This
is an application for specific performance of an Agreement of Sale
entered into by the parties.
The
applicant is a company which is involved in the agribusiness. The
respondents are husband and wife and are the owners of Wamica Farm
(hereinafter referred to as “the farm”).
The
salient facts of this matter may be summarised as follows;
On
6 December 2012, the applicant company made a written “Final offer
for the acquisition of Wamica Farm” to the first and second
respondents. The offer describes the farm, outlines how the valuation
was conducted and specifies the full price offered and proposed
payment terms. The respondents accepted and signed the offer
document.
Following
this offer, the parties signed an Irrevocable Memorandum of
Understanding (MOU)
on the same day. The aim and objective of the Memorandum of
Understanding was:
“…,
to set out the basis upon which the transaction shall be concluded
and to set out rights and obligations upon each party leading to the
signing of a SALE AGREEMENT between the parties. It is the parties
understanding that the sale agreement be concluded immediately upon
the successful completion of the necessary regulatory approvals by
the Ministry of Agriculture, Land & Rural Resettlement.”
The
parties agreed that the transaction was irrevocable. The parties
agreed to be bound to carry out, in good faith, all actions as may be
necessary to expedite the transfer and registration of the farm. Such
actions included the obtaining of a Certificate of No Present
Interest from the relevant authority and the transfer of the farm.
The Memorandum of Understanding (MOU) was to terminate upon the
signature of a sale agreement. In the event of the sale agreement not
being entered into within 60 days from the date of signature of this
agreement, then the Memorandum of Understanding (MOU) would terminate
and all rights and obligations flowing from it would fall away.
The
parties agreed not to enter into any other discussion or agreement
with any other party relating to the farm until the expiry of the
Memorandum
of Understanding (MOU)
without written consent of the other party.
The
parties endeavoured to make all efforts to ensure that the sale was
concluded and to best advantage. All that was holding back the
signing of the agreement of sale was the issuance of the certificate.
This is recorded in the Irrevocable Memorandum of Understanding as
follows;
“The
aims and objectives of this Memorandum of Understanding shall be to
set out the basis upon which the transaction shall be concluded and
to set out rights and obligations upon each party leading to the
signing of a sale agreement between the parties. It is the parties
understanding that the sale agreement be concluded immediately upon
the successful completion of the necessary regulatory approvals by
the Ministry
of Agriculture, Land and Rural Resettlement.”
The
Certificate of No Present Interest was issued in December 2012.
The
applicant prepared the written Agreement of Sale in anticipation of
the issuance of the Certificate of No Present Interest from the
Ministry of Agriculture Lands and Rural Resettlement, the relevant
authority. The Agreement of Sale was not subsequently signed as the
first and second respondents did not co-operate.
On
16 March 2013, the applicant learnt that the respondents were
attempting to sell the property to someone else through the third
respondent. The farm was advertised for sale and the respondents were
now attempting to sell subdivided portions of the farm.
The
applicant avers that a binding contact was concluded between the
parties. That the first and second respondents breached both the
agreement concluded in terms of the offer document and the Memorandum
of Understanding. The applicant alleges that the respondents
deliberately withheld the “Certificate of No Present Interest”
from the applicant and consciously delayed the signing of the written
agreement of sale and now seek to rely on Clause 6 of the Memorandum
of Understanding which states that the memorandum would terminate
after 60 days from the date it is signed by the parties. The
applicant seeks;
(i)
An order declaring that a valid Agreement of Sale of the farm exists
between the parties.
(ii)
An order directing the first and second respondents to sign the
written Agreement of Sale upon payment of US50,000= by the applicant.
(iii)
An order directing transfer of the property into the name of the
applicant.
The
respondents are opposed to the application.
They
contend that the parties did not enter into a sale agreement within
the dies induciae
of sixty (60)
days provided for in the said document resulting in the termination
of the Memorandum
of Understanding (MOU),
and, therefore, that all rights and obligations of the parties fell
away. Further, that as the parties did not enter into an agreement of
sale, the applicant cannot seek an order for specific performance as
there is no binding contract.
The
issue is whether a valid Agreement of Sale exists between the parties
entitling the applicant to specific performance.
It
is important to determine what type of agreement the parties entered
into first. The first document signed by the parties, the Final
Offer, constitutes an offer by the applicant. It is clear from the
offer that an agreement of sale would be concluded at a subsequent
stage. The offer was subject to the acquisition of a Certificate of
No Present Interest from the relevant authority. In order to record
this fact the parties entered into a Memorandum of Understanding
(MOU). The MOU recorded that a contract would only be concluded after
the Certificate of No Present Interest had been granted.
The
contract was subject to the happening of a future event.
The
Final Offer constitutes a preliminary agreement where the parties
would sign another contract. The parties had agreed on the key terms
of the contract but had not signed the actual contract and agreed to
be bound to carry out, in good faith, all the actions as may be
necessary to expedite the transfer and registration of the farm. In
the event of a dispute, the parties would attempt to resolve it by
discussion and conciliation, failing which the dispute would be
referred to arbitration.
These
facts disclose an agreement to agree in the future and in good faith.
The
objective, which was to bind the parties to agree to enter into a
final contract, did not happen. No agreement of sale was entered
into. This scenario is distinguishable from a contract of sale
subject to a suspensive condition which comes into effect on
fulfilment of a specified condition.
In
this case, there was no contract of sale entered into as envisaged.
The
court is being requested to determine whether a valid agreement of
sale came into existence between the parties entitling the applicant
to specific performance.
Generally,
an agreement to agree in the future and enter into a proposed final
agreement does not constitute a contract between the parties as they
lack legal certainty. The parties still have a discretion over
whether to agree or disagree.
In
Premier, Free State and Ors v Firedom Free State (Pvt) Limited 2000 3
(SA) 413 (SCA) the court held that;
“An
agreement that parties will negotiate to conclude another agreement
is not enforceable because the absolute discretion is vested in the
parties to agree or disagree.”
The
courts have also taken the view that it is possible to conclude an
agreement that has an aspect that will be determined in the future.
Each case should be determined on its own merits.
In
the Australian case of R & D Construction Group Ltd v Hallam Land
Management Ltd [2009] CSO H 128, the parties entered into an
agreement to agree in the future. The case involved an option to
purchase land. The agreement comprised an offer and acceptance which
was subject to an agreement on the purchase price and subject to the
defendant obtaining a planning permission. The parties had agreed on
all essential elements of the agreement except the purchase price.
The defendant had seven (7) months to complete the purchase.
The
court held that where a dispute resolution mechanism exists, then an
agreement to agree will be held to be enforceable. The court took a
commercial and practical view that unless there is a reason for not
giving effect to such an agreement, then the court should find it
enforceable. It considered whether the parties intended to create
contractual relations. The court held that “while the courts
require legal certainty and do not enforce an agreement if parties
have not sufficiently formulated an intention, judges have repeatedly
stated the position that that where they are satisfied that that the
parties intended to enter into binding obligations they should
attempt, so far as is consistent with essential principle and binding
precedent, to give effect to the agreement and not be the destroyer
of bargains.”
Similar
sentiments were expressed in Southernport Developments (Pty) Ltd v
Transnet Ltd (440/03) [2004] ZASCA 94 2 ALL SA 16 (SCA).
The
parties here signed a written agreement which was subject to a
suspensive condition requiring the plaintiff to obtain a casino
licence. A second agreement was concluded providing for the
conclusion of a definitive agreement. The parties were to negotiate
in good faith. The second agreement had a provided for referral to
arbitration in the event of a dispute arising. The court held that as
the parties had reached agreement on all the essential elements of
the ultimate agreement and the agreement provided for arbitration,
this rendered the agreement sufficiently certain and enforceable.
What
is clear from the foregoing is that an agreement to agree or
negotiate on a future and final contract is enforceable where the
parties have agreed on the essential terms of the contract and the
agreement provides for a dispute resolution mechanism to resolve the
unresolved issues.
I
intend to determine whether the preliminary agreements by the parties
are enforceable.
I
make the observation that the parties agreed on the key and essential
terms of the contract. The price, merx and payment terms. There does
not seem to be any dispute as regards the terms of the contract.
There is provision for a dispute resolution process in the Memorandum
of Understanding (MOU).
Where
parties have agreed on key elements of the contract it is essential
that the court enquire into whether the parties intended to enter
into a binding contract.
It
is essential to examine the terms of the Memorandum
of Understanding (MOU)
and Final Offer in order to determine if there were any binding
terms. This will assist the court in determining what the intention
of the parties was when they entered into the agreements. The
following observations are pertinent;
(i)
The final offer was irrevocable.
(ii)
The parties promised to negotiate in good faith.
(iii)
There is a dispute resolution mechanism.
(iv)
The agreement of sale was to be concluded and signed immediately upon
the successful completion of the approvals by the authorities of the
Certificate of No Present Interest.
(v)
The offer itself is described as being 'final.'
(vi)
That the Memorandum of Understanding (MOU) was an irrevocable sale of
the farm.
All
these factors point towards the suggestion that the parties intended
to be bound by the Final Offer and the Memorandum
of Understanding (MOU) -
at least when the regulatory approvals were through.
At
the time of the Final Offer and the Memorandum
of Understanding (MOU),
a condition precedent to that sale had not been met.
The
court has also considered that it was not competent for the parties
to enter into the contract without the authority of the relevant
Ministry. Any contract for the sale of the land entered into at that
stage would have been a nullity; a condition precedent to the sale
had not been met and a contract could not have been finalised at that
stage.
The
parties expressed an intention to be bound only when the regulatory
approvals were through and the parties concluded and signed the
agreement of sale.
That
intention controls.
Once
the approvals were through the agreement became enforceable. I am of
the view that where the agreement to agree contains key or sufficient
and definite terms of agreement, even though a few details still have
to be worked out, and there is a dispute resolution mechanism
provided for, as in this case, this renders the agreement certain and
enforceable. The agreements entered into by the parties are
enforceable. All the key terms were agreed to in the Final Offer and
the Memorandum
of Understanding (MOU).
In fact, all the essential elements of a contract were present and
all that remained was for the parties to prepare the contract
document and sign it
It
is for these reasons that I conclude that the parties intended to be
bound by these agreements.
The
respondents avoided and ignored the applicant's request to finalize
the contract. The respondents did not endeavour to ensure that the
final contract was signed and concluded. Instead, they tried to sell
divided portions of the farm to other people contrary to the
agreement. The respondents played a hide and seek game and
deliberately delayed the signing of the final contract until the 60
days had elapsed, and, ultimately, refused to sign the final
agreement. They did not act in good faith.
I
find, therefore, that that the respondents are in breach of contract.
An
order for specific performance can only be granted where the
applicant can show the existence of a binding contract between the
parties, and, further, that the respondent breached the terms of that
contract.
The
farm is still available and has not yet been sold to any other party.
The applicant is entitled to specific performance. In the result, it
is ordered as follows;
1.
It is hereby declared that a valid and binding agreement of sale
exists between the applicant and first and second respondents for the
sale of certain piece of land situate in the District of Chegutu,
called Wamica Farm, measuring 644,7952 hectares and held under Deed
of Transfer No.3560/2001, S.G. No. 1044/2000.
2.
The first and second respondents be and are hereby ordered to sign
the written Agreement of Sale with the applicant within forty-eight
(48) hours of this order subject to the payment of the amount of
US$50,000= by the applicant upon signing of the written Agreement of
Sale, failing which the Sheriff of the High Court be and is hereby
directed and empowered to sign the Agreement on their behalf.
3.
That upon payment to the first and second respondents of sum of
US$330,000= by the applicant, first and second respondents be and are
hereby ordered to immediately cause transfer of certain piece of land
situate in the District of Chegutu, called Wamica Farm, measuring
644,7952 hectares and held under Deed of Transfer No.3560/2001, S.G.
No.1044/2000 to be effected into the name of the applicant failing
which the Sheriff of the High Court be and is hereby directed and
empowered to cause the property to be transferred into the name of
the applicant and to do all things and sign all documents necessary
to effect such transfer.
4.
That the first and second respondents shall bear the costs of suit.
