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[2016] ZAKZDHC 51
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Integer Mortgage SPV (Pty) Limited v Body Corporate of Le Domaine and Others (333/2014;6634/2014) [2016] ZAKZDHC 51 (10 November 2016)
NOT
REPORTABLE
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
LOCAL DIVISION, DURBAN
CASE
NO: 333/2014
In
the matter between:
INTEGER
MORTGAGE SPV (PTY)
LIMITED
APPLICANT
and
THE BODY CORPORATE OF LE
DOMAINE 1
ST
RESPONDENT
BICCARI BOLLO MARIANO
INC. 2
ND
RESPONDENT
SEAN DARREN KEPKO
N.O. 3
RD
RESPONDENT
SYLVIA DELYSE KEPKO
N.O. 4
TH
RESPONDENT
PRADESH
MISRA 5
TH
RESPONDENT
THE REGISTRAR OF DEEDS,
KWAZULU-NATAL 6
TH
RESPONDENT
AND in the matter between:
CASE NO: 6634/2014
INTEGER MORTGAGE SPV (PTY)
LIMITED
APPLICANT
and
THE BODY CORPORATE OF LE
DOMAINE 1
ST
RESPONDENT
CATHRYN JANE
KENNEDY 2
ND
RESPONDENT
BICCARI BOLLO MARIANO
INC. 3
RD
RESPONDENT
JUDGMENT
Delivered
on : Thursday, 10 November 2016
OLSEN
J
[1]
There are two applications and one counter-application before me for
decision. I will call the applicant in both applications
“Integer”. The first respondent in both
applications is The Body Corporate of Le Domaine. I will call
it “the Body Corporate”. These two are the major
protagonists. They are also the major protagonists in the
counter application where the Body Corporate seeks relief contrary to
the interests of Integer.
[2]
There are also some minor players who have taken no part that matters
in the proceedings. One of them is a trust, represented
by its
trustees. The trust used to own a sectional title unit in the
development known as Le Domaine. Another is a
Mr Misra who
bought that sectional title unit at a sale in execution. I will
refer to him as the “purchaser”.
[3]
The Body Corporate controls the sectional title scheme known as Le
Domaine which is situate in Hillcrest, KwaZulu-Natal.
It is a
large residential estate consisting of over 600 residential units and
extensive common property and facilities.
[4]
Some years ago the trust purchased a unit in Le Domaine. The unit was
mortgaged in favour of Integer. The trust fell into
arrears
both with regard to its mortgage repayments and its levies due to the
Body Corporate. Integer instituted proceedings
against the
trust, obtained judgment, and eventually made arrangements to sell
the trust’s unit in execution on 26 June 2013.
[5]
On 30 May 2013 the attorneys acting for Integer addressed an email to
the Body Corporate’s financial manager, asking after
what was
outstanding by way of levies in respect of the unit. In
response the figure for levies (some R20 000,00) was
furnished,
but the financial manager asked the attorneys to please bear in mind
that before a levy clearance certificate would
be issued, a
contribution to the Body Corporate’s levy stabilisation fund
had to be made, that being 20% of the difference
between the price
realised at the sale and the original purchase price paid by the
trust for the unit. As it turned out,
given what the purchaser
paid for the unit, 20% of the profit was some R92 000,00.
That is the amount in issue in these
proceedings. Both Integer
and the Body Corporate want the money which is presently lodged in
the trust account of the Body
Corporate’s attorney.
[6]
For some reason, and apparently acting on legal advice, Integer, on
its own version, took the view that the contribution to
the levy
stabilisation fund would not constitute an obligation which would
have to be discharged in connection with its proposed
sale in
execution. One sees that the conditions of sale obliged the
purchaser to pay the ordinary outstanding levies (as
well as
outstanding municipal rates) in respect of the unit, in addition to
the purchase price, but said nothing at all about the
contribution to
the levy stabilisation fund which might be generated by the sale.
[7]
The sale in execution took place on 26 June 2013. Although the
price generated a considerable profit when measured against
the price
which the trust originally paid for the unit, it was not sufficient
to discharge the mortgage obligation in full.
There was no
surplus with which to pay the Body Corporate’s profit share.
It appears to be undisputed that the trust
was not able to meet the
claim from other funds available to it, this being an inference I
draw from the papers.
[8]
The Body Corporate took a stand. It would not authorise the
issue of a levy clearance certificate unless it received its
20%
share of the profit as a payment into its levy stabilisation fund.
(For the sake of convenience I call the certificate required
by
s15B(3)(a)(i)(aa)
of the
Sectional Titles Act, 95 of 1986
a “levy
clearance certificate”.) Integer (presumably through its
attorneys) asked for a copy of the relevant
management rule which
provided for the contribution. On 5 August 2013 an employee of
the Body Corporate, a Ms Angus, having
been requested to attend to
this, sent what she supposed to be a scanned copy of the relevant
provision to the attorney representing
Integer. She sent two
pages reflecting the first four clauses of the rule, which had been
added to the standard management
rules at the time of the opening of
the register for Le Domaine. A brief description of the four
clauses will suffice for
present purposes, as they are not
contentious. The first clause established the obligation to pay
into the fund a share of
any profit on the sale of any unit.
The second clause sets out how the profit is to be calculated.
The third clause
deals with the particular cases of companies, close
corporations and trusts (not relevant in this matter, despite the
fact that
a trust was the defaulting owner on this occasion).
The fourth allowed for deferment of the profit contribution when a
surviving
spouse inherits a unit from a deceased spouse.
[9]
At this stage an impasse had been reached.
[10]
Some seven weeks later, on 25 September 2013, the attorneys acting
for Integer made a proposal to the Body Corporate that Integer
pay
the profit share into trust, where it would remain “until we
have a declaratory order from the High Court as to whether
that
specific clause regarding the levy stabilisation fund is applicable
where there is a forced sale of the property”.
The
proposal was that the Body Corporate should issue the levy clearance
certificate on those terms. This offer was referred
by the Body
Corporate to its attorneys who addressed the attorneys acting for
Integer making a formal counter-proposal. It
involved the Body
Corporate issuing the required certificate, so that the property
could be transferred to the purchaser, upon
the basis that the amount
due to the levy stabilisation fund would be paid into trust, and
subsequently paid out, depending upon
the outcome of litigation, the
ambit of which was defined in the following three clauses of the
proposed agreement.
“
d.
The purchaser is to initiate an application for a declarator or such
other appropriate relief in order to determine whether the
Le Domaine
LSF contribution is payable consequent upon a sale of a unit by way
of execution proceedings, such proceeding to be
initiated and served
within 30 days of the registration of transfer of the property;
e.
We are irrevocably authorised and instructed to release and pay to
our client the LSF contribution held in trust, and all interest
earned thereon, in the event of the aforementioned legal proceedings
not being initiated and served within the period of 30 days;
f.
The purchaser shall not be entitled to dispute or challenge liability
to pay the LSF contribution on any basis other than that
the
contribution is not due and payable in the case of a sale in
execution.”
[11]
The attorney for Integer replied saying that the conditions were
acceptable, but pointing out that the dispute in question
was not
raised by the purchaser but by Integer which would, in the
circumstances, pay the contribution into trust and initiate
the
proceedings for the declaratory order. That was acceptable to
the Body Corporate and the money was paid into trust. (I
will refer
to the agreement thus reached as the “agreement”.)
[12]
Transfer of the property to the purchaser was effected on 29 November
2013.
[13]
The first of the applications before me posed as the one required to
be launched by Integer in terms of the agreement.
The papers
were only issued after the expiry of the 30 day period.
(Service took place later.) In its answering affidavit
the Body
Corporate took the point that the application was barred for being
late, and that it was accordingly entitled to receive
the money from
trust and keep it as its own. It also recorded that it had
decided not immediately to take the money from
trust, but that it
reserved its right to do so. I will deal in due course with the
issue as to whether the first application
was barred, and other
issues arising in the first application. It is convenient first
to complete an account of what has
happened.
[14]
In its answering affidavit in the first application the Body
Corporate made the observation that the version of the rule which
establishes the levy stabilisation fund which had been put up in the
founding papers was incomplete. There is a third page.
That page contains two more clauses. The full rule was put up
with the answering affidavit. The two additional
clauses
read as follows.
“
1.5
The provisions of this rule shall not prejudice or affect the rights
of any bondholder of any sectional unit in the scheme who
shall be
entitled to the full proceeds due from any sale in execution of a
sectional unit.
1.6
Any action by a bondholder of a sectional unit in the scheme shall
not prevent the Body Corporate from recovering from the owner
thereof
that owner’s contribution or any portion thereof to the Body
Corporate Levy Stabilisation Fund.”
[15]
Integer only came to have knowledge of these two additional clauses
upon delivery of the answering affidavit. In its
replying
affidavit in the first application it complained that the position
had been misrepresented to it, and recorded that it
was considering
the question as to whether it should rescind the agreement in terms
of which it had paid the sum of some R92 000,00
into trust.
[16]
Eventually, in about September 2014 the second application was
launched. In that application Integer asserted that it
had
rescinded the agreement which had given rise to the first application
on the basis of misrepresentation, asked the court to
endorse that
rescission as good, and claimed repayment of the money from trust on
this basis, as opposed to the one it had relied
on in the first
application. In its answer the Body Corporate did not accept
that a right to rescind had accrued. But it
did not contend that it
had accepted any repudiation of the contract evidenced by Integer’s
second application. The
two applications (together with the
counter application by the Body Corporate for an order directing the
payment to it of the money
still held in trust) were consolidated for
the purpose of the hearing before me. Counsel for Integer took the
stance that he was
entitled to argue for rescission in the second
application, and fall back on the first application conditionally
upon the second
being refused. In my view this approach was
permissible and, as I understood counsel for the Body Corporate, he
raised no
objection to it. I propose to deal with the second
application before the first.
[17]
In the second application Integer alleged that the Body Corporate’s
employee had negligent misrepresented to it that
the rule dealing
with the Body Corporate’s profit share comprised only the first
four clauses. (It hinted at an allegation
of fraud, something
for which it had no evidence at all, and I shall ignore it.) In
answering these allegations the Body
Corporate asserted (correctly in
my view) that, whether it is classified as negligent or not, the
misrepresentation was innocently
made. Ms Angus cannot recall
how it came about that the scanned copy of the rule which she had
sent to Integer’s attorneys
at the beginning of August 2013
only comprised the first two pages, and omitted the third. It
was an error of some sort.
The misrepresentation was innocent, not
because its content was thought to be true, but because it was
accidentally and unwittingly
made. The possible implications of that
were not raised before me, and I shall ignore that piece of detail.
[18]
The requirements to be satisfied by a party seeking to avoid a
contract on the ground of misrepresentation were set out in
Novick
and Another v Comair Holdings Limited and Others
1979 (2) SA 116
(W), at 149 – 150. (One of them listed there, that the
misrepresentation must be material in the sense that it was
such as
would have influenced a reasonable person to enter into the contract,
is controversial, and I will ignore it despite the
fact that I think
it was not satisfied in this case.) The two requirements that
are material to the decision in the second
application are that
(a)
the misrepresentation must have
been intended to induce the person to whom it was made to conclude
the contract; and
(b)
the misrepresentation must have
in fact induced the contract.
[19]
It will be recalled that when Integer asked for a copy of the
relevant rule on or shortly before 5 August 2013 there was no
question of any agreement being reached. A stalemate was in
place. The Body Corporate would not issue the levy clearance
certificate because it was some R92 000,00 short of what was due
to it. The trust could not pay it. Nobody was
offering to
pay it in order to allow the transfer to go through. There is
no evidence at all before me upon which to reach
a conclusion that
the delivery of a copy of only the first four clauses of the rule was
intended to induce any contract at all,
let alone the one ultimately
concluded. On the papers before me
(a)
the omission of the last two
clauses of the rule was unintended and inadvertent; and
(b)
the Body Corporate did not know
that Integer had only put up the first four clauses of the rule in
its founding papers in the first
application because that was all
Integer had, until that fact was revealed upon delivery of Integer’s
replying affidavit.
[20]
There having been no intention to induce the conclusion of the
contract by misrepresentation, the claim to rescission must
fail.
I would add, however, that I do not understand Integer’s
contention that it was in fact induced to enter into
the contract by
the omission of the last two clauses of the rule. The Body
Corporate knew what those provisions were and
decided, with knowledge
of them, that it was entitled to withhold a levy clearance
certificate until its profit share was paid.
One can see from
the way in which the Body Corporate’s attorney formulated the
sole issue upon which it was willing to litigate
(whether the profit
share was payable upon the sale of the unit in execution) that it is
those two clauses which the Body Corporate
had in mind. If
anything, in my view knowledge of those two clauses on the part of
Integer would have caused it to agree
with even more alacrity to the
proposal made by the Body Corporate’s attorneys. After
all the clauses record that the
bondholder is entitled to the full
proceeds due from the sale in execution. On the face of it the
only issue remaining would
be whether, reading the two missing
clauses together, it must be implied that, even if the Body Corporate
was unable to recover
the profit contribution from the trust, it
would have to produce a levy clearance certificate so that the
transfer could go through,
and Integer could receive its entitlement;
that is the full proceeds of the sale in execution. I find that
Integer has also
failed to prove that it was actually induced to
conclude the contract by reason of being deprived of knowledge of
those two clauses.
In its founding papers it indulges in what
might be called wishful thinking, postulating that the Body Corporate
would have issued
the levy clearance certificate without any payment
into trust if Integer had knowledge of the content of the two missing
clauses.
The history of this litigation shows otherwise
conclusively.
[21]
For these reasons the second application must fail, and I must deal
with the first.
[22]
In my view the first application was not only issued out of time, but
was misconceived, given the provisions of the agreement
which
governed it. The agreement required Integer to initiate
proceedings in which it would seek a declaratory order to the
effect
that the profit contribution is not payable following a sale of a
unit in execution. Instead it launched proceedings
in which it
sought three declaratory orders, the one that Integer is not liable
to pay the contribution; the second that the purchaser
is not liable
to pay the contribution; and the third, declaring that the trust is
liable to pay the contribution. (The fourth
substantive order
sought was that the sum in question therefore be paid over to Integer
out of trust.)
[23]
Unsurprisingly, as counsel for the Body Corporate pointed out in
argument, his client’s answer is that there has never
been an
issue about the facts that neither Integer nor the purchaser is
obliged to pay the contribution, nor one over the proposition
that
the only person against whom the Body Corporate could legitimately
make a claim for payment of the profit contribution is
the trust.
As counsel for the Body Corporate pointed out in argument, the issue
over which the parties were to litigate is
whether a profit
contribution was payable at all in the case of a sale in execution;
because if it was not then his client had
wrongfully withheld a levy
clearance certificate for want of payment of such a contribution.
[24]
Integer’s replying affidavit in the first application was
drafted with knowledge of the content of the two clauses of
which
Integer was unaware when the application was launched. Not even
that knowledge caused Integer to reflect on the difference
between
the relief it had claimed, and the relief that was supposed to have
been claimed in terms of the agreement, and modify
its stance.
Instead one sees this in the replying affidavit.
“
76.
The
issue in this application is not whether [the Body Corporate] had the
right to prevent transfer of the sectional unit.
The issue is
who is obliged to pay the LSF contribution.
77.
If
the above Honourable Court determines that [Integer] is liable to pay
the LSF contribution, then the money held in trust by [the
attorneys]
must be paid to [the Body Corporate].
78.
If
the above Honourable Court makes any other determination regarding
who is obliged to pay the LSF contribution, the money held
in trust
by [the attorneys] must be refunded, together with the interest
thereon, to [Integer].”
[25]
It is therefore clear that the first application is not the one
contemplated by the agreement between the parties, and furthermore
it
is indisputable that it was launched after the expiry of the time
allowed by the agreement. As mentioned earlier in this
judgment
it is one of the principal contentions of the Body Corporate that
both these failures have the consequences that it is
entitled to the
money in trust, and that Integer has lost any right to reclaim the
money, whether out of trust or after it has
been paid over to the
Body Corporate.
[26]
Whether these contentions are correct depends on the proper
construction of the agreement. The legal context within which
the agreement was struck should be considered. In relevant
part
s15B(3)(a)(i)(aa)
of the
Sectional Titles Act, 95 of 1986
provides as
follows.
“
The
registrar shall not register a transfer of a unit or of an undivided
share therein, unless there is produced to him –
(a)
a
conveyancer’s certificate confirming that as at date of
registration
(i)
(aa)
…[the] Body Corporate has certified that all monies due
to
the Body Corporate by the transferor in respect of the said unit have
been paid, or that provision has been made to the satisfaction
of the
Body Corporate for the payment thereof”.
[27]
The term “all monies due to the Body Corporate” is wide.
In
Barnard NO v Regspersoon van Aminie en ‘n Ander
2001
(3) SA 973
(A) the court considered an argument that the monies
referred to in the provision included only arrear contributions or
levies,
and interest thereon, and not any other obligation which the
transferor owed to the body corporate. In that case the
question
was whether legal costs owing to the body corporate as a
result of attempts to recover contributions fell within the section.
It was held that the intention of the provision was to give effective
protection to the body corporate and that if it had been
intended
that only contributions due to the body corporate by the transferor
were covered, that would have been said; instead of
which the section
speaks to “all monies due”.
[28]
The profit share claimed by the Body Corporate in terms of its rules
was certainly a money claim, and a purpose of the rule
was to
establish a fund in order to stabilise ordinary levy contributions.
It seems self-evident that in an inflationary
environment levy
increases can be “smoothed” to the advantage of all unit
holders if there is a fund to dip into when
required. And of
course such a fund might also assist in avoiding having to raise
special levies in exceptional circumstances.
The Body Corporate
took the view, on its construction of the rule, that it could not
issue a clearance certificate required by
the section unless the
amount was paid, or unless provision was made to its satisfaction for
the payment thereof. As already
mentioned an impasse resulted.
As pointed by Navsa JA in
Firstrand Bank Limited v Body Corporate
of Geovy Villa
2004 (3) SA 362
(SCA), para 26, in such
circumstances
“
(a)
reasonable mortgagee and Body Corporate might arrive at an
accommodation where there are insufficient funds available to cover
the total of the debts owing to both parties –
but
neither is obliged in law to do so
.”
(My
emphasis.)
[29]
It is plain that the Body Corporate was aware of the fact that it had
no right to claim payment of the profit share from anyone
but the
trust. But on its interpretation of the rule which created its
claim to the profit share (and on its interpretation
of the Act) it
did have the right to place an embargo on the transfer. That
was the right upon which it was being asked to
compromise, and it was
entitled to stipulate the terms on which it would do so. These
matters had to have been known also by Integer
when it concluded the
agreement.
[30]
It is in that context that the agreement was concluded, it having
been Integer’s initial proposal that the only condition
should
be its right to assert that the profit share is not payable to the
Body Corporate in the case of a forced sale. The
Body Corporate
imposed a 30 day time limit and Integer accepted it. It had to
have been implied that if the application was
not launched within
that time limit then it would never be launched. Where the
agreement provided that if the application
was not launched in time
the money would be paid by the attorneys to the Body Corporate, what
was clearly meant was that the money
would be the Body Corporate’s
to keep. The time limit would otherwise have been meaningless.
The fact that Integer
agreed also to confine its challenge to one
issue supports the proposition that finality, efficiently achieved,
was the goal.
[31]
I conclude, accordingly, that the first application must fail not
only because it was not an application of the kind contemplated
by
the agreement, but also because it was not instituted in the time
permitted by the agreement.
[32]
During the course of argument it was suggested that, if I should come
to the conclusions which I have, it might be helpful
if I expressed
my views about the proper construction of the last two clauses of the
rule which creates the Body Corporate’s
claim to a profit
contribution to its levy stabilisation fund. The request was
reasonable, given that if I found that the proceedings
were not
time-barred, and that the first application just qualified as one
contemplated by the agreement, the proper construction
of the clauses
would arguably have been decisive. I am nevertheless reluctant
to express such views for three reasons.
(a)
It is not necessary to do so,
given the conclusions I have reached.
(b)
In fact the issue of the
meaning of the two clauses received scant
attention in argument, which dealt
principally with the issues upon which I have decided this case.
(c)
An issue not raised at all is
as to whether in the first place the profit
contribution falls under
s15B(3)(a)(i)(aa)
of the
Sectional Titles Act. It
is in the
nature of a tax on the sale of a unit. The section allows an
embargo on transfer until monies due in respect of
a unit are paid or
secured. Do monies due in respect of the sale of a unit fall
within the class contemplated by the section?
If not, the
proper construction of the two clauses, which were obviously drawn on
the assumption that the profit share falls within
the section, would
not be decisive.
[33]
Despite the aforegoing I deal with the issue briefly.
[34]
The fifth clause of the rule (clause 1.5) states expressly that the
provisions of the rule will not prejudice or affect the
rights of a
bondholder “who shall be entitled to the full proceeds due from
any sale in execution of a sectional unit”.
Given that
the clause is dealing with circumstances in which the unit holder is
in financial distress of such severity that a home
is to be lost, the
provision which allows the bondholder an entitlement to the full
proceeds of the sale would be meaningless unless
it was intended to
convey that the transfer necessary to allow the bond holder to access
its entitlement could not be blocked by
the Body Corporate. It
seems to me that the right to a profit share was created upon terms
which put the claim beyond the
operation of
s15B(3)(a)(i)(aa)
of the
Sectional Titles Act in
circumstances where a bondholder is executing
upon hypothecated property. I see nothing wrong in that, given
that the profit
share scheme is not one dealt with in the
Sectional
Titles Act.
[35
]
In my view the sixth clause (clause 1.6) reinforces this. It
says in effect that despite the fact that the bondholder is
going to
take the full proceeds of the sale, which can only happen if the
transfer is registered despite non-payment of the profit
share, the
claim still lies against the owner. That clause appears to be
designed to ensure the survival of the claim against
the owner (even
if it is a poor one, given the owner’s distress) despite the
fact that, because transfer takes place, the
owner ceases to be a
member of the Body Corporate.
[36]
I am disinclined to grant attorney and client costs as requested by
the Body Corporate. The clause in the agreement providing
for
them said that they would be payable “as is provided for in the
Management Rules”. Integer is not subject
to those
rules. (The clause was put into the Body Corporate’s
counter-offer, which contemplated the litigation being
instituted by
the purchaser who would have become a member at the time.)
Furthermore, the Body Corporate contends, correctly
as I have found,
that the first application is not in fact one contemplated by the
agreement. It is therefore not one automatically
subject to the
submission to attorney and client costs set out in the agreement.
I
make the following orders.
1.
The applications under
each of case numbers 333/2014 and 6634/2014 are dismissed with costs.
2.
The counter-application
made under case number 6634/2014 is granted as follows.
(a)
Biccari Bollo Mariano
Inc is directed to pay to the Body Corporate of Le Domaine the sum of
Ninety Two Thousand Five Hundred and
Thirteen Rand and Nine Cents
(R92 513,09) held in trust by the said firm of attorneys,
together with interest which has accrued
thereon.
(b)
Integer Mortgage SPV
(Pty) Limited is directed to pay the costs of the counter
application.
___________________
OLSEN
J
Date
of Hearing:
MONDAY, 17 OCTOBER
2016
Date
of Judgment:
THURSDAY, 10 NOVEMBER 2016
For
the Applicant :
MR C B EDY
Instructed by:
KATANYA CHETTY ATTORNEYS
APPLICANT’S
ATTORNEYS
DOCEX 412, DURBAN
c/o MESSENGER
KING
SUITE 801, 8
TH
FLOOR
ESPLANADE
GARAGE
127 MARGARET
MNCADI AVENUE
(TEL.: 031 4022
288)
(REF.: K
Chetty/197)
For
the Respondents : MR ME STEWART
Instructed by:
BICCARI BOLLO MARIANO INC
RESPONDENTS’
ATTORNEYS
c/o MESSENGER
KING
SUITE 801, 8
TH
FLOOR
ESPLANADE GARAGE
127 MARGARET
MNCADI AVENUE
DURBAN
(TEL.: 031 –
566 6769)
(REF.: R
Botha / sp/ DLI 278)