Author: Maryna Botha – STBB
15 June 2017
WHEN NON-COMPLIANCE WITH AGREEMENT CANNOT BE HELPED
TSANGARAKIS N.O. AND ANOTHER V KGATO PROJECT MANAGEMENT (PTY) LTD AND ANOTHER (1021/2017)  ZAFSHC 76 (8 JUNE 2017)
We all know that agreements are binding and that parties must therefore comply with the provisions thereof. In fact, an aggrieved party generally has the right to an order of specific performance if the other party fails to be true to his word. Would a court have a discretion not to grant specific performance in certain instances? This was the question that the Court addressed in this matter where there was a rather ‘wealthy’ purchaser with cash flow problems.
SUMMARY OF JUDGMENT:
In July 2016 the Andriane Tsangarakis Testamentary Trust (the Trust) sold a building that has been sectionalized into 8 units to Kgato Project Management (Pty) Ltd (Kgato) for R2,5 million.
Kgato breached the sale conditions by failing to provide a guarantee for the full purchase price as well as failing to pay the auctioneer’s commission.
The breach provisions in the sale agreement provided that:
“In the event of the Purchaser being in breach of any of the conditions hereof as at the due date thereof, the Seller or his/her/their agent will be entitled without prior notice to the
13.1 Cancel the sale by written notice transmitted by fax to the Purchaser’s fax number which appears on these conditions and all amounts paid by the Purchaser to date will be forfeited as “rouwkoop” and genuine pre-estimated damages and the Seller reserves his/their rights to claim any further damages from the Purchaser – or
13.2 Immediately claim the full purchase price and due compliance with the terms and conditions thereof,
13.3 The Purchaser hereby undertakes to pay all attorney and clients costs, tracing fees and collection charges incurred by the Seller and/or the auctioneer to obtain payment of the amounts due in terms of these conditions including interest at the maximum permissible rate from date of signature hereof to date of payment.”
In terms of these provisions, the Trust approached the Court and claimed specific performance of the provisions of the agreement, i.e. it sought an order obliging Kgato to provide the bank guarantee alternatively cash in the amount of R2,5 million immediately.
Kgato defended the matter and sought a dismissal of the Trust’s claim and argued that First National Bank (FNB), where it had applied for financing, had made unfruitful promises of delivery of the bank guarantee of R2,5 million for the last 10 months and as a result, it had run into serious cash flow problems.
It appeared from the papers before the Court that this was indeed so and that there were negotiations between both parties for an extension of the period of delivery of the guarantee, which was indicative of Kgato’s efforts to comply with the agreement. In addition it was clear that Kgato did endeavour to secure the bank guarantee from FNB, the latter having assured delivery of same but to no avail.
As a result, Kgato was at the mercy of the bank to discharge its contractual obligation to provide the bank guarantee. Even the Trust liaised with FNB and received the response of assurance of the deal.
The Trust however disputed that there was a cash flow problem and noted that Kgato owned 23 properties and had wealth and was thus in a position to provide cash in lieu of a bank guarantee.
The Trust also argued that a cash flow problem could never be equated to impossibility of performance and that should a contract be nullified on the basis of such then our law of contract would bring uncertainty and commercial instability. Hence such contention could not be entertained as a matter of legal principle.
To this Kgato responded and argued that it simply could not perform at present and were the Court to grant an order of specific performance, Kgato would be unable to comply and will be in contempt of court.
• The papers showed that, to a large extent, Kgato had current cash flow problems and that there was no certainty of it receiving funds in the near future.
• An earlier judgment against Kgato for payment of the commission in this transaction, had also remained unpaid.
• In general, an aggrieved party has a right to an order of specific performance: every party to a binding agreement who is ready to carry out its own obligation under it has a right to demand from the other party, as far as is possible, a performance of his undertaking in terms of the contract. This is referred to as an order for “specific performance” and is defined as “…. an order to perform a specified act – or to pay money in pursuance of a contractual obligation.”
• Courts however do have a discretion in determining whether or not decrees of specific performance will be made and it “will not, of course, be issued where it is impossible for the defendant to comply with them and there are many cases in which justice between the parties can be fully and conveniently done by an award of damages. But that is a different thing from saying that a defendant who has broken his undertaking has the option to purge his default by the payment of money…”
• Therefore although a court will generally give effect to a plaintiff’s choice to claim specific performance, it still maintains a discretion to refuse to decree specific performance in a fitting case.
• There are no rules that govern the exercise of the courts’ discretion to order specific performance but a court must tread carefully to prevent an injustice resulting if the order would operate unduly harshly on a defendant or would not produce the desired effect as required by an applicant.
• In this case the papers showed that if such order of specific performance was made, it would operate unduly harshly on Kgato and was unlikely to produce the desired result required by the Trust.
This was thus a fitting case to refuse specific performance and the Trust’s action failed.
The Judgment can be viewed here: