F W Knowles (Pty) Ltd v Cash-In (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Van Den Heever J, Burger J and Fagan J
• Judgment Date: 23 April 1986
• Citation: 1986 (4) SA 641 (C)
• Hearing Date: 26 March 1986
• Court: Cape Provincial Division

Van den Heever J:

This appeal is against the refusal of the Court a quo to grant a declaratory order on motion, in essence on the ground that there was a dispute of fact (as to whether a F lessor, respondent, was unreasonable in refusing to consent to the cession and assignment of a lease by the tenant, appellant, to OK Bazaars), which could not be determined in appellant's (applicant's) favour merely on affidavits.

I have read the judgment prepared by my Colleague BURGER, but have come to a conclusion different to his and to that of the Court a quo. The reasons follow:

G Appellant company carries on business as supermarket operators. The chairman, Mr F W Knowles, deposed to the founding affidavit. It expanded its operations a few years ago by buying out a number of family-run operations, but landed in financial difficulties and in 1985 decided to sell off five of H its operations to OK Bazaars. I return to this later.

Respondent was formed in 1970 by two brothers Sass (Michael and Peter) and the wife of the former, Katherine. The first shareholders of respondent were these three, whom I shall call by their first names for the sake of convenience and without I intending any discourtesy in doing so. "Cash-In" was chosen to avoid confusion with another business in Knysna run by a Sass cousin under his own name.

Respondent ran a supermarket known as the Cash-In Spar Foodliner under franchise from the Spar organisation. The business thrived and a move to bigger and better premises became necessary. Cash-In's resources were insufficient to fund J both a new building and the fitting, stocking and running of an expanded concern. The three Sasses decided to erect

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premises and sell the trading operation to a tenant. In the A process respondent underwent a metamorphosis from a trading to a property-owning company.

Appellant bought the goodwill, licences, stock-on-hand, etc. The Sasses were bound by a restraint clause not to compete in Knysna for five years after 18 February 1981 by carrying on B business as "Supermarket, Grocer, Liquor Outlet or Butchery".

Appellant employed Michael as manager at Knysna. There is no evidence that his contract has any unusual features obliging him to remain in that capacity, or appellant to continue employing him.

Simultaneously the parties concluded a lease which in C identifying the parties makes it clear that substitution of parties at some future date was contemplated as a possibility, since it refers to "Cash-In (Pty) Ltd (hereinafter with its successors in title or assigns referred to as the lessor)..." and "F W Knowles (Pty) Ltd (hereinafter with its successors in title or assigns referred to as the lessee)..."

D Throughout the lease the apostrophe is incorrectly used when a genitive is clearly intended, but nothing else in it gives cause to suspect that special allowance should be made for linguistic ineptitude in this document in interpreting it. One must therefore interpret it as intending what it says. Relevant provisions relate to: The period (nine years and 11 months, with the right given to the tenant to renew for a further nine E years and 11 months and to require the lease to be notarially attested and registered, and with a further right of first refusal to hire thereafter, referred to below); the rental (which varies depending upon whether further shops are erected or not: originally this was R6 650 per month, escalating at 5% F per annum if they are, R9 075 per month for five years, escalating thereafter at 5% per annum if they are not; with provision for an increase should rates payable by respondent be increased); the purposes for which the premises were let:

"... to enable the lessee to carry on the business of a supermarket, butchery, unrestricted general dealer, liquor outlet, warehousing and/or fruit and vegetable packing and the G premises shall not be used for any other purpose or purposes whatsoever without the prior written consent of the lessor having been first had and obtained, which consent shall not be unreasonably withheld".

(Clause 4.1.)

The lease also provides that all licences to carry on the businesses are and remain the property of the lessee. The lessor has no claim on them (clause 4.2). Fixtures and fittings H installed or annexed by the tenant may be removed (clause 6.5). The tenant may erect such signboards or paint such signs and advertisements "as are customary in connection with businesses of the kind that will be conducted in the... premises" as long as they comply with municipal or similar I requirements (clause 6.6). Such signs, etc, are over and above "a prominent and prestigious sign approved by the lessee" which the lessor is to provide at the premises, which moreover are to be known as "Knowles Centre" (Schedule I. 5.2 & 6). The tenant is given a right, enduring for the duration of the lease and any renewal, of first refusal as regards a sale of the property, or of the shares in respondent, and "in respect of any further lease of the property hereby let for any period J subsequent to the expiration of the renewal period"

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A (clause 12). No variation is binding unless in writing (clause 15). No further shops may be erected on the erven without the prior written consent of The lessee (clause 19).

The clause giving rise to the present litigation is 8, which provides:

"Cession or assignment"

B The lessee shall not cede or assign its rights under the lease nor sublet the whole or any portion of the premises without the prior consent of the lessor which consent shall not be unreasonably withheld."

Respondent was caught unawares by an escalation in building costs and also an unexpected upward surge in bond rates, which occurred after the contracts had been concluded.

C Appellant subsequently, through a sister company, bought out Peter's one-third shareholding in respondent and relieved him of his obligations as surety to the bondholder. A Mr Frederic was appointed a co-director of respondent on behalf of the Knowles group, and the sister company has advanced money to D respondent on loan account where necessary - and it has been necessary - in proportion to its shareholding. Appellant has also voluntarily on two occasions increased the rent payable by it to respondent; but when asked to do so again declined because it was not in a position to do so and told respondent this.

Appellant itself, which started as a family concern and expanded a few years ago by taking over a number of family-run E stores in various places (including the one presently in issue), decided, when it ran into financial difficulties and had debts to clear, to sell off some of its businesses to be able to do so.

Towards the end of 1985 it negotiated with OK Bazaars and arrived at an agreement in January 1986 in terms of which the F latter would buy five of appellant's supermarkets including that at Knysna, subject to assignment of the leases appellant holds in relation to the relevant premises.

On 3 January Mr Frederic on behalf of appellant telephoned Katherine and asked respondent's consent to an assignment of the lease to OK Bazaars. Katherine asked that the request be G put in writing. On 6 January the consent asked, in writing, by way of a telex was for assignment of a somewhat varied lease, on terms potentially more favourable than those in existence between the present parties: with leave to sublet a maximum of 30% of the premises so as to conduct the butchery, delicatessen and some other operations through franchisees and to alter the H name of the building from Knowles Centre to OK Centre, in exchange for a potential increase in rental, which would be the greater of either that determined by the lease itself or a turnover rental amounting to 1¾% of sales including the turnover generated by franchisees. (Telex annexure KS 7.)

Katherine replied that she and Michael were leaving on vacation on 8 January and would attend to the matter on their return. On I 20 January, on their return, Mr Sampson, a director of appellant, telephoned about their reply to the telex of 6 January. Katherine said she wanted to seek legal advice. On 22 January she telephoned him and suggested a meeting between appellant, respondent and the OK Bazaars. On 23 January Sampson telephoned and said the OK Bazaars were not prepared to re-negotiate the lease. She says (in her answering affidavit J jurat 24 February) that she told Sampson that:

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"with Knowles as tenants as well as shareholders in our A company, we felt a great deal of security. (My reason for saying this was that I felt sure that Knowles would always help us financially, particularly by increasing the rent when their cash flow improved, as this was in their own interest and we enjoyed a good relationship with them.) I added that if we had the OK Bazaars as tenants, their interest in our welfare would be nil and this was an extremely worrying factor. I pointed out that big business would not be interested in the problems of B Michael and Kathy Sass."

On 24 January Mr Sampson told her that OK Bazaars refused to meet with the Sasses. Their offer contained in KS 7 was their final word. He, Sampson, had asked OK's general manager, Mr Hood, on holiday at Plettenberg Bay, to come to Knysna to talk C to the Sasses but Hood had refused.

There were according to Knowles further negotiations which led to nothing.

On 27 January 1986 respondent through Katherine wrote two letters to appellant - a formal one ("C") refusing consent on the ground that

"In terms of clause 8 of the lease agreement the lessee shall not cede or assign its rights under the lease and we are not D prepared, therefore, to accede to your request by consenting thereto";

and a further one ("D") labelled "without prejudice", addressed to Mr Stuart Sampson, a director of appellant, and which I quote in full:

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