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REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

APPEAL CASE NUMBER: A5012/2018

In the matter between:

RFC DEVELOPMENT (PTY) LTD                                                                           Appellant

and

OMEIDA TRADING 420 CC T/A CAFFE ROSSINI THE CORE                 First Respondent

BASIL VANDAS                                                                                    Second Respondent

ARIS SOPHOCLEOUS                                                                             Third Respondent

VALTO PANTO                                                                                        Fourth Respondent

 

JUDGMENT

DIPPENAAR J, (Lamont J and Adams J concurring)

 

Introduction

[1] The appellant appeals against the judgment and order granted by Wentzel AJ (“the court a quo”) granting absolution from the instance on its claim for outstanding amounts due under a commercial lease agreement, with no order as to costs. The first respondent, the tenant of the premises and the second to fourth respondents, sureties for the indebtedness of the first respondent, oppose the appeal. The appeal is with the leave of the court a quo.

[2] The respondents lodged a cross appeal against the dismissal of their defence submitting that the terms of the lease agreement should not be enforced as enforcement would be contrary to public policy, would be oppressive, unreasonable and unconscionable and would offend constitutional principles of freedom, equality and dignity.

The appeal

[3] The appeal turns on the issue whether the appellant proved the quantification of its claim at trial.

[4] At the trial, the respondents accepted the duty to begin and the onus to establish defences, based on fraudulent misrepresentation, waiver and unconscionability. One witness testified: Mr Basil Yandas, the second respondent. The appellant closed its case without any evidence being led in rebuttal of the respondents’ version. It did not hand up the certificate relied upon in its particulars of claim as evidence, nor did it lead any evidence on the quantification of its claim.

[5] On the pleadings, it was common cause that the appellant and first respondent concluded a written lease agreement during December 2007 in terms of which the latter occupied premises in The Core shopping centre from which it conducted business as a coffee shop and delicatessen for a period of five years. The respondents admitted the terms of the lease agreement. It was further common cause that the second to fourth respondents concluded written deeds of suretyship in favour of the appellant for the indebtedness of the first respondent. The deeds of suretyship were in similar terms and contained a clause providing:

“10(a) The amount of the indebtedness of the debtor and of me/us hereunder to the creditor at any time and the fact that the due date of payment of the whole, or as the case may be, portion of such amount has arrived, shall be determined and proved by a certificate signed by the creditor’s auditors for the time being:

10(b) A certificate in terms of clause 10(a) shall be: (i) binding on me;(ii) prima facie proof of the amount of my indebtedness hereunder; and (iii) valid as a liquid document against me/us in any competent court for the purpose of obtaining provisional sentence or judgment against me/us thereon;”

[6] It was further common cause on the pleadings that after the expiry of the written lease agreement, the first respondent, with consent of the appellant, remained in occupation of the premises and the parties concluded a tacit lease agreement on the same terms and conditions as the written lease.

[7] On the second respondent’s evidence, the first respondent vacated the premises on 31 May 2013. In the action, the appellant claimed payment of arrear rentals for the period October 2010 to February 2013. Hence the second respondent’s evidence establishes continuous occupation of the period October 2010 to February 2013.

[8] The schedule to the lease agreement particularised the basic monthly rentals payable in terms of the lease agreement which escalated at a rate of 8.5% per annum. It also particularised the monthly operating costs payable, escalating at a rate of 9.5% per annum. In addition, VAT was payable on these amounts. The gross rental was payable in advance on the first day of each month, failing which a late payment penalty of R500 was payable.

[9] A schedule was attached to the particulars of claim, reflecting the calculation of the aggregate amount claimed. In addition to the amounts provided for expressly in the lease agreement, the schedule contained various additional municipal and marketing charges as well as interest, aggregating amounts of R2198 571.76 and R944 399.98 respectively. These amounts were supported by a document styled “assurance report” relied on in the particulars of claim as being the certificate envisaged in the suretyships signed by the second to fourth respondents. 

[10] At the appeal hearing, a similar schedule was handed up, excluding the interest component and other specified charges not expressly particularised in the lease agreement. The appellant expressly abandoned its claims for these additional charges and the interest originally claimed. The schedule reflected a total amount of R1 898 710.92 being due in respect of rental, operating costs, late payment charges and VAT. The schedule further contained a list of payments received from the first respondent in an aggregate amount of R45 500.00, which the appellant contended should be deducted from the amounts due to it. The respondents did not object to the schedule.

[11] In evidence, the second respondent admitted the first respondent’s breaches of the lease agreement and that very little rental was paid by it during its occupation of the premises. He stated that insufficient turnover was generated by the first respondent to pay the agreed rentals. One of the respondents’ complaints was that the appellant was never willing to negotiate or agree to a reduced rental. No evidence was led on the payments made by the first respondent, an issue on which the respondents bore the onus.

[12] The court a quo granted absolution from the instance on the basis that the appellant failed to prove the quantum of its claim by failing to hand up the certificate by the auditors attached to the particulars of claim in evidence. Central to the appeal was whether quantum was an issue in the trial. The court a quo found that quantum remained an issue on a proper interpretation of the pleadings and that, even if the certificate was handed up in evidence, quantum would not have been adequately established in light of the evidence tendered by the second respondent that the first respondent was entitled to a credit of some R2.25 million for the fixtures and fittings left at the premises[1] when it vacated them. This issue was however not pleaded and the respondents conceded that no agreement had been reached between the parties on this issue.

[13] In its opening address at the trial, the appellant identified the issues to be determined by the court a quo as being the defences raised by the respondents. No mention was made of quantum being an issue. The respondent’s counsel was granted an opportunity to address the court, but did not raise quantum as being an issue.

[14] The respondents did not address the issue of quantum in evidence, nor was any evidence led regarding the exact rental amounts paid by the first respondent. The respondents did not seek absolution after the appellant closed its case. In their heads of argument and oral argument before the court a quo, none of the parties addressed the issue of quantum. In supplementary heads of argument, the respondents conceded that the certificate was prima facie evidence of the amount claimed. The respondents did not seek the dismissal of the appellant’s claim or contend that the appellant failed to prove the quantum thereof.

[15] The appellant did not contend for an express agreement between counsel that quantum was agreed between them; but contended that a tacit agreement was concluded that quantum was not an issue to be determined at trial, evidenced by the respondents accepting the duty to begin and failing to apply for absolution at the conclusion of the trial.  At the application for leave to appeal, it became apparent that there were factual disputes between the parties’ respective counsel regarding such agreement.

[16] In argument, the parties contended for different interpretations of the pleadings. The appellant contended that, read in context, the respondents’ denial of quantum was limited to the substantive defences raised by them as the denials in the plea were predicated upon the qualification “for the reasons set out above”.  The respondents on the other hand, relied on the denial of the contents of the schedule attached to the particulars of claim. It was argued that it was clear on the pleadings and the pretrial minute that quantum remained in dispute between the parties.

[17] There are disputes between the parties on whether there was an agreement between counsel that quantum was not an issue to be determined at the trial. This issue is not however dispositive of the appeal and it is not necessary to make any finding thereon.

[18] The true question is whether, on the evidence before the court a quo, including the admissions made on the pleadings, absolution from the instance should have been granted by the court a quo.

[19] The document attached to the particulars of claim as constituting the certificate is styled: “Assurance report of the independent auditor of RFC (the appellant) to the directors of RFC in connection with confirmation of total debt owed by the first respondent as at 28 February 2013 and the interest thereon”.

[20] In its terms, the document does not certify any particular amount as owing and does not refer to the sureties. The document merely expresses a conclusion pertaining to the amounts due by the first respondent, based on the auditor’s assurance engagement in respect of the appellant’s records. Considering its terms, the document is not a certificate as envisaged by clause 10 of the deeds of suretyship.  

[21] A certificate is merely an evidentiary tool to facilitate proof of the quantum of the amount claimed and of the facts underlying the respondents’ liability to pay the said amount. Such certificate does not constitute part of a cause of action. Its only function is to serve as proof and nothing more[2].

[22] As the document is not a certificate, it would not have availed the appellant to hand it up as evidence constituting proof of the quantification of its claim. It was common cause that the certificate was not handed up as evidence. The certificate could in any event not substantiate the indebtedness of the first respondent as the lease agreement did not contain any clause providing for the submission of a certificate as proof, similar to that contained in the deeds of suretyship.

[23] On the pleadings the respondents admitted the conclusion of the lease agreement in its terms, including the terms setting out the monthly rentals and operating costs payable as well as the annual escalations of these amounts. The period of occupation of the premises was common cause between the parties, which included the period to which the appellant’s claim relates. The respondents further admitted in evidence that the first respondent did not pay the agreed rentals in terms of the lease agreement throughout its occupation of the premises. Despite the denial of the contents of the schedule attached to the particulars of claim, the respondents failed to put up any controverting evidence and did not lead any evidence as to the amounts paid by the first respondent. No evidence was put up to challenge the amounts claimed by the appellant.

[24] The respondents’ denial of the schedule in the pleadings is at variance with the admission of the contents of the lease agreement, including the amounts and charges reflected therein.

[25] On the admitted facts, the items particularised in the lease agreement, comprising the basic rental, operating costs, VAT and late payment penalties are readily capable of mathematical calculation. The remaining items reflected on the schedule attached to the particulars of claim, are not sustained by any common cause facts[3]. Employing a mathematical calculation based on the undisputed facts, such facts established that the aggregate of the amounts due in terms of the lease agreement is R1 898 710.92.   

[26] The first respondent’s payments reflected on the schedule attached to the particulars of claim, were denied by the respondents. The appellant however conceded that the amount of R45 500.00 fell to be deducted from its claim. If this amount is deducted, the facts established that the respondents are indebted to the appellant in an amount of R1 853 210.92 [4].

[27] The court a quo’s finding that there was insufficient evidence to prove the appellant’s claim and granting of absolution from the instance, in the circumstances constitutes a material misdirection of fact[5].

[28] It follows that the appeal must succeed and that the appellant is entitled to judgment in the amount established by the undisputed facts.

[29] The lease agreement[6] provides for interest at 2% from date of default, which claim the appellant has abandoned. The appellant is entitled to legal interest from the date of service of the summons. This date from which interest should run does not appear from the appeal record.

Cross appeal

[30] The respondents raised three primary defences in the alternative, based on fraudulent misrepresentation, waiver and expansion of the common law under section 39(2) of the Constitution based on unconscionability. The court a quo dismissed these defences. The cross appeal relates to the latter defence. It is argued that the terms of the lease agreement should not be enforced as the appellant did not act in good faith and enforcement of the lease agreement would be contrary to public policy, be oppressive, unreasonable and unconscionable and would offend the constitutional principles of freedom, equality and dignity.

[31] Such contention was underpinned by the appellant’s conduct in refusing to compromise on the rental and agree to a lower amount despite the shopping centre not being successful and construction work continuing for an extended period, resulting in the first respondent generating insufficient turnover to meet the rental costs in terms of the lease. Reliance was further placed on the appellant’s refusal to credit the first respondent for the transferred liquor license or the fixtures, fittings and stock left on the premises when the first respondent vacated them. The respondents did not raise any counterclaim for the value of such items.

[32] The respondents argued for the adoption of the reasoning in the minority judgment of Vally J in Atlantis Property Holdings CC v Atlantis Excel Service Station CC[7] and of Van Oosten J in Mohamed’s Leisure Holdings (Pty) Ltd v Southern Sun Hotels (Pty) Ltd[8], in support of their contention that the court a quo should have declined to enforce the terms of the lease agreement found based on the constitutionally recognized principles of fairness and good faith in contractual dealings.

[33] The latter judgment was overruled on appeal by the Supreme Court of Appeal, which restated the current legal position. As stated by Mathopo JA in Mohamed’s Leisure Holdings (Pty) Ltd v Southern Sun Hotels (Pty) Ltd[9].

“Barkhuizen[10] shed light on the manner in which the question of substantive fairness of a contract (or contractual clause) is to be approached in its application of the contractual doctrine of the public policy test. The Constitutional Court introduced a second (subjective) stage to the public policy test in terms of which a contract (or contractual clause) must not only be objectively reasonable in order for it to be valid but its effect must also be subjectively reasonable in the particular circumstances in order for it to be enforceable. This approach facilitates a more purposive adjudication and a substantively fair outcome for contracting parties”.

…

“To answer that question the enquiry must be directed at the objective terms of the agreement, in the light of the relative situation of the parties. This without doubt calls for a balancing and weighing up of two considerations, namely the principle of pacta sunt servanda and the considerations of public policy, including of course constitutional imperatives” [11].

[34] The lease agreement was concluded freely and it was not contended that the agreement was objectively unconscionable. It was further not contended that there was an injustice which may have been caused by the inequality of bargaining power.  The second respondent, as the directing mind of the first respondent, who negotiated and concluded the lease agreement on its behalf, was not a novice but an experienced businessman, fully aware of the terms of the lease agreement and its implications.

[35] Despite being fully aware of the failing state of the shopping centre, the first respondent did not seek to cancel the lease once it became apparent that the expectations for the centre did not materialise. Rather, it remained in occupation of the premises for some five and a half years, even after the written lease terminated, despite being fully aware of the appellant’s stance that it would not reduce the rental under the lease agreement and the potential consequences of its failure to adhere to its contractual obligations to pay the rental and other charges. Before it vacated the premises on 31 May 2013, the first respondent was further aware that there was no agreement in place relating to any credit to be afforded to it in relation to the fixtures and fittings, stock and liquor license left on the premises.

[36] On the facts, it cannot be said that the court a quo misdirected itself in not finding that the implementation of the agreement was so manifestly unreasonable or unfair to the extent that it is contrary to public policy.  It can further not be said that the court a quo misdirected itself in law in declining to develop the common law in the particular circumstances of this case.

[37] It follows that the cross appeal must fail.

Costs

[38] The normal principle is that costs follow the result. No reasons have been advanced to deviate from this principle. The appellants have sought the costs of two counsel, which the respondents contend is not justified by the complexity of the matter. The respondents were represented by senior counsel. Considering the issues which arise in the appeal, the costs of two counsel are justified. The lease agreement provides for the granting of costs on the scale as between attorney and client.  

[39] The following order is granted:

[1] The appeal is upheld with costs on the scale as between attorney and client, including the costs of two counsel where employed.

[2] The order of the court a quo is set aside and substituted with the following:

“Judgment is granted against the first to fourth defendants, jointly and severally, the one paying the other to be absolved for:

[1] Payment of the sum of R1 853 210.92;

[2] Interest on the amount in 1 above at the rate of 15.5 % per annum a tempore morae from 30 September 2013 to date of payment;

[3] Costs of suit on the scale as between attorney and client;”

[4] The respondents’ cross appeal is dismissed with costs.

 

_____________________________________

EF DIPPENAAR

JUDGE OF THE HIGH COURT JOHANNESBURG

 

I AGREE

 

_____________________________________

C LAMONT

JUDGE OF THE HIGH COURT JOHANNESBURG

 

I AGREE

 

____________________________

L ADAMS

JUDGE OF THE HIGH COURT JOHANNESBURG

 

APPEARANCES

DATE OF HEARING                                              :           07 October 2019

DATE OF JUDGMENT                                           :                October 2019

APPLICANT’S COUNSEL                                    :           Adv D Van den Bogert

                                                                                                Adv HR Groenewald                                  

APPLICANT’S ATTORNEYS                               :           Paul Friedman & Associates

                                                                                                Inc

Mr Friedman

RESPONDENTS’ COUNSEL                               :           Adv C Georgiades SC

                                                                                               

RESPONDENTS’ ATTORNEYS                          :           Xenophontos attorneys

                                                                                                Mr Xenophontos

 

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