Brief Summary

Contract — Sale of immovable property — Dispute regarding payment for improvements — Plaintiff sought summary judgment for outstanding amount arising from settlement agreement related to construction costs — Defendant raised counterclaims exceeding plaintiff's claim, asserting defects in improvements and unpaid contractor fees — Court held that defendant's counterclaims constituted bona fide defenses against summary judgment, allowing the defendant to defend against the claim.

Comprehensive Summary

Summary of Judgment

1. Introduction

The matter concerned an application for summary judgment brought in the Free State High Court, Bloemfontein. The plaintiff, Yellow Star Properties 1087 (Edms) Bpk, sued the defendant, Lurama 149 (Edms) Beperk, for payment of R201 739.72, together with interest and costs.

The procedural posture was that the plaintiff had issued summons for the monetary amount, the defendant had entered an appearance to defend, and the plaintiff then launched summary judgment proceedings under the applicable rule. The defendant delivered an opposing affidavit resisting summary judgment on the basis that it had bona fide defences, including intended counterclaims exceeding the plaintiff’s claim.

The dispute arose from a sale of immovable property and, in particular, the parties’ arrangements concerning the cost of improvements/building works connected to the property. The immediate cause of action pleaded by the plaintiff was a settlement agreement concluded after a dispute about the amount of building costs payable.

2. Material Facts

It was common cause that, on or about 9 March 2006, the parties concluded a written deed of sale in terms of which the plaintiff sold certain immovable property situated in Bethlehem to the defendant. On or about the same date, they signed a written addendum to the deed of sale. The defendant paid the purchase price, and transfer was registered into the defendant’s name on 4 July 2006.

At the time of concluding the sale agreement and addendum, the plaintiff had already begun to implement certain improvements to the property. In terms of the sale agreement (particularly clause 22, as pleaded), the plaintiff would be responsible for building works up to the date of transfer, while the defendant would reimburse the plaintiff for the cost of improvements in the manner and at the time provided for in clause 22. A dispute later arose between the parties regarding the amount payable by the defendant to the plaintiff in respect of those building costs.

The plaintiff’s claim, as pleaded, was that the parties resolved that dispute by concluding a settlement on or about 16/17 August 2006. In terms of that settlement, the defendant allegedly agreed to pay the plaintiff a total of R1 748 395.80 for the building costs. It was further pleaded that the defendant had already paid R1 500 000.00 pursuant to the addendum, and that the remaining balance was adjusted through a set-off mechanism relating to pro rata rental, resulting in the plaintiff’s claim of R201 739.72 as the net balance still owing.

The defendant opposed summary judgment by asserting that it had a counterclaim (or intended counterclaims) against the plaintiff totalling R218 859.63, exceeding the plaintiff’s claim. The defendant’s opposition relied on three intended counterclaims. The first two related to (i) amounts the defendant said it had to pay to an electrical contractor to obtain an electrical compliance certificate because the plaintiff had not paid the contractor in full, and (ii) amounts allegedly paid by Engen to the plaintiff after transfer in circumstances where the defendant alleged it should have been the recipient of those payments.

The third intended counterclaim concerned alleged defective and/or incomplete building work on improvements that were said to have been completed by the time of transfer. The defendant relied on correspondence requesting the plaintiff to rectify the defects and a quotation reflecting the estimated cost of repairs (alleged to be R112 007.62). The defendant contended that the plaintiff refused to repair, and that the defendant would claim those repair costs.

In the summary judgment proceedings, counsel for the plaintiff conceded that the first two intended counterclaims constituted a bona fide defence to summary judgment to the extent of R106 582.01, with the plaintiff persisting only for summary judgment on the alleged balance of R95 157.71. The remaining dispute for decision in the application was therefore whether the third intended counterclaim (defective building work) also disclosed a bona fide defence sufficient to defeat summary judgment.

3. Legal Issues

The central legal question was whether, on the defendant’s opposing affidavit, the defendant had disclosed facts which, if proved at trial, would constitute a bona fide defence to the plaintiff’s claim for summary judgment, specifically in relation to the third intended counterclaim based on defective building work.

The dispute primarily concerned the application of law to the facts placed before the court on affidavit in the summary judgment context, including whether the third counterclaim was legally sustainable in light of contractual provisions relied upon by the plaintiff. This included consideration of whether the defendant’s defence was excluded by (i) the contractual allocation of risk and responsibility for building works in clause 22.2, (ii) the voetstoots clause (clause 8), and (iii) the impact of the fact that the plaintiff’s claim was framed as arising from a settlement agreement, not merely the underlying deed of sale.

A further contextual issue arose concerning the existence of a clause (clause 22.5) providing for dispute determination by an independent quantity surveyor acting as an expert (described in argument as “arbitration-like”), and whether that clause affected the court’s competence to determine the dispute at this stage.

4. Court’s Reasoning

The court approached the application by restating the established standard for resisting summary judgment. Relying on Breitenbach v Fiat SA (Edms) Bpk 1976 (2) SA 226 (TPD), the court emphasised that the defendant must set out facts which, if proved at trial, would constitute an answer to the claim, and that it suffices if the defendant advances a defence that is valid in law and not inherently or seriously unconvincing. The court also noted the accepted proposition that a bona fide defence may be founded on an unliquidated counterclaim.

At the outset, the court recorded the plaintiff’s concession that the first two intended counterclaims constituted bona fide defences for purposes of summary judgment to the extent of R106 582.01. The court agreed that this concession was properly made, which narrowed the inquiry to whether the third intended counterclaim (defective work) similarly met the bona fide threshold.

On the “arbitration-like” clause in clause 22.5, the court raised the point with counsel, noting disagreement between them. The court held that the mere existence of such a clause did not automatically bar adjudication by a court, particularly where the defendant had not relied on the clause in its opposing affidavit. The court referred in this connection to Delfante v Delta Electrical Industries Ltd 1992 (2) SA 221 (CPD). The court expressly did not decide whether the defendant might later be able to invoke clause 22.5 in pleadings, since it was unnecessary for disposing of the summary judgment application.

A key step in the court’s reasoning was the identification of the true causa of the plaintiff’s claim: it was based on a settlement agreement reached after a dispute about building costs. The court considered the settlement to have arisen from discussions between the parties and their legal representatives and from a written offer and written acceptance contained in correspondence attached to the particulars of claim. The defendant accepted that the settlement was concluded.

Because the claim was founded on the settlement, and because the settlement contained its own terms and conditions, the court reasoned that the terms of the original deed of sale and addendum were, in the first instance, not determinative for assessing the legal sustainability of the third defence. The court held that the settlement should be interpreted according to the ordinary principles of contractual interpretation, including contextual interpretation. In this respect, the court relied on Engelbrecht and Another NNO v Senwes Ltd 2007 (3) SA 29 (SCA), particularly on the approach that the intention of the parties is ascertained from the language used, read in context, with admissible evidence of background facts and, where necessary, surrounding circumstances.

Against that interpretive framework, the court characterised the defendant’s third defence as essentially alleging that the settlement (which concerned payment for building costs) had been concluded on the premise that the building work had been performed properly and professionally, and that the defendant was induced to agree to the settlement amount under that impression. The defendant’s case was that it later became apparent that some work was defective and that the defendant would have to repair it at its own cost, despite having settled the building costs with the plaintiff. The court held that, if the defendant were to prove at trial that the work for which the plaintiff had been responsible was unworkmanlike, and that the defendant concluded the settlement while under an impression (created by the plaintiff’s representations) that the work was properly executed, then the defendant “ought” to succeed with the intended counterclaim. On that basis, the court concluded that the third defence was legally valid and met the requirement of a bona fide defence for summary judgment purposes.

The court further reasoned, in the alternative, that even if it were incorrect in treating the deed of sale and addendum as irrelevant due to the settlement, the defendant still disclosed a bona fide defence when those contractual provisions were considered.

In relation to clause 22.2 (which stated that the seller is responsible for building work until transfer, after which risk and responsibility are assumed by the buyer), the plaintiff argued that the defendant bore the risk for any defects after transfer. The court rejected that reading when clause 22 was considered as a whole. It interpreted clause 22.2 contextually as addressing responsibility for the building work and payment of contractors up to transfer, and thereafter shifting the buyer into the seller’s position vis-à-vis ongoing building obligations. The court emphasised that it was common cause the work was completed by transfer, and thus there was no practical stage at which ongoing construction obligations had been taken over by the buyer. On the court’s interpretation, clause 22.2 did not mean the buyer had no remedy against the seller for unworkmanlike work performed prior to transfer.

In relation to the voetstoots clause (clause 8), the plaintiff argued that it barred any claim based on defects (latent or patent) in the property or improvements. The court accepted the defendant’s contention that, read in the context of the entire agreement, the voetstoots clause could at most apply to improvements existing at the time the deed of sale was concluded, and not necessarily to future improvements contemplated and regulated in clause 22. The court found support for this contextual conclusion in the existence and content of clause 22.5, which specifically made provision for disputes “arising from” the improvements and the architect’s certificate to be determined by an independent quantity surveyor acting as an expert. The court reasoned that it would be senseless to include clause 22.5 if clause 8 had already excluded remedies for disputes concerning the improvements. Accordingly, the court held that the voetstoots clause did not negate the defendant’s third defence for purposes of summary judgment.

Having found that the defendant’s third intended counterclaim disclosed a bona fide defence, the court concluded that summary judgment could not be granted.

On costs, the plaintiff sought a costs order to stand over, while the defendant sought costs in the cause. The court considered there to be no special reason to depart from the usual approach in such matters and ordered costs to be costs in the cause.

5. Outcome and Relief

The court dismissed the application for summary judgment. The defendant was granted leave to defend the action. The court ordered that the costs of the summary judgment application would be costs in the cause.

Cases Cited

Breitenbach v Fiat SA (Edms) Bpk 1976 (2) SA 226 (TPD)

Delfante v Delta Electrical Industries Ltd 1992 (2) SA 221 (CPD)

Engelbrecht and Another NNO v Senwes Ltd 2007 (3) SA 29 (SCA)

Legislation Cited

No legislation was cited in the judgment.

Rules of Court Cited

Uniform Rules of Court, Rule 32(3)(b)

Held

The court held that the defendant had disclosed facts which, if proved at trial, could constitute a bona fide defence to the plaintiff’s claim founded on the settlement agreement. In particular, the intended counterclaim based on alleged defective building work was not shown, on the papers, to be legally excluded by the deed of sale provisions concerning risk (clause 22.2) or by the voetstoots clause (clause 8), especially when the agreement was read contextually and in light of the specific dispute-resolution mechanism provided in clause 22.5.

As a consequence, summary judgment was refused, leave to defend was granted, and costs were ordered to be costs in the cause.

LEGAL PRINCIPLES

A defendant resisting summary judgment must, in an opposing affidavit, set out facts which, if proved at trial, would constitute an answer to the plaintiff’s claim; it is sufficient if the defence is valid in law and not inherently or seriously unconvincing, as articulated in Breitenbach v Fiat SA (Edms) Bpk 1976 (2) SA 226 (TPD).

A bona fide defence for summary judgment purposes may be constituted by an unliquidated counterclaim, provided it is disclosed on affidavit with sufficient factual basis to demonstrate legal sustainability.

Where a plaintiff’s claim is founded on a settlement agreement, the interpretation and effect of that settlement may be assessed with reference to general principles of contractual interpretation, including contextual interpretation and admissible background facts, as described in Engelbrecht and Another NNO v Senwes Ltd 2007 (3) SA 29 (SCA).

The mere existence of a contractual clause providing for dispute determination (described as “arbitration-like”) does not, without more, automatically preclude a court from adjudicating the dispute, particularly where the clause is not relied upon in resisting summary judgment; the judgment referred in this connection to Delfante v Delta Electrical Industries Ltd 1992 (2) SA 221 (CPD).

Contractual provisions allocating risk or containing a voetstoots term must be interpreted contextually within the totality of the agreement, and their effect on alleged defects in improvements depends on the agreement’s structure and on whether the improvements were existing at contract conclusion or were contemplated and regulated as future work within the contractual scheme.

Yellow Star Properties 1087 (Edms) Bpk v Lurama 149 (Edms) Beperk (3105/2007) [2008] ZAFSHC 30 (16 May 2008)