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[2013] ZAECPEHC 5
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Tatrim CC v Spenmac (Pty) Ltd (1622/2011) [2013] ZAECPEHC 5 (31 January 2013)
IN THE HIGH COURT OF
SOUTH AFRICA
(EASTERN CAPE, PORT
ELIZABETH)
CASE NO: 1622/2011
Date
Heard: 8 August 2012
Date
Delivered: 31 January 2013
NOT/REPORTABLE
In the matter between:
TATRIM CC
...........................................................................................................
Plaintiff
and
SPENMAC (PTY) LTD
......................................................................................
Defendant
___________________________________________________________________
JUDGMENT
___________________________________________________________________
GOOSEN, J:
This is an action in
which the plaintiff seeks cancellation of an agreement of sale
concluded between the parties in respect of
an immoveable property,
and payment of the sum of R788,157.89 comprising the deposit paid
and an amount in respect of damages.
The factual background is
essentially common cause between the parties. What is in issue is
the nature and effect of certain
alleged misrepresentations made by
the defendant to the plaintiff.
The property which is
the subject matter of the dispute consists of section 1 of a
sectional title scheme known as Park Towers
Sectional Title Scheme
no. 55150/1984. The scheme comprises a multi-storey building with
residential sections erected above a
ground floor retail commercial
centre. It is common cause that the sectional title scheme had, at
the time of the sale, consisted
of only two sections, namely section
1 consisting of the ground floor and first floor retail and
commercial complex and section
2 consisting of the multi-storey
residential component. The defendant was at the time the owner of
section 1 whereas section
2 was owned by another party. A central
issue in dispute relates to the subdivision of section 2. Although
at trial it was common
cause that section 2 had, as a matter of
fact, been subdivided into 110 residential sections prior to the
sale, the parties throughout
referred to section 2 as the
residential component and I shall, for convenience, continue to do
so.
The circumstances giving
rise to the conclusion of the agreement of sale are the following.
During the course of 2010 the property
was offered for sale. The
plaintiff, represented by Thompson, had made enquiries and had
submitted an offer to purchase. The
offer was rejected. Thereafter,
on 30 September 2010 the defendant offered the property for sale by
public auction. The plaintiff
entered a bid at the auction but its
bid was not accepted. Immediately after the auction the plaintiff
made a further offer increasing
the price offered to R10,5 million.
On 8 October 2010 the plaintiff and defendant entered into an
agreement in terms of which
the plaintiff agreed to pay the sum of
R10,500,000.00 for the property. In terms of the written agreement
of sale concluded between
the parties it was agreed that the
plaintiff would pay a deposit of 5% of the purchase price and that
the plaintiff (as purchaser)
would be liable for and pay the sum of
R300,000.00 including VAT in respect of the auctioneer’s
commission.
The plaintiff alleges
that the defendant’s representative, Spendley, made certain
representations which he knew to be false,
and that these
representations induced the plaintiff into entering into the
agreement. The plaintiff therefore seeks cancelation
of the
agreement. The defendant denies that it made any false
representations at all. It too pleads cancellation of the agreement,
by reason of plaintiff’s failure to effect payment and claims
retention of the deposit as unliquidated damages.
The misrepresentation
upon which the plaintiff relies is pleaded in the following terms.
It is alleged that Spendley expressly
represented partly orally and
partly in writing, that the remainder of the scheme consisted of
only one unit, namely section
2, and that in terms of rule 27 of the
Scheme Rules, it would not be possible for the owner of section 2 to
subdivide the section
without the consent of the owner of section 1.
It is alleged that the written representation is contained in a
brochure prepared
and distributed by the auctioneers on behalf of
the defendant. According to the brochure the scheme consisted of
only two sections.
The plaintiff further alleges that the
representations (both oral and written) were false in that (a)
during October 2007 the
defendant had by resolution of the Trustees
of the Body Corporate granted permission to the then owners of
section 2, Southern
Palace Investments (Pty) Limited, to subdivide
the section into 110 units, and (b) section 2 had in fact been
subdivided into
110 units which subdivision was registered on 2 July
2010. Accordingly, so it was alleged, the owner of section 1 did not
enjoy
the alleged right of
veto
contained in Rule 27 of the
Scheme Rules.
Rule 27 of the Scheme
Rules provides as follows:
“
No
instrument signed on behalf of the Body Corporate shall be valid and
binding unless it is signed by at least two trustees whereof
one
shall be a nominee of the owner or owners from time to time of
section 1 (or any subdivisions thereof) of the Scheme.”
The parties throughout
referred to this as a right of
veto
which vests in the owner
of section 1. Although it was suggested to the plaintiff’s
representative in cross-examination
that the Rule did not in fact
convey a right of
veto
in the light of the provisions of the
Sectional Titles Act, nothing significant turns on this. It was
common cause that Rule
27 conferred upon the owner of section 1 an
effective right of refusal in respect of the subdivision of section
2. The essential
issue between the parties was whether it had been
represented to the plaintiff that such right was extant or not. I
shall for
this reason continue to refer to the so-called right of
veto
for the purpose of this judgment.
In the alternative to
its reliance on the alleged fraudulent misrepresentations, the
plaintiff alleged that at all relevant times
it was the continuing
common intention of the parties that section1 be sold together with
the right of
veto
to prevent any subdivision of section 2. At
the time of the conclusion of the agreement it was, or should
reasonably have been
known to the defendant, that it had previously
granted its consent to the subdivision of section 2 and that thereby
the right
of
veto
had been rendered nugatory. In these
circumstances, so it was alleged, the defendant’s
representative was under a duty
to speak and the failure to do so
induced in the mind of the plaintiff a reasonable but mistaken
belief that it purchased section
1 together with the right of
veto
.
There was accordingly no consensus between the parties entitling the
plaintiff to avoid the agreement.
As indicated it was
common cause that in October 2007 the defendant had authorised the
then owners of section 2, Southern Palace
Investments, to subdivide
the section into 110 units and that section 2 had, as a matter of
fact, been subdivided into 110 units
by its present owner. What was
in dispute was whether defendant’s representative had made any
representation at all in
respect of the subdivision of section 2 and
what effect, if any, should attach to the defendant’s failure
to disclose given
the defendant’s claim that Spendley had no
knowledge of the fact of subdivision and no recollection of the
October 2007
approval of subdivision given by the defendant to
Southern Palace Investments.
Joseph Thompson, the
sole member of the plaintiff, testified that in early 2010 the
plaintiff wanted to acquire commercial property
for investment
purposes. At the time he dealt with a Rodney Venter who was a
property agent. He was introduced to the Park Towers
property and
informed that it comprised of two sections. At the time he was given
a set of the Scheme Rules as well as copies
of several leases. After
taking advice from certain of his associates he decided that he was
not interested in purchasing the
property. According to him however,
he was then contacted by Spendley, a director of the defendant, at
some stage later in the
year. When he informed Spendley that he was
concerned about the subdivision of section 2 (ie. the residential
section), Spendley
allegedly informed him that he need not be
concerned since the owner of section 2 could not subdivide without
the consent of
the owner of section 1. He could accordingly
veto
any subdivision that the owner of section 2 wished to make. Thompson
stated that having satisfied himself with regard to the
rental
returns he could earn and having spoken to the financial director of
the owner of section 2 regarding the plans for the
building he then,
on 12 August 2010, submitted an offer which included a suspensive
condition relating to a due diligence assessment.
The relevant
clause in the offer provides as follows:
“
6.
SUSPENSIVE
CONDITIONS
6.1 Due diligence and
resolution by purchaser to proceed:
6.1.1 The seller
acknowledges that:
6.1.1.1 The purchaser is
purchasing the property for investment purposes;
6.1.1.2 The future
profitability of the investment in respect of the property is
dependant,
inter alia
, on the current leases applicable in
respect of the property, the future let ability of the property, the
size of the property,
the condition of the property, the operational
and other costs associated with ownership of the property and the
rental enterprise,
the financial position of the Park Towers Body
Corporate and other factors;
6.1.1.3 In order to
assess the viability of the investment in respect of the property,
the purchaser needs to investigate the factors
referred to in clause
6.1.1.2 and satisfy itself as to the future profitability of the
investment in respect of the property.
6.1.2 The sale of the
property by the seller to the purchaser, on the terms and conditions
as contained in this agreement, is therefore
subject to the
suspensive condition that the purchaser, having had an opportsectiony
to carry out a due diligence and investigate
the future profitability
of the property and the rental enterprise, resolves, in writing,
within 30 (THIRTY) days of signature
hereof, to proceed to purchase
the property subject to the further conditions hereto.
6.1.3 The seller shall
cooperate and allow the purchaser and/or its servants, agents or
contractors (building, roofing, electrical,
plumbing and the like)
reasonable access to the property for the purposes of inspecting and
investigating the condition of the
property. In addition, the seller
undertakes to disclose all or any documentation and/or information in
the seller’s possession
within the seller’s knowledge
pertaining to the property and the rental enterprise, including,
without restricting the generality
of the aforegoing, any plans
relating to the property, the leases, the costs and expenses relating
to the property and the rental
enterprise, annual audited financial
statements of Park Towers Body Corporate and the municipal rates,
taxes and consumption charges.”
The offer to purchase
was in the sum of R10,5 million of which R3 million was payable in
cash and the balance of R7,5 million
to be secured by way of
mortgage loan finance for which provision was made in the offer.
This offer was however, not accepted.
The property was then placed
on auction. The defendant caused a brochure to be published
advertising the property for sale at
the auction. At the auction the
plaintiff made a bid of R9 million which was also not accepted.
Following the auction the plaintiff
and defendant entered into
further negotiations and arising from these an agreement was
concluded.
The deed of sale records
that the property was purchased as a rental enterprise and as a
going concern. The purchase price of
R10.5 million was to be paid as
follows:
“
3.1
A deposit of 5% (FIVE PERCENT) of the purchase price to the
auctioneer by the purchaser immediately on the fall of the hammer,
which deposit may be furnished by the purchaser to the auctioneer in
the form of a deposit guarantee, which amount the purchaser
hereby
authorises the auctioneer to pay over to the seller’s
attorneys;
3.2 The balance of the
purchase price shall be paid in cash and secured, to the satisfaction
of the seller’s attorneys, by
written guarantee from a
registered financial institution, payable free of exchange, against
registration of transfer of the property
into the purchaser’s
name. The purchaser may elect to secure the balance of the purchase
price by payment in cash to the
seller’s attorneys, who shall
hold same in trust, pending registration of transfer into the name of
the purchaser, the aforesaid
guarantee shall be presented and/or cash
shall be payable by the purchaser to the seller’s attorneys
within 45 (FORTY-FIVE)
days after written request therefore by the
seller or the seller’s attorneys.”
The deed of sale further
includes a clause in which the purchaser acknowledges that the
property is subject to the rules and regulations
of the Body
Corporate which has been established in terms of the sectional title
scheme and that the purchaser has read and familiarised
himself with
such rules and regulations. It further contains a clause that
specifies that the conditions of sale incorporated
in the deed of
sale constitute the whole agreement between the parties as to the
subject matter of the sale and that no agreement,
representation or
warranty between the parties other than those set out in the deed of
sale are binding on the parties. The deed
of sale does not contain
any clause relating to a due diligence exercise.
Thompson stated in his
evidence that the plaintiff intended to finance the balance of the
purchase price and to this end had approached
various banking
institutions for loan finance, which was approved. The conveyancing
documents were prepared by Attorney Tracy
Watson. According to
Thompson the difficulty emerged when he was requested to sign the
conveyancing documents in order to effect
transfer of the property
into the plaintiff’s name. Having signed the documents he was
informed by Attorney Watson that
it had been discovered that section
2 had in fact been subdivided into 110 separate sections, apparently
in July 2010, and that
the defendant’s representative was not
aware as to how this could have occurred. This disclosure resulted
in an exchange
of correspondence between Thompson on behalf of the
plaintiff and Attorney Watson, to which I will refer in more detail
hereunder,
the upshot of which was that the plaintiff indicated that
it was not proceeding with the agreement and that it sought to
resile
from the agreement.
The plaintiff also led
the evidence of Venter. His evidence as to the interactions between
Thompson and Spendley is of little
assistance. He could not recall
much of the detail of conversations he had had with Spendley and
accordingly could cast no light
upon the nature of the
representations allegedly made. He did however confirm that the
plaintiff was concerned about the potential
of subdivision of
section 2 and that he was assured in this regard by the terms of the
Rules of the Scheme to which he had been
referred.
Spendley, on behalf of
the defendant, testified that in early 2010 Thompson had contacted
him in response to an advertisement
regarding the property to ask
him for information about it. As a result of this he dropped off
certain documents in respect of
tenants and the costings associated
with the building, at Thompson’s office. On this occasion he
had no discussion with
Thompson regarding the property. Later that
year, in July, contrary to Thompson’s evidence that he had
contacted Thompson,
he said that Thompson telephoned him indicating
that the property had been introduced to him by an agent, Roger
Venter. At that
time Thompson enquired whether the property that was
being offered was still the same property and whether it comprised
the same
deal. Spendley confirmed that it was and further explained
to Thompson why he considered it to be a good bargain. In this
regard
he explained that all the tenancies were secured, that the
property was 100% let and that the income stream was good. He also
indicated that the rules favoured the owner of section 1. This, he
said, related to the fact that in terms of the Rules, the
participation quota payable by section 1 was less than that payable
by section 2. Spendley testified that he had received this
telephone
call when he was at the Spar Supermarket and that there was no
discussion about the subdivision of section 2. Thereafter,
Spendley
said, he had no further contact with Thompson directly. Spendley
accordingly denied that he had at any time represented
to Thompson
that the owner of section 1 enjoyed a
veto
right in respect
of the subdivision of section 2. He also denied that Thompson had
brought to his attention any concern about
the subdivision and
therefore ownership of section 2.
Spendley testified
further that during August 2010 the plaintiff submitted a written
offer on the property. This offer was presented
to him by Roger
Venter. The offer was immediately rejected because it contained
unacceptable suspensive conditions relating to
the property.
Spendley’s evidence was that he was not aware of the fact that
section 2 had been subdivided and that he
only became aware after
the sale had been concluded and when Attorney Watson established
that section 2 had been so subdivided.
Upon enquires being made as
to how this had occurred he was made aware of the fact that the
defendant, represented by himself,
had granted approval in October
2007 to the erstwhile owners of section 2, to subdivide that
section. He explained that the previous
owners, Southern Palace
Investments (Pty) Limited, had proposed the subdivision for purposes
of selling-off residential units
as luxury apartments. The defendant
had, on the strength of this, granted its consent to the
subdivision. Southern Palace Investments,
however, was thereafter
liquidated in 2008 and section 2 was sold to its present owners by
public auction on the 10
th
of December 2008. It was
established that the subdivision had proceeded during the course of
2010 without further reference to
the defendant or the Body
Corporate. Spendley stated that at the time of concluding the sale
with the plaintiff he had completely
forgotten about the approval
that had been given in 2007.
Spendley denied that
there had ever been a discussion between himself and Thompson
relating to the subdivision of section 2. According
to him the
matter was not raised at all. The correspondence relating to the
discovery that section 2 had in fact been subdivided
suggests
however that the issue had been raised prior to the plaintiff
submitting its offer to purchase the property. It is appropriate
to
quote the full exchange of emails, which commences with an email to
Thompson from Attorney Watson on 25 November 2010, which
is in the
following terms:
“
Dear
Joe,
I refer to our meeting
earlier today and confirm that, in terms of section 21 of the
Sectional Titles Act, the consent of the Trustees
of the Body
Corporate is required in order for the subdivision of a section to
take place.
In the current situation,
with the right of
veto
entrenched in favour of the owner of
section 1 in the Rules, there is no doubt that the consent of Rob /
his partner should have
been obtained prior to the drafting of the
sectional plan of subdivision.
As soon as I know who the
conveyancer is, I will contact him / her and try to obtain a copy of
the consent resolution / minute whereby
such consent was extensively
obtained, and we can then take it from there.
I confirm, however, that
the sale was
voetstoots
, that Rob was blissfully unaware of
the subdivision, and that this issue legally cannot frustrate the
transfer of the property.
I confirm your advices
that you will not be paying the balance of the purchase price and the
costs to us by tomorrow, as requested,
and would like to suggest that
you seek legal advice in this regard in the meantime. ‘As
shocking as this is, and as regretful
as Rob is about the situation,
he has no intention of allowing the sale to fall through, and will do
whatever he can to assist
in the resolution of this issue, but will
hold you to the conditions of the sale in the meantime.’
We accordingly await
payment on the guarantees as requested.”
To this the plaintiff
replied in the following terms on the same day:
“
Dear
Tracy,
Thank you for disclosing
today the current situation relating to section 2, as you are aware
it came as a shock and a surprise.
As you are aware I feel
very strongly about this issue which is why I specifically addressed
this with the seller prior to making
my offer. Could you establish
what exactly happened and how it could have happened? Can you also
establish how the current situation
can be rectified back to the
position I was advised was the situation prior to making my offer.
Kind regards
Joe”
Finally, on Friday
November 26
th
2010, Attorney Watson replied to the
aforementioned email in the following terms:
“
Dear
Joe,
I can understand that you
must be shocked and surprised about the subdivision of section 2, as
are Rob and I, and I assure you that
both Rob and myself will assist
you in any way we can to resolve this issue about the subdivision,
and take the owners of section
2 to task if there has been any
impropriety (which there must have been) but my explicit instructions
from Rob are that if the
balance of the purchase price and the
transfer costs are not paid today, and the guarantees not furnished
as per the conditions
of sale, he will either:
Issue summons for
specific performance on Monday, OR
Cancel the sale in
accordance with clause 15, retain your deposit and sue for any
further damages once same are calculated.
I am still awaiting
details of the relevant conveyance from our Cape Town correspondents,
and, as discussed yesterday, will contact
them as soon as I have
those details.
Rob will let me have a
copy of those minutes we discussed by lunchtime, but he said that at
that meeting they only asked for permission
to subdivide the second
floor, which Rob declined, at no stage was the subdivision of the
whole of section 2 even brought up at
a Body Corporate meeting, so
that in itself is evidence that the consent of the Body Corporate was
never obtained, as required
in the Act.
I will let you know as
soon as I have more information, but I strongly recommend that you
pay the balance purchase price and costs
today, as requested, and
furnish the guarantees.
Kind regards.”
It is common cause
between the parties that subsequent enquiries established that a
resolution was adopted at a meeting of the
Trustees of the Park
Towers Sectional Title Scheme on 31 October 2007, in terms of which
the Trustees, including Spendley, on
behalf of the Body Corporate,
adopted a resolution which provides as follows:
“
3.
The owner of section 2 in the Sectional Title Scheme, namely Southern
Palace Investments 358 (Pty) Limited, reg no. 2006/005379/07,
is
hereby authorised to apply to the Surveyor General for the
subdivision of section 2 (in the Sectional Title Scheme known as
Park
Towers Sectional Title Scheme, no. SS 150/1984) into approximately
100 sections in accordance with the current approved building
plans;
4. Werner Bellingham in
his capacity as Trustee of the Body Corporate be and is hereby
authorised to sign all the relevant documents
to give effect to this
resolution, including but not limited to the registration of the
notarial deeds as provided for in terms
of section 27 (3) of Act 95
of 1985.”
Spendley’s
evidence was that at the time at which the agreement was concluded
with the plaintiff he was not aware that section
2 had been
subdivided. Although the subsequent discovery of the resolution
authorising same caused him to recall what had occurred,
he stated
that he had completely forgotten about that resolution at the time
that the agreement with the plaintiff was concluded.
Thompson was, in my
view, not a particularly good witness inasmuch as he was, throughout
his cross-examination, argumentative
and prone to making assumptions
not warranted in the circumstances. He was also, at times, defensive
and disinclined to concede
that which was obvious. This aside, I do
not consider that his belligerent demeanour rendered his evidence
unreliable. There
was much of his evidence which was supported by
the content of the correspondence which passed between him and
Attorney Watson
upon the discovery of the fact that section 2 had
already been subdivided. Not only does the correspondence record his
shock
at this discovery (and indeed that of Spendley) it contains
the clear assertion made at that time that the issue of the
subdivision
was pertinently discussed, an assertion which was not
placed in dispute by the defendant in correspondence subsequent to
that.
In this regard reference may be made to a lengthy and detailed
letter written by the defendant’s attorneys prior to
institution
of this action. The thrust of the letter, dated 1
December 2010, is that the defendant alleges that the true
difficulty is that
the plaintiff was not able to raise the necessary
finance and that it was seizing upon the subdivision of section 2 as
an excuse
to avoid its legal obligations. A fact pertinently denied
by Thompson in his evidence.
The defendant’s
letter of 1 December 2010 was in reply to a letter, dated 26
September 2010, from the plaintiff’s
attorneys. In that letter
the plaintiff’s attorneys recorded the following:
“
2.
To summarise the history of the matter:
Our client purchased
section 1 Park Towers on the understanding that the Park Towers
Scheme was comprised of only two sections.
This was represented to
our client throughout by the seller.
Our client communicated
the fact that it was not interested in purchasing into a sectional
title scheme where our client would
effectively acquire a host of
unwanted and troublesome ‘parties’ who would
participate and interfere with the management
of its investment.
Your client reassured
ours that, in terms of the Rules which were furnished to our
client, the owner of section 1 essentially
had a right to
veto
subdivision of section 2 and thus our client’s worst
nightmare would never materialise.
Our client offered to
purchase the property on that basis.
6. In short, our client
is not getting the property that it thought it was buying or, for
that matter, that your client thought
it was selling.
7. Whether this happened
by fraud or otherwise is really quite immaterial. The fact remains
that the subdivision of section 2 into
110 units has altered the
‘
merx
’ that our client thought it had purchased.”
The defendant’s
response to the plaintiff’s contentions is as follows:
“
16.
We confirm our advices to your client on Thursday, 25 November and
again on Friday, 26 November, that our client was not aware
that
section 2 had been subdivided into 110 sections, and that our client
certainly had not consented to such subdivision, as it
was required
to do in terms of the Sectional Titles Act and the Rules of the
Scheme. We are still trying to establish exactly how
the subdivision
was done without our client’s consent, but this has no bearing
on the issue. The sale was unconditional.
This was the primary reason
that it was accepted by our client. Our client accepted a lower offer
than it initially wanted because
it was happy with the unconditional
sale in which your client, as an astute business person, acquainted
himself fully with the
property being sold. It had rejected an
earlier similar offer from your client which was subject to a number
of conditions. Here
it may be apposite to note that Mr Allen Moor,
the estate agent who represented your client when the first offer had
been put forward
by your client / its sole member, was contacted by
your client asking whether he could advise how to find finance for
the purchase.
17. This point bears
repeating. This was the third occasion on which your client had put
in offers to purchase. Two of them had
already been rejected. It was
only after an unconditional offer to purchase was received that our
client was prepared to lower
the purchase price. At all stages in the
auction and subsequent selling process your client was made aware,
through disclaimers,
and the contents of the deed of sale for your
client to satisfy himself regarding the nature of the
merx
he
was purchasing. Since his ‘worst nightmare’ related to
the nature of his neighbour (section 2) one would have thought
he
would look at the deed of his neighbour and satisfy himself as to the
nature thereof, given that he was at risk regarding the
nature of the
merx
. A cursory due diligence would have revealed all given
that the Deeds Register is open to all especially in this day and age
when
almost all property practitioners including estate agents and
attorneys, have access to the Deeds Register using the internet and
standard software. Our client was and is aware that their consent, as
owners of section 1, would be required for subdivision of
section 2,
and given that our client had at no stage given such consent, they
were entitled to assume that section 2 could not
be subdivided. At no
stage did our client represent to your client anything but the facts
as he knew them. It was certainly not
incumbent on our client to
check that section 2 had not been subdivided, when he knew that he
had not given consent therefore,
and that such subdivision was
therefore not legally possible.
24. For the reasons above
our client formed the impression that your client ceased on this
point because he could not raise the
necessary finance. Had the
issues regarding the nature of unit 2 been as important to it as it
now contends, then presumably it
would have done a very basic due
diligence in this regard. Even a basic glance at the deed would have
revealed what had transpired.
This is all the more so because your
client’s member was an astute businessman with many years
experience. As it turns out,
neither the seller nor the purchaser are
in any way prejudiced by what has transpired.”
Striking is the absence
of any denial that the representations alleged by the plaintiff,
were made. As is also the absence of
a denial that the question of
subdivision of section 2 formed part of the discussions between the
parties. It is also apposite
to note here that it was common cause
that the auction brochure reflects the scheme as comprising of only
two sections. It was
accordingly not in dispute that the defendant
had, prior to the conclusion of the agreement of sale, represented
that the scheme
comprised of two units.
I accept that, having
regard to the plaintiff’s evidence and the content of the
subsequent exchange of correspondence, that
the plaintiff did indeed
raise as a matter of concern the question of subdivision of section
2. I further accept that it was
represented to the plaintiff that
the owner of section 1 enjoyed a right of
veto
on a proposed
subdivision of section 2, as provided for in the Rules of the
Scheme. To the extent that Spendley’s evidence
was to the
contrary, I do not accept it.
This is not to suggest
that Spendley’s evidence as a whole stands to be rejected. In
my view Spendley was not a dishonest
witness. According to him he
had had very limited interaction with Thompson. The issue as to the
subdivision of section 2 was,
in his view, unimportant precisely
because the Rules of the Scheme did not allow such subdivision
without the consent of the
owner of section 1. He stated clearly
that, at the time of the conclusion of the sale agreement, he was
not aware that section
2 had been subdivided. When this was
discovered he was surprised and shocked. This much is borne out by
the correspondence. He
did not know it had occurred and only
recalled when the resolution of October 2007 was brought to light.
In my view it must be
accepted that the fact of the subdivision was unknown to Spendley at
the time of concluding the agreement
of sale with the plaintiff.
Spendley said that he had forgotten about the authorisation which
had been given. It was suggested
that this is unreasonable inasmuch
as it is difficult to conceive how such an important event which
pertinently related to the
plaintiff’s concerns could have
been forgotten. I disagree. Spendley explained that since it had
occurred in 2007 and had
related to a proposal by Southern Palace
Investments, prior to its liquidation, he had considered that the
intervening liquidation
would have brought that to an end. Since he
had heard nothing further about the matter he had simply forgotten
about it thereafter.
The plaintiff bears the
onus to prove that Spendley acted fraudulently or that he knowingly
failed to disclose a material fact
to the plaintiff. It was argued
that, on the plaintiff’s own version, a fraudulent
misrepresentation is not established
on the basis that the alleged
misrepresentation went no further than that the Rules of the Scheme
effectively reserved the owner
of section 1 a right of
veto
in respect of the proposed subdivision of section 2.
In the light of the fact
that Spendley had no knowledge of the fact that section 2 had been
subdivided at the time that the agreement
of sale was concluded, it
must be accepted that the defendant’s representation in regard
to the two units comprising the
scheme and the existence of an
effective right of
veto
in respect of a proposed subdivision
was without knowledge of the true facts and accordingly cannot be an
intentional misrepresentation.
In the circumstances
there is no scope for a finding that the plaintiff has established
the requisites of a fraudulent misrepresentation
upon which its
case, in the main, is based.
That leaves the
alternative basis upon which the plaintiff seeks to avoid the
bargain, namely that the plaintiff was induced into
a unilateral
mistake in concluding the agreement by reason of the defendant’s
failure to draw to the plaintiff’s
attention the existence of
the resolution authorising the subdivision of section 2. In this
regard it was contended that the
plaintiff had entered into the
agreement under the mistaken belief that it was purchasing section 1
with a right of
veto
to a possible subdivision of section 2,
since section 2 had not then been subdivided.
As indicated, it was
common cause that section 2 had been subdivided and that this had,
as a matter of fact, rendered the right
of
veto
provided for
by the Scheme Rules, nugatory.
The plaintiff’s
alternative claim was pleaded, and argued, on the basis that in
entering into the agreement plaintiff was
under the reasonable but
mistaken belief that it was purchasing the property and the existing
effective right as owner of the
property to
veto
a proposed
subdivision of section 2. This unilateral mistake as to the
merx
was, so it was argued, induced by the defendant’s
misrepresentation, alternatively its failure to disclose the true
facts
to the plaintiff.
In
George v Fairmead
(Pty) Limited
1958 (2) SA 465
(A) Fagan CJ stated (at 471) that:
“
When
can an error be said to be j
ustus
for the purpose of entitling a man to repudiate his apparent consent
to a contractual term? As I read the decisions, our courts,
in
applying the test, have taken into account the fact that there is
another party involved and have considered his position. They
have,
in effect, said: Has the first party – the one who is trying to
resile – been to blame in the sense that by his
conduct he has
led the other party, as a reasonable man, to believe that he was
binding himself? (v
ide
Logan v Beit,
7 S.C. 197
;
I.
Pieters & Company v Salomon
,
1911 A.D. 121
esp. at pp. 130, 137; v
an
Ryn Wine & Spirit Company v Chandos Bar.
1928
T.P.D. 417
,esp. at pp. 422, 423, 424;
Hodgson
Bros. v South African Railways,
1928
C.P.D. 257
at p. 261).
If
his mistake is due to a misrepresentation, whether innocent or
fraudulent, by the other party, then, of course, it is the second
party who is to blame and the first party is not bound
.”
(Emphasis added).
Similarly in
National
and Overseas Distributors Corporation (Pty) Limited v Potato Board
1958 (2) SA 473
(A) it was held that:
“
Our
law allows a party to set up his own mistake in certain circumstances
in order to escape liability under a contract into which
he has
entered. But where the other party has not made any misrepresentation
and has not appreciated at the time of acceptance
that his offer was
being accepted under a misapprehension, the scope of a defence of
unilateral mistake is very narrow, if it exists
at all. At least the
mistake (
error
)
would have to be reasonable (j
ustus
)
and it would have to be pleaded.”
As noted by Christie,
The Law of Contract in South Africa
(6
th
Ed)
at 329,
“
...unless the mistaken party can
prove that the other party knew of his mistake, or that as a
reasonable person ought to have
known it, or that he caused it, the
onus of showing that the mistake was a reasonable one justifying
release from the contractual
bond will not be easy to discharge.”
In
Sonap Petroleum
(SA) (Pty) Ltd (formerly known as Sonarep (SA) (Pty) Ltd v
Pappadogianis
[1992] ZASCA 56
;
1992 (3) SA 234
(A) Harms AJA (as he then was)
said (at 239 I – 240 B):
“
In
my view, therefore, the decisive question in a case like the present
is this: did the party whose actual intention did not conform
to the
common intention expressed, lead the other party, as a reasonable
man, to believe that his declared intention represented
his actual
intention? Compare Corbin on
Contracts
(1 volume edition) (1952) at 157. To answer this question, a
three-fold enquiry is usually necessary, namely, firstly, was there
a
misrepresentation as to one party’s intention; secondly, who
made that representation; and thirdly, was the other party
mislead
thereby?
See also
Du Toit v
Atkinson’s Motors Bpk
1985 (2) SA 893
(A) at 906 C to G;
Spindrifter (Pty) Ltd v Lester Donovon (Pty) Ltd
1986 (1) SA
303
(A) at 316 I – 317 B.
The last question
postulates two possibilities: Was he actually mislead and would a
reasonable man have been mislead?”
I have already found
that the defendant did represent that the Scheme comprised two
sections and that the Rules entitle the owner
of section 1 to
veto
a proposed subdivision of section 2. This induced the plaintiff to
believe that no subdivision of section 2 had yet occurred
and that
it would be entitled to exercise its rights as contained in Rule 27
of the Scheme Rules. In this belief it was mistaken.
Plaintiff
accordingly laboured under the mistaken belief that it was
purchasing section 1 together with an effective right in
its favour
in terms of the Scheme Rules.
As indicated, the
misrepresentation by the defendant was not fraudulent. Although it
was argued that it must be held to have been
negligent inasmuch as
Spendley must have known that permission had previously been granted
to Southern Palace Investments to
subdivide section 2, I am unable
to agree. Spendley explained that he had forgotten about the
approval that had been given to
Southern Palace Investments. He
explained that the approval was given for a particular purpose and
at a stage prior to the liquidation
of Southern Palace Investments.
Following the liquidation of Southern Palace Investments the new
owner of the section had at
no stage informed him or the defendant
that it was proceeding with the subdivision. On this basis he had
assumed that nothing
had come of it and that it accordingly had
slipped his mind. In my view there is no basis not to accept this
version. Certainly
his conduct, as evidenced by the correspondence
between the parties when the issue first arose, is consistent with
his explanation
that he had forgotten about the matter and that he
believed that the subdivision which had been undertaken was
irregularly done.
I accept therefore that Spendley’s
misrepresentation as to the true state of affairs was based upon a
lack of knowledge
of those facts and is, properly considered, an
innocent misrepresentation.
The fact that the
mistake upon which the plaintiff relies was induced by an innocent
misrepresentation does not disentitle it
to avoid the agreement. It
was however suggested in argument that regard be had to the effect
of the exemption clause relating
to representations made, as
contained in the agreement concluded between the parties. In
Trollip
v Jordaan
1961 (1) SA 238
(A) it was held by
the majority that a mistaken party is precluded from rescinding an
agreement on the basis of a unilateral
mistake induced by the other
party’s innocent misrepresentation in circumstances where the
contract contained an exemption
clause to the effect that the
parties acknowledged that no representations had been made in the
course of entering into the contract.
In that matter however,
decided upon exception, the mistake was found not to be a
fundamental mistake. The minority came to a
different conclusion on
the facts. In dealing with a similar circumstance, Flemming J in
Janowski v Fourie
1978
(3) SA 16
(O) came to the conclusion that different considerations
apply in circumstances where the effect of a misrepresentation
inducing
a unilateral mistake was that there was in effect no
consensus
(“geen wilsooreenstemming”
)
between the parties. In this regard the learned judge said (at 20
D):
“
In
verband met dwaling met betrekking tot wilsooreenstemming, is geen
toepaslike gesag aangevoor waar volgens vanwoorstelling a
party
alleen van hulp is indien dit bedrieglik gemaak is nie. Daar is
inteendeel wel gesag wat daarop dui dat ‘n party op
die
afwesigheid van wilsooreenstemming kan steen ondanks ‘n
skuinbare toestemming (selfs waar dit blyk uit ondertekening
van ‘n
skriftelike stuk) waar hy daartoe gelui is deur ‘n
vanwoorstelling wat nie op bedrieglike wyse gemaak is nie.”
See also
Allen v
Sixteen Stirling Investments (Pty) Limited
1974 (4) SA 164
(D)
and
Maresky v Morkel
1994 (1) SA 249
(C).
This is such a case
where the plaintiff contends that the mistake as to the true nature
of the
merx
was such that no consensus was established in
concluding the agreement between the parties. This lack of consensus
arose consequent
upon the misrepresentation made by the defendant. I
accept that this is so. Consequently the exemption clause contained
in the
agreement cannot avail the defendant. It is apparent that
both plaintiff and defendant laboured under a mistaken belief as to
the existence of an extant right of
veto
. Plaintiff’s
mistake was induced by the honest though mistaken belief held by
Spendley that the right of
veto
was extant and section 2 had
not been subdivided which he represented to be the case. In these
circumstances the parties were
mutually mistaken as to the true
nature of the
merx
and accordingly it cannot be said that the
parties achieved consensus as to the subject matter of the sale.
In my view, based upon
the facts as established at trial the plaintiff is entitled, as a
matter of law, to avoid the contract.
In the circumstances the
plaintiff’s claim succeeds. I make the following order:
The agreement of sale
concluded between the plaintiff and defendant in respect of section
1 Park Towers and dated 8 October
2010 is void for lack of
consensus;
The defendant is
directed to pay to the plaintiff the sum of R788,157.89 together
with interest thereon at the legal rate of
15% per annum
a
tempore morae
to date of payment;
The defendant is
ordered to pay the plaintiff’s costs of suit.
__________________________
GG GOOSEN
JUDGE OF THE HIGH
COURT
APPEARANCES
:
FOR THE PLAINTIFF
:
Mr R Van Rooyen SC, instructed by
Friedman Scheckter
FOR THE DEFENDANT
:
Mr A Beyleveld SC, instructed by
De Villiers &
Partners