Diem v DRD Investments (Pty) Ltd and Another (16005/2018) [2019] ZAWCHC 179 (12 December 2019)

Republic of South Africa

IN THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE DIVISION, CAPE TOWN)

Case No. 16005/2018

Before: The Hon. Ms Acting Justice Mangcu-Lockwood

Date of hearing: 12 November 2019

Date of judgment: 12 December 2019

In the matter between:

BELINDA JANE DIEM Applicant(s)

and

DRD INVESTMENTS (PTY) LTD First Respondent

SMITH TABATA BUCHANAN BOYES ATTORNEYS Second Respondent

JUDGMENT

MANGCU-LOCKWOOD AJ,

Introduction

1. This is an opposed application for an order of specific performance against the first respondent. The specific performance sought is pursuant to a written agreement (the agreement) in terms of which the applicant sold a sectional title unit (the unit) to the first respondent in a sectional title scheme for a consideration of R7.5 million. The second respondent was the firm of attorneys appointed by the first respondent for purposes of the transfer of the property. The second respondent abides the decision of this Court.

Relevant Facts

2. The unit that is the subject of these proceedings is one of only two units, with the other unit owned by Panjo Investment (Pty) Ltd (Panjo Investments), one member of which is Couglan Pather (Pather). The written agreement between the applicant and first respondent was concluded on 26 April 2018, and the transfer of the property was to be by 1 July 2018.

3. On 21 June 2018 the attorney representing the unit’s body corporate sent a letter to the second respondent setting out a range of amounts allegedly outstanding from the applicant in respect of the unit for a period of over 17 months, and attaching a schedule containing amounts that would be payable by the new owner of the unit as from 1 August 2018. In terms of the schedule, there was to be a monthly contribution of R39 913,22 payable per month by the new owner the unit, calculated as follows: R8601,72 as a new levies’ contribution for, amongst other things municipal services, insurance, security; R3000 as a special rates’ payment for water; R20,000 as a special levy for the installation of a lift; and R8311,50 as a maintenance fund contribution. According to the schedule, these amounts were still to be confirmed and established at an annual general meeting of the sectional title owners, including the new owner.

4. On 22 June 2018 the second respondent responded by disputing the lawful basis for these outstanding amounts, and denied that they were in fact owed. Nevertheless, on the same day, the second respondent sent to the first respondent certain correspondence regarding an existing levy dispute between the applicant and the body corporate. It bears mentioning that, for all intents and purposes, the body corporate was represented by Pather. The correspondence revealed that there was a history of litigation between the two owners of the units; that the body corporate was refusing to release a levy clearance certificate for the purposes of transferring the unit on the basis that there were amounts outstanding from the applicant under various headings, including insurance, levies and maintenance; as a result, the body corporate was facing liquidity problems; and that there was no administrative or reserve fund in place at the unit.

5. The history of litigation revealed in the correspondence dated back to 24 October 2017, when the applicant had lodged an application for dispute resolution with the Community Schemes Ombuds Service (CSOS). In the application, she requested that the body corporate’s finances be investigated and sought a breakdown and audit of the levies; she challenged the legality of the body corporate; she suggested that, in order to resolve the issues, a managing agent should be appointed to manage the monthly expenses and running of the building. The application also alleged that there had been no maintenance of the roof (waterproofing and the outside of the

building) for approximately two and a half years; and there were no fire doors or alternative evacuation. It was common cause in the CSOS proceedings that the roof and outside of the building had not been maintained for approximately two and a half years. However, according to the body corporate, the problem was that the applicant had not contributed to any of the expenses for the previous 17 months, and as a result the body corporate was in a financial crisis, resorting to loans in order to sustain municipal and insurance expenses.

6. It also transpired from the correspondence enclosed on 22 June 2018 that the CSOS hearing had taken place on 20 April 2018, and that the adjudication order was issued on 24 April 2018, at about the same time as the conclusion of the sale agreement. The relief sought by the applicant had been refused. After receiving the above correspondence, the first respondent addressed email correspondence dated 23 June 2018 to various parties, including the second respondent and Pather. Its contents precipitated these proceedings, and were as follows:

“I hereby wish to inform all parties that we, as potential purchasers, have instructed Mr Brander from STBB, the transferring attorneys, not to lodge for transfer. He has acknowledged our instruction and lodgement will not proceed.

The e-mails of STBB in person, of Mr Bey and Mr Brander on 22/6/2018 as well as the mail from Mr Garland of Mooney Ford dated 21/6/2018

apply. Annexure B, of Mooney Ford was never conveyed to the potential purchaser. We have absolutely no desire to buy into a (sic)

unresolved legal wrangle, regarding massive upwardly adjusted levies.

We were totally misled!

The dispute between the seller, Mrs Diem and the body corporate was concealed and never disclosed to us despite raising our suspicions. These suspicions were brought about by amongst others; offer to purchase being altered by the seller without agreement by signatory of appointed representative of the potential purchaser. It has now also become clear that Mrs Diem was applying undue pressure all to complete the transaction before the implementation of the raised levies.

In fact we were never informed of the existence of a Body Corporate. The estate agent confirmed on 22/06/2018 that upon even date he was still unaware of a Body Corporate. We were therefore also never issued with any Management Rules. We were told that we would be able to let the property as a B+B.

We were told that the monthly levies were R5500.

We were never informed of the new proposed levies of approximately R40 000 to be implemented from 1 August 2018. The proposed inflated levies were known by the seller and never disclosed to us or our agent. These levies would definitely immediately disqualify the potential purchaser from entering into the transaction on account of affordability.

Independent legal opinion will be sought.”

7. On 2 July 2018 the second respondent addressed a letter to the applicant confirming the first respondent’s position that: (a) there had been a misrepresentation and nondisclosure of material information by the seller and her agents, which had induced the purchaser to transact; (b) the misrepresentations and nondisclosure went to the heart of the agreement; (c) as a result of the misrepresentations and nondisclosure the purchasers had suffered damages, and reserved their rights with regard thereto; (d) the body corporate’s attorneys had confirmed that the amounts due in terms of the levies remained outstanding, and as a result the body corporate was not in a position to issue a levy clearance certificate in terms of section 2 of the Sectional Title schemes Management Act 8 of 2011; (e) it had come to the purchaser’s attention that the body corporate was not compliant with the sectional title schemes management act, and the protracted litigation between the trustees may have rendered the body corporate insolvent. In the circumstances the first respondent cancelled the agreement with immediate effect.

8. The applicant’s attorneys responded by letter dated 11 July 2018 pointing to the apparent contradiction between the latest letter from the second respondent and its previous letter 22 June 2018 in which it had stated that there was no lawful basis why the transfer could not proceed. In the letter dated 11 July 2018, the applicant’s attorneys also categorically denied any

alleged misrepresentation or other basis for termination. It was stated that the first respondent’s conduct amounted to a

repudiation of the agreement, which was rejected. It was further stated that the applicant intended to claim specific performance, to hold the first respondent to the terms of the agreement, and to claim for damages and/or interest should there be a delay in the transfer the property. Thereafter, the letter referred the respondents to clause 16 of the agreement, which reads as follows:

“Should the Seller or the Purchaser, as the case may be (“the defaulting party”)… commit a breach of their contractual

obligations in terms of this Agreement and remain in breach for more than 7 (seven) days after receipt of written notice from the other party (“the aggrieved party”) to remedy such breach and perform his contractual obligations concerned, then in such event, the aggrieved party shall forthwith be entitled (but not obliged) without prejudice to any other rights or remedies which the aggrieved party may have in law, including the right to claim damages: to claim immediate performance of the obligations of the defaulting party in terms of this agreement…to cancel this Agreement on written notice.”

Summary of the parties’ cases

9. According to the applicant, the matter to be determined is a breach of contract, and accordingly clause 16 applies and should have been complied with. Furthermore, it is argued that the issues complained about by the first respondent were not material to such an extent as to have influenced the first respondent to enter into the agreement. This is because firstly, the ongoing dispute with Panjo Investments has no bearing on the sale agreement since it related to affairs of a body corporate and levies incurred

prior to the date of transfer. Those levies would be for the account of the applicant, not the first respondent.

10. On the other hand, the first respondent relies on pre-contractual misrepresentations in the form of material omissions or nondisclosures, which rendered the agreement voidable and entitled it to rescind the sale agreement. According to the first respondent, the acrimony and litigation within the body corporate, liquidity problems facing the body corporate (caused or aggravated by the applicant’s failure to pay her levies), and the apparent gross insufficiency of the levy for the needs of the body corporate, were material to the acquisition of the property and were within the knowledge of the applicant at the time of concluding the contract, and should have been revealed by the applicant. Had the first respondent been made aware of this information, it would not have entered into the agreement. This is because it is impossible to have the property work as an investment with the gross insufficiency of the current levy. On this basis, it is argued that clause 16 is irrelevant to the circumstances of this case because there was no breach of an executory obligation in the agreement for the applicant to remedy. The delict arose from the non-disclosure.

11. Further, the first respondent relies on clause 12 of the agreement, which provides as follows: “The Property is sold voetstoots, that is, in the condition in which it stands­ on the date this Agreement is concluded and subject to the conditions and servitudes contained in the title deeds of the Property, together with all the visible and non-visible defects

applicable to the Property. The Seller confirms that he has informed the Purchaser, via the agent, of all non-visible defects of which he is aware at the time of conclusion of this Agreement.” (own emphasis) The first respondent maintains that the last sentence of clause 12 is a warranty by the applicant to the first respondent

that she has disclosed all non-visible defects in which she was aware as at 26 April 2018. Accordingly, the nondisclosures amount to fraudulent nondisclosures, and breaches of the warranty in clause 12. In this regard it is argued that the untrue warranted factual position remains untrue and is not capable of the remedy envisaged by clause 16. There would therefore be no purpose in notifying the applicant of the breach of warranty, and calling on her to remedy the breach.

The applicable law

12. Christie’s Law of Contract in South Africa 7 ed[1] at 616 states:

‘The remedies available for a breach or, in some cases, a threatened breach of contract are five in number. Specific performance,

interdict, declaration of rights, cancellation, damages. The first three may be regarded as methods of enforcement and the last two as recompenses for non-performance. The choice among these remedies rests primarily with the injured party, the plaintiff, who may choose more than one of them, either in the alternative or together, subject to the overriding principles that the plaintiff must not claim inconsistent remedies and must not be overcompensated.’ (Footnote omitted.)

13. Farmers’ Co-operative Society Farmers’ Co-operative Society (Reg) v Berry[2] concerned a claim for the delivery of certain movables, alternatively for damages. The question was whether specific performance should be decreed. Innes JA answered that question as follows[3]:

‘Prima facie every party to a binding agreement who is ready to carry out his own obligation under it has a right to demand from the other party, so far as it is possible, a performance of his undertaking in terms of the contract. As remarked by KOTZE, C.J., in Thompson vs. Pullinger (1 O. R., at p. 301), “the right of a plaintiff to the specific performance of a contract where the defendant is in a position to do so is beyond all doubt.” It is true that Courts will exercise a discretion in determining whether or not decrees of specific performance should be made. They will not, of course, be issued where it is impossible for the defendant to comply with them. And there are many cases in which justice between the parties can be fully and conveniently done by an award of damages. . .’

14. The court has a discretion regarding whether to grant or refuse specific performance, which discretion must be exercised judicially.[4] There are no rules that govern the exercise of the court’s discretion to order specific performance but a court must tread

carefully to prevent an injustice resulting; if such order may operate unduly harshly on the defendant or may not produce the desired effect as required by the Applicant.

15. Specific performance may be granted on motion, provided that the nature of the dispute is not such that it can only be tried by action.[5]

16. On the other hand, a party who has been induced to enter into a contract by misrepresentation of an existing fact is entitled to rescind the contract provided the misrepresentation was material, was intended to induce them to enter into the contract and did so induce them.[6]

17. A party wishing to rely on fraud must not only plead it, but must also prove it clearly and distinctly. The onus is the ordinary civil onus, bearing in mind that fraud is not easily inferred. The essential elements for a claim or defence based on fraud are the following:

a. There must be a representation by the other party or by that party's agent. Representation may consist of non-disclosure.[7]

b. It must be alleged that fraud or misrepresentation was false and or intentional or negligent.[8]

c. It must be alleged and proved that the representation induced the representative or innocent party to act.[9]

18. A contract induced by fraud can obviously not be treated as binding on the innocent party.

19. Where it is based on an omission – a non-disclosure – it must be shown that it is wrongful. In Absa Bank Ltd v Fouche[10] Conradie JA pointed out that the test for determining wrongfulness in a pre-contractual setting is the same as the general test in delict for omissions: in each case the court looks to the legal convictions of the community. He continued (para 5):

‘The policy considerations appertaining to the unlawfulness of a failure to speak in a contractual context – a non-disclosure – have been synthesized into a general test for liability. The test takes account of the fact that it is not the norm that one contracting party need tell the other all he knows about anything that may be material (Speight v Glass & another 1961 (1) SA 778 (D) at 781H-783B). That accords with the general rule that where conduct takes the form of an omission, such conduct is prima facie

lawful . . . . A party is expected to speak when the information he has to impart falls within his exclusive knowledge (so that in a practical business sense the other party has him as his only source) and the information, moreover, is such that the right to have it communicated to him ‘would be mutually recognized by honest men in the circumstances’. . . . ‘

20. As stated in Christie[11], unless a misrepresentation is material, or is in respect of a material fact, it will not justify the rescission of the contract.

The materiality must go to the root of the contract, or play a material role in the victim’s decision to enter into the contract. The determination of the issue is an objective test. The requirement is that the representation must be such as would have persuaded reasonable man to enter into the contract. To permit a party to rescind because that party personally regards the fact misrepresented as more important than it would be regarded by the reasonable person would be unfair on the party who made the misrepresentation, and the law does not permit rescission in the circumstances.

Analysis

21. There are various issues that the first respondent states it was not made aware of during negotiation. One of the allegations made in the correspondence leading to the cancellation of the agreement is that the first respondent was not informed of the existence of a body corporate. It is, however, clear from the terms of the agreement that the first respondent was made aware of the existence of the body corporate or of its Management Rules. Clause 14.6 of the agreement states as follows: “I am aware of the Conduct and Management Rules of the Body Corporate and that upon transfer of the Property into my name I will become a member of the Body Corporate. I bind myself to the said rules and accept the Property subject to all the provisions of the Sectional Titles Act and the Rules relating to the duties and powers of members of the Body Corporate.” The Conduct and Management Rules of the Body Corporate mentioned in this provision are governed by promulgated regulations which are in the public domain, namely the Sectional Titles Schemes Management Regulations.[12] In the same correspondence, the first respondent complained that it was previously informed that it could let the unit as a Bed & Breakfast. It was clarified in the answering affidavit that the first respondent was actually making a reference to using the unit as part of the AirBnB scheme. The applicant’s response is that, although she did not make any representation in this regard, there is no impediment to such an enterprise being undertaken. These issues, in any event, appear to have been abandoned by the first respondent.

22. The issues that remain relate to the undisclosed history of litigation between the applicant and Panjo Investments; the alleged gross insufficiency of the levy; the liquidity problems of the body corporate; the governance problems of the body corporate; the overdue maintenance of the roof and waterproofing; and lack of firedoors or alternative evacuation. According to the applicant, the history of litigation between her and Panjo Investments was not material to the agreement between the applicant and the first respondent since the first respondent was not a party thereto. Similarly, with regard to the issue of the alleged gross insufficiency of the levy, the liquidity problems of the body corporate and the governance problems of the body corporate, the applicant argues that they are not material to the agreement between the applicant and first respondent. The main refrain from the applicant is that any monies outstanding as at before the agreement would be for her account. Furthermore, in any event, the applicant denies that there are any outstanding levies on her part, or that the current levies are insufficient, and states that this assertion is

based on speculation.

23. It is, however, admitted by the applicant that this information was not relayed to the first respondent during the negotiations of the agreement. She admits that she did not convey any information or raise any concerns regarding levies or the state of the property or common property or the running and functioning of the scheme. The first respondent’s case is that it would not

have entered into the agreement had it been made aware of that information.

24. The question is whether the non-disclosure was material. Materiality must be determined with regard to whether it was of such a nature that it would have induced a reasonable person in the position of the first respondent to conclude the agreement.[13]

25. The applicant’s counsel emphasised that the undisclosed information was not material to the sale agreement, and related to issues between neighbours, namely the applicant and Pather, and the rest involved matters which could easily have been resolved if they were brought to the applicant’s attention in terms of clause 16 of the agreement. In particular, it was emphasised that the applicant remains willing to pay for any outstanding amounts which are duly proved.

26. In my view, the materiality of the information must be determined by taking into account all the surrounding circumstances. The issues that the applicant failed to disclose were serious enough for her to launch the CSOS proceedings. She did so as the owner of and investor into the unit, and in order to protect her interests therein. It is not unreasonable to deduce that this information would be important to the next purchaser. In my view, a reasonable person in the position of the purchaser might resile from entering into the agreement after coming to the knowledge of this information. It is especially not unreasonable to suppose that a party in the position of the first respondent, upon becoming aware of the possibility of a special levy payment at eight times the monthly amount agreed, would find this information to be material, and to be the difference between entering and not entering into the agreement. It was furthermore common cause during argument that, although the applicant has paid her outstanding levies, the applicant

and the body corporate still continue to be embroiled in disagreements, particularly about the sufficiency of levy payments and solvency of the body corporate. In other words, these issues and disagreements about them have not been resolved. In circumstances

where the purchaser is entering into a duet scheme, this is eminently material information, given that after the purchase of the unit the new owner would have to shoulder any new, but related costs. The fact that she did not agree with the view of the body corporate (or Pather) only had the effect of delaying the resolution of the issues for later determination, but by the first respondent. It did not have the effect of evaporating the issues away. It is also not an answer for the applicant to state that she could pay for any amounts there are proved to be for her account. The issues relate, not only to the current state and management of the scheme, but also the future thereof. The applicant is not undertaking to pay for amounts arising in the future, but which arise from the past and conduct of affairs.

27. In reply to the issue of a special levy of approximately R40,000, the applicant’s version is that she first became aware thereof from the letter from Panjo Investments dated 21 June 2018, and therefore could not have made a misrepresentation prior to the conclusion of the agreement in this regard. However, it is clear from the record of the CSOS proceedings, which are relevant to these proceedings, that Pather’s view was that ‘this now means that the contributions allocated to [the unit] will be substantially increased due to this rule and the arrears have to be adjusted accordingly.’ It is not denied that this allegation was made, although the applicant disputes any reference to Pather’s information is hearsay. It is also not denied that the allegation was made in the body corporate’s attorneys’ letter attached on 22 June 2018. The fact is that she was aware that this was an ongoing issue which would possibly, if not probably affect the purchaser.

28. In my view, it does not assist to simply water the issues down into discrete items and claim that they are not usually material issues. The cumulative effect of the circumstances of the nondisclosure in this case was such as to render it material.

29. The next issue is whether there was a duty on the applicant to disclose the information. There is no doubt that the purchaser, as investor into the unit, had an interest in acquiring the undisclosed information. The information was within the exclusive knowledge of the applicant as the seller in the agreement. The applicant was furthermore advised by her attorneys at the time of the CSOS dispute that ‘the dispute with Mr Pather would need to be disclosed to the purchaser insofar as it relates to the future administration and management of the body corporate’. Most, if not all the issues raised by the applicant at the CSOS proceedings related to the future administration and management of the body corporate. In spite of the legal advice she received, the applicant decided not to disclose the information. In fact, in these proceedings, she appears to hold the same view, namely that she did not have to disclose that information. To put it in her words ‘there was nothing to convey’. However, the fact that the investment might not have the returns that the purchaser was hoping for; or that the body corporate was on the brink of insolvency; or that there was a possibility of significantly higher levies payable, are matters that a reasonable person would have conveyed in her circumstances. The fact that the applicant disagreed, and still disagrees with Pather’s calculations in respect of the payable future special levies, did not absolve her from disclosing the fact of the disputes or of her disagreements. This is because, whatever the outcome of her disputes with Pather regarding the amount of special levies payable was, it would have had an impact on the new purchaser. As she herself states, she cannot guarantee the monthly amount of levies payable in the future, whether they may increase substantially as claimed by Pather, or not. The duty to disclose arises even where the seller suspects there may be a defect.[14] What is more is that the CSOS proceedings were taking place at the very same time of the conclusion of the sale agreement. The issues that were the subject of the CSOS dispute would have been very much on her mind when she concluded the sale agreement. The issues would have furthermore been on her mind during the exchange of the drafts of the offer to purchase leading up to the final version of the sale agreement. In this regard it is relevant that, on 23 April 2018, the applicant’s estate agents forwarded an offer to purchase to the first respondent, which included clause 10.2 providing as follows:

“In particular, it is recorded that a special levy (over and above the monthly levies) has been raised by the Body Corporate and in respect of the property is payable at the rate of R TBC per month. The purchaser assumes liability for such special levy with effect from the date of transfer and will discharge the full balance owing in respect thereof as at date of transfer in accordance with the payment schedule as agreed upon by the Body Corporate.”

30. The annotation ‘TBC’ (to be confirmed) had been inserted by the applicant’s estate agent. On 25 April 2018 the applicant returned an amended version of the offer to purchase to the first respondent. She had initialled the handwritten notation ‘TBC’ in clause 10.2. In yet a further version of the offer to purchase sent to the first respondent on 26 April 2018, the applicant had deleted clause 10.2. According to the applicant, the purpose of clause 10.2 in the draft offers to purchase was to hold the first respondent liable for any special levy that may have been raised prior to transfer. Therefore,

the deletion of clause 10.2 in the final agreement favours the first respondent and means that, if any once-off special levy was raised, the applicant would be liable for it and not the first respondent. The deletion, according to the applicant, also serves only to confirm that she made no representation whatsoever regarding the existence or otherwise of a special levy. In my view, the matter of the possible special levy of approximately R40,000 is relevant to this clause. At the time of the exchanges of these draft offers to purchase, the issue of the body corporate possibly having to raise a special levy was being canvassed before the CSOS.

31. For all these reasons, I find that the reasonable, honest person in the position of the applicant would have disclosed the information in this regard.

32. Given that these non-disclosures were pre-contractual omissions amounting to misrepresentations which induced the first respondent to enter into the agreement, there would have been no purpose in complying with clause 16 of the agreement. Calling on the applicant to remedy the failure to disclose information prior to the agreement could not be remedied.

33. I see no reason why the costs should not follow the result.

34. In the result, the following order is made:

a. The applicant’s application for specific performance is dismissed;

b. The applicant is to pay the costs of these proceedings, including the costs of two counsel.

___________________

N. MANGCU-LOCKWOOD

Acting Judge of the High Court

APPEARANCES:

For The Applicant :

Adv J.P Steenkamp

Instructed By

:

BBM Attorneys, Cape Town

For The Respondents

:

Adv S. Rosenberg SC &

Adv Kate Reynolds

Instructed By

:

Werksmans Attorneys

[1] G B Bradfield Christie’s Law of Contract in South Africa 7 ed (2016) at 616.

[2] Farmers’ Co-operative Society (Reg) v Berry 1912 AD 343.

[3] at 350.

[4] Haynes v King William's Town Municipality 1951 (2) SA 371 (A) at 378.

[5] Christie, p 627.

[6] Law of Contract in South Africa by Christie 4 edition Chapter 7 page 315.

[7] Stainer v Palmer-Pilgrim 1 982 (4) SA 205 (0).

[8] Rato Flour Mills (Pty) Ltd v Moriates 1957 (3) ALL SA 28 (T).

[9] Bill Harvey's Investment Trust (Pty) Ltd v Oranjegezicht Citrus Estate (Pty) Ltd (A) 1958 (1) SA 479 (A).

[10] Absa Bank Ltd v Fouche 2003 (1) SA 176 (SCA)

[11] Op cit at 326 - 327.

[12] Published under GN R1231 in GG 40335 of 7 October 2016.

[13] Van Huyssten et al Contract General Principles 5th edition at 4.49 p 110.

[14] Kerr’s Law of Sale and Lease 4th edition at 11.2.1 (p 289)