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[2011] ZASCA 61
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Outward Investments (Pty) Ltd and Another v Park Road Trading 7 (Pty) Ltd (51/2010) [2011] ZASCA 61 (31 March 2011)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 51/2010
In the matter between:
OUTWARD INVESTMENTS (PTY) LIMITED
.......................................
First
Appellant
ELLERINE BROTHERS (PTY) LIMITED
........................................
Second
Appellant
and
PARK ROAD TRADING 7 (PTY) LIMITED
..............................................
Respondent
Neutral citation:
Outward Investments v Park
Road Trading 7
(51/10)
[2011] ZASCA 61
(31 March 2011)
Coram:
HARMS DP, NAVSA, SNYDERS, MALAN AND SERITI
JJA
Heard:
11 MARCH 2010
Delivered: 31 MARCH 2010
Summary:
Contract of sale of land – (a)
Interpretation of warranty. (b) Applicability s 67 of
Town-planning and Townships Ord
15 of 1986 (Gauteng) –
application for extension of boundaries not equivalent to one for
establishment of a township.
________________________________________________________________
ORDER
________________________________________________________________
On appeal from: South Gauteng High Court, Johannesburg
(Lamont J sitting as court of first instance):
The appeal is dismissed with costs, including the costs
of two counsel.
________________________________________________________________
JUDGMENT
________________________________________________________________
Seriti JA (Harms DP, Navsa, Snyders, Malan JJA
concurring)
[1] This appeal emanates from the South Gauteng High
Court. In the court a quo, Park Road Trading 7 (Pty) Ltd (Park Road)
launched
an application for an order declaring that the cancellation
of various agreements of sale of land by the purchasers, Outward
Investments
(Pty) Ltd (Outward) and Ellerine Brothers (Pty) Ltd
(Ellerines), was invalid and that the agreements are of full force
and effect.
[2] Outward opposed the application and in a
counter-application applied for an order declaring that the
agreements of sale had
been validly cancelled because of breaches of
contract by Park Road. Although sequentially illogical, an
alternative order was
sought declaring the agreements to be of no
force and effect because they contravened s 67(2) read with s 67(1)
of the Town- Planning
and Townships Ordinance 15 of 1986 (the
Ordinance).
[3] The matter was heard by Lamont J who upheld Park
Road's application and dismissed the counter-application. Outward and
Ellerines
now appeal the decision with the leave of the court a quo.
I shall for convenience refer to the appellants as Outward.
[4] There are two issues to be decided in the appeal.
The first is whether Park Road breached a clause of the sale
agreements as
alleged by Outward. The second is whether the sale
agreements contravened s 67(2) of the Ordinance.
Background facts
[5] Wilgespruit Blomkwekery (Pty) Ltd (Blomkwekery) was
the owner of two adjacent farms, namely (a) the Remaining Extent of
Portion
61 (Portion 61) and (b) Portion 322, both of the farm
Wilgespruit No 190, Registration Division IQ, Gauteng Province.
Blomkwekery
conducted flower farming activities on the two farms that
were managed as one.
[6] On 12 March 2004, Blomkwekery applied to the
authorities for permission to establish a township on Portion 61.
Wesplan and Associates
(Wesplan), Town and Regional Planning
Consultants, made the application on behalf of Blomkwekery. The
application was approved
on 6 July 2004 and a township called
Wilgeheuwel Extension 16 was proclaimed on Portion 61 on 21 November
2005 in terms of section
103 of the Ordinance.
[7] Becolger Development Company (Pty) Ltd (Becolger)
became interested in developing a township on the properties. To
accomplish
this it sought to purchase Portion 61 outright and to take
options (valid until 31 December 2008) on parts of the undivided
Portion
322. For the purposes of the options this property was
notionally divided into five portions. On one of these there was a
retail
nursery which the seller insisted on retaining. The intention
was that Becolger would take options on four notional portions and
that the portion with the nursery would be retained by the seller.
[8] On 7 September 2004 a comprehensive set of
agreements was concluded between Park Road, Becolger and Wilgespruit
Blomkwekery.
Blomkwekery, pursuant to tax advice, sold the properties
to Park Road, which in turn sold Portion 61 to Becolger. Park Road
also
gave a number of options to Becolger to purchase the four
notional portions of Portion 322. Attached to each option was a
document
containing the terms of sale that would regulate the sale
transactions, should the options be exercised.
[9] The sale agreement stipulated that Becolger would
take all necessary steps to establish a township on Portion 61.
Clause 7 of
the sale agreement provided that the seller (Park Road)
reserved the right to incorporate Portion 322 into Wilgeheuwel
Extension
16.
[10] The options did not have a similar requirement but
were based on the assumption that the seller would exercise its
option to
incorporate Portion 322 into the township on Portion 61.
This would have enabled Becolger to exercise one or more of its
options,
to subdivide the property into five erven and to retransfer
the portion with the nursery to Park Road.
[11] In order to subdivide Portion 322, clause 4 of the
Conditions of Sale obliged Becolger to appoint Wesplan to procure the
subdivision
as well as the necessary zoning of the property. The
zoning referred to was 'Business 1'.
[12] On 14 March 2006, application was made for the
extension of Wilgeheuwel's boundaries to include Portion 322 as an
erf. However,
prior to the completion of this process, and on 21 July
2006, Becolger, with the consent of Park Road, assigned its rights
and
obligations in respect of the sale and option agreements in a
cession and sale agreement to Outward. The extension of the
boundaries
of Wilgeheuwel Extension 16 was authorised on 19 October
2006. On 14 December 2006 Ellerines entered into an agreement with
Outward
with the consent of Park Road in terms of which Ellerines
became a co-option holder.
[13] On 29 June 2007, the options in respect of three of
the notional erven were exercised resulting in agreements of sale
between
Outward and Park Road, but some terms were amended. Outward
was allowed to take early occupation of the properties against
payment
of occupational interest, and it did forego its option rights
in respect of the fourth portion.
[14] The boundaries of Wilgeheuwel Extension 16 were
extended by proclamation to include Portion 322 on 13 February 2008.
Portion
322 became Erf 1553 in Wilgeheuwel Extension 16.
[15] Erf 1553 had now to be subdivided so that Outward
could take transfer of its portions. Outward alleged that it was
unable to
subdivide Erf 1553 as the City of Johannesburg Metropolitan
Municipality had refused to approve the subdivision because (a)
Becolger
had failed to pay certain bulk services contributions to the
City as it should have done consequent to the proclamation of
Wilgeheuwel
Extension 16 as a township on 21 November 2005; and (b)
there were various irregularities that might have been committed in
the
process that led to the extension of the boundaries of
Wilgeheuwel Extension 16.
[16] In a letter dated 20 February 2009 addressed by
Outward's attorneys to Park Road's attorneys it was alleged that Park
Road
had breached a warranty contained in clause 5.1 read together
with 5.1.8 of the sale conditions in two respects. Park Road had
namely warranted that it had disclosed to the purchaser ‘all
other information relating to the Sale property which is, or
reasonably likely to be material to a purchaser of the Sale
Property.’ First, it said that Park Road had failed to inform
Outward about the non-payment of the bulk services contributions,
alleging that if Outward had been informed of such failure it
would
not have incorporated Portion 322 into Wilgeheuwel 16, but would
instead have established Portion 322 as a separate township.
Secondly, the letter also referred to the fact that Park Road had
failed to disclose to Outward the irregularities attaching to
the
approval of the incorporation of Erf 1553 and alleged that this was
material information to it as purchaser of the property
at the time
that the options were exercised. The letter was, in conclusion, said
to serve as demand requiring Park Road to remedy
the breaches within
ten days, failing which Outward would cancel the agreements.
[17] Since Park Road rejected the demand Outward's
attorneys in a letter dated 3 March 2009 cancelled the agreements
with immediate
effect.
The warranty
[18] I now turn to consider the first issue mentioned,
namely, whether Park Road breached the clause in question.
[19] At this stage it is necessary to have regard to
Clause 5.1.8, which cannot be read in isolation but must be construed
in the
context of the whole of clause 5:
‘
5 Voetstoots
5.1 The Seller hereby warrants that, as at the date of
last signature hereof and as at the date of transfer –
5.1.1 the Sale Property is to be rezoned as per the
zonings set out in annexure “B” hereto;
5.1.2 the improvements on the Sale Property do not
encroach on any other land and there are no encroachments on the Sale
Property;
5.1.3 there is no impending expropriation of the Sale
Property or any part thereof and the Seller is not aware of any facts
or circumstances
which may give rise thereto;
5.1.4 the Seller has not granted any right or option to
any person to acquire the Sale Property or any part thereof and is
entitled
to give unencumbered title in and to the Sale Property to
the Purchaser;
5.1.5 the Seller is the registered owner of the Sale
Property and is able to pass transfer of the Sale Property to the
Purchaser.
In this regard it is recorded that the Property is
currently owned by Wilgespruit Blomkwekery (Pty) Limited and the
Seller warrants
that it shall procure that it acquires the Property
from the said title holder and is in a position to sell it to the
Purchaser
as required in terms of this agreement;
5.1.6 save as is contained in the title deeds in respect
of the Sale Property and as set out herein, the Sale Property is not
subject
to any servitude or other encumbrance and no agreements or
arrangements exist in terms of which any person has any claim to any
servitude or other encumbrance over the Sale Property or any part
thereof;
5.1.7 the Purchaser shall be entitled to vacant
occupation of the Sale Property on the Date of Transfer;
5.1.8 the Seller has disclosed to the Purchaser all
other information relating to the Sale Property which is, or
reasonably likely
to be material to a purchaser of the Sale Property;
5.1.9 the Seller has not been informed of the
registration of any claims for restitution of land rights in respect
of the Sale Property;
5.2 It is recorded that each of the warranties set out
in this agreement –
5.2.1 shall be deemed to be a representation and
undertaking by the Seller in favour of the Purchaser;
5.2.2 shall conclusively be deemed to be a
representation of the facts inducing the Purchaser to enter into this
agreement unless
the contrary is proved;
5.2.3 shall be material unless the contrary is proved;
5.2.4 shall, insofar as any of the warranties are
promissory or relate to a future event, be deemed to be given as at
the due date
for the fulfillment of the promise or the happening of
the event, as the case may be; and
5.2.5 shall be a separate warranty and in no way limited
or restricted by reference to or inference from the terms of any
other
warranty.
5.3 Save as set out above, the Sale Property is sold and
purchased voetstoots, absolutely as it stands, with all its defects,
whether
patent or latent, and is sold subject to all conditions of
title and as described in the title deed and the Seller shall not be
liable for any deficiency in the extent thereof nor shall it benefit
by any surplus.’
[20] The argument on behalf of the appellants turned on
the meaning of clause 5.1.8 which they submitted was a material term
of
the agreement of sale the breach of which entitled the appellants
to cancel the agreements. Clause 5, it was submitted, dealt with
the
allocation of risk (relying on
Masstores (Pty)
Ltd v Murray & Roberts Construction (Pty) Ltd
[2008] ZASCA 94
;
2008
(6) SA 654
(SCA) at para 25) relating to the Sale Property between
the parties, and the ‘warranties’ in clause 5.1 were
representations
by Park Road that the Sale Property had certain
characteristics, or that a certain state of affairs existed and would
have continued
to exist until the date of transfer. Clause 5.1.8
allocated the risk in respect of ‘all information relating to
the sale
property which is, or reasonably likely to be material to a
purchaser’ to Park Road. The contention on behalf of Outward
was that where information exists which is material and which has not
been disclosed to Outward, the responsibility, and therefore
the
risk, for that unknown information had to be borne by Park Road. Park
Road’s actual knowledge of the information was
therefore
irrelevant because the clause does not state that it relates only to
information of which the seller is aware.
[21] It was also submitted that the finding of the court
below, that the warranty in clause 5.1.8 ‘is as to the
existence
of known facts not as to the existence of a state of
affairs’, was wrong. Moreover, so the argument went, clause 5.1
required
the seller to warrant a state of affairs both at the time of
signature
and
at the
time of transfer. In context this meant a continuous warranty
enduring from the time of signature until transfer. Such a
construction of the agreement, it was suggested, made sense and was
businesslike, because it would enable Outward to stop the sale
from
proceeding at any time before registration of transfer thereby
avoiding the unwinding of transfer and recovery of transfer
fees and
the like. This construction according to the agreement was preferable
to that given by the court below, that is, that
the use of the
conjunction ‘and’ in the introductory words of clause
5.1.8 was not ‘to join two different time
periods and provide
for a continuing obligation over the period produced by combining the
two’. It was contended that, although
the date of transfer had
not yet arisen the obligation to disclose at that date already
existed. This meant that Park Road by indicating
that it would not
remedy the breach that would be committed at the date of transfer
would have repudiated the Sale Agreements.
[22] I am unable to accept these submissions and agree
with Lamont J for the reasons that follow. Clause 5 is entitled
‘Voetstoots’
and commences with the words ‘The
Seller hereby warrants’. The word ‘warranty’ it is
not a word that is
always used with precision and can either mean a
term in a contract or it can mean a material term the breach of which
entitles
the aggrieved party to cancel the agreement (
Masterspice
(Pty) Limited v Broszeit Investments CC
2006
(6) SA 1
(SCA) para 35). Clause 5.2 of the Conditions of Sale
expressly provides that the ‘warranties’ set out in
clause 5 ‘shall
be material unless the contrary is proved’.
[23] Clause 5.1 contains nine ‘warranties’.
Counsel for Park Road aptly described the clause as a ‘rag-bag’
of different provisions including conditions, warranties and ordinary
terms of contract. The warranties in clauses 5.1.2, 5.1.6
and 5.1.8
all relate to a characteristic of the property sold. Those in clauses
5.1.1, 5.1.5 and 5.1.7 all contain undertakings
by the Seller: that
the property shall be zoned as agreed; that it would become owner
capable to pass transfer and that vacant
possession would be given.
Clause 5.2 provides that each of the warranties shall be deemed to be
a representation and undertaking
in favour of the purchaser. It
continues in clause 5.2.2 that each warranty shall ‘be deemed
to be a representation of the
facts inducing the Purchaser to enter
into this agreement …’. The facts relied on by Outward
all occurred after entering
into the option contracts but before the
options were exercised.
[24] The words ‘as at the date of last signature
hereof and as at the Date of Transfer’ appear in the
introductory part
of the clause. It was submitted on behalf of
Outward that the ‘date of last signature’ in clause 5.1
was a reference
to the date the options were exercised because the
sale agreements were concluded only then. The Conditions of Sale were
not signed
but clause 7.1 of the option agreements provides that on
their exercise the resultant sale shall be governed by them. The
Conditions
of Sale is further ‘an integral part of and shall be
read with’ the option agreements (clause 7.2). Clause 16 of the
Conditions of Sale contain a similar reference to the option
agreements stating that it is ‘an integral part of and shall
be
read together with this agreement’. Clause 5 of the option
agreements records that the validity of the options shall continue
until 31 December 2008 commencing ‘on the date of last
signature hereof’. Since the option agreements and the
Conditions
of Sale must be read together and because the latter have
not been signed the inference is that the ‘date of last
signature’
is the date of last signature of the option
agreements.
[25] Some of the warranties in question relate to the
past, some to the present some to the future and some to the past,
the present
and the future. Despite use of the word ‘and’
some of the warranties cannot be applied to both the date of
signature
and the date of transfer. Clause 5.1.1, in so many words,
relates to the future and, read with clause 14, embodies a condition
suspending the validity of the sale, that is that the Sale Property
is to be zoned as agreed.
[26] Clause 5.1.2 relates to the present, employing
words such as ‘do’ and ‘are’. Even if that
clause may
be construed to relate to the date of transfer the same
cannot be said of clause 5.1.3. The latter contains a warranty that
there
is no impending expropriation of the property but the second
part is based on the knowledge of the seller of facts at the time of
signature which could in the future give rise to expropriation. It
provides specifically that the ‘Seller is not aware of
any
facts or circumstances which may give rise thereto …’).
[27] Clause 5.1.4 states that the seller ‘has not
granted any right or option’, which can only be a reference to
the
state of affairs as at the time of signature. The second part of
clause 5.1.4, read with clause 5.1.5, may well be a warranty as
at
the date of transfer. Clause 5.1.5 records that the seller is not
owner of the property at the time of signing but that it would
acquire the property and be able to sell it. Clause 5.1.6 deals with
the position as at the time of signature: ‘save as is
contained
in the title deeds’, the ‘Sale Property is not subject to
any servitude or other encumbrance’ and no
agreement or
arrangement exists entitling any other person to a servitude or other
encumbrance. The reference to the title deeds
can only be a reference
to the title deeds as at the time of signature. Clause 5.1.7
expressly refers to the date of transfer.
Clause 5.1.9 records the
knowledge of the seller as at the date of signature (‘has not
been informed of the registration
of any claims for restitution of
land rights …’).
[28] It follows that not all the provisions of clause
5.1 can be made applicable to both the date of signature and the date
of transfer.
In order to give proper meaning to clause 5.1 the
conjunctive ‘and’ should be read disjunctively as ‘or’.
This does not mean, as was suggested by counsel for Outward, that the
warranties on such an interpretation in any event relate
to both
dates, that is that they are operative at either the date of
signature or the date of transfer. What it means is that the
different warranties apply either at the date of last signature or at
the date of transfer or at both times, whichever is or are
the
applicable date or dates relating to the specific warranty.
[29] Clause 5.1.8 uses the words ‘the Seller has
disclosed’. This clearly relates to facts that existed in the
past.
It cannot sensibly be interpreted to require the seller to
disclose facts of which he is ignorant or which will only become
known
in future. Nor can it mean that there is a continuing duty on
the Seller to disclose: the seller warrants that he has disclosed
not
that he will disclose in future. Any other interpretation would lead
to absurdities. The construction contended for by Outward
would leave
the status of the sale agreements uncertain until the time of
transfer. Moreover, this construction would make the
determination of
the date of breach difficult, if not impossible, to ascertain.
Counsel representing Outward sought to overcome
these difficulties by
suggesting that clause 5.1.8 sometimes operated as a warranty and
sometimes as an ordinary term of the contract.
If the latter the
notice in terms of clause 15 to remedy the breach would be pointless.
[30] My view is that the applicant has not demonstrated
that the respondent has, in any way, breached clause 5.1.8. The
question
of the alleged failure to pay for bulk services and
irregularities allegedly committed during the process of
incorporating Portion
322 into Wilgeheuwel Extension 16 arose long
after the option agreements were entered into. The respondent cannot
be expected to
have disclosed these facts at the time the option
agreements were signed.
The Ordinance
[31] The second issue, as mentioned is whether the sale
agreements contravene s 67(2) read with s 67(1) of the Ordinance and
that
they are accordingly of no force and effect.
[32] The part of s 67 relied upon reads as follows:
‘
(1) After an owner of land has
taken steps to establish a township on his land, no person shall,
subject to the provisions of section
70 –
(a) enter into any contract for the sale, exchange or
alienation or disposal in any other manner of an erf in the township;
(b) grant an option to purchase or otherwise acquire an
erf in the township, until such time as the township is declared an
approved
township...’.
Section 67(2) provides that a contract entered into in
conflict with the provisions of s 67(1) shall be of no force and
effect.
[33] The argument of Outward is that the prohibition in
s 67(1) is triggered ‘after an owner of land has taken steps to
establish
a township‘. The submission was made that the ‘taking
of steps to establish a township’ includes the lodging of
an
application to extend the boundaries of an existing township in terms
of s 88 of the Ordinance. Section 69 of the Ordinance
provides for
the procedure to establish a township. Section 88 deals with the
extension of the boundaries of an existing township
and s 88(2)
provides that the provisions of s 69, excluding s 69(1) and s 71(1),
shall apply
mutatis mutandis
to an application to extend the
boundaries of a township.
[34] Park Road granted the options in respect of Portion
322 on 4 January 2005. At the time no steps had been taken. However,
at
the time of exercise of the options steps had been taken to
incorporate Portion 322 into Wilgeheuwel Ext 16.
[35] The submission was made that the lodging of the
application for extension of the boundaries of Wilgeheuwel Ext 16 and
the consequent
incorporation of Portion 322 into it amounted to the
‘taking of steps to establish a township’ on Portion 322
within
the meaning of s 67(1). The consequence of this argument is
that the sale agreements fell foul of the prohibition in s 67(1)
since
they were agreements for the sale of erven in a township
entered into after steps to establish a township on portion 322 have
been
taken.
[36] The court below rejected the argument and found
that s 67(1) did not apply: ‘The process of extension of
boundaries resulted
in a change of the character of Portion 322 into
township land, or land situated within a township, but did not result
in the creation
of a township on the land.’ I agree with this
conclusion.
[37] Section 67(2) clarifies the word ‘steps’
used in s 67(1). It includes ‘steps preceding an application in
terms of section 69(1) or 96’. Sections 69 and 96 deal with the
procedure for the establishment of a township. Section 67(2)
makes no
mention of s 88 or the extension of the boundaries of an existing
township. The procedures are different. This is recognized
by the
Regulations under Ordinance 15 of 1986 (Administrator’s Notice
858 of 1987 of 10 June 1987) reg 23 of which provides
for the
documents to accompany an application for the extension of the
boundaries of an existing township. Schedule 13(2)(b) to
which reg 23
refers requires the applicant to furnish a report with a
comprehensive motivation relating to ‘the reasons why
the
procedure prescribed for the establishment of a township should not
be followed’. An application for an extension of
the boundaries
of an existing township is made under s 88 to the Administrator
through the local authority (s 88(1)). The provisions
of s 69
(excluding s 69(1)) and s 71(1) then apply (s 88(2)). The
Administrator takes the decision to approve the extension (s
88(2))
and he may add conditions to his approval including conditions
relating to the payment by the applicant of a sum of money
for the
provision of engineering services as contemplated in Chapter V of the
Ordinance (s 88(3)(b)(i)) as may be imposed in the
case of an
established township (ss 98 and 117). The extension of the boundaries
of the existing township may then be proclaimed
and the conditions
imposed set out in a schedule to the proclamation (s 88(4)). The
procedures for the establishment of a township
are regulated by ss 69
ff and 96 ff. Although there are similarities in the procedures the
Ordinance treats the two applications
separately. It follows that s
67(1) does not apply to applications for the extension of the
boundaries of an existing township.
Nor is there the same need for
protection of the public as exists in the case of an application for
the establishment of a township.
[38] The following order is made:
The appeal is dismissed with costs, including the costs
of two counsel.
_________________
W SERITI
JUDGE OF APPEAL
APPEARANCES:
For appellant: M vd Nest SC
A P H Cockrell SC
Instructed by:
Bowman Gilfillan Inc
Sandton, Johannesburg
McIntyre & Van Der Post
Bloemfontein
For respondent: P F Louw SC
C F vd Merwe
Instructed by:
Mark-Anthony Beyl Attorneys
Johannesburg
Honey Attorneys
Bloemfontein