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[2019] ZASCA 39
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Jalite (Pty) Ltd v Shanghai Furniture Import & Export CC (223/2018) [2019] ZASCA 39 (29 March 2019)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not reportable
Case No: 223/2018
In
the matter between:
JALITE (PROPRIETARY)
LIMITED APPELLANT
and
SHANGHAI
FURNITURE IMPORT & EXPORT
CC RESPONDENT
Neutral
citation:
Jalite (Pty) Ltd v Shanghai Furniture Import
& Export
(223/2018)
[2019] ZASCA 39
(29 March 2019)
Coram:
Leach, Zondi and Mocumie JJA and
Mokgohloa and Matojane AJJA
Heard:
1 March 2019
Delivered:
29 March 2019
Summary:
Appeal - interference with trial
court’s factual findings not justified – lease agreement
– alleged material misrepresentation
not established –
lessee not entitled to cancel the lease.
ORDER
On
appeal from:
Gauteng Local Division of
the High Court, Johannesburg (Rabkin-Naicker J, with Malindi AJ
concurring sitting as court of appeal):
1 The appeal succeeds
with costs.
2 The order of the High
Court is set aside and is substituted by the following:
‘
The
appeal is dismissed with costs.’
JUDGMENT
Zondi
JA (Leach and Mocumie JJA and Mokgohloa and Matojane AJJA concurring)
[1]
The appellant, Jalite (Pty) Ltd (plaintiff) sued the respondent,
Shanghai Furniture Import & Export CC (defendant) in the
regional
court, Germiston (trial court) for payment of various amounts arising
from the breach of a written lease of business premises
situated at
Diagonal Street, Eastleigh, Edenvale. The plaintiff sought payment of
the sum of R180 993.61 for arrear rental;
damages
in the sum of R90 000 for an estate agent’s
commission and R159 600 for loss of rental. In terms of a
written offer
to rent accepted by the plaintiff, which constituted
the lease , the defendant was obliged to sign a written agreement
with the
plaintiff and pay all amounts to the plaintiff on due date.
The defendant failed to comply with its obligations.
[2]
The defendant
in its plea admitted its
failure to comply with the terms of the lease. But it sought to
justify its conduct by contending that
it was induced to enter into
the agreement by the plaintiff’s material misrepresentation
.
The defendant alleged that during negotiations before the conclusion
of the agreement, the plaintiff represented that the premises
to be
let were approximately 2000 square metres in size. This, the
defendant alleged, turned out to be false, because when it measured
the premises it discovered that there was a difference of
approximately 25 per cent between the size of the premises as
represented
by the plaintiff and the actual size of the premises. The
defendant contended that the term regarding the size of the premises
constituted a material term of the agreement, and that it would not
have contracted with the plaintiff on the terms that it did,
or at
all, had it been aware that the size of the premises was smaller than
it was represented.
[3]
These allegations formed the basis of the defendant’s
counterclaim for payment of damages in the amount of R190 824.85
which the defendant alleged it had suffered as a direct result of
what it claimed to be the plaintiff’s fraudulent
representation.
Basically, the defendant’s counterclaim was for
the refund of rental deposit in the sum of R136 824.85, and
payment
of R54 000 for unjust enrichment resulting from the
improvement the defendant effected to the leased premises before it
took
beneficial occupation of the premises. Needless to say these
allegations on which the defendant’s counterclaim is founded,
were vehemently denied by the plaintiff.
[4]
The trial court rejected the defendant’s defence, dismissed its
counterclaim and found for the plaintiff. The defendant
appealed to
the Gauteng Local Division of the High Court (per Rabkin-Naicker J
and Malindi AJ) (the High Court). The Full Bench
of that Division
upheld the appeal and awarded damages to the defendant as claimed in
its counterclaim. The appeal, with special
leave of this court, is
against the judgment and order of the High Court.
[5]
The anterior questions are, whether the size of the premises was a
material term of the agreement and whether the price of the
rental
payable under the agreement was to be determined on the basis of the
square meterage of the premises. If the answer to these
questions is
in the affirmative, then the next question is whether the plaintiff
misrepresented the size of the premises and whether
such
misrepresentation induced the agreement. An affirmative answer to all
of these questions will be dispositive of the appeal.
[6]
The basic facts are largely common cause. During October 2012, Mr
Chris Price, the managing director and a sole shareholder
of the
plaintiff, was looking for a tenant to rent the business premises
concerned comprising two warehouses
[1]
and two back yards. At the time, these premises were each leased to
two different tenants which, according to Price, was not an
ideal
situation from the administration point of view. To that end, Price
contacted Ms Stephanie Bernstein, an estate agent and
gave her a
mandate to rent the premises. Bernstein accepted the mandate. She
later invoiced Price for the commission in the sum
of R90 000
plus VAT. In a letter of instruction addressed to Bernstein on 29
October 2012, Price made it clear to her that
he wanted R35 000
per month for each warehouse and R10 000 per month for each back
yard. In other words, Price wanted
R90 000 for the premises as a
whole. According to Bernstein, Price stated that the premises were
approximately 2000 square
metres in extent.
[7]
In due course Bernstein introduced Mr Abbi Feng and Mr Simon Shi of
the defendant to Price at the premises. They were looking
for
business premises on behalf of the defendant. According to the
defendant’s representatives, the defendant’s existing
lease in terms of which it was renting a space of 1600 square metres
for R120 000 per month, which had become too expensive
for the
defendant, was due to expire in about April 2013. Bernstein showed
them the plaintiff’s premises in about October
2012 and after
viewing the premises on about six occasions, Feng and Shi expressed
interest in the premises. Feng and Shi were,
however, not prepared to
pay R90 000 per month for the premises. They successfully
negotiated a reduction of the monthly rental
to R70 000 plus
VAT. Feng and Shi did not measure the size of the premises, because
at that stage the plaintiff’s previous
tenants were still in
occupation.
[8]
Having reached agreement with Feng and Shi on the rental to be paid,
Bernstein filled out a standard printed form to which she
attached a
document written in manuscript containing certain conditions. The
document reads:
‘
I/We Shanghai
Furniture Import & Export registered no 2006/03115/23 herein
represented by Mr Hai Shi ID [...]
Hereby offer to rent Mr
Chris Price of Jalite’s Diagonal Street two back units plus
yard measuring
approximately
2000 sqm plus yard for a period
of 3 years at a rental of R70 000 per month plus VAT commencing
1 Feb 2013 (date), for the
purpose of conducting therein the business
of [*] Warehousing of furniture & related products.
Should this offer be
accepted we agree to enter into an agreement of lease with the
lessor.
Once accepted this offer
becomes binding on the parties. . .” (emphasis added)
The
document then recorded the following special conditions in
manuscript:
‘
This offer is
subject to the following:
The tenant shall be
entitled to a month of free occupation at commencement for fitting &
lessor may work alongside.
The lessor shall replace
the window areas with IBR sheeting at lessors cost.
-Premises to be clean &
tidy & plumbing & electrical to be in working condition.
-The lessee shall have a
right to use or install an entrance gate along the driveway which
expense shall be agreed between the parties,
if necessary lessee
shall contribute hereto.
-The deposit to be one
month’s rental.
-The annual escalation is
to be 8%
Note:
The tenant hereby
confirms that Shanghai Furniture Import and Export has annual
turnover &/or assets in excess of R2 million.
Whilst the commencement
date has been written as 1 February 2013, it is agreeable to the
tenant if commencement is no later than
1 April 2013, provided this
date has been set in advance.’
[9]
Price signed the agreement on behalf of the plaintiff and Shi on
behalf of the defendant. This constituted the lease upon which
the
plaintiff relied. Pursuant to the agreement the defendant paid to the
plaintiff an amount of R136 827.85 for deposit and
rental. The
defendant could not take occupation of the premises on the date
envisaged in the agreement partly because of the plaintiff’s
delay in getting the premises ready for occupation. Additionally, the
defendant had to first install burglar bars to the premises
before it
could move in its goods. The burglar bars installation costs in the
sum of R54 000 form the basis of the defendant’s
claim for
unjust enrichment. Having regard to these delays, the trial court
correctly found that the lease commenced on 1 April
2013 and that
until then the defendant enjoyed free use of the premises.
[10]
It is common cause that the defendant thereafter refused to occupy
the leased premises and to pay all amounts due to the plaintiff.
As I
have alluded to in para 2 above, the defendant justified its conduct
mainly on the basis of the contention that it cancelled
the agreement
due to the plaintiff’s alleged misrepresentation of the size of
the premises. The plaintiff was only able to
find a replacement
tenant during August 2013 and lost rental during the period that the
premises remained unoccupied.
[11]
The dispute therefore is whether the size of the premises was a
material term of the agreement and whether the plaintiff
misrepresented
the size of the premises with an intention to induce
the defendant to enter into the agreement. The related question is
whether
the defendant was entitled to cancel the agreement. This is
so, because to justify the rescission of a contract a
misrepresentation
must be material or in respect of a material
fact.
[2]
[12]
The defendant’s version is that it was a specific term of the
lease that the size of the premises to be let was approximately
2000
square metres excluding the back yard. According to Shi the figure of
2000 square metres quoted by the plaintiff was the size
of the two
factory units excluding the yard, which the defendant contended, was
of no use to it as it could not be utilised for
storage purposes.
Based on this understanding, Shi then offered to pay R65 000, which
he considered reasonable as it translated
to R32,50 per square metre
of the usable leased space. When Shi thereafter arranged for the
premises to be measured he discovered
that the premises in extent
were smaller than what had been represented to him. He immediately
confronted Price about the discrepancy.
Shi’s version is that
Price agreed to reduce the rental to compensate the defendant for the
shortfall. Shi offered to pay
R65 000 for the two warehouses.
Price accepted his offer and undertook to have a new lease agreement
drawn which would reflect
the correct size of the premises and the
rental amount of R65 000. According to Shi, Price failed to
honour his undertaking.
The new agreement Price presented to him for
signature still reflected the original rental amount of R70 000
and the size
of the premises as ‘plus minus’ 1700 square
metres for the two units and a yard of plus minus 1000 square metres.
To
make matters worse, Shi contended, the lessor on the lease
agreement was Thundersley Holdings (Pty) Ltd, not Jalite (Pty) Ltd.
[13]
The plaintiff’s version through Price who testified for it, and
which was corroborated by Bernstein, is that during negotiations
and
prior to the conclusion of the agreement it did not commit itself to
the exact size of the premises. Price testified that all
that he said
was the premises were
approximately
2000 square metres in
extent and that the price of rental he quoted was for the entire
leased premises. He denied that he fraudulently
or negligently
represented the size of the premises to induce the conclusion of the
agreement. Price further denied that he agreed
to reduce the rental
to R65 000 per month at the meeting he held with Shi, Feng and
Bernstein on 27 May 2013 in which Feng
complained about the size of
the premises. Price’s version is that at the meeting he
explained to Shi that the quoted figure
was an estimate of what he
believed to have been the size of the premises and he then undertook
that he would have a new agreement
drawn to reflect the correct size
of the two factory units, which according to his own measurement was
1700 square metres.
[14]
On the issue whether the amount of rental payable was determined on
the basis of a square meterage of the size of the premises,
the trial
court accepted the plaintiff’s version and rejected that of the
defendant. In accepting the plaintiff’s version
the trial court
reasoned that if the size of the premises and the rental pricing
method contended for by the defendant had been
material terms, they
would in all probability have been included in the agreement and the
fact that they were not included, the
trial court reasoned, rendered
the defendant’s version less probable. According to the trial
court the size of the premises
could not have been material
considering the fact that the defendant’s reason to move into
the plaintiff’s premises
was to secure cheaper premises.
[15]
As regards the question whether Price misrepresented the size of the
premises, the trial court held that he did not do so,
because in its
view, it was probable that Price did know the exact size of the
premises having regard to the fact that he did not
calculate the
rental on the basis of a square meterage. For that reason, the trial
court held that Price’s representation
of the size of the
premises was not fraudulent.
[16]
The trial court accordingly concluded that the defendant was not
entitled to cancel the agreement and that its purported cancellation
constituted a repudiation of the agreement. This conclusion was based
on the defendant’s evidence that the decision to relocate
from
the previous premises was motivated by a desire to secure cheaper
premises. The trial court held that the defendant was liable
for
arrear rental, damages in respect of the estate agent’s
commission and damages for loss of rental for one and half months’
period. It dismissed the defendant’s counterclaim.
[17]
On appeal the High Court, with reference to the cases of
R v
Dhlumayo
1948 (2) SA 677
(A) at 705-706 and
Mashongwa v
Passenger Rail Agency of South Africa
2016 (3) SA 528
(CC) para
45, correctly reminded itself that since it was sitting as a court of
appeal it was enjoined to caution itself against
overturning the
factual findings of the trial court unless it was convinced that they
are clearly wrong. The High Court, however,
found that in the present
case there was a basis for it to interfere with the trial court’s
factual findings.
[18]
It held that the trial court had misdirected itself in its treatment
of Bernstein’s evidence relating to the materiality
of Price’s
statement that the premises to be let were approximately 2000 square
metres in extent. The High Court in para
14 of its judgment expressed
itself as follows:
‘
In this case, the
Learned Magistrate simply ignored the evidence by Bernstein as to how
she came to the conclusion that the rental
for the premises was
reasonable, and how the rental industry computes the quantum of
rental. The Learned Magistrate’s notion
that such a calculation
could not be made when the floor area was described as
“approximately” 2000 square meters,
was contradicted by
evidence from both sides of the dispute. Her finding that the
inclusion of the approximate size of the premises
in the offer to
rent agreement was not an indication that the rental was determined
by the square meterage amounted to a material
misdirection.’
[19]
The High Court held that the trial court should have found that the
size of the premises was a material term of the agreement.
This
conclusion was based on Feng’s evidence, which the High Court
accepted, that when Bernstein showed him premises of 1000
and 1500
square metres in extent he rejected them stating that they were too
small and not suitable for the defendant’s expansion
plans. The
High Court found it ‘probable that the defendant would not have
contracted for premises significantly less than
2000 square metres at
the agreed price if it had not been represented that they were 2000
square metres’ and that the defendant’s
conduct after
discovering what the true size of the premises was, was consistent
with that finding.
[20]
According to the High Court the trial court should have found that,
on the probabilities, Price misrepresented the size of
the premises
based on the fact that, first, when Shi confronted him about the
discrepancy between the represented size and the
actual size of the
premises he erased a recordal on a Grinaker plan that the premises
were 1500 square metres in extent; secondly,
his defence that he did
not rent out his premises on a square metre basis did not bear
scrutiny and finally, that he was not prepared
to reduce rental even
after discovering that the size of the premises was 1700 square
metres. In the result the High Court
set aside the trial
court’s judgment and entered the judgment for the defendant in
terms of the relief sought by the defendant
in its counterclaim.
[21]
The present appeal is directed against these findings of the High
Court and its conclusion that the trial court materially
misdirected
itself ‘by finding that the inclusion of the approximate size
of the premises in the offer to rent agreement
was not an indication
that the rental was determined by the square meterage’. Counsel
for the plaintiff submitted that the
High Court misconstrued the
context in which Bernstein gave the evidence in question.
He
argued that Bernstein’s evidence was in response to the
question whether the rental charged was reasonable.
[22]
I agree with the plaintiff’s counsel’s contention. The
trial court correctly analysed Bernstein’s evidence.
Bernstein’s evidence was that the rental was not determined on
the basis of the square meterage and, according to her, the
fact that
the approximate size of the premises found its way into the agreement
did not indicate that the size of the premises
was a material term of
the agreement without which the price of rental could not be
determined. It is therefore not correct to
interpret Bernstein’s
evidence as providing support for the contention that a square
meterage was used to calculate the price
of rental.
[23]
Counsel for the defendant supported the findings of the High Court.
He submitted that the plaintiff was or must have been aware
that the
size of the premises and the rental amount constituted material terms
of the agreement. As a factual basis for this contention
he relied on
the evidence of Feng, who testified that when he met with Bernstein,
he informed her that he was looking for a warehouse
of 2000 square
metres in size; that the defendant was currently renting a 1600
square metres warehouse for which it was paying
R120 000 per
month and that Feng already had rejected two separate
warehouses to which he was taken by Bernstein for
viewing, one in
Meadowdale, measuring about 1000 square metres in extent and the
other in Jet Park measuring about 1500 square
metre in size on the
ground that they were small.
[24]
As regards misrepresentation it was argued on behalf of the defendant
that Price knew that the size of his premises was smaller
than 2000
square metres. Because Price, so the argument went, intended to
induce the agreement, he intentionally misrepresented
the size of the
premises to the defendant’s representatives. This
contention was founded on the evidence of Shi who
testified that
after he discovered that the size of the premises was smaller than
that what was represented to him, he immediately
confronted Price
about the discrepancy. According to Shi when he informed Price that
the size of the premises was 1500 square metres,
Price pulled out a
copy of a floor plan of the premises on which a size of 1500 square
metres was recorded and he erased by tipex
the recordal on it, before
giving it to Shi.
[25]
I disagree with the defendant’s contentions. Commercial leases,
such as the present one, use various rental pricing methods
to
determine rental amount payable. It is for the parties to choose a
rental pricing method that is best suited to their commercial
needs.
The parties may agree to set the price of rental per square meterage
of the leased space in which event the size of the
premises becomes a
material term of the agreement since the amount of rent will be fixed
with reference to the square meterage
of the premises. In those
circumstances if the lessor were to misrepresent the size of the
leased space with an intention to induce
the lessee to conclude the
agreement, the latter would be quite entitled, upon discovery of the
true facts, to rescind the agreement
and claim damages on the ground
of misrepresentation.
[3]
[26]
In
Christie’s
Law of Contract in South Africa
at
315 in dealing with the general effect of misrepresentation on a
contract, the authors say:
‘
A party who has
been induced to enter into a contract by the other party’s
misrepresentation of an existing fact is entitled
to rescind the
contract provided the misrepresentation was material, was intended to
induce the person to whom it was made to enter
into the contract and
did so induce that person to conclude the contract. If the
misrepresentation was fraudulent or negligent,
the innocent party may
also be entitled to delictual damages.’ [footnote omitted]
[27]
The probabilities are that the size of the premises was not a
material term of the agreement and neither was there any agreement
to
set rent on the basis of the square meterage of the leased space. At
one of the viewing meetings, Shi and Feng enquired from
Bernstein
about the size of the premises. Bernstein said it was approximately
2000 square metres. Price, who was also present at
the meeting, added
by pointing out that he had not measured the premises for many years.
He told Shi and Feng that they were welcome
to measure the premises,
though ‘the rent will not change’. If in the minds of the
defendant’s representatives
the size of the premises was a deal
breaker, one would expect it to have featured more prominently in
their negotiations with the
plaintiff’s representatives.
[28]
It seems from the evidence that the whole idea of pricing rent per
square metre came up with Shi. Bernstein’s evidence
is that
after informing Shi that Price wanted R70 000 per month for the
two factory units and R10 000 per month for each
back yard Shi
offered to pay R65 000 for both factory units and R5 000 for the
yards. According to Shi, he made this offer
after doing his own
calculations of the amount he would be paying per square metre. Shi
estimated the price to have been R32.50
per square metre which he
considered to be a ‘good price’ and was acceptable to
him.
[29]
Feng’s version that the size of the premises was a material
term of the agreement appears to be mistaken and must be
rejected.
First, there is no reference in the agreement to the stipulation that
the price of rental was to be calculated
with reference to the square
meterage of the premises. Secondly, when Shi negotiated the reduction
of rental prior to the conclusion
of the agreement, he did so without
any regard to the size of the premises. The conduct of the
defendant’s representatives
after becoming aware of the correct
state of affairs, is inconsistent with an agreement reached on a
rental determined by the precise
square meterage of the property.
Moreover, Shi did not seek to resile from the agreement. On the
contrary, Shi’s conduct
indicated that he wanted to affirm the
agreement, albeit on the terms that were more favourable to him. This
goes to show that
the alleged misrepresentation did not induce the
agreement.
[30]
The trial court’s finding that the defendant had failed to
prove that it was entitled to cancel the agreement, was correct.
The
defendant’s conduct amounted to unlawful repudiation which the
plaintiff accepted. In the circumstances the High Court
erred in
overturning the trial court’s factual findings. The order made
by the trial court was a correct one and should have
been confirmed
by the High Court.
[31]
In the result I make the following order:
1 The appeal succeeds
with costs.
2 The order of the High
Court is set aside and is substituted by the following:
‘
The
appeal is dismissed with costs.’
___________________
D
H Zondi
Judge
of Appeal
APPEARANCES
For
the Appellant: D L Williams
Instructed
by: Wright Rose-Innes Inc, Bedfordview
Rossouw
Attorneys, Bloemfontein
For
the Respondent: N Alli
Instructed
by: Gascoigne Randon & Associates, Edenvale
Honey
Attorneys Inc, Bloemfontein
[1]
In
the record the two warehouses are sometimes referred to as the two
factory units.
[2]
Cf
Woodstock,
Claremont, Mowbray and Rondebosch Councils v Smith & another
(1909)
26 SC 681
at 701.
[3]
G B Bradfield
Christie
’
s
Law
of Contract in South Africa
7
ed (2016) at 317.