Serengeti Golf and Wildlife Property Owners Association NPC v Lessing (2014/16228) [2017] ZAGPJHC 8 (10 February 2017) per Adams J.

The high court decided that the purpose of a fine or penalty is to enforce rules, unlike levies that are intended to raise funds to manage estates.  Fines are intended to ensure compliance with the rules and regulations of the estate.  They are not intended as a means of generating income.  This means that fines should be fair and fit the transgression.

“It could not possibly have been within the contemplation of the parties that the owner of a property would be liable to pay to his homeowners’ association an amount of R60,000.00 per month simply because he occupied his own home in contravention of the building rules of the association”.

Selected quotations from judgment (without footnotes)

[1].  This is a dispute between the home owners’ association of a residential estate (‘the estate’) and one of its members regarding the member’s liability to pay penalties imposed on him by the estate’s board of directors.  In this action the estate is the plaintiff, a non-profit company, and claims from the defendant, in his capacity as a member of the plaintiff, an amount of R845,472.07 in respect of arrear levies and/or fines, which amount includes interest at the rate levied by the plaintiff from time to time in terms of the agreement between the parties.  The bulk of the amount claimed (R832,000.00) relates to ‘building penalties’ levied against the defendant on or about the 8th May 2013.

. . . . .

[9].  The liability of members of the plaintiff to pay levies and fines arises under its articles of association.  The contractual relationship between the plaintiff and the defendant was at all relevant times governed and regulated by the Sale Agreement concluded between the Developer and the defendant in terms of which he bought the property (‘the Developer’s Sale Agreement’), Memorandum and Articles of Association, and the Estate Rules and Regulations of the plaintiff.  The following clauses are of particular relevance to the issue pertinent in this case.

. . . . .

[20].  It is settled law that interpretation is a matter of law and not fact.  The interpretation is a matter for the court to decide and not for a witness.  This was set out in KPMG Chartered Accountants SA v Securifin Ltd & Another, 2009 (4) SA 399 (SCA) at par 39.

. . . . .

[25].  It was also submitted on behalf of the plaintiff that this was the interpretation given to the clause by the Board of Trustees and therefore that is the construction to be attached to the clause.  This is so, according to the plaintiff, if regard is had to article 4.2 of the Articles of Association, read with Rule 104 of the Estate Rules and Regulations, which provides that the amount of fines is subject to amendment or review ‘by the Board at its discretion’.  This argument is not sustainable.

It is not for a party or a witness to determine an interpretation, which is a matter of law and not fact, to be decided by the court.  The discretion of the board of trustees to determine the amount of fines, as specifically written into the agreement between the parties, has no bearing on this conclusion.  The point is this that the board of the plaintiff may very well have a discretion in determining or fixing a fine and/or the amount of a penalty in relation to a specific transgression.  However, once a fine is fixed, as was the case in casu, the parties are bound contractually to that determination.  I am of the view that the plaintiff does not have a discretion to interpret a fine once determined.  That is the duty of the court.

[26].  Another pointer, as submitted by the defendant, relates to the fact that during June 2013 the plaintiff in its Schedule of Transgressions and Penalties had expressly provided for a fine of R2,000.00 per day (24 hours) for the following specified transgression : ‘Illegal occupation of a dwelling without obtaining an occupation certificate from SPOA‘.

So even if regard is had to the conduct of the plaintiff it seems that they themselves were not convinced that the disputed penalty provision is capable of one and one only construction.  I am in agreement with this submission.  If the plaintiff’s contentions were correct it would not have been necessary for it to subsequently incorporate an express provision to cater for a daily fine

[27].  Turning from linguistic analysis to the purpose of the determination of a penalty provision, it should be borne in mind that fines/penalties have as its object the enforcement of the Estate Rules and Regulations, unlike levies, which have as its main, if not exclusive purpose the raising of funds and resources by the plaintiff to discharge the expenses incurred by it in respect of the management of the estate.

Fines, on the other hand, are intended only to punish and to ensure compliance with the rules and regulations of the estate.  They are not intended as a means of generating an income.  This means that fines and the amounts thereof should be fair and fit the transgression in a manner of speaking. 

The plaintiff’s construction of the relevant penalty provision has the effect of imposing a fine of approximately R60,000.00 per month for a building transgression which, viewed objectively, is of insignificant.

This is undoubtedly innately unfair and, having regard to the purpose of the penalty provisions, probably not what the parties had in mind when they entered into the contractual relationship.

It could not possibly have been within the contemplation of the parties that the owner of a property would be liable to pay to his home owners’ association an amount of R60,000.00 per month simply because he occupied his own home in contravention of the building rules of the association.

Such an interpretation leads to an unjust and unfair state of affairs, which would have been oppressive in the extreme the one contractual party of the other, and that, in my view, could not have been the intention of the parties.

. . . . .

[29].  In these circumstances, I am of the view that, in terms of the written contractual arrangement between the plaintiff and the defendant, the former was entitled to levy only a once-off fine of R2,000.00 in relation to the defendant’s unlawful occupancy of his residence.  I have already indicated that it is not disputed by the defendant that he is liable for a further R8,000.00 in respect of other penalties, which have to date not been paid by him.