Moneyline 340 (Proprietary) Limited v Stiflfontein Een-Stop Vultstasie CC t/a Engen Quick Stop and Another (36450/06) [2008] ZAGPHC 77 (20 February 2008)

IN THE HIGH COURT OF SOUTH AFRICA

(TRANSVAAL PROVINCIAL DIVISION)

Date: 20/02/2008

Case No:

REPORTABLE

In the matter between:

MONEYLlNE 340 (PROPRIETARY) LIMITED Applicant

And

STILFONTEIN EEN-STOP VULSTASIE CC

tla ENGEN QUICK STOP First Respondent

ENGEN PETROLEUM LIMITED Second Respondent

JUDGMENT

RAMAGAGA, AJ

This is an application for the eviction of respondents from certain petrol station premises situated on land owned by the applicant. The applicant's claim is a rei vindicatio in respect of erven 1, 2 and 5 of Stilfontein Industrial Park, Registration division lP, Province of North West, hereinafter referred to as erven 1, 2 and 5.

Respondents resist the application on the following grounds:

1. That the second respondent had a long unregistered lease agreement with the applicant's predecessor in title in respect of erven 1 and 2 which lease agreement the applicant was well-aware of prior to purchasing the aforesaid erven.

2. That the second respondent had acquired a real right to the property and thus second respondent's lease survived the sale of the property.

3. That it was believed that erf 5 formed part of the leased erven 1 and 2 until it was discovered by respondents' land surveyor that the property belonged to the city council. The respondents contend that it would under the circumstances be just and equitable that the respondents continue to occupy ert 5 notwithstanding the fact that ert 5 was never the subject of the long lease agreement.

4. That the applicant launched this application well aware of the fact that the issues are not only ownership and possession but also the right to occupy the premises by virtue of the long lease agreement. Respondents contend that applicant, well aware of the dispute of fact around respondents' right to occupy the property nevertheless chose to proceed by way of motion proceedings while the appropriate procedure in the circumstances of this case is not motion proceedings but action proceedings.

Applicant is the owner of erven 1, 2 and 5. It purchased erven 1, 2, 3 and 4 from the liquidator of Bushy Grove CC in liquidation (Bushy Grove) and acquired erf 5 from the city council of Klerksdorp (the city council). This application is only concerned with erven 1, 2 and 5, erven 3 and 4 are irrelevant to this application.

The first respondent is a petrol station operator in occupation of erven 1, 2 and 5 and conducting thereon the business of engine service station. First respondent claims title through or under the second respondent. The first respondent claims no right independently of the second respondent. Accordingly, this application turns on an analysis of the rights that the second respondent has against the applicant.

Applicant's predecessor in title in respect of erven 1 and 2, Bushy Grove, acquired the erven in July 1996 and registered mortgage bond for an amount of R112 500-00 over the properties on the 31st of July 1996. This bond was security for a loan raised by Bushy Grove. On the 20th September 1996, Bushy Grove concluded a notarially attested long lease agreement with the second respondent which agreement was not registered against the title deeds of the relevant properties as provided for and envisaged in the Formalities in respect of ­Leases of Land Act 18 of 1969. In terms of this-agreement, Bushy Grove leased the property to second respondent from the 20th September 1996 until termination of a retail dealer agreement; the contract was subject to renewal. This agreement describes the retail dealer agreement as an agreement in terms of which the second respondent, a petroleum distribution company would sublease the premises to retail business of Engen petroleum and any ancillary business permitted by second respondent on the sub-let premises. Thus, the duration of the lease agreement between Bushy Grove and second respondent was a long one which would mainly be determined by renewable retailer agreement between second respondent and third parties.

It also emerges from the affidavits that second respondent sub-let erven 1 and 2 to Bushy Grove on the 30th July 1996 and business was commenced in February 1997, applicant denies that there was any operative lease. About three months after the unregistered notarially attested long lease agreement had been concluded, Bushy Grove secured another loan for R312 500 from the same lender in whose favour a mortgage bond of July 1996 was registered. As security for the second loan, a second mortgage bond over erven 1 and 2 was registered on 19 December 1996. Bushy Grove was liquidated and wound up in August 1997 due to inability to pay its debts. When the liquidation order was granted Bushy Grove's debt on the two mortgage bonds in respect of erven 1, 2 , 3 and 4 stood at about R803 000 00. During November, assets of Bushy Grove including encumbered assets were put on auction. One Mr. C.T Pepler (Pepler) representing the second respondent, brought to the attention of the liquidator that some of the assets that were to be auctioned belonged to the second respondent and further that the second respondent had rights to certain immovable properties. The immovable properties were not sold at the auction. The liquidator on the one hand and the second respondent on the other hand represented by Pepler concluded a sale agreement whereby second respondent purchased erven 1, 2, 3 and 4 from the liquidator. The agreement was later cancelled by the liquidator. The contents of this cancelled agreement including the price were not disclosed to this court. On the facts, it would seem that the sale was a private sale. On 24 December 1997, a purchaser who is described as follows in the deed of sale offered to purchase erven 1, 2, 3 and 4 from the liquidator:

"Tjafer Palasli I.D 6211035723086 or for a close corporation or company to be formed, 181 Van Riebeeck street, Potchefstroom (hereinafter referred to as the purchaser)."

The applicants do not specifically indicate whether this sale was by a private sale, sale by public tender, or whether it was a sale by public auction. Notwithstanding, it would appear that even the sale between Palasli or a company or a close corporation to be formed was a private sale. I have observed that while the deed of sale between the liquidator and Palasli or whomsoever reflects the sale price as R550 000-00 on the one hand, the sale price reflected on the liquidation and distribution account is R400 000-00. This discrepancy is not explained in the papers before me. Further, on the agreement stating sale price of R550 000-00 in terms of which applicant ultimately acquired the property a commission payable to auctioneers was 8% of this sale price. The evidence before me does not suggest that these erven were sold by public auction. The respondents contend that by virtue of the Roman Dutch Law rule "huur gaat voor koop" the applicant is bound by the long lease agreement between its predecessor in title namely Bushy Grove and the second respondent. The applicant disputes that the "huur gaat voor koop" rule applies in the instant case. Applicant attacks the application of this rule on the following:

1. that the second respondent had not acquired a real right in respect of the property at the time of liquidation in that the second had not yet taken occupation of the property at the time. Second respondent denies this contention and maintains that it was already in occupation through its sub-lease at the time, Bushy Grove being one of the sub lessees. There is a clear dispute of fact with regard to whether second respondent had a real right over the property at the time or not. I am unable to safely conclude on the papers whether or not second respondent had acquired a real right over the property or not and in this regard, I find that there is a dispute of fact which cannot be resolved by these motion proceedings.

2. That the property was sold pursuant to the winding up of Bushy Grove CC who was obliged to sell the property subject to the lease only if the liquidator could obtain a purchase price that would be sufficient to discharge in full the amount of security. The secured claim was R803 000-00 while the sale price according to the liquidation and distribution account was R400 000. I have already highlighted the discrepancy between the sale price reflected on the liquidation account and that reflected on the deed of sale. While it is so that a liquidator may be compelled to repudiate a lease of immovable property concluded with the insolvent as a lessor if the property is subject to a real right which was registered prior to the lease it is not true that the liquidator was obliged only to sell the property subject to the lease agreement if he could obtain a purchase price that would be sufficient to discharge in full the amount of security. The correct position is that if the liquidator is unable to secure a price that fully discharges the debt, the mortgagee can insist that the property be sold free of the lease. The election is for the mortgagee to make and not the liquidator. In dealing with this consideration De Wet J in Timm v Kay and Another 1954 (4) SA 585 (T) at 586G-H said the following:

"As I understand the position, where there is a mortgage bond prior to the lease, property attached in execution must be put up subject to the lease and, if the highest bid is not sufficient to cover the mortgagee's debt, the mortgagee can insist that the property be sold free of the lease. This is the position whether the sale is at the instance of a trustee in insolvency or at the instance of a judgment creditor."

In addition, it is necessary to quote the relevant dicta in the judgment of Gubbay J in Shell Rhodesia (PVT) Ltd v Eliasov NO 1979 (3) SA 915 (R) at 917A-B where he said:

"The effect of the liquidation of a lessor company upon the lease of its immovable property hypothecated under the mortgage bond is governed by the common law." Further at D-F the dicta reads as follows: "Conversely, where the lease is subsequent in time to the mortgage bond, it does not diminish the mortgagee's security. He enjoys a prior real right over the property and can demand that it be sold free of the lease if a sale subject to the lease would realise insufficient to liquidate his preferent claim."

What emerges from these cases is that if the mortgaged property realizes proceeds that are enough to discharge the mortgagee's debt in full, the liquidator has no option but to sell the property subject to the existing lease agreement. However if the proceeds realised in the sale are not sufficient to discharge the mortgagee's debt in full, it is solely within the discretion of the mortgagee to uphold the existing lease when selling or insist that the sale excluding the lease agreement be concluded. Not even the liquidator or other creditors have the right to exercise this election or force the mortgagee to exercise its election either way. The papers are silent on whether the mortgagee ever made any election in this regard and if so, what election it made. It cannot be safely assumed that simply because the deed of sale does not provide for or against the inclusion of the lease agreement that the mortgagee did in fact elect to have the property sold free of the lease. The applicant's argument that the liquidator was obliged to sell the mortgaged property free of the lease can thus not succeed. For this argument to succeed the court must be satisfied that the liquidator sold the property free of the lease at the request and instance of the mortgagee of the property.

I now turn to deal with the question whether or not the applicant knew when it purchased the property that it was a subject matter of a lease agreement. It is clear from the description of the purchaser supra that when Palasli signed an offer to purchase the property, his mind was not made up whether this property would be purchased by him as an individual, or a legal person in the form of a close corporation or a company still to be formed. The property was ultimately purchased by the applicant who got registered on 11 February 1998. It does not appear from the record whether applicant was a shelf company or not, however, what is apparent from the papers is that applicant was registered on 11 February 1998, Palasli was only registered as the director of applicant on 11 April 1998 and applicant only became the registered owner of this property on 30 March 2001. It is clear from the description of the purchaser that at the time when the liquidator signed as seller in acceptance of the offer, he did not know whom he was contracting with. A reasonable inference to be drawn from these facts is that the identity of the purchaser only became known to the seller on a date after the date of acceptance of the offer. It was left to Palasli to ultimately decide as to who the purchaser of the property would be and he chose applicant to be the purchaser. Applicant could have become a party to the sale agreement, either in terms of the procedure set out in section 35 of the Companies Act 61 of 1973 or by accepting the nomination and terms of the agreement in writing. Neither the date on which the deed of sale was ratified nor the date on which the acceptance of the nomination and terms of the agreement are before this court.

Section 1 (2) of the Formalities in respect of Leases of Leases of Land Act 18 of 1969 provides that:

"No lease of land which is entered into for a period of not less than ten years or for the natural life of the lessee or any other person mentioned in the lease, or which is renewable from time to time at the will of the lessee indefinitely or for periods, which together with the first period of the lease amount in a11 to not less than ten years, shall, if such lease be entered into after the commencement of this Act, be valid against a creditor or successor under onerous title of the lessor for a period longer than ten years after having been entered into unless­-

a) it has been registered against the title deed of the lease land; or

b) the aforesaid creditor or successor at the time of the giving of credit or the entry into the transaction by which he obtained the leased land or a portion thereof or obtained a real right in respect thereof, as the case may be, knew of the lease."

It is common cause that the lease in respect of erven 1 and 2 was not registered against the title deed. This case should concern itself with the provision relating to knowledge of the lease. Can it be safely concluded that the transaction by which the applicant obtained the leased land is the deed of sale of 24 December 1997. I have looked at the following to arrive at an answer:

1. The offer to purchase was made on behalf of any of the three mentioned persons; the case would have been different if it was made for the company to be formed and no one else.

2. The price offered and accepted in respect of the deed of sale of the 24th of December 1997 was R550 000-00 while the liquidation and distribution account reflects the sale price as R400 000-00. It would seem another deed of sale whose particulars have not been disclosed to this court was concluded and in terms of this agreement the sale price was dropped by R150000-00.

3. The objective of the Formalities in respect of leases of land Act 18 of 1969 is to protect the acquirers of leased land from being bound to leases that they did not know of when they entered into an agreement to acquire that piece of land or part thereof. The applicant could only become obliged to perform in terms of the contract once it had either complied with section 35 of the Companies Act or accepted nomination and terms of the agreement in terms of the common law. It is my view that the date on which the applicant accepted the contract and considered itself bound by the contract is critical and that is the date to which knowledge is imputable. The earliest date by which the applicant could have known of the lease was the date on which it was incorporated, the 11th of February 1998 if its incorporation was done by Palasli or even later when Palasli acquired it, if it was a shelf company. Prior to the registration of applicant i.e. during or about the last week of January or first week of February 1998 Palasli and respondents' representatives, met and held discussions of the property. Palasli was apprised of Engen's interest and more particularly of the lease which Engen held over erven 1 and 2. Palasli, the representative of applicant knew of the lease before applicant was incorporated.

4. The deed of sale dated 24 December 1997 provides that:

"The purchase price is payable as follows:

1.1 % deposit on date of signature and the purchaser confirms that he will waive his right of any interest' in favour of the insolvent estate.

1.2 A guarantee for the balance shall be given to the seller within (sixty) days from confirmation of date of this agreement."

In terms of clause 1.2 above, the date of this agreement still had to be confirmed. There are no facts before me which show as to which date was confirmed as the date of this agreement. On the basis of the factors mentioned hereinabove, it is my view that the 27th December 1997 is not the date on which the applicant entered into a contract by which it obtained the leased land or a portion thereof as envisaged by Act 18 of 1969. Thus it is immaterial whether Palasli or any of the legal entities knew of the lease or not on the 27th December 1997. The facts instead, point to the fact that when applicant was incorporated and when Palasli became the director of applicant, he knew of the respondents' claim to the lease agreement.

I now turn to deal with the process chosen by the applicant in this matter.

Applicant chose to prosecute its claim by way of motion proceedings based on rei vindicatio while it fully knew tl1at ownership of the occupied property was not in dispute, what was in dispute was the respondents' claim of the right to occupy the property, which claim is based on the long lease agreement.

In support of its case, the applicant chose to rely merely upon the following facts, to substantiate the relief claimed:

1.1 Applicant is the owner of the property erven 1 and 2 registered in applicant's name on 30 March 2001 and erf 5 on 31 May 2006.

1.2 The property was improved for use as a petrol filling station, a garage, a workshop and a general dealer.

1.3 The first respondent presently occupies the property, conducting thereon the business of an engine service station under the name "Engen Quick Stop", alternatively Stilfontein Quick Shop".

This application was issued on the 7th November 2006.

When this application was launched the applicant knew that the dispute was about the respondents' right to occupy the premises arising from the long lease agreement. I have already sated that as early as end of January first week of February 1998, Palasli knew of the lease agreement as a result of the discussions he held with second respondents' representative. In pursuance of these discussions held, second respondent wrote a letter to Palasli's attorneys on the 6th of February 1997 and confirmed the existence of the lease. The relevant text of the letter reads:

"1. We confirm that our clients are, at present, in occupation of the property in terms of a valid unregistered lease.

2. Our clients would be prepared to substitute the said existing lease with a registered lease and certain product servitudes on the basis as set out in the annexed agreement.

3. Kindly advise whether the terms of the draft are acceptable to your client."

The issue of a claim to the right to occupy the property arising from a lease agreement was kept alive between the parties as appears in a further correspondence of 19 October 2004 between the parties. On 19 October 2004, applicant's legal representative sent a letter to second respondent's attorney expressing a view that they held a different opinion to that of respondent's attorneys regarding the unregistered lease agreement, the relevant text reads:

"In the interim however, we note your comments that your client will remain in occupation of the premises 'in terms of the existing unregistered lease agreement'. Clearly we have a difference of opinion with you in regard to such 'lease agreement', more so ... Jan Harm Street".

Palasli, the applicant's director knew before the applicant came into existence that the second Respondent took a position that it was entitled to remain in occupation of the property and further that it was the second respondent's view that it derived its right of occupation from the unregistered long lease agreement. This knowledge is evidenced by Palasli's admission of the discussions he held with second respondent's representatives in or around January - first week of February 1997 and the correspondence between Palasli's legal representatives who subsequently became the applicant's legal representatives and the second respondent's representatives. It is clear that applicant launched the rei vindicatio application well knowing that ownership of the property was not in dispute but that the applicant and the second respondent held different opinions regarding the operation of the unregistered long lease agreement. That the respondent would resist the application and raise the defence of the lease agreement was almost a certainty to the applicant. The lease claim had already been communicated to the applicant's attorneys more than once. This, in my mind is a case which even though is not an ex parte application warranted a full disclosure of all material facts by the applicant. The applicant nevertheless chose to base its claim on ownership, while it knew that ownership was never, at least on the papers, a cause of dispute between the parties. In the circumstances, I find that the applicant should not succeed in its claim for eviction in respect of erven 1 and 2.

The applicant submits that although the respondents contend for the unregistered lease in respect of erven 1 and 2, no such claim can be made of erf 5. Further, the applicant submits that there - is no fact or circumstance upon which a conclusion may be drawn that it is "just and equitable" to deny the applicant as owner occupation of its own property.

I should now proceed to deal with the issues around the occupation of erven 1, 2 and 5 as they emerge from the affidavits and supporting annexures. It is common cause that the erven are the property of applicant. The following is observed from examining the title deeds held in respect of erven 1 and 2 on the one hand and erf 5 on the other hand:

1) That Bushy Grove acquired erven 1 and 2 in 1996 by deed of transfer T68900/1996 and subsequently, the property was transferred to applicant in 2001 per deed of transfer T000030524/2001. ­

2) That erf 5 was formerly a portion of Jan Harms street owned by the city council of Klerksdorp. The city council registered its ownership of the property in 2006 by deed of transfer T060966/06 simultaneously the and almost applicant's ownership was registered by deed of transfer T060967/06. It is significant to point out that the transfer to city council and the subsequent transfer to applicant were allocated two consecutive numbers namely T060966/06 and T060967/06 respectively. At all material times hereto and prior to the discovery by the second respondents' land surveyor all parties believed that the property now known as erf 5 since 2006 formed part of erven 1 and 2. I say this because Bushy Grove and second respondent made improvements on the property and occupied it without any objection from the city council. At no stage did the city council raise an issue about occupation of the property. It would seem that the transfer to the city council in 2006 was made in order to correct the then existing erroneous belief that erf 5 was part of erven 1 and 2 and further to facilitate transfer of the property with improvements thereon to the applicant. In the circumstances, I find that when the long lease agreement was concluded, it was the intention of both Bushy Grove and the second respondent that second respondent or its sub lessees would occupy the property including

erf 5. I have already stated that erf 5 was only registered in the city council's name and the applicant's name in 2006 while Bushy Grove who leased the property to second respondent acquired the property in 1996.

In the given circumstances especially that the majority of improvements were on erf 5, I am of the view that the second respondent cannot be faulted for assuming that what later came to be known as erf 5 was part of erven 1 and 2. Applicant can thus not be better off and the respondents accordingly worse off simply because erf 5 was not the subject matter of this long lease agreement. On the papers before me, it cannot be determined whether the buildings and improvements on the property is severable to an extent that erf 5 can be occupied independent of erven 1 and 2. I hold a view that it is just and equitable that for the purposes of this application that erf 5 should be subjected to the same fate as erven 1 and 2. Consequently, the application for eviction from erf 5 can also not succeed notwithstanding that the erf is not subject mater of the long lease agreement.

In the circumstance I have come to the conclusion that the application cannot succeed. Accordingly the application is dismissed with costs.

M J RA

ACTING JUDGE OF THE HIGH COURT

FOR THE APPLICANTS: JOHN PETER

INSTRUCTED BY: CHRISTELISE AND ARTEMIDES

FOR THE RESPONDENTS: J. C BERGENTHUIN SC

INSTRUCTED BY: VAN ZYL LE ROUX AND HURTER.INC.

DATE OF JUDGMENT: 20/02/2008