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[2020] ZASCA 116
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Municipal Employees' Pension Fund and Others v Chrisal Investments (Pty) Ltd and Others (792/19) [2020] ZASCA 116; [2020] 4 All SA 686 (SCA); 2022 (1) SA 137 (SCA) (1 October 2020)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 792/19
In the
matter between:
MUNICIPAL
EMPLOYEES’
PENSION
FUND
FIRST APPELLANT
AKANI
RETIREMENT FUND
ADMINISTRATORS
(PTY) LTD
SECOND
APPELLANT
AKANI
PROPERTIES (PTY)
LTD THIRD
APPELLANT
and
CHRISAL
INVESTMENTS (PTY)
LTD FIRST
RESPONDENT
TAKOU
INVESTMENTS (PTY)
LTD SECOND
RESPONDENT
PROCPROPS
60 (PTY) LTD
THIRD
RESPONDENT
ADAMAX
PROPERTY PROJECTS
MENLYN
(PTY)
LTD FOURTH
RESPONDENT
Neutral
citation:
Municipal Employees’
Pension Fund and Others v Chrisal Investments (Pty) Ltd and Others
(792/19)
[2020] ZASCA 116
(1 October
2020)
Coram:
CACHALIA, WALLIS and MBHA JJA and EKSTEEN and
WEINER AJJA.
Heard
:
20 August 2020
Delivered
:
This judgment was handed down electronically by circulation to the
parties' representatives via email, publication on the Supreme
Court
of Appeal website and release to SAFLII. The date and time for
hand-down is deemed to be 9.45 am on 1 October 2020.
Summary:
Actio Communi Dividundo
–
Contract providing for co-ownership of property in
undivided shares and letting enterprise – whether co-ownership
an instance
of bound or free co-ownership – whether resort to
actio
competent.
ORDER
On
appeal from:
Gauteng Division of
the High Court, Pretoria (De Villiers AJ sitting as court of first
instance):
1 The appeal is upheld with costs, such costs to include those
consequent upon the employment of two counsel.
2 The order of the high court is set aside and replaced by the
following order:
'The application is dismissed with costs, such costs to include those
consequent upon the employment of two counsel.'
JUDGMENT
Wallis
JA (Cachalia and Mbha JJA and Eksteen and Weiner AJJA concurring)
[1]
Three companies (the Adamax co-owners),
which owned a business operating three shopping centres, disposed of
a 55 percent share
in that business to the first appellant, the
Municipal Employees' Pension Fund (the MEPF), for a total price of
R550 million. Simultaneously
with that disposal their holding
company, the fourth respondent, Adamax Property Projects Menlyn (Pty)
Ltd (Adamax), concluded
a detailed co ownership agreement (the
COA) with the MEPF. This agreement encompassed the distribution of
income from the
business; the incurrence of costs and other
obligations; the constitution of an executive committee; property and
financial management
of the business; and the costs of managing the
shopping centres. The COA was firmly tied to the sale agreement by
way of a condition
precedent that made the sale agreement dependent
on the conclusion of the COA. It contained detailed provisions in
regard to its
duration and the manner in which either party might
dispose of their interest in the business.
[2]
Was it open to the sellers, the day after
these agreements had been concluded and implemented and at all times
thereafter, to ignore
all those detailed contractual arrangements and
bring proceedings under the
actio
communi dividundo
to terminate the
joint ownership of the business and cause the properties on which the
shopping centres stand to be sold? The high
court's judgment answers
that question in the affirmative. I do not.
The
agreements
[3]
The first, second and third respondents are
the Adamax co-owners. They owned the shopping centre business and the
immovable properties
on which the Parkview, Glen Village South and
Glen Village North shopping centres are constructed. The precise
relationship between
them and even whether each one owns the
properties on which one shopping centre stands does not emerge from
the papers. What is
clear is that they are merely corporate vehicles
through which Adamax conducted the shopping centre business. The
other appellants
are the administrator of the MEPF and an associated
company. They play no role in the legal issues in this case.
[4]
The two agreements that are relevant to
this case are the sale agreement and the COA. There was also a
Property Management Agreement
governing the management of the
shopping centres, but that was itself a by-product of the other two
agreements. The subject of
the sale agreement was 'the Enterprise',
which was defined in clause 2.6.4 as:
'the letting enterprise carried on by the Sellers as a
going concern on the Properties consisting of the Properties and all
right,
title and interest in and to the Leases.'
Clause
2.6.12 defined the 'Properties' as a '55% undivided share in the
properties owned by the Sellers', that is, the first to
third
respondents. Clause 2.6.6 defined the 'Leases' as the written
agreements of lease in respect of the letting and hiring of
the
premises forming part of the Properties.
[5]
In terms of clause 4.1 the Sellers sold the
Enterprise to the MEPF for a price of R550 million. Clause 4.3.8 said
that the Properties
and the Leases were an 'enterprise' as defined in
section 1 of the Value-Added Tax Act 89 of 1991
[1]
and clause 4.3.9 provided that:
'such enterprise is being disposed of as a "going
concern" within the meaning of Section 11(1)(
e
)(i) of the
VAT Act.'
The
significance of an enterprise being disposed of as a going concern is
that it then attracts a zero rating for VAT purposes.
[2]
In order to qualify for this in terms of the VAT Act the enterprise
must be an income earning activity. A business operating
three
shopping centres qualifies as such.
[6]
Furthermore, clause 3 recorded that the
sale constituted a merger between the MEPF and the first to third
respondents for the purposes
of the
Competition Act 89 of 1998
and
required the approval of the Competition Commission. In terms of the
definition in
s 12
of the
Competition Act a
merger arises where
one firm directly or indirectly acquires or establishes direct or
indirect control over the whole or part of
the business of another
firm. This was a merger because the MEPF acquired control, as defined
in the
Competition Act, over
the business of the Adamax co-owners.
[7]
Importantly, these provisions demonstrate
that under the sale agreement the MEPF did not merely purchase
certain immovable properties,
but acquired an interest in the
business of operating the three shopping centres (the Letting
Enterprise). Its principal tangible
assets were the shopping centres
themselves and the leases with tenants that provided the revenue
stream of the business. The importance
of the leases is apparent from
clause 5 under which the sellers provided the MEPF with a guarantee
that the net income of the MEPF's
55 percent undivided share in the
Letting Enterprise would amount to at least R49.5 million per annum
for the first four years.
Without the leases the shopping centres
would have been white elephants with little commercial value. The
leases and their income
earning potential were what transformed the
buildings from empty shells into a business valued for the purposes
of the sale agreement
at R1 billion. Leases to suitable tenants,
whose wares and services were aimed at the target market of shoppers
and visitors to
the business premises in the centres, would generate
footfall through the centres and create the goodwill attaching to
them. Their
importance was demonstrated by the extensive warranties
concerning the existence and commercial viability of the leases given
by
the Adamax co-owners to the MEPF in clauses 9.3, 9.4 and 9.5 of
the sale agreement. In turn, without the right to occupy the centres
and turn them to commercial account, the shopping centre business and
the letting enterprise that was the subject of the sale would
not
have existed. Counsel for both parties agreed that, in the words of
an old song, 'You can't have one without the other.'
[3]
[8]
I stress that the subject of the sale
agreement was the business described as the Letting Enterprise,
although the immovable properties
together with the leases
constituted the Letting Enterprise. However, the application was
brought on the premise that it concerned
only the joint ownership of
the properties on which the shopping centres are situated. The
deponent to the founding affidavit,
Dr de Muelenaere, said:
'The purpose of this application is to obtain an order
under the common law in terms of the
actio communi dividundo
to dissolve the current co-ownership between the Adamax Co-owners and
the MEPF and to provide for the structured unbundling of
the common
property.
As will appear more fully herein
below, the Adamax co-owners and the MEPF are co-owners of immovable
property in the form of three
shopping centres in Pretoria. The MEPF
is the owner of a 55% undivided share in the common properties and
the Adamax co-owners
are the owners of the remaining 45% share in the
common property.'
[9]
In referring to co-ownership Dr de
Muelenaere was concerned only with co-ownership of the immovable
properties on which the shopping
centres are situated. He made this
clear a little later in the affidavit, where he said that the Adamax
co-owners 'owned a number
of properties essentially comprising of, or
adjacent to, three shopping centres' and that on 9 November 2011 they
'sold an undivided
share in certain properties (including the
properties comprising the three aforementioned shopping centres) to
the MEPF'.
He described these as the co-owned properties and in
dealing with the relief sought explained that the Adamax co owners
were
not in a position to buy the MEPF's 'share in the properties'.
The suggested relief was that 'the property portfolio' should be
placed on the market by a liquidator to be sold.
[10]
It is true that in delivering the Letting
Enterprise to the MEPF a 55 percent share in each of the
immovable properties owned
by the Adamax co-owners was transferred to
the MEPF. But there was also a cession and assignment of their rights
and obligations
under the leases to the extent of a 55 percent
interest. Together this resulted in the transfer to the MEPF of a 55
percent interest
in the Letting Enterprise purchased by it. Had the
undivided share in the immovable properties not been transferred to
the MEPF,
the sale of the 55 percent stake in the Letting Enterprise
would not have been affected, although its terms would have needed to
be adjusted, as the Adamax co-owners would still have been obliged to
allow the shopping centres to be used by the Letting Enterprise
for
the purposes of conducting its business. No doubt part of the reason
for effecting a transfer of the 55% interest in the immovable
properties was to provide the MEPF with greater security and because
in terms of clause 9.2 of the COA each party was entitled
to procure
and register a mortgage bond over their pro rata share in order to
secure financing from a financial institution without
the consent of
the other party.
[11]
Turning to the COA it was concluded by
Adamax, both on its own behalf and on behalf of an entity, described
in the COA as 'Propco'
and consisting of Adamax and the Adamax
co-owners, thereby demonstrating the complete control that Adamax
exercised over the Adamax
co-owners. The other party was the MEPF. It
recorded that the MEPF had a '55% undivided share in the Letting
Enterprise' which
it defined as meaning 'the retail and commercial
concern namely the letting enterprise' comprised by the immovable
properties and
the right, title and interest in and to the leases and
the revenues relating to the properties. In other words, it was a 55
percent
share in the overall shopping centre business. Propco, that
is Adamax and its subsidiaries, had a 45 percent share. The subject
of the co-ownership was therefore the Letting Enterprise, not the
immovable properties separated from it. The Letting Enterprise
and
the immovable properties could not be separated.
[12]
It was the intention of Adamax and the MEPF
that they would conduct the business of the Letting Enterprise
together for an indefinite
period. This emerges from clauses 4 and 5
of the COA, which read as follows:
'
4
Constitution of Co-Ownership
4.1 The Parties agree to carry on the Letting Enterprise
under such name and style as they may choose, currently,
Parkview,
Glen Village North
and
Glen Villlage South.
4.2 The Parties agree that should this Co-Ownership be
dissolved for any reason whatsoever, that the use of any name
applicable
to the business or any part or derivative thereof shall
remain the absolute right of that Party which may continue to operate
such
business and that no proprietary right in and to any name so
used will vest individually in the Co-Owners.
5 Duration
5.1 The Co-Ownership will commence with effect from the
Effective Date and shall terminate:
(1) …
(2) on the disposal of the Letting Enterprise by the
Co-Owners; or
(3) if either of the Co-Owners
disposes of its share in the Letting Enterprise, subject however to
the provisions of clause 22 hereof.'
[13]
Clause 22 is headed '
Prohibition
on Sale'
and reads as follows:
'It is expressly agreed amongst the Parties that no
Party shall be entitled to sell its undivided share in the Property
without
having complied in full with the terms and conditions of this
Agreement, more particularly the pre-emptive rights referred to in
Clause 23 below.'
It is
unnecessary to set out the terms of clause 23 in full. It is a
relatively standard clause affording the party which does not
wish to
sell their share in the Letting Enterprise a right of pre-emption if
the other party or parties wish to do so. Two provisions
are
important. The one is that if the remaining co-owner acquires the
interest of the departing co-owner they become obliged to
seek the
release of the latter from any suretyship or guarantee provided by
the seller to any creditor of the co-ownership and,
if unable to do
so, to indemnify the seller against any claim under such suretyship
or guarantee. The other is that it was to be
a condition of a sale to
a third party that they agree to be bound by the terms and conditions
of the COA. In other words, the
business relationship involved in
conducting the Letting Enterprise of the shopping centre business was
to continue. Whilst the
co-ownership between the MEPF and the Adamax
co-owners would have terminated in terms of clause 5.1(3), a fresh
relationship of
co-ownership would come into existence between the
remaining co-owner and the new purchaser.
Adamax's
contentions
[14]
Notwithstanding the creation of this
complex web of ongoing commercial relationships, Adamax contended
that it could be brought
to an end in a manner other than that
provided by the COA. Dr de Muelenaere set out its position in the
founding affidavit:
'I am advised that co-owners have a
right under the common law, more specifically under the
actio
communi dividundo
to,
at any time, demand that co-owned assets be divided. I am further
advised that no co-owner is obliged to remain a co-owner against
his
will. In the absence of an agreement to the contrary, any co-owner
may consequently demand partitioning of the common property
at any
time.'
[15]
The breadth of this contention is apparent
from the repeated statement that the
actio
may be invoked 'at any time'. In other
words, Adamax claimed that it was open to it to invoke the
actio
immediately after the conclusion and
implementation of the sale agreement and the COA or at any time
thereafter. One could add 'for
any reason' because the claim is
unqualified by any restraint on the exercise of the right to demand
partition of the co-owned
property. Notionally, it could be because
the one party had fallen out with the other over an issue unrelated
to the running of
the business, or because they thought that selling
the entire enterprise would generate a greater return for them than
would a
sale of their undivided share. A disagreement over the
prescribed matters in Schedule 1 to the COA, on which clause 11.9
required
unanimity, could be met with the nuclear option of a demand
for division of the co ownership, even though clause 21
contained
detailed provisions to resolve a deadlock over any
operational issue.
[16]
Adamax's contentions meant that it mattered
not that this would destroy the very basis upon which the MEPF
entered into the arrangement,
namely in order to secure a stable
stream of income to meet its obligations to pensioners. The blunt
proposition was that resort
could be had to the
actio
communi dividundo
because it afforded
Adamax a right to demand that the co-owned assets be divided.
Resistance to such a demand entitled it to bring
the present
application.
[17]
The MEPF resisted this contention, pointing
to the terms of the sale agreement and the COA as the basis for
opposing the application
of the
actio
communi dividundo
. They contended that
the application was an endeavour to subvert the provisions of the
COA, which they said regulated all incidents
of its operation and
constituted the complete record of the parties' agreement. Their
primary case was that the relationship between
the parties was
governed by the contracts and nothing else. The
actio
was accordingly unavailable to Adamax.
It is unfortunate that they did not refer in their argument to the
distinction between bound
and free co-ownership, their attention to
it having been prompted by questions posed by this court prior to the
hearing. Greater
clarity might then have emerged at an earlier stage
of the proceedings, but these are merely jurisprudential labels and
the essential
case advanced by the MEPF was always that the
agreements created a situation of bound co-ownership.
[18]
In the high court the judge characterised
this argument as being based on a tacit term that would exclude the
actio communi dividundo
.
He reached that conclusion notwithstanding the absence of any
suggestion in the answering affidavit that reliance was being placed
upon any such tacit term. He thought, erroneously, that the
availability of the
actio
was
one of the
naturalia
(inevitable
legal consequences) of any agreement giving rise to co-ownership. In
the result his entire approach to the case was
flawed. In refusing
leave to appeal he compounded these errors by burdening the MEPF with
an onus to prove as a defence the exclusion
of the
actio
,
when the true question was whether it was available at all given the
terms of the agreements. He then refused leave to appeal.
Had he paid
regard to the consequences of holding that the
actio
was available in the circumstances of
this case he should have granted leave to appeal to this court,
notwithstanding his view that
his judgment was correct. All too
frequently this court bemoans the grant of leave to appeal in matters
of no great complexity
raising no significant legal issue. This was
not such a case and the leave to appeal that should have been granted
was granted
by this court.
The
elements of free and bound co-ownership
[19]
There are countless situations that may
create co-ownership of property. The old authorities and the older
cases are almost all
concerned with immovable property or
inheritances.
[4]
A common situation was where under a will, or in accordance with the
law governing intestacy, property was inherited by two or
more people
in undivided shares. A deed of donation of property in undivided
shares to more than two people was another. The purchase
of immovable
property by two or more individuals in undivided shares was a third.
Marriage in community of property and partnership
are common
examples. The establishment of a trust, which is not itself a
separate juristic entity, renders the trustees the co-owners
in
undivided shares of the trust property. The members of a common law
universitas
that
owns property, such as a club, a political party, a church and many
non-governmental organisations, own the property of the
universitas
in undivided shares. The owners of
units in a sectional title development are co-owners of the common
property in undivided shares.
[20]
Co-ownership may be either free or bound
co-ownership. The distinction is explained by Professor C G van der
Merwe in
LAWSA:
[5]
‘
Common ownership may either constitute the
only legal relationship between the co owners or it may result
from some other legal
relationship between the parties.
In the former case (designated free co-ownership) the relationship
between the co owners is more individualistic in that the
community of property can be dissolved by any co-owner and in that
each co-owner is allowed to use and enjoy the common thing in
accordance with his or her undivided share in it. … In the
latter instance (designated bound co-ownership), which is, for
example, the result of a marriage in community of property or a
partnership, the relationship is more permanent in that no division
of property can be requested during the course of the community of
property and in that the undivided shares allotted to each owner
do
not have real significance.
The legal
relationship between the parties further largely determines the
rights and duties of the co-owners
.’
(My emphasis)
[21]
Professor van der Merwe writes more extensively,
but to similar effect, in his book
Sakereg
.
[6]
In regard to bound co-ownership he says the following:
[7]
‘
Gebonde mede-eiendom ontstaan wanneer ’n
besondere regsverhouding tussen gemeenskaplike eienaars geskep word
,
soos by mede-erfgenaamskap, huweliksgoederegemeenskap, ń
vennootskap en verenigings sonder regs persoonlikheid.
Die
besondere regsverhouding wat tussen die deelgenote bestaan, bepaal
die manier waarop eiendomsbevoegdhede ten opsigte van die
gemeenskaplike saak uitgeoefen word
. Die feit
van mede-eiendom is slegs één van die gevolge van die
regs betrekking wat tussen die partye bestaan. By
vrye mede-eiendom
daarinteen is die feit dat die mede-eienaars tesame eienaars van
dieselfde saak is, die enigste regsverhouding
wat tussen die partye
bestaan.’
[8]
(My emphasis.)
[22]
The fundamental point to be distilled from
these passages is that in bound co-ownership the existence of the
co-ownership arises
from a legal relationship between the parties
other than the co-ownership itself. In other words, there is a legal
relationship
between them going above and beyond the fact that they
happen to be the co-owners of property. The co ownership arises
from
and is constituted as a consequence of that relationship. It is
not the source of the relationship between the parties.
[23]
This point is emphasised by Kleyn and
Wortley,
[9]
writing jointly in comparative terms about bound co-ownership in
South Africa and its equivalent, joint ownership, in Scotland:
‘
As far as bound co-ownership is concerned, South
African authorities mention the following. There exists some other
(special) relationship
between the parties which is of a more
permanent nature; this relationship determines the rights of the
parties; co ownership
is just one of the consequences of that
relationship; no division can be called for unilaterally during the
existence of the relationship;
and a co-owner cannot deal
independently with the undivided share during the relationship. Scots
law provides a similar picture.
As Lord Cooper pointed out in
Magistrates of Banff v Ruthin Castle
,
[10]
an independent relationship is ‘the indispensable basis of
every joint right’ and the ‘attributes [of joint
property] are … the consequences flowing from the relationship
… there is no entitlement to division and sale.' …
The importance, in bound co-ownership, of an extrinsic
relationship is emphasised in both systems. All the consequences of
bound
co-ownership flow from that relationship. Although the two
jurisdictions identify a limited number of different kinds of
relationships
that constitute bound co-ownership, without such a
special relationship the co-ownership must always be free.’
Counsel
for Adamax relied on this last sentence, and two later ones to
similar effect, as restricting the potential for a relationship
to be
one of bound co-ownership. For my part I do not understand the
reference in the last sentence to 'a limited number of different
kinds of relationships' or a 'special relationship' to mean that
there is a closed list of situations of a peculiar nature in which
bound co ownership can arise. That would be inconsistent with
the recognition earlier in the same passage that a relationship
between the parties that determines their rights and obligations, and
of which the co-ownership is only one consequence, gives
rise to
bound co-ownership. It is simply a statement that in the two
jurisdictions in question only a few instances of bound co-ownership
have been identified. Insofar as the authors intend it to go further
I do not agree with them.
[24]
South Africa recognises various sources of
extrinsic legal relationships giving rise to bound co-ownership. It
may arise as a matter
of law from the fact that the parties have
entered into a particular relationship. An example of this is a
marriage in community
of property, where the common law, as varied by
the
Matrimonial Property Act 88 of 1984
, imposes co-ownership upon
the parties to the marriage. Another is the co-ownership of the
common property in a sectional title
development, by virtue of the
provisions of
s 16(1)
of the
Sectional Titles Act 95 of
1986
.
[11]
It may arise from an act such as the execution of a trust deed by the
founder of a trust and the acceptance by the trustees of
office under
that deed. Another possibility is an agreement between the co owners,
as in a partnership
[12]
or the constitution of a
universitas
.
In the case of trust deeds, partnership agreements and constitutions
the parties are usually free to vary their terms and the
terms of the
relationship between the co-owners.
[25]
The leading Scottish judgment on joint
ownership is that of Lord Justice Clerk Cooper in
Magistrates
of Banff v Ruthin Castle
.
[13]
Lord Gill, a recent successor of his as Lord President, said that
this judgment 'eruditely expounded the distinction in Scots law
between joint ownership, being the class of right typified by the
ownership of co trustees, and ownership in common, being
the
right typified by the ownership of two or more persons in whom the
right of a single subject has come to be vested'.
[14]
The key passage reads as follows:
'Joint property, on the other hand, has received little
doctrinal exposition as a mode of holding property, probably because
its attributes are not so much the incidents
of the joint right as the consequences flowing from the relationship
existing between
the persons who alone can have a joint right
.
So far as has been traced, there is no instance of a joint right in
the strict sense having been held to exist e
xcept
in persons who were inter-related by virtue of some trust,
contractual or quasi-contractual bond
—
partnership or membership of an unincorporated
association being common examples — and it seems to me that
such an independent relationship is the
indispensable basis of every joint right
. The
distinctive feature of the right of such joint proprietors is the
jus
accrescendi
, which excludes the possibility
of separate shares in the several joint owners, and still more
emphatically excludes the possibility
of severance of the tie,
except, of course, by dissolution of the relationship on which the
joint ownership rests. Finally, the
considerations of public policy
that
nemo in communis invitus detineri potest
,
have no application to the entirely different situation created by
joint ownership.' (My emphasis.)
[26]
This statement of Scots law is undoubtedly authoritative in
that jurisdiction and wholly consistent with the views of Professor
van der Merwe. It stresses the fact that the incidents of the
relationship between the parties are derived not from the
co-ownership
itself, but from the extrinsic relationship between the
co-owners, separate and distinct from their co-ownership. It accepts
that
the source of a joint ownership (bound co-ownership in South
African terminology) can be a trust or a contractual or
quasi-contractual
bond. Lastly, it makes the point that in cases of
joint co-ownership the public policy rule that a person cannot be
compelled to
remain a co-owner against their will has no application.
[27]
Neither Professor van der Merwe, nor Lord Justice Clerk
Cooper, suggested that bound co-ownership was restricted to any
defined
class of agreement. The former referred to legal
relationships extrinsic to the co ownership and mentioned
various examples
of such relationships. The latter said that it arose
in relation to persons 'who were inter-related by virtue of some
trust, contractual
or quasi-contractual bond', without in any way
limiting the type of contractual or quasi-contractual relationship
that might give
rise to bound co-ownership. The only other Scots case
I have found in the course of my research is
Munro v Munro
.
[15]
There the court held that joint co-ownership was created where a
property was passed to family members on terms that it would descend
to the last surviving of their number and the family members
contractually agreed to this. The court held that this created a
bound co-ownership that none of the family members could defeat by
way of a claim for division of the property. On its face that
appears
to be consistent with the view of Lord Justice Clerk Cooper. I cite
the case with a measure of hesitation because it has
been criticised
in its country of origin, both because it creates problems for a good
faith purchaser of a share in the property
and because it creates
some difficulties in regard to the complex Scots law provisions
governing special destination clauses, such
as this one.
[16]
However, neither criticism has any purchase in South African law, at
least insofar as the issue of creating bound co-ownership
by
contractual agreement is concerned.
[28]
Adamax relied upon certain passages from
Kleyn and Wortley's article to contend that bound co-ownership only
arises from an extrinsic
exceptional relationship in which the rights
and obligations of the parties are defined by common law or statute.
The contention
was that there is only a limited number of
relationships that constitute bound co-ownership and that these are
special relationships
of a more permanent nature that cannot be
altered by agreement between the parties.
[29]
Insofar as Scots law is concerned, neither
Magistrates of Banff v Ruthin Castle
nor
Munro v Munro
lends any support to these conclusions. Nor is it apparent that the
relevant passages from Kleyn and Wortley's article are dealing
with
the issue of whether the relationship between the parties is one of
bound or free co-ownership. They mainly occur in a section
of the
article that commences as follows:
[17]
'However clear the distinction between free and bound
co-ownership may be in theory, it can be undermined by the freedom of
contract
that the parties have in cases of
free co-ownership
.
The question then arises as to whether co-owners can arrange matters
in such a way that
free co-ownership
is converted into
bound co-ownership
. In other words is it for the parties to
decide whether the ownership is bound or free, or does property law
dictate the issue?'
(Emphasis added.)
This
is a puzzling passage. It is dealing with free co-ownership, not with
whether in any particular case the co-ownership is bound
or free. If
the premise is that save in specific limited cases, such as
partnership, all co ownership is free, it is unhelpful,
as
questions that assume the answer always are. Furthermore, the two
propositions are not the same. The former deals with the conversion
of free co-ownership to bound co ownership
[18]
and the latter with the parties' freedom to determine contractually
the nature of their co-ownership. Approaching the problem from
an
assumption of free co-ownership and asking whether this can be
altered by contract, is the wrong question, or at least the wrong
question in the present context. We are not dealing with a
relationship commencing as free co-ownership and asking whether the
parties can alter it by contract. Our concern is whether from the
outset the relationship created by the sale agreement and the
COA was
one of bound or free co-ownership.
[30]
Other passages from this section of the
article also deal expressly with free co-ownership. For example, the
authors say:
[19]
'It is clear that the parties
can, to some extent, change the
ordinary
rules of free co-ownership
by means of agreement. … However, the matter is different with
respect to the right to call for division, which personifies
the
individualistic nature of
free
co-ownership.
Both
jurisdictions seem to accept the principle that a
free
co-owner
can agree
not to call for partition within a limited time, but that an
agreement never to ask for partition is void, a result which
is in
accordance with Roman Law'. (Emphasis added)
In
the result these passages are unhelpful in resolving the issue with
which we are confronted. That is not a criticism of the authors
who
said at the outset
[20]
that their focus was free co-ownership.
[31]
The one South African judgment relied on by
Kleyn and Wortley is that of
Ex parte
Geldenhuys
.
[21]
That involved a will bequeathing a farm to the children of the
testatrix in undivided shares on the basis that division would take
place when the eldest child reached majority and then by a drawing of
lots. The court held that this was permissible and the condition
could be registered against the title deeds showing the children's
undivided shares in the property. De Villiers JP (as he then
was)
said:
[22]
'By the common law, each owner of an undivided share has
the right to claim a partition at any time, and can claim that such
partition
shall be effected either by agreement or by the Court. The
will, therefore, modifies the common law right, or dominium, which an
owner of an undivided share possesses.
That this can validly be
done by a will (and presumably also by agreement inter vivos) seems
to me to be clear on principle, for
the rights of an owner of an
undivided share are not sacrosanct or unalterable any more than the
rights of an owner of a defined
share are.
Portions of the
dominium of an owner of an undivided share can be parted with as
undoubtedly as portions of the dominium of an
owner of a defined
share can be parted with. There is, in fact, the express authority of
Grotius, if authority were needed, that
an owner of an undivided
share can by will be deprived for a specified time of his right to
claim a partition (Grotius 3.28.6,
Maasdorp's Institutes of Cape Law,
bk. 2, ch. 14).
The rights of a joint owner in regard
to partition can therefore be validly limited by last will at any
rate, and the limitations
now under discussion (i.e., as to the time
of partition and as to the drawing of lots) are therefore valid.'
(Emphasis added.)
[32]
In fact, the provision of the will in
Geldenhuys
effectively
removed the right to demand division entirely, by specifying that it
would take place in a specific way at a defined
future date. At no
stage before the arrival of that date would any of the children be
entitled to claim division of the property
in accordance with their
co-ownership. And, as De Villiers JP said, if that could be done by
will it could also be done by agreement
inter
vivos
. Therefore the judgment does not
support the view that bound co-ownership is confined to 'a limited
number of relationships that
constitute co-ownership' and that
without such a 'special relationship' the co-ownership will always be
free.
[23]
That view is also not supported by any South African or Roman Dutch
authority to which they refer and is incompatible with Professor
van
der Merwe's descriptions of bound co ownership.
[33]
I have already mentioned that the old
authorities address situations far removed from the present one. They
also do not use the
terminology of free and bound co-ownership, which
we owe to an article by Professor van Warmelo.
[24]
As such, their discussion of the division of common property is apt
to situations of free co-ownership, but does not address bound
co-ownership and does not consider a situation comparable to that in
this case. However, there are indications that there are
circumstances in which the right to division may be restricted.
Grotius 3.28.6 says that co-owners are entitled to division unless
it
has by last will been forbidden to dissolve within a certain time,
although he accepts that a perpetual prohibition would be
invalid.
Voet 10.2.32 goes further and says that there is no reason why a
testator may not forbid the division of an inheritance
for a long
period or even the lifetime of a person. He draws an analogy with
partnership, pointing out that a partnership can be
constituted for
the lifetime of the partners, which he describes as 'for ever', and
says:
'… it can be arranged that
within a definite period no division shall take place nor any
departure from the partnership.'
[34]
It is clear that these writers accepted
that there were situations of community of property, as they describe
situations of co-ownership,
that were not susceptible to the action
for division until the broader relationship between the parties
giving rise to the community
had ended. Van Leeuwen says this in
relation to partnerships and marriages in community of property.
[25]
Recognition of the fact that partnership gives rise to bound
co-ownership of partnership assets, both tangible and intangible,
involves an acceptance of the proposition that parties can by
agreement so order their affairs as to create a situation of bound
co ownership. Van der Linden gives the example of joint
shipowners being obliged to remain such, at least until the
completion
of the voyage, in terms of the deed of ship ownership.
[26]
It is important to note that this would not necessarily be a
partnership, but the parties could contract for co-ownership and
restrict any right to claim division of the jointly-owned property,
namely, the ship.
[35]
It is necessary to consider in greater
detail the article in which Professor van Warmelo first applied the
expressions free and
bound co ownership in our jurisprudence.
The learned author drew a distinction between two forms of
co-ownership. The first
was where the relationship between the
co-owners and their rights to the property were determined by the law
and were unalterable
by the exercise of free will on the part of the
parties. He said this could be called 'bound co-ownership'. The
instances he gave
of this form of co-ownership were joint heirs in
relation to a joint estate; marriage in community of property; and
'boedelhouerskap',
where the surviving spouse from a marriage in
community of property is appointed as executor of the predeceased
spouse, administrator
of their estate and guardian of the minor
children born of the marriage, and continues the community pending
the children's majority.
[36]
The second possibility was the
relationship he called free co ownership. This was where a thing
was owned by more than one
party, but the law did not impose
unalterable consequences upon the relationship of the parties to the
property or among each other.
Here there were two possibilities. The
first was where the only relationship between the parties flowed from
their co-ownership
of the property. The second was where there was a
further arrangement emanating from the parties themselves, that
either confirmed
the conventional legal relationship as determined by
the law, or changed it in whole or in part. The typical example of
this was
a partnership, under which the partners could regulate their
relationship to the property and one another. Having said that he
went on to explain that the further discussion in the article would
be of free co-ownership other than partnership, because partners
were
free to determine their own rules and in so doing alter the rules
that would otherwise apply to the partnership relationship.
[37]
It will be immediately apparent that this
description of bound and free co-ownership is not the same as the
distinction drawn by
Professor van der Merwe, who places partnership
in the category of bound co ownership. Professor van Warmelo
derived his terminology
from a Dutch work,
[27]
but acknowledged that its authors used it in a different way, one
that accords with Professor van der Merwe.
[28]
The Dutch usage was that free co-ownership applied to situations
where the only relationship between the parties was the co-ownership,
while bound co-ownership was where there was another legal tie
between the co-owners governed by its own rules.
[38]
The argument by counsel for Adamax was that
bound co ownership is limited in accordance with the approach
adopted by Professor
van Warmelo. That approach was inconsistent with
the approach of Professor van der Merwe; this court's approval of
Professor van
der Merwe's approach;
[29]
the views of Kleyn and Wortley, and the Scottish cases. Professor van
Warmelo's view is cited in Dr Kuyler's thesis but without
any
detailed analysis or consideration, which is hardly surprising as the
subject of the thesis was free co-ownership, not bound
co-ownership.
The force of Dr Kuyler's endorsement of Professor van Warmelo's
approach
[30]
is considerably diluted by the fact that on the following page he
says that partnership is a case of bound co-ownership, whereas
Professor van Warmelo said that it is a case of free co-ownership.
[39]
The exposition of the nature of the
actio
communi dividundo
in
Robson
v Theron
[31]
does not assist in resolving the issue of free and bound
co-ownership. The case arose from the dissolution of a partnership
where
the one partner had appropriated and retained the goodwill of
the partnership practice. It concerned a claim by the other partner
to be compensated for his share of the goodwill. It was not concerned
with the distinction between free and bound co-ownership
as the
dissolution of the partnership had brought the co-ownership to an
end. The parties had agreed on what was to be paid for
the retiring
partner's share and the real dispute between the parties was the
factual one of whether the other partner had retained
the goodwill
for his own benefit and was obliged to compensate the retiring
partner therefor.
[40]
The judgment commences with a discussion of
the remedies available to the departing partner on dissolution of the
property, namely
the
actio pro socio
and
the
actio communi dividundo
.
[32]
The discussion of the former contains the following quotation from
Pothier:
[33]
'
In
order to dissolve the community which subsists, after the dissolution
of the partnership between the former partners
,
and to discharge the respective debts for which they may be liable to
each other, each of the former partners, or his heir, has
a right to
demand of his partners or their heirs to proceed to an account and
distribution of the partnership effects. To
effect this they can
each maintain the
actio
pro socio
or the
actio communi
dividundo
, at
their option.' (Emphasis added.)
[41]
Joubert JA endorsed the view of Pothier,
concluding his discussion of the
actio
pro socio
in the following terms:
[34]
'
Pothier
,
on the other hand, makes it abundantly clear that,
in the
liquidation of a partnership, distribution or division of the
partnership assets may be effected among the partners in such
a
manner as not to involve the physical division or partition of
tangible assets of the partnership. According to him the
actio
pro socio
or
the
actio
communi dividundo
may
be used for the distribution or division of partnership assets. His
approach is both logical and practical. In following
it
Van
der
Linden
introduced
it into Roman-Dutch law. It is also basically in conformity with our
present day practice of liquidating partnerships.'
[42]
In discussing the
actio
communi dividundo
Joubert JA did not
revisit these principles. The discussion is brief and concentrates on
the modes of division and the powers of
the court in dividing the
co-owned property. The only substantive proposition was the statement
that the
actio
has
been extended to intangible things held in common ownership of which
the goodwill in dispute in that action was an example.
[43]
A brief summary of the provisions of the
two
actiones
followed.
In dealing with the
actio pro socio
it
started by making the point that the
actio
was available during the existence of
the partnership to claim specific performance and after dissolution
to wind up the partnership.
Turning to the
actio
communi dividundo
the summary commenced
by saying that:
[35]
'No co-owner is
normally
obliged to remain a
co-owner against his will.' (My emphasis)
Significantly,
there was no suggestion that the
actio
was available during the subsistence of
the partnership. Given that this was a brief summary of the
actio
,
it is no surprise that Joubert JA did not go on to set out in which
circumstances a co-owner would be obliged to remain a co-owner
against their will. The obvious case would be that of bound
co-ownership (of which partnership is a quotidian example) until the
relationship giving rise to the tie had itself been terminated. It
would be surprising, given his academic background, were Joubert
JA
not aware of this. He continued by saying that the
actio
was available to any co-owner, whether
or not the co-owners were partners.
[44]
The third point may be misconstrued. It
contained the following passage:
[36]
'
Hence
this action may be brought by a co-owner for the division of joint
property where the co-owners cannot agree to the method
of division.
Since a partnership asset is joint property which is held by the
partners in co-ownership, it follows that a partner
may as a co-owner
bring this action for the division of a partnership asset where the
co-partners cannot agree to the method of its
division. This
would obviously cover the position where, after dissolution of a
partnership, a continuing partner as a co-owner
retains possession of
an undivided partnership asset.'
While
the second sentence is not in terms limited to a division after
dissolution of the partnership, it should not be understood
as
postulating that the
actio
is
available during the subsistence of the partnership, although it may
possibly be invoked in conjunction with a claim that the
partnership
has been dissolved or for its dissolution. It is unnecessary to
express a firm view on this. Given the entire discussion
in the
judgment it does not support the proposition that the
actio
is available during the subsistence of
the partnership, as opposed to at the stage of its dissolution. The
relevant principles are
discussed solely in the context of the
dissolution of the relationship leading to a claim for division of
the co-ownership.
[45]
Accordingly, the judgment casts no light on
how to determine whether co-ownership is free or bound. The case is
not authority for
the general proposition that no co-owner may be
compelled to remain a co owner against their will. That ignores
the context
and the careful qualification that this is 'normally' the
position. Bound co-ownership is precisely the case where a co-owner
is
obliged to remain such against their will, unless and until the
tie that creates the bound co-ownership has been severed.
[46]
In summary therefore, I conclude, in
accordance with the authorities discussed above, that the distinction
between free and bound
co-ownership is that in the former the
co-ownership is the sole legal relationship between the co-owners,
while in the latter there
is a separate and distinct legal
relationship between them of which the co-ownership is but one
consequence. Co-ownership is not
the primary or sole purpose of their
relationship, which is governed by rules imposed by law, including
statute, or determined
by the parties' themselves by way of binding
agreements. The relationship is extrinsic to the co-ownership, but is
not required
to be exceptional.
[37]
In other words it requires no special feature for the co-ownership
consequential upon the relationship to qualify as bound co-ownership.
Whether it is depends upon the terms upon which the relationship is
constituted. The mere fact that co-owners decide to exploit
their
co-ownership commercially will not of itself constitute the
co-ownership as bound co-ownership. That will depend upon the
nature
and terms of the commercial agreement between the parties and matters
such as the provision made for its termination.
[47]
There is no closed list of instances of
bound co-ownership. If the relationship gives rise to bound
co-ownership the co-ownership
will endure for so long as the primary
extrinsic relationship endures. Once it is terminated then, as in
Menzies
[38]
and
Robson v Theron
,
it will become free co-ownership and be capable of being terminated
under the
actio
.
I consider the facts of this case in accordance with those
principles.
Is
this a case of bound co-ownership?
[48]
It is necessary to start by identifying
both the subject matter of the co-ownership and how it arose. That is
complicated by the
fact that there are different things that are the
subject of co-ownership. As explained earlier in analysing the sale
agreement
and the COA the primary subject of the co-ownership is the
Letting Enterprise. The COA regulates the operation of the business
relationship between the MEPF and Adamax and the Adamax co-owners.
Pursuant to the obligation of the Adamax co owners to deliver
the 55 percent share in the Letting Enterprise to the MEPF in terms
of the sale agreement, a 55 percent interest in each of the
immovable
properties was transferred to the MEPF in undivided shares.
[49]
The primary relationship between the
parties is therefore their relationship in respect of the Letting
Enterprise governed by the
COA. Their co-ownership of the immovable
properties is a consequence of that relationship, albeit not a
necessary consequence,
in that transfer of an undivided share in the
properties was not essential in order to give effect to the sale of
the Letting Enterprise
or its operation in terms of the COA.
Conceivably the Letting Enterprise could have come into existence
without transferring an
undivided share in those properties to the
MEPF. Some other mechanism for securing the right to conduct the
Letting Enterprise
in the shopping centres could have been devised.
It is not, as I understand it, suggested that in that case the Adamax
co-owners
would have been entitled to dispose of the properties to a
third party and thereby deprive the Letting Enterprise of access to
and control over the shopping centres and the MEPF of its interest in
the Letting Enterprise.
[50]
The premise upon which the Adamax co-owners
brought the application was therefore incorrect, because it
undermined the entire relationship
between the parties in terms of
the COA. It took as its starting point the subsidiary and
consequential co-ownership of the immovable
properties and treated it
not simply as if it were the primary legal relationship, but as if it
were the only legal relationship.
That was plainly incorrect. Any
attempt to invoke the
actio
had
necessarily to start with the co-ownership of the Letting Enterprise
and the question whether that constituted bound co-ownership.
It is
to that question that I now turn.
[51]
At the outset I reject the proposition in
the respondents' heads of argument that the starting point is that in
co-ownership the
availability of the
actio
is implied by law, so that it must be
excluded unambiguously. That is incorrect. It puts the cart of a
conclusion – 'This
is free co ownership' – before
the horse of the question – 'Is this free or bound
co-ownership?'. The common law
is that the
actio
is always available in the case of free
co-ownership and never available in bound co-ownership. In any
particular case the question
of the proper characterisation of the
co-ownership arises at the outset. Only once it has been answered can
one decide what the
common law attributes of the co-ownership are.
One cannot therefore start with a predisposition in favour of free
co ownership.
That also renders irrelevant the reliance placed
upon the statement by Marais JA in
First
National Bank of SA Ltd v Rosenblum
,
[39]
that:
'
In
matters of contract the parties are taken to have intended their
legal rights and obligations to be governed by the common law
unless
they have plainly and unambiguously indicated the contrary.'
Where,
as here, we are dealing with one of two different forms of
co ownership, one of which affords the right to invoke the
actio
and the other does not, it is
necessary first to identify which form of co ownership is
applicable in order to determine what
the common law is. As it
happens, Marais JA was dealing with an exception clause and was
articulating the approach our law adopts
to such clauses, which is
that they are strictly construed and must clearly and unambiguously
exclude liability for the loss suffered
by the claimant. The quoted
dictum
must
be read and understood in that light.
[52]
The relevant features of the co-ownership
of the Letting Enterprise have already been identified in the
analysis of the sale agreement
and the COA. It was a business
relationship of indefinite duration with careful and detailed
provisions for the conduct of the
relationship. In clause 5 it
contained an express provision in regard to its duration, providing
that it would terminate as a result
of an election by the parties if
transfer had not been achieved by 30 June 2012; if the parties agreed
to dispose of the Letting
Enterprise; or, if either co-owner disposed
of its share in the Letting Enterprise after affording the other a
right of pre-emption
in terms of clauses 22 and 23 of the COA.
Although not mentioned in clause 5 it could also be terminated as a
result of cancellation
for breach, or as a result of a forced sale
upon insolvency or winding up.
[53]
During the course of argument there was
some debate with counsel for the MEPF over whether, in the light of
the decision in
Putco Ltd v TV &
Radio Guarantee Ltd and Other Related Cases
,
[40]
these were the only grounds upon which the COA could be terminated. I
would be hesitant without full argument to reach any conclusion
on
this point, as neither side's counsel had addressed their minds to
the issue and the implications of an ability to terminate
the COA by
notice were not explored in the affidavits. However, it is
unnecessary to do so because the
PUTCO
case is clearly distinguishable. It
concerned a contract to secure advertising to be placed on the
appellant's buses. The contract
was embodied in a letter containing
the following paragraphs:
[41]
'This letter, although binding upon both of us, is
intended to be a temporary interim arrangement, and we confirm that,
in due course,
a detailed agreement will be concluded between us as a
result of the negotiations we have been conducting.
…
[W]e reserve to ourselves
the right to withdraw from this arrangement should damage result to
our image flowing from your activities,
or should our earnings at any
time be insufficient from this scheme, or should the arrangement
become administratively impracticable
in regard to your ability to
signwrite and maintain the advertising copy.'
[54]
In that context it was said:
[42]
‘
[W]hen parties bind
themselves to an agreement which requires them to work closely
together and to have mutual trust and confidence
in each other, of
which the agreement under consideration is an example, it is
reasonable to infer that they did not intend to
bind themselves
indefinitely, but rather contemplated termination by either
party on reasonable notice. Where an agreement
is silent as to its
duration, it is terminable on reasonable notice in the absence of a
conclusion that it was intended to continue
indefinitely. The
inclusion in the agreement of three specific grounds for termination
does not exclude termination by reasonable
notice. The logical
consequence of an argument that only three specific grounds for
cancellation of the agreement exist would be
that, provided those
grounds for cancellation do not arise, the agreement would continue
indefinitely. This would not be a
proper construction to place on the
agreement as it ignores the intention of the parties when entering
into the agreement …’
[55]
That situation was by no means comparable
to the present case. The parties clearly expressed the intention that
their agreement
was an interim and a temporary arrangement. A
detailed agreement was to be negotiated which would no doubt have
dealt with matters
such as the ability of either party to terminate
it on notice. The nature of the relationship did not involve the
joint and co-ordinated
operation of a business, but the provision of
services to PUTCO. All of this is absent from the present case. We
are dealing with
a suite of agreements of some considerable
commercial complexity, in a transaction involving more than half a
billion Rand. It
was clearly intended to continue for more than four
years, as that was the period in respect of which the income
guarantee in terms
of clause 5 of the sale agreement would operate.
Construing the COA as permitting a termination on notice within that
period would
run counter to an express provision of the sale
agreement. Similarly, permitting the Adamax co-owners to bring the
actio
during
that period would also be utterly inconsistent with the sale
agreement that created the co-ownership of the Letting Enterprise
and
the immovable properties. Yet, as pointed out at the outset of this
judgment, that is the approach of the Adamax parties.
[56]
It may be, as debated in argument, that the
COA is terminable on reasonable notice duly given. I express no firm
view on that question.
The fact that it may terminate in other
circumstances does not necessarily exclude that possibility, but it
does not affect the
question whether the relationship gives rise to
bound co-ownership. A partnership undoubtedly does so, but most
partnership agreements
provide for their termination on reasonable
notice and in the ordinary course that is one of the
naturalia
of a partnership. Nothing was drawn to
our attention to suggest that this would affect the partners'
co-ownership of either the
partnership business or any movable or
immovable property co-owned by them.
[57]
The mention of partnership brings me to a
consideration of the nature of the legal relationship constituted
under the COA. The requirements
of a partnership are that each party
bring something into the business, be it assets, finance, skill or
labour; that the business
is carried on for the joint benefit of the
partners; and that the business is conducted for the purpose of
making a profit.
[43]
Any joint venture that exhibits the characteristics of a partnership
is itself a partnership.
[44]
The COA exhibits all of these features. Of course, if it is a
partnership then
cadit quaestio
,
as it is accepted that co-ownership of a partnership business or
property is bound co-ownership.
[58]
As with termination on notice, the
possibility that the COA gave rise to a partnership was not explored
in argument. No doubt this
was because clause 7 of the COA, said
that:
'Nothing in the agreement shall be deemed to constitute
a partnership or a joint venture of whatsoever nature and/or
description
and none of the Parties shall be entitled to bind the
other in any manner.'
This
clause cannot detract from the other provisions of the agreement or
alter its proper legal characterisation. Its principal
purpose is to
make it clear that there is no agency relationship under which the
parties would be able to bind one another contractually,
as would
conventionally be the case with a partnership. Whether it has effect
in accordance with its terms to exclude the COA from
being
characterised as a partnership or joint venture is another matter.
[59]
I have reservations whether the mere fact
that the parties say that it is not a partnership can affect the
legal position where
the relationship has all the hallmarks of a
partnership.
[45]
In
Rhodesia Railways
Stratford
AJA said:
'I asked Mr. Tindall, who appeared on behalf of the
appellant, if he had found any authority or any decided case in which
these
four essentials have been present where the relationship has
been held not to constitute a partnership, and he was unable to cite
any. Where all these four essentials are present, in the absence of
something showing that the contract between the parties is
not an
agreement of partnership, the Court must come to the conclusion that
it is a partnership. It makes no difference what the
parties have
chosen to call it; whether they call it a joint venture, or letting
and hiring. The Court has to decide what is the
real agreement
between them.'
The
nature of 'something showing that the contract between the parties
was not an agreement of partnership' was explained by
Ogilvie-Thompson
JA in
Purdon v
Muller
[46]
in the following terms:
'
The
meaning of this qualification is, I think, that, although the
presence in an agreement of the four essentials will
prima
facie
establish
the existence of a partnership, such presence is not necessarily
conclusive but must yield to contrary intention
as revealed in the
agreement itself read in the light of the other admissible evidence.
(Cf.
Estate
Davison v Auret
,
22 S.C. 10
at p. 16). In the ultimate analysis the question is always
one of construction.'
I
doubt that a boilerplate clause in an agreement suffices to avoid the
relationship being characterised as a partnership.
[60]
Be that as it may, it is unnecessary to
reach any final conclusion on this question. The parties have
described the business venture
on which they embarked as a Letting
Enterprise, an expression that has no specific legal meaning. Its
basic character is that the
business lets premises in shopping
centres and seeks to make a profit from them. Its primary assets are
the shopping centres and
the tenant leases that generate the revenue
of the business. Such a business has employees, letting agents,
cleaning and maintenance
staff or contractors, and a need to engage
in marketing both to potential tenants and to potential customers,
because 'footfall'
is vital. We were not told how the accounting for
this enterprise worked, but there seems to be no reason to believe
that the revenue
was not used to pay the bills and the surplus,
subject to provisions or building up a contingency fund, was to be
distributed between
the parties in proportion to their interest in
the enterprise.
[61]
The relationship constituted by the COA was
plainly an ongoing joint business venture, regulated in terms of the
three agreements
concluded by the parties. It had many
characteristics of a partnership and counsel accepted that the
central document, the COA,
was based on a conventional shareholders'
agreement in a private company.
[47]
A convenient term is to describe it as a joint business venture,
without the need to go further and place it in some jurisprudential
pigeonhole.
[48]
Its importance is that it established the terms of the contractual
bond between the parties. In my view those terms make it sufficiently
similar to a partnership or joint venture in the conventional sense
that the co ownership of the letting enterprise (the primary
asset) and that of the properties (the subsidiary assets) should like
partnership be a case of bound co-ownership.
[62]
I am not concerned at the prospect of bound
co-ownership being created by way of a commercial agreement between
contracting parties.
Partnership is a product of a commercial
agreement between private contracting parties yet it has always been
recognised as bound
co ownership. Going back to the old
authorities they always accepted that a partnership would terminate
in accordance with
the provisions of the partnership agreement. The
co-ownership arising from a marriage in community of property is
likewise the
result of a private agreement between the parties to the
marriage. Both a will and a deed of trust are capable of creating a
situation
of bound co-ownership where the
actio
is excluded for a significant period of
time, yet they are also the product of private arrangements. If the
co-ownership is exercised
through the medium of a company the
actio
is excluded. The similarities between a
conventional shareholders' agreement and the COA in this case have
already been noted.
[63]
In summary, my view is that the correct
analysis must start from the primary fact that what was bought and
sold was a business,
the Letting Enterprise, and that the terms of
the co-ownership of the Letting Enterprise, rather than the
consequential co-ownership
of the immovable properties, should
determine whether this is bound or free co-ownership. The legal
relationship under the COA
is governed by conventional principles of
the common law in regard to contracts. It is separate from and
extrinsic to the co-ownership
of the immovable properties. It is
impermissible to separate the co-ownership of the immovable
properties from the co-ownership
of the Letting Enterprise and the
agreement to operate it for the joint benefit of the MEPF and Adamax.
To quote Professor van
der Merwe, co-ownership of the immovable
properties is not the sole relationship between the parties. It
results from another legal
relationship, namely the co-ownership of
the Letting Enterprise and the COA and it can only be dissolved when
the latter relationship
is terminated in any manner that may be
permissible.
Result
[64]
In the result I make the following order:
1 The appeal is upheld with costs, such costs to include those
consequent upon the employment of two counsel.
2 The order of the high court is set aside and replaced by the
following order:
'The application is dismissed with costs, such costs to include those
consequent upon the employment of two counsel.'
________________________
M J D WALLIS
JUDGE
OF APPEAL
Appearances
For
appellant: A E Franklin SC (with him B L Manentsa).
Instructed
by: Webber Wentzel, Johannesburg;
Symington
& De Kok, Bloemfontein.
For
respondent: M C Maritz SC (with him D R van Zyl).
Instructed
by: Malatji & Co, Sandton;
Honey
Attorneys, Bloemfontein.
[1]
The relevant portion of the definition of an
'enterprise' is sub-sec (
a
),
which reads:
'
in
the case of any vendor, any enterprise or activity which is carried
on continuously or regularly by any person in the Republic
or partly
in the Republic and in the course or furtherance of which goods or
services are supplied to any other person for a
consideration,
whether or not for profit, including any enterprise or activity
carried on in the form of a commercial, financial,
industrial,
mining, farming, fishing, municipal or professional concern or any
other concern of a continuing nature or in the
form of an
association or club'.
[2]
Section 11(1)(
e
)(i)
of the VAT Act reads:
'
the supply is to a
registered vendor of an enterprise or of a part of an enterprise
which is capable of separate operation, where
the supplier and the
recipient have agreed in writing that such enterprise or part, as
the case may be, is disposed of as a going
concern: Provided that—
(i) such enterprise or part, as
the case may be, shall not be disposed of as a going concern unless—
(
aa
) such supplier and
such recipient have, at the time of the conclusion of the agreement
for the disposal of the enterprise or
part, as the case may be,
agreed in writing that such enterprise or part, as the case may be,
will be an income-earning activity
on the date of transfer thereof;
and
(
bb
) the assets which are
necessary for carrying on such enterprise or part, as the case may
be, are disposed of by such supplier
to such recipient; and
(
cc
)
in respect of supplies on or after 1 January 2000, such supplier and
such recipient have at the time of the conclusion of the
agreement
for the disposal of such enterprise or part, as the case may be,
agreed in writing that the consideration agreed upon
for that supply
is inclusive of tax at the rate of zero per cent;'
[3]
Clause 4.3.11 of the Sale Agreement recorded that
the 'Properties, together with the Sellers' rights and obligations
under the
Leases (all of which are being sol
d
to the Purchaser in terms of this Agreement) comprise all the assets
necessary for the carrying on of the business.'
[4]
Grotius
The
Introduction to Dutch Jurisprudence
3.ed
(A F S Maasdorp's translation, 1903) 3.28; Johannes Voet
Commentary
on the Pandects
(Gane's translation)
10.2 and 10.3.
[5]
LAWSA, vol 27 (2 ed re-issue) para 265 (Citations
omitted).
[6]
CG van der Merwe
Sakereg
(2 ed) 378-380. Cited with approval by this court in
Mazibuko
v National Director of Public Prosecutions
[2009]
ZASCA 52
;
2009 (6) SA 479
(SCA) para 47.
[7]
Ibid at 378-379.
[8]
'Bound co-ownership arises whenever a particular
legal relationship is established between co owners, as in
co-inheritance,
marriage in community of property, a partnership and
associations without legal personality. The particular legal
relationship
that exists between the co-owners determines the manner
in which their ownership rights in relation to the joint property
are
exercised. The fact of co-ownership is only one of the
consequences of the legal relationship that exists between the
parties.
By contrast, with free co-ownership the fact that the
co-owners are owners of the same thing is the only legal
relationship between
the parties.' (My translation.)
[9]
Kleyn & Wortley 'Co-Ownership' in
Zimmerman,
Visser and Reid (eds)
Mixed Legal
Systems in Comparative Perspective: Property and Obligations in
Scotland and South Africa
(2005) at
709-710.
[10]
Magistrates of Banff v Ruthin Castle Ltd
1944 SC 36
at 68.
[11]
This is not the case in Scots law where ownership
of the common property is treated as free co ownership, but
without the
ability to invoke the
actio
communi dividundo.
Klein and Wortley
op cit fn 9 at 711.
[12]
In South African law a partnership is not a
separate juristic person, whereas in Scots law it is by virtue of
the Partnerships
Act 1890. Klein and Wortley op cit fn 9 at 711-712.
[13]
Op cit fn 12 at 68-69.
[14]
Lord Gill 'Two Questions in the Law of Leases' in
McCarthy, Chalmers and Bogle (eds)
Essays
in Conveyancing and Property Law in Honour of Professor Robert
Rennie
' Chapter 13.
[15]
Munro v Munro
1972
SLT (Sh Ct) 6.
[16]
D L Carey Miller and M M Combe 'The Boundaries of
Property Rights in Scots Law'
(2006)
EJCL
1-26
(art 103-4) accessed at <www.ejcl.org> (accessed 23
September 2020).
[17]
Kleyn & Wortley op cit fn 9 at 711.
[18]
A similar passage at the conclusion of this
section includes the statement that:
'It is
clear that the parties can to some extent change the rules of
co ownership by means of agreement. …However,
the matter
is different with respect to the right to call for division, which
personifies the individual nature of co ownership.
…It
therefore seems that there are underlying and fundamental
characteristics in free co ownership which cannot be
changed by
agreement in order to convert it into bound co ownership:
property law cannot be altered by contract.'
Ibid
at 712. Adamax relied on this passage, but it deals with a situation
other than that with which we are concerned.
[19]
Kleyn & Wortley op cit fn 9 at 712.
[20]
Ibid at 705.
[21]
Ex Parte Geldenhuys
1926
OPD 155.
[22]
Ibid at 164-165.
[23]
Kleyn & Wortley op cit fn 9 at 710 and 711.
[24]
P van Warmelo ‘Die Geskiedkundige
Ontwikkeling van die Mede-Eiendom in die Romeinse en
Romeins-Hollandse Reg’ (1950)
13
THRHR
205-242.
[25]
Van Leeuwen
Commentaries
on Roman-Dutch Law
(Kotzé's
translation, 2 ed, 1923) 4.23.11.
[26]
Van der Linden
Institutes
of Holland
(Juta's translation, 5 ed,
1906) 4.4.2.1.
[27]
Asser-Scholten
Handleiding
tot de beoefening van het Nederlandsch Burgerlijk Recht
Vol
II (8 ed, 1945) p133 et seq.
[28]
Van Warmelo op cit fn 24 at 210 fn 1, which
reads: 'Hierdie terminologie word ook geneem uit ASSER-SCHOLTEN …
alhoewel
dit daar in ń ander betekenis gebruik word. Met vrye
mede-eiendom word slegs verstaan dié verhouding waar daar
geen
ander regsband is dan die feit dat die partye saam eienaar is
van die saak nie, terwyl as gebonde mede-eienskap verstaan word waar
daar wel ń ander regsband is en sodoende ń mede-eiendom
wat deur sy eie reëls beheers word. Hieronder val dus
wel die
geval dat daar ń vennootskap tussen die mede-eienaars bestaan,
asook die vorme soos huweliksgemmenskap of medeerfenis.'
The
Dutch writers cited by L Kuyler in his dissertation
Vrye
Mede-eiendom in die Suid-Afrikaanse Reg
at 1-3 accord with
Asser-Scholten.
[29]
Mazibuko v National Director of Public
Prosecutions
op cit fn 6.
[30]
Kuyler, op cit, fn 27 at 4, fn 15.
[31]
Robson v Theron
1978
(1) SA 841
(A) at 854G-855H.
[32]
Ibid at 848H-I. According to the heads of
argument printed in the report there was no argument or dispute over
these principles.
[33]
Pothier
Treatise on
the Contract of Partnership
(translation
by Owen Davies Tudor) section 161.
[34]
Robson v Theron
op
cit fn 31 at 854D-E.
[35]
Ibid at 856H-857A.
[36]
Ibid at 856H-857B.
[37]
Counsel for Adamax contended for an exceptional
relationship on the basis of Professor van der Merwe's expression 'ń
besondere
regsverhouding', but in context that means 'a particular
legal relationship', not an exceptional legal relationship.
[38]
Ex Parte Menzies et Uxor
1993
(3) SA 799
(C) at 810G-811G.
[39]
First National Bank of SA Ltd v
Rosenblum and Another
2001 (4) SA 189
(SCA) para 6.
[40]
Putco Ltd v TV & Radio Guarantee Co (Pty)
Ltd and Other Related Cases
1985 (4)
SA 809
(A) at 827D-828C.
[41]
Ibid at 824C-F.
[42]
Ibid at 827G-828B.
[43]
Butters v Mncora
[2012]
ZASCA 29
;
2012 (4) SA 1
(SCA) para 11.
[44]
Bester v Van Niekerk
1960
(2) SA 779
(A) at 784B-785A;
Purdon v
Muller
1960 (2) SA 785
(E) at
792F-793C. The latter was confirmed on appeal. See fn 37 below.
[45]
Rhodesia Railways and Others v Commissioner of
Taxes
1925 AD 438
at 465.
[46]
Purdon v Muller
1961
(2) SA 211
(A) at 218A-C.
[47]
Gihwala and Others v Grancy Property Ltd and
Others
[2016] ZASCA 35
;
2017 (2) SA
337
(SCA) paras 53-54. Of course, if the same business had been
conducted through the medium of a company the only way in which
Adamax
could have achieved its goal would have been by way of a
winding-up on just and equitable grounds. There could be no question
of it being entitled to a sale of the property portfolio as a matter
of right.
[48]
Ibid
para 61.