2010] ZASCA 90)
; and paragraphs 19 to 34B deal
exclusively (without any cross referencing to the joint venture
alleged in the background
part of the particulars of claim) with the
sale by Cook to Morrison of his 50% shareholding in Seabush and in
SGR&L in terms
of the swop agreement. The true
fons et origens
of Cook's claims against Morrison is the swop agreement to which
the two of them were privy. Cook also concedes that the
litigation
is ‘primarily’ between him and Morrison, a
concession well made.
[38]
There is also no dispute of fact relating to the ownership of the
shares. There is, as I have mentioned, no allegation
in the
particulars of claim to the effect that Cook retained ownership of
the shares in Seabush or in SGR&L after having sold
and
transferred them to Morrison. Cook made the positive factual
averment that he accepted Morrison’s breach or repudiation
of
the swop agreement and that he cancelled the agreement on 29
September 2010. This factual averment was pertinently accepted
by Morrison and Seabush in paragraph 2 of their special plea of
prescription for the prescription issue. It was on that
postulation that the matter was argued before the trial court.
Cook’s counsel, also in their heads of argument before
us, made
the submission on his behalf that:
‘
Cook
alleges that he accepted the repudiation and cancelled the Swop
Agreement on 29 September 2010. He now wants his shares
back,
his directorships reinstated, and to be repaid the money that he
spent on settling the Investec debt. Morrison does
not agree
that Cook is entitled to any of this. There is the dispute that
defines the litigation.’
Once
it was accepted that Cook’s allegation that he accepted the
repudiation and cancelled the swop agreement on 29 September
2010 had
in fact been established for the prescription issue, his alternative
averment - that ‘the plaintiff hereby cancels
the Swop
Agreement’ – became inconsequential.
[39]
In the result the following order is made:
The
appeal is dismissed with costs, including those of two counsel.
P.A.
MEYER
JUDGE
OF THE HIGH COURT
F.
KATHREE-SETILOANE
JUDGE
OF THE HIGH COURT
M.
TWALA
JUDGE
OF THE HIGH COURT
Date
of Hearing: 20 June 2017
Date
of judgment: 18 August 2017
Counsel
for appellant: H Epstein SC (assisted by K Hopkins)
Instructed
by: Bouwer Kobeli Morabe Attorneys, Rosebank
Counsel
for respondents: A Subel SC (assisted by AJ Venter)
Instructed
by: Murray Van Rensburg Inc, Lyme Park