Stipulatio alteri examined: Benefit conferred on HOA?

Note: Footnotes omitted and emphasis added

[1] The applicant is a homeowners’ association. It was constituted as a body corporate with the object of promoting, advancing and protecting the communal interests of the owners of property in a housing development known as Maremmana at Bot River in the Western Cape. It was established in fulfilment of a condition imposed by the Theewaterskloof Municipality for the subdivision, at the instance of Stratovest 117 (Pty) Ltd, of Portion 5 of Farm No. 781 in the Division of Caledon for the purpose of proceeding with the housing development. The applicant is the registered owner of Portion 56 of Farm No. 781. It will be convenient for the purposes of this judgment to refer to it as ‘the MHOA’.

[2] Stratovest 117 (Pty) Ltd (hereinafter referred to simply as ‘Stratovest’) was the developer of the Maremmana housing development. It is the second respondent in these proceedings. It is the registered owner of Portion 57 of Farm No. 781.

[3] In terms of a deed of sale dated 17 December 2009 Stratovest sold the Remainder of Portion 4 of Farm No. 781 (hereinafter referred to simply as ‘Portion 4’) to Roderic Hall and Taryn Laura Hall. The deed recorded that the property thus sold was ‘currently in extent 48,8561 (forty eight comma eight five six one) hectares but … will, on subdivision in accordance with Annexure 1 attached hereto, be reduced by the deduction of not more than 7,57 (seven comma five seven) hectares (Portion A on Annexure 1) result in a Remainder of approximately 41,2861 (forty one comma two eight six one) hectares’.

The land involved is ‘agricultural land’ as defined in s 1 of the Subdivision of Agricultural Land Act 70 of 1970, and therefore, by virtue of s 3 of that Act, may legally be subdivided only with the written consent of the Minister of Agriculture. At the time of sale of Portion 4 to the Halls, the required ministerial consent for the contemplated subdivision had not been obtained.

Planning permission for the contemplated subdivision would also have to be obtained from the local authority. For that purpose application would have to be made in terms of s 24 of the Land Use Planning Ordinance 15 of 1985 (Western Cape) that was still in force at that time.

[4] The subdivision contemplated in the aforementioned definition of the res vendita was dealt with in clause 17 of the deed of sale, which provided as follows:

TRANSFER OF PORTION “A” ON ANNEXURE 1 HERETO
17.1 The parties agree that the Seller shall be responsible for obtaining the requisite approvals in respect of the sub-division of the land described as Portion “A” on the Sketch Plan, marked annexure 1 hereto, (approximately 7,57 hectares in extent) from the Remainder of Portion 4. Upon receipt of the said approvals, the Purchaser or his successors in title shall be bound to transfer the said Portion “A” to the MHOA, no consideration whatsoever being payable by the MHOA to the Purchaser in respect of such transfer.
17.2 The costs of such transfer shall be borne by the MHOA.

The copy of the deed of sale that is attached to the founding papers does not have annexed to it the ‘Annexure 1’ referred to in the contract, but that is of no consequence.

. . . .

[19] Stratovest’s opposition to the application was advanced on a number of grounds in the papers. In argument, however, it was ultimately agreed by counsel on both sides that the crux of the case was whether, properly construed, the provisions of clause 6 of the agreement between the Halls and the first respondent constituted a contract for the benefit of the MHOA (a stipulatio alteri), which, upon acceptance or adoption by the latter, would afford it the right against the first respondent to obtain the subdivision of the Remainder of Portion 4 and the consolidation of the subdivided portion (Portion 60) with the MHOA’s land (Portion 56).

Necessarily implicit in the approach of the MHOA was an acceptance that if the contractual provisions in issue did not evidence a stipulatio alteri that had been adopted by it, it would lack standing to seek the relief that it does. This follows because it would be only upon its adoption of the right or benefit conferred by such a contract that the applicant could have obtained legal standing to enforce the subdivision and transfer to it of Portion 60.

[20] The principles pertaining to stipulationes alteri are well established.

In Crookes NO and Another v Watson and Others 1956 (1) SA 277 (A); [1956] 1 All SA 227, at 291C (SALR), Schreiner JA observed in regard to such agreements

‘what is not very appropriately styled a contract for the benefit of a third person is not simply a contract designed to benefit a third person; it is a contract between two persons that is designed to enable a third person to come in as a party to a contract with one of the other two (cf. Jankelow v. Binder, Gering and Co., 1927 TPD 364)’.

In Christie’s Law of Contract in South Africa, the reference to that observation is immediately followed by the following statement

‘In Jankelow v Binder, Gering & Co, Greenberg J had accepted the analysis suggested from the Bar by the future judge of appeal:

‘Now I think Mr Schreiner is right when he says the test whether the contract is made for the benefit of a third party is whether that third party, by adopting the contract, can become a party to it.’

The commentary continues:

‘Schreiner JA’s statement of the law has been generally accepted as authoritative, is consistent with earlier cases, and was unanimously approved by the Appellate Division in Joel Melamed and Hurwitz v Cleveland Estates (Pty) Ltd [1984 (3) SA 155 (A) at 172A-F]. …

Following Hyams v Wolf and Simpson [1908 TS 78], what we have been accustomed to call the intention to benefit the third party is not, therefore, an intention to enrich that party but an intention to empower such party to adopt and become a party to the contract if he or she wishes. There must be a positive intention – it is not sufficient that it would be to the third party’s advantage to adopt and become a party to the contract.’ (Footnotes omitted.)

The last sentence of the commentary that I have quoted from Christie is borne out by the reference with approval in Joel Melamed loc. cit. to the following dictum in George Ruggier and Co v Brook 1966 (1) SA 17 (N) at 23H:

‘It is entirely a question whether there is an intention that the third party can, by adoption of the promise, become party to the contract in which it is embodied’.

[21] There is nothing to suggest that by clause 6 of the second agreement, the Halls intended to do anything other than pass on to the first respondent purchaser the obligations that they had assumed in respect of the duty to give transfer of Portion A to the MHOA in terms of clause 17 of the contract pursuant to which they had taken transfer of the Remainder of Portion 4.

The question is therefore whether clause 17 of the deed of contract in respect of the sale of the Remainder of Portion 4 was intended by the parties thereto to empower the MHOA to adopt and become party to a contract entitling it to obtain the subdivision of the land and the consolidation of Portion A with its land (Portion 56), subject only to it paying the costs of transfer. The answer must, of course, be found in the proper construction of clause 17.

[22] The oft cited synopsis provided in Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13 (16 March 2012); [2012] 2 All SA 262 (SCA); 2012 (4) SA 593 (SCA) at para. 18 gives a thumbnail reiteration of the proper approach to the interpretation of documents:

The present state of the law can be expressed as follows. Interpretation is the process of attributing meaning to the words used in a document, be it legislation, some other statutory instrument, or contract, having regard to the context provided by reading the particular provision or provisions in the light of the document as a whole and the circumstances attendant upon its coming into existence.

Whatever the nature of the document, consideration must be given to the language used in the light of the ordinary rules of grammar and syntax; the context in which the provision appears; the apparent purpose to which it is directed and the material known to those responsible for its production.

Where more than one meaning is possible each possibility must be weighed in the light of all these factors.

The process is objective not subjective.

A sensible meaning is to be preferred to one that leads to insensible or unbusinesslike results or undermines the apparent purpose of the document. Judges must be alert to, and guard against, the temptation to substitute what they regard as reasonable, sensible or businesslike for the words actually used.

To do so in regard to a statute or statutory instrument is to cross the divide between interpretation and legislation.

In a contractual context it is to make a contract for the parties other than the one they in fact made.

The ‘inevitable point of departure is the language of the provision itself’, read in context and having regard to the purpose of the provision and the background to the preparation and production of the document.
(Footnotes omitted.)

[23] It is helpful to read the summary of principles in Endumeni together with the remarks of Harms DP in KPMG Chartered Accountants (SA) v Securefin Limited and Another [2009] ZASCA 7 (13 March 2009); 2009 (4) SA 399 (SCA) ; [2009] 2 All SA 523 (SCA) at para. 39:

First, the integration (or parol evidence) rule remains part of our law. However, it is frequently ignored by practitioners and seldom enforced by trial courts. If a document was intended to provide a complete memorial of a jural act, extrinsic evidence may not contradict, add to or modify its meaning (Johnson v Leal 1980 (3) SA 927 (A) at 943B).

Second, interpretation is a matter of law and not of fact and, accordingly, interpretation is a matter for the court and not for witnesses (or, as said in common-law jurisprudence, it is not a jury question: Hodge M Malek (ed) Phipson on Evidence (16 ed 2005) paras 33 – 64).

Third, the rules about admissibility of evidence in this regard do not depend on the nature of the document, whether statute, contract or patent (Johnson & Johnson (Pty) Ltd v Kimberly-Clark Corporation and Kimberly-Clark of South Africa (Pty) Ltd 1985 BP 126 (A) ([1985] ZASCA 132 (at www.saflii.org.za)).

Fourth, to the extent that evidence may be admissible to contextualise the document (since ‘context is everything’) to establish its factual matrix or purpose or for purposes of identification, ‘one must use it as conservatively as possible’ (Delmas Milling Co Ltd v Du Plessis 1955 (3) SA 447 (A) at 455B – C).

The time has arrived for us to accept that there is no merit in trying to distinguish between ‘background circumstances’ and ‘surrounding circumstances’. The distinction is artificial and, in addition, both terms are vague and confusing. Consequently, everything tends to be admitted.

The terms ‘context’ or ‘factual matrix’ ought to suffice. (See Van der Westhuizen v Arnold 2002 (6) SA 453 (SCA) ([2002] 4 All SA 331) paras 22 and 23,[per Lewis AJA] and Masstores (Pty) Ltd v Murray & Roberts Construction (Pty) Ltd and Another 2008 (6) SA 654 (SCA) para 7.)

The reference by the learned Deputy President of the appeal court to Masstores is significant because it implies an approving endorsement of the dictum by Lewis JA in that case that

‘…it is important to state that an ambiguity is not … a precondition for a court to interpret a provision by having regard to the context of the contract and the surrounding circumstances’.

[24] Now it is clear that the terms of the agreement by which the property was sold to the Halls were out of the ordinary in certain respects material to the matter currently in issue. The definition of the property being sold records unequivocally that although the purchasers would take registered transfer of the entire cadastral unit, they would be doing so subject to the right of the seller (it being obviously implied with the assistance of the new registered owners or their successors in title, to the extent necessary) to subdivide Portion A from it with the purpose of enabling the transfer of that portion to the MHOA.

It was also clear that the purchasers (and their successors in title, if applicable) would be obliged, when the seller had succeeded in obtaining the requisite approvals and had put the purchasers in receipt of them, to give transfer of the portion to the applicant with no consideration being payable thereupon to the applicant (or its successor in title, if applicable).

[25] It is not clear, however, whether the ‘responsibility’ undertaken by the second respondent to procure the requisite approvals gave rise to an enforceable obligation on it to do so; or, assuming that it did, whether the obligation would be enforceable by the purchasers (or their successors in title), or by the MHOA.

Furthermore, although it is not a matter that falls to be decided in the current case, it is also not clear what the position would be, insofar as the further execution of the agreement was concerned, if the applications to be made for the requisite approvals were unsuccessful, or were granted subject to conditions that might be unacceptable to either the seller, the purchasers, or even the MHOA.

It is also not clear whether the provision that contemplates that the applicant will be given transfer of the subdivided portion with ‘no consideration whatsoever being payable by the MHOA to the Purchaser in respect of such transfer’ implies an intention that the MHOA would be entitled to transfer of the property for no consideration whatsoever; and, more particularly in that regard, whether the provision necessarily excluded any entitlement by the seller, dehors the contract of sale to the Halls, to any consideration from the MHOA for the transfer to it of the land that we know had, to the knowledge at the time of the contracting parties and the MHOA, been significantly developed by the seller.

[26] The uncertainty to which the provisions of clause 17 give rise in the latter respect is by no means academic because it is evident from the definition of the res vendita in the deed of sale that the second respondent seller did not intend to give the purchasers beneficial ownership of the whole property, but only that part of it that would remain after the subdivision of Portion A, which it was contemplated would go the MHOA.

It would be understandable in the circumstances that the purchasers would have no expectation to be paid for property that in terms of the agreement they had no right to keep for themselves.

But what about the position of the seller who undertook the responsibility of rendering Portion A of the cadastral unit amenable to transfer to the MHOA?

Was it effectively undertaking an exercise whereby it, or the purchasers would donate the subdivided land to the applicant?

[27] It is because of these uncertainties that it is necessary in this case, if the true, import of the agreement is to be ascertained, to examine the language of the contract in a wider context; that is, beyond the context of the language of the clause itself read in the deed as a whole, but also with regard to the factual matrix within which the agreement was concluded, including ‘the circumstances attendant upon its coming into existence’, and ‘the apparent purpose to which it is directed and the material known to those responsible for its production’.

When that is done, the understanding between the second respondent and the applicant recorded in the minutes of the trustees’ meeting of 29 September 2009 is obviously significant.

The minutes make it clear that the intention by the second respondent to procure the subdivision and transfer of Portion A to the applicant was conditional upon counter prestation by the MHOA.

It had to put in place arrangements that would permit the repayment by the second respondent of the loan it had obtained to finance the development of the clubhouse and that would also secure long-term leasehold rights for the second respondent over the property upon which the second respondent was then operating a polo club and equestrian centre.

It therefore becomes clear when regard is had to the factual matrix that any notion of the applicant becoming entitled to obtain the property entirely free of consideration would be at odds with Stratovest’s intentions, and there is nothing to suggest that Halls, when they purchased the property as defined in the deed of sale, had any independent intentions with regard to the portion of the cadastral unit of which they would not be obtaining beneficial ownership.

[28] The MHOA can hardly be heard in those circumstances to say that the proper import of the agreement was to empower it by notice to the purchasers (or their successor in title) to obtain transfer of the property free of consideration.

Yet that, in essence, is what it seeks to achieve by means of the relief sought in this application.

[29] And it seeks to do so by usurping the role reserved to the seller in terms of the agreement to be in charge of the approval application process. The reason for the ‘responsibility’ being placed by clause 17 on the seller to obtain the requisite approvals might not be clear from the language of agreement read in abstract, but it does become clear when the clause is interpreted with reference to the factual matrix.

The context bears out Mr Stuart’s averment that the responsibility was reserved to the seller so that (as recorded in paragraph [10] above)

‘[t]he Second Respondent was protected by the fact that only it (and not the purchaser, nor the Applicant) would be authorised to obtain the relevant approvals for subdivision and consolidation (but only in the event of the applicant meeting its end of the bargain)’.

[30] The question as to what is to become of Portion A now that it has become evident that the arrangements contemplated in terms of the understanding recorded in the minutes of the 29 September 2009 trustees’ meeting will not be realised is not addressed by the provisions of the agreements, and whether clause 17 effectively provided all of the protections that Mr Stuart contends it was directed towards is also far from certain.

But those are not questions that require to be answered in the current proceedings.

It is sufficient to hold only that the agreement between the Halls and the second respondent, and clause 6 of the subsequent agreement between the Halls and the first respondent, did not enable the applicant, by its election, to become party to a contract entitling it to require the current owner of Portion 4 to cooperate with it to obtain the subdivision of Portion A and its attendant consolidation free of any consideration with its own property, Portion 56.

[31] But even were I wrong that the clauses in issue did not constitute a stipulatio alteri, I consider that construed in the manner for which the applicant contends they would offend against the prohibition in s 3(e) of the Subdivision of Agricultural Land Act against the granting of a right to an undivided portion of agricultural land without ministerial consent, and on that account fall to be regarded as void.

This was not a point taken by the second respondent, but it occurred to me in the course of preparing the judgment.

As it went to an issue of legality I considered that the court was duty bound to address it mero motu, even if it arises for consideration only as a fallback position in support of the conclusion at which I have arrived primarily along other lines. Counsel were accordingly invited to make written submissions on the point, which have been gratefully received and duly considered.

[32] Section 3 of the Subdivision of Agricultural Land Act provides:

Prohibition of certain actions regarding agricultural land.—Subject to the provisions of section 2—
(a) agricultural land shall not be subdivided;
(b) no undivided share in agricultural land not already held by any person, shall vest in any person;
(c) no part of any undivided share in agricultural land shall vest in any person, if such part is not already held by any person;
(d) no lease in respect of a portion of agricultural land of which the period is 10 years or longer, or is the natural life of the lessee or any other person mentioned in the lease, or which is renewable from time to time at the will of the lessee, either by the continuation of the original lease or by entering into a new lease, indefinitely or for periods which together with the first period of the lease amount in all to not less than 10 years, shall be entered into;
(e)

(i) no portion of agricultural land, whether surveyed or not, and whether there is any building thereon or not, shall be sold or advertised for sale, except for the purposes of a mine as defined in section 1 of the Mines and Works Act, 1956 (Act No. 27 of 1956); and
(ii) no right to such portion shall be sold or granted for a period of more than 10 years or for the natural life of any person or to the same person for periods aggregating more than 10 years, or advertised for sale or with a view to any such granting, except for the purposes of a mine as defined in section 1 of the Mines and Works Act, 1956;
(f) no area of jurisdiction, local area, development area, peri-urban area or other area referred to in paragraph (a) or (b) of the definition of “agricultural land” in section 1, shall be established on, or enlarged so as to include, any land which is agricultural land;
(g) no public notice to the effect that a scheme relating to agricultural land or any portion thereof has been prepared or submitted under the ordinance in question, shall be given,
unless the Minister has consented in writing.
Paragraph (e) falls to be read mindful of the definition of ‘sale’ in s 1 of the Act, viz. ‘“sale” includes a sale subject to a suspensive condition; and “sold” shall have a corresponding meaning’.

[33] The history of the provision was discussed in

• Geue and Another v Van Der Lith and Another [2003] ZASCA 118 (20 November 2003); [2003] 4 All SA 553 (SCA); 2004 (3) SA 333 (SCA) and
• Adlem and Another v Arlow [2012] ZASCA 164 (19 November 2012); [2013] 1 All SA 1 (SCA); 2013 (3) SA 1 (SCA).

The section comprised originally of only paragraphs (a) to (c). The supplementary provisions in paragraphs (d) to (g) were introduced by way of a series of statutory amendments during the period from 1972 until 1981.

It is evident from the character of those amendments that the legislative intention was to considerably widen the limitations in respect of any dealings with undivided portions of agricultural land without the prior written consent of the Minister. This much was highlighted by the amendment of the Act by way of insertion of the additional paragraphs in s 3 and also the insertion, in 1981, of the special definition of ‘sale’ (quoted in the preceding paragraph) to include a sale subject to a suspensive condition.

The effect of the latter amendment was to exclude the ability to contract to sell an undivided portion of agricultural land subject to the Minister’s consent being obtained, thus negating the effect of the judgment in Corondimas v Badat 1946 AD 548.

In Geue at para. 15, Brand JA noted that it became clear that the purpose of the legislation was not only to prevent alienation of undivided portions of land; its ‘target zone’, said the learned judge of appeal, was actually ‘much wider’.

He remarked that it was purposeless, when the wording of the provision expressed the legislature’s intention very clearly, to speculate why it should have wanted to cast the net so widely.

[34] The construction of the contractual clauses contended for by the applicant necessarily implies an agreement between Stratovest and the Halls, alternatively, between the Halls and the first respondent, intended by those parties, upon adoption by the MHOA, to grant a right to the latter to obtain ownership of Portion A, subject only to certain statutory approvals, including that required in terms of s 3 of Subdivision of Agricultural Land Act.

I have rejected that contention, but were I wrong in that conclusion, the purported granting of such a right would fall foul of the prohibition in s 3(e)(ii) of the Act in my judgment.

[35] Section 3(e)(ii) permits the grant, without written consent from the Minister, of a right to an undivided portion of agricultural land for a period less than 10 years, or to the same person for any number of periods ‘aggregating’ less than 10 years. It also permits the grant of a right to such a portion for the purpose of a mine.

But the grant of any right to such a portion which does not fall into any of those categories cannot be made without ministerial consent.

It follows that a stipulatio alteri of the nature contended for by the applicant, one that granted the applicant a ius ad rem acquirendam, could not be made legally without the prior written consent of the Minister. On this basis too, the right that the applicant purports to exercise in seeking the relief it does in these proceedings could not be recognised.

[36] In the result, the following order is made:

1. The application is dismissed.
2. The applicant shall pay the second respondent’s costs of suit.