Brief Summary

Property Law — Sale of immovable property — Retransfer of property — Applicant sought retransfer of property from first respondent due to non-completion of building within stipulated period — First respondent did not oppose the application, leading to a default judgment — Court expressed reservations regarding the enforceability of a retransfer clause against a retail purchaser under public policy and constitutional rights — Application withdrawn by applicant with costs ordered.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings took the form of an unopposed application for default judgment in the High Court of South Africa, Gauteng Division, Pretoria. The applicant was Bondev Midrand (Pty) Ltd, a property developer. The first respondent was Mulatedzi Alton Madzhie, an individual purchaser of a residential stand. The second respondent was the Registrar of Deeds, Pretoria, cited because the relief sought concerned the retransfer of immovable property. The third respondent was The Standard Bank of South Africa Ltd, cited as the mortgagee under a bond registered over the property.

The application initially served before Jansen AJ on 12 August 2016. Although the court was satisfied that the matter was procedurally in order, it indicated that it was not prepared to grant the relief sought because of substantive concerns about the enforceability of the relevant contractual clause. The matter was stood down to 19 August 2016 to allow the applicant’s counsel to prepare argument. On 19 August 2016, the applicant delivered a notice of withdrawal (with a tender of costs), and requested that the withdrawal be noted and filed of record. The court made an order on 19 August 2016 permitting the withdrawal. The signed reasons for that order were delivered on 19 December 2016.

The general subject-matter of the dispute was the enforcement of a “retransfer/repurchase” clause in a deed of sale (and reflected on the title deed as a registered condition), invoked because the purchaser had not completed building a dwelling within the stipulated period. The court’s reasons focused on whether such a clause could be enforced against an ordinary residential purchaser consistently with public policy and with section 26(1) of the Constitution (and possibly section 25(1)), as well as the court’s approach to such issues in unopposed matters.

2. Material Facts

In January 2012, the applicant (a developer) sold an unimproved residential erf in a security estate to the first respondent. The purchase price was R680 000.00, and the purchaser raised the funds through a bank loan, secured by a mortgage bond registered in favour of the third respondent. The applicant received full payment and transfer was registered into the first respondent’s name under Deed of Transfer T76698/12.

The sale agreement contained a building-period clause (clause 11.1). It required the transferee (and successors in title) to erect a dwelling within 18 months from 16 January 2012, failing which the transferor (the developer) would be entitled (but not obliged) to claim that the property be transferred back to the transferor at the transferee’s cost, against payment by the transferor of the original purchase price, interest free. The clause also restricted alienation by the purchaser during the period without the developer’s written consent, and allowed extension at the developer’s discretion.

The building-period clause was subsequently registered on the title deed as a condition (referred to as clause B), thereby, on the applicant’s case and as treated in earlier matters in the division, obtaining the status of a real right or limited real right enforceable against successors in title.

An extension agreement was later concluded, containing similar terms (with changed dates and specific progress deadlines). The applicant relied on the fact that the first respondent did not complete building within the required period, and sought an order compelling retransfer of the property to the applicant against repayment of the original purchase price, together with ancillary orders (including compelling signature of transfer documents, authorising the deputy sheriff to sign if necessary, and preserving the bondholder’s rights).

The matter was unopposed: the first respondent did not file opposition, and the application was placed before the court for default judgment. The court’s concerns were not based on factual disputes raised by the respondent, but arose from the wording and effect of the clause and its compatibility with constitutional norms and public policy.

3. Legal Issues

The central questions the court was required to determine were, first, a procedural question: whether, once the matter had been set down, the applicant could withdraw unilaterally, or whether withdrawal required the court’s consent under Rule 41(1)(a).

The second set of questions was substantive and concerned the enforceability of the retransfer clause. The court identified concerns as to whether enforcing this kind of clause (particularly against an ordinary residential purchaser) is consistent with public policy as applied in South African contract law, and whether it is consistent with the purchaser’s constitutional rights, especially the right of access to adequate housing in section 26(1) of the Constitution, and potentially the property protections in section 25(1).

These issues were primarily questions of law and normative evaluation, including the application of constitutional values to contractual terms (including the horizontal application of constitutional rights in the contractual context). In the unopposed posture of the matter, the court treated its concerns as arising from an assessment that the clause was prima facie objectionable on its face, rather than from contested evidentiary material.

4. Court’s Reasoning

On the procedural question, the court held that Rule 41(1)(a) prevents a party from withdrawing unilaterally once a matter has been set down. The court read the rule as applying generally to “all proceedings”, and therefore as extending to unopposed matters as well. For that reason, the court treated the applicant’s notice of withdrawal as requiring the court’s consent, and it consented to the withdrawal.

The court nevertheless considered it important to provide reasons, given the likelihood that similar clauses are often enforced and that the applicant might seek to renew the application. It emphasised that the purchaser appeared, on the papers, to be an individual retail purchaser who bought the stand with the intention of eventually building a home for himself and his family. The court distinguished that scenario from one where the purchaser is a property speculator or a commercial builder, suggesting that different considerations might arise if the purchaser were engaged in buying and selling for commercial gain.

In addressing the substantive enforceability concerns, the court located the issue within the framework that contractual terms must be assessed against public policy, particularly where public policy is informed by the Bill of Rights. It referred to the approach in Barkhuizen v Napier 2007 (5) SA 323 (CC), including the proposition that constitutional challenges to contractual terms proceed by asking whether the term is contrary to public policy as informed by constitutional rights, while leaving room for pacta sunt servanda to operate where appropriate.

The court considered the present clause materially different from the kind of time-limitation clause in Barkhuizen. It reasoned that a 90-day litigation time bar in an insurance context is not, on its face, inherently repugnant, and there are identifiable commercial interests supporting it. By contrast, the clause under consideration involved an 18-month obligation to build a house, followed by a harsh consequence (forced transfer back at original price and at the purchaser’s cost). The court regarded the developer’s specific commercial interests advanced by the clause as not apparent from the contract, whereas the purchaser’s interests implicated a constitutionally significant sphere: the incremental pursuit of home ownership and the realisation of access to adequate housing.

The court adopted the view that for many people, purchasing land is the first step toward realising the right to access to adequate housing, and that this can occur through the market mechanism. Relying on Government of the Republic of South Africa v Grootboom 2001 (1) SA 46 (CC), the court treated access to housing through the market (including acquisition of land) as falling within section 26(1). It also referred to the idea that there is a negative constitutional aspect requiring persons to desist from impairing attempts to gain access to adequate housing, and noted that section 26 jurisprudence demonstrates strong horizontal application in appropriate contexts.

The court reasoned that the clause, on its face and effect, effectively compelled a purchaser to begin building almost immediately, given ordinary delays in approvals and construction. It viewed the 18-month completion requirement as grossly unreasonable toward an ordinary purchaser who might need time to make building financially feasible. The court also considered the consequences of enforcement: loss of capital appreciation, the likelihood that little capital would have been repaid on the bond in the early years, and exposure to transfer costs and other financial losses. It characterised the deprivation of the purchaser’s pursuit of this constitutional right as prima facie unfair and contrary to public policy.

A further theme in the reasoning was the role of courts in unopposed matters. The court stated that judges should be vigilant to prevent the enforcement of objectionable clauses mero motu, drawing an analogy to the way courts raise illegality where contractual provisions violate statutory provisions. It held that similar vigilance is required where constitutional values are implicated. The court suggested that unopposed enforcement may persist because respondents often receive advice that resistance is futile based on existing case law that has not scrutinised such clauses through constitutional norms.

On the allocation of burdens, the court expressed the view that this type of retransfer clause is prima facie repugnant, and that a party seeking to enforce it bears an onus to show that the facts place the matter outside the ambit of constitutional and public policy objections. The court contrasted this with the position regarding time-bar clauses, which it described as prima facie reasonable unless shown otherwise in context.

The court reviewed existing authority within the division where similar clauses had been enforced, including Bondev Developments (Pty) Ltd v Mosikare and Others (case number 50391/2008) [2010] ZAGPPHC 305 (22 April 2010), and a series of unreported Bondev matters. It also discussed Lodhi 2 Properties Investments CC v Bondev Developments (Pty) Ltd 2007 (6) SA 87 (SCA), explaining that Lodhi concerned whether default judgments were granted in error, and did not decide the constitutional enforceability of the clause in relation to section 26(1). The court stated that none of the earlier matters had considered enforceability tested against section 26(1), and expressed the view that such provisions generally do not pass constitutional muster, describing decisions suggesting otherwise as wrongly decided.

Having indicated it was not prepared to grant the retransfer order on the papers before it, the court regarded withdrawal as appropriate, noting that the applicant could renew proceedings with additional facts if it so wished.

5. Outcome and Relief

The court made an order on 19 August 2016 permitting the applicant to withdraw its application, after the applicant had filed a notice of withdrawal and tendered costs. The court’s reasons recorded that withdrawal after set down required consent in terms of Rule 41(1)(a) and that the court consented.

The court did not grant the substantive retransfer relief sought against the first respondent. The reasons indicate that the court had been inclined to dismiss the application due to substantive concerns regarding public policy and constitutional rights, but instead permitted withdrawal, leaving open the possibility of renewed proceedings on supplemented facts.

As to costs, the reasons record that the applicant tendered costs in its notice of withdrawal; the judgment explains the procedural posture and the basis upon which withdrawal was allowed, but does not set out a further detailed costs order beyond noting the tender.

Cases Cited

Barkhuizen v Napier 2007 (5) SA 323 (CC).

Brisley v Drotsky 2002 (4) SA 1 (SCA).

Carmichele v Minister of Safety and Security (Centre for Applied Legal Studies Intervening) 2001 (4) SA 938 (CC).

De Lange v Provincial Commissioner of Correctional Services 2002 (3) SA 683 (SE).

Bondev Developments (Pty) Ltd v Mosikare and Others (case number 50391/2008) [2010] ZAGPPHC 305 (22 April 2010).

Bondev Midrand (Pty) Ltd v Letsholo and Others (59/2014) [2015] ZAGPPHC 677 (21 September 2015).

Bondev Midrand (Pty) Ltd v Puling (58/2014) [2015] ZAGPPHC 1127 (27 October 2015).

Bondev Midrand (Pty) Ltd v Rasalanavho and Others (47616/2014) [2015] ZAGPPHC 538 (10 June 2015).

Bondev Midrand (Pty) Ltd v Ndlovu and Others (47619/2014) [2016] ZAGPPHC 137 (7 March 2016).

Bondev Midrand (Pty) Ltd v Phalandwa and Others (47615/2014) [2016] ZAGPPHC 956 (2 November 2016).

Bondev Midrand (Pty) Ltd v Ndlangamandla NO and Others (38331/2015) [2016] ZAGPPHC 939 (11 November 2016).

Lodhi 2 Properties Investments CC v Bondev Developments (Pty) Ltd 2007 (6) SA 87 (SCA).

Government of the Republic of South Africa v Grootboom 2001 (1) SA 46 (CC).

Maphango and Others v Aengus Lifestyle Properties (Pty) Ltd 2012 (3) SA 531 (CC).

Governing Body of the Juma Musjid Primary School and Others v Essay NO and Others 2011 (8) BCLR 761 (CC).

Nkata v FirstRand Bank Ltd 2016 (4) SA 257 (CC).

Gundwana v Steko Development and Others 2011 (3) SA 608 (CC).

Jaftha v Schoeman and Others; Van Rooyen v Stoltz and Others 2005 (2) SA 140 (CC).

Loureiro v iMvula Quality Protection (Pty) Ltd 2014 (3) SA 439 (CC).

Smit v Bester 1977 (4) SA 937 (A).

Legislation Cited

Constitution of the Republic of South Africa, 1996, sections 8(2), 8(3), 25(1), 26(1), and 39(2).

Alienation of Land Act 68 of 1981.

Conventional Penalties Act 15 of 1962.

National Credit Act 34 of 2005.

Consumer Protection Act 68 of 2008.

Housing Consumers Protection Measures Act 95 of 1998.

Rental Housing Act 50 of 1999.

Financial Advisory and Intermediary Services Act 37 of 2002.

Rules of Court Cited

Uniform Rules of Court, Rule 41(1)(a).

Held

The court held that, because the matter had been set down, the applicant could not withdraw unilaterally; withdrawal required the court’s consent in terms of Rule 41(1)(a), and the court consented to the withdrawal.

In explaining why it had been inclined not to grant the substantive relief, the court held that a retransfer clause requiring a residential purchaser to build within 18 months and, on failure, to retransfer the property back to the developer at the purchaser’s cost against repayment of the original purchase price interest free, was viewed as prima facie repugnant. The court considered such a clause to be contrary to public policy and inconsistent with the purchaser’s constitutional rights under section 26(1) (and possibly section 25(1)), particularly where the purchaser was an ordinary retail buyer seeking to build a home rather than a speculator or commercial builder.

The court further held that judges should scrutinise such clauses mero motu in unopposed matters where constitutional values are implicated, and that a party seeking to enforce such a clause bears an onus to demonstrate that enforcement does not offend public policy or constitutional rights on the particular facts.

LEGAL PRINCIPLES

Contractual enforcement remains grounded in pacta sunt servanda, but contractual terms are enforceable only to the extent that they are consistent with public policy, and public policy is informed by the values and rights in the Bill of Rights. The assessment proceeds by asking whether the contractual term is contrary to public policy, allowing room for pacta sunt servanda while permitting courts to refuse enforcement where constitutional values are undermined.

The right of access to adequate housing in section 26(1) of the Constitution has significant relevance in private-law contexts. The judgment treats section 26 as having meaningful horizontal reach in contexts where private parties’ contractual arrangements and enforcement steps may impair an individual’s pursuit of access to housing through the market mechanism, including acquisition of land as part of the broader concept of housing.

In unopposed proceedings, a court is not confined to a purely mechanical grant of relief based on absence of opposition. Where a contractual clause is prima facie inconsistent with statutory provisions or constitutional values, the court may raise concerns mero motu, and may decline to enforce the clause unless the party seeking enforcement places before the court facts demonstrating that enforcement is consistent with public policy and constitutional rights.

A retransfer/repurchase clause compelling retransfer of residential property back to a developer at the original price (interest free) upon failure to build within a relatively short period was treated as prima facie objectionable, especially when applied to an ordinary purchaser pursuing home ownership incrementally. The judgment indicates that different considerations may apply where the purchaser is a speculator or commercial builder, or where the structure and timing of the clause are materially different, but it stresses that enforceability must be constitutionally and normatively justified on the facts.

Bondev Midrand (Pty) Ltd v Madzhie and Others (63297/15) [2016] ZAGPPHC 1097; 2017 (4) SA 166 (GP) (19 December 2016)