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IN THE HIGH COURT OF SOUTH AFRICA
( WITWATERSRAND LOCAL DIVISION )

Johannesburg

CASE NO: 01/14116

DATE: 20/08/2004

In the matter between:

NEW SMAL CONSTRUCTION COMPANY (PTY) LTD.........................Plaintiff

and

GOODWIN (SOUTH AFRICA) (PTY) LTD

formerly Southern Sun Hotels

(Von Brandis Square) (Pty) Ltd....................................................................Defendant

JUDGMENT

WILLIS J:

[1] This is an action to recover payments allegedly due by the defendant to the plaintiff in terms of a written agreement of lease concluded in March 1986. It is common cause that, following upon a change of ownership of the shares in the defendant in 2000, the defendant has paid not a single cent to the plaintiff in terms of this agreement. The premises which form the subject matter of the lease is the second basement level of parking under a section of Smal Street bounded by Jeppe Street and Pritchard Street in Johannesburg.

[2] it is common cause that the premises formed an integral part of the parking garage constructed on the defendant’s hotel property in the form of an annexe to the defendant’s third basement level of the parking garages underneath the hotel originally built and known as the “Johannesburg Sun”. The hotel is, for all practical purposes, the only asset of any importance which the defendant owns. The premises are situated at a slightly higher level than the third basement level and access to them is gained from the third basement level, by travelling up a short ramp. It seems that the parking garage had operated as a single unit, the total number of bays available intended to satisfy municipal building regulations as to the ratio of parking bays relative to beds in the hotel. This almost certainly explains why the parties are so tightly hocked together in terms of the lease agreement. In terms of this agreement it is very difficult, if not impossible for the plaintiff to resile therefrom. Save for a short and apparently very unsuccessful period when the hotel was reopened at the time of the World Summit on the Environment (“The Earth Summit”) in 2002, the hotel has been “moth-balled”. There simply was not enough trade to sustain a viable hotel business. The defendant has, however, not abandoned plans to “recommission” the hotel. This explains why the defendant has not sought to terminate the lease agreement. Undoubtedly, the “moth-balling’ of the hotel has given the defendant severe cash flow problems. This would explain the recalcitrance of the defendant to pay. It is clear from the vast exchange of correspondence between the parties, the record of the pleadings and notices and the previous skirmishes between the parties in court and the defendant’s propensity to change both attorneys and counsel, that it has resorted to many devices, both imaginative and unimaginative, to avoid making any kind of payment.

[3] On the first day that this matter was set down for trial before me, the defendant applied for a postponement. The basis of the application was that the plaintiff intended to recalculate the quantum of its claim. The amount due by the defendant is determined by a formula, to which I shall refer later. The defendant is liable to pay a certain amount every month. Obviously, with the passage of each successive month the amount due will change. Furthermore, it is clear that the plaintiff had been attempting, desperately and unsuccessfully, to elicit information from the defendant in order to compute the amount due in terms of the relevant formula. On the other hand it is quite clear from the record that the parties have, for a long time, been ad idem as to the relevant formula to compute the defendant’s liability. In the application for the postponement, the defendant alleged that there had been no separation between the merits and the quantum. The record shows, however, that the defendant had previously agreed to concede the merits in favour of the plaintiff; all that remained for determination was the quantum. The defendant also complained that the plaintiff had not discovered the entire agreement including plans and specifications to the defendant. The plaintiff had located its original copy of the agreement in bound form which did not have the attachments, plans and specifications referred to therein. The agreement was entered into almost 20 years ago. Nevertheless, insofar as the computation of the quantum was concerned, the parties had agreed on the applicable formula. The real dispute lay as to the value to be attached to “c” in that formula. The facts pertaining “c”, as will appear later, are peculiarly within the knowledge to the defendant. The defendant had been singularly uncooperative in giving the plaintiff any meaningful information from which a figure for “c” could be determined. The defendant had complained that the plaintiff had served expert notices late. The plaintiff had been trying in vain to elicit information from the defendant upon which a figure for “c” could be determined. In desperation, the plaintiff had decided to call an expert, Mr Levet, who would testify as to the reasonable escalation of costs on a year-by-year basis in a business such as this. This is hardly an issue upon which extensive consultation and preparation would be necessary to put a differing version. Besides, as I have said, the figures necessary for the computation of “c” are peculiarly within the knowledge of the defendant. The plaintiff opposed the application for the postponement on the basis that the application was not bona fide and was made purely for the purposes of delay. The record speaks for itself. As I have said, the defendant has clearly attempted to do all within its power to avoid having to make any payment to the plaintiff, despite the fact that it has been common cause that it does indeed owe the plaintiff money. All that remains is the determination of the correct amount. I dismissed the application by the defendant for a postponement with costs.

[4] The relevant portions of the agreement read as follows:

“1.6 the second basement level of parking on the Smal Street property will, on completion, form an integral part of the parking garage being constructed on the hotel property and the lessor is to let that second basement level of parking to Sun Von Brandis;”

“3.2 The lessor lets to Sun Von Brandis which hires, the second basement parking level (“the premises”) to be constructed on the Smal Street property.”

(my emphasis)

“6. Consideration

6.1.“In consideration for the rights granted to Sun Von Brandis in terms hereof and the hire of the premises (my emphasis) to Sun Von Brandis in terms hereof, Sun Von Brandis will pay to the lessor a consideration equal to-

6.1.1 an annual amount determined annually in accordance with

the following formula-

(a x b x 12) – c

where-

a = the number of parking bays within the premises;

b = an amount equal to an average of the monthly rental at which parking bays are let on the commencement date and on each subsequent anniversary thereof on a monthly , arm’s length basis, to members of the public in the parking garage..located on the hotel property and on the second floor basement level of the Smal Street property ( collectively “ the hotel parking garages”), the parkade located at number 211 Bree Street (presently managed by Kings Parking) and the parking garage at 66 Smal Street;

c = all expenses of whatever nature reasonably incurred during the relevant twelve month period by Sun Von Brandis and/or the manager/ s of the hotel parking garages, of and incidental to the conduct of a normal commercial parking garage business in the premises (my emphasis), including, but not by way of limitation , personnel expenses, maintenance and cleaning costs, cost of and incidental to the operation of security systems (including maintenance costs but excluding capital costs in respect of installation of such systems) and all other expenses of whatever nature of and

incidental to the operation of the premises (my emphasis) but excluding all expenses and costs incurred by Sun Von Brandis and/or the manager/s of the

hotel parking garages of and incidental to the supply of special services to the hotel, its employees, guests and/or invitees;

2. with effect from the fifth and each subsequent anniversary of the commencement date, an annual amount equal to the amount calculated in accordance with 6.1.1 plus an amount equal at such anniversary, to (a x b x 12 – c) in the formula set out in 6.1.1. the amounts represented by a and b in the formula set out in 6.1.1 will be determined, annually in advance, by not later than the commencement date and each anniversary of the commencement date.

If such amount will not have been determined by that date, the lessor on the one hand or Sun Von Brandis on the other will be entitled to

require that the matter be referred for determination to the lessor’s auditors acting as experts and not as arbitrators and their determination

thereof will be final and binding on the parties.

6.2 The consideration payable in terms of 6.1 will be payable monthly in advance by not later than the first day of each month to which such payment relates.

6.3 The rentals in respect of the premises for the period between the commencement date and the last day of the first full financial year of Sun Von Brandis to end after the commencement date, will be based upon the reasonable estimate by Sun Von Brandis of its expenses to be incurred in the operation of the garages referred to in 6.1. By not later than 90 days after the end of each of its financial years commencing with the last day of Sun Von Brandis first full financial year to end after the commencement date, Sun Von Brandis will furnish to the lessor an auditor’s certificate reflecting the actual amount of such expenditure during that year and within seven days of the date of furnishing such certificate Sun Von Brandis will pay to the lessor or the lessor will refund to Sun Von Brandis, as the case may be, the amount of any under or over payment of rental during the period to which such certificate relates.(my emphasis)

6.4 None of the income derived by Sun Von Brandis from or in connection with the conduct of a parking garage on the Smal Street property, and none of the expenditure of whatever nature incurred by Sun Von Brandis (including the rentals payable by Sun Von Brandis to the lessor in terms of this agreement) will be taken into account in the calculation of any amount (whether as income, expenditure rental or otherwise) in any manner whatever or for any purpose whatever in terms of the agreement between the lessor, Sage Holdings Limited, Von Brandis Square Development Company ( Proprietary) Limited, Southern Sun Hotel Holdings Limited, Southern Sun, Sun Von Brandis and Von Brandis Square Construction Company Limited, dated 26 May 1983 (“the main agreement”)”

The figure of (a x b x 12)-c doubled after the fifth anniversary date of the agreement which has long since past. The annual cycle for the computation of the amount owing begins on 1^st March every year. The plaintiff’s claim is for the amount due from 1^st April, 2000 to 1st April, 2004.

[5] The defendant’s attorneys addressed a letter to the plaintiff’s attorneys on 5^th March, 2003 wherein they confirmed that “a” = 87 parking bays and that the averages for “b” for the relevant period would be as follows:

01/03/200-29/02/2001 R393.80

01/03/2001-29/02/2002 R287.50

01/03/2002-28/02/2003 R250-00

These figures are inclusive of Value-added tax (“VAT”).

All that remained in dispute was “c”. It is important to note that clause 6.1.2 entitles, but does not oblige, the parties to refer the determination of “c” to the lessor’s auditors. This never occurred. The defendant, moreover, never complied with its obligations in terms of Clause 6.3 of the agreement to furnish its auditor’s certificate necessary for the determination of “c”

[6] On 4^th August, 2004, days before the trial, the plaintiff raised the defence that there were only 85 demarcated bays but that only 80 of these were “lettable” and amended its plea accordingly. The defendant called an architect Mr Britten, who testified that there were indeed 85 demarcated bays but there were a further two bays for parking vehicles which were not demarcated. He said he had measured the bays and that in each instance a vehicle could be parked in them. The fact that there were only 85 demarcated bays became common cause. It has remained the plaintiff’s case that there were 87 available bays. Mr Van Zyl, a manager employed by the defendant since September 2000, Mr Craxton, a consultant employed by the defendant, and Mr Heeger who had presented a proposal to those managing the hotel in 2002 on the management of the parking area all testified that there were 80 “lettable bays”. I accept that in respect of five bays, one might need to “shoe-horn” in a an ordinary vehicle in order to be able to park. On the other hand, the rentals in respect of bays were negotiable. The formula provides for a computation of the average rental. If one has regard to the evidence as a whole, it is clear that the bays in question were “lettable” at a reduced rental to those who had small vehicles, motor-bikes, scooters and the like, and to those who would be prepared to suffer some inconvenience. Besides, the defendant is bound by its agreement on 5^th March 2003. As this agreement was reached during the currency of the period 1^st March 2003 to 29^th February, 2004, I can see no reason why it should not apply to this year as well. The remaining dispute between the parties concerns the figure to be attributed to “a” for a few months in 2004. The parties have accepted a figure of 87 for many, many years. Mr Nowitz relied on the case of Osman v Standard bank national Credit Corp (Pty) Ltd 1985 (2) SA 378 (C) at 386 and the authorities therein cited to submit that where the parties reach an agreement on the common assumption of a present fact or a past fact, and that assumption is incorrect, the contract will be void. The difficulty for the defendant is that there was no common assumption that subsequently turned out to be incorrect. There is an unresolved difference of opinion between the parties regarding the number of “lettable” parking bays. The “reliance theory” recently affirmed in HNR Properties CC and Another v Standard bank of SA Ltd 2004 (4) SA 471 (SCA) at para [22] and [23] favours the plaintiff’s reliance on a figure of 87 for “a”. The plaintiff could reasonably believe not only that the defendant intended to be bound by its agreement that there were 87 bays but also that, in the absence of a substantial change in circumstances (which there was not), this figure would not be amenable to change.

[7] As far as “b” is concerned, the figures were agreed for the period up to 28^th February, 2003. Mrs Cooper, a property portfolio executive for the Broll Properties which manages the affairs of the plaintiff, applied an 8% annual escalation for the remaining period. Mr Levet, who manages parking garages nation wide for Interpark (Pty) Ltd and who has extensive experience in managing parking garages in the Central Business District (“CBD”) was called by the plaintiff and gave slightly revised figures for “b” the period from 1^st March, 2003. These figures were approved by Mr Paiken, the defendant’s auditor, who was called as a witness for the defendant.

[8] Mrs Cooper presented her calculations for “c” as expenses “reasonably incurred”-using the term provided for in the agreement. By reason of what follows, it is not necessary to analyse her figures in any detail. Applying 87 for “a” , the agreed figures for “b” and the escalation referred to for the remaining period, as well as her calculation for “c”, she presented a table showing the amount owing by the defendant, including interest. The arithmetical and accounting “integrity” of her calculations was not disputed. Mr Paiken, presented figures for “c”. He confirmed that these amounts had, indeed, been paid by the defendant. He was unable to give any definitive or even useful breakdown as to what proportions were, in fact, spent on the parking garage or the premises. He relied on “guesstimates.” To remedy this difficulty, the defendant called Mrs O’Callaghan, a book-keeper and property manager employed by Wingprop (Pty ) Ltd. (“Wingprop”). This company manages the parking garage on behalf of the defendant. There are a number of difficulties with her evidence with regard to “c.” The monthly administration fee of R25 000 would not appear to be an arm’s length transaction: there are interlinking directorships between Wingprop and the defendant. Moreover, it would appear that Wingprop manages all the business of the defendant and not merely its parking garage. The claim for insurance does not make sense: a lessee does not need to ensure the building and it seems that expensive computer equipment relating to the hotel was stored in the parking area-this, of course, has nothing to do with the running of a parking garage. The claim for lift maintenance does not seem fairly apportioned as there really is only one lift that can be said to operate for the benefit of the parking garage. The claim for “water and lights” running to several hundreds of thousands of rands per year does not make sense for an operation such as the one in question. The claim for security seems dubious: it is hard to believe that none of the security guards employed by the defendant was employed to secure a valuable asset such as the hotel. Most significantly, if these figures are to be accepted, the defendant would be running the parking garage at a massive and ever expanding loss every year. The defendant may have its own reasons for doing this but this does not suggest that the expenses claimed were “reasonably incurred” in the “conduct of a normal commercial parking garage business”.

[9] Mr Britten, called by the plaintiff, and Mr Van Zyl, Mr Heeger, Mr Craxton, called by the defendant all agreed that the premises were in a state of complete darkness, with foul smelling air and that no cars were parked on the premises when they went there. The parties were unanimous that the gradual urban decay in the CBD since the 1980’s had resulted in a steady decline in the use of the parking garage. It seems clear that, as a matter of overwhelming probability, the defendant had, at all material times, failed to operate any parking business in the premises even to the extent of cutting off electricity for lights and the air-purification systems. Mr Peter, who appears for the plaintiff, applied for an amendment, after the close of the defendant’s case, of the plaintiff’s calculations. These included a figure of zero for “c” because there had, during the period in question, been no “conduct of a normal commercial parking garage in the premises” (as defined in the agreement). His figures also included revised figures for “b”, taking into account the averages for the period from 1^st March, 2003 upon which both Mr Levet (called by the plaintiff) and Mr Paiken (called by the defendant) agreed. This amendment has the effect of not insignificantly increasing the amount due to the plaintiff. Once again, the arithmetical and accounting “integrity” of these calculations was not disputed. Mr Nowitz vigorously opposed this amendment. He said the revised figures were not part of the case which he had been brought to Court to meet. The difficulty for the defendant is that the amendment is fully supported by the evidence to which Mr Nowitz raised no objection. (See Union Building Society and Another v Lennon Ltd 1934 AD 149 at 162-3; Swart v Provincial Insurance Co Ltd 1962 (1) SA 446 (E); Moody v Crossman 1969 (3) SA 121 (N); Knightsbridge Investments (Pvt) Ltd v Gurlandr 1964 (4) SA 273 (SR); Sager Motors (Pty) Ltd v Patel 1968 (4) SA 98 (RAD);Bulford v Bob White’s Service Station (Pvt.) Ltd, 1973 (1) SA 18 (RAD). I shall therefore allow the amendment sought by the plaintiff.

[11] Mr Nowitz submitted that the parking garage operates as a single unit and that, therefore, the calculation of “c” should be determined by reference to costs “reasonably incurred” in the parking garage as a whole. This is not what the agreement provides. It provides that “c” relates to expenses incurred “in the premises”. Accordingly, the plaintiff succeeds in its claim with the amended figures for “b” and “c”.

[12] Mr Nowitz submitted that the quantum was for an unliquidated amount and that, therefore, interest should only run from the date of judgment. I need not enter into a debate as to whether or not the quantum was unliquidated. The parties agreed that in terms of the Prescribed Rate of Interest Act No 55 of 1975 as amended by Act 7 of 1997 and more particularly section 2A thereof, I have an equitable discretion in the matter. (See Abel Builders (Pty) Ltd v Thompson 2000 (4) SA 1027 (SCA) at para [15].) I am in respectful agreement with the approach followed by Thring J in The MV Sea Joy 1998 (1) SA 487 (C) where he said at 508D: “The plaintiff has been kept out of its money by the defendant for nearly four years, notwithstanding the due setting out of its damages in its particulars of claim and the defendant’s ability to ascertain the quantum thereof by means of an enquiry which it could reasonably have made.” He made a retrospective order as to the payment of interest. (See also Adampol (Pty) Ltd v Administrator, Transvaal 1989 (3) SA 800 (A) at 816 E- 818F.) I am satisfied that the defendant should pay interest from the date it was in mora.

[13] It is common cause that no demand was ever served on the defendant. .Mr Nowitz relied on cases such as Thoroughbred Breeders’ Association v Price Waterhouse 2001 (4) SA 551 (SCA) at paras [85] and [86] and Kudu Granite Operations (Pty) Ltd v Caterna Ltd 2003 (5) SA 193 (SCA) at par [28] as authority for the proposition that, in the absence of a demand, there could be no order for mora interest. I disagree. These cases are authority for the proposition that in the absence of mora, there can be no mora interest. They do not disturb the position as set out in Laws v Rutherford 1924 AD 261 at 262 that where a specific date has been agreed upon for the performance of an obligation there need be no demand in order to place the debtor in mora: dies interpellat pro homine. This is known as mora ex re. Clause 6.2 of the agreement between the parties provides for when each payment is to be made: there needs to be no demand to place the defendant in mora.

[14] My order reflects the calculations contained in the plaintiff’s last amendment. The following order is made:

The defendant is to pay the plaintiff:

1. R 2 598 441, 04;

2. R989 719, 62, being mora interest on all sums outstanding calculated at the rate of 15,5 per cent per annum from 1^st April, 2000 to 31st July, 2004;

3. Interest on the aforesaid sum of R 2 598 441, 04 from 1st August, 2004 to date of payment;

4. Costs of suit.

DATED AT JOHANNESBURG THIS 20^th DAY of AUGUST, 2004

N.P. WILLIS

JUDGE OF THE HIGH COURT

Counsel for Appellants: J.R. Peter

Attorneys for Appellant: Werksmans

Counsel for Respondent: M. Nowitz

Attorneys for Respondent: Schindlers

Date of hearing: 10^th -16^th August, 2004

Date of Judgment: 20th August, 2004

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