Royal Anthem

17 July 2014

Royal Anthem Investments 129 (Pty) Ltd v Yuen Fan Lau and Shun Cheng Liang (941/2012 [2014] ZASCA 19 (26 March 2014)

On 1 June 2009 Yuen Fan Lau and Shun Cheng Liang (the Purchasers) entered into an agreement to purchase a property from Royal Anthem Investments 129 (Pty) Ltd (the Seller). The Purchasers paid a deposit of R720 000 into the conveyancer’s trust account. In accordance with the terms of the sale agreement, the deposit was invested on behalf of the Purchasers in an interest- bearing account in terms of S78(2)(A) of the Attorneys Act 53 of 1979 (the Act), pending registration.

The sale was conditional on the Purchasers’ ability to raise the necessary finance. The Purchasers unsuccessfully applied to ABSA for finance (because of a default judgment against one of the Purchasers) and thereafter failed to provide a guarantee within the prescribed 45 days from acceptance of the offer. However, their attorney’s request for a further 14 days’ extension was granted by the Seller. A month later, Standard Bank approved the financing but the Purchasers were unhappy with the applicable interest rate, and sought alternative funding. Subsequently the Seller threatened to cancel the sale and the Purchasers provided a guarantee from Standard Bank and paid over the transfer duty of R264 723.

The Seller thereafter threatened that the property would not be transferred until the Purchasers had paid interest in respect of their delays. The Purchasers’ attorney responded by refusing to pay the interest and demanding repayment of the deposit and transfer duty, alleging that the sale had lapsed on 31 July 2009 through non-fulfilment of the suspensive condition. The Seller denied that the sale had lapsed and contended that the suspensive condition was deemed to have been fulfilled.

The sale fell through and the property was sold to a third party. The deposit was held in trust by the conveyancer, pending the resolution of a dispute between the parties as to whether the sale agreement had lapsed or the suspensive condition should be deemed to have been fulfilled. This in turn would determine whether the deposit would be repaid to the Purchasers or forfeited to the Seller in terms of a rouwkoop clause in the agreement.

The Purchasers instituted action against both the Seller and the conveyancer, seeking to recover the deposit and the R264 723 paid for transfer duty. The Purchasers subsequently withdrew the action against the conveyancer and only proceeded against the Seller.

The Court a quo found in favour of the Purchasers and ordered the Seller to pay R984 723 plus mora interest. The Seller filed this appeal to the Supreme Court of Appeal.

The SCA rejected the Seller’s argument that the Purchasers had breached the terms of the sale agreement in failing to ‘immediately’ apply for a loan as stipulated in the sale agreement and held that the object of this stipulation had been achieved. The Court also rejected the Seller’s further argument that the Purchasers’ application to ABSA was not bona fide as they knew at that time that it would not be granted because of a default judgment having been taken against one of the Purchasers.

The rouwkoop clause that the Seller relied on reads inter alia as follows:

...cancel the agreement and to keep any other amounts payable, as rouwkoop or by means of any pending decision by a court of the real damages suffered...[my emphasis]

According to the Court the words ‘to keep’ connote an amount received and held by the Seller. It found that the deposit had been paid to the conveyancer - to be held in trust pending the registration of transfer - and as the transfer had never taken place, the funds had never been paid to the Seller. It found accordingly that the deposit was not an amount envisaged by the rouwkoop clause.

Referring to the conflicting judgments in Minister of Agriculture and Land Affairs v De Klerk 2014 (1) SA 212 (SCA) [see a discussion of this judgment in the February Risk Alert Bulletin 1 of 2014] the Court also rejected the Seller’s argument that the conveyancer had received the deposit as the Seller’s agent and the payment to the conveyancer was effectively payment to the Seller.

After considering the relevant clauses in the sale agreement the Court found that the deposit and the transfer duty, which was subsequently refunded by SARS, were not the ‘other amounts’ envisaged by the rouwkoop clause. It rejected the Seller’s contention that the rouwkoop clause should be interpreted to mean that it was entitled to keep ‘all amounts’.

The appeal accordingly failed and the SCA upheld the decision of Court a quo, that the Seller was not entitled to the disputed amounts. These amounts were held in the trust account of the conveyancer and invested for the benefit of the Purchasers at a substantially lower rate than the prescribed rate of 15.5%. The Court amended the court a quo’s order as follows:

The conveyancer (who was not a party to the proceedings) was ordered to pay the Purchasers:

  • The sum of R720 000;
  • The sum of whatever interest had accrued on the said sum of R720 000 pursuant to its investment in an interest bearing account calculated up to and including the day of demand;
  • Interest on the sum of R720 000 calculated at the legal rate of 15.5% per annum from the date of demand to date of final payment;
  • The sum of R264 723 together with interest thereon calculated at the legal rate of 15.5% per annum from the date the amount was refunded by SARS until date of payment.

It is interesting to note that the SCA made an order against a party that was no longer before the Court. The conveyancer is approaching the Constitutional Court for leave to appeal this judgment insofar as it makes him liable to pay interest at the legal rate on the amounts stipulated in the order above. He contends that the Court should have ordered that this interest be payable by the Seller.

Zelda Olivier
Legal Adviser AIIF

Summary reproduced from the July 2014 Risk Alert Bulletin

Full judgment

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