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[2011] ZASCA 147
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Pick 'n Pay Retailers (Pty) Ltd and Others v Eayrs NO and Others (809/2010) [2011] ZASCA 147; 2012 (1) SA 238 (SCA); [2012] 1 All SA 522 (SCA) (26 September 2011)
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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case No: 809/2010
In the
matter between:
PICK ‘N PAY RETAILERS (PTY) LTD
….....................................................
First
Appellant
PICK ‘N PAY FRANCHISEE FINANCING (PTY) LTD
…........................
Second
Appellant
STEPHANUS JOHANNES STRYDOM N.O.
DEAN ALAN HOLDSTOCK N.O.
ADELE KATHLEEN HOLDSTOCK N.O.
(in their capacities as Trustees of
The Holdstock family Trust IT.1102/99)
…................................................
Third
Appellant
CARTER TRADING (PTY) LTD
…............................................................
Fourth
Appellant
and
MICHAEL BRADLEY EAYRS N.O.
COLIN MARK DE VILLIERS N.O. and
HOWARD HUGHES o.b.o. THE DAKU TRUST
…..................................
First
Respondent
BARRY NEIL CARTER N.O.
LINDA CARTER N.O. and
STEPHANUS JOHANNES STRYDOM N.O.
(in their capacities as the Trustees for the
time being of The Barry Carter Family Trust
IT.1099/99)
….......................................................................................
Second
Respondent
ALAN MELVILLE CARTER N.O.
MARY PATRICIA CARTER N.O.
(in their capacity as the Trustees for the
time being of The Alan Carter Family Trust
with Registration No TM.1913)
…..........................................................
Third
Respondent
Neutral citation:
Pick ‘n Pay v Eayrs & others
NNO
(809/2010)
[2011] ZASCA 147
(26 September 2011)
Coram:
Brand, Malan, Leach, Seriti and Wallis JJA
Heard:
6 September 2011
Delivered: 26 September 2011
Summary:
Pre-emptive right in franchise agreement –
subsequent sale of shares agreement – extension of pre-emptive
right –
operation of maxim
qui prior est tempore potior est
iure
___________________________________________________________________
ORDER
On appeal from:
Eastern Cape High Court, Port Elizabeth
(Eksteen J sitting as court of first instance):
The appeal is dismissed with costs.
___________________________________________________________________
JUDGMENT
MALAN JA (BRAND, LEACH, SERITI and WALLIS JJA concurring)
[1] This appeal concerns a dispute between the holder of a right of
pre-emption and the purchaser of shares in and claims against
a
company. On 1 March 2004 the holder of the right of pre-emption, the
first appellant, Pick ‘n Pay Retailers (Pty) Ltd (the
franchisor), concluded a franchise agreement with the third
appellant, the Holdstock Family Trust (the seller), the fourth
appellant,
Carter Trading (Pty) Ltd (the franchisee company) and the
second and third respondents. At that time the seller and the second
and third respondents held all the issued shares in the franchisee
company which operated a Pick ‘n Pay franchise, the Pick
‘n
Pay Family Supermarket, in Port Elizabeth.
[2] In terms of a sale of shares agreement entered into on 22 April
2010 between the seller and the first respondent, the Daku
Trust (the
purchaser), the purchaser bought 50 per cent of the shares in and
claims against the franchisee company from the seller.
On the same
day the seller entered into another agreement pursuant to which it
purchased the shares in and claims against the franchisee
company of
the second and third respondents. The purpose of these transactions
was to enable the seller and purchaser each to have
50 per cent of
the shares in the franchisee company which they intended to operate,
not as a Pick ‘n Pay franchise, but as
a Superspar franchise.
[3] In order to convert the business to a Superspar the Pick and Pay
franchise had to be terminated. Clause 5 of the franchise
agreement
enabled either party to terminate it by giving at least one month’s
written notice of termination. Written notice
was given by the
franchisee company to the franchisor on 30 April 2010 terminating the
franchise agreement with effect from 1 June
2010.
[4] The issue in this case arises because the franchise agreement
also made provision for the franchisor to have a right of first
refusal in terms of clause 25 in the event of the franchisee company
wanting to sell, or otherwise dispose of or transfer the business
or
any part thereof. A right of pre-emption was further provided in
clause 28 in the event of the seller or any other shareholder
in the
franchisee company intending to sell the shares held in the
franchisee company. It was agreed that in such an event the
franchisee ‘shall deliver to the franchisor a written notice
offering to sell the business or the relevant part thereof to
the
franchisor at a price which shall sound in money in South African
currency and on such remaining terms as may be stipulated
in the
written offer’ (clause 25.1.2.1). The franchisor was then
entitled ‘within 30 (thirty) days after receipt of
the written
offer (during which period the offer shall be irrevocable), to accept
it, in whole but not in part, by giving written
notice to that effect
to the franchisee. If the franchisor accepts the offer, a sale of the
business or the relevant part thereof,
as the case may be, shall come
about on the terms set forth in the offer’ (clause 25.1.2.2).
[5] After conclusion of the sale agreement the seller and the
purchaser applied for membership of the Spar Guild of South Africa,
retail membership of Spar and credit facilities for the franchisee
company.
[6] On 18 May 2010 the seller and the franchisee company notified the
purchaser that the franchisee company would no longer be
converting
to a Spar franchise and that one of the conditions precedent, that is
the condition that the business of the franchisee
company be
converted to a Superspar on or by the effective date (clause 4.3),
for the sale of shares agreement would not be fulfilled.
They also
recorded that neither the seller nor its representatives were
entitled to negotiate on behalf of the franchisee company
with the
Spar Group. This letter clearly constituted a breach of the seller’s
obligations and of the warranties contained
in clauses 9.1.3 and
9.1.5 of the sale of shares agreement.
[7] The purchaser did not accept what it described as a ‘unilateral
repudiation’ of the sale agreement and by letter
dated 20 May
2010 informed the seller that the condition precedent to the sale of
shares agreement had for ‘all intents and
purposes’
already been fulfilled. The seller’s conduct was characterised
as the ‘deliberate frustration’
of the fulfilment of the
condition and described as an act of bad faith and a breach of the
sale of shares agreement. The seller
was also notified that the
purchaser intended waiving clauses 4.4 and 4.5 of the sale of shares
agreement relating respectively
to the extension of the lease and its
obtaining finance for payment of the purchase price. It required the
seller to confirm that
it intended proceeding with the implementation
of the sale agreement.
[8] In an about turn, on 25 May 2010 the seller confirmed that it
would be proceeding with the sale of shares agreement. However,
it
stated that it could not guarantee that the condition precedent
contained in clause 4.3 would be fulfilled because the franchisor,
Pick and Pay, had indicated that should the parties proceed to
implement the sale of shares agreement it would enforce its rights
of
pre-emption under the franchise agreement and its rights under a
notarial bond passed over the franchisee company’s business.
Nor could it guarantee that the landlord would agree to a new lease
where the franchisee company traded as a Superspar (one of
the
conditions precedent).
[9] The purchaser responded on 25 May 2010 by noting that it would
appear that the seller had withdrawn its notice to terminate
the
franchise agreement and, in a follow-up letter the next day,
requested the seller to confirm that the notice terminating the
franchise agreement had been reinstated. The seller’s response
of 27 May 2010 contained an undertaking to do all things necessary
to
effect transfer of 50 per cent of the shareholding in the franchisee
company subject to payment of the purchase price. However,
it
reiterated that it could not guarantee conversion of the franchisee
company’s business into a Superspar and again referred
to the
franchisor’s rights of pre-emption and its rights under the
notarial bond. A copy of a new notice to the franchisor
terminating
the franchise agreement with effect from 26 June 2010 was annexed to
the seller’s response.
[10] On 2 June 2010 the seller’s attorneys informed the
purchaser that they had received an application by the franchisor
for
perfection of the notarial bond which was enrolled for hearing on 10
June 2010. They had advised their client that it had not
complied
with the terms of the franchise agreement in that it had not, as
required by clause 28 read with clause 25, offered to
the franchisor
a 50 per cent shareholding in the franchisee company. Nor had the
seller complied with the terms of the notarial
bond requiring the
seller to obtain the franchisor’s written consent for the
disposal of the shareholding. The seller’s
attorneys also noted
that the seller was indebted to the franchisor in an amount of some R
5,9 million. In view of these circumstances
the seller had resolved
not to oppose the application for perfection of the notarial bond.
[11] On 7 June 2010 the seller, pursuant to clauses 25 and 28 of the
franchise agreement, offered in writing to sell to the franchisor
50
per cent of the shareholding in the franchisee company at the price
and on the applicable terms set out in the sale of shares
agreement.
In order to ensure that the time for the exercise of the pre-emptive
right coincided with the time period stipulated
in the notice of
termination of the franchise agreement, the latter period was
extended to 6 July 2010 so that both periods would
expire on the same
day.
[12] The purchaser questioned the decision made by the seller not to
oppose the perfection application. It accordingly sought leave
to
intervene in the application to perfect the notarial bond and oppose
that relief. The application was argued and judgment reserved
on 10
August 2010. This led to the amendment of the franchise agreement on
5 July 2010 by the conclusion of an addendum reading
as follows:
‘
1. The parties hereby amend
the provisions of clause 28 of the Franchise Agreement read together
with clause 25 in that period of
30 days referred to in clause
25.1.2.2 is interrupted from Thursday, 10 June 2010 until such time
as the High Court of South Africa,
South Eastern Cape Local Division
delivers its judgment in respect of the urgent application which was
argued on Thursday, 10 June
2010. Once the judgment is delivered and
from the date of that judgment, the unexpired portion of the 30 day
period will resume.
2. The parties also, for the same reason and period
dealt with in paragraph 1 above, hereby amend clause 5 of the
Franchise Agreement
and more specifically the one month’s
written notice period referred to in that clause so that the one
month’s notice
period is interrupted from 10 June 2010 until
such time as the judgment is delivered in respect of the urgent
application. Once
judgment is delivered and from the date of that
judgment, the unexpired portion of the one month’s notice
period will resume.’
[13] The addendum was brought to the attention of the purchaser
shortly thereafter. It led to the purchaser’s response on
8
July 2010 that it provided further evidence of the seller’s
deliberate frustration of the fulfilment of the condition precedent.
The purchaser thereupon waived all the conditions precedent set out
in clause 4 of the sale of shares agreement and insisted on
transfer
of the shareholding purchased against payment of the purchase price.
The seller did not comply with this demand but stated
on 12 July 2010
that it would do so only on the lapsing of the time period provided
for in the addendum or the franchisor’s
decision not to
exercise its pre-emptive right.
[14] Against this background of correspondence, allegations and
counter-allegations the purchaser launched an urgent application
for
both interim and final relief. In view of certain undertakings given
by the seller and the franchisee company, only the application
for
final relief was dealt with by the court below. Eksteen J granted the
order sought and ordered the seller and the franchisee
company to
deliver 50 per cent of the shareholding in the franchisee company to
the purchaser against payment of the purchase price.
This appeal is
with his leave.
[15] The case is therefore a somewhat
unconventional one. It is not the usual dispute where the holder of
the pre-emptive right
after exercising the right claims specific
performance or delivery of the merx and the purchaser asserts a
competing right to delivery.
Rather, the holder of the pre-emptive
right, in this case the franchisor, seeks to enforce a contractual
entitlement to an extended
period to consider exercising its
pre-emptive right while the purchaser pursues a contractual right to
specific performance, that
is for delivery of the merx sold. The
franchisor’s right of pre-emption was provided by the franchise
agreement concluded
in 2004 but was only ‘triggered’ when
the seller made an offer to the franchisor on 7 June 2010 expiring on
6 July
2010.
1
The sale of shares agreement was concluded on 22
April 2010. The franchisor did not accept the offer made by the
seller within the
period of 30 days for which the franchise agreement
provided. Instead it relied on an extended period provided for by the
addendum
concluded on 5 July 2010. The sale of shares agreement
predated the addendum that extended the franchisor’s right of
pre-emption.
The only question argued before this court and the court
below was whether the extended right should be given preference. The
matter
was argued within these narrow limits and, more specifically,
on the question whether a new right of pre-emption came about as a
result of the conclusion of the addendum. That the conditions
precedent had been validly waived was not in dispute on the papers,
nor was any argument directed at any equitable considerations that
may have been relevant or at the appropriateness of an order
for
specific performance.
[16] Eksteen J accepted that the purchaser was
unaware of the restraint imposed by the franchise agreement on the
seller. He also
accepted that on becoming aware of the sale, the
franchisor insisted on holding the seller to its obligations in terms
of the franchise
agreement. He dealt with the argument on behalf of
both the franchisor and the seller that the conclusion of the
addendum pursuant
to clause 43.3 of the franchise agreement
2
did not create a new contract or new personal
rights as follows:
‘
[45] This may be so, however,
the rights to a longer period than 30 days was not stipulated …
in the Franchise Agreement
as at the date when the Sale of Shares
Agreement was concluded. It was not a right which [the franchisor]
could unilaterally extend
nor could it claim specific performance in
a court of anything more than 30 days as a
spatium
deliberandi
. It
required of the [seller] to confer that extended period on the
[franchisor] by reciprocal agreement in writing. Without such
further
agreement its rights remained circumscribed. The
spatium
deliberandi
to
which it was entitled was 30 days.
[46] The benefit to keep the right of pre-emption open
beyond a period of 30 days accordingly did not pre-exist the rights
which
accrued to the applicant under the Sale of Shares Agreement
which rights would become unassailable in the event of the
[franchisor]
not exercising his right of pre-emption in accordance
with the then existing rights.
[47] The entitlement to keep the
right of pre-emption in existence beyond 30 days had accordingly, in
my view, not vested at the
time when the Sale of Shares Agreement was
concluded on 22 April 2010 and accordingly, on the application of the
rule
qui prior est
tempore potior est iure
the
rights acquired by the [purchaser] are of greater force than those
subsequently acquired by the [franchisor] in respect of the
extended
period.’
[17] Generally a party to a contract is entitled
to enforce it
in forma specifica
.
3
When faced with two competing claims for the same
performance the position is more complex. Christie has outlined the
approach followed
by the courts in resolving such a dispute:
4
‘
The courts’ initial
response was to hold that because neither B nor C [the two competing
claimants] had a better right than
the other, specific performance
would not be granted to either, or would be granted only with an
alternative of damages. This could
hardly be regarded as
satisfactory, because it left the choice to A [the grantor of the
right of pre-emption] who had caused all
the trouble, whether by
foolishness or bad faith. In
Thomas
v Robertson
(1907)
24 SC 404
there can be traced the beginning of a principle that the
maxim
qui prior est
tempore potior est iure
ought
to be applied and specific performance be granted to B. This
principle has been developed and accepted in a line of cases.
Another
principle, apparently conflicting, was applied in
Hofgaard
v Registrar of Mining Rights, Stephenson and D’Elboux
1908
TS 650
, namely that specific performance should be granted to the one
who can show a balance of equities in his favour. This principle
also
found favour. A satisfactory synthesis of these principles was
achieved by Broome JP in
Le
Roux v Odendaal
1954
4 SA 432
(N), and it can now be taken as settled law that the
possessor of the earlier right is entitled to specific performance
unless
the other can show a balance of equities in his favour, and
that no distinction is drawn between rights arising from an option or
right of pre-emption and rights arising from a sale.
The same approach of granting specific performance to
the possessor of the prior right unless equities point the other way
is applicable
to any situation where there are competing claims for
specific performance.’
[18] This approach has often been criticised, not
only because of the inapplicability of the maxim to competing
personal rights,
5
but also because ‘
the maxim merely
expresses a result without providing any theoretical foundation for
it. The nature of the preference derived from
chronological priority,
in particular, is obscure.’
6
However, as I have said, this appeal is limited to a very narrow
inquiry, that is whether the extended right flowing from the addendum
should be preferred to the purchaser’s right to claim specific
performance in terms of the maxim. The equities of the matter
have
not been debated, nor the applicability of the maxim called in
question.
[19] Generally, the grantor of a right of
pre-emption is obliged, before selling the property, to offer it to
the holder of the
right of pre-emption upon the terms reflected in
the contract creating that right.
7
The franchisor, in this matter, was afforded a
right of pre-emption in respect of the shares and claims of each
shareholder in and
against the franchisee company by clause 28 of the
franchise agreement. The manner in which this right of pre-emption
had to be
exercised was set out in clause 25 which required the
shareholders of the franchisee company to deliver a written notice to
the
franchisor offering to sell the shares and claims. The offer was
open for acceptance by the franchisor for a period of 30 days.
The
seller made the offer to the franchisor on 7 June 2010. The
franchisor, on the basis of the maxim
qui
prior est tempore potior est iure
,
would have been entitled to delivery of the merx on exercising its
right of pre-emption and would have been able to obtain an
interdict
against the seller before such time to prevent transfer of the shares
sold.
8
This, however, was not what occurred. It did not
exercise its right of pre-emption and, instead, concluded the
addendum with the
seller, extending the period in which to accept the
offer made to it pursuant to its right of pre-emption.
[20] The franchisor placed some reliance on clause 43.3 of the
franchise agreement which contains a non-variation clause frequently
encountered in commercial contracts. It is not clear how this clause
assists the franchisor. There is no ‘right’ to
vary the
franchise agreement. Clause 43.3 does not grant any ‘right’
to extend the 30 day period provided for the exercise
of the right of
pre-emption. The franchisor had no such right. Any extension of the
period for the exercise of the right of pre-emption
had to be agreed
upon in writing. This the parties did only when the addendum was
concluded.
[21] It was also submitted that no new right was
created when the addendum was entered into. The addendum, so the
argument went,
did not amount to a new agreement nor did it create
new contractual rights after the conclusion of the sale of shares
agreement.
The rights flowing from the franchise agreement, it was
suggested, continued to exist but were extended when the addendum was
concluded.
I am not persuaded by this contention. The addendum
entailed the variation of the provision specifying the period within
which
the right could be exercised. The enforcement of the
pre-emptive right was accordingly dependent on the new agreement. The
ability
to enforce it flows from the subsequent agreement giving rise
to the addendum. But for that agreement the pre-emptive right would
have lapsed after expiry of the 30 day period. It matters not that
the addendum was concluded before the 30 day period had lapsed:
whether concluded before or after the expiry of that period a new
agreement varying the content of the pre-emptive right by extending
the period for its enforcement was reached. This new agreement was
concluded after the sale of shares agreement was entered into.
9
The franchisor did not exercise this right of
pre-emption within the original 30 day period. It could have done so
but did not.
On a strict application of the
qui
prior est tempore potior est iure
rule
the rights of the purchaser should therefore be preferred.
[22] By way of analogy the appellants relied on
two decisions
10
as authority for the proposition that the old
agreement remains in force and effect where one of the parties (or
both) elects not
to enforce a right to cancellation or elects to
accept late performance. I fail to understand how these decisions
assist the appellants.
Both cases essentially concern waiver. The
addendum is expressly stated to be an amendment of the franchise
agreement and not a
waiver of any of its terms. It is correct that
where an agreement has been cancelled on account of the breach of one
party the
other may waive reliance on such cancellation. It is also
correct that a party to an agreement may accept late performance.
None
of this assists the franchisor or detracts from the conclusion
that the addendum gave rise to an entitlement that did not exist
before the addendum was concluded. It follows that I am in agreement
with the conclusion of Eksteen J that the right acquired by
the
purchaser became ‘unassailable in the event of the [franchisor]
not exercising his right of pre-emption in accordance
with the then
existing rights.’
[23] In the result the appeal is dismissed with costs.
________________
F R MALAN
JUDGE OF APPEAL
APPEARANCES:
For 1
st
and 2
nd
Appellants: HJ Smith
Instructed by:
Cliffe Dekker Hofmeyr Inc
Sandton
Webbers Attorneys
Bloemfontein
For 3
rd
and 4
th
Appellants: A Beyleveld SC
Rushmere Noach Inc
Port Elizabeth
Webbers Attorneys
Bloemfontein
For 1
st
Respondent: RG Buchanan SC
Instructed by:
Goldberg De Villiers Inc
Port Elizabeth
Naudes Attorneys
Bloemfontein
1
It
is thus not necessary to inquire into the events that would
‘trigger’ a right of pre-emption. See Tjakie Naudé
‘The Rights and Remedies of the Holder of a Right of First
Refusal or Preferential Right to Contract’ (2004) 121
SALJ
636 at 646 ff and Jan Lotz ‘Purchase and Sale’ in
Reinhard Zimmermann and Daniel Visser
Southern Cross Civil Law
and Common Law in South Africa
(1996) 361 at p 384-7.
2
Clause
43.3 provides: ‘Subject to the express provisions of this
agreement to the contrary, no amendment or consensual cancellation
of this agreement or of any provision or term thereof, and no
settlement of any disputes arising under or pursuant to this
agreement, and no extension of time, waiver or relaxation or
suspension of any of the provisions or terms of this agreement,
shall be binding unless recorded in a written document signed by the
franchisor, the financier and the franchisee. Any such extension,
waiver, relaxation or suspension which is so given or made shall be
strictly construed as relating strictly to the manner in
respect
whereof it was made or given.’
3
Farmer’s
Co-operative Society (Reg) v Berry
1912 AD 343
at 350 and see
Benson v SA Mutual Life Assurance Society
1986 (1) SA 776
(A)
at 782F-783C.
4
RH
Christie assisted by Victoria McFarlane
The Law of Contract in
South Africa
5 ed (2006) p 525-6. See also Schalk van der Merwe,
L F van Huyssteen, M F B Reinecke and GF Lubbe
Contract General
Principles
3 ed (2007) p 383 ff. See
Van der Merwe v
Scheepers & others and the Coligny Village Council
1946 TPD
147
at 153;
Croatia Meat CC v Millennium Properties (Pty) Ltd
(Sofkleous Intervening); Sofokleous v Millennium Properties (Pty)
Ltd &
another
1998 (4) SA 980
(W) at 988E-F;
Barnard v
Thelander
1977 (3) SA 932
(C) at 936 ff;
Botes v Botes &
‘n ander
1964 (1) SA 623
(O) at 626 ff;
Krauze v Van
Wyk & andere
1986 (1) SA 158
(A) at 171G-172E and 173I-J;
Ingledew v Theodosiou
2006 (5) SA 462
(W) paras 55 ff.
5
Naudé
above at p 650 ff and Reinhard Zimmermann ‘Good Faith and
Equity’ in Reinhard Zimmermann and Daniel Visser
(eds)
Southern Cross Civil Law and Common Law in South Africa
(1996) 217 at p 237.
6
G
F Lubbe ‘Law of Purchase and Sale’ 1986
Annual Survey
of South African Law
141 at p 146-7.
7
Owsianick
v African Consolidated Theatres (Pty) Ltd
1967 (3) SA 310
(A)
316D-E per Ogilvie Thompson JA;
Soteriou v Retco Poyntons (Pty)
Ltd
1985 (2) SA 922
(A) at 932B-D.
8
Longhorn
Group (Pty) Ltd v The Fedics Group (Pty) Ltd & another
1995
(3) SA 836
(W).
9
Gauteng
MEC for Health v 3P Consulting (Pty) Ltd
(199/10)
[2010] ZASCA
156
para 25 relied upon by the appellants is based on an entirely
different set of facts and is no authority for the proposition that
the addendum merely prolonged the pre-emptive right.
10
Neethling
v Klopper & andere
1967 (4) SA 459
(A) at 466C-H and
Manna
v Lotter & another
2007 (4) SA 315
(C) para 26.