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[2011] ZASCA 51
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Hyprop Investments Ltd and Another v Shoprite Checkers Ltd (315/10) [2011] ZASCA 51 (30 March 2011)
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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case No: 315/10
In the matter between:
HYPROP INVESTMENTS LTD
..........................................................
First
Appellant
ELLERINE BROS (PTY) LTD
...............................................
Second
Appellant
and
SHOPRITE CHECKERS LTD
.................................................................
Respondent
Neutral citation:
Hyprop
Investments v Shoprite Checkers
(315/10)
[2011] ZASCA 51
(30 March 2011)
Coram:
Nugent, Tshiqi JJA and
Plasket AJA
Heard:
4 March 2011
Delivered:
30 March 2011
Summary:
Agreement of lease –
interpretation – phrase ‘the initial valuation date’
for purposes of determining tenant’s
pro rata
liability
for increases in rates to be determined with reference to date of
first valuation of completed building.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from:
Western Cape High Court, Cape
Town (Traverso DJP, Saldanha and Binns-Ward JJ sitting as a court of
appeal):
The appeal is dismissed with costs, including the costs
of two counsel.
______________________________________________________________
JUDGMENT
______________________________________________________________
PLASKET AJA (NUGENT and TSHIQI JJA concurring):
[1] This appeal concerns the proper interpretation of a
clause in an agreement of lease. The clause in question, clause 7.3
of the
general terms and conditions of the lease, will be set out in
due course. The parties agree on one thing: clause 7.3 was drafted
extremely poorly and, as a consequence, it displays a degree of
ambiguity. The result was that a single judge of the Western Cape
High Court, Cape Town (Griesel J) gave it one meaning while, on
appeal, a full bench of that court (Binns-Ward J, Traverso AJP
and
Saldanha J concurring) gave it another. It falls to this court to
decide which interpretation is correct.
[2] The facts are common cause. On 9 February 2000,
Century City Centre Ltd and the respondent concluded an agreement of
lease in
terms of which Century City Centre Ltd let premises in the
Canal Walk Shopping Centre in Cape Town to the respondent. The
shopping
centre was still under construction when the agreement of
lease was concluded.
[3] The shopping centre was duly completed and it opened
for business during October 2000. This meant that the lease commenced
on
1 October 2000 because clause 1.3.2 provided that the lease
commenced on the first day of the month in which the shopping centre
opened.
[4] The appellants purchased the shopping centre during
2003. In May 2005, they launched an application in which they sought
a declarator
as to the respondent's liability to pay a
pro rata
share of the increase in rates payable on their property. They also
sought an order to direct the respondent to pay them an amount
of R2
086 766.75, being the
pro rata
share of the rates increase
that, on their interpretation of clause 7.3, the respondent was
liable to pay.
[5] Whether the appellant is entitled to the declarator
and whether the respondent is liable to pay the amount claimed by the
appellants
depends on the meaning of clause 7.3. It provides:
'The Tenant shall be responsible for and promptly pay
the Tenant's share, based on lettable area of each tenancy in
proportion to
total lettable area, of any increases measured from the
initial valuation date, in rates, taxes, VAT, building’s
operating
costs, and/or sewerage charges payable to the competent
authority and/or Landlord in respect of the land or improvements
thereon
imposed after the commencement date of the lease. The
provisions of this clause shall apply mutatis mutandis to any levy or
tax
not in force on the date of signature of this lease being imposed
at any time thereafter against the land and/or improvements thereon
by any competent authority. Should the Landlord for any reason
increase or decrease the Gross Leasable Area of the Building after
the date of commencement of this lease then the Tenant's pro rata
share shall be adjusted accordingly.'
[6] A number of interim valuations of the property and
the incomplete shopping centre had been conducted by the local
authority
during its construction. They reflected, progressively, the
value of the land and a rough estimate of the improvements to the
property
in its incomplete state. So, for instance, in the Second
Interim Valuation 2000/2001, the valuation that was current when the
lease
commenced, the land was valued at R6 989 000 and the incomplete
shopping centre was valued at R60 million on the basis that the
building was about 50 per cent completed and the value of the
building when completed, would be R120 million. The next valuation,
the First Interim Valuation 2001/2002 reduced the value of the land
but the value of the improvements remained R60 million. The
rates
payable on the basis of this valuation were R627 871.
[7] The first valuation of the completed shopping centre
was effected in terms of the 2000 General Valuation in October 2002
with
an implementation date of 1 July 2002. After a successful appeal
by the appellants against the initial valuation, the property and
its
improvements were valued at R950 million, made up of R860 million in
respect of the improvements and R90 million in respect
of the land.
The rates payable were R13 425 400. This valuation was a great deal
higher than previous valuations for two reasons.
First, the shopping
centre had been completed and secondly a new system of valuation had
been introduced that produced universally
higher valuations.
[8] The appellants’ case was that the term ‘the
initial valuation date’ in clause 7.3 referred to the valuation
that was current on the date of the commencement of the lease. If
that was so, it followed that the respondent was liable to contribute
its
pro rata
share of the increase in rates from R627 871 to
R13 425 400. The respondent’s case was that ‘the initial
valuation
date’ referred to the first valuation after the
completion of the building and this was the valuation of October
2002. This,
it argued, was the base from which future increases in
rates were to be measured.
[9] In terms of clause 1.2 of the agreement of lease,
the premises were defined as a ‘supermarket on the lower level’
of the shopping centre some 6 000 square metres in size. The period
of the lease was 15 years plus four optional periods of five
years
each. The commencement date of the lease was defined in clause 1.3.2
as the ‘first day of the month in which the Centre
opens’.
In terms of clause 1.3.4, the obligation to pay rental commenced on
that day too. The rental was stipulated in clause
1.4 to be ‘2.5
per cent of the Tenant’s Turnover as defined in Clause 5.1.2
[of the general terms and conditions] for
the first 12 months of
trading, 2.25 per cent in the second 12 months and 2 per cent
thereafter’. The date of beneficial
occupation was defined by
clause 1.3.6 to be 90 days before the opening of the shopping centre.
The premises, according to clause
1.9, could only be used for the
purpose of carrying on the business of a supermarket.
[10] Annexure ‘A’ to the agreement contains
its general terms and conditions. Clause 7.3 is one of these terms.
Clause
2 states that the premises ‘shall have been constructed
substantially in accordance with’ an attached plan but the
parties agreed to the possibility of amendments to the plan, either
as a result of municipal requirements, the requirements of any
other
authority having jurisdiction or in the discretion of the landlord
(within the bounds of reasonableness). Clause 3 dealt
with beneficial
occupation. Clause 3.2 provided that if the ‘Landlord is unable
to give the Tenant beneficial occupation
of the Premises’ 90
days before the opening of the shopping centre ‘by reason of
the building or Premises being incomplete’,
the tenant would
have no claim against the landlord and have no right to cancel for
this reason. Clause 6 placed the obligation
on the tenant to pay its
share of the operating costs, which are, in terms of clause 6.2, ‘the
total actual cost and expense
incurred in operating, administering
and managing the Building’.
[11] Clause 7 consists of three sub-clauses. Clause 7.1
required the tenant to pay for electricity, water, gas and other
utilities
that are used or consumed in the premises as well as the
cost of refuse removal from the premises. Clause 7.2 entitles the
landlord,
in the event of it paying for utilities used or consumed by
the tenant, to recover the amounts so paid, with interest and to
cancel
the lease if the tenant does not pay within 14 days of demand.
Clause 7.3 then, as we have seen, deals with the tenant’s
obligations to pay a
pro rata
share of any increases in rates,
taxes, VAT, the building’s operating costs and sewerage
charges. Finally, clause 20.1 entitles
the landlord to ‘complete
construction of the Building (if it is still in the course of
completion at the commencement date
of this lease)’, to add to
‘the improvements on the Land (other than the Premises)’
and to effect additions to
the building or the premises, and for
these purposes to erect scaffolding, hoardings and building equipment
and to have access
to the premises if needs be.
[12] The process of interpretation of
contracts involves a search for the intention of the parties through
the words that they used,
considered in the context of the agreement
as a whole, including the factual background and construed ‘in
accordance with
sound commercial principles and good business sense
so that it receives a fair and sensible application’.
1
In this case, little purpose would be
served by attempting to give the words used in clause 7.3 their
literal meaning – by
applying the so-called golden rule of
interpretation – because as Binns-Ward J observed in the full
bench judgment, the parties
were in agreement that clause 7.3 was
‘inelegantly composed and ambiguous in relevant respects’.
2
[13] Because of the ambiguity of
clause 7.3 this is not the type of case in which ‘sophisticated
semantic analysis’
will assist to find the intention of the
parties.
3
Despite its drawbacks, a sensible
meaning can be attributed to clause 7.3 which accords with good
business sense and is equitable,
and thus reflects the intention of
the parties. That considerations of equity are relevant to the
interpretation process is evident
from
South
African Forestry Co Ltd v York Timbers Ltd
4
in which Brand JA said that ‘the
notions of fairness and good faith that underlie the law of contract
. . . have a role to
play’; that while a court may not
superimpose its idea of fairness on ‘the clearly expressed
intention of the parties’,
different considerations apply when
the contract is ambiguous; and, in that case, ‘the principle
that all contracts are governed
by good faith is applied and the
intention of the parties is determined on the basis that they
negotiated with each other in good
faith’.
[14] In ascribing meaning to the
phrase ‘the initial valuation date’ the first issue that
must be addressed is what
the increases ‘measured’ from
this date refer to. Do they refer to rates only or do they refer also
to ‘taxes,
VAT, building’s operating costs and/or
sewerage charges’? In my view, it makes no sense to determine
increases in anything
but rates from ‘the initial valuation
date’ as none of the other expenses are determined by a
valuation of the land
on which, and buildings in which, the leased
premises are situated. In consequence, it must have been the
intention of the parties
that only increases in rates were to be
determined from the initial valuation date. In other words, what was
intended was that
the respondent would be responsible for its share
of any increases in rates, ‘measured from the initial valuation
date’,
and increases in taxes, VAT, the building’s
operating costs and sewerage charges. Increases in the expenses
mentioned other
than rates would be payable by the respondent on a
pro rata
basis
when the increases occurred.
[15] There are important indications in the agreement
that the parties intended the lease to become operative only when the
building
was completed. First, the opening of the shopping centre, as
the trigger for the lease commencing, appears to me to contemplate
a
building that is complete. Secondly, clause 2 of the general terms
and conditions speaks of the premises having ‘been constructed’
in accordance with an attached plan. Thirdly, clause 1.3.6 of the
lease agreement and clause 3 of the general terms and conditions,
dealing with beneficial occupation, contemplate that the building and
the premises would be completed 90 days before the opening
of the
shopping centre. Finally, clause 6 of the general terms and
conditions, dealing with the tenant’s obligations to pay
its
share of the operating costs of the building, contemplates a
completed building – one that is operated, administered
and
maintained.
[16] The tenant’s rental was determined on the
basis of a percentage of its turnover, presumably on the basis of
projected
figures determined by experience and expertise in this type
of development. The operating costs of the building, whatever they
may be, were for the tenant’s account, as were consumables such
as electricity and water, these being based on the amount
of use.
Finally, in accordance with the common law position, the landlord
bore responsibility initially for rates. In terms of
this scheme,
there were few imponderables for the landlord: with the exception of
the rental, other costs were to be borne by the
tenant and those that
were borne by the landlord were, if not known in precise terms,
capable of easy and accurate estimation.
All that was left was future
increases. Clause 7.3 is a mechanism – albeit a poorly crafted
mechanism – for the landlord
to make provision for the tenant
to contribute, not to rates
per se
, but to increases in rates
as and when they arise.
[17] It is within the context that I have outlined that
the meaning of the term ‘the initial valuation date’ must
be
determined. It must first be stated that, for what it is worth,
the word ‘date’ is out of place; the liability to pay
a
pro rata
share of any increase in rates arises from ‘the
initial valuation’ or, I suppose, the date on which the initial
valuation
came into effect.
[18] As stated above, the two possibilities contended
for by the parties are first that the initial valuation date refers
to the
valuation that was operative when the lease commenced and the
second is that it refers to the first valuation of the completed
building. The first possibility has, in my view, at least three
problems. They are, first, that it conflates the phrase ‘the
commencement date of the lease’ with the phrase ‘the
initial valuation date’, rendering the latter term meaningless
and superfluous. I cannot imagine that both phrases would have been
used in clause 7.3 if the parties intended them to mean the
same
thing. Secondly, I can see no reason why the parties would have
intended that the base from which increases in rates were
to be
determined would be a valuation of an incomplete building. As the
tenant would only be able to utilise the building when
it was
complete, as contemplated in the agreement, it would be illogical, as
well as making no business sense for it to have agreed
to such a
scheme. Thirdly, on that construction, the base date would be
arbitrarily set. The parties could not have intended that
the base
date would be set by the state of completion in which the building
happened to be at the time the valuation was made.
[19] In my view, it would have been logical, equitable
and would have made business sense for the parties to have agreed
that the
respondent would only be liable for increases in rates on
the basis of an increased valuation of the completed building. In
other
words, the base from which increases are to be determined is a
valuation of the completed building. This fits into the scheme of
the
lease that the tenant leases part of a completed building and
contributes to increases in rates levied on a completed building.
It
follows that, ‘the initial valuation date’ in clause 7.3
refers to I July 2002, the implementation date of the General
Valuation of October 2002. That being so, the appeal must fail.
[20] The following order is made:
The appeal is dismissed with costs, including the costs
of two counsel.
____________________
C PLASKET
ACTING JUDGE OF APPEAL
APPEARANCES
APPELLANT : S Burger SC and E Fagan SC
Instructed by Bernhardt, Vukic, Potash and Getz, Cape
Town;
Lovius-Block Attorneys, Bloemfontein
RESPONDENT : J A Newdigate SC and J H Roux SC
Instructed by Werksmans Attorneys, Cape Town
Naudes, Bloemfontein
1
Picardi
Hotels Ltd v Thekwini Properties (Pty) Ltd
[2008] ZASCA 128
;
2009
(1) SA 493
(SCA) para 5. See too
KPMG
Chartered Accountants (SA) v Securefin Ltd & another
2009 (4) SA 399
(SCA) para 39;
Coopers
& Lybrand & others v Bryant
[1995] ZASCA 64
;
1995
(3) SA 761
(A) at 767E-768E.
2
Para
4.
3
Lloyds
of London Underwriting Syndicates 969, 48, 1183 and 2183 v Skilya
Property Investments (Pty) Ltd
[2004]
1 All SA 386
(SCA) para 14.
4
South
African Forestry Co Ltd v York Timbers Ltd
2005
(3) SA 323
(SCA) para 32.