Brief Summary

Contract — Sale of immovable property — Dispute regarding cancellation of sale agreement — Applicant seeks order for transfer of property following alleged compliance with contractual obligations — First respondent claims valid cancellation due to applicant's breach — Legal issue revolves around the validity of the cancellation and the applicant's compliance with the agreement — Court held that the applicant's late provision of a guarantee constituted a breach; however, the first respondent did not validly cancel the agreement prior to the application, thus the applicant is entitled to seek specific performance for the transfer of the property.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an application for specific performance arising from a written agreement of sale of immovable property, coupled with a counter-application seeking a declarator of cancellation (or, alternatively, cancellation) of that agreement. A further interlocutory dispute arose from the first respondent’s application to strike out substantial portions of the applicant’s affidavits as allegedly irrelevant or impermissibly argumentative.

The applicant was Dolce Domus CC (the purchaser). The first respondent was Elmarie Herholdt (the seller). The second respondent was the Registrar of Deeds, King Williams Town, cited in relation to the transfer process.

Procedurally, the applicant launched the application in March 2021 seeking an order compelling the first respondent to sign transfer documents and take all steps necessary to transfer the property into the applicant’s name. The first respondent opposed the relief, asserted that the contract had already been cancelled, and brought a counter-application seeking confirmation of cancellation (or cancellation in the alternative). She additionally brought an application to strike out various portions of the applicant’s founding and replying affidavits.

The general subject matter of the dispute was whether, notwithstanding the purchaser’s substantial delay in furnishing a bank guarantee, the seller had validly cancelled the sale agreement (or could still cancel it), or whether the purchaser remained entitled to enforce the agreement and compel transfer.

2. Material Facts

On 27 December 2019, the parties concluded a written sale agreement in terms of which the first respondent sold Erf 223 Newton Park to the applicant for R2.3 million, payable upon transfer. Clause 1.2 permitted the purchaser, as security for payment, to furnish a bank/financial institution guarantee within a specified period, and clause 1.2.1 required that the guarantee be “irrevocably expressed” and immediately payable upon written notification of registration of transfer. The applicant’s conveyancers were Glyn Marais Incorporated.

An inspection contemplated in clause 16.3 occurred on 31 January 2020 (outside the 30-day period, but the court recorded that nothing turned on this). During February and March 2020, the parties completed transfer-related documentation: the first respondent on 12 February 2020 and the applicant on 12 March 2020.

It was common cause that the applicant did not furnish a bank guarantee within the period contemplated by clause 1.2. Following this, on 30 March 2020 the first respondent’s attorneys (Slabbert Attorneys) addressed a letter to the applicant giving notice of breach based on failure to comply with clause 1.2, demanding delivery of acceptable guarantees or payment of the purchase price within seven days.

The subsequent communications occurred against the background of the declared National State of Disaster and lockdown restrictions due to Covid-19, which the applicant invoked as a reason to seek suspension while assessing business impact. Correspondence in May 2020 reflected that the seller’s attorneys still regarded the purchaser as in breach and sought instructions and a response, but no clear evidence of a communicated election to cancel emerged from that period.

The first respondent alleged that the agreement was later cancelled by an email sent by her husband (acting as agent), but no copy of the alleged cancellation email could be produced, allegedly because the relevant computer data could not be retrieved. The applicant and staff at Glyn Marais denied receipt of any notice of cancellation. The first respondent relied instead on inferential reliance from later correspondence concerning return of the original title deed and later references indicating the seller no longer wished to sell.

On 1 December 2020, the applicant obtained an Investec bank guarantee, and on 2 December 2020 it was furnished to Slabbert Attorneys. On 9 December 2020, Slabbert Attorneys responded, enclosing an email from Mr Herholdt stating that the guarantee was more than a year late, that the first respondent no longer wished to sell, and that the title deeds had been returned.

In the first respondent’s answering affidavit (which also served as founding affidavit in the counter-application), she raised an additional defence that the Investec guarantee did not comply with clause 1.2.1 because it was not “irrevocably expressed.” As an alternative basis, she purported to give (further) written notice in terms of clause 12 (the default clause) calling upon the applicant to comply, failing which the agreement would be cancelled.

In reply, the applicant procured and delivered a further guarantee dated 13 May 2021 that expressly stated it was irrevocable, and indicated that this guarantee replaced the first. The first respondent then launched an application to strike out substantial portions of the applicant’s affidavits, largely on the premise that the “replacement” guarantee rendered references to the first guarantee irrelevant and that the new guarantee constituted a new case in reply.

3. Legal Issues

The court was required to determine, centrally, whether the sale agreement had been validly cancelled by the first respondent, either through an alleged communicated cancellation following the purchaser’s breach, or through acceptance of an alleged repudiation. This required a determination of the legal requirements for cancellation (including election and communication) and whether those requirements were met on the evidence.

A related legal issue was whether the applicant’s late furnishing of a bank guarantee could nonetheless cure the breach, and whether any alleged non-compliance in the terms of the guarantee (specifically the absence of an “irrevocable” expression) entitled the first respondent to treat the breach as continuing without further notice, or whether it constituted a further breach requiring a fresh notice procedure under the contract.

A further issue concerned the procedural and evidential question whether the first respondent had raised a genuine dispute of fact sufficient to prevent final relief on motion in relation to cancellation, including the application of principles concerning the treatment of disputes of fact in motion proceedings.

Finally, the court had to decide the application to strike out, which turned on questions of relevance, whether a new case was made in reply, and whether any prejudice was established.

These issues involved a combination of law, the application of law to fact, and evaluative judgment on whether the evidential material sufficed to discharge the onus resting on the first respondent to establish cancellation.

4. Court’s Reasoning

The court first addressed the strike-out application. It characterised the first respondent’s core premise—that because a later guarantee “replaced” the earlier one, the earlier guarantee “no longer exists” and all references to it were irrelevant—as logically fallacious. The court drew a distinction between the factual existence of the earlier guarantee and its potential legal effect or continued utility as security. The replacement did not erase the earlier document’s factual existence, nor did it automatically determine whether the purchaser had complied with its contractual obligations at any relevant time.

The court further reasoned that the later guarantee (of 13 May 2021) was furnished in response to a ground advanced in the counter-application, namely that the earlier guarantee itself did not comply with clause 1.2.1 because it was not “irrevocably expressed.” On the court’s view, the applicant was entitled to meet that case, and providing a guarantee addressing the objection did not amount to impermissibly making out a new case in reply. The court accepted (without deciding) that certain passages of the replying affidavit were argumentative, but held that the first respondent had not established prejudice. The strike-out application was therefore dismissed, with a punitive costs order due to its lack of merit.

Turning to cancellation, the court treated it as decisive that, even where a party is entitled to cancel due to breach, cancellation is not automatic. The aggrieved party must elect to cancel and must communicate that election to the defaulting party. The court held that the first respondent bore the onus to establish that cancellation occurred by proper notice.

On the facts, the first respondent’s evidence of cancellation was materially deficient. The alleged cancellation email could not be produced; no details were provided as to when it was sent, to whom it was addressed, or why it would have been sent by the husband rather than by the instructed attorneys who had already issued the breach notice. The court noted substantial gaps in the narrative after the May 2020 correspondence from Slabbert Attorneys, which had indicated that they would advise their client on exercising rights. The court found it unexplained why a cancellation would not then have been clearly effected through those attorneys, and why the alleged cancellation later occurred via an email by the husband.

The first respondent attempted to rely on inferences drawn from later correspondence (including the title deed being returned and communications suggesting a new sale discussion). The court held that the inferences did not establish effective cancellation, particularly given that, when the guarantee was later delivered in December 2020, the response did not clearly assert a prior cancellation; instead, it emphasised lateness and unwillingness to sell. The court did not accept that the available correspondence compelled the conclusion that a cancellation had been communicated to the purchaser.

In evaluating whether a genuine dispute of fact existed regarding cancellation, the court relied on the approach in Wightman t/a J W Construction v Headfour (Pty) Ltd and Another concerning the need for a party raising a dispute to seriously and unambiguously engage with the disputed facts. The court emphasised that important contextual facts within the first respondent’s knowledge were not addressed. This supported a robust approach to the alleged factual dispute and reinforced the conclusion that the onus to prove communicated cancellation was not met.

The court also rejected the repudiation-based defence on the same foundational basis. Even if the purchaser’s ongoing non-performance could be treated as repudiation, the seller still had to accept the repudiation by electing to cancel and communicating that election. The court held that this was not established on the evidence.

The court then considered the first respondent’s alternative reliance on the alleged defect in the terms of the December 2020 guarantee. The court reasoned that the original breach notice required the applicant to deliver “acceptable guarantees” or pay the purchase price into trust. The delivery of the Investec guarantee, as a factual matter, cured the specific breach identified at that stage, namely the failure to furnish any guarantee within time. If the guarantee was not “irrevocably expressed” or not in a form acceptable to the seller under clause 1.2.1, that could amount to a further breach, but it could not be ignored as though no guarantee had been furnished at all. On the court’s approach, such a further breach would require the seller to follow the contractual notice procedure before becoming entitled to cancel on that ground.

The court noted that the first respondent in fact attempted to do precisely this by giving notice in the counter-application based on the alleged non-compliance of the guarantee’s terms. However, the court considered this stance inconsistent with the primary case that the agreement had already been cancelled earlier, and it regarded this inconsistency as reinforcing the conclusion that no prior cancellation had been proved.

Finally, the court held that once the first respondent’s notice regarding the “irrevocable” wording was raised, the applicant was entitled to remedy the alleged breach. The applicant did so by delivering the second guarantee dated 13 May 2021, expressly framed as irrevocable. The court held that this cured the alleged further breach within the operative notice framework, with the consequence that the first respondent was not entitled to cancel on that basis.

Having found that cancellation was not proved and that the counter-application failed, the court concluded that the applicant was entitled to the relief compelling transfer.

On costs, the court held that the usual rule that costs follow the result applied to the main dispute, but that the strike-out application warranted punitive costs because it was founded on fallacious reasoning and lacked substance and merit. The court emphasised that punitive costs are a mark of disapproval of litigation conduct, not a sanction for mere lack of success.

5. Outcome and Relief

The court dismissed the first respondent’s strike-out application and ordered costs on the scale as between attorney and client in relation to that interlocutory application.

The court dismissed the first respondent’s counter-application with costs.

The court granted the applicant substantive relief compelling the first respondent to take all steps necessary to effect transfer of Erf 223 Newton Park to the applicant, including obtaining municipal rates clearance certificates contemplated by section 118(1) of the relevant statute and obtaining electrical compliance certificates for the seven dwelling units in accordance with the applicable regulations.

The court ordered the first respondent to appoint a conveyancing attorney within five days, failing which the applicant could appoint Glyn Marais Incorporated to prepare the transfer documentation. The first respondent was directed to sign all documents within 14 days, failing which the Sheriff was authorised to sign and take necessary steps on her behalf to effect transfer.

The first respondent was ordered to pay the costs of the main application (in addition to the separate punitive costs order for the strike-out application and the costs order on the counter-application).

Cases Cited

Plascon-Evans (Pty) Ltd v Van Riebeeck Paints (Pty) Ltd [1984] (3) SA 623 (A).

Wightman t/a J W Construction v Headfour (Pty) Ltd and Another [2008] ZASCA 6; 2008 (2) SA 371 (SCA); [2008] 2 All SA 512 (SCA).

Tuckers Land and Development Corporation (Pty) Ltd v Hovis 1980 (1) SA 645 (A).

Ponisamy and Another v Versailles Estates (Pty) Ltd 1973 (1) SA 372 (A).

Salwedle v Roath 1956 (2) SA 160 (E).

Legislation Cited

Disaster Management Act 57 of 2002.

Local Government: Municipal Systems Act 32 of 2000 (section 118(1)).

Occupational Health and Safety Act 85 of 1993.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the first respondent did not discharge the onus of proving that the agreement of sale had been cancelled, because effective cancellation required a clear election and communication of cancellation to the applicant, and the evidence did not establish that such notice was delivered.

The court further held that the applicant’s late delivery of a bank guarantee cured the initial breach identified in the earlier breach notice, and that any alleged defect in the guarantee’s wording (particularly the absence of an express “irrevocable” formulation) could at most constitute a further breach requiring proper notice and an opportunity to remedy. Once that issue was raised, the applicant remedied it by delivering a second guarantee expressly irrevocable, with the consequence that the first respondent was not entitled to cancel on that ground.

The court held that the strike-out application was without merit and justified punitive costs. The applicant was granted orders compelling transfer, with mechanisms to ensure signature of documents and authorisation for the Sheriff to act if necessary.

LEGAL PRINCIPLES

A contractual entitlement to cancel for breach does not, without more, terminate the contract. Cancellation requires an election by the aggrieved party and communication of that election to the defaulting party, and the party asserting cancellation bears the onus of proving that effective notice of cancellation was delivered.

In motion proceedings, a party alleging a dispute of fact must seriously and unambiguously engage with the facts said to be disputed. A purported dispute that fails to grapple with material aspects within that party’s knowledge may not be treated as a genuine dispute sufficient to defeat final relief, consistent with the approach articulated in Wightman t/a J W Construction v Headfour (Pty) Ltd and Another.

Where a notice of breach requires a party to perform a specified obligation (such as furnishing a guarantee), subsequent performance may cure the particular default identified. If the form of performance is alleged to be non-compliant with contractual requirements, that may constitute a further breach, which ordinarily must be addressed through the contractual default mechanism (including notice and an opportunity to remedy) before cancellation may be invoked on that basis.

Punitive costs may be awarded to mark disapproval of litigation conduct where an application is lacking in substance and merit, and is founded on fallacious reasoning, even where punitive costs are not justified for the litigation as a whole.

Dolce Domus CC v Herholdt and Another (742/2021) [2022] ZAECPEHC 5 (24 February 2022)