Southernport Developments (Pty) Ltd v Transnet Ltd

• Jurisdiction: South Africa
• Judge: Harms JA, Farlam JA, Cameron JA, Comrie AJA and Ponnan AJA
• Judgment Date: 29 September 2004
• Citation: 2005 (2) SA 202 (SCA)
• Docket Number: 440/03
• Hearing Date: 16 August 2004
• Counsel: H K Naidu SC (with C H J Badenhorst SC) for the appellant. P F Rossouw for the respondent.
• Court: Supreme Court of Appeal

Ponnan AJA: A

[1] On 7 December 1998, the appellant's predecessor in title, Tsogo Sun Ebhayi (Tsogo Sun), concluded a written agreement (the first agreement) with the respondent (Transnet). The first agreement was subject to a suspensive condition that Tsogo Sun be granted, by 31 December 1999, a casino licence as contemplated by the Eastern Cape Gambling Act. It recorded that Tsogo Sun wished to B develop a temporary casino, temporary casino parking, a casino, a hotel and certain ancillary entertainment and retail facilities with ancillary parking, on portions of erven 1051, 578 and 577 Humewood (collectively referred to in the first agreement as the properties). To that end, Tsogo Sun was authorised to procure the rezoning or special consent to utilise the properties for the purpose specified in the C agreement. The extent of the erf, the subject in each instance of the agreement, was specified in the first agreement and clearly demarcated on a plan annexed thereto.

[2] On 10 February 2000, the parties concluded a second written agreement (the second agreement). The second agreement, D described by the parties as a bridging agreement, provided for the conclusion, in due course, of a definitive agreement in the event of Tsogo Sun's application for a casino licence succeeding and an alternative agreement should it fail. E

[3] Clause 3 of the second agreement, to the extent here relevant, provides:

'3.1.2 In the event that the Tsogo Sun Ebhayi casino licence application fails, and all appeals, reviews and other legal challenges initiated by Tsogo Sun Ebhayi that may potentially prohibit the exploitation of the casino licence granted to a competitor of Tsogo Sun F Ebhayi in the Port Elizabeth zone, Eastern Cape Province (if any) are finally resolved in favour of that competitor then for three years from that date or from the date of the award of the casino licence to that competitor if no such appeal, review or other legal challenge is made as the case may be, Tsogo Sun Ebhayi (or its nominee) shall have the option to lease the properties (or the agreed portions thereof) on the terms and conditions of an agreement (the alternative agreement) negotiated between the parties in good faith and approved by each of G the party's board of directors.'

'3.4 Should the parties be unable to agree on any of the terms and conditions of either the definitive agreement or of the alternative agreement within 30 days of the date of any notice given by either of such parties to the other of them requiring such agreement, then the dispute shall be referred for decision to an arbitrator agreed on by the parties. The arbitrator's decision shall be final and binding on H the parties. If Tsogo Sun Ebhayi and Transnet are not able to agree on that arbitrator within five days of either of them calling on the other to do so, then that arbitrator shall be selected for that purpose by the Arbitration Foundation of South Africa, and the arbitration shall be finalised in accordance with the Foundation's expedited arbitration rules.' I

[4] Premised on the factual foundation that Tsogo Sun's licence application was unsuccessful and that Transnet had failed, pursuant to the second agreement, to enter into good faith negotiations with its predecessor, the appellant instituted action against Transnet claiming the following relief: J

Ponnan AJA

'1. The defendant be required forthwith, to enter into good faith negotiations with the plaintiff regarding the terms and A conditions of an agreement of lease in respect of the properties described in clause 1 of annexure PC 1.

2. That any dispute between the parties be referred for decision by an agreed or selected arbitrator, as the case may be, in accordance with clause 3.4 of the second agreement, annexure PC 2 hereto, if the parties are unable to reach agreement on the terms of the alternative agreement, within 30 days from the date of this order.' B

[5] The appellant's particulars of claim were met with an exception which was upheld by Blieden J in the High Court (Johannesburg). With leave of the learned trial Judge, the matter is now before this Court on appeal. The judgment of the Court a quo is reported as Southernport Developments (Pty) Ltd C (previously known as Tsogo Sun Ebhayi (Pty) Ltd) v Transnet Ltd 2003 (5) SA 665 (W). The principal thrust of the argument advanced on behalf of Transnet is: First, there was no agreement between the parties regarding the essential terms of a lease, and, secondly, the second agreement was an unenforceable preliminary agreement. Each of D those contentions will be considered in turn.

Was there agreement between the parties as to the essential terms of a lease agreement?

[6] The essentials of a contract of lease are that there must be an ascertained thing and a fixed rental at which the lessee is to have use and enjoyment of that thing (Kessler v Krogmann 1908 TS 290 E at 297; Cooper Landlord and Tenant 2 ed at 3). The parties had not agreed upon the use and enjoyment of the property, which according to Blieden J was 'a requirement in any lease agreement such as the one relevant in the present case'. Whilst it is always open to parties to a contract of lease to agree on the intended use of the F leased property (and, if they do, that would constitute a material term of the agreement (see Oatorian Properties (Pty) Ltd v Maroun 1973 (3) SA 779 (A) at 785G) as also, the period of the lease, failure so to do would not invalidate the agreement. For those are not, in each instance, one of the essentialia of an agreement of lease (Pothier's Treatise on the Contract of Letting and Hiring para 28). It is worth noting, I may add, that the nature of the use and G the enjoyment of the property usually flows from the nature of the property itself. In the case of land, that is usually dictated by external factors such as the nature or zoning of the property.

[7] It is indeed so that clause 3.1.2 of the second agreement contained no agreement on the rental to be paid. Our law has, however, H long accepted that principal parties to a contract may delegate to a third party the responsibility of fixing certain terms. Thus parties may validly agree that the price of an article sold may be fixed by a named third party (Grotius 3.14.23) and they may leave the I determination of the rental in a...