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THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Not reportable

Case no: 342/16

In the matter between:

Auction Alliance (Pty) Ltd
APPELLANT

and

Wade Park (Pty) Ltd
RESPONDENT

Neutral citation:
Auction Alliance v Wade Park (342/16) [2018] ZASCA 28
(23 March 2018)

Coram

Ponnan, Majiedt, Swain and Dambuza JJA and Mothle AJA

Heard:
19 February 2018

Delivered:
23 March 2018

Summary: Contract – principles of interpretation restated – not sufficient to
merely outline well established principles – proper application thereof must be
evident from the process of interpretation – appeal upheld.

______________________________________________________________

ORDER
______________________________________________________________

On appeal from: Kwazulu-Natal Provincial Division, Pietermaritzburg (Sishi
and Seegobin JJ and Masipa AJ, sitting as court of appeal):
1.
The appeal is upheld with costs.
2.
The order of the court a quo is set aside and substituted with the
following:
„The appeal is dismissed with costs.‟
______________________________________________________________

JUDGMENT
______________________________________________________________

Majiedt JA (Ponnan, Swain and Dambuza JJA and Mothle AJA):

[1] The crisp issue in this appeal is whether a suspensive condition in an
agreement of sale was fulfilled. The Kwazulu-Natal Local Division, Durban
(Olsen J sitting as court of first instance) (the trial court) held that the condition
had been fulfilled. On appeal to the Kwazulu-Natal Provincial Division,
Pietermaritzburg, however, Seegobin J, Sishi J and Masipa AJ concurring (the
full court) upheld the appeal, finding that the condition had not been fulfilled.
The matter is before us with the special leave of this court. The factual
background was mostly common cause and is as follows.

[2] The appellant, Auction Alliance (Pty) Ltd (Auction Alliance), was
mandated by Mophela Housing Project (Mophela) to sell its immovable
property in Pinetown, Kwazulu-Natal, on auction. Mophela is a non-profit
company which had acquired the property with money lent to it by the
Department of Housing, Kwazulu-Natal (the Department) so that the property
could be used as an AIDS treatment centre. Mophela later encountered
financial difficulties due to the fact that the government subsidies were
insufficient to fund the centre‟s running costs, hence the decision to sell the
property.

[3] All the parties were aware of the Department‟s financial interest in the
sale of the property. One of the pertinent conditions of the sale was therefore
that the sale was subject to the consent and approval of the Department. At
the auction the property was knocked down to one Mr Abdoola for the sum of
R26.5 million. In exercising his rights as purchaser, Mr Abdoola nominated the
respondent, Wade Park (Pty) Ltd (Wade Park), as purchaser. On the day
following upon the auction, Wade Park accepted the sale, thereby confirming
the sale as was required in the sale agreement.

[4] Clause 26 of the agreement, which lies at the heart of the dispute,
reads as follows:
„26 SUSPENSIVE CONDITIONS
This sale is subject to the written approval and consent of the Department of Housing
of KZN, which written consent and approval has to be given within 30 days from date
of confirmation of this sale by the SELLER in the absence whereof this sale will be
null and void and be of no force and effect‟.
The required consent was by way of a letter from the Department (the letter of
consent) given on the very last day of the 30 day period stipulated in clause
26 above. This letter is central to the determination of the issue. It reads:
„We refer to the above matter and to our meeting today. We confirm that you agreed
to refund the Department of Housing the sum of R4 592 000 00 in respect of the
subsidy amount which was provided for the facility. We have no objections to the sale
of the premises on condition that the subsidy amount is recovered upon transfer.‟
The letter was procured from the Department, as I have said, on the very last
day by a Mr Berry of Auction Alliance. Given the importance of fulfilling the
suspensive condition before the deadline, Mr Berry had taken the trouble of
driving from Durban to Pietermaritzburg to get it from the Department.

[5] Some two months later Mophela purported to cancel the agreement on
the basis that Wade Park was in default of its financial obligations. In
response thereto, Wade Park adopted the position that the agreement
remained valid and was not capable of cancellation. These respective
positions were set out in letters written by the parties‟ attorneys. The letter

written in the response from Wade Park‟s attorneys contained no complaint
that the letter of consent was for some or other reason inadequate. On the
contrary, the attorneys made it clear in the letter that their instructions (from
Wade Park) were that „the agreement of sale . . . is still valid . . .‟ This directly
controverted the evidence of Mr Abdoola, Wade Park‟s directing mind, that his
immediate reaction upon receipt of the letter of consent was that it was
inadequate in meeting the requirements stipulated in clause 26. This was a
material requirement and one would expect Mr Abdoola to have conveyed his
misgivings immediately to his attorneys.

[6] In the event, the agreement was ultimately cancelled and the
commission and deposit paid to Auction Alliance were retained, which caused
Wade Park to sue Mophela and Auction Alliance in the alternative for
repayment. A settlement was reached between Mophela and Wade Park.
Mophela did not feature at all in the proceedings in the trial court.

[7] The trial court held that the letter of consent constituted fulfilment of the
suspensive condition. It interpreted the consent letter in favour of the
appellant finding that the word "condition" did not amount to a condition in its
true sense but was simply to be read as „an understanding‟. It consequently
dismissed Wade Park‟s claims with costs. Olsen J stated that „. . . (w)hat the
letter conveyed, despite the use of the word “condition” was that the
Department had no objection to the sale and the transfer of the property and
that it expressed its consent on the understanding that it would be paid out of
the proceeds of the sale‟. The appellant supports the finding by the trial court
and submits that on a proper interpretation the words „on condition that‟ must
be read as meaning „on the understanding that‟ or „on the basis that.‟

[8] The full court saw the matter differently. The appellant submits that
rather than have regard to the admissible and relevant background
circumstances to inform an interpretation of the letter of consent, the full court
adopted too literal an approach in interpreting the letter of consent and
holding that it could not have regard to background circumstances which
contradicted the clear terms of the letter of consent. According to the

appellant the full court rejected the interpretation of the trial court for two
reasons. First, it adopted as a first step in interpretation the ordinary meaning
of the word „condition‟ in relation to the consent letter. It did this without any
process of interpretation involving the relevant factual matrix and background
circumstances. On this basis the full court held that the letter of consent was
in fact conditional. Second, the full court then regarded all background
circumstances which may have contradicted its earlier finding that the letter of
consent was conditional, as extrinsic evidence which contradicted the express
terms of the letter of consent, and which evidence was therefore
impermissible on the basis of the Shifren principle. For reasons which will
become clear I agree with these submissions. Simply put, the trial court failed
to conduct the proper interpretation exercise which this court has repeatedly
articulated.

[9] This court said in Bothma-Botha Transport: „While the starting point
remains the words of the document . . . the process of interpretation does not
stop at a perceived literal meaning of those words, but considers them in the
light of all relevant and admissible context, including the circumstances in
which the document came into being . . . Interpretation is no longer a process
that occurs in stages but is “essentially one unitary exercise.”’ 1 (Emphasis
added). Reference was made in the judgment to the following passage in
Society of Lloyd’s v Robinson: „Loyalty to the text of a commercial contract,
instrument or document read in its contextual setting is the paramount principle of
interpretation. But in the process of interpreting the meaning of the language of a
commercial document the court ought generally to favour a commercially sensible
construction. The reason for this approach is that a commercial construction is likely
to give effect to the intention of the parties. Words ought therefore to be interpreted in
the way in which a reasonable commercial person would construe them. And the
reasonable commercial person can safely be assumed to be unimpressed with
technical interpretation and undue emphasis on niceties of language.‟ 2

1 Bothma - Botha Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk [2013]
ZASCA 176; 2014 (2) SA 494 (SCA) para 12.
2 Society of Lloyd’s v Robinson [1999] 1 All ER (Comm) 545 at 551.

[10] Here the sale was subject to the written consent of the Department.
Absent the fulfilment of the suspensive condition no contract came into
existence. Put differently, pending the fulfilment of the suspensive condition
the contract was inchoate.3 An important factor in the background context
against which the meaning of the words „on condition‟ had to be considered,
was that the Department wanted its subsidy back. It was well aware that
repayment was entirely dependent on the sale proceeding to finality, so that
the funds could be disbursed to it upon registration of transfer. And the
Department knew very well that without its consent the sale could not go
through. It had been alerted to this fact prior to the auction and again just
before the deadline imposed by clause 26. The Department therefore
furnished the letter of consent to allow the sale to proceed so that it could get
its money back. I agree with the submission by the appellant that to interpret
the words "on condition" as introducing a conditional consent by the
Department, which could be withdrawn should the subsidy amount not be paid
to it once the immovable property was transferred and the purchase price
paid,  would defeat this objective.

[11] During argument, counsel for Wade Park stated that he had no quarrel
with the first part of the letter of consent up to and including the word
„premises‟. The first part of the letter of consent noted the agreement that the
Department would be refunded. And it recorded that the Department had no
objection to the sale. Counsel contended that the problem arises with the use
of the words „on condition‟ -  it was argued that not only do those words
encapsulate a condition in the true sense of the word, but also impose a
(further) suspensive condition at that. The argument is fallacious.

[12] Something does not become a condition merely because it has been
given that name.4 I agree with Olsen J that, read in proper context, the words
in the letter of consent mean something along the lines of „there is no

3 GB Bradfield Christie’s Law of Contract in South African 7th ed, 2016 at 166; and see:
Africast v Pangbourne Properties [2014] ZASCA 33; All SA 653 (SCA) para 37 where this
court stated that „(i)f the [suspensive] condition is not fulfilled, then no contract came into
existence‟.
4 Webb v Davis NO and Others [1998] ZASCA 10; 1998 (2) SA 978 (SCA) para 12.

objection to the sale on the understanding that (or on the basis that) the
Department would be paid out of the proceeds of the sale.‟ The fallacy of
counsel‟s argument is stark: the Department, well knowing what the factual
situation was regarding repayment, imposed a further suspensive condition
which self-evidently was incapable of fulfilment before the 30 days
contemplated by clause 26, but rather upon registration of transfer. Counsel
repeatedly referred to this as „an absurdity‟ and a „catch-22 situation‟. It was
contended that this would lead to an insensible commercial transaction. But,
the so-called „absurdity‟ or „catch-22‟ arises only on the acceptance of the
interpretation advanced by counsel, which found favour with the full court.

[13] The interpretation adopted by the trial court gives the letter of consent
commercial efficacy. It is inconceivable that, in the event of Mophela not
repaying the subsidy once transfer is effected, the Department would have
intended to withdraw its consent and cause the unravelling of the entire
transaction. Nor, as a matter of fact of law could that have occurred.

[14] An argument was advanced in Wade Park‟s counsel‟s heads of
argument that the letter of consent constituted a „counter-offer‟ by the
Department. When this aspect was debated at the hearing, counsel appeared
to be less convinced of its merits, but did not concede the point. The
contention is bereft of any merit. The cases which we were referred to in
support of the argument (ACC Bio Kafee (Edms) Bpk v Warmbadplase, Raad
van Kuratore 1959 (4) SA 183 (T) and JRM Furniture Holdings v Cowling
1983 (4) SA 541 (W) at 544) have no bearing on the facts of this case. The
Department was not a party to the contract, nor was this a case of a contract
for the benefit of a third party. Terminology such as „conditional acceptance of
an offer‟ and a „counter-offer‟ do not apply here.

[15] It appears as if the full court was influenced in its reasoning and
eventual finding by the notion that the letter of consent contained the
suspensive condition as a means to secure repayment of the subsidy. The full
court reasoned as follows:

„Furthermore, the learned [trial] Judge‟s interpretation involved discounting the use of
the word „condition‟ as used in the consent and holding that this should instead be
understood as a mere „understanding‟. Mere understanding is not what the
Department of Housing wanted, nor would it achieve the purpose of the clause. The
Department of Housing wanted to secure means for repayment of the subsidy
inextricably linked with the transfer to ensure the subsidy is recovered upon transfer.
It is therefore clear that withholding its consent or making its consent conditional
upon recovery of the subsidy on transfer was its mechanism for doing so‟.
The reasoning is fallacious. First, there cannot be any room whatsoever for a
suggestion that the Department withheld its consent – it issued a letter of
consent which it regarded as adequate. And second, as pointed out above a
conditional consent, on the objective facts incapable of fulfilment, would have
defeated the very purpose the Department was seeking to achieve, namely
repayment of its subsidy. Moreover, the quoted extract is not supported by
any evidence. It rests upon pure conjecture. Prior to the auction, Mophela had
engaged in discussions with the Department regarding the sale of the
property and repayment of the subsidy from the proceeds of the sale. Those
discussions started in late 2008. In a letter from the Department to Mophela,
dated 6 March 2009, the Department outlined its requirements for the sale to
be approved. It did not, in listing the requirements, seek to secure payment to
it as envisaged by the full court. Furthermore, in a letter from the transferring
attorneys to Auction Alliance, dated 24 April 2009, it was recorded that „we
[the attorneys] are addressing an appropriate letter to KZN Housing
confirming that we will keep them covered for the sum of R4 592 000.00 in
accordance with their letter of 17 April 2009 [the letter of consent]‟. The
transferring attorneys clearly understood that the object of the letter from the
Department was not only to consent to the sale, but also to secure payment of
its subsidy, on transfer of the immovable property.  The significance of this
letter was completely ignored by the full court.

[16] The reasoning of the full court in the extract also rests on the wrong
premise. Its supposition is that Mophela would not repay the subsidy from the
proceeds of the sale once transfer had been registered. Consequently, so it
reasoned, the letter of consent was inadequate. Not only is the assumption

unsustainable on the evidence and on the objective facts, but it is also
contrary to what this court has held in Datacolor: „parties must be assumed to
be predisposed to respect rather than disregard their contractual
commitments‟.5 Like the Department, Mophela was keen to get the sale
through. It appeared from the evidence that the price fetched at the auction
(R26.5 million) was well above the initial forecasts and expectations. A
completed sale and subsequent transfer would have enabled Mophela to
settle its liability to the Department, leaving a significant balance of the
proceeds available.

[17] The full court incorrectly invoked the so-called „Shifren principle‟6 in its
reasoning. It reasoned that clause 26 made provision for written consent and
no other form of consent such as oral consent or by conduct. The full court
cited the non-variation clauses in the contract and accepted counsel‟s reliance
on Shifren: „(I)t has been submitted correctly, in my view, by appellant‟s
[Wade Park‟s] counsel, that the no-variation-sale-in-writing clause . . .
constitutes a Shifren clause which our courts have consistently held to be
valid and binding . . .‟ On the basis of this Shifren principle, the full court then
ruled that Auction Alliance‟s attempt „to introduce extrinsic evidence to
contradict the express terms of the sale agreement and the written consent
should not be permitted‟.  This finding is misconceived. What was required
was for the full court to interpret the letter of consent. As outlined above, it
failed to do so properly in accordance with well-established principles. The
non-variation clause and the Shifren principle had no role to play at all in the
process of interpretation.

[18] The full court appeared to have been swayed in its decision by the
consideration that the trial court‟s decision would leave Wade Park with
nothing - no property and no money (the deposit and estate agent‟s
commission). The sympathy is misplaced. First, it is premised on an
erroneous interpretation of clause 26, as explained above. And second, the

5 Datacolor International (Pty) Ltd v Intamarket (Pty) Ltd [2000] ZASCA 81; 2001 (2) SA 284
(SCA) at para 18.
6 SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren en ander 1946 (4) SA 760 (A).

contract was cancelled due to Wade Park‟s default. Wade Park was therefore
the author of its own misfortune.

[19] One last important aspect deserves mention. The approach to the
interpretation of documents is by now firmly established in our law. It is not
sufficient to merely regurgitate the relevant principles and to cite the leading
authorities without actually applying them. It must be evident from the
interpretive process itself that the principles have been applied. Merely paying
lip service to them undermines the entire exercise.

[20] In summary: the commercially sensible and reasonable interpretation
of the words „on condition‟ in clause 26, taking into account the objective
underlying purpose of the clause, and having regard to all the relevant
background facts and circumstances, is, as the trial court correctly found, an
„understanding‟ or „a basis upon‟. The words do not denote a condition in the
true sense of the word. If it did, it would have been a condition incapable of
fulfilment. The full court (had) therefore erred in overruling the judgment of
Olsen J.

[21] The following order issues:
1.
The appeal is upheld with costs.
2.
The order of the court a quo is set aside and substituted with the
following:
„The appeal is dismissed with costs.‟

______________________
S A Majiedt

Judge of Appeal

APPEARANCES:

For Appellant:

D Goldberg
Instructed by:
Smiedt & Associates, Cape Town
Matsepe INC, Bloemfontein

For Respondent:

G D Harpur SC
Instructed by:

Lockhat & Associates, Durban

Symington & De Kok, Bloemfontein