Brief Summary

Contract — Misrepresentation — Non-disclosure — Seller's duty to disclose material facts in sale of immovable property — Purchaser claims seller failed to disclose a caveat on title deed related to property being targeted by hijackers — Seller contends that the caveat was related to a previous fraudulent liquidation attempt and that there was no ongoing hijacking threat — Court finds that an "honest man" in the seller's position would not deem it necessary to disclose the nature of the caveat, thus upholding the validity of the contract and ordering specific performance for payment of transfer costs.

Comprehensive Summary

Summary of Judgment

1. Introduction

This was an application in the Gauteng Division, Johannesburg, in which the applicant sought specific performance of a contractual obligation arising from a written agreement of sale of immovable property. The applicant, Anioma Property (Pty) Ltd, was the seller and owner of the property. The first respondent, DMFT Property Developers, was the purchaser. The second respondent, Lindie Lombard Attorneys, was cited as the conveyancer holding the purchase price in trust, and the third respondent, Pam Golding Properties, was cited as an interested party, with no substantive relief sought against either the second or third respondents.

The procedural posture was motion proceedings in which the seller demanded performance of the purchaser’s obligation to pay transfer-related costs after the purchaser, despite having paid the full purchase price, refused to pay outstanding transfer costs and indicated an intention to withdraw from the transaction. The purchaser resisted the relief on the basis of alleged misrepresentation by non-disclosure, contending that the contract was liable to rescission or cancellation because the seller failed to disclose the nature and circumstances of a caveat endorsed against the title deed, which the purchaser linked to an alleged “hijacking” risk affecting the property.

The dispute concerned the consequences of a caveat recorded against the title deed in the context of a high-value sale, and whether the seller’s disclosures (and the content of the sale agreement) gave rise to actionable non-disclosure that entitled the purchaser to avoid the contract and refuse performance, or whether the purchaser remained bound to perform and pay transfer costs as agreed.

2. Material Facts

The seller and purchaser concluded a written agreement of sale during July 2021 in terms of which the seller sold immovable property described as Portion 4 of Erf [....], situated at 161 Empire Place, Sandhurst, for R13 million. The property was sold voetstoots, with occupation and the passing of ownership, risk, and benefits to occur upon registration of transfer. The agreement provided that transfer would be effected by the second respondent as soon as reasonably possible, provided the purchaser complied with its contractual obligations, including signing documents and paying the necessary transfer costs and charges incidental to transfer.

It was common cause that the purchaser paid the full purchase price, which was held in the conveyancer’s trust account, and that R1,392,237.27 remained outstanding as the amount required to proceed with registration of transfer. It was also common cause that the purchaser refused to pay that amount and refused to proceed with transfer.

The purchaser’s refusal was linked to its discovery of a caveat endorsed on the title deed. The purchaser asserted that the seller had deliberately failed to disclose material facts concerning the caveat and the circumstances giving rise to it, and alleged that the property was “under hijack”, targeted by hijackers, and would require court proceedings to “ward off” the hijackers, thereby delaying the purchaser’s development plans. The purchaser relied on correspondence sent on 3 September in which it conveyed its resolve to withdraw from the transaction, instructed that transfer activity cease, and sought reimbursement of amounts paid in anticipation of transfer.

The seller’s account of the caveat, which the court treated as material to assessing the duty to disclose and materiality, was that a third party had attempted to fraudulently liquidate the seller. In early 2020 the seller successfully obtained an interdict, and in that process caused a caveat to be noted against the title deed. The caveat, in substance, recorded that a court order had been obtained reversing an alleged unlawful and fraudulent liquidation and objected to the issuing of a certified copy and/or subsequent transfer unless leave of the court had been obtained and pending the outcome of related proceedings. The seller denied that there had ever been an attempt to hijack the property and maintained that the caveat related to corporate liquidation litigation rather than any compromise of the title.

A further contractual fact relied upon by the court was clause 20.1, which provided that the seller “shall remove all caveats that may be placed on the property and facilitate the transfer process”. The seller contended that it had complied with its obligations by instructing the conveyancer to deal with removal/upliftment of the caveat in a manner consistent with the contract. The purchaser contended that clause 20.1 was misleadingly drafted and contributed to non-disclosure because it did not expressly record that a caveat already existed.

3. Legal Issues

The court identified three principal questions requiring determination. The first was whether the language of clause 20.1 was misleading and whether pertinent facts were omitted, such that the seller’s conduct could amount to actionable non-disclosure or misrepresentation by silence. The second was whether, on the facts, there was a legal duty on the seller to disclose the exact nature of the caveat and the circumstances that gave rise to it. The third was whether any non-disclosure was material, in the sense required for rescission or avoidance of the contract, thereby justifying the purchaser’s refusal to perform.

The dispute was primarily concerned with the application of legal principles to facts. It required evaluative determinations about whether information was within the seller’s “exclusive knowledge”, whether an “honest man” would mutually recognise a right to disclosure in the circumstances, whether the contract wording was merely unclear (triggering an expectation that the purchaser should inquire) as opposed to misleading in a legally actionable way, and whether the alleged non-disclosed information met the materiality threshold for rescission.

In addition, the matter implicated the remedial question of whether the seller, faced with the purchaser’s non-performance, was entitled to specific performance, and whether the court should exercise its discretion to grant that remedy.

4. Court’s Reasoning

The court approached the dispute through the law of misrepresentation and non-disclosure, and the remedial framework governing specific performance. It accepted, as a general proposition, that misrepresentation may occur through a false statement or through silence where there is a duty to speak, and that non-disclosure (misrepresentation by omission) can justify rescission only where the non-disclosed facts are material and the duty to disclose is established. In doing so, the court treated non-disclosure and misrepresentation as operating similarly in relation to rescission where a duty to disclose exists.

On the duty to disclose, the court relied on the framework articulated in McCann v Goodall Group Operations (Pty) Ltd 1995 (2) SA 718 (C), which recognises that silence is not a misrepresentation unless there is a legal duty to disclose, including where information falls within a party’s exclusive knowledge and the right to have it disclosed would be mutually recognised by honest persons in the circumstances, or where a prior statement is incomplete or vague and requires supplementation or elucidation.

The court then considered whether the caveat information fell within the seller’s exclusive (sole) knowledge. It drew an analogy to Speight v Glass and Another 1961 (1) SA 778 (D), where the seller was not treated as having sole knowledge because the relevant information was accessible through the town council. Similarly, the court reasoned that the details of the caveat and the events leading to it were readily accessible through the Deeds Office by means of a deeds search. It reinforced this reasoning by reference to ABSA Bank Ltd v Fouche 2003 (1) SA 176 (SCA), emphasising that information that is readily ascertainable should not be treated as “exclusive knowledge” in the relevant sense. The court therefore concluded that the caveat’s history was not “exclusive knowledge” producing the purchaser’s “involuntary reliance” on the seller as the only source.

The court then addressed the second component of the duty-to-disclose inquiry, namely whether the right to have the relevant information communicated would be mutually recognised by “honest men” in the circumstances. On the facts, it was not persuaded that the caveat supported the purchaser’s inference that the property was “hijacked”. It accepted the seller’s position that the caveat did not reflect a compromised title or an actual hijacking attempt, and it treated the litigation giving rise to the caveat as having been resolved. The court also placed weight on clause 20.1, which obliged the seller to remove caveats, and reasoned that this contractual mechanism supported the conclusion that the caveat was not treated as an obstacle to transfer. In these circumstances, and given the accessibility of the caveat information through due diligence, the court concluded that an honest person would not necessarily regard it as required to disclose “the entire nature of the caveat”.

Turning to whether the contract language involved omission or misleading phrasing, the purchaser’s argument was that clause 20.1 was drafted in non-committal terms (“may be placed”) and that a positive statement would have triggered follow-up questions. The court assessed this argument through the lens of Dormell Properties 658 (Pty) Ltd v Rowmoor Investments 513 (Pty) Ltd and Another [2013] ZAWCHC 152, which distinguishes between a statement with a clear meaning and one that is merely unclear, and indicates that where a statement is unclear, a reasonable reader would seek clarification rather than treat it as a misrepresentation. Applying that approach, the court characterised clause 20.1 as, at best, unclear, and held that the purchaser, faced with a substantial transaction, should have exercised due diligence and sought clarity as to why such a clause was included and whether a caveat existed. The court considered it implausible that the purchaser’s alleged inference (that there were no caveats and the clause was mere thoroughness) excused the failure to inquire, particularly where the clause itself signalled the potential relevance of caveats.

Finally, the court dealt with materiality. It accepted that even if a duty to disclose had existed, rescission would only be available if the non-disclosure was material. Referring to the formulation in LAWSA quoted in the judgment, the court evaluated whether disclosure would have persuaded a reasonable person not to enter into the contract. It reasoned that the existence of the caveat did not affect the title deed and did not prevent transfer, and that the feared consequences associated with buying a hijacked property did not arise because the property was not, in fact, hijacked. On that basis, the court concluded that disclosure of the caveat’s precise nature would be unlikely to have deterred a reasonable purchaser from contracting, and therefore the alleged non-disclosure was not material in a manner invalidating the agreement.

Having rejected the purchaser’s grounds for avoiding performance, the court approached the remedy of specific performance by reference to established authority recognising that, prima facie, a party ready to perform may demand performance by the other contracting party, subject to the court’s discretion. The court relied on Farmers’ Co-operative Society v Berry 1912 AD 343 and Basson and Others v Hanna 2017 (3) SA 22 (SCA) for the proposition that specific performance is generally available at the election of the aggrieved party, subject to judicial discretion and practical considerations. On the facts, the court did not find impediments justifying refusal of specific performance and therefore granted relief compelling payment of transfer costs and cooperation with transfer documentation, with enforcement mechanisms if the purchaser did not comply.

5. Outcome and Relief

The court granted specific performance. The first respondent was ordered to pay the second respondent the sum of R1,392,237.27 in respect of transfer registration costs relating to the transfer of Portion 4 of Erf [....], Sandhurst, and to sign all documentation required by the conveyancer to effect registration of transfer into the purchaser’s name within 10 days of the order.

The order further provided that, failing the purchaser’s compliance, the conveyancer was directed to utilise the purchase price held in trust to pay the transfer costs, and the Sheriff was authorised to sign, on behalf of the purchaser, any documents required to effect transfer.

Costs were awarded against the first respondent on the attorney and client scale.

Cases Cited

Farmers’ Co-operative Society v Berry 1912 AD 343.

Basson and Others v Hanna 2017 (3) SA 22 (Supreme Court of Appeal).

Bluegrass Trading 1112 CC t/a Rawson Properties v Ramsern and Another [2021] ZAGPJHC 753.

McCann v Goodall Group Operations (Pty) Ltd 1995 (2) SA 718 (C).

Pretorius and Another v Natal South Sea Investment Trust Ltd (under judicial management) 1965 (3) SA 410 (W).

Speight v Glass and Another 1961 (1) SA 778 (D).

ABSA Bank Ltd v Fouche 2003 (1) SA 176 (Supreme Court of Appeal).

The Trustees for the time being of the SAS Trust v New Adventure Investment 193 (Pty) Ltd [2003] JOL 11579 (Supreme Court of Appeal).

Dormell Properties 658 (Pty) Ltd v Rowmoor Investments 513 (Pty) Ltd and Another [2013] ZAWCHC 152.

Legislation Cited

Value-Added Tax Act 89 of 1991.

Transfer Duties Act 40 of 1949.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the purchaser had not established a basis to avoid the agreement of sale on the ground of misrepresentation by non-disclosure. The information relating to the caveat was not treated as falling within the seller’s exclusive knowledge, because it was readily ascertainable through a deeds search and access via the Deeds Office, and the circumstances did not support the purchaser’s contention that the property was “hijacked” or that the caveat reflected a compromised title.

The court further held that clause 20.1, which referred to the removal of caveats that “may be placed” on the property, was at most unclear rather than misleading in a manner giving rise to actionable non-disclosure. On the court’s reasoning, a reasonable purchaser in a transaction of this magnitude would have sought clarification and undertaken due diligence.

In any event, the court held that the alleged non-disclosure was not material because the caveat did not prevent transfer and the feared consequences associated with a “hijacked” property were not borne out on the facts as accepted by the court. The purchaser’s refusal to pay transfer costs was therefore not justified, and the seller was entitled to specific performance compelling payment of outstanding transfer costs and cooperation with transfer.

LEGAL PRINCIPLES

Specific performance is, as a general rule, available to a party to a binding agreement who is ready to perform, and that party may in principle demand performance from the other contracting party, subject to the court’s discretion and practical considerations such as impossibility and whether damages would adequately and conveniently serve justice between the parties.

Misrepresentation may occur by statement or by omission. Non-disclosure may constitute misrepresentation by silence only where there is a legal duty to disclose the omitted information. Such a duty may arise where the information is within a party’s exclusive knowledge in a practical business sense, producing reliance on that party as the only source, and where honest persons in the circumstances would mutually recognise a right to disclosure.

Information that is readily ascertainable should not be characterised as exclusive knowledge for purposes of establishing a duty to disclose, particularly where the counterparty could obtain the information through ordinary due diligence.

Where contractual language is unclear rather than clearly misleading, the reasonable response in a commercial transaction is to seek clarification, and an unclear statement does not, without more, necessarily constitute a misrepresentation. The assessment proceeds objectively by reference to the reasonable reader’s understanding and conduct.

Even where non-disclosure is established, rescission requires materiality. The inquiry is whether the representation or omission relates to a fact that would induce a reasonable person to contract, or whether disclosure would persuade a reasonable person not to enter into the contract, as framed in the judgment’s discussion of the applicable test.

Anioma Property (Pty) Ltd v DMFT Property Developers and Others (49230/2021) [2023] ZAGPJHC 209 (7 March 2023)