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[2018] ZAGPJHC 39
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Edcon Limited v Bay West City (Pty) Ltd (A5029/17) [2018] ZAGPJHC 39 (6 March 2018)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
Appeal
No.
A5029/17
Date:
01/03/2018
In
the matter between:
Edcon
Limited
Appellant
and
Bay
West City (Pty)
Ltd
Respondent
JUDGMENT
The
Court
Introduction
[1]
The
issue which falls for determination in this appeal against a judgment
in motion proceedings, is whether a written lease agreement
contains
a term obliging the tenant to
continue
trading
from
the leased premises or whether the lease agreement entitles the
tenant to leave the premises vacant whilst it continues to
honour its
rental (and ancillary) obligations in respect of the premises.
[2]
Edcon
Limited (‘
Edcon
’)
(the appellant, and tenant) leased premises from Bay West City (Pty)
Ltd (‘
Bay
West’
)
(the respondent, and landlord) at its shopping centre (‘
Mall
’)
in terms of a written lease agreement for a period of five years,
which lease expires in March 2020 (‘
the
lease agreement’
).
During the second year of the lease agreement, Edcon notified Bay
West that it would, after careful evaluation of the store and
its
perfomance, close the store but that it would comply with its
contractual obligations of paying the rental and maintaining
the
premises until expiry of the lease period. This decision was taken
because, amongst other things, it contended it was suffering
financial losses and the projected situation looked no better. The
decision was purportedly taken in the interests of its shareholders
and creditors. Bay West disputed Edcon’s right to cease trading
and contended that the lease obliged it to continue trading
for the
duration of the lease. It disputed that the threatened
discontinuation of trade, served its interests.
[3]
Bay
West approached the court on an urgent basis. On 29 July 2016,
Mailula J ordered Edcon to continue trading until 31 March 2020
(the
end of the lease period) and to pay the costs of the urgent
application including costs of senior counsel.
[4]
On 7
June 2017, Victor J, by agreement between the parties, granted leave
to appeal to the Full Court of this Division. She also
recorded an
agreement between the parties that the
status
quo
at
the Bay West Mall is to be maintained pending the outcome of this
appeal.
Basis
of Bay West’s application
[5]
Bay
West relied on clause 8.1 of the lease agreement, which provides that
Edcon:
‘…
..shall be entitled to
use and occupy the premises for conducting the business of selling
any merchandise normally sold, and providing
any services normally
provided, in a departmental store or general store and subject to the
provisions of the following clause
hereof, for the sale of any goods
whatsoever and for purposes necessary or ancillary thereto or for any
purpose whatsoever which
does not change the general character of the
premises and the Lessee shall not be entitled to use the premises for
any other purpose
whatsoever without the consent in writing of the
Lessor, which consent shall not unreasonably be withheld.’
[6]
The
court
a
quo
found that, by not trading, Edcon was in fact ‘
using
’
the premises for another purpose without Bay West’s written
consent in breach of clause 8.1 of the lease agreement.
The
crux of this appeal accordingly concerns an interpretation issue
being whether, permitting the premises to be vacant constitutes
a
‘
use
’
not authorised by clause 8.1.
Principles
applicable to the interpretation of agreements
[7]
The
current approach to interpretation, which encapsulates the principles
applied and refined in the numerous authorities
[1]
since
Natal
Joint Municipal Pension Fund v Endumeni Municipality
[2]
,
is to be found in
Novartis
v Maphil
[3]
, in which Lewis JA held as
follows:
“
[27]
I do not understand these judgments
[4]
to mean that interpretation is a process that takes into account only
the objective meaning of the words (if that is ascertainable),
and
does not have regard to the contract as a whole or the circumstances
in which it was entered into. This court has consistently
held, for
many decades, that the interpretative process is one of ascertaining
the intention of the parties – what they meant
to achieve. And
in doing that, the court must consider all the circumstances
surrounding the contract to determine what their intention
was in
concluding it.
KPMG
,
in the passage cited, explains that parol evidence is inadmissible to
modify, vary or add to the written terms of the agreement,
and that
it is the role of the court, and not witnesses, to interpret a
document. It adds, importantly, that there is no real distinction
between background circumstances, and surrounding circumstances, and
that a court should always consider the factual matrix in
which the
contract is concluded – the context – to determine the
parties’ intention.
[28] The passage cited from the
judgment of Wallis JA in
Endumeni
summarizes the state of the
law as it was in 2012. This court did not change the law, and it
certainly did not introduce an objective
approach in the sense argued
by Norvatis, which was to have regard only to the words on the paper.
That much was made clear in
a subsequent judgment of Wallis JA in
Bothma-Botha Transport (Edms) Bpk v S Bothma & Seun Transport
(Edms) Bpk
[2013] ZASCA 176
;
2014 (2) SA 494
(SCA), paras 10 to
12 and in
North East Finance (Pty)Ltd v Standard Bank of South
Africa Ltd
[2013]ZASCA 76;
2013 (5) SA 1
(SCA) paras 24 and 25. A
court must examine all the facts – the context – in order
to determine what the parties intended.
And it must do that whether
or not the words of the contract are ambiguous or lack clarity. Words
without context mean nothing.
[29] Referring to the earlier approach
to interpretation adopted by this court in
Coopers & Lybrand &
others v Bryant
[1995] ZASCA 64
;
1995 (3) SA 761
(A) at 768A-E,
where Joubert JA had drawn a distinction between background and
surrounding circumstances, and held that only where
there is an
ambiguity in the language, should a court look to surrounding
circumstances, Wallis JA said (para 12 of
Bothma-Botha
):
‘
That
summary is no longer consistent with the approach to interpretation
now adopted by South African courts in relation to contracts
or other
documents, such as statutory instruments or patents. While the
starting point remains the words of the document, which
are the only
relevant medium through which the parties have expressed their
contractual intentions, the process of interpretation
does not stop
at a perceived literal meaning of those words, but considers them in
the light of all relevant and admissible context,
including the
circumstances in which the document came into being. The former
distinction between permissible background and surrounding
circumstances, never very clear, has fallen away. Interpretation is
no longer a process that occurs in stages but is “essentially
one unitary exercise” [a reference to a statement of Lord
Clarke SCJ in
Rainy
Sky SA v Kookmin Bank
[2011]
UKSC 50
, [2012] Lloyd’s Rep 34 (SC) para 21].
[30] Lord Clarke in
Rainy Sky
in turn referred to a passage in
Society of Lloyd’s v
Robinson
[1999] 1 All ER (Comm) at 545, 551 which I consider
useful.
‘
Loyalty
to the text of a commercial contract, instrument, or document read in
its contextual setting is the paramount principle
of interpretation.
But in the process of interpreting the meaning of the language of a
commercial document the court ought generally
to favour a
commercially sensible construction. The reason for this approach is
that a commercial construction is likely to give
effect to the
intention of the parties. Words ought therefore to be interpreted in
the way in which the reasonable person would
construe them. And the
reasonable commercial person can safely be assumed to be unimpressed
with technical interpretations and
undue emphasis on niceties of
language.’
[31] This was also the approach of
this court in
Ekurhuleni Metropolitan Municipality v Germiston
Municipal Retirement Fund
[2009] ZASCA 154
;
2010 (2) SA 498
(SCA)
para 13. A further principle to be applied in a case such as this is
that a commercial document executed by the parties with
the intention
that it should have commercial operation should not lightly be held
unenforceable because the parties have not expressed
themselves as
clearly as they might have done. In this regard see
Murray &
Roberts Constuction Ltd v Finat Properties (Pty) Ltd
[1991] ZASCA
130
;
1991 (1) SA 508
(A) at 514B-F, where Hoexter JA repeated the
dictum of Lord Wright in
Hillas & Co Ltd v Arcos
Ltd
[1932] UKHL 2
;
147
LTR 503
at 514:
‘
Business
men often record the most important agreements in crude and summary
fashion; modes of expression sufficient and clear to
them in the
course of their business may appear to those unfamiliar with the
business far from complete or precise. It is accordingly
the duty of
the court to construe such documents fairly and broadly, without
being too astute or subtle in finding defects.’
Principles
applied
[8]
In
interpreting clause 8.1, Bay West referred to a number of clauses
which, it contended, supported a finding that the parties had
agreed
that Edcon would continue trading and that leaving the premises
vacant was a purpose precluded by the express provisions
of the lease
agreement. Before dealing with the specific clauses referred to, it
would be apposite to deal with a feature of the
lease agreement
which, in our view, casts considerable light on the context in which
the lease agreement was concluded. Clause
34.1 provides:
‘
The entry of the Lessee into
the building is conditional upon the simultaneous entry and
continued
trading
of the tenants
listed below, or national tenants of a similar standing, who shall
occupy premises of the following minimum sizes,
subject to a 5% (five
per centum) size variation from the size recorded herein and for the
stipulated initial lease periods:-
Woolworths
5000m
2
10 year
corporate lease
Game
6500m
2
10 year
corporate lease
Pick
‘n Pay
5000m
2
10 year
corporate lease
Checkers
group consolidated brands 6000m
2
10 year corporate lease
Foschini
group consolidated brands
3600m
2
5 year lease
Pepkor
group consolidated brands
1200m
2
5 year lease
Mr
Price group consolidated brands
4000m
2
5 year lease
Truworths
group consolidated brands 2500m
2
5 year
lease
and
at least 3 (three) of the following banks branches: ABSA, FNB,
Nedbank, Standard Bank who shall each occupy premises of not
less
than 350m
2
(three
hundred and fifty square metres), and each concluding a fixed 6 (six)
year lease period.’ (emphasis provided)
[9]
The
tenants listed in clause 34 were clearly intended to be so-called
‘
anchor
’
tenants (and will hereinafter collectively be referred to as ‘
the
anchor tenants’
).
They could, at the election of Bay West, be replaced by ‘
national
tenants of a similar standing
’.
Whomever they were though, Edcon’s entry into the building was
conditional upon ‘
the
simultaneous entry and continued trading’
of the anchor tenants.
[10]
In
its answering affidavit, Edcon’s representative highlighted the
following:
‘
[36]
I point out that clause 34.1, read with clause 34.2, provides that
the Lease Agreement is conditional upon eight specified
tenants
continuing
to trade
for the duration of the respondent’s initial lease period. If
they do not, the respondent is entitled to a reduction of rental
or
to cancel the agreement. Thus, I assume that those tenants expressly
agreed with the applicant that they would continue trading
for a
particular period.
[37]
I reiterate that no such agreement was reached with the respondent.
Moreover, the applicant has not alleged or produced any
evidence that
any of the other tenants’ lease agreements are conditional upon
the respondent’s continued trading. If
they are, it was never
brought to the attention of the respondent, or, more importantly,
agreed to with the respondent.’
(emphasis provided)
[11]
Not
only would the principles enunciated in
Plascon
Evans v Van Riebeeck Paints (Pty) Ltd
,
[5]
dictate the acceptance of
this evidence (together with what Bay West says and which Edcon
cannot dispute), but quite startlingly
too, Bay West elected not to
rise to the challenge posed in para [10], of producing other tenants’
lease agreements to show
that their lease agreements are conditional
upon Edcon’s continued trading. Indeed, it bears mentioning
that Bay West did
not, in its replying affidavit, deal with the
quoted paragraphs at all. The ineluctable conclusion to be drawn from
these surrounding
circumstances is that the other tenants’
lease agreements do not reflect that their leases are subject to
Edcon’s continued
trading. We do not find this surprising if
regard is had to the relatively small space Edcon was going to occupy
in this shopping
centre compared to that occupied by the anchor
tenants. Edcon is to occupy 225 square meters compared with, for
example, Woolworths’
5000 square meters and Games’ 6500
square meters – all recorded in clause 34.1.
[6]
[12]
Edcon
relied very heavily on the judgment of
Foodtown
Incorporated (Pty) Ltd v Florenca and Another
,
[7]
(
Foodtown
)
and in particular the following statements:
‘
Ordinarily,
the parties to a lease contemplate that through selfinterest the
lessee will use and continue using the leased
premises throughout the
period of the lease, but, generally, it is of no interest to the
lessor whether he does so or not, provided
he performs his
obligations under the lease, such as paying the rent, maintaining the
premises, etc. Hence,
in
order to fix the lessee with an obligation to use and keep using the
leased premises, there must be an express or implied provision
to
that effect in the lease
(cf.
Bresgi
v.
Lazersohn
,
1939
A.D. 445
at
pp.
452
to
455
).
(emphasis provided).
[13]
Bay
West sought to distinguish the facts of this case from
Foodtown
by arguing that it is a hallmark of a well-managed and competitive
shopping centre to have a quality and diverse tenant mix, which
attracts shoppers to the centre. It was contended that if tenants
were allowed to simply close their doors whilst paying rent,
no
customer would visit the centre. It pointed out further that the Bay
West Mall was in the process of establishing its presence
in a highly
competitive market and accordingly required every tenant to trade. In
support hereof it relied on, amongst other provisions,
clauses 34 and
36. Clause 36 in essence entitled Edcon to cease rental payments or
cancel the lease agreement, should at any time
during the currency of
the lease agreement, more than 30% of the tenants that traded in the
Mall at the commencement of the lease
agreement, cease to trade. In
our view such clause does not imply an obligation on Edcon to
continue to trade. To the contrary,
it anticipates other tenants
discontinuing trade and governs the position of Edcon following upon
such discontinuation. No obligation
on Edcon to continue trade is to
be inferred from clause 36 alone or read with clause 34.
[14]
Anther
clause roped in by Bay West to support its contention that it was
clearly the intention of the parties that Edcon would continue
to
trade, was the rental clause (clause 7) which provides that the
rental payable by Edcon would be the greater of the basic rental
specified in Annexure ‘A’ to the lease agreement and ‘
the
turnover rental based on the Lessee’s nett turnover
.’
Because the nett turnover is calculated with reference to the nett
selling price of all goods and services, it is argued
that it is only
logical that nett rent can only be calculated on a trading business.
This interpretation ignores the fact that
the clause expressly
provides that the rental payable shall be the greater of the two
options. In our view, if there were no trade,
the greater would be
the rental as provided for in Annexure ‘A’. This clause
too, in our view, does not support the
interpretation contended for
by Bay West.
[15]
In
support of its contention that Edcon is obliged to continue trading,
Bay West relied on the decision in
Edrei
Investments 9 Ltd (In Liquidation) v Dis-Chem Pharmacies (Pty) Ltd
[8]
(Edrei). Edrei
is distinguishable from the facts in this case as it was common cause
in that case that the contract contained an express provision
obliging the tenant to keep the premises open for business and to
trade continually during specified times.
[16]
We
were also referred to a number of unreported judgments
[9]
,
all of which are distinguishable from the current set of facts in
that they either contained express provisions obliging the tenants
to
continue trade or a breach had been conceded and the only issue was
whether specific performance ought to be ordered.
[17]
Clause
8.1 of the lease agreement does not contain an express provision
dealing with an obligation on Edcon to continue to trade.
There was
some atttempt to argue for the existence of a tacit term to this
effect, but this was not strenuously pursued as such
a finding would
have to draw on parol evidence which evidence is inadmissable as it
would vary the written terms of the lease agreement.
This prohibition
was, in any event, expressly agreed upon by the parties when they
incorporated a so-called ‘
whole
agreement’
clause as part of the express terms in the lease agreement.
[18]
In our
view, a crucial and fundamental flaw which was made by the court
a
quo
in
interpreting the lease agreement was to interpret clause 8 in
isolation. Had regard been had to the whole agreement and in
particular clause 34, it would have been immediately apparent that
the interpretation attached to clause 8.1 by the court
a
quo
is
unsustainable and we respectfully differ therefrom.
[19]
It
seems to us that the learned judge, who decided a difficult question
of interpretation in urgent court, was in law bound by the
decisions
of
Bresgi
v Lazersohn
[10]
and
Foodtown
and
ought to have applied the principle in those decisions
,
which
would have driven the learned judge to conclude that, in the absence
of a term in the lease, Edcon was under no obligation
to continue
trading. The agreement of lease does not provide for such an
obligation. The reasoning of the court
a
quo
is
that Edcon, by electing not to use the premises for any of the
identified purposes was effectively using the premises for an
unauthorised purpose and therefore in breach of the lease agreement.
Such a construction does violence to the language used in
clause 8.1
and the lease agreement as a whole. Edcon does not intend using the
premises for an unauthorized purpose. It intends
vacating. It will
not be using the premises at all. Unlike the anchor tenants whose
continued trading was a prerequisite for the
continuation of Edcon’s
lease, Edcon‘s continued trading was not a matter upon which
any other tenant’s lease
depended. The landlord did not include
in its bargain with the tenant that the tenant had to keep trading
and we find that in the
absence of such a term it could not insist
that the tenant continue trading where the tenant continued to honour
the lease.
[20]
We can
do no better than to echo the sentiments expressed by the Supreme
Court of Appeal in
Foodtown
where Van Blerk, JA held
[11]
:
‘
The lease
has to be understood in its ordinary and natural meaning. If the
peremptory form in which the first portion of clause
3 is couched is
to be understood to convey an intention aimed at the far reaching
result that the appellant should be under a positive
and onerous
obligation to carry on business in all circumstances, even if trading
is not profitable, for the inordinate lengthy
period of the lease
the
parties would have been expected to express a stipulation of such
importance in terms.’
(own
emphasis)
[21]
We
cannot but conclude, that the interpretation attached to clause 8.1
of the lease agreement by the court
a
quo
is
wrong and that the court
a
quo
ought to have found that Edcon had not breached (and did not intend
to breach) clause 8.1 of the lease agreement and it ought to
have
dismissed the application.
Order
[22]
We
accordingly grant the following order:
22.1.
The appeal
is upheld with costs including the costs of two counsel where
employed which costs include the costs of the application
for leave
to appeal.
22.2.
The order
of the court
a
quo
is
set aside and the following order is made: ‘
The
application is dismissed with costs including costs of two counsel
where employed
’.
__________________________
M.TSOKA
Judge
of the High Court
Gauteng
Local Division, Johannesburg
I
agree
___________________________
M.
TWALA
Judge
of the High Court
Gauteng
Local Division, Johannesburg
I
agree
________________________
I.
OPPERMAN
Judge
of the High Court
Gauteng
Local Division, Johannesburg
Heard: 7
February 2018
Judgment
delivered: 6 March 2018
Appearances:
For
Appellant: Adv Panayiotis Stais SC and Adv GD Wickins
Instructed
by: Werksmans Attorneys
For
Respondent: Adv H van Eeden SC and Adv DH Wijnbeeck
Instructed
by: Ben Groot Attorneys Inc.
[1]
See for example
Communicare and Others v Khan and Another
2013 (4) SA 482
(SCA) at para 31;
Kwazulu-Natal Joint Liaison
Committee v MEC for Education, Kwazulu-Natal and Others
2013 (4)
SA 262
(CC) per Nkabinde J;
Strydom v Engen Petroleum Ltd
2013 (2) SA 187
(SCA);
National Credit Regulator v Opperman &
Others
2013 (2) SA 1
(CC) per Cameron JA (dissenting);
Hubbard
v Cool Ideas
1186 CC
2013 (5) SA 112
(SCA) at para 14; CA Focus
CC v
Village Freezer t/a Ashmel Spar
2013 (6) SA 549
(SCA);
Cape Town Municipality v SA Pension Fund
2014
(2) SA 365
(SCA);
Mansingh v General Council of the Bar and Others
2014
(2) SA 26 (CC).
[2]
2012 (4) SA 593 (SCA)
[3]
[2015] ZASCA 111
[4]
Referring to
KPMG
Chartered Accountants (SA) v Securefin Ltd & another
,
2009 (4) SA 399
(SCA) para 39 and
Endumeni
(supra) at para 18
[5]
1984 (3) SA 623 (A)
[6]
para [8]
[7]
[1974] 2 All SA 145
(A) at 147;
parallel citation
1974 (1) SA 635
(A) at 639 F - G
[8]
2012 (2) SA 553 (ECP)
[9]
Thornhill Shopping Centre v Africa Automotive Solutions (Pty) Ltd
t/a Midas
, 30 August 2017, case number 5331/17, Limpopo
Division, Polokwane. Leave to appeal against the decision was
granted on 13 November
2017;
Mthatha Mall (Pty) Ltd v Model
Extensions t/a Ideals
, 21 April 2017, casw number 857/17,
Eastern Cape Division, Grahamstown;
Billion Property Developments
(Pty) Ltd v Presidential Group CC
, 14 February 2017, case number
16251/16, Western Cape Division, Cape Town.
[10]
1939 AD 445
[11]
p640 F - G