Ocean Echoes (the first appellant) and Old Mutual (the respondent) entered into a lease agreement for the rental of business premises. Angelo Giannaros (the second appellant) bound himself as surety and co-principal debtor with the first appellant. The respondent issued summons against the first and second applicant, asserting that the first appellant was in arrears in respect of payments due under the lease agreement. Once the first and second appellants had pleaded, the respondent raised an exception to the plea. Before Le Grange J, the exception was upheld and Le Grange J struck out the appellants’ plea and granted judgment in favour of the respondent.
Whether the tacit agreement as pleaded by the appellants constitutes a cancellation of the lease agreement or merely a variation thereof.
The Supreme Court of Appeal (“the SCA”) stated that the upholding of an exception disposes of the pleading against which the exception is taken and not the action or defence. Ordinarily, an unsuccessful pleader is given the opportunity to amend the plea, even if the plea has been set aside because it does not disclose a defence. Therefore, a Court should grant leave to amend and not dispose of the matter. The leave to amend is not an indulgence but rather a matter of course unless there is good reason that the pleading cannot be amended. There was no good reason evident or asserted in this case. Le Grange J ought not to have proceeded to enter judgment against the appellants.
The party raising the exception has the duty to persuade the Court that upon every interpretation which the plea can reasonably bear, no defence is disclosed. The main purpose of an exception is to avoid the leading of unnecessary evidence. Since the respondent chose to proceed by way of the exception procedure it had to show that plea is (not may be) bad in law.
The SCA held that the appellants’ plea is reasonably capable of an interpretation that sustains a defence. The appellants pleaded that a tacit agreement was concluded between the first appellant and the respondent which resulted in the first and second appellant not being liable for the arrear rental for the period claimed by the respondent.
When a contract that gives rise to continuing obligations is cancelled by agreement, the cancellation more often than not operates in futurum only. This means that the obligations already accrued will remain enforceable but the operation of the contract ceases as far as future obligations are concerned. To this extent such an agreement is for the cancellation of the contract in futurum only and not cancellation ab initio. Such an agreement does not constitute a variation of the terms of the contract and thus it can be proved without doing violence to the requirements of the original contract.
The SCA held that if the tacit agreement pleaded by the appellants is proven, it would have extinguished the lease agreement as a source of future obligations whilst keeping alive obligations already by virtue of its operation in the past. This would not involve a variation of the terms of the original lease agreement and would thus not offend against the non-variation clauses in the lease agreement.
The SCA held that the appeal must succeed with costs.
This decision highlights the proper procedure to be followed by a court in dealing with an exception raised against a party’s pleading. It also discusses the effect of a tacit agreement to cancel an existing agreement that entails continuing obligations flowing from that original agreement, both those already accrued and those yet to accrue if it is proved by the party alleging the tacit agreement.
Written by Jan-Harm Swanepoel, Candidate Attorney and supervised by Gary Burochowitz, Associate, 12 March 2018.