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 1ST, 2ND-3RD APPLICANTS:  ADV. J.P. VORSTER SC  
						      ADV. C.P. WESLEY

INSTRUCTED BY:  Mr Stolp of Solomon Nicolson Attorneys
			    Notaries and Coveyancers  

FOR THE 1ST, 3RD, 5TH AND 6TH 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