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[2015] ZASCA 176
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Engen Petroleum Limited v The Business Zone 1010 CC t/a Emmarentia Convenience Centre (20513/2014) [2015] ZASCA 176 (27 November 2015)
THE SUPREME COURT OF
APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No:
20513/2014
In the matter
between:
ENGEN PETROLEUM
LIMITED
APPELLANT
and
THE BUSINESS ZONE 1010
CC t/a EMMARENTIA
CONVENIENCE
CENTRE
FIRST RESPONDENT
THE CONTROLLER OF
PETROLEUM PRODUCTS
SECOND RESPONDENT
THE MINISTER OF MINERALS
AND ENERGY
THIRD RESPONDENT
Neutral
citation:
Engen
Petroleum Limited v The Business Zone 1010 CC t/a Emmarentia
Convenience Centre
(20513/2014)
[2015]
ZASCA 176
(27 November 2015)
Bench:
Ponnan, Leach, Theron, Majiedt and
Swain JJA
Heard:
18 November 2015
Delivered:
27
November 2015
Summary
:
Arbitration in terms of
Petroleum Products Act 120 of 1977
-
section
12B
- interpretation of.
ORDER
On appeal from
Gauteng Division of the High Court, Pretoria
(Prinsloo J, sitting as court of first instance):
1.
The appeal is upheld with costs, including those of two counsel, save
that the
costs of the preparation, perusal and copying of the record
shall be limited to fifty per cent of the costs incurred in those
tasks.
2.
The order of the court below is set aside and replaced by the
following order:
‘
The
application is dismissed with costs including those of two counsel.’
JUDGMENT
Ponnan JA (Leach,
Theron, Majiedt and Swain JJA concurring):
[1] This appeal
concerns the review of a decision by the Controller of Petroleum
Products (the Controller) not to refer a dispute
to arbitration under
s 12B of the Petroleum Products Act 120 of 1977 (the Act). The
appellant, Engen Petroleum Limited (Engen),
a licenced wholesaler of
petroleum products, as contemplated by the Act, and the first
respondent, The Business Zone 1010 CC t/a
Emmarentia Convenience
Centre (Business Zone), are parties to agreements for the lease of a
commercial property on which an Engen
branded service station is
located and for the supply of inter alia petroleum products.
[2] Engen is the
registered owner of Erf 1117 Emmarentia Extension 1 Township (the
site). In March 2005, Business Zone purchased
an existing service
station business which was then operating at the site and shortly
thereafter it concluded its first lease agreement
with Engen (the
first lease). The terms of the first lease, which ran with effect
from 1 April 2005 until 31 March 2008, are not
presently relevant. A
second lease agreement (the second lease), which was to endure until
31 March 2015, was thereafter concluded
between the parties with
effect from 1 April 2008. Both the agreements, when originally
concluded, extended over the entire site.
Since then the site has
been re-developed. A Quickshop and Kentucky Fried Chicken (KFC)
outlet were built during the course of
this redevelopment, which was
completed around August 2010. The site now consists of a service
station area consisting of the petrol
station forecourt, and adjacent
thereto, an Engen branded Quickshop convenience store within which a
Woolworths’ outlet is
housed. An adjacent but separate area to
the west contains the KFC outlet. There is also a common area through
which members of
the public can gain access to the service station
area and the KFC area.
[3] On 16 February 2010 and
prior to completion of the redevelopment, the parties concluded a
first addendum to the second lease
(the first addendum). The first
addendum, to the extent here relevant provided:
(a)
In terms of Clause 3.1, Engen undertook responsibility, at its own
cost, for the construction
of certain new works on the site, which
works were identified on plans initialled by Business Zone.
(b)
Engen’s obligation to conduct the new works was subject to the
suspensive conditions
in Clause 4.1 which related to the necessary
approvals and consents being granted by the relevant planning
authorities.
(c)
Clause 7.1 extended the second lease until 31 July 2022.
(d)
Clause 11.1 amended the extent of the premises which were subject to
the second lease. It
no longer covered the site in its entirety, but
was now reduced to just the service station area. This reduction of
the premises
was also reflected in a second addendum to the lease
concluded between the parties on 17 August 2010 (the second
addendum).
(e)
Clause 11.2 recorded that the KFC area would be ‘sub-let to a
third party for the
operation of a chicken franchise business’
and made clear that the KFC area and common area would not form part
of the leased
premises for the purposes of the second lease.
(f)
In terms of Clause 5.1, the dealer had to pay a lease premium amount
of R2.16m,
and in terms of Clause 6.2, the dealer became liable for
various franchise and licensing fees relating to the Woolworths shop,
Quickshop and bakery franchise, all of which were to be run from the
service station area.
[4] After the second
lease was amended, a dispute arose between the parties allegedly
flowing from Business Zone’s construction
of unauthorised
alterations to the leased premises in breach of clause 8.1 of the
second lease.
[1]
On 10 August 2010 Business Zone acknowledged, in
an email to Engen, that it was not entitled to make such alterations
to the leased
premises without the prior written consent of Engen.
The dispute was settled in the second addendum, which was signed on
17 August
2010. To that end, clause 7 of the second addendum
provided:
‘
7.1.
On or before 17 August 2010, Engen shall procure that an inspection
of the Partitions shall be effected
and it shall thereafter notify
the dealer whether it approves or does not approve of the Partitions
or any of them;
7.2.
In the event that Engen does not approve of the Partitions or any of
them, the dealer shall,
at its own cost and as directed by Engen,
remove the Partitions which have not been approved as aforesaid
alternatively, subject
to Engen’s consent and subsequent
approval, cause the Partitions to conform to Engen’s reasonable
requirements.
7.3.
Without prejudice to anything elsewhere contained, the dealer shall
not effect any installations
at the Premises (including any security
cameras) nor effect any alterations thereto, without Engen’s
prior written consent.’
[5] According to
Engen, notwithstanding Business Zone’s undertakings in the
email of 10 August 2010 and the second addendum,
over the next two
months the latter continued to make alterations to the premises
without its consent. As a result, on 12 October
2010, Engen’s
attorney addressed a letter to Business Zone noting that new
unauthorised alterations had been made and giving
notice under Clause
34.5 of Schedule 2 to the second lease that unless the unauthorised
alterations were removed within seven days
Engen reserved its right
to cancel the second lease.
[2]
In response to that notice, Business Zone’s
attorney addressed a letter dated 15 October 2010 in which it was
conceded that
the alterations in question had been effected and that
it had not sought, much less obtained, Engen’s written consent
for
the alterations as required by the second lease. In that letter,
Business Zone’s attorney sought to motivate the need for
the
alterations, by contending that they were ‘not only reasonable
but necessary in the circumstances to ensure safety and
security at
the premises and also allowing our client to ensure that it complies
with its obligations to always have sufficient
stock on hand’
and,
ex post facto
,
requested Engen’s consent thereto. That letter continued:
‘
To
date your client has still not complied with its obligations of
providing two additional access entry points, and as such is
in
breach of the lease addendum. The foresaid breach is resulting in a
lack of traffic flow to our client’s premises which
invariably
is resulting in a lack of turnover to our clients business. This will
necessarily result in our client being unable
to achieve its target
in respect of turnover. We hereby formally place your client on terms
in respect of the aforementioned breach
and your client is expected
to remedy same within 7 days of receipt of this notice. Should your
client fail to do so, our client
reserves its rights to approach the
appropriate High Court for the necessary relief without prejudice to
any of its other rights
which it has in law.’
[6] Engen did not
grant the
ex post facto
consent sought and, when the seven day notice period expired without
Business Zone having remedied its breach, it cancelled the
second
lease by letter of its attorney dated 22 October 2010. In response,
Business Zone’s attorney took issue with Engen’s
cancellation of the second lease and intimated that it would ask the
Controller to refer the cancellation of the second lease to
arbitration under Section 12B, inasmuch as it viewed Engen’s
conduct ‘to be an unfair and unreasonable contractual
practice’. That letter was followed by an email on 25 October
2010 where Business Zone’s attorney again took issue
with
Engen’s cancellation of the second lease and threatened to
apply urgently to the High Court for an order compelling
Engen to
continue supplying Business Zone with fuel.
[7] In response, on 26
October 2010, Engen’s attorney addressed the following letter
to Business Zone’s attorney:
‘
2.
In pursuance of practical considerations, our client continues supply
of petroleum
products, pending a proposed meeting between the parties
(to be held say within the next 7 days), on the following basis:
2.1.
the supply of petroleum products to your client / operation of the
site by your client is on
an
ad hoc
basis (“Interim
arrangement”), and:
2.1.1.
the Interim arrangement:
2.1.1.1.
is terminable by our client on 48 hours’ notice;
2.1.1.2.
does not prejudice the cancellation of the Operating lease
already
effected / any of our client’s rights;
2.1.1.3.
is not to be construed as reviving the Operating lease
nor as a
waiver, novation or otherwise of any of our client’s rights;
2.1.1.[3].
does not afford your client any expectation, claim or otherwise;
2.1.1.[4].
does not entitle your client to raise the Interim arrangement in
relation to court proceedings etc / to assist your client in any
manner.
2.2.
throughout the duration of the Interim arrangement, your client is to
comply with all the terms
and conditions of the Operating lease which
would otherwise have applied, had the Operating lease not have been
cancelled. Payment
for petroleum products is to be effected in the
usual manner;
2.3.
No variation, waiver, novation or otherwise of the Interim
arrangement / any provision thereof
/ any of our client’s
rights, shall be of any force or effect unless confirmed in writing
by our offices and then on our
client’s instructions. No
revival of the Operating lease / conclusion of a new Operating lease
shall be of any force or effect
unless reduced to writing and signed
by the parties.’
[8] The interim
arrangement continued for several months. However, the disputes were
not resolved and on 24 March 2011, Engen’s
attorney addressed a
letter to the Business Zone’s attorney terminating the interim
arrangement on 48 hours’ notice.
On 27 March 2011, Business
Zone’s attorney addressed a letter to Engen’s attorney
taking issue with Engen’s termination
of the interim
arrangement and indicating that Business Zone would be seeking a
referral of Engen’s cancellation of the second
lease to
arbitration in terms of s 12B of the Act. Three days later, Engen’s
attorney addressed a letter to Business Zone’s
attorney stating
that Business Zone had been storing, selling and dealing in
impermissible foreign petroleum products, which conduct
was
prohibited under clause 4.2 of Schedule 2 to the second lease.
[3]
In the letter, Engen’s attorney gave
notice that, to the extent that the operating lease had not already
been terminated,
it was being terminated summarily as a result of
Business Zone’s said breach as Engen was entitled to do in
terms of clause
34.1 of Schedule 2 to the second lease.
[4]
[9] On 31 March 2011,
Business Zone instituted urgent proceedings against Engen in the High
Court. It sought an order directing
Engen to continue supplying it
with petroleum products and not to interfere with the supply of
products to the Woolworths’
outlet, pending a decision by the
Controller to its request for a referral of a dispute with Engen to
arbitration under s 12B,
and thereafter finalisation of such
arbitration proceedings. At that stage, the alleged unfair practices
had not yet been formulated.
The next day, namely, 1 April 2011, the
high court (per Wepener J) issued the following order:
‘
1.
Pending the determination of part B of this application:
1.1.
The
respondent [Engen] is directed to continue to supply the applicant
[Business Zone] with petroleum products in accordance with
its
standard terms and conditions of sale and in accordance with the
previous practice between the parties.
1.2.
The
Respondent is interdicted and restrained from preventing delivery of
product by Woolworths (Pty) Limited to the applicant’s
business.’
[10] The Part B relief was
formulated as follows in the notice of motion:
‘
1.
The respondent be directed to continue to supply the applicant
[Business Zone] with
petroleum products in accordance with its
standard terms and conditions of sale and in accordance with the
previous practice between
the parties:
1.1.
pending
the consideration by the Controller of Petroleum Products of the
applicant’s request in terms of section 12B of the
Petroleum
Products Act, 120 of 1977 (“the Act”), and
1.2.
pending
finalisation of any arbitration proceedings in terms of section 12B
of the Act in the event of the Controller of Petroleum
Products
referring the matter to arbitration.’
The
interim relief granted pending the outcome of the Part B is still in
force. Business Zone is still in occupation of the premises
and Engen
is still supplying it with petroleum products.
[11] Business Zone
lodged its request for arbitration with the Controller on 4 April
2011. It identified three claims based on alleged
unfair contractual
practices. Claim A alleged a contractual obligation on Engen under
the first addendum to provide additional
access points to the site on
Barry Hertzog Avenue and Crocodile Road and contended that Engen’s
failure to perform this obligation
amounted to an unreasonable and
unfair contractual practice. Claim B took issue with Engen’s
failure retrospectively to grant
consent for the unauthorised
alterations to the leased premises, its cancellation of the second
lease in October 2010 due to the
alterations (the first
cancellation), its alleged interference with supplies to the
Woolworths’ outlet and ‘the conduct
of Engen in
totality’. Business Zone alleged that these acts of Engen all
amount to unfair and unreasonable contractual practices.
It also
alleged that Engen has an unfair and unreasonable practice with other
dealers of cancelling contracts on spurious grounds
as a means of
dissuading them from raising disputes with Engen. Claim C alleged
that Engen’s conclusion of the contract with
a KFC franchisee
to operate the KFC franchise from the KFC area and its subsequent
collection of rental from the franchisee, all
of which occurred
without the consent of Business Zone, constituted an unfair and
unreasonable contractual practice.
[12] On 19 April
2011, Engen gave notice of its opposition to the request for
referral. On 21 July 2011, it filed its answering
affidavit in part B
of the urgent application and brought a counter-application for the
ejectment of Business Zone. In October
2011, Engen filed with the
Controller its response to the request for referral, in which it took
issue with the allegations by
Business Zone made in support of the
request for referral and drew attention to the counter-application
which it had launched in
the High Court. That counter-application
sought an order confirming the cancellation of the lease, inter alia
on the grounds of
dealing in foreign product in breach of the second
lease, which did not form part of Business Zone’s request for a
referral
to arbitration. Engen also raised a series of legal
objections to the referral.
[13] In turning down
Business Zone’s request, the Controller wrote to its attorney
on 27 February 2012:
‘
I
have been advised of the matter between the above parties and after
careful consideration of the request for arbitration, our
position on
the matter is as follows:
Section
12B of the Act states thus –
“
the
Controller of Petroleum Products may on request by a licensed
retailer alleging unfair or unreasonable contractual practise
(sic)
by a licensed wholesaler, or vice versa, require, by notice in
writing to the parties concerned, that the parties submit
the matter
to arbitration.”
Before
a matter can be referred to arbitration, the Controller of Petroleum
Products (hereinafter referred to as “the Controller”)
must be satisfied that the reason(s) for the request is as a result
of the alleged unfair or unreasonable contractual practice
by a
licensed retailer or wholesaler in the performance of an existing
valid contractual agreement in an ongoing business relationship.
The
information we have before us is that there is no longer a valid
agreement between Emmarentia and Engen. The agreement forming
the
basis of Emmarentia’s allegations of unfair or unreasonable
contractual practice have been cancelled. Further, Emmarentia’s
allegations of unfair or unreasonable contractual practice are
centered around the agreements which are currently under
consideration
by the South Gauteng High Court and as such, the matter
is therefore
sub-judice
and can no longer be considered for
arbitration.
In
the light of the aforegoing, it is our considered view that in the
absence of an existing valid Agreement of Lease and Operation
of
Service Station, Emmarentia’s request for arbitration does not
satisfy the minimum requirements in terms of section 12B
of the Act.
As such, the Controller has no basis for referring this matter to
arbitration because of the requirements in the regulatory
framework.
In
the spirit of facilitating a speedy resolution to the dispute we urge
parties to allow the South Gauteng High Court to give a
determination
on the validity of the agreements before the matter can be taken
further.
We
also encourage parties to use other dispute resolution forums which
dispose of disputes promptly as opposed to protracted court
proceedings.
It
will be in the best interest of all parties concerned if the matter
is resolved promptly and amicably.’
[14] Business Zone took the
Controller’s decision on appeal to the then Minister of
Minerals and Energy (the Minister) in
terms of 12A of the Act. The
appeal, which was opposed by Engen, failed. In a letter dated 6
November 2012 the Minister informed
Business Zone’s attorney:
‘
1.
I have, in terms of the provisions of section 12A of the Petroleum
Products Act, 1977
(hereinafter referred to as the “Act”),
considered the appeal lodged on behalf of your client, The Business
Zone 1010
CC t/a Emmarentia Convenience Centre, against the decision
of the Controller of Petroleum Products to refuse your request for
the
referral of the matter to arbitration in terms of section 12B of
the Act.
2.
After careful consideration of all the facts and arguments presented
before me,
I hereby confirm the decision made by the Controller of
Petroleum Products refusing the submission of the matter to
arbitration
in terms of section 12B of the Act.
3.
The reason for my aforementioned decision is that, in my opinion
section 12B
of the Act may only be applied in cases where there is an
existing or continuing contract between the parties. Since the
validity
of the termination of the contract by Engen Petroleum
Limited is disputed by your client, and the matter is currently
before a
competent court, we believe that the arbitration under
section 12B of the Act would not be proper. I am advised further that
a
single juristic act (the exercise of a legal right to cancel a
contract) intended to terminate an agreement cannot, in law,
constitute
or be characterised as “an unfair or unreasonable
contractual practice” for purposes of section 12B of the Act.
Therefore,
an arbitrator would not have jurisdiction to determine the
validity or otherwise the cancellation of the agreement.
4.
I am also mindful of the fact that the Controller’s powers to
refer a matter
to arbitration in terms of section 12B of the Act is a
discretionary power and I believe that, having considered the
circumstances
and arguments submitted by both parties, the decision
of the Controller of Petroleum Products to refuse to submit the
matter to
arbitration was justified in the circumstances.’
[15] Aggrieved, Business
Zone took the decisions of both the Controller and Minister on
review. The Controller was cited as the
first respondent, the
Minister as the second, and Engen as the third. Whilst Engen opposed
the application, neither the Controller,
nor the Minister, took any
part in the proceedings in the court below. Business Zone sought an
order, the material part of which
read:
‘
1.
Reviewing and setting aside the decision delivered by the first
respondent [the Controller]
on 27 February 2012 in terms of which the
applicant’s [Business Zone’s] request to refer an alleged
unfair or unreasonable
contractual practice to arbitration pursuant
to
section 12B
of the
Petroleum Products Act, 120 1977
was refused.
Alternatively
to prayer 1
2.
Reviewing and setting aside the decision delivered by the second
respondent [the
Minister] on 6 November 2012 in terms of which the
applicant’s request to refer an alleged unfair or unreasonable
contractual
practice to arbitration pursuant to section 12B of the
Petroleum Products Act, 120 1977
was refused and the first
respondent’s decision was confirmed.
3.
Directing the first respondent,
alternatively
the second
respondent, to refer the applicant’s request relating to an
unfair or unreasonable contractual practice to arbitration
in terms
of section 12B of the Act and to appoint an arbitrator to adjudicate
over such dispute.
Alternatively
to paragraph 3
4.
Directing that the first respondent,
alternatively
the second respondent, reconsider the applicant’s request for
referral to arbitration attached to the founding affidavit
as
annexure “O”, subject to such directions as this
Honourable Court deems meet.’
[16] The application
succeeded before Prinsloo J, who issued the following order:
‘
1.
The decision delivered by the first respondent on 27 February 2012 in
terms of which
the applicant’s request to refer an alleged
unfair or unreasonable contractual practice to arbitration in terms
of
Section 12B
of the
Petroleum Products Act, NO 120 of 1977
, was
refused, is reviewed and set aside.
2.
The decision delivered by the second respondent on 6 November 2012,
in terms
of which the decision of the first respondent, described in
1 above, was confirmed, is reviewed and set aside.
3.
The applicant’s request for referral of an alleged unfair or
unreasonable
contractual practice (as set out in annexure “O”
to the founding affidavit) is referred to arbitration in terms of
Section 12B
of the
Petroleum Products Act, 120 of 1977
. The first and
second respondents are ordered to facilitate this referral, in terms
of
Section 12B
, as a matter of urgency.
4.
The costs of the application, including the costs of two counsel, are
to be paid
by the third respondent save for the costs referred to in
5 hereunder.
5.
The costs of 1 397 pages of the record (being the duplicated
pages) are
disallowed.’
Engen
appeals with the leave of the court below. The Controller and
Minister have filed a notice with the Registrar intimating that
they
abide the decision of this court.
[17] Having reviewed
and set aside the decisions of both the Controller and the Minister,
the court below held that it was at liberty
to substitute its own
decision for those decisions because of the delay in the matter and
it accordingly referred all the matters
in Claims A, B and C to
arbitration itself.
[18] Section 12B of the Act
reads:
‘
Arbitration
–
(1)
The Controller of Petroleum Products may on request by a licenced
retailer alleging
an unfair or unreasonable contractual practice by a
licenced wholesaler, or
vice versa
, require, by notice in
writing to the parties concerned, that the parties submit the matter
to arbitration.
(2)
An arbitration contemplated in subsection (1) shall be heard –
(a)
by an
arbitrator chosen by the parties concerned; and
(b)
in accordance
with the rules agreed between the parties.
(3)
If the parties fail to reach an agreement regarding the arbitrator,
or the applicable
rules, within 14 days of receipt of the notice
contemplated in subsection (1) –
(a)
the
Controller of Petroleum Products must upon notification of such
failure, appoint a suitable person to act as arbitrator, and
(b)
the
arbitrator must determine the applicable rules.
(4)
An arbitrator contemplated in subsection (2) or (3) –
(a)
shall
determine whether the alleged contractual practices concerned are
unfair or unreasonable and, if so, shall make such award
as he or she
deems necessary to correct such practice; and
(b)
shall
determine whether the allegations giving rise to the arbitration were
frivolous or capricious and, if so, shall make such
award as he or
she deems necessary to compensate any party affected by such
allegations.
(5)
Any award made by an arbitrator contemplated in this section shall be
final and binding
upon the parties concerned and may, at the
arbitrator’s discretion, include an order as to costs to be
borne by one or more
of the parties concerned.’
[19] In refusing
Business Zone’s request for arbitration, the Controller
appeared to rely on the decision of
Engen
Petroleum Ltd v Tlhamo Retail (Pty) Ltd.
[5]
In
Tlhamo
,
Boruchowitz J concluded that s 12B conferred jurisdiction on an
arbitrator only over ongoing practices that took place within
the
context of the existing agreement. The court below held that the
Tlhamo
decision was clearly wrong and that the Controller and the Minister
had acted under a mistake of law by following it. Prinsloo
J took a
particularly narrow view of the discretion vested in the Controller
under s 12B holding that (para 58):
‘
I
accept, because of the use of the word “may”, that the
controller has a discretion whether or not to grant the request
but
the only jurisdictional requirement for this process to be activated
appears to be an allegation by the retailer (or the wholesaler
for
that matter) of an unfair or unreasonable contractual practice by the
other one and a request by the aggrieved party for the
matter to be
referred to arbitration.
All
that is required of the Controller is to determine whether the
applicant has alleged an unfair or unreasonable contractual practice.
It seems to me that a 12B request ought only to be refused by the
Controller in the clearest of cases, for example, where the
Controller, on good grounds, can conclude that what is alleged is
clearly not, and can never be, an unfair or unreasonable contractual
practice. It seems to me that the Controller can arrive at such a
conclusion only in the rarest and most exceptional of circumstances
because it would amount to pre-judging the issue.’
In particular the
court below held that the Controller was not entitled to ‘decide
that there is no longer a valid agreement
between [Business Zone] and
Engen’ or have regard to the pending high court application in
which the validity of the second
lease was in issue. And that the
Minister’s decision in ‘more or less adopting [the
Controller’s] reasoning as
her own . . . also falls to be
reviewed and set aside.’
[20] The Act itself
provides no guidance for the exercise by the Controller of the
discretion conferred by s 12B. It is nonetheless
important to
recognise that such power, is not granted in the abstract. The power
is granted to serve a particular purpose. That
purpose can be
discerned from the legislation that is the source of the power (see
SA Jewish Board of Deputies v Sutherland NO
2004 (4) SA 368
(W) para 29). According to the English Court of Appeal (
R v
Somerset County Council, ex parte Fewings
[1995] EWCA Civ 24
;
[1995] 3 AllER 20
at 32
B-E), there are in fact three categories of consideration relevant to
the exercise of the power:
‘
First,
those clearly (whether expressly or impliedly) identified by the
statute as considerations to which regard must be had. Second,
those
clearly identified by the statute as considerations to which regard
must not be had. Third, those to which the decision-maker
may have
regard if in his judgment and discretion he thinks it right to do so.
There is, in short, a margin of appreciation within
which the
decision-maker may decide just what considerations should play a part
in his reasoning process’.
[21] Courts of law
must consider a matter such as this from the point of view of
reasonableness and not upon too narrow an interpretation
of the
powers conferred by the statute (
City of
Cape Town v Claremont Union College
1934
AD 414
at 420). It must appreciate that the Controller is endowed
with these powers, which he or she will be asked to exercise from
time
to time, details of which cannot be specifically provided for in
the statute which constitutes them. Here, the parties had filed
voluminous papers with the Controller, who was thus fully aware of
all of the relevant considerations. Prinsloo J appeared to take
the
view that the mere allegation of an unfair or unreasonable
contractual practice, without more, triggered the entitlement to
arbitration. The learned judge went further: he required the
Controller to approach the enquiry on the basis that the request
should be declined ‘only in the rarest and most exceptional of
circumstances’.
In my judgment, this
is not how an application of this kind should be approached, because
a court should not fetter the Controller’s
discretion in any
manner and particularly not by adopting an approach which brooks of
no departure except in the ‘rarest
and most exceptional
circumstances’. It must be for the Controller to decide each
case upon a consideration of all the relevant
features, without
adopting a predisposition either in favour of or against a referral
to arbitration.
[22] Section 12B vests in
the Controller a discretionary power to subject parties to an
arbitral jurisdiction to the apparent exclusion
of the high court.
The section must accordingly be interpreted in a manner which draws a
clear line between what falls within the
arbitral jurisdiction it
contemplates, and the jurisdiction of the high court. In
Tlhamo
,
Boruchowitz J focussed on the ordinary meaning of the wording of the
section and concluded that it conferred no jurisdiction on
an
arbitrator to make or stipulate terms of a new contract for the
parties or to investigate the fairness or reasonableness of
an act of
cancellation of a contract. Instead, so held Boruchowitz, the only
jurisdiction conferred on an arbitrator was (at 9):
‘
to
determine whether an ongoing practice in the performance of an
existing agreement or contract is unfair or unreasonable. . .
.
The
section empowers an arbitrator to determine how an existing contract
is to be implemented and does not go beyond that.’
In my view, on this
score,
Tlhamo
and
Hansco Motors CC t/a Hansa Motors v BP
Southern Africa (Pty) Ltd
,
[6]
which followed it, were correctly decided.
[23] In terms of
Section 12B(4) an arbitrator, once appointed, is faced with two
rather stark choices, namely to determine whether,
on the one hand,
the alleged practices are ‘unfair or unreasonable’
(subsec (4)
(a)
)
or, on the other, the allegations giving rise to the arbitration were
frivolous or capricious (subsec (4)
(b)
).
Section 12B(4)
(a)
operates in relation to allegations of an ‘unfair or
unreasonable’ contractual practice and enjoins an arbitrator
appointed under its provisions to make whatever award is necessary
‘to correct such practice’. Subsection 12B(4)
(b)
,
which operates in relation to allegations found to be ‘frivolous
or capricious’, authorises the arbitrator to make
such award as
he or she deems necessary to compensate any party affected by such
allegations. Section 12B(4) thus distinguishes
between a corrective
remedial jurisdiction, under subsection (4)
(a)
,
and a compensatory remedial jurisdiction, under subsection (4)
(b)
.
A corrective remedial jurisdiction can operate only prospectively. In
relation to contractual practices, a corrective remedial
jurisdiction
accordingly presupposes an ongoing contractual relationship. Where a
contract has been terminated, a practice under
it can no longer be
corrected and a corrective remedial jurisdiction is accordingly
rendered nugatory. The only remedy available
to an injured party
after a contract has been terminated is perhaps a damages remedy. But
an award of damages is not competent
under a corrective remedial
jurisdiction – it requires the existence of a compensatory
remedial jurisdiction.
[24] If - as I have
sought to demonstrate - the jurisdiction conferred by section
12B(4)
(a)
is a corrective remedial jurisdiction and not a compensatory one, it
cannot confer jurisdiction on an arbitrator to decide disputes
which
arose under a contract which has been terminated. Moreover, s
12B(4)
(a)
cannot vest in an arbitrator the power to determine whether a
contract has been validly terminated because if it did, it would
confer upon the arbitrator the power to make a decision which itself
would determine whether or not she had jurisdiction over the
dispute.
Importantly, an arbitrator has no power to fix the scope of her
jurisdiction – that is fixed by her terms of reference.
[7]
That jurisdiction must be objectively
ascertainable in advance of the arbitration, for an arbitrator cannot
by her decision confer
a jurisdiction upon herself that she does not
in law possess.
[8]
[25] When viewed in
the context of the Act as a whole, the purpose of section 12B(4)
(a)
is, as correctly reflected in the
Tlhamo
judgment and the decisions of the Controller and the Minister, to
regulate the relationship between a wholesaler and a retailer
against
the backdrop of a valid contract. In particular, the determination of
the validity of the cancellation of a lease cannot
fall within the
jurisdiction of an arbitrator under section 12B(4)
(a)
.
In terms of our common law, cancellation is ordinarily the proper
preserve of the high court. And, it is a sound rule to construe
a
statute in conformity with the common law, save where the statute
itself evidences a plain intention on the part of the legislature
to
alter it.
[9]
What is more, on the contention advanced by
Business Zone, the high court’s jurisdiction would be ousted in
respect of that
issue. However, there is nothing in the section to
suggest that the jurisdiction of the high court is excluded. Nor, is
such an
ouster necessarily implicit in its terms, while it is trite
that there is a strong presumption against such an implication.
[10]
Moreover, the logical stopping place of that
contention, as I understood the submission, is that if there are
conflicting decisions
on the issue, the arbitrator’s decision
would trump that of the court.
[26] Business Zone’s
contention would lead as well to a potentially chaotic situation if
an arbitrator and a court both had
jurisdiction to determine the
existence of the contract. In
MV Iran
Dastghayb Islamic Republic of Iran Shipping
Lines v Terra Marine SA
[2010] ZASCA
118
;
2010 (6) SA 493
(SCA) para 31 it was pointed out that:
‘
It
suffices to state that it should be fairly obvious that to permit
parallel proceedings to commence and run in different
fora
at the same time and in respect of essentially the same dispute is
undesirable. In
Universiteit
van Stellenbosch v JA Louw (Edms) Bpk
[11]
this court stated:
‘
As
to the undesirability of allowing two different proceedings in two
separate tribunals, the
dicta
in the English Court of Appeal in
Taunton-Collins
v Cromie and Another
[12]
are very apposite. At 333 Lord Denning said:
"It
seems to me most undesirable that there should be two proceedings in
two separate tribunals – one before the official
referee, the
other before an arbitrator – to decide the same questions of
fact. If the two proceedings should go on independently,
there might
be inconsistent findings. The decision of the official referee might
conflict with the decision of the arbitrator.
There would be much
extra cost involved in having two separate proceedings going on side
by side; and there would be more delay.
Furthermore, as counsel for
the plaintiff pointed out, if this action before the official referee
went on by itself – between
the plaintiff and the architect –
without the contractors being there, there would be many procedural
difficulties. For instance,
there would be manoeuvres as to who
should call the contractors, and so forth. All in all, the
undesirability of two separate proceedings
is such that I should have
thought that it was a very proper exercise of discretion for the
official referee to say that he would
not stay the claim against the
contractors."’
[27] Thus, for
example, if a court were to find that a lease had been validly
cancelled and ordered the eviction of the tenant,
such an order could
not live side-by-side with a concurrent finding that the cancellation
was unfair or unreasonable (especially
in circumstances where the
award of an arbitrator is final and binding on the parties). In a
similar vein, breach of the court
order would constitute contempt but
would be lawful in terms of the arbitrator’s finding. It would
create intolerable delays,
sequential proceedings before different
fora, the potential for forum shopping and uncertainty for the
parties and for interested
third parties in their relationships with
the parties. If one is to avoid these anomalous consequences it is
necessary to define
precisely the ambit of the jurisdiction of the
arbitrator, on the one hand, and the courts on the other. The
Tlhamo
judgment does precisely that. It preserves for the high court
decisions on questions of legality such as the validity of a
cancellation
of a contract or the terms of a contract while leaving
to the arbitrator the question of unfairness in the implementation of
the
contract.
[28] Importantly, the
phrase ‘unfair or unreasonable contractual practice’ must
derive meaning from its context, namely,
the bulk supply of petroleum
products. The jurisdiction of the arbitrator is not a plenary
jurisdiction which extends to any contract
whatsoever. Given its
setting within the Act, it would seem that only those aspects of the
contractual relationship which relate
directly to the supply in bulk
of petroleum products can be subjected to arbitration, under section
12B. In that sense much of
Business Zone’s complaint had, at
best, a tenuous connection to the supply of petroleum products. In
claim A, Business Zone
contended that Engen had an obligation to
provide additional access points to the site. But, the site
development plan, which was
attached to the first addendum, did not
provide for new access points. In any event, all new access points
would require the official
approval of the Johannesburg Roads Agency
and are subject to a process in which interested parties have a right
of objection. Central
features of Claims B and C related to the
Woolworths and KFC outlets. In terms of clause 11 of the first
addendum the leased premises
had been redefined so that they were now
confined to the service station area alone. That, in and of itself,
may have been destructive
of Business Zone’s Claim C. Further,
an arbitrator could hardly have had jurisdiction over parties other
than licensed wholesalers
and retailers of petroleum products. Thus
the further one goes from the supply in bulk of petroleum products,
the more interests
are implicated of parties who cannot be subject to
the jurisdiction of the Controller. Accordingly, the Controller, who
has no
jurisdiction over Woolworths or a KFC franchisee, cannot
properly exercise jurisdiction over a dispute between Engen and the
dealer
in relation to the contractual provisions which involve and
affect those interests. In the circumstances, it could hardly have
been competent for either the Controller or Minister to have referred
these disputes to arbitration.
[29] On any
interpretation of section 12B(4)
(a)
,
it contemplates a situation where both the high court and arbitrator
may have some concurrent jurisdiction over the same subject
matter.
The discretion vested in the Controller must be exercised having
regard to this fact. In particular,
to the
extent that complaints of ‘unfair or unreasonable practices’
are, in effect, complaints of a failure by one of
the parties to
perform its obligations under the contract between them, the
Controller must decide whether those, being essentially
complaints
that turn on the meaning of the contract, would be better determined
by the high court under its ordinary jurisdiction,
and if there is
any prospect of parallel proceedings, the Controller should consider
what the potential impact of the high court
proceedings would be on
the dispute which he may refer to arbitration and whether the
existence of the high court proceedings is
a good enough reason to
refuse the request for arbitration (or to defer a final decision
thereon).
[30] Finally,
accepting that
Tlhamo
was correctly decided, there was no error of law on the part of the
Minister and the Controller and it must follow that the judgment
of
the court below falls to be set aside. In any event it is important
to bear in mind that when both the Controller and Minister
took their
decisions in this case,
Tlhamo
was
the final word on the subject. Both of them were thus not free to
simply ignore that decision on the assumption that it would
in due
course be overruled. But even if Prinsloo J was correct in overruling
Tlhamo
(and as I have already indicated he was not) he clearly erred in
failing to have regard to the pending ejectment application flowing
from the second cancellation. Thus, quite aside from the legal
principle in
Tlhamo
,
the facts of the present case (to which the Controller was clearly
alive) were such that if the matter was referred to arbitration,
the
arbitrator would not have jurisdiction to determine whether the
contract remained in force and her proceedings would have been
hamstrung accordingly. Thus, by the time the Controller came to
exercise her discretion on the request for referral, there was
already pending before the high court an ejectment application
brought by Engen on the basis of the second cancellation that was
not
the subject of any request for arbitration. Nothing in the request
for arbitration would have been capable of affecting the
outcome of
Engen’s application for ejectment on the basis of this
cancellation. But the outcome of that application could
have terminal
consequences for the arbitration on any approach to the jurisdiction
of the arbitrator. If Engen succeeded in the
high court on that
application, there would be no lease and no ongoing business
relationship between the parties. This would have
meant that the
arbitrator would have been reduced to making an award absent any
ongoing contractual relationship between the parties.
In this
context, it is significant that the request for a referral to
arbitration from Business Zone did not identify the relief
that it
was claiming. The discretion of the Controller had to be exercised in
the light of these facts and, in the circumstances
of this case, it
was wholly appropriate for the Controller to decide not to accede to
the request for referral to arbitration while
the high court
proceedings were pending, but rather to require they be finalised
first.
[31] Before closing
it is necessary to make some remarks about the record and the
approach of the legal representatives to compliance
with the rules of
this court. The record filed with the Registrar of this court ran to
approximately two thousand pages. It commenced
with four volumes
described as a core bundle, which consisted of a haphazard selection
of documents and exhibits. Rule 8 of this
court’s rules
envisage that a record would be prepared sequentially and logically
and that unnecessary and duplicated documents
would be excluded.
Various documents that played little part before the court below and
no part at all in the appeal, which should
have been excluded in
terms of rule 8, were not. On any reckoning very little regard was
had to the rules of this court and the
true issues in the case in
preparing the record. In response to repeated complaints from
Business Zone’s attorney that the
record was defective and had
to be reconstituted, Engen’s attorney stated somewhat
euphemistically that ‘at most it
suffered from a few
shortcomings’. Before us Counsel accepted that had the rules
been observed the record could have been
reduced by at least fifty
per cent. This would not only have eased our task considerably but
would also have reduced the costs
substantially. The order for costs
will take account of this.
[32] In the result:
1.
The appeal is upheld with
costs, including those of two counsel, save that the costs
of the
preparation, perusal and copying of the record shall be limited to
fifty per cent of the costs incurred in those tasks.
2.
The order of the court
below is set aside and replaced by the following order:
‘
The
application is dismissed with costs including those of two counsel.’
_________________
V M Ponnan
Judge of
Appeal
APPEARANCES:
For
Appellant:
G Marcus SC (with him M Chaskalson SC)
Instructed
by:
AD Hertzberg
Attorneys, Johannesburg
Honey
Attorneys, Bloemfontein
For
First Respondent:
J Suttner SC (with him N P G Redman SC)
Instructed
by:
Des Naidoo
Attorneys, Johannesburg
Claude Reid,
Bloemfontein
[1]
Clause 8.1 provided:
‘The Dealer
[Business Zone] shall not make any alteration or addition to the
Premises, whether structural or otherwise,
without the prior written
consent of the Company [Engen]. Should the Company grant such
consent, the Dealer shall not be entitled
to any compensation
whatsoever for any such alteration or addition, regardless of the
reason therefore, and shall, if so required
by the Company upon
termination of this Agreement, forthwith remove such alteration or
addition and reinstate the Premises to
their previous condition, at
the Dealer’s own cost.’
[2]
Clause 34.5 reads: ‘Subject to the other
provisions of this Agreement (including but not limited to
sub-clauses 34.1, 34.2
and 34.3 of this Schedule 2), should the
Dealer breach any of his other obligations in terms of this
Agreement (i.e. other than
those mentioned in, or contemplated by
the provisions of, sub-clauses 34.1, 34.2 and 34.3 of this Schedule
2), the Company shall
be entitled to give notice to the Dealer in
writing to remedy the breach concerned within a reasonable period
commensurate with
the breach concerned: Provided that if such breach
is not reasonably capable of being remedied within the period
concerned or
should circumstances have arisen or arise during the
period of the notice concerned and which, being partly or entirely
beyond
the control of the Dealer, prevent it from so remedying such
breach within the period concerned, then the Dealer shall be allowed
such additional period as may reasonably be required therefore.
Without detracting from the right of the Company to give any
notice
period commensurate for a breach concerned to be remedied, in the
case of a dispute or uncertainty as to what is a reasonable
period,
the parties agree that a period of seven days is reasonable for a
breach to be remedied unless the foresaid proviso applies.
Should
the Dealer fail to remedy the breach within the period allowed
therefore the Company shall be entitled at any time thereafter
to
cancel forthwith this Agreement on written notice to the Dealer.’
[3]
Clause 4 reads:
‘4.1.
Subject to clause 11 of this Schedule 2, the Dealer shall purchase
exclusively from
the Company or the Company’s nominated or
approved suppliers the Dealer’s entire requirements of
Automotive Fuel
marketed by the Company for resale from the Premises
and shall not directly or indirectly store on or sell or distribute
from
the Premises or through the Business any Automotive Fuel
whatsoever other than that purchased from the Company.
4.2.
Subject to sub-clause 4.3 of this Schedule 2, the Dealer shall
purchase exclusively from
the Company or the Company’s
nominated or approved suppliers the Dealer’s entire
requirements of Automotive Products
(being automotive lubricants,
greases, or any substitute for these products) marketed by the
Company.
4.3.
Should the Company or its nominated or approved suppliers be unable
to deliver the required
Automotive Products, the Dealer shall be
permitted to purchase such supplies from other sources, provided the
consent of the
Company has first been obtained, which consent shall
not unreasonably be withheld.
4.4.
Should the Company market particular range/s of car care products,
the Company shall
be entitled by notice to the Dealer to include
such car care products in the range of Automotive Products for the
purposes of
sub-clause 4.2 of this Schedule 2 and the provisions of
sub-clause 4.2 shall then apply mutatis mutandis to such car care
products.’
[4]
Clause 34.1 reads:
‘
34.1
Notwithstanding anything to the contrary contained in this
Agreement, should –
(a) the Dealer breach any
of his obligations in terms of clause 4.1 of this Schedule
2 (i.e.
Subject to clause 11 of this Schedule 2, the Dealer shall purchase
exclusively from the Company the Dealer’s entire
requirements
of Automotive Fuel for resale from the Premises and shall not
directly or indirectly store on or sell or distribute
from the
Premises or through the Business any Automotive Fuel whatsoever
other than that purchased from the Company); or
(b) the Dealer breach any
of his obligations in terms of clause 4.2 of this Schedule
2 (i.e.
Subject to sub-clause 4.3 of this Schedule 2, the Dealer shall
purchase exclusively from the Company or the Company’s
nominated or approved suppliers the Dealer’s entire
requirements of Automotive Products [being automotive lubricants,
greases, or any substitute for these products] marketed by the
Company); or
. . .
then the Company shall, notwithstanding anything to the contrary
contained in this Agreement, be entitled at any time thereafter
to
cancel forthwith this Agreement on written notice to the Dealer.’
[5]
Engen Petroleum Ltd v Tlhamo Retail (Pty) Ltd
2010 JDR 0958
(GSJ).
[6]
Hansco Motors CC t/a Hansa Motors v BP
Southern Africa (Pty) Ltd
[2011]
ZAKZPHC 48 paras 30 and 31.
[7]
Radon Projects (Pty) Ltd v NV Properties (Pty)
Ltd
[2013] ZASCA 83
;
2013 (6) SA 345
(SCA) para 28.
[8]
Minister of Public Works v Haffejee NO
[1996]
ZASCA 17
;
1996 (3) SA 745
(A) at 751F-G.
[9]
Nedbank v National Credit Regulator
[2011] ZASCA 35
;
2011 (3)
SA 581
(SCA) para 38.
[10]
Metcash Trading Ltd v Commissioner, South African Revenue Service
[2000] ZACC 21
;
2001 (1) SA 1109
(CC) para 43.
[11]
1983 (4) SA 321
(A) at 335H-336A.
[12]
[1964] 2 All ER 332.