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[2013] ZAGPPHC 390
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Sentinel Trust N.O. and Others and Barnes N.O. and Others (15583/2010) [2013] ZAGPPHC 390 (12 November 2013)
REPUBLIC OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
NORTH GAUTENG HIGH COURT, PRETORIA
CASE NO: 15583/2010
DATE: 12 NOVEMBER 2013
REPORTABLE
OF INTEREST TO OTHER
JUDGES
In the matter between:
SENTINEL TRUST
N.O.
.................................................................................
1
st
PLAINTIFF
DENNIS NICHOLAS GALATIS
N.O.
..........................................................
2
nd
PLAINTIFF
NADIA GALATIS
N.O.
...................................................................................
3
rd
PLAINTIFF
and
THERESA ROSE BARNES
N.O.
...............................................................
1
st
DEFENDANT
STANLEY PRESTON BARNES
N.O.
.....................................................
2
ND
DEFENDANT
BRICK EMPORIUM (PTY)
LTD.
............................................................
3
RD
DEFENDANT
JUDGMENT
NKOSI AJ: I.
INTRODUCTION
[1] The plaintiffs’ claim arises
from an agreement to sell 100 per cent of the shares in the 3rd
defendant to the 1st and
2nd defendants (“the agreement’).
The plaintiffs’ allege that the defendants breached the
agreement by failing
to pay the balance of the agreed purchase price,
as a result of which they cancelled the agreement and are claiming
restitution
and damages.
[2] Although the defendants admit that
the balance of the purchase price has not been paid, they allege that
they are entitled to
a reduction in the purchase price as a result of
a misrepresentation they allege was contained in clause 6.3 of the
agreement and
which they allege induced them to agree to the purchase
price of R3million. The defendants have raised a counterclaim for a
reduction
in the purchase price and damages.
[3] The plaintiffs allege that the
Tideland Trust complied with its contractual obligations, but that
the Sugar Plum Trust breached
the agreement by paying only R500,
000.00 of the purchase price, leaving the balance of R2 500,000.00
outstanding and due and payable.
[4] The plaintiffs allege that the
Tideland Trust duly cancelled the agreement, based on the Sugar Plum
Trust’s breach, and
claim restitution of the shares against
repayment of the sum of R500.000.00. The plaintiffs, also claim
damages in the amount of
R1 316,712.33.
[5] In the alternative to the claim for
restitution and damages, the plaintiff claims payment of the balance
of the purchase price,
in the amount of R2 500,000.00 as well as
occupational rental.
(It is apposite to mention that in
respect of the occupational interest amount, the plaintiffs claim
rectification of the agreement.
This is not contested by the 1st and
2nd defendants).
[6] The 1st and 2nd defendants admit
the terms of the agreement, as pleaded in paragraphs 8.1 to 8.8 of
the particulars of claim,
insofar as it accords with Annexure "POC1”.
See: paragraph 10 of the plea on page 66 of the pleadings bundle.
[7] In paragraph 11 of the plea, on
paginated page 67 of the pleadings bundle, the 1st and 2nd defendants
plead that the following
express warranty is contained in the
agreement:
“That, unless otherwise provided
for in the agreement, at the date of signature and until the
completion date, the 3rd defendant
would be the owner of the fixed
property, fixtures and fittings, plant and equipment as set out in
Annexure "C” thereto,
as well as the mineral rights and
old order mining rights attaching to the fixed property as set out in
Annexure “D”
to the agreement (clause 6.3).”
[8] As stated herein above, it is
common cause that the agreement was signed on 6 February 2009.
[9] In paragraph 13 of the plea, on
page 68 of the pleadings bundle, the 1st and 2nd defendants pleads
that the applicable mineral
rights and/or old order mining rights had
lapsed on 12 December 2008.
[10] In paragraph 14 of the plea, on
page 68 of the pleadings bundle, the 1st and 2nd defendants plead
that, when making the representation
(that the Tideland Trust was the
owner of the mining rights and/or old order mining rights) the
Tideland Trust’s representative
knew that same had lapsed,
alternatively through exercising of a reasonable degree of care and
skill should have known that the
mineral rights and mining rights had
lapsed. [It is apposite to record that the 1st and 2nd defendants
rely on an intentional,
alternatively negligent misrepresentation]
[11] In paragraph 17 of the plea, on
page 69 of the pleadings bundle, the 1st and 2nd defendants plead
that the Sugar Plum Trust
was induced to purchase the shares at the
price of R3 000,000.00 by the representation, referred to herein
above.
[12] The 1st and 2nd defendants,
further, allege that the true value of the shares amounts to R500,
000.00, only. See paragraph
12 of the plea, on page 70 of the
pleadings bundle.
[13] Based on aforesaid, it is denied
that the Tideland Trust performed its contractual obligations.
[14] In the light of the allegations
that the Tideland Trust misrepresented that it owned mineral rights
and old order mining rights
as at 6 February 2009, the Sugar Plum
Trust, further, delivered a claim in reconvention wherein it claims a
declaratory order that
it is entitled to retain the shares in the 3rd
respondent, at the value already paid, being R500, 000.00 the Sugar
Plum Trust,
further claims damages in the sum of R9 443,472.00.
[15] In paragraph 4.3 of the plea to
the claim in reconvention, on page 83 of the pleadings bundle, the
Tideland Trust pleads the
following, in support of aforesaid denial:
“4.3 The plaintiff specifically
pleads that annexure “D” to the agreement, initialled by
the defendants’
duly authorised representative, stated that
“unless this licence is suspended, cancelled or abandoned or
lapses it shall
be valid for a period (more than 2 years) which shall
extent from the date of issuing until 2008/12/12...."
[16] It is, finally, pleaded in
paragraph 4.4 of the plea to the claim in reconvention, on page 83 of
the pleadings bundle, that
the 1st defendant had been advised by
professional mining consultants, at the time of signing of the
agreement, that it could convert
the old order mineral rights to a
new one on the basis of the mining licence, attached to the agreement
as in Annexure “D”.
[17] The parties agreed to separate the
issues of merits and quantum.
[18] The trial proceeded on the merits
only.
BURDEN OF PROOF:
[19] It is submitted that the Tideland
Trust carries the onus in respect of the following:
[20] The terms of the agreement
concluded between the parties. It is apposite to mention that the
onus is on the Tideland Trust
to prove that clause 6.3 of the
agreement does not contain the express warranty, alleged by the 1st
and 2nd defendants. A Plaintiff
relying on a contract carries the
onus of proving that a term alleged by the defendant was not agreed
upon between the parties,
the Honourable Court is referred to:
Kriegler v Minitzer
1949 (4) SA 821
A; Topaz Kitchens (Pty) Ltd v
Naboom Spa (Edms) Bpk
1976 (3) SA 470
A.
[21] That it performed its contractual
obligations;
[22] That the Sugar Plum Trust is in
breach of the agreement;
[23] That it properly cancelled the
agreement.
[24] It is submitted that, to succeed
with the claim in reconvention, the Sugar Plum Trust have to prove
the following:
[25] That the representation that the
3rd defendant owned the applicable rights, as at date of conclusion
of the agreement, was
false;
[26] That the representative of the
Tideland Trust knew that the old order mining right, and/or the new
order mining rights were
not owned by the plaintiffs as at date of
conclusion of the agreement, alternatively the plaintiff should have
known aforesaid,
through the exercise of a reasonable degree of care
and skill;
[27] That the defendants were induced
into concluding the agreement based on aforesaid misrepresentations.
ISSUES IN DISPUTE
(a) As they appear from the pleadings,
the main issues in dispute are:
(i) Whether clause
6.3 of the agreement represented that an extension period for the
conversion of old order mining rights applied
to the rights set out
in Annexure “D” to the agreement, which the plaintiffs
warranted the company was the owner of?
If so:
(ii) Did the
plaintiffs know, or ought the plaintiffs reasonably to have known,
that this representation was false in that the mining
licence had
lapsed; and
Did the defendants act on this
representation in agreeing to the purchase price of the shares?
(b) The issues were further
crystallised by the following admissions made by the defendants in
response to the plaintiffs’
list of enquiries and admissions in
terms of Rule 37(4):
(i) The "express
warranty" referred to in paragraph 11 of the defendants’
plea (i.e. clause 6.3 of the agreement)
is the same as the
"representation" referred to in paragraphs 14 and 15 of the
plea.
The defendants allege that the
expiration of the company’s old order mining rights after 12
December 2008 was a latent defect.
(c) The plaintiffs bear the onus of
proving the terms of the agreement as well as the breach by the
defendants entitling them to
cancel. The defendants bear the onus of
proving that they are entitled to a price reduction on the basis of
an intentional or negligent
misrepresentation.
(d) The defendants’ case on the
pleadings is therefore that they were induced by clause 6.3 of the
agreement, which they say
constituted a representation that an
extension period was applicable to the conversion of the mining
licence, to agree to a purchase
price of R3million for the shares in
the company, and that the expiry of the mining licence on 12
December 2008 constituted a latent
defect. It is on this basis that they claim that they are entitled to
a R2.5 million reduction
in the purchase price of the shares.
(e) It is however important to be clear
on what the defendants’ case is not. First, the defendants do
not in their pleadings
rely on a pre-contractual negligent
misstatement inducing them to enter into the agreement. The
defendants’ further do not
allege that clause 6.3 does not
reflect the true intention of the parties or seek an order rectifying
the agreement. Finally the
defendants' case is not that the agreement
was void or otherwise invalid, they simply claim a reduction in the
purchase price.
THE TERMS OF THE AGREEMENT:
[28] It is common cause that the
agreement was reduced to writing and that a true copy of the
agreement is attached to the particulars
of claim as Annexure “POC1”.
[29] The Honourable Court has, already
been referred to the express wording of clause 6.3 of the agreement.
The following is, inter
alia, expressly warranted in said clause:
“That, unless otherwise provided in this agreement, at the date
of signature and
until the completion date, the company will be the
owner of ... as well as the mineral rights and old order mining
rights attaching
to the fixed property as set out in Annexure “D”.”
[30] It is important to note that
clause 6.3 has reference to ownership of rights as at 6 February
2009. It is not stated that the
Tideland Trust previously owned the
applicable rights.
[31] It, however, appears from the
second page of Annexure “D” to the agreement that the
rights to which said document
relates had expired on 12 December
2008, being a date prior to 6
February 2009. Ex facie Annexure “D”,
therefore, the rights in question had already lapsed prior to the
conclusion of
the agreement.
[32] The conundrum is, therefore, that
the express wording of clause 6.3 has reference to existing rights.
It is, with respect,
illogical for cause 6.3 to have reference to an
expired licence as constituting the existing rights warranted in said
clause. It
is, therefore, submitted that the express wording of
clause 6.3, read with the second page of Annexure “D”,
renders
the agreement ambiguous.
[33] It is common cause that the
agreement contains an integration clause, being clause 11.2 of the
agreement. The general rule
is that any extrinsic evidence that is at
variance with the terms of an integrated written agreement
constitutes inadmissible parol
evidence. It is, however, contended
that, in casu, the Honourable Court can, inter alia, have reference
to extrinsic evidence in
order to assist it in the interpretation of
the ambiguous agreement.
[34] Aforesaid evidence explains the
apparent contradiction between clause 6.3 and Annexure “D”
to the agreement.
[35] It is submitted that, before
considering the evidence it is prudent to take cognisance of the
applicable principles relating
to the interpretation of contractors,
in casu, the nub of the case revolves around the interpretation of
clause 6.3 of the agreement,
read with Annexure “D”
thereto.
INTERPRETATION OF THE AGREEMENT:
[36] In Schmidt v Dwyer
1995 (3) SA 896
(C) at 899 AS, the following is stated:
“ The primary object of a deed of
sale is to record the terms of a contract between the parties, and it
follows that any statement
in such a document prima facie constitutes
a term of the contract unless it appears from the contract itself or
other admissible
evidence that the parties did not so intend."
[37] In casu, it is expressly recorded
in the agreement that the 3rd respondent “wilf’ own
certain rights.
[38] It is important to consider the
effect of the parol evidence rule in casu.
[39] In Johnston v Leal
1980 (3) SA 927
(A) at 943 the following is stated at page 943 B to D:
“Dealing first with the
integration rule, it is clear to me that the aim and effect of this
rule is to prevent a party to
a contract which has been integrated
into a single and complete written by reference to extrinsic evidence
and in that way to redefine
the terms of the contract. The object of
the party seeking to adduce such extrinsic evidence is usually to
enforce the contract
as redefine or, at any rate, to rely upon the
contractual force of the additional or varied terms, as established
by the extrinsic
evidence. On the other hand, in a case such as the
present, where ex facie the document itself the contract appears to
be incomplete,
the object of leading extrinsic evidence is not to
contradict, add to or modify the written document or to complete what
is complete
so that the contract may be enforced thus completed, but
merely to explain the lack of completeness.... "
[40] Aforesaid should be considered in
conjunction with the technique consistently adopted by our Court so
interpret written contracts
as summarised in Coopers & Lybrand v
Bryant
[1995] ZASCA 64
;
1995 3 SA 761
(A) 767E - 768E: “According to the ‘golden
rule’ of interpretation the language in the document is to be
given
its grammatical and ordinary meaning, unless this would result
in some absurdity or some repugnancy or inconsistency with the rest
of the instrument ... The mode of construction should never be to the
application of the ‘golden rule’ of interpretation
after
having ascertained the literal meaning of the word or phrase in
question is, broadly speaking, to have regard:
to the context in which the word
or phrase is used with its interrelation to the contract as a
whole, including the nature and
purpose of the contract...
to the background circumstances
which explain the genesis and purpose of the contract, i.e. to
matters probably present to the
minds of the parties when they
contracted ...;
to apply extrinsic evidence
regarding the surrounding circumstances when the language of the
document is on the face of it ambiguous,
by considering previous
negotiations and correspondence between the parties, subsequent
conduct of the parties showing the
sense in which they acted on the
document, save direct evidence of their own intentions.’’
THE GRAMATICAL AND ORDINARY
MEANING OF THE WORDS IN A CONTRACT:
[41] As per the first consideration,
the Court seeks the common intention of the parties from the wording
of the contract because
that wording, being agreed between the
parties, is common to them. So, if the words speak with sufficient
clarity it must be taken
as expressing the parties’ common
intention. In this regard see: Total South Africa (Pty) Ltd v Bekker
[1991] ZASCA 183
;
1992 (1) SA 617
(A) at 624 G - G25 B.
[42] In casu, however, the express and
clear wording of clause 6.3 is at variance with Annexure “D”.
As a result, it
is necessary for the Honourable Court to have
reference to the context of clause 6.3.
CONTEXT:
[43] Context relates to context within
the contract as well as the wider context, relating to background
evidence. In Jaga v Donges
1950 (4) SA 653
A at 602 H, the following
is stated:
“The context” is not
limited to the language of the rest of the statute regarded as
throwing light of a dictionary on
the part to be interpreted. Often
of more importance is the matter of the statute, its apparent scope
and purpose, and within limits,
its background. ”
[44] Although aforesaid dictum relates
to the interpretation of a statute, the principle therein has been
applied in relation to
the interpretation of statutes in a number of
cases. Inter alia, in Sassoon Confirming and Acceptance Co (Pty) Ltd
v Barclays National
Bank
1974 (1) SA 641
(A) at 646 C it was found
that reference should also be made to the nature of the transaction
between the parties as it appears
from the entire contract.
[45] In Van der Post v Twijfelhoek
Diamond Prospecting Syndicate (1903) 20 SC at 213 it was found that
the context does not stop
at the four corners of the contract.
[46] It was, finally, decided in
Eastern Free State Board of Executors v Theron
1922 OPD 174
at 178
that if the object (of the contract) could be determined, a long step
would have been taken towards ascertaining the meaning
of ambiguous
words.
[47] In casu, the purpose of the object
of the agreement was to sell shares in a company that owns a
brickyard. Bricks were manufactured
with clay mined on the premises.
EXTRINSIC EVIDENCE:
[48] In Delmas Milling Co. Ltd v Du
Plessis
1995 (3) SA 447
(A) at 454 - 455 it is, inter alia, confirmed
that extrinsic evidence of surrounding circumstances may be
considered to clarify
ambiguous terms in a contact. Inter alia,
recourse may be had to what passed between the parties on the subject
of the contract.
[49] At page 455 of aforesaid dictum
the Court concludes as follows:
“One must use outside evidence as
conservatively as possible but one must use it if it is necessary to
reach what seems to
be a sufficient degree of certainty as to the
right meaning. ”
[50] A party intending to lead evidence
of surrounding circumstances need not plead his intention, because
the admissibility of
the evidence is apparent from the ambiguity of
the contract. In this regard see: Garlick v Smartt
1928 AD 82
at 87
and Dorman Long Swan Hunter (Pty) Ltd v Karibib Visserye Ltd
1984 (2)
SA 462
(C) at 476 G - H.
CONSTRUCTON CONTRA PROFERENTERM:
[51] If the wording of a contract is
incurably ambiguous, it’s author should be the one to suffer
because he had it in his
power to make his meaning plain.
[52] Aforesaid is known as the contra
proferentem rule. See: Zietsman v Allied Building Society
1989 (3) SA
166
(O) at 177 D - E.
[53] In casu, the agreement was drafted
by the Tideland Trust’s attorney and on the instruction of Mr
Galatis. Mr Galatis,
therefore, instructed his attorney to include
clause 6.3 in the agreement. Insofar as there is an ambiguity in the
agreement, by
virtue of the conflict of clause 5.3 with Annexure “D”,
the Honourable Court should favour the interpretation of clause
6.3
advanced by the First and Second Defendants. This should be
considered in conjunction with the fact that the onus is on the
Tideland Trust to prove that clause 6.3 does not constitute the
warranty relied on by the First and Second Defendants.
WEIGHING OF EVIDENCE:
[54] The warranty in clause 6.3 of the
agreement is an express/implied warranty given by the Plaintiffs. The
wording of clause 6.3,
with respect, is clear and leaves no doubt as
to the fact that reference is made to a right that existed at 6
February 2009.
[55] Insofar as reference to Annexure
“D” may render clause 6.3 ambiguous, the evidence
referred to herein above shows
that the parties accepted on 6
September 2012 that the rights were extended (Mr Galatis insisted
that this was his understanding
based on what he was told by the 1st
defendant).
[56] In the premises, the intention of
the parties as to clause 6.3 is clear.
[57] Clause 6.3 could, never, refer to
a historical right, why include it then?
[58] It should be borne in mind that
the onus of excluding the alleged warranty from the agreement is on
the plaintiff’s and,
based on the contra proferentum rule, if
there remains uncertainty as to the meaning of clause 6.3 said clause
should be interpreted
against the plaintiffs in favour of the 1 st
and 2nd defendants.
[59] Insofar as Mr Galatis signed the
agreement, incorporating clause 6.3, he was, at least, negligent in
not investigating the
status of the mining rights as at 6 February
2009. This could not be left in the hands of Becker nor the
defendants.
[60] In the premise, the plaintiff’s
claim falls to be dismissed with costs and the Honourable Court
should find in favour
of the 1st and 2nd defendants in relation to
the merits of the claim in reconvention.
THE EVIDENCE
[61] The plaintiffs called Mr Dennis
Galatis (“Galatis”) to testify. The defendants called Ms
Theresa Barnes (“Ms
Barnes”) and her son, Mr Stanley
Barnes (“Mr Barnes”) to testify. It is common cause that
Galatis and Ms Barnes
represented the plaintiffs and the defendants
respectively in entering into the agreement.
[62] The following undisputed facts arose from the evidence of the
three witnesses called:
Mr Barnes
approached Galatis out of the blue with a proposal to purchase the
brickyard. Initially no purchase price was mentioned.
Shortly after
meeting with Mr Barnes in Cape Town in 2008, Galatis was advised
that the proposed purchase price would be R3million.
At the time
that Galatis agreed to the possibility of selling the brickyard, it
was being leased on an indefinite basis to
Debby Bekker (“Bekker”).
62.2 A written offer to purchase the property on which the quarry and
the brickyard were located, signed by Mrs Barnes on behalf
of an
entity known as Bayview Trading 103
CC t/a Madiba Bricks, was accepted by Mr Galatis on about 9 September
2008. Thereafter on 29 September 2008 an addendum to the
offer to
purchase agreement dated 9 September 2008, was signed by the parties.
Both the offer to purchase and the addendum thereto
subsequently
became annexures to the agreement.
A "Rental
Agreement take over" in terms of which Bekker consented to her
lease with the company being ceded to Bayview
Trading 103 CC, was
also signed. This document did not form part of the final
agreement.
Ms Barnes had
sight of the mining licence from the beginning of the negotiations
and by at least 12 September 2008, and was
at all times aware that
the licence expired on 12 December 2008.
After the
offer to purchase had been signed it was agreed between Galatis and
Ms Barnes that Ms Barnes would take over the process
of lodging the
application for the conversion of the old order mining licence from
Bekker.
For this
purpose, Ms Barnes appointed a professional firm of mining
consultants, namely JJP Mining Consultants (“JJP’),
to
advise and assist her with the application for conversion of the
old order mining right. She consulted with them and explained
to
them exactly what old order mining rights she required to be
converted. She paid an amount of R71,250.00 being the initial
50%
deposit of JJP’s fee. She did not pay the balance.
JJP lodged the
application for the conversion of the mining licence on 30 April
2009. On about 20 May 2009 Ms Barnes was advised
by the Department
of Minerals and Energy {“the DME') that the application for
conversion could not be processed as the
mining licence had expired
on 12 December 2008.
The agreement
was signed at Ms Barnes’ home in Heidelberg on 6 February
2009. Galatis’ attorney, Ivan Zartz {“Zartz"),
who
drafted the agreement, was present and explained the terms of the
agreement to the parties. Certain changes to the draft
agreement
were made at Ms Barnes’ home. The agreement was then signed
by Ms Barnes on behalf of the defendants and by
Galatis on behalf
of the plaintiffs. Each page as well as the annexures to the
agreement was initialled by the parties.
The expiry of
the mining licence was never discussed at the signing of the
agreement on 6 February 2009.
The defendants
did not dispute that the “whole agreement” clause
(clause 11 and its sub-clauses) was a term of the
agreement that
was signed on 6 February 2009.
Clause 6.3 of
the agreement warrants no more and no less than the company was the
owner of the rights set out in Annexure “D”
to the
agreement. There is nothing in clause 6.3 or the mining licence
which makes any representation that the mining licence
would be
valid after 12 December 2008. It is apparent from an inspection of
the mining licence that it expired on 12 December
2008.
The defendants
received the letter demanding that they rectify their breach of the
agreement by paying the balance of the purchase
price within seven
days, as well as the subsequent letter cancelling the agreement,
which are attached to the particulars of
claim as annexures “POC2”
and “POC3” respectively.
a) Evidence of Galatis
[63] Galatis testified that Bekker had previously appointed a mining
consultant to prepare the application for conversion of the
mining
licence on behalf of the company. After negotiations with Bekker, Ms
Barnes informed him that that the conversion application
had not
progressed and that she wanted to take over the application for
conversion. Galatis himself had never had any dealings
with the DME
regarding the conversion of the old order mining rights. He testified
that he had made no representations to the defendants
regarding an
extension period for the conversion application and that Ms Barnes
informed him that the consultants she had appointed
had advised her
that the application for conversion could be submitted up to 30 April
2009. After the DME rejected the application
Ms Barnes refused to pay
the balance of the purchase price as the licence could not be
converted. However she never accused Galatis
of having misled her in
regard to the extension. Finally he testified that the agreement had
been cancelled by the plaintiffs after
the defendants failed to pay
the balance due when demanded to do so.
[64] The cross-examination of Galatis
focussed on the effect that an invalid mining licence would have on
the business of the company.
Galatis quite correctly conceded that
the company would not be able to mine clay without a valid mining
licence but would have
to purchase clay to make bricks.
[65] It was put to Galatis that Ms
Barnes would testify that he had informed her at a meeting at which
Mr Barnes, Bekker and Zartz
were also present, that there was an
extension until 30 April 2009 for the conversion of the mining
licence.
[66] When Galatis answered that it was
Ms Barnes who had in fact told him, before the end of September 2008,
that her mining consultants
had advised her that the extension
applied, it was put to him that Ms Barnes would testify that she only
appointed JJP in November
2008.
[67] Galatis’ evidence was
consistent in examination in chief and under cross-examination. His
version was also consistent
with that set out in the pleadings. He
readily conceded that he could not always recall precise details of
events that occurred
five or more years ago, but he did not alter his
version that Ms Barnes had informed him, on the advice of JJP, that
an extension
until 30 April 2009 was applicable to the conversion of
the mining licence. This was despite hearing for the first time in
cross-examination
that the defendants intended to testify that he had
advised Ms Barnes of this extension.
[68] It is submitted that Mr Galatis
was a credible and truthful witness whose version of events was
consistent and accorded with
the inherent probabilities. There is no
reason why his evidence should not be believed. Why plaintiff only
had a passive role about
his own licence? To be renewed/or converted.
Plaintiffs’ passive role had a bearing on the expiry of the
licence. Had he
did the conversion of the licence in time, as the
seller, there would be no litigation to demand the balance of sale
price.
b) Evidence of Ms Barnes
[69] Ms Barnes’ evidence did not
accord in several material respects with what was put to Galatis and
she was vague and evasive.
[70] In her evidence in chief she
stated that Bekker and Galatis had advised her that there was an
extension. This, she said, occurred
at a meeting held in Zartz’s
office in Johannesburg, where both the “Rental Agreement take
over” and the offer
to purchase were signed. She testified that
she had specifically asked for some form of confirmation from the DME
that this was
the case and that Bekker had referred her to the
Government Gazette.
[71] She later said that the
information regarding the extension “came from the likes of
Debby Bekker with the knowledge of
Dennis Galatis". However she
again subsequently altered this and stated that Galatis told her that
there was an extension.
[72] Under cross-examination she
remained unsure who had allegedly advised her of the extension,
saying first that both Bekker and
Galatis had advised her but then
changing this to say that it was Bekker who had advised her and that
Galatis had, by his mere
presence at the meeting, merely agreed to
this. She followed this by saying that it was her assumption that
Galatis knew about
the extension. This was not clarified in
re-examination. Ms Barnes further conceded that she could not dispute
that Galatis had
never appointed mining consultants himself.
[73] It is submitted that this is
determinative of the issue, as on her own version, Ms Barnes has
indicated that the advice that
there was an extension did not come
from Galatis at all but rather from Bekker. The unreliability of Ms
Barnes’ testimony
on this point is further apparent from the
following:
She conceded under
cross-examination that as the “Rental Agreement take over”
indicates that it was signed in Heidelberg,
it could not have been
signed by all parties at Zartz’s office as she had stated
previously in her evidence in chief.
She was then clearly uncertain
about who was allegedly present at this meeting and where the two
agreements had been signed
and could not commit to an answer.
Despite testifying in her
evidence in chief that she had no reason to believe that there was
not an extension, she quite correctly
conceded under
cross-examination that she was indeed concerned about the
correctness of this information as she had specifically
asked for
some form of confirmation from the DME. Despite Bekker failing to
provide her with a copy of the relevant Government
Gazette as she
allegedly promised, Ms Barnes insisted that she still had no reason
not to believe that there was an extension.
She in fact testified
that she would have ideally wanted a specific directive to this
effect from the DME, addressed to the
company.
She also testified that JJP were
professionals whom she had hired specificaily to prepare the
application for the conversion
and that she had not only consulted
with them and provided them with the details of the licence which
she required to be converted,
but also specifically informed them
that there was an extension period. Despite being professional
mining consultants JJP did
not advise her that there was no such
extension. In her own words, JJP “took it for granted that
there was an extension’’.
She nevertheless refused to
concede that in doing so JJP had been negligent.
[74] Despite testifying in her evidence
in chief that she only appointed JJP in November 2008, Ms Barnes
changed this under cross-examination
to say that they only started
with the application for conversion in November 2008. In light of
quotations and invoices dated 10
and 29 October 2008 respectively, Ms
Barnes conceded that she must have consulted with JJP sometime before
those dates.
[75] Not only was Ms Barnes’
evidence inconsistent, it is submitted that her version on the source
of the advice that the
application for the conversion of the mining
licence could be submitted up to 30 April 2009, is highly improbably.
Ms Barnes conceded
that her request for confirmation from the DME
showed that she was not prepared to take the alleged statement of
Bekker at face
value. However she testified that the first time she
bothered to take this issue up with the DME herself was after 20 May
2009,
after the DME advised her that the application for conversion
could not be processed. This is despite having 20 years of experience
in the mining industry and, on her own admission, being familiar with
the workings of the DME.
[76] Instead she advised the
professional mining consultants appointed by her that there was an
extension which they allegedly took
for granted. It is submitted that
even on this version, the failure of JJP to advise her that there was
no such extension constituted
a novus actus interveniens. On either
version therefore it was the advice of JJP (on the plaintiffs’
version) or their failure
to advise Ms Barnes (on the defendants’
version) which created the impression in Ms Barnes’ mind that
the application
for the conversion of the mining licence could be
lodged up until 30 April 2009.
[77] To the extent that the defendants
were induced by the belief that there was an extension, to agree to a
higher purchase price,
their remedy is clearly against JJP for a
negligent misstatement inducing a contract there was no basis laid
for these submissions.
[78] Mr Barnes testified quite candidly
that he had no knowledge of what was discussed at the alleged meeting
on 9 September 2008
or of any issue surrounding the expiry of the
mining licence. He further conceded under cross-examination that he
was not sure
where the offer to purchase and the “Rental
agreement take over” (both of which he signed as witness) were
signed.
His evidence therefore did not support the version of Ms
Barnes.
[79] Finally, Bekker was not called by
the defendants to confirm what was allegedly discussed at a meeting
in Zartz’ office
on 9 September 2008. My considered view that
nothing stopped the plaintiff from ensuring that the process of sale
is concluded
properly including the transfer of the licence to the
defendants which remains unexplained. This is a crucial missing link
of the
puzzle. Bekker could have been requested by the plaintiff to
confirm her part.
ANALYSIS OF THE EVIDENCE
[80] As mentioned, the defendants’
case on the pleadings is that clause 6.3 of the agreement represented
that an extension
period was applicable for the purposes of the
conversion of the old order mining licence. Despite being given the
opportunity to
indicate in the response to the plaintiffs’ list
of queries and admissions sought in terms of Rule 37(4), whether the
alleged
representation took some other form, the defendants stated
that it was mentioned in various meetings between the parties.
[81] However the version that the
representation was made by Galatis on 9 September 2008, was raised
for the first time during the
cross-examination of Galatis. It is
submitted by the plaintiff, that as this evidence is not relevant to
proving a fact in issue
on the pleadings, it is inadmissible and the
Court should disregard it. That being so it cannot ignore all
submissions made thus
far.
[82] As it was submitted by counsel for
the defendants during Galatis’ cross-examination that such
evidence is relevant and
not excluded by the parol evidence rule, the
legal principles applicable to this rule will be briefly considered.
LEGAL PRINCIPLES RELATING TO
THE PAROL EVIDENCE RULE
[83] The parol evidence or
‘integration’ rule provides that where parties to an
agreement have decided that their contract
should be reduced to
writing, that document shall be accepted as the sole evidence of the
terms of their agreement.
[84] In other words: “When a
jural act is embodied in a single memorial, all other utterances of
the parties on that topic
are legally immaterial for the purpose of
determining what are the terms of their act.” The effect is
that no extrinsic evidence
seeking to contradict, add to or modify
the terms of the agreement shall be admissible.
[85] The rule only applies where the
written agreement was intended to be the exclusive recordal of the
agreement between the parties,
however there were so many things
discussed prior to signing of the agreement of sale but not reduced
in writing.
[86] A court may look to the
surrounding circumstances, including the parties’ negotiations
to determine whether the parties
intended the written agreement to be
an integration of the whole transaction or merely a partial
integration. However where the
written contract specifically refers
to a topic or subject in the wording, this is generally an indication
that the written contract
was intended to be conclusive. This is
correct to a certain extent but the issue of the mining licence being
renewed or converted
to a new order one cannot be disregarded as
non-important.
[87] Furthermore, where the written
agreement contains a ‘whole agreement’ or non¬variation
clause, the effect of
such a clause is that any undertaking that a
party alleges was given in order to induce that party to enter into
the agreement,
cannot be taken into account when enforcing the
agreement. Another question arise as to whether the defendants were
aware that
on signing the agreement there was no extension? Could she
have continued to sign if she was aware? The answer was no,
alternatively
they had to re-look at the sale price.”
[88] In De Villiers v McKay NO and
another the Supreme Court of Appeal held that a clause in the written
agreement that read: “This
agreement contains all the
conditions of the agreement between the parties and no amendment
shall be valid unless it is in writing
and signed by both parties
hereto", prevented one party relying on an earlier oral
undertaking which it alleged had induced
it to enter into the
agreement.
[89] It was submitted that the party
wishing to rely on an earlier undertaking or oral agreement would
have to make out a case for
rectification of the contract to delete
such a clause. Absent such a case being made out, the party would be
bound to the terms
of the written agreement, which I do not fully
agree with.
[90] A further effect of the parol
evidence rule is that when the terms of the agreement are clear and
unambiguous, no evidence
may be lead to alter their plain meaning.
[91] In the present case, the
defendants have never disputed the validity of the agreement or that
clause 11 formed part of the
agreement. It is further common cause
that neither clause 6.3 nor Annexure “D” makes any
representation that the mining
licence would be valid beyond 12
December 2008. As the defendants have not sought to make out a case
for the rectification of the
agreement, they must be bound by the
terms set out in the written agreement. This could not preclude the
court to hear issues relating
to the licence as the business
operation as purchased by the defendants would need such licence.
[92] The ordinary grammatical meaning
of clause 6.3, as it relates to the mining licence, is that the
company was the owner of the
mineral rights and old order mining
rights set out in Annexure “D”, which patently on the
face of it, provides that
the expiry date was 12 December 2008. This
meaning is consistent with the terms of the agreement as a whole and
creates no ambiguity.
[93] It is common cause that the plain
meaning of clause 6.3 and Annexure “D” is clear. It is
also clear from the terms
of the agreement itself that the parties
intended it to constitute the full integration of their transaction.
The evidence of Ms
Barnes that Galatis orally advised her that an
extension was applicable to the conversion of the mining licence was
therefore led
neither for the purpose of determining whether the
parties intended the agreement to constitute a full integration, nor
for the
purpose of interpreting clause 6.3. It was lead for the
purpose of contradicting, adding to of modifying the terms of
agreement.
It therefore falls foul of the parol evidence rule. I do
not agree with this submission and the parole evidence rule is not
applicable
in this regard.
I am in agreement with the view
expressed in the Delmas Minning Co. Ltd v Du Plessis
1995 (3) SA 447
(A) as quoted in paragraph [48] supra.
[94] What was discussed and agreed upon
by the parties could not form part of clause 6.3 and Annexure D,
except in circumstances
where it would be fair to enable the Court to
exercise its judicial discretion properly. The issue of the licence
for the mineral
rights had to be ventilated in full.
MY OBSERVATIONS FROM THE
SUBMISSIONS:
[95] Plaintiff sold the business to the
defendant. This is not in dispute.
[96] The business was then in the hands
and control of one Bekker, on a lease agreement between the plaintiff
and herself.
The price of R3million was set by the
plaintiff knowing the business and its potential more especially the
clay mining enterprise
being conducted on a licence issued by DME. A
licence is about to expire on 8 December 2008.
[97] The plaintiff knows, or ought to
have known, of the expiry date of the licence or its conversion from
an old order to a new
order licence as required by the Law.
[98] Let’s assume for a moment,
if there was no offer to purchase, the owner of the licence could
have taken an active role
to have the licence renewed or converted to
a new order one as required by the Law. This decision to leave it on
the lessee’s
or the prospective buyer’s discretion to
convert it could not be justified as ownership rested with him.
[99] It is inconceivable that
plaintiff, having an interest to sell the business to the defendant,
would not see to it that the
mining licence which was going to expire
sooner be properly transferred to the prospective buyer who had
already paid him with
a substantial deposit of R500 000,00. The
mining licence was not less important.
[100] The passive role by the
plaintiff, in not making sure that the sale succeeds in toto affected
the renewal and transfer of
the clay mining licence before its expiry
date.
[101] It is not unreasonable to observe
that the sale price of R3million was inclusive of the above and any
failure or cause to
defeat the sale would lead to a possible
cancellation of the sale or an actio quanti minoris or actio red
hibitoria, in common
law, without a breach of the contract of sale.
The seller’s obligation in broad
terms as his residual common law duty is:
(a) to care for
the property sold from the date of sale until it is delivered to the
buyer and the buyer takes delivery of the property
sold;
(b) to make the
property sold available to the buyer for the buyer’s reciprocal
duty to take delivery;
(c) to transfer
ownership if the seller is the owner, or can obtain ownership, or
warrant against eviction;
(d) to warrant
that the property is fit for its common use (to mine clay amongst
other things in this matter) or, in appropriate
circumstances, to
warrant that the property is suitable for the specific purpose for
which it was sold (to mine clay for bricks
manufacturing);
(e) to warrant
against latent defects in the property: this will relate to the
inability to mine clay which is a core component
of the bricks
manufacturing business which the defendants wanted to pursue.
[102] One other question coming to mind
is that the clay mining licence as it was in plaintiff’s name
or his entity’s
on whose name was it to be renewed or converted
to a new order licence?
(a) If it was to
remain in plaintiffs name or his entity until the full purchase price
was paid it placed an obligation to the plaintiff
to be actively
involved in such process. When the sale was concluded between the
plaintiff and the defendants the property was
under a lease agreement
between the plaintiff and another person.
The plaintiffs
duty to ensure proper conversion of the licence was an inalienable
one. What if the sale, for another reason, happens
to collapse would
plaintiff wait for the expiry of the licence or could simply extended
it or converted it to the new order. The
blame for the abdication of
this duty could only be placed on plaintiff’s door and not the
lessee of the property or prospective
buyer, which are the
defendants.
(b) The above
question, if not anticipated, breeds further question as to whether
the defendant could be in a position, in law,
to bring an application
to extend the clay mining licence or convert it to the new order
without plaintiff’s written authority
or written resolution or
addendum to that effect, to the defendant’s name? This further
indicates that the plaintiff was
still obligated to be actively
involved not to rely on one JJP Mining Consultants appointed by the
defendants and paid to assist
but only came on board after the expiry
to the licence. Their binding agreement was signed on 6 February 2009
after the expiry
of the licence in December 2008.
CONCLUSIONS & RELIEF
[103] The defendants have succeeded to
prove on a balance of probabilities that clause 6.3 constituted an
intentional or negligent
misrepresentation that an extension period
applied to the rights in Annexure “D”. The defendants did
not and could
not dispute that the wording of clause 6.3 and Annexure
“D” contained no such representation, instead they sought
to
establish that Galatis had advised Ms Barnes that there was an
extension applicable to the conversion of the mining licence. In
contrast Galatis’ version that he had been informed by Ms
Barnes, on the advice of the professional mining consultants
appointed
by her, that the mining licence attached as Annexure “D”
could be converted to a new order mineral right, was set out
in the
plaintiffs’ plea to the defendants’ counterclaim.
[104] Ms Barnes’ evidence in this
regard was unreliable and contradictory and wholly inconsistent with
the probabilities that
she was made to believe that there was an
extension. The defendants have therefore established that this
representation was made
by Galatis, or with his implied knowledge.
[105] Further, Ms Barnes’
evidence was that she was at all times well aware of the expiry date
on Annexure “D”.
It was therefore anything but a latent
defect. The defendants have therefore succeeded to prove that they
were entitled to a price
reduction. This was supported by evidence
that she had to secure clay from other service providers at a cost
instead of mining
it self. Signing of the agreement on 6 February
2009 long after the expiry of the licence should have prompted the
plaintiff to
enquire as the licence holder but chose not to.
[106] The primary object of a deed of
sale is to record the terms of a contract between the parties, and it
follows that any statement
in such a document prima facie constitutes
a term from the contract itself or other admissible evidence that the
parties did not
so intend.
An almost similar situation occurred
in: Cloete v Smithfield Hotel (Pty) Ltd
1955 (2) SA 622
(OFS) where
the plaintiff entered into negotiations for the purchase of a hotel
and was shown over it. The working of the sewerage
system and the
fact that the septic tank was on municipal property was explained to
plaintiff and he was aware of the fact that
the municipality had the
right to withdrawn permission (licence my own emphasis) for it to be
there. The day before the sale was
concluded, (8 December 2008 in
this case and the contract was signed and concluded on 6 February
2009), the municipality withdrawn
permission and this fact was known
to the seller and not the buyer. The court held that the seller
should have disclosed that fact
to the buyer.
In this matter the plaintiff goes on to
signed the deed of sale on 6 February 2009 knowing that the mining
licence has lapsed but
say nothing about the agreed price of
R3million which encompassed the mining rights. Plaintiff know that
the mining rights are
no longer there and what about the sale price?
My view is that the plaintiff was duty bound to make sure that the
mineral rights
or the conversion of the licence to the new order was
done properly and not to leave everything in the hands of the
defendants,
including the conversion of a licence that belongs to him
as plaintiff without his active involvement in that regard.
Howits J in the quoted case remarked as
follows: “Die skadevergoeding was eiser toegeken moet word, is
die bedrag waarmee
eiser se vermoe verminder is deur die onregmatige
gedrag van die verweerder. Die bedrag is dus die verskul tussen die
koopprys
en die verminderde waarde van die hotelbesigheid as gevolg
van die terugtrekking van die vergunning,” at 633.
The expired mining licence in the
present case had to have a bearing on the sale price of the business.
Having considered all submissions from
both sides and the case law referred to, I am of the view that this
matter will be concluded
as in the last paragraph of this judgment.
[107] My view is that plaintiff has
failed to satisfy the seller’s implied warranty or the seller’s
obligation as outlined
above. Implied warranties do not require an
express statement or promises “that all is in order” but
it is a common
law requirement. Should the plaintiff have complied
with the implied warranty this could entitle him to his claim as
prayed for
in the particulars of claim. Plaintiff’s submissions
are therefore not accepted as probable.
[108] In the premise, the plaintiff’s
claim falls to be dismissed with costs and the Honourable Court
should find in favour
of the 1st and 2nd defendants in relation to
the merits of the claim in reconvention.
Consequent upon the above is ordered as
follows:
1. Plaintiffs
claim is dismissed with costs.
2. 1st and 2nd
Defendant claim in reconvention is upheld.
VRSN NKOSI
ACTING JUDGE OF THE HIGH
COURT
COUNSEL FOR PLAINTIFF ADV. S FERGUS
ATTORNEYS FOR THE PLAINTIFF C/O
SAVAGE JOOSTE & ADAMS
COUNSEL FOR DEFENDANT ADV. D
PRINSLOO
A TTORNEYS FOR THE DEFENDANT
JORDAAN’S INC A TTORNEYS
DA TE OF HEARING 16 OCTOBER 2013
DA TE OF JUDGMENT 12 NOVEMBER 2013