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[2014] ZASCA 22
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Comwezi Security Services (Pty) Ltd and Another v Cape Empowerment Trust Ltd (182/13) [2014] ZASCA 22 (28 March 2014)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
NOT
REPORTABLE
Case
No: 182/13
In
the matter between:
COMWEZI
SECURITY SERVICES (PTY)
LTD
.............................................
FIRST
APPELLANT
MOHAMED
SHAFFIE MOWZER
NO
........................................................
SECOND
APPELLANT
and
CAPE
EMPOWERMENT TRUST
LTD
....................................................................
RESPONDENT
Neutral
citation:
Comwezi Security Services
v Cape Empowerment Trust
(182/13)
[2014] ZASCA 22
(28 March 2014)
Coram
:
Mpati P, Lewis, Bosielo and Wallis JJA and Van Zyl AJA
Heard:
10 March 2014
Delivered:
28 March 2014
Summary:
Contract – repudiation –
election not to accept repudiation – effect of repudiation on
contractual obligations
– repudiating party placing reliance on
failure of innocent party to comply with its contractual obligations
– obligation
to perform may in appropriate circumstances be
excused or suspended – repudiating party not to obtain an
advantage from its
own unlawful conduct – innocent party not
expected to perform a futile or useless act.
ORDER
On
appeal from:
Western Cape High Court,
Cape Town (Traverso DJP sitting as court first instance):
1
The appeal is dismissed with costs including those of two counsel.
2
The period of ten days in para 21.2 of the order of the high court
dated 5 December 2012 is to be construed as a reference
to ten
days from the date of this judgment.
JUDGMENT
Van
Zyl AJA (Mpati P, Lewis, Bosielo and Wallis JJA concurring)
[1]
The issue which arises for decision in this appeal requires us to
consider the conflict between two principles of law expressed
as
follows: A ‘“[p]arty may not repudiate a contract and at
the same time seek the advantage of a stipulation in the
very
contract he has repudiated”. What is the theory that justifies
such a principle? Against it there is the argument that
an unaccepted
repudiation is a “thing writ in water” not affecting
legal rights in any way . . . and that therefore
all contractual
rights remain available to the repudiating party.’
[1]
[2]
The background facts relevant to the dispute between the parties
appear from the judgment of this court in
Comwezi
Security Services (Pty) Ltd & another v Cape Empowerment Trust
Ltd
.
[2]
The first appellant, Comwezi, borrowed R4 million from the
respondent, Cape Empowerment Trust Ltd (CET). Repayment of this
amount was secured by way of a cession and pledge of shares in
Comwezi held by the Grapsy Trust (the trust), which is represented
by
the second appellant, Mr Mowzer, in his capacity as its trustee.
Comwezi failed to repay the loan and the parties entered into
settlement negotiations. These culminated in the conclusion of a
settlement agreement in terms of which the loan would be discharged
by way of the issue to CET of 25 ordinary shares in the issued share
capital of Comwezi.
[3]
The settlement agreement entitled CET to conduct a comprehensive due
diligence investigation in respect of the affairs of Comwezi
before
deciding finally whether to take up the shares in settlement of the
amount owing to it. Both Comwezi and the trust accepted
the
obligation to co-operate with CET in conducting this investigation,
and to lend their assistance. This included the obligation
to make
all documentation relating to Comwezi available for inspection. The
relevant provisions in this regard are found in clause
7 of the
settlement agreement:
‘
7
DUE DILIGENCE INVESTIGATION
7.1
CET shall be entitled, immediately after the Signature Date to
conduct a comprehensive due diligence investigation in respect
of the
affairs of Comwezi.
7.2
Comwezi and the Grapsy Trust shall co-operate with CET in conducting
the due diligence investigation and shall procure that
CET and its
duly authorised representatives are given every reasonable assistance
in this regard, and that all documentation of
Comwezi are made
available for inspection.
7.3
. . .
7.4
. . .
7.5
. . .
7.6
CET shall have the sole and absolute discretion to proceed with or
abandon this Settlement Agreement based on the outcome of
its own
findings and conclusions from the due diligence investigation.
7.7
CET shall, for purposes of the resolutive condition contained herein,
notify Comwezi by not later than 3 months after the Signature
Date
whether or not it is satisfied with the outcome of its due diligence
investigation and accordingly whether it wishes to proceed
with this
transaction, provided that if CET fails to so notify Comwezi
timeously, CET shall be deemed not to be satisfied.’
[4]
In terms of clause 10, which was described as a resolutive condition,
CET had to complete the investigation and notify Comwezi
in writing
that it was satisfied with the outcome thereof within 3 months after
the date of the signing of the said agreement.
If it did not do so,
the settlement agreement would lapse, and the parties would revert to
their respective positions under the
loan agreement. CET was given
the right to waive or ‘relax’ the resolutive condition.
Clause 10 in its entirety reads
as follows:
‘
10
RESOLUTIVE CONDITION
10.1
The Parties agree that this Settlement Agreement is subject to the
resolutive condition that CET has completed the due diligence
investigation set out in clause 7 in respect of Comwezi and has
notified Comwezi in writing that it is satisfied with the outcome
thereof by no later than 3 (three) months after the Signature Date.
10.2
In the event of CET not notifying Comwezi that it is satisfied with
the outcome of the due diligence investigation, this Settlement
Agreement will automatically fail and be of no further force and
effect and the Parties shall restore the
status quo ante
as
near as possible and no party shall have any claim against the other
party arising from this Settlement Agreement and for the
avoidance of
doubt, the Parties will then only be able to rely on the terms of the
Loan Agreement to enforce its rights against
the other.
10.3
The resolutive condition contained herein is imposed for the benefit
of CET and may be waived or relaxed, in writing, by CET
prior to the
period of 3 (three) months after the Signature Date.’
[5]
Relying on the power in clause 10.3, CET from time to time extended
the three month period. It needed to do so by reason of
Comwezi’s
failure to comply with its obligation to co-operate with the due
diligence investigation and to provide the necessary
documentation to
enable it to complete the investigation. The last extension was until
4 November 2011. Before the expiry of the
extended time period CET
approached the high court on application (the first proceedings)
seeking an order to compel Comwezi to
provide it with certain
specified documentation; to assist CET in conducting the
investigation; and to allow it access to Comwezi’s
premises.
Comwezi and the trust resisted the application, inter alia on the
basis that clause 10.3 of the settlement agreement
did not
entitle CET to extend the three month period as it had purported to
do, and that the settlement agreement had lapsed as
a result. The
high court held that the extensions were permissible and that the
agreement remained in force. On 10 October 2011
it granted an order
in favour of CET compelling Comwezi to co-operate with CET in the due
diligence investigation. Comwezi was
given 10 days to comply with the
order.
[6]
Comwezi lodged an appeal against that order. This court (per Wallis
JA) found that on a proper interpretation of clause 10.3,
it afforded
CET the right to extend the period in which it had to inform Comwezi
that it was satisfied with the outcome of the
due diligence
investigation, and by necessary inference, the period within which it
was to conduct that exercise.
[3]
On 21 September 2012 the appeal was dismissed with costs. CET
subsequently attempted to execute the order of the high court
of 10
October, only to be informed by Comwezi that because the three month
period had not been extended beyond 4 November
2011, the
settlement agreement had lapsed and that it would not comply with the
order. It is common cause that CET did not extend
the date for the
finalization of the due diligence investigation, or the date for
notifying Comwezi of the outcome of that investigation
beyond 4
November 2011.
[7]
This prompted CET once again to approach the high court for
assistance. It applied for a declaratory order that the settlement
agreement had remained valid and binding, and that Comwezi must
comply with the order of 10 October 2011. The high court (per
Traverso DJP) granted the relief sought. It is this order which forms
the subject matter of this appeal. Relying on the decisions
in
Erasmus
v Pienaar
[4]
and
Moodley
& another v Moodley & another
[5]
the high court found that the failure of Comwezi to comply with its
obligations in terms of the settlement agreement. This, the
court
said, constituted a repudiation of the agreement, and it ‘not
only entitles the innocent party to cancel, but that,
for as long as
the repudiation endures, it suspends the obligation of the innocent
party to perform in terms of the agreement’.
[8]
It was correctly acknowledged in argument by counsel for Comwezi that
the refusal of Comwezi to cooperate in the due diligence
investigation and its unjustified insistence that clause 10.3 of the
agreement did not entitle CET to extend the time period for
completing the investigation, constituted a wrongful repudiation of
the agreement. The test to determine whether conduct amounts
to a
repudiation which justifies cancellation is ‘. . . whether
fairly interpreted it exhibits a deliberate and unequivocal
intention
no longer to be bound.’
[6]
It is not in issue that CET, by insisting that Comwezi comply with
its contractual obligation to render assistance in the investigation,
elected not to accept the repudiation. The effect of that election
was that the agreement remained in place and each party remained
subject to all its obligations and liabilities. Comwezi relies on the
following legal proposition in support of its contention
that CET’s
failure to extend the time period beyond 4 November 2011 has resulted
in the agreement lapsing:
‘
A
repudiation, as was once said, is “a thing writ in water”
. . . . It merely affords the injured party an election
to terminate
the agreement by accepting the repudiation ... and unless and until
that happens the repudiator's obligation to perform
and the other
party's right to receive performance remain wholly unaffected.’
[7]
[9]
Comwezi’s contention is that the failure of CET to cancel the
agreement meant that it was bound to continue to extend
the time
period in clause 10 if it wished to maintain the contract in force.
It argued that the failure of CET to do so beyond
4 November 2011
meant that the resolutive condition had not been fulfilled and the
agreement had lapsed. Its noting of an appeal
against the order of
10 October 2011 and the prosecution thereof cannot, according to
Comwezi, in any way assist CET. It said
that the effect of the appeal
was simply to suspend the operation and the execution of the order.
It did not operate to extend
the period provided for in clause 10 of
the agreement, or obviate the need for CET to take the steps it was
obliged to take under
the contract to keep it alive.
[10]
What is immediately apparent from Comwezi’s submission (that
its own unaccepted repudiation did not take away its entitlement
to
take advantage of the claimed failure of CET to comply with the terms
of the agreement) is its inequity. What it amounts to
is the
following: Comwezi refused to cooperate in the due diligence
investigation and to make the documentation requested available,
on
the basis that clause 10.3 did not entitle CET to extend the three
month period in clause 10.1, and that the agreement
had lapsed
as a consequence. It adopted that position in the first proceedings.
But now that its interpretation of clause 10 has
been found to be
incorrect and it must comply with its obligation to participate in
the due diligence investigation, Comwezi seeks
to rely on CET not
having further extended the three month period beyond 4 November
2011. What it effectively seeks to do, to its
own advantage, is to
rely on the terms of the agreement it had elected to repudiate. ‘It
does not appear to me to be sound
law to permit a person to repudiate
a contract, and thereupon specifically to found upon a term in that
contract which he has thus
repudiated.’
[8]
[11]
It is correct that repudiation as such does not have any effect on
the rights and duties of the parties to a contract, as long
as the
innocent party is willing, prepared and able to perform his
obligations. However, it is recognised that the repudiation
of one
party may in appropriate circumstances excuse the innocent party from
taking measures which it would otherwise have been
obliged to take,
or may suspend the performance of his own obligations, until such
time as the repudiating party indicates his
willingness to give
effect to the contract. Appropriate circumstances would be that the
innocent party cannot proceed without the
co-operation of the
repudiating party, or that the principle of mutuality of performance
would entitle the innocent party to withhold
its own performance.
[9]
This rule has its origin in the English law from where repudiation as
a form of breach of contract made its way into our own law.
[10]
In
Erasmus
v Pienaar
the court (per Ackermann J) dealt extensively with this rule and
concluded that there exists sufficient authority for it to form
part
of our law. The decision in
Erasmus
has
found approval in a number of subsequent decisions,
[11]
including decisions of this court.
[12]
[12]
The rationale for this rule is twofold: A party to a contract should
not by its own unlawful conduct be allowed to obtain an
advantage for
himself to the disadvantage of his counterpart. ‘It is a
fundamental principle of our law that no man can take
advantage of
his own wrong’
[13]
and
‘to permit the repudiating party to take advantage of the other
side’s failure to do something, when that failure
is
attributable to his own repudiation, is to reward him for his
repudiation’.
[14]
The
converse is that the innocent party is not expected to make the
effort or incur the expense of performing some act when, by
reason of
the repudiation, ‘it has become nothing but an idle
gesture’.
[15]
This is
consistent with the general principle that the law does not require
the performance of a futile or useless act. These principles
are of
general application and may find application in a variety of
circumstances. The doctrine of fictional fulfilment of contractual
terms is, for example, similarly based on the principle that a
contractant cannot take advantage of its own wrongful conduct to
escape the consequences of the contract.
[16]
[13]
Comwezi submitted that the principle in
Erasmus
and
Moodley
does not find application on the facts of the present matter. The
argument was that this case does not deal with the failure of
the
innocent party to comply with a contractual obligation, but rather
the failure of CET to exercise a contractual power or authority
to
extend the time period in clause 10.1 so as to prevent the fulfilment
of a resolutive condition. It was submitted that the exercise
of that
power was not in any way dependent on the co-operation or the due
performance by Comwezi of its own contractual obligations.
It is
correct that clause 10.3 of the agreement does not provide for a
right in the sense that there is a correlative duty. It
is rather a
power or authority that is ‘an ability on the part of a person
to produce a change in a given legal relationship
by doing or not
doing a given act’. Its correlative is not a duty but a
liability.
[17]
[14]
The difficulty with this argument is, however, that it focuses too
narrowly on clause 10.3 of the agreement. The rights and
obligations
of the parties must be determined from the agreement as a whole.
Clause 7.1 gave CET a contractual right to conduct
a due diligence
investigation. Clause 7.2 in turn placed an obligation on Comwezi to
co-operate with CET in conducting that investigation.
On a
construction of clause 10.1, read with clauses 7.7 and 10.2, it
clearly imposed a time limit on the envisaged investigation.
It
placed a contractual obligation on CET to complete it within three
months or an extended time period as determined by it under
clause 10.3. Clause 10.1 is clearly a term containing a
resolutive time clause. ‘’n Tydsbepaling kan op twee
maniere aan ‘n verbintenis toegevoeg word, t.w. opskortend en
ontbindend. Ontbindend is die tydsbepaling wanneer die verbintenis
of
verbintenisse uit die ooreenkoms slegs tot op ‘n sekere dag
werking sal hê . . . .’
[18]
The label which the parties to the agreement attached to it cannot
turn it into a resolutive condition. There is a fundamental
difference between a condition and a term containing a time clause.
The former is subject to a future uncertain event. The latter
on the
contrary deals with the performance by a party of an obligation
within a stipulated period.
[19]
Clause 10.1 falls in the latter category.
[15]
The position is therefore that CET was clearly willing and able to
comply with its contractual obligations. Due to Comwezi’s
refusal to co-operate, CET was prevented from completing the due
diligence investigation within the required time period, that
is, the
time period as determined in accordance with the terms of the
agreement. Its obligation to complete the investigation within
that
period was dependent upon Comwezi’s co-operation. Its attempt
at enforcing Comwezi’s contractual obligation to
render the
necessary assistance was met with a wrongful insistence that clause
10.3 of the agreement did not entitle CET to extend
the three month
period, and that the failure of CET to complete the investigation
within that period meant that the agreement was
no longer in
existence. The position taken by Comwezi therefore amounted to an
intimation that it would be an act of futility for
CET to act in
terms of clause 10.3 of the agreement. In these circumstances it
would have served no purpose whatsoever for CET
to continue to extend
the time period in which to conclude the due diligence investigation.
[16]
I therefore conclude that on the facts of this matter CET’s
contractual obligation to complete the due diligence investigation
within the determined time period was suspended from 11 October
2011 when the high court in the first proceedings found that
Comwezi
was in breach of its obligations in terms of the agreement.
[17]
In the result:
1
The appeal is dismissed with costs including those of two counsel.
2
The period of ten days in para 21.2 of the order of the high court
dated 5 December 2012 is to be construed as a reference to
ten days
from the date of this judgment.
D
van Zyl
Acting
Judge of Appeal
APPEARANCES
For Appellant: S P
Rosenberg SC (with him P B J Farlam)
Instructed
by:
Edward
Nathan Sonnenbergs Inc, Cape Town
Lovius
Block Attorneys, Bloemfontein
For Respondent: M J
Fitzgerald SC (with him P van Eeden)
Instructed
by:
Hayes
Inc, Cape Town
Naudes
Inc, Bloemfontein
[1]
Per
Mahoney JA in
Nina’s
Bar Bistro (Pty) Ltd (Formerly Mytcoona Pty Ltd) v MBE Corporation
(Sydney) Pty Ltd
[1984] 3 NSWLR 613
(CA) at 633.
[2]
Comwezi
Security Services (Pty) Ltd & another v Cape Empowerment Trust
Ltd
(759/11)
[2012] ZASCA 126
(21 September 2012).
[3]
Comwezi
Security Services (Pty) Ltd & another v Cape Empowerment Trust
above para 13.
[4]
Erasmus
v Pienaar
1984 (4) SA 9 (T).
[5]
Moodley
& another v Moodley & another
1990 (1) SA 427 (D).
[6]
Per
Williamson J in
Street
v Dublin
1961 (2) SA 4
(W) at 10B-C. See
Datacolor
International (Pty) Ltd Intamarket (Pty) Ltd
[2000] ZASCA 82
;
2001
(2) SA 284
(SCA) para 1.
[7]
Per
Hefer JA in
Culverwell
& another v Brown
1990 (1) SA 7
(A) at 28E-F.
[8]
Municipal
Council of Johannesburg v D Stewart & Co
(1902)
Ltd
1909
HL 53
at 56 referred to in
Hurwitz’s
Trustees v Magdeburg Fire Insurance Co
1917 TPD 443
at 448 and
Erasmus
v Pienaar
1984 (4) SA 9
(T) at 24B.
[9]
Moodley
above at 431E-F.
[10]
S
W J van der Merwe, L F van Huyssteen, M F B Reinecke and G F Lubbe
Contract
General Principles
4 ed (2012) at 308 and
Crest
Enterprises (Pty) Ltd v Rycklof Beleggings (Edms) Bpk
1972 (2) SA 863
(A) at 869C-H.
[11]
Moodley
at 430E-431I;
Culverwell
& another v Brian
1988 (2) SA 468
(C) at 475I-J.
[12]
GNH
Office Automation CC v Provincial Tender Board, Eastern Cape
1998 (3) SA 45
(SCA) at 51F-G;
Ashcor
Secunda (Pty) Ltd v Sasol Synthetic Fuels (Pty) Ltd
(624/10)
[2011] ZASCA 158
(28 September 2011) para 8 and
Food
and Allied Workers Union v Ngcobo NO & another
[2013] 7 BLLR 648
(SCA) para 50.
[13]
P
M Nienaber ‘The Effect of Anticipatory Repudiation: Principle
and Policy’
(1962) Cambridge Law Journal 213
at 225, quoted
with approval in
Food
and Allied Workers Union v Ngcobo & another
para 50.
[14]
Moodley
at 431F-G.
[15]
Moodley
at 431G-H and
Erasmus
at 22E-H.
[16]
Macduff
& Co Ltd (in liquidation) v Johannesburg Consolidated Investment
Co Ltd
1924 AD 573
at 591 and
Koenig
v Johnson & Co Ltd
1935 AD 262
at 272.
[17]
G
W Paton
A
Textbook of Jurisprudence
4 ed (1972) at 293.
[18]
J
C de Wet and A H van Wyk
Kontrakreg
en Handelsreg
5 ed Vol 1 at 146. ‘A time clause may either be suspensive or
resolutive in its operation. It is resolutive when the obligation
or
obligations arising from the contract shall only be operative until
a certain day.’ (my translation)
[19]
De
Wet and Van Wyk at 146; A J Kerr
The
Principles of the Law of Contract
6 ed at 457;
Jurgens
Eiendomsagente v Share
[1990] ZASCA 81
;
1990 (4) SA 664
(A) at 674I
and
Venter
Agentskappe (Edms) Bpk v De Sousa
[1990] ZASCA 37
;
1990
(3) SA 103
(A) at 111D-F.