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[1993] ZASCA 204
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OK Bazaars 1929 Ltd v Cash-In CC (320/91) [1993] ZASCA 204; 1994 (2) SA 347 (AD); [1994] 3 All SA 570 (AD) (2 December 1993)
Case No 320/91
IN THE SUPREME COURT OF SOUTH AFRICA APPELLATE
DIVISION
In the matter between:
OK BAZAARS (1929) LTD
Appellant
and
CASH-IN CC
Respondent
CORAM:
HOEXTER, VIVIER, KUMLEBEN, NIENABER JJA et KRIEGLER AJA
HEARD:
1 November 1993
DELIVERED:
2 December 1993
JUDGMENT
HOEXTER, JA
2
HOEXTER JA,
A contract of lease between the respondent as lessor and the appellant as
lessee gave the latter a conditional right of renewal of
the period of the
lease. When the appellant sought to renew the lease the respondent challenged
its right to do so. Thereafter the
respondent instituted an action against the
appellant in the Cape of Good Hope Provincial Division. The respondent sought a
declaratory
order to the effect that the appellant was not entitled to exercise
the right of renewal. The action, which was resisted by the appellant,
came
before Scott J. Having heard evidence and argument thereon the learned judge
ruled in favour of the respondent. The appellant
was ordered to pay the costs,
including the costs of two counsel. The judgment of the court below has been
reported as Cash-In CC
v OK Bazaars (1929) Ltd 1991(3) SA 353 (C). With leave of
the trial judge the appellant
3
appeals to this court against the whole of the order of the court a quo.
In the heart of the town of Knysna the respondent
is the
owner of six erven on which there stands a building
housing, inter alia,
extensive supermarket premises ("the
premises") which have a shopping floor
area of about 1700
square metres. Bounded by two parallel streets,
Nelson
Street to the south and Main Street to the north, the
premises face
Main Street but are separated from it by an
asphalt parking area ("the car
park") which is able to
accommodate some 150 motor cars. Cars enter the car
park
from Main Street and leave it by an exit ramp to the west
of the
premises, which descends into Nelson Street. The
car park is on a higher
level than Nelson Street. Between
the exit ramp and the east side of the
building there is a
grass embankment as well as a gravel area abutting
Nelson
Street.
4
On 11 July 1980 the respondent entered into a written contract of lease ("the
original lease") with a private company ("Knowles")
in terms of which the latter
hired the premises for a period of 9 years and 11 months, subject to a
conditional right of renewal.
Knowles took occupation under the original lease
in 1981 and successfully operated a supermarket in the premises until 1986 when
it experienced financial difficulties and sought to cede its rights under the
original lease to the appellant. The respondent refused
to consent to the
cession and litigation between the respondent and Knowles followed. Ultimately a
settlement was reached in terms
whereof, and subject to certain amendments to
the original lease, Knowles ceded its rights and assigned its obligations
thereunder
to the appellant. This agreement was recorded in a written contract
entitled "Agreement of Cession and Amendment of Lease" to which
Knowles, the
5
appellant and the respondent were parties. To this
agreement reference
will hereunder be made as "the lease".
The appellant signed the lease on 4
July 1986 and it took
occupation of the premises at about that time.
The lease involved amendments, inter alia, to the
method of calculation of the rental fixed in the original
lease. The rental payable by the appellant was determined
by means of a
rather elaborate formula. Broadly speaking
the annual rental payable was the greater of the following
two amounts: (1) a multiple of certain minimum rentals
payable monthly to the respondent and (2) a fixed
percentage of the appellant's nett annual turnover
augmented by further sums calculated by reference to the
turnover and rental of sub-tenants. Of importance in
regard to the matter are the provisions of clause 6.6 of
the lease. It reads as follows:-
"Within THREE (3) months after the end of each Lease Year the
Lessee shall deliver to the Lessor
6
an Auditor's certificate -
(a)
setting out its Nett Annual
Turnover for that Lease Year and the Nett Annual Turnover from the sub-tenants
referred to in sub-clause
(5)(b)(ii) above during that Lease
Year.
(b)
setting out the rental payable by
subtenants of the Lessee as referred to in sub-clause (5)(c) above, as well as
the Lessor's share
thereof;
signed by its Auditors and it shall pay to the Lessor the balance if any of the
Annual Rental payable for that Lease Year within
SEVEN (7) days after delivery
of the Auditor's certificate. The said Auditor's certificate shall set out all
such information as
is necessary or desirable to enable the Lessor to calculate
the Annual Rental payable during the Lease Year concerned."
The lease contained various provisions aimed
at
ensuring the cleanliness of the premises and
their environs
and the prevention of nuisance. One amendment of
the
original lease involved the insertion of a new clause ("the
litter clause") in terms of which -
"....it shall always be and remain the obligation of the Lessee to keep the car
park in a clean and
7
tidy condition and free of litter."
In terms of
clause 7.5 ("the nuisance clause") of the lease
the Lessee -
"Shall not do or permit to be done anything which may cause or be a nuisance or
annoyance to the Lessor or to the persons occupying
other portions of the
Lessor's building or to the neighbours
generally."
During the course of the trial the
respondent amended its
particulars of claim by pleading a variation of the lease
("the later term"). It was reflected, so it was alleged,
in an exchange of letters, in terms whereof the appellant
had also agreed to keep certain further areas, and in
particular the grass embankment, the gravel area and the
pavements surrounding the car park, in a clean and tidy
condition and free of litter. The existence of such a
term so alleged was denied by the appellant.
Of crucial importance in the dispute between the
parties are the provisions of the renewal clause in the
8
lease. Clause 3 reads as follows:-"3.
RIGHT OF
RENEWAL
3.1
Provided the Lessee shall have faithfully carried out the terms and
conditions of this Lease and provided the Lessee is in no way
in default
hereunder at the expiration of this Lease, then the Lessee shall have the right
of renewing this Lease for a further period
of NINE years and eleven months upon
the same conditions and at the same rental as herein set out save that there
shall be no further
right of renewal.
3.2
In
the event of the Lessee desiring to exercise the right of renewal
aforementioned, written intention to exercise such option must
be given to the
Lessor not less than six months before the date of expiry of this Lease, failing
which such right of renewal shall
cease and
determine."
Within the time limit
prescribed by clause 3.2
the appellant gave to the respondent written notice of its
intention to exercise the option of renewal. Contending
that the appellant had not satisfied the conditions to
9
which the right of renewal was subject, the respondent disputed the
appellant's right to renew the lease.
The second proviso in clause 3.1 requires that at the expiry date the Lessee
-
"....is in no way in default hereunder...."
Whatever
may or may not have taken place earlier during the
currency of the lease, it is common cause that at the
expiry date the appellant was not in breach of any of its
obligations under the lease. The bone of contention in
the case is the first proviso in clause 3.1 which requires
that the Lessee -
"....shall have faithfully carried out the terms and conditions of this Lease
...."
The respondent contended that the first proviso had not
been satisfied. It alleged that the appellant had no
right to exercise the option to renew the lease for the
reason that during the currency of the lease, and in
various respects, the appellant had failed to carry out
10
faithfully the terms and conditions of the lease. In its particulars of claim
as amended the respondent alleged that:-
(a) in breach of clause 6.6 the appellant had persistently failed timeously to
deliver the auditor's certificate; and,
(b) in breach of the litter clause and the nuisance clause the appellant had
continually failed to keep the car park in a clean and
tidy condition and free
of litter; and,
(c) in breach of the nuisance clause the appellant had failed to clean the
drains at the rear of the premises and to keep in a clean
condition the delivery
area and the wet rubbish storage area, in consequence whereof noxious odours and
infestations of flies had
created a nuisance to a neighbour, Mr M Zeelie;
and,
11
(d) in breach of the later term the appellant had continually failed to keep
the grass embankment, the gravel area and the pavements
surrounding the car park
in a clean and tidy condition and free of litter. Although the legal
consequences flowing therefrom were
throughout a matter sharply in issue between
the parties, the fact that the breach of contract indicated in (a) above
(failure timeously
to deliver the auditor's certificate) had been repeatedly
committed was common ground. In the court below much of the evidence adduced
was
devoted to the factual issues raised by the alleged breaches (denied by the
appellant) mentioned in (b), (c) and (d).
In the result Scott J found (at 363A-C) that in the light of the meaning
properly to be assigned to clause
12
3.1, and having regard to the persistent nature of the appellant's breach of
the provisions of clause 6.6, the appellant had no right
to a renewal of the
lease. Accordingly the learned judge (at 363C-D) found it unnessary to decide
whether during the currency of
the lease the appellant had breached any other
clauses of the lease.
When attention was given to the preparation of the appeal record the
attorneys respectively representing the parties formally agreed
in writing to
limit the record. Pursuant to such agreement there was excised from the appeal
record the bulk of the evidence dealing
with the disputed factual issues raised
by the alleged breaches (b), (c) and (d). The agreement so to truncate the
appeal record
was no doubt inspired by a laudable desire to save time and reduce
legal costs. What was overlooked, however, was that such truncation
improperly
precluded
13
adjudication on appeal of issues which were still alive.
Although the
trial court found in favour of the respondent on the narrow ground indicated
above, when regard is had to the pleadings
and the evidence adduced at the
trial, it is clear that in the absence of any agreement between the parties
limiting the ambit of
the issues on appeal it was open to the respondent to
argue to this court that the court a quo should have found that the appellant
had also been guilty of one or more of the other breaches ((b), (c) or (d))
alleged; and that on the strength thereof the appellant
had not acquired its
right to a renewal of the lease. In the event that this court might be disposed
to disagree with the decision
of the trial court based on (a), non constat that
this court might not be prepared to find in favour of the respondent by holding
that the evidence established also one or more of the remaining breaches; and
that upon a proper interpretation
14
of clause 3.1 such breach or breaches, either independently or in conjunction
with breach (a), operated to preclude a renewal of the
lease. In short, unless
the respondent were to abandon his further reliance upon the alleged breaches
(b), (c) and (d) , they remained
live issues for the purposes of the appeal. The
appeal record lodged was therefore incomplete and irregular.
In apparent conformity to the abridged appeal record counsel on both sides in
their original heads of argument confined their submissions
to the correctness
or otherwise of the trial court's finding based solely on the admitted breach
(a). Having regard to the way in
which the actual argument on behalf of the
appellant tended to develop, however, this court inquired of counsel for the
respondent
whether the latter had in fact abandoned its reliance on the breaches
alleged in (b), (c) and (d). When counsel for the respondent
answered this
question in the
15
negative the court took a brief adjournment in order to enable counsel to
take instructions from their respective clients. When the
court reconvened, and
by agreement between the parties, an order was made in terms whereof: (1) the
further hearing of the appeal
was adjourned to a date to be arranged with the
registrar of this court; (2) leave was granted to the appellant to augment the
appeal
record; and (3) each party was to bear its own costs occasioned by the
postponement.
The first and abortive hearing of the appeal took place on 1 March 1993. In
due course the balance of the record of the trial proceedings
was lodged. When
the hearing of the appeal was resumed on 1 November 1993 argument was presented
to us also in respect of the alleged
breaches (b), (c) and (d).
For the reasons which follow I take the view that
16
when regard is had both to the proper construction to be put on clause 3.1 of
the lease and to the nature and extent of the appellant's
admitted breaches of
clause 6.6, the result achieved in the court below was the correct one; and that
the appeal may be disposed
of without embarking upon any further inquiry into
the alleged breaches (b), (c) and (d).
The end of the lease year was the end of the month of February. In terms of
clause 6.6 the appellant was obliged to deliver the auditor's
certificate to the
respondent within three months after the end of each lease year, namely by 31
May. The appellant consistently
failed to deliver the auditor's certificate
within the period stipulated. The extent of the delay involved in each of these
breaches
is as follows:-
17
(1) The certificate due on 31 May 1987 was delivered only on 17 February 1988 -
a delay of eight-and-a-half months.
(2) The certificate due on 31 May 1988 was delivered only on 14 June 1988 - a
delay of a fortnight.
(3) The certificate due on 31 May 1989 was delivered only on 26 September 1989 -
a delay of almost four months.
(4) The certificate due on 31 May 1990 was delivered only on 6 July 1990 - a
delay of more than a month.
That the respondent
viewed the appellant's dereliction with concern is apparent from the
correspondence proved at the trial. When
the appellant failed timeously to
deliver the certificate due on 31 May 1987 the respondent repeatedly called the
attention of the
appellant to its remissness in this respect. After a
18
delay of more than two months the respondent in a letter
dated 19 August
to the appellant's Group Financial
Accountant complained:-
"We note that we have not yet received your auditors' certificate referred to in
your letter dated 18 May 1987."
When the certificate
was almost five months overdue the
respondent again adverted to the matter in a letter to the
appellant's Group Financial Accountant dated 27 October
1987:-
"We draw your attention to clause 6 of the Agreement of Cession and would like
to point out that the Auditor's Certificate referred
to therein is long
overdue."
On 19 January 1988 the
respondent wrote again to
the appellant's Group Financial Accountant. The opening
paragraph of the letter stated:-
"We refer to our letter dated 27 October 1987 to which we have had no
response. (A copy is attached.)"
The said letter contained a further request for delivery of
19
the certificate.
In its plea to the respondent' s particulars of
claim the appellant denied that it had breached any of the
provisions of
the lease. However, for the event that any
such breaches might be established, the appellant pleaded
in the
alternative as follows:-
"5.3.1 Upon a proper construction of Clause 3.1 of the lease, the Defendant
was entitled to renew the lease provided it had faithfully
carried out the terms
and conditions of the lease in the sense that it was not in breach or default
upon such renewal.
5.3.2 The Defendant was not in breach or default of its obligations under the
lease upon its renewal."
For an exercise of the option of renewal, clause
3.2 prescribed notice in writing of such intention to be
given by the appellant not less than six months before the
date of expiry of the lease. The lease expired on 28 February 1991. In fact
the appellant twice gave written
20
notice of its intention to renew the lease for a further
period of nine
years and eleven months. The first notice
was given on 30 May 1990; and the
second on 2 August 1990.
The reason for giving the second notice was that at
the
date of the first notice the appellant had not yet
delivered the auditor's
certificate for that lease year. It
did so prior to the second notice.
The alternative plea raises the question whether
upon a proper construction of clause 3 "spent breaches",
i e breaches which have been subsequently cured, preclude a
renewal of the lease by the appellant. The trial judge
interpreted the provisions of clause 3 in the following way
(at 358I-J):-
"....the conditions which have to be fulfilled for the lessee to be entitled
to a renewal are the following:
(i) notice must have been given in terms of clause 3.2; (ii) the lessee must
in no way be in default under the lease at its expiration;
and
21
(iii) as at that date the lessee must have faithfully carried out the terms
and conditions of the lease."
For the reasons which follow I consider that Scott J
correctly construed
the meaning of clause 3.
In construing clause 3 as he did the trial judge
relied upon the decision of a Natal full court in Seaborn v
Smith 1955(4)
SA 339 (N). In that case a lessor applied
for the ejectment of his lessee under a written lease and
there fell to be interpreted clause 11 of the lease which
stated at 341 G:-
"The lessee observing all the terms and covenants of this lease shall have the
right after the expiration of the term hereof to renew
this lease for a further
period of three years"
provided she gave written
notice of her intention three
months before the expiry of the original term of the lease.
From time to time the lessee had failed to pay the rent on
due date. Before the expiration of the original lease the
22
lessee wrote stating that she intended to exercise such option. The lessor
replied by letter that the right to renew had been forfeited
through the
lessee's failure to pay rent timeously. After this letter by the lessor the
lessee again paid her rental late; and she
did not vacate at the end of the
lease.
In the court of first instance the learned judge held that the lessee could
exercise her right of renewal . provided that at the date
of giving such notice
she had paid her rent to date, and that she had remedied any previous breaches.
This decision was reversed
on appeal. The full court ruled that the right of
renewal could not come into existence until the end of the lease, and therefore
that the lessee's performance should be examined until the expiry of the lease.
Assuming in favour of the lessee that the lessor
had previously waived late
payments of rent,the full court proceeded to hold that the lessee's
23
late payment after the lessor's aforementioned letter was a
breach; and
that the lessee had therefore forfeited the
right to renewal.
The judgment of the full court was delivered
by
Holmes J. His remarks at 343D-344A are
instructive.
Having referred to the findings of the court of first
instance the learned judge said the following:-
"In coming to the conclusion to which he did as to the interpretation of clause
11 of the lease, the learned Judge relied on three
English cases viz. Bastin v
Bidwell,
18 Ch.D. 238
; Finch v Underwood,
2 Ch.D. 310
; and Robinson v Thames
Mead Park Estates Ltd., 1947(1) A.E.R. 366. We have carefully considered these
cases, but the conclusion to
which we have come is that they are not a
dependable guide in the present case, because the words of the lease which fell
to be considered
were different, and so were the
circumstances.
I refer to the words in clause 11
'The lessee observing all the terms and covenants of this lease shall have
the right after the expiration of the term hereof to renew
this lease...'
24
In my view the word 'observing', in its context, imports the idea of the
continuing present, throughout the term of the lease. In
other words the
signatories were regarding the matter of the tenant's conduct prospectively, and
at the end of the term her conduct
was to be reviewed, in order to ascertain
whether she had fulfilled the condition precedent to her right of renewal. The
interpretation
of the Court a quo results in the startling position that the
lessee could be thoroughly unsatisfactory in the matter of punctuality
for the
greater part of the lease, to the inconvenience and even prejudice of the
lessor, but could nevertheless insist on a right
of renewal if at the moment of
giving notice of renewal she was up to date in the performance of her
obligations.
With regard to the learned Judge's view that the date for deciding whether the
lessee was entitled to a renewal was the date when
she gave notice of intention
to exercise her right, I point out further that clause 11 confers, on fulfilment
of the condition therein
stated, 'the right after the expiration of the term
hereof to renew this lease.' Hence the right to a renewal cannot come into
existence
until the end of the lease, and the lessee's conduct is to be under
review right to the end, and not merely up to the date of the
giving of the
notice."
In Naicker v Pensil 1967(1) SA 198 (N) a
written lease made
the exercise of a right of renewal conditional upon "the
25
lessee .... paying the rent and observing the other terms and conditions of
this lease...." Caney J (in whose judgment Friedman J
concurred) followed the
reasoning of Seaborn v Smith (supra) in holding (at 200H-202G) that the language
of the condition imported
the idea of the continuing present and, therefore, of
faithful and diligent performance throughout the term of the lease.
At the trial and again on appeal Mr Kuny (with him Mr Bennett) appeared for
the appellant. Both in the court below and before us counsel
for the appellant
contended that upon a proper construction of clause 3 only subsisting breaches
were legally effective to preclude
renewal by the appellant. In support of his
argument Mr Kuny relied heavily upon the decision of the English Court of Appeal
in Bass
Holdings Ltd v Morton Music Ltd [1987] 2 A11 ER 1001 (CA). The judgments
of the Court of Appeal in that case examined a long line
of English authorities
upon
26
the point in issue including Bastin v Bidwell
18 Ch D 238
(decided in 1881) and Finch v Underwood
2 Ch D 310
(decided
in 1876) which in Seaborn v Smith (supra) at 343D-EW Holmes
J regarded as
being not dependable guides in the matter
before the full court.
In the Bass Holdings case (supra) the lease in
question contained a clause 9 in terms whereof the lessees
were granted
the option of acquiring a further lease upon
the fulfilment of certain conditions. The relevant
portions of clause 9 read as follows:-
"If the Tenant shall be desirous of taking a further lease of the demised
premises for a further term ... from the date of the term
hereby granted and
shall ... give to the Lessors notice in writing of such its desire and if it
shall have paid the rent hereby reserved
and shall have performed and observed
the several stipulations on its part herein contained and on its part to be
performed and observed
up to the date thereof then the Lessors
will..."
The lessees having purported to exercise
the option the
27
lessors applied for a declaration that by reason of
past
breaches of covenant the lessees were precluded from
exercising the
option. The question which arose in the
appeal was whether clause 9 required
for its fulfilment
that throughout the entire term up to the specified
date
there should have been no breach of any of the covenants by
which the
lessees were bound, or whether the condition
would have been fulfilled if at
the specified date there
was no subsisting breach of any of these covenants.
The
Court of Appeal held that the condition precedent embodied
in clause 9
had been drafted in a familiar and standard
conveyancing formula whose
interpretation was governed by
long-established principles of construction
which required
merely that there be no subsisting breaches at the date
of
exercise of the option. A perusal of the three judgments
respectively
delivered by Kerr, Nicholls and Bingham LJJ
leads me to agree with the
analysis in the court below by
28
Scott J (at 359B-G) of the rationale of the decision in the Bass Holdings
case, and for purposes of this appeal nothing further need
be said in this
connection.
In seeking the proper meaning to be assigned to clause 3 in the
instant case a South African court is untrammelled in its approach
by any
long-standing current of authority such as that which in England decrees that an
ordinary linguistic interpretation should
yield to a time-honoured conventional
construction. It was the function of the court a quo to determine the ordinary
sense of the
language in clause 3 and to give effect to its plain meaning. Upon
a natural construction of the words of clause 3 they do not signify,
I think,
that the right of renewal is dependent simply on the lessee not being in default
at the time of the expiry of the lease.
The intention behind clause 3.1 is, in
my view, manifest. The clause reflects upon the part of the lessor
29
an understandable aversion to being saddled, after the ordinary expiry of the
lease and for a further period of nine years and eleven
months, with a lessee
whose performance of its obligations during the ordinary currency of the lease
had been unsatisfactory. The
language of the clause means no less, so it seems
to me, than that in considering whether the prerequisite for renewal has been
established,
the lessee's whole track record up to the date of the expiry of the
lease is relevant.
In Seaborn v Smith (supra) it was pointed out (at 343F-G) that inasmuch as
the words of the relevant clause in that case ("The lessee
observing all the
terms ....") imported the notion of the continuing present, they were indicative
of an intention of a prospective
review, upon expiry of the lease, of the
lessee's performance. Mr Kuny sought to detect a significant difference between
the wording
of the relevant clause in Seaborn v Smith (supra)
30
and the use of the future perfect tense ("shall have faithfully carried out
the terms and conditions...") in clause 3.1 in the present
matter. Upon an
ordinary grammatical construction of clause 3.1 it appears to me that the use of
the future perfect serves, if anything,
to lay emphasis upon the prediction of
future conduct in the light of past performance. Subject to an important
qualification hereafter
to be mentioned I find myself in agreement with the
following conclusions reached by Scott J (at 360C-E) in the course of his
careful
and closely-reasoned judgment:-
"... the language employed, construed literally, together with the use of the
future perfect tense, suggests that what is required
is compliance with all the
terms and conditions of the lease throughout the lease period. When the first
proviso ["shall have faithfully
carried out the terms..."] is read in
conjunction with the second proviso, the position becomes even clearer. The
second proviso
["the Lessee is in no way in default ... at the expiration..."]
relates solely to subsisting breaches. To construe the first proviso
as having
the same
31
meaning would be to render it tautologous. It is true, of course, that the
second proviso is not strictly necessary in that a lessee
who is in breach would
not have faithfully carried out the terms and conditions of the lease.
Nonetheless, it is clear that what
the signatories to the agreement intended was
that the first proviso was to relate to past, i e spent breaches, while the
second
proviso was to cover subsisting
breaches."
It follows that the
appellant's main contention
based on the Bass Holdings case (supra) cannot be
sustained. The second
argument advanced by Mr Kuny was
that even if the first proviso in clause 3.1
embraced spent
breaches, only such spent breaches as were "material"
sufficed to preclude the lessee's right of renewal. In
this connection
counsel for the appellant invoked clause
13.1 of the lease. Its provisions read as follows:-
"In the event of the Lessee failing or neglecting to make payment of the rental
payable hereunder on due date, or being in breach
or default of any other term
or condition of this Lease on the Lessee's part to be observed and performed,
and failing to make such
payment or remedy such breach or default within a
period of seven (7) days after being called upon by written
notice
32
from the lessor to make such payment or remedy such default or breach then in
any such case the Lessor shall be entitled to terminate
this Lease by written
notice to the Lessee, but such termination shall be without prejudice to and
under reservation of the Lessor's
rights to recover any arrear rental then owing
and/or damages for breach or default hereunder, and without prejudice to any
other
claim competent to the Lessor."
It was common
cause that the respondent had never given the
appellant written notice in
terms of clause 13.1 to remedy
its breach under clause 6.6. Counsel urged
upon us that
the parties could hardly have intended to invest the lessor
with a greater
right "to bring the lease to an end" at the
time of the lessee's attempted renewal thereof than the
lessor enjoyed during the currency of the lease. In the
absence of a written notice in terms of clause 13.1 putting
the appellant in mora, so the argument proceeded, the
appellant was entitled to renew the lease notwithstanding
any breach it may have committed during the currency of the
lease.
33
In my view this argument is misconceived.
It
confuses two entirely discrete legal concepts.
The basic
flaw in the argument is exposed by the learned trial judge
(at 361D-E) in the following words:-
"... the non-fulfilment of either condition in clause 3.1 cannot be equated with
the cancellation of the lease. Clause 13.1 deals
with steps to be taken before
the lease can be cancelled during its currency on the grounds of a breach by the
lessee. Clause 3.1,
on the other hand, affords the lessee no more than a
conditional right to renew the lease upon its expiry by effluxion of time. In
the latter case, there is no question of bringing the lease to an
end."
Mr Kuny's third and final
submission was that
upon a proper construction of clause 3.1 the word
"faithfully" should be taken to mean no more than
"reasonably"; and that the appellant's delivery of the
auditor's certificate, although belated and technically in
breach of clause 6.6, represented a reasonable carrying out
by the appellant of its obligations under clause 6.6. In
34
developing this argument counsel for the appellant called our attention to
the following features in the case:
(1) During each year, and within the period of three
months from the end of
the lease year, the
appellant furnished to the respondent a
certificate
certified by its internal accountant
setting forth the nett annual turnover
for that
lease year, the nett annual turnover from sub
tenants and the
rental payable by sub-tenants as
well as the respondent's share thereof. It
also
certified the additional rental to which the
respondent was entitled
in respect of that lease
year.
(2) Save for the
year 1988, when the additional
rental was paid three weeks late, the
additional
rental payable by the appellant to the respondent
flowing from
the increased turnover for the lease
35
year was paid in the correct amount and timeously.
(3) Each year the auditor's certificate when furnished confirmed the figures
already reflected in the internal accountant's figure.
(4) Despite the respondent's complaints about the appellant's breach of clause
6.6 the respondent never put the appellant in mora
by written notice in terms of
clause 13.1.
(5) The respondent suffered no tangible pecuniary prejudice as a result of the
appellant's breach of clause 6.6.
(6) In terms of clause 6.7 of the lease the
respondent's own auditors were
entitled at all
reasonable times to inspect and take extracts
from the
books of the appellant and its
sub
tenants.
36
In weighing this last submission seeking to
equate
"faithfully" with "reasonably" the trial judge
considered (at 361G-H) various
dictionary meanings of the
word "faithfully". Having done so Scott J,
quite
correctly in my view, rejected the argument. The learned
judge stated (at 361I-J):-
"Had the parties intended 'substantial' or 'reasonable' compliance only, they
would presumably have said so (cf Bassett v Whitely
(1982) 45 P & CR 87).
They would certainly not have used the word ' faithfully' which, in the context
in which it is used in
the proviso, implies the very opposite, namely strict
compliance with the terms and conditions of the lease."
In the court below it was common cause that the onus of
proving that it was entitled to renew the lease was upon
the appellant. After mentioning the agreement upon this
point (at 362A) the trial judge proceeded to say (at 362A-
C):-
"In my judgment, on a proper construction of clause 3, the defendant [the
appellant] was
37
obliged, in order to be entitled to renew the lease, to
establish:
(i) that notice had been given in terms
of clause 3.2, and (ii) that it was not in default of any of the provisions of
the lease upon
its expiry; and (iii) that it had complied with all the terms and
conditions of the lease throughout the period of the lease, in
the sense that
during that period it had not breached any of its provisions." (Emphasis
supplied.)
Save for the important qualification to which I have already adverted I am
again in agreement with the above-quoted observations of
the court below. The
qualification is the following. It seems to me, with respect, that in requiring
the appellant to establish that
it had never been guilty of any breach whatever,
the learned judge prescribed too exacting a test. It appears to me that
"faithful"
performance by a lessee in the position of the appellant cannot
predicate the total absence of even a single breach
38
of the many and often burdensome terms and conditions of a complex contract.
So to interpret clause 3 would be to import an unrealistic
standard of
near-perfection hardly capable of attainment by the most diligent and
painstaking of tenants. Such a construction would
render the option to renew
practically worthless. In my opinion it cannot be supposed that such was the
intention of the parties.
On the. other hand the words in which the first
proviso is couched are, I think, naturally and reasonably susceptible of
indicating
a test less onerous to the appellant. That less stringent test
requires the making of a value judgment as to the broad merits and
demerits of
the apellant as a lessee based on an objective assessment of the appellant's
whole conduct and overall performance of
its contractual obligations during the
currency of the lease. Such an appraisal must take into account the length of
the period of
the appellant' s tenancy and the full range of its
39
obligations as lessee. In weighing the significance of
such breaches as
may have occurred relevant considerations
will include the nature and extent
of any breach, the
frequency of its recurrence; and the appellant's response
or lack of response to the respondent's complaints and its
insistence upon strict compliance by the appellant.
Also relevant to the inquiry necessitated by the first proviso in clause 3.1
is the incidence of onus. In this court Mr Kuny informed
us that upon reflection
the earlier concession made by him at the trial now appeared to him to have been
hasty; and he submitted
to us that upon notice to renew by the appellant the
respondent was burdened with the onus of demonstrating that the lessee had not
faithfully carried out the terms and conditions of the lease. The argument seems
to me to be unsound.
The issue here is not whether the appellant "forfeited" or "lost" a right to
renewal. The simple
40
question is whether the appellant ever acquired it. It was for the appellant,
as the party claiming something from the respondent,
to satisfy the court that
it was entitled to what it claimed. The first proviso stipulated satisfaction of
a prerequisite. In this
connection the appellant was unaided by any presumption
in his favour, and in my opinion he was clearly saddled with the onus of
establishing that the prerequisite to the exercise of the option had been
satisfied.
The trial court came to the conclusion that the appellant had not discharged
such onus. Applying to the facts of the case the test
more lenient to the
appellant which I have indicated above, I arrive at the same conclusion. Looking
first at the intrinsic nature
of the breach in question when viewed in the
context of the contract of lease as a whole, it seems to me that the failure
timeously
to deliver the auditor's certificate was
41
a serious and not a trifling transgression. That in the
result the breach occasioned the respondent no actual
financial loss is no doubt a factor which goes into the
scales, but it is, so I consider, by no means a decisive
one. As correctly pointed out by Scott J (at 362F) the
object of the requirement was to furnish the respondent
with independent verification of the turnover. This was,
in my view, a matter of substantial importance to the
respondent. So far from having tacitly allowed the
appellant to be tardy in this respect the respondent made
it quite clear to the appellant its dissatisfaction at the
breach and its insistence upon prompt delivery of the
certificate. The breaches were persistent and none was of
brief duration. The first breach lasted more than eight
months and the third almost four months.
The first proviso to clause 3.1 reflected the
respondent's desire to be quite sure that the appellant was
42
an exemplary tenant before it could renew the lease. In considering whether
the appellant discharged the onus which it bore the following
consideration
should not be overlooked. During the currency of the lease the appellant
appreciated that renewal of the period of
the lease was conditional upon
punctilious performance by it. It therefore had a powerful incentive to render
such performance. Despite
that incentive it persistently failed timeously to
deliver the certificate. Were the period of the lease to be renewed the said
incentive
would no longer operate.
The appeal is dismissed with costs, including the costs consequent upon the
employment of two counsel.
G G HOEXTER,
JA
Vivier, JA ) Kriegler, AJA )