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[2021] ZAKZPHC 24
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Naysmith v Sanders (4022/2020P) [2021] ZAKZPHC 24 (21 May 2021)
IN THE HIGH
COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
Not
Reportable
Case No: 4022/2020P
In the matter
between:
JAMES
NAYSMITH
APPLICANT
and
ROSALIND
SANDERS
RESPONDENT
ORDER
The following
order is granted:
1.
The loan agreement concluded between the applicant and the respondent
is declared null and void
for being in contravention of the
Subdivision of Agricultural Land Act 70 of 1970.
2.
The respondent is ordered to pay the applicant’s costs.
JUDGMENT
Mathenjwa
AJ
Introduction
[1]
In this matter the applicant seeks a declaratory order, firstly, that
the loan agreement concluded between
the applicant and the respondent
be wholly declared null and for being in contravention of the
Subdivision of Agricultural Land
Act 70 of 1970. Secondly, that if
the agreement is declared to be null and void, the provisions thereof
as relied upon by the respondent
are not severable from the rest of
the loan agreement.
Historical
background
[2]
The respondent instituted arbitration proceedings against the
applicant, in terms of the Arbitration
Foundation of Southern Africa
Rules for Commercial Arbitrations, which arbitration proceedings are
being heard by the duly appointed
arbitrator, Mr Dickson SC.
[3]
During the course of such arbitration proceedings, the applicant’s
defence was formally amended
and it was contended that the loan
agreement was wholly null and void, as being the sale of a portion of
agricultural land, contrary
to the provisions of the Act.
[4]
The respondent opposed the relief sought by the applicant, and
objected to the jurisdiction of the arbitrator
to deal with the
matter arising out of the validity of the agreement. The arbitrator
issued an award in terms of which the arbitration
was adjourned
sine
die
for the validity of the agreement to be dealt with by this
court. The applicant was directed to bring proceedings in this court
within 60 (sixty) days of the date of the granting of the award to
have the issue of the validity of the agreement on which the
claim is
based determined.
Issues
before this court
[5]
The issues for determination in this court are:
(a)
Whether the loan agreement is null and void for being in
contravention of the Act, as the primary purpose
of the parties was a
sale of an undivided portion of agricultural land, without the
consent of the Minister.
(b)
Whether the provisions of clause 5.2.2 of the agreement are severable
from the loan agreement.
[6]
The respondent disputed the authenticity of the loan agreement
annexed by the applicant to the notice
of motion, and she attached
what she alleged was a true copy of the contract, as annexure ‘RSI’
to her answering affidavit.
The applicant accepted that the agreement
annexed as ‘RSI’ was a subsequent agreement signed by the
parties which incorporated
an express amendment to the loan agreement
attached by the applicant to the notice of motion. Therefore,
annexure ‘RSI’
is the correct agreement relied upon by
the parties.
Applicant’s
contention
[7]
The applicant contends that he concluded the loan agreement, which
was drafted by the respondent’s
attorney, at the time when he
and the respondent had agreed that the applicant would sell a
designated portion of the farm he exclusively
owned to the respondent
and her late husband. He allegedly informed the respondent that the
designated portion would be subdivided,
and once the requisite
consent of the Minister was obtained, the subdivided portion, which
would be five hectares in extent, would
become her exclusively
legally owned immovable property.
[8]
The applicant contends that when he signed the loan agreement,
drafted by the attorney, he believed
that he was signing the sale
agreement which the parties had agreed and intended to conclude. The
applicant allegedly did not recall
having debated the terms of the
agreement with the attorney, prior to his signature thereof,
including it not being titled as a
‘sale agreement’, but
rather being titled as a loan agreement, which is not a matter he had
applied his mind to at
the time.
[9]
It is contended that the applicant did not at that time have personal
knowledge of the statutory provisions
expressly applicable to the
subdivision of agricultural land as detailed in the Act. Accordingly,
he was not advised by the respondent’s
attorney that the loan
agreement needed to be drafted to ‘circumvent’ the
existing legal provisions of peremptory statutory
legislation. The
respondent allegedly duly complied with the loan agreement, by making
payments including payment of what the applicant
understood was the
purchase price, and the respondent took occupation of the designated
portion of the farm to be subdivided in
due course. Based on these
reasons, the applicant contends that the loan agreement constitutes
the sale of a portion of undivided
agricultural land, which sale is
prohibited in terms of the Act, unless the Minister has consented
thereto.
Respondent’s
contention
[10]
The respondent contends that the loan agreement does not constitute a
sale of land and alternatively, if it is
found that it does, that
such portion of the agreement is severable from the remainder of the
agreement.
[11]
The respondent avers that the surrounding circumstances leading to
the signing of the loan agreement were that
in 2006, her late husband
and the applicant agreed orally that the property would be purchased
and registered in the applicant’s
and respondent’s name.
On the assumption that the property was registered in both the
applicant’s and respondent’s
name in 2006, she built a
residential home on the property, and also invested monies in the
development of the property.
[12]
It is contended that on establishing that the applicant had, contrary
to their agreement, purchased the property
and registered it in his
name, she entered into a written partnership agreement with the
applicant. She allegedly received advice
that as the property was
registered in the applicant’s name, her investment in the
property was not sufficiently protected
by the partnership agreement.
It is further contended that this led to further negotiations between
the parties, culminating in
the substitution of the partnership
agreement with the loan agreement.
[13]
It is further contended that once the loan agreement was signed, her
investment in the property was sufficiently
protected by the
registration of a mortgage bond, a reserved right of pre-emption, the
right to share in the proceeds of the sale,
her share in the proceeds
of the sale, and her share to be commensurate with her investment, or
if a subdivision took place, then
in that event, transfer of a
portion of the property. Based on these reasons, the respondent
concluded that the intention of the
parties to the agreement was not
one pursuant to which the applicant was selling to her, and she was
purchasing from the applicant
an undivided portion of agricultural
land, but one pursuant to which her investments in the property was
being protected.
[14]
It is apparent from the papers that a dispute of fact exists
regarding the surrounding circumstances relevant to
the conclusion of
the loan agreement.
[15]
I now turn to the relevant terms of the contract and thereafter
consider whether the dispute between the parties
can be resolved on
the affidavits.
The
relevant terms of the agreement
[16]
The agreement is titled ‘loan agreement’, between the
lender who is the respondent and the borrower
who is the applicant.
Clause 1 of the preamble record that ‘the lender has
contributed or will lend monies to the borrower’.
Clause 2
provides that the borrower has or will utilise these funds for the
acquisition of the property. Clause 3 provides that
the capital lent
by the lender to the borrower has been done so other than as a purely
commercial transaction at arm’s length,
in order to allow the
lender to acquire a share in an agricultural property. Clause 4
provides that the basis of the agreement,
as set out in annexure ‘A’,
was that the borrower would acquire all the land on the Durban side
of the Thornville Road
and that the portion of the property on the
Pietermaritzburg side would be acquired through the partnership
referred to above,
and all expenses, risks and benefits in that
portion only, would be shared equally. Lastly, clause 5 provides that
the parties
wish to record the terms and conditions of their
arrangement in this written memorandum.
[17]
At page 2 of the agreement, it is recorded that the capital amount is
R308 918.38, comprising of an advance of
R98 715.55, and a residual
payment of R210 022.83. The property involved is described as Rem of
Portion 62 of the Farm Vaalkop
and Dadelfontein, registration
division FT, in extent 14.4143 ha.
[18]
Clause 2 of the agreement deals with the interpretation of the
agreement. Clause 2.2 provides that the preamble
shall form part of
this agreement.
[19]
Clause 3 deals with the loan. Clause 3.1 provides that the burrower
acquired the property, which is an agricultural
property, and is not
capable of being owned in subdivided shares. It was the intention of
the lender and the borrower that the
property be jointly owned,
notwithstanding the legal impediment to this. The basis of the joint
ownership is as set out in the
preamble and annexure ‘A. Clause
3.2 provides that the lender contributed an amount as set out in the
definitions as an advance
towards the cost of acquisition and
improvement of the property. Clause 3.3 provides that the lender
shall contribute the residual
to the borrower within seven days of
the date of signature of the agreement. Clause 3.4 provides that in
return for the full capital
(being the advance and the residual)
loan, the lender has acquired an interest in and to the property.
[20]
Clause 5 deals with repayment of the loan. Clause 5.2 provides that
the loan shall be repaid in one of the following
three ways:
‘5.2.1
In the event of the property being sold to a third party the borrower
and lender shall be entitled to payment
equivalent to their
respective percentage interests in and to the property from the
proceeds of the sale. Such allocation to be
made prior to the
deduction of personal costs from the sale provided, however, that
joint costs incurred in the sale shall be deducted
from the proceeds
prior to their division.
5.2.2
The borrower has applied for consent to divide the property into
stands of approximately five hectors each.
In the event of consent to
the sub-division being obtained then the lender shall take possession
and ownership of such stand on
which her personal residence is
situated as no purchase cost in full settlement of the loan. The
lender shall be liable for the
costs of transfer of the stand.
5.2.3 In
the event of either party exercising their pre-emptive right in terms
of this agreement then he or she
shall be liable to pay an amount
equivalent to the other parties’ percentage interest in and to
the property.’
[21]
Clause 6 deals with security. Clause 6.1 provides that in order to
secure her interest in and to the property,
the borrower consents to
the registration of a mortgage bond over the property in favour of
the lender recording the terms and
conditions of the loan agreement.
[22]
Clause 13 provides that this agreement constitutes the entire record
of the contract between the parties, and clause
14 provides that ‘no
agreement varying, adding to, deleting from or cancelling this
agreement, shall be effective unless
reduced to writing and signed by
or on behalf of the parties’.
Interpretation
of the agreement
[23]
Mr Alberts, for the applicant, submitted that on the material and
relevant issues, there are
bona fide
, and genuine real dispute
of facts which cannot be resolved with reference to the affidavits.
He pointed out that it is evident
from the answering and replying
affidavits that the dispute of facts exist with reference to the
factual ‘matrix’ in
respect of the facts prior to the
conclusion of the loan agreement.
[24]
Mr Smit, for the respondent, agrees that there is a dispute of facts
in respect of the facts prior to the conclusion
of the lease
agreement, but that it is not material, since the resolution of the
application is to be found in an interpretation
of the lease
agreement.
[25]
Uniform rule 6(5)
(g)
empowers the court to direct that oral
evidence be heard on specified issues with a view of resolving any
dispute of fact where
an application cannot properly be decided on
affidavit. The court must examine the disputed facts and determine
whether there is
a real dispute of fact which cannot be determined
without oral evidence (see
Room Hire Co (Pty) Ltd v Jeppe Street
Mansions (Pty) Ltd
1949 (3) SA 1155
(T) at 1162).
[26]
In determining whether a real and material dispute of facts exists,
it is relevant to consider the law relating
to the interpretation of
a contract. The state of the law relating to interpretation of
contracts was stated in
Natal Joint Municipal Pension Fund v
Endumeni Municipality
2012 (4) SA 593
(SCA) para 18 as follows:
‘Interpretation is the process of attributing meaning to the
words used in a document, be it legislation, some other statutory
instrument, or contract, having regard to the context provided by
reading the particular provision or provisions in the light of
the
document as a whole and the circumstances attendant upon its coming
into existence. Whatever the nature of the document,
consideration must be given to the language used in the light of
the ordinary rules of grammar and syntax; the context in
which the
provision appears; the apparent purpose to which it is directed and
the material known to those responsible for its production.
Where
more than one meaning is possible each possibility must be weighed in
the light of all these factors. The process is objective,
not
subjective. A sensible meaning is to be preferred to one that
leads to insensible or unbusinesslike results or undermines
the
apparent purpose of the document . . . The “inevitable point of
departure is the language of the provision itself”,
read in
context and having regard to the purpose of the provision and the
background to the preparation and production of the document.’
[27]
The present state of the law relating to the interpretation of
contracts was further expressed in
Dexgroup (Pty) Ltd v Trustco
Group International (Pty) Ltd and others
2013 (6) 520 (SCA) para
16, where it was held that:
‘These cases make it
clear that in interpreting any document the starting point is
inevitably the language of the document
but it falls to be construed
in the light of its context, the apparent purpose to which it is
directed and the material known
to those responsible for its
production. Context, the purpose of the provision under consideration
and the background to the preparation
and production of the document
in question are not secondary matters introduced to resolve
linguistic uncertainty but are fundamental
to the process of
interpretation from the outset.’
[28]
Dexgroup
reinforces the principle set out in
Natal Joint
Municipal Pension Fund
regarding the interpretation of contracts,
and further reaffirms that the background to the preparation and
production of the contract
is not secondary to the language used when
interpreting the contract.
[29]
However, it is settled law that if a written contract provides that
any variation of its terms should be in writing,
the court may not
admit evidence which tends to contradict, alter or vary the written
contract. This was reaffirmed by Scott JA
in
HNR Properties CC and
another v Standard Bank of SA Ltd
2004 (4) SA 471
(SCA) at 479C,
where the learned judge of appeal, in referring with approval to
SA
Sentrale Ko-op Graanmaatskappy BPK v Shifren en andere
1964 (4)
SA 760
(A), held that:
‘. . .
a
term in a written contract providing that all amendments to the
contract have to comply with specified formalities is binding’
.
[30]
It follows that in accordance with the non-variation clause contained
in clause 14 in the parties’ agreement,
the dispute of facts,
with reference to ‘factual matrix’ in respect of the
facts prior to the conclusion of the loan
agreement, is not material
to interpretation of the agreement.
[31]
I now consider whether the agreement is a loan or sale agreement as
contended by the parties in their affidavits.
It should be pointed
out that although in his affidavit, the applicant contended that the
agreement is not a loan agreement but
an agreement of sale of the
property, Mr Alberts conceded during argument that the agreement was
a loan agreement. The concession
was correctly made considering that
the agreement is titled as being a loan agreement, it records the
respondent as a lender, the
applicant as a borrower, the capital
amount lent to the borrower, and the repayment of the loan.
[32]
Having found that the agreement signed by the parties is a loan
agreement, I now determine the purpose of the agreement.
In doing so,
the agreement is read and considered as a whole. I observe that the
purpose of the agreement is specified in clause
2 of the preamble of
the agreement, where it is stated that the borrower has or will use
these funds in the acquisition of the
property. Clause 4 of the
preamble goes further and records that the borrower would acquire all
the land on the Durban side of
the Thornville road. In clause 2.2 of
the agreement the parties incorporated the preamble as part of their
entire agreement. Therefore,
the purpose of the loan as expressed by
the parties in the preamble is part of the agreement.
[33]
The agreement provides for three ways in which the loan would be
repaid. What is relevant is clause 5.2.2 of the
agreement which
provides that in the event of the consent to the subdivision being
obtained, then the lender would take possession
of ownership of the
stand on which her personal residence is situated at no purchase
cost, in full settlement of the loan.
[34]
On reading the agreement as a whole, it appears that the main purpose
of the loan agreement was to enable the respondent
to purchase a
portion of the property. The respondent also protected her interest
in the property. Clause 6.1 of the agreement
records that in order to
secure the respondent’s interest in the property, a mortgage
bond would be registered over the property
in favour of the
respondent. In this manner, the respondent protects her interests in
the property.
[35]
I accept that the respondent protected her investment or interest in
the property by registering a mortgage bond
over the property. In my
view the protection of the respondent’s interest was subsidiary
to the main purpose of the loan
agreement to purchase the property.
[36]
Section 3 of the Act provides that:
‘
Subject
to the provisions of section 2—
(a)
agricultural land shall not be subdivided;
(b) no
undivided share in agricultural land not already held by any person,
shall vest in any person;
(c) no
part of any undivided share in agricultural land shall vest in any
person, if such part is not already held by any person;
. . .
unless the
Minister has consented in writing.’
[37]
This section prohibits any sale of an undivided portion of farmland
unless the subdivision has been approved by
the Minister. Section
3(e)
(i)
of the Act provides that:
‘
(e)
(i) no portion of agricultural land, whether surveyed or not, and
whether there is any building thereon or not, shall be sold
or
advertised for sale . . . .
unless the
Minister has consented in writing.’
[38]
The purpose of the provision of the Act was explained in
Geue and
another v Van Der Lith and another
[2003] ZASCA 118
;
2004 (3) SA 333
(SCA) para 15
where Brand JA held that:
‘. . .
The
purpose of the Act is not only to prevent alienation of undivided
portions of land. The target zone of the Act is much wider.
This
is clear, for example, from s 3(e)(i), which also
prohibits advertisements for sale. Since advertisements
obviously precede the actual sale or alienation of an undivided
portion, it is by no means absurd to infer that the Legislature
intended to prohibit any sale of an undivided portion of farmland,
whether conditional or not, unless and until the subdivision
has
actually been approved by the Minister. . .’
[39]
It follows that in the light of
Geue
, although the agreement
is not an agreement of sale, since the purpose of the loan is to
purchase a specific portion of the farmland,
and the Minister has not
consented to the subdivision of the farmland, the agreement is
prohibited by the Act.
[40]
Counsel for the respondent submitted that in the event that it is
found that clause 5.2.2 amounts to the sale of
an undivided portion
of agricultural land, contrary to the Act, then it is contended that
clause 5.2.2 is severable from the remainder
of the contract. I have
found that the contract constitutes a loan agreement for purposes of
purchasing an undivided farm land.
The test for determining whether
clauses are severable from the contract was stated in
Afrisure CC
and another v Watson NO and another
[2008] ZASCA 89
;
2009 (2) SA 127
(SCA) para
35, where Brand JA held that:
‘
The
answer, I think, depends on whether the illegal part of the agreement
can be severed so as to leave the remainder, which may
in itself be
unobjectionable, enforceable. . .
’
[41]
In my view, even if clause 5.2.2 was severed, the remainder of the
clauses of the agreement will still reflect
that the main purpose of
the agreement was to enable the lender to purchase a portion of
undivided farm land.
[42]
I observe that the decisions of the high courts have held that the
legislature’s intention was that agreements
prohibited by
section 3
(e)
of the Act should be visited with invalidity (see
the various high court cases set out in
Geue supra
para 19).
Order
[43]
Having made the finding that the loan agreement concluded by the
applicant and respondent contravenes section 3
(e)
(i) of the
Act, I make the following order:
1.
The loan agreement concluded between the applicant and the respondent
is declared null and void
for being in contravention of the
Subdivision of Agricultural Land Act 70 of 1970.
2.
The respondent is ordered to pay the applicant’s
costs.
MATHENJWA AJ
DATE OF
HEARING :
15 April 2021
DATE OF
JUDGMENT : 21 May 2021
FOR THE
APPLICANT : Adv S M
Alberts
Instructed by Cox Yeats Attorneys
c/o Austen Smith
FOR THE
RESPONDENT: Adv M Smit
Instructed by Martin Pike Incorporated
c/o Dirk Stofberg & Associates