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[1993] ZASCA 56
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O.K. Bazaars 1929 Ltd. v Grosvenor Buildings (Pty) Ltd. and Another (386/92) [1993] ZASCA 56; 1993 (3) SA 471 (AD); [1993] 2 All SA 316 (A) (1 April 1993)
Case No 386/92
IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)
In the matter between:
O.K. BAZAARS (1929)
LIMITED
Appellant
and
GROSVENOR BUILDINGS (PTY) LIMITED
First
Respondent
B & K PROPERTIES (PTY) LIMITED
Second
Respondent
CORAM
: E M GROSSKOPF, MILNE, F H GROSSKOPF, JJA et HOWIE, VAN
COLLER, AJJA
HEARD
: 16 March 1993
DELIVERED
: 1 April 1993
2
J U D G M E N T E M GROSSKOPF, JA
This is an appeal
from a judgment of MacArthur J in the Witwatersrand Local Division in which he
ordered the appellant to pay rental
in terms of a written lease. The issue
between the parties was whether the lease had been lawfully cancelled. The court
a quo
held that it had not. The relevant facts are as follows.
On 21 March 1983 the appellant ("the tenant")
hired
a building from the respondents ("the landlord") in terms of
a written lease for twenty years. The rental for the first
year was a fixed sum per month. During the second to the
fifth years the rental escalated at ten per cent per year. In
the sixth and seventh years the escalation was 6,25 per cent
per year. The rental for the eighth year was not fixed. In
respect of that year the following provisions applied:
"3.2 In the eighth year of this lease the rental
payable shall be the market rental ascertained as provided hereunder or
125% of that payable in the last month of the seventh year,
whichever is the
lesser, provided that in no
3
circumstances shall the rental be less than
that payable in the last month of the seventh
year
of the lease. 3.3 The market rental shall be ascertained as
follows,
namely -3.3.1 During the sixth month prior to the commencement of the eighth
year the landlord and tenant shall endeavour
to fix by agreement the monthly
rental payable during the eighth year of the lease. If they are unable to agree
each shall within
the next month nominate a commercial property valuer
practising as such in Johannesburg and the two said valuers shall then determine
the said revised rental. If they are unable to agree they shall appoint a third
such valuer to act as umpire and if they are unable
to agree on an umpire the
umpire shall be nominated by the President of the S.A. Institute of Valuers or
his nominee and failing
that appointment the matter will be referred to
arbitration under the arbitration laws then in force in the Republic of South
Africa.
3.32 If a party refuses to negotiate in the sixth month it shall lose
its right to nominate a valuer or fails to nominate its valuer
in the following
month, the monthly rental in the eighth year shall be 125% of that payable in
the last month of the seventh year
of the lease. 3.3.3 If one party's valuer
fails to nominate an umpire within seven days of being required so to do the
monthly rental
in the eighth year of the lease shall be that fixed by the other
party's valuer not being more than the aforesaid maximum figure."
4
The eighth year would have commenced on 1
July
1990. On 7 December 1989 the landlord
wrote to the tenant as
follows:
"Your attention is directed to Clause Number 3 of the Agreement of Lease, in
terms of which a review of the rental for the period
commencing 1 July 1990
falls due.
Notwithstanding that inflation over the last 7 (seven) years has been in
excess of 14% per annum and that rentals have escalated substantially
during the
past 4 (four) years, we are prepared to accept a 25% increase in the rental to
R142 505,00 (ONE HUNDRED AND FORTY TWO
THOUSAND FIVE HUNDERD AND FIVE RAND) per
month commencing 1 July 1990.
For both parties to obtain valuations and to appoint Arbitrators, will be
time consuming and no doubt the end result will be the 25%
increase which is the
maximum permissible in terms of the Agreement of Lease. We look forward to your
early comments."
A propos
of this letter a meeting was held
between
the parties. The tenant's attitude,
as confirmed in its
letter of 28 December 1989, was that the market rental was
much lower than that suggested by the landlord. The tenant
considered that the monthly rental for the eighth year should
5
be the same as that payable in the last month of the
seventh
year, i e, that there should be no escalation.
The landlord replied on 19 January 1990.
It
commenced by saying: "The 25% increase
due to ourselves,
after seven years, is not negotiable". Thereafter the letter
set out various reasons for considering that a substantial
increase was justified. It concluded as follows:
"We do believe that we will have very little difficulty in obtaining one or
more reputable valuers to support our rental of R322 000,00
or thereabout. We
believe you will have extreme difficulty in obtaining a reputable valuer to
support your rental of R109 289,00.
We repeat that the 25% increase is not
negotiable. We are not being hard, difficult or unreasonable. We are merely
taking into account
all the concessions that are already included in the lease,
the present market rental of which you are presently paying only one
third, and
the 'cheap' rental of R3, 91 per square metre that you are presently paying
which is less than we are receiving for 5th
rate industrial properties in rural
areas.
In conclusion, we beg you to allow
'common sense' to prevail and to save us both considerable unnecessary
expense."
The tenant replied to this letter on 26 January
6
1990 expressing a willingness to negotiate further,
but
stating that further negotiations were not likely to
result
in agreement during the sixth month. The next step
would
therefore be the appointment of valuers and the tenant
said
that it would let the landlord know the name of its valuer
in
due course. The landlord replied as follows on 31
January
1990:
"We acknowledge receipt of your Telefax dated 26 January 1990 and can only
repeat the contents of our letter dated 19 January 1990.
In the circumstances
negotiations have come to a dead end."
On 8
February 1990 the tenant appointed its valuer. The landlord declined to appoint
a valuer, and wrote to the tenant on 5 March
1990 to advise that the monthly
rental as from 1 July 1990 would be R142 505, which represents a 25 per cent
increase.
On 4 May 1990 the tenant replied to this letter
inter alia as follows:
"As you know, the lease was conditional upon the determination of the
rent for the 8th year, in accordance with the special procedure
prescribed
in
7
clause 3.3. You have prevented that rent from being determined by your
failure to appoint a valuer in breach of your obligations in
clause 3.3. We are
accordingly entitled to terminate the lease with effect from the end of the 7th
year, which will be 30th June,
1990, and to claim from you any damages which we
suffer. We are now exercising that right of termination. So far as we are
concerned
the lease will terminate on that date."
After considering its position, the landlord
wrote
on 21 May 1990 through its attorneys.
Its main contention is
set out in paragraph 3.1 of the letter which
reads as
follows:
"3.1 Clause 3.3.2 of the lease is clear and unambiguous and provides
that: 'if a party ... fails to nominate its valuer in the following
month, the
monthly rental in the 8th year shall be 125% of that payable in the last month
of the 7th year of the lease'. Accordingly
in terms of clause 3.3.2 of the lease
the monthly rental for the 8th year shall be 125% of that payable in the last
month of the
7th year of the lease."
The letter further denies that the tenant had
any
right to cancel the lease. Without
prejudice the landlord
however offered to appoint a valuer. The tenant was
not
prepared to accept this offer, and wrote back on 30 May
1990
8
through its attorneys saying that as far as it was concerned, the lease
had been terminated. Further correspondence between the parties
is not material
for present purposes.
In due course the landlord issued a notice of
motion claiming payment of rental for the months of July to October 1990. Its
case was
based on the contract. It denied that the contract had been validly
cancelled. The tenant filed an opposing affidavit, contending
that the
landlord's insistence on an incorrect interpretation of clause 3.3.2 of the
contract had amounted to a repudiation of the
contract which the tenant had
accepted. In support of its case it relied on an interpretation of the contract.
In the alternative
the tenant contended that the contract should be rectified.
The landlord filed a replying affidavit. As stated above, the court a
quo gave
judgment in favour of the landlord.
It will be necessary at a later stage to refer in some more detail to the
contents of the affidavits as well as
9
to steps taken to resolve disputes of facts on the papers. It will be
convenient, however, first to deal with the interpretation of
clauses 3.2 and
3.3.
Clause 3.2 is clear and unambiguous. It provides that, in the
eighth year, the rental payable "shall be the market rental ascertained
as
provided hereunder". The clause further provides a maximum (125% of that payable
in the previous month) and a minimum (the rental
payable in the previous month).
Thus, in short, the rental in the eighth year is to be the market rental,
subject to a maximum and
a minimum.
Clause 3.3 is the provision laying down how the market rental is to be
ascertained. In terms of clause 3.3.1 the parties must first
try to reach
agreement. If they fail to reach agreement "each shall ... nominate a commercial
property valuer". The two valuers "shall
then determine the ... revised rental".
If they disagree they "shall appoint a third ... valuer to act as umpire". There
are various
10
possibilities if they are unable to agree on an umpire.
Failing all else the matter will be referred to arbitration.
Up to this stage the clauses present no problems.
The tenant is to pay a market rental which is to be
determined, subject to a maximum and a minimum, by agreement,
and failing that by a determination by two valuers, with or
without an umpire, and, if all else fails, by arbitration.
The difficulty in this case arises from clause
3.3.2. In so far as it is relevant for present purposes, the
clause provides that if a "party" fails to nominate a valuer,
the monthly rental in the eighth year "shall be 125 per cent
of that payable" in the previous year. Taken literally, a
"party" may be either the landlord or the tenant. If this
literal meaning is correct, the position would be that if the
landlord failed to nominate a valuer, it would automatically
become entitled to the maximum rental which the valuers could
have determined had they been appointed. In effect this means
that if the landlord wants to get the maximum laid down in
11
the clause he must simply refuse to appoint a valuer. This is precisely
what happened in this case. Indeed it is the landlord's contention
that this is
the true meaning of the contract. The intention was, it is alleged, that the
landlord would be entitled in the eighth
year to an escalation of 25 per
cent.
This contention seems to me to be wholly at variance with the contract as
a whole. The provisions which I have discussed above render
it abundantly clear
that, in the eighth year, the tenant would pay a market rental ascertained in
terms of the contract, and that
there would not be a fixed escalation as in the
previous years. If the parties had intended an automatic escalation of 25 per
cent,
they would have said so, as they did with respect to previous years. There
would then have been no need for any of the provisions
relating to a market
rental and its manner of ascertainment. Of course, even if a 25 per cent
escalation had been agreed to, the
landlord would have been entitled to take
less, but
12
it was hardly necessary to spell that out in the contract. Moreover, the
parties would hardly have provided an elaborate procedure
of agreement,
valuation and even arbitration to fix a market rental to cater for the
possibility that the landlord might, for some
whim of his own, want to accept
less than he was entitled to.
One must also have regard to the context of clause 3.3.2. It does not
profess to lay down what the rental would be in the eighth year.
That is done by
clause 3.2, which provides that it is to be a market rental. Nor does clause
3.3.2 lay down how a market rental is
to be ascertained. That is done by clause
3.3.1, which prescribes the procedures to be followed. Clause 3.3.2 only comes
into play
if some of the prescribed procedures fail. It seems bizarre to suggest
that the parties would have used this as a setting for a provision
laying down a
rental to the exclusion of everything that preceded it.
In view of all these considerations the word
13
"party" in clause 3.3.2 cannot, I believe, be accorded its natural
meaning. In the context the parties must have intended the provision
to apply to
one party only, namely the tenant. The clause would then serve as a useful
encouragement to the tenant to co-operate
in the fixing of a market rental. It
is true that, on this interpretation, there is no corresponding encouragement
for the landlord.
This might be a
lacuna
in the contract, or the parties
may have intended to distinguish in this respect between the landlord and the
tenant for reasons
that are not readily apparent. However, if this is an anomaly
in the contract, it is a minor one. It relates to a small sub-division
of the
procedure laid down for the ascertainment of a market rental. There would in my
view be no justification to avoid this anomaly
by interpreting the contract in a
sense that would entirely subvert the manner in which the rental for the eighth
year was to be
determined.
The Court
a quo
, in coming to a contrary
14
conclusion, relied on the following passage in the
judgment
of Diemont J A in
South African Warehousing Services
(Pty)
Ltd and Others v South British Insurance Co Ltd
1971 (3) SA
10 (A) at p 18 F - H:
"A business contract is no different from any other contract; it has no
special virtue and no presumptions or suppositons to distinguish
it from any
other contract. (See
John H. Pritchard & Associates (Pty) Ltd. v. Thorny
Park Estates (Pty
)
Ltd
.,
1967 (2) SA 511
(D) at p. 515). Moreover a
Court of law must necessarily hesitate to set itself up as an arbiter of
business efficacy. It may well
be that a contract on the face of it appears
foolish, but the parties may have information which throws a different light on
the
transaction. They may be prepared to take risks which to the uninitiated
appear unwarranted; there may be factors of which the Court
has no knowledge and
which, if known, would discourage it from criticising the contract. There is
also a further qualification to
this rule of construction and that is that, even
if the bargain does appear to be foolish, the Court will give effect to the
intention
of the parties, without attempting to redraft the agreement so as to
render it less foolish, provided it is satisfied that that was
their
agreement:
'There are, however, contracts,
although I think very few, in which the parties use clear and unambiguous
language which plainly means
that the parties intend to enter into a ridiculous
bargain. In such cases the Courts will give effect to the expressed intention
of
15
the parties, however absurd the consequences may
be'.
(Per SALMON, L.J, in
A. L. Wilkinson Ltd v Brown
,
supra
at p.
514)."
This passage, with respect, is beside the
point.
The prime reason why the landlord's
interpretation cannot in
my view be accepted is not that it is
foolish, or that it
lacks business efficacy, but that it is repugnant to clause
3.2 and to the whole scheme of ascertaining a market rental
laid down in the contract.
For the reasons I have given, I consider that
"a
party" in clause 3.3.2 should be
interpreted as referring
only to the tenant. It was not disputed in argument that
such a result could legitimately be reached by a process of
interpretation if the parties' intention appeared clearly
enough from the contract as a whole. See
Gravenor v.
Dunswart Iron Works
1929 AD 299
at p. 303;
Scottish Union
&
National Insurance Co. Ltd. v. Native Recruiting
Corporation
Ltd
.
1934 AD 458
at pp. 465-6;
Swart en 'n Ander v.
Cape
Fabrix (Pty) Ltd
.
1979 (1) SA 195
(A) at p. 202 C. In
view
16
of this conclusion it is not necessary to consider the tenant's claim for
rectification.
It is appropriate at this stage to return to the affidavits filed in this
case. The tenant's opposing affidavit dealt with both aspects
of its case, viz
interpretation and rectification. The tenant said that the reference to "a
party" was a manifest typographical error
-the intention of the parties when
entering into the lease was that it would be the tenant who would be penalised
by having to pay
the maximum rental in the eighth year of the lease if it
attempted to frustrate or delay the procedural mechanisms provided for in
claims
3.2 and 3.3 of the lease for the determination of the rental in the eighth year.
In its replying affidavit the landlord denied
the tenant's allegations. It
stated that clause 3.3.2 was deliberately inserted to give the landlord an
unconditional right to opt
for a 25 per cent increase in the rental in the
review year so as to enable it to be compensated to some extent for the
17
monetary erosion that had taken place as a result of the
fact
that the escalation rate in the previous years was much
less
than the inflation rate, and to provide for the possibility
that the same might happen in future years. Concerning
rectification the landlord said:
"I deny that clause 3.3.2 of the lease falls to be rectified in the manner
set out by the Respondent. This lease agreement was the
subject of at least ten
drafts all of which were meticulously scrutinized by MB GORDON HOOD, MR MELVILLE
PELS of the Respondent who
is a trained lawyer, and by MR CHARLES VALKIN of the
Respondent's attorneys of record. They were well aware of the provisions of
this
clause, and the fact that it correctly reflected the parties' intention as
aforesaid when the lease was signed."
In
view of conflicts of fact in the affidavits, the parties agreed that the matter
be referred to oral evidence on the following points:
"(a) Whether the term 'a
party' in clause 3.3.2 of the
agreement of lease was a typographical error. (b) Whether clause 3.3.2 of
the agreement of lease
failed to reflect the common intention of the
18
parties and thereby falls to be rectified.
(c) Whether the applicant repudiated the agreement of lease.
(d) Whether the respondent elected to cancel the lease, and did in fact
cancel the lease.
(e) Whether the respondent thereafter waived its right to rely on any such
cancellation."
However, when the matter
came before MacArthur J, no oral evidence was led which is of any relevance for
present purposes. The evidence
related only to the time when the premises were
vacated by the tenant and the status of certain sub-leases which it had entered
into.
This evidence had a potential bearing on issues (d) and (e). In the result
Mr. Nugent, who appeared for the landlord at the hearing
before us, did not rely
on these sub-leases or other acts of holding-over by the tenant and nothing more
need be said about it.
The failure by the parties to lead oral evidence
on
19
the material issues did however have the effect that the disputes of fact
on the affidavits remained unresolved. Mr. Nugent contended
that in these
circumstances the uncontradicted evidence of the landlord concerning the purpose
which clause 3.3.2 was intended to
serve could be used for the purpose of
interpreting the clause.
Now, in the first place, it is not correct
to say that the landlord's evidence was uncontradicted. The landlord's replying
affidavit
created a conflict of fact on what the parties' intention was with
regard to clause 3.3.2. Neither party availed itself of the right
to resolve
this conflict by leading oral evidence. And, even on the papers, the landlord's
version in its affidavit seems to be inconsistent
with some of the
correspondence.
But, be that as it may, I do not think in any event that this evidence
could be used to interpret the contract. The principles concerning
the use of
extrinsic evidence in the interpretation of written contracts are fairly
well
20
settled. In the present case it is not contended that there were any
surrounding circumstances or background circumstances (see
Total South Africa
(Pty) Ltd v Bekker N 0
1992 (1) S A 617
(A) at p 624F to 625A) which may
affect the meaning of clause 3.3.2. The evidence which is tendered is evidence
of the parties' alleged
actual intention, presumably as manifested in their
negotiations. It is clear that evidence of what passed between the parties on
the subject of the contract is only admissible as a last resort when a
sufficient degree of certainty as to the right meaning cannot
be reached in any
other way. See
Delmas Milling Co Ltd v Du Plessis
1955 (3) S A 447
(A) at
p 454F to 455C,
Societe Commerciale De Moteurs v Ackermann
1981 (3) SA
422
(A) at p 428D. In my view the present is a case, in the words of Schreiner J
A (
Delmas Milling
at 454F), where although there is difficulty, perhaps
serious difficulty, in interpretation, it can nevertheless be cleared up by
linguistic treatment. There is accordingly no call to have regard to
extrinsic
21
evidence. And the fact that the evidence might be admissible for the
purposes of rectification of the contract, and could in theory
shed light on the
true intention of the parties, cannot in my view make any
difference.
From what I have said it follows that the landlord was
not entitled to adopt the course it did, i e, to refuse to appoint a valuer
and
then to demand payment based on an escalation of 25 per cent. The question which
now has to be answered is whether this amounted
to a repudiation entitling the
tenant to cancel the contract.
At the outset I should emphasize that clauses 3.2 and 3.3 are very
important provisions of the contract. Although they refer specifically
to the
eighth year, the manner of their implementation will be felt for the remainder
of the contract's duration. The rental for
the eighth year forms the basis of
that for the ninth to the fourteenth years. In those years there are fixed
escalations, as there
were in the first seven years (clause 3.4). The
amounts
22
payable in those years will accordingly depend on the rental fixed for
the eighth year. Then, in respect of the fifteenth year, the
provisions of
clauses 3.2 and 3.3 will apply
mutatis mutandis
(clause 3.5). The
interpretation now placed on these clauses will accordingly determine also the
fixing of the rental in the fifteenth
year. And, in the sixteenth to twentieth
years there is again a fixed escalation based on the amount determined in the
fifteenth
year. The interpretation of clause 3.3.2 will therefore affect the
rental payable until the contract terminates.
I should at this stage deal with an argument by the landlord which sought
to minimise the importance of the provisions of clause 3.3.
If no market rental
is fixed in terms of clause 3.3, so it was argued, the effect would be that the
minimum rental would be payable
in terms of the proviso in clause 3.2. The
tenant would therefore not be prejudiced if the landlord failed to co-operate in
fixing
a market rental. I am not sure exactly where this argument
23
takes the landlord since its main claim has always been for the maximum
rental, and it only claimed the minimum in the alternative.
Consequently, even
if this argument is correct, the landlord consistently demanded more than it was
entitled to. However, in any
event I do not think the argument is sound. Clause
3.2 requires the fixing of a market rental. The proviso lays down that the
rental
shall not be less than that payable in the last month of the previous
year. This defines the minimum which may be determined by the
process of
ascertaining a market rental. It does not deal with the consequences which would
ensue if the process were either not
commenced or were aborted. These
consequences would be that the parties would be left to their ordinary legal
remedies except where
the contract provided otherwise. And, in view of what I
have said above, there is no provision in the contract dealing specifically
with
a failure by the landlord to nominate a valuer in terms of clause
3.3.1.
The conduct upon which the tenant relies as a
24
repudiation was the refusal by the landlord to co-operate in the fixing
of a market rental (and, in particular, its breach of its
obligation to nominate
a valuer) and its insistence on the payment of a rental which was not in
accordance with the contract. The
test to determine whether conduct amounts to a
repudiation has been stated as being "whether fairly interpreted it exhibits a
deliberate
and unequivocal intention no longer to be bound" (see
Street v
Dublin
1961 (2) SA 4
(W) at p 10B), a formulation which has often been
followed, also in this court. See, e g,
Inrybelange (Eiendoms) Bpk v
Pretorius en 'n Ander
1966 (2) SA 416
(A) at p 427A,
Van Rooyen v
Minister van Openbare Werke en Gemeenskapsbou
1978 (2) SA 835
(A) at p 845
A-B and
Culverwell and Another v Brown
1990 (1) SA 7
(A) at p 14 C.
However, the intention not to be bound does not postulate that the party
concerned subjectively wishes to terminate
the contract nor need it relate to
the contract as a whole. As stated in
Van Rooyen's
case (
supra
) at
p 845H to 846A:
"Om 'n ooreenkoms te repudieer, hoef daar nie ...
25
'n subjektiewe bedoeling te wees om 'n einde aan die ooreenkoms te maak nie.
Waar 'n party, bv, weier om 'n belangrike bepaling van
'n ooreenkoms na te kom,
sou sy optrede regtens op 'n repudiering van die ooreekoms kon neerkom, al sou
hy ook meen dat hy sy verpligtinge
behoorlik
nakom."
See also
Tuckers Land and
Development Corporation (Pty) Ltd
v. Hovis
1980 (1) SA
645
(A) at p. 653 B-E.
In the present case the landlord refused to
comply
with the provisions relating to the
fixing of a market rental
in the eighth year. As I have indicated above, these
provisions were of vital importance in fixing the rental for
the remaining period of the lease. In the circumstances of
this case I consider that this amounted to a repudiation. The
tenant was entitled to accept the repudiation and cancel the
contract, and indeed it purported to do so. The landlord
contended at one stage, but no longer does, that, even if
there had been a repudiation, the purported acceptance and
cancellation were ineffective. This contention was rightly
abandoned. In my view the contract was lawfully terminated
on 30 June 1990 and the tenant was not obliged to pay rental
26
after that date. It follows that the order against it was in my view
wrongly granted.
The appeal is allowed with costs, including the costs of two counsel. The
order of the court a quo is set aside and replaced with
the following: The
application is dismissed with costs, including the costs of two
counsel.
E M GROSSKOPF, JA
MILNE, JA
F H GROSSKOPF, JA
HOWIE, AJA
VAN COLLER, AJA Concur