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[2010] ZAGPJHC 72
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Lob v Carribean Estates (Pty) Ltd (2007/16441) [2010] ZAGPJHC 72 (8 September 2010)
SOUTH GAUTENG HIGH COURT, JOHANNESBURG
CASE NO: 2007/16441
DATE: 08/09/2010
In the matter between:
LOB, LESLEY WILLIAM
Applicant/Defendant
and
CARRIBEAN ESTATES (PTY) LTD
Respondent/Plaintiff
J U D G M E N T
MBHA, J
:
[1] The applicant, who is the defendant in the main action, seeks an
order allowing him to amend his plea and counterclaim in
the terms
set out in his Notice of Amendment dated 1 December 2009.
[2] On 14 December 2009, the plaintiff delivered a Notice of
Objection to the proposed amendment. The grounds of objection are:
2.1 that the proposed amendment would render the plea and
counterclaim excipiable as the proposed new pleading is vague and
embarrassing
and does not disclose a defence to the plaintiff’s
claim and a valid cause of action in respect of the defendant’s
counterclaim;
2.2 that the proposed amendment has been brought in a dilatory
manner.
[3] During argument, the plaintiff did not persist with the latter
ground of objection, namely that the proposed amendment was
brought
in a dilatory manner.
[4] The dispute between the parties relates to an agreement that was
concluded between the parties comprised of two agreements,
to wit a
Letter of Intent agreement (“
the letter of intent
”)
and the asset management agreement
(“the management
agreement”)
. These agreements were concluded in 2005.
[5] The plaintiff claims to have validly exercised, on 19 July 2006,
a call option provided for in the letter of intent, pursuant
to which
it paid the defendant R1 268 350,86 for his 12% share in the asset
management agreement. The defendant disputes the validity
of the
exercising of such call option and contends that the correct amount
payable to him is in fact R8.4 million, which is the
subject matter
of the defendant’s counterclaim.
[6] In its particulars of claim, the plaintiff seeks a declaration,
inter alia
, that the plaintiff has complied with its
obligations arising out of the exercise of its call option in terms
of paragraph 2.2.4
of the letter of intent and that pursuant to the
exercise of the option, the plaintiff has acquired the defendant’s
interest
in the net capital profit due to the plaintiff upon a sale
of its interest in the asset management agreement.
[7] As will be seen shortly, the terms of the letter of intent lies
at the heart of the defendant’s proposed amendment.
[8] The relevant clauses of the letter of intent, which are fully
pleaded in paragraphs 5.1 to 5.7 of the particulars of claim,
read as
follows:
“
[2.1] Caribbean is entering into an asset management
agreement (‘the management agreement’) for a share in the
asset
management of all the properties which are to be included in
the Yieldgro/CSB Property portfolio in a company to be listed on the
JSE (Newco). Subject to and after the listing of the NEWCO on the
JSE and on a sale of Leslie’s interest in the management
agreement to a third party purchaser, Leslie or his nominee will be
entitled after the date of such listing on the JSE to a 12%
share of
the net capital profit (after deducting all third party costs and
charges relating to a sale) payable to Derek and Martin
and/or
Caribbean in respect of the sale of such interest.
[2.2] The entitlement referred to in 2.1
[above]
only
vests in Leslie on the sale of Caribbean’s economic interest in
the asset management agreement but does not extend to
an entitlement
to share [2.2.1] in the monthly cash flows generated under the
management agreement, pending such share [2.2.2]
promoter’s
fees of this listing on the JSE, and any salary or fee that may
become due and payable to Derek and Martin.
[2.2.4] Either party, being Leslie or his nominee on the one hand
and Caribbean on the other hand, is entitled by means of a written
put-option by Leslie (or his nominee) share to sell to Caribbean
their profit-share interest in the asset management agreement
at any
time after the date of listing of NEWCO on the JSE. The purchase
price shall be the present value arrived at by discounting
(on date
of put and call) the current not monthly payments (after income tax)
attributable to 12 % of Caribbean’s share of
the asset
management joint venture…”
[9] Martin and Derek are directors of the plaintiff while Leslie is
the defendant.
[10] The defendant relies in the main, on clause 6 of the letter of
intent (
“the good faith clause”)
for his proposed
amendment. This clause reads as follows:
“
Each of the parties undertakes to observe the principles of
good faith towards one another in the performance of each party’s
respective obligations in terms of this letter of intent. This
implies, without limiting the generality of the aforegoing that
each
party [6.1.1] will at all times act reasonably, honestly and in good
faith; [6.1.2] will perform such party’s respective
obligations
arising from this transaction diligently and with reasonable care;
and [6.1.3] make full disclosure to one another
of any matter that
may affect the entering into and the implementation of this letter of
intent and the transaction.
[6.2] each party agrees to perform any further acts to execute
and deliver any further documents which will be necessary or
appropriate
to carry out the purposes and implementation of this
letter of intent and the transaction.
”
[11] It is common cause that the management agreement referred to in
clause 2.1 of the letter of intend was concluded on 31 August
2005.
[12] The plaintiff pleaded the relevant terms of the management
agreement as follows:
1. “
Prior to the listing of NEWCO, and as contemplated in
the letter of intent agreement, an asset management agreement was
concluded
between CBS Property Portfolio (“CBS Property”)
CBS Asset Management (Pty) Ltd (“CBS Asset Management”)
and the plaintiff. In terms of this agreement:
1.1 the property-owning entity (being CBS Property) appointed a
joint venture entity (comprising of the plaintiff and CBS Asset
Management) to render certain property management services specified
in the agreement in respect of all the properties that were
included
within a property portfolio of CBS Property;
1.2 the asset management agreement would commence on 31 August
2005 and would, subject to what is set out below, continue
indefinitely;
1.3 either party would be entitled to terminate the asset
management agreement by giving one year’s written notice,
provided
that such notice could only be delivered to the other party
after the seventh anniversary of the conclusion of the joint
management
agreement; and
1.4 the management fees payable to the joint venture for the
services rendered by it consisted of a minimum monthly fee equivalent
to one-twelfth of the average market capitalisation of CBS Property
on the JSE for the last five business days of the relevant
month plus
the outstanding debt of CBS Property at the end of the relevant
month.
”
[13] The plaintiff asserts that during July 2006 it validly
exercised the call option rights it had in terms of clause 2.2.4 of
the letter of intent. To this end the plaintiff alleges that:
Subsequent to the conclusion of the letter of intent, a condition,
contained in the letter of intent was fulfilled when NEWCO
(being
the CBS Property) was listed on the JSE.
Plaintiff had a 50% interest in the joint venture (comprising of
the plaintiff and CBS Asset Management) and a 50% interest
in the
fees due to the parties under the asset agreement.
Significantly, both these two allegations are admitted by the
defendant in the existing and the proposed plea and counterclaim.
Insofar as the term of the asset management agreement is relevant
to the determination of the price to be paid on the exercise
of the
option, the plaintiff alleges that prior to it exercising the call
option in July 2006, it reasonably expected that
it was probable,
alternatively possible, that one of the parties to the asset
management agreement would exercise its right
of termination of
such agreement on one year’s notice after the expiry of the
above seven year period. Alternatively,
the plaintiff avers that
the asset management agreement is expressly terminable by either
party on notice, after the seven
year notice. This is denied by
the defendant both in the existing and the proposed plea and
counterclaim.
[14] The plaintiff then alleges that it gave written notice to the
defendant exercising its call option rights on 19 July 2006.
[15] As I have already pointed out, the defendant denies that the
plaintiff validly exercised its option rights. According to
paragraph 8.5 of the defendant’s plea, the denial is premised
on the contention that “
The purchase price attributable to
Caribbean’s share of the asset management agreement, properly
calculated, would amount
to the sum of at least R70 million, the
share of the defendant accordingly being 12% thereof, is the sum of
R8.4 million
”. In other words the correct amount payable,
according to the defendant, under clause 2.2.4 of the letter of
intent, is
far higher than R1 268 350,86 which the plaintiff paid to
the defendant upon the exercise of its call option.
[16] The defendant further avers that the exercise of the call
option was rendered invalid by virtue of the plaintiff’s
breach
of its good faith obligations. Such alleged breach is based on the
fact that the plaintiff failed to disclose, at the time
of the
exercise of its option, that it was contemplating disposing of its
interest in the management agreement to a third party.
[17] The defendant alleges in his plea that he was thus still
entitled to exercise his put option rights, that he did so during
July 2007 and that he is owed at least R8,4 million in terms of a
“
proper calculation
” under clause 2.2.4 of the
letter of intent.
[18] In the alternative, the defendant avers that in the event that
the plaintiff properly exercised the call option, the present
value
as per clause 2.2.4 of the letter of intent, properly calculated
amounts to R8,4 million.
[19] In his existing counterclaim, the defendant repeats his main
and alternative defences as set out in his plea and seeks payment
of
R7,2 million (being R8,4 million less R1,2 million already paid)
under clause 2.2.4 of the letter of intent).
[20] The proposed amended plea and counterclaim is, in many
respects, a mere repetition of the existing plea and counterclaim.
Thus in the proposed amended plea, the defendant persists with his
allegation that by virtue of certain alleged non-disclosures
amounting to an alleged breach of the good tenth clause, the
plaintiff was not entitled to exercise its call option.
[21] The defendant however adduces new allegations to the effect
that in March 2007 some nine months after plaintiff’s call
option was exercised, the plaintiff concluded an agreement with the
PIC, which sold its share in the management agreement to the
value of
R8,4 million.
[22] The allegations regarding the invalidity of the plaintiff’s
exercise of its call option during July 2006 are repeated
in the
proposed counterclaim. The defendant then alleges, in paragraph 20
of the proposed counterclaim that “
Inasmuch as the
cession/sale to the PIC was for a consideration of R70 million plus
VAT the defendant is entitled to 12% of the
net capital profit on
such amount, which is an amount of R8,4 million
”.
[23] Thus the substantive distinction between the proposed leading
and the existing pleading, is the following:
Firstly, the proposed pleading removes the alternative averment of
the defendant that properly calculated, assuming that the
plaintiff’s exercise of the option to be valid, the amount to
be paid on the exercise of the option in terms of clause
2.2.4 is
R8,4 million;
Secondly, the proposed amendment bases the entire defence and claim
of the defendant on the alleged invalidity of the plaintiff’s
exercise of its option rights and the applicability of clause 2.1
of the letter of intent.
[24] The proposed claim is thus one for payment under clause 2.1 and
not under clause 2.2.4 as is presently the case in the defendant’s
existing plea and counterclaim. In paragraph 18 of the proposed
counterclaim the defendant specifically alleges that the sale to
PIC
was within clause 2.1 of letter of intent.
[25] Mr Fine, appearing for the plaintiff, submitted that in view of
the defendant’s proposed withdrawal of his alternative
contention and defence [that assuming the plaintiff indeed validly
exercised the option, properly calculated under clause 2.2.4
of the
letter of intent that the purchase price owing to him on the exercise
of the plaintiff’s option right is R8,6 million]
the amendment
would, if it were to be granted, render the entire plea excipiable,
and that it would do so for the reason that it
would not disclose a
valid defence to the plaintiff’s claim for a declaration that
it exercised its call option during July
2006, and that pursuant
thereto, under clause 2.2.4 of the letter of intent, the plaintiff
has acquired the defendant’s interest
under clause 2.1 of the
letter of intent agreement.
[26] He submitted further that the proposed new counterclaim does not
disclose a valid cause of action pursuant to which the defendant
can
seek to advance a claim for payment of R8,4 million on the basis of
clause 2.1 of the letter of intent. He accordingly concluded
that
the new pleading failed to disclose a cause of action in respect of
the defendant’s counterclaim.
[27] On the other hand Mr Nowitz, appearing for the defendant,
submitted that the grounds of objection relied upon by the plaintiff,
both during argument and as set out in the plaintiff’s Notice
of Objection, constituted a misreading or misunderstanding
of the
defendant’s plea and counterclaim, and that the defendant’s
proposed pleadings did disclose a defence to the
plaintiff’s
claim, as also a valid cause of action in respect of the defendant’s
counterclaim and are not vague and
embarrassing as contended by the
plaintiff.
[28] He submitted further that the defendant persisted in his
contention that:
the plaintiff did not validly exercise its call option and that the
correct amount payable to him is R8,4 million; and
at the time that the plaintiff exercised its call option on 19 July
2006, it did not demonstrate utmost good faith towards the
defendant. In this regard is was submitted that if the plaintiff
was already in negotiations with the PIC as at 19 July 2006
with a
view to the interest being valued at R70 million, the plaintiff was
required, in terms of the good faith clause, to disclose
such
negotiations to the defendant.
[29] Flowing from Rule 23 of the Uniform Court Rules it is trite
that an amendment ought not be allowed when its introduction
into a
pleading would render such pleading excipiable. Rule 23 deals with a
situation where a pleading is vague and embarrassing
and lacks
averments which are necessary to sustain an action or defence (as the
case may be). The rule renders such pleadings to
be excipiable.
[30] It accordingly follows that an amendment should be refused on
the grounds of excipiability if it is clear that the amended
pleading
will, not may be excipiable. See
Krischke v Road Accident Fund
2004 (4) SA 358
(W) at 363B. I also refer to the case of
Minister
of Defence, Namibia v Mwandinghi
1992 (2) SA 355
(NmS) at 364H-I
where the full bench held that “
An amendment should only be
refused on the ground of excipiability if it is clear that it would
(not might) be excipiable
”.
[31] As the plaintiff has pointed out in its notice of objection,
the entire premise of the defendant’s defence to the
plaintiff’s claim for a declarator and his counterclaim for
payment of R7,2 million, is that the plaintiff’s alleged
breach
of its good faith obligations disentitled it from exercising its call
option rights. The gist of the defendant’s
complaints
concerning the alleged lack of good faith, pertains to the
plaintiff’s alleged non-disclosure of its commencement
of
negotiations, alternatively its intention to commence with
negotiations for the disposal of its share in the management
agreement
to the PIC, at the time of its exercise of the option. The
defendant also makes further allegations about non-disclosure of the
likely terms of the management agreement.
[32] However, as a matter of law none of the allegations concerning
a breach of the good faith clause, can have any effect on
the
plaintiff’s entitlement to have exercised its option rights
when it did so. The principle is well established that the
essence of
an option is that it is binding on the option grantor. It is an offer
which cannot be revoked. The option holder is
the one who has “
the
choice whether to exercise its right
”. See
Du Plessis
NO and Another v Goldco Motor & Cycle Supplies (Pty) Ltd
2009
(6) SA 617
(SCA) at 623A-C, R.H. Christie – The Law of Contract
in South Africa 5
th
ed at 54.
[33] As a matter of law both parties, pursuant to the conclusion of
the letter of intent, had entered into a contract in terms
whereof “
a
contract of option binding
” upon them came into being.
Pursuant to such contract, at any time before the fulfilment of the
relevant conditions contained
in clause 2.1 of the letter of intent,
the defendant would become obliged to sell – in the exercise of
the plaintiff’s
call option – and the plaintiff would
become obliged to purchase (upon the exercise of the defendant’s
put option)
the defendant’s contingent interest in the
management agreement as provided for in clause 2.1 of the letter of
intent.
[34] In
Hirschowitz v Moolman & Others
1985 (3) SA 739
(A) at 763B-C Corbett JA (as he then was) explained the nature of an
option right as follows:
“…
they have merely granted to the third party an
option to purchase the farm. Now, the grant by an owner of property
of an option
to purchase the property amounts in law to an offer to
the grantee of the option to sell the property to him and an
agreement to
keep that offer open for a certain period. The grantee
acquires the right to accept the offer at any time during the
stipulated
period and, if he does so, a contract of purchase and sale
immediately comes about.
”
[35] As can be seen, there is a degree of correlation between the
defendant’s rights under clause 2.1 of the letter of intent
and
his put rights under clause 2.2.4. Where either the defendant or the
plaintiff exercises the option prior to the fulfilment
of the
conditions relevant to the accrual of the defendant’s right in
clause 2.1 of the letter of intent, then the defendant’s
conditional rights under clause 2.1 are effectively terminated.
Conversely, if there has been no such exercise of option rights
before the fulfilment of the said conditions, the option rights are
rendered ineffective and terminated.
[36] Importantly, there is nothing
ex facie
the wording of
clause 2.1 or 2.2.4 of the letter of intent which would disentitle
the plaintiff from exercising its option rights
(and conversely
obliging the defendant to respect the exercise of such option rights)
where, for example, it does not disclose
that it is contemplating a
sale of its interest in the management agreement, set to occur after
the exercise of its option rights.
[37] There is thus no synallagmatic relationship between the good
faith clause 6 and the rights granted to the plaintiff under
clause
2.2.4 of the letter of intent. There is no imposition of any
reciprocal obligations between the clauses.
[38] Clause 6.1.2 of the letter of intent requires the parties to
perform their respective obligations diligently and with reasonable
care. Significantly, there is no intimation whatsoever in the
pleadings that the plaintiff, in exercising its option right,
specifically
breached this clause. The performance of obligations in
this agreement is indeed governed by the good faith clause. However,
there
is no limitation placed on the exercise of a contractual right.
[39] Clause 6.1.3 of the letter of intent requires the parties to
make full disclosure to one another of any matter that may affect
the
entry into and/or the implementation of the letter of intent and the
transactions. Transactions are defined in clause 1 of
the letter of
intent and refer to certain property transactions, cooperation
agreements and the additional entitlement conferred
upon the
defendant under clause 2.1 of the letter of intent.
[40] Significantly, there is no allegation in the proposed pleading
to the effect that any breach of the good faith clause 6 will
effect
the implementation of the option or any other accrued contractual
right. Neither does the defendant allege, in the proposed
amendment,
that the breach of the good faith clause had any effect on the
implementation of the letter of intent and/or the transactions.
Clearly, the exercise of the option does not fall within the
definition of “
transactions
” as contained in
clause 1 of the letter of intent.
[41] Moreover, there is nothing in clause 6 of the letter of intent
which impinges upon the parties’ respective rights under
clause
2.2.4 of the letter of intent.
[42] As I have already stated, the essence of an option is that it
is binding on the option grantor. It is an offer which cannot
be
revoked. All that the plaintiff has done by exercising its option
rights, is to exercise its right to accept the defendant’s
irrevocable offer under clause 2.2.4 of the letter of intent.
[43] In my view, the allegations made by the defendant regarding the
alleged breach of the good faith clause might, even if charitably
interpreted in favour of the defendant, conceivably give rise to some
form of claim for illiquid damages for breach of a term of
contract.
However, such allegations of breach even if they are true, in no way
impinge on the plaintiff’s option rights.
[44] Even if the plaintiff had
disclosed the existence of its negotiations with the PIC and the full
terms of the management agreement,
which in my view it was not
obliged to, the plaintiff’s rights under the option clause
2.2.4 of the letter of intent would
have still remained unaffected.
The plaintiff would then, notwithstanding the existence of the
alleged negotiations, still have
been entitled to exercise its option
rights on 19 July 2006. Clearly, any attempt by the defendant, after
learning of the negotiations,
to prevent the plaintiff from
exercising its option rights, would have been fruitless.
[45] There is in any event
nothing magical or especially out of the ordinary with the inclusion
of a
bona fide
or good faith clause in any agreement. Generally the requirement of
bona fides
underlies our law of contract. It is in fact true of any contract,
whether express/implied. See in this regard the remarks by
Jansen JA
in
Tuckers Land and
Development Corporation v Hovis
1980 (1) SA 645
(A) at 652C-G.It is not, however, a specific
requirement of our law that an option holder must act in good faith
before it can
exercise its option rights. It can exercise its option
rights any time it chooses.
[46] Significantly, the
defendant has not alleged in the proposed amendment, that it was a
term of the contract, whether express,
implied or tacit, that the
plaintiff could only exercise its option rights if it complied with
the
provisions of the good
faith clause of the letter of intent. In the absence of such
allegation, all of the allegations of the defendant
in the proposed
amended plea, do not establish any grounds in law which would render
the exercise of the option invalid and which
could, in law, entitle
the defendant to claim payment under clause 2.1 of the letter of
intent.
[47] I find that the remarks by
Brand JA in
S A
Forestry Co Ltd v York Timbers Ltd
2005 (3) SA 323
(SCA) at para [27], to be relevant to the facts of
this case. He reiterated what that court had previously held, namely
that although
abstract values such as good faith, reasonableness and
fairness are fundamental to our law of contract, they do not
constitute
independent substantive rules that courts can employ to
intervene in contractual relationships. He said that these abstract
values
perform creative, informative and controlling functions
through established rules of the law of contract. However they could
not
be acted upon by the courts directly. The learned judge then made
the point that acceptance of the notion that judges can refuse
to
enforce a contractual provision merely because it offends their
personal sense of fairness and equity, will give rise to legal
and
commercial uncertainty.
[48] These principles, as enunciated by Brand JA in the
York
Timbers
case, provide a completely effective answer to the
defendant’s contention that good faith principles, as set out
in clause
6 of the letter of intent, could in any general sense
render nugatory the plaintiff’s entitlement to exercise its
option
rights on 19 July 2006. It should also be borne in mind that
in the
York Timbers
case, the amendment had, at least,
contained an allegation that notions of fairness imposed a tacit term
on the plaintiff to exercise
its options rights fairly, something
that was not done in this case.
[49] The plaintiff had the right, at any time before the fulfilment
of the relevant conditions in clause 2.1 of the letter of
intent, to
exercise its option rights. The fact that the plaintiff’s
motive or intention in doing so may have been to exclude
the
defendant from the benefits of the PIC transaction is neither here
nor there and is of no moment. Purpose or motive, even
a mischievous
or malicious one, is not a criterion for unlawfulness.
[50] Upon the exercise of the option rights by the plaintiff, a valid
agreement of sale of the defendant’s clause 2.1 rights
came
about, and the plaintiff’s motives for acquiring the
defendant’s rights are thus irrelevant. As was stated by
Harms
JA in
Van Reenen Steel (Pty) Ltd v Smith NO & Another
2002
(4) SA 262
(SCA) at paragraph [9]:
“
Whether or not a motive leading up to an agreement is based
upon an assumption of fact, it remains a motive. A party cannot
vitiate
a contract based upon a mistaken motive relating to an
existing fact, even if the motive is common, unless the contract is
made
dependent upon the motive, or if the requirements for a
misrepresentation are present.
”
[51] On a conspectus of the entire evidence, I find that the
proposed amended plea does not disclose a defence to the plaintiff’s
claim for declaratory relief with regard to the exercise of its
option rights; nor does the proposed amended counterclaim disclose
any cause of action which would entitle the defendant to payment of
amount of R7,2 million claimed by him. I am thus unable to
allow the
amendment sought.
[52] I accordingly make an order as follows:
The application to amend both the defendant’s plea and
counterclaim is dismissed with costs.
Such costs are to include the employment of two counsel.
_____________________________
B H MBHA
JUDGE OF THE SOUTH GAUTENG
HIGH COURT, JOHANNESBURG
COUNSEL FOR APPLICANT/DEFENDANT : M NOWITZ
INSTRUCTED BY : ERROL GOSS
ATTORNEYS
COUNSEL FOR RESPONDENT/PLAINTIFF : D FINE SC
G ROME
INSTRUCTED BY : GLYN MARAIS INC.
DATE OF HEARING : 22 APRIL 2010
DATE OF JUDGMENT : 30 APRIL 2010