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[2020] ZASCA 144
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Brocsand (Pty) Ltd v Tip Trans Resources (Pty) Ltd and Others (925/19) [2020] ZASCA 144; 2021 (5) SA 457 (SCA) (4 November 2020)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 925/19
In
the matter between:
BROCSAND (PTY)
LTD
APPELLANT
(Plaintiff
in the Court
a
quo
)
and
TIP TRANS RESOURCES
(PTY) LTD
RESPONDENT
(Third
Defendant/Excipient
in
the Court
a
quo
)
FULL SCORE TRADING 145
CC
(First Defendant in the Court
a quo
cited
as inactive historical party)
GLOBAL
PACT TRADING 370
(Second Defendant in the Court
a quo
(PTY)
LTD
cited as inactive historical party)
Neutral
Citation:
Brocsand
(Pty) Ltd v Tip Trans Resources (Pty) Ltd and Others
(Case no 925/2019)
[2020] ZASCA 144
(4 November 2020)
Coram:
MBHA, VAN DER MERWE and MOCUMIE JJA
and MABINDLA-BOQWANA and UNTERHALTER AJJA
Heard:
31 August 2020
Delivered:
This judgment was handed down
electronically by circulation to the parties’ legal
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 9h45 on 4 November 2020.
Summary:
Contract –
right of first refusal – grantee cannot, by application of the
Oryx mechanism and the doctrine of notice,
acquire more rights than
those afforded by the grantor – particulars of claim do not
disclose cause of action – exception
upheld.
ORDER
On
appeal from
:
Western Cape Division of the High Court, Cape Town (Thulare AJ,
sitting as court of first instance): judgment reported
sub
nom Brocsand (Pty) Ltd v Full Score Trading 145 CC and Others
[2019]
ZAWCHC 32.
The appeal is dismissed
with costs, including the costs of two counsel where employed.
JUDGMENT
Mbha
JA (Van der Merwe and Mocumie JJA and Mabindla-Boqwana and
Unterhalter AJJA concurring):
[1]
This appeal is directed against an order of the Western Cape Division
of the High Court, Cape Town (Thulare AJ), which upheld
the exception
raised by the respondent, Tip Trans Resources (Pty) Ltd (Tip Trans),
against the particulars of claim of the appellant,
Brocsand (Pty) Ltd
(Brocsand), on the ground that they did not disclose a cause of
action. It also dismissed Brocsand's application
for leave to amend
its particulars of claim under Rule 28(4) of the Uniform Rules of
Court.
[1]
The
court a quo granted leave to Brocsand to appeal to this court.
[2]
The appeal concerns the nature and extent of the rights of the holder
of a right of first refusal and the remedies available
upon the
breach thereof. Of particular relevance is the so-called Oryx
mechanism, recognised by this court in
Associated
South African Bakeries (Pty) Ltd v Oryx & Vereinigte Bäckereien
(Pty)
Ltd
en Andere
,
[2]
as
well as the doctrine of notice
.
The
Oryx mechanism was formulated in
Mokone
v Tassos Properties CC and Another
[3]
as
follows:
'In
the event that a seller concludes a contract of sale with a third
party in breach of a right of pre-emption, the [holder of
the right
of pre-emption] may, through a unilateral declaration of intent, step
into the position of the third party. A contract
of sale is then
deemed to have been [concluded] between the seller and the holder of
the right of pre-emption.'
[4]
[3]
Although originally formulated in the context of sale agreements,
this court has recognised that the application of the Oryx
mechanism
is not limited to sale agreements.
[5]
Thus,
the Oryx mechanism has been applied in various cases, including by
this court,
[6]
and
by the Constitutional Court.
[7]
[4]
The facts leading up to the dispute are set out hereafter. On 12
October 2010 Brocsand, a mining contractor, and Full Score
Trading CC
(Full Score), the first defendant in the court a quo, concluded an
agreement in respect of the minerals on the farm
described as the
remainder of the farm Bloemendaalzfontein 702 and 703 in the district
of Malmesbury (Red Hill). Full Score was
entitled to exploit the
minerals on Red Hill by virtue of a mining right it had acquired
under the provisions of the Mineral and
Petroleum Resource
Development Act 28 of 2002 (the MPRDA).
[8]
In
terms of this agreement (the Red Hill Agreement), Brocsand was
appointed as the mining contractor 'to render mining services
in
respect of the Minerals’ on Red Hill. In essence, the Red Hill
Agreement afforded Brocsand the right to mine for laterite
and sand
on Red Hill until 30 October 2015. Clause 3.2 of the agreement gave
Brocsand a right of first refusal in these terms:
'3.2
this agreement shall commence on 1 November 2010 and, unless
terminated in accordance with the provisions of clause 18 or the
other provisions of this Agreement shall endure until 30 October 2015
-: Provided that upon expiry of the Agreement the Contractor
shall
have the right of first refusal to enter into a new agreement as the
holder for the appointment as the exclusive contractor
to render
mining services in respect of the Minerals on the Property.'
'Holder'
is defined in s 1 of this agreement as Full Score Trading CC.
'Minerals' means 'laterite and sand', while the 'property'
means the
farm Bloemendaalzfontein 702 and 703, District of Malmesbury.
[5] On 30 January 2015,
Tip Trans, Full Score and Global Pact Trading 370 (Pty) Ltd (Global
Pact) (the defendants), concluded a
written agreement (the January
2015 Agreement) in terms of which:
(a) Full Score appointed
Tip Trans as its mining contractor on Red Hill to extract laterite
and sand, and to buy it from Full Score
Trading (Red Hill aspect);
and
(b)
Global Pact appointed Tip Trans as its mining contractor on the farm
described as Doornkraal 831, in the district of Malmesbury
(Doornkraal), to extract sand and to buy it from Global Pact (the
Doornkraal aspect).
[6]
This caused Brocsand to issue summons against Tip Trans, Full Score
and Global Pact as the first, second and third defendants,
respectively. Brocsand averred in its particulars of claim that it
first became aware of the conclusion of the January 2015 agreement
and consequently of the fact that its right of first refusal had been
breached, on or about 10 June 2015, when a copy of this agreement
was
disclosed to it. As a result, on 21 August 2015, Brocsand conveyed to
the defendants that by unilateral declaration of intent,
it had
stepped into the shoes of Tip Trans and therefore became party to an
independent contract, equivalent to the January 2015
Agreement, with
Full Score and Global Pact.
[7]
Brocsand averred further that by virtue of the deemed contract it was
effectively entitled to replace Tip Trans as mining contractor
in
respect of Red Hill as it had already
de
facto
done. As
regards Doornkraal, Brocsand claimed that it was effectively entitled
to replace Tip Trans as mining contractor until
21 May 2035. Brocsand
claimed that the defendants had deliberately entered into the January
2015 agreement despite having had prior
knowledge of Brocsand’s
right of first refusal and of the fact that the conclusion of the
January 2015 agreement would amount
to a breach thereof. Brocsand
also claimed that the Red Hill aspect of the January 2015 agreement,
directly involving Full Score
Trading and Tip Trans, and the
Doornkraal aspect thereof, directly involving Global Pact and Tip
Trans, were deliberately mixed
up and conflated by the defendants in
a legally impermissible attempt to frustrate or circumvent Brocsand’s
right of first
refusal. Brocsand accordingly claimed, in essence, an
order permitting it to mine on Doornkraal and payment of damages
consisting
of loss of profits in respect of the period that it had
allegedly been prevented from doing so.
[8]
Tip Trans excepted to Brocsand’s particulars of claim on the
basis that they failed to disclose a cause of action against
Tip
Trans in respect of the mining of the minerals on Doornkraal. The
essence of Tip Trans’s objection was that the Red Hill
Agreement conferred rights on Brocsand in respect of mining of Red
Hill only, and not on Doornkraal. There was no reference to
mining of
any minerals on Doornkraal in the Red Hill Agreement.
[9] Tip Trans's exception
can be summarised as follows:
(a) Neither Global Pact
nor Tip Trans were party to the Red Hill Agreement which made
provision for Brocsand’s pre-emptive
rights in relation to Red
Hill.
(b) If it were to be
found that Brocsand’s pre-emptive rights in terms of the Red
Hill aspect of the January 2015 agreement
have been infringed,
Brocsand cannot, by unilateral declaration of intent and by
implementation of the Oryx mechanism, acquire
new found rights
against Global Pact and Tip Trans.
(c)
The Oryx mechanism is aimed at preserving existing rights and not
creating new rights. Consequently, Brocsand cannot avail itself
to
either the Oryx mechanism or the doctrine of notice to create new
contractual rights against Tip Trans in relation to Doornkraal.
[10]
In upholding Tip Trans's exception, the court a quo found that prior
to the conclusion of the January 2015 agreement, Brocsand
had not
obtained rights from Global Pact Trading in respect of the mining of
any minerals on Doornkraal. Consequently, so it reasoned,
the
Doornkraal aspect of the January 2015 agreement did not breach
Brocsand’s right of first refusal in respect of the mining
of
minerals on Red Hill.
[11]
The court a quo found that Brocsand could not, by means of the Oryx
mechanism, 'step into the shoes' of Tip Trans in relation
to a
contract concluded between Tip Trans and Global Pact, with whom
Brocsand had no contractual relationship. The Oryx mechanism
did not,
the court a quo concluded, extend to matters 'beyond the original
agreement', ie the Red Hill agreement, and was limited
only to the
subject matter of the original agreement, namely the mining of
laterite and sand on Red Hill.
[12]
After receipt of Tip Trans's exception, as referred to above,
Brocsand filed a Notice of Intention to Amend its particulars
of
claim in terms of Rule 28(1). It sought to amend paras 25 and 27 of
its particulars of claim to reflect that Tip Trans had repudiated
the
deemed contract by refusing to accept that as a consequence of the
deemed contract it had been ousted from the January 2015
agreement
and that Brocsand has accordingly stepped into its shoes. Tip Trans
filed its objection thereto on the basis that the
amendment would not
remove the cause of complaint, and that the particulars of claim
remained excipiable as they did not disclose
a cause of action. By
agreement between the parties the application for leave to amend was
heard simultaneously with the exception.
The court a quo consequently
dismissed the application to amend.
[13]
It is apposite to mention that after leave to appeal to this court
was granted on 31 July 2019, Brocsand withdrew on 26 September
2016
its action against Full Score Trading and Global Pact Trading, on the
basis that the matter had been settled between them.
Accordingly,
only the excipient, Tip Trans Resources, is before us. There is
substance in the argument on behalf of Tip Trans that
Brocsand’s
claim could not be determined in the absence of Global Pact, but that
was not a basis of the exception and is
a matter for another day.
[14]
Before I consider the parties' respective positions, I recall certain
trite relevant legal principles. First, since these are
proceedings
on exception, the court must accept as true the factual allegations
in the claim as proposed to be amended, and merely
decide whether
they disclose a cause of action.
[9]
The
alleged defect must appear ex facie the pleading. The excipient may
not rely on his or her own plea or affidavits supporting
the
exception.
[10]
[15]
Secondly, a court hearing an application for an amendment has a
discretion whether or not to grant it. Such a discretion must
be
exercised judicially, in the light of all the facts and
circumstances.
[11]
[16]
There can be no doubt that the Red Hill and Doornkraal aspects of the
January 2015 agreement were severable. In terms thereof,
as I have
said, Full Score granted rights in respect of Red Hill and Global
Pact granted rights in respect of Doornkraal. The aspects
involved
the exploitation of different minerals at different prices. Clause 14
of the January 2015 agreement, relied upon by Brocsand
in this
regard, merely referred to the combined monthly extraction of
minerals and makes no difference to this conclusion.
[17]
Brocsand’s right of first refusal had a specific content. It
was the right ‘to enter into a new agreement with
the Holder
for the appointment … to render mining services in respect of
the Minerals on the Property’, that is, a
right against Full
Score in respect of laterite and sand on Red Hill. As a matter of
logic, the content of a right cannot change
because of a breach
thereof, not even when the breach takes place by collusion. This,
therefore, begs the question: How, according
to the particulars of
claim, did Brocsand obtain rights against Global Pact in respect of
the minerals on Doornkraal?
[18]
The main premise for Brocsand’s claim to rights on Doornkraal
was that, by invoking the Oryx mechanism, it had 'stepped
into the
shoes' of Tip Trans not only in respect of the Red Hill aspect, but
also in respect of the Doornkraal aspect of the January
2015
agreement. In other words, Brocsand sought to 'step into the shoes'
of Tip Trans in respect of both parts of the January 2015
agreement.
[19]
In addition, it contended that the application of the doctrine of
notice ‘bridges the gap which might otherwise have
existed’.
It emphasised that Brocsand had alleged that Tip Trans not merely had
knowledge of Brocsand’s right of first
refusal, but
deliberately participated in the January 2015 agreement with the
intent to frustrate it.
[20] With regard to the
first-mentioned contention
vis-à-vis
the applicability
of the doctrine of notice, Brocsand relied on the following relevant
averments in the particulars of claim:
'22.2
... the Third defendant, by virtue of the fact that it deliberately
entered into the 30 January 2015 agreement with the First
Defendant
and the Second
D
efendant,
despite having had prior knowledge of the Plaintiff's right of first
refusal and of the fact that the conclusion of the
30 January 2015
agreement would amount to a breach of such right of first refusal;
...
23.5
By virtue of their common prior knowledge of the Plaintiff's right of
first refusal and their consequently
mala
fide
,
alternatively
and in any event deliberate participation in the conclusion of the 30
January 2015 agreement ... and by virtue further, generally,
of the
doctrine of notice, all three Defendants are fully subjected to the
operation of the deemed contract and its consequences
... despite the
fact that
23.5.1
the First Defendant (being the grantor of the Plaintiff's right of
first refusal) is directly involved only in the Red Hill
aspect of
the 30 January 2015 agreement;
23.5.2
the Second Defendant is directly involved only in the Doornkraal
aspect of the 30 January 2015 agreement;
23.5.3
only the Third Defendant is directly involved in both the Red Hill
and Doornkraal aspects of the 30 January 2015 agreement.’
[21]
As appears from Brocsand’s formulation of its claim in the
particulars of claim, the gravamen of Brocsand’s complaint
is
the mala fide, alternatively improper conduct of the defendants in
relation to the January 2015 contract, with knowledge that
their
conduct would infringe upon Brocsand’s right of first refusal.
This is the essence of Brocsand’s case, namely,
that an
extended application of the Oryx mechanism, was justifiable on the
grounds of equity.
[22]
In the case of
Hirschowitz
,
[12]
this
court stated:
[In
Oryx
[13]
]
... Van Heerden AJA emphasised that, although the holder (grantee) of
the right of pre-emption is said to step into the shoes
of the third
party (“in die plek van die derde tree”), he does not
take the place of the third party in relation to
that contract. The
true position is that upon the grantee exercising his rights after
the conclusion of a contract of sale with
a third party, a new
independent contract – and not a substitutionary one –
comes into existence between the grantor
and the grantee and this
does not affect the validity of the contract between the grantor and
the third party (at 919 C-E).’
[23]
Therefore, this court made it very clear that the metaphoric
‘stepping into the shoes’ in terms of the Oryx mechanism
does not make the grantee a party to the contract between the grantor
and the third party. An independent contract between the
grantor and
grantee comes into existence. It follows that the Oryx mechanism
permits the grantee to obtain rights only as against
the grantor and
only in respect of the subject matter of the preferent right, here
the right of first refusal. Thus, the Constitutional
Court in
Mokone
[14]
aptly
stated that:
'Court-coerced
compliance by the grantor will be doing nothing more than to require
her or him to honour what she or he had bargained
for. It will not be
an imposition. Ultimately, the holder of the right of pre-emption may
be able to purchase on the exact terms
on which the third party
purchased and thus 'step into the position of the third party'.
[24]
Thus the application of the Oryx mechanism cannot vest rights in
Brocsand that it may exercise against Global Pact and in respect
of
Doornkraal. And, as I shall explain, Brocsand has also misconceived
the meaning and import of the doctrine of notice.
[25]
It is trite that the effect of the doctrine of notice is to enable
the grantee to enforce his preferential personal right,
not only as
against the grantor, but also as against third parties who have
interfered with the right and have knowledge of it.
Its application
will typically enable the grantee to reclaim property that was
delivered to a third party who has taken the property
with knowledge
of the grantee’s rights. The content of the grantee’s
right remains the same. The doctrine of notice,
in this context,
simply permits the right to be enforced against parties in addition
to the grantor. Mala fides does not add to
the rights enjoyed by the
grantee. The extent to which Tip Trans may have acted improperly in
relation to the conclusion of the
January 2015 agreement cannot
enlarge the ambit of the Oryx mechanism, by recourse to the doctrine
of notice, so as to permit the
grantee to enjoy rights that were
never the subject of the original grant.
[26]
From the aforegoing it follows that the Oryx mechanism and the
doctrine of notice can be applied in the context of the present
matter, but only in respect of the Red Hill aspect of the January
2015 agreement, which is a distinct and separate contract from
the
Doornkraal aspect. In my view it appears that Brocsand in essence
seeks compensation for Tip Trans's alleged wrongful conduct
in
relation to the conclusion of the January 2015 agreement. Brocsand
has thereby ventured in the realm of the law of delict, under
the
guise of the doctrine of notice. In fact, Brocsand acknowledged in
its heads of argument that 'the doctrine is rooted in the
unlawfulness of the offending party's conduct'. In this regard,
Brocsand referred to the unreported case of
Saligee-Quickfall
v Daniels and Others
,
[15]
where
the court stated that the ratio for the application of the doctrine
of notice, in the case of double sales, is the wrongfulness
of the
third-party buyer’s conduct. The court also pointed out that
this conclusion accords with the principle that the intentional
interference with another party's contractual relationship amounts to
a delict.
[27]
The contract between Global Pact and Tip Trans in respect of the
mining of sand on Doornkraal did not, therefore, breach Brocsand’s
right of pre-emption. Thus, the gravamen of the particulars of claim
was legally untenable. It follows that the court a quo correctly
upheld the exception and dismissed the application to amend on the
ground that it would not cure the legal gap in Brocsand’s
pleaded case. Although the court a quo did not spell it out, Brocsand
is in law entitled to further amend its particulars of claim,
if so
advised.
[28]
Because the Red Hill and Doornkraal aspects of the January 2015
agreement were severable parts thereof, it is not necessary
to deal
with the law in respect of so-called ‘package deal’
cases. At the hearing counsel for Brocsand disavowed any
attempt to
persuade this court to develop the applicable law.
[29] For all of these
reasons, I make the following order:
'The appeal is dismissed
with costs, including the costs of two counsel where employed.'
_________________
B H Mbha
Judge
of Appeal
APPEARANCES
For
Appellant: Mr A le Grange SC (with him Mr C Cilliers)
Instructed
by: Werksmans Attorneys, Cape Town
Phatsoane
Henney Attorneys, Bloemfontein
For
Respondent: Mr P de B. Vivier SC
Instructed
by: Lucas Deysel Crouse Incorporated, Durbanville
Honey
Attorneys, Bloemfontein
[1]
Rules regulating the conduct of the proceedings of the several
provincial and local divisions of the High Court of South Africa,
originally published under GN R48 in
GG
999 of 12-01-1965 (the
Uniform Rules of Court).
[2]
Associated
South African Bakeries (Pty) Ltd v Oryx & Vereinigte Bäckereien
(Pty) Ltd en Andere
1982
(3) SA 893
(A) at 907E-F.
[3]
Mokone v
Tassos Properties CC and Another
[2017] ZACC 25;
2017
(5) SA 456 (CC).
[4]
Ibid para 56. This is Madlanga J’s (own) translation of the
Afrikaans dictum in
Oryx
& Vereinigte Bäckereien (Pty) Ltd
(above fn 1). The original Afrikaans text reads as follows:
‘
Indien
'n verkoper in stryd met 'n voorkoopsreg 'n koopkontrak met 'n derde
aangaan, kan die koper deur 'n eensydige wilsverklaring
in die plek
van die derde tree. 'n Koopkontrak word dan geag aangegaan te gewees
het tussen die verkoper en die houer van die
voorkoopsreg.’
I
have merely inserted ‘[concluded]’ (‘aangegaan’)
into the second sentence of Madlanga J’s translation.
[5]
Soteriou
v Retco Poyntons (Pty) Ltd
1985 (2) SA 922
(A) at 932E-F and 935B-C.
[6]
See eg
Soteriou
(ibid);
Hirschowitz v
Moolman and Others
1985
(3) SA 739
(A) at 760I-761C.
[7]
Mokone
(above
fn 3).
[8]
See ss 22 and 23 of the MPRDA.
[9]
Ocean Echo Properties 327
CC and Another v Old Mutual Life Assurance Company (South Africa)
Ltd
[2018] ZASCA 9
;
2018
(3) SA 405
(SCA) para 9.
[10]
YB v SB and Others NNO
[2015] ZAWCHC 109
;
2016 (1) SA 47
(WCC) para 12;
Baliso
v First Rand Bank Ltd t/a Wesbank
[2016] ZACC 23
;
2017 (1) SA 292
(CC) para 33.
[11]
Caxton Ltd and Others v
Reeva Forman (Pty) Ltd
and
Another
[1990] ZASCA 47
;
1990 (3) SA 547
(A) at 565F G;
YB v SB
(above fn 7) para 9.
[12]
Hirschowitz
(above
fn 10)
at 761G-I.
[13]
Referring
to the eponymous case of
Oryx
& Vereinigte Bäckereien (Pty) Ltd
(above
fn 2) and not the Oryx mechanism.
[14]
Mokone
(above fn 3) at para 59.
[15]
Saligee-Quickfall
v Daniels and Others
[2015] ZAWCHC 115
para
34.