REPORTABLE (33)

Judgment No. S.C. 40/02

Civil Appeal No. 379/00

(1) CENTRAL AFRICAN PROCESSED EXPORTS (PRIVATE) LIMITED (2) ALAN GRAHAM HUGH GULLAN

(3) CAROLINE GULLAN v

(1) DAVID MACDONALD (2) NANCY MARGARET MACDONALD (3) G H      MUTSEYEKWA (4) G      MUTSEYEKWA

SUPREME COURT OF ZIMBABWE

SANDURA  JA, CHEDA  JA & MALABA  JA

HARARE, MARCH 7 & MAY 6, 2002

A P de Bourbon SC, for the appellants

J C Andersen SC, for the first and second respondents

J B Colegrave, for the third and fourth respondents

MALABA  JA: On 5 May 1999 the third and fourth respondents entered into an agreement of sale with the first respondent, in terms of which they bought stand no. 65 Crowhill Road, Borrowdale, Harare, for $2 million. The first respondent acted on behalf of the second respondent, the owner of the property. The third and fourth respondents had paid the full purchase price and transfer fees when, on 27 September 1999, the first and second appellants obtained from the High Court a provisional order interdicting the first and second respondents jointly and severally from transferring or in any way encumbering the property pending determination of proceedings to be instituted against them by the appellants claiming the transfer of the property. On 24 November 2000 the High Court discharged the provisional order with costs. This appeal is against that judgment.

The essential facts of the case are as follows. The second and third appellants are husband and wife. So are the third and fourth respondents. The second appellant is the director of the first appellant (hereinafter referred to as “Central African”). I will refer to the second and third appellants as “Mr Gullan” and “Mrs Gullan” respectively. The first respondent (“Mr MacDonald”) is the second respondent’s son. They both resided in England and were represented in the agreement of sale with the third and fourth respondents by the estate agent, Tony Baker & Co (“the estate agent”).

On 1 July 1994 Central African, represented by Mr Gullan, leased stand no. 65 Crowhill Road, Borrowdale, (“the property”) from the second respondent, through the estate agent, for a period of six months with an option to renew the lease. The written lease did not contain a clause granting Central African a right of first refusal to purchase the property should the owner decide to sell it.

On 15 February 1996 Mr Gullan wrote to the estate agent enquiring whether such a right existed. The letter, which was addressed to Mr P Scallan, reads:

“We told Mr Holmes and others of your staff, on numerous occasions in the past, that we would be interested in buying the property if the landlord were to consider selling it. We were told that we ‘would have the first option to buy it’. The lease makes no mention of this option. Is it in fact a right of first refusal and does it operate by law? If yes, on what terms? For example, is there a time limit after which the right becomes inoperative? We should be grateful if you would let us have full details.”

Mr Gullan admitted in the founding affidavit that he did not receive a reply to the letter.

In July 1996 Mr MacDonald put the property on the market. A price of $1.35 million had been suggested by the estate agent but his legal practitioner advised that a second valuation be done.

In the meantime, Mr Gullan went to England where he met with Mr MacDonald. He expressed interest in purchasing the property for $1.15 million. The offer was rejected. Mr Gullan alleged that he increased the price at which he offered to purchase the property to $1.15 million plus £5 000. The balance of £5 000 was to be obtained from his employer. He said Mr MacDonald accepted the offer and an agreement of sale was reached on condition he obtained the loan of £5 000 from his employer. It was Mr Gullan’s averment that his employer agreed to give him the money. He said on his return to Zimbabwe he communicated the news to Mr MacDonald’s secretary.

Mr MacDonald denied that he reached an agreement of sale of the property with Mr Gullan. A few days after his meeting with Mr Gullan, he instructed the estate agent to sell the property for $1.6 million. A second valuation of the property had been done. Mr MacDonald’s secretary denied that she received a telephone call from Mr Gullan to the effect that the latter had been offered a loan of £5 000 by his employer towards the purchase of the property.

Mr MacDonald, however, instructed the estate agent to give Mr Gullan an option to purchase the property at a price of £100 000. On 6 November 1996 one Rozalind Baker (“Roz Baker”) wrote to Mr Gullan on behalf of the estate agent as follows:

“I have validated that you have a first refusal once the highest offer was formally made.”

On 18 November 1996 Roz Baker told Mr Gullan over the telephone that a third party had made an offer to purchase the property for $1.6 million. She offered the property to him at that price. The following day Mr Gullan wrote to the estate agent, saying:

“With reference to our telephone conversation yesterday morning, during which you advised that another party had tabled a higher offer for the purchase of the house, please be advised that we do not wish to increase the amount of our offer.”

On 29 November 1996 the estate agent advised Mr Gullan that the seller was keen to conclude an agreement of sale with a third party as he had refused the offer to purchase the house. He was asked to state when his family would vacate the property.

On 6 December 1996 Mr Gullan wrote back to the estate agent, drawing the attention of its officials to the fact that his family had an option to renew the lease and that they intended to exercise that right. The intended sale to the third party fell through because of the disclosure by Mr Gullan of the intention to exercise the option to renew the lease when it expired on 31 December 1996.

On 25 February 1997 Mr Gullan made an offer to purchase the property for $1.45 million. He was advised by the estate agent on 25 March 1997 that the owner had decided to withdraw the property from the market. He went on to renew the lease for another period of six months.

When negotiating the terms of the new lease, Mr Gullan asked to have a clause included in the written lease granting the first appellant a right of first refusal to purchase the property in the event that the lessor decided to sell the property to a third person. In a fax message dated 16 July 1997, Mr MacDonald made it clear that the lessor did not want to grant the first appellant a right of first refusal. He said:

“… the tenant does not have any right of first refusal to purchase the property or to match any such offer made to us by a third party. As such there is no need to amend clause 30.”

Mr MacDonald, in the company of Mr Penny Coventry from the estate agent, visited the property on 13 April 1999. He told Mr Gullan that the property was to be put on the market again. The visit was followed by a letter dated 14 April 1999, confirming the decision to sell the property. Mr Gullan was advised to contact the estate agent if he was interested in purchasing the property. He did not remind Mr MacDonald that they had entered into an agreement of sale; nor did he protest against the decision to put the property on the market. Mr Coventry said he took fifteen prospective purchasers to view the property after his visit to the house with Mr MacDonald. Each time he went to the house Mr Gullan or his wife was at home. Neither of them mentioned to him that an agreement of sale had been reached between Mr Gullan and Mr MacDonald in respect of the property.

The first question to decide is whether or not the learned judge was correct in holding that the appellants had failed to show a prima facie right of first refusal.

In Soteriou v Retco Poyntons (Pty) Ltd 1985 (2) SA 922 (A) at 932 B-G NICHOLAS JA said:

“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. (See Van Pletsen v Henning 1913 AD 82 at 95; Owsianick v African Consolidated Theatres (Pty) Ltd 1967 (3) SA 310 (A) at 321F). So, a right of pre-emption involves a negative contract not to sell the property to a third person without giving the grantee the first refusal; and the grantee has the correlative legal right against the grantor that he should not sell. This is a right which is enforceable by appropriate remedies. …

‘Refusal’ imports an offer. As FARWELL J said in Manchester Ship Canal Co v Manchester Racecourse Co [1900] 2 Ch 352 at 364:

‘Now, a refusal, to my mind, implies an offer. A thing is not in ordinary parlance refused before it is offered.’”

The facts show that no right of first refusal was granted to Central African by the owner of the property in any of the numerous written leases the parties entered into.

I am prepared, in the circumstances of this case, to accept that the letter from Roz Baker to Mr Gullan dated 6 November 1996 granted him a right of first refusal and an offer to exercise that right. Mr Gullan exercised the right by refusing to purchase the property at the price of $1.6 million which the seller was prepared to accept from a third person.

The offer of first refusal could not remain open after it had been refused. The right fell away. In Crossroads Properties (Pvt) Ltd v A1 Taxi Service Co (Pvt) Ltd 1954 (4) SA 514 (SR), stand 2346, Salisbury, was on 2 February 1950 leased to the respondent by its owners, Patel & Company. The lease agreement contained a right of first refusal granted to the respondent by the owners of the leased property. In March 1952 Patel & Company received an offer of purchase which was duly communicated to the respondent. The respondent was asked to indicate whether it accepted the offer to purchase the property at the price offered by the applicant. To the letter of offer dated 29 March 1952 the respondent had replied:

“We thank you for offering us the first option to purchase Stand No. 2346 Salisbury. We wish to inform you that this company is not interested in the purchase of the above Stand.”

The question for the decision of the Court was whether the seller was obliged to keep the offer open to the respondent to purchase the property after it had refused the offer to purchase the property at the price offered by a third person. QUENET J at 516B said:

“I agree with Mr Oshry, for the applicant, that having rejected the March offer the respondent was not entitled to be kept advised of every subsequent offer received by Patel and Company. As I read clause 4 it means that once an offer has been submitted and has been refused, the lessors were at liberty to sell to ‘whomsoever’ they pleased.”

The learned authors of Norman’s Purchase and Sale in South Africa 4 ed at 98 support the view that the grantor of a right of first refusal is not bound to keep on offering the property to the grantee if he refuses to purchase “because on refusal by the grantee, the grantor could immediately sell and even if he does not do so, the grantee’s right must fall away”. See also Sawyer v Chioza & Ors 1999 (1) ZLR 203 (H) at 208 C-E.

It must follow from the falling away of the right of first refusal exercised by Mr Gullan on 19 November 1996 that, at the time Mr MacDonald entered into the agreement of sale with the third and fourth respondents in respect of the property, he was not bound by a right of first refusal in favour of any of the appellants. The learned judge was correct in holding that the appellants had failed to show a prima facie right of first refusal to justify confirmation of the provisional order granted to them.

The second question for determination is whether or not the learned judge erred in holding that the appellants had also failed to show a prima facie right of purchase of the property in Mr Gullan.

If there was an agreement of sale reached between Mr Gullan and Mr MacDonald in August 1996 in respect of the property, the former could not on 19 November 1996 have talked about an offer he was not prepared to increase to match the offer made by a third person to purchase the same property.

It would have been clear to Mr Gullan at the time that Mr MacDonald was offering the property for sale to a third person. The sale to the third party fell through, not because Mr Gullan protested against the sale of the property on the ground that he had purchased it. The third party withdrew from the sale because Mr Gullan and his family refused to vacate the property on the ground that Central African had an option to renew the written lease which it intended to exercise. If Mr Gullan had a right of purchase he would have asserted it against Mr MacDonald.

In the letter of 6 December 1996 Mr Gullan indicated that he had accepted the decision by Mr MacDonald to sell the property to a third party. That was a clear statement of the acceptance by him of the fact that he did not have a right of purchase based on an agreement of sale. As late as 25 February 1997, Mr Gullan was making an offer to purchase the property for $1.45 million. As a businessman he would have known that an offer was an invitation to the other party to contract. The offer could be rejected.

The withdrawal of the property from the market by Mr MacDonald on 25 March 1997 shows that he enjoyed the seller’s rights over it. When Mr MacDonald told Mr Gullan on 13 April 1999 that he had decided to put the property on the market, the latter accepted the decision without demur. There was no protest based upon the alleged agreement of sale. Mr Gullan agreed, instead, to let prospective purchasers view the property. True to his word, Mr Gullan allowed fifteen prospective purchasers, including the third and fourth respondents, into the house to view it. The prospective purchasers were not told by Mr Gullan or his wife, one of whom was on the premises, that the property had been bought. It would have become apparent to Mr Gullan or his wife that one of the prospective purchasers could make an acceptable offer to purchase the property.

The absence of an agreement of sale between Mr MacDonald and Mr Gullan, at the time the third and fourth respondents bought the property, was confirmed by the willingness on the part of Mr Gullan to enter into new written leases on behalf of Central African after August 1996. No explanation was given for the decision to continue to occupy the property as a tenant if Mr Gullan was a bona fide purchaser. It is hard to believe that for a period of two-and-a-half years Mr Gullan failed to see the need to assert the rights of a purchaser against Mr MacDonald. I agree with Mr Andersen that Mr Gullan’s conduct after August 1996 was not that of a person who believed he had a right of purchase in respect of the property.

Mr de Bourbon properly conceded that he was unable to advance any argument against the submission by Mr Colegrave that the agreement of sale would, in any case, have prescribed by the time the appellants made the application for the provisional order interdicting the first and second respondents from transferring the property to the third and fourth respondents. As I hold the view that no agreement of sale was reached between Mr MacDonald and Mr Gullan in August 1996, it is not necessary to consider the question of prescription in detail.

It is also not necessary to consider the legal effect of the defence raised by the third and fourth respondents that they are bona fide purchasers for value without notice.

The appeal is accordingly dismissed with costs.

SANDURA  JA: I agree.

CHEDA  JA: I agree.

Atherstone & Cook, appellants' legal practitioners

Wintertons, first and second respondents' legal practitioners

Coghlan, Welsh & Guest, third and fourth respondents' legal practitioners