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[2016] ZASCA 116
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Transnet Soc Limited v Total South Africa (Pty) Ltd and Another (728/2015) [2016] ZASCA 116; 2017 (1) SA 526 (SCA) (14 September 2016)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 728/2015
In
the matter between:
TRANSNET
SOC LIMITED
APPELLANT
and
TOTAL
SOUTH AFRICA (PTY) LTD
FIRST
RESPONDENT
SASOL
OIL (PTY) LIMITED
SECOND
RESPONDENT
Neutral
Citation:
Transnet
v Total
(728/2015)
[2016] ZASCA 116
(14 September 2016)
Coram:
Lewis,
Theron and Zondi JJA and Schoeman and Makgoka AJJA
Heard:
2
September 2016
Delivered:
14
September 2016
Summary:
A
contract pertaining to tariffs payable for the transportation of
crude oil remains enforceable despite a change in legislative
regime
that governs the conveyance of petroleum products in South Africa:
nothing in the contract incompatible with the relevant
legislation.
ORDER
On
appeal from:
Gauteng
Local Division of the High Court, Johannesburg (Coppin J sitting as
court of first instance)
The
appeal is dismissed with the costs of two counsel.
JUDGMENT
Lewis
JA (Theron and Zondi JJA and Schoeman and Makgoka AJJA concurring)
[1]
The question for decision in this appeal is whether a contract
between the former Government of South Africa, and the first
respondent, Total South Africa (Pty) Ltd (Total), continues to bind
the appellant, Transnet Soc Ltd (Transnet), a wholly-owned
government
company, despite the change in legislative regime that governs the
transport and conveyance of fuel in South Africa.
Coppin J in the
Gauteng Local Division of the High Court (to which I shall refer for
convenience as ‘the high court’)
was asked and agreed to
determine a number of issues arising from pleadings in an action
between the parties separately from others
in terms of rule 33(4) of
the Uniform Rules of Court.
[2]
Before setting out the issues that the high court was asked to
determine, it is useful to discuss briefly the background to
the
conclusion of the contract and to the litigation between the parties.
For the purpose of determining whether the contract survived
the
change in regime regulating conveyance of fuels and the charges for
it, the parties assumed certain facts alleged in the particulars
of
claim to be correct. And the evidence confirming these facts by a
witness for Total, Mr R Duchateau, was not contested by Transnet.
[3]
After World War II there was an increase in demand for petroleum
products. Total and other petroleum suppliers obtained these
from
refineries on the coast, mostly in Durban but also in Cape Town. The
coastal refineries did not have sufficient capacity to
meet the
increased need for petroleum products. In 1966 the Government decided
to establish an inland refinery to cater for increasing
demand. It
acted in terms of the Railways and Harbours Control and Management
(Consolidation) Act 70 of 1957, which created an
‘Administration’
for the control and management of railways, ports, harbours and
petroleum pipelines. The Administration
was empowered to determine
rates for the conveyance of petroleum pipelines managed by it.
[4]
The 1957 Act was repealed by the South African Transport Services Act
65 of 1981. The Administration was renamed the South African
Transport Services (SATS). SATS was established as a commercial
enterprise of the Government. Transnet succeeded SATS in terms
of the
Legal Succession to the South African Transport Services Act 9 of
1989, s 3(2) of which provided that Transnet, as a wholly-owned
Government company, acquired most of the property of SATS including
petroleum pipelines.
[5]
In 1966 the Administration approached Total and requested it to
participate in the proposed inland refinery. Total was reluctant
to
do so because it proposed to invest with Mobil in a coastal refinery,
which made more commercial sense for it. Coastal refineries
have
access to both international and domestic markets, whereas an inland
refinery would have access only to inland markets. Moreover,
when
using an inland refinery, crude oil would have to be brought to it
from the coast, thus incurring pipeline costs that would
not arise if
the oil were processed at the coast.
[6]
Accordingly, as a precondition to participating in the establishment
of an inland refinery, Total required an undertaking from
the
Administration that it would not be placed in a position worse than
at a coastal refinery. In a letter from the Department
of Commerce
and Industries to Total, the general manager assured Total that, in
determining the tariff for the conveyance of crude
petroleum by
pipeline from Durban to Sasolburg, where the inland refinery was to
be established, in principle, Total would be treated
as if at the
coast in determining the tariff for transporting crude oil.
[7]
In response, and after a meeting with the Administration in January
1967, Total recorded that the Government had undertaken
to ensure
that an ‘inland refinery will not at any time be placed at a
disadvantage as regards transportation costs in relation
to a
refinery sited at the coast’. The principle so agreed was
referred to as ‘the neutrality principle’ (it
being
neutral whether a refinery was at the coast or inland) and was
honoured for many years, first by the Administration and then
by
SATS.
[8]
A refinery at Sasolburg was accordingly established and was run by
the National Petroleum Refiners of South Africa (Pty) Ltd
(Natref).
Total held 36.36% of the shares in Natref and Sasol held the balance.
Sasol was cited as the second defendant by Total,
but has played no
role in these proceedings.
[9]
When Transnet succeeded SATS it first refused to recognize the
neutrality principle. But in 1991, after meetings between Total,
Sasol and Transnet, a variation agreement was concluded between the
parties. Transnet undertook that the percentage increase in
the crude
oil tariff that would be levied to Sasol and Total (the Natref
shareholders) would not exceed the weighted average percentage
increase of any adjustments of petrol, diesel and avtur (the
so-called white fuels) tariffs. The variation agreement, which
also embodied the neutrality principle, was largely complied with
until March 2005.
[10]
However, Transnet refused to recognize the neutrality principle once
the regulatory regime governing the supply of petroleum
products was
changed. The National Energy Regulator Act 40 of 2004 (NERSA
Act) came into force in September 2005 and the
Petroleum Pipelines
Act 60 of 2003 (PPA) came into force in November 2005. The
NERSA Act establishes a single regulator to
regulate the electricity,
piped-gas and petroleum pipeline industries. The regulator is a
juristic person that, amongst other things,
undertakes the functions
of the Petroleum Pipelines Regulatory Authority referred to in the
PPA. The regulator is referred to in
the PPA as the ‘Authority’
and in the NERSA Act, in terms of which it is established, as the
‘Energy Regulator’.
I shall refer to it as the NERSA.
[11]
The objects of the PPA include the promotion of an efficient,
effective, sustainable and orderly development, operation and
use of
petroleum pipelines, loading and storage facilities. The Authority is
given the power to issue licences for the construction
and conversion
of pipelines, loading and storage facilities, and for the operation
of these (s 4
(a)
).
It is also, importantly, given the power to set or approve tariffs
and charges in the manner prescribed by regulation. At present,
Transnet is the only licensee.
[12]
The first tariff determination by the NERSA that is in issue was made
for the 2010/2011 years, effective from 1 April 2010.
Transnet
maintains that the neutrality principle cannot prevail over that
decision, and that the variation agreement has effectively
been
terminated by the regulatory regime introduced by the NERSA Act and
the PPA. Accordingly, Total instituted action claiming
a declaration
that the variation agreement remains binding, and directing Transnet
to implement its terms by ensuring that the
percentage increase in
the crude oil tariff does not exceed the weighted average percentage
of petrol, diesel and avtur tariffs.
It also claimed payment of the
shortfall that it allegedly suffered as a result of Transnet’s
failure to apply the neutrality
principle.
[13]
At the start of the trial, as I have said, the high court ordered
that only certain issues be determined. These were the defences
raised to the first claim by Total (paragraphs 14 to 19 of Transnet’s
plea) and the responses to them in its replication
by Total. Coppin J
found that these defences had to fail. The appeal to this court is
with his leave.
[14]
The essence of Transnet’s defences is that the variation
agreement, and with it the neutrality principle, was ‘abolished’
by the PPA; the Authority established by the NERSA Act was the only
body that could set tariffs that licensees are obliged to charge;
the
NERSA was not directed by the PPA to give effect to the neutrality
principle; the PPA did not authorize discrimination between
customers; the PPA prohibits any agreement contrary to its
provisions, and thus the variation agreement became void; and that
Total had made representations to the NERSA about applying the
neutrality principle, which had been rejected. If Total had any
remedy, it was to review the NERSA’s decision.
[15]
On appeal, Transnet argues that the neutrality principle is not
consonant with the provisions of the PPA and that the basis
of
determining the tariff before its enactment cannot exist together
with that determined by the NERSA in terms of s 28 of the
PPA. It
should be made clear that the former basis for determining the tariff
paid by petroleum products suppliers was aligned
with that payable
for rail transportation. The new method of tariff determination now
established by the NERSA is, in terms of
the PPA, completely
different, and must comply with the provisions of the PPA. Total does
not argue otherwise.
[16]
Section 28 of the PPA provides:
‘
(1)
The Authority must set as a condition of a licence the tariffs to be
charged by a licensee in the operation of a petroleum pipeline
and
approve the tariffs for storage and loading facilities.
(2)
A tariff charged in terms of subsection (1)—
(a)
must be—
(i)
based on a systematic
methodology applicable on a consistent and comparable basis;
(ii)
fair;
(iii)
non-discriminatory;
(iv)
simple and transparent;
(v)
predictable and stable;
(vi)
such as to promote access
to affordable petroleum products;
(b)
becomes effective
from the date set out in the licence;
(c)
must be reviewed by
the Authority within the period set out in the licence; and
(d)
may be adjusted by
the Authority on review.
(3)
The tariffs set or approved by the Authority must enable the licensee
to—
(a)
recover the
investment;
(b)
operate and
maintain the system; and
(c)
make a profit
commensurate with the risk.
(4)
The Authority must monitor the application of tariffs and take
appropriate action when necessary to ensure that they are applied
in
a non-discriminatory manner and licensees must provide the
information required by the Authority in this regard.
.
. .
(6)
A licensee may not charge a tariff for the licensed activity in
question other than that set or approved by the Authority.’
[17]
The nub of Transnet’s argument on appeal is that the neutrality
principle cannot co-exist with s 28(6). Only the NERSA
may set a
tariff and the provisions of s 28 do not permit of any deviation.
Total, on the other hand, argues that the neutrality
principle is
entirely consistent with s 28(6): the NERSA must set a tariff and the
neutrality principle then requires that a lesser
amount be charged in
respect of crude petroleum conveyance. Total does not in any way
contend that the old method of setting the
tariff be applied.
[18]
Indeed, Total’s argument is that if the neutrality principle is
not invoked, there will be a contravention of s 28(2)
(a)
(iii)
which requires that the tariff must be non-discriminatory. If the
tariff for crude petroleum is not reduced then suppliers
at the
inland refinery will be discriminated against. Discrimination is also
precluded by s 21 of the PPA which provides:
‘
Licensees
may not discriminate between customers or classes of customers
regarding access, tariffs, conditions or service except
for
objectively justifiable and identifiable grounds approved by the
Authority.’
[19]
While Transnet contends that this provision is meant to ensure that
new licensees who wish to compete with Transnet should
not be
disadvantaged, in my view there is no warrant for giving the
provision such a limited meaning. The PPA as a whole is intended,
inter alia, to achieve competition in the construction and operation
of petroleum pipelines and associated facilities; to achieve
environmentally responsible transport, loading and transport of
petroleum products; to facilitate investment in the industry and
to
promote companies owned or controlled by historically disadvantaged
South Africans (s 2). There is no reason why it would be
intended to
discriminate against long-established suppliers.
[20]
That view is reinforced by s 20 of the PPA which sets out the
conditions on which a licence may be granted by the NERSA, in
particular s 20
(f)
, which states:
‘
a
petroleum pipeline may be licensed for either crude oil or petroleum
products, or both, as long as sufficient pipeline capacity
is
available for crude oil to enable the uninterrupted operation of the
crude oil refinery located at Sasolburg, to operate at
its normal
operating capacity at the commencement of this Act and for so long as
that refinery operates as a going concern;’.
[21]
Differentiation based on sound reason does not amount to
discrimination (see the dicta in
Prinsloo
v Van der Linde
1997 (3) SA 1012
(CC) paras 23 to 25.) In this matter if the
neutrality principle were not applied, there would be no
differentiation despite different
circumstances. Total and Sasol, as
the shareholders in Natref which runs the refinery at Sasolburg,
would be treated unfairly if
they were not able to recover the cost
of piping crude oil: that would mean that they were discriminated
against vis-a-vis coastal
refineries. If the Natref refinery were
situated at the coast its shareholders would not have incurred the
costs of transporting
crude oil. That was what the neutrality
principle was designed to avoid and the position is no different now
that the tariff is
set not by Transnet but by the NERSA.
[22]
This construction appears to be shared by the NERSA. In its decision
in respect of Transnet’s application for a licence
for the
2010/2011 years, it expressly stated that ‘the
maximum
tariff’ (my emphasis) set out in a table would be applied from
1 April 2010. And in its reasons for the decision, the NERSA
stated:
‘The tariffs set in this decision are maximum tariffs thus
permitting the licensee to discount’. Subsequent
decisions of
the NERSA have again referred to maximum tariffs.
[23]
Nothing could be clearer. Transnet is entitled to discount, and the
neutrality principle embodied in the variation agreement
obliges it
to allow a discount for the conveyance of crude oil to the Natref
refinery. The evidence for Transnet, given by Mr L
Moodley, was that
at present coastal customers are treated in the same way as the
Natref refinery. That is unfair discrimination
which puts the Natref
shareholder at a disadvantage. That is clearly what the NERSA
decision aims to avoid, and why it allows for
a maximum tariff and a
discounting of it.
[24]
In the circumstances it is clear that Transnet is bound by the
variation agreement of 1991. That is in keeping with the general
principle that new legislation is presumed not to interfere with
vested rights: see
Fedlife
Assurance Ltd v Wolfaardt
[2001] ZASCA 91
;
2002 (2) All SA 295
(SCA) para 16. Transnet’s
defences to the action raised in its plea must fail, as the high
court found.
[25]
The appeal is dismissed with the costs of two counsel.
_______________________
C
H Lewis
Judge
of Appeal
APPEARANCES
For
the Appellant:
L B Broster SC
Instructed
by:
Woodhead Bigby Inc, Durban
Lovius Block,
Bloemfontein
For
the First Respondent:
A Bham SC (with him J Babamia)
Instructed
by:
Norton Rose Fulbright South Africa, Johannesburg
Webbers Attorneys,
Bloemfontein