About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Eastern Cape High Court, Port Elizabeth
SAFLII
>>
Databases
>>
South Africa: Eastern Cape High Court, Port Elizabeth
>>
2011
>>
[2011] ZAECPEHC 44
|
|
Cubana Latino Caffe CC v Gapwedge Properties 53 (Pty) Ltd (1628/2011) [2011] ZAECPEHC 44 (3 November 2011)
REPORTABLE
IN THE HIGH COURT OF SOUTH AFRICA
(EASTERN CAPE, PORT ELIZABETH)
Case No: 1628/2011
In the matter between:
CUBANA LATINO CAFFE CC
…......................................................................
Applicant
And
GAPWEDGE PROPERTIES 53 (PTY) LTD
….............................................
Respondent
Coram:
Chetty, J
Date Heard:
27 October 2011
Date Delivered:
3 November 2011
Summary:
Contract
–
Whether a clause in a
franchise agreement requiring the franchisee to conclude an agreement
of lease with the landlord of premises
a suspensive condition or a
term of the contract
Held
that
it was a term of the contract – Respondent consciously
refraining from advising applicant that lessor not the landlord
for
more than one year after gaining such knowledge – Respondent
estopped from contending that franchise agreement void ab
initio –
Applicant entitled to relief sought
________________________________________________________________
JUDGMENT
________________________________________________________________
Chetty, J
[1] In his authoritative treatise
1
,
the learned author, R.H. Christie, defines a contract in the modern
Roman Dutch Law of South Africa as
“
an
agreement (arising from either true or quasi-mutual assent) which is,
or is intended to be enforceable at law.”
Although the common cause facts attest
to the fact that in appending their signatures to the franchise
agreement the parties intended
such a result, the respondent, rather
disingenuously, seeks to resile from its contractual obligations on
the basis of non-fulfilment
of what it contends was a suspensive
condition. As a general proposition, the non-fulfilment of a
suspensive condition renders
a contract void
ab
initio
unless the parties
have agreed otherwise.
[2] The alleged suspensive condition
which the respondent contends rendered the contract void
ab
initio
is clause 17 of the
franchise agreement which, under the rubric
“
Agreement
of lease”
provides
as follows –
“
It
shall be a condition precedent to this franchise agreement that the
franchisee signs an agreement of lease with the landlord
of the
premises on terms and conditions that are acceptable to the
franchisor.”
[3] The immediate question which
arises is whether the clause constitutes a term of the contract or is
a true condition. The essential
difference, as pointed out by Botha
J
2
,
is that –
“
In
the case of a suspensive condition, the operation of the obligations
flowing from the contract is suspended, in whole or in part,
pending
the occurrence or non-occurrence of a particular specified event (cf.
Thiart v Kraukamp,
1967
(3) SA 219 (T)
at
p. 225
).
A term of the contract, on the other hand, imposes a contractual
obligation on a party to act, or to refrain from acting, in
a
particular manner. A contractual obligation flowing from a term of
the contract can be enforced, but no action will lie to compel
the
performance of a condition (Scott and Another v Poupard and Another,
1971
(2) SA 373
(AD)
at
p. 378
in
fin.).”
[4] There can be no doubt that Clause
17 constitutes a term of the franchise agreement. It did not suspend
either parties obligations
flowing from the contract pending the
happening or failure of some uncertain future event. It merely
required that an agreement
of lease be concluded prior to the parties
signing the franchise agreement. That was in fact done. The seed of
destruction of the
respondent’s case arises from its own
rendition of the factual matrix which gave rise to this litigation
but before dealing
therewith, a brief historical overview of the
premises.
[5] The MacArthur Pool and Leisure
Centre (the complex) is a landmark on the Port Elizabeth beachfront.
It evolved from its earlier
manifestation as the MacArthur Swimming
Baths, to its current locale in vogue on the beachfront. In October
2002 the Nelson Mandela
Metropolitan Municipality (
NMMM
)
and Clink Properties (Pty) Ltd (Clink), also known as Bel Essex,
concluded a management agreement in terms of which Clink was
appointed to manage the entire complex and, in consideration, be
entitled to receive all revenues generated from various entities
which leased the shops in the complex.
[6] During the currency of their
management of the complex, the existing lessee of the premises left
for reasons not germane to
this judgment. Actuated no doubt by the
allure of its locality and the potential for business the respondent
entered into negotiations
with the applicant to establish and operate
a social cafe under the well known name and style of Cubana Latino
Caffe (Cubana).
On 12 January 2010, Mr
Ben
Hilarius Nyaumwe
(
Nyaumwe
),
a director of the respondent, who had represented it from the outset
in the business negotiations sent an e-mail
3
to the applicant’s
representative, Mr
John
Hatzipolychronis
(
Yanni
),
of relevance, the first two paragraphs which reads –
“
Hie
(sic) Yanni
I hope you had a good
break and are well rested for the new year. I am very excited about
our new project. I spoke to a couple of
people whilst in CT recently
and there is such a strong positive sentiment about a Cubana PE at
the our proposed site. Since returning
to office yesterday i have
prepared a proposal
for
our landlord
.
He asked that we articulate what we want to do in a document.
Bel
Essex our landlord is one of the largest Industrial corporations in
South Africa
.
They operate and run the McArthur pool baths on behalf of the
municipality as a service to the city.
We
will sublease the premises
from
them. I have confirmed to their CEO and founder Mr Chris Steenkamp
and his Financial Director Peter Merrington that we are
proceeding
with the lease and in turn they wanted us to document what
establishment we want to develop. They would want to ensure
that it
is a high end classy operation that we want to develop and that is
the purpose of the request. I will meet with Chris and
Peter this
week to do a short presentation and finalise further lease details.
In the interim I have
passed on the franchise agreement to Michael White who is my lawyer.
He is busy reviewing and I am doing the
same. Can we meet next week
to discuss the franchise agreement and try and conclude the
essentials of the document. There are a
couple of worrying items i
picked up when i had cursory look through it.”
(emphasis
supplied)
[7] The lease contemplated in
paragraph 1 of the e-mail finds expression in the franchise agreement
postulated in paragraph 2 of
the aforementioned e-mail, the self same
clause 17, the buttress upon which the entire edifice of the
respondent’s case is
predicated. As a precursor to signature of
the franchise agreement, the applicant attorneys,
inter
alia
, sought production of
the management agreement and the lease agreement from the
respondent’s then attorney, Mr
White
.
It is not disputed that only the lease agreement was furnished to the
applicant’s attorneys, the management agreement, rather
conveniently withheld
4
.
[8] The condition precedent thus
having been fulfilled, the franchise agreement was signed by the
applicant and respondent on 14
and 13 May 2010 respectively.
Unbeknown to the applicant, however, the respondent, shortly after
signature of the franchise agreement,
came into possession of the
management agreement. By
Nyaumwe
’
s
own admission, a cursory reading
thereof indicated that the lease agreement was invalid in as much as
“
the lease
agreement between the respondent and Clink Properties (Pty) Ltd was
concluded with the incorrect entity . . .”
Galvanised into action,
Nyaumwe
addressed a letter
5
to the
NMMM
.
It is unfortunately necessary, given the vital importance of the
letter, to reproduce it in full for a number of reasons.
Firstly
,
to show that in contradistinction to various e-mails penned by
Nyaumwe
it,
syntactically, attests to the receipt of legal advice.
Secondly
,
to demonstrate the intent, presaged in the e-mail
6
to the applicant on 25 January 2010 of
Auspex
7
becoming a partner of Bel Essex and
thus to be a
“
the
landlord and a tenant at the same time”
and
thirdly
,
to show that shortly after signing the franchise agreement and long
before Cubana being opened for business,
Nyaumwe
was fully aware that the lease
agreement was invalid and a nullity.
[9] It reads as follows –
“
The
Executive Director
Mr Rio Nolutshungu
Corporate Services and
Administration
Nelson Mandela
Metropolitan Municipality
12
th
Floor,
Room 1203
Lilian Diedericks Building
18 May 2010
Ref:The Mc Arthur Baths
Management Contract Proposal Auspex Property
Dear Mr Nolutshungu
Following our presentation
to the Mayoral Committee Meeting on the 5
th
May 2010 we
would like to follow up on the proposal and bring additional
information to your attention, for your appropriate action
and
follow-up as the custodian department of the municipality responsible
for management and operation of the physical assets at
Mc Arthur.
It is important to note
that these issues have only just come to our attention and were not
raised at the presentation as we did
not have sight of the agreements
which we now have in our possession. The matters relate to the
conduct of Bell Essex through its
subsidiary Clinck Properties and
the serious breach of contract they have committed and general abuse
of their authority as contracted
operator of the Municipality
Property Mc Arthur Baths. We state as follows.
Bel Essex has concluded a
lease with Auspex subsidiary Gapwedge properties.
We however have
established and have legal opinion that Bel Essex does not have the
legal right or power to do so in terms of
their agreement with the
Nelson Mandela Metro in terms of their operators agreement
management contract, copy which is attached.
Bel Essex can only
nominate a lease to the municipality the property owner. The actual
lease must be entered into between Leasee
and the Nelson Mandela
Municipality even though the contract allows for rental income to be
payable to Bel Essex.
This is in breach of clause 13.1 and
grounds for cancellation of contract by the Municipality.
Clause 13.1
“
The
operator shall be entitled to nominate a leasee in respect of the
premises or any portion thereof, .................................
provided the proposed lease is on commercial arms length terms, will
be concluded between the NM3 and the nominated lease;....”
It is our assertion that
Bel Essex has acted in breach of the provision of 12.3 and 13.3. It
was unbeknown to us that Bel Essex
did not seek permission from the
Municipality prior to giving us occupation or approval for us as a
tenant. A request was made
to Bel Essex by a municipal official on
the day we presented to Council to provide a motivation as why
Auspex had been given
occupation and chosen as tenant.
Bel Essex has refused
Auspex access to or sight of the current management agreement with
the Municipality and it is now understandable
why. This agreement
was handed to us by the Portfolio Chairman for Economic Development
& Tourism to review following our
presentation to Council.
Bel Essex has failed to
draw up a JV agreement with Auspex and instead have advised Auspex
that they want a very loose informal
agreement. This is contrary and
misleading in terms of what was tabled with the Municipality in
their own application for contract
extension. This is tantamount to
an act of breach in terms of the provisions of good faith and
conduct as per the management
agreement.
Bel Essex have failed to
assist Auspex with necessary approvals from the city and other
authorities but instead have acted like
an approving authority often
making requests beyond that required by the competent and
responsible authorities. This has been
a breach of contract with the
City in terms of clause 12.3 where they are bound to act in a way
that promotes the City’s
vision for promotion of Tourism and
Investment in the City.
Bel Essex has failed and
refused to provide a set of accounts for the operation and running
of Mc Arthur Complex to Auspex their
purported JV partner. This
constitutes an act of bad faith by Bel Essex and a total disregard
to us and a condescending attitude
which does not bode well for
working in partnership.
No undertakings or firm
date has been given for the so called proposed renovations and
proposed maintenance activities to the
Mc Arthur facility. With the
world cup only a few weeks away we fear we could open our new
restaurant to currently unsightly
pools and facilities.
Bel Essex have failed to
market and promote the Facilities as required of a landlord and in
terms of their agreement with the
city. This has resulted in the low
foot traffic coming to the facility. This is a clear lack of
performance of obligations of
the operator as setout and required by
the management agreement.
Auspex under these
circumstances reaffirms its decision to make its own independent
application to operate, manage and market the
Facilities on behalf of
the City at its own cost without any further participation or
involvement of Bel Essex. We call upon the
City to enter into the
lease with Auspex subsidiary Gapwedge Properties as per the
conditions of the management contract without
further delay as per
13.2.
Clause13.2
If the lease (proposed) is
on commercial terms and contains no unusual or onerous clauses, NM3
shall enter into the lease without
unreasonable delay.
We further call upon the
Municipality to cancel the management agreement with Bel Essex as per
remedies available to it in terms
of Clause 20 and its provisions
without delay and to enter into a new Management contract with Auspex
Property.
In closing we remind the
Council that Auspex is a significant investor in Tourism facilities
in the city. Auspex has made a further
investment of R6million into
the Mc Arthur facility at risk and will bear the largest rental
burden of all tenants contributing
approximately 80% of the estimated
running costs of the facility. We reiterate that Mc Arthur should
fall under The Radisson management
with 142 strong local staff
supported by an extensive international network and staff. This team
is in a much better position to
promote and properly market Mc Arthur
going forward. There would be hope that the original vision of Mc
Arthur as a major tourist
draw card for the City could finally be
realized. Bel Essex can add no value to this process apart from
maintenance of the pools.
The maintenance team of the Hotel would be
extended by taking on all staff currently employed to maintain and
Operate Mc Arthur.
Our new restaurant at Mc
Arthur Cubana Port Elizabeth will create 60 new permanent jobs in the
Metro when fully operational. Auspex
is a 100% wholly black owner and
managed company that is a proud corporate citizen of Port Elizabeth.
We trust that the City will
act expediently in concluding a legal,
binding and valid lease agreement with our subsidiary company
Gapwedge Properties.
We thank you for your
support and assistance thus far and look forward to working with the
City to grow and promote tourism in our
city and create a better life
for all.
Yours Sincerely
Ben Nyaumwe
Managing Director
Attachments:
Management Agreement
Between Clinck Properties & Nelson Mandela Bay Municipality
Lease Agreement between
Gapwedge and Clinck Properties.
Copy: Mr Elias Ntoba
Acting Municipal Manager Nelson Mandela Municipality.”
(emphasis supplied)
[10] It is not in issue that at no
stage was the applicant appraised of the invalidity of the lease
agreement. The first inkling
it had to the contrary was on receipt of
the respondent’s then attorneys’ letter advising it of
the invalidity of the
lease agreement one year later, during May
2011.
[11] During argument I enquired from
Mr
Buchanan
whether the respondent at any stage
informed the applicant of the true state of affairs. The riposte was
that there was nothing
to have precluded the applicant from itself
obtaining a copy of the management agreement where all would have
been revealed. The
response typifies
Nyaumwe’s
disingenuity. The plethora of
documentary evidence demonstrates that the applicant had no reason to
doubt that the negotiations
were not being conducted in good faith.
There was accordingly no need to investigate and seek corroboration
that the lease agreement
had in fact been concluded with the correct
party.
Nyaumwe
had identified Clink as the
“
landlord”
prior to both the lease agreement and
franchise agreement being signed.
[12] The true reason for the
respondent seeking to resile from the franchise agreement is not
difficult to fathom - it no longer
wished to be burdened with the
obligation to pay the royalty stipulated in clause 4.3 of the
agreement. The suggestion
8
made by
Nyaumwe
that it was motivated by the decline
in the profitability of the business due to the applicant’s
poor operating systems is
contrived as the e-mail
9
to the
NMMM
on 7 October 2010 establishes. Therein
he,
inter alia
,
waxed lyrically about the success of the business hitherto and its
profitability for the foreseeable future.
[13] The extent of the respondent’s
duplicity is furthermore evidenced by its conduct post May 2010.
Again, unbeknown to the
applicant, it furtively endeavoured to itself
conclude a lease agreement with the
NMMM
.
It finally did so on 6 May 2011,
Nyaumwe
himself signing on behalf of the
respondent. One of its terms was the retrospective operation of the
lease to 1 May 2010. It is
astonishing, to say the least, that when
the respondent’s attorney notified the applicant on 19 May 2011
of the respondent’s
decision to resile from the agreement, that
the existence of the new lease was suppressed.
[14] It is against this background
that the question whether the alleged non-fulfilment of the so-called
suspensive condition must
be determined. In my judgment it would be
inimical to the very foundation of our jurisprudence to uphold the
respondent’s
contention. The
“
defence”
raised must fail on a number of
reasons. In the first place the respondent is estopped from doing so.
This is a classic case of
estoppel. Prior to the doors of the
premises being opened for business, the respondent deliberately, with
full knowledge of the
invalidity of the lease agreement and far more
than a year, during which he conducted a highly successful business
under the Cubana
brand, withheld such information from the applicant.
By its unconscionable conduct it inveigled the applicant into
believing that
the lease agreement was valid. Secondly, in treating
clause 17 of the franchise agreement as having been fulfilled and
regarding
the lease as having been validly concluded, the parties
tacitly agreed to treat both the lease and franchise agreements as
valid
despite their invalidity. Mr
Van
Riet
correctly submitted
that the test for a tacit relocation agreement is an objective one
and that it is immaterial that one of the
parties might not have
realised that the contracts were invalid, or had lapsed. As pointed
out by Harms J.A., in
Golden
Fried Chicken (Pty) Ltd v Siraad Fast Foods CC and Others
10
“
. . . in
determining whether a tacit contract was concluded a court has regard
to the external manifestations and not the subjective
workings of
minds (Fiat SA at 138H-139D)”
.
[15] In my judgment there is no
warrant to contend that the applicant is not entitled to the relief
it seeks. It derives from clause
11.4 of the franchise agreement
which provides that upon termination of the agreement, for whatever
reason, the applicant would
be entitled to the orders sought. In the
result the following orders will issue –
It is declared that, as at 19 May
2011, the franchise agreement, annexure “C1” to the
founding affidavit, concluded
between the parties was valid and
enforceable and that the applicant thereafter validly terminated
such agreement;
2. The respondent is ordered to
forthwith vacate the premises known as Shop 1, MacArthur Pool and
Leisure Centre, Beach Road, Humewood
(erf 595 Port Elizabeth);
It is ordered that the applicant
is entitled, pursuant to the provisions of clause 11.4.4.3 of the
agreement, to purchase the
fixtures, fittings and assets of the
business being conducted at the premises at their nett asset value.
The respondent is ordered to pay
the costs of this application.
________________________
D.
CHETTY
JUDGE
OF THE HIGH COURT
On behalf of the Applicant:
Adv R.S. Van Riet SC
instructed by
Friedman Scheckter, 75 Second Avenue, Newton Park, Port Elizabeth,
Tel: (041) 395 8446, Ref: Mr Q. Spuyt
On behalf of the Respondent:
Adv R.G. Buchanan SC
instructed
by Badenhuizen Inc Attorneys, 109 Albert Road, Walmer, Port
Elizabeth; Tel (041) 503 9908; Ref: E.J. Badenhuizen
1
The
Law of Contract in South Africa, 6
th
Edition (2011) at
page 2
2
In
Design and Planning Service v Kruger
1974 (1) SA 689
(T) at 695C-D
3
Annexure
“C2” at page 83 of the founding affidavit.
4
The
omission of furnishing the management agreement was, clearly a
calculated decision.
5
Annexure
“GP16” at page 353 of the opposing papers.
6
Annexure
“C3” at page 84 of the founding affidavit.
7
The
property holding company in the group of which Nyaumwe was the
managing director.
8
At
paragraph 17.1 of the opposing affidavit.
9
Annexure
“GP18” to the opposing affidavit at page 361.
10
2002
(1) SA 822
(SCA) at page 825, paragraph [4]