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[2014] ZASCA 225
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Spenmac (Pty) Ltd v Tatrim CC ([2014] 2 All SA 549 (SCA); 2015 (3) SA 46 (SCA)) [2014] ZASCA 225; [2014] ZASCA 48 (1 April 2014)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case
No: 216/2013
In
the matter between:
SPENMAC (PTY) LTD
(Formerly BOBCART
(PTY)
LTD
......................................................................................................................
APPELLANT
and
TATRIM
CC
................................................................................................................
RESPONDENT
Neutral
citation:
Spenmac v Tatrim CC
(216/2013)
[2014] ZASCA 48
(1 April 2014)
Coram:
Mthiyane DP, Lewis, Shongwe, Petse JJA
and Mocumie AJA
Heard:
28 February 2014
Delivered:
1 April 2014
Summary:
Agreement of purchase and sale of unit
in sectional title scheme ─ purchase made in the mistaken
belief that sale included
right of veto in respect of sub-division of
other unit─ mistake induced by seller’s misrepresentation
─ mistake
precluding parties from reaching consensus ─
exemption clause not availing seller ─ purchaser entitled to
avoid the
contract ─ Entire contract vitiated by the mistake.
ORDER
On
appeal from:
Eastern Cape High Court,
Port Elizabeth (Goosen J sitting as court of first instance):
The
appeal is dismissed with costs
JUDGMENT
Mthiyane
DP (Lewis, Shongwe, Petse JJA and Mocumie AJA concurring):
[1]
This is an appeal against a judgment and order of the Eastern Cape
High Court, Port Elizabeth (Goosen J), setting aside an agreement
of
sale concluded between the appellant, Spenmac (Pty) Ltd, and the
respondent, Tatrim CC, in respect of a sectional title property,
Park
Towers on 8 October 2010 and declaring it void for lack of consensus.
The appellant (the defendant) was ordered to pay the
respondent (the
plaintiff) the sum of R788 157,89 together with interest at the rate
of 15 per cent per annum a
tempore morae
to date of payment and costs of suit.
[2]
The appeal to this court is with the leave of the high court. At the
heart of the dispute between the parties is whether a
misrepresentation on the part of the plaintiff’s
representative, Mr Spendley, at the time of the conclusion of the
agreement,
resulted in a fundamental mistake. If it did, the question
is then whether the plaintiff purchaser was entitled to rely on the
mistake to avoid the sale agreement, given the exemption clause in
the contract which provided that the property was sold ‘voetstoots’
and that the purchaser had acknowledged that he had not been induced
to enter into the agreement by any express or implied information,
statement, advertisement or representations made by any other person
on behalf of the seller.
[3]
The relevant clause reads as follows:
‘
14
VOETSTOOTS, EXTENT AND REPRESENTATIONS
14.1 The PROPERTY is
sold “voetstoots” and subject to the terms and conditions
and servitudes mentioned or referred
to in the current and/or prior
Title Deeds and to the conditions of establishment of the Township in
which it is situated and to
the zoning applied to it under the Town
Planning Scheme. . . .
14.2 The PURCHASER
hereby acknowledges that he has not been induced into entering into
this agreement by any express or implied
information, statement,
advertisement or representation made by the AUCTIONEER or any other
person, or by or on behalf of the SELLER.
The PURCHASER hereby waives
any rights whatsoever which he may otherwise have obtained against
the SELLER as a result of such information,
statement, advertisement
or representation made by or on behalf of the SELLER.
14.3
The PURCHASER acknowledges that he has fully acquainted himself with
the PROPERTY he has purchased.’
[4]
The background facts are the following. During the latter half of
2010 a unit in a multi-storey building was offered for sale
by the
defendant. The unit (the property) comprised commercial premises,
while the remainder of the scheme was residential. The
plaintiff,
represented by a Mr Joseph Thompson, made enquiries and submitted an
offer to purchase. But his offer was rejected.
Thereafter, on 30
September 2010, the defendant offered the property for sale by public
auction. The plaintiff entered a bid at
the auction but its bid was
not accepted. Immediately after the auction the plaintiff made a
further offer increasing the price
offered to R10,5 million. On 8
October 2010 the plaintiff and the defendant entered into an
agreement of sale in terms of which
the plaintiff agreed to pay the
sum of R10,5 million for the property. In terms of the agreement the
plaintiff undertook to pay
a deposit of five per cent of the purchase
price (which it did) and would also be liable to pay the sum of R300
000 including Vat
in respect of the auctioneer’s commission at
a later stage.
[5]
The plaintiff alleged that the defendant’s representative made
certain representations which he knew to be false, and
that these
representations induced the plaintiff to enter into a contract. The
plaintiff therefore sought cancellation of the agreement.
In its plea
the defendant denied that it made any representations at all. It,
too, pleaded cancellation of the agreement by reason
of the
plaintiff’s failure to effect payment and claimed retention of
the deposit as unliquidated damages.
[6]
The misconception upon which the plaintiff relies was pleaded in the
following terms. It alleged that Spendley expressly represented,
partly orally and partly in writing, that the remainder of the scheme
(the residential parts of the building) consisted of only
one unit,
namely unit 2, and that in terms of Rule 27 of the Scheme Rules, it
would not be possible for the owner of unit 2 to
sub-divide it
without the consent of the owner of unit 1. The plaintiff alleged
that the written representation was contained in
a brochure prepared
and distributed by the auctioneers on behalf of the defendant.
According to the brochure the scheme consisted
of only two units. The
plaintiff further alleged that the representations ‘both oral
and written’ were false in that
(a) during 2007 the defendant
had, by resolution of the Trustees of the Body Corporate, granted
permission to the owners of unit
2, Southern Palace Investment (Pty)
Ltd to sub-divide the unit into 110 units, and (b) unit 2 had in fact
been sub-divided into
110 units which sub-division was registered on
2 July 2010. Accordingly, the plaintiff alleged that the owner of
unit 1 did not
enjoy the alleged right of veto contained in Rule 27
of the Scheme Rules as had been represented by the defendant.
[7]
Rule 27 of the Scheme Rules provided as follows:
‘
No
instrument signed on behalf of the Body Corporate shall be valid and
binding unless it is signed by at least two trustees whereof
one
shall be a nominee of the owner or owners from time to time of
section 1 (or any other sub-division thereof) of the Scheme.’
[8]
It was common cause that Rule 27 conferred upon the owner of unit 1
an effective right of veto in respect of the sub-division
of unit 2.
The essential issue between the parties was whether it had been
represented to the plaintiff that such right was extant
or not: if
not then the plaintiff would have bought something completely
different from what it in fact was. In the alternative
to its
reliance on the alleged fraudulent misrepresentation, the plaintiff
alleged that at all relevant times it was the continuing
common
intention of the parties that unit 1 be sold together with the right
of veto to prevent any sub-division of unit 2. The
plaintiff
contended that at the time of the conclusion of the agreement it was,
or should reasonably have been known to the defendant,
that it had
previously granted its consent to the sub-division of unit 2 and that
accordingly the right of veto had been rendered
nugatory. In these
circumstances, so it was alleged, the defendant’s
representative, Spendley, was under a duty to speak
and a failure to
do so induced in the mind of the plaintiff a reasonable but mistaken
belief that it purchased unit 1 together
with the right of veto.
There was accordingly no consensus between the parties, which
entitled the plaintiff to avoid the agreement.
[9]
The correspondence between the parties and the defendant’s
attorney revealed that in October 2007 the defendant (represented
by
Spendley) had authorised the then owners of unit 2, Southern Palace
Investments, to sub-divide it into 110 units and that unit
2 had, as
a matter of fact, been sub-divided into 110 units by its present
owner. What was in dispute was whether Spendley made
any
representation at all in respect of the sub-division of unit 2 and
what effect the defendant’s failure to disclose the
sub-division had, given the defendant’s assertion that Spendley
had no knowledge of the fact of sub-division and no recollection
of
the October 2007 approval of the sub-division given by the defendant
to Southern Palace Investments.
[10]
Thompson, the sole member of the plaintiff, testified that in early
2010 the plaintiff wished to acquire commercial property
for
investment purposes. At the time he dealt with Mr Roger Venter who
was a property agent. He was introduced to the Park Towers
property
and informed that it comprised two units. At the time he was given a
set of the Scheme Rules as well as copies of several
leases in
respect of unit 2. After taking advice from certain of these
associates he decided he was not interested in purchasing
the
property. He was particularly concerned about acquiring a building in
which there were many units: having to deal with multiple
owners did
not make sound business sense. According to him, however, he was then
contacted by Spendley, at some stage later in
the year. When he
informed Spendley that he was concerned about the sub-division of
unit 2 Spendley informed him that he need not
be concerned since the
owner of unit 2 could not sub-divide without the consent of the owner
of unit 1. He could accordingly veto
any sub-division that the owner
of unit 2 wished to make. Thompson stated that having satisfied
himself with regard to the rental
returns he could earn and having
spoken to the financial director of the owner of unit 2 regarding the
plans for the building he
then, on 12 August 2010, submitted an offer
which included a suspensive condition relating to a due diligent
assessment.
[11]
The price offered was R10,5 million of which R3 million was payable
in cash and the balance of R7,5 million was to be secured
by way of a
mortgage bond This offer was, however, not accepted. The property was
then placed on auction. The defendant published
a brochure
advertising the property for sale at the auction. At the auction the
plaintiff made a bid of R9 million which was also
not accepted.
Following the auction the plaintiff and the defendant entered into
further negotiations and arising from those, the
agreement in
question was concluded.
[12]
The deed of sale records that the property was purchased as a rental
enterprise and as a going concern. It included a clause
in which the
purchaser acknowledged that the property was subject to the rules and
regulations of the Body Corporate which had
been established in terms
of the sectional title scheme and that the purchaser had read and
familiarised himself with such rules
and regulations. Thompson stated
in his evidence that the plaintiff intended to finance the balance of
the purchase price and to
this end approached various banking
institutions for loan finance, which was approved. The conveyancing
documents were prepared
by the defendant’s attorney, Ms Tracy
Watson. According to Thompson, after he had signed the documents
necessary to take
transfer of the property, he was informed by Watson
that it had been discovered that unit 2 had in fact been sub-divided
into 110
separate units, apparently in July 2010. Spendley, he was
told, was not aware as to how this could have occurred. This
disclosure
resulted in an exchange of correspondence between Thompson
and Watson. The upshot of this exchange was that the plaintiff
indicated
that it was resiling from the agreement.
[13]
Spendley testified that in early 2010 Thompson had contacted him in
response to an advertisement regarding the property to
ask him for
information about it. As a result of this he dropped off certain
documents in respect of tenants and the costs associated
with the
building at Thompson’s office. On this occasion he had no
discussion with Thompson regarding the property. Later
that year in
July, contrary to Thompson’s evidence that Spendley had
contacted him, he said Thompson had telephoned him indicating
that
the property had been introduced to him by an agent, Roger Venter. At
that time Thompson inquired whether the property that
was being
offered was still the same property, and whether it comprised the
same deal. Spendley confirmed that it was and further
explained to
Thompson why he considered it to be a good bargain. In this regard he
explained that all tenancies in respect of unit
1 were secured, that
the property was 100 per cent let and that the income stream was
good. He also indicated that the Rules favoured
the owner of unit 1.
This, he said, related to the fact that in terms of the Rules, the
levy payable by unit 1 was less than that
payable by unit 2. Spendley
testified that he had received this telephone call when he was at the
Spar Supermarket and that there
was no discussion about the
sub-division of unit 2. Thereafter, Spendley said he had no further
contact with Thompson directly.
He also denied that Thompson had
brought to his attention any concern about the division and therefore
ownership of unit 2.
[14]
Spendley testified further that during August 2010 the plaintiff
submitted a written offer on the property. This offer was
presented
to him by Roger Venter. The offer was immediately rejected because it
contained unacceptable suspensive conditions, in
particular the due
diligence investigation, relating to the property. Spendley’s
evidence was that he was not aware of the
fact that unit 2 had been
sub-divided and that he only became aware after the sale had been
concluded and when Watson established
that unit 2 had been so
sub-divided. Upon enquiries being made as to how this occurred he
remembered that he had granted approval
in October 2007 to the
erstwhile owners of unit 2 to sub-divide that unit.
[15]
Spendley explained that the previous owners, Southern Palace
Investments (Pty) Ltd, had proposed the sub-division for purpose
of
selling off residential units as luxury apartments. The defendant
had, on the strength of this, granted its consent to the
sub-division. Southern Palace Investments, however, was thereafter
liquidated in 2008 and unit 2 was sold to its present owners
by
public auction on 10 December 2008 (without reference to the
defendant). It was established that the sub-division had proceeded
during the course of 2010 without further reference to the defendant
or the Body Corporate. Spendley stated that at the time of
concluding
the sale with the plaintiff he had completely forgotten about the
approval that had been given in 2007.
[16]
Spendley denied that there had ever been a discussion between himself
and Thompson relating to the sub-division of unit 2.
According to him
the matter was not raised at all. However, the high court found that
the correspondence relating to the discovery
that unit 2 had in fact
been sub-divided suggested that the issue had been raised prior to
the plaintiff submitting its offer to
purchase the property.
[17]
Although the high court found that Thompson was not a particularly
good witness it accepted his evidence. It found that much
of his
evidence was supported by the content of the correspondence which
passed between him and Watson upon the discovery that
unit 2 had
already been sub-divided. Not only does the correspondence record his
shock at this discovery (and indeed that of Spendley)
it contains the
clear assertion made at that time that the issue of the sub-division
was particularly discussed, an assertion which
was not placed in
dispute by the defendant in correspondence subsequent to that. The
finding of the court in this regard cannot
be faulted.
[18]
The representation alleged by the plaintiff is not denied. It is also
not denied that the question of sub-division of unit
2 formed part of
the discussion between the parties. The brochures handed to the
plaintiff reflected the scheme as comprising only
two units. It was
not in dispute that the defendant had, prior to the conclusion of the
agreement of sale, represented that the
scheme comprised two units.
[19]
Having regard to the plaintiff’s evidence and the exchange of
correspondence once it was discovered that unit 2 had been
subdivided
into 110 units, the court below came to the conclusion that the
plaintiff had, as contended, raised the possibility
of sub-division
as a concern prior to the conclusion of the sale. It also accepted
that it was represented that the owner of unit
1 enjoyed a right of
veto in respect of any future sub-division of unit 2, as provided in
the Rules of the Scheme. The court rejected
the evidence of Spendley
where it differed from that of the plaintiff.
[20]
The high court accepted, however, that Spendley had forgotten that he
had signed the approval for the sub-division of unit
2. That is why
he was shocked by the correspondence found by Watson which revealed
that he had done so. Accordingly the court accepted
that the fact of
the sub-division was unknown to him at the time of concluding the
agreement of sale with the plaintiff. The court
accepted that since
it had occurred in 2007 and had related to a proposal by Southern
Palace Investments, prior to its liquidation,
he had considered that
the intervening liquidation would have brought that to an end. Since
Spendley had heard nothing further
about the matter he had simply
forgotten about it thereafter.
[21]
The high court accordingly found that the defendant’s
misrepresentation in regard to the two units comprising the scheme,
and the existence of an effective right of veto in respect of the
proposed sub-division, had not been made intentionally. In the
circumstances the court found that there was no scope for a finding
that the plaintiff had established the requisites of fraudulent
misrepresentation upon which its case, in the main, was based.
[22]
The high court found, however, in favour of the plaintiff on the
alternative basis upon which it sought to avoid the agreement
of
sale: that Thompson, as a result of the misrepresentation, had made a
fundamental mistake as to the nature of the property that
he was
buying.
[23]
For purposes of this appeal it is not necessary to enquire into
whether the high court was correct in concluding that fraudulent
misrepresentation on the part of Spendley had not been established.
We are required to consider the effect of an innocent
misrepresentation
by Spendley on the agreement between the parties.
Relying on
Trollip
v Jordaan,
[1]
counsel
for the defendant submitted that the agreement of sale between the
parties was not void because the misrepresentation by
Spendley had
been made innocently. In the
Jordaan
case the majority held that a contract of sale was not void as a
result of an innocent misrepresentation that did not give rise
to an
error in corpore, and therefore that a non-misrepresentation clause
contained therein applied, and precluded reliance on
the
misrepresentation.
[2]
In
Jordaan
the dispute turned on the effect of the misrepresentation: the
majority said:
[3]
‘
It
is obvious that any actionable misrepresentation must have as its
effect a mistaken belief on the part of the representee. If
[the
contract’s ‘no-representation’ clauses] prevent the
appellant from relying on any innocent misrepresentation,
then they
are equally effective in preventing him from relying on a mistake
induced solely by that very misrepresentation.’
[24]
A different approach was adopted by Howard J in
Allen
v Sixteen Sterling Investments (Pty) Ltd
[4]
where
it was stated that an error
in
corpore
caused by a misrepresentation, and which vitiated the consent to the
contract concerned, rendered that contract void ab initio
and
therefore the representor could not rely on an exemption clause.
[5]
[25]
Jordaan
did not consider that the mistake that had resulted from the
misrepresentation was material. In
Allen
,
on the other hand, the mistake clearly was material. Accordingly, a
clause that excludes liability for misrepresentation will
fall with
the contract where the fundamental mistake that precludes consensus
was induced by a misrepresentation, whether made
innocently or
not.
[6]
[26]
This court recently affirmed the principle enunciated by Howard J in
the
Allen
case that where the misrepresentation results in a fundamental
mistake, the ‘contract is void ab initio’.
[7]
Cloete
JA, writing for the majority, explained the rationale for the
approach as follows:
‘
In
this way, the law gives effect to the sound principle that a person,
in signing a document, is taken to be bound by the ordinary
meaning
and effect of the words which appear over his or her signature, while
at the same time, protecting such a person if he
or she is under a
justifiable misapprehension, caused by the other party who requires
such signature, as to the effect of the document.’
[27]
In the present matter the correct enquiry is whether the error has
precluded the parties from reaching consensus ad idem and
secondly,
whether it is reasonable for the resiling party to labour under a
misapprehension.
[8]
See
Morgan
Air Cargo v Sim Road Investments &
another
,
[9]
Murphy
J noted in relation to the enquiry into whether an exemption clause
is enforceable, that ‘. . . the emphasis has shifted
from the
nature of the fault element attending the misrepresentation to the
nature and quality of the consensus vitiating error
caused by the
misrepresentation.’
[28]
Academic writers
[10]
appear
to be at one that a contract, including an exemption clause may fail
for lack of consensus between the parties. In the
Allen
case
[11]
Howard
J referred with approval to a comment by P M A Hunt on
Trollip
v Jordaan
,
which appeared in the
Annual
Survey of South African Law
,
[12]
where
the writer said the following in regard to the effect of an exemption
clause:
‘
Prima
facie
it would seem that the vice
taints consent to the whole contract, including the exemption clause.
All the terms of the contract
together regulate the contract’s
object, and it is difficult to see how the consent can but stand or
fall as a whole. It
seems impermissible to find a separate untainted
consent to the exemption clause.’
Like
Howard J, I can find no fault with the reasoning and understand the
‘vice’ referred to in the above passage to
mean
‘something in the nature of an essential error which vitiates
consent and renders the contract void ab initio.’
[13]
[29]
It is against these principles that I turn to consider whether the
exemption clause, quoted above, can avail the defendant.
In the
present matter the plaintiff’s mistake, induced by the
defendant’s representative, Spendley, was as to the true
nature
of the merx and as such no consensus was established in concluding
the contract. Both parties laboured under the mistaken
belief that
the unit in the building was one of only two. The plaintiff’s
mistake was, as the high court accepted, induced
by the
misrepresentation that there were only two units in the building and
that the owner of unit 1 could veto the right of unit
2 to subdivide
it. In these circumstances the parties were mutually mistaken as to
the true nature of the merx and accordingly
it cannot be said that
the parties achieved consensus as to the subject matter of the sale.
[30]
The fact that Spendley had forgotten about the resolution signed in
2007 approving the sub-division of unit 2 and that the
misrepresentation was therefore not fraudulent makes no difference in
the greater scheme of things. Regardless of the nature of
the
misrepresentation, the plaintiff concluded the agreement on the basis
of a
justus
error
and is accordingly bound on the basis of the principles set out in
Sonap
Petroleum (SA) (Pty) Ltd (formerly known as SONAREP (SA) (Pty) Ltd v
Pappadogianis
.
[14]
Harms
AJA explained the legal position as follows:
‘
In
my view, therefore, the decisive question in a case like the present
is this: did the party whose actual intention did not conform
to the
common intention expressed, lead the other party, as a reasonable
man, to believe that his declared intention represented
his actual
intention? Compare Corbin on
Contracts
(1 volume edition) (1952) at 157. To answer this question, a
three-fold enquiry is usually necessary, namely, firstly, was there
a
misrepresentation as to one party’s intention; secondly, who
made that representation; and thirdly, was the other party
misled
thereby?
See
also
Du Toit v Atkinson’s Motors BPK
1985 (2) SA 893
(A)
at 906C-G;
Spindrifter (Pty) Ltd v Lester Donovan (Pty) Ltd
1986 (1) SA 303
(A) at 316I-317B.
The
last question postulates two possibilities: Was he actually misled
and would a reasonable man have been misled?’
[31]
In the present matter there can be no question that the plaintiff’s
representative, Thompson, was misled by Spendley’s
misrepresentation that the sectional title scheme comprised only two
units, and the non-disclosure of the fact that the approval
to the
sub-division of unit 2 had been granted prior to the conclusion of
the agreement of sale between the plaintiff and the defendant.
The
misrepresentation resulted in a reasonable and material mistake as to
what the merx was. The contract was thus void from the
outset. In the
circumstances the appeal must fail.
[32]
In the result, the following order is made:
The
appeal is dismissed with costs.
K
K Mthiyane
Deputy
President
Appearances
For the Appellant: A
Beyleveld SC
Instructed by:
De Villiers &
Partners, Port Elizabeth
Honey
Attorneys, Bloemfontein
For
the Respondent: R P van Rooyen SC
Instructed by:
Friedman Scheckter,
Port Elizabeth
Matsepes Inc,
Bloemfontein
[1]
Trollip
v Jordaan
1961 (1) SA 238
(A) at 252G-H.
[2]
At 254B.
[3]
At 254D-E.
[4]
Allen
v 16 Stirling Investments
(Pty)
Ltd
1974 (4) SA 164 (D).
[5]
Allen
at 171B-F.
[6]
D Hutchison & CJ Pretorius (eds)
et
al The Law of Contract in South Africa
(2010) at 121.
[7]
Brink
v Humphries & Jewell (Pty) Ltd
2005 (2) SA 419
(SCA) para 2.
[8]
Goldberg
& another v Carstens
1997 (2) SA 854
(C) at 859B; R H Christie & G B Bradfield
Christie’s
The law of Contract in South Africa
(6 ed 2011) at 335.
[9]
[2009] 4 All SA 249
(GNP) para 83.
[10]
AJ Kerr
The
Principles of the Law of Contract
(6 ed 2002) at 253; D Hutchison & C J Pretorius (eds)
et
al The Law of Contract in South Africa
(2010) at 121; S W J van der Merwe, L F van Huyssteen, M F B
Reinecke & G F Lubbe
Contract:
General Principles
(4 ed 2012) at 258.
[11]
At 171A.
[12]
1961 at 95.
[13]
Allen
at
171B.
[14]
Sonap
Petroleum (SA) (Pty) Ltd (formerly known as Sonarep (SA) (Pty) Ltd v
Pappadogianis
[1992] ZASCA 56
;
1992 (3) SA 234
(A) at 239I-240B.