THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Not Reportable
Case No: 437/2020

In the matter between:

HARBOUR ARCH INVESTMENT HOLDINGS
(PTY) LIMITED
APPELLANT

And

CAPITAL PROPFUND 4 (PTY) LIMITED
RESPONDENT

Neutral citation: Harbour Arch Investment Holdings (Pty) Ltd v Capital
Propfund 4 (Pty) Ltd (case no 437/2020) [2021] ZASCA 108
(05 August 2021)
Coram:
PETSE DP, DAMBUZA, MBATHA JJA, POTERILL and
POYO-DLWATI AJJA
Heard:

20 May 2021
Delivered:            This judgment was handed down electronically by circulation
to the parties' representatives by email, publication on the
Supreme Court of Appeal website and release to SAFLII. The
date and time for hand-down is deemed to be 10h00 on 05
August 2021.

Summary: Contract – acquisition by sub-lessee of immovable property
previously rented by it– sub-lessee’s contractual obligations under a leases
assignment agreement subsumed by ownership rights – payment obligation under
leases assignment agreement for further development on leased property
accordingly terminated.

ORDER

On appeal from: Western Cape Division of the High Court, Cape Town
(Saldanha J sitting as court of first instance):
1 The appeal is upheld with costs.
2 The order of the high court is set aside and is replaced with the following:
‘The application is dismissed with costs’.

JUDGMENT

Dambuza JA (Petse DP, Mbatha JA, Potterill and Poyo-Dlwati AJJA
concurring)

Introduction
[1] In 1996 Transnet Ltd concluded a 30-year Notarial Land Lease Agreement
(the land lease) with a corporate entity known as RPP Developments (Pty) Ltd,
in respect of a portion of commercial land which was owned by Transnet in
Culemborg near the Cape Town Harbour (the property). The lease was effective
from 1 September 1996 until 31 August 2026. Subsequent to the conclusion of
the land lease, the lessee’s rights and obligations thereunder were consecutively
assigned by the respondent’s successors-in-title to the appellant’s predecessors-
in-title in terms of leases assignment agreements. The lessees had a right to sublet
any portion of the property without the consent of Transnet. Consequently, the
appellant’s predecessors-in-title, as sub-lessors under the assignment leases, then
concluded tenant agreements with various tenants who occupied different
portions of the property.

[2] In 2008 the respondent, as Transnet’s lessee under the land lease,
concluded a leases assignment agreement with the appellant (then known as Edge
Company).1 In terms thereof the respondent’s rights and obligations under the
land lease, together with the tenant leases that were in place at the time, were
assigned to the appellant as a going concern at a purchase price of R235 million.2
Clause 18.1 of the leases assignment agreement was a recordal of the appellant’s
intention to construct additional floor space on the property. In terms of clause
18.3 the appellant had to pay to the respondent an amount of money, computed
on a specified formula, for the additional floor space. Clause 18.4 provided that
in the event of the exercise, by the appellant, of the development rights provided
for therein to construct additional lettable area, it would be obliged to submit
architectural guidelines to the respondent for approval by Transnet to ensure
synergy of the architecture of the planned development with the existing property.

[3] On 11 April 2018, prior to the appellant’s exercise of the development
rights, ownership of the property was transferred to it. The deed in terms of which
ownership of the property was transferred from Transnet to the appellant
explicitly recorded that ‘[by] virtue of this transfer condition 3 has lapsed by
reason of merger because the lessee has become the owner of [the] lease
property’.3 In June 2018 the appellant advertised that it was planning to construct
additional floor space on the property. The respondent requested information
pertaining to the proposed development. The request was refused by the appellant

1 The Notarial Deed of Assignment was registered in the office of the Registrar of Deeds Cape Town on 12 January
2010.
2 Essentially, the leases assignment agreement was a sale agreement in terms of which the appellant bought the
letting business from the respondent. The appellant’s previous names were: Edge Retail Property Holdings (Pty)
Ltd and Culemborg Investment Properties (Pty) Ltd.
3 Condition 3 reads as follows: ‘Subject to a Notarial Deed of Lease K766/1997L to Rap Developments
(Proprietary) Limited number 1978/003380/07 which has been amended to include Lease Area Number 19
annexed to Notarial Deed of Amendment and Assignment Lease K40/2010L, which lease has been assigned o
Culemborg Investment Properties (Proprietary) Limited, Registration Number 2001/024389/07 under Notarial
Deed of Assignment of Lease K41/2010L, which Lease is for 30 years from 1st September 1996’.

on the basis that it had no obligation to provide details of the proposed
development to the respondent as it had since become the owner of the property.

[4] The respondent brought an application in the Western Cape Division of the
High Court, Cape Town (the high court), seeking a declarator that the leases
assignment agreement was still of full force and effect and enforcement of the
payment obligation provided for in clause 18.3 of the leases assignment
agreement. It also sought an order declaring that the appellant was obliged to
furnish to it information relating to the proposed development. The appellant
opposed the application on the basis that the payment obligation terminated once
it became the owner of the property and that its development rights now emanated
from its ownership of the property.

[5] The high court upheld the respondent’s application on the basis that the
merger of the land lease and the ownership of the property had no bearing on the
payment obligation stipulated under clause 18.3 of the leases assignment
agreement. It held that the leases assignment agreement made no provision,
expressly or tacitly, for its termination upon merger of the land lease with
ownership of the property. The court then declared that the leases assignment
agreement was of full force and effect and that the appellant was liable to
compensate the respondent for the proposed additional floor area on the property.
This appeal, against that order, is with the leave of the high court.

[6] In this appeal, the appellant insists that once it became the owner of the
property its right to develop it further no longer arose from the provisions of the
land lease or the leases assignment agreement, but was a right consequential to
its ownership thereof. The respondent, on the other hand, maintains that the

appellant’s ownership of the property only affected only the land lease and not
the tenant leases.  The argument is that clause 18.3 of the leases assignment
agreement concerned the tenant leases and that it survived the merger.

[7] The parties are in agreement, however, that on the appellant’s acquisition
of the property its rights and obligations as a sub-lessor under the land lease were
subsumed by its ownership rights.

[8] The principle of merger or confusio of contractual rights and obligations is
an established principle in our law of contract. In relation to a lease contract a
merger occurs when rights and obligations under an existing lease agreement are
subsumed by the rights and obligations arising from the acquisition by the lessee
of the leased object.

[9] The issue before us, ie whether the provisions of Clause 18.3 of the leases
assignment agreement survived the termination of the land lease or could be
exercised independently thereof, confronted this Court in Grootchwaing
Saltworks Limited v Van Tonder.4 In that case the plaintiff company had exercised
an option to buy the land which it had been leasing from the defendant, Mr Van
Tonder. Under the lease it had enjoyed certain rights, including a right of way
over, and the right to erect buildings on an adjoining, unleased portion of land,
which was also owned by the defendant. Following its purchase of the leased land
the plaintiff maintained that those rights survived the merger that resulted from
its acquisition of the land. Innes CJ approached the issue as follows:

4 Grootchwaing Salt Works Ltd v Van Tonder 1920 AD 492.

‘Now confusio in the sense with which we are concerned is the concurrence of two qualities or
two capacities in the same person, which mutually destroy one another. In regard to contractual
obligations it is the concurrence of the creditor and debtor in the same person and in respect of
the same obligation. The typical example of confusio and the one mainly dealt with in the books
is the case of a creditor becoming heir to his debtor or vice versa. But the same position is
established whenever the creditor steps into the shoes of his debtor by any title which renders
him subject to his debt and it is common cause that confusio takes place between lessor and
lessee when the latter acquires the leased property. As to the consequences of confusio there
can be no doubt that speaking generally it destroys the obligations in respect of which it
operates. A person, he says (referring to Porthier Verbintenissen, para 642), can neither be his
own creditor nor his own debtor. And if there is no other debtor then the debt is extinguished’.

[10] As to whether the rights and obligations created in the lease agreement
could survive termination thereof and be capable of being exercised
independently of it, the learned Chief Justice said:
‘. . . it is clear that if the contract shows that the parties intended that these rights should be
granted to the lessee in his capacity as such and should be exercisable only during the currency
of the lease, then they cannot be exercised after its termination. The inequity would be, not in
giving equity to that position but in forcing one of the parties to recognise rights which he never
intended to constitute’.

[11] This remains the approach to interpretation of legal documents in our law
today. This Court has repeatedly outlined the process of interpreting contracts as
attributing meaning to the words used by the parties to the agreement, taking into
account the context in which the agreement was concluded.5

5 KPMG Chartered Accountants (SA) v Securefin Limited and Another [2009] ZASCA 7; 2009 (4) SA 399 (SCA);
[2009] 2 All SA 523 (SCA); The City of Tshwane Metropolitan Municipality v Blair Atholl Homeowners
Association [2018] ZASCA 176; [2019]1 All SA 291(SCA); 2019 (3) SA 398 (SCA); Natal Joint Municipal
Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA); Bothma-Batho Transport (Edms) Bpk v S Bothma
& Seun Transport (Edms) Bpk [2013] ZASCA 176; [2014] 1 All SA 517 (SCA); 2014 (2) SA 494 (SCA).

[12] In this case the leases assignment agreement must be the starting point for
determination of the intention of the parties in relation to the provisions of clause
18.3. Clause 18 of that agreement provides, in material part, that:
‘18
ADDITIONAL BULK
18.1  It is recorded that:
18.1.1 EDGE COMPANY intends constructing additional floor area on the LAND in
addition to the existing floor area- which has been constructed on the LAND.
18.1.2 Successors-in-title of EDGE COMPANY to the LAND LEASE could in future
construct additional floor area on the LAND in addition to the existing floor area which
has been constructed on the LAND.
18.2
IFOUR PROPERTIES, as soon as practically possible after this agreement has become
unconditional, will procure a certificate by an architect reflecting the existing floor area
which has been constructed on the LAND, and will provide EDGE COMPANY with a
copy thereof.
18.3
If any additional floor area is constructed on the LAND by EDGE COMPANY or by
any of its successors-in-title to the LAND LEASE, the EDGE COMPANY, or any such
successor-in-title to the LAND LEASE (as the case may be) will pay to IFOUR
PROPERTIES [the respondent’s successor-in-title], within 14 days after the building
plans for such additional floor area have been approved by the local authority concerned
(and EDGE COMPANY or such successor-in-title is obliged to inform IFOUR
PROPERTIES thereof forthwith), an amount (plus value-added-tax) equal to 10% of
such additional floor area multiplied by R2,000.00 per sqm (excluding value- added-
tax).
18.4
. . .
18.5
EDGE COMPANY [appellant’s successor-in-title] undertakes in favour of IFOUR
PROPERTIES as follows:

18.5.1 EDGE COMPANY will at all times keep IFOUR PROPERTIES fully informed
(including access to all relevant applications, submissions, drawings, plans, books,
records and documents in the possession of EDGE COMPANY or under its control) of
any steps (including rezonings and removal of restrictions) taken (or intended to be

taken) to procure rights to increase the permissible floor area of the PROPERTY or to
design and/or construct floor area on the PROPERTY in addition to the existing
buildings, structures, erections and improvements forming part thereof’.

[13] In clause 18.3 the parties regulated two aspects in relation to the payment
for additional development on the property. First, by use of the words: ‘[i]f any
additional floor area is constructed on the land . . .’ they specified when the
payment obligation would be effective. In this case, by that time the appellant had
become the owner of the property. Nothing in the words used by the parties in
clause 18.3 or anywhere in the leases assignment agreement shows an intention
by the parties that the payment obligation would be applicable even when the
appellant built additional floor space as the owner of the property. In any event
the appellant could not exercise the development rights in respect of the property
as both the sub-lessee and owner thereof at the same time. For this reason alone,
the respondent’s contention that the payment obligation survived the merger is
untenable.

[14] Second, in clause 18.3 the parties described, with specific reference to the
land lease, the entity responsible for the payment - as ‘Edge Company or its
successors-in-title to the LAND LEASE’. The contention by the respondent that
the reference in the clause to ‘successors-in-title’ showed an intention that the
payment obligation should be exercisable independent of the land lease ignores
the express reference, in the description of the sub-lessor, to the land lease. In
terms thereof the successors-in-title to whom the payment obligation was
applicable were limited to the successors under the land lease. There could be no
successors-in-title to the land lease after termination thereof.

[15] In addition, the argument by the respondent that the parties were entitled
to quantify the potential income from the property at the conclusion of the
agreement does not take the respondent’s case any further. The parties agreed on
a conditional payment as stipulated under clause 18.3.

[16] Furthermore, the respondent could only transfer to the appellant under the
leases assignment agreement such rights and obligations as it held under the land
lease. As a lessee under a fixed term land lease, although renewable, the
respondent could not, under clause 18.3, create for itself a perpetual benefit to
receive payment against all future sub-lessors of the property.

[17] Consequently the following order is granted:
1 The appeal is upheld with costs.
2 The order of the high court is set aside and is replaced with the following:
‘The application is dismissed with costs’.

________________________

N DAMBUZA

JUDGE OF APPEAL

Appearances:

For the Appellant:

B MANCA SC
Instructed by:

STBB Attorneys, Cape Town.

EG Cooper Majiedt, Bloemfontein.

For the Respondent:

P LOUW SC

Instructed by:

Kokinis Inc, Johannesburg.

McIntyre van Der Post, Bloemfotein.
THE SUPREME COURT OF APPEAL OFSOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED

FROM
The Registrar, Supreme Court of Appeal

DATE
05 AUGUST 2021

STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form part of
the judgment.

Harbour Arch Investment Holdings (Pty) Ltd v Capital Propfund 4 (Pty) Ltd (case no
437/2020) [2021] ZASCA 108 (05 August 2021)

MEDIA STATEMENT

Today the Supreme Court of Appeal (SCA) upheld an appeal against an order of the
Western Cape Division of the High Court, Cape Town, which upheld an application
brought by Capital Propfund 4 (Pty) Ltd, for an order declaring a leases assignment
agreement it had concluded with Harbour Arch Investment Holdings (Pty) Ltd to be of
full force and effect. Specifically, Capital Propfund sought enforcement against
Harbour Arch Investment of a payment obligation provided for in that agreement.

The background to the leases assignment agreement is this: Capital Propfund
concluded a 30-year Notarial Land Lease Agreement with Transnet Ltd in respect of
a portion of commercial land owned by Transnet in Culemborg near the Cape Town
Harbour. Capital Propfund, as the lessee under the land lease, then concluded tenant
agreements with various tenants who occupied different portions of the property.
Through a leases assignment agreement, Capital Propfund assigned to Harbour Arch
Investment all its rights and obligations under both the land lease and the various

tenant leases as a going concern at a purchase price of R235 million. In terms of
Clause 18 of the leases assignment agreement, in the event that Harbour Arch
Investment developed additional floor space on the property, it had to pay Capital
Propfund an amount of money computed on a specified formula.

After Harbour Arch Investment acquired ownership of the property from Transnet, it
advertised its plans to construct additional floor space on the property. Capital
Propfund demanded information pertaining to the proposed development together with
payment as provided in the leases assignment agreement. Harbour Arch denied
obligation to make payment maintaining that the payment obligation was no longer
applicable since it was now the owner of the property. Capital Propfund’s application
to the high court for an order declaring the leases assignment agreement to be of full
force and the enforcement of the payment obligation was successful. The high court
held that the merger of the land lease and the property rights had no bearing on the
payment obligation because the leases assignment agreement made no provision for
its termination upon merger.

The SCA found that the payment obligation was only applicable as long as the land
lease remained valid. It found that in terms of clause 18.3 of the agreement the
obligation was limited to the sub-lessee and its successors in title to the land lease
and that nothing in the wording of clause 18.3 or anywhere in the leases assignment
agreement showed an intention that the payment obligation would be applicable even
when the land lease terminated. It further held that Capital Propfund could not create
under the leases assignment agreement a perpetual benefit when its own rights were
limited to the existence of the land lease.

--- ends --