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[2011] ZASCA 37
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Bedford Square Properties (Pty) Ltd v Erf 179 Bedfordview (Pty) Ltd (2011 (5) SA 306 (SCA)) [2011] ZASCA 37; 291/10 (28 March 2011)
THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
JUDGMENT
Case No: 291/10
In
the matter between:
BEDFORD
SQUARE PROPERTIES (PTY) LTD
........................................
Appellant
and
ERF
179 BEDFORDVIEW (PTY) LTD
....................................................
Respondent
Neutral
citation:
Bedford Square Properties v Erf 179 Bedfordview
(291/10)
[2011] ZASCA 37
(28 March 2011)
Coram:
Harms DP, Heher, Ponnan, Malan and Tshiqi JJA
Heard:
16 February 2011
Delivered:
28 March 2011
Summary:
Servitude – in restraint of trade – invalidity of
______________________________________________________________
ORDER
______________________________________________________________
On appeal from:
South Gauteng High Court
(Johannesburg) (Willis J) sitting as court of first instance):
The appeal is dismissed with costs, including the costs
of two counsel.
______________________________________________________________
JUDGMENT
______________________________________________________________
HARMS DP (HEHER, PONNAN, MALAN AND TSHIQI JJA
concurring)
[1] The case concerns the validity of servitutal
restraints of trade. The notarial deed of servitude (deed of
restraint) prohibits
the owner of the appellant’s two
properties (the servient properties) from letting rental space on the
properties, for a
period of eleven years as from 4 November 2003, to
Woolworths or Mica Hardware, two chains of retail stores such as one
finds with
increasing frequency in major shopping centres.
[2] The servitudes were registered on 21 June 2004
pursuant to a settlement agreement. The background to the agreement
was this.
The appellant (Bedford Square Properties (Pty) Ltd), in
order to use the properties for a shopping centre, office
accommodation
and a residential development, applied for the removal
of restrictions contained in the title deeds of the properties, and
for
their rezoning to ‘mixed use’. The application was
granted by the Ekurhuleni Metropolitan Municipality but an appeal
was
lodged to the Gauteng Townships Board by the owners of two nearby
shopping centres, Eastgate and Bedfordview. They are, respectively,
Liberty Properties Ltd, and a company named Erf 179 Bedfordview (Pty)
Ltd, the respondent on appeal.
[3] The parties settled the appeal
and asked the Board to make an order reflecting that part of their
agreement which dealt with
matters such as the gross floor area that
could be let for shops and the like, and the maximum dwelling units
that could be erected
on the properties. Another part of the
agreement did not concern the Board but dealt with side issues. There
was an arrangement
in respect of a possible road closure of a portion
of a street in the vicinity. And it dealt with the grant of the
mentioned praedial
servitudes over the Bedford Square properties
1
in favour of the Eastgate and
Bedfordview properties.
[4] The servitudes are not personal
servitudes because they were created for the advantage of the two
dominant tenements.
2
These properties are close enough to
satisfy the requirement of
vicinitas.
3
The object of the servitudes was
obviously to prevent the owner of Bedford Square from letting retail
space to Woolworths or Mica
Hardware in Bedford Square for the eleven
year period and thereby creating a trading advantage for the dominant
tenements.
[5] The appellant sought a declaratory order in the
South Gauteng High Court declaring the ‘enforcement’ of
the servitude
to be contrary to public policy and for consequential
relief, namely the cancellation of the servitude. The application was
dismissed
by Willis J who, subsequently, granted leave to appeal to
this court.
[6] It is important to note at the
outset that Bedford Square did not allege that the settlement
agreement that gave rise to the
servitudes was contrary to public
policy; its case was also not that the servitudes when registered
were contrary to public policy.
Its case was that the restraint
became invalid because its ‘existence and enforcement’ no
longer served to ‘protect
any legitimate, commercial, legal or
other interest’ of the owners of the dominant properties. All
this was premised on the
supposition that the principles that apply
to contracts in restraint of trade, including the rule that the
validity of a restraint
is not necessarily to be determined with
reference to the facts as they existed at its inception but at the
date of enforcement,
apply to real covenants.
4
[7] The respondent’s first line of defence was
that the case was brought in the wrong forum because it is a
competition issue
which belonged to the Competition Tribunal in terms
of the
Competition Act 89 of 1998
. Although this ‘defence’
was abandoned it is necessary to mention that the high court and this
court (when hearing
an appeal from a high court) do not have any
jurisdiction to consider competition matters. This means that the
question whether
the restraint may have been in conflict with the Act
cannot feature in this judgment, one of consequences of
compartmentalizing
legal doctrines and of divided jurisdiction. It
cannot do the rule of law any good if different results may follow
depending on
which court system has to deal with the matter.
[8] The respondent’s second
line was that the appellant had failed to disclose a cause of action
because, so it said, registered
servitudes are real rights and,
accordingly, can only be cancelled by agreement of all parties. In
this regard the respondent relied
on a series of cases, including
Florida Hills
,
5
in which it was held that a high
court does not have inherent jurisdiction to cancel servitudes or to
interfere with real rights
of its own accord.
6
[9] The appellant sought to counter
this argument with reference to the recent judgment in
Linvestment.
7
This was an instance where this court
decided to revisit a previous judgment in relation to the question
whether the owner of a
servient tenement can, of his own volition,
change the route of a defined right of way where the owner of the
dominant tenement
unreasonably refused to agree to an amendment,
where the existing route involved undue inconvenience to the servient
tenement,
and where the proposed route was not inconvenient to the
owner of the dominant tenement. Having regard to what the common law
actually
was and to comparative law this court decided to overrule
existing authority in the interests of justice.
[10] In my view both missed the
point. The
Florida
Hills
line of cases
dealt with the inherent jurisdiction of the court to delete a
servitutal restraint. The appellant did not ask the
court to exercise
its ‘inherent’ jurisdiction – even in the broadest
sense of the word. It relied on the law
as it is or is supposed to
be. These cases were also not concerned with the issue whether a
servitutal restraint that is
contra
bonos mores
can be
lawful. I would have thought that something that is
contra
bonos mores
and
against public policy is by definition unlawful. I will assume for
the sake of argument that it is also possible (although none
was
conceived by counsel) to envisage cases where a real right could in
the course of time become invalid because its enforcement
would be
against public policy.
Linvestment
,
too, has nothing to do with the case. It was not concerned with the
possible invalidity of a servitude because of public policy
considerations.
[11] Once one accepts that a
servitude may be or in time become invalid because it was or is
against public policy the next question
is whether the guidelines
that were developed to determine whether or not an agreement in
restraint of trade is invalid can, without
more, be used to determine
if a restraint of trade in a servitude is invalid. An answer was
given by O H Hoexter JP in
Venter
v Minister of Railways
1949
(2) SA 178
(E) at 185. He said:
‘
Generally
speaking, the rules as to contracts in restraint of trade cannot be
applied to praedial servitudes. The essence of a contract
held to be
unduly in restraint of trade is that it restrains the trading
activity of a particular person. The restraint created
by the
servitude in the present case restricts the user of a particular
piece of property and not the activity of a particular
person.’
Applied to the facts of our case, the
restraint does not prevent the appellant from entering into lease
agreements with Woolworths
or with Mica in respect of any property
within the city – it binds the servient properties only. The
reasoning in
Venter
,
it need be mentioned, was adopted and applied to personal servitudes
by the full bench in
Strathsomars
Estate Co Ltd v Nel
1953
(2) SA 254
(E) at 258F-H and 259E-H. Apart from relying on its common
sense, the full bench also found some support in English law for its
view.
[12] The problem with the argument to the contrary may
be illustrated with reference to a case where someone sells a
property subject
to a restraint in favour of another property. The
purchaser in such circumstances buys less than full ownership and
pays for less.
To permit the purchaser to escape the consequences of
his agreement appears to me to be unjustifiable. The situation is
here not
much different because the appellant, in exchange for the
withdrawal of the appeal before the Board, was prepared to diminish
the
extent of its ownership by granting the servitudes to its
opponents.
[13] It is, however, unnecessary for
purposes of this judgment to decide which factors determine whether
or not this particular
restraint became unlawful under common-law
principles. The problem the appellant faces is that it accepts that
the restraint was
initially valid. This it had to do in view of the
fact that the restraint was agreed to by parties with equal
bargaining power;
that it was limited to these two properties; that
it was limited to these two particular retailers and not all the
others that
provide the same or similar services; that the restraint
was limited to eleven years; and that the protection of anchor
tenants
(as held by Willis J) was ‘a legitimate part of
commercial life in this country.’ For the servitudes to have
become
invalid, circumstances must have changed. The onus was on the
appellant to prove that the servitudes became
contra
bonos mores
, which
means that the appellant had to prove changed circumstances.
8
The appellant did not seek to make
out such a case and, apart from generalized allegations, did not even
rely on a single relevant
fact. As far as I can gather, everything
remained the same.
[14] This means that the court below was correct in
dismissing the application and the appeal is dismissed with costs,
including
the costs of two counsel.
_______________________
L T C Harms
Deputy President
APPEARANCES:
APPELLANTS:
J Peter SC
Instructed
by: Vining Camerer Inc, Johannesburg
Honey
Attorneys, Bloemfontein
RESPONDENTS:
D N Unterhalter SC (with him J Wilson)
Instructed
by: Rothbart Inc, Johannesburg
Rosendorff
Reitz Barry, Bloemfontein
1
They
have since been subdivided but nothing turns on this.
2
National
Stadium South Africa (Pty) Ltd v Firstrand Bank Ltd (670/10) [2010]
ZASCA 164; 2011 (2) SA 157 (SCA)
.
3
C
G v
an der Merwe
Sakereg
(2 ed) p 470.
4
Magna
Alloys & Research (SA) (Pty) Ltd v Ellis
[1984] ZASCA 116
;
[1984]
2 All SA 583
(A),
1984 (4) SA 874
(A);
Basson
v Chilwan
[1993] 2 All SA 373 (A),
1993 (3) SA 742 (A).
5
Ex
parte Florida Hills Township Ltd
1968
(3) SA 82
(A) at 91H-92A and 97H.
6
Ex
parte Gold
1956 (2) SA 642
(T) at 649E;
Ex parte Uvongo
Borough Council
1966 (1) SA 788
(N) at 790H-791A;
E
x
parte Rovian Trust (Pty) Ltd
1983 (3) SA 209
(D) at
212E-213C.
7
Linvestment
CC v Hammersley
[2008] ZASCA 1
;
2008 (3) SA 283
(SCA).
8
This
flows ineluctably from
Barkhuizen v Napier
[2007] ZACC 5
;
2007 (5) SA 323
(CC) at paras 58 and 66 (per Ngcobo J).