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[2015] ZASCA 150
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Unica Iron and Steel v Mirchandani (20461/14) [2015] ZASCA 150; 2016 (2) SA 307 (SCA) (1 October 2015)
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THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
JUDGMENT
Reportable
Case No:
20461/14
In the matter
between:
UNICA
IRON AND STEEL (PTY)
LTD
FIRST APPELLANT
MOHAMMED
ASIF QASIM
SECOND APPELLANT
and
SURESH
MIRCHANDANI
RESPONDENT
Neutral
citation:
Unica Iron and Steel
v Mirchandani
(20461/2014)
[2015] ZASCA
150
(1 October 2015)
Coram:
Lewis, Shongwe, Leach and Zondi JJA and
Baartman AJA
Heard:
03 September 2015
Delivered:
01 October 2015
Summary:
Contract – written document –
whether intended by parties to be binding – conduct of parties
post signature showing
that they intended to be bound and that their
agreement was not subject to another formal agreement being
concluded.
ORDER
On
appeal from:
Gauteng Division, Pretoria
(Matojane J sitting as court of first instance): The appeal is
dismissed with costs.
JUDGMENT
Leach JA
(Lewis, Shongwe and Zondi JJA and Baartman AJA
concurring)
[1] The
principal issue in this appeal is whether a document signed by the
parties is an enforceable contract as alleged by the
respondent or
whether, as the appellants allege, using the words of Corbett JA in
Pitout v North Cape Livestock
Co-operative Ltd
1977 (4) SA 842
(A) at
850C-D, it was merely a proposal made in the process of negotiation
while the parties ‘were feeling their way towards
a more
precise and comprehensive agreement’. The high court upheld the
respondent’s contention that it was a binding
agreement and
granted relief pursuant to that finding. The appeal to this court is
with leave of the court a quo.
[2] The
respondent, who has a business background rooted in the steel
industry, came to South Africa from India in 2005. After his
arrival
in this country he met both the second appellant, Mr Mohamed Asif
Qasim, a businessman who owned a plastics factory, and
Mr Irshad Ul
Haq, an accountant. In due course the three of them agreed to
venture into business together in a steel manufacturing
and smelting
operation involving the production of certain steel products from the
recycling of metallic waste.
[3] The
first appellant, Unica Iron and Steel (Pty) Ltd (Unica), was the
vehicle they used to conduct this venture. Mr Qasim was
appointed its
managing director, Mr Ul Haq its financial director and the
respondent its technical director. Premises for a factory
were
identified in Babelegi, north of Pretoria; meetings were held with
the Department of Trade and Industry; and financial backing
was
procured at a subsidised rate from the Industrial Development
Corporation. The respondent thereafter went back to India to
seek out
the requisite machinery and technical staff. This took some time and
it was only some nine months later, on 27 April 2007,
that he
returned to this country bringing his family with him.
[4]
Before he had left for India, the respondent and Mr Qasim had looked
at various residential properties for Unica to buy to provide
a home
for the respondent and his family. Finally they selected the property
known as 36 Blesbok Avenue, Centurion (the immovable
property). At
that stage Unica, although existing on paper, was not in a position
to obtain a home loan, and so it was decided
that Mr Qasim would
purchase the property in his name but that Unica would take over the
bond in due course. On that understanding,
the immovable property was
purchased in December 2006 and the respondent and his family took up
residence there when he returned
from India in April the following
year.
[5] A few
weeks after returning to South Africa, the respondent and Unica, the
latter represented by Mr Ul Haq and Mr Qasim, concluded
a written
employment agreement. Backdated with effect to 4 December 2006, it
provided:
‘
1.
That (the respondent) will be working as a technical Director on
profit sharing basis. He will be a key person and under his
leadership and guidance, Unica will source, commission and run the
plant successfully.
2.
(The respondent) will be entitled for 17% of the profits of Unica
defined herein as follows:
3.
Profits will be calculated before tax after providing for
depreciation and interest on Shareholders loans.
4.
(The respondent) will be drawing a salary of R40000-00 per month
which will be deducted from his profit share at the end of the
year.
If Unica does not achieve profits it will carry to the next years
until Unica achieves sufficient profits of which 17% is
equal or
higher than the total drawings till that date.
5.
As (the respondent) is sharing profits in Unica and his association
with Unica will be on long term basis and unrestricted.
’
[6] The
year following his return to South Africa was a busy time for the
respondent. Not only did he return to India with Mr Ul
Haq in order
to recruit technicians but he supervised the erection, construction
and commissioning of Unica’s factory at
Babelegi. Production at
the factory eventually commenced in April 2008. As is understandable
in a venture of this nature, it took
some time for Unica to show a
profit. This it did, according to Mr Ul Haq, towards the middle of
2009.
[7]
Unfortunately, despite the relatively short period of their business
association, the relationship between the respondent on
the one hand
and his two co-directors on the other, soured quickly. One of the
causes of conflict was the calculation of the share
of the profits
the respondent was due to receive under his contract of employment.
For present purposes it is unnecessary to either
detail the
respondent’s complaints or to decide whether they were
justified. Suffice it to say that, on 26 November 2009,
when the
respondent sent an email to his co-directors commenting on Unica’s
management accounts of October 2009, he stated
that the calculation
of profit was based on ‘unfounded assumptions and
misinterpretations’ and that the issue remains
‘unresolved
and unaccepted’.
[8] On
15 April 2010, the respondent was summoned to attend a directors’
meeting at which various disputes he had with his
co-directors were
discussed. The issues between them were not resolved and, on 12 July
2010, Unica served the respondent with what
purported to be a notice
of retrenchment under
s 189
of the
Labour Relations Act 66 of 1995
.
This recorded that the reason for his retrenchment was that ‘the
plant has been commissioned and is running successfully
and at
present there are a surplus of employees of Unica with the necessary
technical expertise to run the plant successfully’
and that the
respondent therefore could be replaced by another employee ‘at
least cost to Unica’. It went on
to propose a severance package
of one week’s pay for every completed year of service plus a
payment of R1 million.
[9] In
the light of the terms of clause 5 of the respondent’s
employment contract and the background difficulties then existing
between him and his co-directors, the almost irresistible inference
is that this notice was a sham and his co-directors were merely
attempting to end his employment due to their conflict. Be that as it
may, the respondent refused to accept the severance package
offered.
He also rejected a further offer that he should resign from Única
and, instead, join in a fresh venture with Mr
Ul Haq and Mr Cassim,
producing oxygen.
[10] In
any event, the relationship between the respondent and his
co-directors did not improve and matters came to a head at a
meeting
they held on 28 September 2010. At the outset the mood of the meeting
was tense. Mr Ul Haq made it clear to the respondent
that he and Mr
Qasim could no longer continue working with him and that he either
had to settle amicably with them or would face
retrenchment. As
inevitably happens in situations such as this, after some initial
mud-slinging the parties eventually got down
to discuss mutually
agreeable terms on which the respondent could leave.
[11]
Terms were finally agreed, and Mr Qasim drafted an agreement in
longhand which he, Mr Ul Haq and the respondent all signed
(for
convenience I intend to refer to this document as SM1, that being its
annexure number to the particulars of claim). Each term
was discussed
in turn and only recorded when all parties were satisfied with its
content.
[12] On coming to a lump sum for the respondent to be paid as part of
what is recorded as being his ‘golden handshake’,
agreement was reached on a cash sum of R 1,42 million. In recording
this, Mr Qasim initially inserted the words “tax to be
discussed’ immediately thereafter. The respondent was not
prepared to accept this. He stated that he wanted that sum tax
free.
As this would oblige Unica to bear the tax burden of such a payment,
Mr Ul Haq promptly telephoned the company’s auditors
to inquire
how this could be done, and was told that it would be possible but
that a tax directive would have to be obtained from
the South African
Revenue Service (SARS). On learning this, Mr Qasim deleted the words
‘tax to be discussed’ and replaced
them with the word
‘nett’. The suggestion made by the appellants to the
court a quo that ‘nett’ merely
meant that the payment was
to be in cash can obviously be rejected in the circumstances.
[13] When
completed and signed by all three directors the final document read
thus:
‘
Agreement
BETWEEN
[THE RESPONDENT]
AND
UNICA
IRON & STEEL (PTY) LTD
Following
was agreed upon:-
1.
[The respondent] will be leaving Unica from 30
th
Sept 2010
and he will not be involved in Unica at all. Subject to signing of
Agreement and completion of following
2.
Unica will pay him as follows for golden hand shake:
®
R1,420000,00
- One million four hundred & 20 Thousand Rand only (Net)
will be paid upon signing of agreement.
®
Car
which he is using will be transferred to his name upon signing of
agreement.
®
House
will be transferred to his name within 3 months of signing the
agreement. Transfer & other costs for 3 months will be
paid by
Unica.
3.
All other expenses for [the respondent] currently paid by Unica will
be transferred
for account or will be cancelled as agreed upon:-
-
Car
insurance.
-
Telephone.
(all cell incl.)
-
Medical
Aid.
-
Life
insurance.
-
Petrol
Card.
-
DSTV.
-
Car
tracking system.
4.
He will not be engaging himself in any business directly in
competition with
Unica Steel or/Unica plastic.
5.
[The respondent] will inform all our associates local/overseas
including suppliers
about this development and will introduce Mr
Asif.
’
[14]
According to the respondent, after signing this agreement the mood of
the meeting changed and became light-hearted.
Mr Ul Haq handed
him a file containing various documents relating to the house in
which he was living as well as the registration
documents for the
Dodge motor vehicle, and told him to arrange transfer of both. The
appellants denied this had occurred but it
was common cause that the
registration papers for the vehicle were given to the respondent at
some stage soon thereafter and that
the vehicle was then registered
in his name, so nothing really turns on precisely when this took
place.
[15]
Importantly, as agreed in clause 1 of SM1, by the end of the workday
on 30 September 2010 the respondent had cleared
his desk, collected
his belongings and left the factory, never to return. Before he left,
in compliance with his obligations under
clause 5, he had sent an
email, approved by Mr Ul Haq, to Unica’s Indian suppliers (and
copied to Mr Qasim and Mr Ul Haq).
After acknowledging the support
and contribution the suppliers had made to Unica, he stated:
‘
I
have decided to accept the golden handshake package and move on to
another project. In my absence, Mr Asif Qasim, managing director
of
Unica Iron, will be handling the technical, imports and purchase. Mr
Asif is touring India for seven days from today to shortlist
the
vendors, suppliers and exporters of above ref. items. Those who wish
to continue their supplies in future are requested to
meet or invite
Mr Asif in India for their personal introduction and future
business.
’
As
envisaged in this letter, Mr Qasim indeed thereafter proceeded to
India and met with the suppliers to whom the respondent had
introduced him.
[16]
Thus far, all had proceeded to plan as envisaged by SM1. However,
problems arose on 11 October 2010 when Mr Ul
Haq requested the
respondent to accompany him to the offices of SARS to obtain the
necessary tax directive relating to his ‘golden
handshake’.
According to the respondent, Mr Ul Haq met with several SARS
officials and, when they left the meeting, had told
him that the tax
liability on the package was close to R1 million and was much bigger
than he had anticipated. Mr Ul Haq then proposed
to the respondent
that he should pay half of this, but he refused to do so. Mr Ul Haq
then told him that Unica was anxious for
the agreement to be
completely in order and asked if he had any objection to Unica having
its attorneys draw up a formal agreement.
He agreed to this proposal
on condition that none of the terms of the written agreement were
changed.
[17]
A draft agreement was thereafter prepared by attorneys, but the
respondent was told that it was not in order and
that a revised copy
would follow. A revised agreement was presented to him early in
November 2010 but the respondent refused to
sign it, stating that it
deviated from what had been agreed upon in SM1. At that, Unica again
served him with a notice of retrenchment
under
s 189
of the
Labour
Relations Act 66 of 1995
. In the light of the history of the matter
this, too, appears to have been a sham.
[18]
In November 2010, after the respondent made contact with Mr Ul Haq,
Unica transferred R100 000 into his account.
The respondent
alleged this was part payment of what was due to him under SM1. The
balance remained unpaid and when Unica refused
to pay it or transfer
the immovable property to him, the respondent instituted action for
specific performance in the court a quo.
[19]
The appellants’ defence to the respondent’s claim was
threefold. It was argued, first, that SM1 contained
a suspensive
condition that had never been fulfilled; second, that SM1 did not
constitute a binding agreement; and third that as
the respondent had
failed to perform his reciprocal obligations under SM1, he could not
claim specific performance on their part.
And as the appellants
contended that SM1 had never had contractual effect, they argued that
the R100 000 the respondent had
paid had not been due and the
Dodge motor vehicle ought not to have been transferred to him. In a
counter-claim they sought repayment
of that sum plus interest and
return of the motor vehicle.
[20]
The first two legs of this defence are to a large measure
inter-twined. The argument at the outset was founded
on the term in
clause 1 of SM1 that the agreement was ‘subject to signing of
agreement’. Relying upon authorities such
as
Parsons
Transport (Pty) Ltd v Global Insurance Co Ltd
[2005] ZASCA 95
;
2006 (1) SA 488
(SCA) para 5, the appellants
contended that the phrase ‘subject to’ can denote either
a suspensive or a resolutive
condition, or a material term in the
contract. All three of these possibilities, so the argument went,
have the result that SM1
required the signing of a further agreement
in the form of a formal document drawn up by attorneys and signed by
the parties; and
until that was done, the condition in SM1 remained
unfulfilled. Accordingly, as the respondent had refused to sign the
formal agreement
prepared by attorneys, the fact that SM1 had been
signed was in itself insufficient for its terms to become binding.
[21]
In considering the validity of this argument, it is unnecessary to
deal in any depth with the principles applicable
to the
interpretation of contracts. They must now be regarded as well
settled, particularly in the light of recent judgments
of this court
in cases such as
KPMG
Chartered Accountants (SA) v Securefin
Ltd & another
[2009] ZASCA 7
;
2009
(4) SA 399
(SCA),
Ekurhuleni
Metropolitan Municipality v Germiston Municipal Retirement Fund
[2009] ZASCA 154
;
2010 (2) SA 498
(SCA),
Bothma-Batho
Transport (Edms) Bpk v S Bothma & Seun (Edms) Bpk
[2013] ZASCA 176
;
2014 (2) SA 494
(SCA),
North
East Finance (Pty) Ltd v Standard Bank of South Africa Ltd
[2013]
ZASCA 76
;
2013 (5) SA 1
(SCA) and, most recently,
Novartis
South Africa v Maphil Trading
[2015]
ZASCA 111.
As Lewis JA stated in
North
East Finance
:
[1]
‘
The
court asked to construe a contract must ascertain what the parties
intended their contract to mean. That requires a consideration
of the
words used by them and the contract as a whole, and, whether or not
there is any possible ambiguity in their meaning, the
court must
consider the factual matrix (or context) in which the contract was
concluded.’
All
that needs to be added is that it can be accepted that the way in
which the parties to a contract carried out their agreement
may be
considered as part of the contextual setting to ascertain the meaning
of a disputed term – see eg
Rane
Investments Trust v Commissioner, South African Revenue Service
[2003] ZASCA 60
;
2003 (6) SA 332
(SCA) para 27. As is stated in R H
Christie’s
The Law of Contract in
South Africa
6 ed (2011) at 117,
relying upon
Breed v Van den Berg
1932 AD 283
at 292-293, this is because the parties’ subsequent
conduct ‘may be probative of their common intention at the time
they made the contract’.
[2]
[22]
Applying these principles to SM1, there is no reason to conclude that
the phrase ‘subject to’ in clause
1 necessarily connotes
that a further agreement – let alone a formal agreement drafted
by attorneys to which no mention whatsoever
is made in the document –
needed to be signed before it became binding. It is necessary to
remember that SM1 was written
by a businessman, not a lawyer skilled
or trained in the drafting of contracts, and that allowance must be
made for that in construing
its terms – see
Trever
Investments (Pty) Ltd v Friedhelm Investments (Pty) Ltd
1982 (1) SA 7
(A) at 15C-D. This is all the more so in the present
case where, as appears not only from the terms of SM1 but from the
evidence
given by the respective parties, the language in which the
document was drafted was not their mother tongue.
In
these circumstances, the phrase ‘the agreement’ may
readily be understood as meaning no more than ‘this
agreement’, particularly in the light of SM1 having been signed
by the parties. Had SM1 been intended to be no more than
a memorial
of what was later to be incorporated in a formal agreement, signature
by the parties would have been entirely superfluous.
But it was so
signed by all three of the relevant role players, and this is a clear
indication that they intended it to be binding.
Indeed Mr Qasim
stated in evidence that he had made provision for signature of the
document as he wanted the respondent to be bound
so that, in any
subsequent agreement formalised by an attorney, ‘the terms and
the amount should be the same.’ Clearly
then SM1 was ‘subject
to’ it being signed, and not some further agreement being
signed.
[23]
Moreover, and importantly, immediately after SM1 was signed Unica,
through Mr Ul Haq and Mr Qasim, proceeded to
implement its terms. I
have already mentioned how the respondent ceased work at the end of
September 2010 as agreed; how the Dodge
motor vehicle he was using as
a company car was transferred to him; how he sent an email approved
by Mr Ul Haq to suppliers in
fulfilment of his obligation under
clause 5; and how Unica paid him R100 000. The appellants’
suggestion that it made
this payment in order to persuade the
respondent to sign the agreement their attorney had prepared, rings
hollow and is inconsistent
with their counter-claim in which they
alleged that it was paid on the assumption that the suspensive
condition they contended
for would be fulfilled.
[24]
Not only do those facts in themselves indicate that the appellants
regarded the agreement as binding, but as from
1 November 2010 Unica
commenced paying the bond instalments on the respondent’s
residence in order to comply with its obligation
under clause 2 of
SM1 to make the property available to him. Furthermore, pursuant to
the provisions of clause 3, the respondent
took over the insurance
for the motor vehicle and the monthly payment of its car-tracking
system as well as payment of his monthly
telephone account and
satellite television subscription, all of which had been paid by
Unica before SM1 was signed. At his choice,
his medical aid and life
insurance that Unica had also been carrying were cancelled.
[25]
All of this points to the appellants regarding SM1 not merely as part
of their negotiations towards a final agreement,
but as binding upon
them. Any doubt about this is removed by both Mr Ul Haq and Mr Qasim
having confirmed in their testimony that
the terms of SM1 were those
that they had agreed upon and could not have been departed from in
any formal agreement subsequently
drawn up on their behalf by an
attorney. As already mentioned, Mr Qasim provided for SM1 to be
signed in order to bind the respondent
to its terms. He also stated
that none of the clauses of SM1 needed to be changed and that the
‘only thing was to formalise
this thing in a proper wording and
proper document’.
[26]
All of this is irreconcilable with SM1 having been conditional upon a
subsequent, formalised agreement being concluded
and signed. As the
appellants readily conceded, and as the respondent pertinently
testified, they all regarded the agreement as
binding and proceeded
to implement its terms. The inference is irresistible that it was
only once the appellants realised that
they had underestimated the
respondent’s tax liability that they sought to evade their
contractual obligations. The court
a quo therefore correctly
concluded that SM1 was not subject to the suspensive condition
suggested by the appellants and was binding
between the parties.
[27]
That is still not the end of the matter, as the appellants also
argued that on the respondent’s own version
there was
insufficient consensus in regard to the terms of the restraint of
trade clause contained in clause 4 of SM1. This was
advanced on the
strength of the respondent having testified that he was only prepared
to accept a restraint as far as the plastic
industry is concerned,
that he knew that a restraint should be subject to a specific
geographical area and time limit and that
he would not have agreed to
a restraint applying to the whole of South Africa as, effectively,
was provided in clause 4 of SM1.
Thus, so the argument went, there
had been no consensus in regard to the restraint terms, that this was
a material provision relating
to the ‘termination package’
that indicated that a more comprehensive contract was contemplated
being reached in due
course.
[28]
The fact remains that the parties signed SM1 with the intention of
being bound by its terms. Whether the respondent,
with the benefit of
hindsight, acted rashly to agreeing to the restraint or whether that
clause would withstand judicial scrutiny
had the appellants sought to
enforce it against him, is neither here nor there. The restraint,
such as it was, was severable from
the balance of the contract. It
thus cannot be said that SM1 was inchoate. As I have stressed, the
appellants’ own
case is that it encompassed all the terms of
the agreement that had been reached and merely had to be put into ‘a
proper
document’.
[29]
It was also argued by the appellants that the respondent was not
entitled to an order of specific performance as
he was in breach of
his reciprocal obligations under clause 4 in that he had been a
director and shareholder of one of Unica’s
competitors. The
argument is without substance. It is unnecessary to speculate on the
enforceability or otherwise of clause 4 or
to consider whether the
respondent had acted in breach thereof. It was never Unica’s
case as pleaded that it had been entitled
to withhold performance due
to the respondent’s failure to perform. Its case was, quite
simply, that SM1 lacked contractual
force. That was the defence to
the respondent’s claim that the court a quo was called on to
decide and in respect of which
it reached the correct conclusion.
[30] In all the circumstances the court a quo did not err
in finding that SM1 had binding force. It correctly upheld
the
respondent’s claim and dismissed the counter claim of the
appellants. The appeal must fail.
[31]
The appeal is dismissed with costs.
_______________________
L E Leach
Judge of Appeal
Appearances:
For the
Appellants:
N Davis SC
Instructed
by:
Van der Merwe Du Toit Inc, Pretoria
Symington & De Kok, Bloemfontein
For the Respondent:
B C Stoop SC
Instructed
by:
Barnard Inc, c/o Pretorius Le Roux
Attorneys, Pretoria
McIntyre & van der Post, Bloemfontein
[1]
Para 24.
[2]
See further authorities collected in Christie at
226 fn 361 and
Telcordia Technologies
Inc v Telkom SA Ltd
[2006] ZASCA 112
;
2007 (3) SA 266
(SCA) para 91.