REPUBLIC OF NAMIBIA

HIGH COURT OF NAMIBIA MAIN DIVISION, WINDHOEK

REASONS
	Case no:  A 96/2013
In the matter between:

HERWOLF PROPERTY HOLDINGS CC	APPLICANT

And

YEUNG TAI FOOD AND TRAIDING CC	RESPONDENT

Neutral citation:	Herwolf Property Holdings CC v Yeung Tai Good and Trading CC (A 96/2013) [2016] NAHCMD 121 ( 20 April 2016)

Coram:	HOFF J
Heard:	25 April 2013
Order:	26 April 2013
Reasons: 	20 April 2016

Flynote:	Costs - Where a disputed application is settled on a basis which disposes of the merits, except insofar costs are concerned, the universal rule that a party who succeeds should be awarded costs, cannot apply. Court must, with material at its disposal, make a proper allocation as to costs. A court must have regards to all the affidavits filed on the merits of the application and must decide which party incurred unnecessary costs through his or her failure to take steps or through taking wholly unnecessary steps, and may consider any other relevant factors.

REASONS

HOFF, J:
[1]	This court gave the following order on 26 April 2013:

‘That the respondent pays the costs pertaining to this urgent application which costs shall include the costs of one instructing and two instructed counsel.’

[2]	These are the reasons.

[3]	On 15 April 2013 the applicant gave notice to the respondent that an urgent application would be brought on 25 April 2013 at 09h00, in which applicant would be seeking the eviction of the respondent from properties known as Units A, J and I on the premises of Erf 7533W, Newcastle Street, Windhoek, as well as alternative relief. The respondent filed an answering affidavit whereafter the applicant filed a replying affidavit.

[4]	When the matter was called on 25 April 2013, Mr Tötemeyer who appeared on behalf of the applicant, informed the court that due to what has been conveyed to the applicant in the answering affidavit of the respondent, the applicant was no longer proceeding with the urgent relief. This was so in view of the fact that the applicant had been informed in the answering papers that the fire risk which had placed the insurance of the units at risk had been remedied in the interim and that the applicant at that stage only sought an order for costs of the entire application.

[5]	It was submitted by Mr Tötemeyer that the consideration of the issue of costs, to an extent, also requires the consideration of the merits of the matter and that the primary focus should be on the following two issues:

Firstly, whether or not the applicant was entitled to bring an urgent application; and 
Secondly, the sequence of events, and particularly when the remedial action by the respondent was taken.

[6]	In respect of the first issue it was submitted that in deciding the issue of urgency, the court should assume that the applicant’s case is a good one and that the applicant is entitled to the relief it seeks.

[7]	It was further submitted that it is trite that commercial interests justify the invocation of rule 6(12), no less than any other interest.

[8]	Mr Corbett submitted that the issue for consideration is not whether the applicant was entitled on the merits to the relief sought, but rather whether in the light of what was put before court and the manner in which this application was brought, namely as one of urgency, the applicant was entitled to costs.

[9]	Mr Corbett referred this court to the matter of Ganlam Investments (Pty) Ltd v Trillion Cape (Pty) Ltd in respect of the approach to be followed in an instance where the only issue to be decided is that of costs.

[10]	The following appears at 700G:

‘In Jenkins v SA Boiler Makers, Iron and Steel Workers and Shipbuilders Society 1946 WLD 15, the court held that where a disputed application is settled on a basis which disposes of the merits except insofar as the costs are concerned, the court should not have to hear evidence to decide the disputed facts in order to decide who is liable for costs, but the court must, with the material at its disposal, make a proper allocation as to costs.’

[11]	At 701B – D with reference to the Jenkins matter the following appears:

‘Costs, the learned Judge went on to point out, must be decided on broad general lines and not on lines that would necessitate a full hearing on the merits of a case that has already been settled. This approach is certainly to be commended. Costs, particularly at present, play a very important role in litigation and the presiding judicial officer should, in my view, discourage the incurring of unnecessary costs by making an appropriate order in this respect. A party must pay such costs as have been unnecessary incurred through his failure to take steps or through his taking wholly unnecessary steps: se Herbstein and Van Winson (op cit) at 483; De Villiers v Union Government (Minister of Agriculture) 1931 AD 206 at 214’.

[12]	In Nkume v First Rand Bank the court referred with approval to Gamlan as follows:

‘It would then appear that the real issue for determination is one of costs. To that end I must have regard to all the affidavits filed on the merits of the application. Of course there will be no need for the court to decide who the winner is, since the merits of the application have become academic. See Gamlan Investments (Pty) Ltd and Another v Trillion Cape (Pty) Ltd & Another 1996 (3) SA 692 (C) at 700 G – J’.
And continues as follows:
	‘In the circumstances the universal rule, that a party who succeeds should be awarded costs, cannot apply. In the exercise of the court’s discretion I have to consider the manner in which the parties conducted themselves in this application, both before and after the application was brought’.
[13]	In Gamlan the following is said: 

‘Even where the decision in respect of costs is “separate” from the merits, as is the case where a decision on the merits is no longer sought, this does not mean that the decision on costs must of necessity be totally isolated from the merits. Indeed an appeal against a costs order, the court’s decision, in the absence of other relevant factors, would in the normal course be largely based on whether or not the appellant would have been successful on the merits: see Erasmus v Grunow en ‘n Ander 1980 (2) SA 793 (O) at 797 B – H and 798 D – H.’

[14]	What is discernable from the judgments of these two cases is where the only issue for determination is that of costs, a court must have regard to all the affidavits filed on the merits of the application, must decide which party incurred unnecessary costs through his or her failure to take steps or through taking wholly unnecessary steps, and may consider any other relevant factors.

[15]	It was submitted by Mr Corbett, that in respect of the issue of urgency, the applicant’s conduct amounted to a self-created urgency, and further submitted that the application became academic by the time it was launched.

[16]	I shall now consider the issue whether the applicant took an unnecessary step in launching this application with reference to the affidavits filed.

[17]	It is common cause that the applicant is the owner of Erf 7533 W, Newcastle Street in Windhoek, which applicant had purchased at a consideration of N$27 000 000,00.

[18]	In order to facilitate the purchase, the applicant, inter alia secured a mortgage bond with Bank Windhoek Ltd in the amount of N$21 600 000,00. The property was required to be insured at all times which insurance included a fire insurance.  It was a condition that should the applicant fail to comply with the insurance requirements, Bank Windhoek would be entitled to hold the applicant in breach of the mortgage agreement, and could cancel the mortgage agreement.

[19]	The property consists of various warehouse units which the applicant lets to various tenants and from which the applicant derives a rental income.

[20]	The respondent occupied three units, namely units A, J and I.

Unit A
[21]	During February 2010 the respondent entered into a lease agreement in respect of unit A for a period of 3 years commencing on 1 February 2010 and terminating on 1 February 2013. On 24 January 2013 the respondent was informed in writing that the lease agreement would be expiring on 1 February 2013 and that the lease agreement would not be renewed.

[22]	The respondent replied that in terms of the lease agreement it enjoyed a right of first refusal to renew this lease agreement, after expiration of the initial period for a further period of 3 years. It conveyed to the applicant that it had been under the bona fide impression that the lease had been extended for another 3 years.

[23]	Respondent further indicated that it had expended a substantial amount of money to renovate and equip the premises in accordance with its business needs. The next day 25 January 2013, the applicant repeated that the lease agreement would not be renewed, that the applicant was willing to extend the notice period to 28 February 2013, and requested the respondent to vacate the premises by 28 February 2013. The respondent refused to vacate the premises.

Unit J
[24]	The lease agreement commenced on 1 June 2012 and would be terminating on 31 May 2015. In its founding affidavit the applicant avered that the respondent breached the agreement. It appears that in a letter dated 18 March 2013 that the respondent was informed that it was ‘rendering the insurance policy of the premises with Mutual and Federal void or voidable as per the investigation report attached . . .’ This concerned the fire risk and an alleged breach of clause 9 of the lease agreement.

[25]	The respondent was called upon within 7 days to remedy its breach of the agreement, failing which the applicant would cancel the lease agreement and would move for respondent’s evacuation on an urgent basis in the High Court.

[26]	The applicant states in its founding affidavit that the respondent failed to remedy the breach as a result of which the applicant cancelled the lease agreement on 5 April 2013 and requested the respondent to vacate the premises with immediate effect. The applicant stated that despite the cancellation of the agreement and the request to vacate the premises the respondent continued to occupy the premises and refused to vacate the premises.

Unit I
[27]	The applicant states that no written lease agreement existed in respect of unit I, that it was agreed between the applicant and the respondent that the respondent would be entitled to rent unit I at a monthly rental of N$6 600 for a period expiring on 1 February 2013, that the respondent was duly informed that the lease in respect of unit I had expired, that there was no option to renew the agreement, and that the respondent refused to vacate the premises.

The fire risk
[28]	The applicant states that the insurance over the property (provided by Mutual and Federal) contained a fire risk section which provided that the insurer shall not be liable if the insured failed to take all reasonable steps to ensure the maintenance of the building and to reduce the risk of damage.

[29]	It is further stated by the applicant that on 13 February 2013 Mutual and Federal had advised the applicant that following a survey of the premises it was established that units A, J and I posed a ‘severe fire risk’, that certain remedial steps need to be taken immediately and that non-compliance would lead to the suspension of fire-cover for the property.

[30]	The survey referred to was carried out by one Johannes Wichard Naude, a fire engineer and surveyor, employed by Mutual and Federal, during February 2013. His findings amounted to the following:

‘1.	Units A, J and I have a higher fire load in relation to the other warehouses on the property due to excessive stock being kept at the premises. Such stock should be reduced, to decrease the fire load. The higher the fire load, the higher the flame and heat development, thus increasing the risk of spreading to neighbouring warehouses.

2.	Fire fighting equipment kept on the premises are blocked by goods being placed in front of the equipment and should be removed.

3.	Stack heights of goods are in excess of the maximum of 3 meters and needs to be reduced.

4.	A take away is being operated from unit A within a general goods warehouse. This cannot be approved for insurance purposes due to the increased fire risk and the take away should be operated from a separate building’.

[31]	The applicant was placed on terms by Mutual and Federal to rectify the said fire risk. A final extension was granted until 29 April 2013.

[32]	On 4 April 2013 another survey was conducted by Naude in respect of units A, J and I in order to establish the current extent of the non-compliance with the insurance policy at that stage and his findings were reflected in another report.

[33]	In essence this report illustrates that apart from the tenant in unit I vacating some of the stock, all three units still posed a ‘profound and unacceptable risk’. Naude, in a confirmatory affidavit corroborated the version of the applicant.

[34]	The applicant stated that the respondent’s occupation of all three units was unlawful, that the respondent despite being called upon to vacate the premises continued to operate in defiance with the requirements of the fire insurance cover.

[35]	The applicant further in its founding affidavit stated that it had been advised by the Municipality of the City of Windhoek that the buildings on the property were not in compliance with municipal regulations and as such a compliance certificate could not be issued which the applicant requires in order to continue with its operations.

[36]	It is stated that illegal structures, namely wooden mezzanine floors were erected in respect of units A, J and I, that the respondent had been requested to remove those illegal structures but refused to do so.

[37]	The applicant further states that non-compliance with municipal building and other regulations is also a breach of the terms of the mortgage bond agreement and the insurance policy.

Urgency
[38]	The applicant stated that the relief sought in this application was due to the fact that the fire insurance may be cancelled, that applicant has been afforded a final extension until 29 April 2013 to remedy the non-compliance with the fire insurance, failing which the insurance cover would be cancelled, that in such an instance the applicant would be in breach of the mortgage bond agreement, but would also be carrying a risk in excess of N$27 000 000, that an action for the respondent’s eviction from the premises in the normal course would usually be finalised over a period of many months, that if he urgent relief is not granted the applicant stands to suffer patrimonial damages which the applicant would be unable to recover, that the harm and prejudice that the applicant would suffer was indeed irreparable in the circumstances, and that the applicant was unable to obtain substantial redress at a hearing in due course.

[39]	The applicant further states that it first attempted all alternative amicable means to ensure the respondent’s eviction from the units in compliance with the fire insurance requirements, that the respondent initially during February 2013 undertook to vacate the units and requested only a short extension to March 2013 which was granted, that the majority member of applicant was in China until 7 March 2013, that immediately upon his return from China be became embroiled in an urgent application launched by the respondent against inter alia the applicant and based on the mandament of spolie, that that application was opposed and subsequently withdrawn against applicant on 15 March 2013, that at that time the parties attempted settlement talks through their legal representatives in order to see whether an amicable solution may be reached in respect of the respondent’s occupation of the said premises.

[40]	The applicant stated that towards the end of March 2013, it realised that the respondent was not bona fide in the settlement talks and had no intention to vacate the units, the lease agreement of unit J was cancelled on 5 April 2013 after the respondent failed to heed the demand of 18 March 2013, that thereafter applicant then instructed its legal practitioners to proceed with the current application, that a consultation was scheduled with instructed counsel on 2 April 2013, whereafter all the necessary information and documentation was obtained and this application was prepared to be served during the subsequent week.

[41]	In respect of the balance of inconvenience the applicant stated that:

‘(a)	the respondent is in unlawful occupation of the units;

(b)	if the relief sought is granted the respondent will merely be required to vacate the units;

(c)	should relief not be granted the applicant would forgo its fire insurance in respect of the property and may potentially suffer severe financial losses. In addition the applicant stands to be held in breach of the mortgage bond agreement which may result in the agreement being cancelled, as the applicant will have no way whatsoever, without securing the respondent’s eviction and the applicant called upon to settle the entire outstanding balance the applicant will be financially ruined;

(d)	whilst the respondent remains in occupation of the units the fire risk remains excessive and should a fire break out it may well spread to other units forming part of the property and let to other tenants and the applicant and other tenants will then find themselves uninsured. Applicant could in such a situation face various potential claims from other tenants;

(e)	it is unlikely that applicant will ever be able to recover such losses from the respondents’.

[42]	The respondent, in its answering affidavit deposed to on 22 April 2013, denied that it was in unlawful occupation of the three units and stated that it was within its rights to refuse to vacate the premises in question. The respondent responded in respect of the allegations in the founding affidavit as follows:

Unit A
[43]	The respondent stated that in terms of clause 3.1 of the lease agreement, the lease was for a period of 3 years terminating on 1 February 2013 unless terminated in terms of the lease agreement or unless the lease is extended for the renewal as provided for hereinafter.

[44]	In terms of clause 3.2:

‘The LESSEE shall have the right of first refusal to this lease after the expiration of the initial period for a further period of not less than 3 (three) years’.

[45]	In terms of clause 4.1 the rental ‘shall increase annually thereafter, if renewed with effect from 1 February 2011 with 10% on the amount payable in the preceding year.

[46]	The respondent avers that the effect of the clause 3, read together with clause 4, is as follows:

‘(a)	the respondent had a right to rent the premises form 1 February 2010 until 1 February 2013;

(b)	after 1 February 2013 the lessor was in terms of clause 3.2 under a contractual obligation to offer unit A for rental to the respondent for a period of not less than three years;

(c)	should the respondent have accepted the offer the new lease agreement would come into effect for the period 1 February 2013 to 1 February 2016;

(d)	the rental would then increase with 10%’.

[47]	The respondent stated that the applicant did not comply with its obligation in terms of clause 3.2, that applicant simply informed the respondent that the lease would not be renewed, that the respondent must vacate the premises by 1 February 2013, and that such conduct was in direct breach of clause 3.2

[48]	The respondent stated it had been advised that there had in effect been a tacit relocation of the lease agreement until such time that applicant has complied with its obligation in terms of clause 3.2

Unit J
[49]	The respondent stated that in respect of unit J, the lease agreement had an identical clause 3.2 to that found in respect of the lease agreement of unit A and denied that the lease agreement would simply expire on 15 May 2015.

[50]	The respondent denied that it failed to remedy an alleged breach in respect of the fire risk justifying the cancellation of the lease agreement. Respondent stated that firstly, the alleged fire risk was not properly identified. Secondly, the respondent was led to believe that the next inspection would take place on 15 April 2013, however the applicant arbitrarily, together with Old Mutual, conducted an inspection on 4 April 2013, thus denying the respondent the proper opportunity to comply insofar as it was possible with the demand and thirdly, by 15 April 2013, the respondent had, in any event, taken remedial steps such as to bring it in compliance with any possible vague or unspecified alleged transgressions.

[51]	The respondent stated that during the period 5 April 2013 to 14 April 2013, the respondent had thoroughly cleaned up unit A. Respondent stated that there was currently no fire risk at unit A and had the applicant conducted the inspection on 15 April 2013, as it had indicated it would do, this application would not have been necessary.

Unit I
[52]	The respondent stated that the parties entered into an oral lease agreement for a period of 3 years commencing in August 2005, that this lease agreement was in other respects similar to the written agreements in respect of units A and J and that the lease agreement was renewable at the instance of the respondent, that by 14 April 2013, respondent had moved out of unit I, that from 15 April 2013 respondent has been painting and restoring the unit to its former state, that the painting and maintenance would be completed before the end of the month when the keys would be handed to the applicant, that the application to evict respondent form unit I had become academic, that the applicant was aware of this or should have been aware of it prior to launching this application, and that the applicant’s overzealous conduct in respect of the relief sought in respect of unit I disentitles it to a cost award.

[53]	The respondent denied that there was a fire risk in respect of units J and A which required any steps to be taken, stated that the applicant exaggerated the fire risk, denied that there was any fear that the insurance would be cancelled and reiterated that units A and J had been cleaned up prior to 15 April.

[54]	The respondent further stated that it was clear from the letter dated 13 February 2013 that Mutual and Federal gave applicant until 13 May 2013 to remedy the alleged complaints, that in the letter dated 14 March 2013, 30 days were given to become compliant, that the date of 15 April 2013 was clearly the date of inspection which had been brought forward for reasons unknown, that even if applicant is correct that final extension was given until 29 April 2013, this would be highly unreasonable since Mutual and Federal had already informed the applicant that there would be a follow-up inspection on 13 May 2013, and that the respondent cannot be disadvantaged because of the confusion between Mutual and Federal and the applicant regarding such dates, that the inspection of 4 April 2013 was premature since, by virtue of a letter of 18 March 2013, the respondent had been advised that the next inspection would be on 15 April 2013.

[55]	The respondent averred that it was in the process of moving stock out of unit I, was vacating the unit and that it was completely unnecessary to bring an urgent application to evict the respondent from unit I.

[56]	The respondent denied that there was an imminent threat that the fire insurance would be cancelled. The respondent stated that on the applicant’s version the respondent was in unlawful occupation of unit A from 1 March 2013, but despite this the applicant waited six weeks to bring this application; that on applicant’s version, it purportedly cancelled the lease agreement in respect of unit J on 5 April 2013, some five weeks ago; that on applicant’s version the respondent should have vacated unit I on or before 28 February 2013, but again the applicant waited more than six weeks to launch this application; and in respect of the alleged fire-risk, the applicant had known about this for more than two months and on its version proof of non-compliance was known to applicant since 4 April, 11 days before the application was launched.

[57]	The respondent stated that in all the circumstances any urgency that existed was entirely self-created.

The right of first refusal
[58]	The respondent in its answering affidavit justified its continued occupation of units A and I on the basis of a right of first refusal.

[59]	It was respondent’s view that on the basis of the right to first refusal the applicant was under a contractual obligation after 1 February 2013, to have offered the units for renewal to the respondent for another 3 years which, upon acceptance by the respondent, would have constituted a lease agreement for the period 1 February 2013 until 1 February 2016.

[60]	I agree with Mr Tötemeyer that this was a misapprehension. In Soteriou v Retco Poyntons (Pty) Ltd Nicholas JA remarked as follows at 932 B:

‘A right of first refusal is well known in our law. In the context of sale it is usually called a right of pre-emption. The grantor of such a right cannot be compelled to sell the property concerned. But if he does sell, he is obliged to give the grantee the preference of purchasing, and consequently he is prevented from selling to a third person without giving the first refusal.’

and at 932 D – E:

‘In the case of an option, the grantor has made an offer which the grantee can accept without more, upon which a contract of sale is complete. In the case of a right of pre-emption, there is no offer at the time of the grant, and the grantor is not obliged to make an offer unless and until he wishes to sell the property. There is in principle no difference between a right of pre-emption in the case of sale, and a right of first refusal of a lease.’

[61]	The right of first refusal has been described as a ‘preferential conditional right’ to enter into a contract of lease.

[62]	Applying these principles to the present matter on the basis that all lease agreements incorporated rights of first refusal (as averred by the respondent) these rights could only have been exercised by the respondent if and when the applicant had indicated its intention to rent out these respective units for a further period.

[63]	It is not disputed that in terms of units A and J the applicant had informed the respondent that it had no intention to rent out the said units to anyone. Accordingly the respondent is wrong, in law, to aver that the applicant was under a contractual obligation to offer the said units for rental to the respondent.

[64]	In respect of unit J, the respondent similarly alleged a right of first refusal, but averred that the lease agreement would expire only on 31 May 2015. However the issue in respect of unit J is the notice of cancellation (by the letter dated 18 March 2013) and the subsequent letter (dated 5 April 2013) in respect of an alleged breach of contract and in particular clause 17.2 of the lease agreement. The respondent denied a fire-risk justifying the cancellation of the lease agreement. In any event, respondent stated that the cancellation was pre-mature since it was under the impression that the next inspection would only occur on 15 April 2013.

[65]	If one has regard to  annexure B attached to annexure ‘SH8’ (ie the notice of intention to cancel the agreement) it should be clear that the respondent was informed that the next inspection would be on 15 April and that the insurance cover  would be suspended in the absence of any remedial action to eliminate the fire risk.

[66]	Annexure SH8, described by Mr Corbett as a ‘critical document’ in respondent’s argument, notified the respondent to remedy the defaults mentioned within 7 days after having received the notice, failing which, the lease agreement would be cancelled and an urgent court order would be sought for the ejectment of the respondent. This notice was delivered to respondent on 18 March 2013 at 13h40. The respondent did not by way of correspondence respond to this notice (SH8 ), did not seek any extension ( in writing) to occupy units A and I beyond 28 February 2013; did not react to allegations of breach of contract with regard to Unit J or the cancellation of that lease agreement, neither did respondent seek any extension to occupy unit J after such cancellation; and did not intimate that it was about to or in the process of taking remedial action in respect of all three units.

[67]	The applicant’s version that the applicant was for the very first time informed of actions and remedial steps taken by the respondent, was upon receipt of the answering papers on 22 April 2013 must be accepted, in the absence of respondent having in its answering affidavit intimated any intended remedial action contemplated by the respondent at any time after receiving the notice ( SH8).

[68]	I agree with the submissions by Mr Totermeyer that though the respondent referred to steps taken during the period 5 April to 15 April 2013, there was no communication to the applicant as to when and what remedial steps would be taken and that on view thereof, there was no need to proceed with the urgent applicant as threatened by the applicant.

[69]	It was further submitted that the bulk of the costs had already been incurred when papers in respect of the urgent application had been finalised, which application the applicant, in view of the complete lack of response on the side of the respondent, was entirely entitled to bring. I agree.

[70]	It must further be considered that the respondent was in illegal occupation of all three units and that the applicant was in the circumstances compelled to proceed with launching the application on an urgent basis and was consequently entitled to the costs of the application given the existence of the fire risk in respect of all three units at that stage.

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E P B Hoff
Judge

APPEARANCES

APPLICANT		R Totemeyer SC (Assisted by Van Der Westhuizen)
Instructed by 		Ellis Shilengudwa, Windhoek

RESPONDENT:		A Corbett
Instructed by 		Metcalfe Attorneys, Windhoek