Southern Engineering and Another v Council of the Municipality of Windhoek (SA 14 of 2009) [2011] NASC 1 (07 April 2011);
REPORTABLE
CASE
NO.: SA 14/2009
IN
THE SUPREME COURT OF NAMIBIA
In
the matter between
SOUTHERN JAN | First Second |
and
COUNCIL FOR | Respondent |
CORAM:
Maritz JA, Strydom AJA et O’Regan AJA
Heard
on: 07/07/2010
Delivered
on: 07/04/2011
APPEAL
JUDGMENT
O’REGAN
AJA:
The respondent, the Council for the
Municipality of Windhoek, successfully approached the High Court for
an order declaring that it had cancelled a lease agreement, and for
an order of eviction against the first appellant, Southern
Engineering. The two appellants now appeal to this Court to have the
orders made by the High Court set aside.
Factual Background
The case has a long history. In 2002,
the Municipality of Windhoek and the Ministry of Trade and Industry
approved a joint venture project with Ramatex Textiles Namibia (Pty)
Ltd and its two subsidiaries Rhino Garments (Pty) Ltd and Thai Wah
Garments (Pty) Ltd in terms of which textile and garment factories
were to be established in Windhoek that would train and employ 4000
Namibian citizens. For its part, the City of Windhoek provided 50%
of the infrastructure costs (the other 50% was provided by the
Ministry) and it also made land available for the factories. The
land in question in this case, 7.6 hectares situated on the
outskirts of Windhoek (“the leased property”), was made
available at a nominal rental to Rhino Garments (Pty) Ltd through a
99-year lease (“the lease agreement”) concluded on 13
March 2002. The lease agreement was endorsed by a resolution of the
Windhoek Municipal Council on 27 March 2002 but was never registered
with the Registrar of Deeds.
The terms of the lease agreement
provided that Rhino Garments (Pty) Ltd would not, without the prior
written consent of the Municipality, cede or assign any of its
rights or obligations under the agreement or sublet or give up
possession of the leased property to any third party. Moreover,
Rhino Garments (Pty) Ltd undertook not to use the leased property or
permit it to be used for any purpose other than garment
manufacturing.
The garment manufacturing enterprise
was not a success and by March 2005, Rhino Garments had ceased
operations on the leased property. According to the Municipality,
Rhino Garments was in material breach of many of the provisions of
the lease agreement.
On 21 June 2005, Arthur Preuss, who
was cited as seventh respondent in the High Court proceedings but
who is not a party to this appeal, obtained a default judgment
against Rhino Garments. On 18 July 2005, the Deputy Sheriff for the
District of Windhoek (cited as sixth respondent in the High Court
proceedings and again not a party to the appeal) purported to attach
the right, title and interest of Rhino Garments in the lease
agreement and thereafter published notice of an intended sale in
execution of the right, title and interest in the lease agreement to
take place on 8 December 2005. The sale in execution did not
proceed. According to Mr Preuss, in the affidavit he lodged in the
High Court, the sale was not held because he had been informed that
the lease agreement had been cancelled.
On 25 November 2005, the Chief
Executive Officer of the Municipality wrote to Rhino Garments
demanding that they rectify their material breach of the lease
agreement within 30 days, which Rhino Garments failed to do. So on 3
January 2006, the Chief Executive Officer wrote to Rhino Garments to
the effect that “the lease agreement is cancelled with
immediate effect”. The first letter was sent to the registered
offices of Rhino Garments, but the second letter, the cancellation
notice, was sent to the address where Rhino Garments’
administrative office had been situated, but by the time the letter
was sent Rhino Garments was no longer trading. There is thus a
dispute as to whether the letter was ever received by Rhino
Garments. On 16 January 2006, the management committee of the
Council was informed of the cancellation of the lease and the
cancellation was minuted and tabled in the full Council later that
month.
On 27 November 2006, Rhino Garments
was provisionally liquidated. In the application for provisional
liquidation, the applicant (Mr Preuss) stated that the lease
agreement had been cancelled. Provisional liquidators were appointed
on 13 December 2006, and, on 1 June 2007, Rhino Garments was wound
up. The liquidators were aware that the City had purported to cancel
the lease. On 9 October 2007, the liquidators sent a notice to all
creditors giving notice of its intention to consider offers for the
purchase of “rights, title and interest in the buildings”
erected on the land which is the subject of the lease agreement. On
23 October 2007, the liquidators wrote to the City stating that they
elected “to the extent possible” to exercise their right
to continue the lease agreement.
On 31 October 2007, the Chief
Executive Officer of the Municipality of Windhoek replied to the
letter of 9 October 2007 stating that the lease with Rhino Garments
had been cancelled eighteen months before. The liquidators were also
informed that neither the property nor the improvements on the land
were assets in the estate of Rhino Garments and that any alienation
of the land, the property or the improvements thereon, or of the
lease agreement or rights or interests in the lease agreement would
be null and void.
On 5 November 2007, Mr Jacobs on
behalf of Southern Engineering, the first appellant, wrote to the
Municipality’s chief executive officer and stated that
Southern Engineering was the successful tenderer in the liquidation
process in regard to Rhino Garments’ rights and title in the
lease agreement, and to the buildings on the leased property. He
further stated that they had taken possession of the leased property
on 30 October 2007 and had paid N$6,8 million to the liquidators. Mr
Jacobs further stated that he was not aware of the cancellation of
the lease agreement until 1 November 2007
On 12 November 2007, the
Municipality’s Chief Executive Officer wrote to the joint
liquidators and copies of the letter were sent to, amongst others,
Southern Engineering. In the letter, he stated that the Municipality
had noted the presence of the first appellant on the leased property
during a site inspection on 8 November 2007 and that the liquidators
did not have the right to sell the buildings or the right and title
in the lease. On 15 November, the first appellant wrote to the
Municipality stating that it was in possession of the leased
property that it had obtained lawfully and in good faith.
On 1 February 2008, the Municipality
wrote to the first appellant asking it to vacate the leased
property, which they failed to do. On 14 April 2008, the Council of
the Municipality by resolution ratified the cancellation of the
lease that had been contained in the letter of the Chief Executive
Officer dated 3 January 2006. After several further exchanges of
correspondence, the Municipality launched proceedings in the High
Court on 28 April 2008 seeking an order confirming that the lease
contract with Rhino Garments had been cancelled, an eviction order
against first and second appellants and an order granting the
Municipality leave to institute legal proceedings against first
appellant to recover a fair and reasonable amount for the duration
of the first appellant’s unlawful occupation of the leased
premises.
The main issue before the High Court
was whether the lease agreement had been cancelled by the
Municipality or not. The High Court held that the Municipality had
done everything it could to communicate the notice of cancellation
to Rhino Garments and that in the circumstances it deemed the notice
to have been brought to the attention of Rhino Garments. The High
Court also held that although communication of cancellation is
ordinarily desirable, it is not necessary to communicate a
cancellation if the contracting party has made it impossible for the
other party to communicate with it. In the view of the High Court,
the conduct of Rhino Garments had made it impossible for the
Municipality to communicate the cancellation. In regard to the
question whether the Chief Executive Officer had had authority to
cancel the lease, the High Court held, relying on Potchefstroomse
Stadsraad v Kotzé, 1960 (3) SA 616 (A) and Walvis Bay
Municipality and Another v Occupiers of the Caravan Sites at Long
Beach Caravan Park, Walvis Bay, 2007 (2) NR 643 (SC), that the
authorization could not be questioned. I return to this issue later.
Accordingly, the High Court granted the relief sought by the
Municipality. Its order read as follows:
“1.
The cancellation of the lease agreement concluded between the
applicant and Rhino Garments Namibia (Pty) Ltd on 13 March 2000 is
confirmed;
2.
The third respondent (Southern Engineering) is evicted with immediate
effect from the portion of the land previously leased in terms of the
lease agreement concluded on 13 March 2000 between the applicant and
Rhino Garments Namibia (Pty) Ltd, presently in liquidation;
3.
The applicant (Council for the Municipality of Windhoek) is granted
leave to institute legal proceedings against third respondent to
recover a fair and reasonable amount from the third respondent for
the duration of third respondent’s unlawful occupation of the
leased premises on Farm 466.”
It is against this order that the
appellants appeal.
Appellants’ submissions
In this court, the appellants argued,
amongst other things, that:
(a) the Municipality had not validly
cancelled the lease agreement because the Chief Executive Officer of
the Municipality had not been duly authorized to cancel the agreement
and the City’s purported ratification of the cancellation in
April 2008 was invalid as it would affect the rights of third
parties;
(b) even if the Chief Executive
Officer was authorized to cancel the lease agreement, the
cancellation of the lease agreement was never validly communicated to
Rhino Garments and therefore the lease agreement had never been
cancelled;
(c) that the assignment of the lease
by the liquidators to Southern Engineering was valid and that
Southern Engineering had purchased the property bona fide for
value from the liquidators and that its title to the property could
not thus be assailed by the Municipality.
Respondent’s submissions
The respondent raised the following
arguments, amongst others, on appeal:
(a) Rhino Garments had repudiated the
lease agreement, which was then cancelled once the repudiation was
accepted;
(b) the notice of cancellation was
sufficiently communicated to Rhino Garments in January 2006, and if
it was not, the cancellation took effect at the latest once the
liquidators, who stepped into the shoes of Rhino Garments, had
knowledge of the notice to cancel;
(c) the Municipality had validly
ratified the cancellation of the lease agreement in April 2008;
(d) the liquidators could not cede the
rights and interests in the lease to Southern Engineering without the
consent of the Municipality which was not given; and
(f) Southern Engineering was not using
the property for a purpose contemplated in the lease agreement and
therefore the liquidators could not validly cede the rights in the
lease to Southern Engineering.
The respondent also raised a new
point on appeal based on section 37(2) of the Insolvency Act, 24 of
1936, which is rendered applicable to the liquidation of companies
by section 339 of the Companies Act, 61 of 1973. Section 37(2)
provides that if a trustee does not inform a lessor within three
months of appointment that he or she intends to continue with the
lease, the lease will be deemed to have terminated three months
after the trustees were appointed. The respondent argued that, as
“liquidator” is defined in the legislation to include
“provisional liquidator”, the provisional liquidators
had had three months from the date of their appointment on 13
December 2005 within which to notify the City of their intention to
persist with the lease. As they had failed to do so, the lease had
automatically terminated on 12 March 2007 in terms of both section
37(2) of the Insolvency Act and clause 23 of the lease, which
contained a similar provision.1
Issues for determination in this
appeal
Three issues arise for determination:
(a) Was the lease agreement cancelled
by the Municipality?
(b) Was the High Court correct in
ordering the eviction of the first appellant from the leased
premises?
(c) Was the High Court correct to make
an order granting the Municipality leave to sue Southern Engineering?
I shall deal with each in turn.
Cancellation of the lease
Three issues arise in relation to
determining whether the lease was validly cancelled: the first is
whether the purported ratification of the Chief Executive Officer’s
cancellation of the lease agreement by the City on 14 April 2008 was
valid; the second is whether there was adequate notice of the
cancellation to the lessee (Rhino Garments) and the third is
whether, if the agreement was not cancelled by the Municipality, it
terminated by effluxion of time in terms of the provisions of
section 37(2) of the Insolvency Act.
(a) Ratification of the
cancellation of the lease
On 27 November 2005, the Chief
Executive Officer of the Municipality wrote to Rhino Garments
requiring it to rectify its material breaches of the lease agreement
within 30 days and on 3 January 2006, the Chief Executive Officer
wrote to Rhino Garments purporting to cancel the lease agreement
because the material breaches had not been rectified. The
Municipality’s Management Committee passed a resolution on 16
January 2006 noting that the lease agreement had been cancelled from
3 January 2006 and those minutes were approved in a resolution
passed by the Municipal Council on 25 January 2006. It may well be
that by approving the Municipal Committee minutes in this way, the
Municipal Council tacitly ratified the cancellation of the lease
agreement. It is not necessary for us to decide this question,
however, because on 14 April 2008, the Council of Windhoek passed a
resolution expressly ratifying and approving the cancellation of the
lease agreement with Rhino Garments on 3 January 2006 with effect
from that date.
The appellants argue that the Chief
Executive Officer was not duly authorized to cancel the lease on 3
January 2006, and that the subsequent ratification of 14 April 2008
is not valid for two reasons. First, they argue that the lease could
not lawfully be cancelled on 3 January 2006 because Rhino Garments’
right, title and interest in the lease agreement had been attached
by that date with the consequence that any cancellation of the lease
would be a nullity. As the cancellation was a nullity, it could not
subsequently be ratified. They also argue that the ratification of
the cancellation would constitute a fraud on creditors given that
Rhino Garments was in liquidation and for that reason too would be a
nullity. Secondly, they argue that a valid ratification may not
interfere with the vested rights of third parties. Because Southern
Engineering had been assigned Rhino Garments’ rights, title
and interest in the lease agreement by the liquidators, any
subsequent ratification of the purported cancellation of the lease
agreement would be invalid.
It is clear that the cancellation
will not be valid despite subsequent ratification by the Council, if
the circumstances are such that the cancellation would have been a
nullity from the start even if it were to have been done by the
Council at that time, for it is not possible to give legal effect to
a nullity by ratification.2
Was the cancellation on 3 January
2006 a nullity from the outset because, as the appellants argue, the
lease had been attached and therefore the Council was not permitted
to cancel the lease without first setting aside the attachment? The
appellants rely on the criminal prohibition contained in section
36(c) of the High Court Act, 1990 for this submission. That section
provides that:
“Any
person who …
(c)
being aware that goods are under arrest, interdict or attachment by
order of the court, makes away with or disposes of those goods in a
manner not authorized by law, or knowingly permits those goods, if in
his or her possession or under his or her control, to be made away
with or disposed of in such a manner; …
shall
be guilty of an offence …”
The first question is what had been
attached. The return on the Writ of Execution stated that the Deputy
Sheriff had “seized and laid under judicial attachment the
Defendant’s right, title and interest in the lease agreement
entered into between the City of Windhoek and the Defendant”.
It is clear from the return that what had been attached was whatever
right, title and interest the Defendant (Rhino Garments) had in the
lease agreement as at the date of the attachment, 18 July 2005.
Does the attachment of such right,
title and interest affect the rights of the other party under the
lease agreement? In particular, does the attachment prevent the
other party to the lease agreement exercising its contractual rights
in respect of the lease agreement? Counsel for the appellants argued
that, given the provisions of section 36(c) of the High Court Act,
the effect of the attachment was to deprive the Council of its right
to cancel the agreement and that any purported cancellation would be
a nullity.
There is a flaw in this argument.
Section 36(c) refers to “goods” not to “incorporeal
property.” It is not clear if the use of the term “goods”
in the subsection includes within its scope attached rights in a
lease agreement as the term “goods” often denotes
corporeal property only. However, assuming in favour of the
appellants that the term “goods” does include
incorporeal property, such as the attached rights in the lease
agreement, section 36(c) only prohibits the disposition of attached
goods in a manner “not authorized by law”.
If Rhino Garments was in material
breach of the lease (as is not disputed on the record before us),
the Council would have been entitled to cancel the lease in terms of
its contractual rights. If it elected to do so, that cancellation
would be a cancellation “authorized by law” as
contemplated by section 36(c).
The attachment of Rhino Garments’
interest in the lease agreement cannot increase the rights and title
that Rhino Garments may have under the lease. Nor, in the absence of
any express wording in the statute, may the attachment of Rhino
Garments’ rights in the lease agreement deprive the Council of
its rights under the lease agreement.
The appellants argue that
cancellation by the City after the liquidation of Rhino Garments
would be a nullity because it would prejudice the creditors in the
estate. However, it is clear that a lessor’s right to cancel a
lease agreement survives the liquidation of the lessee. As Friedman
J stated in Smith and Another v Parton NO, 1980 (3) SA 724
(D) at 729 D – E:
“Once
one accepts, therefore, that the only real basic principle is that
the contract survives the insolvency, then it seems to me to follow
inevitably that the accrued right to cancel survives. Where the
creditor decides after insolvency to exercise his right of
cancellation against the trustee; he elects to exercise a right which
he has and which has survived the insolvency.”
The liquidation of the insolvent
company thus does not deprive the lessor of an accrued right to
cancel the lease agreement. Consequently, section 36(c) of the High
Court Act did not preclude the cancellation of the lease and the
cancellation when it took effect does not impermissibly prejudice
creditors. Accordingly, the argument that the cancellation of the
lease was a nullity because it would constitute a prejudice to
creditors in the concursus cannot be accepted.
In the circumstances, appellants’
argument that the ratification of the cancellation of the lease
agreement was a nullity must be rejected.
Did the purported ratification on 14
April 2008 interfere with the vested rights of third parties? The
rule was succinctly stated by Harms JA in Smith v Kwanonqubela
Town Council, 1999 (4) SA 947 (SCA) at para 12:
“… ratification
cannot affect vested rights previously acquired by third parties…
and a person ratifying cannot by his unilateral act bridge the
interval so as to prejudice others, not parties to the transaction…”.
What rights had Southern Engineering
acquired in the lease agreement? There is a dispute of fact on the
record as to whether Mr Jacobs and Southern Engineering were aware
of the cancellation letter of 3 January 2006.
But the deed of sale (furnished at a
very late stage of the proceedings)3
entered into between the liquidators
and Mr Jacobs, the proprietor of Southern Engineering, casts light
on the transaction. It provided that the purchaser purchased the
“rights, title and interest, such
as they may be, in the
Agreement of Lease between the City of Windhoek and Rhino Garments
Namibia (Pty) Ltd dated 13 March 2002, a copy of which is attached”
(emphasis added). Clause 3 of the agreement provided that “the
sellers give no guarantees
as to the good standing or existence of the Lease Agreement
and the Purchaser has undertaken the
risk of cession of the Lease Agreement into his name, and will bear
the costs thereof.” (emphasis added) The final clause in the
agreement stated that “the sellers have undertaken not to deal
with the purchase consideration for a period of 14 days … as
completion of this Agreement may be prevented by an order of the
High Court…”.
The unusual terms of the deed of sale
make clear firstly that the purchaser was provided with a copy of
the original lease agreement; and secondly that the seller had
specifically refused to warrant that the lease agreement remained in
existence. Moreover, no doubt because of the uncertainty of the
existence of the lease agreement, the parties considered that the
deed of sale might be prevented by High Court order.
It follows that the purchaser, Mr
Jacobs of Southern Engineering, was aware at the time that he signed
the deed of sale that what he was purchasing might, in the view of
the seller, not exist. The terms of the deed of sale do not
therefore support the claim that Southern Engineering or Mr Jacobs
were unaware of any uncertainties concerning the existence of the
lease. It is also clear that Mr Jacobs would have known from the
terms of the lease agreement (which was annexed to the deed of
sale), that the leased property had to be used for the specific
purpose of garment manufacturing, a term of the lease with which it
appears he could not comply.
In addition, Mr Jacobs and Southern
Engineering would have been aware of the provision in the lease that
the lease could not be assigned without the written consent of the
Council. Section 37(5) of the Insolvency Act makes clear that such a
clause binds the trustee of an insolvent estate. Southern
Engineering would thus have been aware that they could not be
assigned the rights, title and interest in the lease without the
permission of the Municipality. It is no doubt for this reason that
clause 3 of the deed of sale stated that “the purchaser has
undertaken the risk of cession of the Lease Agreement into his name,
and will bear the costs thereof”.
Section 82(8) of the Insolvency Act
provides protection to the bona
fide purchaser of property
from an insolvent estate where the sale is in contravention of the
requirements of section 82.4
Although section 82(8) probably has
no direct application in this case, the jurisprudence developed
under it as to what constitutes a purchase in “good faith”
is helpful. In considering this question in Mookrey
v Smith NO and Another, 1989
(2) SA 707 (C), a full bench of the Cape High Court held that:
“I
do not consider that a purchase of estate assets can be said to be
bona
fide unless
he believes that the trustee is acting within the scope of his
authority in selling the estate assets…. It is at least as
important to the proper administration of the Act and the estates of
solvent debtors that the trustee should not exceed his authority as
it is that creditors should not be prejudiced. Indeed, for a trustee
to exceed his authority will in most cases create the potential for
prejudice to creditors.”5
Given the terms of the deed of sale,
appellants’ assertions and arguments that Southern Engineering
purchased Rhino Garments’ right, title and interest in the
lease agreement, in good faith and unaware of any uncertainty as to
the ongoing validity of the lease by the Council, cannot be
accepted. The clear terms of the agreement make plain that there was
a large question mark over whether the lease was in existence (as
the liquidators expressly refused to guarantee its existence).
In all these circumstances, it cannot
be said that Southern Engineering or Mr Jacobs, had vested rights in
the lease agreement, sufficient to constitute a bar to the
ratification of the cancellation of the lease agreement by the
Council. As the purchaser, Mr Jacobs was aware that the existence of
the lease agreement was not certain, and he was also aware that if
the lease agreement still subsisted he required the consent of the
Council to its cession.
The appellants’ argument that
the ratification was not competent because it would interfere with
vested rights of a third party cannot for these reasons be accepted.
In the circumstances, I conclude that the clear ratification of the
cancellation of the lease agreement by the Council on 12 April 2008
was lawful and valid and would have had the effect that the lease
was cancelled if notice of cancellation came to the attention of the
lessee, an issue to which I now turn.
(b) Notification of cancellation to
Rhino Garments
The letter of 3 January 2006 was
delivered to an address that had been the operational address of
Rhino Garments, but not its registered address. In the
circumstances, it cannot be said on this record that Rhino Garments
obtained knowledge of the cancellation. The appellants argue that
for the cancellation to be effective, notice of the cancellation
must reach the lessee. It is not necessary to decide the question of
whether a lease may be cancelled without notice reaching the lessee
as it is clear in this case that the liquidators once they took
office were aware of the contents of the letter of 3 January 2006.
It is trite that liquidators step
into the shoes of the insolvent company and that the contract
survives insolvency.6
Moreover, as noted above, a lessor,
who has accrued a right to cancel a lease prior to insolvency, may
still exercise the right to cancel once the liquidation has taken
place.7
Once the liquidators became aware of
the notice of cancellation dated 3 January 2006, therefore, the
cancellation had been communicated to the lessee.
Given that I have concluded that the
lease was validly cancelled once the liquidators became aware of the
cancellation letter of 3 January 2006, it follows that the
liquidators did not have an election either in terms of clause 23 of
the lease agreement, or in terms of section 37(2) of the Insolvency
Act, to continue with the lease agreement. Nothing further need be
said about this issue.
One issue remains to be considered.
In dismissing the argument raised by Southern Engineering
challenging the authority of the Chief Executive Officer to cancel
the lease, the High Court relied upon a principle established in the
case of Potchefstroomse
Stadsraad v Kotzé, 1960
(3) SA 616 (A) as endorsed by this Court in Walvis
Bay Municipality and Another v Occupiers of the Caravan Sites at
Long Beach Caravan Park, Walvis Bay, 2007
(2) NR 643 (SC). That principle is that a municipality may not deny
that one of its officials acted on its behalf in circumstances where
the official has written to a member of the public purportedly with
the authority of the Council. The principle recognizes that it would
be unduly burdensome and inconvenient to require members of the
public to investigate whether an official has complied with the
internal regulations and processes of the municipality before
concluding that the official was indeed authorized by the
municipality to act. 8
In both the cases mentioned, it was a
municipality that sought to argue that its officials had acted
without authority and in both cases the courts held that the
municipality could not do so on the basis of the principle cited. In
this case, it is not the municipality seeking to challenge the
authority of its officials, but a member of the public and so the
legal principle established in these two cases finds no application.
Although this Court reaches the same conclusion as the High Court,
it does so for different reasons.
Eviction of Southern Engineering
The next question that arises is
whether, given that the lease has been validly cancelled, the
Council is entitled to an order evicting Southern Engineering from
the leased premises. It is clear from the record that the Council is
the owner of the land in question, and that Southern Engineering has
not established that it has any valid title to be in occupation of
the land, so the eviction order against Southern Engineering must
stand.
In oral argument, the respondent’s
counsel requested that the terms of the eviction order be extended
to include the second appellant, Jan Jonker Eight Investments (Pty)
Ltd. The relief prayed for in the Notice of Motion and, therefore,
the High Court order of eviction relates only to the first
appellant, Southern Engineering. There is no cross appeal on the
question whether the order of eviction should have extended to the
second appellant and indeed that question has not been an issue in
these proceedings. Accordingly, it is not open to the respondent at
this stage of the proceedings to seek an extension of the court
order to include the second appellant within its ambit.
Leave to Sue
The third paragraph of the High Court
order provides that the applicant (the Council) is granted leave to
institute legal proceedings against third respondent to recover a
fair and reasonable amount from the third respondent for the duration
of the third respondent’s unlawful occupation of the leased
premises on Farm 466. The first appellant argues that this order
should not have been made in motion proceedings of this sort and
argues that it should be set aside on appeal.
It is not immediately clear what the
purport of this order is. There can be no doubt that the respondent
has the right to sue the first appellant for appropriate relief and
did not need a declaratory order to clarify that such a right
exists. Whether such a claim will succeed will be a matter to be
determined by the court hearing that case. When making the order,
the judge in the High Court stated: “In my opinion, the
applicant will be entitled to institute such legal proceedings
without the leave of the Court based on the decisions already made.
… I am of the opinion that such an order is neither here nor
there and that it follows from my order in respect of prayer 2.”
The declaration, therefore, had no tangible effect, as the High
Court itself acknowledged.
The grant of declaratory relief is a
discretionary matter. Ordinarily, a court will only grant
declaratory relief when two conditions are met. First, the court
must be satisfied that the person seeking declaratory relief is a
person interested in an existing, future or contingent right or
obligation and secondly the court must consider it appropriate to
grant declaratory relief in the circumstances of the case.
In particular, the relief sought must
not be abstract, or of academic or hypothetical interest only and it
must afford the litigant a tangible advantage. (Ex parte Nell,
1963 (1) SA 745 (A) at 759 A – B; Reinecke v
Incorporated General Insurances Ltd, 1974 (2) SA 84 (A) at 93 B
– E). Where an order does no more than restate general
principles of law, and does not determine any existing, future or
contingent right, it is not appropriate for a court to grant
declaratory relief. Such a declaratory order would be an “exercise
in futility”. (Reinecke v Incorporated General Insurances
Ltd 1974 (2) SA 84 (A) at 97 D – E).
The respondent’s right to sue
the first appellant for damages for the unlawful occupation of the
leased premises is a matter which will arise for full determination
only if and when the respondent institutes action against the first
appellant. This Court does not know whether the respondent’s
right to institute such an action will be challenged and, if so, on
what basis. The Court cannot seek to predetermine these issues in
these proceedings, as the High Court itself acknowledged.
Where a court has granted declaratory
relief, the ordinary principle is that an appellate court will not
interfere with the decision to grant relief unless the appellate
court is satisfied that the discretion conferred upon the lower
court was not judicially exercised. (Ex parte van Schalkwyk NO
and Hay NO 1952 (2) SA 407 (A) at 410 H; Lawson & Kirk
(Pty) Ltd v Phil Morkel Ltd 1953 (3) SA 324 (A) at 332 A - B).
As mentioned above, paragraph 3 of
the High Court order appears to have no tangible effect. Moreover,
the High Court recognized that it had no such effect as is clear
from the comment made by the judge that he considered the effect of
the order “to be neither here nor there”. In the
circumstances, the Court failed to act judicially in the exercise of
its discretion for, as appears from the discussion in the preceding
paragraphs, it is a clearly established legal principle that
declaratory relief should not be awarded unless it affords, some
tangible relief. The appeal against paragraph 3 of the order made by
the High Court should thus succeed and that portion of the order be
set aside.
Costs
For the reasons given in this
judgment, the appeal has been successful, but only in one small
respect, that is, in relation to paragraph 3 of the High Court
order. It is clear that the effect of paragraph 3 was of minimal
importance to both parties and did not engage much discussion in
argument. Accordingly, on all issues of substantial importance, the
appeal has failed. Given that the appeal has been substantially
unsuccessful, it is appropriate to order the appellants to pay the
costs of the respondent in this Court, such costs to include the
costs of one instructed and one instructing counsel.
Order
The appeal succeeds to the extent
that paragraph 3 of the High Court order is set aside.
Save as set out in paragraph 1 of
this order, the appeal is dismissed.
The appellants are ordered to pay the
costs of the respondent in this Court, such costs to include the
costs of one instructed and one instructing counsel.
_____________
O’REGAN
AJA
I concur
_________________
MARITZ
JA
I
also concur.
__________________
STRYDOM
AJA
COUNSEL
ON BEHALF OF THE APPELLANTS: Mr. T.J. Frank SC
INSTRUCTED BY: Dr, Weder, Kauta &
Hoveka Inc
COUNSEL
OF BEHALF OF THE RESPONDENT: Ms. S. Vivier
INSTRUCTED
BY: LorentzAngula Inc.
1Clause
23 provides: “The insolvency of either the City or the Company
shall not terminate this agreement. However, the trustee of the
Company’s insolvent estate shall have the option to terminate
this agreement by notice in writing to the City. If the trustee does
not within three months of his appointment as trustee notify the
City that he/she desires to continue with the agreement on behalf of
the estate, he/she shall be deemed to have terminated the agreement
at the end of the three months.”
3Despite
repeated requests by the City prior to the launch of the proceedings
in the High Court, the deed of sale was only disclosed as an
annexure to a supplementary affidavit lodged by Mr Jacobs in
response to the Replying Affidavits.
4Section
82(8) provides: “If any person other than a person mentioned
in subsection (7) has purchased in good faith from an insolvent
estate any property which was sold to him in contravention of this
section … the purchase of other acquisition shall
nevertheless be valid …”.
6See
Smith
and Another v Parton NO 1980
(3) SA 724 (D) at 729A. See also Porteous
v Strydom NO 1984
(2) SA 489 (D) at 494 F.
8See
Potchefstroomse
Stadsraad v Kotzé 1960
(3) SA 616 (A) at 622 E – G, citing with approval Mine
Workers’ Union v Prinsloo 1948
(3) SA 831 at 845. See also National
and Overseas Distributors Coroporation (Pty) Ltd v Potato Board 1958
(2) SA 473 (A) at 480.