Everfresh Market Virginia (Pty) Ltd v Shoprite Checkers (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Ngcobo CJ, Moseneke DCJ, Cameron J, Froneman J, Jafta J, Khampepe J, Mogoeng J, Nkabinde J, Van Der Westhuizen J, Yacoob J and Mthiyane AJ
• Judgment Date: 17 November 2011
• Citation: 2012 (1) SA 256 (CC)
• Docket Number: 105/10 [2011] ZACC 30
• Hearing Date: 10 May 2011
• Counsel: JP Vorster SC for the applicant. AM Breitenbach SC (with MW Janisch) for the respondent.
• Court: Constitutional Court

Yacoob J (Froneman J, Mogoeng J and Mthiyane AJ concurring): [*] A

Introduction

[1] This application for leave to appeal requires us to consider the circumstances in which this court should intervene to infuse the law of contract with constitutional values. The development of the common B law of contract in the light of the spirit, purport and objects of the Bill of Rights in our Constitution [1] was not directly raised by the applicant either in the KwaZulu-Natal High Court, Pietermaritzburg (High Court), or in the Supreme Court of Appeal. It is directly raised for the first time in this court and we must decide the constitutionally appropriate way of managing the case before us. And we must do so by determining the C requirements of the interests of justice.

[2] The genesis of the application is an ejectment claim by the respondent, Shoprite Checkers (Pty) Ltd (Shoprite), against the applicant, Everfresh Market Virginia (Pty) Ltd [2] (Everfresh). The ejectment application D has its roots in an agreement of lease between Everfresh and Shoprite's predecessor in title [3] as lessor. Shoprite bought the property commonly known as the Virginia Shopping Centre, [4] a portion of which was the subject of the lease, from the original lessor during the currency of the lease. Shoprite therefore became bound by the lease. It effectively became Everfresh's lessor. [5] E

[3] The lease was for five years, from 1 April 2004 to 31 March 2009. Clause 3 provides:

'Provided that the Lessee has faithfully and timeously fulfilled and performed all its obligations under and in terms of this Lease, the F Lessee shall have the right to renew same for a further period of four years and eleven months commencing on 1st April 2009, such renewal to be upon the same terms and conditions as in this Lease contained save that there shall be no further right of renewal, and save that the rentals for the renewal period shall be agreed upon between the Lessor and the Lessee at the time. The said right of renewal is subject to the G Lessee giving written notice to the Lessor of its intention so to renew, which notice shall reach the Lessor not less than six (6) calendar months prior to the date of termination of this Lease. In the event of no such notice being received by the Lessor, or in the event of notice being duly received but the Parties failing to reach agreement in regard to the

Yacoob J (Froneman J, Mogoeng J and Mthiyane AJ concurring)

A rentals for the renewal period at least three (3) calendar months prior to the date of termination of this Lease, then in either event this right of renewal shall be null and void.'

[4] Everfresh wrote to Shoprite on 14 July 2008:

'In terms of Clause 3 of the lease over 25 Hinton Place, dated 15 July 2003, B we hereby exercise our option to renew the lease for a further period of 4 years and 11 months from 1 April 2009 to 28 February 2014. We propose that a reasonable escalation would be in line with the existing lease at 10,5% pa. Accordingly we propose a commencing rental at R93 600 per month.'

C [5] Shoprite replied on 3 September 2008:

'We refer to the above matter and your letter dated 14 July 2008 purporting to exercise a right of renewal in terms of the lease agreement dated 15 July 2003. We wish to inform you that, according to our interpretation of the lease agreement and understanding of the law, clause 3 does not constitute a legally binding and enforceable right of D renewal which is capable of being exercised by Wild Break 166 (Pty) Ltd. We are therefore of the opinion that your letter dated 14 July 2008 does not impose any contractual obligation to renew and/or have the effect of extending the lease agreement beyond the term referred to in clause 1 thereof. The lease agreement will accordingly terminate after on 31 March 2009 by which date you are required to vacate the E lease premises.

Apart from the fact that you are not legally entitled to renew the lease, we are in any event desirous to redevelop the Virginia Shopping Centre that will also impact upon the lease premises. We are thus unable to negotiate the extension of the lease agreement beyond the current F termination date (31 March 2009). We may however reconsider our position once the redevelopment of the shopping centre has been completed.'

[6] Shoprite's response was markedly different from its predecessor in title when the precursor to the lease agreement with which we are here concerned was up for renewal. The original lease contained a similar G clause as that set out in para 3 of this judgment. The agreement of lease in this case is a product of the good-faith negotiations entered into between Everfresh and Shoprite's predecessor in title in terms of a similar clause in the original lease at a time when that lease was almost at an end.

H [7] Everfresh remained in occupation after 31 March 2009 and Shoprite began ejectment proceedings in the High Court.

[8] Shoprite contended, in line with its written response to Everfresh's written effort to secure a renewal, that it was not obliged to enter into any I negotiations and that Everfresh was in unlawful occupation.

[9] Everfresh advanced two contentions based on its interpretation of clause 3 in its affidavit opposing the ejectment proceedings. The first was that the agreement gave it a right of renewal at a reasonable rental. The second, made in the alternative, was that Shoprite was and remains obliged, on a proper construction of the contract, to make a bona fide J attempt to agree on the rent for the renewal period. It follows, so

Yacoob J (Froneman J, Mogoeng J and Mthiyane AJ concurring)

Everfresh contends, that the right to evict does not accrue unless A Shoprite negotiated bona fide. In argument before the High Court, however, Everfresh conceded that the agreement did not contain an option to renew and did not persist in its right to renew at a reasonable rental. It limited its argument to Shoprite's obligation to make a bona fide attempt to agree, contending that the terms of the agreement B precluded Shoprite from frustrating Everfresh's qualified right to renew by refusing to negotiate in good faith and that its right to renewal would fall away only if the negotiations in good faith did not result in an agreement.

[10] The High Court emphasised that, according to our law, an option C to renew a lease on terms to be agreed is unenforceable. [6] The court accepted that it was a material requirement of the agreement 'that the rental had to be agreed' and that this had to be done between 14 July 2008 (the date of receipt of the notice of the intention to renew) and 31 December 2008 (three months before the expiry of the contract). D Accepting that an agreement 'inevitably' 'presupposes an offer and then an acceptance corresponding to the terms of the offer', the court concluded that clause 3 of the agreement did not go so far as to 'impose a positive obligation or duty on the party who rejected the offer (or who might fail to accept the offer made within a reasonable time, at worst by E the latest 31 December 2008) to make a counter-offer for consideration' [7] by Everfresh. Nor could the agreement be interpreted, so the court held, to 'carry the corollary of a duty in terms so wide that it required extensive offers and counter-offers being exchanged, or even as little as a positive duty to actually respond to the respondent's proposed offer of rental'. [8] F

[11] The High Court went on to say that even if it were wrong and that the agreement conveyed some obligation to negotiate, 'the legal requirement that [the] negotiation [should] be in good faith' would render the clause too vague to be enforced absent a 'readily ascertainable objective standard' of good faith assessability. [9] The court referred to the decision G of the Supreme Court of Appeal in Southernport [10] and concluded that the case was an instance where 'a promise to negotiate in good faith [occurred] in the context of an arrangement which by its nature, purpose, contents, other provisions or otherwise makes it clear that the promise is too illusory or too vague and uncertain to be enforceable'. [11] If Everfresh was required to make a counter-offer the court said, it could H

Yacoob J (Froneman J, Mogoeng J and Mthiyane AJ concurring)

A never be determined whether that offer had been made in good faith absent a readily ascertainable external standard. [12]

[12] The application for leave to appeal was refused by the High Court and the Supreme Court of Appeal. Hence the application before us.

The contentions in this court B

[13] In its launching affidavit Everfresh reiterates the argument made in the High Court and criticises its judgment on the basis that it 'gives judicial approval to a party breaching a term of an agreement and in so doing [frustrates] what has been contractually agreed to'. This is the C context in which Everfresh makes reference to the Constitution for the first time. It contends that the approach of the High Court just described is contrary to the values enshrined in the Constitution and public policy and deprives the agreement of business efficacy. Shoprite should therefore have been obliged to negotiate. This approach, though not expressly D resorted to in the High Court, is wholly consistent with the argument that had been proffered before and rejected by the High Court. And what is more, the reference to values of the Constitution is quite obviously a reference to s 39(2) of the Constitution.

[14] After affidavits had been filed, this court accordingly issued directions E [13] requiring written argument to include submissions on:

'(a)

The precise nature of the obligation (if any) created by a provision in a lease that the rentals for the renewal period shall be agreed upon between the lessor and the lessee.

(b)

If...