Brief Summary

Unjust Enrichment — Requirements for claim — Appeal against judgment awarding refund of purchase price — Respondents claimed unjust enrichment after agreement of sale failed — Appellant contended respondents were not impoverished as they received rental income from third party — Court found respondents were not impoverished and appellant's enrichment was not at their expense — Appeal upheld, confirming that enrichment was not unjust and dismissing respondents' claim for refund.

Comprehensive Summary

Summary of Judgment

1. Introduction

This matter concerned an appeal to a Full Bench of the South Gauteng High Court, Johannesburg, against findings and orders granted by Bokaba AJ on 4 June 2007 in favour of the plaintiffs in the court a quo. The appeal was adjudicated by Makhanya J (with Marais J and Saldulker J concurring) and judgment was delivered on 25 March 2010.

The parties were Portion 29 Golden Highway (Pty) Ltd as the appellant (the defendant in the court a quo) and Ashraf Mohamed Patel and Rayhanah Ahmed Patel as the first and second respondents (the plaintiffs in the court a quo). The dispute arose from a failed agreement of sale of immovable property, and the ensuing claim for repayment of monies paid under that agreement.

The procedural history was material. The respondents initially sued based on the alleged non-fulfilment of a suspensive condition, tendering restoration of possession to the appellant. On 10 February 2006 Claassen J found that the suspensive condition in clause 2.4 of the written agreement had not been fulfilled and that the agreement was consequently of no force and effect. Thereafter, before Bokaba AJ, the respondents pursued a claim for repayment of the purchase price paid to the appellant on the basis of unjust enrichment. Bokaba AJ granted judgment for repayment of the full R1 011 000.00, with interest, awarded costs to the respondents, and dismissed the appellant’s counterclaim with costs. The appellant appealed against those findings and orders.

At a general level, the subject-matter was whether, and to what extent, the respondents could recover payments made under a failed sale agreement by way of enrichment law, and whether the appellant’s alleged enrichment had to be reduced (or otherwise adjusted) because the respondents had enjoyed possession and the fruits of the property (including rental receipts) before the agreement failed.

2. Material Facts

It was common cause that on 3 February 1997 the respondents, in terms of a written agreement of sale, purchased from the appellant Portion 38 of the Farm Vlakfontein and improvements (“the property”). The respondents had, however, already taken occupation and control of the property on 1 January 1996, prior to the purchase.

The total amount paid pursuant to the agreement of sale was R1 011 000.00. Of this total, R500 000.00 had been paid to the appellant prior to 3 February 1997. The respondents had possession and control of the property for the period 31 January 1996 to 30 September 1999, amounting to 45 months of occupation.

During the period of occupation the property was used commercially. A portion of it was rented to Kiasha Park Motors CC, which conducted business on the premises (including a service station, garage, car sales, and a workshop). The sole member of Kiasha Park Motors CC was the first respondent. Kiasha Park Motors CC paid rentals which, on the evidence accepted by the appeal court, were equivalent to the monthly instalments payable under the sale agreement. These rental amounts were used by the respondents as instalments payable under the agreement and were paid directly to the appellant, being payments made or procured at the instance of the respondents in fulfilment of their obligations under the agreement. The rental amounts collected for the respondents’ account over the 45-month period totalled R711 000.00.

On 23 March 2000 the respondents instituted action claiming that the suspensive condition had not been fulfilled, and tendered possession and control of the property back to the appellant. On 10 February 2006 Claassen J found that the suspensive condition had not been complied with and that the agreement was accordingly void and unenforceable.

Before Bokaba AJ, the respondents claimed a refund of the R1 011 000.00 purchase price, relying on unjust enrichment. That claim succeeded in full in the court a quo. The appellant’s appeal proceeded on the basis that, given the rental benefit enjoyed during occupation, the respondents were either not impoverished in respect of the full amount, or that it would be inequitable to order repayment of the full amount.

3. Legal Issues

The central legal question was whether the respondents had established the requirements for an unjust enrichment claim for repayment of the amounts paid to the appellant under a sale agreement that later proved unenforceable due to non-fulfilment of a suspensive condition.

More specifically, the appeal court had to determine whether, in light of the respondents’ 45-month occupation and their receipt of rentals totalling R711 000.00 (which were used to service the instalments), the respondents were impoverished, and whether the appellant’s enrichment (if any) was at the expense of the respondents in the manner required by enrichment law. This involved the application of established legal requirements to a particular factual matrix, and an evaluative assessment of the transaction “as a whole” in deciding whether enrichment was unjustified.

A further issue arose from the appellant’s counterclaim for “fair and reasonable rental” (or compensation) for the respondents’ occupation, use, and enjoyment of the property over 45 months, framed as part of a restitutionary or equitable restoration process after the failure of the contract. The court had to consider whether the counterclaim was competent and whether the court a quo had erred in dismissing it (including by reliance on authorities said to be distinguishable).

In addition, an issue arose concerning the onus in enrichment proceedings, including whether any onus had shifted to the appellant and whether any “presumption” arising from proof of payment affected the ultimate burden of proof.

4. Court’s Reasoning

The Full Bench approached the appeal primarily through the lens of the respondents’ enrichment claim. It reiterated the four general requirements for liability based on unjust enrichment, namely that the defendant must be enriched, the plaintiff must be impoverished, the enrichment must be at the expense of the plaintiff, and the enrichment must be unjustified (sine causa), as reflected in LAWSA and authority.

In applying these requirements to the facts, the court focused on the economic substance of what had occurred during the respondents’ occupation of the property. It accepted that the instalments paid to the appellant (beyond the deposit) were in substance equivalent to rentals that accrued to the respondents because they were in possession and had commercial use of the property. The court reasoned that those rentals would not have accrued to the respondents but for their possession under the (later failed) agreement. Correspondingly, the appellant, as owner, was deprived of the commercial benefits and fruits of the property while the respondents were in possession. On this analysis, when the transaction was viewed as a whole, the respondents’ flow-through of rentals to the appellant did not represent an impoverishment that could properly ground an enrichment claim against the appellant for the same amounts.

The court rejected the characterisation that the appellant’s enrichment (to the extent that it received payments equivalent to the rentals) was “unjust” in enrichment-law terms. The court considered that the appellant had parted with possession, and with the potential to derive the fruits of the property, in the honest belief that the agreement was valid, and that the contract failed not due to breach by the appellant but because of non-fulfilment of a suspensive condition. Against that background, the court concluded that, in respect of the portion of the purchase price funded by the rentals (R711 000.00), the respondents had not shown the requisite impoverishment, nor that any enrichment was “at their expense” in the requisite sense. It therefore held that any enrichment recovery would have to be reduced by R711 000.00.

The court then addressed, in the alternative, the appellant’s counterclaim, which was framed as a restitutionary measure seeking “fair and reasonable rental” as compensation for occupation if repayment of the purchase price was ordered. The court interpreted this as invoking principles of restoration and equity where a bilateral contract is found to be unenforceable (rather than contractual damages or delict). It considered the court a quo’s reliance on Govindasamy v Govindasamy 1957 (4) SA 495 (D) and its statement that an innocent purchaser need not account for rents earned during agreed possession under a cancelled sale. The Full Bench treated Govindasamy as distinguishable because it involved eviction and a legally enforceable contract at the outset, whereas the present case involved an unenforceable contract due to a suspensive condition not being fulfilled and called for restoration on equitable principles. The court also considered the reliance by the court a quo on Naicker v Bell 1965 (4) SA 210 (SR) to be misplaced because Naicker concerned eviction arising from breach of the warranty against eviction under a valid contract, and the statement quoted there was tied to that context.

Drawing on the restitutionary approach described in Mackeurtan and cases recognising the condictio as a means to restore parties after performance under an unenforceable contract, the court reasoned that where the respondents had enjoyed possession and received rentals which, absent the unenforceable contract, would have accrued to the appellant, compensation to the appellant would serve the restoration process. The Full Bench stated that the court a quo erred in refusing the counterclaim in principle, but also held that the counterclaim was provisional on the respondents succeeding in the main claim for repayment of the sums to which the counterclaim related. Because the respondents’ main claim failed in respect of the R711 000.00, the counterclaim did not succeed as a basis for a substantive award in the appeal; however, the court stated that the appellant was entitled to the costs on the counterclaim because it had been entitled to raise that provisional defence.

The Full Bench nonetheless distinguished the treatment of the initial deposit amount of R300 000.00 from the rental-funded instalments. It held that the appeal failed in respect of the R300 000.00: the respondents had established the enrichment requirements for that portion. The court reasoned that it was common cause that R300 000.00 was paid as a deposit, giving rise to a presumption of enrichment. It held that the presumption was not rebutted. It further reasoned that, absent counter-performance (ownership did not pass because the agreement was void), the enrichment was prima facie unjustified and without causa.

On the onus issue, the court rejected the notion that the appellant bore the legal onus to show there was no unjust enrichment. It held that the onus remained on the respondents throughout, and that any presumption arising from proof of payment did not shift the overall onus, though it could create an evidential burden in the sense that a rebuttal might be necessary if evidence existed to counter the presumption.

Finally, on costs in the main action, the court undertook an evaluative assessment. Although the respondents achieved limited success (R300 000.00), the appellant achieved success on the major portion (R711 000.00), and the trial evidence related substantially to the issue on which the appellant succeeded. The court therefore considered it equitable that each party pay its own costs in the court a quo. As regards appeal costs, the court applied the general rule that costs follow the result, and awarded the appellant the costs of appeal because the appeal substantially succeeded.

5. Outcome and Relief

The appeal was upheld with costs.

The orders of the court a quo were set aside and substituted with an order that the appellant pay the respondents R1 011 000.00 less R711 000.00, resulting in a net amount of R300 000.00, together with interest on R300 000.00 at 15.5% per annum from 3 April 2000.

In respect of the costs in the court a quo (the main action), the court ordered that each party pay its own costs. The appellant, as the substantially successful party on appeal, was awarded the costs of appeal. The judgment further indicated that the appellant was entitled to the costs on the counterclaim, in light of the court’s view that the counterclaim was competent in principle though provisional upon success of the main claim.

Cases Cited

Bowman De Wet Du Plessis NNO & Others v Fidelity Bank Ltd 1997 (2) SA 35 (A).

Cash Converters SA v Rosebud Western Province Franchise 2002 (1) SA 708 (C).

Govindasamy v Govindasamy 1957 (4) SA 495 (D).

Haumann v Nortje 1914 AD 293.

McCarthy Retail Ltd v Short Distance Carrier CC 2001 (3) SA 482 (SCA).

Naicker v Bell 1965 (4) SA 210 (SR).

Nortje v Pool NO 1966 (3) SA 96 (A).

Breslin v Hichens 1914 AD 312.

Legislation Cited

No legislation was cited in the judgment.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the respondents were not entitled to recover the full amount of R1 011 000.00 paid under the failed agreement of sale by way of unjust enrichment because, on the accepted facts, R711 000.00 of that amount corresponded to rental benefits that accrued to the respondents during their occupation of the property and were paid over to the appellant in circumstances that did not establish the requisite impoverishment or unjust enrichment.

The court held that the respondents did establish the requirements for unjust enrichment in respect of the R300 000.00 deposit, because the appellant was enriched by receipt of that payment, the respondents were prima facie impoverished by it, the enrichment was at the respondents’ expense, and the enrichment was unjustified due to the absence of causa once the agreement was found unenforceable.

The court further held that the court a quo erred in its treatment of the appellant’s counterclaim in principle (including its reliance on authorities treated as distinguishable), but that the counterclaim was provisional on success of the main claim and therefore did not yield a substantive award in the appeal given the reduction of the respondents’ recovery. The judgment stated, however, that the appellant was entitled to the costs of the counterclaim.

LEGAL PRINCIPLES

Unjust enrichment liability requires proof that the defendant was enriched, the plaintiff was impoverished, the enrichment was at the expense of the plaintiff, and the enrichment was unjustified (sine causa). These requirements remain the foundation of enrichment claims, and they must be established by the plaintiff.

Where payment is proved, a presumption of enrichment may arise in respect of the amount received, but this does not alter the overall onus, which remains on the plaintiff to establish all elements of unjust enrichment. Agreement by a defendant to begin leading evidence does not, without more, constitute acceptance of the legal onus.

In assessing impoverishment and “at the expense of” in enrichment law, the court endorsed an approach that evaluates the transaction as a whole. Where a claimant’s payment is economically linked to benefits received as a result of possession and use of property under a contract later found unenforceable, the claimant may fail to establish impoverishment (or unjust enrichment) in respect of amounts that correspond to those benefits.

Following the failure of a contract due to non-fulfilment of a suspensive condition, restitutionary remedies may be informed by equitable restoration principles, commonly implemented through the condictio in circumstances where contractual remedies are excluded by the absence of enforceable contractual obligations. Authorities dealing with eviction and enforceable contracts were treated as distinguishable when the dispute is instead grounded in restoration after an unenforceable contract.

Costs may be apportioned on equitable considerations where each party achieves partial success, particularly where the bulk of the litigation effort and evidence is directed to issues on which one party ultimately succeeds, while the other obtains only limited relief. Costs of appeal generally follow the result where one party is substantially successful.

Portion 29 Golden Highway (Pty) Ltd v Patel and Another (A5038/07) [2010] ZAGPJHC 15; [2010] 4 All SA 219 (GSJ) (25 March 2010)