Cape Town Municipality v F Robb & Co Ltd

• Jurisdiction: South Africa
• Judge: Corbett J
• Judgment Date: 02 February 1966
• Citation: 1966 (4) SA 345 (C)
• Hearing Date: 07 December 1965
• Court: Cape Provincial Division

H Corbett, J.:

This is an action wherein the plaintiff, the Municipality of Cape Town, claims from defendant payment of the sum of R1,852.66, interest a tempore morae and costs of suit. The facts giving rise to this claim are shortly as follows:

Corbett J

On 27th October, 1955, the defendant entered into a written contract with the Milnerton Estates Ltd. (hereinafter referred to as 'Milnerton Estates') in terms whereof defendant agreed to purchase from Milnerton Estates an undeveloped piece of land in the Paarden Eiland Township, A situated within the municipal area of Cape Town, for the sum of £28,515. One of the clauses of this contract - in which Milnerton Estates is described as 'the Company' - provides, in regard to the subject matter of the sale, as follows:

'(f)

Whereas the Council of the City of Cape Town has provided or has undertaken forthwith to provide municipal services in respect of B the said land (subject to the Council's ordinary regulations governing such services), and whereas the Company has given certain undertakings to the said Council, it is hereby agreed by the purchaser that, should it fail within twelve months from the date of the transfer to it of the said land to erect thereon buildings and other rateable improvements to the value of not less than £57,030, the purchaser shall as and from the expiration of the said twelve months pay direct to the Council a sum equal to 21/2 per cent per annum on the said £57,030 until such agreed buildings and C improvements have been duly effected by the purchaser under plans approved by the Council.'

At the foot of the contract there is a subscription, signed on behalf of the plaintiff, in which it is recorded that -

'All stipulations in this agreement of sale and purchase in so far as they are for the benefit of the Council of the City of Cape Town are hereby accepted and adopted by the said Council.'

D In addition and in pursuance of a clause in the contract a notarial agreement was entered into between plaintiff and defendant on 27th February, 1956. The preamble to this agreement refers to the purchase of the land from Milnerton Estates, to the impending transfer thereof to defendant and to the provisions of clause (f) above and records that the E notarial agreement is entered into in order that the terms thereof may be registered against the land as a servitude and be binding upon defendant and its successors-in-title. The agreement provides, inter alia (the defendant being referred to as 'the said transferee') -

'That should the said transferee fail within twelve months from the date of transfer to the said Company of the said land, to erect thereon buildings and other rateable improvements to the value of not less than F £57,030, the said Company shall as and from the expiration of the said twelve months pay to the said Municipality a sum equal to 21/2 per cent per annum on the said £57,030, until such agreed buildings and improvements have been duly approved by the said Municipality. Such payments shall be made annually on such date in each year as the ordinary municipal rates for such year become payable.'

Subsequently, on 5th July, 1956, and in terms of a written contract, G defendant purchased from Milnerton Estates another piece of land in the Paarden Eiland Township, also situated within the municipal area of Cape Town, for the sum of £12,839. This contract is in terms similar to the first contract entered into on 27th October, 1955, and contains a provision (also numbered (f)) resembling clause (f) in that agreement H and providing for the payment of an annual sum equal to 21/2 per centum per annum on £25,678 should the defendant fail, within 12 months of the transfer to it of the land purchased, to erect thereon or on the land purchased under the agreement of 27th October, 1955, buildings and other rateable improvements to the value of this amount of £25,678. The contract makes it clear that this required expenditure of £25,678 on buildings and other rateable improvements is, in addition to the amount of £57,030, required to be expended by the first contract. Again, in pursuance of a clause in this contract of 5th July, 1956, a notarial agreement in terms similar to that of 27th February, 1956,

Corbett J

was executed on 17th May, 1957, in order to provide for the registration of defendant's obligations to plaintiff under the contract as a servitude against the land transferred.

The land sold under the first contract was transferred to defendant on A 28th March, 1956, and that sold under the second contract was transferred to defendant on 28th May, 1957. In each case defendant did not erect buildings or other rateable improvements to the values stipulated in the respective contracts and notarial agreements within 12 months of the date of transfer. In fact up to 1962 no buildings or other B rateable improvements at all had been erected on the land in question. Prior to 1962 defendant duly paid to plaintiff the sums provided for by clause (f) of the contracts and the notarial agreements. In regard to the sums accruing in 1962, however, defendant refused to pay the full amounts provided for, viz. R2,851.50 under the first contract and R1,293.90 under the second contract. Instead it paid to the plaintiff, in respect of both contracts and notarial agreements, an C amount of R2,282.74. The present claim is for payment of the balance of R1,852.66 and consequential relief.

In its declaration plaintiff describes the amounts accruing in terms of clause (f) of the contracts as 'liquidated damages' and the amount of D R1,852.66 is claimed 'as damages'. In its plea defendant denies that these amounts constitute liquidated damages and alleges, on the contrary, that each of the stipulations contained in clause (f) of the contracts and in the notarial agreements relating to the payment of these amounts is a penalty and, as such, is not recoverable at law.

Initially no replication was filed and the pleadings having been E considered closed under Rule 29 (b), the matter was set down for trial. At the hearing and in terms of a notice filed on 25th November, 1965, plaintiff made application to file a replication which, apart from joining issue upon defendant's plea, raises the contention that, even if the stipulations contained in clause (f) of the two contracts and the notarial agreements constitute penalties, they are nevertheless rendered F enforceable by the provisions of sec. 1 of the Conventional Penalties Act, 15 of 1962, which applies to the contracts and agreements in question. When plaintiff's counsel made this application, Mr. Snitcher, on behalf of defendant, formally opposed the granting thereof on the ground that, so he argued, the contention contained therein was bad in law and constituted no reply to the plea. In order to obviate the G possible inconvenience attendant upon this application having to be dealt with separately from, and prior to the commencement of, the trial it was agreed by the parties that the plaintiff be allowed to file its replication upon the following basis:

(1)

H that the Court's order permitting the filing of the replication should be regarded as being without prejudice to the defendant's right to dispute the legal validity of the contention contained in the replication as to the applicability of the Conventional Penalties Act;

(2)

that the trial should immediately proceed upon all the issues raised on the pleadings, including the question of the applicability of the Act; and

(3)

that, should the Court hold, at the conclusion of the trial, that

Corbett J

the Act did apply, the parties be given leave to adduce such further evidence and argument as they may wish to adduce in regard to the exercise by the Court of its discretionary powers under sec. 3 of the Act.

A It was upon the basis of this arrangement that the matter then proceeded.

As will be apparent from my summary of the pleadings there are two basic issues in this case. The first is whether the stipulations for annual B payments provided for in clause (f) of each of the contracts (for convenience I shall omit further reference to the identical stipulations in the notarial agreements) are governed by the Conventional Penalties Act, 15 of 1962. If they are, then whether they are penalty stipulations or covenants for the payment of liquidated damages is of no importance. Both categories of stipulation are governed by the Act and the rights of C the parties would be regulated by the provisions of the Act, notably those contained in sec. 3. If, on the other hand, the Act does not apply to the stipulations in question, then the second issue which arises is whether they are penalty stipulations or covenants for the payment of liquidated damages. If they are the latter, then plaintiff is entitled D to judgment in the full amount of its claim. If they are the former, then, as I shall show later, plaintiff's claim must fail.

Before I proceed to deal with these issues, there is a further point which must be mentioned. In the course of his argument Mr. Meachin, who appeared on behalf of the plaintiff, raised the question as to whether the stipulations in question fell within the penalty-liquidated damages E field. His argument in this regard was that there was no positive covenant on the part of the defendant to erect buildings or other improvements to the values stated in the contracts (for convenience I shall refer to...