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[2021] ZASCA 108
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Harbour Arch Investment Holdings (Pty) Ltd v Capital Propfund 4 (Pty) Ltd (437/2020) [2021] ZASCA 108 (5 August 2021)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not
Reportable
Case No: 437/2020
In the matter
between:
HARBOUR
ARCH INVESTMENT HOLDINGS
(PTY)
LIMITED
APPELLANT
And
CAPITAL
PROPFUND 4 (PTY) LIMITED
RESPONDENT
Neutral
citation:
Harbour
Arch Investment Holdings (Pty) Ltd
v
Capital
Propfund 4 (Pty) Ltd
(case
no 437/2020)
[2021] ZASCA
108
(
05
August
2021)
Coram:
PETSE
DP, DAMBUZA, MBATHA JJA, POTERILL and POYO-DLWATI AJJA
Heard:
20
May 2021
Delivered:
This
judgment was handed down electronically by circulation to the
parties' representatives by email, publication on the Supreme
Court
of Appeal website and release to SAFLII. The date and time for
hand-down is deemed to be 10h00 on
05
August
2021.
Summary:
Contract
– acquisition by sub-lessee of immovable property previously
rented by it– sub-lessee’s contractual obligations
under
a leases assignment agreement subsumed by ownership rights –
payment obligation under leases assignment agreement for
further
development on leased property accordingly terminated.
ORDER
On
appeal from:
Western
Cape Division of the High Court, Cape Town (Saldanha J sitting as
court of first instance):
1
The appeal is upheld with costs.
2
The order of the high court is set aside and is replaced with the
following:
‘
The
application is dismissed with costs’.
JUDGMENT
Dambuza
JA (Petse DP, Mbatha JA, Potterill and Poyo-Dlwati AJJA concurring)
Introduction
[1]
In 1996 Transnet Ltd concluded a 30-year Notarial Land Lease
Agreement (the land lease) with a corporate
entity known as RPP
Developments (Pty) Ltd, in respect of a portion of commercial land
which was owned by Transnet in Culemborg
near the Cape Town Harbour
(the property). The lease was effective from 1 September 1996 until
31 August 2026. Subsequent to the
conclusion of the land lease, the
lessee’s rights and obligations thereunder were consecutively
assigned by the respondent’s
successors-in-title to the
appellant’s predecessors-in-title in terms of leases assignment
agreements. The lessees had a
right to sublet any portion of the
property without the consent of Transnet. Consequently, the
appellant’s predecessors-in-title,
as sub-lessors under the
assignment leases, then concluded tenant agreements with various
tenants who occupied different portions
of the property.
[2]
In 2008 the respondent, as Transnet’s lessee under the land
lease, concluded a leases assignment
agreement with the appellant
(then known as Edge Company).
[1]
In terms thereof the respondent’s rights and obligations under
the land lease, together with the tenant leases that were
in place at
the time, were assigned to the appellant as a going concern at a
purchase price of R235 million.
[2]
Clause 18.1 of the leases assignment agreement was a recordal of the
appellant’s intention to construct additional floor
space on
the property. In terms of clause 18.3 the appellant had to pay to the
respondent an amount of money, computed on a specified
formula, for
the additional floor space. Clause 18.4 provided that in the event of
the exercise, by the appellant, of the development
rights provided
for therein to construct additional lettable area, it would be
obliged to submit architectural guidelines to the
respondent for
approval by Transnet to ensure synergy of the architecture of the
planned development with the existing property.
[3]
On 11 April 2018, prior to the appellant’s exercise of the
development rights, ownership of the
property was transferred to it.
The deed in terms of which ownership of the property was transferred
from Transnet to the appellant
explicitly recorded that ‘[by]
virtue of this transfer condition 3 has lapsed by reason of merger
because the lessee has
become the owner of [the] lease property’.
[3]
In June 2018 the appellant advertised that it was planning to
construct additional floor space on the property. The respondent
requested information pertaining to the proposed development. The
request was refused by the appellant on the basis that it had
no
obligation to provide details of the proposed development to the
respondent as it had since become the owner of the property.
[4]
The respondent brought an application in the Western Cape Division of
the High Court, Cape Town (the
high court), seeking a declarator that
the leases assignment agreement was still of full force and effect
and enforcement of the
payment obligation provided for in clause 18.3
of the leases assignment agreement. It also sought an order declaring
that the appellant
was obliged to furnish to it information relating
to the proposed development. The appellant opposed the application on
the basis
that the payment obligation terminated once it became the
owner of the property and that its development rights now emanated
from
its ownership of the property.
[5]
The high court upheld the respondent’s application on the basis
that the merger of the land lease
and the ownership of the property
had no bearing on the payment obligation stipulated under clause 18.3
of the leases assignment
agreement. It held that the leases
assignment agreement made no provision, expressly or tacitly, for its
termination upon merger
of the land lease with ownership of the
property. The court then declared that the leases assignment
agreement was of full force
and effect and that the appellant was
liable to compensate the respondent for the proposed additional floor
area on the property.
This appeal, against that order, is with the
leave of the high court.
[6]
In this appeal, the appellant insists that once it became the owner
of the property its right to develop
it further no longer arose from
the provisions of the land lease or the leases assignment agreement,
but was a right consequential
to its ownership thereof. The
respondent, on the other hand, maintains that the appellant’s
ownership of the property only
affected only the land lease and not
the tenant leases. The argument is that clause 18.3 of the
leases assignment agreement
concerned the tenant leases and that it
survived the merger.
[7]
The parties are in agreement, however, that on the appellant’s
acquisition of the property its
rights and obligations as a
sub-lessor under the land lease were subsumed by its ownership
rights.
[8]
The principle of merger or
confusio
of contractual rights and
obligations is an established principle in our law of contract. In
relation to a lease contract a merger
occurs when rights and
obligations under an existing lease agreement are subsumed by the
rights and obligations arising from the
acquisition by the lessee of
the leased object.
[9]
The issue before us, ie whether the provisions of Clause 18.3 of the
leases assignment agreement survived
the termination of the land
lease or could be exercised independently thereof, confronted this
Court in
Grootchwaing
Saltworks Limited v Van Tonder
.
[4]
In that case the plaintiff company had exercised an option to buy the
land which it had been leasing from the defendant, Mr Van
Tonder.
Under the lease it had enjoyed certain rights, including a right of
way over, and the right to erect buildings on an adjoining,
unleased
portion of land, which was also owned by the defendant. Following its
purchase of the leased land the plaintiff maintained
that those
rights survived the merger that resulted from its acquisition of the
land. Innes CJ approached the issue as follows:
‘
Now
confusio
in
the sense with which we are concerned is the concurrence of two
qualities or two capacities in the same person, which mutually
destroy one another. In regard to contractual obligations it is the
concurrence of the creditor and debtor in the same person and
in
respect of the same obligation. The typical example of
confusio
and the one mainly dealt with in the books is the case of a creditor
becoming heir to his debtor or
vice
versa.
But
the same position is established whenever the creditor steps into the
shoes of his debtor by any title which renders him subject
to his
debt and it is common cause that
confusio
takes
place between lessor and lessee when the latter acquires the leased
property. As to the consequences of
confusio
there
can be no doubt that speaking generally it destroys the obligations
in respect of which it operates. A person, he says (referring
to
Porthier
Verbintenissen,
para
642), can neither be his own creditor nor his own debtor. And if
there is no other debtor then the debt is extinguished’.
[10]
As to whether the rights and obligations created in the lease
agreement could survive termination thereof and be
capable of being
exercised independently of it, the learned Chief Justice said:
‘
.
. . it is clear that if the contract shows that the parties intended
that these rights should be granted to the lessee in his
capacity as
such and should be exercisable only during the currency of the lease,
then they cannot be exercised after its termination.
The inequity
would be, not in giving equity to that position but in forcing one of
the parties to recognise rights which he never
intended to
constitute’.
[11]
This remains the approach to interpretation of legal documents in our
law today. This Court has repeatedly outlined
the process of
interpreting contracts as attributing meaning to the words used by
the parties to the agreement, taking into account
the context in
which the agreement was concluded.
[5]
[12]
In this case the leases assignment agreement must be the starting
point for determination of the intention of the
parties in relation
to the provisions of clause 18.3. Clause 18 of that agreement
provides, in material part, that:
‘
18
ADDITIONAL
BULK
18.1
It is recorded that:
18.1.1
EDGE COMPANY intends constructing additional floor area on the LAND
in addition to the existing floor area- which has
been constructed on
the LAND.
18.1.2
Successors-in-title of EDGE COMPANY to the LAND LEASE could in future
construct additional floor area on the LAND in
addition to the
existing floor area which has been constructed on the LAND.
18.2
IFOUR PROPERTIES, as soon as practically possible after this
agreement has become unconditional, will
procure a certificate by an
architect reflecting the existing floor area which has been
constructed on the LAND, and will provide
EDGE COMPANY with a copy
thereof.
18.3
If any additional floor area is constructed on the LAND by EDGE
COMPANY or by any of its successors-in-title
to the LAND LEASE, the
EDGE COMPANY, or any such successor-in-title to the LAND LEASE (as
the case may be) will pay to IFOUR PROPERTIES
[the respondent’s
successor-in-title], within 14 days after the building plans for such
additional floor area have been approved
by the local authority
concerned (and EDGE COMPANY or such successor-in-title is obliged to
inform IFOUR PROPERTIES thereof forthwith),
an amount (plus
value-added-tax) equal to 10% of such additional floor area
multiplied by R2,000.00 per sqm (excluding value- added-tax).
18.4
. . .
18.5
EDGE COMPANY [appellant’s successor-in-title] undertakes in
favour of IFOUR PROPERTIES as follows:
18.5.1 EDGE
COMPANY will at all times keep IFOUR PROPERTIES fully informed
(including access to all relevant applications,
submissions,
drawings, plans, books, records and documents in the possession of
EDGE COMPANY or under its control) of any steps
(including rezonings
and removal of restrictions) taken (or intended to be taken) to
procure rights to increase the permissible
floor area of the PROPERTY
or to design and/or construct floor area on the PROPERTY in addition
to the existing buildings, structures,
erections and improvements
forming part thereof’.
[13]
In clause 18.3 the parties regulated two aspects in relation to the
payment for additional development on the property.
First, by use of
the words: ‘[i]f any additional floor area is constructed on
the land . . .’ they specified when the
payment obligation
would be effective. In this case, by that time the appellant had
become the owner of the property. Nothing in
the words used by the
parties in clause 18.3 or anywhere in the leases assignment agreement
shows an intention by the parties that
the payment obligation would
be applicable even when the appellant built additional floor space as
the owner of the property. In
any event the appellant could not
exercise the development rights in respect of the property as both
the sub-lessee and owner thereof
at the same time. For this reason
alone, the respondent’s contention that the payment obligation
survived the merger is untenable.
[14]
Second, in clause 18.3 the parties described, with specific reference
to the land lease, the entity responsible
for the payment - as ‘Edge
Company or its successors-in-title to the LAND LEASE’. The
contention by the respondent
that the reference in the clause to
‘successors-in-title’ showed an intention that the
payment obligation should be
exercisable independent of the land
lease ignores the express reference, in the description of the
sub-lessor, to the land lease.
In terms thereof the
successors-in-title to whom the payment obligation was applicable
were limited to the successors under the
land lease. There could be
no successors-in-title to the land lease after termination thereof.
[15]
In addition, the argument by the respondent that the parties were
entitled to quantify the potential income from
the property at the
conclusion of the agreement does not take the respondent’s case
any further. The parties agreed on a
conditional payment as
stipulated under clause 18.3.
[16]
Furthermore, the respondent could only transfer to the appellant
under the leases assignment agreement such rights
and obligations as
it held under the land lease. As a lessee under a fixed term land
lease, although renewable, the respondent
could not, under clause
18.3, create for itself a perpetual benefit to receive payment
against all future sub-lessors of the property.
[17]
Consequently the following order is granted:
1
The appeal is upheld with costs.
2
The order of the high court is set aside and is replaced with the
following:
‘
The
application is dismissed with costs’.
N DAMBUZA
JUDGE OF APPEAL
Appearances:
For
the
A
ppellant:
B
MANCA SC
Instructed
by:
STBB Attorneys, Cape Town.
EG Cooper Majiedt,
Bloemfontein.
For
the Respondent:
P
LOUW SC
Instructed
by:
Kokinis
Inc, Johannesburg.
McIntyre van Der
Post, Bloemfotein.
[1]
The Notarial
Deed of Assignment was registered in the office of the Registrar of
Deeds Cape Town on 12 January 2010.
[2]
Essentially, the leases
assignment agreement was a sale agreement in terms of which the
appellant bought the letting business
from the respondent.
The
appellant’s previous names were: Edge Retail Property Holdings
(Pty) Ltd and Culemborg Investment Properties (Pty) Ltd.
[3]
Condition 3
reads as follows: ‘Subject to a Notarial Deed of Lease
K766/1997L to Rap Developments (Proprietary) Limited
number
1978/003380/07 which has been amended to include Lease Area Number
19 annexed to Notarial Deed of Amendment and Assignment
Lease
K40/2010L, which lease has been assigned o Culemborg Investment
Properties (Proprietary) Limited, Registration Number 2001/024389/07
under Notarial Deed of Assignment of Lease K41/2010L, which Lease is
for 30 years from 1
st
September 1996’.
[4]
Grootchwaing
Salt Works Ltd v Van Tonder
1920
AD 492.
[5]
KPMG Chartered
Accountants (SA) v Securefin Limited and Anothe
r
[2009] ZASCA 7
;
2009 (4) SA 399
(SCA);
[2009] 2 All SA 523
(SCA);
The
City of Tshwane Metropolitan Municipality v Blair Atholl
Homeowners
Association
[2018]
ZASCA 176
; [2019]1 All SA 291(SCA);
2019 (3) SA 398
(SCA);
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012
(4) SA 593
(SCA);
Bothma-Batho
Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk
[2013] ZASCA 176
;
[2014] 1 All SA 517
(SCA);
2014 (2) SA 494
(SCA).