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FILING SHEET FOR EASTERN CAPE JUDGMENT

ECJ: 142

PARTIES: CHRISTIAAN WYNAND JOHANNES BOTES N.O.

MARYKA BOTES N.O.

AND

JAMES JOHN SHAMLEY

• Registrar: 2567/01

• Magistrate:

• High Court: SOUTH EASTERN CAPE LOCAL DIVISION

DATE HEARD: 22/02/07

DATE DELIVERED: 19/04/07

JUDGE(S): Jones J

LEGAL REPRESENTATIVES –

Appearances:

• for the Plaintiff(s): ADV: S. Guldenfennig

• for the Defendant(s): ADV: S. Rorke

Instructing attorneys:

• Plaintiff(s): WILKE WEISS VAN ROOYEN INC.

• Respondent(s): LEXICON ATTORNEYS

CASE INFORMATION -

• Nature of proceedings : SPECIAL PLEA OF NOVATION

Possibly reportable

In the High Court of South Africa

(South Eastern Cape Local Division) Case No 2567/01

Delivered:

In the matter between

CHRISTIAAN WYNAND JOHANNES BOTES N.O. 1^st Plaintiff

MARYKA BOTES N.O. 2^nd Plaintiff

and

JAMES JOHN SHAMLEY Defendant

SUMMARY: Special plea of novation – whether on the facts the original cause of action was extinguished by a series of further agreements which failed but which were made in an attempt to keep the original transaction alive.

JUDGMENT

JONES J:

[1] This is a special plea in an action for damages for breach of contract. By agreement between the parties it is dealt with as a separate issue under rule 33(4). No evidence was led. The facts necessary for a determination of the special plea are common cause or indisputable, and appear from the pleadings and a bundle of documents which was put in by consent.

[2] The plaintiffs are trustees in the Tima Family Trust. I shall refer to them collectively as ‘the trust’. On 20 April 2001 the trust entered into an agreement with the defendant for the purchase of immovable property at Sea View Farm near Port Elizabeth, the object being for the trust to develop the property and re-sell subdivided sections separately as small holdings. The purchase price was R1 000 000-00. The trust’s claim for damages arose out of an alleged breach of this agreement, which I shall call the first agreement. The defendant denied the breach, alleged a wrongful repudiation, and cancelled the first agreement. The parties went to trial. The trust’s claim was for rectification of the agreement, a claim for the value of useful improvements which entrenched a right of retention, and a claim for damages of R2 204 783-90 made up (a) of wasted expenditure in developing the property, and (b) loss of profits. The defendant denied liability, and, in a counterclaim alleging that the trust remained in unlawful occupation, claimed an order restoring the property to him.

[3] The matter came to trial on 7 May 2003. On that date the parties entered into a second agreement. Although it is called a settlement agreement it did not address the relief sought by the parties at the trial. It had two parts.

[3.1] First, in terms of paragraphs 1, 2, and 4 the defendant undertook at his cost to obtain the necessary consent by the relevant authorities to the subdivision and rezoning of the property by 31 December 2003. Should the necessary consent be given, the parties agreed further that the defendant sold the property to the trust for R500 000-00 which was to be paid from the proceeds of the sale of the small holdings, the proceeds of the first five going to the trust, and the trust thereafter paying an amount of R100 000-00 per smallholding from the sale of the sixth to the tenth small holdings. In the event of consent being obtained, each party agreed that they would pay their own costs. The defendant would retain registered title and undertook to transfer each small holding direct to the purchaser, and he consented to the registration of a covering bond for R1 500 000-00 in favour of the trust over the property, without prejudice to the trust’s right of retention. The parties recorded in paragraph 4 that if consent to subdivision was obtained, the agreement was in full and final settlement of all claims between the parties.

[3.2] The second part of the second agreement reflected what would happen if consent was not given. In that event, the agreement recorded simply that the defendant would pay the trust’s taxed party and party costs up to the date of signature of the agreement. The agreement did not make express provision for what would happen to the damages claim or the claim in reconvention in the event of consent to the subdivision not being given.

[3.3] The agreement provided that its terms may be made an order of court on the application of either party on notice to the other.

[4] On 12 November 2003 the second agreement was superseded by a third agreement. The effect of the third agreement, which was negotiated by the defendant and the first plaintiff, this time in his capacity as director of Versatex Trading 616 (Pty) Ltd, was to substitute Versatex for the trust as the purchaser of the Sea View property. The third agreement was conditional on Versatex getting a bond to secure payment of the purchase price. The condition failed and the third agreement therefore lapsed. The parties appear to accept that the third agreement was with the knowledge and consent of the trust, and that, although it was not a party or a signatory to the third agreement and was not referred to in it, the trust was bound by its terms.

[5] The next chapter in the story was an application by the trust to have the second agreement made an order of this court. In a judgment dated 5 August 2004 Taljaard AJ dismissed the application insofar as the proposed order of court purported to implement that portion of the second agreement which provided for a sale of the property to the trust once consent to subdivision had been obtained. The ratio decidendo was that the third agreement had novated that portion of the second agreement by delegation, which meant that that portion of the second agreement was no longer enforceable and could not be made an order of court. In other words, any rights which the trust may have had to purchase the property in terms of the second agreement had been permanently lost when they were transferred to Versatex. They did not revive when the third agreement failed. However, Taljaard AJ held that the second part of the second agreement – i.e. the part which included the trust’s entitlement to costs if consent was not given – had not been novated, and he made that part of the second agreement an order of court.

[6] This brings me to the present proceedings. The trust persisted with its original claim for damages under the first agreement. It set the matter down for trial. The defendant filed a special plea that the original cause of action under the first agreement was settled by the second agreement, that the lis between the parties to the action for damages under the first agreement was brought to a final conclusion by the second agreement, and that the second agreement had been novated and hence discharged by the third agreement which had, in turn, failed. The conclusion was that the trust’s claim for damages for breach of contract had floundered, was without a factual foundation based on any of the agreements, and must be dismissed with costs.

[7] This conclusion is, in my view, without substance. The first difficulty I have is with the basic premise underlying the defendant’s argument (paragraph 1 of the notice of exception) that the trust’s claim against the defendant was fully and finally settled in the second agreement. This is not supported by the plain wording or the spirit of the second agreement. Paragraph 4 says:

‘This agreement is, in the event of consent being obtained as contemplated by clause 1.1 hereof, in full and final settlement of all claims between the parties ...’. (my emphasis).

It makes commercial sense to exclude the damages claim and the counterclaim if, in terms of the settlement, the trust was to purchase the property and was to be placed in a position to develop the land and sell the small holdings. It would then not incur wasted expense or loss of profits, and the defendant would not be entitled to an order for restoration of the property. But that is as far the settlement goes. In my view the further inference is clear: it is necessarily to be implied that if consent were not obtained, the agreement was not in full and final settlement of all claims between the parties. It makes no commercial sense at all to hold otherwise. It is not sensible to conclude, in this context, that the condition relating to getting consent did not apply here because it fell away when the agreement was novated by the third agreement. That begs the question. The question was proof of the intention of the parties to settle all elements of the action fully and finally. The evidence instead points to a conditional intention to settle only the issue of getting consent, which was a precondition to the sale and development of the property. The condition failed, and with it the conditional settlement. The fact that consent was given brought the second part of the second agreement into force. The defendant was required to pay the costs which were wasted by the failure of the settlement. In the absence of express wording to the contrary in the second agreement, or anything in the facts and surrounding circumstances to indicate the contrary, the only reasonable inference is that the parties intended that the action would then continue. The rest of the wording of paragraph 4 is also against the defendant. The obligation to pay costs up to the date of the agreement pre-supposes possible further costs which, presumably, would follow the event in the ordinary course. The event could only be the action for damages for breach of the first agreement.

[8] The defendant’s second difficulty is the judgment of Taljaard AJ, which found against the defendant on the question now at issue. The learned judge found that the second agreement did not novate the entire cause of action under the first agreement. He held (page 6 lines 20-22)

‘that the obligations created by the settlement [or second] agreement were alternative in their nature and that, on a proper construction of the facts which are common cause, the intention of the parties was clearly not, by concluding the further [third] agreement, to novate the entire settlement [second] agreement’.

Mr Gündelfennig argued, in my view correctly, that there was no appeal against the judgment of Taljaard AJ, and that the judgment is definitive of this issue. Furthermore, Mr Rorke’s submission for the defendant that Taljaard AJ’s judgment was incorrect where it held that the entire second agreement was not novated, is without merit. With respect, I think that the judgment was quite right. In an alternative argument in reply, Mr Rorke submitted that the trust was precluded by admissions in its replication from arguing that only part of the second agreement was novated. This argument is unsound. It is so that there is a blanket admission in paragraph 2 of the replication of a number of allegations, including the allegation that the third agreement novated the second agreement. But this must be read with the allegations in paragraphs 1 and 3. Paragraph 1 alleged ‘that it was the understanding between the parties that, should consent not be obtained . . ., the plaintiffs would be entitled to proceed with the action . . .’. In paragraph 3 the plaintiffs pleaded ‘that in terms of the finding of [Taljaard AJ], the whole agreement was not novated and the plaintiffs are entitled to proceed with the action’. The terms of the replication do not preclude the defendant’s argument.

[9] In arguing the exception, defendant’s counsel referred me to a number of authorities dealing with novation.¹ It is not necessary to deal with them in this judgment. There is no dispute about the law. The dispute is about what was novated and what was not. The onus is on the party seeking to rely on novation.² This onus is not easily discharged. The courts will not lightly infer that a party is no longer bound by obligations which he accepted in his contract, which are the foundation of a cause of action against him, and which he no longer wishes to be bound by.³ In this case there are no express words showing that he is no longer bound, and no facts to support the inference that effect of the second agreement was to do away entirely with the lis between the parties. The lis did not at any stage relate to specific performance of the agreement for the sale of the property. Both parties alleged that the agreement of sale had been cancelled. The case was about damages for breach of contract by the trust, and for return of the property to the defendant. Performance of the cancelled agreement was introduced at a late stage by way of a new agreement in order to settle the matter.

[10] That is not the end of the matter. The effect of the delegation of the trust’s right to purchase the property if consent was obtained was to extinguish by novation the trust’s right to claim that relief, but not other relief. The question then arises: What other relief remains? In my view failure to get consent would not impact on a claim for the value of useful improvements which was quantified at R300 000-00 and which was claimed in the tender portion of the prayer. But it may impact on claims for other kinds of claim. It may in certain circumstances impact, for example, on a claim like the trust’s claim for damages for loss of profits where the right to purchase the property, develop it, and make those profits was lost by novation, or by waiver or cession. Another way of looking at the issue is to pose the question: Was the loss of profits caused by the breach or by the novation? Furthermore, different questions might have to be asked in respect of the claim for damages for wasted costs already incurred. These points were not raised pertinently in argument, during which counsel confined their attention to an argument for or against a total extinction of the trust’s cause of action. For that reason I shall express no final view on them. I confine my judgment to the single issue of whether all pre-existing rights were extinguished. I find that the whole lis between the parties was not extinguished as a result of the delegation of the right to enforce a sale once consent to subdivision was obtained. I express no further view on whether or not the second and third agreements affect all or any of the claims made by the parties as presently formulated, and, if so, how and to what extent; or whether they affect any available defences.

[11] In the result, the special plea is dismissed with costs.

RJW JONES

Judge of the High Court

6 April 2007

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