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[2021] ZAKZDHC 49
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Martin K Holdings (PTY) Ltd v Nedport Developments (Pty) Ltd (D4299/2020) [2021] ZAKZDHC 49 (27 October 2021)
IN THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
LOCAL DIVISION, DURBAN
CASE
NO: D4299/2020
In
the matter between:
MARTIN
K HOLDINGS (PTY) LTD
Applicant
and
NEDPORT
DEVELOPMENTS (PTY) LTD
Respondent
ORDER
1.
The main application is dismissed;
2.
It is declared that the agreement concluded between the parties on 27
March 2020
for the purchase of sections 2 and 3, together with
exclusive use areas, in the sectional scheme to be known as Park
Square, lapsed
through non-fulfilment of the suspensive condition
contained in clause 5.1.2 of that agreement;
3.
The applicant is directed to pay the costs of the application and the
counter
application, including the costs of senior counsel where
employed.
JUDGMENT
Delivered
on: 27 October 2021
SHAPIRO
AJ
[1]
On 27 March 2020, the applicant as purchaser and the respondent as
seller concluded a written agreement of sale in respect of
Sections 2
and 3 in a sectional title scheme to be known as Park Square in
Umhlanga, Durban. The purchase price of R88 098
500 plus VAT was
to be secured by the payment of a deposit of R1 150 000 with the
balance to be secured through a loan granted
by a financial
institution for not less than R100 million. The day that the
agreement was concluded, the country entered
a "hard lockdown"
due to the Covid-19 pandemic that was beginning to wreak havoc across
the country.
[2]
At its core, this matter is about whether the applicant complied with
a suspensive condition contained in the agreement, to
which I refer
below, and the effect, if any, of the hard lockdown on the timeous
performance of the applicant’s obligations.
[3]
The applicant seeks an order directing the respondent forthwith to
permit representatives of its bankers, Investec Bank Ltd,
to access
the immovable property for the purposes of providing a valuation of
the property. The respondent has counter-applied
for orders
declaring that the agreement lapsed through non-fulfilment of its
suspensive conditions, alternatively, declaring that
it cancelled the
agreement validly.
[4]
Given that the fate of both the application and the
counter-application will be determined based on an interpretation of
the
relevant clauses of the agreement, it is appropriate to quote
them in full:
‘
5.
CONDITION
PRECEDENT
5.1
Save for clauses 2, 5, 21, 22 and 23, all of which will become
effective immediately and will survive the
failure of this Agreement
to become unconditional, this Agreement is subject to the fulfilment
of the Condition Precedent that
by not later than:
5.1.1
...
5.1.2 On or
before 16 April 2020, the Purchaser obtains a loan from a financial
institution for not less than R100 163 275 to enable
it to discharge
its financial obligations referred to in clause 6 provided that if
Investec Bank furnishes a letter addressed to
the Seller advising
that due to the Covid-19 pandemic the loan approval is unable to be
furnished within the required period then
the Seller shall agree to a
7 day extension so that the loan approval must be furnished on or
before 23 April 2020.
5.2
...
5.3
...
5.4
In the event that a Condition Precedent is not fulfilled before the
expiry of the Notice Period as provided
in clause 5.3 ... (or such
later date or dates as may be agreed in writing between the Parties
before the aforesaid date or dates),
the provisions of this
Agreement, save for clauses 2, 5, 21, 22 and 23 which will remain in
full force and effect, will lapse and
be of no force or effect and
the
status quo ante
will be restored as near as may be and no
Party shall have any claim against the other in terms of or arising
from the failure
of the Conditions Precedent, save for any claims
arising from a breach of the provisions of clause 5.2.
6.
PURCHASE PRICE
6.1
The Purchase Price for the property is R88 098 500 excluding VAT
payable to the Seller on Transfer Date and
to be secured as follows:
6.1.1 payment of
R1 000 000 plus VAT thereon of R150,000 shall be paid into the
Conveyancer's trust account upon signature of this
Agreement;
6.1.2.The
balance of the Purchase Price in the amount of R 100 163 275, shall
be secured by a guarantee in favour of the Seller
or the Seller's
nominee within 15 Days from the fulfilment of the condition in clause
5.1.2...’
[5]
It is undisputed that the Republic entered a Hard Lockdown from 27
March 2020, in terms of regulations promulgated by the Minister
of
Co-Cooperative Governance and Traditional Affairs on 25 March 2020
(the day before the agreement was signed by the applicant).
[1]
[6]
It is similarly undisputed that on 15 April 2020, Investec Bank
addressed a letter to the directors of the applicant, which
said the
following:
‘
Dear
Sirs
Facility
Approval - Martin K Holdings (Pty) Ltd
We
confirm that we have approved a loan facility in the amount of
R101,315,000 in favour of the abovementioned client against the
security of a mortgage bond over Sections 2 and 3 Park Square,
together with the real rights to any exclusive use areas, subject
to
our approved valuation and lease review.
Payment
of the loan facility will be made, in terms of any guaranties issued
by us, upon fulfilment by our client of all terms and
conditions
relating to the facility, including the registration of the mortgage
bond.
We
reserve the right to withdraw the loan facility at any time should
any new or previously undisclosed facts emerge which might
prejudice
our rights or security or materially alter the risk factor relating
to the loan...’
[7]
On 12 May 2020, the respondent's attorneys sent a letter to the
applicant, which referred to the provisions of clause 6.1.2
of the
agreement and stated that:
‘
...[the
applicant] previously advised that the loan confirmation was
communicated to the seller on 16 April 2020 therefore, the
guarantee
was due by 1 May 2020. The purchaser has not yet provided the
guarantee required and our instructions are to advise
the purchaser
that it was accordingly in breach of the agreement. We hereby called
upon the purchaser to provide the guarantee
within 5 business days of
the date of this letter failing which seller shall declare the
agreement of sale cancelled and shall
be entitled to recover any
damages that it may have suffered from the purchaser.’
[8]
By letter dated 18 May 2020, the applicant's attorneys denied that
their client was in breach of its obligations and stated
that the
delay in performance was due to the effects of the lockdown.
[9]
On 20 May 2020, the respondent’s attorneys wrote to the
applicant’s attorneys, recording their instruction to notify
the applicant that the sale was cancelled.
[10]
On 15 June 2020, the applicant's bankers sent it an email.
Investec informed the applicant that a valuation of the property
was
required before Investec could issue the guarantee, and that from 8
June 2020, its valuators were permitted to make site visits
(due to
an easing in the lockdown restrictions imposed by the national
government) which had not previously been permitted.
[11]
It is undisputed that the respondent refused to permit the
applicant's bankers to access the property for purposes of the
valuation as it contended that the agreement had lapsed,
alternatively had been cancelled.
[12]
The parties frame the dispute in different ways. The applicant
contends that the condition precedent was fulfilled because
Investec
approved the loan on 15 April 2020. Acknowledging that the
guarantee was not issued within the 15-day period contemplated
in
clause 6.1.2, the applicant argues that performance was impossible
because of the restriction on movement imposed by the lockdown
regulations.
[13]
The respondent contends that the condition precedent was not
fulfilled because the loan was not obtained timeously, and that
the
letter from Investec imposed conditions on the potential approval of
the loan (being the valuation and the lease review). The
respondent argues that the issuing of the guarantee was required
within 15 days of the loan being granted, which must then mean
a loan
granted unconditionally.
[14]
As an alternative, the respondent contends that if Investec was
considering issuing a guarantee, then the loan must have been
approved unconditionally by 15 April 2020, and that the hard lockdown
would not have presented a bar to the guarantee being issued
timeously. Therefore, the respondent argues that it was
entitled to cancel the agreement after the guarantee was not
furnished
either in terms of the agreement itself, or in terms of the
breach notice of 12 May 2020.
[15]
The first question to be answered then is whether the loan was
approved (or, obtained) on 15 April 2020, thereby fulfilling
the
condition precedent in clause 5.1.2 of the agreement. If the
condition was not fulfilled, then the contract lapsed and is deemed
never to have come into existence.
[2]
In argument, the parties agreed that the obligation on the applicant
was to “obtain a loan”. It was not
“to obtain
a loan in principle”.
[3]
More specifically, the applicant was obliged to obtain
[4]
a loan of not less than R100 million "to enable it to discharge
its financial obligations referred to in clause 6" of
the
agreement.
[16]
Therefore, by 16 April 2020, the applicant had to win approval of a
loan which would allow it to secure payment of the full
purchase
price, and which would then trigger (in the ordinary course) the
issuing of the guarantee within 15 days.
[17]
The applicant argues that the valuation required by Investec
followed upon the granting or obtaining of the loan and was a
precondition only to the issuing of the guarantee. The
respondent differs, for reasons set out above.
[18]
The approach to the interpretation of contracts and documents is not
controversial and was set out with his customary clarity
and
precision by Wallis JA in
Natal
Joint Municipal Pension Fund v Endumeni Municipality.
[5]
As was held by Unterhalter AJA in
Capitec
Bank Holdings Limited and Another v Coral Lagoon Investments 194
(Pty) Ltd and Others:
[6]
‘
[T]he
meaning of a contested term of a contract . . . is properly
understood not simply by selecting standard definitions of particular
words, often taken from dictionaries, but by understanding the words
and sentences that comprise the contested term as they fit
into the
larger structure of the agreement, its context and purpose. Meaning
is ultimately the most compelling and coherent
account the
interpreter can provide, making use of these sources of
interpretation. It is not a partial selection of
interpretational
materials directed at a predetermined result.
Most
contracts, and particularly commercial contracts, are constructed
with a design in mind, and their architects choose words
and concepts
to give effect to that design. For this reason, interpretation begins
with the text and its structure. They
have a gravitational pull
that is important. The proposition that context is everything
is not a licence to contend for meanings
unmoored in the text and its
structure. Rather, context and purpose may be used to elucidate
the text.’
[19]
So, read in context, did Investec intend in its letter of 15 April
2020 to convey that it had approved the loan to the applicant?
These questions cannot be answered without deciding what the words
"subject to" meant in the first paragraph of that
letter.
Removing the intervening words, Investec confirmed that it had
"approved a loan facility subject to [its] approved
valuation
and lease review". According to the Concise Oxford
Dictionary, "subject to” means "dependent
or
conditional upon". The Merriam-Webster Dictionary defines the
term to mean "dependent on something else to happen
or be true."
[20]
Therefore, reading the letter in context, Investec sought to convey
that it had approved a loan facility dependent or conditional
upon
not only an approved valuation but also the review of a lease.
[21]
This interpretation accords with the view expressed by Mitchell AJ
in
Dharsey
v Shelly
[7]
that the imposition of a condition to the granting of a loan (being,
in that case as in this one, an adequate valuation of the
property)
‘was a suspensive condition of the "grant" of the
loan’.
[22]
Does this interpretation accord with common sense and lead to a
business-like result, in line with Investec’s rationale
in
setting the two conditions?
[23]
In its founding affidavit, the applicant states that it is standard
business practice for any financial institution which
is going to
provide a guarantee to secure payment of the purchase price in
respect of any immovable property to inspect the property
concerned
"for the purposes of valuing same prior to issuing such a
guarantee".
[24]
There is an unassailable commercial logic in a financial institution
making sure that there is enough security in a property
and that its
investment will be secured, before advancing funds with which a
purchaser will purchase that property.
[8]
It therefore cannot really be disputed
[9]
that a condition was attached by Investec to the advancing of funds
with which the applicant was going to purchase the property.
[25]
It will be recalled that Investec imposed two conditions - both of
which commercially would have influenced whether it was
appropriate
to advance the loan. I have dealt with the question of the valuation,
but one cannot lose sight of the "lease
review".
[26]
In its founding affidavit, the applicant alleged that its
representatives had been engaged in negotiations with representatives
of the Embassy of the United States of America from the end of
February 2020 to agree upon the terms of a proposed lease agreement.
These negotiations were described as having reached "an
advanced stage".
[27]
Therefore, Investec, who obviously was aware of the negotiations,
reserved to itself the right to review the terms of the
lease prior
to any finance being advanced to the applicant. This likewise
makes commercial sense, as Investec would have
needed to satisfy
itself that the instalments due in respect of the mortgage bond
registered over the property would be paid and
a proposed income
stream from a tenant was material to that consideration.
[28]
Were the conditions attached to the guarantee? The nature of a
guarantee cannot be ignored. It constitutes an independent,
primary
obligation by a financial institution to pay a nominated third party
when the conditions for payment prescribed in the
instrument are
satisfied.
[10]
The guarantee is the mechanism by which payment of the purchase price
was to be made to the seller. In this case, the obligation
in terms
of the guarantee would be between Investec and the respondent.
The advancing of the loan and its repayment (ie,
the creditor –
debtor relationship) would be between Investec and the applicant.
[29]
The answer about whether the conditions were attached is to be found
not only in an assessment of the practicalities of the
version
advanced by the applicant, but also in the allegations that the
applicant made in reply.
[30]
On the applicant’s version, Investec could have refused to
issue the guarantee if it was unhappy either with the valuation
of
the property or with the terms of the lease.
[11]
[31]
But what then of the loan that apparently was already approved?
Would the "approved loan" survive the refusal
to put up the
guarantee? And if so, what would that mean? Did the applicant
somehow accrue rights, and would it have been
able to compel Investec
to advance it credit in these circumstances?
[32]
In argument, Mr
Choudree
SC (who together with Mr
Crampton
appeared for the applicant) submitted that these kinds of questions
were speculative and did not need to be answered in this case.
I
disagree: the questions serve to interrogate the purpose for
which the conditions were imposed and what interests they
served to
protect. The conditions were inserted for a purpose and were
described as “subject to” for a reason.
[12]
[33]
In my view, the answer to the questions posed in paragraph [31] must
be "no". If Investec were not satisfied
with the
security on offer, it would not then advance the necessary funds to
the applicant to purchase the property
[13]
.
It is not a question of the guarantee not being issued or being
withdrawn; it is a far more fundamental question of whether
Investec
would agree to approve credit at all. In reaching this
conclusion, I am fortified by allegations made by the applicant
in
its replying affidavit.
[34]
At paragraphs 25(c) and 26(a), the applicant made the following
allegations:
‘
...
the applicant was, and remains, confident that Investec Bank will put
up the guarantee to secure the balance of the purchase
price,
subject
however to
[14]
"credit approval"
,
which would include a valuation of the property being carried out’
(my emphasis);
and
‘
I
find it inconceivable that the Respondent would suggest that a
physical inspection of the property would not be necessary for
Investec Bank
to
grant the applicant a loan
of some R100 million and to put up a guarantee in this regard.’
(my emphasis)
[35]
In this, the applicant undoubtedly is correct: no financial
institution would approve credit or grant a loan for the purchase
of
a property in a vacuum, and without at least an inspection and/or a
valuation of that property. If, according to the applicant,
a
satisfactory valuation
[15]
was included in the process of "credit approval"
[16]
,
then perforce this requirement had to be satisfied
before
credit
was approved. It must then follow as a matter of logic that the
conditions were attached to the approval of the loan
itself
[17]
and that until both conditions had been satisfied, no loan would have
been approved by Investec or could have been obtained by
the
applicant. This conclusion is also consistent with the express
wording of both the agreement and the Letter of Grant,
as well as
with the obvious intention of the parties.
[36]
According to clause 6.1.2, it was once the condition in clause 5.1.2
had been fulfilled
[18]
that the guarantee in favour of the respondent was to be put up.
Thus, the only condition to the putting up of that guarantee
was the
obtaining
of the loan. No other conditions were contemplated in the
agreement.
[37]
It is undisputed that neither the valuation of the property nor the
review of the proposed lease occurred prior to 16 April
2020.
Therefore, I conclude that the applicant did not secure or get the
loan or receive “credit approval” by
16 April 2020.
[19]
At best, the applicant was granted a loan “in principle”
– which did not fulfil the condition.
[20]
In the circumstances, the applicant did not timeously fulfil the
condition precedent in the agreement and the agreement lapsed
on 16
April 2020. If I am wrong, and if the applicant did secure the
loan unconditionally, then it was obliged to ensure
that a guarantee
was put up within fifteen days of 15 April 2020.
[38]
Whilst the "hard lockdown" confined citizens to their
homes, there was no prohibition on business activities being
undertaken from those homes. I believe that I can take judicial
notice of the fact that masses of employees continued to discharge
their duties during the lockdown, albeit virtually.
[39]
Neither the applicant nor Investec Bank have alleged that the
issuing of guarantees was prohibited or interrupted by the hard
lockdown.
[21]
Therefore, the guarantee was due by the first week of May 2020.
The respondent acted in terms of clause 22 of the agreement
in
placing the applicant in breach when the guarantee was not provided
timeously, and the applicant was given a further five days
to deliver
the guarantee. It did not do so. In the circumstances, and if
the agreement had not lapsed, the respondent would
have been entitled
to cancel it.
[40]
Finally, the applicant argued that the respondent waived its right
to rely on the lapsing of the agreement when it sought
to enforce
compliance with the agreement by delivering its breach notice on 12
May 2020. I do not agree. Factually,
the agreement had
lapsed on 16 April 2020, and the conduct of the respondent's
attorneys in sending a breach notice did not serve
to revive the
agreement. Had the agreement revived, it would immediately have
self-destructed as the loan still would have had
to be obtained by 16
April 2020, which did not occur.
[22]
[41]
However, and to the extent that the agreement did not lapse, it was
legitimately cancelled, and I would have granted a declaratory
order
in this vein had I reached a different conclusion in respect of the
condition precedent in clause 5.1.2.
[42]
In the result, the main application fails as I cannot compel the
respondent to perform in terms of an agreement that has lapsed.
Similarly, the respondent is entitled to the declaratory relief that
it sought in its counter-application.
[43]
I make the following order:
1.
The main application is dismissed;
2.
It is declared that the agreement concluded between the parties on 27
March 2020 for the purchase
of sections 2 and 3, together with
exclusive use areas, in the sectional scheme to be known as Park
Square lapsed through non-fulfilment
of the suspensive condition
contained in clause 5.1.2 of that agreement;
3.
The applicant is directed to pay the costs of the application and the
counter application, including
the costs of senior counsel where
employed.
SHAPIRO
AJ
Appearances
Counsel
for Applicant
:
R B G Choudree SC
D Crampton
Instructed
by
: Veni Moodley
& Associates
Counsel
for Respondent
:
C J Pammenter SC
Instructed
by
: Shepstone &
Wylie
[1]
The parties were
aware of the provisions of the Regulations, as the performance date
of 16 April 2020 was the last date on which
the Regulations (and
therefore the lockdown) were to apply – unless extended.
[2]
Africast (Pty)
Limited v Pangbourne Properties Limited
[2014] ZASCA 33
para 37.
[3]
As was required in
Gallic
Living (Pty) Ltd and Another v Belo
1980 (1) SA 366
(W) at 368D and 370F-371H.
[4]
ie, to “get”,
“secure” or “acquire” – according to
the Concise Oxford Dictionary and
the Merriam-Webster Dictionary.
[5]
Natal Joint
Municipal Pension Fund v Endumeni Municipality
2012 (4) SA 593
(SCA) para 18.
[6]
Capitec Bank
Holdings Limited and Another v Coral Lagoon Investments 194 (Pty)
Ltd and Others
[2021] ZASCA 99
;
[2021] 3 All SA 647
(SCA) paras 50-51.
[7]
Dharsey v
Shelly
1995 (2) SA 58
(C) at 64A-B.
[8]
More especially
where the institution intends to register a mortgage bond over the
property as its primary security and a valuation
of the property
would be relevant to whether the property was worth enough to secure
repayment of that debt.
[9]
And to the
contrary, was agreed.
[10]
Cf the definition
of a “demand guarantee” in
Lombard
Insurance Company Limited v Schoeman and Others
2018 (1) SA 240
(GJ) at fn 5.
[11]
The email sent to
the applicant by Investec on 15 June 2020 recorded that a formal
valuation was required “before we can
issue the necessary
property guarantee”.
[12]
In argument, Mr
Choudree
SC (who together with Mr
Crampton
appeared for the applicant) submitted that these kinds of questions
were speculative and did not need to be answered in this
case. I
disagree: the questions serve to interrogate the purpose for
which the conditions were imposed and what interests
they served to
protect. The conditions were inserted for a purpose and were
described as “subject to” for a reason.
[13]
These concerns
seem to be underscored in a letter sent by the respondent’s
attorneys on 27 May 2020, where they record the
respondent’s
understanding “that Investec is now only prepared to provide
finance provided there is an existing lease
in place”
(Annexure “Q” to the founding affidavit).
[14]
See the definition
of “
subject
to
”
above.
[15]
or, for that
matter, a successful review of the proposed lease.
[16]
which logically,
and correctly, was itself a condition to be satisfied before a
guarantee was issued.
[17]
that is, the
provision of credit to the applicant. It was a suspensive
condition of its own – as held in
Dharsey
above.
[18]
ie, the provision
of credit to the applicant had been approved and the loan therefore
had been obtained.
[19]
And there was no
request by Investec to extend the time for compliance to 23 April
2020.
[20]
Remini v Basson
1993 (3) SA 204
(N) at 210B.
[21]
On the applicant’s
case, it was only the physical inspection of the property that was
not possible.
Therefore,
and as tempting as it would be to engage in a debate about whether
the lockdown created a temporary impossibility of
performance, the
question does not arise in this case.
[22]
Abrinah 7804
(Pty) Ltd v Kapa Koni Investments CC
2018 (3) SA 108
(NCK) paras 65-72.