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[2014] ZASCA 33
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Africast (Pty) Limited v Pangbourne Properties Limited (359/2013) [2014] ZASCA 33; [2014] 3 All SA 653 (SCA) (28 March 2014)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case
No: 359/2013
In
the matter between:
AFRICAST
(PTY)
LIMITED
............................................................................
APPELLANT
and
PANGBOURNE
PROPERTIES
LIMITED
...................................................
RESPONDENT
Neutral
citation:
Africast v Pangbourne
Properties
(359/13)
[2014] ZASCA 33
(28 March 2014)
Coram:
Lewis, Mhlantla, Bosielo and Theron JJA and
Mathopo AJA
Heard:
18 February 2014
Delivered:
28 March 2014
Summary:
Where a suspensive condition is not
fulfilled timeously it lapses and the parties are not bound by it
even though one has performed
fully.
ORDER
On
appeal from:
South Gauteng High Court,
Johannesburg (Sutherland J sitting as court of first instance):
The
appeal is dismissed with costs.
JUDGMENT
Lewis
JA (dissenting):
[1]
The respondent, Pangbourne Properties Ltd (Pangbourne), is a public
company listed on the Johannesburg Stock Exchange. Its principal
business is the acquisition and letting of commercial and industrial
premises. The appellant, Africast (Pty) Ltd (Africast), is
a company
within a group that undertakes property investment and development.
In late 2006 and for the first two months of 2007
the parties
negotiated about the development of commercial property in
Sunninghill, Johannesburg, which they designated ‘The
District’. Their representatives agreed on the terms of a
contract for the building of commercial premises by Africast; for
the
letting of those premises to tenants and for the cession of the
rights under the leases to Pangbourne, which was obliged to
pay the
purchase price for the improved properties to Africast only on
transfer of the properties and cession of the leases.
[2]
At issue in this appeal is the question whether the contract lapsed
because of the non-fulfilment of a suspensive condition.
The
condition was that Pangbourne give written notice of the approval by
its board of directors, within seven working days of the
conclusion
of the contract. The question in turn depends on the construction of
the provision embodying the suspensive condition.
[3]
It is common cause that Pangbourne, some 18 months after the signing
of the agreement, decided that the condition had not been
fulfilled
within the stipulated period, and that it was accordingly not bound
by the contract. It refused to furnish bank guarantees
in respect of
the fulfilment of its payment obligation to Africast. At that stage
the buildings had been constructed in accordance
with the contract.
And Pangbourne’s employees had been involved on a regular basis
with the whole development.
[4]
Africast regarded Pangbourne’s decision as a repudiation of the
contract: it accordingly cancelled and sued for damages
for breach of
contract. The South Gauteng High Court (Sutherland J) held that the
condition had not been fulfilled timeously; that
Pangbourne was not
bound by the contract and that Africast was accordingly not entitled
to damages. The question of damages was
not traversed in the high
court since it had ordered, at the request of the parties (and in
terms of Rule 33(4) of the Uniform
Rules of Court), that the question
of the enforceability of the contract, and the measure of damages be
determined separately from
the quantification of damages. However, it
declined to deal with the appropriate measure of damages, quite
understandably in view
of its finding that Pangbourne was not bound
by the contract in the first place. Africast appeals to this court
with the leave
of the high court.
[5]
Some factual background is necessary before the provision in
question, and the high court’s finding, are discussed. The
negotiations between the parties culminated in a written document
signed on 5 March 2007 by Pangbourne’s group company secretary,
Mr J J Groenewald, and a director, Mr Kennedy. They also signed an
addendum to the contract, including, inter alia, further suspensive
conditions (all of which were fulfilled), on 11 April 2007. Mr J
Weaver, Africast’s representative, signed both the agreement
and the addendum on 11 April. Groenewald and Kennedy did not actually
have the authority to bind Pangbourne to any contract, a
fact not in
dispute. For the conclusion of any contract in respect of which a sum
in excess of R50 million was payable, Pangbourne
board approval was
necessary. And for a contract sum that was less than R50 million,
only the chief executive officer of Pangbourne
had authority to bind
the company, and then only with the approval of the investment
committee.
[6]
The provision at issue, clause 16.1, of the signed document read:
‘
This
agreement is subject to the suspensive condition (stipulated for the
benefit of Pangbourne Company and which may be waived
by written
notice given by Pangbourne Company to the Seller Company [Africast]
on or before the date for fulfillment of this condition)
that within
7 days (excluding Saturday, Sundays and public holidays) after the
date on which this agreement
is
concluded
(or such other period/s as
the parties may agree to in writing from time to time) Pangbourne
Company gives Seller Company written
notice that its board of
directors has approved the purchase of the property by Pangbourne
Company in terms of this agreement.
This condition is not capable of
fictional fulfillment.’ (My emphasis.)
[7]
On Friday 20 April 2007 Pangbourne’s board of directors signed
a written resolution approving the acquisition of the property
from
Africast and an agreement with Africast to construct an office park,
the total ‘purchase consideration’ being
some R66 698
792, payable on completion of the development. The resolution also
authorized any two directors or a director and
the company secretary
to sign the ‘Property Sale Agreement, which includes the
Development Agreement’.
[8]
Thus seven business days after the signing of the agreement the
Pangbourne board approved the contract that had been signed
by
Groenewald and Kennedy on its behalf. The following Monday, 23 April,
a firm of attorneys acting for Pangbourne lodged an intermediate
business merger notice relating to the development with the
Competition Commission.
[9]
On the same day, 23 April 2007, Mr B Logan, a partner of Africast in
the development of The District, sent an email to an employee
of
Pangbourne, Mr A Joannides, about another matter, but asked: ‘How
is your board approval looking for The District?’
Joannides
replied: ‘Although I don’t have confirmation, I believe
it was approved.’ And on 25 April 2007, another
employee of
Pangbourne, Mr R de Villiers, sent an email with the board resolution
attached to it to Logan, stating ‘Herewith
Pangbourne Board
approval as requested’.
[10]
The question that arises is whether the communication of the fact of
board approval – the condition that had to be fulfilled
–
was timeous: did it occur within seven business days of the
conclusion of the contract? Africast argued both in the high
court
and on appeal that the contract was concluded only when the
Pangbourne board approved the contract on 20 April 2007. The
condition was thus fulfilled within seven business days when De
Villiers advised Africast on 25 April that the board had approved
the
contract and sent a copy of the board resolution to it.
[11]
Pangbourne argued, on the other hand, that the contract was concluded
on 11 April 2007 when the contract was signed by representatives
of
Pangbourne and Africast. Accordingly, it contended, the
condition had not been fulfilled timeously and the contract had
lapsed before 25 April when written notification of the board
approval was sent to Africast.
[12]
Sutherland J in the high court found that ‘conclude’ in
clause 16.1 bore its ordinary meaning – to reach
finality –
and that the contract was thus concluded when the parties’
representatives had agreed on the terms and signed
it on 11 April
2007. The learned judge considered that this was not only the
intrinsic meaning of the word, but that, if read in
the context of
the provision as a whole, any other meaning would be illogical: how
can one suspend an agreement that ‘has
yet to be concluded?’
he asked.
[13]
The high court accordingly found that the contract had lapsed by the
time that Pangbourne notified Africast that its board
had approved
the conclusion of the contract. It also rejected Africast’s
arguments that Pangbourne had waived the right to
fulfillment of the
condition, or that Pangbourne was estopped from asserting that it was
not relying on the non-fulfillment of
the condition. Africast’s
claim for damages for breach of contract was thus dismissed.
[14]
Africast’s principal argument on appeal is that the high
court’s interpretation of clause 16.1 of the agreement
was
wrong. It argues in the alternative that Pangbourne is estopped from
asserting that the contract is not binding because, by
its conduct
over a lengthy period, it misrepresented that it regarded the
contract as having been concluded on 20 April, when the
board
approved the resolution. An alternative argument on estoppel is that
Pangbourne’s conduct amounted to a representation
that it would
not rely on non-fulfillment of the suspensive condition.
[15]
I shall deal first with the interpretation of the meaning of the word
‘conclude’ in clause 16.1 and the construction
of the
provision as a whole since I consider these dispositive of the
appeal. It is trite that in interpreting a provision of a
contract a
court must have regard to the contract as a whole, starting with the
words used. But a court must also examine those
words in the context
in which they were used, taking into account the factual matrix. (See
KPMG Chartered Accountants (SA) v Securefin Ltd
2009 (4) SA
399
(SCA) para 39, followed in
Natal Joint Municipal Pension Fund
v Endumeni Municipality
2012 (4) SA 593
(SCA).)
[16]
Much evidence was led by Africast in an attempt to shed light on what
the parties had intended when agreeing on the wording
of clause 16.1.
The chief witnesses for Africast were Groenewald and Hutchison,
formerly the company secretary and a director and
chief executive
officer of Pangbourne respectively. It transpired during the course
of their evidence that the management of the
company had changed
during 2008 and that was when Pangbourne had decided to treat the
contract as having lapsed. Groenewald and
Hutchison had left the
company when the new management stepped in. So had all the directors
who had been in office in April 2007.
Logan and Weaver from Africast
testified as well. Of course all of their views of what the contract
meant were inadmissible and
irrelevant. But significantly all agreed
that from the date when the board had approved the contract until
well into 2008, they
had worked on the assumption that the contract
was binding. And the objective evidence bears that out. I shall not
traverse it
since it was clear from both parties’ conduct that
the obligations under the contract were performed until guarantees
for
payment of the price by Pangbourne were required by Africast.
[17]
The high court held that the contract became binding – but
subject to the suspensive condition – when it was signed
by the
representatives of the parties. One cannot speak of a contract
subject to a suspensive condition as becoming binding only
on the
fulfillment of the condition, said the court. Africast’s
argument on appeal is, however, that the condition –
the
happening of an uncertain future event – was not the approval
of Pangbourne’s board itself. It was instead the
giving of
written notice of the fact of the approval. Until the board did
approve the contract it was not concluded: it had not
reached
finality. The signature of the document by Groenewald and Kennedy did
not give rise to a binding agreement. It could not
because they had
no authority to bind Pangbourne. Only the board had that authority.
[18]
The uncontradicted evidence of Groenewald was that he had authority
to sign documents on behalf of Pangbourne, but not to bind
it to any
contract. Only its board could bind Pangbourne to a contract the cost
of which exceeded R50 million. The same was true
of Kennedy. They
could thus not have concluded the contract – brought it to
finality – on behalf of Pangbourne. Accordingly,
neither
Africast nor Pangbourne was bound by the contract until there was
board approval. If the board did not approve the contract,
or before
it did, either party could have refused to comply with it. The board
approval on 20 April 2007 resulted, therefore, in
the conclusion of
the contract.
[19]
What, then, does one make of the condition? Africast argued that the
fulfillment of the condition occurred when written notice
of the
board approval was sent by Pangbourne to Africast on 25 April, well
within the seven business days of the conclusion of
the contract. And
from then on, both parties treated the contract as binding. That was
why, on 23 April (the same day as Joannides
of Pangbourne wrote to
Logan stating that he thought the board approval had been given),
Pangbourne’s then attorneys filed
a notice of merger with the
Competition Commission.
[20]
Pangbourne argued that this case was the same as that in
Pangbourne
Properties Ltd v Basinview
Properties (Pty) Ltd
[2011]
ZASCA 20
where Pangbourne escaped a contract that was
conditional on the approval of its board of directors. The difference
between
these cases, however, is that in
Basinview
the
Pangbourne board did not in fact approve the contract. There was no
fulfillment of the condition.
[21]
Pangbourne argued also that the word ‘concluded’ in
clause 16.1 of the contract had been carefully chosen: the
draftsman
intended that the conclusion would be the moment when negotiations
between the parties were closed. Negotiations, it
said, are not
concluded when a board authorizes a contract. They are concluded when
the parties have reached agreement on the terms
of the contract. The
relevant question, however, is when the contract became binding,
subject to the suspensive condition. The
high court found, as I have
said, that it was on the signature of the document. But since neither
party was bound until there had
been Pangbourne board approval, it
would be stretching the ordinary meaning of the words used to find
that all that was intended
was that negotiations were concluded,
although the contract would not be binding.
[22]
Accordingly I consider that the high court erred in its
interpretation of the provision at issue. The contract was concluded
only when the Pangbourne board approved it on 20 April 2007, and on
25 April, when written notification of the approval was given
to
Africast, it ceased to be conditional. This interpretation is
consonant with the contract as a whole and with the conduct of
the
parties for a considerable period after conclusion. Africast was thus
entitled to cancel the contract on the basis of Pangbourne’s
repudiation, and to claim damages for breach of contract. The
alternative arguments of Africast based on waiver and estoppel thus
fall away.
[23]
I have had the benefit of reading the judgment of my learned
colleague Theron JA. I agree with her that from a reading of the
pleadings what seemed to be in dispute was the authority of
Groenewald and Kenndey to sign the agreement. But that was certainly
not in dispute at the time of the trial and it was not argued before
us. Neither party submitted in heads of argument or at the
hearing
that the authority to sign the contract was an issue. It was clear
that they had authority to
sign
a contract on behalf of
Pangbourne. They even warranted in the agreement that they had that
authority, as Theron JA has said. The
real question was whether they
could
bind
Pangbourne prior to board approval. The high court
did not address this issue. As it saw the matter, the question for
decision
was whether the reference to concluding the contract was a
reference to signing on behalf of Pangbourne or binding it, subject
to the condition that board approval be given. It held that the acts
of signature amounted to conclusion of the contract. As I have
said,
the high court erred. It was not possible for Groenewald and Kennedy
to bind Pangbourne, and therefore to conclude the contract.
The
contract was concluded only on board approval even though it had been
signed before then.
[24]
The high court declined to deal with the measure of damages given, as
I have said, its finding that Pangbourne was not bound
by the
contract. While the question of damages was traversed to some extent
in the pleadings and the evidence, and some argument
was addressed to
this court on whether Africast was entitled only to the value of The
District, or to loss of profit as well, it
seems to me that a finding
as to the appropriate measure of damages is inappropriate without
also having evidence as to quantum
– a matter that the parties
left over for later decision in the event of Africast being
successful in its claim. I consider
that since the matter must be
remitted to the high court in any event to determine the quantum of
damages, it is appropriate for
it also to consider the measure by
which they are to be calculated.
[25]
I would have made the following order:
1
The appeal is upheld with costs, including those of senior counsel,
and the matter is remitted to the high court to determine
the measure
and quantum of damages to which the appellant is entitled.
2
The order of the high court is replaced with:
‘
(a)
The contract between the parties is binding.
(b) The defendant
repudiated the contract and the plaintiff was entitled to cancel it
and claim damages for breach of contract.
(c)
The defendant is liable for the costs of the hearing during February
2012, including those of senior counsel.’
____________
C
H Lewis
Judge
of Appeal
Theron
JA (Mhlantla and Bosielo JJA and Mathopo AJA concurring)
[26]
I have read the judgment of Lewis JA and regret, for the reasons set
forth below, that I am unable to agree therewith.
[27]
The facts of this matter are largely common cause. On 5 March 2007,
Mr Groenewald, Pangbourne’s group company secretary,
and Mr
Kennedy, one of its directors (the signatories), signed a written
property agreement (the agreement) in terms of which the
property
forming the subject matter of the agreement was sold to Pangbourne.
On 11 April 2007 they signed an addendum to the agreement.
The
representative of Africast, Mr John Weaver, signed the agreement and
the addendum on 11 April 2007.
[28]
The agreement contained the following suspensive condition:
‘
16.1
This agreement is subject to the suspensive condition (stipulated for
the benefit of PANGBOURNE COMPANY and which may be waived
by written
notice given by PANGBOURNE COMPANY to SELLER COMPANY on or before the
date for fulfilment of this condition)
that
within 7 days
(excluding Saturdays,
Sundays and public holidays
) after the
date on which this agreement is concluded … PANGBOURNE COMPANY
gives SELLER COMPANY written notice that its board
of directors has
approved the purchase of the property
by PANGBOURNE COMPANY in terms of this agreement,… (Emphasis
added.)
16.2 If this
condition is not fulfilled or waived, then this agreement will
terminate and neither party will have a claim against
the other as a
result thereof.’
It
is important to note that the suspensive condition would be fulfilled
not when Pangbourne’s board of directors approved
the
agreement, but when Pangbourne gave Africast written notice that its
board had approved the purchase of the property.
[29]
On Friday, 20 April 2007, Pangbourne’s board approved the
acquisition of the property, the entering into of a development
agreement with a total purchase consideration of R66 698 792
and authorised two directors or a director and the company
secretary
to sign the property sale agreement which included the development
agreement. On 25 April 2007, Pangbourne gave Africast
written notice
of the board’s approval.
[30]
It was common cause that from 25 April 2007 onwards, the date on
which notification of the board’s approval was sent
to
Africast, the parties acted on the basis that the agreement was valid
and binding. During 2008, virtually the whole of Pangbourne’s
management was replaced. The new board of directors decided not to
proceed with the agreement and adopted the view that there was
no
contractual obligation on it to do so in that the suspensive
condition had not been fulfilled.
[31]
Africast contended that the contract was concluded on 20 April 2007
when it was approved by Pangbourne’s board and the
notice given
on 25 April 2007 was within the seven day period. Pangbourne, on the
other hand, argued that the agreement was concluded
on 11 April 2007
and the suspensive condition ought to have been fulfilled by 20 April
2007.
[32]
It is appropriate to have regard to the pleadings filed by the
parties. Africast, in its particulars of claim, allege that:
‘
6A.1
… Although Mr Kennedy and Mr Groenewald signed the agreement
and addendum before 20 April 2007, they were not authorised
to do so
until the defendant’s board of directors had resolved to
proceed with the acquisition of the property. This was
only done on
20 April 2007 when the defendant’s board of directors accepted
the recommendation of the investment committee
and resolved to
proceed with the acquisition of the property, to enter into a
development agreement with the plaintiff and to authorise
persons to
sign the property sale agreement.
6A.2
Messrs Kennedy and Groenewald were only authorised to sign the
property sale agreement which includes the development agreement
…
on 20 April 2007.’
[33]
Pangbourne, in its plea, alleged that it had authorised the
signatories to sign the agreement for and on behalf of the company
and that the signatories had warranted, in writing, that they were
duly authorised to sign the agreement. It further recorded that:
‘
3A.1
The defendant denies that Messrs Groenewald and Kennedy were not
authorised to sign the said contract and addendum before 20
April
2007.
3A.2 The said
persons were duly authorised to sign contracts on behalf of the
defendant by the defendant’s ordinary administrative
practices,
procedures and customs.
3A.3
The said persons signed the contract and addendum subject thereto
that the defendant’s board of directors would authorise
the
transaction reflected in the contract and addendum.’
[34]
It is clear from the pleadings that the dispute between the parties
was whether the signatories were authorised to sign the
agreement.
The witnesses who testified on the question of authority were
Groenewald and Hutchison, Pangbourne’s former chief
executive
officer. According to Groenewald, he and Kennedy were authorised to
sign the agreement on behalf of Pangbourne.
[35]
Groenewald explained that in respect of transactions exceeding R50
million, approval of the board of directors would usually
be sought
via a round robin of emails or faxes, which, if approved, would be
converted to a resolution at the next board of directors’
meeting. This evidence was confirmed by Hutchison who went further
and said that Pangbourne’s board had, prior to 20 April
2007,
and in terms of a round robin resolution, approved the agreement. It
is clear from Hutchison’s evidence that Groenewald
and Kennedy
had authority to sign an agreement in respect of which the contract
value exceeded R50 million, provided it contained
a suspensive
condition such as the one encapsulated in clause 16.1 of the
agreement.
[36]
The agreement itself points towards the authority of the signatories.
In the agreement and immediately below the signatures
of both
Groenewald and Kennedy, the following appears:
‘
for
PANGBOURNE COMPANY, the signatory warranting that he is duly
authorised hereto’
[37]
A contract containing a suspensive condition is enforceable
immediately upon its conclusion but some of the obligations are
postponed pending fulfilment of the suspensive condition. If the
condition is fulfilled the contract is deemed to have existed
ex
tunc
.
If the condition is not fulfilled, then no contract came into
existence.
[1]
Once the condition
is fulfilled,
‘
[T]he
contract and the mutual rights of the parties relate back to, and are
deemed to have been in force from, the date of the agreement
and not
from the date of the fulfilment of the condition, ie
ex
tunc
.’
[2]
[38]
The case as pleaded by Africast, that the signatories were not
authorised to sign the agreement, does not accord with the evidence
of Groenewald and Hutchison. Based on their evidence, there is no
doubt in my mind that the signatories had authority to sign the
agreement in terms of Pangbourne’s internal arrangements. I
agree with the finding of the high court that ‘the notion
that
Kennedy and Groenewald acted without authority on 11 April when they
signed the contract was not established by the facts
adduced in
evidence’.
[39]
A distinction must be drawn between the authority of the signatories
to sign the agreement and their authority to bind Pangbourne
to the
agreement. Upon signature of the agreement an inchoate agreement came
into being, pending the fulfilment of the suspensive
condition.
[3]
In the event that the suspensive condition was not fulfilled, neither
party would be bound to the agreement.
[4]
[40]
In my view, the agreement was concluded upon signature thereof on 11
April 2007. The terms of the suspensive condition were
not met. It
follows that the contractual relationship between the parties lapsed
due to non-fulfilment of the suspensive condition.
[41]
Africast, in its pleadings, appears to suggest that the lack of
authority on the part of the signatories was ratified on 20
April
2007, when they were ‘authorised to sign the property sale
agreement’.
[5]
If the
decision taken by Pangbourne’s board on 20 April 2007
constituted ex post ratification of what the signatories had
done,
then the contract would have been enforceable from the time of
signature on 11 April 2007. Ratification operates
ex
tunc
and not
nunc
.
Upon ratification of an act, the obligation incurred by the act is
dated at the time of the conclusion of the act not at the time
of the
ratification.
[6]
The effect of a
valid ratification would be that the unauthorised act, namely the
signature, would be assumed to have been authorised
when it was
performed.
[7]
In the light of my
finding that the signatories had the requisite authority to sign the
agreement, it is not necessary to make
a determination relating to
whether Pangbourne’s board had ratified their conduct.
[42]
In the result the appeal is dismissed with costs.
L
V Theron
Judge
of Appeal
APPEARANCES:
For
the Appellant: G C Pretorius SC
Instructed
by:
Cliffe
Dekker Hofmeyr, Johannesburg
Phatshoane
Henney, Bloemfontein
For the Respondent:
P F Louw SC
Instructed
by:
Kokinis
Inc, Johannesburg
McIntyre
& van der Post, Bloemfontein
[1]
See
generally, R H Christie and G B Bradford
The
Law of Contract in South Africa
6
th
ed (2011) at 151-153; S W J Van der Merwe, L F van Huyssteen,
M F B Reinecke and G F Lubbe
Contract
General Principles
4th ed at 253 and the authorities cited there at footnote 276.
[2]
ABSA
Bank Ltd v Sweet & others
1993 (1) SA 318
(C) at 323A-B.
[3]
Joseph
v Halkett
(1902) 19 SC 289
at 293. More recently, see the summary of the law
undertaken by Tebbutt J in
ABSA
Bank Ltd v Sweet & others
1993 (1) SA 318
(C) at 323.
[4]
The
terms of clause 16.2, quoted in para 27 above, accords with the
legal position in this regard.
[5]
Paragraph
3 of the resolution of Pangbourne’s board dated 20 April 2007,
relating to the agreement and the authority of
the directors reads:
‘
THAT
any two Directors or a Director and the Company Secretary be, as
they hereby are, authorised to sign the Property Sale Agreement
which includes the Development Agreement, and that a Director or the
Company Secretary be, as they hereby are, authorised to
sign all the
necessary documentation to give effect to the resolution including,
but not limited to, conveyancing documents,
power of attorney to
transfer, bond registration documents, and all other relevant
documentation to finalise the transaction.’
[6]
Reid
& others v Warner
1907
TS 961
(the judgment by Innes CJ and Wessels J at 976).
[7]
Breytenbach
v Frankel
&
another
1913 AD 390
at 401.