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[2015] ZASCA 20
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National Health Laboratory Service v Lloyd-Jansen van Vuuren (20044/14) [2015] ZASCA 20; 2015 (5) SA 426 (SCA) (19 March 2015)
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SUPREME
COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 20044/2014
Reportable
In
the matter between:
NATIONAL
HEALTH LABORATORY
SERVICE
........................................................
Appellant
and
MARIANA MAGDALENA
LLOYD-JANSEN
VAN
VUUREN
.................................................................................................................
Respondent
Neutral
citation:
National Health Laboratory Service v Mariana
Lloyd-Jansen van Vuuren
(20044/2014)
[2015] ZASCA 20(19 March
2015).
Coram:
Mhlantla, Shongwe and Wallis JJA and Dambuza and Mayat AJJA
Heard:
25 February 2015
Delivered:
19 March 2015
Summary:
Contract
–
interpretation
and application of employment agreements
–
the
obligations under the two agreements are interdependent.
ORDER
On
appeal from:
Gauteng Local Division, Johannesburg (LJ van der
Merwe AJ sitting as court of first instance):
1
The appeal is upheld with costs.
2
The order of the high court is set aside and replaced with:
‘
(a)
It is declared that the obligation recorded in clause 3.4 of the
contract concluded on 4 January 2006 continued to exist
notwithstanding
the conclusion of the subsequent employment agreement
dated 16 April 2010 between the plaintiff and the defendant.
(b)
It is declared that the defendant is liable to the plaintiff pursuant
to the provisions of clause 3.4 of the initial contract.
(c)
The defendant is ordered to pay the costs of suit as between party
and party.’
JUDGMENT
Mhlantla
JA (Shongwe and Wallis JJA and Dambuza and Mayat AJJA concurring):
Introduction
[1]
The present dispute arose from two separate agreements concluded
between the National Health Laboratory Service (the appellant)
and Dr
Mariana Magdalena Lloyd-Jansen van Vuuren (the respondent). The
respondent, a medical practitioner, wanted to become a specialist
pathologist. In order to qualify as such one has to work as a
specialist trainee
[1]
and
hold a training post within the Department of Health or at a health
laboratory in South Africa. In January 2006 the appellant
employed
the respondent as a junior registrar. The parties concluded an
agreement setting out the terms of the respondent’s
training
and employment (the initial contract).
[2]
The provisions relating to training are found in clause 3 of the
initial contract. The respondent was required to complete her
studies
for the M.Med degree within a period of five years, be attached to
the University of the Free State and be subject to some
supervision
and assessment. The parties quantified the value of the training to
be provided by the appellant and agreed that if
the respondent did
not work for the appellant for a period of two years after completion
of her training and qualification as a
specialist, she would
re-imburse the appellant for the training costs incurred. This meant
that she would either work for the appellant
for a period of two
years or pay an amount of R2 million should she resign earlier than
the stipulated period.
[3]
On 1 February 2006 the respondent commenced her duties as a junior
registrar. In 2008, she was promoted to the position of a
senior
registrar. She completed her studies and training before the expiry
of the five year period stipulated in the contract.
[4]
In April 2010 the appellant employed the respondent as a specialist
pathologist. A contract to that effect was concluded (the
second
agreement). No reference was made in this contract to the
respondent’s obligation to work for the appellant for two
years
or pay the amount of R2 million if she left its employ before the
expiry of the stipulated period.
[5]
Four months later, in July 2010, the respondent resigned. The
appellant demanded payment of the amount of R2 million from the
respondent. She refused to pay contending that the second agreement
was silent on her obligation to pay or work for the appellant
for two
years and that its conclusion had terminated the initial contract and
with it the obligation to repay this amount.
[6]
As a result, the appellant instituted action in the South Gauteng
High Court, Johannesburg for payment of the amount of R2 million
together with interest and costs. The matter came before LJ van der
Merwe AJ. At the commencement of the trial the parties requested
the
court a quo to separate the issues relating to liability from those
relating to quantum. The judge accordingly issued an order
separating
the merits from the quantum. The parties presented him with a stated
case on the merits. Consequently, no evidence was
led at the trial.
The court a quo had to determine whether the conclusion of the second
agreement between the appellant and the
respondent on 16 April 2010
terminated the appellant’s rights contained in clause 3.4 of
the initial contract.
[7]
The court a quo was left unpersuaded by the appellant’s
submission that the obligation recorded in clause 3.4 of the initial
contract survived the termination of the initial contract and
continued to exist after the conclusion of the second employment
agreement between the parties. The court rejected all of the
appellant’s contentions and held that the appellant had the
opportunity to incorporate the provisions of clause 3.4 of the
initial contract into the second agreement. The court further held
that the second agreement not only replaced the initial agreement,
but also expressly recorded that the second agreement constituted
the
whole agreement between the parties. The court concluded that the
parties had agreed, by virtue of the provisions of the second
agreement, that the provisions of clause 3.4 of the initial contract
no longer applied. Therefore, the court a quo dismissed the
appellant’s claim. It refused leave to appeal and this appeal
is with the leave of this court.
[8]
The issues on appeal concern the interpretation and application of
the two agreements and whether the second agreement replaced
the
initial contract.
Contracts
[9]
It is apposite at this stage to set out in detail the relevant terms
of these contracts. In this regard, I will commence with
the initial
contract (the 2006 agreement), which also covered the training of the
respondent. It was concluded on 4 January 2006.
The respondent was
employed as a junior registrar with effect from 1 February 2006. The
relevant details relating to training are
set out in clause 3. The
respondent was subject to an annual performance review. Her
progression to the next year was subject to
evidence of satisfactory
progress. She was obliged to register with the University of the Free
State for the M.Med degree and write
the requisite examinations
before the expiry of the five year period. She was also obliged to
register with the Health Professions
Council of South Africa (HPCSA).
[10]
The contentious clause is clause 3.4 which reads:
‘
On
completion of the requirements for registration as a specialist with
the HPCSA the employee shall continue to work for the NHLS
as a
specialist pathologist for a period of two years following specialist
registration. For the purposes of this agreement, registrar
training
is deemed to be worth R2 million, irrespective of the time spent in
training, the sum of which shall be worked off over
a full two-year
period (24 months). Should the employee complete the first full
twelve months of this period, the employee’s
indebtedness to
the NHLS shall be reduced to 75% of the full amount owing. Should the
employee not complete the two-year post-specialist
registration
working requirement, the employee shall pay back to the NHLS the
amount owing in a single lump sum prior to resignation.
The employer
may at its discretion cancel the indebtedness of the employee at any
time.’
[11]
The remainder of the clauses related to the terms and conditions of
employment, that is, the duties of the employee, remuneration,
probation period, restraint of trade and termination of employment.
The termination clause made provision for the unilateral termination
of the agreement by either party on one calendar month’s
written notice to the other party.
[12]
In so far as the second agreement was concerned, this was concluded
in April 2010, when the respondent was appointed as a specialist
pathologist. She was required to provide proof, by 30 April 2010,
that she had applied for registration with the HPCSA as a specialist
pathologist. No reference was made to the obligation recorded in
clause 3.4 of the initial contract. The second agreement was broadly
similar to the initial contract, but excluded clause 3 which related
to the training of the respondent. The termination clause
also made
provision for the unilateral termination of the agreement by either
party on one calendar month’s written notice
to the other
party.
Interpretation
[13]
Our law relating to the interpretation of documents has evolved since
the earlier approach enunciated in
Coopers
& Lybrand & others
v
Bryant
[2]
where it was held:
‘
The
correct approach to the application of the “golden rule”
of interpretation after having ascertained the literal
meaning of the
word or phrase in question is, broadly speaking, to have regard:
(1)
to the context in which the word or phrase is used with its
interrelation to the contract as a whole, including the nature and
purpose of the contract, as stated by Rumpff CJ
supra;
(2)
to the background circumstances which explain the genesis and purpose
of the contract, ie to matters probably present to the
minds of the
parties when they contracted…;
(3)
to apply extrinsic evidence regarding the surrounding circumstances
when the language of the document is on the face of it ambiguous,
by
considering previous negotiations and correspondence between the
parties, subsequent conduct of the parties showing the sense
in which
they acted on the document, save direct evidence of their own
intentions.’ (Citations omitted.)
[14]
This court in
Bothma-Batho
Transport
(Edms) Bpk
v
S
Bothma & Seun Transport (Edms) Bpk
,
[3]
reformulated the principles governing the approach to interpretation
as follows:
‘
Whilst
the starting point remains the words of the document, which are the
only relevant medium through which the parties have expressed
their
contractual intentions, the process of interpretation does not stop
at a perceived literal meaning of those words, but considers
them in
the light of all relevant and admissible context, including the
circumstances in which the document came into being. The
former
distinction between permissible background and surrounding
circumstances, never very clear, has fallen away. Interpretation
is
no longer a process that occurs in stages but is “essentially
one unitary exercise”. Accordingly it is no longer
helpful to
refer to the earlier approach.’
Novation
[15]
To the extent that the judgment of the court a quo was premised upon
novation, it is necessary for me to consider this aspect.
There is a
presumption against novation because it involves a waiver of existing
rights. When parties novate they intend to replace
a valid contract
with another valid contract. In determining whether novation has
occurred, the intention to novate is never presumed.
In
Acacia
Mines Ltd
v
Boshoff,
[4]
the court held that novation is essentially a question of intention.
[16]
In
Proflour
(Pty) Ltd & another
v
Grindrod
Trading (Pty) Ltd
t/a
Atlas
Trading and Shipping & another
[5]
the court, when determining whether the agreement resulted in a
novation, referred to the decision of
Electric
Process Engraving and Stereo Co
v
Irwin
1940 AD 220
at 226-227 where the court said:
‘
The
law on the subject was clearly enunciated as far back as 1880 in the
well-known case of
Ewers
v
The Resident Magistrate of
Oudtshoorn and Another
, (Foord) 32, where DE VILLIERS, C.J, said:
“The result of the authorities is that the question is one of
intention and that,
in the absence of any express declaration of the
parties, the intention to effect a novation cannot be held to exist
except by
way of necessary inference from all the circumstances of
the case.”’
It
follows that in order to establish whether novation has occurred, the
court is entitled to have regard to the conduct of the
parties,
including any evidence relating to their intention.
[17]
It was submitted before us, on behalf of the respondent, that both
contracts could not exist simultaneously. It was contended
that
clause 3.4 of the initial contract should have been incorporated into
the second agreement. In the circumstances of this case,
novation had
occurred and the second agreement had replaced the initial contract
in toto, so the argument went.
[18]
I do not agree with this submission. The interpretation contended for
by the respondent is contrary to the background circumstances
of the
matter and the intention of the parties. In this regard, I
respectfully disagree with the reasoning of the court a quo.
In
applying the above mentioned legal principles to the facts of this
matter, it is evident that the two contracts served different
purposes. The initial contract was primarily concerned with the
training of the respondent. The parties agreed on the value of
the
training so as to avoid any dispute should the respondent resign
after qualifying as a specialist. The first sentence in clause
3.4
conferred some rights and obliged both parties to perform. On the one
hand, the appellant undertook to employ the respondent
upon
qualifying as a pathologist whilst she undertook to work for the
appellant for two years or to re-imburse the appellant if
she did not
do so. Clause 3.4 also provided that irrespective of the time spent
in training, which included completion of the training
in a shorter
time period, the respondent undertook to work for a further two
years, failing that, to pay the amount of R2 million
to the
appellant.
[19]
Clauses 1.1 and 3.4 of the initial contract determined and regulated
any future employment relationship between the parties.
The
respondent was obliged to recompense the appellant in respect of the
moneys expended towards her training, either by rendering
her
services to the appellant for a specified period or by repaying the
full amount spent on her training. This is what the parties
agreed to
do and they concluded an agreement to that effect. These undertakings
are therefore binding on the parties.
[20]
It is common cause that the respondent received training with the
financial assistance of the appellant. The appellant complied
with
its obligation by employing the respondent in April 2010. This is the
contract in terms of which both parties would perform
in order to
comply with their obligations set out in clause 3.4. This agreement
was purely an employment contract of the respondent
as a specialist
pathologist. The conclusion of the second agreement constituted the
implementation of the two-year employment obligation
following
registration of the respondent as a specialist as undertaken in
clause 3.4 of the initial contract. The second agreement
was
accordingly a continuation of the initial contract, in that the
respondent was now employed as a specialist pathologist, something
envisaged in clause 3.4. This contract did not vary or cancel the
obligations imposed by the initial contract. In the result novation
did not occur. The indebtedness of the respondent in terms of the
initial contract could never be extinguished by the conclusion
of the
second agreement.
[21]
Lastly, it was submitted on behalf of the respondent that the
termination clause in the second agreement was in conflict with
clause 3.4 of the initial contract. Any reliance on this clause is
misplaced. It has to be borne in mind that the notice
period
was a standard term. The argument loses sight of the fact that both
agreements contained the termination clauses and these
were
identical. There is nothing peculiar in having such a term. The only
logical conclusion is that the respondent could terminate
the
agreement subject to the provisions of clause 3.4.
[22]
It follows that clause 3.4 of the initial contract is still in
operation and that the indebtedness of the respondent towards
the
appellant remains notwithstanding the conclusion of the second
agreement. This clause could only be cancelled by the appellant
and
this was not done. The appeal must therefore succeed.
[23]
In the result the following order is made:
1
The appeal is upheld with costs.
2
The order of the high court is set aside and replaced with:
‘
(a)
It is declared that the obligation recorded in clause 3.4 of the
contract concluded on 4 January 2006 continued to exist
notwithstanding
the conclusion of the subsequent employment agreement
dated 16 April 2010 between the plaintiff and the defendant.
(b)
It is declared that the defendant is liable to the plaintiff pursuant
to the provisions of clause 3.4 of the initial contract.
(c)
The defendant is ordered to pay the costs of suit as between party
and party.’
__________________
NZ
MHLANTLA
JUDGE
OF APPEAL
APPEARANCES
:
For Appellant: R Ram
Instructed
by:
Shepstone
& Wylie Attorneys, Sandton
Matsepes
Inc, Bloemfontein
For Respondent: S
Snyman
Instructed
by:
Snyman
Attorneys, Houghton
Honey
Attorneys, Bloemfontein
[1]
A
specialist trainee in any one of the branches of medicine including
pathology has to be registered at a university for a master
of
medicine degree (M.Med). Only graduates in medicine (MBChB) who have
completed the prescribed intern period and who are registered
with
the Health Professions Council of South Africa are allowed to
register for
the
M.Med programme. A specialist trainee is referred to as a registrar.
[2]
Coopers
& Lybrand & others
v
Bryant
[1995] ZASCA 64
;
1995 (3) SA 761
(A) at 768A-E.
[3]
Bothma-Batho
Transport (Edms) Bpk
v
S
Bothma & Seun Transport (Edms) Bpk
2014 (2) SA 494
(SCA) para 12.
[4]
Acacia
Mines Ltd
v
Boshoff
1958 (4) SA 330
(A) at 337D.
[5]
Proflour
(Pty) Ltd & another
v
Grindrod
Trading (Pty) Ltd t/a Atlas Trading and Shipping & another
[2010]
2 All SA 510
(KZD) para 10.