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[2022] ZAECQBHC 12
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Coega Development Corporation (PTY) Ltd v MM Engineering (PTY) Ltd (2605/2021) [2022] ZAECQBHC 12 (31 May 2022)
IN
THE HIGH COURT OF SOUTH AFRICA
(EASTERN
CAPE LOCAL DIVISION, GQEBERHA)
Case
No.: 2605/2021
Date
heard: 17 March 2022
Date
delivered: 31 May 2022
In
the matter between:
COEGA
DEVELOPMENT CORPORATION (PTY) LTD
Applicant
and
MM ENGINEERING
SERVICES (PTY) LTD
Respondent
JUDGMENT
ZIETSMAN
AJ:
[1]
The question that comes to mind in this matter is, how many
opportunities
should one be given?
[2]
The Applicant, Coega Development Corporation (Pty) Ltd (“CDC”),
is a public entity that is wholly owned by the Eastern Cape
Provincial Government, mandated to develop and operate the 9003
hectare
Coega Special Economic Zone (SEZ) in terms of the SEZ Act 16
of 2014. The Respondent is MM Engineering Services (Pty) Ltd, with
its chosen address in Johannesburg.
[3]
During or about October 2016 the parties entered into a written lease
agreement in respect of Zone 6 for the purposes of the Respondent
manufacturing gas cylinders for the local and export markets.
[4]
The Applicant seeks an order for the eviction of the Respondent from
the
leased premises within the SEZ, pursuant to the breach of the
lease agreement, by the Respondent, and consequent cancellation
thereof.
Background
[5]
On 10 October 2018 and 31 October 2019 respectively, the parties
concluded
certain addenda to the lease agreement. Except for amending
the location of the leased premises, from Zone 6 to Zone 3, and the
commencement and expiration dates, the addenda did not alter the
terms of the lease agreement in a manner material to this
application.
The lease agreement and addenda thereto will
collectively be referred to as “the Agreement”.
[6]
The material terms of the Agreement for purposes of this application
are
the following:
6.1.
the leased premises would be located at Zone 3, within the Coega SEZ;
6.2.
the lease would commence on 1 October 2019 and terminate on 30
September 2034;
6.3.
the Respondent would pay the Applicant a security deposit, which
would be refunded
to the Respondent within thirty days from date of
termination of the Agreement;
6.4.
the Respondent would be liable for interest on all rental due and
payable by it to
the Applicant at the default interest rate, from the
due date to date of payment;
6.5.
the Respondent warranted that, as at date of signature of the
Agreement, it was in
a position to pay the rental amount and any
other amounts payable from time to time, and that it was not aware of
any matter which
would result in it being unable to pay such amounts;
6.6.
in the case of a breach by either party, the aggrieved party shall
deliver to the
defaulting party a notice specifying the default
event(s) and demand that the specified default be rectified within
fourteen days
of delivery of the said notice; in the event that the
defaulting party commits any breach of its obligations in terms of
the Agreement
and fails to remedy that breach within fourteen days
(or such longer period as the aggrieved party issuing the notice may
advise,
if it is not capable of being remedied within the fourteen
days) of the written notice requiring that it be remedied;
6.7.
the aggrieved party shall have the right, in addition to any other
remedies provided
for in the Agreement, to cancel the Agreement, upon
written notice to the other party, in the event of either party
committing
a breach of the terms of this Agreement which is incapable
of being remedied;
6.8.
should the Applicant cancel the Agreement and the Respondent dispute
the Applicant’s
right to do so, and remain in occupation of the
leased premises pending the determination of that dispute, then the
Respondent
shall continue to pay, on due date, all monies due by it
in terms of the Agreement; the Applicant shall be entitled to recover
and accept those payments and the acceptance by the Applicant of
those payments shall be without prejudice and not constitute an
acceptance of the Respondent holding over in this manner;
6.9.
the Respondent shall pay the Applicant a security deposit for all the
Respondent’s
obligation in terms of the agreement, and the
Applicant may use the security deposit to pay or offset all
outstanding amounts which
the Respondent is liable for under the
Agreement. Whenever, during the period of the Agreement, the security
deposit is so applied
in whole or part, the Respondent shall, on
demand, reinstate the security deposit to its original amount.
[7]
The Applicant discharged its obligations in terms of the Agreement by
procuring the construction of the premises and made it available for
occupation by the Respondent on 1 February 2018. The Respondent
took
occupation of the leased premises on 1 October 2019. Thus, although
the Agreement was entered into during October 2016, the
Respondent
only took occupation in 2019. As already mentioned above, the
commencement and expiration dates were, by agreement,
amended (by way
of the addenda).
The
material facts
[8]
The facts, which are largely common cause, can be summarised as
follows.
[9]
The Respondent failed to pay rental for the months of December 2019,
January
2020 and February 2020. As a result of such failure, on 20
February 2020, the Applicant delivered a notice to the Respondent.
The
Applicant forewarned the Respondent that it would call up the
guarantee (referred to in the Agreement as the “security
deposit”)
on 21 February 2020, and placed the Respondent on
terms to reinstate the guarantee equivalent to three months’
rental, in
the amount of R2 160 358.02, within seven days.
[10]
Instead of remedying the breach, the Respondent addressed a letter to
the Applicant, on
21 February 2020, requesting an indulgence from the
Applicant to settle the outstanding rental. Whilst acknowledging and
accepting
its “responsibility for paying rental on time”,
as per the Agreement, the Respondent requested the Applicant to defer
the rental until the Respondent was able to secure funds, without
disclosing when that would occur.
[11]
On 10 March 2020 the Applicant addressed another letter to the
Respondent, informing the
Respondent that, due to its default, the
Applicant had called up the guarantee, on 3 March 2020, and that the
Respondent must reinstate
the guarantee by no later than 17 March
2020.
[12]
On 8 June 2020 the Respondent forwarded a copy of a letter from the
National Empowerment
Fund, dated 8 June 2020, to the Applicant. The
heading of the letter reads “Application for R50 000 000.00
new
venture finance from [the Respondent]”. The letter merely
states that the National Empowerment Fund could provide funding.
However, such funding would be subject to a number of conditions, as
more fully set out in the letter, but irrelevant for purposes
of this
application.
[13]
On 15 September 2020 the Respondent addressed another letter to the
Applicant regarding
the outstanding rental and security deposit.
According to the Respondent, it was “formulating a
comprehensive reply to [the
Applicant’s] demand and will let
[the Applicant] have the same in due course”. They were also
securing funding, including
funding for the arrear rental, and their
reply was “expected to include supporting documentation
evidencing this fact”.
Again, without indicating any time frame
for the aforementioned.
[14]
Due to the continued failure to settle the arrear rental, the
Applicant delivered another
notice to the Respondent, on 20 October
2020, placing it on terms to remedy the breach. The arrear rental had
by then escalated
to R3 850 035.01, excluding VAT.
[15]
The Respondent addressed
another letter to the Applicant, dated 3 November 2020. It set out
the background to the establishment
of its gas cylinder manufacturing
plant at the Applicant’s premises and the challenges which it
faced along the way. The
Respondent, quite strangely I might add,
suggested that it was of the view that the rental could be utilised
to finalise some of
the outstanding work which the project needed.
Whilst apologising to the Applicant for the inconvenience caused, the
Respondent
admitted that, due to all the delays, it unfortunately did
not budget for the payment of rental on the approved IDC
[1]
funding. Therefore, any cash payment made towards rental would affect
the progress of the project. It undertook, once operations
commenced,
to meet all its obligations to the Applicant and proposed to make
payment arrangements in respect of the arrear rental
over a period of
thirty six months.
[16]
Shortly thereafter, on 23 November 2020, the Respondent proposed to
settle the outstanding
rental and security deposit within twenty four
months, instead of thirty six months, as was suggested in its letter
of 26 October
2020, and that it “remains obligated to honouring
all rental payments to Coega”.
[17]
On 30 November 2020 the Applicant addressed yet another letter to the
Respondent, wherein
it set out three options in terms whereof the
outstanding rental and security deposit could be liquidated.
[18]
There was no response forthcoming from the Respondent. It continued
to be in breach of
the Agreement.
[19]
On 15 March 2021 the Applicant delivered a notice, demanding that the
Respondent must pay
the arrear rental. From the statement attached to
this letter, it appears that for the period 28 February 2020 to 31
October 2020
no payments were received.
[20]
On 19 March 2021 the Applicant received a letter from the
Respondent’s attorney of
record, however it was a mere
repetition of the Respondent’s previous requests for an
opportunity to engage and secure funding
to complete its project. In
addition, the Respondent placed on record that the rental and
ancillary charges for the months of February
to October 2020 accrued
during the Nationwide Lockdown (as a consequence of the Covid-19
pandemic), and referred to clause 27 of
the Agreement (force
majeure). However, the Respondent would have had to give notice, in
terms of clause 27, that it will be prevented
or delayed in the
performance of any of its obligations in terms of the Agreement.
[21]
It is necessary to mention that, in terms the provisions of clause 39
of the Agreement,
“…no indulgence, leniency or extension
of time which a party (‘the grantor’) may grant or show
to the
other will in any way prejudice the grantor, or prejudice the
grantor from exercising any of his rights in the future”.
[22]
In a final effort to accommodate the Respondent, the Applicant
addressed another letter
to the Respondent, on 3 May 2021, requesting
it to submit a proposed plan within seven days from receipt of the
letter, and that
such plan should not exceed six months, commencing
on 1 May 2021. However, this was to no avail.
[23]
On 31 May 2021 the Applicant placed on record that despite numerous
requests for payment,
including the notice dated 15 March 2021, the
Respondent has continuously failed, refused and/or neglected to pay
the outstanding
amount. The total, as at 31 May 2021, amounted to
R7 060 147.65, including VAT. Consequently, the Applicant
terminated
the Agreement and warned that the arrear rental must be
settled with immediate effect and the Respondent should vacate the
premises
by no later than close of business on 4 June 2021.
[24]
On 11 June 2021 the Applicant, again, confirmed that it was
terminating the Agreement due
to the Respondent’s continued
failure to pay the outstanding amount and demanded that the
Respondent vacate the premises
by no later than close of business on
30 June 2021.
[25]
Subsequently, and on 28 June 2021, the Respondent’s attorneys
of record replied,
advising that the Respondent had, in principle,
secured an investor to provide the necessary capital for the project.
They requested
that the demand to vacate the premises by 30 June 2021
be suspended for a period of thirty days, after which “the
successful
implementation of this transaction will result in full
payment to [the Applicant] of all outstanding amounts due and payable
in
terms of the lease agreement”.
[26]
According to the Applicant, as at the date of deposing to the
founding affidavit, on 31
August 2021, there had been no positive
action taken by the Respondent to pay the outstanding amount due to
the Applicant. The
Respondent also failed to vacate the premises.
The
Respondent’s grounds of opposition
[27]
The Respondent’s opposition to the application for eviction is
twofold.
[28]
Firstly, that the purported termination of the agreement is
“defective” and
the billing has been disputed since 2019.
With regard to the billing, on the Respondent’s own version,
this was already resolved
in June 2020. There is, therefore, no need
to deal with this any further. With regard to the termination, the
Respondent contended
that the two letters, dated 31 May and 11 June
2021, demonstrate “the obvious flaw in the purported
termination” and
that neither of the two letters comply with
the provisions of the Agreement. In essence, the Respondent disputed
the Applicant’s
entitlement to terminate the Agreement and the
manner of termination.
[29]
Secondly, the Respondent contended that the Applicant ought to have
referred “the
dispute” for alternative dispute resolution
in terms of the Agreement.
[30]
With regard to the termination, counsel for the Respondent submitted
that by issuing a
further notice of termination the Applicant
abandoned its reliance on the first notice of termination. There is
no merit whatsoever
in this argument and it was not seriously
persisted with (correctly so).
[31]
With regard to referring the matter for alternative dispute
resolution, it is necessary
to quote clause 28.2 of the Agreement,
which reads as follows:
“
28.2
Should any disagreement arise between [the parties] arising out of or
concerning this agreement or its termination,
either party
may
give notice to the other to resolve such disagreement. Where such
disagreement is not resolved within ten days of receipt of such
notice it shall be deemed to be a dispute”. (My own underlying)
[32]
In other words, either party may give notice to the other to resolve
a disagreement.
[33]
No such notice was given on behalf of the Respondent. When prompted,
counsel for the Respondent
did not persist with the argument in this
regard.
[34]
In addition to the aforementioned, it was readily conceded by counsel
for the Respondent
(again, correctly so) that by referring the matter
for alternative dispute resolution would in any event not excuse the
Respondent
from paying rental.
[35]
It is instructive to note that the Respondent, in its answering
papers, referred to its
“flawed and/or inaccurate approximation
of the financial requirements as the reason for the funding for the
project being
depleted prior to the completion thereof, which
resulted in [the Respondent’s] inability to honour the rental
payment as
and when it became due”.
[36]
Without a doubt, the Respondent knew full well that it was not able
to honour its rental
obligations towards the Applicant, yet it
persisted in opposing the Applicant’s application for eviction.
Legal
framework and discussion
[37]
The principle
pacta
sunt servanda
(agreements, freely
and voluntarily concluded, must be honoured) is still one of the
cornerstones of the law of contract.
[38]
In
Beadica
231 CC and Others v Trustees, Oregon Trust and Others
[2]
the Constitutional Court held that:
[3]
“
[83]
The first is the principle that '(p)ublic policy demands that
contracts freely and consciously entered
into must be honoured'. This
court has emphasised that the principle of
pacta
sunt servanda
gives
effect to the 'central constitutional values of freedom and dignity'.
It has further recognised that
in
general
public
policy requires that contracting parties honour obligations that have
been freely and voluntarily undertaken.
Pacta
sunt servanda
is
thus not a relic of our pre-constitutional common law. It continues
to play a crucial role in the judicial control of contracts
through
the instrument of public policy, as it gives expression to central
constitutional values.
[84]
Moreover, contractual relations are the bedrock of economic activity
and our economic development
is dependent, to a large extent, on the
willingness of parties to enter into contractual relationships. If
parties are confident
that contracts that they enter into will be
upheld, then they will be incentivised to contract with other parties
for their mutual
gain. Without this confidence, the very motivation
for social coordination is diminished. It is indeed crucial to
economic development
that individuals should be able to trust that
all contracting parties will be bound by obligations willingly
assumed.
[85]
The fulfilment of many of the rights promises made by our
Constitution depends on sound and continued
economic development of
our country. Certainty in contractual relations fosters a fertile
environment for the advancement of constitutional
rights. The
protection of the sanctity of contracts is thus essential to the
achievement of the constitutional vision of our society.
Indeed, our
constitutional project will be imperilled if courts denude the
principle of
pacta sunt servanda
.”
[39]
And,
as recently reaffirmed by Unterhalter AJA in
Capitec
Bank Holdings Ltd and Another v Coral Lagoon Investments 194 (Pty)
Ltd and Others
:
[4]
“
The
principle that contracts freely and voluntarily entered into must be
honoured remains central to the law of contract. This principle,
often captured under the phrase freedom of contract, recognises that
persons, through voluntary exchange, may freely take responsibility
for the promises they make, and have their contracts enforced”.
[40]
The Respondent took occupation of the premises, on 1 October 2019,
and failed to pay rental
for the months of December 2019, and January
and February 2020. The Applicant addressed six letters to the
Respondent. The first,
on 20 February 2020 (the last payment was
received on 25 February 2020) and the sixth, on 3 May 2021.
[41]
The Respondent, repeatedly, acknowledged its indebtedness to the
Applicant, but requested
various indulgences in that it required more
time.
[42]
The Applicant finally terminated the Agreement on 31 May 2021, and
again confirmed it on
11 June 2021.
[43]
The Agreement was duly cancelled. The Respondent’s reliance on
referral of an alleged
“dispute” to arbitration, of which
no notice was given, has no basis.
[44]
Accordingly, the Respondent’s opposition to the application, on
both grounds, has
no merit.
Conclusion
and costs
[45]
The Respondent provided no basis upon which it could legitimately
oppose the application.
The Applicant is entitled to the relief which
it seeks.
[46]
The Applicant seeks an order that the Respondent be ordered to vacate
the premises within
15 days. The Respondent contended that it should
be allowed 30 days.
[47]
It is trite that courts
can exercise a discretion to stay or suspend the execution of an
ejectment order.
[5]
[48]
I have taken the following into account. The period of time which has
already lapsed from
the date of termination; that the last payment
was received on 25 February 2020; the “employees”
referred to are employees
employed by third parties (for security,
cleaning and landscaping); and the fact that the Respondent’s
counsel confirmed
that the Respondent is not trading. Therefore, I am
of the view that 15 days are more than reasonable in the
circumstances.
[49]
There is no reason why costs should not follow the result.
[50]
The following order is issued:
50.1.
The Respondent, and all persons holding occupation
through the
Respondent, are ordered to vacate the property situated at Zone 3,
within the Special Economic Zone (“the Premises”)
on or
before 15 June 2022.
50.2.
In the event that the Respondent, and all persons
holding occupation
through the Respondent, fail to vacate the Premises by 15 June 2022,
the Sheriff of this Honourable Court, or
his deputy, is authorised
and ordered to give effect to paragraph 50.1 above, and to enlist the
assistance of any person, including
members of the South African
Police Service, to assist him/her.
50.3.
The Respondent is to pay the costs of the application.
T.
Zietsman
ACTING
JUDGE OF THE HIGH COURT
Appearances:
For the Applicant:
Adv. B L Boswell, instructed by Siya Cokile Attorneys Inc., Gqeberha
For
the Respondent :Adv. M Phukubje, instructed by Gavin Simpson
Attorneys Inc., Johannesburg c/o Van Heerdens Attorneys, Gqeberha
[1]
The
Industrial Development Corporation (IDC) of South Africa Limited was
established in 1940 through an Act of Parliament (Industrial
Development Corporation Act, 22 of 1940) and is fully owned by the
South African Government. Their “mandate is to
maximise
[their] development impact through job-rich industrialisation, while
contributing to an inclusive economy by, among
others, funding
black-owned and empowered companies, black industrialists, women,
and youth-owned and empowered enterprises”.
https://www.idc.co.za/about-us/
[2]
2020 (5) 247 (SCA) at paras [83] – [85].
[3]
Footnotes omitted.
[4]
2022 (1) SA 100
(SCA) at para [63].
[5]
AJP
Properties CC v Sello
2018
(1) SA 535
(GJ) at para [21].