In this issue Commercial Law Reports...The Law Publisher CC CK92/26137/23 Part 1 (2018) Commercial Law Reports Consulting Editorial Board: The Honourable RH Zulman BCom LLB LLM, Former

The Law Publisher CC CK92/26137/23

Part 1 (2018)

Commercial Law Reports

Consulting Editorial Board:The Honourable RH Zulman BCom LLB LLM, Former Judge of theSupreme Court of Appeal, The Honourable FR Malan BA LLD,Judge of the Supreme Court of Appeal, The Honourable P LevinsohnBA LLB, Former Deputy Judge President of the Kwazulu NatalProvincial Division, The Honourable S Selikowitz BA LLB, FormerJudge of the High CourtEditor: M Stranex BA LLB, Advocate of the High Court of South Africa

CONTENTSESQUIRE CONSULTING AND MARKETING CC v SEA GLADESHOLDINGS (PTY) LTD (SCA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1A later decision to allow the rezoning not necessarily void merely because itis made more than two years after granting of subdivisionADVERTISING STANDARDS AUTHORITY v HERBEX (SCA) . . 13The Advertising Authority of South Africa’s jurisdiction in respect of a personor entity who is not a member of the ASATHE CHEMICAL INDUSTRIES NATIONAL PROVIDENT FUND vTRISTAR INVESTMENTS (PTY) LTD (SCA) . . . . . . . . . . . . . . . . 22Rules internal to an organisation which regulate the conclusion andperformance of agreements with third parties are not binding on third partiesCRADLE CITY (PTY) LTD v LINDLEY FARM 528 (PTY) LTD (SCA) 32Application of the exceptio non adimpleti contractus in respect of anaddendum to a sale agreement amending the obligation of one of the partiesKANIAH v WPC LOGISTICS (JOBURG) CC (KZD) . . . . . . . . . . . 47Circumstances in which a person aggrieved by a decision of a liquidator toterminate an action brought by the liquidator may proceed with the actionTUDOR HOTEL BRASSERIE & BAR (PTY) LTD v HENCETRADE 15(PTY) LTD (SCA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Advertising - limits of jurisdiction of authority Contract- authority to bind - exceptio non adimpleticontractus - ultra vires rule Exceptio nonadimpleti contractus - tenant's right to withholdrent Lease - tenant's right to withhold rent Liquidator - terminating action Local authority -rezoning of land - subdivision of land Member -aggrieved by liquidator Sale of fixed property -vacant occupation

In this issue

ESQUIRE CONSULTING AND MARKETING CC v SEAGLADES HOLDINGS (PTY) LTD

A later decision to allow the rezoning not necessarily void merely because itis made more than two years after granting of subdivision

Judgment given in the Supreme Court of Appeal on 30 November 2017 byLeach JA (Ponnan JA, Bosielo JA, Mathopo JA and Ploos van Amstel AJAconcurring)

Esquire Consulting and Marketing CC and the other appellants, and SeaGlades Holdings (Pty) Ltd owned properties at the St Francis Bay Marina atSt Francis Bay in the Eastern Cape.

Sea Glades wished to develop a portion of property in order to extend thealready existing St Francis Marina. Its proposal, known as the Marina Villagedevelopment, involved the excavation and construction of a canal linking intoan existing canal of an earlier development of the Marina, the creation of anisland surrounded by water and the subdivision of the property into variousmostly residential erven. In order to give effect to this proposed development,it applied to the municipality under section 16 of the Land Use PlanningOrdinance (no 15 of 1985), Cape, for a rezoning of the land it wished todevelop and, under section 24 for the subdivision of the property.

The municipality approved the subdivision but deferred the rezoningapplication for later decision. Sea Glades assumed the Marina Villagedevelopment had been finally approved. It proceeded to construct thenecessary canals to extend the marina, subdivided the erven in terms of theapproval, built roads, laid on infrastructure such as water, sewage anddrainage.

Some three years later, by way of a fresh application, Sea Glades applied tothe municipality for two properties, erven 3306 and 3295, to be rezoned as‘Business Zone II’. At a meeting of its Standing Committee for Works,Planning and Development held on 24 August 2004, a recommendation toapprove the rezoning of erf 3306 was passed. The minutes of the meetingrecorded that reference was made to the decision of December 2001, that ‘theCouncil had referred the proposed Business Zone . . . back subject to formalapplication and Site Development Plans indicating proposed uses beingsubmitted’ and that the subsequent application for rezoning had therefore beensubmitted for that purpose. This application was then approved by themunicipality.

As a result of disputes which had arisen between property owners in MarinaVillage, a ‘settlement agreement’ was concluded between Sea Glades and theMarina Village Homeowners Association. The Association was represented

324 ESQUIRE CONSULTING AND MARKETING v SEA GLADES HOLDINGSLEACH JA 2018 SACLR 1 (A)

at the time by the second appellant who was also a landowner in the MarinaVillage.

When it was learnt that a restaurant was being built on erf 3396, Esquireobjected to this as ‘an unlawful invasion of the appellants’ privacy and rightto peaceful and undisturbed possession of their properties’ likely to disturb thetranquil atmosphere of the ‘peaceful residential character of Marina Villageand surrounding residential properties’.

Esquire contended that a ‘standard’ rezoning had taken place, ie one inwhich there was no related subdivision – in contrast to a rezoning in terms ofa substitution scheme in which there is always a related subdivision of theproperty concerned. Section 16(2)(a)(i) of the Ordinance, which deals withstandard rezonings, provides that such a rezoning lapses within a period of twoyears in the event of the land concerned not being ‘utilised as permitted interms of the zoning granted by the said rezoning’ within that period. As erf3306 had not been utilised for business purposes within two years from thedate of its rezoning for business purposes in September 2004, such rezoninghad lapsed. The construction of a restaurant was consequently illegal in that itoffended the municipal zoning scheme in terms of which the property waszoned as residential.

Esquire applied for an order interdicting Sea Glades from conducting anybusiness whatsoever on erf 3306.

Held—Although the subdivision and rezoning was approved in respect of certain

of the properties, the simultaneous applications for subdivision and rezoningrelating to erven 3306 and 3295 were effectively postponed for a final decisionthereon to be taken later. It was significant that the municipality, in consideringthe subsequent rezoning application, considered it to be part of the initialapplication for rezoning that had been determined together with thesubdivision application in December 2001. This was clear from the meetingof its Standing Committee for Works, Planning and Development held on 24August 2004. In these circumstances it would be splitting technical hairs, tohold that the subsequent application was a wholly fresh proceeding and did notform part of the initial application.

Accordingly, the decision to approve the rezoning of erf 3306 broughtfinality in respect of the earlier application for subdivision that, for all practicalpurposes, had been approved in principle some three years earlier, and then puton hold by reason of there being no finality in respect of the rezoning of erven3306 and 3295. In these circumstances, the argument that subdivision of erf3306 had been effected earlier, so that the subsequent application for rezoning

ESQUIRE CONSULTING AND MARKETING v SEA GLADES HOLDINGS 325LEACH JA 2018 SACLR 1 (A)

was a standard rezoning application attracting the provisions of section 16(2)of LUPO, had to fail.

Advocate J P Vorster SC instructed by Stockenström Fouché Inc, Pretoria,appeared for the appellantsAdvocate G J Friedman instructed by Friedman Scheckter Attorneys, PortElizabeth, appeared for the respondents

Leach JA:[1] The principal issue that has to be decided in this matter is whetherthe immovable property owned by the first respondent and more fullydescribed as erf 3306 Sea Vista, in the Kouga Municipality (erf 3306)is zoned for business purposes under the Land Use Planning Ordinance15 of 1985, Cape (LUPO). The appellants contend it is not and that therespondents ought therefore to have been interdicted by the court a quofrom using it for a business purpose. The respondents adopt thecontrary standpoint. The outcome of this appeal turns on the resolutionof this issue.[2] The appellants are either the owners of immovable property, or thetrustees of trusts which own immovable property, in what is known asMarina Village, in which erf 3306 is also situated. Marina Village, inturn, forms part of the well known St Francis Bay Marina at St FrancisBay, Eastern Cape. The development of Marina Village, which isdescribed as being the final phase of the St Francis Bay Marina, wascarried out by the first respondent which appears to be the alter ego ofits managing director, the second respondent. The first respondent isalso the registered owner of erf 3306.[3] In December 2015, the appellants applied to the Eastern CapeDivision of the High Court, Port Elizabeth for an order interdicting andrestraining the respondents from conducting any business whatsoeveron erf 3306. They alleged that the first and second respondents were inthe process of establishing a restaurant business on erf 3306 which,they alleged, was contrary to the existing town planning scheme andzoning of the property. At the same time, they sought an orderinterdicting the fourth respondent, the Eastern Cape Liquor Board, fromissuing the first and second respondents with a liquor licence for the


premises. The third respondent, the Kouga Municipality, within whosemunicipal area the St Francis Bay Marina falls, was also joined as aninterested party although no relief was sought against it. Forconvenience, I intend to refer to the third respondent simply as ‘themunicipality’. Both it and the fourth respondent played no active parteither in the proceedings in the court a quo or before this Court.[4] Although the appellants initially sought interim urgent relief, thiswas later abandoned and by the time the matter came before the courta quo they sought final relief. This was strenuously opposed by the firstand second respondents. The court a quo ultimately concluded that theappellants had not established that it was unlawful to conduct arestaurant on the erf in question in terms of its current zoning.Accordingly, it dismissed the appellants’ application with costs,although it subsequently granted leave to appeal to this Court. [5] To resolve the current dispute regard must be had to the history oferf 3306. In many respects, this history is shrouded in mystery due todeficiencies in the papers filed in the proceedings, but what can begleaned from what was alleged is the following. What is now known asMarina Village originally formed part of what was more fully describedas ‘The Remainder of Portion 32 of the Farm Goedgeloof No 745, StFrancis Bay’, a property zoned for agricultural use. The first respondentdesired to develop a portion of this farm in order to extend the alreadyexisting St Francis Marina. Its proposal in this regard involved theexcavation and construction of a canal linking into an existing canal ofan earlier development of the Marina; the creation of an islandsurrounded by water; and the subdivision of the property into variouserven, mostly residential. [6] In order to give effect to this proposed development, the firstrespondent applied to the municipality under s 16 of LUPO for arezoning of the land it wished to develop and, under s 24 of LUPO, forthe subdivision of the property. I should immediately record that ss22(1)(a) of LUPO provides that no application for subdivisioninvolving a change of zoning may be considered ‘unless and until theland concerned has been zoned in the manner permitting ofsubdivision’, But s 22(1)(b) goes on to provide that this shall notpreclude applications for rezoning and subdivision being consideredsimultaneously. The first respondent therefore simultaneously applied


for subdivision and rezoning. These applications appear to have beensupported, inter alia, by a drawing dated September 2001 bearing thenumber SFM/LH/501. Unfortunately neither the applications nor thisdrawing were included in the papers filed in the court below, but thefirst respondent’s allegation in a supplementary affidavit (p 266) thatsuch plan was identical to a plan annexure NLH 12 (p 271) datedAugust 2003, is not disputed (all the appellants disputed was that thislatter plan was not attached to the 2001 applications, which in the lightof it being dated 2003 is obvious). As appears from this plan, therespondents sought the sub-division of the land it wished to developand its rezoning to reflect 148 erven (62 canal erven and 86 non-canalerven) to be zoned as residential, one canal erf and two private spaceerven to be zoned as ‘Open Space II’, various roads to be zoned as‘Transport Zone II’ and two further erven (reflected on the plan as thedisputed erf 3306 as well as erf 3295) to be zoned as ‘Business ZoneII’. Of the 148 residential erven, it appears that the respondent appliedfor certain of them to be zoned as ‘Residential Zone I’ and others as‘Residential Zone II’ but these details are unknown and are not relevantto the present dispute.[7] In any event, on 13 December 2001 the municipality consideredthese applications and resolved as follows:

‘(i) That the subdivision of a Portion of the Remainder of Portion 32of the Farm Goedgeloof No 745 be approved in terms of Section 25of Ordinance 15 of 1985 the Land Use Planning Ordinance subject tothe following conditions:(a) The subdivision be according to drawing No SFM/LH/501 datedSeptember 2001 subject to condition (b):(b) That the subdivision makes provisions for the following landuses:

1. Residential Zone I- 62 Canal erven – average size – 117m2- 86 Non-canal erven – average size – 899.3m22. Open Space Zone II- 1 Canal Erf- 2 Private Open Space Erven3. Transport Zone II


- Roads. . . (ii) That the land use applications for Residential Zone II andBusiness Zone II be deferred in order to obtain more detail thereonfrom the applicant . . .’

[8] Quite what happened in respect of the application to rezone certainof the erven as ‘residential zone two’ is uncertain but, as I said, thoseerven are of no relevance to the present dispute. What is of importancein regard to erven 3306 and 3295, is that the decision to defer theirzoning flies in the face of ss 22(1)(a) of LUPO which, as alreadymentioned, provides that no application for subdivision involving achange of zoning may be granted until the land concerned has beenzoned ‘in a manner permitting of subdivision’. In the case of those twoerven the municipality put the cart before the horse, so to speak, by firstgranting the subdivision and leaving the rezoning for later decision. Bethat as it may, the legality of this resolution has never been challengedand, on the strength of well-known authority, the municipality’sadministrative decision in this regard must stand. [9] Armed with this resolution, the respondents proceeded to constructthe necessary canals to extend the marina, subdivided the erven interms of the approval, built roads, laid on infrastructure such as water,sewage and drainage, and generally conducted themselves as if theMarina Village development had been finally approved. But of courseit had not and there was still the unresolved question of the zoning oferven 3306 and 3295. [10] To deal with this, instead of amplifying their already existingapplication for rezoning, the respondents, by way of a fresh application,applied to the municipality for those erven to be rezoned as ‘BusinessZone II’. This application was eventually approved by the municipalityon 23 September 2004. By the time this was done, the provision of bulkservices necessary for the development had already been provided,subdivision of the erven had taken place and at least certain of theresidential properties had been sold to new owners. Pursuant to therezoning in September 2004, the general plan of the subdivision of thedevelopment was finally approved on 17 October 2005.[11] The first and second respondents submitted various sitedevelopment plans for Marina Village, and in April 2006 the


municipality further approved a site development plan for the propertyinvolving a mixture of land uses. In respect of erf 3306 the planreflected mooring jetties being provided in a mooring basin created outof a large segment of the erf immediately adjacent to a canal beingsubmerged under water. It also provided for fishermen’s cottages, aslipway, shops, a restaurant, a village square, an oyster bar, a boat clubhouse, and parking and loading facilities. Aerial photographs taken in2007 showed that although the mooring basin had been constructed bythen, no jetties had yet been installed. [12] As often happens in developments of this nature, disputes andtensions arose between the respondents, as developers, and landownersin their development. Although the precise troubles are not necessaryto detail, one dispute related to the provision of mooring facilities forlandowners. Eventually a so-called ‘settlement agreement’ wasconcluded between the first respondent and an organisation known asthe Marina Village Homeowners Association. The latter wasrepresented at the time by the second appellant in these proceedings; hebeing an attorney and landowner in the Marina Village (he is also theappellants’ attorney of record and he and his wife are the sole membersof the first appellant.) That agreement, dated 9 August 2008, dealt interalia with matters such as moorings to be erected on erf 3306 and theright of landowners in Marina Village to use such moorings, the sitedevelopment plan for erf 3306, and the right of the homeownersassociation to have access to the commercial, business and leisurefacilities developed on erf 3306. It was pursuant to this that floatingjetties came to be built in the mooring basin.[13] It is clear from the terms of this agreement that the secondappellant regarded erf 3306 as having been zoned for businesspurposes. However, in October 2015, when he learned that a restaurantwas being built on the property, he took offence to what he stated in thefounding affidavit was ‘an unlawful invasion of the appellants’ privacyand right to peaceful and undisturbed possession of their properties’likely to disturb the tranquil atmosphere of the ‘peaceful residentialcharacter of Marina Village and surrounding residential properties’ –all of which is somewhat rich when one knows that he had known foryears the property was zoned for business purposes. In any event, thesecond appellant immediately engaged the services of a town planner,


Mr C J J Els of Pretoria, and the two of them went to St Francis Bayand trawled through the records of the municipality to see if they couldfind a way to attempt to stop the development on erf 3306. Theythereafter consulted with senior counsel in Pretoria and prepared papersfor an urgent application in which they sought to interdict therespondents from proceeding with the construction of the restaurant. Atsome stage the other appellants were drawn in to support theapplication.[14] The argument the appellants came up with was this:

(a) The property had been subdivided by way of the municipalresolution of 21 December 2001; (b) By 23 September 2004 when the municipality approved therezoning of erf 3306, bulk services had been installed by therespondents and at least one land unit had been registered asenvisaged by s 27(1) of LUPO, so that the subdivision of 21December 2001 had by then already been deemed to be confirmedunder s 27(3); (c) In these circumstances the rezoning affected by themunicipality’s decision of 23 September 2004 was what the partiesreferred to as a ‘standard’ rezoning in which there was no relatedsubdivision – in contrast to a rezoning in terms of a substitutionscheme in which there is always a related subdivision of the propertyconcerned;(d) Section 16(2)(a)(i) of LUPO, which deals with standardrezonings, provides that such a rezoning lapses within a period of twoyears in the event of the land concerned not being ‘utilised aspermitted in terms of the zoning granted by the said rezoning’ withinthat period; (e) As erf 3306 had not been utilised for business purposes withintwo years from the date of its rezoning for business purposes inSeptember 2004, or so the appellants contended, such rezoning hadlapsed (of which they had been unaware until the second appellant’sinvestigations in November 2015); (f) The construction of a restaurant was consequently illegal in thatit offended the municipal zoning scheme in terms of which, so theargument went, the property was zoned as residential.

[15] On this basis the appellants contended that, as neighbouring


landowners, they had a clear right not to have a restaurant built in theirmidst which would be infringed if an interdict was not grantedpreventing its construction and use on erf 3306. In a well-consideredjudgment the court a quo, after having subjected the facts and thevarious provisions of LUPO to detailed scrutiny and analysis, rejectedthis argument. It is not necessary for present purposes to analyse itsjudgment, particularly as the appellants on appeal raised two essentialdisputes for this court’s decision – first, whether s 16(2)(a)(i) of LUPOwas of application as the appellants alleged and, secondly, whetherthere had in fact been a utilisation of erf 3306 for business purposesafter it had been rezoned for such use in 2004 as the respondentscontended. It was accepted that if either of these issues was decidedagainst the appellant, the appeal must fail.[16] The appellants’ argument in regard to the first of these issuesechoed that set out in para 14(a)-(c) above. I have difficulty with theargument that the entire subdivision and rezoning of erf 3306 waseffected by the municipality’s decision of 21 December 2001. It maywell be that the municipal resolution of that date was not challenged,and the rezoning and subdivision of, say, the residential erven may wellhave been confirmed under s 27(3), but I cannot accept that the samecan be said in respect of erf 3306. One cannot be blind to the fact thatthe rezoning of that erf was deferred by the municipality at that timeand, as I have already pointed out, LUPO requires the rezoning of aproperty to be effected either before or simultaneously with itssubdivision. To pretend that this had in effect been done, even thoughit had not, would sanction the very situation which the lawgiver hadwished to prevent, and undermine the principle of legality – compareCool Ideas 1186 CC v Hubbard & another 2014 (4) SA 474 (CC) paras52-53. Even if the decision of 21 December 2001 stands, I therefore donot see how the deeming provisions of s 27(3) LUPO can be applied toa subdivision not lawfully effected under the provisions of thatordinance.


[19] On this basis alone, as the two year period in s 16(2) upon whichthe appellants have hung their hat, does not apply, the appeal must fail.But for the sake of completeness, and even if that was not the case,there seems to me to have been a clear utilisation of erf 3306 aspermitted in terms of the business zoning before a period of two yearsfrom the rezoning for business had elapsed. [20] In this regard the appellants alleged in their founding affidavitdeposed to in 2015 that the erf ‘has not been used as a shop or as arestaurant until date hereof’ and that the construction work that hadbegun that year constituted ‘the first concrete indications of anintention by the first and second respondents to utilise erf 3306 for anyof the purposes authorised by “business zone II”’. Bearing in mind thats 2(xxx) of LUPO contains the definition that ‘“utilisation”, in relation


to land, means the use of land for purposes of the improvement of land,and “utilise” has a corresponding meaning’, this is a somewhatsimplistic view of what was in issue. In the light of this definition, evenif s 16(2) was of application, it was not necessary for the erf to havebeen used as a shop or as a restaurant during the two year period asalleged by the appellants – it was sufficient if the land was used forpurposes of improvement for use in terms of its permitted zoning. [21] And that is precisely what the respondents did. By 2004 it hadexcavated a substantial portion of the property to create the mooringbasin which effectively forms part of a canal that was created; by 2006the canal walls, required to accommodate the area of the restaurant, hadbeen constructed as had the foundations for the deck of the restaurantwhich is now been built; and by that time a wooden walk way had beenbuilt to join the restaurant deck. [22] The appellants argued that this evidence was unsatisfactory as ithad been forthcoming in supplementary affidavits filed at the eleventhhour. While that is so, the appellants never sought an opportunity torespond which they could easily have done had they disputed theallegations. But more importantly, as already mentioned it is commoncause that by 2004 the respondents had provided the basic amenitiesand infrastructure for the development, including erf 3306. They hadtherefore effected improvements upon that erf with the intention for itto be used for business purposes, as had been envisaged in the initialsimultaneous applications for rezoning and subdivision. [23] It was argued on behalf of the appellants that the fact that thisbasic infrastructure had been provided should be ignored as it had beenput in place before the application for rezoning was approved inSeptember 2004, whereas the only period of relevance was the two yearperiod immediately after that event. This argument cannot be accepted.The bulk services were provided to erf 3306 in the clear anticipationthat its ultimate rezoning would be approved, which it was. It seems tome to matter not that the infrastructure had been installed prior toapproval of the rezoning, which resulted in the respondents not havingto provide it thereafter. The fact remains that by the end of the two yearperiod relied upon by the appellants, the improvements had beeneffected as part of the development of the erf for the business purposesfor which it had been rezoned.


[24] In these circumstances the second issue relied upon by theappellants must be determined against them as well. They thereforefailed to prove their case that the building of a restaurant was unlawful,and their application was correctly dismissed by the court a quo.[25] The appeal is dismissed with costs.

THE ADVERTISING STANDARDS AUTHORITY v HERBEX(PTY) LTD

The Advertising Authority of South Africa’s jurisdiction in respect of a personor entity who is not a member of the ASA

Judgment given in the Supreme Court of Appeal on 29 September 2017 byMathopo JA (Navsa ADP, Plasket AJA, Rogers AJA and Schippers AJA)concurring)

The Advertising Authority of South Africa is voluntary associationincorporated in terms of the Companies Act (no 61 of 1973). Its purpose is toensure self-regulation in the advertising industry, and to ensure that advertisingis informative, factual, honest, decent, legal and that advertisements areprepared with a sense of responsibility to the consumer.

In achieving its purpose, the ASA adjudicates complaints on behalf of itsmembers, who agree to adhere to its Code and abide by the ASA’s rulings. TheCode applies to all commercial and non-commercial advertising. This includesadvertising by advertisers who are not members of the ASA, such as Herbex(Pty) Ltd, but who seek to have their advertisements published by members ofthe ASA.

The only consequence of a non-member’s refusal to comply with an ASAruling is that the members of the ASA will decline to accept advertising fromthat non-member. If a respondent ignores reasonable requests for co-operation,the ASA may issue an Ad-Alert to its members. The effect of an Ad-Alert isthat none of the ASA’s members will publish any advertisement of theoffending advertiser in any medium.

Pursuant to receipt of a complaint by a member of the public, Herbexresponded to complaints and participated and defended itself in hearingsconducted by or under the auspices of the ASA. Herbex contended that it wasinduced to do so by misleading statements and non-disclosures in the ASA’sstandard letter sent to advertisers, and that consequently, the ASA issuedrulings against Herbex, published them on its website and extracted appeal feesfrom Herbex. Herbex contended that he ASA thus acted unconstitutionally, inviolation of the rights of Herbex to freedom of expression and trade, and theASA’s rulings against Herbex adversely affected its reputation and damagedits business.

The ASA conceded that the Code bound only its members, thatnon-members such as Herbex were legally entitled to ignore the rulings andprocedures of the ASA, and that Herbex would be affected by a ruling of theASA only if it wished to place an advertisement with a member of the ASAwhich has bound itself to comply with the ASA’s rulings.

336 ADVERTISING STANDARDS AUTHORITY v HERBEX (PTY) LTDMATHOPO JA 2018 SACLR 13 (A)

Herbex brought an application for a declaratory order that the ASA had nojurisdiction over non-members and that all its rulings against Herbex werevoid. The court ordered that the ASA had ‘no jurisdiction over any person orentity who is not a member of the respondent and that the respondent may, inthe absence of a submission to its jurisdiction, not require Herbex to participatein its processes, issue any instruction, order or ruling against the applicant orsanction it’.

The ASA contended that the order was extraordinarily wide and curtailed itsability to perform its function of self-regulation of the advertising industry inthe public interest.

Held— Although the parties had reached agreement on the proper form of order, the

ASA had been compelled to appeal in order to reverse the wide-ranging effectof the court a quo’s order, particularly as regards the prohibition on the ASAfrom determining whether any advertisement breached the Code, so as toenable the ASA to determine, on behalf of its members, whether they shouldaccept an advertisement for publication or withdraw the advertisement if it hasbeen published.

A substituted order reflected a measure of success achieved by each of theparties. It would be just and equitable for each party to bear its own costs in theappeal. In consequence, the order of the court a quo was set aside andsubstituted with an order that the ASA had no jurisdiction over any person orentity who was not a member of the ASA and that the ASA could not, in theabsence of a submission to its jurisdiction, require non-members to participatein its processes, issue any instruction, order or ruling against the non-memberor sanction it. The ASA could consider and issue a ruling to its members(which was not binding on non-members) on any advertisement regardless ofby whom it was published to determine, on behalf of its members, whether itsmembers should accept any advertisement before it is published or shouldwithdraw any advertisement if it had been published.

Advocate G J Marcus SC and Advocate N Ferreira instructed by Willem deKlerk Attorneys, Johannesburg, appeared for the appellantAdvocate A Subel SC, Advocate S Stein SC, Advocate D Watson andAdvocate C Tabata instructed by Fluxmans Inc, Johannesburg, appeared forthe respondent

ADVERTISING STANDARDS AUTHORITY v HERBEX (PTY) LTD 337MATHOPO JA 2018 SACLR 13 (A)

Mathopo JA:[1] The central issue in this appeal is whether the appellant, theAdvertising Authority of South Africa (the ASA), has jurisdiction overpersons who are not its members and who have not consented to itsjurisdiction. The respondent (Herbex), which carries on businessmarketing complementary medicines, is not a member of the ASA.Herbex launched an application in the Gauteng Local Division of theHigh Court and obtained, inter alia, a declaratory order that the ASAhas no jurisdiction over non-members and that all its rulings againstHerbex are void. The appeal is with the leave of the high court.[2] During the hearing of the appeal the parties reached agreement inrelation to the merits and the order that should issue. They could notagree on who should bear the costs of the appeal and the costs in thecourt a quo. They asked this court, having regard to the agreed orderand the record of proceedings, to determine liability for costs in thecourt a quo and this Court. In order to engage in that exercise, it isnecessary to briefly set out the background to this matter.[3] The ASA is a voluntary association incorporated in terms of theCompanies Act 61 of 1973. It is an independent, industry-funded bodythat serves the purpose of self-regulation on behalf of the advertisingindustry. Its purpose, as a watchdog in the industry, is to ensure thatadvertising is informative, factual, honest, decent, legal and thatadvertisements are prepared with a sense of responsibility to theconsumer. [4] The ASA serves this purpose, on behalf of its members, throughtwo primary methods. First, the ASA has developed standards for theindustry, contained in the Advertising Code (the Code). The Code is acontract entered into between the participants in the advertisingindustry, for the purpose of self-regulation. Second, the ASA hascreated a mechanism to enforce these industry standards, including theadjudication of consumer complaints and disputes betweencompetitors.[5] The ASA adjudicates complaints on behalf of its members, whoagree to adhere to the Code and abide by the ASA’s rulings. The Codeapplies to all commercial and non-commercial advertising. Thisincludes advertising by advertisers who are not members of the ASA,such as Herbex, but who seek to have their advertisements published


by members of the ASA. The ASA’s Directorate is responsible forreceiving and adjudicating complaints concerning advertising in orderto ensure compliance with the Code. Any party who feels aggrieved bya ruling of the Directorate may appeal the ruling to the AdvertisingStandards Committee (in respect of consumer complaints) or to theAdvertising Industry Tribunal (in respect of competitor complaints).The appellant is required to pay a fee to cover the costs of the appeal.A further appeal lies to a Final Appeal Committee, also on payment ofa fee.[6] The rulings of the ASA are published on its website which isaccessible to members and the media. Rulings are not legallyenforceable against non-members. The only consequence of anon-member’s refusal to comply with an ASA ruling is that themembers of the ASA will decline to accept advertising from thatnon-member. If a respondent ignores reasonable requests forco-operation, the ASA may issue an Ad-Alert to its members. Theeffect of an Ad-Alert is that none of the ASA’s members will publishany advertisement of the offending advertiser in any medium.[7] Herbex challenged the ASA’s jurisdiction in the court a quoessentially on the following grounds. The ASA is a private companywhich has no jurisdiction over non-members. Herbex was induced bymisleading statements and non-disclosures in the ASA’s standard lettersent to advertisers, pursuant to receipt of a complaint by a member ofthe public, to respond to complaints and to participate and defend itselfin hearings conducted by or under the auspices of the ASA.Consequently, the ASA issued rulings against Herbex, published themon its website and extracted appeal fees from Herbex. The ASA wasacting unconstitutionally, in violation of the rights of Herbex tofreedom of expression and trade, and the ASA’s rulings against Herbexadversely affected its reputation and damaged its business. [8] In the court a quo and before us the ASA conceded that the Codebinds only its members; that non-members such as Herbex are legallyentitled to ignore the rulings and procedures of the ASA; and thatHerbex would be affected by a ruling of the ASA only if it wished toplace an advertisement with a member of the ASA which has bounditself to comply with the ASA’s rulings (something which on theevidence Herbex has never sought to do). The ASA denied that Herbex


was misled into believing that the ASA is a governmental body, that itexercises statutory powers and that its letters were in any waymisleading. The ASA also denied any infringement of Herbex’sfundamental rights in the enforcement of the Code. [9] Herbex succeeded in the court a quo which made the followingorder:

‘[90.1] It is declared that the respondent [the ASA] has nojurisdiction over any person or entity who is not a member of therespondent and that the respondent may, in the absence of asubmission to its jurisdiction, not require the applicant [Herbex] toparticipate in its processes, issue any instruction, order or rulingagainst the applicant or sanction it; [90.2] It is declared that all rulings issued by the respondent againstthe applicant are void; [90.3] The respondent is directed to remove from its website andother official publications all rulings issued in respect of theapplicant; [90.4] The respondent is interdicted, in the absence of a submissionto its jurisdiction, from issuing any further rulings or adjudicating anyfurther complaint against the applicant; [90.5] The respondent is directed to include in it standard letters ofcomplaint to non-members a reference to the fact that, in the absenceof a submission to his jurisdiction, it has no jurisdiction to adjudicatethe complaint and that such a non-member is not bound to participatein its processes; [90.6] It is declared that there is no lawful basis for the respondentto unilaterally impose appeal fees on the applicant as a non-memberof the respondent in the absence of a contractual service agreementbetween the applicant and the respondent;[90.7] The respondent is directed to repay the appeal fees in theamount of R79 800.00 and R89 718.00 to the applicant, together withinterest at the prescribed rate a tempore morae;[90.8] The respondent is to pay the costs of the application,including the costs consequent upon the employment of two counsel.’

[10] Before agreement was reached in this court on the form of theorder, the dispute between the parties related mainly to the question


whether paragraph 90.1 of the order of the court a quo was over-broad,and the content of the ASA’s standard letter sent to advertisers onreceipt of a complaint. It was submitted on behalf of the ASA thatparagraph 90.1 of the order of the court a quo was extraordinarily wideand curtailed the ASA’s ability to perform its function ofself-regulation of the advertising industry in the public interest. Morespecifically, paragraph 90.1 precluded the ASA from considering anycomplaint whatsoever in respect of a non-member, without asubmission to its jurisdiction, in three categories: (a) advertisements ofa non-member published in media owned by a member of the ASA; (b)advertisements published by non-members of the ASA, and which arenot published by a member of the ASA; and (c) advertisements of anon-member broadcast by a broadcast service licensee under theElectronic Communications Act 36 of 2005 (the ECA). [11] The ASA contended that it is entitled to consider complaints undercategory (a) because the publisher, a member of the ASA or one of theindustry bodies that is a member of the ASA, has agreed to abide by theCode, which prevents members from accepting advertising thatconflicts with the Code. The ASA was also entitled to considercomplaints under category (b) on behalf of its members, so that theycould make an election, if approached in the future by the advertiser,whether or not they wish to publish an advertisement by an advertiserwho breaches the Code. The ASA could also consider complaints undercategory (c) because s 55(1) of the ECA requires all broadcastingservice licensees to adhere to the Code and s 55(2) envisages that theASA will, in respect of its members, adjudicate complaints concerningalleged breaches of the Code.1 [12] Although the ASA contended that there was nothing misleadingabout its standard letter of complaint, it accepted that the content couldbe improved to make it clear to a non-member that it is not obliged toparticipate in the proceedings of the ASA, but that if it does notparticipate in those proceedings, the ASA may still consider thecomplaint, so as to determine whether its members should accept anadvertisement by that non-member for publication.[13] Before us the parties also agreed that paragraph 90.4 of the courta quo’s order was superfluous since it was covered by paragraph 90.1of the order. Given that the issues between the parties were confined


and there was a real prospect that the case could be settled, the Courtadjourned to give the parties an opportunity to consider settlement andprepare a draft order acceptable to both sides. [14] When the hearing resumed the parties presented a draft orderwhich counsel explained and which was finally agreed upon in the formset out in paragraphs 1.1 and 1.2 of the order below. The orders relatingto previous rulings and appeal fees (paragraphs 90.2, 90.3, 90.6 and90.7) of the order of the court a quo fell away, by virtue of the order byagreement. Thus the only outstanding issue was costs, on which theparties could not agree. [15] Mr Marcus who with Mr Ferreira appeared for the ASA (theappellant), submitted that Herbex was successful in the court a quo, andthat the ASA was substantially successful on appeal. For practicalpurposes therefore, the two orders should be set off against each other,and there should be no order as to costs in either court. Mr Subel withMs Stein for Herbex, submitted that the ASA persisted with its stancethat it had jurisdiction over non-members, both in the court a quo andthis Court. Accordingly, so it was submitted, Herbex was within itsrights to defend the orders of the court a quo, the ASA was notsubstantially successful and Herbex was thus entitled to costs onappeal. [16] The power to interfere with costs on appeal is limited to caseswhere the court vested with the discretion did not exercise it judicially,ie the court of first instance exercised the power conferred on itcapriciously, or upon a wrong principle, or did not bring an unbiasedjudgment to bear on the question, or did not act for substantial reasons(Manong and Associates (Pty) Ltd v City of Cape Town & another2011 (2) SA 90 (SCA) para 92). In the court a quo a substantial part ofthe case was spent on what the ASA could or could not do. The focusof the argument was on the outer limit of its jurisdiction. The court aquo was undoubtedly correct in holding that in the absence of asubmission to its jurisdiction, the ASA has no jurisdiction overnon-members and could not require them to participate in its processes.The respondent was substantially successful and consequently, there isno basis to interfere with the court a quo’s order directing the ASA topay the costs of that application, which include the costs of twocounsel.


[17]

[18] The following order is made: 1The parties having agreed thereto, the appeal is upheld to the extentreflected in the substituted orders set out below. 2Save for paragraph 90.8, the order of the court a quo is set aside andsubstituted as follows:‘1 It is declared that:1.1 the Advertising Standards Authority of South Africa (the ASA)has no jurisdiction over any person or entity who is not a member ofthe ASA and that the ASA may not, in the absence of a submissionto its jurisdiction, require non-members to participate in its processes,issue any instruction, order or ruling against the non-member orsanction it;1.2 the ASA may consider and issue a ruling to its members (whichis not binding on non-members) on any advertisement regardless ofby whom it is published to determine, on behalf of its members,whether its members should accept any advertisement before it ispublished or should withdraw any advertisement if it has beenpublished.2 The ASA is directed to include in its standard letter of complaintthe contents of paragraph 1 and that a non-member is not obliged toparticipate in any ASA process, but that should it not participate, the


ASA may still consider the complaint, for the purposes set out inparagraph 1.2.’3Each party shall bear its own costs of appeal.

THE CHEMICAL INDUSTRIES NATIONAL PROVIDENTFUND v TRISTAR INVESTMENTS (PTY) LTD

Rules internal to an organisation which regulate the conclusion andperformance of agreements with third parties are not binding on third parties.

Judgment given in the Supreme Court of Appeal on 6 Decemeber 2017 byMakgoka AJA (Cachalia JA, Bosielo JA, Tshiqi JAand Mathopo JAconcurring)

On 19 December 2007 the Chemical Industries National Provident Fund andTristar Investments (Pty) Ltd concluded an agreement in terms of whichTristar would provide investment consulting services to the Fund for threeyears with effect from 1 January 2008. Pursuant to the agreement, Tristar performed services on behalf of the Fund forover three months, for which it was paid a sum of R2 722 207.44.

On 17 April 2008, the Fund resolved to withdraw Tristar’s appointment,contending that the agreement was invalid because the signatories on behalfof the Fund did not have the authority to conclude it. It also contended that theagreement was ultra vires the rules of the Fund. Tristar viewed the Fund’sstance as a repudiation of the agreement, which it accepted.

Rule 13.6.8 of the Fund’s rules provided that all decisions of the trustees ofthe Fund required the support of at least two-thirds of each of the employer andmember trustees.

No voting took place when the decision to appoint Tristar was taken. TheFund contended that in the absence of a vote, it was not possible to establishwhether the requisite two-thirds of the trustees had been met. Accordingly,there had not been compliance with the rule. The Fund also contended thedecision was ultra vires the rules of the Fund in that there was no compliancewith rule 13.7.5. This rule provided that the trustees could appointadministrators and consultants on such terms as they may determine and maywithdraw any such appointment at any time. The Fund argued that because therule allows the Fund to withdraw an appointment at any time, an agreementwhich purports to run for a fixed term such as a three-year term provided forin the agreement, was ultra vires and invalid.

It was the practice of the Fund that decisions of trustees were adoptedconsensually, without a formal vote. Despite dissent from some trustees, ifultimately they were prepared to accept it, then it was carried.

Held—The appointment of Tristar was no different from the usual procedure

followed by the Fund in making decisions. The Board was thus able to

CHEMICAL INDUSTRIES FUND v TRISTAR INVESTMENTS 345MAKGOKA AJA 2018 SACLR 22 (A)

establish the requisite two-thirds threshold satisfactorily without a formal vote.As far as the ultra vires argument was concerned, the rule simply gave the

Fund the power to lawfully terminate a contract, whatever its duration. Therule did not give it the power to terminate a fixed-term contract contrary to itsterms as this would necessarily imply that all contracts concluded by the Fundwere invalid unless they had summary termination clauses. This would makethe conduct of business by the Fund with service providers unworkable andresult in an absurd and unworkable interpretation of the rules.

Advocate A Redding SC instructed by Webber Wentzel, Sandton, appeared forthe appellantAdvocate A Franklin SC instructed by Werksmans Attorneys, Sandton,appeared for the respondent

Makgoka AJA:[1] This appeal concerns the validity of an investment consultingagreement (the agreement) concluded between the appellant, ChemicalIndustries National Provident Fund (the Fund) and the respondent,Tristar Investments (Pty) Ltd (Tristar). The Fund is a large pensionfund whose members are employees in the chemical industry in SouthAfrica. It is managed by a Board of Trustees. [2] Tristar is an investment consulting company, whose business is toadvise trustees on the management of their assets. The Fund isgoverned by a set of rules, in terms of which its management is carriedout by 24 trustees, half of whom are appointed by the employers of themembers and the other half by employee members. [3] Until the end of 2007 the Fund was administered by an entityknown as NBC (Pty) Ltd (NBC). The Fund’s investment consultingservices were provided by an NBC-affiliated company. On 19December 2007 the Fund and Tristar concluded the impugnedagreement in terms of which Tristar would provide investmentconsulting services to the Fund for three years with effect from 1January 2008. [4] Pursuant to the agreement, Tristar performed services on behalf ofthe Fund for over three months, for which it was paid a sum ofR2 722 207.44. On 17 April 2008, the Fund resolved to withdraw

346 CHEMICAL INDUSTRIES FUND v TRISTAR INVESTMENTSMAKGOKA AJA 2018 SACLR 22 (A)

1 During the closing argument in the high court, counsel for the Fund conceded thatno case had been made out in respect of this claim, and accordingly abandoned theclaim.

2 Initially the high court awarded an amount of R15 186 166.96, but subsequentlyamended this in terms of rule 42 of the Uniform Rules of Court, at the instance ofTristar.

Tristar’s appointment, contending that the agreement was invalidbecause the signatories on behalf of the Fund did not have the authorityto conclude it. It also contended that the agreement was ultra vires therules of the Fund. Tristar viewed the Fund’s stance as a repudiation ofthe agreement, which it accepted. [5] This set in motion litigation in the Gauteng Local Division of theHigh Court, Johannesburg (the high court). The litigation culminatedin a trial in which the Fund, as the plaintiff, sought an order declaringthe agreement void, for the reasons mentioned earlier. The Fund alsoclaimed repayment of the sum paid to Tristar in performance of theagreement1. Tristar denied the Fund’s allegations, and counter-claimedfor the accrued income for the unexpired period of the agreement, aswell as for damages arising from the Fund’s cancellation of theagreement.[6] The trial court declared that the agreement was valid, and was thusunlawfully terminated by the Fund. It accordingly dismissed the Fund’sclaim and upheld Tristar’s counter-claim in the amount of R20 139810.962, but dismissed its damages claim. The high court subsequentlygranted both the Fund and Tristar leave, respectively, to appeal andcross-appeal its order. [7] The background facts are straight-forward, and largely commoncause. They can be stated as follows. During February 2007 the trusteesconsidered to diversifying the Fund’s investment consulting services.This task was entrusted to a sub-committee headed by the principalofficer of the Fund, Mr Tsolo, and Ms MacIntosh, the chairperson ofthe board of trustees.[8] On 16 and 17August 2007, Tristar and two other prospectiveconsultants made presentations to the sub-committee, after havingbeing invited to do so. Tristar emerged as the preferred bidder.


3 The actual letter is dated 26 November 2007, but the covering letter is dated 11December 2007.

However, the final decision regarding its appointment was deferreduntil its fees structure had been clarified. On 19 October 2007 thesub-committee met with Tristar where its fees structure was discussed,to the satisfaction of the sub-committee. The sub-committee resolvedto recommend the appointment of Tristar to the trustees at theirmeeting in November 2007. In anticipation of its appointment, Tristarfurnished the sub-committee with a draft investment consultancyagreement for perusal by the Fund’s attorneys, Routledge ModiseAttorneys. The attorneys suggested certain amendments to theagreement, including a reduction of Tristar’s fees. [9] The trustees met on 15 and 16 November 2007, when Tristar’sappointment was approved. The decision, to which I shall fully revert,was recorded in the minutes of the meeting as follows:

‘After further discussions the agreement was reached on finalisingthe appointment of Tristar as the Independent Investment Consultantto the Fund despite strong objections having been raised by certainTrustees and these were noted.’

[10] On 28 November 2007, the Fund sent a letter to NBC terminatingits services as investment advisor to the Fund, and requesting it to makearrangements to hand over its investment consulting duties to Tristar.[11] On 11 December 20073, five trustees wrote a letter to the principalofficer of the Fund, objecting to the manner in which the appointmentof Tristar was conducted, particularly because the decision was takenwithout a formal vote. [12] On 14 December 2007 Mr Tsolo and Ms MacIntosh signed theagreement on behalf of the Fund. On the same day, the sub-committeecirculated the finalized agreement to all the trustees, as contemplatedin the November meeting. On 19 December 2007 the agreement wassigned on behalf of Tristar. [13] In the wake of the letter of 11 December 2007 referred to above,the trustees held a special board meeting on 5 February 2008, whensome trustees voiced their objection to Tristar’s appointment. However,after some debate, the trustees agreed that the appointment of Tristar


4 National Union of Metalworkers of South Africa and others v Congress of SouthAfrica and others (32567/13) [2014] ZAGPJHC 59 (4 April 2014).

would stand despite the objection. On 17 April 2008 the trustees tooka decision by a vote of more than two-thirds, to cancel the appointmentof Tristar. [14] So much for the factual background. There are three issues in theappeal. The first is whether the Fund’s representatives who signed theagreement, were authorised to do so. If this issue is decided in Tristar’sfavour, the Fund’s alternative attack is that the agreement was ultravires the rules of the Fund. The third and final issue concerns Tristar’scounter-claim for the accrued income. I consider these, in turn.[15] With regard to the authority issue, the Fund predicates itsargument on rule 13.6.8 of its rules. It provides that all decisions of thetrustees shall require the support of at least two-thirds of each of theemployer and member trustees. It is common cause that no voting tookplace when the decision to appoint Tristar was taken. It was submittedon behalf of the Fund that in the absence of a vote, it was not possibleto establish whether the requisite two-thirds of the trustees had beenmet. Accordingly, it was argued, there has not been compliance withthe rule. In this regard, reliance was placed on Numsa v Cosatu4. There,the court found that the absence of voting on a resolution to suspend theGeneral Secretary of COSATU rendered the decision irregular andunlawful.[16] Numsa v Cosatu is distinguishable from the present case in onematerial respect. Cosatu’s constitution expressly prescribed voting bymembers of the central executive committee over a motion for thesuspension of the General Secretary. There is no such obligation in rule13.6.8. All that is required is that resolutions must be carried by atwo-third’s majority. [17] The rule does not stipulate how the existence of the threshold is tobe ascertained. Tristar contends that in the absence of a stipulatedmethod, it is permissible for the Board to employ any method todetermine the requisite level of support for a particular decision. In thisregard, Tristar relies on the practice usually followed by the Fund whenpassing resolutions.


[18] It is not disputed that historically, decisions of trustees have beenadopted consensually, without a formal vote. Thus, even though sometrustees might speak against a resolution and have reservations aboutit, if ultimately they are prepared to ‘live with it’, so to speak, then it iscarried. The appointment of Tristar was no different. It appears fromthe minutes of the meeting that there were indeed strong sentimentsagainst the decision by some trustees. Ultimately, however, afterexhaustive debate, a decision was reached to appoint Tristar. [19] It is therefore apparent that the Board was able to establish therequisite two-thirds threshold satisfactorily without a formal vote. Inthis regard, it is instructive that all the decisions of the trustees, exceptone, were adopted in this manner. The only exception was the onetaken on 17 April 2008, reversing Tristar’s appointment. But, as isapparent from the evidence, that decision was self-serving, and onlytaken by vote for the sole purpose of removing Tristar and reinstatingNBC. Rather than bolstering the Fund’s argument for a formal vote,that decision fortifies Tristar’s assertion that the November 2017decision, like others before, was taken by consensus, and that this wasthe method employed by the trustees to determine whether thetwo-thirds threshold had been reached. It is worth noting that both thedecision to appoint NBC, and later to reinstate it in August 2008, werenot taken by a formal vote. The Fund’s insistence on a formal vote, inthe circumstances, is without merit.[20] It is clear from the factual background leading to the decision toappoint Tristar that it was a carefully considered and managed process:A decision was taken to diversify consulting services; potential serviceproviders were identified; prospective consultants, including Tristarmade presentations; Tristar was identified as a preferred bidder;Tristar’s fees were clarified (and reduced), with the involvement of theFund’s attorneys; Tristar was appointed in November 2007 and theagreement was signed on behalf the Fund on 14 December 2007 byTristar on 19 December 2007.[21]


[22] I turn briefly to the Fund’s alternative attack, that the agreementwas ultra vires the rules of the Fund. It is based on rule 13.7.5, whichprovides:

‘The Trustees may appoint administrators and consultants on suchterms as they may determine and may withdraw any suchappointment at any time; provided that a consultant shall not rank asofficer of the Fund.’

[23] The Fund’s argument is that because the rule allows the Fund towithdraw an appointment at any time, an agreement which purports torun for a fixed term such as a three-year term provided for theimpugned agreement, is ultra vires and invalid.[24] I

[25] It follows that the first two issues, namely whether the Fund’srepresentatives were authorised to sign the agreement, and whether theagreement was ultra vires the rules of the Fund must be decided infavour of Tristar, as the high court correctly found.[26] What remains to be considered is Tristar’s counter-claim for theaccrued income. In terms of the agreement, the Fund undertook to payTristar a basic annual fee of 0.2 per cent per annum for the grossreturns of the Fund. The fee was payable in monthly instalments on the


last day of each month following the commencement of the agreement.The claim involves a computation of fees that Tristar would haveearned over the applicable period, and of the saved costs for the Fund.Thus, the payment of a basic fee was contingent upon Tristar saving theFund transaction and other costs over an eighteen-month period. Themethod for calculating the savings was this: establish the costs throughthe assistance of an advisor and the custodian bank at the beginning ofthe eighteen-month period, and perform the same exercise eighteenmonths later, in order to establish the savings.[27] The Fund contends that the basic fee was not proved becauseTristar did not demonstrate the cost savings promised in the agreement.However, it does not lie in the Fund’s mouth to make this assertion. Itterminated the agreement well before the eighteen-month periodcontemplated in the agreement. Tristar was consequently unable to givethe Fund the benefit of its advice over that period, and the actual costsaving could not be computed. The result is that the evidence in thisregard was bound to be speculative.[28] Tristar relied on the evidence of Mr Alex Burn, its Chief ExecutiveOfficer, and Mr Brian Abrahams, an independent chartered accountant.Mr Burn testified about a presentation he made at the trustees’ meetingon 28 February 2008 at which he reported that Tristar had had meetingswith the Fund’s custodian bank (Standard Bank) and had managed toreduce the fees charged by the custodian to the Fund. He was emphaticthat, given its past performances, Tristar would have been able toachieve a reduction in fees from certain asset managers. According tohim, there had never been a situation where Tristar was unable toachieve this.[29] With regard to the cost savings Tristar actually brought about byApril 2008, Mr Burn explained that Tristar had negotiated lowercustodian, mandate, and script lending costs on behalf of the Fund.According to him, the fact that Tristar had achieved a cost saving inrespect of the custodian’s costs was an indication that Tristar hadcommenced the process of achieving cost savings for the Fund. [30] Mr Abrahams testified that the lost revenue would be based on theestimated value of the assets which would be determined, amongothers, by the market returns and by the investment consulting advice


rendered by Tristar over the period of the agreement. In his opinion, thekey factors would be the unique characteristics, including theinvestment assets and objectives of the Fund itself, rather than those ofother funds subject to Tristar’s investment consulting advice over theperiod of the agreement. He postulated the basic annual fee using theactual market value of the Fund’s assets over the period of theagreement.[31] Counsel for the Fund criticised the evidence presented on behalfof Tristar. According to counsel, the only basis on which returns wouldhave been achieved through Tristar’s advice was to examine the actualresults achieved by Tristar’s other clients, using the same advice overthe period of the agreement. Because this information was notprovided, it was impossible to determine the claim properly. To mymind, this criticism is not warranted. As explained by Mr Abrahams,the key factors would be the unique characteristics, including theinvestment assets and objectives of the Fund itself, rather than those ofother funds subject to Tristar’s investment consulting advice over theperiod of the agreement.[32] Because of the inherently speculative nature of the evidence, thecourt could only do its best to assess whether the requisite cost savingwas likely to have been achieved had Tristar’s appointment not beenterminated. Indeed, the trial court adopted ‘a robust approach’ in thecomputation of Tristar’s accrued income. [33] What is more, the fact that the evidence is open to criticism is noreason for the court not to make an award. In Southern InsuranceAssociation Limited v Bailey NO 1984 (1) SA 98 (A) at 113F-114ENicholas JA observed that determining an appropriate award incircumstances such as the present manifestly involves guesswork to agreater or lesser extent. But, the learned judge remarked, ‘the Courtcannot for this reason adopt a non possumus attitude and make noaward.’ The learned judge then referred to the dictum in Hersman vShapiro & Co 1926 TPD 367 at 379 where Stratford J said:

‘Monetary damage having been suffered, it is necessary for the Courtto assess the amount and make the best use it can of the evidencebefore it. There are cases where the assessment by the Court is littlemore than an estimate; but even so, if it is certain that pecuniary


damages have been suffered, the Court is bound to award damages.’[34] Given all these considerations, I am of the view that there is nobasis for this court to interfere with the award made by the high courtin respect of Tristar’s accrued income.[35] In the result the following order is made:The appeal is dismissed with costs, including the costs of two counselwhere so employed.

CRADLE CITY (PTY) LTD v LINDLEY FARM 528 (PTY)LTD

Application of the exceptio non adimpleti contractus in respect of anaddendum to a sale agreement amending the obligation of one of the parties

Judgment given in the Supreme Court of Appeal on 6 December 2017 byTshiqi JA (Navsa ADP, Petse JA, Tsoka AJA and Mbatha AJA concurring)

Lindley Farm 528 (Pty) Ltd sold a property to Cradle City (Pty) Ltd forR112m. Clause 4 of the agreement provided that vacant occupation of theproperty would be given on transfer. When the sale agreement was concluded,it was known to both parties that there were unlawful occupiers on theproperty. W hen it was known, shortly before transfer that the unlawfuloccupiers had not yet been evicted, in a letter to Cradle, Lindley undertook toremove any such occupiers at its cost within a reasonable time but not laterthan 28th February 2010. Cradle purchased the property to conduct adevelopment on it, and incurred substantial expenditure in doing so.

On 7 May 2009, the property was transferred to Cradle. On that date, theparties also concluded an Indemnity agreement which provided that Lindleyundertook, by no later than 31 August 2009 at itscost, to take all such stepsnecessary to lawfully evict all squatters. Lindley also undertook to indemnifyCradle City against all claims which may be made against Cradle City as aresult of a breach of any or all of Lindley’s undertakings referred to in thisindemnity, and arising from the occupation of the squatters on the land.

As a result of the continued occupation of the land by the squatters, Cradlerefused to pay the balance of the purchase price. Lindley then claimed paymentof the balance, as well as a penalty as stipulated in the sale agreement. Cradledefended the action on the grounds that it had not received vacant occupationas provided for in the sale agreement.

Lindley Farm contended that the indemnity had the effect of varying the saleagreement and that instead of having an obligation to give vacant occupation,the only obligation was that it had to have taken all the steps and done andprocured all that was required in order to lawfully evict all squatters from theproperty by no later than 31 August 2009, which duty it alleged it hadcomplied with. In the alternative, Lindley offered R10m to Cradle being theamount it alleged would be sufficient to evict the squatters. It also continuedto make efforts to evict the squatters.

Held—The question for determination was whether the Indemnity agreement should

be interpreted to mean that Lindley Farm was expected to provide vacant

CRADLE CITY (PTY) LTD v LINDLEY FARM 528 (PTY) LTD 355TSHIQI JA 2018 SACLR 32 (A)

occupation as required by clause 4 of the sale agreement or whether, all thatwas expected from Lindley was to show that it had taken the necessary stepstowards that goal.

If the second alternative was accepted, this would lead to the inescapableconclusion that in signing the Indemnity agreement Cradle City abandoned itsright to vacant occupation which it was entitled to in terms of the saleagreement, and settled for a lesser right which would be satisfied if it was onlyshown that Lindley had taken the legal steps aimed at achieving the eviction.

Lindley’s letter to Cradle indicated that it accepted that it was obliged toprovide vacant occupation albeit on a different date. There would be no reasonfor Cradle, in concluding the Indemnity agreement, to accept anything less. Afinding that vacant occupation was not envisaged, would mean that Cradle Cityhad been prepared to spend substantial amounts of money on property thatwould not be suitable for the purpose for which it was bought. It followed thatthe purpose of the Indemnity was to assure Cradle City that it would be givenvacant occupation within a reasonable period but not later than 31 August 2009to enable it to proceed with the contemplated development.

Since Cradle had not cancelled the agreement, it was entitled to rely on theexceptio non adimpleti contractus in asserting its rights in the face of Lindley’sclaim for payment. Accordingly, that claim was to be suspended until suchtime as all unlawful occupiers were evicted from the property.

Advocate M P Van der Merwe SC instructed by Saunders Venter Van derWatt, Somerset West, appeared for the appellantAdvocate H B Marais SC and Advocate H P Van Nieuwenhuizen instructedby Barnard’s Inc, Kempton Park, appeared for the respondent

Tshiqi JA:[1] The issues that arise in this appeal concern a written sale agreementconcluded on 23 March 2009 between the respondent (the plaintiff inthe high court) Lindley Farm 528 (Pty) Ltd, and the appellant (thedefendant in the high court) Cradle City (Pty) Ltd, and encompasses asubsequent Indemnity and Undertaking, signed by the parties on 7 May2009. In terms of the sale agreement Lindley Farm sold the immovableproperty, described as Remaining Extent of Portion 13 of the farmLindley 528, measuring 90,2408 hectares and held under deed oftransfer T3914/1990 (the property) to Cradle City for an amount ofR112 million, excluding VAT.

356 CRADLE CITY (PTY) LTD v LINDLEY FARM 528 (PTY) LTDTSHIQI JA 2018 SACLR 32 (A)

[2] The relevant clauses of the sale agreement are the following:‘2. Purchase priceThe purchase price of the Property is an amount of R112 000 000, 00(One Hundred and Twelve Million Rand) excluding VAT,2.1 It is recorded that, at date hereof, the Purchaser has paid anon-refundable amount of R19 000 000, 00 (Nineteen Million Rand)excluding VAT, as a deposit to the Seller in respect of the purchaseprice, an amount of R3 000 000, 00 (Three Million Rand) as anon-refundable penalty agreed by the parties and agreed interest ofR2 325 000, 00.2.2 The balance of the purchase price, in an amount of R93 000 000,00 (Ninety Three Million Rand) excluding VAT is payable asfollows: 2.2.1 R43 000 000, 00 on registration of transfer of the property intothe name of the Purchaser:The Purchaser shall deliver an irrevocable guarantee, acceptable tothe Seller’s conveyancer, for an amount of R51 680 000, 00 (Fiftyone million six hundred and eighty thousand Rand) (being R43 000000, 00 plus R8 680 000, 00 VAT) to the conveyancer before or on27/03/2009.The parties shall procure that transfer of the property be effected intothe name of the Purchaser as soon as possible after signing hereof byboth parties. All outstanding documents to give effect to theaforegoing shall be submitted to the conveyancer before or on27/03/2009.2.2.2 R50 000 000, 00 (Fifty Million Rand), plus VAT thereon, plusarrear interest in an amount of R7 267 175, 00 (as at 31/03/2009) plusfurther interest as set out in 2.2.3 is payable not later than 30 (thirty)months after registration of transfer of the property into the name ofthe Purchaser.Should, at expiry of the aforementioned 30 months, specialeconomic/financial conditions exist and not sufficient sales in theproposed township having been realised to satisfy the Nedbank bondand to pay the balance [of the] purchase price the Purchaser mayrequest the Seller, not later than 60 days before expiry of the said 30months, for an extension of a further 6 months for payment of the


balance purchase price.In the event of the aforegoing extension be[ing] requested theprovisions of 2.2.5 below will come into operation.2.2.3 The balance [of the purchase] price and arrear interest – fromtime to time – shall attract interest at prime calculated monthly inarrear[s], compound, and payable together with the amount as set outin 2.2.2 above.2.2.4 All monies received shall, firstly, be applied towards interestdue and thereafter towards [the] balance purchase price.It is agreed that the initial Nedbank loan amount will not exceedR170 000 000, 00.It is recorded that, after payment of the Nedbank loan all paymentsreceived in respect of sales, net of commission, VAT and cost ofsales even before the date referred to an 2.2.2 above, shall be paid tothe Seller.2.2.5 Should payment as contemplated in 2.2.2 above – i.e. after 30(thirty) months – not be made on due date:2.2.5.1 A penalty of 20% of the amount then outstanding, shallbecome due and payable by the Purchaser to the Seller.2.2.5.2 The Seller shall have a right to register a second bond on theCradle City properties in favour of the Seller as additional security,the costs of such registration to be for the account of the Purchaser.….4. Possession and riskPossession shall be given by the Seller to the Purchaser on the dateof transfer, together with vacant occupation, from which date thePurchaser shall be entitled to all benefits from and be liable to allrisks of ownership in respect of the Property including liability forrates and taxes and any other charges of levies on the Property fromsuch date.

[3] When the sale agreement was concluded, it was known to bothparties that there were unlawful occupiers on the property, but when ittranspired, shortly before transfer that the unlawful occupiers had notyet been evicted, Mr Pansegrouw, a director of Lindley Farm, in whatseems to have been an attempt to appease Cradle City, wrote a letter


dated 4 May 2009 to them stating:‘The company will fully comply with the Provisions of clause 4 as setout in the Agreement of Sale dated 23/03/2009.Should there be any unlawful occupiers present on the property at thedate of registration of the Transfer of the Property, we undertake toremove any such occupiers at our cost within a reasonable time butnot later than 28/02/2010, [the] said undertaking will only apply tothe number of unlawful occupiers that might be present on theProperty at the time as stated above.We confirm that Lindley Farm 528 (Pty) Ltd will not be heldresponsible for the removal of any additional unlawful occupierswhich might occupy the said Property after the date of registration ofthe transfer.’

[4] The property was transferred from Lindley Farm to Cradle City on7 May 2009, but on this date, seemingly in an effort to addressconcerns pertaining to the presence of the unlawful occupiers on theproperty, the parties signed an Indemnity and Undertaking which readsas follows:

‘1. We, the undersigned, LINDLEY FARM 528 (PROPRIETARY)LIMITED (“Lindley Park 528”) hereby – 1.1 agree and undertake in favour of CRADLE CITY(PROPRIETARY) LIMITED (“Cradle City”), by no later than 31August 2009 at our cost, to take all such steps and to do and procurethe doing of all that is requisite in order to lawfully evict all squattersincluding but not limited to all on the list attached hereto marked asAppendix 1, occupying the Remaining Extent of Portion 13 of theFarm Lindley No. 528, Registration JQ, the Province of Gauteng,measuring 90. 2408 (ninety point two four zero eight) hectares (the“Land”) as at the date upon which the Land is transferred into thename of Cradle City in the relevant Deeds Office (the “Squatters”) 1.2 indemnity and hold Cradle City harmless against:-1.2.1 any and all claims, losses, damages, actions; liabilities,expenses, including, all legal fees and expenses on an attorney andown client basis (collectively, the “Claim/s”) which may be madeagainst Cradle City-1.2.1.1 as a result of a breach of any or all of our undertakings


referred to in this indemnity;1.2.1.2 arising from or ancillary to or connected with the occupationof the Squatters on the Land and/or the eviction or removal of theSquatters from the Land;1.3 agree and undertake in favour of Cradle City to make paymentunder this indemnity as soon as Cradle City becomes obliged to makeany payment in respect of any of the Claim/s in an amount equal tothe amount paid by Cradle City to settle the Claim/s.2.We, the undersigned, CRADLE CITY (PROPRIETARY)LIMITED hereby- 2.1 agree and undertake to sign all documents and do what isreasonably necessary to enable Lindley Park 528 to perform itsobligations set out in 1.1’.

[5] The contemplated eviction of the unlawful occupiers was notachieved by 31 August 2009 and it is their presence on the property andthe refusal by Cradle City to pay the balance of the purchase price thathas led to the present dispute. Lindley Farm instituted action againstCradle City. Claim 1 consisted of two parts. In the first part it claimedpayment of the balance of the purchase price plus VAT, and in thesecond part of Claim 1 it claimed payment of the penalty of 20% whichwould be due in terms of clause 2.2.5.1 of the agreement. In Claim 2 itclaimed payment of the clearance costs it alleged it had paid on CradleCity’s behalf. In this regard it relied on Clause 3 of the sale agreementwhich stipulates that any amounts advanced by it to pay for transfer andclearance costs would be paid by Cradle City to it within 90 days fromthe date of registration of transfer. Claim 3 concerned an allegedentitlement to monies payable by the Gauteng Department of Roadsand Transport, in respect of expropriation of a portion of the property.It alleged that the parties had concluded an oral agreement which wasthereafter confirmed via email on 2 March 2010 in terms of whichCradle City agreed to pay Lindley Farm an amount of R3 767 158,which represented a partial compensation which the Department paid


1 The email confirming the oral agreement records that the parties agreed that LindleyFarms would be paid the full R4 372 413 even though the particulars of claim indicateR3 767 158

for the expropriation of the portion of the property1.[6] After Cradle City entered an appearance to defend, Lindley Farmlaunched an application for summary judgment, placing reliance on theterms of the sale agreement. Cradle City opposed the application forsummary judgment and Lindley Farm filed a replication. Afterargument, leave to defend was granted to Cradle City. In its plea,Cradle City referred to the Indemnity and Undertaking and alleged thatthis formed an essential part of the sale agreement and should thereforebe read therewith. [7] Regarding the first part of Claim 1, Cradle City pleaded thatLindley Farm had not complied with the terms of Clause 4 of the saleagreement and the Indemnity and Undertaking in that it failed toprovide it with vacant occupation. In this regard it pleaded that LindleyFarm was not entitled to the balance of the purchase price and hadissued summons prematurely. Concerning the second part of Claim 1,it disputed liability for the penalty, and said that upon a properinterpretation of the sale agreement, the penalty provision contained in2.2.5.1 does not apply. [8] Regarding Claim 2, it denied that Lindley Farm was entitled to therelief claimed. And with regard to Claim 3, Cradle City pleaded that theobligation to refund Lindley Farm arose only if the former was in aposition to do so which it was not, because it suffered significantdamages as a result of the breach by Lindley Farm of the terms of thesale agreement.[9] Cradle City referred to a number of repeated payments of an amountof R77 273 each of which were received by Lindley Farm, totallingR1 159 095 which it said concerned another sale agreement concludedbetween Lindley Farm, Cradle City and Lanseria Warehousing (Pty)Ltd. It said that Lindley Farm’s claim for the remainder of the purchaseprice could only have been due 30 months after transfer. It thenpleaded that any amount it may have owed to Lindley Farm for interestwas extinguished by set-off and particularly by the payment of the


numerous instalments of R77 273, which combined, amounted toR1 159 095. [10] Cradle City also filed a counterclaim in terms of which it claimeddamages against Lindley Farm in an amount of R300 000 000. In thisregard it alleged that it had already paid Lindley Farm an amount ofR43 000 000 as at the date of transfer, but that as a result of the failureon the part of the latter to provide vacant occupation and as a result offraudulent misrepresentation made by Lindley Farm to the effect thatit would procure an ejectment of the occupiers from the property, it hadsuffered significant damages. It alleged that if vacant occupation hadbeen provided, the property would have been valued at R300 000 000,but that the consequence of the occupation of the property by theunlawful occupiers was that it was valueless.[11] In its adjusted replication Lindley Farm alleged that the Indemnityand Undertaking had the effect of varying Clause 4 of the saleagreement and that instead of having an obligation to give vacantoccupation, the only obligation was that it had to have taken all thesteps and done and procured all that was required in order to lawfullyevict all squatters from the property by no later than 31 August 2009,which duty it alleged it had complied with. In the alternative, LindleyFarm alleged that should the court find that Cradle City was entitled towithhold the payment due on the 27 November 2011 until unlawfuloccupiers had been evicted, then the reasonable cost to achieve theeviction of the unlawful occupiers and vacant possession of theproperty would not exceed an amount of R6 000 000. It then pleadedthat the court should find that Cradle City was entitled to be paid areduced contract price, to be determined at the discretion of the court,but not exceeding R6 000 000. Subsequent to the hearing of the appeal,Lindley Farm filed supplementary papers and increased the amount ofR6 000 000 to an amount of R10 000 000 instead. I will deal with thesetwo tenders in further detail hereinafter.[12] Three witnesses testified at the trial: two property valuators,namely Mr Grant Fraser, for Lindley Farm and, Mr Roger Long forCradle City and one of the directors of Lindley Farm, Mr JacobusPansegrouw. The two valuators had prepared a joint minute in whichthey stated that there were approximately 40 unlawful occupiers who


occupied approximately 20 structures. However, during Mr Long andMr Pansegrouw’s testimonies, it transpired that there were probably 44or more structures. Mr Long said that he and Mr Fraser were informedby the Bank’s representatives that the Bank would not approve propertyfinance whilst there were unlawful occupiers on the property.[13] During cross examination, Mr Pansegrouw conceded that theunlawful occupiers were difficult and unwilling to co-operate. He alsoagreed that in his affidavit in support of an application for their evictionhe had stated that the whole Cradle City development was in suspenseas a result of the unlawful occupation. It thus transpired that theoriginal calculation that the cost of the negative influence of thepresence of the unlawful occupiers in the property was approximatelyR6 000 000 was unreliable. First, the valuators were unaware of thepresence of another group and second, they were not aware that theunlawful occupiers were not willing to move. Both these considerationswere not factored in the initial calculations.[14] That brings me to the question whether Cradle City was entitledto vacant occupation or not. At the commencement of the trial in thehigh court Lindley Farm conceded that clause 4 of the sale agreementmeant that Cradle City would be given vacant occupation.

[15] Cradle City on the other hand, submitted that the Indemnity andUndertaking did not release Lindley Farm from its obligation toprovide vacant occupation, but only postponed that obligation from thedate of transfer, to the 31 August 2009. Regarding the balance of thepurchase price, Cradle City submitted that the obligations of the parties


are reciprocal, and that for as long as it has not been given vacantoccupation, there is no obligation on it to pay. [16] A proper interpretation of the Indemnity and Undertaking requiresa consideration of its language, context, purpose and background. (SeeEkurhuleni Metropolitan Municipality v Germiston MunicipalRetirement Fund 2010 (2) SA 498 (SCA) at para 3; Natal JointMunicipal Pension Fund v Endumeni Municipality 2012 (4) SA 593(SCA) at para 18)[17] The terms of the Indemnity and Undertaking must be consideredin the following context: the letter dated 4 May 2009 was written some3 days before the date of registration, when it transpired that theunlawful occupiers still remained on the property. In the letter LindleyFarm said that it would ‘fully comply with the provisions of Clause 4,as set out in the agreement’ and that ‘should there be any unlawfuloccupiers present on the property at the date of registration of theTransfer of the Property, [it] under[took] to remove any such occupiersat [its] cost within a reasonable time but not later than 28/02/2010.

.[18] There is no logical reason why a party who realised, at the date oftransfer that a condition that gave it a stronger right had not beencomplied with, would suddenly enter into an agreement that weakensthat right, especially if the weakened right compromises the verypurpose for which it entered into the agreement. The submission byLindley Farm that for as long as steps were taken to obtain eviction, itdid not matter whether such steps were in fact eventually successful ornot lacks merit.[19] A finding that vacant occupation was not envisaged, would meanthat Cradle City was prepared to spend substantial amounts of moneyon property that would not be suitable for the purpose for which it wasbought, and that included ineluctably obtaining finance to that end,which would not be possible with the obstruction presented by the


unlawful occupiers. This does not make sense.

[20] This then brings me to the question whether the balance of thepurchase price is due and payable by Cradle City. Cradle City chose notto exercise its right to cancel the sale agreement but elected to holdLindley Farm to it. In these circumstances the answer to whether thebalance of the purchase price is payable or not depends on whether thereciprocity principle is applicable. The principle of reciprocity(exceptio non adimpleti contractus) recognises the fact that in manycontracts, the common intention of the parties, expressed orunexpressed, is that there should be an exchange of performances.Whether there is such an intention must often be determined by aninterpretation of the contract (See Van der Merwe et al Contract:General Pronciples 5th ed (2015) at 335; and the references therein).In fact, there is a presumption that interdependent promises arereciprocal unless there is evidence to the contrary (Contract GeneralPrinciples, supra). The common intention is that neither should beentitled to enforce the contract unless he/she has performed or is readyto perform his/her own obligations. (See RH Christie and G BradfieldChristie’s Law of Contract in South Africa 6th ed (2011) at 437;Hauman v Nortje 1914 AD 293 at 300; Wolpert v Steenkamp 1917 AD493 at 499; Nesci v Meyer 1982 (3) SA 498 (A) at 513F). [21] The principle also applies where the performance of the defendantmust be rendered in instalments and the plaintiff is subject to a dutythat must be fulfilled before or on the date of the defendant’sinstalment. Reciprocal obligations may even arise from separatecontracts (see Motor Racing Enterprises (Pty) Ltd (in Liquidation) vNPS (Electronics) Ltd 1996 (4) SA 950 (A); Contract, GeneralPrinciples supra).[22] Where a contractant does not properly perform in terms of anindivisible obligation and the co-contractant upholds the contract, thelatter may retain the inadequate performance or reject it and claimproper performance. If the inadequate performance is rejected, the


contractant who has committed mal-performance cannot claimcounter-performance unless he/she offers proper performance anew. If,however, the inadequate performance is retained, the question ariseswhether the contractant who has performed defectively or incompletelymay, in spite of his/her inadequate performance, claimcounter-performance from the defendant. (See Contract, GeneralPrinciples at 337)[23] If a defendant does withhold his performance he/she will have toallow the plaintiff the opportunity to complete defective performancein so far as proper performance still remains possible. The explanationfor this is that a defendant who upholds the contract and relies on thedefence of reciprocity, in effect, demands proper performance and istherefore only entitled to withhold performance in so far as properperformance is outstanding (see BK Tooling (Edms) Bpk v ScopePrecision Engineering (Edms) Bpk 1979 (1) SA 391 (A) at 412). If thedefective performance is eventually properly completed by the plaintiffthe defence of reciprocity is exhausted (see Thompson v Scholtz 1991(1) SA 232 (SCA) at 242G). [24] A plaintiff who is temporarily unable to perform may neverthelessbe granted judgment but will not be entitled to execute on it withoutperforming or tendering performance. If he/she delays performance foran unreasonable time the defendant, notwithstanding the judgmentagainst him/her, may cancel the contract after duly placing the plaintiffin mora. Subjective impossibility to receive or make performance atmost justifies the other party in exercising an election to cancel thecontract. (See McGlinchey v De Kok 1985 (2) SA 550 (D); UnibankSavings and Loans Ltd (formerly Community Bank) v ABSA Bank Ltd2000 (4) SA 191 (W) at 198B; R H Christie: The Law of contract inSouth Africa at 440)[25] In the present matter the sale agreement created bilateralobligations and it was envisaged that the Plaintiff (Lindley Farm)would perform before the Defendant (Cradle City). The Plaintiff had toprocure for the Defendant vacant occupation by 31 August 2009,whereas the Defendant only had the obligation to pay the remainder ofthe purchase price 30 months after date of transfer; the 30 month periodexpired only in November 2011. The unlawful occupiers are still in the


property and it follows therefore that until Lindley Farm has givenvacant occupation, it has not delivered to Cradle City the property inthe state the parties agreed upon. This finding however does notnecessarily mean that a suitable remedy in the present circumstances isto dismiss the application for eviction until vacant occupation has beengiven. The reality is that Cradle City has made an election to retain theinadequate performance and has not terminated the contract. For thatreason and as will be illustrated herein below, it is necessary to explorethe two alternative solutions proposed by Lindley Farm.[26] In the first alternative Lindley Farm has submitted that in the eventthe court finds that Cradle City was entitled to withhold the paymentuntil vacant occupation has been given, the court should reduce thecontract price with an amount not exceeding R6 000 000. Whilst thishas been found to be a workable solution in other matters, (see Haumanv Nortjie 1914 AD 293; Klopper v Engelbrecht 1998 (4) SA 788 (W);BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk1979 (1) SA 391 (A)) this option is not suitable in this matter becauseMr Fraser conceded that the basis on which he and Mr Long calculatedthe cost of the negative influence of the presence of the unlawfuloccupiers in the property was incorrect. This renders the estimate ofapproximately R6 000 000 unreliable and it is not possible in thecircumstances to quantify the negative impact of presence of theunlawful occupiers on the property. As stated above, Lindley Farm hasnow tendered an alternative amount of R10 000 000, but the basis forthe quantification of this amount is unclear and cannot resolve theproblem.[27] In the further alternative Lindley Farm, in its heads of argument,asked that it should nevertheless be given the judgment in its favour,but that it should be held not to be entitled to execute upon it withoutperforming or tendering performance. Cradle City submits that thisoption is not suitable in this matter because it is difficult to get theunlawful occupiers off the property, that there is no precedent forgranting this kind of a relief under circumstances such as these and thatit would render the defence of expectio nugatory.[28] Whilst I accept that the eviction of the unlawful occupiers hasproven to be more complicated than what the parties originally


anticipated, the reality, as stated above, is that Cradle City has made anelection to persist with the agreement and did not terminate it.However, it is clear from the evidence that Lindley Farm is continuingwith its efforts to evict the unlawful occupiers in order to presentvacant occupation to Cradle City. Neither party has accepted that thisis not achievable. If an order along the lines proposed by Lindley Farmsis granted, there will be no prejudice on either party. This remedywould provide Lindley Farm with an opportunity to take all measurespossible in order to lawfully evict the unlawful occupiers within areasonable time in order to make sure that the defective performanceis eventually properly completed. In that event it would be able toexecute the judgment granted in its favour. In the event that it fails toremedy the defective performance within a reasonable time, thenCradle City would have the option to terminate the contract and claimany proven damages arising from any proven breach. If the unlawfuloccupiers are evicted, the defence of reciprocity would be exhaustedand Cradle City would be entitled to execute its judgment. [29] This then brings me to Claim 3. It was not seriously disputed byCradle City that the defence of reciprocity was not available to it inrelation to Claim 3. The amount was due in terms of a separate portionof the land for which it received compensation from the State. Theproviso that Cradle City had to pay it when it is in a position to do someans that it had to pay it once the money had been paid to it. Thisamount is due and payable.[30] Regarding the counterclaim, no evidence was led to show what themarket value of the property was at the date of the conclusion of thesale agreement nor its value now that it is occupied by the unlawfuloccupiers. Cradle City thus failed to adduce sufficient evidence toprove its claim. An appropriate order should have been to grantabsolution from the instance. (See Oliver’s Transport v DivisionalCouncil, Worcester 1950 (4) SA 537 (C) [31] CostsIn light of the conclusion reached above, both in relation to the claimand the suspension of the order, it would be just and equitable torequire each party to pay its own costs. The same will apply in respectof the costs of the court below.


[32] I make the following order:1.The appeal is upheld to the limited extent reflected in thesubstituted order that follows:‘(a) The defendant is ordered to pay in respect of claim 3 an amountof R3 767 158 less an amount of R1 159 095, together with interestthereon at 15.5% per annum a tempora morae(b) Judgment against the appellant in respect of claims 1 and 2,together with an amount of R1 159 095, is suspended until suchperiod as the unlawful occupiers are evicted from the property’2.The appeal in respect of the counterclaim is upheld.2.1 The order of the court below is substituted as follows:‘(a) Absolution from the instance is granted.’3.In respect of costs pertaining to both the claim and thecounterclaim, each party is ordered to pay its own costs.

KANIAH v WPC LOGISTICS (JOBURG) CC (INLIQUIDATION)

Circumstances in which a person aggrieved by a decision of a liquidator toterminate an action brought by the liquidator may proceed with the action

Judgment given in the Kwazulu Natal Local Division, Durban, on 13December 2017 by Henriques J

WPC Logistics (Joburg) CC was wound up as a solvent close corporation onjust and equitable grounds due to a breakdown in the relationship betweenKaniah and Mr Chao, its principle members. They each held a 45 percentmember’s interest in WPC, and a Mr Firfirey held the remaining 10 percent.At the time of the provisional liquidation, it was envisaged that the creditorswould be paid in full, and subsequently they were paid in full.

As a consequence of an investigation into the affairs of WPC and aninterrogation of Chao, specifically in relation to his loan account and moniesallegedly paid by him to a WPC Hong Kong entity, it became apparent thatamounts totalling R6 689 988.30 had been withdrawn or paid from a bankingaccount of WPC on behalf of Chao.

In an endeavour to recover the amount paid to Chao, an action was institutedagainst Chao and his wife, by the second and third respondents as liquidatorsof WPC. On 15 April 2016 a special general meeting was convened. Aresolution was tabled terminating the action. Kaniah, acting on behalf of WPCvoted against the resolution. A party acting for the liquidators, who also hada power of attorney for Chao voted on behalf of creditors, in favour of theresolution. As a consequence, given the holding of members’ interests in theclose corporation, the resolution was passed by the majority of members.

As a consequence of the liquidators’ failure to institute the application fordirections from the court, and the legal advice they received indicating theywere bound by the resolutions passed at the meeting, Kaniah brought anapplication for an order in accordance with the provisions of section 66 of theClose Corporations Act (no 69 of 1984), read with section 387(4) of theCompanies Act (no 71 of 1973), interdicting the liquidators from withdrawingthe action.

Held—Section 384(7) provides that any person aggrieved by any act or decision of

a liquidator may apply to the court and thereupon the court may make suchorder as it thinks just.

The question to be decided was whether, by following the resolution takenat the meeting of creditors and members, the liquidators acted in a way that no

370 KANIAH v WPC LOGISTICS (JOBURG) CCHENRIQUES J 2018 SACLR 47 (KZD)

reasonable liquidator could have acted requiring interference by the court. A reasonable liquidator must not only consider the interests of members but

also creditors. The liquidators acted bona fide throughout. Their conduct couldnot be said to be mala fide nor that they acted in a way in which no reasonableliquidator would have acted. The difficulty which the liquidators had was that,given the make-up of the membership WPC, Chao and Firfirey together withthe creditors, may have been in a position to always vote against proceedingwith the action instituted. The remedy available to a minority member likeKaniah would have been to approach the court to direct that it makes suchorder as it thinks just. The liquidators did not act unreasonably and acted bonefides and also in a way that a reasonable liquidator would have acted.

The liquidators had indicated that they were not opposed to Kaniahproceeding with the action provided a suitable indemnity for costs was put up.As Kaniah wished to proceed with the litigation, the appropriate course tofollow was that which made provision for him to provide a suitable indemnityfor costs.

Kaniah was therefore entitled to proceed with the action instituted by theliquidators in the name of the liquidators and at his own cost.

Advocate M Bingham instructed by Henwood Britter & Caney,Durban, appeared for the applicantAdvocate RM Van Rooyen instructed by Edward Nathan Sonnenbergs,Cape Town, appeared for the second and third respondentsAdvocate SW Burger instructed by Waal Boschoff Inc Attorneys, CapeTown, appeared for the fourth and fifth respondents

Henriques JIntroduction[1] The applicant seeks an order inter alia directing the liquidators (thesecond and third respondents) to pursue an action instituted against thefourth respondent, in terms of inter alia s 66 of the Close CorporationsAct, read with s 387(4) of the Companies Act 61 of 1973 (the Act).[2] The relief foreshadowed in the notice of motion was the following:

‘2. That a Rule Nisi do issue calling upon the Respondents and/or allinterested parties to show cause why an order should not be made inthe following terms:(a) That in accordance with the provisions of Section 66 of the CloseCorporations Act, read with Section 387(4) of the Companies Act of

KANIAH v WPC LOGISTICS (JOBURG) CC 371HENRIQUES J 2018 SACLR 47 (KZD)

1973, the court directs that the Second and Third Respondents areinterdicted and restrained from withdrawing the action instituted bythem out of the Western Cape Division of the High Court of SouthAfrica under case number. 469/2015 against the Fourth Respondent;(b) That the Second and Third Respondents are further directed topursue the action instituted as aforementioned, notwithstanding theresolution purported to having been passed by creditors and membersof the First Respondent on 04 May 2016; (c) That should the Second and Third Respondents, consider that itis no longer appropriate or desirable to pursue the actionaforementioned and they wish to withdraw such action, they are toseek the directions of this court relating to such withdrawal;(d) That the Second and Third Respondents are directed toinvestigate whether it is appropriate to institute an action against theFifth Respondent in relation to a breach of her fiduciary obligationstowards the First Respondent and if considered appropriate, toinstitute such action;(e) That the costs of this application are to constitute costs in thewinding up of the First Respondent and are to pay the costs of thewinding up; …’

[3] On 23 June 2016 the rule nisi was issued, the applicant obtaininginterim relief, interdicting the second and third respondents fromwithdrawing the action against the fourth respondent. Such rule nisiwas extended until confirmed or discharged on 10 August 2016.Issues for determination

[4] Whether the court should:[4.1] confirm the rule nisi in its present form thereby interdicting theliquidators from withdrawing the action instituted in the WesternCape High Court under Case No. 469/2015 in circumstances wherea decision was made to withdraw the action by resolution of themajority of creditors and members at a creditors’ meeting of the firstrespondent (in liquidation).[4.2] direct the second and third respondents to pursue the actionnotwithstanding such resolution;[4.3] in the alternative direct the applicant to pursue the action in thename of the second and third respondents subject to a suitable


indemnity for costs. [5] The application is opposed by the fourth and fifth respondents. Thesecond and third respondents have filed an affidavit explaining whattranspired at the meeting of creditors, and have indicated they willabide the decision of the court, provided no costs order is pursuedagainst them.Background facts[6] It is common cause that:[6.1] The first respondent was placed in provisional liquidation byorder of the above honourable court on 3 May 2013 under Case No.3700/2013 and a final order of liquidation made on 10 July 2013.[6.2] The second and third respondents are the liquidators of the firstrespondent;[6.3] The applicant and the fourth and fifth respondents are membersof the first respondent, the applicant and fourth respondent eachholding a 45 percent members interest and the fifth respondent holdinga 10 percent interest.[6.4] The first respondent was wound up as a solvent close corporationon just and equitable grounds due to a breakdown in the relationshipbetween the applicant and the fourth respondent, its principle members.At the time of the provisional liquidation, it was envisaged that the firstrespondent’s creditors would be paid in full and it subsequentlytranspired they have been paid in full.[6.5] As a consequence of an investigation into the affairs of the firstrespondent and an interrogation of the fourth respondent, specificallyin relation to his loan account and monies allegedly paid by him to theWPC Hong Kong entity, it became apparent that amounts totallingR6 689 988.30 had been withdrawn or paid from a banking account ofthe first respondent on behalf of the fourth respondent. [6.6] The fourth respondent acknowledged the payments made butexplained that same were paid by him on behalf of the first respondentto the WPC Hong Kong entity in respect of monies due to him as hefunded the setting up of the entity. It also emerged that the fourth andfifth respondents had carried on a business under the name and style ofCheetah Shipping and the applicant alleged the fifth respondent was inbreach of her fiduciary obligations to the first respondent and itsmembers.


[7] In an endeavour to recover the amount paid on behalf of and to thefourth respondent, an action was instituted against the fourthrespondent and his spouse, Shi Ping Wang, by the second and thirdrespondents as liquidators of the first respondent. The action wasinstituted on the advice of counsel and an attorney appointed by thesecond and third respondents in the Western Cape High Court. Areading of the particulars of claim instituted in the action reflects anamount of R6 689 988.30 claimed in respect of withdrawals made fromthe bank account of WPC Logistics (Joburg) as follows:

‘9.1 … are monies due and payable by the First Defendant on loanaccount, which amounts are repayable on demand and which demandis hereby made. 9.2 in the alternative, constitute unlawful withdrawals and themisappropriation of funds of WPC Logistics (Joburg) by the FirstDefendant, 9.3 in the further alternative, are the loss suffered by WPC Logistics(Joburg) as a result of the breach of the duty arising from the FirstDefendant’s fiduciary relationship towards WPC Logistics (Joburg),9.4 in the further alternative, are the economic benefits derived by theFirst Defendant by reason of the breach of duty arising from the FirstDefendant’s fiduciary relationship towards WPC Logistics (Joburg),9.5 in the further alternative, are the amounts by which the estate ofWPC Logistics (Joburg) was impoverished and the joint estate of theFirst Defendant and the Second Defendant, alternatively thepartnership of which the First and Second Defendant are partners, hasbeen unjustly enriched at the expense of WPC Logistics (Joburg).’

[8] Whilst the action was pending, the fourth respondent attempted topersuade the second and third respondents not to pursue the action asthe only person who would benefit from such a claim was the applicantas all the creditors were paid in full. Pursuant to this, the fourthrespondent’s attorneys of record addressed correspondence to theapplicant indicating that if he wished to pursue a claim he should do soon his own and this should not form part of the proceedings in theliquidation. Despite this request, the second and third respondents, onthe advice of counsel, decided to proceed with the action. [9] Subsequently, the fourth respondent’s attorneys called upon the firstand second respondents to convene a meeting of creditors. However,


the second and third respondents were of the view that there was nopoint in a meeting as creditors were to be paid in full. At the insistenceof the attorneys of the fourth respondent, a meeting of creditors wasconvened by the second and third respondents on 19 August 2015.That meeting was subsequently adjourned. On 11 September 2015, thesecond and third respondents confirmed that it was necessary for aspecial general meeting to be convened. Notice of the meeting wasprovided and same was to be conducted on 21 October 2015. [10] On 19 October 2015, the attorneys acting for the fourth respondentgave notice that at the meeting of 21 October 2015 they wouldrepresent those creditors with proved claims as well as the fourth andfifth respondents. They intended to provide a direction to the secondand third respondents to withdraw the legal proceedings instituted inthe Western Cape High Court against the fourth respondent and hisspouse. [11] Correspondence was then exchanged subsequent to the meeting.The applicant’s attorneys indicated to the second and third respondents’attorneys that there was a material conflict of interest in theconsideration of the resolution insofar as the fourth respondent wasconcerned, and he ought to have been precluded from voting. Theyfurther suggested that the second and third respondents makeapplication to the High Court for directions from the court relating tothe further conduct of the litigation, specifically the withdrawal of theaction as against the fourth respondent and his spouse. [12] The special general meeting did not take place as same was notproperly constituted. In the interim, the second and third respondentsthrough their attorneys of record, indicated, they were obtaining a legalopinion. Subsequently, on 15 April 2016 a special general meeting wasconvened. A resolution was tabled terminating the action against thefourth respondent and his spouse. The applicant acting on behalf ofWPC Logistics (SA) CC voted against the resolution. Nichola Cronjeacting for the second and third respondents, who also had a power ofattorney for the fourth respondent voted on behalf of creditors, infavour of the resolution. As a consequence, given the holding ofmembers’ interests in the close corporation, the resolution was passedby the majority of members. [13] As a consequence of the second and third respondents’ failure to


institute the application for directions from the court, and the legaladvice they received indicating they were bound by the resolutionspassed at the meeting, the applicant instituted this application.Submissions of the respective parties[14] The applicant submits the following:

[14.1] He is aggrieved by the decision of the liquidators, to withdrawthe action against the fourth respondent and his wife;[14.2] This court has an unfettered judicial discretion by virtue of s387(4) of the Companies Act to ‘make such order as it thinks just’;[14.3] The section allows a court to interfere in the administration ofthe company’s estate in the following circumstances:[14.3.1] Where a liquidator has acted in a way in which no reasonableliquidator would have acted;[14.3.2] Although acting in good faith, a liquidator took into accountconsiderations which ought not have been taken into account,alternatively failed to take into account considerations which oughtto have been taken into account;[14.3.3] The liquidators have failed to apply their minds as althoughs 387(1) requires them to have regard to directions given to them ata meeting by way of resolution of creditors and members, they havedealt with the matter as though the subsection binds them to followsuch resolution;[14.3.4] They have failed to consider the following relevant facts,namely that the close corporation is solvent and at the time ofliquidation, it was known that all creditors would be paid in full andhave subsequently been paid in full. As a consequence the creditorshave no interest in the outcome of the action instituted in the WesternCape High Court.[14.3.5] The reason for the liquidation of the first respondent was thatthe company was deadlocked and a minority shareholder would, hadthe company not been liquidated, been entitled to bring a derivativeaction either at common law or under the statute. Once liquidationhas occurred, then an aggrieved minority shareholder can either askthe liquidator to bring an action in the name of the company, in whichcase the liquidator will seek an indemnity for costs, or if a liquidatoris unwilling to bring such action or seeks an unreasonable basis for


doing so, the minority shareholder can then apply in terms of s 387(4)of the Act for directions from the court. Where the minorityshareholder approaches the court in terms of s 387(4), the court canauthorise the action in the name of the company or direct theliquidator to do so seeking a suitable indemnity for costs.

[15] The second and third respondents have indicated that they do notoppose the relief sought and abide by the decision of the court, saveinsofar as it relates to any cost order being sought against theliquidators. In the heads of argument submitted by Mr van Rooyen onbehalf of the second and third respondents, the following submissionis made:

‘It is submitted that a feasible resolution to the issue in questionshould be that the applicant take cession of the first respondent’sclaim against the fourth respondent. Litis contestatio have beenreached and the applicant is permitted to continue the litigation in thename of the first respondent post litis contestatio. This is howeversubject to the submissions made regarding the provision by theapplicant of a suitable indemnity and acceptable security for anadverse costs order.’

[16] The second and third respondents submit that they have a duty andobligation when administering a company in liquidation not only to actin the interests of creditors but to also consider the interests ofmembers. Once the resolutions were adopted at the meeting, they actedreasonably given the circumstances and called upon the applicant to actin terms of s 387 of the Act and provided an undertaking not to act interms of such resolution provided he took the necessary steps. [17] The fourth and fifth respondents submit the following. Theliquidators acted pursuant to a meeting called on 4 May 2016 where aresolution of creditors and members was passed directing them towithdraw the action against the fourth respondent and his wife.Liquidators are obliged to adopt the directions given by resolution ofcreditors and members in terms of s 387(1) of the Act. As aconsequence, there is no basis for arguing that the liquidators failed toapply their minds to the issue at all. The liquidators acted reasonablyand the action caused a conflict between the interests of the applicantand the interests of everyone else. The liquidators pursuing the actionwith available funds in the first respondent’s estate would have eroded


the estate of the first respondent. It would also prevent the finalisationof the liquidation process which had been ongoing for more than threeyears. [18] The fourth and fifth respondents further submit that a court willnot lightly interfere with the bona fide decision of liquidators andwhere there is no lack of bona fides, the question is whether in thecircumstances the liquidators have acted in a way that no reasonableliquidator could have acted. The fourth and fifth respondents submitthat this court cannot find that the liquidators acted in circumstanceswhich no reasonable liquidator would have acted in by following thedirections of the majority of creditors and members of the firstrespondent. In addition, had they pursued the action, they would haveexposed the solvent estate of the first respondent to the risk of litigationwhich action the fourth respondent submits has no merit. The fourthrespondent submits that there exist no exceptional circumstances tointerfere with the decision of the liquidators nor can it be said that theyacted ‘utterly unreasonably’.Analysis[19] Section 384(7) reads as follows:

‘Any person aggrieved by any act or decision of a liquidator mayapply to the Court after notice to the liquidator and thereupon theCourt may make such order as it thinks just.’

[20] Section 387 of the Act provides for an aggrieved person toapproach the court for relief in circumstances where the liquidatorrefuses to follow directions or where the liquidator acts unreasonablygiven the circumstances. What is meant by an aggrieved person hasbeen the subject matter of a number of decisions. In Gore NO v ShaffBinns-Ward J considered this term:

‘The term 'any person aggrieved' employed in s 387(4) is somewhatimprecise, and it is thus perhaps not surprising that its import hasbeen the subject of debate; cf. Francis George Hill Family Trust vSouth African Reserve Bankand Others 1992 (3) SA 91 (A), at 98I –102E, Strauss and Others v The Master and Others NNO 2001 (1)SA 649 (T), at 659H-661G, and LL Mining Corporation Ltd v Namco(Pty) Ltd (In Liquidation) and Others 2004 (3) SA 407 (C), at414A-G. As Beadle ACJ observed in Concorde Leasing Corporation(Rhodesia) Ltd v Pringle-Wood NO and Another 1975 (4) SA 231


(R), a person who is able to show that he should be afforded a remedyin terms of s 387(4) (or its equivalent in other statutory regimes)obviously qualifies as a 'person aggrieved' for the purposes of theprovision; approached in that manner, attempting to define the termis to beg the question. I shall therefore proceed directly to considerwhether Mrs Wolpe has established an entitlement to the remedy.’

[21] The Privy Council held ‘The words “person aggrieved” are of wideimport and should not be subjected to a restrictive interpretation. Theydo not include, of course, a mere busybody who is interfering in thingswhich do not concern him; but they do include a person who has agenuine grievance because an order has been made which prejudiciallyaffects his interests’.[22] It seems to me that the applicant falls within the definition of anaggrieved member for purposes of this application although nothingfurther need be said about this. The parties agree that the applicant haslocus as a minority member to seek relief in terms of s 387. [23] Subsection 4 empowers the court to make whatever order ‘as itthinks’ just. Such discretion is not restricted. The authorities have heldthat a court will not lightly interfere with a bona fide act or a decisionbona fide taken by a liquidator. In circumstances where there is no lackof bona fides by the liquidator, then the question to be asked is whetherin the circumstances the liquidator has acted in a way in which noreasonable liquidator could have acted, having regard to the objects ofwinding-up and a liquidator’s duty in general. In Re: Edennote Ltd thecourt of appeal in applying the comparable provisions of s 167(5) of theEnglish Insolvency Act 1986 held the following as constituting thecorrect test to follow:

‘(fraud and bad faith apart) … the court will only interfere with theact of a liquidator if he has done something so utterly unreasonableand absurd that no reasonable man would have done it.’

[24] It must at all times be borne in mind that a liquidator in thewinding-up of a company owes a duty both to the company and tocreditors. In Van Zyl NO v Commissioner for Inland Revenue HodesAJ said:

‘It should be remembered that a company in liquidation isadministered not only for the benefit of creditors, but that theliquidator is obliged to take the interest of members into account. In


terms of s 342(1) of the Companies Act, if there is surplus afterpayment to creditors, this goes to members. The interest of membersin the proper winding-up of the company is recognised in ss 360(1),386(3)(a) and 387(1) of the Companies Act.’

[25] In Concorde Leasing Corporation supra at 235(A) Beadle ACJsaid the following:

‘He owes a duty to the company to see that its assets are realised andits liabilities minimised to the best possible advantage of thecompany and he owes a duty to the creditors to see that they sufferedthe least loss and receive the most advantageous dividend.’

[26]

In ConcordLeasing supra Beadle ACJ considered what is or is not reasonable inany given circumstance and quoted a passage from the judgment ofWatermeyer CJ in Vanderbijl Park Health Committee and Others vWilson and Others:

‘A reasonable man can of course come to an unreasonable conclusionthat the test is not merely the decision of a reasonable man but of areasonable man “applying his mind to the condition of affairs”. Ithink that means considering the matter as a reasonable man normallywould and then deciding as a reasonable man normally woulddecide.’

[27] Beadle ACJ was of the view that that is the way a court shouldapproach an issue like this. I align myself with the sentimentsexpressed.

[28]


[29] When the matter was adjourned I had requested the parties toprepare proposed draft orders for consideration should I be disposed toexercising the discretion in terms of s 387 of the Act. [30] I haveconsidered the proposed orders. I am of the view that the orderproposed by the second and third respondents is the most appropriateone. [31] The second and third respondents have no difficulty with theapplicant proceeding with the action provided proper indemnities arein place. It seems to me to be the best course to follow. [32] In myview the order proposed by the applicant does not appear to be in linewith the authorities I have been referred to. All the authorities I havebeen referred to suggest that the applicant be allowed to continue thelitigation upon giving proper indemnity to the second and thirdrespondents but also to the remaining respondents for the costs of theaction. At this point in time what must be borne in mind is that thisclose corporation was liquidated as a consequence of a complete andtotal breakdown in the relationship between the members – there is acomplete lack of trust, good faith and confidence among the members,and, none of the members can ever be expected to act reasonably in thecircumstances. [33] As the applicant wishes to proceed with the litigation, it seems tome that the appropriate course to follow is that which is set out in theline of authorities I have been referred to which make provision for theapplicant to provide a suitable indemnity for costs. It is for this reasonthat I propose to grant the order proposed by the second and thirdrespondents and not that proposed by the applicant.[34] A further matter which warrants attention is prayer (1)(d) of therule nisi directing the second and third respondents to investigate the


appropriateness of an action against the fifth respondent in relation tothe alleged breach of her fiduciary obligations. It must be borne inmind that an interrogation was held in relation to the fourth and fifthrespondents’ role in this matter. The fifth respondent’s conduct hasbeen the subject of an investigation at the enquiry. No action wasinstituted against her despite the legal opinion obtained by the secondand third respondents. In my view, it would serve no purpose tore-investigate the fifth respondent’s potential liability and consequentlythe relief sought in paragraph 1(d) of the notice of motion is notnecessary. Given that the second to fifth respondents were entitled tooppose the application, it is appropriate that the costs of the applicationbe the costs in the winding-up. The parties appear to be ad idem thatthis is an appropriate order. In light of the orders I propose to issue, theremainder of the relief in paragraphs 1(b) and (c) is superfluous. [35] In the premises the orders I issue are the following:

[1] Paragraph (1)(a) of the rule nisi issued on 23 June 2016 isconfirmed. The remainder of the relief contained in the rule nisigranted on 23 June 2016 is discharged.[2] The applicant is directed to pursue the action instituted by thesecond and third respondents (the liquidators) in their capacities asliquidators of the first respondent under Western Cape High CourtCase Number 469/2015 (the action) in the name of the liquidators andat his own cost.[3] The applicant hereby indemnifies and holds the liquidatorsharmless in respect of:[3.1] any and all claims which may arise against the liquidatorsresulting from the institution of the action, the pursuance thereof bythe applicant and the ultimate success or otherwise thereof;[3.2] any costs incurred by the liquidators in respect of the actionfrom the date of this order;[3.3] any cost orders granted by the High Court against theliquidators and/or the first respondent in the course of the pursuanceby the applicant of the action.[4] In relation to the orders in paragraphs 2 and 3 hereinbefore theparties hereby specifically agree that:[4.1] no orders as to costs in the pursuance of the action willinfluence or prejudice the position of the creditors of the first


respondent in any way;[4.2] in the event that a costs order is granted against the liquidatorsand/or the first respondent in the course of the pursuance of the actionby the applicant, the liquidators are hereby directed to levy acontribution in respect of such costs upon the applicant and the fourthand fifth respondents jointly and severally in their capacities asmembers of the first respondent (the members);[4.3] Upon the levying of any such contribution, the members aredirected to make immediate payment thereof and the liquidators arehereby authorised to set-off any such costs order against thecontribution to be levied upon the members;[5] The defendants’ rights to approach the Western Cape High Courtfor an order directing the applicant to set security for costs in theaction are reserved.[6] That the costs of this application are costs in the winding-up ofthe first respondent.

TUDOR HOTEL BRASSERIE & BAR (PTY) LTD vHENCETRADE 15 (PTY) LTD

Exceptio non adimpleti contractus inapplicable to a lease agreement whichprovides that rental is payable in advance

Judgment given in the Supreme Court of Appeal on 20 September 2017 bySwain JA (Navsa ADP, Leach JA, Molemela JA and Mbatha AJA concurring)

Tudor Hotel Brasserie & Bar (Pty) Ltd and Hencetrade 15 (Pty) Ltdconcluded a lease agreement. In terms thereof Tudor took occupation of certainpremises situated in Cape Town. Clause 10.1 of the lease provided that allpayments in terms of the lease were to be made by the tenant to the landlordshall be on or before the first day of each month without demand, free ofexchange, bank charges and without any deductions or set off whatsoever.Clause 21.1.2 provided that Tudor would not have any claim of any naturewhatsoever against Hencetrade whether for damages, remission of rent orotherwise, for any failure of or interruption in the amenities and servicesprovided by the landlord, any local authority and/or other service provider tothe leased premises, building and/or property unless such failure orinterruption was caused by the negligent or wrongful act or omission byHencetrade.

At the time that Tudor was given occupation of the premises, Hencetradehad retained a portion of the third floor of the premises to store property.

As a result of Tudor’s default in failing to pay rental, Hencetrade cancelledthe lease, and applied for the eviction of Tudor from the premises. Tudoropposed the application on the grounds that its obligation to make paymentwas suspended as a result of the failure by Hencetrade to afford it ‘vacantoccupation or beneficial use of the entire leased premises’.

Held—The right to refuse performance of an obligation on the grounds that the

party to which such performance was due had itself failed to perform (theexceptio non adimpleti contractus) is conditional upon the reciprocity of thetwo obligations.

In the present case, the provision that the rental was to be paid on or beforethe first day of each month had the effect that it was to be paid in advance byTudor. The obligation to pay the rental was accordingly not reciprocal toHencetrade’s obligation to provide beneficial occupation of the entirepremises. Furthermore, clause 21.1.2 precluded the withholding of rental asa result of a ‘failure of or interruption in the amenities and services providedby the landlord.’

384 TUDOR HOTEL BRASSERIE & BAR v HENCETRADESWAIN JA 2018 SACLR 61 (A)

The terms of the lease therefore precluded suspension of the payment ofrental by Tudor as a result of the failure by Hencetrade to afford

Advocate S Rosenberg SC instructed by Jason Freel Attorneys, Cape Town,appeared for the appellantAdvocate P White instructed by Herold Gie Attorneys, Cape Town, appearedfor the respondent

Swain JA:[1] The respondent, Hencetrade 15 (Pty) Ltd, successfully brought anapplication before the Western Cape Division, Cape Town(Binns-Ward J) for the eviction of the appellant, Tudor Hotel Brasserie& Bar (Pty) Ltd, from premises located at 153 Longmarket Street, CapeTown, used by the appellant to conduct the business of a hotel. [2] The right to occupation of the premises by the appellant was basedupon a written lease agreement concluded between the parties on 29June 2012. The eviction was granted on the basis that the respondenthad validly cancelled the lease after the appellant had fallen into arrearswith the rental payments. Despite the respondent having afforded theappellant the requisite notice to cure its default, it had failed to do so.[3] The appellant admitted that it had not paid the rental in terms of thelease agreement, but denied that any was due, on the basis that itsobligation to make payment was suspended as a result of the failure bythe respondent to afford to the appellant, ‘vacant occupation orbeneficial use of the entire leased premises’. It was common cause thatat the time that the appellant was given occupation of the premises, therespondent had retained a portion of the third floor to store property. [4] The legal basis for the argument of the appellant was the exceptionon adimpleti contractus. (the ‘exceptio’). The appellant submitted thatthis raised the legal question of whether the exceptio was available toa lessee who received only partial occupation of leased premises, butdid not cancel the lease.[5] The court a quo pointed out that the appellant's approach to theissue of its liability to make payment of the rental ran counter to a lineof authority commencing with Arnold v Viljoen 1954 (3) SA 322 (C)and stated (at para 9) that:

‘In terms of that line of authority, a lessee who takes occupation of

TUDOR HOTEL BRASSERIE & BAR v HENCETRADE 385SWAIN JA 2018 SACLR 61 (A)

premises which are deficient in any respect is obliged, while itremains in occupation, to pay the full rental stipulated in terms of thelease. Its remedy is to claim compensation by way of an abatementof rental and/or damages. A lessee who, having taken occupation,fails to pay the full rental is exposed to the cancellation of the leasefor non-payment.’

[6] The court a quo then referred to the decision in EthekwiniMetropolitan Unicity Municipality (North Operational Entity) v PilcoInvestments CC [2007] ZASCA 62; [2007] SCA 62 (RSA) para 22,where the following was stated:

‘It follows that, upon taking occupation of the property in late 1994,the plaintiff became obliged to pay rent to the defendant, as stipulatedin clause 1 of the lease. Of course, because the plaintiff was, untilearly June 1997, deprived of the use of that portion of the propertywhich was being used by the person making pre-cast fencing, theplaintiff would be entitled to a remission of rent over the period inquestion, proportional to its reduced use and enjoyment of theproperty. If the amount to be remitted was capable of promptascertainment, the plaintiff could have set this amount off against thedefendant's claim for rent; if not, the plaintiff was obliged to pay thefull rent agreed upon in the lease and could thereafter reclaim fromthe defendant the amount remitted.’

[7] The court a quo applied this principle and concluded in para 13that:

‘ . . . unless the abatement in rent to which the respondent might havebeen entitled in respect of the part of the third floor of Huys HeerenXVII not made available by the applicant was capable of promptascertainment, the respondent was obliged to have paid the full rentalduring the first period.’

Finding that any remission in rental to which the appellant might havebeen entitled was not capable of prompt ascertainment, the court a quodecided that the appellant was in arrears in respect of the payment ofrental, when the respondent validly exercised its right to cancel theagreement. An order evicting the appellant from the leased premiseswas accordingly granted.[8] The respondent by way of supplementary heads of argument,relied upon the unreported decision in Baynes Fashions (Pty) Ltd t/a


Gerani v Hyprop Investments (Pty) Ltd [2005] JDR 1382 (SCA), for thesubmission that an interpretation of the provisions of clauses 10.1 and21.1.3 of the lease agreement is dispositive of the appeal. The court aquo found it unnecessary to consider the effect of these clauses uponthe right of the appellant to withhold payment of the rental. [9] In Baynes Fashions at para 4 the following relevant clauses in thelease agreement provided as follows:

‘6.2 All rentals payable by the TENANT in terms hereof shall be paidmonthly in advance without any deduction or set-off . . .. . .25.4 The TENANT shall have no claim against the LANDLORD forcompensation, damages, or otherwise by reason of any interferencewith his tenancy or his beneficial occupation of the premisesoccasioned by any . . . repairs or building works as herein beforecontemplated. . .’

[10] With regard to the interpretation of these clauses, the followingwas stated at para 5:

‘[7] With respect to clause 6.2 it is contended on behalf of theappellants that the word "payable" confers a right on the lessor toclaim payment only when it has performed in terms of the contract bygranting beneficial occupation to the lessee. As the respondent hasfailed to grant beneficial occupation to the first appellant, therebyfailing to perform in terms of the contract, so the argumentproceeded, the rent was not "payable".[8] There is no warrant for this construction. The clause imposes anobligation on the lessee to make payment of rent "in advance". Thismeans that the payment of rent by the lessee is not contingent uponprior performance by the lessor. In any event, the first appellantcontinues to trade and therefore does have beneficial occupation ofthe premises. The appellants’ real complaint is that the renovationseffected by the respondent have interfered with the first appellant'sright to occupy the premises beneficially in a manner that has led tothe first appellant suffering a substantial loss to its monthly turnover.This loss, contends the appellants, entitles the first appellant to deductthe rent which is "payable" to the respondent. The simple answer tothis complaint is that clause 25.4 in express terms, precludes thereduction of rent in these circumstances.


1 A J Kerr The Law of Sale and Lease 4ed (2014) at 427; Ebrahim, N O v Hendricks1975 (2) SA 78 (C) at 81E-F.

2 BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA391 (A) at 418B-D.

[9] It can hardly be clearer that clauses 6.2 and 25.4 are intended toprevent any deduction of rent by the lessee where the renovations thatare undertaken by the landlord in terms of clause 25.1 interferes withthe lessee's right of beneficial occupation. The appellants signed theagreement that contained these clauses and cannot now seek toextricate themselves from its consequences.’

[11] The agreement that the rent was payable ‘monthly in advance’had the effect of altering the usual position, that in the absence ofcontractual provisions, rent is payable in arrear at the end of eachperiod in the case of a periodical lease, after the lessor has fulfilled hisobligation1. The lease agreement therefore altered the reciprocal natureof the obligations of the lessor and the lessee. The obligation of thelessee to make payment of the rent was no longer reciprocal to theobligation of the lessor to grant beneficial occupation of the premisesto the lessee. [12]

[13] In Baynes Fashions, the interpretation the court placed upon theprovision that the rent was payable ‘in advance’, namely that ‘paymentof rent by the lessee is not contingent upon prior performance by thelessor’, necessarily involved a finding that the principle of reciprocitywas excluded by the terms of the lease.[14] The conclusion in Baynes Fashions that the lessee was notentitled to a ‘reduction of rent’, caused by interference with the lessee'sright of beneficial occupation, was based upon the provisions of clause6.2 that the rent was payable ‘without any deduction or set-off’, andclause 25.4 that the tenant would not have any claim against thelandlord ‘by reason of any interference with his tenancy or his


beneficial occupation of the premises’, caused by repairs or buildingworks. [15] The relevant clauses in the present lease agreement must beinterpreted against the background set out above. Clause 10.1 providesthat:

‘All payments in terms of this lease to be made by the tenant to thelandlord shall be made on or before the first day of each monthwithout demand, free of exchange, bank charges and without anydeductions or set off whatsoever – ’

[16] Clause 21 of the lease agreement provides for the ‘LandlordsLimitation of Liability’ in the following terms:

‘21.1 The tenant shall –21.1.1 . . .21.1.2 not have any claim of any nature whatsoever against thelandlord whether for damages, remission of rent or otherwise, for anyfailure of or interruption in the amenities and services provided bythe landlord, any local authority and/or other service provider to theleased premises, building and/or property unless such failure orinterruption is caused by the negligent or wrongful act or omission bythe Landlord or its agent or representative, notwithstanding the causeof such failure or interruption;21.1.3 not be entitled to withhold or defer payment of any amountsdue in terms of this lease for any reason whatsoever;’

[17]


[19] Counsel for the appellant, however, referred to the followingdictum in Poynton v Cran 1910 AD 205 at 227-228, in support of hissubmission that the appellant was entitled to withhold payment of therent, as a consequence of the failure of the respondent to grantbeneficial occupation of the entire premises to the appellant:

‘It remains to consider whether the evidence discloses anycircumstance which would deprive the tenant of the legal right whichhe exercised. I do not think that the clause in the lease providing forthe payment of rent on a certain day "without any deductionwhatever" has that result. That provision cannot relieve the landladyof her obligation to place the leased property in repair, or deprive thetenant of the remedy, which the law gives him in respect of her initialdefault. That default afforded pro tanto a defence to the claim forrent. And I entirely agree with the learned Judge when he says that "itis only the rent due which can be stipulated to be paid withoutdeduction”.’ (Emphasis added.)

[20] In Poynton the plaintiff let a hotel to the defendant for a year and11 months at a rental of £540 per annum ‘without any deductionwhatever’, with certain rights of renewal. The plaintiff sued thedefendant for £90 being two months arrears of rent. The defence wasthat the plaintiff had failed to put the hot water apparatus in properrepair and that after due notice to the plaintiff, the defendant hadeffected the repairs himself, the cost of which he set off against the rentdue. The highlighted portion of the judgement that, ‘it is only the rentdue which can be stipulated to be paid without deduction’, must be readin the context of the absence of any reference in the judgement to themonthly rental being payable by the defendant on the first of the month,ie in advance. The usual position accordingly prevailed and the rentwas payable by the defendant, as the tenant, in arrear at the end of eachmonth, after the plaintiff, as the landlady, had performed herobligations. On this basis the rent only became ‘due’ and thereforepayable by the defendant, after the plaintiff had performed herreciprocal obligations. It was only at this stage that the defendant wasobliged to make payment of the rent ‘without deduction’ to theplaintiff. The case is accordingly distinguishable on the facts from thepresent case where the rental was payable in advance. Moreover it doesnot appear that there was a clause such as clause 21.1.2.


[21] The appeal against the order of the court a quo evicting theappellant from the premises must accordingly fail. This conclusionrenders it unnecessary to deal with the statement by the court a quo,that any abatement in rent to which the appellant may have beenentitled was not capable of prompt ascertainment, with the result thatthe appellant was obliged to make payment of the full rental. [22] The following order is granted:The appeal is dismissed with costs.

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In this issue Commercial Law Reports...The Law Publisher CC CK92/26137/23 Part 1 (2018) Commercial Law Reports Consulting Editorial Board: The Honourable RH Zulman BCom LLB LLM, Former