Mattress House (Pty) Ltd t/a Mia Bella Interiors v Investment Proprietary Fund Limited and Others (2017/36270) [2017] ZAGPJHC 298 (13 October 2017)

REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

CASE NO: 2017/36270

REPORTABLE

OF INTEREST TO OTHER JUDGES

REVISED

13/10/2017

In the matter between:

MATTRESS HOUSE (PTY) LTD

t/a MIA BELLA INTERIORS Applicant

and

INVESTEC PROPERTY FUND LIMITED First Respondent

FIRSTRAND BANK LIMITED t/a RAND Second Respondent

MERCHANT BANK

BROLL PROPERTY GROUP (PTY) LIMITED Third Respondent

JUDGMENT

Siwendu J:

INTRODUCTION

[1] This urgent application came before me on 10 October 2017, following a culmination of events dealt with briefly below. At the time of the launch, the Applicant's ability to trade was limited by a rent interdict ostensibly procured over the goods of the Applicant on the one hand. On the other hand, the First Respondent's ability to complete the exercise of its rights to payment in terms of a Guarantee held with the Second Respondent which it had called had been held in abeyance in terms of the court order granted by my Sister, Opperman J on 28 September 2017.

[2] The effect of the order of 28 September 2018 is that the First Respondent was interdicted and restrained from further presenting the Guarantee furnished as security deposit in terms of the lease and from making further demands for payment of the Guarantee by the Second Respondent and/or insisting on payment based on demands already made as at the date of the order pending the determination of the main urgent application (this interim relief). The order by Opperman J recorded that it seeks to preserve the status quo in terms of the Applicant's rights as entrenched in Section 34 of the Constitution of the Republic of South Africa, 1996 and that no finding had been made in respect of the urgency of the application or the Applicant’s prima facie right to the main application.

[3] In my view, the above events which create an impasse together with the order precipitate the urgency of this application. In any event, the question of urgency has not been resisted. I have accordingly exercised my discretion and determined that the Applicant’s non-compliance with the normal rules of this Honourable Court relating to service, filing and time limits be condoned, and the matter is dealt with as one of urgency in terms of Rule 6(12) of the Uniform Rules of Court.

[4] This judgment has been prepared taking account of the urgency, and, in order to give parties immediate reasons for the order. I reserve the right to supplement it should circumstances require.

BACKGROUND

[5] The Applicant, Mattress House (Pty) Ltd which trades as Mia Bella Interiors entered into a Lease Agreement with the First Respondent, Investec Property Fund Limited on or about 19 February 2015 in respect of certain premises situated at Building 1, Bryanston Boulevard, Bryanston. The building forms part of a portfolio of properties owned by the First Respondent.

[6] Even though the Applicant alleges that it was not granted beneficial occupation of the premises on 1 February 2015 as agreed to by the parties, there is no dispute that the Applicant took possession of and remains in occupation of the premises at the time of the launch of this urgent application. The Applicant also states that it withheld a certain amount of rental in lieu of the late beneficial occupation.

[7] As at the date of the hearing of the urgent application, it is alleged that the Applicant was in arrears in a rental amount of R 1 193 024.54. The First Respondent had instituted proceedings against the Applicant out of the Randburg Magistrates Court to recover this amount. The action proceedings were instituted on or about 6 September 2017 and Summons served on the Applicant on or about 7 September 2017. The Applicant has entered an appearance to defend the action, but the nature of its plea in defence of the claim has not been disclosed.

[8] It is alleged that summons was served by the Sheriff together with a rent interdict. However, no inventory was compiled. When the Applicant attempted deliveries the following day, they were prevented from doing so by members of security employed by the First Respondent. There is a dispute as to the validity of the attachment and the Land Lord’s Hypothec. There is no record that an application was brought to challenge the same.

[9] To procure the lease transaction, the Applicant was required to furnish a cash deposit or an irrevocable bank Guarantee in the format stipulated by the First Respondent as security for the due compliance with the terms and conditions of the lease in addition to any surety requirements the First Respondent had. The Applicant elected to provide an irrevocable bank Guarantee in lieu of a cash payment outlay.

[10] The landlord retained the right to apply the whole or any portion of the deposit held towards payment of rent, operating costs, or other charges or any liability of the Applicant in terms of the lease. There was an obligation placed on the Applicant to keep the security in force for a period of three months after the expiry of the lease and/or after the discharge of all the obligations in terms thereof.

[11] There is no dispute between the parties regarding the terms or the nature of the Guarantee, which is couched as a Demand Guarantee. Its terms are clear and there is no dispute in this regard. The Applicant concedes at paragraph 26 of the Founding Affidavit that the nature and structure of the Guarantee are that the First Respondent can call it up for payment regardless of whether a bona fide and genuine dispute exists with the Applicant on monies owed or issues arising between the First Respondent and the Applicant.

[12] The Applicant alleges that at the time it entered into the Lease Agreement and in turn, the Guarantee, it was not aware that the premises in respect of which the transaction arose did not have the Municipal planning permission authorisation for occupation. This had not been brought to the Applicant’s attention by the First Respondent or the Letting Agents. Had the Applicant known, it would not have provided the Guarantee much less enter into the lease.

[13] There is, on examination of the Lease Agreement, a Plan attached in respect of the premises which bares the stamp approved by the City of the Johannesburg dated 13 June 2005. The Applicant alleges that there was an undisclosed subdivision of the property during August 2012 in respect of the property occupied by another retailer. This subdivision required that the First Respondent submits to the City of Johannesburg a Site Development Plan (SDP) in view of the subdivision.

[14] The Applicant alleges that there was a material fraudulent false misrepresentation by the First Respondent. The First Respondent had represented that there was no further Site Development Plan required and , the premises situated on the greater Erf had been approved by the City of Johannesburg on 12 June 2005.

[15] The above information came to the knowledge of the Applicant around November 2016. The Applicant alleges that it was advised by one Rammala, an employee of the City of Johannesburg, that a formal notice to comply with the council’s Planning Regulations was served on the First Respondent in December 2016. The Applicant was subsequently advised by a representative of the City of Johannesburg, Site Development Planning and Urban Management Department that the premises were illegal. The Applicant had left the matter in the First Respondent's hands to resolve. It appears that it remained unresolved as at July 2017.

[16] The letter dated 12 December 2016 addressed to the First Respondent reads as follows:

‘An inspection has revealed that the above-mentioned property is being used in a manner which contravenes the Sandton Town Planning Scheme 1980.

The contravention in question is that: non-compliance with the approved amendment scheme 02-1271. Non-submission of site development plan Condition 1

The city of Johannesburg is specifically compelled by section 58 of the town planning and townships ordinance 1986 to enforce its time planning scheme, and it is in the interest of all its citizens, including of course yourself that it should do so meticulously.

Accordingly, I must ask you to discontinue permanently there and authorised use described above by not later than that of 31 January

2017 after which date a further inspection of your property will be made.

Failure to comply with this notice Internet that an authorised use of your property constitutes a criminal offence for which you are liable to prosecution in terms of section 42 read with section 55 of the time planning in townships ordinance 1986. In addition, the council may Institute super proceedings against anyone contravening or failing to comply with the scheme. The council will avail itself off one or both of these remitters should you fail to comply with this demand

It is hoped that your cooperation will render any such action by the council with the inevitable expense to yourself unnecessary. Should you fail to terminate, the unauthorised use complaint of however legal proceedings will be instituted against you without further notice.

Your attention is also drawn to clause 6(W) off their cities rates policy which deals with those category of properties that are used for a purpose not permitted by zoning there of, abandoned properties and property is used in contravention of the cities bylaws and Regulations. The rate that will be applied to such properties is the rate applicable to vacant land which is four times the normal rate applicable ...’

[17] A further letter dated 14 September 2017 from the City of Johannesburg to Dewy Hertzberg Levy Inc reads as follows:

‘An application for the rezoning of the above Erf was submitted 22 August 2012. The application was to amend the zoning of the site in order to create is zoning that was consistent with what was actually on the site and to increase the FAR and coverage. This application was promulgated 26 March 2014.

One of the conditions is that a site development plan be submitted prior to the submission of building plans. There is no record that this was submitted. The onus is on the owner/Applicant to submit this for approval prior to submission of building plans. There is no record that a SDP was submitted on the above Erf and therefore the building is illegal.’

[18] Mr Bishop submitted on behalf of the Applicant that such a decision is an administrative decision and is binding in nature until set aside (the Oudekraal Principle).[1] It was not open to the First Respondent to merely dispute its correctness. It was not permissible for the First Respondent to have entered into the Lease Agreement. The City Council has asked the First Respondent to discontinue the unauthorised use.

RELIEF SOUGHT

[19] The essence of the relief sought by the Applicant is that it seeks to have the funds secured by the Demand Guarantee preserved pending the outcome of the action instituted in the Randburg Magistrates’ Court. It seeks to challenge the whole causa, namely the Lease and the Demand Guarantee on account of a material fraudulent, false misrepresentation and/or on account of the alleged illegality pertaining to the failure by the First Respondent to comply with the Sandton Town Planning Scheme 1980 and Regulations.

ISSUE FOR DETERMINATION

[20] In order to establish the requirements for an interim interdict the Applicant must show a prima facie right, even if open to some doubt; a well-grounded apprehension of irreparable harm; no adequate or satisfactory alternative remedy; and that the balance of convenience favours the granting of interim relief. When these requirements are considered, I am of the view that on the facts of this case, to succeed, the Applicant needs to satisfy me of two material considerations, namely that it has a prima facie right and the balance of convenience warrants the granting of the relief.

[21] The crux of the issue is whether the Applicant has established a prima facie right to the preservation of the Demand Guarantee pending the outcome of the action in the Randburg Magistrates’ Court. This is dependent on whether the Applicant has successfully made out a case of a fraudulent false misrepresentation on the one hand and/or whether the alleged contravention of the Sandton Town Planning Scheme 1980 and or illegality rendered the Guarantee issued thereunder invalid.

[22] I pause to mention that the relief sought is one recognised as an exceptional remedy in our law. (See Union Carriage and Wagon Company Ltd L v Nedcor Bank Ltd 1996 CLR 724 (W) at 732).

APPLICABLE LEGAL PRINCIPLES AND ANALYSIS

[23] The legal nature of a Demand Guarantee as an independent contract between the issuing bank, in the place of the Second Respondent, and the beneficiary, in the place of the First Respondent is an established long-standing principle of our law (see Phillips v Standard Bank of South Africa Ltd 1985 (3) SA 301 (W)). It is considered akin to an irrevocable Letter of Credit; in that, the Demand Guarantee creates an obligation on the issuing bank to pay the beneficiary regardless of the underlying contract between the beneficiary and the principal (see Lombard Insurance v Landmark Holdings (Pty) Ltd 2010 (2) SA 86 (SCA)).

[24] The abiding principle enunciated by Kerr J in R D Harbottle (Mercantile) Ltd v National Westminster bank LTD [1977] 2 All ER 862 (QB) at 870b-d is that:

‘It is only in exceptional cases that the courts will interfere with the machinery of irrevocable obligation assumed by banks. They are the lifeblood of international commerce ... Except possibly in clear cases of fraud of which the banks have notice, the courts will leave the merchants to settle their disputes under the contacts by litigation or arbitration available to them or stipulated in the contracts ... The machinery and commitments of banks are on a different level. They must be allowed to be honoured, free from interference by the courts. Otherwise, trust in international commerce could be irreparably damaged.’

[25] Therefore, the Second Respondent cannot escape liability to the First Respondent unless there are exceptional circumstances recognised in law, proof of fraud relied upon in this case being such a circumstance. The principle that exceptional circumstances must exist to escape liability was confirmed in Loomcraft Fabrics CC v Nedbank Ltd [1995] ZASCA 127; 1996 (1) SA 812 (A). The standard of proof required is on a balance of probabilities.

[26] The prevailing view has been that in matters dealing with the payment of a Guarantee, the fraud alleged must be in respect of the presentation thereof and does not extend to wider contractual inducements for which a bank in the place of the Second Respondent

cannot be aware. I deal with this aspect in the section of the judgment dealing with illegality. On the facts of this case, in view of the allegations made, I am bound to determine whether the Applicant has clearly established on a balance of probabilities the fraud alleged in its papers. The main contention is that the First Respondent deliberately, intentionally withheld and

misrepresented information which showed that the property required rezoning and a submission of the site development plan as the current zoning did not allow for the occupation and current use of the property.

[23] Mr Dobie submitted on behalf of the First Respondent that the Applicant has failed to establish the fraud alleged and has conceded

that there had been none. An example is made that one of the Erven, which was alleged to be part of the three subdivided properties, was not a Portion 73 of Erf 5597, Bryanston. It had been created out of a consolidation of the properties. The First Respondent persists that planning approvals and permissions were obtained from the City of Johannesburg. It also does not dispute correspondence from the City relating to the contravention.

[24] To succeed with the claim of fraudulent misrepresentation, the Applicant must clearly establish that the First Respondent had a duty to disclose information in its possession of a material nature which would induce the contract. The Applicant must establish an intentional conduct by the First Respondent.

[25] I have considered the allegations in the light of the pleaded facts which are not strong enough. The First Respondent had provided the Applicant with certain site plans as part of the Lease. There is no indication that these plans were provided as part of a deliberate design to misinform the Applicant. I am not satisfied that the fraudulent misrepresentation relied upon on has been clearly established on a balance of probabilities.

[26] I now turn to the second ground of illegality which evokes the maxim, ex turpi causa non oritur action, which means that: no action can arise from an unworthy cause. The question I posed during the hearing was whether the illegality rendered the Guarantee void ab initio. Mr Bishop submitted that correspondence referred to above constitutes a decision by the City of Johannesburg, and once it is established that the decision is binding on the First Respondent and the premises are illegal, it has established prima facie that the lease concluded is unlawful and unenforceable. The occupation was unlawful.

[27] Dealing with the nature of a Town Planning Scheme in Muangisa Ntangu-Reare v City of Johannesburg (unreported, delivered on 15 November 2012), Masipa J stated that:

‘A town planning scheme is a unique piece of legislative arrangement in terms of which each erf with in the geographical area covered by a scheme has a specific zoning attached to it, which is owning permits only certain uses specified in the scheme itself ... and occupier or owner of an Erf either uses the property for the purpose is permitted by the scheme, or he does not’.

[28] I do not understand the argument pertaining to illegality to be that the lease was concluded for an illegal purpose. The illegality relates to an alleged failure by the First Respondent to comply with the Town Planning Scheme. The correspondence furnished implies that the illegality, though denied by the First Respondent is one capable of resolution and/or rectification by submission of the required SDP’s. It is not the kind of transgression where the lease and/or the Guarantee were entered into for criminal purposes or in furtherance of an unlawful purpose.

[29] In my view, in this case, sight must not be lost of the First Respondent’s right of recovery under the Demand Guarantee. As Stratford CJ stated in Jajbhay v Cassim 1939 AD 537 at 543: ‘[T]he right of recovery of something delivered under an illegal contract has never been denied in all cases.’

Had the Applicant made a cash deposit instead of the Demand Guarantee, it would have been obliged to recover same by way of damages or institute a counterclaim in the pending proceedings instituted in the Magistrates’ Court. The Applicant cannot be placed in a more favourable position, therefore. To do so would subvert a longstanding payment instrument.

[30] It seems to me that at the very least, to receive consideration, the illegality complained of can only be a valid defence where it extends to and directly affects the Guarantee. The Guarantee must have been entered into for a criminal purpose or in furtherance of an unlawful purpose. Even though I do not purport to set out a general principle, it is conceivable that there may be instances where the nature of the illegality complained of vitiates the Guarantee. An example would be where the issuing bank becomes aware of the transaction as part of a money laundering scheme or in the case of a breach of exchange control regulations. This is not such a case.

[31] In any event, the question whether the Lease is enforceable against the Applicant as a result of the illegality alleged, who has notwithstanding the complaint of illegality, retained possession and remained in occupation of the premises notwithstanding the knowledge of the alleged illegality (in pari delicto) is pending before the Randburg Magistrates’ Court. The Applicant has failed to establish a prima facie right for the interim relief sought, and the balance of convenience does not favour it. There are other alternative remedies available to the Applicant exercisable in due course. It is open to the Applicant to oppose the action instituted against it, as well as to challenge the purported rent interdict or bring spoliation proceedings against the First Respondent. Unlike in a case where the First Respondent’s financial position was perilous, the Applicant will be in a position to recover from the First Respondent should it succeed to defend the claim against it.

[32] Notwithstanding submissions made regarding costs, they must follow the result. Accordingly, I make the following order:

32.1 The application for an interim interdict is dismissed; and

32.2 The Applicant is ordered to pay the costs of the application including the costs of 28 September 2017.

__________________________

T SIWENDU

JUDGE OF THE HIGH COURTGAUTENG LOCAL DIVISION, JOHANNESBURG

APPEARANCES:

For the Applicant: Mr A Bishop

For the First Respondent: Mr JG Dobie

Date of hearing: 10 October 2017

Judgment delivered on: 13 October 2017

[1] Oudekraal Estates (Pty) Ltd v The City of Cape Town 2004 (6) SA 222 (SCA).