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[2018] ZASCA 28
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Auction Alliance (Pty) Ltd v Wade Park (Pty) Ltd (342/16) [2018] ZASCA 28; 2018 (4) SA 358 (SCA) (23 March 2018)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not
reportable
Case
no: 342/16
In
the matter between:
Auction
Alliance (Pty)
Ltd
APPELLANT
and
Wade
Park (Pty)
Ltd
RESPONDENT
Neutral
citation:
Auction
Alliance v Wade Park
(342/16)
[2018] ZASCA 28
(23 March 2018)
Coram
Ponnan,
Majiedt, Swain and Dambuza JJA and Mothle AJA
Heard:
19 February 2018
Delivered:
23 March 2018
Summary:
Contract – principles of interpretation restated –
not sufficient to merely outline well established principles –
proper application thereof must be evident from the process of
interpretation – appeal upheld.
ORDER
On
appeal from
:
Kwazulu-Natal Provincial Division,
Pietermaritzburg (Sishi and Seegobin JJ and Masipa AJ, sitting as
court of appeal):
1.
The appeal is upheld with costs.
2.
The order of the court a quo is set aside and substituted with the
following:
‘
The
appeal is dismissed with costs.’
JUDGMENT
Majiedt
JA (
Ponnan,
Swain and Dambuza JJA and Mothle AJA
):
[1]
The crisp issue in this appeal is whether a suspensive condition in
an agreement of sale was fulfilled. The Kwazulu-Natal Local
Division,
Durban (Olsen J sitting as court of first instance) (the trial court)
held that the condition had been fulfilled. On
appeal to the
Kwazulu-Natal Provincial Division, Pietermaritzburg, however,
Seegobin J, Sishi J and Masipa AJ concurring (the full
court) upheld
the appeal, finding that the condition had not been fulfilled. The
matter is before us with the special leave of
this court. The factual
background was mostly common cause and is as follows.
[2]
The appellant, Auction Alliance (Pty) Ltd (Auction Alliance), was
mandated by Mophela Housing Project (Mophela) to sell its
immovable
property in Pinetown, Kwazulu-Natal, on auction. Mophela is a
non-profit company which had acquired the property with
money lent to
it by the Department of Housing, Kwazulu-Natal (the Department) so
that the property could be used as an AIDS treatment
centre. Mophela
later encountered financial difficulties due to the fact that the
government subsidies were insufficient to fund
the centre’s
running costs, hence the decision to sell the property.
[3]
All the parties were aware of the Department’s financial
interest in the sale of the property. One of the pertinent conditions
of the sale was therefore that the sale was subject to the consent
and approval of the Department. At the auction the property
was
knocked down to one Mr Abdoola for the sum of R26.5 million. In
exercising his rights as purchaser, Mr Abdoola nominated the
respondent, Wade Park (Pty) Ltd (Wade Park), as purchaser. On the day
following upon the auction, Wade Park accepted the sale,
thereby
confirming the sale as was required in the sale agreement.
[4]
Clause 26 of the agreement, which lies at the heart of the dispute,
reads as follows:
‘
26
SUSPENSIVE CONDITIONS
This
sale is subject to the written approval and consent of the Department
of Housing of KZN, which written consent and approval
has to be given
within 30 days from date of confirmation of this sale by the SELLER
in the absence whereof this sale will be null
and void and be of no
force and effect’.
The
required consent was by way of a letter from the Department (the
letter of consent) given on the very last day of the 30 day
period
stipulated in clause 26 above. This letter is central to the
determination of the issue. It reads:
‘
We
refer to the above matter and to our meeting today. We confirm that
you agreed to refund the Department of Housing the sum of
R4 592 000
00 in respect of the subsidy amount which was provided for the
facility. We have no objections to the sale
of the premises on
condition that the subsidy amount is recovered upon transfer.’
The
letter was procured from the Department, as I have said,
on the very last day by a Mr Berry of Auction Alliance. Given the
importance
of fulfilling the suspensive condition before the
deadline, Mr Berry had taken the trouble of driving from Durban to
Pietermaritzburg
to get it from the Department.
[5]
Some two months later Mophela purported to cancel the agreement on
the basis that Wade Park was in default of its financial
obligations.
In response thereto, Wade Park adopted the position that the
agreement remained valid and was not capable of cancellation.
These
respective positions were set out in letters written by the parties’
attorneys. The letter written in the response
from Wade Park’s
attorneys contained no complaint that the letter of consent was for
some or other reason inadequate. On
the contrary, the attorneys made
it clear in the letter that their instructions (from Wade Park) were
that ‘the agreement
of sale . . . is still valid . . .’
This directly controverted the evidence of Mr Abdoola, Wade Park’s
directing mind,
that his immediate reaction upon receipt of the
letter of consent was that it was inadequate in meeting the
requirements stipulated
in clause 26. This was a material requirement
and one would expect Mr Abdoola to have conveyed his misgivings
immediately to his
attorneys.
[6]
In the event, the agreement was ultimately cancelled and the
commission and deposit paid to Auction Alliance were retained,
which
caused Wade Park to sue Mophela and Auction Alliance in the
alternative for repayment. A settlement was reached between Mophela
and Wade Park. Mophela did not feature at all in the proceedings in
the trial court.
[7]
The trial court held that the letter of consent constituted
fulfilment of the suspensive condition. It interpreted the consent
letter in favour of the appellant finding that the word "condition"
did not amount to a condition in its true sense but
was simply to be
read as ‘an understanding’. It consequently dismissed
Wade Park’s claims with costs. Olsen J
stated that ‘. . .
(w)hat the letter conveyed, despite the use of the word “condition”
was that the Department
had no objection to the sale and the transfer
of the property and that it expressed its consent on the
understanding that it would
be paid out of the proceeds of the sale’.
The appellant supports the finding by the trial court and submits
that on a proper
interpretation the words ‘on condition that’
must be read as meaning ‘on the understanding that’ or
‘on
the basis that.’
[8]
The full court saw the matter differently. The appellant submits that
rather than have regard to the admissible and relevant
background
circumstances to inform an interpretation of the letter of consent,
the full court adopted too literal an approach in
interpreting the
letter of consent and holding that it could not have regard to
background circumstances which contradicted the
clear terms of the
letter of consent. According to the appellant the full court rejected
the interpretation of the trial court
for two reasons. First, it
adopted as a first step in interpretation the ordinary meaning of the
word ‘condition’ in
relation to the consent letter. It
did this without any process of interpretation involving the relevant
factual matrix and background
circumstances. On this basis the full
court held that the letter of consent was in fact conditional.
Second, the full court then
regarded all background circumstances
which may have contradicted its earlier finding that the letter of
consent was conditional,
as extrinsic evidence which contradicted the
express terms of the letter of consent, and which evidence was
therefore impermissible
on the basis of the Shifren principle. For
reasons which will become clear I agree with these submissions.
Simply put, the trial
court failed to conduct the proper
interpretation exercise which this court has repeatedly articulated.
[9]
This court said in
Bothma-Botha
Transport:
‘
While
the starting point remains the words of the document . . .
the
process of interpretation does not stop at a perceived literal
meaning of those words, but considers them in the light of all
relevant and admissible context, including the circumstances in which
the document came into being . . . Interpretation is no longer
a
process that occurs in stages but is “essentially one unitary
exercise.”’
[1]
(Emphasis
added). Reference was made in the judgment to the following passage
in
Society
of Lloyd’s v Robinson:
‘
Loyalty
to the text of a commercial contract, instrument or document read in
its contextual setting is the paramount principle of
interpretation.
But in the process of interpreting the meaning of the language of a
commercial document the court ought generally
to favour a
commercially sensible construction. The reason for this approach is
that a commercial construction is likely to give
effect to the
intention of the parties. Words ought therefore to be interpreted in
the way in which a reasonable commercial person
would construe them.
And the reasonable commercial person can safely be assumed to be
unimpressed with technical interpretation
and undue emphasis on
niceties of language.’
[2]
[10]
Here the sale was subject to the written consent of the Department.
Absent the fulfilment of the suspensive condition no contract
came
into existence. Put differently, pending the fulfilment of the
suspensive condition the contract was inchoate.
[3]
An important factor in the background context against which the
meaning of the words ‘on condition’ had to be considered,
was that the Department wanted its subsidy back. It was well aware
that repayment was entirely dependent on the sale proceeding
to
finality, so that the funds could be disbursed to it upon
registration of transfer. And the Department knew very well that
without its consent the sale could not go through. It had been
alerted to this fact prior to the auction and again just before the
deadline imposed by clause 26. The Department therefore furnished the
letter of consent to allow the sale to proceed so that it
could get
its money back. I agree with the submission by the appellant that to
interpret the words "on condition" as
introducing a
conditional consent by the Department, which could be withdrawn
should the subsidy amount not be paid to it once
the immovable
property was transferred and the purchase price paid, would
defeat this objective.
[11]
During argument, counsel for Wade Park stated that he had no quarrel
with the first part of the letter of consent up to and
including the
word ‘premises’. The first part of the letter of consent
noted the agreement that the Department would
be refunded. And it
recorded that the Department had no objection to the sale. Counsel
contended that the problem arises with the
use of the words ‘on
condition’ - it was argued that not only do those words
encapsulate a condition in the true
sense of the word, but also
impose a (further) suspensive condition at that. The argument is
fallacious.
[12]
Something does not become a condition merely because it has been
given that name.
[4]
I agree with Olsen J that, read in proper context, the words in the
letter of consent mean something along the lines of ‘there
is
no objection to the sale on the understanding that (or on the basis
that) the Department would be paid out of the proceeds of
the sale.’
The fallacy of counsel’s argument is stark: the Department,
well knowing what the factual situation was
regarding repayment,
imposed a further suspensive condition which self-evidently was
incapable of fulfilment before the 30 days
contemplated by clause 26,
but rather upon registration of transfer. Counsel repeatedly referred
to this as ‘an absurdity’
and a ‘catch-22
situation’. It was contended that this would lead to an
insensible commercial transaction. But, the
so-called ‘absurdity’
or ‘catch-22’ arises only on the acceptance of the
interpretation advanced by counsel,
which found favour with the full
court.
[13]
The interpretation adopted by the trial court gives the letter of
consent commercial efficacy. It is inconceivable that, in
the event
of Mophela not repaying the subsidy once transfer is effected, the
Department would have intended to withdraw its consent
and cause the
unravelling of the entire transaction. Nor, as a matter of fact of
law could that have occurred.
[14]
An argument was advanced in Wade Park’s counsel’s heads
of argument that the letter of consent constituted a ‘counter-offer’
by the Department. When this aspect was debated at the hearing,
counsel appeared to be less convinced of its merits, but did not
concede the point. The contention is bereft of any merit. The cases
which we were referred to in support of the argument
(ACC
Bio Kafee (Edms) Bpk v Warmbadplase
,
Raad
van Kuratore
1959 (4) SA 183
(T) and
JRM
Furniture Holdings v Cowling
1983 (4) SA 541
(W) at 544) have no bearing on the facts of this case. The Department
was not a party to the contract, nor was this a case of a
contract
for the benefit of a third party. Terminology such as ‘conditional
acceptance of an offer’ and a ‘counter-offer’
do
not apply here.
[15]
It appears as if the full court was influenced in its reasoning and
eventual finding by the notion that the letter of consent
contained
the suspensive condition as a means to secure repayment of the
subsidy. The full court reasoned as follows:
‘
Furthermore,
the learned [trial] Judge’s interpretation involved discounting
the use of the word ‘condition’ as
used in the consent
and holding that this should instead be understood as a mere
‘understanding’. Mere understanding
is not what the
Department of Housing wanted, nor would it achieve the purpose of the
clause. The Department of Housing wanted
to secure means for
repayment of the subsidy inextricably linked with the transfer to
ensure the subsidy is recovered upon transfer.
It is therefore clear
that withholding its consent or making its consent conditional upon
recovery of the subsidy on transfer was
its mechanism for doing so’.
The
reasoning is fallacious. First, there cannot be any room whatsoever
for a suggestion that the Department withheld its consent
– it
issued a letter of consent which it regarded as adequate. And second,
as pointed out above a conditional consent, on
the objective facts
incapable of fulfilment, would have defeated the very purpose the
Department was seeking to achieve, namely
repayment of its subsidy.
Moreover, the quoted extract is not supported by any evidence. It
rests upon pure conjecture. Prior to
the auction, Mophela had engaged
in discussions with the Department regarding the sale of the property
and repayment of the subsidy
from the proceeds of the sale. Those
discussions started in late 2008. In a letter from the Department to
Mophela, dated 6 March
2009, the Department outlined its requirements
for the sale to be approved. It did not, in listing the requirements,
seek to secure
payment to it as envisaged by the full court.
Furthermore, in a letter from the transferring attorneys to Auction
Alliance, dated
24 April 2009, it was recorded that ‘we [the
attorneys] are addressing an appropriate letter to KZN Housing
confirming that
we will keep them covered for the sum of R4 592
000.00 in accordance with their letter of 17 April 2009 [the letter
of consent]’.
The transferring attorneys clearly understood
that the object of the letter from the Department was not only to
consent to the
sale, but also to secure payment of its subsidy, on
transfer of the immovable property. The significance of this
letter was
completely ignored by the full court.
[16]
The reasoning of the full court in the extract also rests on the
wrong premise. Its supposition is that Mophela would not repay
the
subsidy from the proceeds of the sale once transfer had been
registered. Consequently, so it reasoned, the letter of consent
was
inadequate. Not only is the assumption unsustainable on the evidence
and on the objective facts, but it is also contrary to
what this
court has held in
Datacolor:
‘parties must be assumed to be predisposed to respect rather
than disregard their contractual commitments’.
[5]
Like the Department, Mophela was keen to get the sale through. It
appeared from the evidence that the price fetched at the auction
(R26.5 million) was well above the initial forecasts and
expectations. A completed sale and subsequent transfer would have
enabled
Mophela to settle its liability to the Department, leaving a
significant balance of the proceeds available.
[17]
The full court incorrectly invoked the so-called ‘Shifren
principle’
[6]
in its
reasoning. It reasoned that clause 26 made provision for written
consent and no other form of consent such as oral consent
or by
conduct. The full court cited the non-variation clauses in the
contract and accepted counsel’s reliance on Shifren:
‘(I)t
has been submitted correctly, in my view, by appellant’s [Wade
Park’s] counsel, that the no-variation-sale-in-writing
clause .
. . constitutes a Shifren clause which our courts have consistently
held to be valid and binding . . .’ On the basis
of this
Shifren principle, the full court then ruled that Auction Alliance’s
attempt ‘to introduce extrinsic evidence
to contradict the
express terms of the sale agreement and the written consent should
not be permitted’. This finding
is misconceived. What was
required was for the full court to interpret the letter of consent.
As outlined above, it failed to do
so properly in accordance with
well-established principles. The non-variation clause and the Shifren
principle had no role to play
at all in the process of
interpretation.
[18]
The full court appeared to have been swayed in its decision by the
consideration that the trial court’s decision would
leave Wade
Park with nothing - no property and no money (the deposit and estate
agent’s commission). The sympathy is misplaced.
First, it is
premised on an erroneous interpretation of clause 26, as explained
above. And second, the contract was cancelled due
to Wade Park’s
default. Wade Park was therefore the author of its own misfortune.
[19]
One last important aspect deserves mention. The approach to the
interpretation of documents is by now firmly established in
our law.
It is not sufficient to merely regurgitate the relevant principles
and to cite the leading authorities without actually
applying them.
It must be evident from the interpretive process itself that the
principles have been applied. Merely paying lip
service to them
undermines the entire exercise.
[20]
In summary: the commercially sensible and reasonable interpretation
of the words ‘on condition’ in clause 26, taking
into
account the objective underlying purpose of the clause, and having
regard to all the relevant background facts and circumstances,
is, as
the trial court correctly found, an ‘understanding’ or ‘a
basis upon’. The words do not denote a
condition in the true
sense of the word. If it did, it would have been a condition
incapable of fulfilment. The full court (had)
therefore erred in
overruling the judgment of Olsen J.
[21]
The following order issues:
1.
The appeal is upheld with costs.
2.
The order of the court a quo is set aside and substituted with the
following:
‘
The
appeal is dismissed with costs.’
______________________
S
A Majiedt
Judge
of Appeal
APPEARANCES:
For
Appellant:
D Goldberg
Instructed by:
Smiedt & Associates,
Cape Town
Matsepe INC, Bloemfontein
For
Respondent:
G D Harpur SC
Instructed by:
Lockhat & Associates,
Durban
Symington & De Kok,
Bloemfontein
[1]
Bothma - Botha Transport
(Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk
[2013] ZASCA 176
;
2014 (2) SA 494
(SCA) para 12.
[2]
Society
of Lloyd’s v Robinson
[1999] 1
All ER (Comm) 545
at 551.
[3]
GB
Bradfield
Christie’s
Law of Contract in South African
7
th
ed
,
2016 at 166; and see:
Africast
v Pangbourne Properties
[2014]
ZASCA 33
; All SA 653 (SCA) para 37 where this court stated that
‘(i)f the [suspensive] condition is not fulfilled, then no
contract
came into existence’.
[4]
Webb v
Davis NO and Others
[1998]
ZASCA 10
;
1998 (2) SA 978
(SCA) para 12.
[5]
Datacolor
International (Pty) Ltd v Intamarket
(Pty) Ltd
[2000] ZASCA 81
;
2001 (2) SA 284
(SCA) at para 18.
[6]
SA
Sentrale Ko-op Graanmaatskappy Bpk v Shifren en ander
1946 (4) SA
760
(A).