THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case No: 597/07

BOUNDARY FINANCING LIMITED
Appellant

and

PROTEA PROPERTY HOLDINGS (PTY) LIMITED
Respondent

Neutral citation:
Boundary Financing v Protea Property (597/07) [2008]
ZASCA 139 (27 November 2008)
Coram:
STREICHER, CAMERON, LEWIS, JAFTA and PONNAN JJA
Heard:
10 NOVEMBER 2008
Delivered:
27 NOVEMBER 2008
Summary:
Rectification and interpretation of contract – prescription does not
run against a claim for rectification.
_______________________________________________________________________

ORDER
_______________________________________________________________________

On appeal from: High Court, Cape Town (Griesel J sitting as court of first
instance).

The appeal is dismissed with costs including the costs of two counsel.

_____________________________________________________________________

JUDGMENT
_____________________________________________________________________

STREICHER JA (CAMERON, LEWIS, JAFTA and PONNAN JJA
concurring)

[1] Protea Property Holdings (Pty) Ltd, the respondent and the plaintiff
in the court a quo, is a property holding company in the Protea group of
companies (‘Protea’), of which the holding company is the Protea
Hospitality Corporation (Pty) Ltd, which through a management
company, Protea Hotels and Inns (Pty) Ltd, markets and/or manages
approximately 130 hotels in Africa and the Middle East. This appeal
concerns the Edward Hotel in Durban. Boundary Financing Limited,
formerly known as International Bank of Southern Africa Limited (Ibsa),
the first defendant in the court a quo and the appellant in this court, got
involved in financing schemes with the Karos group of companies which
went into liquidation during 1999. One of the companies in that group
was Karos (Pty) Ltd (‘Karos’), the third defendant in the court a quo,
which owned and still owns the property on which the Edward Hotel is
situated. The second defendant in the court a quo was Swanvest (Pty) Ltd
(‘Swanvest’), which had purchased the Edward Hotel property from the
liquidators of Karos. All the issued shares in Swanvest were held by the
appellant and were thereafter sold to the respondent. This agreement (‘the
sale of shares agreement’) gave rise to the action in the court a quo which
resulted in the court a quo ordering:
(i)
the rectification of the agreement of sale of shares so as to reflect a
warranty and undertaking by the appellant that the Edward Hotel property
(and not a different hotel) would be an asset in Swanvest;

(ii)
the delivery by the appellant to the respondent of all the issued
shares in Swanvest against payment of R674 701; and
(iii)
performance of the warranty in respect of the Edward Hotel
property as per the agreement so rectified.
With the leave of the court a quo the appellant now appeals against that
order.

[2] It is common cause between the parties that Protea wished to
acquire the Arthur’s Seat Hotel (owned by Karos Cape Shareblock (Pty)
Ltd) as well as the Edward Hotel. To this end various contracts were
concluded between the appellant and companies within Protea in respect
of the Arthur’s Seat Hotel and subsequently, on 1 March 2001, in respect
of the Edward Hotel. The latter set of contracts consisted of the
following:
2.1
The agreement of sale of shares in terms of which the appellant, the
respondent and Swanvest agreed that notwithstanding the date of
signature of the agreement and with effect from 2 February 2001 the
appellant was deemed to have sold to the respondent 60 ordinary shares
of R1 each in Swanvest comprising 60% of the total issued share capital
of Swanvest as registered in the name of the appellant for a purchase
price of R1. In an annexure incorporated into the agreement it is stated:
‘1
The Seller hereby warrants and undertakes in favour of the Purchaser both as
at the effective date and as at the delivery date (unless the context otherwise indicates)
that:
. . .
1.24
the sole assets of the Company shall be the immovable property known as
Remainder of Erf 948 Sea Point West, in extent 4048 square metres, held by Deed of
Transfer No. T25566/1997, commonly described as The Arthur Seat Hotel; . . .’
In terms of the agreement the effective date was 2 February 2001 and
payment of the purchase price had to be effected within 30 days of that

date. Delivery of the shares had to take place within seven days of
payment of the purchase price. It is common cause that the agreement
formed part of the set of agreements relating to the Edward Hotel and that
it had nothing to do with the Arthur’s Seat Hotel. The appellant
nevertheless contended that the respondent was not entitled to the
rectification of clause 1.24 by the substitution of the property description
therein with the property description of the Edward Hotel property.
2.2
A shareholders’ agreement concluded by the same parties in terms
of which it was recorded that the respondent had acquired from the
appellant 60% of the equity of Swanvest and that Swanvest would be ‘the
registered owner of the bare dominium of the property known as
‘Remainder of Sub 1 of Lot 11258 Durban, situate in the city of Durban,
Administrative District of Natal, Province of Kwazulu-Natal’ (‘the
Edward Hotel property’).
2.3
An agreement of sale in terms of which Swanvest sold to the
Protea Hotel Group (Pty) Ltd (‘PHG’) the furniture, fixtures and
equipment (‘FF&E’) then in use on the premises of the ‘the Hotel known
as The Edward Hotel Beach Front Durban’ for a purchase price of
R2 000 000.
2.4
A cession and pledge agreement in terms of which the respondent
ceded and pledged to the appellant 60% of the equity in the second
defendant in securitatem debiti for the due payment of every sum of
money which was then or could thereafter become owing by the
respondent to the appellant.
2.5
An agreement of lease in terms of which the appellant let to PHG
the Edward Hotel as from 1 February 2001 for a period of 10 years.
Although structured as a lease the trial judge rightly found that the rent
payable in fact constituted consideration for the acquisition by Protea of
the Edward Hotel property.

2.6
A ‘Side Letter’ recording an agreement between PHG, the
respondent and the appellant as follows:
‘We hereby record that you have given us the irrevocable right to restructure the
series of transactions or any or more of them as contained in the abovementioned
documents after we have completed a due diligence investigation of both Swanvest
258 (Pty) Limited as also Karos (Pty) Limited (in liquidation) as to the acquisition of
the shares in Karos (Pty) Limited and as to the tax implications of the transactions
involving Swanvest 258 (Pty) Limited. In terms of any such reconstruction, we will
be entitled to cancel any of the above agreements to enable us as an alternative to
purchase the entire share equity of Karos (Pty) Limited subsequent to a section 311
application to the High Court in terms of the Companies Act provided that IBSA is
not unreasonably prejudiced thereby, either financially or in terms of its security. An
objection by IBSA shall be prima facie proof that it is unreasonably prejudiced by the
restructure.’

[3] Karos, the owner and operator of the Edward Hotel, had a
substantial assessed loss which Protea hoped to utilise by acquiring the
shares in Karos and operating the Edward Hotel through Karos instead of
Swanvest, in the event of the liquidation of Karos being terminated
pursuant to an application in terms of s 311 of the Companies Act 61 of
1973. It is this possibility that gave rise to the ‘side letter’. It is also as a
result of this possibility that effect was not given to the sale of shares
agreement. Both the appellant and the respondent accepted that a
restructuring was going to take place and that it could serve no purpose to
give immediate effect to the provisions of the agreement. The FF & E and
lease agreements were nevertheless implemented.

[4] Negotiations concerning a restructuring of the agreements ensued
and continued until 2004, some considerable time after a scheme of
arrangement between Karos (Pty) Ltd (in liquidation) and its creditors

had been sanctioned in terms of s 311 at the end of 2002. During the
course of these negotiations, on 13 March 2002, the appellant agreed to
sell ‘the remaining 40% shareholding in the Arthur’s Seat and the Edward
Hotel’ to the respondent for a purchase consideration of R2 349 400
which was subsequently, on 23 May 2002, reduced by R1m to
R1 349 400 or R674 000 each. At that stage the parties were still
negotiating as to the company in which the Edward Hotel property was to
be housed in the event of the agreements being restructured.

[5] The negotiations came to an end on 25 November 2004 when the
appellant’s attorneys wrote to the respondent that, for a period in excess
of three years, the parties had not regarded themselves bound by the suite
of agreements concluded on 1 March 2001 and that the obligations
arising from the agreement of sale of shares had become prescribed. The
respondent thereupon issued summons against the appellant claiming the
relief eventually granted by the court a quo. Swanvest and Karos were
joined as second and third defendants respectively but no relief was
claimed against them.

[6] In the court a quo and also before us the appellant contended that
the respondent was not entitled to rectification of the agreement of sale of
shares and in the alternative that the claim for such rectification had
prescribed. In respect of the claim for the making good of the warranty
and undertaking that the Edward Hotel property would be an asset in
Swanvest as on 2 February 2001 the appellant contended that such an
order could not be made as it was impossible to make Swanvest the
owner of the property on that date, and also because an order of specific
performance was in the circumstances legally inappropriate. In the
alternative the appellant contended that the claim for transfer of the

shares in Swanvest and the claim that the warranty and undertaking be
made good had become prescribed. I shall deal with each of these
contentions in turn.

Rectification
[7] A party is entitled to rectification of a written agreement which,
through common mistake incorrectly records the agreement which they
intended to express in the written agreement. In the present case it is quite
obvious and, as stated above, indeed common cause, that the parties never
intended to warrant and undertake that the Arthur’s Seat Hotel property
would be an asset in Swanvest as stated in clause 1.24 of the annexure to
the agreement of sale of shares. It seems to me to be equally obvious that
the parties intended the reference to be to the Edward Hotel property.
That is so because Protea wished to acquire the Edward Hotel and the
agreements concluded on 1 March 2001 were entered into with that
object in mind. Any doubt that there could possibly be in this regard is
dispelled by the statement in the shareholders’ agreement that the
respondent had acquired from the appellant 60% of the equity of
Swanvest and that Swanvest would be the owner of the bare dominium of
the Edward Hotel property. One can add to this the fact that on 14 August
2000 the liquidators of Karos had sold the Edward Hotel property to
Swanvest and also the fact that the reason for the error seems to be clear.
As Mr Arnold Cloete, the financial manager of Protea (the sole witness at
the trial), explained, similar agreements in respect of the Arthur’s Seat
Hotel had already been concluded and were probably used as a precedent
or template.

[8] Despite all these indications, counsel for the appellant submitted
that it could not have been their intention that the appellant should

warrant and undertake that the property would as at 2 February 2001 be
an asset in Swanvest because they knew, when the agreement of sale of
shares was concluded, that that was not the case. The fact that the parties
knew that the property was not an asset of Swanvest on 2 February 2001,
taken in isolation, may be considered to be an indication that the parties
did not have the intention in question but it may also be an indication
that, by so warranting and undertaking, the appellant was simply
undertaking to procure transfer of the property to Swanvest. That the
latter was the case is in my view put beyond question by the fact that the
parties concluded the agreement of sale and the shareholders’ agreement,
as also by the terms of the shareholders’ agreement. No other reason has
been advanced as to why the parties would have concluded the agreement
of sale of the shares of Swanvest and the shareholders’ agreement if not
to house the property in Swanvest except in the event of the parties
subsequently agreeing to house the property in another company.

[9] The appellant submitted furthermore that, as it was envisaged that
the liquidation of Karos and the agreement of sale between the liquidators
of Karos and Swanvest could be terminated in terms of a scheme of
arrangement in terms of s 311, the appellant would not have warranted
that the Edward Hotel property would be an asset in Swanvest. However,
the appellant could well have had reason to believe that it would in any
event be able to procure transfer of the property to Swanvest.

[10] Yet a further submission advanced by the appellant as to why the
parties would not have entered into a binding agreement to transfer the
Edward Hotel property into Swanvest was that the respondent was
desirous of making use of the taxed loss in Karos by leaving the property
in Karos after its liquidation had been terminated and by acquiring the

shares in Karos instead. It is true that, at the time when the agreements
were concluded, it was envisaged that it could eventually be agreed to
house the Edward Hotel property in a company other than Swanvest but it
does not follow from that that the parties had no intention of entering into
a binding agreement that it be housed in Swanvest should they fail to
agree on another structure. As stated above it is common cause that
Protea was desirous of acquiring the Edward Hotel and that it was with
that object in mind that the agreements were concluded. Unless the
agreement of sale of shares is rectified as claimed by the respondent the
parties would not have achieved that object.

[11] For these reasons I am satisfied that the parties intended clause
1.24 to refer to the Edward Hotel property.

Prescription of the rectification claim
[12] The appellant, referring to Primavera Construction SA v
Government, North-West Province, and another 2003 (3) SA 579 (B) at
599H-I as authority, submitted that the respondent’s claim for
rectification has in any event prescribed. In terms of s 10 of the
Prescription Act 68 of 1969 read with s 11(d) of that Act, a debt other
than the debts mentioned in ss 11(a) to (c) is extinguished by prescription
after the lapse of a period of three years, save where an Act of Parliament
provides otherwise.

[13] ‘A debt’ is not defined in the Prescription Act. Dealing with the
meaning of the Afrikaans ‘`n skuld’ Van Heerden AJA said in Oertel en
andere NNO v Direkteur van Plaaslike Bestuur en andere 1983 (1) SA
354 (A) at 370B:

‘Volgens die aanvaarde betekenis van die begrip slaan “`n skuld” op `n verpligting
om iets te doen (hetsy by wyse van betaling of lewering van `n saak of dienste), of nie
te doen nie. Dit is die een pool van `n verbintenis wat in die reël `n
vermoënsbestanddeel en –verpligting omvat . . ..’
A claim for rectification does not have as a correlative a debt within the
ordinary meaning of the word. Rectification of an agreement does not
alter the rights and obligations of the parties in terms of the agreement to
be rectified: their rights and obligations are no different after rectification.
Rectification therefore does not create a new contract; it merely serves to
correct the written memorial of the agreement. It is a declaration of what
the parties to the agreement to be rectified agreed. For this reason a
defendant who contends that an agreement sued upon does not correctly
reflect the agreement between the parties may raise that contention as a
defence without the need to counterclaim for rectification of the
agreement (see Gralio (Pty) Ltd v D E Claassen (Pty) Ltd 1980 (1) SA
816 (A) at 824A-C). Should a claim for rectification of a contract become
prescribed after three years parties may become entitled to rights and
subject to obligations wrongly recorded and never intended eg  in the case
of a debt secured by a mortgage bond which only prescribes after the
lapse of a period of 30 years.1 That, in my view, is a result never intended
by the Prescription Act. It follows that in so far as it may have been held
in Primavera that prescription runs against a claim for rectification of a
contract that decision is wrong.

[14] For these reasons the appeal against the order rectifying the
agreement of sale should be dismissed.

1 Section 11(a) of the Prescription Act 68 of 1969.

Making good the warranty
[15] As rectified, the appellant in terms of the annexure to the
agreement of sale of shares warranted and undertook in favour of the
respondent that the sole asset in Swanvest, as at the effective date and as
at the delivery date, would be the Edward Hotel property.

[16] The appellant submitted that the warranty as formulated is an
affirmative warranty of fact in so far as it related to the effective date
whereas the Edward Hotel property was, as a fact, not the sole asset of
Swanvest at that date. It was therefore factually and legally impossible for
the warranty to be rendered true. As a result the respondent’s only
remedy was to claim damages, so the appellant submitted. As authority
for the submission the appellant referred to De Wet and Van Wyk
Kontraktereg & Handelsreg 5 ed p 88-89 where the authors, with
reference to the example of a person selling a horse with a warranty that
the horse was still alive only to discover subsequently that the horse was
already dead, said: ‘Waar ek die onmoontlike as moontlik waarborg, kan
ek dit wel nie moontlik maak nie, maar moet ek by wyse van
skadevergoeding my waarborg goed maak.’ In these circumstances the
warranty that the horse is still alive is in reality an undertaking to pay
damages should it transpire that the horse is already dead.2 Similarly, so
the appellant submitted, the sale of shares agreement goes no further than
a promise by the appellant to pay damages if the facts are not as
warranted.

[17] There is no reason to interpret the warranty and undertaking at
issue here in a like manner. Unlike the case of the horse, there is no
reason to believe that the parties intended that, in the event of the

2 S Williston A Treatise on the Law of Contracts (1938) vol 6 p 5417.

property not being an asset in Swanvest as at the effective date, there
would be an obligation on the part of the appellant to pay damages but
not an obligation to cure its breach of a term of the contract by procuring
transfer of the property to Swanvest. Furthermore, unlike the example,
the appellant not only warranted but also undertook that the property
would be an asset in Swanvest. An undertaking to procure a certain state
of affairs on a particular date does not, in the absence of any reason to so
interpret the undertaking, change into an undertaking to pay damages
should the undertaking not be honoured. Any doubt that there may be in
this regard is dispelled by reference to the background circumstances.3 At
the time when the agreement of sale of shares was concluded the parties
to the agreement were aware that the property had not been registered in
the name of Swanvest. They could not, therefore, have intended the
‘warranty and undertaking’ to be anything other than an undertaking to
procure transfer of the property to Swanvest.

[18] In the alternative the appellant submitted that the court a quo had a
discretion to order specific performance and that the present case was not
an appropriate case for such an order. It is settled law that a court has a
discretion to grant or refuse a decree of specific performance of a
contractual obligation. That discretion has to be judicially exercised upon
a consideration of all relevant facts and will only be interfered with on
appeal when it can be said that ‘the Court a quo has exercised its
discretion capriciously or upon a wrong principle, that it has not brought
its unbiased judgment to bear on the question or has not acted for
substantial reasons’.4

3 See Coopers & Lybrand and others v Bryant 1995 (3) SA 761 (A) at 767E-768E.
4 Ex parte Neethling and others 1951 (4) SA 331 (A) at 335; and Benson v SA Mutual Life Assurance
Society 1986 (1) SA 776 (A) 776 at 781A-783C.

[19] The appellant submitted that the court a quo should not have
granted specific performance because it was not an appropriate remedy as
the order could be given effect to only by way of an agreement of sale
complying with the formalities prescribed by s 2(1) of the Alienation of
Land Act 68 of 1981, between Karos and Swanvest. Not only did such an
agreement not exist, the terms of the agreement of sale could not be
determined and although the appellant was the sole shareholder of both
Karos and Swanvest the directors of these companies might not consider
it advisable either to sell or buy the property. For these reasons the order
of specific performance by the court a quo amounted to a brutum fulmen.

[20] There is no merit in these submissions. An agreement of sale
between Karos and Swanvest is not a requirement for the transfer of the
property by Karos to Swanvest.5 The appellant undertook to procure such
transfer and must have been confident that it would be able to give effect
to that undertaking. The appellant did not plead that it would not be able
to give effect to an order of specific performance and tendered no
evidence to that effect. Moreover, both Swanvest and Karos were parties
to the action in the court a quo and neither of them sought to contend that
the appellant would not be able to perform the obligation undertaken by
it. In these circumstances the court a quo had no reason to doubt that the
appellant would be able to do so. No other basis for interfering with the
exercise by the court a quo of its discretion to order specific performance
was advanced by the appellant.

5 Cape Explosive Works Ltd and another v Denel (Pty) Ltd and others 2001 (3) SA 569 (SCA)  at
577D-H par [10].

Prescription of the obligations under the agreement of sale of shares
[21] The appellant pleaded that its obligations to deliver 60% of the
shareholding in Swanvest and to comply with the warranty and
undertaking in respect of the Edward Hotel property fell due for
performance by not later than 11 March 2001 and that they were
extinguished by prescription by not later than 11 March 2004 ie before
service of the summons which took place no earlier than 2 February
2005. The respondent in its plea and before us denied that the appellant’s
obligations had prescribed and contended that the running of prescription
was interrupted in terms of s 14 of the Prescription Act in that after 11
March 2001, the appellant either expressly or tacitly acknowledged its
liability to give effect to the agreement of sale of shares. It did so by,
amongst others, concluding, on or about 6 February 2002 and 25 May
2002, the price-reduction agreement in respect of ‘the remaining’ 40% of
the shares in the company that was going to hold the Edward Hotel
property and also by engaging in negotiations with the respondent in
order to effect a restructuring of the agreements relating to the Edward
Hotel.

[22] In terms of s 14 the running of prescription is interrupted by an
express or tacit acknowledgement of liability by the debtor and
commences to run afresh from the day on which the interruption takes
place.

[23] At the time when the sale of shares agreement was entered into the
parties knew that the liquidation of Karos could possibly be terminated in
terms of s 311 and that this might enable the respondent to acquire the
Edward Hotel property by acquiring the shares in Karos instead of
Swanvest. For that reason they agreed that the respondent would be

entitled to restructure the agreements relating to the Edward Hotel even to
the extent of cancelling the agreement of sale of shares. Pursuant to that
agreement, and shortly after the conclusion thereof, the appellant and the
respondent started negotiating a restructuring of the agreements. As a
result of these restructuring negotiations the agreement of sale of shares
was not implemented. It does not however follow that the parties had no
intention of implementing the agreement of sale of shares. On the
contrary, the agreement of sale of shares was clearly entered into to bind
the parties to a fall back position should the restructuring negotiations
fail. By negotiating a restructuring of, amongst others, the agreement of
sale of shares, and not a fresh agreement, the parties tacitly acknowledged
the binding nature of that agreement. Confirmation that that was the case
is afforded by an internal memorandum of the appellant dated 12
February 2002 in which it is stated, with reference to the set of
agreements relating to the Edward Hotel, that due to the s 311
compromise no change would be allowed to the agreements until they
(the appellant) understood the implications on the agreements. By selling
the remaining 40% of the shareholding in the company that was
eventually to hold the Edward Hotel property, the appellant similarly
tacitly acknowledged the binding nature of the sale of the other 60% of
the shares.

[24] The restructuring negotiations were terminated only during 2004
while the sale of the remaining 40% of the shares in the property holding
company was concluded on 6 February 2002 and amended on 25 May
2002. It follows that the running of prescription was interrupted by an
acknowledgement of liability less than three years before 2 February
2005 when the summons was served and that the respondent’s claims had
not become prescribed as contended by the appellant.

[25] For these reasons the appeal against the court a quo’s order that the
shares in Swanvest be delivered to the respondent against payment of the
purchase price in respect thereof and that the warranty be made good
should be dismissed.

Order
[26] The appeal is dismissed with costs including the costs of two
counsel.

_____________________
P E STREICHER
JUDGE OF APPEAL

APPEARANCES:

For appellant:
E Fagan

C Hugo

Instructed by:

Edward Nathan Sonnenbergs, Cape Town

Matsepes, Bloemfontein

For respondent:
H M Carstens SC

S P Rosenberg SC

Instructed by:

Jan S de Villiers, Cape Town

McIntyre & Van der Post, Bloemfontein

THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:
27 November 2008
Status:
Immediate

BOUNDARY FINANCING LIMITED v PROTEA PROPERTY HOLDINGS
(PTY) LTD

The Supreme Court of Appeal today upheld a judgment by the Cape High Court
in terms of which the High Court ordered the appellant to transfer all the issued
shares in Swanvest (Pty) Ltd to the respondent against payment of the purchase
price in respect thereof and to transfer the Edward Hotel property in Durban to
that company.