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IN THE HIGH COURT OF SOUTH AFRICA

(TRANSVAAL PROVINCIAL DIVISION)

Date: 2008-05-20

UNREPORTABLE

Case Number: 51061/2007

In the matter between:

TRITAN DEVELOPMENTS (PTY) LTD First Applicant

CANAZEI HOLDINGS (PTY) LTD Second Applicant

LEON M DE LANGE Third Applicant

and

MD MALULEKE LEASING (PTY) LTD First Respondent

PHILLIP STEYN Second Respondent

TUM INVESTMENTS (PTY) LTD Third Respondent

YVANNE MORNE COERTZE Fourth Respondent

DANIEL MATHAMBO MALULEKE Fifth Respondent

JOHAN DAWID NIEMAN Sixth Respondent

and

Case Number: 51501/2007

In the matter between:

MD MALULEKE LEASING (PTY) LTD Applicant

and

CANAZEI HOLDINGS (PTY) LTD First Respondent

TRITAN DEVELOPMENTS (PTY) LTD Second Respondent

PHILLIP STEYN Third Respondent

TUM INVESTMENTS (PTY) LTD Fourth Respondent

and

Case Number: 3611/2008

In the matter between:

TUM INVESTMENTS (PTY) LTD First Applicant

WH PRETORIUS Second Applicant

and

CANAZEI HOLDINGS (PTY) LTD First Respondent

TRITAN DEVELOPMENTS (PTY) LTD Second Respondent

MD MALULEKE LEASING (PTY) LTD Third Respondent

LEON DE LANGE Fourth Respondent

DAWID JOHAN NIEMAN Fifth Respondent

PHILLIP STEYN Sixth Respondent

YVANNE COERTSE Seventh Respondent

REGISTRAR OF COMPANIES Eight Respondent

NEDBANK LIMITED Ninth Respondent

JUDGMENT

SOUTHWOOD J

[1] Under case number 51061/2007 the applicants, Tritan Developments (Pty) Ltd (‘Tritan’), Canazei Holdings (Pty) Ltd (‘Canazei’) and Leon Marthinus de Lange (‘De Lange’) seek a declaratory order that the Memorandum of Understanding signed on 13 August 2007, a copy of which is annexure FA9 to the founding affidavit, was duly cancelled by Tritan and Canazei consequent upon the breach by the first respondent, MD Maluleke Leasing (Pty) Ltd (‘Maluleke Leasing’), of its obligations in terms thereof and an order that Maluleke Leasing transfer the shares held by it in Canazei (i.e. 25 % of Canazei’s shares) to Tritan against payment to it by the applicant of R5 102 454,10 and that the third respondent, TUM Investments (Pty) Ltd (‘TUM’) transfer the shares held by it in Canazei (i.e. 10 % of Canazei’s shares) to Tritan. This application will be referred to as ‘the cancellation application’.

[2] Under case number 51501/2007 Maluleke Leasing seeks a provisional winding-up order against Canazei. This application will be referred to as ‘the liquidation application’.

[3] Both applications are opposed. Because the underlying facts in both applications are the same the parties agreed that the two applications be heard together and that the cancellation application be heard first. The parties also agreed that if the cancellation application is successful, the relief sought therein must be granted, and the liquidation application refused. They did not agree that the converse would apply. Counsel for Tritan, Canazei and De Lange contends that if the applicants do not succeed in the cancellation application the liquidation application should also be refused.

[4] A subsidiary matter relates to the costs of an urgent application brought by TUM against Canazei in February 2008. Without conceding that TUM was entitled to any of the relief sought, Tritan, Canazei and De Lange gave undertakings which were incorporated in a court order and the parties agreed that the costs be reserved for adjudication by the court hearing the cancellation and liquidation applications. At the hearing before this court the parties agreed that the costs of the urgent application should follow the result of the cancellation application.

[5] The relevant facts in the cancellation application are not in dispute and may be summarised as follows:

(1) Since December 2006 Canazei has been the registered owner of Portion 16 (a portion of Portion 2) of the farm Klipfontein 268, JR, 137,371 hectares in extent (‘the property’). Tritan is in the process of developing the property as a township (‘the Klipfontein Township’).

(2) Approximately 7,2 hectares of the property is to be used for the development of a shopping centre and petrol filling station. This property will be referred to as ‘the shopping centre property’.

(3) To provide for the financing of the shopping centre the parties (Tritan, Maluleke Leasing, Phillip Steyn, TUM and Canazei) entered into a written agreement, styled ‘memorandum of understanding’ on 13 August 2007 (‘the agreement’). The preamble recorded that as at the date of signature of the agreement the shareholders of Canazei were as follows –

(a) Tritan 67 %

(b) Maluleke Leasing 30 %

(c) Phillip Steyn 3 %

and that for the purpose of ensuring fulfilment of the conditions of the agreement Tritan and Maluleke Leasing would each cede 5 % of Canazei’s shares to TUM. The preamble also recorded that TUM was interested in participating in the development of the shopping centre as a shareholder in Maluleke Leasing, the shares to be held by a company to be formed and that the parties wished to replace the memorandum of understanding entered into on 29 May 2007 (‘the May agreement’). (The primary difference between the agreement and the May agreement is that the seventh respondent, m Cubed Life Ltd (‘m Cubed’), is replaced in the agreement by TUM.)

(4) In terms of the agreement –

(i) upon signature of the agreement the parties would cause a private limited liability company (‘the JV Company’) to be incorporated -

(a) with an authorised and issued share capital respectively of R4 000 and R1 000 divided into ordinary shares of R1/share;

(b) whose main object and business would be the development of the shopping centre with a view to letting retail space; and

(c) whose shares would be held by Tritan (30 % or 300 shares) and Maluleke Leasing (70 % or 700 shares);

(ii) Maluleke Leasing would provide R5 million to Canazei to be used for the development of the Klipfontein Township and the rezoning of the shopping centre property by Tritan which amount would be paid by Maluleke Leasing to Canazei by –

(a) paying R3 million into Canazei’s bank account on or before 5 September 2006;

(b) paying R1,5 million into Canazei’s bank account on or before 31 May 2007; and

(c) paying R500 000 into Canazei’s bank account on or before 31 August 2007.

(At the date of signature of the agreement R4,5 million had already been paid into Canazei’s bank account pursuant to the provisions of the first memorandum of understanding entered into on 1 September 2006 and the May agreement).

(iii) the R5 million lent and advanced to Canazei would be repayable on transfer of the shopping centre property into the name of the JV Company;

(iv) if Canazei was placed under provisional or final judicial management or liquidation the loan would be repayable with interest at the prime lending rate plus 4 %;

(v) upon signature of the agreement and payment of the funds to Canazei –

(a) Tritan and Canazei would issue and allot further ordinary shares in Canazei so that Maluleke Leasing would hold 25 % of the shares in Canazei, TUM would hold 10 % and Tritan 62 %; and

(b) Tritan and Canazei would procure the appointment of Nieman and Pretorius to Canazei’s board of directors together with De Lange, Steyn and Coertze;

(vi) upon the transfer of the shopping centre property from Canazei to the JV Company and against repayment of the loan of R5 million Maluleke Leasing and TUM would transfer their shares in Canazei to Tritan at the par value thereof;

(vii) Tritan would proceed, through Canazei to develop the Klipfontein Township and would apply for the rezoning of the shopping centre property so that it could be developed as a shopping centre including a petrol filling station;

(viii) on rezoning of the shopping centre property the parties would procure that Canazei would sell the shopping centre property to the JV Company for a purchase price of R8 million;

(ix) Canazei would cede its right to the payment of the purchase price by the JV Company to Tritan in part settlement of an amount of R8 million of Canazei’s indebtedness to Tritan and Tritan, in turn, would cede R5 million of this indebtedness to Maluleke Leasing and TUM in settlement of the loan;

(x) the JV Company would develop the shopping centre property as a shopping centre including a petrol filling station with funds from outside sources and, if necessary, with funds provided by its shareholders on loan account;

(xi) in the event of the township and the rezoning of the shopping centre property not being approved by 30 September 2008 Maluleke Leasing and TUM would be entitled to retain their shareholding in Canazei.

(5) Coertze, De Lange, Nieman and Phillip Steyn had already been appointed directors of Canazei but Pretorius was not appointed although he attended board meetings.

(6) TUM was allocated 10 % of the shares in Canazei.

(7) On 24 July 2007 (i.e. before the agreement was concluded) a meeting of the board of directors of Canazei took place at which De Lange, Coertze, Pretorius, Phillip Steyn and Nieman were present. At the meeting Nieman gave notice on behalf of Maluleke Leasing that Maluleke Leasing would not be able to pay the R500 000 into Canazei’s bank account by 31 August 2007 (as required by the May agreement and incorporated into the agreement) and requested an extension of the time for payment until November 2007. De Lange objected to this request pointing out that the project was at a critical stage and that if Maluleke Leasing did not perform Tritan would propose that the May agreement be cancelled.

(8) On 27 August 2007 (i.e. after the agreement was concluded) De Lange on behalf of Tritan addressed a letter to Maluleke Leasing in the following terms –

‘In terms of the memorandum of understanding concluded between inter alia Tritan Developments (Pty) Ltd, MD Maluleke Leasing (Pty) Limited, TUM Investments and Canazei Holdings (Pty) Limited with regard to a joint venture for a shopping centre development concluded on 13 August 2007, Maluleke Leasing contracted to provide finance for an amount of R5 million to Canazei to be used in the development of the proposed Klipfontein Township and the rezoning of the proposed shopping centre property. R3 million of this obligation has been provided by Maluleke Leasing and a further amount of R1,5 million was provided by TUM Investments on behalf of Maluleke Leasing and the balance of R500 000 must be provided by Maluleke Leasing to Canazei by 31 August 2007.

I confirm that you indicated in the directors meeting held on 24 July 2007 that Maluleke Leasing would be unable to provide the balance of R500 000 by 31 August 2007 as stipulated and that you requested a postponement of this obligation to November 2007.

This is not acceptable and Tritan and Canazei insist that the balance of the money of R500 000 be provided to Canazei by 31 August 2007 as agreed.

Please take notice that should you fail to comply with your commitments to provide the payment of R500 000 to Canazei by 31 August 2007, we reserve the right to resile from the memorandum of understanding and to cancel same and to recover from you whatever damage we may suffer as a result of your breach of contract and the resultant cancellation of the memorandum of understanding.’

De Lange purported to sign this letter on behalf of both Tritan and Canazei.

(9) On 31 August 2007 Maluleke Leasing deposited into Canazei’s bank account a cheque for R500 000 which was dishonoured due to an error on the part of Standard Bank, the drawee bank.

(10) On 3 September 2007 De Lange was notified by Canazei’s bank that the cheque for R500 000 had been dishonoured and on 4 September 2007 De Lange addressed a letter to Maluleke Leasing in the following terms:

‘We refer to our letter dated 27 August 2007 in which we demanded from you performance on time of your obligation to provide the balance of your financing obligation of R500 000 to Canazei Holdings (Pty) Ltd by 31 August 2007 and in which we reserved a right of recession (sic) should you fail to comply with your obligation.

The cheque payment that you made direct into the banking account of Canazei Holdings (Pty) Ltd on Friday 31 August 2007 was dishonoured by the bank and you have accordingly not performed your obligations.

We have accordingly decided to terminate the memorandum of understanding as we hereby do.

We demand that you retransfer the shares you hold in Canazei Holdings (Pty) Ltd to us immediately. Against transfer of the shares back to us and upon resignation of the directors you nominated to the board of Canazei, we tender to repay all the amounts you lent to Canazei’.

Again De Lange purported to sign the letter on behalf of both Tritan and Canazei.

(11) Approximately half an hour after De Lange sent the letter of cancellation to Maluleke Leasing, Maluleke Leasing deposited into Canazei’s bank account a new cheque which was paid.

(12) Thereafter there was an exchange of correspondence between the parties and the cancellation of the agreement was put into dispute.

(13) Tritan and Canazei tender to repay to Maluleke Leasing the amount of R5 102 454,10 being the total amount lent and advanced to Maluleke Leasing to Canazei against transfer by Maluleke Leasing of the 25 % shareholding in Canazei to Tritan.

[6] The only significant factual dispute in the affidavits is whether De Lange was authorised to act on behalf of Canazei when he addressed the letters dated 27 August 2007 and 4 September 2007 to Maluleke Leasing. Maluleke Leasing’s counsel stated that he accepted that if Tritan had the right to cancel it had effectively cancelled the agreement and that the dispute about whether De Lange was authorised to act on behalf of Canazei was irrelevant. Counsel agreed that the only issue to be decided in the cancellation application was whether Tritan acquired a right to cancel the agreement when it sent the letter dated 27 August 2007 to Maluleke Leasing. Determination of this issue will determine the outcome of the application, and as already mentioned, may determine the outcome of the liquidation application. Accordingly, the issue to be decided is whether a party to a contract which does not contain an express or tacit lex commissoria or forfeiture clause is entitled to acquire a right to cancel the contract by giving to the other party a ‘notice of rescission’ prior to the other party being in mora. In the present case Maluleke Leasing was required by the agreement to pay the balance of R500 000 by 31 August 2007. Tritan gave ‘notice of rescission’ to Maluleke Leasing before that date, on 27 August 2007. Counsel confirmed that they had not been able to find authority dealing pertinently with this issue.

[7] It is well-established that when one party to a contract is in mora the innocent party may give the defaulting party notice that in the event of his failure to remedy his default within a stated period, which in all the circumstances must be reasonable, the innocent party may cancel the contract. This notice is referred to as a ‘notice of rescission’ and by giving the notice the innocent unilaterally acquires a right of cancellation, even where this was not agreed when the parties entered into the contract – see Breytenbach v Van Wijk 1923 AD 541 at 549; Microutsicos and Another v Swart 1949 (3) SA 715 (A) at 730; Nel v Cloete 1972 (2) SA 150 (A) at 159G-161H.

[8] In Nel v Cloete supra the court was concerned with an agreement of sale in respect of fixed property which did not stipulate a date for the seller to deliver the property and did not contain a forfeiture clause. The issue which had to be decided was whether the purchaser unilaterally could acquire a right to cancel the agreement by giving to the seller a single notice that the seller was required to perform on or before a stipulated date failing which the purchaser could cancel the agreement. The court traced the development in our law of mora debitoris in relation to cancellation and concluded (at 163H) that where a creditor envisages possible cancellation as a result of mora, the creditor can in the notice placing the debtor in mora state that, on failure to perform, he reserves the right to withdraw from the contract. The court thus impliedly, if not expressly, found that a notice of rescission given before the debtor was in mora, was valid and effective.

[9] In reaching this conclusion the court mentioned that neither the Roman nor the Roman-Dutch Law gave to a creditor a right of cancellation merely because the debtor was in mora and noted the development of such a right because of the exigencies of modern commercial life. The court referred to cases such as Ras and Others v Simpson 1904 TS 254; Denill v Atkins & Co 1905 TS 282 at 259 and Griessel v Du Toit 1948 (2) SA 562 (T) at 569, where the court granted orders for specific performance by a fixed date, failing which, cancellation of the contract. The court also dealt with the necessity for a creditor to place the debtor in mora where no fixed date for performance is stipulated and that the creditor could place a debtor in mora by giving notice to the debtor that he must perform on or before a specified date, allowing a reasonable period for such performance.

[10] The court referred to the further development under the influence of English Law which, under appropriate circumstances, gives a creditor a right of cancellation where a debtor is in mora regarding performance of an important contractual obligation (Young v Land Values Ltd 1924 WLD 216 at 226). The court also referred to the following statement in Microutsicos and Another v Swart 1949 (3) SA 715 (A) at 730:

‘For my present purpose it is sufficient to say that, where a time for the performance of a vital term in a contract has been stipulated for and one party is in mora by reason of his failure to perform it within that time, but “time is not of the essence of the contract”, the other party can make it so by giving notice that if the obligation is not complied with by a certain date, allowing a reasonable time, he will regard the contract as at an end. I refrain from dealing with a case where there is no stipulation as to time of performance, for that would be travelling beyond the issues before us in the present matter.’

In Nel v Cloete the court noted that in the Microutsicos judgment the court kept strictly to the facts of that case: i.e. an agreement of sale with a time for performance (without a lex commissoria) and a ‘notice of rescission” given to the debtor after he was in mora which allowed him a reasonable time to perform. The court observed that in the Microutsicos case the court did not deal with the question of whether the “notice of rescission” could be given before the debtor was in mora. As already mentioned in Nel v Cloete the court in effect decided that very issue by finding that a creditor by means of one notice could place the debtor in mora and unilaterally acquire a right to cancel.

[11] The judgment in Nel v Cloete therefore provides the answer to the dispute. A notice of rescission given before the debtor is in mora is valid and effective.

[12] The learned authors of Contract General Principles S. van der Merwe. L.F. van Huysteen. M.F.B. Reinecke. G.F. Lubbe seem to agree with this conclusion. Under the heading ‘Cancellation on ground of mora debitoris’ they say the following (at p320):

‘A notice of intention to cancel can be used to acquire a right to cancel, irrespective of whether a time for performance has been stipulated in the contract. If a time for performance has been set, the debtor will automatically be in mora if he fails to perform by the stipulated time. In such circumstances the notice of intention to cancel would merely be given to obtain the right to cancel. The notice may be given before or after the date for performance, as long as the debtor is allowed a reasonable time to perform after receipt of the notice.’

No authority for the proposition stated in the last sentence is given but the proposition is consistent with the reasoning in Nel v Cloete.

[13] LAWSA Vol 5 Contract para 224 at 306-7 says the following:

‘Even if time is not initially of the essence of the contract (because the contract does not contain an express or tacit lex commissioria) the creditor can make it of the essence by means of a so-called “notice of rescission”. This is a misnomer. Strictly speaking, it is a notice of reservation of a right of rescission. In such a notice, the creditor informs the debtor that if the latter should fail to perform on or before a date stipulated in the notice, the creditor will have the right to rescind the contract at his or her option.

The creditor may give the notice of rescission at any time after the contract was entered into. The creditor need not wait until the debtor is in mora or until there has been “default” or unreasonable delay on the part of the latter. If the debtor is not yet in mora the notice of rescission may serve the double purpose of putting the debtor in mora and of reserving a right of rescission to the creditor. Insofar as the notice of rescission calls upon the debtor to perform by a certain date, it also serves as a demand. If the debtor is already in mora ex re (because he or she has culpably failed to comply with a time clause contained in the contract) or mora ex persona (because he or she has culpably failed to comply with a valid demand) the purpose of a notice of rescission is only to acquire the additional remedy of rescission for the creditor. The other consequences of mora (as a form of breach of contract) follow immediately on the mora as such.’

No authority is given for the statement that the creditor may give notice of rescission at any time after the contract was entered into but the authors rely on Nel v Cloete for the statement that if the debtor is not in mora the notice of rescission may serve the double purpose of putting the debtor in mora and of reserving a right of rescission to the creditor.

[14] Tritan, Canazei and De Lange’s contention that the notice given on 27 August 2007 is valid and effective must therefore be upheld. It is not in dispute that the payment of R500 000 was material or that a reasonable time for performance was allowed. From the minute of the meeting of Canazei’s directors held on 24 July 2007 it appears that the payment of the R500 000 by 31 August 2007 was an important obligation and that it was essential that the payment be made on time.

[15] Tritan and Canazei are therefore entitled to the declaratory order sought and the consequential relief. As already mentioned, this means that the liquidation application must be dismissed and TUM ordered to pay the costs of the urgent application under case number 3611/2008.

Order

[16] (1) In case no 51061/2007

1. It is declared that the memorandum of understanding signed on 13 August 2007, a true copy of which is annexed to the founding affidavit as annexure “FA9” has been duly cancelled by the first applicant consequent upon the breach by the first respondent of its obligations in terms thereof.

2.

2.1 The first respondent is ordered to transfer all of the shares held by the first respondent in the second applicant, being 25 % of the entire shareholding in the second applicant, to the first applicant, against payment by the applicants to the first respondent of the amount of R5 102 454,10.

2.2 The third respondent is ordered to transfer all of the shares held by the third respondent in the second applicant, being 10 % of the entire shareholding in the second applicant, to the first applicant.

3. The first and second respondents are ordered to pay the costs of this application jointly and severally such costs to include the costs consequent upon the employment of two counsel.

(2) In case no 51501/2007

The application is dismissed and the applicant is ordered to pay the respondents’ costs such costs to include the costs consequent upon the employment of two counsel.

(3) In case no 3611/2008

The applicant is ordered to pay the respondents’ costs such costs to include the costs consequent upon the employment of two counsel.

_________________________

B.R. SOUTHWOOD

JUDGE OF THE HIGH COURT

CASE NO: 51061/07, 51501/2007 and 3611/2008

HEARD ON: 29 April 2008

FOR THE 1^ST, 2^ND-3^RD APPLICANTS: ADV. J.P. VORSTER SC

ADV. C.P. WESLEY

INSTRUCTED BY: Mr Stolp of Solomon Nicolson Attorneys

Notaries and Coveyancers

FOR THE 1^ST, 3^RD, 5^TH AND 6^TH RESPONDENTS:

ADV. B.H. SWART SC

ADV. H.N. DE WET

INSTRUCTED BY: Mr Bodenstein of Jasper van der Westhuizen

& Bodenstein Inc

DATE OF JUDGMENT: 20 May 2008

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