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[2019] ZAKZPHC 38
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River Rock Investments (Pty) Ltd v Umhlathuze Municipality (14399/17P) [2019] ZAKZPHC 38 (30 April 2019)
IN
THE HIGH COURT OF SOUTH AFRICA,
KWAZULU-NATAL HIGH
COURT, PIETERMARITZBURG
CASE NO: 14399/17P
In
the matter between:
RIVER
ROCK INVESTMENTS (PTY) LTD
APPLICANT
and
UMHLATHUZE
MUNICIPALITY
RESPONDENT
ORDER
1.
The
application is dismissed with costs, such costs to include that of
two counsel where so employed.
JUDGMENT
Chetty
J:
1.
The
applicant, a company with its place of business in Meerensee,
Richards Bay, entered into a notarial lease agreement with the
then
Richards Bay Transitional Local Council on or about 5 August 1998 in
respect of a property described as Rem of the Farm Richards
Bay
14217, and Rem of Erf 2627 Richards Bay, Province of KwaZulu-Natal
(‘the property’). Over the years during
the
lifetime of the lease, the applicant spent a considerable amount of
money in developing the property from which it carried
out business
letting out holiday accommodation to the public. It constructed
log cabins on site, as well as a swimming pool,
ablution blocks, a
conference centre, a miniature golf course and a host of other
infrastructural developments. None of these
improvements to the
property is disputed by the respondent. Clause 14.4 of the
agreement provides that upon the termination
of the agreement all
buildings and other improvements on the property would become the
sole property of the respondent without
any compensation whatsoever
to the applicant. Alternatively, at the option of the
respondent, the applicant could, at its
own cost, remove all the
improvements elected on the property and restore the property to the
same condition in which it was at
the time of the commencement of the
agreement.
2.
The issue
which has given rise to the application relates to the application by
the applicant to renew the lease agreement, which
was declined by the
respondent.
3.
It is
common cause between the parties that the date of commencement of the
lease agreement was in October 1997, with the lease
to endure for a
period of 19 years and eight months, terminating on 31 May 2017.
In terms of clause 4.2 of the agreement
the applicant would have an
option to renew the lease for two further consecutive periods of ten
years each, except that there
would be no renewal upon the expiry of
the second ten-year period, and that the rental in respect of the
renewal periods would
be market related and agreed upon between the
parties. However, in order for the applicant to have secured a
renewal lease, it
was required in terms of clause 4.3 of the
agreement to give written notification to the respondent of its
intention to do so,
before the commencement of the 19
th
anniversary of the agreement.
4.
It is
common cause on the papers that the 19
th
anniversary would have occurred on 31 May 2016. In an apparent
attempt to renew the lease in accordance with the provisions
of
clause 4.3, the applicant dispatched a letter to the respondent on 6
May 2016 exercising its option to renew the lease for a
period of 10
years. The problem for the applicant is that the municipality
had no record of such email or letter having been
received. Not
having heard from the respondent for several months, the applicant on
20 January 2017 addressed a letter to
the respondent referring to its
earlier letter in which it contended contained the exercise of the
renewal option.
5.
On 14 March
2017 the respondent replied that the application to renew the lease
had been declined as the municipality had no record
of receipt of the
letter sent in May 2016. As the applicant failed to apply to
renew the lease before 31 May 2016, the respondent
declined the
application to renew the lease. It pointed out that if the
applicant wished to remain on the premises beyond
31 May 2017, this
would be on the basis of a month-to-month lease.
6.
In light of
the applicant being unable to prove that it delivered its written
communication of the exercise of the option to extend
the lease
before 31 May 2016, its attorneys wrote to the respondent on 7 April
2017 essentially contending that on the applicant’s
interpretation of the lease, prior to 31 May 2016 it had enjoyed an
unconditional and irrevocable right to exercise the option
to renew
the lease. It was further contended that during the
period between 31 May 2016 and 31 May 2017 (when the agreement
terminated), provided that the applicant gave notice to the
respondent that it was exercising the option to renew, and before the
respondent exercised its election as to what it wished to do with the
property, the applicant was still entitled to exercise the
option to
renew.
7.
It is
common cause that prior to 16 March 2017 the respondent did not
communicate to the applicant that it had decided to dispose
of the
property in some or other manner nor did it record that the
applicant’s option to renew had lapsed. On this basis,
the
applicant submits that its notification in January 2017 constituted a
valid enforcement of its option to renew in terms of
clauses 4.2 and
4.3 of the agreement. It is perhaps prudent to set out the full
text of the provisions of clause 4 of the
agreement, the
interpretation of which is dispositive of the application before me.
Clause 4 provides for the following :
‘
4.
PERIOD
4.1
The Lease shall be for an initial period of 19 (Nineteen) years and 8
(Eight) months, which
period, notwithstanding the date of signing
hereof, will commence in the EFFECTIVE DATE and terminate on the 31
st
day of May 2017.
4.2
The LESSEE, having faithfully complied with the terms and conditions
of the AGREEMENT, will
upon termination of the AGREEMENT,
have an
option to renew
the Lease for 2 (Two) further consecutive periods
of 10 (Ten ) years each, subject,
mutatis mutandis,
to the
same terms and conditions as contained in the AGREEMENT, except that
there shall be no further right of renewal upon the
expiry of the
second period of 10 (Ten) years and the rental in respect of each
renewal period being an amount to be agreed upon
between the parties
as market related but subject to the proviso that such rental shall
not be less than the rental paid in respect
of the month immediately
preceding the relevant renewal period plus 12 % (Twelve Percent). In
the event of the parties failing
to reach agreement in respect of
rental for any renewal period, the matter shall be referred to
arbitration as provided for in
Clause 33 hereof. Until the matter has
been resolved by arbitration, the LESSEE shall be obliged to pay the
rental at the minimum
rate as aforesaid.
4.3
The LESSEE shall be
obliged to exercise its option to renew the
Lease in writing, at least 12(Twelve) calendar months prior to the
termination date
of the previous term
of the AGREEMENT, failing
which such option, in the sole discretion of the LESSOR,
shall
lapse and be of no further force or effect
.’ (my emphasis)
8.
The
applicant relies on the dictum in
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012
(4) SA 593
(SCA) for its contention that
its
interpretation is the only reasonable, sensible and
business
like interpretation. In paragraph 18 Wallis JA said the
following regarding the approach to interpretation :
‘
. .
.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. . .”
See
also
KPMG
Chartered Accountants (SA) v Securefin Ltd & another
2009
(4) SA 399
(SCA)
at para 39 where the Court stated:
‘
.
. .interpretation is a matter of law and not of fact. . . to the
extent that evidence may be admissible to contextualise the document
(since “context is everything”) to establish its factual
matrix or purpose or for purposes of identification, “one
must
use it as conservatively as possible”. . . .’.
(References omitted).
In
Roazar
CC v The Falls Supermarket CC
2018
(3) SA 76
(SCA)
the
matter
was put
thus
at paragraph 9:
‘
These
clauses must be interpreted by having regard to the language used, in
the light of the ordinary rules of grammar and syntax,
in the context
of each other and the agreement as a whole, and their apparent
purpose, so as to give them a commercially sensible
meaning. If
more than one meaning is possible each possibility must be weighed in
the light of all these factors. The
process is objective and
not subjective
.
’
9.
In
support of the interpretation that it was still open to the applicant
to renew the lease after 31 May 2016, the applicant submits
that if
the option to renew only existed until 31 May 2016 and would have
lapsed beyond that date, there would be no rationale
for the
agreement to include the words in clause 4.3 ‘
failing
which such option, in the sole discretion of the LESSOR, shall lapse
and be of no further force or effect
.’
As I understood this argument, Ms Nel who appeared for the applicant,
submitted that if the option to renew lapsed
on 31 May 2016, the
remainder of the words in clause 4.3 after ‘shall lapse’
would be superfluous and meaningless,
unless one interpreted the
clause in the manner contended for by the applicant, in other words,
that the option of renewal would
endure beyond 31 May 2016 and would
only be extinguished if the respondent (without having heard from the
applicant) had communicated
its decision that it had other plans for
the property than a renewal of the lease with the applicant. As
stated in
African
Products (Pty) Ltd v AIG South Africa Ltd
2009
(3) SA 473
(SCA), para 13, where words in a contract, depending on
the context, may have the same meaning, ‘they must each be
given
a meaning that will avoid tautology or superfluity’.
10.
In
support of this conclusion, the court in
African
Products
para 13 referred to the decision in
Wellworths
Bazaars Ltd v Chandler's Ltd & another
1947
(2) SA 37
(A) at 43, in which the Appellate Division made reference
to the decision of the Privy Council in
Ditcher
v
Denison
11 Moor PC 325 at 357, holding that:
‘
It is a
good general rule in jurisprudence that one who reads a legal
document whether public or private, should not be prompt to
ascribe -
should not, without necessity or some sound reason, impute - to its
language tautology or superfluity, and should be
rather at the outset
inclined to suppose every word intended to have some effect or be
of some use.’
11.
Mpati
J concluded in
African
Products
para 13 that a ‘
court
should thus be slow to conclude that words in a single document are
tautologous and superfluous’. The applicant
contends that the
interpretation contended for by the respondent causes the remainder
of clause 4.3 after the word ‘Agreement’
to be
disregarded. This is not entirely correct as the respondent
contends that in the event of the applicant not exercising
its option
within the first 18 years of the lease, within the last year of the
lease it (the respondent) has the sole discretion
as to whether it
may want to extend the lease, or do whatever it may wish with the
property. I will deal more this aspect
below, suffice to say
that this is the nub of the application.
12.
In
light of the applicant having communicated its intention to renew the
lease agreement on 20 January 2017 (the initial communication
on 6
May 2016 being disputed), it contends that it properly exercised the
option to renew as contemplated in clause 4.2 and 4.3,
and that this
communication was made prior to the respondent communicating that it
had elected to use the property for some other
purpose.
Accordingly, the applicant contends that its election of the option
on 20 January 2017 is valid and binding on the
respondent and that
the latter’s communication on 30 May 2017 that the agreement
was terminated by effluxion of time, and
relegating the applicant to
a monthly tenancy terminable at the will of the respondent, is
unlawful. Put differently, and
as stated in the letter of the
applicant’s attorney to the respondent dated 7 April 2017:
‘
. . .it
is not the agreement of lease that lapses, but the option agreement
in clauses 4.2 and 4.3 of the lease agreement that can
lapse, at the
discretion of the municipality – not automatically. The clear
meaning of clause 4.2 read together with clause
4.3 is that prior to
31 May 2016, [the applicant] is entitled to exercise the option in
terms of the option agreement (contained
in the lease agreement)
which [the respondent] cannot withdraw from or vary other than in
terms of the express provisions provided
in the lease agreement.’
13.
In
the alternative, and in the event of the interpretation argument not
succeeding, the applicant contends (at least in the letter
from its
attorney dated 7 April 2017) that the discretion which vested in the
respondent in terms of clause 4.3 had to be fairly
exercised inasmuch
as the respondent, being as organ of state, was obliged to act in
accordance with fair procedure. To this
end, the applicant
contends that despite there being no proof that its letter of 6 May
2016 was received by the respondent, it
has substantially complied
with its obligations to notify the respondent that it intended to
exercise its option to renew prior
to 31 May 2017.
14.
In
its replying affidavit, and in answer to the respondent’s
argument that the principles of fair dealing underpin the object
of
clause 4.3,
the
applicant relies on the concept of Ubuntu and good faith which
underpins the manner in which contracts are to be interpreted.
In developing this argument, the applicant points to its expenditure
of over R20 million over the duration of the lease in developing
the
property, with no prospect of recovering this money in the event of
it being found that it failed to exercise its option of
renewal.
The infusion of constitutional values into the law of contract can be
found in
Everfresh
Market Virginia (Pty) Ltd v Shoprite Checkers (Pty) Ltd
2012
(1) SA 256
(CC) where Yacoob J noted at para 24 that to exclude
the concept of ubuntu from a contract of lease between two business
entities was ‘too narrow an approach.’ Moseneke DCJ in
para 72 added:
‘
Contracting
parties certainly need to relate to each other in good faith. Where
there is a contractual obligation to negotiate,
it would be hardly
imaginable that our constitutional values would not require that the
negotiation must be done reasonably, with
a view to reaching an
agreement and in good faith’.
This
theme was continued in
Botha
v Rich NO and Others
2014
(4) SA 124
(CC) para 46 the Constitutional Court went further and
infused the value of fairness into the law of contract holding that
where
parties to a contract deal with each other ‘good faith is
the lens through which we come to understand contracts. . . .’
15.
In
substantiation of the point that fairness should favour the
interpretation contended for by the applicant, it points out that
although the respondent’s Council took a decision on 20 June
2017 that the leased property was not needed by the respondent
for
the provision of basic municipal services and therefore could be
disposed of by public tender, the respondent in December 2017
rescinded its earlier decision and entered into a lease with the
applicant until the end of December 2018. At the time of
the
hearing of this application in February 2019, I understood that the
applicant was still in occupation of the leased premises.
16.
The
applicant also contends that a business which it runs from a caravan
park on the adjoining property is reliant on the continuance
of the
lease being renewed, as both businesses operate in tandem. This
is disputed by the respondent which contends that
the caravan park is
a stand-alone business and does not form any part of the legal
enquiry as to whether the applicant has validly
exercised its right
to renew option. I agree with that submission.
17.
The
respondent’s stance is that the applicant did not exercise its
option to renew the lease any time prior to 31 May 2016,
which the
parties accept to be the 19
th
anniversary of the lease agreement. To the extent that the
applicant contends that the above date was not the cut-off point
for
it to exercise its option to renew, the respondent points out that
even on the applicant’s own version, it regarded the
31
st
May 2016 as being of critical importance. Why then, the
respondent contends, would the applicant have initially placed
reliance
on its letter of 3 May 2016 which makes reference to the
‘stipulations s
et
out in the agreement’ and requests the renewal of the lease for
a further ten (10) year period? The respondent contends
that
this in itself points to the applicant’s acceptance that it had
until 31 May 2016 within which to exercise its option
to renew.
Only after discovering that it was unable to prove that the letter of
3 May 2016 reached the respondent, did it
adopt a fall-back position
of what I consider to be a ‘
residua
l’
basis for the option to renew.
18.
The
respondent, relying on the rule of interpretation set out in
Endumeni
contends that the text of clause 4.2 is clear – the option to
renew is expressly provided for in this section. Clause
4.3
provides the mechanism for the option to be validly exercised –
it had to be communicated in writing, at least (or not
less than) 12
months prior to the termination date of the agreement. It is
common cause that clause 4.1 stipulates the termination
date of the
agreement as 31 May 2017. What remains is the interpretation
accorded to the following words: ‘. . .
failing
such option, in the sole discretion of the Lessor, shall lapse and be
of no further force and effect’
.
Mr
Madonsela
SC, who appeared with Ms
Mbonane
,
for the respondent submitted that that if regard is had to the
arrangement of the words in clause 4.3, this militates against
the
interpretation contended for by the applicant that the option to
renew existed up to 31 May 2017. I am in agreement with
the
respondent in this regard, as any interpretation to the contrary
would render superfluous the words ‘. . .at least 12(Twelve)
calendar months prior to the termination date’.
19.
Mr
Madonsela’s
argument
was founded on an analysis of the ‘text, context and purpose’
of clause 4.2 and 4.3 of the agreement, when
considered as a whole.
It was submitted that the scheme of the arrangement of clauses 4.2
and 4.3 must take cognisance of
the long lease entered into between
the parties where the applicant was accorded an option, freely
exercisable without any interference
from the respondent, within the
first 19 years of the life of the agreement. This option was to
be exercised at the will
of the applicant on or before 31 May 2016.
In contrast, the latter part of clause 4.3 recognises an unfettered
discretion
accorded to the respondent, without any inference or input
from the applicant, to decide what it elects to do with the property,
where the applicant has not exercised its option to renew prior to 31
May 2016. That would accord with a sensible interpretation
of the
wording.
20.
The
respondent contends that the interpretation sought by the applicant
fails to give any recognition to the statutory and legislative
constraints within which the respondent carries out its functions,
for example, whether it is to elects to sell the property or
lease it
to another party. Mr
Madonsela
pointed to the respondent’s obligations in dealing with an
asset, such as the leased property, in terms of the
Local Government:
Municipal Finance Management Act, 56 of 2003
which prescribes the
circumstances under which a municipality may deal with a capital
asset either by the sale or some other transaction,
without
determining beforehand whether the asset is required for basic
municipal services. Added to this, is the obligation to
ensure that
any transaction that disposes of the property would have to be by
open tender and based on a fair market value.
21.
In
addition, I was referred to the provisions of the Municipal Asset
Transfer Regulations, GN R878, GG 31346, 22 August 2008, which
regulate the process in terms of which a municipal asset, like the
leased property, may be disposed. Taking into account the legislative
constraints that bind the municipality in any of its decision making
processes, Mr
Madonsela
submitted, and correctly so in my view, that the unfettered period of
one (1) year which is accorded to the municipality was inserted
in
clause 4.3 to ensure that the respondent is able to comply with the
various statutory requirements which it is obliged to follow.
In
counsel’s submission, anything to the contrary would lead to
what Wallis JA in
Endumeni
referred to as ‘unbusinesslike results’, which would
undermine ‘the apparent purpose of the document’.
22.
The
next ground relied on by Mr
Madonsela
was that the principles of fair dealing underpin the object of clause
4.3 in that it affords sufficient time to both parties to
decide the
fate of the property. In the case of the applicant, it is
allowed 19 years from the effective date (being the
commencement of
the lease agreement) to decide whether it wishes to extend the lease
for a further ten years. If the option
to renew is not
exercised by the applicant, the pendulum swings to the respondent, in
its sole discretion, to determine how it
wishes to deal with the
property. During the period accorded to each contracting party,
they are permitted to exercise their
choice free of interference from
the other. In the case of the applicant, all that would have
been necessary to cement the
option to renew was to have proof of the
letter it says was sent to the municipality. That would have
been the end of the
matter, and the applicant would have been
ensconced as a lessee for a further ten year period. If on the
other hand the applicant
took no steps to exercise the option to
renew by the stipulated date, the agreement is clearly worded to give
to the respondent
discretion to deal with the property in a manner it
deems fit, obviously in accordance with statutory prescripts.
23.
If
the interpretation called for by the applicant were to prevail, a
lessee of a municipal owned property could simply ignore a
time
stipulation within which it had to exercise an option to renew a
lease, and keep the municipality guessing until the very
last day of
the agreement as to whether it wishes to renew the lease or not.
If it chooses not to, the municipality, in such
circumstances, would
be severely prejudiced as it would have to lease the property at
short notice, if at all possible, or dispose
of the property in
accordance with fair procedure. Either of these processes would
involve considerable delay, to the prejudice
the municipality. The
municipality’s conduct would be placed under scrutiny, and
rightly so, where the property in question
is located in a sought
after area or one which attracts high market values. The
municipality cannot contract with the first
party who shows an
interest in either leasing or buying the property. To do so
would render its decision unlawful.
Accordingly, it contends
that the right accorded to the applicant to renew the lease had to be
exercised on or before 31 May 2016.
That right did not extend
into the last anniversary of the contract, during which time the
respondent had the sole discretion to
deal with the property as it
chose.
24.
The
respondent’s assertion of fair dealing afforded the platform
for the applicant in reply to contend that the principles
of Ubuntu
must inform the interpretation of any contract, and such application
must favour the interpretation sought for by the
applicant. The
applicant relies on
Beadica
231 CC & others v Trustees, Oregan Unit Trust & others
2018
(1) SA 549
(WCC) to support its alternative argument that it has
substantially complied with its obligations in respect of the
exercise of
the option to renew the lease. In
Beadica
,
Davis J applied considerations of fairness to the enforcement of a
contractual clause in a lease agreement. The facts in
Beadica
are
briefly that the lessees were franchisees and beneficiaries of a
black economic empowerment transaction who concluded a lease
for
certain premises, for an initial period of 5 years, subject to a
right to renew. The franchise agreements contemplated that
the
business would operate from the leased premises. The lessees
purported to exercise their right to renew the lease agreements,
but
did so out of time. They argued that if the lease was not extended
their businesses would close, and their franchise agreements
would be
terminated.
25.
The clause
under consideration in
Beadica
was
very similar in effect to clause 4.2 and 4.3 presently under
consideration in that it gave the lessees the option to renew the
lease agreements provided that this was exercised by a certain
specified date. The relevant provision was quoted in
Beadica
as follows:
‘
The
lessee shall have the right to extend the lease period by a further
period as set out in section 13 of the Schedule [a further
period of
five years] on the same terms and conditions as set out herein, save
as to rental, provided that the lessee gives the
lessor written
notice of its [sic] exercising of the option of renewal at least six
months prior to the termination date.’
26.
Notwithstanding
that it was clear from the clause in question that the option to
renew had to be timeously exercised by the lessees,
Davis J found
that the lessees had validly exercised their options to renew the
lease, despite being out of time. The court reasoned
at paragraph 42
that:
‘
In this case I find that the
sanction was disproportionate because the contracts signed maximised
the interests of both parties
and this meant that they intended
ensuring that the franchise agreements be underpinned by the lease
agreements’
And at paragraph 43:
‘
. . .the sanction which might
follow a strict application of a formal rule is in and of itself
insufficient to justify the relief
sought when the key intention of
parties can be clearly divined from, as in this case, the substance
of the two agreements read
together’.
27.
Subsequent
to hearing this matter, Davis J
’
s
judgment in
Beadica
was
set aside by the Supreme Court of Appeal in
Trustees
for the Time Being of the
Oregon
Trust v BEADICA 231 CC & others
(74/2018)
[2019] ZASCA 23
(28 March 2019). In doing so, Lewis ADP,
writing for the court, endorsed the views of Brand JA in
Potgieter
v Potgieter NO
2012
(1) SA 637
(SCA) where he sounded a caution of judges venturing to
introduce the principle of fairness as the basis for adjudicating
contract
disputes. Brand JA stated at paragraph 34:
‘
[T]he reason
why our law cannot endorse the notion that judges may decide cases on
the basis of what they regard as reasonable and
fair, is essentially
that it will give rise to intolerable legal uncertainty. That much
has been illustrated by past experience.
Reasonable people, including
judges, may often differ on what is equitable and fair. The outcome
in any particular case will thus
depend on the personal
idiosyncrasies of the individual judge. Or, as Van den Heever JA put
it in
Preller
& others v Jordaan
1956
(1) SA 483
(A)
at 500, if judges are allowed to decide cases on the basis of what
they regard as reasonable and fair, the criterion will no
longer be
the law but the judge’.
28.
Lewis ADP
criticised
the
basis on which Davis J relied to find that the lessees were entitled
to relief, by stating at paragraph 38 that:
‘
The
notion
that a sanction for breach, or failure to comply with the terms of a
contract, agreed on by the parties is disproportionate
and therefore
unenforceable, is entirely alien to South African contract law. And
to recognize it would be to undermine the principle
of legality.’
Lewis ADP proceeded in
paragraph 38 to clarify that:
‘
That does
not mean that a sanction that is contrary to public policy, or that
is unconscionable in the circumstances, is to be enforced.
The
question is really one that centres on policy – the legal
convictions of the community, rooted now in the Constitution.’
29.
Having
found that the proper basis for deciding whether to allow the
enforcement of sanction was the consideration of public policy
issues
and not the notion of the sanction being disproportionate, and,
having proceeded to consider the policy issues that arose
in the
matter before her, Lewis ADP concluded in paragraph 46 that:
‘
. . .
there
are no considerations of public policy that render the renewal clause
of the leases unenforceable. The demand for compliance
with their
terms was not unconscionable. The leases terminated on 31 July 2016
through the effluxion of time. When the lessees
brought their urgent
application on 1 August 2016 the leases had expired. There was no
basis on which to resuscitate them.’
30.
Is
conclusion that the option to renew the lease only existed until 31
May 2015 contrary to public policy or unconscionable in the
circumstances of this case?. If it is, it cannot be enforced. The
respondent submits that the rationale for it being granted an
unfettered discretion for a year, in the event of the lessee not
exercising the option to renew, was due to its public law duties
as
an organ of state. Apart from that however, even if this were a
contract between two private parties who entered into
the agreement
freely and honestly and with mutual respect for each other’s
obligations under the contract, the principle
which has evolved is
that contracts should be honoured -
pacta
sunt servanda
.
Brand JA in
South
African Forestry Co Ltd v York Timbers Ltd
2005
(3) SA 323
(SCA) para 27 rejected the contention that all contracts
should be subject to an implied term that parties’ obligations
should
be exercised in accordance with the dictates of fairness and
reasonableness and found that although these values are fundamental
to our law of contract, they cannot be ‘acted upon by the
courts directly’. Brand JA added that:
‘
Acceptance of the notion that
judges can refuse to enforce a contractual provision merely because
it offends their personal sense
of fairness and equity will give rise
to legal and commercial uncertainty”.
In
Fourway Haulage SA
(Pty) Ltd v SA National Roads Agency Ltd
[2008] ZASCA 134
;
2009 (2) SA 150
(SCA)
similar views were expressed. In his article, ‘Commercial
certainty and constitutionalism: Are they compatible’
(2016)
SALJ 545
at 559, Malcolm Wallis expresses himself on the issue thus:
‘
Encouraging good faith in
contracts and enforcing good faith commitments does not involve
overthrowing the entire edifice of our
law of contract.’
31.
Even
accepting that there will be negative financial consequences for the
applicant and that it is unable to recoup its investment
in the
leased property, this does not mean that the operation of the ‘option
clause’ has inequitable or unconscionable
results, or that the
sanction of the lapsing of the option is unduly harsh or
inappropriate. The decision of the respondent not
to validate an out
of time renewal will have the result that the applicant will be
unable to recoup the money spent on the development
of the property.
Apart from the respondent’s contention that the applicant
benefitted from operating for 20 years at
a very reasonable rental,
the applicant was well aware of the implications of clause 14.4 of
the agreement which provided an reasonable
time for it to consider
and act on its option to renew in the knowledge that if it did not,
on termination, the buildings and improvements
become the property of
the municipality, unless these could be removed by the applicant.
32.
Importantly,
there is nothing on the papers to suggest that the municipality was
using the option period in clause 14.4 for a purpose
not intended.
The municipality states that when it recorded on 14 March 2017 that
it would not concede to the out of time
renewal, plans were already
being made for the leased property in light of the applicant not
having timeously elected to renew
the lease. In this regard,
the Deputy Municipal Manager states that the municipality was already
in the process of ‘re-imagining
the Alkantstrand beach and
surrounding properties’, including the leased property and that
the future of the property was
being considered by its Planning
Department for a renewed urban development.
33.
Lastly, I
can find no basis to interpret clause 4.2 and 4.3 as requiring the
respondent, where the applicant had not exercised its
renewal option
before 31 May 2016, to communicate its decision to the applicant as
to what it wished to do with the property, and
that a failure to do
so would entitle the applicant to renew the lease in the last year of
its duration. I agree with Mr
Madonsela
that there is nothing in the text of clause 4.2 and 4.3 that imposes
such an obligation on the respondent nor is there any basis
to imply
such a duty from the language of the contract. This argument falls to
be rejected.
34.
Accordingly,
the interpretation contended for by the applicant in relation to the
purported exercise of the renewal in January 2017
cannot be
sustained. Despite the hardship that it may suffer from the
termination of the lease agreement, I am unable to
find any basis
that warrants a rejection of the contextual interpretation of the
agreement.
M
[zRPz]
ohamed's
Leisure Holdings (Pty) Ltd v Southern Sun Hotel Interests (Pty) ltd
2018 (2) SA 314
(SCA)
made it clear that when interpreting contracts
:
‘
The fact that a term in a
contract is unfair or may operate harshly does not by itself lead to
the conclusion that it offends the
values of the Constitution or is
against public policy. In some instances the constitutional values of
equality and dignity may
prove to be decisive where the issue of the
party's relative power is an issue. There is no evidence that the
respondent's constitutional
rights to dignity and equality were
infringed. It was impermissible for the high court to develop the
common law of contract by
infusing the spirit of ubuntu and good
faith so as to invalidate the term or clause in question’.
35.
The
decisions in
M
[zRPz]
ohamed's
Leisure
and
Roazar
CC v The Falls Supermarket CC
2018
(3) SA 76
(SCA)
,
cited
with approval by Lewis ADP in
Oregon
Trust,
illustrate
the importance of the principle of
pacta
sunt servanda
and the importance of contracting parties to order their affairs with
legal certainty arising from the terms of a contract freely
entered
into. I find that there are no public policy issues which
render clause 4 of the agreement unenforceable.
36.
In the
result, I make the following order :
The application is
dismissed with costs, such costs to include that of two counsel where
so employed.
M
R CHETTY
Appearances
For the Applicant:
C A Nel
Instructed by:
Macgregor
Erasums Attorneys
Bond Square, First Floor
Durban
c/o
Macgregor Emasums Attoneys
12 Gough Road
Pietermaritzburg
Ref:
(Callum Smythe/Cathy)
Tel:
031 389 0433
Email:
callum@meattorneys.co.za
cathy@meattorneys.co.za
For the Respondent: T G Madonsela SC
Instructed by:
Mgwenya & Zwane Inc
c/o
Yashika Chetty Attorney
365 Langalibalele Street
Pietermaritzburg
Tel:
033 394 9818
Ref:
(Ms Y Chetty/N7159)
Tel:
033 394 9818
Date reserved:
12 February
2019
Date delivered:
30 April 2019