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[2018] ZASCA 70
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Louw and Others v Davids and Others (783/2017) [2018] ZASCA 70 (29 May 2018)
THE
SUPREME COURT OF APPEAL
OF SOUTH AFRICA
JUDGMENT
Not
reportable
Case
No: 783/2017
In the
matter between:
LYA
LOUW
FIRST
APPELLANT
MARIA
JOHANNA ATKINS
SECOND
APPELLANT
MARIA
BLANKENBERG
THIRD APPELLANT
MARIA
MAGDALENA BOOYSEN
FOURTH APPELLANT
MAGRIETA
KAMFER
FIFTH
APPELLANT
JOHANNA
KAMFER
SIXTH APPELLANT
PATRICK
LEONARD
NO
SEVENTH APPELLANT
GEORGE
RUDOLPH WHITTLE NO
EIGHTH APPELLANT
SABINA
SWARTZ
NINTH APPELLANT
JOHANNA
SUSANNA
TAYLOR
TENTH APPELLANT
and
ASHRAF
DAVIDS
FIRST
RESPONDENT
SHEREEN
MATHIR
SECOND RESPONDENT
MOEGAMAT
ALIE DAVIDS
THIRD
RESPONDENT
Neutral
citation:
Louw & others v Davids & others
(783/2017)
[2018] ZASCA 70
(29 May 2018)
Coram:
Navsa, Swain JJA and Davis, Plasket and Rogers AJJA
Heard:
15 May 2018
Delivered:
29 May 2018
Summary:
Breach of contract – agreement to sell members’
interests in close corporation – whether cancellation justified
when large proportion of purchase price paid and restitution unlikely
– cancellation not justified.
ORDER
On
appeal from:
Western Cape Division of the High Court, Cape Town
(Le Grange, Saldanha and Steyn JJ sitting as court of appeal):
The
appeal is dismissed.
JUDGMENT
Plasket
AJA (Navsa and Swain JJA, Davis and Rogers AJJA concurring)
[1] The
appellants brought an application against the respondents in the
Western Cape Division of the High Court, Cape Town, in
which they
sought an order that an agreement of sale in respect of the members’
interests in a close corporation, concluded
between them and the
first and second respondents, was ‘duly cancelled,
alternatively that the said agreement is hereby cancelled’.
They applied too for orders directing the respondents to do what was
necessary to give effect to the first order; directing them
to
provide details of the close corporation’s catch of fish in
terms of its fishing quota; and directing the respondents
to pay the
proceeds of the catch to the close corporation.
[2] The
central issue in the application, and in this appeal, is whether the
cancellation of the agreement of sale was justified.
In the court of
first instance, Cossie AJ made an order cancelling the agreement,
together with other relief that was more extensive
than that claimed
in the notice of motion. In an appeal to a full court, Le Grange J,
with whom Steyn and Saldanha JJ concurred,
found that cancellation
was not justified in the circumstances, set aside Cossie AJ’s
order and replaced it with an order
dismissing the application with
costs. This appeal is now before us as a result of special leave to
appeal having been granted
by this court.
Background
[3] A
fishing quota to catch pilchards and anchovies was granted in terms
of the Marine Living Resources Act 18 of 1998 (the MLRA)
to the
appellants, ten women from Lamberts Bay on the Cape west coast.
[1]
They had worked in the fishing industry for many years and the grant
was intended to empower them economically. As they owned no
vessel
with which to catch pelagic fish and no access to processing
facilities, they wished to sell the quota.
[4] The
quota was held by a close corporation – Meermin Viserye CC
(Meermin) – of which the ten women were members.
Each of them
held a ten percent members’ interest in Meermin. Although
Meermin had debts in the amount of R875 514.15,
it had one asset
of value – the fishing quota.
[5] The
appellants had negotiated unsuccessfully with potential purchasers of
the fishing quota. In due course they were placed
in contact with the
first respondent, Mr Ashraf Davids. On 8 July 2012 agreement was
reached and reduced to writing between the
appellants, on the one
hand, and Davids and the second respondent, Ms Shereen Mathir, on the
other, in terms of which the appellants
sold them their members’
interests in Meermin. They, in turn, transferred their members’
interests to the third respondent,
Mr Moegamat Davids, who is the
first respondent’s father. This transfer was not effected in
terms of the agreement but in
terms of a separate agreement to which
the appellants were not parties. Its purpose, according to the
respondents, was as security
for funding provided to the first and
second respondents by the third respondent.
[6] The
agreed purchase price in respect of the members’ interests in
Meermin was a total of R4 million, to be paid to the
ten former
members of Meermin in equal amounts of R400 000 minus an equal
proportion of Meermin’s debt – R87 551
each. In
terms of clause 3.1 of the agreement, the purchase price was payable
on the ‘effective date’ which was defined
in clause 1 to
mean the ‘date on which the Minister issues to the Corporation
its annual small pelagic fishing permit for
the 2013 fishing season’.
That date was, according to Davids, 28 February 2013.
[7] In
terms of clause 5, a set of obligations arose in respect of the
appellants. On the date of signature, they were required
to:
‘
5.1.1
present to the Purchasers signed and completed CK2 & CK2A Forms
and applicable powers of attorney;
5.1.2
Provide an original set of valid tax clearance certificates for the
Corporation, alternatively a certified
copy of the Corporation’s
tax clearance certificate;
5.1.3
Appoint Davids as the Corporation’s authorised representative
and provide Davids with a Special Power
of Attorney to obtain
statements of account and any other documentation from the SARS;
5.1.4
Appoint Davids and Mathir as the only two signatories on the
Corporation’s bank account and each of
the Sellers shall remove
themselves as authorised signatories on the Corporation’s bank
account(s);
5.1.5
Complete all forms and documents required for the purpose of
satisfying any regulatory requirements by the
Fisheries Branch of the
Department, including signing a section 21 transfer application form
in terms of the
Marine Living Resources Act, 18 of 1998
;
5.1.6
Hand to the Purchasers all financial records, resolutions, minutes,
contracts, fishing permits, fishing
right allocation notifications,
fishing right applications and any other document pertaining to the
Corporation; and
5.1.7
Each member shall immediately cease to involve themselves in any way
in the business of the Corporation
and shall cease to hold themselves
out as members of the Corporation. Should any member breach this
provision or in any way prejudice
this Agreement or act in a way that
may threaten the issue of the Corporation’s Small Pelagic
fishing quota permit, then
the Purchasers shall be entitled to
withhold any payments that may be payable to the Sellers.’
[8]
Clause 6 provided for the risk ‘in and benefit attaching to’
the members’ interests passing to Davids and
Mathir with effect
from the ‘closing date’. This was defined in clause 1 to
be the ‘date on which the Purchaser
concludes a due diligence
into the affairs of the Corporation, which date shall not be later
than 90 days after the Signature Date’.
[9]
Clause 9 recorded that the written agreement constituted the entire
agreement between the parties and clause 10 contained a
non-variation
clause. It read:
‘
No
agreement varying, adding to, deleting from or cancelling this
agreement, and no waiver whether specifically, implicitly or by
conduct of any right to enforce any term of this agreement, shall be
effective unless reduced to writing and signed by or on behalf
of the
parties. It is recorded that there exists no collateral and/or other
agreements and that this is the sole agreement entered
into by and
between the parties.’
[10]
Despite the agreement contemplating a single payment to each of the
appellants on 28 February 2013, amounts of between R18 000
and
R30 465 were paid to them between the date of signature of the
agreement and 26 November 2012, when a written addendum
to the
agreement was concluded. It amended the terms of payment of the
purchase price.
[11] The
addendum recorded in its preamble that, while the agreement provided
for payment of the purchase price on the effective
date, ‘the
Purchasers have made a number of payments to the Sellers’ and
that the ‘Sellers have requested an
amendment to the payment
provisions as they presently desperately require income’. The
addendum then set out a payment schedule
of R50 000 per person
per month from the date of its signature until 15 May 2013, when the
final payments would be made.
[2]
As it happened, this was an error because one more tranche was due.
The problem was solved by an oral variation of the addendum
to
include a payment of R50 000 per appellant on 15 June 2013.
[12]
Despite this agreement, payments in smaller amounts than provided for
in the addendum were made over a period that extended
beyond 15 May
2013. Davids explained that this was as a result of an oral variation
of the agreement and its addendum, the idea
being to make smaller
monthly payments to each applicant over a longer period of time.
[13] He
stated that it had become apparent that a number of the appellants
had been spending their R50 000 tranches within
weeks of
receiving them. As a result, he requested Mr Shaheen Moolla, his
transaction and legal advisor, to send an e-mail to Mr
Marcel
Celliers, an accountant who represented some of the appellants.
Moolla wrote:
‘
Further
I hear that a number of the Meermin ladies are spending cash at a
rate of knots which could very well mean that with 2 payment
tranches
left they will be without cash in the near future (especially over
Christmas). With a recent transaction, my client was
requested by the
selling members
to
instead make monthly payments to them which will guarantee a steady
and lengthy flow of cash.
Would
the ladies you represent consider this or do they wish to receive
their final 2 payouts as presently agreed?’
[14]
Celliers reverted to Moolla telephonically and advised him to contact
the individual appellants. This was done and, according
to Davids,
the appellants ‘verbally agreed to the increased payment
period, being R10 000 per month in respect of the
remaining
R100 000’.
[15]
Thereafter, it appears that payments were made on this basis,
together with other ad hoc payments at times, at the request
of the
applicants. For example, Davids stated that some 26 payments were
made to Ms Lya Louw, the first appellant, amounting to
R104 900
during the period 15 May 2013 and 14 January 2014, with the result
that she was paid more than her due.
[16] In
the result, Davids said, by 3 February 2014 when he became aware that
the appellants had purported to instruct the Department
of
Agriculture, Forestry and Fisheries to cancel Meermin’s fishing
permits, three of the appellants had been paid in full
(in fact,
slightly more than their entitlement) and the remainder were owed a
combined total of R160 000. When the respondents
became aware of
this conduct, they considered themselves entitled, in terms of clause
5.1.6 of the agreement, to withhold any payments
still due. In the
answering affidavit, however, they tendered to make those payments if
the court considered them to be due.
[17]
Prior to the service on the respondents of the application in which
cancellation of the agreements was sought, none of the
appellants,
according to Davids, disputed the new payment system and all of them
‘received and accepted payment in terms
thereof’. In his
view, they had ‘waived the right to insist that a variation of
the Sale Agreement or the Addendum
Agreement should be recorded in
writing and signed by all the parties’. At no time prior to the
service of the application
did any of the applicants, or anyone
representing them, communicate in any way with any of the respondents
to indicate that their
conduct amounted to a breach of the agreement
and its addendum and they were never placed on terms to remedy their
alleged breach.
The
issues
[18] The
crux of the appellants’ case is set out in paragraph 32 of the
founding affidavit which states:
‘
The
Applicants have been advised that in view of the default of the First
and Second Respondents in respect of payment of the purchase
price,
we are entitled to cancel the agreement of sale and to recover the
said members’ interest from the Third Respondent
as we are
doing by virtue of the present proceedings. We are advised that in
any event the approval of the Fourth Respondent is
a condition
precedent to the sale becoming binding which has not been complied
with. Needless to say, the Applicants will refund
any amounts that
may be due and payable to the First and Second Respondents pursuant
to the said payments received from them.’
[19] From
this, two issues arise for determination. The first is whether
cancellation of the agreement was justified. The second
is whether
the sale was subject to the suspensive condition of the approval of
the Minister of Agriculture, Forestry and Fisheries.
[20]
Before turning to these issues, it is necessary to decide on certain
of the disputed facts. Mr Potgieter, who appeared for
the appellants,
argued that the respondents’ version that an oral agreement had
varied the addendum ought to be rejected
as far-fetched and
uncreditworthy, and that the appellants’ denial of the oral
variation ought to be accepted.
[21] I do
not agree for the following reasons. The correspondence between
Moolla and Celliers establishes that the idea of smaller
tranches
being paid over a longer period was indeed proposed. The appellants
do not deny that payments were made in smaller amounts
over a period
that extended beyond the time of the last payment in terms of the
addendum. Between May 2013 and January 2014, for
instance, the first
appellant was paid R109 400. It was not denied that, by the end
of April 2013, all of the appellants had
been paid R300 000
each. By the time the court of first instance cancelled the
agreement, the position was that the first,
seventh and ninth
appellants had been overpaid (by relatively small amounts) and that a
total of about R160 000 was owed to
the remaining appellants, in
amounts varying between R20 000 and R27 000. This indicates
a continuation of payments in
amounts smaller than the R50 000
tranches envisaged by the addendum. All of these factors lend
credence to Davids’ version.
In my view, it must be accepted as
one of the facts that an oral variation of the addendum was agreed
to, as alleged by Davids.
I express no view on whether, in view of
clause 10 of the original agreement, the oral variation was legally
effective, as it is
not necessary to do so in this case. To the
extent that the full court held that the oral variation was legally
effective despite
clause 10, this judgment does not endorse that
finding. I shall assume that the oral variation, while agreed as a
fact, was not
legally enforceable.
Was
cancellation justified?
[22] The
argument advanced on behalf of the appellants is that the respondents
were in breach of their obligation to pay the purchase
price when, in
May 2013, they failed to pay each of the appellants R50 000, as
stipulated in the addendum. This entitled them
to cancel, which they
did when the court of first instance made an order in their favour.
[23] When
a breach of a contract occurs, the innocent contracting party has an
election: he or she may either abide by the contract
and enforce it
or cancel the contract.
[3]
If the option of cancellation is not exercised (in clear, unequivocal
terms) within a reasonable time, it may be inferred that
the innocent
party has elected to abide by the contract.
[4]
In this instance, much can be said for the proposition that, by
accepting payments from May 2013 to as late as January 2014, the
appellants, by that conduct, elected to abide by the contract, and
must be held to their election.
[5]
I prefer, however, to deal with the matter on another basis.
[24]
Generally speaking, a party to a contract may cancel it if it has
been breached by the other contracting party and that breach
is
material
[6]
– in the sense, as it has been framed in various cases, that it
goes ‘to the root of the contract’, affects ‘a
vital part of the contract’ or relates to ‘a material and
essential term’ or constitutes ‘a substantial
failure to
perform’.
[7]
Ultimately, however, what is involved is a value-judgment that seeks
to be fair to both parties. In
Singh
v McCarthy Retail Ltd t/a McIntosh Motors
[8]
Olivier JA held:
‘
I
perceive the correct approach to be as follows: The test, whether the
innocent party is entitled to cancel the contract because
of
malperformance by the other, in the absence of a lex commissoria,
entails a value judgment by the Court. It is, essentially,
a
balancing of competing interests - that of the innocent party
claiming rescission and that of the party who committed the breach.
The ultimate criterion must be one of treating both parties, under
the circumstances, fairly, bearing in mind that rescission,
rather
than specific performance or damages, is the more radical remedy. Is
the breach so serious that it is fair to allow the
innocent party to
cancel the contract and undo all its consequences?’
[25] For
present purposes, my assumption that the oral variation was not
legally effective would mean that technically the respondents
were in
breach of their agreement with the appellants. On this assumption, I
proceed to consider whether the circumstances justified
cancellation.
[26] Even
though the addendum stipulated a final payment in May 2013 (which
erroneously would have left the appellants short-paid
by R50 000
each, and which led to an oral variation of the addendum), it is
clear that payments were made beyond the revised
final date of
payment of June 2013. These payments continued, without protest from
the appellants until January 2014 when, according
to Davids, the
appellants acted contrary to their obligations in terms of clause
5.1.6 – an infraction that entitled the
respondents to
‘withhold any payments that may be payable to the Sellers’.
[27]
Irrespective of the effect of the non-variation clause on the oral
variation, the respondents continued to pay in terms of
the oral
variation, and the appellants continued to accept those payments.
They even made requests for ad hoc payments from time
to time.
[28] By
January 2014, three of the appellants had been paid in full and the
remaining seven were owed amounts varying from R20 000
to
R27 000. A total of R160 000 out of a purchase price of R4
million was outstanding. In other words, 96 percent of
the purchase
price had been paid when the application for the cancellation was
brought. An insignificant amount was therefore due.
On the facts
which must be accepted in terms of the
Plascon-Evans
rule, the
respondents were complying with the terms of an oral agreement to
which the appellants had consented. At no time before
the launching
of the application had the appellants withdrawn from the oral
agreement and asserted their rights.
[29] The
ability of the appellants to tender restitution is doubtful.
[9]
In the founding affidavit it seems to be suggested that restitution
may be effected after the appellants are paid what they claim
may be
due to them as a consequence of the cancellation of the agreement.
This, it seems to me, amounts at best to a tender of
restitution of
the purchase price after a successful claim for damages of some sort.
This tender is so vague, speculative and open
to doubt that it
amounts to no tender of restitution at all.
[30] When
these factors are considered cumulatively, they point strongly
against cancellation as an appropriate remedy: cancellation
would not
be justified and, in the light of the substantial payment of the
purchase price and the unlikelihood of restitution,
it ‘would
be a disproportionate sanction’.
[10]
In the result, the court below was correct to conclude that
cancellation of the agreement was not justified.
The
Minister’s approval
[31] It
was raised in the founding affidavit that the Minister’s
approval of the sale of the members’ interests in Meermin
was a
condition precedent of the agreement.
[32] The
agreement, in unqualified terms, provides for the sale and purchase
of 100 percent of the appellants members’ interests
in
Meermin.
[11]
Provision is made for a purchase price of R4 million.
[12]
There is no express term in which provision is made for any condition
precedent. The warranties given by the appellants include
that they
warrant that there were no outstanding dues in relation to the
quota.
[13]
The agreement records that Meermin had submitted all regulatory
documentation
[14]
and includes a warranty that the quota has not been contracted to or
committed to any other person.
[15]
[33]
Significantly, the agreement placed an obligation on the appellants
to complete the necessary forms to satisfy the regulatory
requirements of the Fisheries Branch of the relevant department,
including completing a
section 21
transfer application form.
[16]
No warranty was given in relation to the necessary approvals in the
present or future fishing years. It is clear from the terms
of the
agreement as a whole that the purchaser accepted the risk related
thereto. In my view, given the clear express terms of
the agreement,
there is no room for a tacit term to the effect contended for.
[34] In
any event, we were informed from the bar that Meermin has continued
to operate on a temporary authorisation of some sort.
It may be that
once, pursuant to this judgment, it has been clarified that the
appellants were not entitled to cancel the agreement,
the controllers
of Meermin will need to obtain approval from the Minister for the
change in control in order for Meermin to continue
receiving annual
quotas. I do not minimise the importance of the transformation
profile of quota holders. However, the fact that
such consent may be
needed does not mean that the sale agreement was conditional.
Conclusion
[35] In
the result, the appeal must fail. I note however that Ms Titus, who
appeared, together with Ms Ostler, for the respondents
confirmed that
the tender to pay the outstanding amounts to seven of the appellants
still stood. She also informed us that her
clients did not seek a
costs order in this appeal and that they abandoned the costs order in
their favour in the court below.
[36] The
appeal is dismissed.
__________________
C
Plasket
Acting
Judge of Appeal
APPEARANCES
For
appellants:
D Potgieter SC
Instructed by:
Moosa, Wagley & Petersen Inc, Cape
Town
Honey Attorneys, Bloemfontein
For
respondents:
Z Titus and L Ostler
Instructed by:
Van Lieres, Cooper, Barlow &
Hangone, Cape Town
Rossouw & Conradie Inc,
Bloemfontein
[1]
Two of the women had died. The executors of their deceased estates
are the seventh and eighth appellants.
[2]
The addendum refers to 15 May 2012 as the date of the final payment.
This is incorrect as the addendum was signed on 25 and 26
November
2012. The date intended must have been 15 May 2013.
[3]
Culverwell & another v
Brown
1990 (1) SA 7
(A) at
16J-17A.
[4]
Mahabeer v Sharma NO &
another
1985 (3) SA 729
(A) at 736E-I;
Kragga Kamma
Estates CC & another v Flanagan
[1994] ZASCA 137
;
1995 (2) SA 367
(A) at 373B-G.
[5]
Culverwell & another v
Brown
(note 3) at 17A-B.
[6]
Singh v McCarthy Retail Ltd
t/a McIntosh Motors
[2000] ZASCA 129
;
2000
(4) SA 795
(SCA) paras 11-12.
[7]
L F Van Huysteen, GF Lubbe and M F B Reineke
Contract:
General Principles
(5 ed)
para 10.102 (at page 346).
[8]
Note 6 para 15. See too Van Huysteen, Lubbe and Reineke (note 7)
para 10.103 (at page 346).
[9]
On restitution generally, see
Feinstein
v Niggli & another
1981 (2) SA 684
(A) at 700F-701A;
Baker
v Probert
1985 (3) SA 429
(A) at 446E-F.
[10]
Botha & another v Rich
NO & others
2014 (4)
SA 124
(CC);
[2014] ZACC 11
para 49.
[11]
Clause 2.1.
[12]
Clauses 3.1 and 3.2.
[13]
Clause 6.1.1.
[14]
Clause 6.1.4.
[15]
Clause 6.1.5.
[16]
Clause 5.1.5.