Business Venture Investments (Pty) Ltd v Menlyn Moz (Pty) Ltd (018914/2023) [2024] ZAGPPHC 8 (15 January 2024)

Key Facts

Transaction Type

Issues

• The court dismissed the defendants' claim that the plaintiff violated Rule 41A by not issuing a mediation notice. It clarified that the plaintiff was not obligated to provide such notice under the rule's prescripts and that the defense was inapplicable.
• The court upheld the validity of the suretyship agreement signed in 2019 prior to the 2020 lease. It rejected the second defendant's claim that the agreement was invalid due to its pre-lease date, citing case law confirming that suretyship need not coincide with the principal obligation's creation.
• The court determined that the defendants' argument of a tacit agreement (pactum de non pretend) to pay discounted rent without a written amendment did not constitute a valid waiver of the original lease agreement. The judgment highlights the necessity of written modifications to commercial contracts under the Shrifren principle.
• The court assessed whether the defendants' defense to the summary judgment application was genuine, considering their claim of a tacit agreement to reduce rent and other defenses. The judgment emphasizes the requirement for a defendant to raise a bona fide defense under Rule 32 of the Uniform Rules of Court.
• The court acknowledged the economic hardship caused by the 2020 pandemic but ruled it could not excuse the defendants' non-payment obligations under the lease. It emphasized that contractual terms, even during crises, remain binding unless explicitly amended.

Holdings

• The court granted the plaintiff's application for summary judgment, ordering the defendants to pay R414,530.08 in arrears, vacate the leased premises within 90 days, and pay costs on an attorney and client scale. The order also included interest on the arrears and penalties.
• The court upheld the validity of the suretyship agreement signed by the second defendant in 2019 prior to the lease agreement. It emphasized that a suretyship may bind a future principal obligation and that the defendant's argument against its enforceability was unfounded.
• The court affirmed that the defendants' conduct did not limit the plaintiff's constitutional right to economic activity under section 22 of the Constitution. The defendants' use of tacit conduct to avoid contractual obligations was deemed invalid.
• The court ruled that the defendants could not use the COVID-19 pandemic as a justification for non-payment of rent, as the lease agreement did not include provisions for such circumstances. The pandemic's impact on business viability did not excuse non-compliance with contractual obligations.
• The court dismissed the defendants' claim of a tacit agreement (pactum de non pretend) for reduced rent, ruling that oral variations to a lease agreement must be in writing to avoid uncertainty and maintain commercial certainty. The plaintiff's acceptance of discounted payments did not constitute a valid waiver of the original lease terms.

Remedies

• Payment of arrear rental and penalties in terms of the lease agreement.
• The defendants and occupants must vacate the leased premises within three months (90 days) of receiving the order.
• The defendants are ordered to pay the plaintiff R414 530.08 as per the judgment.
• Interest on the arrear amount at 10.75% per annum from 01 April 2020 to February 2023.
• Costs of the application are awarded to the plaintiff on an attorney and client scale as per clause 40 of the lease agreement.

Monetary Damages

Legal Principles

• The court dismissed the defendants' estoppel argument, ruling that the plaintiff's acceptance of reduced rent did not waive the original lease terms. Written agreements are necessary for legal certainty in contractual modifications.
• The court applied the principle that agreements must be kept, enforcing the original lease terms despite the defendants' claim of a tacit agreement. It emphasized that variations to contractual obligations require written documentation to avoid ambiguity.
• The court referenced the Shrifren principle (suretyship agreements must be in writing) and affirmed the validity of the suretyship agreement despite being signed before the lease. It highlighted the importance of written documentation for suretyship obligations.

Precedent Name

• Shabangu v Land & Agricultural Development Bank
• Hennops Sport v Luhan Auto
• AHMR Hospitality (Pty) Ltd v Da Silva
• Coetze v Steenkamp
• Ba-Gat Motors CC t/a v Kempster Sedgwick
• SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren
• Slabbert v Ma-Afrika Hotels
• Kalagadi Manganese v Industrial Development Corporation
• Mohamed's Leisure Holdings v Southern Sun Hotel

Key Disputed Contract Clauses

• Clause 40 of the lease agreement provided the plaintiff with the right to cancel the lease and evict the defendants for non-payment of rent. The court upheld the enforceability of this clause, ordering the defendants to vacate the premises within 90 days and confirming the plaintiff's right to cancellation.
• The suretyship agreement, governed by Section 6 of the General Law Amendment Act 50 of 1956, required the second defendant to be bound in writing. The court affirmed its validity despite being signed before the lease, rejecting the defendants' argument that its enforceability was compromised by its pre-lease date.
• Clause 6.1 of the lease agreement mandated that monthly rental be paid in advance on the first day of each calendar month. The defendants disputed this requirement, arguing that the plaintiff's acceptance of discounted payments constituted a tacit modification of the clause, which the court rejected, emphasizing the necessity of written amendments to contractual terms.

Cited Statute

• Constitution of the Republic of South Africa, 1996
• General Law Amendment Act 50 of 1956

Judge Name

Passage Text

• In the context of this case, Menlyn Moz (Pty) Ltd is not in dispute that it was the principal debtor and the first defendant. In essence, the principal creditor, principal debtor and the surety for the principal obligations were easily identifiable and not in dispute. As correctly captured in Shabangu judgment, as is the case in this matter, the existence of the suretyship agreement before the signage of the original agreement is not a bar to the incurring of the rights and obligations that arose out of the said contract.
• Taking into considerations the requirements of a valid contract, freedom to contract denotes that parties are free to enter into contracts and decide on the terms of the contract. As in the present matter, the entering into the contract was designed to achieve a certain result of co-rights responsibility on economic advancement and freedom to contract as per the terms of the agreement. It is disingenuous of the defendants to contend the fragmentation of the relief sought whilst being aware of the terms of the agreement that they voluntarily contracted.
• The defendant's reliance on the plaintiff's conduct on acceptance of the discounted monthly rental without being reduced into writing amounted to waiver of the rights and obligations attached in the original agreement is without merit. Counsel for the applicant provided this court with the Supreme Court of Appeal (SCA) judgment in Ba-Gat Motors CC t/a v Kempster Sedgwick (Pty) Ltd (511/2022) [2023] ZASCA 137 quoting the SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren 1964 (4) SA 670 (A) (Shrifren principle) in that the waiver of the original terms of the agreement into writing eliminates any uncertainties regarding the intention of the parties in a contract and any party relying on such conduct will be estopped, (para 1).

Damages / Relief Type

• Eviction order from Shop L[...] of Menlyn Park Shopping Centre within 90 days.
• Payment of R414 530.08 in liquidated damages for unpaid rent and penalties.
• Costs awarded on attorney and client scale under clause 40 of the lease agreement.