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[2013] ZASCA 91
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King Sabata Dalindyebo Municipality v Landmark Mthatha (Pty) Ltd and Another (136/12) [2013] ZASCA 91; [2013] 3 All SA 251 (SCA) (31 May 2013)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 136/12
In the matter between:
Reportable
KING SABATA DALINDYEBO
MUNICIPALITY
...............................................
Appellant
and
LANDMARK MTHATHA (PTY)
LTD
.....................................................
First
Respondent
AFRICAN BULK
EARTHWORKS (PTY) LTD
t/a NEW HEIGHTS 55
(PTY) LTD
....................................................
Second
Respondent
Neutral citation:
King Sabata Dalindyebo Municipality v Landmark Mthatha (Pty) Ltd &
another
(136/11)
[2013] ZASCA 91
(31 May 2013)
Coram:
MPATI P,
MAYA, MAJIEDT and PILLAY JJA and ERASMUS AJA
Heard:
18 February
2013
Delivered:
31 May
2013
Summary: Contract –
impossibility of performance due to
vis major
– whether
party in breach excused from obligations under contract. Interest –
unreasonableness of – short term
loan – onus on party
alleging unreasonableness to allege and prove that alternative places
with lower rate of interest available.
_______________________________________________________________________
ORDER
_____________________________________________________________________
On appeal
from
:
Eastern Cape
High Court, Mthatha (Dawood J, sitting as court of first instance):
1 The appeal is dismissed
with costs.
2 The cross-appeal
succeeds with costs.
3 Para (h) of the order
of the court below is amended to read:
‘
The
Municipality is directed to pay the First Defendant interest on the
aforesaid sum at the rate of 15.5 per cent per annum from
5 March
2008 to date of payment.’
_______________________________________________________________________
JUDGMENT
_____________________________________________________________________
MPATI P (MAYA, MAJIEDT
and PILLAY JJA and ERASMUS AJA CONCURRING):
[1] This appeal is
against an order of the Eastern Cape High Court, Mthatha (Dawood J),
in terms of which the appellant, King Sabata
Dalindyebo Municipality
(the Municipality), was directed to pay to the first respondent
(Landmark) a total sum of R141 781 201,85,
as damages, plus
interest and costs of suit. Landmark had joined the Municipality as
the first third party in an action in which
Landmark was sued by the
second respondent (Bulk Earthworks) for payment of certain moneys as
damages that Bulk Earthworks had
allegedly suffered as a result of an
alleged breach of contract. Two other parties, namely the Provincial
Government of the Eastern
Cape and the Government of the Republic of
South Africa, were also joined as the second and third third parties
respectively. At
the close of the case for Bulk Earthworks,
absolution from the instance was granted in favour of the second and
third third parties.
They consequently do not play any part in this
appeal. In its order the court below directed the Municipality to pay
interest on
the sum of R130 521 053 at the rate of 15,5 per
cent per annum, calculated from 16 January 2012 to date of payment.
Interest
on the balance of R11 260 148,85 was to be payable
at the rate of 160 per cent of the ruling bank rate, from 13 October
2010 to date of payment. The judgment of the court below was
delivered on 29 December 2011.
[2] With leave of the
court below the Municipality appeals against the order just
mentioned, while Landmark cross-appeals against
that part of the
order directing that interest on the larger amount shall be
calculated from 16 January 2012. According to its
notice of
application for leave to cross-appeal, interest ought to be payable
from the date of service of the third party notice
on the
Municipality. In this regard Landmark relies on the provisions of s
2A(2)
(a)
of the Prescribed Rate of Interest Act 55 of 1975,
(the Interest Act) to which reference will be made later in this
judgment.
[3] Leaving aside the
cross-appeal for the moment, the main issue in this appeal is whether
the Municipality’s plea of supervening
impossibility of
performance should have succeeded, with the resultant dismissal of
Landmark’s claim. For a better understanding
of the case it is
convenient first to set out, briefly, the factual background to Bulk
Earthworks’ claims against Landmark.
In January 1999 the
Municipality took transfer of certain fixed property known as ‘The
Remainder of Erf 912 Umtata’,
1740,7900 hectares in extent (the
subject land), situated within its area of jurisdiction. The property
had been donated by the
National Government to the Provincial
Government of the Eastern Cape in April 1997, and the Provincial
Government, in turn, donated
it to the Municipality in December 1997.
On 12 October 2006 the Municipality concluded a written lease
agreement with Landmark
in terms of which the Municipality leased to
Landmark a portion of the subject land for a period of 30 years, with
Landmark having
an option to extend the lease for a further period of
30 years. The leased portion (the property) is defined in the lease
agreement
as ‘the proposed subdivision of the Mother Property,
in extent approximately 7,2 hectares’ and the ‘Mother
Property’
(which is the subject land) as ‘the remainder
of Erf 912, Umtata, King Sabata Dalindyebo Municipality, district of
Mthatha,
Province of the Eastern Cape, in extent 1 624,5303 (One
Thousand Six Hundred and Twenty Four comma Five Three Zero Three)
hectares’. In terms of the lease agreement Landmark would
develop the property on behalf of the Municipality ‘by
providing
infrastructure or services to the property’ and would
market and sublet the premises it was required to erect to third
parties.
[4] During April or May
2007 Landmark and Bulk Earthworks concluded a written agreement (the
contract) in terms of which the latter
was engaged by the former to
undertake bulk earthworks on the property as part of, or in
preparation for, the development, which
was referred to as the
Mthatha Retail Development. Clause 31.9 of the contract provides that
Landmark ‘shall pay to [Bulk
Earthworks] the amount certified
in an interim payment certificate within seven (7) calendar days of
the date for issue of the
payment certificate’. Bulk Earthworks
commenced work on the property on 7 May 2007. The practical
completion date is stipulated
in the contract as 10 September 2007.
Because Landmark was experiencing difficulty in obtaining the
required finance from the bank
from which it had secured a loan for
the development, it delayed with the payments that had become due in
respect of the first
three payment certificates issued for work
already undertaken by Bulk Earthworks. The bank could not advance the
required finance
because certain conditions pertaining to the loan
had not been fulfilled. One of those conditions was that there should
be no land
claims over the property.
1
It had emerged, however, that the subject land, including the
property, was indeed the subject of certain land claims.
[5] On 13 August 2007 Mr
Adam Markovitz (Markovitz), a director of Landmark, who was in charge
of the development, wrote a letter
to Mr Francois de Klerk, the Chief
Executive Officer of Bulk Earthworks, in which he advised, inter
alia, that Landmark ‘will
not be able to make payment on the
certificate’ the following week. Markovitz also suggested in
the letter that Bulk Earthworks
‘stop work on site, pending
clarity and formalization of a settlement . . .’. Bulk
Earthworks immediately ceased operations
on the property upon receipt
of the letter and subsequently cancelled the contract by way of a
letter dated 17 September 2007.
On 15 November 2007 Bulk Earthworks
instituted action against Landmark, as first defendant, Landmark Real
Estate Services (Pty)
Ltd (to which I shall henceforth refer as ‘Real
Estate’), as second defendant and Mr Henderson Mabanga
(Mabanga), Chief
Mfundo Mtirara (Mtirara) and Ses’fikile
Investment Pioneers (Pty) Ltd, as third to fifth defendants
respectively, claiming
payment of various amounts it alleged were due
and payable under the contract. With regard to Landmark’s
co-defendants in
that action, the following was alleged in Bulk
Earthworks’ particulars of claim:
‘
The
Second, Third, Fourth and Fifth Defendants bound themselves as Surety
and Co-Principal Debtors . . . pro-rata their respective
Shareholdings, for all amounts payable by [Landmark] to [Bulk
Earthworks].
’
2
However, the claims
against the third to fifth defendants were later withdrawn and Bulk
Earthworks proceeded against Landmark and
Real Estate only.
[6] In their plea
Landmark and Real Estate averred that when the contract was
concluded, Bulk Earthworks was aware that the Municipality
was the
owner of the property and that Landmark’s rights to it arose
from a long term lease between the Municipality and
Landmark. The
plea went further:
‘
2.7
In or about 1998, land claims as provided for in section 11(7) of the
[Restitution of Land Rights Act] (“the land claims”)
had
been lodged with the relevant Regional Land Claims Commissioner (“the
commissioner”) in respect of the land.
2.8
On or about 25 May 2007 the commissioner published one of the land
claims in terms of
section 11(1) of the [Restitution of Land
Rights Act].’
3
Section 11(7) of the
Restitution of Land Rights Act 22 of 1994 (the Act) provides, inter
alia, that once a notice has been published
in the
Gazette
in
respect of any land which is the subject of a land claim, ‘no
person may sell . . . , lease, . . . or develop the land
in question
without having given the regional land claims commissioner one
month’s written notice of his or her intention
to do so . . .
’. Landmark and Real Estate pleaded that when the contract was
concluded they were not aware of any land claims
in respect of the
property. They accordingly denied liability and prayed for the
dismissal of Bulk Earthworks’ claims, with
costs. In the
alternative, they requested that judgment in respect of the claims
‘be handed down together with the judgment
on [their] third
party notice’.
[7] Before I turn to the
third party notice it is convenient to set out other relevant and
undisputed facts. On 3 September 1998
a community known as the
KwaLindile Community lodged with the regional land claims
commissioner of the Eastern Cape (the commissioner)
a land claim in
respect of certain land described in the claim form as ‘Matiwane
Mountain Range’. On 29 December 1998
the abaThembu Community
also lodged a land claim for land situated, amongst others, in
Umtata. Specific, identifiable, places,
which appear to be within the
area where the property is situated, are named in the claim form. On
31 December 1998 the Zimbane
Community lodged a land claim in respect
of land described in the claim form as ‘Erf 912 Zimbane A/A
district of Umtata –
South Africa’. It is not in dispute
that no notice was published following lodgement of the three claims
before the conclusion
of the lease agreement between Landmark and the
Municipality in respect of the property. However, by letter dated 11
May 2007 addressed
to the municipal manager of the Municipality, Ms V
Zitumane, the commissioner advised of the KwaLindile land claim,
which, she
said, had been investigated and found to be compliant and
which was in the process of being gazetted. She warned the
Municipality
that its actions of developing the property were in
contravention of the provisions of the Act and that it should refrain
from
doing so ‘until you have made proper representations to
the [commissioner], failing which this matter will be taken to
court’.
I may mention that there had been some correspondence
between the regional land claims commissioner and the Municipality
during
the second half of the year 2003. In a letter dated 25 August
2003 the commissioner informed the Municipality of the Zimbane
Community
claim in respect of land known as Erf 912 in the
magisterial district of Umtata and placed on record ‘our
interest on the
matter relating to the sub-division, rezoning or any
other development on the land. . .’.
[8] The commissioner
published only the KwaLindile Community land claim in the
Government
Gazette
on 25 May 2007. On or about 30 May 2007 Chief
Monwabisi Njemla of the KwaLindile Community instituted motion
proceedings, as applicant,
against the Municipality, Landmark and
five other respondents seeking an order, amongst others, interdicting
the development. According
to Markovitz, Landmark and the second
respondent only became aware of the interdict proceedings on 19 July
2007. On 14 August 2007
Landmark sought and obtained leave to
intervene so as to oppose the application for an interdict. The Land
Claims Court granted
an interim interdict on 2 October 2007
prohibiting the development ‘pending the finalization of
serious and consultative
negotiations with all parties concerned but
before 30 November 2007’. The consultative negotiations did
take place, but were
aborted on 21 January 2008, on which date the
interim interdict lapsed. In the meantime and while the interim
interdict was in
force, the Municipality gave notice to the
commissioner, by letter dated 10 December 2007, of its intention to
develop the property
to give effect to the lease agreement between it
and Landmark.
[9] Although the interim
interdict had lapsed on 21 January 2008 it is not in dispute that the
commissioner’s attitude was
that she would apply for another
interdict if the development were to proceed. This was made clear in
a letter addressed to the
municipal manager, dated 2 June 2008, which
was in response to the Municipality’s notice to the
commissioner of 10 December
2007. In her letter (of 2 June 2008) the
commissioner stated that she intended referring the KwaLindile and
Zimbane Community claims
to the Land Claims Court after she had
gazetted the latter claim. She then continues in the letter:
‘
Accordingly,
I advise that upon the referral taking place it is my intention, in
terms of Section 14(2)
(d)
of
the Act, to recommend to the Court that it would be appropriate to
resolve the claims by ordering that the leases be set aside
and that
the land in question be restored to such claimants or group of
claimants as to the Court appears just.
In
those circumstances this office cannot countenance the present
proposed developments continuing and I advise that if that happens,
then this office will consider acting in terms of section
6(3)
of the Act
.
’
4
However, the commissioner
did not carry out the threat because no further development took
place on the property.
[10] With that background
I now return to the pleadings. In the statement of claim annexed to
its third party notice (I shall, for
convenience, henceforth refer to
the statement of claim simply as ‘the third party notice’)
Landmark sought an order
for specific performance of the lease
agreement, together with payment of what was referred to as delay
damages in the sum of R290 496 953,
plus costs and
interest. In the first alternative, an order was sought for payment
of the sum of R220 397 556, as damages
for breach of
contract, plus interest and costs, and in the further alternative,
payment of the sum of R92 416 034, as
damages suffered as a
result of misrepresentation, plus interest and costs. A further order
was sought for payment of ‘an
amount equal to the judgment (if
any) and costs (if any) which may be awarded in favour of [Bulk
Earthworks] against [Landmark]’.
[11] The allegations made
in the third party notice as a basis for the claims were that it was
an implied, alternatively tacit,
term of the lease agreement that (a)
the Municipality would give Landmark vacant possession of the
property ‘in the sense
that the development work could be
conducted and completed lawfully’ and (b) the Municipality was
not aware of facts ‘which
constituted a reasonable danger that
they would render the continuation and completion of the development
unlawful or liable to
be set aside, alternatively if so aware, then,
that it was obliged to disclose such danger’. As to the
averment relating
to the lawful completion of the development, it was
alleged that as from 25 May 2007 the continuation of the development
became
unlawful by virtue of the publication of the notice of the
KwaLindile Community land claim and, later, by virtue of the interim
interdict issued by the Land Claims Court on 2 October 2007. It was
accordingly pleaded that in breach of the lease agreement the
Municipality failed to comply with either, or both, of the terms as
to vacant possession and that it failed to disclose to Landmark,
during the course of the negotiations that led to the conclusion of
the lease agreement, facts which were known to it but not to
Landmark. Those facts were the existence of land claims over the
subject land that were lodged in 1998 and which constituted the
danger referred to in (b) above.
[12] In its amended plea
to the third party notice the Municipality denied that it was aware
of land claims relating to the subject
land and pleaded, in essence,
that Landmark was aware of the existence of the land claims,
alternatively that Landmark ‘ought
reasonably to have been
aware of the existence of [the] land claims’. It admitted the
allegation of the existence of an implied
or tacit term of the lease
agreement, which is that it would give Landmark vacant possession of
the property. The Municipality
pleaded, however, that in light of the
gazetting of the KwaLindile Community land claim and the
commissioner’s ‘steadfast
threat that she will interdict
any development on the subject land’, it had become impossible
for it ‘to afford [Landmark]
vacant possession of the
[property]’. An additional factor, namely the interim
interdict, was also raised during the trial
as having rendered
performance in terms of the lease agreement impossible. After
considering all the evidence the court below found
that the
Municipality ‘was aware of land claims over Erf 912’;
that Landmark had no knowledge of the land claims and
that although
performance relating to the giving of vacant possession had become
onerous, it was not impossible ‘since there
[was] no order
prohibiting it’. It accordingly rejected the Municipality’s
defence of supervening impossibility and
found that Landmark had
established that the Municipality ‘has breached the lease
agreement by failing to give Landmark vacant
possession that would
enable them to lawfully complete the development’. This finding
rendered it unnecessary for the court
to consider Landmark’s
alternative claim based on misrepresentation. With regard to the
alleged knowledge or awareness of
the existence of the land claims
the court held that ‘[t]he issue . . . whether or not the
[M]unicipality acted wrongfully
or culpably in breaching the contract
in that it knew about the land claims and failed to disclose them or
even . . . Landmark
Mthatha being aware of the claims at the time of
concluding the lease agreement, is irrelevant. . .’.
[13] The court, in the
exercise of its discretion, refused to order specific performance and
payment of delay damages. Instead,
it ordered cancellation of the
contract and awarded ‘termination damages’ in favour of
Landmark in the total amount
of R130 521 053, with
interest. The ‘termination damages’ were made up of
various sub-heads, namely, loss
of profit (R105 739 795),
professional fees (R6 857 516), wasted salaries
(R2 641 667), travel and
accommodation expenses (R161 832),
African Bulk (Bulk Earthworks) certificates 1 and 2 (R6 970 243)
and interest
on bridging finance (R8 150 000). The court
further ordered the Municipality to pay to Landmark the sum of
R11 260 148.85,
being the amount it had ordered Landmark to
pay to Bulk Earthworks, with interest. The Municipality was also
ordered to pay Landmark’s
and Bulk Earthworks’ costs of
suit.
[14] In this court
counsel for the Municipality submitted that the issue whether the
Municipality and/or Landmark was aware of the
land claims in respect
of the subject land prior to concluding the lease agreement is
paramount and dispositive of the appeal.
Counsel accordingly
contended that the court below erred in holding that awareness of the
land claims by the Municipality and/or
Landmark was irrelevant. On
the evidence before it, the court below ought to have concluded, so
the argument continued, that Landmark
was aware, or ought reasonably
to have been aware, of claims that had been lodged with the
commissioner in respect of the subject
land and that for this reason
Landmark’s entire third party claim founded on failure by the
Municipality to afford it vacant
possession should have been
dismissed.
[15] On the other hand,
counsel for Landmark submitted that Landmark’s main cause of
action, which was upheld by the court
below, was breach of contract
in the form of failure by the Municipality to give it vacant
possession of the (leased) property
and that fault or knowledge of
culpability is not a requirement for its reliance on breach of
contract. It had, in any event, been
made clear at the pre-trial
conference, counsel continued, that knowledge was relied upon as part
of an alternative claim. The
‘alternative claim’ was
clearly a reference to the claim based on misrepresentation, which it
was unnecessary for the
court below to consider, in view of its
finding on the main cause of action, that is, breach of contract.
[16] The submission on
behalf of the Municipality that Landmark had knowledge of the land
claims was advanced on the strength of
the evidence of two witnesses,
namely Mabanga and Mtirara, who testified on behalf of the
Municipality. Mabanga testified that
in 2004, or early 2005, he
identified certain land of which the property formed part, as prime
land for development. After certain
investigations that he had
initiated it was discovered that the KwaLindile Community had an
interest in the land. Accompanied by
a companion, he negotiated with
the KwaLindile Community, who agreed to a proposed development in
exchange for a percentage of
income from it. However, when the
Municipality advertised the property in 2005 for development he
abandoned the KwaLindile Community
and approached Mtirara, who
informed him that his community, the AbaThembu, also had a claim over
the land concerned, but that
the Municipality was the title deed
holder. Mabanga invited Mtirara to join him in developing the land
with his (Mabanga’s)
friend, Mr Dennis Tobojane (Tobojane), a
developer who appears to have had an interest in Real Estate. After
the two had held several
meetings with Tobojane, where Markovitz was
also present, it was agreed that a consortium be formed. Markovitz
was then appointed
to take over from Tobojane and, subsequently,
Landmark was established. Thus, when Landmark came into existence
both Mabanga and
Mtirara, who each had a 22.5 per cent shareholding
in it,
5
knew of the KwaLindile and AbaThembu claims in respect of the subject
land. Mabanga testified that he did not know that a land
claim could
affect the
feasibility of the
development. He never informed Markovitz about it.
[17] Mtirara testified
that at the time the AbaThembu Community land claim was lodged, his
father, Chief Zondwa Mtirara, was still
alive. His father had signed
the claim form on behalf of the Community. He confirmed Mabanga’s
testimony on how they had
met and how Landmark was ultimately
established. He testified that he told Markovitz about the AbaThembu
land claim but not about
the KwaLindile one. He said he was not
concerned about the AbaThembu land claim because he knew that his
father would not be opposed
to the development since he (Mtirara) was
involved in it.
[18] I have summarised
the evidence of the two witnesses that I consider to be relevant to
the issue of knowledge of the land claims
over the subject land and
thus the property, because the further contention on behalf of the
Municipality was that the knowledge
of Mabanga and Mtirara should be
imputed to Landmark. This is because both were not only shareholders
in Landmark, but also directors,
so it was argued. However, I agree
with the court below that Landmark’s knowledge of the land
claims at the time the lease
agreement was concluded, if the
knowledge of Mabanga and Mtirara could legitimately be imputed to
Landmark, is irrelevant in the
adjudication of Landmark’s claim
that the Municipality committed a breach of contract. It would have
been relevant in the
claim based on misrepresentation. This was
indeed clear to counsel for the Municipality, who, with reference to
the decision in
Stellenbosch Municipality v Lindenburg
(1860)
3 SC 345
at 349, contended in their heads of argument that a person
who knew the truth all along ‘cannot claim to have been induced
by another’s misrepresentation’. So much on the issue of
Landmark’s knowledge of the land claims.
[19] Similarly, the
Municipality’s knowledge of the land claims is irrelevant for
purposes of considering the question whether
or not there has been a
breach of contract. This is because ‘fault is not a requirement
for a claim for damages based upon
a breach of
contract’.
6
Failure by the Municipality to inform Landmark of the land claims at
the time of the conclusion of the lease agreement, if the
Municipality did have knowledge of land claims, at the time, is,
therefore, also irrelevant in the adjudication of Landmark’s
claim based on a breach of contract.
[20] As has been
intimated above, the Municipality’s defence to Landmark’s
claim based on a breach of contract was that
it became impossible for
it to give vacant possession of the property to Landmark, due to the
gazetting of the KwaLindile Community
land claim and the
commissioner’s steadfast threat of an interdict to the
development of the property in the event of it
continuing. The
defence is, therefore, one of supervening impossibility of
performance. In its replication Landmark pleaded, inter
alia, that in
the event of a finding that Landmark was aware of a relevant land
claim or land claims, the Municipality is estopped
from relying on
such knowledge, because (a) the Municipality intentionally,
alternatively negligently, represented that such claim
or claims as
had been made would not constitute a hindrance to the development,
and (b) Landmark acted on the correctness of those
facts as
represented. It was pleaded further that the publication of the
KwaLindile Community land claim and the subsequent interim
interdict
– both of which had rendered the development unlawful –
were in the contemplation of the Municipality and/or
that the
Municipality foresaw those factors, alternatively, it would have
foreseen them had it exercised reasonable care. Finally,
it was
pleaded that the publication of the land claim and the interim
interdict ‘were brought about by the fault of the Municipality
in that it deliberately alternatively negligently failed . . . , as
required by section 41(3) of the Constitution, to make every
reasonable effort and exhaust all remedies to settle its dispute with
the [commissioner] in regard to the land claims over the
subject
land’.
[21] That the
Municipality failed to give Landmark vacant possession of the
property so as to enable it to lawfully complete the
development is
not in dispute. The questions for consideration, therefore, are
whether it was impossible for the Municipality to
give Landmark
vacant possession of the property and whether Landmark made out the
case advanced in its replication in answer to
the plea of
impossibility.
7
I am not certain that there is any basis for the allegation in
Landmark’s replication that the publication of the KwaLindile
land claim was brought about by the fault of the Municipality. The
commissioner was obliged, once she was satisfied that the land
claim
complied with the provisions of s 11(1)
8
of the Act, to publish it in the
Gazette.
But, in the view I
take of the matter, it is unnecessary to discuss this issue any
further.
[22] As I have mentioned
above, the Municipality relied, as a basis for the defence of
impossibility of performance, on the gazetting
of the KwaLindile
Community land claim – which has as its consequence the
prohibition of, inter alia, any development of
the land concerned
without one month’s written notice having been given to the
commissioner of an intention to do so –
and the commissioner’s
steadfast threat to interdict any development of the property (s
11(7) of the Act). In this court,
however, counsel for the
Municipality submitted that the supervening impossibility set in when
the Land Claims Court granted the
interim interdict on 2 October
2007. If the granting of the interim interdict could be said to have
made it impossible for the
Municipality to give vacant possession,
then this submission, in my view, would seem to be correct. This is
so because all that
was required after the publication – if a
publication of a land claim also affects a development that had
already commenced
on the land concerned at the time of publication,
something that was not raised or argued before us – was for the
Municipality
to give one month’s written notice to the
commissioner of its intention to continue with the development. But
with the threat
from the commissioner to interdict the operations on
the property, Landmark could not take the risk of continuing with the
development
and to incur further expenses in the process. Indeed, by
letter dated 4 September 2007, Real Estate advised the Municipality
that
the existence of the land claims ‘and the associated
litigation’ was inhibiting Landmark from exercising its rights
and fulfilling its obligations in terms of the lease agreement. And
in a letter dated 1 October 2007, addressed to the Municipality’s
municipal manager, Real Estate proposed that the Municipality
‘provide Landmark
Mthatha with an indemnity
relating to the consequences of the land claim. . .’. There was
no reply to the proposal. Instead,
in responding to an earlier letter
from Landmark, the Municipality’s attitude was revealed in a
letter from its attorneys
dated 5 October 2007, in which it was
stated, inter alia, that the gazetting of the KwaLindile Community
land claim ‘did
not in itself impede the development’. In
my view, Landmark was deprived of vacant possession of the property
after the gazetting
of the KwaLindile Community land claim on 25 May
2007. Section 11(7) of the Act makes it clear that development on
land, that is
the subject of a claim, is prohibited once a notice of
the claim has been published in the
Gazette
.
[23] Proceeding, then, on
the basis that the submission that the supervening impossibility –
relied upon as a defence –
set in when the interim interdict
was granted is correct, it seems to me that the cause of the
impossibility (a court order interdicting
the development) would be
vis major
.
9
Landmark was bound to comply with it and not to continue with the
development.
10
The court below rejected the Municipality’s defence of
supervening impossibility, reasoning, among other things, that it
(the Municipality) had been aware of the land claims (prior to the
conclusion of the lease agreement) and ‘could or should
have
clarified the situation irrespective of whether [it] believed the
claims to be valid or not . . .’; that it could have
brought a
s 34
11
application prior to developing the property; that if indeed there
was a supervening impossibility it had been created by the
Municipality’s own conduct; and that in any event, the
interdict ‘was not an absolute legal impediment but rather
precluded
development pending negotiations and was for a limited
period of time’.
[24] In
MV
Snow Crystal: Transnet Ltd t/a National Ports
Authority v Owner of MV Snow Crystal
[2008] ZASCA 27
;
2008 (4)
SA 111
(SCA) Scott JA said the following (para 28):
‘
(
A)s
a general rule impossibility of performance brought about by
vis
major
or
casus
fortuitus
will
excuse performance of a contract. But it will not always do so. In
each case it is necessary to “look to the nature of
the
contract, the relation of the parties, the circumstances of the case,
and the nature of the impossibility invoked by the defendant,
to see
whether the general rule ought, in the particular circumstances of
the case, to be applied”. The rule will not avail
a defendant
if the impossibility is self-created; nor will it avail the defendant
if the impossibility is due to his or her fault.
Save possibly in
circumstances where a plaintiff seeks specific performance, the onus
of proving the impossibility will lie upon
the defendant
.’
12
(Footnotes
omitted.)
Landmark’s main
argument in this court was that the Municipality had assumed the risk
of supervening impossibility by accepting
the terms of the lease
agreement, which did not limit its obligation to afford it (Landmark)
vacant possession of the property.
An alternative submission was that
the development of the property was not impossible and ‘certainly
not permanently impossible’
and that vacant possession was
possible, albeit sometimes temporarily subject to action by the
Municipality, which it failed or
refused to perform. Both these
submissions (main and alternative) are grounded on what was pleaded
in the replication (as set out
in para 20 above).
[25] As has been
mentioned above, the life of the interim interdict granted by the
Land Claims Court on 2 October 2007 depended
on ‘the
finalisation of serious and consultative negotiations with all
parties concerned’, but the finalisation of
the negotiations
was to occur before 30 November 2007. However, the parties seem to
accept that the interdict lapsed on 21 January
2008. Paragraph A(ii)
of the order of the Land Claims Court is in the following terms:
‘
In
the event of the negotiations . . . reaching an impasse, on or before
30 November 2007, the [Municipality] is granted leave,
if so advised,
to make application in terms of section 34 of [the Act] as amended
.’
An impasse was indeed
reached, but the Municipality did not make application, in terms of s
34, as advised, until September 2008.
It was, however, contended on
its behalf that no culpability or fault can be imputed to it and that
the court below erred in finding
that the
supervening impossibility
was brought about by its conduct of failing to, inter alia, notify
the commissioner of its intention to
develop the property and to
launch s 34 proceedings timeously. It was argued further that apart
from the interdict ‘which
endured for a few months, no court
order prohibited the development’.
[26] Since
counsel for the Municipality conceded in this court that the
impossibility set in only when the interim interdict was
granted, the
question of the failure to notify the commissioner of the intention
to develop the property will be ignored. In any
event, the effect of
the failure has already been dealt with above. As to the contention
that no court order prevented the development
after the interdict had
lapsed, this plainly contradicts the Municipality’s plea that
in the light of the commissioner’s
steadfast threat that she
will interdict any development on the subject land it had become
impossible for it to afford Landmark
vacant possession of the
property. As I have mentioned above, on 10 December 2007 and while
the interim interdict was still operative
and negotiations taking
place, the Municipality’s municipal manager wrote a letter to
the commissioner giving notice, in
terms of s 11(7)
(a
A
)
of the Act, of its intention to continue with the
development. In her letter dated 2 June 2008 the commissioner
responded, inter
alia, that she was inclined to refer the KwaLindile
Community land claim to the Land Claims Court and that once that was
done ‘it
would be appropriate to resolve the claims by ordering
that the leases be set aside’. The words ‘by ordering’
were clearly intended to convey that she would seek an order setting
aside the lease (in Landmark’s case). (There were other
lease
and development agreements involving other parts of the subject
land.) The last paragraph of the letter bears repeating:
‘
In
those circumstances this office cannot countenance the present
proposed developments continuing and I advise that if that happens,
then this office will consider acting in terms of section 6(3) of the
Act
.’
13
During the trial the
commissioner, Ms Linda Faleni, confirmed her stance and testified, on
2 November 2010, that should the development
continue ‘[w]e
will adopt the same attitude’, that is, she would apply for an
interdict. Landmark was thus in the same
position after the lapse of
the interim interdict as it was after the publication of the
KwaLindile Community land claim; it could
not take possession of the
property and continue with the development in the face of a threat of
yet another interdict.
[27] I agree with counsel
for Landmark that the impossibility of performance raised by the
Municipality as a defence was not permanent.
It was dependent on the
latter taking, or failing to take, action. There is no explanation
why no notice was given to the commissioner
by the Municipality after
the KwaLindile Community land claim was published on 25 May 2007. It
is true that the Municipality disputed
the description of the claimed
land in the publication, but the commissioner had by then made it
quite clear that property on which
the development was taking place
was the subject of land claims. There is also no explanation why the
Municipality failed to act
upon the advice of the Land Claims Court
and invoke the provisions of s 34 of the Act immediately after the
negotiations the court
had ordered had been aborted in January 2008,
and why it did so only in September 2008, when Landmark had already
served its third
party notice at least on the second and third third
parties in February 2008. The s 34 application was granted by the
Land Claims
Court on 14 December 2010, albeit with certain
conditions, which were set aside on appeal to this court. The
granting of the application
indicates that had the Municipality taken
that course timeously the impossibility would have been removed. In
my view, the Municipality’s
argument that the court below erred
in finding that the supervening impossibility was brought about by
its own conduct (fault)
cannot be sustained.
[28] It will have become
clear by now that in considering the question whether the
impossibility was due to the Municipality’s
fault, the issue of
Landmark’s, or even the Municipality’s, knowledge of the
land claims does not feature at all. It
would have if the question of
the assumption of risk by either Landmark or the Municipality had to
be considered. That has become
unnecessary in view of the finding
that the impossibility was self-created. It follows that the general
rule that impossibility
of performance brought about by
vis major
or
casus fortuitous
will excuse performance of a contract does
not avail the Municipality in this case. The appeal against the
finding of the court
below relating to the defence of supervening
impossibility must accordingly fail.
[29] As counsel for the
Municipality put it in their heads of argument, the principal finding
of the court below which remains contentious
between the parties
relates to two issues, viz (a) the yield or capitalisation rate used
to calculate the value of a development
on being sold and (b) the
interest levied on the bridging finance.
(a)
Capitalisation
rate
[30] I have set out above
(para 13) the amounts awarded by the court below as damages under
separate heads. The sum of R105 739 795
was awarded for
loss of profit while the rest, except the amount of R11 260 148.85,
was in respect of wasted costs. Before
us counsel for the
Municipality advanced no argument on the question of the wasted
costs, this because, said counsel, the Municipality’s
expert
witness, Professor Raymond Nkado, had accepted the whole amount. For
calculating the quantum of damages for loss of profit
the resale
value of the asset that is the result of the development – in
this case a shopping centre – must be determined,
from which
the cost of the development has to be subtracted. The difference
constitutes the loss of profit. The resale value is
determined by
applying a capitalisation rate; the lower the rate, the higher the
resale value. The reverse is also true. The evidence
revealed that a
change in the rate, even by a small fraction, either way, could
result in a significant jump or dip in the resale
value.
[31] Two experts
testified on behalf of Landmark, namely Mr Robert Terry, a consultant
to Landmark and Professor Pieter Botha. Professor
Nkado testified on
behalf of the Municipality. It is common cause that in their separate
reports the three experts initially used
different capitalisation
rates to calculate Landmark’s loss of profit, but after robust
debate at a meeting held on 28 October
2010 they agreed on a
capitalisation rate of 8.1per cent. However, during his testimony
Professor Nkado sought to renege on the
agreement and reverted to his
initial figure of 9 per cent as a reasonable capitalisation rate
estimate.
14
This change of stance was brought about by the late discovery by
Landmark of certain documents, one of which being a letter written
by
Markovitz to ABSA, in which he motivated for an increase in funding
for the development. In an annexure to the letter Markovitz
gave a
‘projected sale yield’ of 8.5 per cent in respect of the
development. Professor Nkado testified that had he
seen the rate of
yield (capitalisation rate) applied by Markovitz at the time he
(Nkado) and the two other experts were negotiating
around that issue,
he ‘would have been firmer on [his] lower yield expectation’,
which was 9 per cent. He was referred,
in cross-examination, to
certain reports that dealt with capitalisation rates for shopping
centres, one fixing the rate for the
East London area at 8.1 per
cent, while the other fixed a rate for the Eastern Cape in 2007 at
7.3 per cent. But the only basis
he gave for deviating from the
previously agreed rate of 8.1 per cent was the fixing, by Markovitz,
of a rate of 8.5 per cent in
his letter to ABSA.
[32] In refusing to
deviate from the agreed capitalisation rate of 8.1 per cent the court
below held that Markovitz was not an expert
on the issue and
accordingly that there was no basis for deviating from the agreed
rate. Counsel for the Municipality, though,
submitted that
Markovitz’s estimate of 8.5 per cent could not have been a
‘thumb-suck’; that he ‘is by
no means a novice . .
. in the business of land development’ and that therefore one
‘cannot make light of the 8.5 per
cent reflected in the
annexure to his letter’. Counsel submitted further that on the
assumption that Markovitz had not himself
decided on the 8.5 per cent
rate the inference is inescapable that it came from some other person
with the necessary expertise,
or, alternatively, that even though
Markovitz was not called as an expert, with his ‘vast
experience in the property development
industry, he is most
definitely an expert in it’ and the rate he had fixed might
well have been one that was well considered
by him.
[33] I am not persuaded
that the court below erred in refusing to deviate from the 8.1 per
cent capitalisation rate agreed upon
by the three experts. It is true
that Professor Nkado testified that a developer would ordinarily try
to impress the financier
from which he or she seeks funding for a
development that the project is highly profitable, but in doing so he
or she would, so
as to maintain credibility with the financier, make
a reasonable guess in respect of the capitalisation rate. The
implication then
is that the 8.5 per cent rate fixed by Markovitz
would have been a reasonable rate. In my view, it would be pure
speculation to
try to find a reason why Markovitz used the rate which
he did when he sought additional funding from ABSA. Markovitz was
recalled
for purposes of further cross-examination after the
documents, of which the letter to ABSA formed part, were discovered,
but he
was not questioned on his suggested capitalisation rate. The
Municipality cannot now seek support from an unexplained suggested
capitalisation rate fixed by Markowitz in its attempt to justify a
departure from the rate upon which all three experts had previously
agreed. I can find no reason to disagree with the conclusion of the
court below on this aspect of the case.
(b)
Interest on
bridging finance
[34] It is
not in dispute that around June 2007, when Landmark could not make
payment on Bulk Earthworks’ certificates because
its financier
did not release the necessary funds, Markovitz sought, and obtained,
on its behalf, bridging finance in the form
of a short term loan in
the sum of R8 million, at a rate of interest of 15 per cent per
month. At this rate, and limited by the
in
duplum
rule, Landmark’s
experts calculated the interest payable on the loan, at the time of
their meeting with Professor Nkado on
28 October 2010, at R8 150 000
– one of the amounts claimed in the third party notice as part
of ‘termination
damages’ – which the court below
ordered the Municipality to pay to Landmark. Professor Nkado’s
testimony, on
the other hand, was that the rate of 15 per cent per
month was excessive. He contended for a rate of 15 per cent per
annum. It
was not argued in this court that the interest rate levied
on the bridging finance was usurious or against public policy. This
is understandable because it has not been suggested that there is a
standard rate of interest beyond which a transaction becomes
usurious.
15
As I understand the position at this stage, the issue is
not whether or not the Municipality is liable for the interest levied
on
the bridging finance and paid by Landmark, but rather one of
limitation of liability. The question for consideration is whether
a
rate of 15 per cent per month was reasonable. It was submitted, on
behalf of the Municipality, that there was no evidence whatsoever
touching on the reasonableness of the rate; that Landmark appeared to
have accepted ‘the very first rate that came their
way and that
absent any evidence that the
market was tested or that
testing it would have been prejudicial, Landmark ‘has failed to
prove the reasonableness of the
rate it is claiming’. In my
view, there are at least two reasons why the Municipality must fail
on this ground as well.
[35] The first: Professor
Nkado accepted that short term loans usually attract a different rate
of interest. He conceded in cross-examination
that the blow of the 15
per cent per month rate of interest would be softened because
interest only runs until it equals the capital
amount (in terms of
the
in duplum
rule). And calculated at his suggested interest
rate of 15 per cent per annum
duplum
would be reached in this
case, he said, ‘in another two years or so’ and he agreed
with a suggestion put to him that
with compound interest
duplum
would be reached in approximately five years. Considering that the
bridging finance was obtained in June 2007,
duplum
would have
been reached by the time this appeal was argued. The question of the
reasonableness of the rate levied on the bridging
finance has thus
become moot.
[36] The second reason
relates to the submission advanced on behalf of the Municipality that
Landmark did not place any evidence
before the court below to show
that it had tested the market and therefore that it had failed to
prove the reasonableness of the
rate of interest claimed. In
Everett
& another v Marian Heights (Pty) Ltd
1970 (1) SA 198
(C), a
case in which one of the issues was mitigation of damages, Corbett J
had this to say (at 201G):
‘
Generally,
the burden of proof rests upon the party who asserts that a claimant
for damages failed to take reasonable steps to mitigate
his loss
(
Hazis
v Transvaal and Delagoa Bay Investment Co. Ltd.
1939
A.D. 372).
Similarly, in my view, the
onus
of
proof would also rest upon the party who asserts that the mode of
mitigation employed by the claimant was not a reasonable one
in that
in an alternative mode, less expensive or burdensome, was available
(cf.
Shrog
v. Valentine,
1949
(3) S.A. 1228
(T) at p. 1237). In this regard the Court should not be
too astute to hold that this
onus
has
been discharged
.’
16
I can find no reason why
the same principle should not apply in a case such as the present. It
was not in dispute that Landmark
obtained a bridging loan for which
it was
liable to pay interest.
The amount of the interest formed part of the damages claimed in the
third party notice. It was thereafter
for the Municipality to allege
and prove the unreasonableness of the rate of the interest payable in
that there were alternative
places where bridging finance, at a lower
rate of interest, was available. This the Municipality did not do.
[37] I turn
to consider the cross-appeal. It relates only to the date on which
interest on the amount of R130 521 053
awarded to Landmark
as ‘termination damages’ commences to run. The court
below ordered that interest shall be paid
‘at the rate of 15.5
per cent per annum from 16
th
January 2012 to date of payment’. It was contended
on behalf of Landmark that there was no reason for the court below to
deviate
from the provisions of s 2A(2)
(a)
of the Interest Act and that interest should have been
ordered to run from the date of service of the third party notice on
the
Municipality. The section reads:
‘
Subject
to any other agreement between the parties and the provisions of the
National Credit Act, 2005 (Act 34 of 2005) the interest
contemplated
in subsection (1) shall run from the date on which payment of the
debt is claimed by the service on the debtor of
a demand or summons,
whichever date is the earlier
.’
Insofar as it may be
relevant, s 2A(1) decrees that the amount of every unliquidated debt
as determined by a court of law shall
bear interest.
[38] The court below gave
no reasons why it deviated from the provisions of the Interest Act
and counsel for the Municipality could
suggest none. True, a court
has a discretion, in
terms of s
2A(5),
17
to fix a date from which interest shall run as appears
to it to be just. But one would expect some motivation, discernable
from
the court’s judgment, for the deviation from the principle
enunciated by Solomon JA in
West Rand Estates
Ltd v New Zealand Insurance Co Ltd
1926 AD
173
at 183 that –
‘
There
is no satisfactory reason for following any other practice, and we
think that we should now definitively lay down the rule
that
mora
begins
[to run] from the date of receipt of the letter of demand. It of
course follows that, where there has been no letter of demand,
there
would be no
mora
until
summons has been served on the defendant
.’
18
Counsel for Landmark
urged us to amend the order of the court below by changing the date
from which interest is to run to 8 February
2008, alternatively to 31
March 2009. The former was the date on which the third party notice
was served on the Municipality, and
the latter is the probable date
on which Landmark would have received the proceeds from the sale of
the shopping centre. There
was no real opposition from the
Municipality’s team. However, because it is not clear from the
third party notice on what
date it was served on the Municipality,
counsel were invited to confirm in writing that service was indeed
effected on 8 February
2008. This they were unable to do, but counsel
for Landmarks submitted that the date on which the Municipality
lodged its appearance
to defend should be fixed as the date from
which the interest shall run. I agree.
[39] There remains the
question of costs. Counsel for Landmark submitted that for the reason
that the Municipality had been patently
remiss in its handling of the
matter throughout, we should order that costs be paid on the scale as
between attorney and client.
Although an order for costs on that
scale, alternatively on the basis that the employment of senior
counsel was warranted, was
sought in the third party notice, the
court below did not make such a costs award. I am also not at all
disposed to granting costs
on the scale as between attorney and
client.
[40] In the result I make
the following order:
1 The appeal is dismissed
with costs.
2 The cross-appeal
succeeds with costs.
3 Para (h) of the order
of the court below is amended to read:
‘
The
Municipality is directed to pay the First Defendant interest on the
aforesaid sum at the rate of 15.5 per cent per annum from
5 March
2008 to date of payment.’
___________________
L Mpati
President
APPEARANCES:
For
the Appellant:
S M Mbenenge SC (with him A
M da Silva)
Instructed by:
Dayimani Sakhela Inc,
Mthatha
Eugene Attorneys,
Bloemfontein
For the First Respondent:
J P Coetzee SC
Instructed by:
Hugo Cole Inc,
Johannesburg
Symington & De Kok,
Bloemfontein
For the Second
Respondent: G Friedman
Instructed by:
Friedman Scheckter, Port
Elizabeth
Matsepes, Bloemfontein
1
Section
2(1)
of the
Restitution of Land Rights Act 22 of 1994
provides:
‘
A
person shall be entitled to restitution of a right in land if –
he or she is a person
dispossessed of a right in land after 19 June 1913 as a result of
past racially discriminatory laws or
practices; or
. . .
. . .
it is a community or
part of a community dispossessed of a right in land after 19 June
1913 as a result of past racially discriminatory
laws or practices;
and
. . . .’
2
The
second to fifth defendants were the only shareholders in Landmark,
which had been established for the purpose of the development
of the
property.
3
Section
11(1)
of the
Restitution of Land Rights Act stipulates
that:
‘
If
the regional land claims commissioner having jurisdiction is
satisfied that –
the claim has been
lodged in the prescribed manner;
. . .; and
the claim is not
frivolous or vexatious,
he or she shall cause
notice of the claim to be published in the
Gazette
and shall
take steps to make it known in the district in which the land in
question is situated.’
4
Section
6(3)
reads: ‘Where the regional land claims commissioner
having jurisdiction or an interested party has reason to believe
that
the sale, . . . lease, . . . rezoning or development of land
which may be the subject of any order of the Court, or in respect
of
which a person or community is entitled to claim restitution of a
right in land, will defeat the achievement of the objects
of this
Act, he or she may –
after a claim has been
lodged in respect of such land; and
after the owner of the
land has been notified of such claim and referred to the provisions
of this subsection,
on reasonable notice to
interested parties, apply to the Court for an interdict prohibiting
the sale, . . . lease, . . . rezoning
or development of the land,
and the Court may, subject to such terms and conditions and for such
period as it may determine,
grant such an interdict or make any
other order it deems fit.’
5
The
other shareholders, Landmark Real Estate and Ses’fikile
Investment Pioneers (Pty) Ltd held 45 per cent and 10 per cent
shares respectively.
6
Administrator,Natal
v Edouard
[1990] ZASCA 60
;
1990 (3) SA 581
(A) at 597E-F. See also
Scoin
Trading (Pty) Ltd v Bernstein NO
2011 (2) SA 118
(SCA) para 17.
7
See
Nuclear Fuels Corporation of SA (Pty) Ltd v Orda AG
1996 (4)
SA 1190
(A) at 1195F-G.
8
Above
fn 3.
9
Compare
Peters, Flamman and Co v Kokstad Municipality
1919 AD 427
at
435;
Bayley v Harwood
1954 (3) SA 498
(A) at 505G-H.
10
See
Weber-Stephen Products Co v Alrite Engineering (Pty) Ltd
[1992] ZASCA 2
;
1992
(2) SA 489
(A) at 498A-C.
11
Section
34(1) reads:
‘
Any
national, provincial or local government body may, in respect of
land which is owned by it or falls within its area of jurisdiction,
make application to the Court for an order that the land in question
or any rights in it shall not be restored to any claimant
or
prospective claimant.’
12
See
also the cases referred to there.
13
The
subsection is quoted in fn 4 above.
14
Mr
Terry and Professor Botha had pegged their estimates at 7.7 per cent
and 8.1 per cent respectively.
15
Compare
African Dawn Property Finance 2 (Pty) Ltd v Dreams Travel and
Tours CC & others
2011 (3) SA 511
(SCA) and
Reuter v
Yates
1904 TS 855
at 856, referred to in
African Dawn
.
16
See
also
SOAR h/a Rebuilds for Africa v J C Motors en ‘n ander
1992 (4) SA 127
(A) at 135A-D.
17
Section
2A(5) provides:
‘
Notwithstanding
the provisions of this Act but subject to any other law or an
agreement between the parties, a court of law .
. . may make such
order as appears just in respect of payment of interest on an
unliquidated debt, the rate at which interest
shall accrue and the
date from which interest shall run.’
18
See
also
Thoroughbred Breeders’ Association v Price Waterhouse
2001 (4) SA 551
(SCA) at 594H-595B.