About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: South Gauteng High Court, Johannesburg
SAFLII
>>
Databases
>>
South Africa: South Gauteng High Court, Johannesburg
>>
2010
>>
[2010] ZAGPJHC 81
|
|
Mngani Property 4 (Pty) Ltd v Irwing 514 CC (25322/09) [2010] ZAGPJHC 81 (29 March 2010)
IAFRICA TRANSCRIPTIONS (PTY) LTD
IN THE SOUTH GAUTENG HIGH COURT
JOHANNESBURG
CASE NO
: 25322/09
DATE
: 29/03/2010
In the matter between
MNGANI PROPERTY 4 (PTY) LTD APPLICANT
and
IRWING 514 CC RESPONDENT
_________________________________________________________
J U D G M E N T
_________________________________________________________
SPILG J
:
[1] The issue before me is whether the seller and present respondent,
Irwing 514 CC [“Irwing”], gave proper notice
of
cancellation of an agreement of purchase and sale. If it did not,
then the question arises whether that in turn amounts to a
repudiation entitling the applicant/purchaser, Mngani Property
Limited [“Mngani”] to cancel the agreement and recover
all moneys paid by it, or whether Irwing is entitled to avoid
restitution until its damages claim, allegedly arising from Mngani’s
breach of contract, is determined. Mngani seeks repayment of the
amount it paid towards the purchase price, Irwing counter claims
for
payment of damages it claims to have sustained as a consequence of
Mngani’s breach. I proceed to the facts.
[2] On 5 March 2008 Mngani bought as a going concern from Irwing the
immovable property and the letting enterprise connected with
it known
as
The Pick & Pay Centre Complex
in Westonaria. The
purchase price of R42 million was payable by instalments in the
following manner under clause 1.2 of the agreement.
R500 000.00 on 27 February 2008;
R500 000.00 on 28 February 2008;
R1 million on 5 March 2008;
R32 million on date of transfer secured by acceptable bank
guarantees to be issued within 30 days of the agreement signed and
payable against registration.
(It will become evident later that this is the key clause.)
R2.5 million on date of registration of transfer or by 30 April
2008, whichever occurred first, deposited in cash into the
conveyancer’s trust account. The conveyancer was Tintingers
Inc, Irwing’s attorneys of record in this case.
The balance was to be paid in equal monthly instalments of R434
464.55, commencing on the 1
st
of the month after transfer
was registered.
Interest of 14.5% per annum was factored into this amount. If
payment was not effected timeously, Irwing could increase the
interest payable to 22% per annum, calculated from date of transfer
and compounded monthly in advance. This also appears from
clause 5.2
as read with clause 1.2.
The instalments payable after transfer were calculated on the basis
that Mngani would faithfully pay all amounts due up to date
of
transfer. In addition a
caveat
had to be registered against
the title deeds prohibiting alienation of the property by Mngani
until the balance of the purchase
price was fully paid
[3] . Other relevant terms of the agreement were:
In the event of Mngani failing to pay any instalment on due date the
full outstanding balance would become immediately due and
payable
without notice to it.
A party that has failed to duly perform its obligation must be given
notice to remedy its default and should it persist in such
default
for a period of (2) two days after it will have received the notice
calling on it to remedy such default then the aggrieved
party shall
be entitled to either
claim specific performance;
be restored to its position
status quo ante
; and/or
declare the contract cancelled and recover all damages it may have
suffered or sustained by reason of the default.
Irwing warranted that the shopping complex produced an annual income
yield of a minimum of 9.5%.
“Income yield
” was
defined as the annual net income before interest, finance charges
and company taxation, expressed as a percentage
of the purchase
price. This income yield
“pertains to the net income
produced by the letting enterprise in the first 12 months from the
date of full occupation by
all tenants. For clarity this income
yield is calculated as per schedules attached hereto marked B1 and
B2”.
A non- variation, non- waiver and sole memorial set of clauses was
incorporated.
[4] It is evident from the detailed provisions mentioned in the pen
ultimate subparagraph that the required income yield was key
to the
transaction and was the basis upon which the purchase price was
determined. It was of cardinal importance that the income
yield had
to be warranted by Irwing. Mngani paid the R4 million due by about
mid March 2008. A letter of grant was only provided
on 23 April 2008
by Nedbank. This was some time after the 30 day period provided for.
Moreover it did not constitute a banker’s
guarantee. Nedbank
indicated in the letter that before issuing the guarantees for R32
million or before the bond is registered
it required;
Signed leases for the shopping complex that produced in total a
current gross monthly rental of R300 000.00 plus VAT and it required
that the periods and conditions of the leases were acceptable to the
bank;
That all tenants, including KFC, must have occupancy for the
individual premises and that their leases must have already
commenced.
Mngani avers that Nedbank subsequently issued guarantees for
effectively the R32 million. It is however common cause that the
guarantees were subsequently cancelled.
[5] I deal first with Mngani’s version. Mngani contends that
Irwing was unable to honour the warranty in respect of the
annual
income yield in that the difficulty in attempting to salvage the
agreement was that the shopping centre was not fully let,
with the
result that it could not generate sufficient rental income. Mngani,
however, continued to make payment of instalments
in the expectation
that Irwing could procure tenants to achieve, or substantially
achieve, the requisite income yield.
[6] On 28 July 2008 Irwing wrote a letter to Mngani. Mngani argues
that this letter proposed a restructuring of the balance of
the
payments. Mngani points out that at that time it had committed R4
million of its resources in the form of payments already
made to
Irwing. Aside from the bank guarantee, Mngani still had to pay R5
million of which R2.5 million had fallen due on 30 April
2008 and the
balance of R2.5 million was to be paid after transfer.
[7] In terms of the letter of 29 July 2008 Mngani proposed that the
amount of R5 million be paid in the following manner:
R300 000.00 by the end of July 2008
Mr Vrey, who is the sole member of Irwing, would in his personal
capacity loan R1.5 million of the purchase price. This was
subject
to Ms Constance Nkosi, a director and presumably shareholder of
Mngani, signing an acknowledgement of debt in her personal
capacity
in favour of Mr Vrey. In terms of the acknowledgement of debt
Ms
Nkosi was afforded time to repay the amount with interest of 3% per
month. She was obliged to pay R545 000.00 on 31 August
2008, R530
000.00 on 30 September 2008 and R515 000.00 on 31 October 2008. The
balance of R3.2 million would be paid over a
period of six to twelve
month “
after
you have settled the above R1.5
million and the
R300 000.00. This we can renegotiate at prime
lend rate and practical term which would suit your cash flow.”
[The emphasis was contained in the letter itself.]
[8] Accordingly the balance of R3.2 million only had to be paid
after 31 October 2008. This is a significant fact as it included
R700 000.00 which was the shortfall of the R2.5 million that had
fallen due on 30 April 2008 and the further amount of R2.5 million
that would only fall due in instalments commencing on the 1
st
of the month immediately after registration transfer.
[9] Ms Nkosi accepted the proposal. She in fact signed the
acknowledgment of debt on 29 July 2008. Mngani contends that
Mr
Vrey did not honour his undertaking to pay the R1.5 million in
reduction of the purchase price. Whether correct or not Mr Vrey
instituted proceeding out of the North Gauteng High Court for payment
for the R1.5 million under the acknowledgement of debt.
[10] Aside from the R4 million paid by mid-March 2008, Mngani paid a
further R300 000.00 on 1 August 2008 and contends that it
subsequently also paid the amounts of R545 000.00 on 29 August 2008,
R495 000.00 on 30 September 2008 and R35 000.00 on 8 October
2008 in
reduction of the purchase price.
This is disputed by Irwing, which contends that the payment of R545
000.00, R495 000.00 and R35 000.00 were payments in reduction
of Ms
Nkosi’s liability to Mr Vrey and that he in fact had caused to
be paid on behalf of Mngani the amount of R1.5 million
in reduction
of the purchase price pursuant to the arrangements contained in the
acknowledgement of debt.
[11] It is evident that the amount of at least R515 000.00 would be
due and payable on 31 October 2008 by Ms Nkosi to Mr Vrey.
It is
also evident, on Mngani’s understanding of the arrangement;
that only an amount of R1.375 million had been paid in
reduction of
an amount of R2.5 million that fell due on 30 April 2008, but in
respect of which Mngani contends it was entitled
to be given terms to
pay.
[12] On 31 October 2008 Irwing addressed a letter to Mngani reminding
it:
“You are in default with regard to your obligations in
terms of clause 1.2 of the agreement. Your attention is drawn to
clause 5.1 of the agreement with regard to remedying of default.
Please advise us to how you will remedy this default.”
It
will be recalled that clause 1.2 covers all instalments payable and
guarantees required that make up the purchase price.
[13] Mngani complains that no details of the default are provided,
nor of the steps required to remedy it. Mngani claims that
it was
surprised by the contents of the letter since there were ongoing
negotiations concerning how Irwing would satisfy Nedbank’s
requirements with regard to the annual income yield and the warranty
provisions in that regard.
[14] In short Mngani contends that the letter fails to adequately
inform it, and that it does not know what default is relied upon
as
the agreement had been restructured in terms of the 29 July 2008
letter and the signed acknowledgement of debt. It is on this
ground
that Mngani contends that proper notice of default is required and
accordingly that there could be no valid subsequent cancellation
by
Irwing.
[15] Furthermore Mngani contends that negotiations continued after he
received the notice of 31 October 2008. Without giving an
indication
of the content of these negotitations Mngani submits that Irwing’s
conduct in continuing to negotiate is inconsistent
with an intention
to cancel the agreement.
[16] On 7 November 2008 Irwing delivered a letter to Mngani which
refers to the notice of 31 October 2008 and states that:
“As
you have not remedied your default to date the abovementioned
agreement is hereby cancelled with immediate effect.”
Mngani
also contends that Mr Vrey’s conveyancers, indicated the
financial difficulties Irwing was suffering in order to
meet its own
bond commitments and that it was desperate to salvage the
transaction.
[17] On 10 November 2008 Mngani’s then legal representatives
addressed a letter to Irwing contending that Irwings letter
of 7
November was premature. They contended that seven days notice was
required, and cancellation was within the seven day period.
In the
letter Mngani relied for breach exclusively on what it contended was
a premature cancellation, which it regarded as constituting
a
repudiation of the agreement. The letter proceeds to advise that
Mngani accepted the repudiation and has cancelled the agreement.
Mngani also required a refund of all moneys paid within two days.
[18] It is clear that the basis relied upon for cancelling the
agreement was fallacious since only a two day notice period was
required. Moreover Mngani’s averment, contained in the
founding affidavit, that it did not understand the terms of the
notice or that there were ongoing discussions that precluded a
reliance on the notice to remedy default are significantly absent
from its cancellation letter of 10 November 2008.
[19] The letter of 10 November written by Mngani’s then
attorney elicited a response from Irwing’s lawyers. On 12
November they replied disputing that the cancellation was premature
and drew attention to the provisions of the agreement which
allow a
period of only two days to remedy a breach. Of significance is the
fact that negotiations which preceded the notice to
remedy letter
related to attempts made by Mngani to obtain further extensions of
time within which to effect payment and that Mr
Vrey made it clear
that Irwing would cancel if Mngani did not perform. It is to be
recalled that an amount of R515 000.00 would
fall due for payment on
31 October 2008.
[20] The letter proceeded to confirm that since both parties regarded
the agreement as cancelled the only outstanding issue was
who had
been entitled to cancel, Irwing claiming that it was entitled to
damages as a consequence of Mngani’s alleged breach.
[21] By April 2009 and despite being placed on terms Irwing had not
quantified its alleged damages, from which it could be inferred
(according to Mngani) that Irwing had sustained no loss and that it
had not offered any response to Mngani’s contention that
moneys
already paid over could not be claimed as
rouwkoop
, since
there is no penalty or forfeiture provision in the agreement.
[22] Irwing’s response on 7 May 2009 through its attorneys was
simply that its client’s damages exceeded the amount
paid of
R5.375 million as claimed by Mngani. It did not quantify the
amount despite the lapse of almost six months.
[23] Irwing on the other hand contends that it lawfully cancelled the
agreement and has suffered damages in the amount of
R6 586
973.11. Irwing also contends that by reason of the payment of R1.5
million made by Mr Vrey on behalf of Mngani, and to which
the
personal acknowledgement of debt loan relates, Mngani has in fact
paid R5.8 million; namely the R4 million by mid March, the
R300
000.00 by the end of July 2008 and the R1.5 million paid by Mr Vrey
for money he had in fact borrowed.
[24] Since that is correct, then as at 31 October 2008;
An amount of R700 000.00 was due to Irwing under the agreement and
this had not been varied by the agreement of 29 July 2008;
Only an amount of R515 000.00 was due at that stage but not to
Irwing nor by Mngani; it was due to Mr Vrey by
Ms Nkosi and this
is born out by the proceedings he instituted against her.
[25] There are two significant facts revealed in Irwing’s
papers. Firstly Irwing alleges that the annual income yield at
all
relevant times exceeded the amount warranted under the agreement by
it, and that because of doubt that existed as a result
of one or two
smaller tenants cancelling Irwing reiterated that it would make good
its warranty. Secondly, the last date for registration
of transfer
was envisaged to be 1 October 2008. This meant that Mngani would
have to find at least R700 000.00 by that date, secure
the guarantees
and make provision to finance the further R2.5 million due in
instalments
post-
registration.
[26] Yet, the written acknowledgement of debt signed by Ms Nkosi can
only be understood by reference to the written proposal of
29 July
signed by Irwing which was accepted by its controlling mind, and sole
member. The documents must therefore be read together.
[27] It must also be read with reference to the letter of 23 October
from Irwing. This letter refers to a meeting of 9 October
setting
out the shortfall and indicating that Irwing wished to proceed with
transfer but had received no indication from Mngani
with regard to
how it is to fund such shortfall. In my view this is critical
because on transfer Irwing would have no security
for the R2.5
million
plus
the then outstanding R700 000.00. Nor is there
an indication of how the transfer duty is to be funded. Moreover
Irwing complained
that it remained unclear what Nedbank’s
actual difficulties were. At the meeting of 9 October, where
Irwing’s legal
representative was also present, it had insisted
that the guarantees be provided.
[28] Irwing’s counter claim is based on the following: Firstly
damages of some R2.766 million for obtaining bridging finance
after 1
October 2008, having anticipated that transfer would be affected by
the latest 1 October although the initial proposal
was for transfer
to be effected on 1 July 2008: Secondly, damages of R8 million due
to the decline in the property market, in
that Irwing was only able
to sell the property for R32.5 million in July 2009. This would
account for Irwing’s inability
to quantify the extent of its
damages sooner: Thirdly, loss of interest- income on the purchase
price between 1 October 2008 and
the end of September 2009 when
transfer was at that stage expected to be registered in respect of
the subsequent sale.
[29] Even if solely the reduction in the purchase price between the
amount in the written agreement and the amount for which the
property
was eventually sold is taken into account, the counter claim is
greater than the amount paid by Mngani to Irwing.
[30] In Mngani’s reply it is evident that the only factual
challenge of relevance concerns whether the Pick & Pay lease
was
in place at the time the agreement was concluded on 5 March. It is
however not in dispute that Pick & Pay was in occupation.
Indeed, the centre was already known as the Pick & Pay Centre
Complex, Westonaria.
[31] Mr Morison accepted that the matter be determined on the papers.
Accordingly the principles of
Plascon- Evans Paints Ltd v Van
Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A)
apply in
determining what evidence is before me. In the present case the
factual disputes such as they are must be resolved in
favour of
Irwing; in particular that it did comply with the income yield
provisions as warranted.
[32] Insofar as Irwing’s cancellation is concerned, I am
satisfied that the letter must be read in the context of the
discussions
at the time. It cannot be construed in isolation. This
much is clear from the response of Mngani’s erstwhile
attorneys.
Their client did not profess ignorance nor contend that
it was unable to discern what had to be remedied. Whatever else,
there
was a serious inability to finance the transaction while the
need to effect transfer was self-evident to all.
[33] The guarantee had not been provided. This in my view is key.
While arrangements might have been made through extensions of
time
allowing Mngani to service the debt out of revenues, it was essential
that the guarantees be forthcoming. This comprised
the bulk of the
amount that was required to be paid, namely R32 million. In my view,
it is clear from the requirements of clause
1.2 that there could be
no misunderstanding about this.
[34] I therefore find, having regard to the context of the meetings
and the need to effect transfer, that Mngani at the minimum
knew that
it had to procure the guarantees and, despite the meeting of 9
October, that by the end of that month it still could
not secure the
key R32 million guarantee in order to enable transfer to pass.
[35] It is also evident that the parties contemplated a reasonable
time to effect transfer to be no later than 1 October 2008.
Indeed
the indications are that it was much earlier. This emanates from the
provisions regarding the R2.5 million that was either
to be paid on
30 April 2008 or upon transfer. It gives guidance as to when the
parties anticipated that transfer would be effected.
[36] Moreover in Irwing’s papers, which again by reason of the
application of
Plascon- Evans
must stand as the facts before
me, it was anticipated that transfer would indeed take place by 1
July 2008. The agitation on the
part of Irwing should be
self-evident. It had no security and it had already waited a
significant period for its money- and in
fact had partially assisted
Mngani in financing part of the outstanding amount by way of Mr Vrey
personally borrowing moneys, which
resulted in the R1.5 million loan
that was subject to Ms Nkosi personally signing the acknowledgment of
debt.
[37] On the basis of
St Martin’s Trust v Willowdene
Landowners’ (Pty) Ltd
1970 (3) SA 132
(W)
at pp135G to 136F
(see also
Alfred McAlpine & Son (Pty) Ltd v Transvaal
Provincial Administration
1974 (3) SA 506
(A)
at 527A-B,
529F-530C and especially 533H-535A) I am satisfied that a reasonable
time was implicit in the agreement.
[38] Since I am satisfied that there was enough in the cancellation
letter as understood with the surrounding circumstances for
Mngani to
be under no misapprehension as to what at the minimum was required,
the cancellation by Irwing is good. It follows that
Mngani’s
view that Irwing’s letter amounted to a repudiation is bad in
fact and in law. In any event it was based
on a fundamentally flawed
premise.
[39] This characterisation of the issues makes it unnecessary to
proceed further and consider the effect of the acknowledgement
of
debt, as read with the 29 July 2008 letter, on the content of the
written agreement and the non variation clause; even if one
was to
permit it under an exception to the parole evidence rule.
[40] Nonetheless, what remains evident is that the key requirement of
securing guarantees by the date when transfer was expected
had not
materialised. This was a vital clause in the agreement and Mngani,
on the papers before me, had already been given verbal
notice of an
insistence to secure the guarantees for transfer that was required by
1 October 2008 and when this did not materialise
that the guarantees
were then required to be produced by the end of that month. The
letter in its context would be understood to
have dealt with this as
well. Again, the failure on the part of Mngani’s attorneys to
challenge the demand on the basis
that it was unclear, demonstrates
in my view that Mngani well understood what at the minimum was
required of it.
[41] Where there has been a cancellation, the parties are entitled to
be put in the position
status quo ante
although there is no
immediate obligation upon the party to restore until sued. In the
present case there is no
rouwkoop
clause. The question that
remains relates to characterising the nature of that part of the
damages claim raised by Irwing which
exceeds the amount paid by
Mngani and which relates to the difference between the purchase price
in terms of the agreement with
Mngani and the reduced purchase price
eventually obtained for the property and the “
letting
enterprise
”.
[42] I did not hear argument on whether or not the amount constitutes
liquidated damages and therefore amenable to set-off. It
occurred to
me by reason of the concern I had with regard to the appropriate
order that should be made. If as a matter of law set-off
does operate
then should anything adverse materialise with regard to the financial
position of Mngani the amount itself might be
excluded from any claim
by creditors.
[43] If on the other hand the amount is considered to be unliquidated
damages then of course set-off does not apply and if anything
were to
befall Mngani financially then that amount would be available for
distribution to all creditors. Since I did not hear
argument on this
issue and since it may well be an open issue, I believe that the
appropriate course is to protect the position
in such a way that
depending on the final resolution of the matter this judgment does
not anticipate the true nature of that portion
of Irwing’s
alleged counter claim.
[44] It is for this reason that Rule 22(4) is applicable. The
question of whether it covers unliquidated damages insofar as there
be a stay of a judgment itself, as opposed to a stay of execution of
a judgment, appears to have been left open in the case of
Mala and
Others v Botswana Development Corporation Limited
2003 (1) SA 651
(SCA) at para 7 through to 11.
[45] The court referred to conflicting decisions. In my view it is
unnecessary to enter into the debate since the claim by Mngani
may
well be found to constitute a liquidated claim, entitling it to
set-off.
[46] I would, however, refer generally to the following cases without
the need for further consideration;
Crest Enterprises (Pty) Ltd v
Rycklof Beleggings (EDMS) BPK
1972 (2) SA 863
(A) at 869B and
870G,
Console Limited t/a Consol Glass v Twee Jongezellen (Pty)
Ltd and Another
2002 (2) SA 580
(C),
Cape Produce Company PE
(Pty) Ltd v Delmaso and Another NNO
2001 (2) SA 182
(W),
Standard
Bank SA Limited v SA Fire Equipment (Pty) Ltd and Another
1984
(2) SA 693
(C), and the cases referred to in that decision. More
recently there is the case of
Frank v Premier Hanger CC
2008
(3) SA 594
(C).
[47] Irwing in my view has
prima facie
demonstrated that it
resold the shopping centre for some R8.5 million less than the
purchase price agreed in its contract with
Mngani. It has an
agreement to support the subsequent sale. In the circumstances I
consider that the most appropriate order is
that the amount be held
in trust by a stakeholder pending the outcome of the determination of
the claim in reconvention.
[48] The factors I have enumerating regarding the possibility of the
damages claimed being liquidated and the possibility that
may arise
should that be the case and should unfortunate circumstances befall
to find that the provisions of Rule 22(4) should
be applied.
[49] It is evident that Mngani need do no more in relation to proving
its claim and that it now lies in the hands of Irwing to
demonstrate
the validity of its counter claim. There then remains a need to
protect the money by placing the funds in the hands
of a stakeholder.
I wish to make it clear that what this order embraces, and its
purpose, is to place the moneys safely in the
hands of a stakeholder
so that it does not affect the legal nature of the moneys that were
paid by Mngani and does not affect the
situation should it be found
that Irwing’s counter claim, if proven, constitutes an
unliquidated counter claim, or on the
other hand a liquidated counter
claim where set-off applies and which would have applied as at the
date that Irwing concluded the
subsequent sale of the property.
[50] The order I make is as follows:
Judgment in respect of the applicant’s claim for payment of
R5 375 000.00 and interest is postponed until the determination
of
whether the respondent is entitled to judgment in respect of its
counter claim, provided that the respondent proceeds in
terms of
the order set out in paragraph 2.1;
Respondent’s counter claim is referred to trial and the
respondent is to deliver a declaration within 20 days of this
order;
The respondent is directed to pay R5 375 000.00 into the trust
account of an attorney who is mutually agreed to between the
parties within two days of the grant of this order, failing which
the parties will refer back to the court to determine the
independent firm of attorneys who will hold the moneys in trust and
that such moneys are to be held by such attorney as stakeholder
and
in an interest bearing trust account pending the determination of
the respondent’s counter claim;
Such attorneys are directed to release the moneys held in trust
together with any interest upon determination of the respondent’s
counter claim to such party entitled thereto and the stakeholder
attorney deducting from the judgment such amount as may be
found in
the respondent’s favour, if any, in the determination of its
counter claim;
Costs, including cost of the application are to be costs in the
cause of the hearing of the counter application.
(I should add, the reason for this is that if the amount is
considered to be liquidated damages then set-off would have applied
and certain, if not all, of the costs in launching the application by
Mngani may be their responsibility. But this court is not
in a
position at this stage to make that determination.)
Should the respondent fail to comply with paragraph 2.1 within 30
days of this order the applicant shall be entitled to apply
for a
judgment in respect of its claim of
R5 375 000.00 plus
interest.
____________________________
B SPILG
JUDGE OF THE SOUTH GAUTENG
HIGH COURT, JOHANNESBURG
DATE OF JUDGMENT: 29 March 2010
FOR APPLICANT Adv Les Morison SC and Adv Barry Gilbert
Allan Levin & Associates
FOR DEFENDANT: Adv Norman Davis SC
Tintingers Incorporated C/O Neels,
Engelbrecht & Partner