Recoy Investments (Pvt) Ltd v Tarcon (Pvt) Ltd

HH 159-11
HC 5915/10


RECOY INVESTEMNTS (PVT) LTD

versus

TARCON (PVT) LTD

HIGH COURT OF ZIMBABWE

GOWORA J

HARARE, 14 January & 27 July 2011

Opposed Court Application

P C Paul, for the applicant

T. Hussen, for the respondent

GOWORA J: The applicant has approached this court for an order in the following terms:-

It is declared that the lease agreement between the applicant and respondent dated 16 April 2007 in respect of 5 Martin Drive Msasa does not confer upon respondent any option to renew the lease.

The respondent shall pay the costs of this application in the event of it being opposed by the respondent.

The background to this application is as follows. On 16 April 2007 the applicant

let, in terms of a written agreement, certain premises known as 5 Martin Drive Msasa to the respondent. The lease was to endure for a period of five years. According to the applicant’s papers filed of record it was set to terminate on 31 March 2012. The applicant states in the founding affidavit that it is considering occupying the premises for its own use upon the expiration of the lease and has therefore approached this court to determine whether, the respondent, in terms of Clause 5.1 of the said lease has a right of renewal.

The respondent is opposed to this court granting the relief prayed for. It has raised a point in limine to the effect that this court lacks the jurisdiction to determine the matter as the parties, in terms of Clause 17.1 of the lease agreement, have agreed that any matter arising from the lease agreement be referred to arbitration. Additionally, the respondent contends that if the point in limine is not successful, then in that event, it would argue that the parties’ rights or obligations arising from the lease agreement have not yet matured and that therefore this application is premature.

Clause 17.1 on which the respondent seeks to rely on in its submissions that this court lacks jurisdiction to determine any matter arising from the lease agreement is to the following effect:

17.	ARBITRATION

For the purpose of this clause

17.1	Any dispute between the parties in regard to any matter arising out of this lease agreement or its interpretation or their respective rights and obligations under this agreement or its cancellation or any matter arising out of its cancellation shall be submitted to and decided by arbitration.

17.2	n/a

17.3	n/a

17.4	n/a

17.5	The decision of the arbitration shall be final and binding on the parties to the dispute and may be made an order of court at the instance of any of the parties to the dispute.

17.6	n/a

17.7	The provisions of this clause:-

17.1.1	constitute an irrevocable consent by the parties to any proceedings in terms hereof and no party shall be entitled to withdraw therefrom or claim at any such proceedings that it is not bound by such provisions;

17.7.2	are severable from the rest of this agreement and shall remain in effect despite the termination of or invalidity for any reason of this agreement.

17.8	This clause shall not preclude any party from obtaining interim relief on an urgent basis from a court of competent jurisdiction pending the decision of the Arbitration.

It is contended by the respondent that clause 17.1 refers to a wide manner of dispute

resolution as it refers to any matter and is not restricted to the interpretation of the lease

agreement. It is also contended that the applicant has not taken the court into its confidence

regarding the reasons why it does not wish to be bound by the lease agreement which has

provided for a speedy resolution of any disputes in terms of the arbitration clause.

The applicant denies that it is, by launching these proceedings, attempting to

withdraw from the arbitration clause. It contends further that the dispute before me is not a

dispute as envisaged by Clause 17.1 of the lease agreement. Chapter 11 of Article 8 of the

Model Law (UNCITRAL) obliges a court, before which proceedings are brought in a matter

which is the subject of an arbitration agreement, to stay those proceedings and refer the

parties to arbitration. In the event, however, that the court finds that the agreement is null and

void, inoperative or incapable of being performed it is not obliged to refer the parties to

arbitration. Article 8 also provides that the court refer the parties to arbitration if one of the

parties requests in writing for the stay of the proceedings at the same time that such party

submits his statement on the substance of the dispute.

The respondent has, in its opposing affidavit, indeed adverted to the arbitration clause

in the lease agreement. The respondent has however contented itself in merely alleging that

due to the existence of the arbitration clause, the jurisdiction of this court is ousted.

In my view, the respondent has a misapprehension of the law. The court has the

jurisdiction to hear the matter where none of the parties has applied for a stay of the

proceedings and a consequential referral to arbitration. Article 8 is clear and admits of no

ambiguity.  I am bolstered in this view by dicta from CLOETE JA in PCL Consulting (Pty)

Ltd v Tresso Trading 119 (Pty) Ltd 2009(4) SA 68 at 71G -72C to the following effect:

“The mere fact that parties have agreed that disputes between them shall be decided by arbitration does not mean that court proceedings are incompetent. If a party institutes proceedings in a court despite such an agreement, the other party has two options:-

It may apply for a stay of the proceedings in terms of s 6 of the Arbitration Act 42 of 1965; or

It may in a special plea (which is in the nature of dilatory plea) pray for a stay of proceedings pending the final determination of the dispute by arbitration.

The definitive statement of the law in this regard is to be found in Rhodesian Railways Ltd v Mackintosh 1932 AD 359 at 370-371 where WESSELS ACJ said:

‘All that s 6(1) lays down is that you cannot adopt the cheaper and speedier procedure therein provided when once you have delivered pleadings or taken any other step in the proceedings. If you have taken any step in the proceedings, then you can no longer adopt the speedier and less costly procedure of applying to the court to stay proceedings but you must file your pleadings in the ordinary way. In pleading however, you can raise the defence that the case ought to be decided by arbitration, this can be done by a special preliminary plea’”.

A party wishing to have the matter decided by arbitration is obliged to set the terms of the dispute. An arbitration process cannot be set in motion in the absence of a dispute. Before reference to arbitration there must therefore exist a dispute which is capable of formulation prior to the appointment of an arbitrator. In the absence of a dispute an arbitrator cannot be appointed and therefore there can be no reference to arbitration.

The respondent, in opposing the procedure adopted by the applicant has erred in two fundamental aspects. It accepts that a dispute does not exist. It is correct that the lease agreement contains an arbitration clause in the wide sense. The ambit of the clause does not detract from the requirement that a dispute must exist if an arbitrator is to be appointed. In casu, even if the respondent had applied for a stay of these proceedings, this court would not have been able to refer the matter for arbitration as there is no dispute capable of formulation.

The second error on the part of the respondent is that it has not applied for a stay of these proceedings and for a reference to arbitration. This may primarily be due to its stance that there is no dispute between the parties.

In the premises I find that this court has jurisdiction to deal with the matter on the merits.

Section 14 of the High Court Act [Cap 7:06] provides:

“The High Court may, in its discretion, at the instance of any interested person, inquire into and determine any existing, future or contingent right or obligation, not withstanding that such person cannot claim any relief consequential upon such determination”.

The respondent does not dispute this court’s power and inherent discretion to inquire into and determine the rights or obligations of parties seeking the same. In casu, however, the respondent contends that the applicant is seeking legal advice from this court.

It is trite that an existing dispute is not a pre-requisite for the making of declaratory order and the court is not precluded from granting a declaratory order on the basis that there is no dispute. However, the court will not exercise its discretion where the applicant has, in seeking a declaratory order, raised abstract, hypothetical or academic questions. The applicant must have some tangible and justifiable interest in relation to an existing future or contingent right or obligation which will flow from the grant of the declaratory order. A person seeking a declaration of rights must set forth his contention as to what that alleged right is. He must also show that he has an interest in the right. Inherent in the concept of a right is the idea that it, the right, resides in a determinate person and the persons interested in the right are those in whom it inheres on against whom it avails. In Durban City Council v Association of Building Societies 1942 AD 27 WATERMEYER CJ stated:

“Clearly the interest of the applicant must be a real one, not merely an abstract intellectual interest”.

There are circumstances under which a court can grant a declaratory order to answer abstract academic or hypothetical questions but this is not the case here.

The respondent has concluded that the application is not properly taken because the parties’ respective rights or obligations have not yet matured. It was the position of the respondent that the lessee is obliged to give notice not more than six months prior to the termination or expiry of the lease agreement. In the circumstances of this case the election on the part of the respondent would have to be done in September 2011. The application was filed in August 2010 and the respondent argued that as this was almost two years before the termination of the lease that means that the application would be woefully premature.

The parties concluded a written agreement of lease which spells out the rights and obligations of each of the parties. Specifically the lease, in Clause 5.1 thereof, makes provision for the respondent to give the applicant, written notice not more than six months before the termination of its intention to renew the lease for a further five year period.

The applicant requires this court to inquire into the facts placed before it and determine whether or not the respondent has been afforded an option to renew the lease. It is correct, as suggested by the respondent, that the rights or obligations under the renewal clause have not yet matured. This is however not a bar to a declaratory order being granted as a declaratur can be granted in respect of an existing, future or contingent right.

I turn now to the merits of the application. Clause 5:1 is to this effect:

“Subject to the provisions of the agreement signed by the same parties in respect of the sale of the premises, the tenant shall have an option to review this lease agreement for a further period of five years by giving written notification to the landlord not less than three months and not more than six months prior to the expiry of this lease. The terms and conditions of such renewal shall be in terms of this agreement except that the rental, and deposit shall be mutually agreed upon at the time that renewal is exercised.”

It has been held that an agreement which purported to give the tenant an option “at a rental to be mutually agreed upon” in fact did not give the tenant “a valid and subsisting option” which he could exercise. See Reserve Bank v Photocraft (Pty) Ltd 1969 (1) SA 610. Nor, from decided authorities, is the landlord under an obligation to negotiate with a lessee in order to determine a rental for any further period. The fact that the lease agreement provides for possible renewal of the lease agreement for a further period is of no moment. If an offer is vague or capable of more than one meaning or not certain or specific it is not capable of being accepted and thereby converted into a binding contract.

In the absence of a specific provision for rental in the renewal clause, pending agreement on such rental, there was no valid and subsisting option which the respondent can exercise. In my view the dicta by BROOME J (as he then was) in Bilodeh Properties (Pty) Ltd v Wilson 1946 NPD 736 at 744 is not only on point in casu but also instructive. He stated:

“A true option is nothing more than an offer by one party to a contract to the other, which offer remains open according to the terms of the contract. The option holder has merely to accept the offer in the manner and within the time prescribed by the contract, and a new contract comes into existence between him and the other party. But in the present case the giving of notice under clause 11 does not bring a contract into existence, for all the terms, other than the period, have still to be arranged. And unless those terms are agreed upon there will be no contract at all. In my opinion the true effect of Clause 11 is that the due exercise by the lessee is nothing more than a notice to the lessor that he wishes to renew and desires to negotiate. The parties are then in the position of negotiators but neither is obliged to agree to anything. It may be that some duty to act in good faith is case upon the lessor, but the exact nature and extent of that duty, if it exists at all, are impossible to define.”

The respondent has not argued the matter on the merits, having contented itself with raising issues which were procedural in nature. I have thus no real opposition in substantive form to deny the applicant the order it seeks.

The applicant had sought an order against the respondent in the event that this matter was opposed. As discussed above, there was no live dispute between the parties prior to the institution of these proceedings. The applicant intends to utilise the premises for its benefit at the expiry of the lease period. The application was therefore launched by the applicant for its rights under the lease to be clarified so that it can plan its affairs. It in fact wished to have the air cleared prior to the expiry of the lease and this would benefit the applicant time wise and financially.

The respondent in my view was within its rights to contest the application and assert its own position. Given the absence of a simmering dispute between the parties I find no basis for the respondent being mulcted in costs. This application was launched solely for advancing the interests of the applicant. There is no fault attributable to the respondent that can justify an order for costs against it. I will therefore not make an order for costs against either of the parties.

In the premises an order will issue as follows:

IT IS HEREBY ORDERED:

It is declared that the lease agreement between the applicant and respondent dated 16 April 2007 in respect of 5 Martin Drive does not confer upon the respondent any option to renew the lease.

That there shall be no order as to costs.

Wintertons, plaintiff’s legal practitioners

Hussein Ranchhod & Co. respondent’s legal practitioners