New Adventure Investments 193 (PTY) Ltd v Trustees for the time being of the SAS Trust (2577/1999) [2002] ZAWCHC 19; [2002] 3 All SA 544 (C) (22 April 2002)

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[2002] ZAWCHC 19
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New Adventure Investments 193 (PTY) Ltd v Trustees for the time being of the SAS Trust (2577/1999) [2002] ZAWCHC 19; [2002] 3 All SA 544 (C) (22 April 2002)

REPORTABLE
IN
THE HIGH COURT OF SOUTH AFRICA
(CAPE OF
GOOD HOPE PROVINCIAL DIVISION)
CASE
No: 2577/1999
In the matter of
NEW ADVENTURE INVESTMENTS 193 (PTY)
LTD
Plaintiff
and
THE TRUSTEES FOR THE TIME BEING OF
THE SAS
TRUST Defendant
JUDGMENT
DELIVERED : 22 APRIL 2002
MOOSA,
J:
INTRODUCTION:
Plaintiff
instituted action against defendant for cancellation of a deed of
sale concluded on 5 November 1998 (
“the contract”
)
in terms of which defendant sold to plaintiff certain immovable
property known as 241 Ocean View Drive, Sea Point (
“the
property”
). The purchase price of the property was R2 615 000
of which plaintiff paid defendant a deposit of R265 000. In
addition to the
deposit plaintiff paid the sum of R7 192,62 in
respect of rates and taxes for the property. The cancellation is
based on
fraudulent misrepresentation in that defendant
intentionally withheld certain material information in order to
induce plaintiff
to conclude the contract. Derek Lubner (
“Mr
Lubner”
) represented plaintiff and Shaun Stevenson (
“Mr
Stevenson”
) represented defendant.
THE PLEADINGS:
2. Plaintiff averred in the summons that the property had outstanding
views of the Atlantic Ocean and the Atlantic coastline. It
averred
further that prior to the conclusion of the contract, defendant (in
the person of Mr Stevenson) was aware that:
(a) the said views enjoyed from the property would be of great
importance to a would-be purchaser of that property and to plaintiff
in particular;
the owner of a
property to the front and across the road from the property, (the
front property) intended to construct a multi storey
block of flats
on such property in the very near future and was applying for
departure from the zoning regulations;
such block of flats
would seriously interfere with and obstruct the aforesaid view from
the property;
a would-be
purchaser of the property, and plaintiff in particular, would in all
probability not know of the said intention to build
the block of
flats or of the application for departure from the zoning
regulations.
3. Plaintiff alleged that defendant was under a duty to disclose to
it the information that the said owner intended to build such
block
of flats and was applying for departure from the zoning regulations
(application for the proposed development) prior to concluding
the
contract. But for the non-disclosure, defendant would not have
concluded the contract.
Defendant admitted
in the plea that the property possesses good views of the Atlantic
Ocean and Atlantic coastline. Defendant further
admitted paragraph
2(a) above and made the following qualified admissions in respect of
paragraphs 2(b) and 2(c) above:
as at the date of
conclusion of the contract, Mr Stevenson was aware that the owner of
the front property was investigating the
possibility of a
development of such property and
depending on the
extent of such development, which would be limited by the relevant
zoning regulations, the view from the property
could be interfered
with and obstructed to a limited extent.
Defendant
denied paragraph 2(d) above. Defendant also denied that he was under
a duty to make a disclosure concerning the proposed
development.
Defendant
counterclaimed cancellation of the contract on the ground of breach
of contract on the part of plaintiff. Alternatively,
defendant
averred that the purported cancellation of the contract by plaintiff
amounted to a repudiation which it accepted by reason
of plaintiff’s
alleged breach of contract. In consequence thereof defendant
alleged that it suffered damages in the sum of R537 465.
After
setting off the deposit paid by plaintiff amounting to R265 000,
the defendant counterclaimed the balance of R272 465.
THE ISSUES:
The issue which the
court has to determine in the first leg of its inquiry is whether or
not there was a legal duty on defendant
to disclose to plaintiff
that an application for the proposed development was lodged and
whether or not the non-disclosure thereof
constituted fraudulent
misrepresentation. If the court finds for plaintiff, it follows
that defendant’s counterclaim would fail.
On the other hand, if
the court finds for defendant, the second leg of inquiry would be to
determine whether or not plaintiff
committed a breach of contract
and/or repudiated the contract and whether or not plaintiff is
liable to defendant for damages as
claimed.
THE FACTS:
On 5 November 1998
plaintiff and defendant concluded the contract in terms of which
plaintiff purchased from defendant the property
for the purchase
price of R2 615 000. Plaintiff paid a deposit of R265 000
and the balance was to be paid against
registration of transfer. In
terms of the contract, the deposit was to be held in an interest
bearing trust account. Although
the contract provided for
possession and vacant occupation to be given on date of registration
of transfer, it was common cause
that plaintiff was given possession
and vacant occupation of the property on 7 December 1998. Transfer
of the property was expected
to take place on 8 December 1998.
On 7 December 1998,
while plaintiff was in the process of taking occupation of the
property, Mr Lubner was approached by Mr J B
Evans, a neighbour and
informed of the application for the proposed development. Mr
Lubner, after making certain preliminary inquiries,
instructed
plaintiff’s attorneys to delay the transfer of the property while
he investigated the matter further. On the same
day plaintiff’s
attorneys addressed a letter to defendant’s attorneys alerting it
to the application for the proposed development
and requesting that
the transfer be delayed pending further investigation. The same
afternoon Mr Stevenson confronted Mr Lubner
on the property about
delaying the transfer. When informed about the application for the
proposed development, Mr Stevenson replied
that he had only received
notification of the said application from the City Council earlier
that day.
The letter,
addressed by plaintiff’s attorneys to defendant’s attorneys to
which I referred earlier, amongst other, states that
Mr Stevenson
was aware of the application for the proposed development and had
failed to disclose the information to the plaintiff
prior to the
conclusion of the contract. It states further that, had plaintiff
been made aware of the information it would not
have submitted an
offer to purchase the property. Defendant’s attorneys responded
to this letter on 8 December 1998 by
confirming that the
application was lodged. They put plaintiff to terms to take
transfer of the property, failing which, defendant
would exercise
its rights in terms of clause 14 of the contract. On 21 December
1998, plaintiff cancelled the contract on the
basis of fraudulent
misrepresentation arising from the non-disclosure of a material
fact. On 23 December 1998 defendant in
turn cancelled the
contract for breach thereof or alternatively accepted the
repudiation and held plaintiff liable for damages.
10. It is common cause that an application for the proposed
development was submitted to the Cape Town City Council. The
application
required departure from certain sections of the building
regulations. Revised plans were subsequently submitted and new
departures
were sought from the building regulations. The Director
of Land Management of the City Council, in his report dated 26 April
1999,
recommended to the planning committee that the application for
the proposed development be refused. The application was
subsequently
withdrawn. It is further common cause that during
October 1998 Mr Stevenson received a telephone call from Thomas
Brummer (
“Mr Brummer”
) informing him of the application
for the proposed development. This information was not conveyed to
plaintiff by defendant during
the course of negotiations for the sale
of the property. This information was also not brought to the notice
of Mrs Jacqueline Rosenberg,
(
“Ms Rosenberg”
) the estate
agent who negotiated the deal between plaintiff and defendant. It is
also common cause that the property lies on the
slopes of Signal
Hill, immediately above Ocean View Drive and has a panoramic view of
the Atlantic Ocean and the Atlantic coastline.
The front property
which comprises a single storey dwelling, is zoned R4 in terms of the
building regulations. This allows for
the development of a block of
flats up to seven storeys high, subject to certain building
restrictions.
THE EVIDENCE:
11. I do not intend to summarise the evidence in full as most of it
is either common cause or not disputed. As the issues, which
are not
common cause, have to be determined on the basis of credibility, I
will refer to the evidence of the various witnesses insofar
as it may
be necessary in that regard. For plaintiff, Mr Lubner, Janet Lubner,
Mr Brummer and Jonathan Smiedt testified. For defendant,
Ms
Rosenberg and Mr Stevenson testified. Save for the evidence of Mr
Lubner and Mr Brummer, Mr
Louw,
for defendant, did not
seriously challenge the evidence of the other witnesses for
plaintiff. Save for the evidence of Mr Stevenson,
Mr
Engers,
for plaintiff, did not seriously challenge the evidence of the other
witness for defendant. Before dealing with the testimony of
Mr
Lubner and Mr Stevenson, I will briefly refer to the evidence of the
other witnesses.
Janet Lubner:
She described the
events which eventually led to the purchase of the property. She
confirmed that the property had a magnificent
view of Sea Point, the
beachfront and the Atlantic seaboard. The property appealed to them
because it had ample accommodation,
a swimming pool, a garden and a
good sea view. On the morning of 7 December, while she and her
husband were supervising the unpacking
of their furniture and
effects, they were approached by a neighbour, who she thinks is Mr
Evans. He asked them what they thought
of the proposed construction
of a seven storey building directly in front of the property. She
was shocked by this information.
It was the first time she had heard
of such development proposal.
The late afternoon
of the same day Mr Stevenson arrived at the property. He was in a
furious mood and wanted to know from her husband
why he is delaying
the transfer. He said it was his house and they should get out. He
said that he had only read about the proposed
development in the
letters that were found in the post box that day. Mrs Lubner could
not recall a statement by Mr Stevenson to
the effect that
“he
would refund the deposit”
. However, in her written statement
which was handed in as part of the record, she states
“he
offered to refund our money and take back the house…”
. Mr
Lubner in his evidence specifically stated that Mr Stevenson
offered to refund the depost. Mr Stevenson, on the other
hand,
denies this allegation in his evidence.
Mrs Lubner made a
good impression on the court. She came across as an honest and
credible witness. She gave her evidence in a
clear and forthright
manner. Her evidence in chief was not seriously challenged under
cross-examination. Her omission with regard
to the repayment of the
deposit, can be ascribed to an innocent oversight and not a
deliberate falsehood. The court has no hesitation
in accepting her
evidence.
Thomas Brummer:
He is a qualified
Town and Regional Planner. He was commissioned by the developer of
the front property to attend to certain aspects
of the proposed
development thereon. During October 1998, he telephoned Mr
Stevenson and informed him that the owners intended
to develop the
front property. The building could either be a five or a seven
storey building which would involve departures from
the zoning
regulations. He said he wanted to take photographs from the
property and prepare a photo montage superimposing the
outlines of
the various development alternatives in order to gauge the effect
and impact of a five or seven storey building on
the view from the
property. He suggested that they meet in order to discuss the
development proposals.
Mr Stevenson
informed him that he would oppose the proposed development. Mr
Stevenson thereupon informed him that he had received
an offer for
the purchase of the property earlier that year and that he should
have sold the property. He inquired from Mr Brummer
whether there
was now a duty upon him to disclose the information of the proposed
development to a prospective purchaser of the
property. Mr Brummer
responded in the affirmative and Mr Stevenson agreed therewith. Mr
Brummer tried to set up an appointment
with Mr Stevenson to discuss
the application with him personally and to take photographs from the
property. Mr Stevenson told
him that he would be out of town for a
week and he should telephone on his return for an appointment. Mr
Brummer made various
calls to him and left messages, but Mr
Stevenson failed to respond.
Mr Brummer was an
independent and impartial witness and had no interest in the outcome
of the action. He impressed the court as
an honest, unbiased and
reliable witness. Mr
Louw
attempted to discredit his
testimony under cross-examination because he had not made
contemporaneous notes of the conversation
which occurred three years
earlier. Mr Brummer was adamant that his testimony was true and
correct. The court has no reason
not to accept his testimony.
Jonathan Smiedt:
He is a sworn
appraiser and auctioneer and has extensive expertise in the selling
of immovable property. He testified that the
property had a
panoramic sea view. It had an unimpeded and uninterrupted view of
the whole of Table Bay and its shoreline. This
was an important
quality that enhanced the value of the property. It would constitute
a material consideration to any potential
purchaser in formulating
an offer to purchase the property. A property with an unrestricted
sea view would be worth more than
the same property with a
restricted sea view.
Under
cross-examination, Mr Smiedt made a number of concessions. He
conceded that a panoramic view was available to someone standing
on
the balcony even were he to look in the line of the blocks of flats
on either side of the front property. He also conceded
that the
same situation would prevail in the event of a similar development
being erected on the front property. He also made
certain
concessions with regard to propositions made relating to the
marketability and value of the property. He was asked whether
the
presence of a block of flats on either side of the front property
would alert one to the possibility of development of the
front
property. He replied that the front property had been there without
change, for a very long time, in his estimate for about
40 years.
In his opinion there was no reason to alert anyone to the
possibility of an imminent development.
Mr Smiedt was an
independent and impartial witness. Although called by the
plaintiff, he made a number of concessions in favour
of defendant.
His credibility was reinforced rather than weakened under
cross-examination. He had no personal interest in the
outcome of
the trial. His evidence is accepted without reservation.
Jacqueline Rosenberg:
She is the estate
agent that was the effective cause of the sale of the property. She
had 14 years experience in the estate agency
business. She
concentrated on the Fresnay and Bantry Bay area. She described the
events which finally led to the conclusion of
the deed of sale. She
testified that she recalls telling the Lubners on two occasions when
they inquired about the possible development
of the front property,
that there exists a possibility of the property being developed.
The first time it was discussed with Mr
Lubner and on the second
occasion, its was discussed in the presence of the father. She,
however, was not aware of any such development.
She said that
estate agents are usually informed and are aware of any developments
which take place in the area. She, however,
pointed out to the
Lubners the developments taking place on the neighbouring
properties.
She further
informed Mr Lubner that should he be concerned about the possibility
of a development on the front property, he was
at liberty to make
enquiries at the City Council. She also volunteered to accompany
him to the City Council to make such inquiries.
Under
cross-examination she acknowledged that she did not know of an
application for the proposed development. Mr Stevenson did
not tell
her of such application. She testified that if she was aware of
such application, she would be ethically obliged to inform
the
Lubners. It was a material consideration for any prospective
purchaser. She conceded that any development on the front property
had the potential of obstructing the view of the property. She
conceded that a great deal of value was attached to the view of
the
property. She agreed that the view of a property was important to
the Lubners.
The only material
aspect in which her evidence conflicts with that of Mr Lubner is her
statement that if they wanted to be certain
about possible
development on the front property, he could make inquiries at the
City Council and that she was prepared to accompany
them. There is
no reason to disbelieve her on this aspect of the evidence.
Although Mr Lubner disputed this evidence, he conceded
under
cross-examination that she could have said so. Although she had a
direct financial interest in the outcome of the trial,
she made many
concessions in favour of the plaintiff. She gave her evidence in a
clear, truthful and unbiased manner. Mr
Engers
had no
serious criticism of her evidence. Her evidence is accordingly
accepted.
Derek Lubner:
He is a director of
plaintiff company. He described the events leading up to the
purchase of the property. He testified that they
were looking to
purchase a property on the Atlantic seaboard with a magnificent sea
view. Ms Rosenberg introduced them to the
property which appealed
to them. On 7 December 1998, the date on which they took possession
of the property, and while supervising
the unpacking of their
furniture and effects, a neighbour approached them. He asked them
what they thought of the proposed construction
of a seven storey
building on the front property. He showed them a letter from the
City Council about the proposed development.
He was shocked by this
information.
He contacted the
Cape Town City Council whose official put him in touch with Mr
Brummer. During a telephonic conversation with
Mr Brummer, he was
informed that Mr Brummer had discussed the proposed development with
Mr Stevenson. It appeared to him that
the proposed development
would have a serious impact on the sea view of the property. He
immediately instructed his attorney to
delay the transfer pending
further investigation. Mr Stevenson arrived at the property in the
late afternoon of 7 December 1998.
He was angry and wanted to know
why they were delaying the transfer. He shouted and said they must
get out of his house. He will
refund the deposit. He said he did
not know of the proposed development. He had only received the
letters from the City Council
in his post box that day. He (Mr
Lubner) subsequently gave instructions to his attorneys to cancel
the contract. He stated that
if he had been informed by Mr
Stevenson of the proposed development, he would not have concluded
the contract.
Under
cross-examination he was asked whether it ever crossed his mind that
the front property might be developed. He replied in
the negative.
His attention was drawn to paragraph 13 of his written statement and
the fact that Ms Rosenberg would be called
to give evidence. He
then agreed that he could not dispute that the matter had in fact
crossed his mind. He admitted that there
was a general discussion
around the possible development of the front property, but added:
“The way my view was, the possibility that lightning can strike
a house and it will blow up”
. He could not satisfactorily
explain why he made such remark, but conceded that it was made off
the top of his head.
He was not an easy
witness. He was irritable, argumentative and impatient at times. He
made many uncalled for remarks. The comment
concerning
“lightning
striking a house and blowing up”
was unfortunate, but in my
view nothing revolves around it. Mr
Louw
tried to blow the
remark out of all proportion. I accept Mr Lubner’s explanation
that it was made off the top of his head.
It was in keeping with
the many other thoughtless remarks made by him. Mr
Louw
conceded that despite his behaviour and attitude in the witness box,
it does not reflect upon his credibility, because it stems
from a
misguided arrogance and belief of self-worthiness. I agree with
that assessment of the witness. In any event, most of
his evidence
was either common cause or corroborated by the other witnesses whose
evidence was credible and reliable. His evidence
is therefore
accepted.
Shaun Stevenson:
He was one of the
trustees of defendant. He described himself as a businessman and
property developer. He testified that he was
not engaged in direct
negotiations with the Lubners. The negotiations were conducted
between defendant’s attorney, plaintiff’s
attorney, its
accountant and Ms Rosenberg. He admitted receiving a telephone call
from Mr Brummer during or about the last week
of October 1998. He
was informed that Mr Brummer was investigating the possibility of a
development on the front property. He
informed him that until he
(Stevenson) received a formal notification from the City Council
about the proposals, he cannot consider
it. He finally signed the
contract on 5 November 1998.
During the first
week of December 1998, he received notification from the City
Council that the application for the proposed development
was
submitted. On 7 December 1998 he was informed by defendant’s
attorneys that the plaintiff sought to delay the transfer.
He went
to the property where he confronted Mr Lubner about delaying the
transfer. Mr Lubner informed him about the proposed
development. He said he (Stevenson) only received notification
thereof from the City Council earlier on that day. He confirmed
that the contract was subsequently cancelled.
Under
cross-examination he admitted that he was concerned and upset about
plaintiff delaying the transfer. However, he denies saying
to the
Lubners that it was his house, that they should get out and that he
would repay the deposit. He could not recollect whether
Mr Brummer
had told him that the proposed development was to be between five
and seven storeys high. After being prodded by Mr
Engers
,
he conceded that Mr Brummer could have told him about the height of
the building. He denied that he told Mr Brummer that he
had
previously received an offer for the property and that he should
have accepted the offer. He also denied asking Mr Brummer
whether
he would be required to disclose the information of the possible
development of the front property to a prospective purchaser
of the
property. He conceded that he had not communicated the information
of the possible development on the front property to
the Lubners.
He denied any duty to disclose the information to the Lubners.
Mr Stevenson was a
pathetic witness. He was evasive and his replies to questions under
cross-examination were interspersed with
answers like
“I cannot
recall”
. He was not completely honest with the court. He
could only recall matters which did not compromise his case, but
those matters
which were prejudicial to his case, he conveniently
could not recall, or remember or simply denied them. In the view of
the court
his evidence which conflicts with that of the other
witnesses, and particularly with that of Mr Brummer is suspect and
unreliable
and is accordingly rejected.
Because of the
materiality of the telephonic conversation between Mr Brummer and Mr
Stevenson it behoves this court to examine and
analyse such evidence
further. Mr Brummer was an independent and impartial witness. Mr
Stevenson, on the other hand, had a direct
interest in the outcome
of the trial. Mr Brummer had no reason to lie, whereas Mr Stevenson
had every reason to lie in order to
bolster his case. He also had
selective memory lapses. Such memory lapses occurred in respect of
matters which were prejudicial
to his case. The objective facts
favour the version of Mr Brummer. Mr Brummer mentioned about a
previous offer received by Mr
Stevenson for the property. It is
common cause that a previous offer was submitted by the Lubners.
Surely Mr Brummer was unlikely
to have known this. It is more
probable that this information was communicated by Mr Stevenson to
Mr Brummer during the telephonic
discussion.
Mr
Louw
submitted that it sounds strange that Mr Stevenson, an experienced
property developer and businessman, would ask a complete stranger’s
advice on a legal matter when he had regular access to an attorney.
There is nothing strange in seeking such advice. Firstly,
he gets
it free of charge and secondly, he gets a further opinion on the
matter. It does not happen infrequently in the affairs
of people
that a second opinion is sought on a particular matter when the
occasion arises. The credibility of Mr Brummer was beyond
reproach,
whereas the credibility of Mr Stevenson was impeached. The
probabilities furthermore favour the version of Mr Brummer.
The
court accordingly has no hesitation in accepting the version of Mr
Brummer with regard to the telephonic conversation and
rejects the
version of Mr Stevenson which is in conflict with that of Mr
Brummer.
THE LAW:
34. Plaintiff’s action is based on fraudulent misrepresentation.
It is alleged that defendant intentionally withheld certain material
information in order to induce the plaintiff to conclude the
contract. Clause 11 of the contract stipulates that the purchaser
will
not be able to institute action against the seller for any
defect in, or as a result of any representation by the seller or his
agent
in regard to the property. Fraudulent misrepresentation is
excluded from protection by a clause of this nature on the grounds of
public policy. To put it in another way, the guilty party cannot
contract himself out of liability because of fraudulent
misrepresentation.
In
WELLS v SA ALUMENITE COMPANY
1927 AD
69
, the following dicta by
Innes, CJ
appears at page 72:
“
On grounds of public policy the law will not recognise an
undertaking by which one of the contracting parties binds himself to
condone
and submit to the fraudulent conduct of the other. The
Courts will not lend themselves to the enforcement of such a
stipulation;
for to do so would be to protect and encourage fraud.”
35. It is settled law that fraudulent non-disclosure of a fact can
give rise to the cancellation of a contract, if:
such fact is
material; (CHRISTIE on
THE LAW OF CONTRACT
, 4
th
edition at 324;
KARROO & EASTERN BOARD OF EXECUTORS &
413 TRUST CO v FARR & OTHERS
1921 AD 413
at 415;
DUTCH
REFORMED CHURCH COUNCIL v CROCKER
1953 (4) SA 53
(C) at 61D;
OZINSKY NO v LLOYDD & OTHERS
1992 (3) SA 396
(C) at
418E-F) and
the withholding of
the fact is intended to induce the innocent party to conclude the
contract. (
BOWDITCH v PEEL AND MAGILL
1921 AD 561
at 572;
WOODSTOCK, CLAREMONT, MOWBRAY AND RONDEBOSCH COUNCILS v SMITH
(1909) 26 SC 681
at 701;
DIBLEY & FIRTER
1951 (4) SA
73
(C) at 88C-D; CHRISTIE on
THE LAW OF CONTRACT
, 4
th
edition at 328 and
there is a legal
duty to disclose such a fact; (LAWSA first reissue Vol 17 para 421
Fraudulent Misrepresentation;
DIBLEY v FURTER
(
supra
)
at 87F-H;
FLAKS v SARNE & ANOTHER
1959 (1) SA 222
(T)
at 226D;
GERMIE MOTORS (PTY) LTD v ERICKSEN
1985 (2) SA 389
(C) at 393F).
I
will discuss each of the above elements in order to determine whether
or not plaintiff is entitled to the relief claimed in this
matter.
MATERIAL FACT:
A material fact is
one going to the root of the contract. (
DUTCH REFORMED CHURCH
COUNCIL v CROCKER
(
supra
) at 61D.) The question of
materiality must be judged on the facts and circumstances of each
particular case. A fact can be described
as material if either
disclosure of such fact or the non-disclosure thereof induces a
party to enter into a contract. In the case
of non-disclosure, the
party would not have concluded the contract had that fact been made
known.
In the context of
this case the non-disclosure of the application for the proposed
development must be germane to the sale of the
property. Defendant
admitted in the pleadings and its witnesses conceded, that the
property, which formed the subject matter of
the sale, enjoyed a
magnificent view. This view would not only be of great importance
to a would-be purchaser, but also to plaintiff
in particular. The
defendant further admitted that it was aware of the fact that the
owner of the front property intended to construct
a multi storey
block of flats on such property and had applied for certain
departures from the zoning regulations. It also conceded
that such
block of flats could seriously interfere with and obstruct the view
from the property.
It is common cause
that the property lies on the slopes of Signal Hill, above Ocean
View Drive and has a panoramic view of the Atlantic
Ocean and the
Atlantic coastline. The front property is a single storey dwelling.
The building regulations allow for the development
of a block of
flats up to seven storeys high subject to certain building
restrictions. It was not disputed by defendant that plaintiff,
through Mr and Mrs Lubner, had approached a number of estate agents
with the object of purchasing a home with a view of the Atlantic
coast. The property in question met their requirements.
Mr Jonathan Smiedt,
a sworn appraiser and auctioneer with extensive expertise in
property, testified that the property had a panoramic
sea view. It
had an unimpeded and uninterrupted view of the whole of False Bay
and its shoreline. The view was an important quality
which advanced
the value of the property. It would constitute a material
consideration to any potential purchaser in formulating
an offer to
purchase the property.
Ms Rosenberg
testified that she was not aware of the application for the proposed
development prior to the conclusion of the contract.
If she was
aware of it, it would have been ethical for her to inform the
Lubners thereof as it was a material consideration for
any
prospective purchaser. A great deal of value was attached to the
view from the property and such view was important to the
Lubners.
Mr Brummer, a town
planner, was commissioned by the owner of the front property to
attend to certain aspects concerning the proposed
development of the
front property. In and during October 1998, he informed Mr
Stevenson, as the representative of the owner of
a neighbouring
property, of the proposed development. He said that the proposed
development could either be a five or seven storey
building which
could involve departures from the zoning regulations. Such
development could also impact on the unrestricted and
unimpeded view
from the property. It is common cause that this information was not
given to the Lubners.
The importance of
the view to plaintiff is not only confirmed by the evidence of the
Lubners but reinforced by their conduct when
informed by Mr Evans of
the application for the proposed development. They were shocked.
Mr Lubner immediately instituted inquiries.
He put the transfer on
hold and eventually cancelled the contract because of the potential
threat to the panoramic view from the
property.
In the light of the
facts and circumstances, I am satisfied that the application for the
proposed development was a material fact
in the knowledge of
defendant which it failed to disclose to plaintiff.
FRAUDULENT
NON-DISCLOSURE:
It is common cause
that defendant, through Stevenson, acquired the information from
Brummer in and during October 1998. It is also
common cause that
such information was not communicated to defendant prior to the
conclusion of the contract. Defendant admitted
in the pleadings
that the proposed development on the front property would seriously
interfere with and obstruct the outstanding
views from the property.
Stevenson deliberately withheld the information from the parties
concerned, despite the fact that he
had been told by Mr Brummer that
he was obliged to convey the information to any prospective
purchaser.
The Lubners
testified that if they had knowledge of the information at the time
of the conclusion of the contract, they would not
have purchased the
property. This intention is reinforced by their conduct at the time
they were given the information by Mr Evans.
The only reasonable
inference the court can draw is that plaintiff would not have
concluded the contract had it become aware of
the information. Mr
Stevenson must have realised at the time the contract was concluded,
that the Lubners had not become aware
of the information otherwise
they would have raised the issue prior to signing the contract. Mr
Stevenson was at all material
times aware of the fact that the
Lubners had placed a high premium on the panoramic views from the
property of the Atlantic ocean
and the Atlantic coast. It was one of
the primary considerations by the Lubners for the purchase of the
property.
Mr Stevenson not
only failed to disclose the material fact to the Lubners, but
perpetuated the fraud. On 7 December 1998 when confronted
with such
fact, Mr Stevenson gave the impression that he only became aware
thereof that very day. The impression he tried to convey
was false
as, by his own admission, he became aware of the fact through Mr
Brummer during October 1998. The same impression was
perpetuated in
the letter addressed by defendant’s attorneys to plaintiff’s
attorneys dated 23 December 1998. Even that letter
is silent of the
fact that Mr Stevenson became aware of the information during
October 1998. The first time defendant admitted
that it had
received the information from Mr Brummer was in its opposing
affidavit to the summary judgment application in this
case. Mr
Stevenson was patently dishonest in not only withholding material
information from Mr Lubner, but perpetuating the fraud
through his
conduct.
I am satisfied that
defendant deliberately withheld material information from plaintiff
in order to induce it to conclude the contract
of sale. In my view
the
omissio
amounted to fraudulent non-disclosure.
DUTY TO DISCLOSE:
There is in our law
no general duty upon contracting parties to disclose to each other
any material facts and circumstances which
are known to each other
and which may influence the mind of the other party in deciding
whether or not to conclude a contract.
There is authority in our law
for the proposition that a seller who knows of the existence of
defects in the thing sold, but deliberately
refrains from disclosing
them to a buyer, in certain circumstances is guilty of fraud,
justifying cancellation of the contract
by a buyer who is not aware
of them. This principle applies even where the defects are not such
as would found the
actio redhibitoria
provided they
materially affect the thing sold. (
SPEIGHT v GLASS & ANOTHER
1961 (1) SA 778
(N) at 781H-782A and the authorities quoted
therein; CHRISTIE on
THE LAW OF CONTRACT IN SOUTH AFRICA
4
th
edition p 320.)
The non-disclosure
of a fact is not necessarily confined or intrinsic to the subject
matter of the contract. It could also be extraneous
or extrinsic
thereto, provided it materially impacts on the subject matter of the
contract. Such non-disclosure can also give
rise to relief where it
forms part of the negotiations leading up to the contract. (
DIBLEY
v FURTER
(
supra
) at 87F-G;
MAYES & ANOTHER v
NOORDHOF
1992 (4) SA 233
(C)
.) In
DIBLEY v FURTER
(
supra
)
at 87B-C,
Van Zyl, J
(as he then was) quotes with approval
from POTHIER in his
TREATISE ON THE CONTRACT OF SALE
2.2,
section 237, as follows:
“
Good faith obliges the seller, not only not to suppress any of
the intrinsic defects of the thing, but in general not to suppress
anything concerning it, which may induce the buyer not to purchase or
not to purchase at so high a price.”
The fraudulent
non-disclosure of a material fact is, like fraudulent
misrepresentation,
ex hypothesi
wrongful. Wrongfulness
takes the form of an enquiry whether or not there is a duty to
speak. If no such duty exists the non-disclosure
cannot be
wrongful. The test for determining the existence of a duty to speak
lies in the legal convictions of the community (
boni mores
)
and policy considerations based on full and frank disclosure. (LAWSA
: para 421;
MESKIN, N O v ANGLO- AMERICAN CORPORATION OF S A LTD
& ANOTHER
1968 (4) SA 793
(W) at 799D-808A;
McCANN v
GOODALL GROUP OF OPERATIONS (PTY) LTD
1995 (2) SA 718
(C) at
722F-723A-C.)
51. A duty to speak, amongst other considerations, arises when there
is an
“involuntary reliance of the one party on the frank
disclosure of certain facts necessarily within the
exclusive
knowledge
of the other such that, in fair dealing, the
other’s right to have such information communicated to him would be
mutually recognised
by honest men in the circumstances.”
(
“The general rule of involuntary reliance”
.) (
PRETORIUS
& ANOTHER v NATAL SOUTH SEA INN TRUST LTD (UNDER JUDICIAL
MANAGEMENT)
1965 (3) SA 410
(W) at 418D-E;
MESKIN, N O v
ANGLO-AMERICAN CORPORATION OF SECOND APPELLANT LTD & ANOTHER
(
supra
) at 799D-808A;
GOLLACH & GOMPERTS (1967)
(PTY) LTD v
UNIVERSAL MILLS & PRODUCE CO (PTY) LTD &
OTHERS
1978 (1) SA 914
(A) at 924A-B;
OZINSKY N O v LLOYD &
OTHERS
(
supra
) at 418F-419B;
McCANN v GOODALL GROUP
OF OPERATIONS (PTY) LTD
(
supra
) at 723G.)
52.
In casu
defendant admitted in the
pleadings, subject to certain qualifications
that the property
enjoyed views which would be of great importance to plaintiff,
that the owner of
the front property intended to construct a multi storey block of
flats and was applying for a departure from the
zoning regulations
and
that such block of
flats would seriously interfere and obstruct the outstanding views
of the Atlantic ocean and the Atlantic coastline.
Mr
Stevenson acquired knowledge of such application for the proposed
development from Mr Brummer prior to the conclusion of the contract.

Mr Stevenson was aware that he had to disclose the information to a
prospective purchaser of the property. This became clear from
the
telephonic discussion between him and Mr Brummer. Although Mr
Stevenson denied such discussion, the court found that Mr Stevenson
was untruthful in this regard and accepted the version of Mr Brummer
as correct.
The court accepted
the evidence of Mr and Mrs Lubner that they were not aware of the
application for the proposed development prior
to concluding the
contract. They only became aware thereof when they were informed
about it by Mr Evans on 7 December 1998.
Ms Rosenberg
testified that she was not aware of the application for the proposed
development. Had she become aware thereof before
the conclusion of
the contract, she would have informed the Lubners about it. She
further confirmed that it was a material consideration,
and if she
became aware of it, it was ethical for her to inform the Lubners
thereof.
Mr Smiedt was asked
under cross-examination whether the presence of a block of flats on
either side of the front property would
alert one to the possibility
of development of the front property. He replied that the front
property had been there for about
40 years without change. In his
opinion there was no reason to alert anyone to the possibility of an
imminent development.
Defendant conceded
that the rule of
“involuntary reliance”
was applicable,
but relied on the exception to the rule, as propounded by M A
Millner in his article entitled
FRAUDULENT NON-DISCLOSURE
in
1957 SALJ 177
, to escape liability. The exception was to the
effect that where matters are equally open to common observation, or
ascertainable
by ordinaly diligence or accesible to both parties
alike, the general rule is not applicable.
Mr
Louw
submitted that the contextual setting of the property in what was
described by Mr Smiedt as the
“Sea Point flatland”
overwhelmingly established the clear and real prospect of the
development of the front property. Furthermore, he argued that had
the Lubners made enquiries at the Cape Town City Council prior to
the conclusion of the contract as suggested by Ms Rosenberg,
they
would have discovered that the application for the proposed
development was pending. Mr
Louw
asked the court to find
that the information was equally open to the plaintiff and
defendant, or ascertainable by ordinary diligence
or accessible to
them alike and there was accordingly no duty to disclose this
information.
Mr
Engers
submitted that defendant, through Mr Stevenson, had acquired the
crucial information from Mr Brummer who had informed Mr Stevenson
as
the agent of the owner of the property. This information was not
accessible to plaintiff. He argued further that such information
was
not open to common observation as the front property had remained
undeveloped for over 40 years. There was accordingly a duty
on Mr
Stevenson to communicate the information to Mr Lubner prior to the
conclusion of the contract.
The first question
that this court has to determine, before reverting to the
submissions by counsel, is: whether or not the exception
to the
rule, in the case of fraudulent non-disclosure, is part of our law.
I have found various authorities where the general
rule was applied
in the case of fraudulent misrepresentation or fraudulent
non-disclosure. In this regard see the various authorities
cited
above under paragraph 51, dealing with the general rule of
involuntary reliance. I have, however, found no authorities where
the exception to the general rule was applied in the case of
fraudulent misrepresentation or fraudulent non-disclosure. In fact
I have found authorities in our law to the contrary.
Our courts have
never condoned fraudulent conduct on the part of litigants. (
WELLS
v SOUTH AFRICAN ALUMENITE COMPANY
(
supra
) at 72-73.)
Myburg, J
in
OTTO & ʼn ANDER v HEYMANS
1971 (4)
SA 148
(T) at 158H-159A refers to the
dicta
of
Ramsbottom,
J
in
BROODRYK v SMUTS N O
1942 TPD 47
at 55 quoting
with approval the passages of WESSELS in
LAW OF CONTRACT IN
SOUTH AFRICA
, para 1120:
“…
that if in fact the person to whom a false representation is
made relies on it implicitly, and thinking it unnecessary to verify
it,
enters into the contract, it does not lie in the mouth of the
fraudulent party to say that the other party had the means of the
information
and negligently or stupidly did not avail himself of it.”
The object of the
fraudulent party is precisely to mislead the other party against his
better judgment. If he succeeds in this
purpose, he cannot be heard
to say that the other party should not have allowed himself to be
misled so easily (DE WET & YEATS:
KONTRAKTEREG EN HANDELSREG
3
rd
edition at p41); or if he had used due diligence he
would have found out that the representation was untrue (
WILEY v
AFRICAN REALTY TRUST LTD
1908 TH 104
at 111-112). There is no
obligation on the person to whom a fraudulent representation is made
to establish whether such representation
is true or false and may
rely and act on such representation without making further
inquiries. (CHRISTIE on
THE LAW OF CONTRACT IN SOUTH AFRICA
,
4
th
edition at p 329.)
The same
consideration should, in my view, apply in the case of the
non-disclosure of a material fact which has induced a party
to enter
into a contract of sale. In such an instance, the fraudulent party
cannot be heard to say that such fact was equally
open to common
observation or ascertainable by ordinary diligence or accessible to
both parties alike when he is aware of the purchaser’s
ignorance
of such fact. The parties are obliged to negotiate in good faith an
element which is
sine qua non
to the conclusion of a valid
contract. (
MUTUAL & FEDERAL INSURANCE CO LTD v OUDTSHOORN
MUNICIPALITY
1985 (1) SA 419
(A) at 433A-F.) In
ORANJE
BENEFIT SOCIETY v CENTRAL MERCHANT BANK LTD
1976 (4) SA 659
(A)
at 674, the following
dictum
of
Van Winsen, J
in
the court
a quo
, was approved by the Appellate Division:
“
I have little doubt that our courts would regard it as
unconscionable conduct on the part of a company who by a decision of
its directors
had fraudulently misled a party to a contract if it
should seek to raise as a defence to a claim in delict that the
representee,
having constructive knowledge of its memorandum and
articles, was not misled by its fraud.”
Mr
Louw
submitted that the following passage, in the full bench decision of
the Cape Provincial Division, in
McCANN v GOODALL GROUP OF
OPERATIONS (PTY) LTD
(
supra
) at 723G-H reflects the
state of our law to the duty to disclose or to speak, and I quote:
“
A duty to disclose or to speak is said to arise when there is
an ‘involuntary reliance of the one party on the frank disclosure
of certain facts necessarily lying within the exclusive knowledge of
the other such that, in fair dealing, the former’s right to
have
such information communicated to him would be mutually recognised by
honest men in the circumstances’.
There is no such duty ‘where matters are equally open to common
observation, or ascertainable by ordinary diligence, or accessible
to
both parties alike…’.”
Mr
Louw
emphasised that the exception to the general rule is part and parcel
of our law. I respectfully disagree. The authorities quoted
in
McCANN
, apart from Millner’s article, are no authority for
the fact that the exception to the general rule is part of our law.
Those
authorities confirm that the general rule forms part of our
law and is silent on the exception to the general rule. In any
event,
the remarks by
Van Zyl, J
is firstly
obiter
;
secondly, the exception to the rule was not directly related to the
point in issue; thirdly, the issue related to negligent
misrepresentation and not fraudulent misrepresentation; and
fourthly, the general rule and not the exception was applied to the
circumstances of that case.
McCANN
’s case is therefore no
authority for the fact that
“where matters are equally open to
common observation or ascertainable by ordinary diligence or
accessible to both parties alike…”
forms part of our law and
a fortiori
not in the case of fraudulent misrepresentation
or fraudulent non-disclosure. Whether or not the exception could
apply in the
case of negligent misrepresentation, I do not venture
to express an opinion as I am not called upon in this matter to make
a finding
in respect thereof.
In my view, there
is no persuasive authority that the exception to the general rule
forms part of our law in the case of fraudulent
non-disclosure. But
even if it was part of our law, the information given to Mr
Stevenson by Mr Brummer concerning the application
for the proposed
development was in the exclusive knowledge of the defendant.
Reverting to counsels’ submissions, I agree with
Mr
Engers
that defendant deliberately withheld crucial information from
plaintiff with the intention of inducing it to conclude the contract
of sale. It was highly improbable that the plaintiff would have
obtained the information from observation or ordinary diligence
or
that it was accessible to it. I am satisfied that the Lubners did
not have knowledge of the information before concluding the
contract.
The contention of
Mr
Louw
that the plaintiff could have obtained the
information if it took the trouble of making inquiries from the Cape
Town City Council,
must be seen in the proper context. Firstly,
defendant was not aware of the proposed application until informed
by Mr Brummer.
Secondly, Ms Rosenberg who had operated in the area
for approximately 14 years, informed the Lubners that she was not
aware of
the application for the proposed development and estate
agents are usually aware of proposed developments in the area.
Thirdly,
that the front property had remained undeveloped for
approximately 40 years and there was nothing to alert it of any
imminent development.
It was therefore reasonable for Mr Lubner to
assume that no development was contemplated on the front property.
Mr Lubner under
cross-examination remarked that the possibility of development on
the front property was like
“lightning striking the house”
.
Mr
Louw
suggested that this remark reflected the state of
mind of Mr Lubner and was consistent with the fact that he was aware
of the
real prospect of a development on the front property. He
asked the court to draw an inference that Mr Lubner had knowledge of
the
potential development of the front property. Although Mr Lubner
could not explain the remark satisfactorily, he did say it was
made
“off the top of my head”.
It was an unfortunate remark,
but in my view the inference that Mr
Louw
wants the court
to draw, is unwarranted and unreasonable in the light of all the
circumstances.
Finally, Mr
Louw
submitted that any development on the front property involving
departures from the zoning regulations was an impossibility. This,
according to him, was reinforced by the subsequent withdrawal of the
application for the proposed development. This submission
does not
detract from the fact that defendant acquired certain exclusive
information which it was obliged by law to disclose to
plaintiff.
In breach of such duty it failed to disclose such material
information to plaintiff. This finding is supported by
a full bench
of this Division in
McCANN v GOODALL GROUP OF OPERATIONS (PTY)
LTD
(
supra
) at 726D-E, where it was held that liability
for misrepresentation by silence or inaction arises in the case of a
duty to disclose
a material fact when
the fact in
question falls within the exclusive knowledge of the defendant and
the plaintiff relies on the frank disclosure thereof
in accordance
with the legal convictions of the community, and
such duty likewise
arises if the defendant has knowledge of certain unusual
characteristics relating to or circumstances surrounding
the
transaction in question and policy considerations require that the
plaintiff be apprised thereof.
Both
the above examples are apposite to the facts in this case.
The final
submission by Mr
Engers
was to the effect that Section 32
read with Section 39 of the Constitution on the right of access to
information gave plaintiff
the right to the information known to Mr
Stevenson. In view of the conclusion I have reached, it is not
necessary for me to make
a finding in respect of the Constitutional
point raised by Mr
Engers
.
69. In the light of the circumstances I conclude
that:
the information
conveyed by Mr Brummer to Mr Stevenson concerning the application
for departure from the zoning regulations in respect
of a proposed
development on the front property, was a material fact;
defendant
deliberately and with the intention of inducing plaintiff to
conclude the contract of sale, withheld such information
from
plaintiff;
there was a legal
duty on defendant to disclose such information but for such
non-disclosure plaintiff would not have concluded
the contract of
sale.
Because
of the decision I arrived at, it is not necessary to consider
defendant’s claim in reconvention and the relief sought in
respect
thereof must accordingly fail.
70. In the result judgment is granted in favour of
plaintiff for:
Payment of the sums
of
R265 000,00 (two
hundred and sixty five thousand rand) and
R7 192,62 (seven
thousand one hundred and ninetytwo rand and sixty two cents).
Interest on the
said sums from the date on which the amounts were paid to Meyer De
Waal Inc to date of repayment either at the rate
earned or at the
legal rate applicable, whichever is the higher.
Costs of suit.
Defendant’s claim
in reconvention is dismissed with costs.
……………………………….
E MOOSA
New
Adventure Investments 193 (Pty) Ltd
Cont/…