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[2014] ZAWCHC 124
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Morley v Lambrechts (A 526/2013) [2014] ZAWCHC 124 (21 August 2014)
REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT
OF SOUTH AFRICA
(WESTERN CAPE
HIGH COURT, CAPE TOWN)
Case
No: A 526/2013
DATE:
21 AUGUST 2014
In the matter
between:
JOHN
MORLEY Appellant
And
ENGELA JOHANNA
LAMBRECHTS Respondent
Before: The Hon.
Mr Justice Binns-Ward
The Hon. Mrs
Justice Fortuin
The Hon. Mr
Justice Henney
Date of hearing:
30 July 2014
Date of judgment:
21 August 2014
JUDGMENT
BINNS-WARD J:
[1] On 10 December
2009, the appellant, then a sixty-two year old retired businessman,
entered into two deeds of contract with the
respondent, a seventy-two
year old widow who is of meagre means and confined to a wheelchair.
Both agreements concerned Erf 6112,
Bellville, a residential property
that has been the respondent’s home for many years. The
respondent’s father had built
the dwelling house there. The
respondent was the registered owner of the property, which was
unencumbered. She had come into
it by inheritance. The municipal
valuation of the property was R670 000. Shortly before the deeds of
contract were executed,
an estate agent had appraised the market
value of the property at R800 000.
[2] The two deeds of
contract were interrelated. The first was a deed of sale in terms of
which the respondent sold the property
to the appellant for R310 500.
It contained a clause by which the respondent, as seller,
‘irrevocably authorise[d] the transferring
attorneys to pay [to
the appellant, as purchaser] from the proceeds of the purchase price’
an amount of R35 000 ‘as
a deposit and nine months’
rental in terms of the Agreement of Lease herein incorporated by
reference’. Its provisions
also authorised the conveyancing
attorneys to make various other deductions from the proceeds, with
the effect that that the seller
might look forward to a receipt of
net proceeds of only about R200 000 on the sale of the property. The
second deed of contract
was the aforementioned ‘Agreement of
Lease’. In terms of the contract of lease the respondent
undertook to rent the
property for a period of one year from the date
of transfer into the appellant’s name in terms of the deed of
sale. The
deed of lease provided that the rent would be R3 500 per
month and that the respondent would pay ‘9 (nine) months’
rental in advance from the proceeds of any sale and the Rent monthly
in advance on or before the 2nd (Second) business day of every
month
thereafter’. A ‘non-refundable’ deposit of R3 500
was also payable by the respondent. The second deed
granted the
respondent the option to (re)purchase the property for R357 075. The
option could be exercised on at least three months’
notice in
writing to be given at least three months prior to the expiry of the
lease.
[3] There were no
costs in the transaction for the purchaser. The conveyancing fees
and transfer duties fell to be paid by the
seller, instead of the
purchaser as is customary. They were stipulated to be in the sum of
R30 000, which was way above the amount
that would ordinarily have
been payable having regard to the applicable conveyancing fee
guidelines and the fact that a property
transfer at a consideration
of R310 500, assuming the price represented fair market value, would
not be dutiable. The seller would
also pay to the purchaser an
option fee calculated at five per cent of the property’s
appraised market value (R800 000),
which equated to the commission
that the purchaser paid to Property Rescue which had brokered the
transaction. The option fee
was payable from the proceeds of the
sale upon date of transfer. It was one of the aforementioned
deductions. The seller would
also pay for the insurance of the
property for a year after its transfer to the purchaser.
[4] Why would the
respondent have entered into such a transaction on the
extraordinarily disadvantageous terms described in the
preceding
paragraphs? The answer is to be found in the evidence.
[5] The respondent’s
fifty-two year old son (cited as the fourth respondent in the
proceedings in the court a quo) had become
unemployed and
over-indebted. He was under debt counselling in terms of the
National Credit Act 34 of 2005. He was in desperate
need of funds,
but, unsurprisingly, unable to access further credit by virtue of his
over-indebted position. He came across an
advertisement in Die
Burger newspaper, which he thought might provide him a way to get the
money he needed.
[6] The
advertisement had been placed by the Vrey brothers. They were cited
in the proceedings at first instance as the first and
second
respondents. They operated under the business name ‘Property
Rescue’. Their business operation was targeted
at fixed
property owners who needed to raise cash, but who, despite having
unencumbered equity in their property, were unable,
by reason of
straitened circumstances, to borrow from mainstream lenders.
[7] The scheme of
the operation was that the first and second respondents would find a
buyer for the property of a prospective borrower
that was willing to
transact on the basis reflected in the deeds of contract entered into
by the respondent in this matter. The
property would be ‘sold’
well below its market value. The evident purpose of the sale was to
generate the funds that
would finance the loan required and cover the
costs entailed, including the exorbitant conveyancing charges, the
pre-paid rental
in terms of the linked lease agreement and the
brokerage commission charged by Property Rescue (which in this case
amounted to
nearly 13 per cent of the sale price). The seller would
remain on in the property as a tenant for a fixed period with the
option
of repurchasing it within that period at a premium over the
selling price. The advantage to the purchaser was that he was
guaranteed
a return on investment of at least the amount equivalent
to the premium in the option price (in this case just over 15%) plus
the
rentals obtained in terms of the lease (calculated at 12% per
annum of the option price). If the option were not exercised, the
purchaser would derive the even greater advantage of obtaining the
benefit of the considerable difference between the purchase
price and
the property’s market value plus the rentals obtained in terms
of the lease. In the current case, at 842/310,
that would represent
a likely return on investment for the purchaser of over 270% within a
year. Having regard to the financial
status of the sellers in such
cases, the likelihood of their being able to exercise the option was
self-evidently remote.
1
The supposed benefit to the seller was that the net proceeds of the
sale afforded him access to funds that he was unable to borrow
from
high street lenders. If the seller exercised the option and
repurchased the property, the end result would thus be closely
analogous to that which would have pertained had he borrowed the
funds in terms of a short-term mortgage loan at very high interest
and transaction costs.
[8] Objectively, it
is patent that only the ill-advised and desperate would be likely to
enter into such a transaction as seller
and borrower. Objectively,
it is equally apparent that the purchaser and effective lender in the
transaction expected to probably
obtain the property free of any
option rights at a fraction of its market value. Why else would he
agree to pay a commission of
five per cent of the property’s
market value to the broker? The commission in fact exceeded the sum
of the difference between
the selling price and the price at which it
notionally could be repurchased in terms of the option.
[9] Pursuant to the
advertisement he had seen in Die Burger, the fourth respondent met
with the first respondent, Dewald Vrey.
The fourth respondent’s
own property was heavily mortgaged and thus not amenable to be turned
to account under the scheme.
Vrey and the fourth respondent agreed,
however, that the respondent’s property, unencumbered as it
was, lent itself for
use in terms of Property Rescue’s
aforementioned scheme. The fourth respondent wanted to borrow R200
000. He approached
his mother and asked her if she would be willing
for her property to be used as security for the loan he required. He
assured
her that he would be able to repay the amount from the
proceeds of his retirement savings, which he expected to be able to
realise
in three years’ time when he attained the qualifying
age of 55. The respondent agreed to her son’s request. The
fourth respondent then worked with Dewald Vrey to implement the
transaction.
[10] The Vrey
brothers used a pro forma document for the purposes of establishing
the framework or structure of the transactions
executed under their
scheme. The document was labelled in the evidence as a ‘term
document’ (or ‘werksblad’).
It was used to explain
the transaction to the clients; in this case the fourth respondent,
representing the seller, and the appellant,
as the purchaser. Its
content tells a story. The term document completed in respect of the
transaction concerning the respondent’s
property is set out
below. It was partly in Afrikaans. I have translated the Afrikaans
content into English for the reader’s
convenience.
PROPERTY RESCUE FOR:
Property Value R800
000.00
Bond LEASE 12
mths
Monthly
rental R3 500.00
Rates &
taxes R3,000.00 (1% of buy back price)
9 month's rent+
deposit R35,000.00 AFFORDABILITY:
Income
Husband ¬
Funds
needed R200,000.00 Income Wife ¬
Total
earnings ¬
Insurance R2,500.00 Estimated
mortgage ¬
Owner(s)
………………………………………………..
Physical Adress 4
Martin str
Chrismar
Postal address
………………………………………………….
Postal code
…………………………………………………..
TOTAL R240,500.00 Home
Tel: …………………………………………………..
Cell phone
Numbers
PURCHASE
PRICE:
Funds
required: R240,500.00 Rental will be adjusted as and when
in line with the
applicable repo-rate
as determined by
the Reserve Bank
plus Facility
Fee R40,000.00
plus Registration
fee R30,000.00
TOTAL PURCHASE
PRICE R310,500.00 Would you like a broker to visit you
in respect of
cover for the
contingency of death
before the
buy-back occurs.
BUY BACK PRICE: 12
months YES NO
Total Purchase
price R310,500.00
plus
15% R46,575.00 OWNER …………………
TOTAL BUY BACK
PRICE R357,075.00 OWNER ……………….
Date ………………
Dewald 076 380
8269
HSE 160 m² x
R3500pm² 560,000
Plot 640 m²
SAT 140,000
700,000
DEAL!
(The italicised
script at the bottom right of the document represents notes that the
appellant had made in handwriting on his copy
of the term sheet.)
The term sheet demonstrates how the price and the option price were
determined. The figures had nothing to
do with the market and
everything to do with the seller’s borrowing requirement and
the costs associated with satisfying
it, including a minimum 15%
nominal return for the investor/purchaser.
[11] The appellant
was also introduced to the transaction consequent upon an approach by
the Vrey brothers. He had previously been
involved in a similar
transaction with them and the attorney they used, one Arno Schipper.
The appellant testified that when he
was first introduced to the
scheme he had had reservations about its ‘legitimacy’ and
had sought and received assurances
that it was above board from both
Gert Vrey and Schipper. He appeared, however, to regret having made
this disclosure and was
notably coy under cross-examination in
explaining just what it was about the nature of the transactions that
had given rise to
any feelings of unease.
[12] The deeds of
contract were executed at or near the offices of C&A Friedlander
Inc. They were the conveyancing attorneys
appointed in terms of the
deed of sale and also the agents to whom the rentals had to be paid
in terms of the agreement of lease.
The matter was attended to by
Schipper, who was a director of C&A Friedlander at the time.
2
The respondent was brought to the premises for the purpose of signing
the contract documentation by her son. Her son went into
the
attorneys’ offices, where he was taken through the documents by
Schipper. The second respondent, Gert Vrey, was also
present.
Schipper, however, left the meeting to attend to other business when
the cession of proceeds and related contract documentation
to be
described below were dealt with. Any explanation given to the fourth
respondent in connection with that documentation, which
went to the
provision of ‘bridging finance’, was given only by Gert
Vrey. The contract documentation was then taken
by Gert Vrey and the
fourth respondent to the respondent for signature. She had remained
waiting in the vehicle in the car park
outside the attorneys’
offices because she had been unable to go into the building because
of her physical disability.
[13] The respondent
maintained that she had not appreciated the nature of the documents
she signed. She testified that she would
never have agreed to sell
her property because it was the only home she had, and she did not
have the means either to repurchase
it in terms of the option, or
acquire an alternative property in which to live. She understood
that she was merely providing the
property as security for a loan to
her son, which he would be in a position to repay from his retirement
fund payment. Gert Vrey
testified that he stood by the car window
next to the respondent and took her through the content of the
documentation that she
signed. The respondent denied that she was
given any explanation of the import of the documents that she signed.
She testified
that Vrey said she could sign because everything had
been gone through in the attorneys’ office and found to be ‘in
order’. She said that Vrey merely pointed out on each page
where she should place her signature or initials. She did not
have
her spectacles with her and claimed that she would in any event have
had difficulty reading the documents.
[14] The trial judge
was justifiably unimpressed with the quality of Vrey’s
evidence, but even if one were to accept his version
of events it
would appear that the respondent had considerable difficulty in
understanding the transaction. This much is evident,
for example,
from his description of her repeated questioning of how it could be
that she should become a tenant in her own property.
It was also
evident from his evidence under cross-examination that Gert Very did
not understand material provisions of the contracts
himself, which
would have limited his ability to properly explain them.
[15] The
documentation signed by the respondent while sitting in the parked
motor vehicle included not only the two deeds of contract
already
described, but also a deed of cession in terms of which she ceded the
entire net proceeds of the sale to Propfund (the
trading name of an
entity known as Capcon Finance (Pty) Ltd, a registered credit
provider in terms of the National Credit Act,
of which attorney
Schipper appears to have been the sole director and shareholder) and
an acknowledgment of debt in terms of which
the respondent
acknowledged herself to be indebted to Propfund in the sum of R88
485,60 plus R130,20 per day from 28 days after
the making of two
payments referred to in the deed of cession to date of payment of the
purchase price to the respondent. It is
evident on a reading of the
cession together with the acknowledgment of debt that the cession was
to provide security for an immediate
advance (described as ‘bridging
finance’) to be made by Propfund to the respondent’s son
in the sum of R80 000,
plus commission thereon in the sum of R4000 to
be paid to Property Rescue (the Vrey brothers). The sum of R80 000
was an advance
towards the R200 000 loan requirement of the
respondent’s son that had been the foundation for the entire
transaction. An
amount totalling R178 598 was subsequently paid to
the fourth respondent in the implementation of the transaction.
Various further
‘bridging finance’ advances were made to
the fourth respondent at his request and in the discretion of
Schipper. The
difference between the total amount of R178 598
actually paid to the fourth respondent and the original R200 000
borrowing requirement
was accounted for by the cost of the ‘bridging
finance’, in respect of which Propfund appears to have charged
interest
at the rate of about 35 per cent per annum. It was largely
advanced by way of a loan by Propfund in advance of the transfer of
the property in terms of the sale agreement between the respondent
and the appellant. It is clear that Propfund funded the loan
from
the money paid in by the appellant soon after the execution of the
deeds of contract in lieu of providing the payment guarantee
contemplated in terms of the deed of sale. Propfund paid interest to
the appellant on the funds deposited by the appellant into
the trust
account of C&A Friedlander until the transfer of the property.
Schipper testified that the appellant had probably
been paid interest
at the prime lending rate.
[16] The appellant
came to the attorneys’ offices sometime later on the same day
that the contract documentation had been
signed by the respondent.
He countersigned the deeds of sale and lease. He said that he was
unaware of the deed of cession and
of the arrangement whereby funds
were advanced to the fourth respondent. He also claimed to have been
unaware of the investment
of the funds deposited by him for the
settlement of the purchase price with Propfund. He said he had
understood that his advance
payment would be held in an interest
bearing account in terms of s 78(2A) of the Attorneys Act 53 of 1979.
The property was transferred
into the appellant’s name on 5
March 2010.
[17] The respondent
failed to pay any monthly rental in terms of the lease agreement
after the expiry of the nine-month pre-paid
rental lease period and
remained on in the property, despite demands by the appellant that
she vacate it. The appellant sold the
property to a third party for
R780 000, after the option provided to the respondent in terms of the
agreement of lease had lapsed.
He instituted eviction proceedings
against the respondent so as to be able to give vacant possession of
the property to the third
party purchaser. The respondent was made
aware that the property had been sold by the appellant when the third
party purchaser
visited the property and informed her that he had
bought it.
[18] The respondent
instituted proceedings on motion in October 2011 in terms of which
she claimed an interim interdict prohibiting
the alienation of the
property by the appellant pending the final determination of an
action to be instituted by her for an order
declaring (i) that the
sale agreement concluded between herself and the appellant be legally
cancelled and (ii) that she was not
obliged to make restitution to
the appellant in respect of the amounts paid by him in terms of the
sale agreement. She alleged
that she had entered into the deeds of
contract under a misguided apprehension as to their import. This was
due to the second
respondent and/or her son having misrepresented the
position to her. She alleged that the appellant must have
appreciated that
she had been misinformed to enter into such a
disadvantageous contractual arrangement and thus had been under a
duty to make certain
that she had been properly informed of the
implications of the contracts. (The notice of motion was later
amended to include a
prayer for an order to achieve the cancellation
of the registration of the transfer of the property with the
appellant’s
name, alternatively, one directing the appellant
and C&A Friedlander to effect transfer of the property back into
the name
of the respondent. There is no indication on the record
that notice of the amended relief was given to the Registrar of Deeds
in terms of s 97 of the Deeds Registries Act.)
[19] The appellant
opposed the application. He averred that he knew nothing about the
respondent’s understanding of the contracts
when she had signed
them. He maintained he was entitled to accept that she was an adult
person of full capacity who was exercising
her freedom to contract.
He averred that he had reasonably inferred that by her signature
thereto the respondent had been content
to bind herself to the terms
of the deeds of contract. She was in any event not entitled to rely
on any misrepresentation made
by a third party such as Schipper or
the second respondent for the purpose of cancelling the contract
entered into with him; cf.
Slip Knot Investments 777 (Pty) Ltd v Du
Toit 2011 (4) SA 72 (SCA) and National and Overseas Distributors
Corporation (Pty) Ltd
v Potato Board 1958 (2) SA 473 (A) at 479G-H,
amongst others. He also asserted that he had had no knowledge that
the object of
the transaction had been to fund a loan to the fourth
respondent.
[20] An order was
taken by agreement between the parties that the application should be
referred for trial, with the affidavits
to stand as pleadings. The
respondent was given leave to institute a conditional claim in
reconvention, in terms of which, contingent
upon the respondent
succeeding with the first part of her claim for declaratory relief,
he claimed repayment of the purchase price
plus interest.
[21] The trial took
place before Weinkove AJ. He found for the respondent and made an
order setting aside the sale agreement ‘on
the grounds that it
[was] void ab initio alternatively voidable’. He declared that
the respondent was not obliged to make
restitution to the appellant
and directed that the registration of transfer of the property into
the appellant’s name be
cancelled, alternatively that the
appellant and C&A Friedlander attorneys should, at their cost,
effect transfer of the property
back into the respondent’s
name. He dismissed the conditional claim in reconvention. The
appellant’s application
for leave to appeal was refused by the
court a quo, but leave to appeal to the Full Court was subsequently
granted by the Supreme
Court of Appeal in terms of s 20(4)(b) of the
Supreme Court Act 59 of 1959 read with s 52(1) of the Superior Courts
Act 10 of 2013.
[22] The court a quo
found that the respondent had been ‘an honest witness, albeit
naïve and of limited intelligence’.
It found that she had
signed the documentation presented to her by Gert Vrey in the car
park on 10 December 2009 in the belief
that it recorded her agreement
to pledge the property as security for the repayment of a loan to be
advanced to her son. Weinkove
AJ held that if the respondent had
understood what she was called upon to sign she would have
appreciated that it would be ‘suicidal’
to enter into the
agreements, as she did not have the means to exercise the option to
repurchase the property and she had nowhere
else to live. I do not
think those findings can be faulted. A factor which the learned
acting judge did not mention, but which
affords support for the
findings he made, was the respondent’s understanding that her
son would come into the retirement
savings, from which she understood
the loan was to be repaid, only in three years’ time, in other
words well beyond the expiry
of the option. That, of course, still
leaves for consideration the effect of the caveat subscriptor rule in
the circumstances.
[23] The court a quo
also held that despite its ostensible components of sale, lease, and
option to repurchase, the transaction
was in substance a money
lending transaction, with the property used as security. There is
much to be said for that view inasmuch
as the object of the
transaction was concerned, as distinct from the nominal character of
its individual contractual components.
It is supported by a number
of characteristics of the transaction. It was a transaction that was
confessedly put together by
the Vrey brothers, apparently with the
co-operation of Mr Schipper, wearing his ‘bridging finance’
company director’s
hat, for persons who were not able to borrow
money conventionally. As the judge a quo noted with reference to the
evidence of
Dewald Vrey, the advertisements placed by Property Rescue
were directed at persons who wanted to borrow money, not at persons
who
wanted to sell their property. Indeed, the advertised business
philosophy of Property Rescue was to assist financially distressed
persons not to lose their fixed properties. The ‘purchase
price’ was not determined as a purchase price ordinarily
would
be between buyer and seller, that is on the basis of a reconciliation
of their respective estimations of the market value
of the subject
matter; it was determined instead with reference to the sum of money
required by one of the parties as a loan and
the costs involved in in
providing it. The option price was calculated to allow the
‘purchaser’ a return on capital
outlay if the loan were
repaid, and not with reference to the value of the property. The
very provision of the option, in the
context of an arrangement that
would give the ‘seller’ continued possession of the res
vendita, was more consistent
with a lending arrangement than a sale.
The ‘rental’ was also not a function of the market for
accommodation of the
nature provided by the property, but fixed
instead at one per cent of the option price per month. The
contemporaneously executed
cession of proceeds and acknowledgement of
debt served to confirm that the object of the transaction was to meet
the ‘seller’s’
borrowing requirement.
[24] There is also
no doubt that the appellant appreciated that this was no ordinary
agreement of purchase and sale that he was
entering into. His
evidence confirmed that he entered into the contracts on the basis of
the information presented in the ‘term
document’ quoted
above.
3
It was that appreciation that made him doubt the propriety of the
transaction enough to seek assurance from attorney Schipper
that it
was above board. The obvious basis for the doubt was the
self-evident proposition that any person desperate enough to
access
the liquidity in their fixed property in terms of the transaction
structure put together by Property Rescue was unlikely
to be able to
raise the money for the option price, with the likely result that the
appellant would ultimately obtain the property
at a fraction of its
market value appreciating that no-one truly wishing to sell their
property would do so at the ‘price’
he was paying and, to
boot, bear the transfer costs and pay an exorbitant fee for an option
to repurchase it within nine months.
The premise for the
transaction, namely the need to borrow money, was clearly apparent in
the ‘term document’. That
the appellant appreciated that
he stood to benefit grossly from the exploitative transaction is also
reflected in his willingness
to pay a commission to Property Rescue
calculated at five per cent of the market value of the property.
(The commission was disguised
from the ‘seller’ in the
terms of the contract, being described therein as an authorised
deduction from the proceeds
of the ‘sale’ due to the
purchaser. In terms of the deed of sale the ‘seller’
irrevocably authorised C&A
Friedlander to pay the amount of R40
000 to the ‘purchaser’ ‘as compensation for
extending the Seller an option
to re-purchase the property’.
It is common ground that the deduction was not paid by C&A
Friedlander to the ‘purchaser’,
but instead to Property
Rescue. It is clear that the appellant, notwithstanding his
professed reliance, when it suited his purposes,
on the strict tenor
of the deeds of agreement, did not expect anything different.)
[25] The evident
object of the transaction did not, however, provide any basis to hold
that the component agreements were not what
they purported to be,
namely a sale and a lease. The suggestion in the judgment of the
court a quo that some form of simulation
was entailed was
misdirected. It was also unnecessary for the purposes of arriving at
the decision which the trial court made.
The contractual object of
the transaction and the structure created for its achievement were
nevertheless relevant considerations
in the assessment of whether it
is one that the law should uphold, a matter to which I shall come
presently.
[26] The court a quo
held that the Vrey brothers and the attorney, Schipper, had been the
appellant’s agents for the purpose
of procuring the
respondent’s signature to the contract documentation. The
trial judge found that they had been under a
duty to ensure that the
respondent was properly informed of the nature of the transaction she
was being invited to enter into.
It is well established that the
caveat subscriptor rule - which expresses the position that a person
who signs a deed of contract
is ordinarily taken to have bound
himself by the deed’s provisions and it will not avail him to
say that he had not read
them; an articulation of the doctrine of
quasi-mutual assent – does not apply if the document contains
provisions of a special
or unusual nature which the other party
should reasonably have appreciated that the subscriber could not have
expected to find
incorporated in it; cf. e.g. Slip Knot Investments
777 supra, at para 12; Afrox Healthcare Bpk v Strydom 2002 (6) SA 21
(SCA) ([2002]
4 All SA 125) at para 36 There is a duty in such
circumstances on the party who knows of the presence of such
provisions to ensure
that the other party is astute to them. A
failure to discharge the duty can support the conclusion that the
parties lacked the
necessary consensus ad idem notwithstanding the
appearances to the contrary reflected in the execution by them of a
contract document.
In such an event the contract is voidable at the
instance of the mistaken party. The judge at first instance held
that the provisions
of the transaction in issue were so exceptionally
onerous that there had been a duty on the part of Schipper and Gert
Vrey to ensure
that the respondent was fully aware of their import
when she executed the deeds. He found that they had failed to
discharge this
duty of disclosure and that the appellant, as their
principal, had to bear the consequences.
[27] In my view the
evidence does not support the conclusion that the Vreys and Schipper
were the appellant’s agents for the
purposes of concluding the
agreements. On the contrary, they acted independently in introducing
the appellant to what they considered
to be an investment
opportunity. Similarly, the respondent’s son was attracted to
their scheme by advertisements placed
by the Vreys. If anyone had
acted as the respondent’s agent in the matter, it would have
been her son. She in fact acted
for herself in executing the deeds
of contract. Schipper was under an ethical obligation to ensure that
the respondent was properly
apprised of the implications of the
transaction, but that arose from his position as the representative
of the conveyancing attorneys,
and not because he was an agent of the
‘purchaser’. It is clear that Mr Fourie, the actual
conveyancer, merely acted
on his colleague, Schipper’s
instructions. Schipper, who settled the terms of the deeds of
agreement, also had a duty of
disclosure towards the respondent by
virtue of his proprietary interest in Propfund, which stood to profit
out of the transaction.
[28] It remains to
be considered, however, whether the appellant was not himself
required in the peculiar circumstances to be satisfied
that the
respondent properly understood the contracts. In this connection
counsel for the respondent submitted that the appellant
should have
been alive in the circumstances to the real possibility that the
respondent did not appreciate the nature of the transaction
and that
she was alienating her home for a fraction of its market value,
rather than merely agreeing to it being used as security
for a loan.
He submitted that this gave rise to an obligation on the appellant to
have spoken up and assured himself that the
respondent was not
entering into the transaction mistakenly. In the circumstances of
the appellant’s failure to have done
so counsel argued that the
respondent was entitled to rely on a lack of consensus between the
parties to avoid the effect of her
signature of the deeds of
contract. I shall consider the validity of that argument later. It
seems to me, however, that another
issue, the possible invalidity of
the transaction as being contrary to public policy, should be
determined first.
[29] A significant
part of the cross-examination of the appellant and the witnesses
called in the course of the presentation of
appellant’s case in
the court a quo appears to have been directed at showing that the
transaction offended against public
policy. It was also subliminally
a theme in the judgment of the trial court and in the respondent’s
counsel’s heads
of argument on appeal. The question was not
engaged directly, however, and the focus of the debate in the heads
of argument in
the appeal was on whether the respondent was entitled
to avoid the effect of her execution of the deeds of contract on the
grounds
of an absence of contractual consensus. It appeared to us
that the question of whether the transaction might be void by reason
of being contrary to public policy called for proper consideration.
In the peculiar context it is a question that it is convenient
to
address before the contentious issue of whether there was effective
consensus. It is a question that can be decided assuming
ex
hypothesi in favour of the appellant that he was entitled to accept
that the respondent had intended to contract with him in
accordance
the terms of the deeds of sale and lease. The legality of the
contracts in the context of public policy is a question
that falls to
be determined quite independently of the contracting parties’
intentions.
[30] In Eastwood v
Shepstone 1902 TS 294 at 302, Innes CJ observed that the court ‘has
the power to treat as void and to refuse
in any way to recognise
contracts and transactions which are against public policy or
contrary to good morals. It is a power not
to be hastily or rashly
exercised; but when once it is clear that any arrangement is against
public policy, the Court would be
wanting in its duty if it hesitated
to declare such an arrangement void. What we have to look at is the
tendency of the proposed
transaction, not its actually proved
result’. (underlining supplied)
[31] The duty that a
court has to raise the illegality of a contract mero motu when the
parties to a dispute related to it have
not done so themselves has
been acknowledged in a number of cases; see e.g. Hugo and Others v
Transvaal Loan, F and M Co (1894)
1 OR 336 at 341, Green v De
Villiers and Others (1895) 2 OR 289 at 293, The Weston Distributing
Company v Carter Brothers Products
(Pty) Ltd 1945 NPD 467 at 472,
Yannakou v Appollo Club 1974 (1) SA 614 (A) at 623G-H, Goodgold
Jewellery (Pty) Ltd v Brevadau CC
1992 (4) SA 474 (W) at 479H-480C
and Long Oak Ltd v Edworks (Pty) Ltd 1994 (3) SA 370 (SE) at
373H-374C, and cf. Ryland v Edros
1997 (2) SA 690 (C) at 710A-B. We
therefore gave counsel notice prior to the hearing of the appeal to
be prepared to address the
question. We are grateful for the
supplementary heads of argument that both counsel subsequently
submitted on the issue.
[32] The applicable
principles were summarised by Smalberger JA in Sasfin (Pty) Ltd v
Beukes 1989 (1) SA 1 (A) at 9B-G:
No court should
therefore shrink from the duty of declaring a contract contrary to
public policy when the occasion so demands. The
power to declare
contracts contrary to public policy should, however, be exercised
sparingly and only in the clearest of cases,
lest uncertainty as to
the validity of contracts result from an arbitrary and indiscriminate
use of the power. One must be careful
not to conclude that a contract
is contrary to public policy merely because its terms (or some of
them) offend one's individual
sense of propriety and fairness. In the
words of Lord Atkin in Fender v St John-Mildmay 1938 AC 1 (HL) at 12
([1937] 3 All ER 402
at 407B - C),
‘the doctrine
should only be invoked in clear cases in which the harm to the public
is substantially incontestable, and does
not depend upon the
idiosyncratic inferences of a few judicial minds’
(see also Olsen v
Standaloft 1983 (2) SA 668 (ZS) at 673G). Williston on Contracts 3rd
ed para 1630 expresses the position thus:
‘Although the
power of courts to invalidate bargains of parties on grounds of
public policy is unquestioned and is clearly
necessary, the
impropriety of the transaction should be convincingly established in
order to justify the exercise of the power.’
In grappling with
this often difficult problem it must be borne in mind that public
policy generally favours the utmost freedom
of contract, and requires
that commercial transactions should not be unduly trammelled by
restrictions on that freedom.
‘(P)ublic
policy demands in general full freedom of contract; the right of men
freely to bind themselves in respect of all
legitimate
subject-matters’
(per Innes CJ in Law
Union and Rock Insurance Co Ltd v Carmichael's Executor ([1917 AD
593] at 598) - and see the much-quoted aphorism
of Sir George Jessel
MR in Printing and Numerical Registration Co v Sampson (1875) LR 19
Eq 462 at 465 referred to in inter alia,
Wells v South African
Alumenite Company 1927 AD 69 at 73.[
4
]
A further relevant, and not unimportant, consideration is that
‘public policy should properly take into account the doing
of
simple justice between man and man’- per Stratford CJ in
Jajbhay v Cassim 1939 AD 537 at 544.
[33] This, of
course, begs the question of what is understood by the term ‘public
policy’ for these purposes. Smalberger
JA provided the
following explanation at 7I – 8D of Sasfin: Our common law does
not recognise agreements that are contrary
to public policy (Magna
Alloys and Research SA (Pty) Ltd v Ellis 1984 (4) SA 874 (A) at
891G). This immediately raises the question
what is meant by public
policy, and when can it be said that an agreement is contrary to
public policy. Public policy is an expression
of ‘vague import’
(per Innes CJ in Law Union and Rock Insurance Co Ltd v Carmichael's
Executor 1917 AD 593 at 598),
and what the requirements of public
policy are must needs often be a difficult and contentious matter.
Wessels Law of Contract
in South Africa 2nd ed vol 1 para 480 states
that ‘(a)n act which is contrary to the interests of the
community is said to
be an act contrary to public policy’.
Wessels goes on to state that such acts may also be regarded as
contrary to the common
law, and in some cases contrary to the moral
sense of the community. The learned author ‘Aquilius’ in
one of a series
of articles on ‘Immorality and Illegality in
Contract’ in 1941, 1942 and 1943 SALJ defines a contract
against public
policy as ‘one stipulating performance which is
not per se illegal or immoral but which the Courts, on grounds of
expedience,
will not enforce, because performance will detrimentally
affect the interest of the community’
(1941 SALJ 346).
Wille in his Principles of South African Law 7th ed at 324 speaks of
an agreement being contrary to public policy
‘if it is opposed
to the interests of the State, or of justice, or of the public’.
The interests of the community or
the public are therefore of
paramount importance in relation to the concept of public policy.
Agreements which are clearly inimical
to the interests of the
community, whether they are contrary to law or morality, or run
counter to social or economic expedience,
will accordingly, on the
grounds of public policy, not be enforced. (Cf Cheshire, Fifoot and
Furmston's Law of Contract 11th ed
at 343.)
Compare also De Beer
v Keyser and Others 2002 (1) SA 827 (SCA) at para 22, where it was
accepted that ‘[t]here might well
be circumstances in which an
agreement, unobjectionable in itself, will not be enforced because
the object it seeks to achieve
is contrary to public policy’.
[34] In his
concurring judgment in Brisley v Drotsky 2002 (4) SA 1 (SCA); 2002
(12) BCLR 1229, at para 91-92, Cameron JA added a
post-Constitutional
gloss to the notion, stating:
The jurisprudence of
this Court has already established that, in addition to the fraud
exception, there may be circumstances in
which an agreement,
unobjectionable in itself, will not be enforced because the object it
seeks to achieve is contrary to public
policy. Public policy in any
event nullifies agreements offensive in themselves - a doctrine of
very considerable antiquity.
In its modern guise, ‘public
policy’ is now rooted in our Constitution and the fundamental
values it enshrines. These
include human dignity, the achievement of
equality and the advancement of human rights and freedoms,
non-racialism and non-sexism.
It is not difficult
to envisage situations in which contracts that offend these
fundamentals of our new social compact will be struck
down as
offensive to public policy. They will be struck down because the
Constitution requires it, and the values it enshrines
will guide the
courts in doing so. The decisions of this Court that proclaim that
the limits of contractual sanctity lie at the
borders of public
policy will therefore receive enhanced force and clarity in the light
of the Constitution and the values embodied
in the Bill of Rights.
(footnotes omitted)
Cameron JA’s
remarks were referred to with approval in Barkhuizen v Napier 2007
(5) SA 323 (CC); 2007 (7) BCLR 691 at para
59.
[35] In my judgment,
while the component contracts might withstand scrutiny through the
prism of public policy despite their unfairness
and commercial
absurdity, the object to which their collective effect was obviously
directed was contrary to the common law and
also to the moral sense
of the community. The object was also inimical to the protection,
promotion and fulfilment of some of
the basic human rights enshrined
in chapter 2 of the Constitution.
[36] The object of
the transaction was to achieve a situation in which credit could be
advanced to a person who would not qualify
therefor in terms of the
currently applicable socio-economic legislation. The sale of the
immovable property that was the credit
receiver’s home to the
credit provider was to provide security for the redemption of the
debt. It fell to be achieved in
a way by which, if the credit
receiver defaulted on repayment (i.e. by not exercising the option),
the credit provider would obtain
redemption against the value of the
immovable property, not only to the extent of the redemption value of
the debt, but to the
much greater extent of the market value of the
property. It was repeatedly emphasised by the appellant during his
evidence –
a refrain in which the Vrey brothers joined in
harmony – that his object in entering into the transaction was
to realise
a return on his outlay, not to acquire the property for
himself. The property was to provide him with ‘cover’ or
‘security’.
One of the inherent characteristics of the
transaction, namely that upon default by the credit receiver the
credit provider would
obtain the right to retain the property free of
any right by the credit receiver to get it back at a consideration
related to the
debt was thus indistinguishable in effect from a
pactum commissorium in a mortgage contract. The public policy
considerations
that, since Roman times, have rendered any such
agreement void at common law are equally applicable in the context of
the current
matter. Indeed, the observations of De Villiers AJA in
that connection in Mapenduka v Ashington 1919 AD 343 at 351-352, have
an
unmistakeable resonance when considered in the context of the
facts of the current matter:
The first question
that arises is as to the validity of the pactum commissorium. Now the
authorities are unanimous that while this
species of pact is allowed
in sale, it is illegal in pledge as being unduly oppressive to
debtors. This has been the law ever
since the time of the Emperor
Constantine (C.8.35.L. ult.). Voet (20.1.25) expresses the view
which has prevailed since then with
clearness and force. After
stating that such a pact in the contract of pledge, and hypothec was
reprobated by Constantine as being
harsh and replete with injustice,
he proceeds to say (Berwick's translation): ‘Inasmuch as if it
might be agreed that when
a debt is not paid within a certain time
the creditor is to retain (as his own) the thing pledged for the
debt, things of the greatest
importance and value would often be
ceded in payment of a very trifling debt; the debtor, needy and
pressed by the straightened
condition of his pecuniary circumstances,
readily submitting to the insertion of hard and inhuman conditions
(in the bond) and
holding out to himself the promise of better times
and fortune before the arrival of the day fixed by the pactum
commissorium,
and hoping that the asperity of the pact will be
averted from him by payment; a slippery and fallacious hope, however,
to which
the event not rarely fails to respond. Nor does it matter
whether such a pact has been interposed at the very time that the
pledge
or hypothec was created, or after an interval; because, so
long as the same straitened circumstances of the debtor continue, a
creditor can easily extort this hard condition from the untimely or
at least grave difficulties of the unfortunate debtor, whatever
may
have been the reason for delaying and avoiding the exaction of the
debt; so that therefore the reason of inequity argues just
as
strongly for the nullity of this pact when made after an interval.’
[37] It is clear
that an important reason for the common law proscription is that such
an agreement is oppressive to the borrower
because his position is
weaker than that of the lender at the time when the agreement is
entered into and such an agreement gives
to the lender the unfair
advantage of being able to take for himself property far in excess of
the quantum of the loan when the
date for the payment of the loan
arrives and the borrower is unable to repay; cf. Meyer v Hessling
1992 (3) SA 851 (NmS) at 863J-864A.
As Cloete JA noted in Graf v
Buechel 2003 (4) SA 378 (SCA), [2003] 2 All SA 123, at para 16, the
rule laid down by Constantine
was ‘aimed at a dangerous
tendency’ and not at particular cases. The particular tendency
in question is just as apparent
in the type of transaction
constituted by the contracts executed by the respondent and the
appellant as it is in a pledge with
a pactum commissorium. The
rationale in the common law proscription is wholly reconcilable with
the constitutional values of human
dignity, fairness and
reasonableness in the sense discussed in the Constitutional Court’s
judgments in Barkhuizen v Napier
2007 (5) SA 323 (CC), 2007 (7) BCLR
691 and helpfully elucidated by Harms DP in Bredenkamp and Others v
Standard Bank of South
Africa Ltd 2010 (4) SA 468 (SCA).
[38] In the light of
the conclusion that the transaction was void by virtue of its being
contrary to public policy it is strictly
unnecessary to determine the
lack of consensus issue. I shall, however, deal briefly with it to
do justice to the detailed arguments
that were addressed to us on the
point.
[39] The
respondent’s counsel relied on Sonap Petroleum (SA) (Pty) Ltd
(formerly known as Sonarep (SA) (Pty) Ltd) v Pappadogianis
1992 (3)
SA 234 (A) in support of his abovementioned argument that there had
been a lack of contractual consensus between the parties.
In Sonap,
Harms AJA confirmed that there was a duty on a contracting party to
speak up when he was, or reasonably should have
been, aware that the
offer presented by the other party was probably mistaken and did not
represent the offeror’s true contractual
intention. The learned
judge expressed the position thus, at p. 241A-D:
If he realised (or
should have realised as a reasonable man) that there was a real
possibility of a mistake in the offer, he would
have had a duty to
speak and to enquire whether the expressed offer was the intended
offer. Only thereafter could he accept. Support
for this can be found
in Sherry v Moss (WLD 3 September 1952, unreported) but quoted by
Ellison Kahn (op cit [Contract and Mercantile
Law through the Cases
2nd ed vol 1] at 302) and Slavin's Packaging Ltd v Anglo African
Shipping Co Ltd 1989 (1) SA 337 (W) at 342I-343E.
Goudsmit
Pandecten-Systeem I para 52 at 119 states in this context: ‘Dolus
malus kan ook zwijgen zijn, waar spreken plicht
is.’ De Wet and
Yeats Kontraktereg en Handelsreg 4th ed at 10 are of the view that
‘(v)erder bestaan daar geen gegronde
rede waarom iemand deur 'n
verklaring verbind moet wees indien die ander moes geweet of vermoed
het dat eersgenoemde waarskynlik
nie bedoel het wat hy gesê
het nie . . ’. See also Hartog v Colin & Shields [1939] 3
All ER 566 (KB); Solle v Butcher
[1950] 1 KB 671 at 692-3. Asser (op
cit [Verbinternissenrecht part II (1985)] at 153) states that a
contract is voidable if ‘de
wederpartij in verband met hetgeen
zij omtrent de dwaling wist of behoorde te weten, de dwalende had
behoren in te lichten’.
The snapping up of a bargain in the
knowledge of such a possibility would not be bona fide. Whether there
is a duty to speak will
obviously depend on the facts of each case.
Compare Diedericks v Minister of Lands 1964 (1) SA 49 (N) at 54,
57G-H.
The legal
consequence of a failure by the other party to speak up when it
reasonably should have done so, is that the mistaken party
is not
bound by what it appeared to have agreed.
[40] We were not
referred to any authority in which the principles reflected in the
Sonap judgment were applied to release a party
from the consequences
of his signature to a contract on the basis contended for in the
current case. In the current case the respondent
executed deeds of
contract which boldly proclaimed their character as agreements of
sale and lease, respectively. She placed her
signature on the deeds
in places that clearly indicated that she was doing so as seller or
lessee. Her position differed fundamentally
from that of a
contracting party that signs an agreement which contains a provision
that a party in his position entering into
the type of contract in
question would not ordinarily have expected to have been inserted –
for example the provision in
a contract for a space at an exhibition
to be held on given dates boldly indicated in the heading to the
agreement that the exhibition
organiser could, notwithstanding the
indicated dates, hold it at any other time of his choosing and the
exhibitor would in such
event remain bound by the contract
(Spindrifter (Pty) Ltd v Lester Donovan (Pty) Ltd 1986 (1) SA 303
(A)), or a term in a contract
of post dispute insurance, in terms of
which the premium would be payable only if the insured were
successful in pending litigation,
that provided the insured would
nevertheless be liable for the payment of the premium if the insurer
exercised a right to resile
from the contract before the risk insured
against could eventuate (Constantia Insurance Co Ltd v Compusource
(Pty) Ltd 2005 (4)
SA 345 (SCA)). In Sonap, the contract concerned
the regularisation of arrangements concerning a previously agreed
upon 20 year
lease. The deed of contract executed by the parties,
however, referred to a 15 year lease. It was held that the party who
signed
the document knowing of the change should reasonably have
suspected that the other party might not have been astute to the
ostensible
reduction in the period of the lease and should have
spoken up. In the current case the appellant had no reason not to
accept
that by her signature to the deeds of sale and lease the
respondent intended to enter into the relevant transactions. The
onerous
and exploitative character of the terms of the transaction
effected by the contracts was starkly obvious, and not at all
concealed.
As mentioned, the appellant’s understandable unease
was about the legitimacy of such a transaction because of its
character.
That is something quite different from a reasonable
apprehension that the other party was not astute to some incongruous
provision
in the contracts and had executed the deed ignorant of its
presence.
[41] Thus, if the
determination of the appeal had turned on the Sonap principle based
argument that the respondent was excepted
in the particular
circumstances from the operation of the caveat subscriptor rule, I
would have found against the respondent.
[42] It remains to
consider what the effect of the voidness of the transaction is on the
transfer of the property into the appellant’s
name. The
invalidity of the underlying sale agreement did not necessarily
entail the invalidity of the transfer of the property.
[43] It is now
authoritatively established that the abstract, as distinct from the
causal, theory of transfer of ownership is applicable
to the
alienation of immovable property. As Brand JA noted in Legator
McKenna Inc and Another v Shea and Others 2010 (1) SA 35
(SCA) at
para 22, ‘In accordance with the abstract theory the
requirements for the passing of ownership are twofold, namely
delivery - which in the case of immovable property is effected by
registration of transfer in the deeds office - coupled with a
so-called real agreement or “saaklike ooreenkoms”. The
essential elements of the real agreement are an intention on
the part
of the transferor to transfer ownership and the intention of the
transferee to become the owner of the property (see eg
Air-Kel (Edms)
Bpk h/a Merkel Motors v Bodenstein en 'n Ander 1980 (3) SA 917 (A) at
922E - F; Dreyer and Another NNO v AXZS Industries
(Pty) Ltd [2006
(5) SA 548 (SCA), [2006] 3 All SA 219] in para 17). Broadly stated,
the principles applicable to agreements in
general also apply to real
agreements. Although the abstract theory does not require a valid
underlying contract, eg sale, ownership
will not pass - despite
registration of transfer - if there is a defect in the real agreement
(see eg Preller and Others v Jordaan
1956 (1) SA 483 (A) at 496)’.
[44] It is clear
that the respondent did not fully appreciate that the effect of the
tenor of the deeds of contract that she executed
was the alienation
of her property. It is also clear that she did not intend thereby
that ownership of the property be transferred
to the appellant. Her
intention was to pledge the property as security for the loan that
she understood was being advanced to
her son. In the circumstances
ownership of the property did not pass to the appellant
notwithstanding registration of transfer.
[45] This conclusion
requires us to consider the appellant’s contingent claim in
reconvention. The trial court gave no reason
for its decision that
the respondent was not required to make any form of restitution to
the appellant in respect of the purchase
price paid by him. Had the
court concluded that the agreement was unlawful by reason of being
contrary to public policy it might
have justified its decision on the
basis of the in pari delicto rule, but that was not its approach.
The transaction in question
is not merely contractually
unenforceable, it is void for being indistinguishable in character
from that proscribed at common law.
Performance having been given on
both sides, the appellant’s contingent claim in reconvention,
which is in the nature of
an unjust enrichment claim, falls to be
determined applying the equitable approach described in Jajbhay v
Cassim 1939 AD 537, that
is to do simple justice between the parties.
[46] In my judgment
the respondent did not benefit from and was not enriched by the
amounts deducted from the purchase price in
respect of the grant of
the option (in reality the commission paid to Property Rescue), the
transfer costs and the insurance premium.
These amounts totalled R72
500. The net proceeds that were in the result liable to be paid to
the respondent from the sum of
R275 000 paid by the appellant to the
conveyancing attorneys were in the sum of R202 500. The difference
between that amount and
the total of R178 598 paid to the
respondent’s son, essentially at the respondent’s
instance or with her acquiescence,
was accounted for by the costs of
the cession and related bridging finance arrangements described in
paragraph [15], above. The
appellant was a stranger to those
arrangements and there is no reason to reject his evidence that he
had been ignorant of them.
It would not be appropriate to take their
effect into account for the purpose of quantifying the extent of the
respondent’s
enrichment at the appellant’s expense. The
respondent’s counsel submitted that the interest earned on the
sum of R275
000 paid into trust by the appellant pending transfer of
the property into his name should be taken into account in reduction
of
the extent of the amount of the respondent’s enrichment.
There is no merit in the submission. The interest in question was
earned on the appellant’s funds before any notional entitlement
thereto accrued to the respondent and it does not fall to
be computed
in the respective enrichment or impoverishment of the two parties.
[47] The
respondent’s counsel also contended that the pleading of the
contingent claim in reconvention was defective. He
submitted that
the claim had been pleaded as a condictio sine causa, whereas it
should have been pleaded as a condictio ob turpem
vel iniustam
causam. Technically, the criticism is probably sound, but I do not
consider that it should make any practical difference.
The claim was
premised on a finding by the court that the transaction was of no
legal effect. As long as the court is astute
in determining the
claim to the public policy considerations that should inform its
decision of a condictio ob turpem causam as
distinct from one sine
causa, no harm is done by dealing with the claim as if it had been
properly pleaded. Certainly, there is
no prejudice to the respondent
in doing so in the circumstances of the current case.
[48] In my judgment
the trial court erred in not upholding the appellant’s
contingent claim in reconvention. Applying the
approach enjoined in
Jajbhay v Cassim supra, it should have made an award in his favour in
the sum of R202 500. The amount of
the award being subject to
equitable determination, the claim was thus not one that properly
could be characterised as liquidated
before judgment was given.
Interest will therefore be payable only as from date of judgment to
date of payment.
[49] The last issue
to be dealt with concerns costs. The trial court allowed the
evidence of a number of witnesses who had been
involved in similar
transactions through Property Rescue to be adduced. The appellant’s
counsel had objected to the evidence
on grounds of lack of relevance,
but notwithstanding these objections the court allowed the evidence
‘provisionally’.
In his judgment the trial judge
correctly decided to have no regard to this ‘similar fact’
evidence. The length of
the trial was unnecessarily extended by
reason of the leading of the evidence, but the judge declined to
penalise the respondent
in costs. The appellant submitted that the
judge’s decision in this respect was misdirected and that we
should interfere
with it on appeal irrespective of the result on the
merits.
[50] It is trite
that costs are a matter within the discretion of the trial judge and
that an appellate court will interfere with
a decision on costs only
if there has been a material misdirection, or if the discretion has
not been exercised judicially. In
my judgment the judicial exercise
of a discretion against giving the appellant the benefit of his
objections to the leading of
irrelevant evidence would entail the
giving of cogent reasons for what on the face of it is a
counterintuitive decision. The judgment
of the court below is
signally lacking in any reasoning in support of its decision to allow
the respondent the costs incurred in
the leading of evidence that
should have been disallowed and to which objection had been raised by
the appellant. In the absence
of such reasoning, the decision
appears to me to have been arbitrary. I consider that this is a case
in which we can therefore
legitimately intervene. The evidence
should not have been allowed and the appellant’s objections to
its being led should
have been upheld. I can conceive of no reason
why the appellant should have been ordered to pay the respondent’s
costs incurred
in the futile extension of the trial occasioned by the
irrelevant evidence. In my view the trial court should either have
limited
the extent of the appellant’s liability for the
respondent’s costs or have disallowed the costs attendant on
the time
taken up by the irrelevant evidence.
[51] In the current
case the fact that the appellant should have substantially succeeded
in his claim in reconvention was a further
factor that should have
informed which course to follow on costs. The claim in reconvention
was inextricably bound up in the fate
of the claim in convention and
its outcome therefore did not lend itself to the making of discrete
orders in respect of the costs
in convention and in reconvention.
The taxing master would find it an impossible task to determine with
regard to the costs incurred
in the hearing what should be allocated
as between claim in convention and claim in reconvention. The trial
may be taken for taxation
purposes to have been run concurrently and
indivisibly in respect of the claim and the contingent counterclaim.
[52] The most
appropriate course in the peculiar circumstances in the context of
the appellant’s success with his contingent
claim in
reconvention and the time wasted as a result of the respondent having
insisted against the appellant’s objections
in leading
irrelevant evidence would have been to make no order as to the costs
of the claim in reconvention and to direct that
the appellant be
liable for a substantial portion, but not all, of the respondent’s
costs in the claim in convention. Such
an order would justly reflect
the effect of the substantial success achieved by the respondent and
the partial success achieved
by the appellant. In my view the
appellant should have been ordered to pay 75% of the respondent’s
costs of suit in the
court below. The trial court should not have
made a declaration about necessary witnesses; see Transnet Ltd. t/a
Metrorail and
Another v Witter 2008 (6) SA 549 (SCA); [2009] 1 All SA
164, in para 19.
[53] The balance of
success in the appeal is also substantially in favour of the
respondent, but it would be appropriate to mark
the partial success
achieved by the appellant on appeal in respect of his contingent
claim in reconvention by directing that he
be liable only for a
substantial portion, rather than the whole, of the respondent’s
costs.
[54] The
abovementioned conduct of Messrs Schipper and Fourie concerning the
dealing with the money deposited in trust by the appellant
and the
failure by Schipper, as the attorney supervising the conclusion of
the agreements, to disclose to the respondent his interest
in
Propfund and the profit he stood to make out of the transaction
merits investigation by the Law Society. The Registrar will
therefore be directed to refer a copy of this judgment to the Law
Society.
5
Furthermore, Capcon Finance (Pty) Ltd t/a Propfund’s role in
extending credit to persons under the scheme involved in this
matter
seems to us irreconcilable on the face of it with the conduct of a
responsible registered credit provider in terms of the
National
Credit Act. The loans are extended to persons unlikely to be able to
afford to them.
6
The matter deserves the attention of the National Credit Regulator,
to be dealt with in terms of s 15 of the Act.
[55] In the result
the following orders are made:
1. The orders made
by the trial court are set aside and substituted by the following:
(a) It is declared
that the transaction constituted by the deeds of sale and lease
executed by the appellant and the respondent
on 10 December 2009 is
contrary to public policy and the agreements were thus void ab
initio.
(b) It is declared
that the deed of transfer (T 010752/10) in terms of which title to
Erf 6112, Bellville was conveyed from the
respondent, Engela Johanna
Lambrechts (ID Number 380626 0073 082) to the appellant, John Morley
(ID Number 470322 5077 085), shall
be cancelled and the Registrar of
Deeds, Cape Town is directed to give effect to this declaration in
the manner and with the effect
contemplated in terms of s 6 of the
Deeds Registries Act 47 of 1937. (The right of the Registrar of
Deeds to require confirmation
of this Order in the sense contemplated
by s 97(2) of the said Act, if he considers it meet, is reserved.)
(c) The respondent’s
attorney of record is directed to serve a copy of this Order on the
Registrar of Deeds within 10 days
of the date of this judgment and to
file of record an affidavit confirming that compliance with this
direction has been effected.
(d) The respondent
is ordered to pay the appellant the sum of R202 500 in satisfaction
of the appellant’s contingent claim
in reconvention, together
with interest thereon at the prescribed rate of 9% per annum from
date of judgment to date of payment.
(e) The appellant is
ordered to pay 75% of the respondent’s costs of suit in respect
of the claim in convention.
(f) No order as to
costs is made in respect of the appellant’s contingent claim in
reconvention.
2. Save as provided
in terms of paragraph 1, the appeal is dismissed.
3. The appellant is
ordered to pay 75% of the respondent’s costs in the appeal,
which shall include the costs of the applications
for leave to
appeal.
4. The Registrar is
directed to forward a copy of this judgment to the Director of the
Cape Law Society and to the Chief Executive
Officer of the National
Credit Regulator for their attention in terms of paragraph 54 of this
judgment.
A.G. BINNS-WARD
Judge of the High
Court
We concur:
C.M. FORTUIN
Judge of the High
Court
R.C.A. HENNEY
Judge of the High
Court
1
The
appellant had been involved in five such transactions through the
offices of Property Rescue and an attorney, Mr Arno Schipper
of C&A
Friedlander Inc., and the seller had not exercised the option to
repurchase in a single one of them.
2
The
evidence suggests that Schipper subsequently became a consultant at
the firm.
3
At
para [10].
4
‘
I
f
there is one thing which, more than another, public policy requires,
it is that men of full age and competent understanding
shall have
the utmost liberty of contracting, and that their contracts, when
entered into freely and voluntarily, shall be held
sacred and shall
be enforced by courts of justice.’
5
See
para 15, 16 and 27, above.
6
See
s 81(3) of the National Credit Act.