Biggs and Others v Muller and Others (ECJ 017/2005) [2005] ZAECHC 12 (31 March 2005)

FORM A

FILING SHEET FOR EASTERN CAPE

JUDGMENT

ECJ NO: 017/2005

JAMES

COOKE BIGGS

TREVOR

JOHN BIGGS

JOHANNES

PETRUS DANIEL BOTHA

and

JOHANNES

M MULLER

SHELFCORP 75 CC

THE

REGISTRAR OF DEEDS

REFERENCE NUMBERS -

Registrar: 170/2005

DATE HEARD: 24 FEBRUARY 2005

DATE DELIVERED: 31 MARCH 2005 ( REPORTABLE)

JUDGE(S):

LEACH J

LEGAL REPRESENTATIVES –

Appearances:

for the State/Applicant(s)/Appellant(s)/Plaintiff: RWN BROOKS

for the accused/respondent(s)/Defendant: MR NETTLETON

Instructing attorneys:

Applicant(s)/Appellant(s)/Plaintiff: BORMAN & BOTHA

Respondent(s)/Defendant: NETTLETONS

CASE INFORMATION -

Nature of proceedings : Application

Topic and Keywords: As per summary

THE HIGH COURT OF SOUTH AFRICA

(SOUTH EASTERN CAPE LOCAL DIVISION)

CASE NO: 170/2005

In the matter between:

JAMES COOKE BIGGS 1st Applicant

TREVOR JOHN BIGGS 2nd Applicant

JOHANNES PETRUS DANIEL BOTHA 3rd Applicant

JOHANNES M MULLER 1st Respondent

SHELFCORP 75 CC 2nd Respondent

THE REGISTRAR OF DEEDS 3rd Respondent

______________

JUDGMENT

LEACH, J:

The first respondent is the owner of certain immoveable property more fully described as “portion 21 of the farm Kaba No. 324 in the division of Alexandria” (“the property”). The applicants sue in their capacities as trustees of the Trevor J Biggs Trust ( “the Trust”), seeking an order interdicting and restraining the first respondent from transferring the property to the second respondent, to whom it has been sold, pending the outcome of an action they intend to institute for an order directing the first respondent to transfer the property to the Trust.

In determining whether an interim interdict should be issued pending the outcome of a trial, the proper approach is to take the facts set out by the applicants, together with any facts set out by the respondents which the applicants cannot dispute, and then to consider whether on those facts and having regard to inherent probabilities the applicants should, (not could), obtain final relief at the trial – Spur Steak Ranches Ltd and Others v Saddles Steak Ranch, Claremont and Another 1996 (3) SA 706 (C) at 714, South African Bus and Taxi Association v Cape of Good Hope Bank 1987 (4) SA 315 (C) at 318 and Gool v Minister of Justice and another 1955 (2) SA 682 (C) at 688.

In the present case, there do not appear to be any material disputes of fact, and what follows appears to be common cause. On 31 March 2004, the first respondent leased the property to the Trust in terms of a written agreement. The lease was for a period of one year, but was annually renewable by mutual consent. Of crucial importance to the outcome of the present proceedings is clause 25.3 of the lease, which provides as follows:

“The Lessor grants the Lessee a right of first refusal in respect of the property, and the Lessee upon an offer to purchase having been presented to him in wrighting (sic) will have a period of 14 (Fourteen) days to match such offer whereafter a deed of sale will be constituted on the terms and conditions as agreed to by the parties at the time.”

A “right of first refusal” to which reference is made in this clause, is well known in our law. In the context of a sale, it is known as a right of

pre-emption. In circumstances such as the present, involving the potential sale of property, the owner who grants a right of first refusal cannot be compelled to sell the property concerned – but if he does decide to sell, he is obliged to first offer it to the grantee and is prevented from selling to a third party without first giving the grantee the opportunity to purchase – see for example: Soteriou v Retco Poyntons (Pty) Ltd 1985 (2) SA 922 (A) at 932. Generally, should the grantor (in casu, the first respondent) decide to sell, he is obliged to offer the property not at any price that he might choose to ask, but at the price which some other person is willing to give – Dithaba Platinum (Pty) v Erconovaal Ltd and Another 1985 (4) SA 615 (T) at 622 and Crous NO v Utilitas Bellville 1994 (3) SA 720 (C) at 725. Any doubt about this latter issue is excluded in the present case by the lease providing that the Trust would have fourteen days to “match” an offer in writing received from another –a word which connotes “to be equalled with; to correspond” (see – The Shorter Oxford Dictionary vol. 2).

Be that as it may, in November 2004 the second respondent offered to purchase the property from the first respondent. Acting through an estate agent, he submitted a written offer of R545 000 00 for the property (a copy is attached to the papers as “JCB 2”) which also records the first respondent’s obligation to pay the estate agent the sum of R30 000,00 as commission and that:

“….The commission is payable from the deposit or proceeds of the sale upon registration. Provided the transfer is not affected due to the Purchasers (sic) default, de Villiers Estates shall have the right (but shall not be obliged to recover commission from the Purchaser. This proviso is for the benefit of de Villiers Estates”.

The first respondent accepted this offer in writing, subject to the proviso of:

“… Mr James Biggs releasing him from his right of first refusal to purchase this Property”.

The “James Biggs” to whom reference was made is the first applicant. The Trust appears to be a family trust, and may well be a vehicle used by the first applicant to carry out his farming activities thereby permitting him to benefit while simultaneously continuing to exercise control – compare: Niewoudt and Another NNO v Vrystaat Mielies (Edms) Bpk 2004 (3) SA 486 (SCA) at 493 para [17] and Land and Agricultural Bank of South Africa v Parker and Others 2005 (2) SA 77 (SCA). If that is so, it is not surprising that the condition of acceptance by the first respondent referred to the first applicant by name rather than to the Trust itself. However, I do not think anything turns on this, and I am prepared to accept that the intention was to refer to the first applicant in his capacity as trustee of the Trust.

In any event, the second respondent’s offer was made available to the first applicant for his information under cover of a letter dated 26 November 2004, addressed to the first applicant in which the latter was notified that he could exercise “your right of first refusal within 14 days on the above mentioned land in accordance with our lease agreement ….” It is common cause that this letter and the copy of the second respondent’s offer were received by the first applicant on 26 November 2004 and that the Trust then had fourteen days (until 10 December 2004) to match such offer under clause 25.3 of the lease.

The first applicant did his arithmetic. He deducted the amount of the agent’s commission (R30 000,00) from the purchase price set out in the written offer (R545 00,00) and then he purported to take up the Trust’s right of pre-emption on 6 December 2004 by telefaxing the following reply to the first respondent:

“Dear Sir

Right of First Refusal in respect of Farm Kaba.

I hereby exercise my right to purchase the farm Kaba for R515 000,00 (Five hundred and fifteen thousand Rand).”

The attorneys on both sides also became involved. Discussions took place and, on 17 December 2004, the respondent’s attorneys wrote to the applicant’s attorneys in the following terms (the letter is annexure “JCB6” to the founding affidavit):

“ We confirm that we act for (the first respondent) and that we are instructed as follows:

In terms of Clause 25.3 of the lease entered into between our respective clients, our client, as Lessor, granted your client, as Lessee, a right of first refusal in respect of the property.

In terms of Clause 25.3, your client would have, upon an offer to purchase having been presented to him in writing, a period of 14 days to match such offer.

The offer presented to your client was for a purchase price of R545,000 00.

Your client, in response, purported to exercise the right of first refusal in a letter to our client dated 6 December 2004….

In that your client offered R515,000 00 for the property, your client failed to match the offer and therefore cannot be said to have exercised the right of first refusal as contemplated in the Agreement reached between our respective clients.

Our client accepted the offer by (second respondent) subject to your client not exercising the right of first refusal.

In that your client has not exercised the right of first refusal in terms of the Agreement, the suspensive condition to the sale of the property to the (second respondent) has been met and our client is bound to proceed with the sale of the property in terms of that agreement.

In the premises, our client is regrettably no longer at liberty to enter into an agreement of sale with your client, even if your client were to reconsider the matter and match the offer.”

In response to this, the applicants’ attorneys replied on 23 December 2004, (the letter is annexure “JCB7” to the founding affidavit), adopting the stance that the first applicant (presumably on behalf of the Trust) had duly exercised “his” right of first refusal and stating:

“ 3. Our client is of the view that commission is not payable, in the event of him exercising his right of first refusal, to any agent.

However, should a valid and enforceable claim in law be proved in respect of commission in due course, our client indemnifies your client against any such claim.

Your client would therefore have been at all material times in exactly the same position with regards to the two offers submitted, with reference to nett proceeds receivable.

Our client intends to enforce his right established in terms of the exercising of his right of first refusal. Our client will insist on transfer of the property to himself against payment of the purchase price as stipulated on the condition that your client will be indemnified from any commission claim by our client. If your client intends to transfer the property to any other party, especially in terms of any other agreement than the agreement submitted to our client by your client, then our client will interdict such transaction pending the outcome of litigation in this matter.”

The applicants continue to insist that the Trust’s right to purchase was timeously exercised. The respondents contend otherwise, and the first respondent is in the process of transferring the property to the second respondent. Transfer is imminent and precipitated these proceedings as the applicants appear to be intent on instituting action, presumably for an order declaring that the Trust had duly exercised its pre-emptive right and is entitled to obtain transfer of the property on payment of R515 000,00. In order to obtain an interim interdict pending the outcome of such an action, the applicant must show (1) that it has either a prima facie right or at least such a right, albeit open to some doubt (2) that there is a well-grounded apprehension of irreparable harm should interim relief not be granted and should it succeed in the main action (3) that the balance of convenience favours the granting of interim relief, and (4) that it is without any other satisfactory relief – see e.g. the Spur Steak Ranches case supra. The relationship between these requirements was masterfully set out as follows by Holmes J (as he then was) in his inimical style in Olympic Passenger Service (Pty) Ltd v Ramlagan 1957 (2) SA 382 (DC) at 383:

“It thus appears that where the applicant's right is clear, and the other requisites are present, no difficulty presents itself about granting an interdict. At the other end of the scale, where his prospects of ultimate success are nil, obviously the Court will refuse an interdict. Between those two extremes fall the intermediate cases in which, on the papers as a whole, the applicants' prospects of ultimate success may range all the way from strong to weak. The expression “prima facie” established though open to some doubt' seems to me a brilliantly apt classification of these cases. In such cases, upon proof of a well grounded apprehension of irreparable harm, and there being no adequate ordinary remedy, the Court may grant an interdict - it has a discretion, to be exercised judicially upon a consideration of all the facts. Usually this will resolve itself into a nice consideration of the prospects of success and the balance of convenience - the stronger the prospects of success, the less need for such balance to favour the applicant: the weaker the prospects of success, the greater the need for the balance of convenience to favour him” (my emphasis).

With this in mind, I turn now to consider whether, on the facts set out in the papers, the applicants have shown a prima facie right (or even such a right albeit open to some doubt) as, if they have not, there will be no prospect of success in the main action and the interim interdict should be refused.

In order to establish a prima facie right, the applicants must show that their offer of R515 000,00 matches the second respondent’s offer of R545 000,00. The answer to this is, quite simply in my view, that it does not. As a restriction upon ownership, the right of pre-emption must be restrictively interpreted – see Bellairs v Hodnett & Another 1978 (1) SA 1109 (A) at 1139D, and Owsianick v African Consolidated Theatres (Pty) Ltd 1967 (3) SA 310 (A) at 317D and the cases there cited. In addition, where there is a right of first refusal, the owner must offer it to the holder of the pre-emptive right “for the same consideration” so that the price is “determined by what another party is prepared to pay” – see: the Dithaba Platinum case supra at 623. Bearing that in mind a sale at a price of R515 000,00 cannot be equated to a sale at R545 000,00.

The applicants’ case, however, is based squarely upon the contention that no estate agent’s commission would flow from it taking up its right of pre-emption so that, in real terms, the first respondent will make R515 000,00 out of the sale whether he sells the property to the Trust or whether he sells the property to the second respondent – and, consequently, the Trust’s lower offer in real terms “matches” that of the second respondent. But this reasoning is fallacious. Whatever commission may be payable by the first respondent to an estate agent in consequence of the sale is a matter between him and the agent, and is extraneous to the determination of the amount the Trust may offer to equal the price offered by the second respondent. The first respondent might refuse to pay the agent its commission and the latter might decline to sue him. That, too, would be a matter between them, as would be the case if they later agreed upon a reduced commission. But the Trust in either event would surely not be obliged to pay a higher price to secure the property due to the first respondent making more out of the sale if he paid commission than if he refused to do so. Similarly, various other incidentals (such as transfer duties, deeds office fees and attorney’s fees – being expenses which are also determined by the sale price) and agreement as to who should pay them are

also factors that will affect the ultimate amount the first respondent will pocket out of the sale. But they, too, are ancillary issues which in my opinion are irrelevant to whether the second respondent’s offer had been matched. After all, the Trust was granted the right to match an offer to purchase made by a third party, not the right to purchase the property by placing the first respondent in the same financial position he would be in should he accept such third party’s offer.

Bearing these considerations in mind, together with the trite principle that the first step in construing a contract is to have regard to the ordinary grammatical meaning of the words used, I have no doubt that, in order to “match” the second respondent’s offer, the Trust had to offer a price of at least R 545 000,00 – that being the price offered by the second respondent - and that, what the first respondent does with the price he is paid (even if he uses a portion to pay an estate agent his commission), is of no concern in determining whether the Trust has matched that offer. It is accordingly clear that the Trust failed to match the first respondent’s offer and its pre-emptive right to purchase the property was therefore not fulfilled.

In order to attempt to meet this difficulty, Mr Brooks, who appeared on behalf of the applicants, submitted that regard should be had to them having indemnified the first respondent against the estate agent’s commission, and that the Trust’s offer of R515 000,00 taken together with such indemnity, “matched” the first respondent’s offer of R545 000,00 (out of which the first respondent would have to pay his agent’s commission of R 30 000,00).

Even if the indemnity can be taken into account – and even if the Trust, together with its offer of R515 000,00 can be considered as having matched the second respondent’s offer – the immediate difficulty facing the applicants is that the indemnity was not forthcoming within the requisite 14 day period. As I have said, as the second applicant’s offer “JCB2” was forwarded to the first applicant on 26 November 2004 the parties are agreed that the applicants had until 10 December 2004 to exercise the Trust’s pre-emptive right. The first applicant, however, made no mention of such an indemnity when he submitted his written offer to purchase the property for R515 000,00 on 6 December 2004. Thereafter, on 15 December 2004, the first applicant gave his attorneys the following written instructions:

“Draw up Deed of Sale on exactly the same terms as (the agreement “JCB 2”)

Price R515 000,00.

I, James Biggs, hereby indemnify (first respondent) in respect of any claim from the estate agent arising from this transaction and/or the prior negotiations and agreements with (second respondent), hereby undertaking to pay on behalf of (first respondent) all and any sums which may be due in commission by (first respondent) upon the agent establishing an entitlement thereto. Together with the costs of any action which the agent may institute”.

It was only after this and in response to the letter from the first respondent’s attorney “JCB6” that a possible indemnity was mentioned – in paragraph 3 of “JCB7” quoted above which was telefaxed to the respondents’ attorney on 23 December 2004, well after the 14 day period envisaged in the lease had lapsed on 10 December 2004.

It is readily apparent from this that by the time the pre-emptive right had to be accepted, all that had been offered by the first applicant was a price of R515 000,00. That being so, even if the indemnity can be taken into account, it had not by then been placed on the table and should not be taken into account in considering whether the Trust had matched the first respondent’s offer by 10 December 2004. Clearly the Trust had failed to do so.

In any event, even if I am incorrect on that issue as well, the conditional indemnity clearly cannot be construed as being the “match” or equivalent of an unconditional payment of R30 000,00 (the difference between the amount offered by the Trust and that offered by the Second Respondent). The indemnity was offered in respect of “a valid and enforceable claim in law” once proved in respect of the commission. It was certainly not an indemnity to pay R30 000,00. Not only is this clear from the wording of the indemnity itself, but is borne out by the first applicant’s attitude to what it entailed. On 25 February 2005, the respondents’ attorney wrote to the applicants’ attorney stating that the respondents were not prepared to accept R515 000,00 on the basis of a “vague indemnity” to pay the agent’s commission and enquired whether the Trust would be prepared to pay either R545 000,00 “all in” or “R515 000,00 plus the commission”. The applicants’ attorney replied, stating that he had taken instructions and that the Trust was not prepared to pay commission and would only pay R515 000,00 and provide the first respondent with an indemnity “in respect of any commission claimed by (the estate agent)”. It seems clear from this that whatever the indemnity might have entailed, it did not amount to R30 000,00 for the estate agent’s commission.

Consequently, on this basis as well, the offer made by the Trust cannot be regarded as being “equivalent to” or “matching” the offer made by the first respondent.

Accordingly, even on the applicants’ own case, the pre-emptive right has clearly not been fulfilled. That being so, the prospects of the Trust ultimately succeeding in the proposed action are non existent and this is one of those cases where the court will, at this stage, refuse an interdict – see the Olympic Passenger Service case supra – as the applicant has failed to establish a prima facie right, even one subject to some doubt.

That being so, the applicants’ case fails at the first hurdle. The application is therefore dismissed, with costs.

______

L.E. LEACH

JUDGE OF THE HIGH COURT

SUMMARY

Tenant having a pre-emptive right to “match” an offer to purchase the leased property received by the owner - owner receiving an offer to purchase for R545 000 – owner to pay commission of R30 000 on that sum – tenant offering owner R515 000 as no commission would be due arising from the exercise of its pre-emptive right – such an offer not “matching” the offer of R545 000 – tenant therefore having failed to establish a prima facie right to transfer of the property, and an interim interdict sought to restrain transfer to the party whose offer of R545 000 had been accepted by the owner refused.