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[2014] ZASCA 73
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Plaaskem (Pty) Ltd v Nippon Africa Chemicals (Pty) Ltd (574/13) [2014] ZASCA 73; 2014 (5) SA 287 (SCA); [2014] 4 All SA 12 (SCA) (29 May 2014)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 574/13
Reportable
In
the matter between:
PLAASKEM
(PTY)
LTD
..................................................................................................
APPELLANT
and
NIPPON AFRICA
CHEMICALS (PTY)
LTD
.............................................................
RESPONDENT
Neutral
citation:
Plaaskem (Pty) Ltd v Nippon Africa Chemicals (Pty)
Ltd
(574/13)
[2014] ZASCA 73
(29 May 2014)
Coram:
Mthiyane DP, Mhlantla, Shongwe and Willis JJA and Hancke AJA
Heard:
13 May 2014
Delivered:
29
May 2014
Summary:
Law of contract ─ contract silent as to its duration ─
matter of construction whether terminable on reasonable notice,
having regard to the express terms of the contract and the
surrounding circumstances ─ if the contract requires the
parties
to work closely together and to have mutual trust and
confidence in each other, it is reasonable to infer that they did not
intend
to bind themselves indefinitely, but rather contemplated
termination by either party on reasonable notice.
ORDER
On appeal from:
North Gauteng High Court, Pretoria (Makgoka J) sitting as court of
first instance:
1 The appeal
succeeds with costs.
2 The order of the
high court is set aside and substituted with the following order:
‘
(a) It is
declared that the written agreement between the parties concluded on
25 February 2005 does have a tacit term that it may
be terminated by
either party on reasonable written notice.
(b) The plaintiff is
ordered to pay the costs incurred by the determination of this
issue.’
JUDGMENT
Hancke
AJA (Mthiyane DP, Mhlantla, Shongwe and Willis JJA concurring):
[1]
The dispute between the parties has its origin in the written
agreement concluded on 25 February 2005 titled
‘Samewerkingsooreenkoms’
(the contract). The contract
involved the local distribution authority, in respect of imported
agricultural chemical products.
The respondent (the plaintiff in the
high court) had a business relationship with Mitsui, a Japanese
manufacturer of the products.
It was the appellant’s function
to distribute the products and then pay the respondent the amount
equal to 15 per cent, calculated
on the gross profit earned in
respect of the products sold as a result of the respondent’s
endeavours. Against this background,
the respondent sought an order
directing the appellant to account to it in respect of products sold
from 25 February 2005 onwards.
[2]
The issue here is whether the contract between the parties contained
a tacit term to the effect that the contract was terminable
by either
party on reasonable notice.
[3]
According to the ‘MINUTE OF AGREEMENT’ dated 26 October
2012 the issues to be decided by the high court were formulated
as
follows:
‘
The parties
will request an order on the following aspects
6.1 Does the
agreement have a tacit, alternatively implied term that the agreement
was terminable (by either party thereto) on reasonable
notice to that
effect, alternatively the agreement, properly construed, was
terminable (by either party) on reasonable notice to
that effect.
6.2 Is the defendant
obliged to account to plaintiff in respect of the sales as set out
supra for the period after the defendant’s
purported
cancellation with effect from 30 June 2010.’
[4] After hearing
evidence the high court (Makgoka J) made the following order:
‘
1. The
written agreement between the parties concluded on 25 February 2005
does not have a tacit, alternatively an implied, alternatively
on a
proper construction thereof, a term that the agreement is terminable
on a reasonable notice;
2. The purported
notice of cancellation of the agreement by the defendant on 18 May
2010 with effect from 30 June 2010, is invalid
and of no effect;
3. The defendant is
obliged to render a statement and debatement of account to the
plaintiff in respect of all sales it made of
the products, for the
period commencing 1 September 2008, including for the sales made
after 30 June 2010, and it is ordered to
do so;
4. The defendant is
ordered to pay the costs of the action.’
The
appellant (defendant in the high court) appeals against the judgment
and order mentioned above, with the leave of the high court.
[5]
The appellant in the high court pleaded that the contract contained a
tacit, alternatively implied term to the effect that the
contract was
terminable (by either party) on reasonable notice. It was
further pleaded that in accordance with the tacit
term referred to
above, the contract was terminated on 30 June 2010 in terms of a
notice to that effect dated 18 May 2010. Before
the commencement of
the trial the appellant tendered an account for the period ending at
the date of termination ie 30 June 2010.
[6]
It is common cause between the parties that (i) the contract was
concluded; (ii) the document annexed to the particulars of
claim is
the contract; and (iii) the contract is silent as to its duration.
[7]
To the extent that the case concerned the interpretation of a
contract and the question whether the tacit term contended for
by the
appellant ought to be read into the contract, the evidence presented
by the witnesses who testified at the trial was of
limited
importance. The witnesses could only provide evidence of background
and surrounding circumstances as well as the purpose
of the contract
and what the parties had in mind at the time it was concluded.
[8]
Mr Engelbrecht who testified on behalf of the respondent, did not
take the matter further. He became a director in August 2012
after
the passing of his father Dr Engelbrecht who was the founder, sole
director and sole shareholder of the respondent. He testified
that
the respondent did market analysis to find a product in a field that
was actually sustainable. According to him it took a
two year period
of research and trials to get this product ready and able for local
distribution. However, he was not involved
in the negotiations and
discussions preceding the conclusion of the contract.
[9] Mr Cross
testified on behalf of the appellant and stated that he had no
mandate or instruction to conclude a contract in perpetuity;
it was
never in his mind to conclude such an agreement and it would have
been poor business practice to do so. Mr Cross also referred
to an
e-mail sent to the respondent dated 22 January 2010 which was a
purported termination of the agreement. Thereafter they consulted
with their legal representatives, hence the termination during June
2010. He also referred to the technical agreement between the
respondent and Mitsui and stated that after Mitsui was no longer in
the picture, they approached the appellant and at present the
appellant is distributing Mitsui’s products. As far as
groundwork is concerned Mr Cross testified that there was only one
training session attended by Dr Engelbrecht, and he also referred to
the lack of contribution on the part of Dr Engelbrecht. The
letter
dated 18 May 2010 was sent by the appellant’s attorneys to the
respondent terminating the contract with effect from
30 June 2010.
This was the written termination the appellant relied upon, which was
rejected by the respondent as being of no force
and effect because,
according to the respondent, the contract did not contain a tacit
term that it could be terminated on reasonable
written notice.
[10]
After a comprehensive exposition of the facts and the law, the high
court stated the following:
‘
[36] In the
circumstances, I take a view that the term alleged by the defendant,
tacit or implied, is not borne out by either the
terms of the
agreement or the evidence. Furthermore, I find nothing in the proper
construction of the agreement that it was terminable
by notice. I
therefore conclude that the defendant has not discharged the onus it
bore in this regard. The defendant’s purported
notice of
termination of the agreement dated 18 May 2010 is therefore void and
of no effect. The agreement between the parties
remains valid and
enforceable. It follows that the defendant is liable to account to
the plaintiff for the sales of the products
made after the date of
the purported termination, i.e. 30 June 2010.’
[11]
As far as the law regarding a contract of unspecified duration is
concerned, the following was said by Coetzee J in
Trident Sales
(Pty) Ltd v A H Pillman & Son (Pty) Ltd
1984 (1) SA 433
(W)
at 441D-E:
‘
(1) It is a
question of construction of the agreement according to the ordinary
principles of construction.
(2) Since, however,
such agreement,
ex hypothesi
, contains no express provision
dealing with determination by the party who asserts that it should be
inferred, it is a question
of construction in the wider sense of
ascertaining what the intention of the parties was when they entered
into the agreement.
(3) This intention
is determined in the light of all the admissible evidence and in the
light of what the parties have said or omitted
to say in their
agreement.
(4) There is no
presumption one way or the other.
(5)
The
onus
is on the party who asserts that the parties intended something which
they omitted to state expressly to demonstrate that this
was so.’
[1]
[12]
Despite the decision in the
Trident
case that there is ‘no
presumption one way or the other’, concern has been raised
regarding the fact that parties could
be bound in perpetuity. In A R
Carnegie’s article titled ‘Terminability of Contracts of
Unspecified Duration’
(1969)
85 Law Quarterly Review
392
the following is stated at 411-412:
‘
By holding
the parties bound forever in such circumstances, the rule would
impose on the party to whom the contract becomes disadvantageous
an
excessively severe penalty for the misdemeanour of careless
craftsmanship. Moreover, considerations of commercial convenience
have been predominant among the principles informing the development
of the law of contract; and as McNair J has in effect argued,
commercial prudence is much more likely to indicate that a contract
should be determinable than that it should endure perpetually.’
[2]
[13]
In
Llanelly
Railway and Dock Company v London and North-Western Railway
Company
[3]
the
following was stated:
‘
No doubt
there are a great many contracts of that kind [subject to a
presumption in favour of determination]: a contract of partnership,
a
contract of master and servant, a contract of principal and agent, a
contract of employer and employed in various modes ─
all these
are instances of contracts in which, from the nature of the case, we
are obliged to consider that they were intended
to be determinable.
All the contracts, however, in which this has been held are, as far
as I know, contracts which involve more
or less of trust and
confidence, more or less of delegation of authority, more or less of
the necessity of being mutually satisfied
with each other’s
conduct, more or less of personal relations between the parties.’
[14]
As to the considerations to be taken into account, the following is
stated by Smalberger AJA in
Putco Ltd v TV & Radio Guarantee
Co (Pty) Ltd
1985 (4) SA 809
(A) at 827G-J:
‘
I agree that
the language used in the agreement is entirely inconsistent with an
intention that the agreement should continue indefinitely
if a
detailed agreement was not reached. . . . They cannot be held
permanently bound when all they contracted for was a temporary
arrangement. Furthermore, when parties bind themselves to an
agreement which
requires them to work closely together and to have
mutual trust and confidence in each other
, of which the agreement
under consideration is an example, it is reasonable to infer that
they did not intend to bind themselves
indefinitely, but rather
contemplated termination by either party on reasonable notice. Where
an agreement is silent as to its
duration, it is terminable on
reasonable notice in the absence of a conclusion that it was intended
to continue indefinitely.’
(My emphasis.)
[15]
In
Amalgamated Beverage Industries Ltd v Rond Vista Wholesalers
2004 (1) SA 538
(SCA) para 13 Streicher JA said the following:
‘
In my view,
the Court
a
quo
correctly decided that the contract was terminable on reasonable
notice.
[4]
Whether it was is a matter of construction. The question is whether a
tacit term to that effect should by implication be read into
the
contract. That would be the case if
the
common intention of the parties at the time when they concluded the
contract, having regard to the express terms of the contract
and the
surrounding circumstances
,
was such that, had they applied their minds to the question whether
the contract could be so terminated, they would have agreed
that it
could.’ (My emphasis.)
[16]
As to the effect of commercial considerations, the learned judge
continued (at 544) as follows:
‘
[15] . . .
I do not think
Smalberger AJA intended to say that a valid commercial reason is
always required for terminating a contract terminable
on reasonable
notice. He was probably of the view that because of the special
relationship between the parties it was implicit
in the contract
between them that notice could only have been given for valid
commercial reasons. There is no rule of law to the
effect that it is
implicit in a contract which may be terminated by notice that it may
only be so terminated for a valid commercial
reason. Such a term may,
of course, be implied on a proper construction of the agreement.
[16] In the present
case it is not necessary to decide whether such a term is a tacit
term of the contract. It can be assumed to
be the case. That is so
because it is clear that the appellant did have a valid commercial
reason for terminating the contract.
It wished to reduce the discount
payable to the respondent and the respondent refused to agree to such
a reduction.’
[17]
The first question is one of construction. It is therefore necessary
to have regard to the language used by the parties in
the contract.
It reads as follows:
‘
STRENG
VERTROULIK
SAMEWERKINGSOOREENKOMS
TUSSEN PLAASKEM (PTY) LTD EN NIPPON AFRICA
CHEMICALS
(PTY) LTD.
FEB 2005
NIPPON
AFRICA CHEMICALS (PTY) LTD onderneem om voortaan nuwe gepatenteerde
produkte van oa Japanese maatskappye to kanaliseer na
PLAASKEM (PTY)
LTD ten einde direkte toegang tot sodanige middels te verkry vir
bemarking in Suid(er) Afrika.
NIPPON AFRICA
CHEMICALS (PTY) LTD onderneem verder om gefokus saam te werk aan die
verkryging en ontwikkeling van produkte (patente
en ook generiese
produkte) in konsultasie met PLAASKEM. Met die verkryging van die
verspreidingsregte van ‘n nuwe middel
is die reël dat ‘n
verspreidingskontrak tussen die verspreider (hopelik dan PLAASKEM) en
die vervaardiger in plek kom.
Daar
is gewoonlik so ‘n kontrak per nuwe belangrike produk. Dit is
ook die gewoonte dat Japanese vervaardigers gebruik maak
van ‘n
Japanese handelhuis wat kantore wêreldwyd het. Hierdie
handelshuis is dan gewoonlik die registrasiehouer met
die aangewese
verspreider wat plaaslik ‘n alleen of ‘n gedeelde
verspreiding het. Die omvang van verspreiding word
gemotiveer deur
effektiewe verteenwoordiging en markaandeel.
Nuwe
produkte is nie die gevolg van ‘n bestelling nie maar eerder
toevallige en gerigte ontdekking.
Dit
moet aanvaar word dat dit moeilik sal wees om die verspreidingsroete
van die huidige produkte te verander agv kontrakte wat
reeds in plek
is. Waar dit gemotiveer kan word sal die verspreidingsroete miskien
verander kan word.
NIPPON
AFRICA CHEMICALS sal ook aktief saamwerk om generiese produkte, nuwe
formulasies en innoverende plantbeskermingmiddels in
konsultasie met
PLAASKEM vir verspreiding deur PLAASKEM, die lig te laat sien. Dit
sluit produkte van ander verskaffers/vervaardigers
in. Dit mag ook
produkte insluit wat plaaslik gesintetiseer kan word.
PLAASKEM
(PTY) LTD onderneem om as verspreider te presteer en 15% van PLAASKEM
se bruto wins op produkte aan NIPPON AFRICA CHEMICALS
te betaal wat
deur NIPPON AFRICA CHEMICALS se toedoen deur PLAASKEM EN MAATSKAPPYE
bemark word. Dit geld vir beide patente en ander
produkte wat volgens
die ooreenkoms deur PLAASKEM versprei word.
Om
die verhouding tussen MITSUI SOUTHERN AFRICA/JAPANESE VERVAARDIGER EN
PLAASKEM positief te hou en te bou, onderneem PLAASKEM
OM voortdurend
in konsultasie met NIPPON AFRICA CHEMICALS en die plaaslike Japanese
handelshuis, MITSUI SOUTHERN AFRICA (PTY) LTD
market te vind of skep
vir die hele reeks produkte wat beskikbaar ag wees op ‘n
stadium. Dit mag selfs gebeur dat die plaaslike
handelshuis MITSUI
SOUTHERN AFRICA versoek word deur ons (PLAASKEM en NIPPON AFRICA) om
in Japan te beding vir nuwe middels by
vervaardigers wat hulle nie
gewoonweg verteenwoordig nie.
Die
eerste stap in die verkryging van ‘n nuwe middel is behoorlike
markontleding en plasing van die middel in die mark waar
hy moet
kompeteer en dan die aanbieding van so ‘n opname.
PLAASKEM (PTY) LTD
onderneem verder om te poog om ook van NIPPON AFRICA CHEMICALS (PTY)
LTD gebruik te maak as verskaffer/organiseerder
van hulle generiese
produkte.
Hierdie
ooreenkoms is hoogs vertroulik en nie vir ‘n derde party bedoel
nie. Geteken te
Boksburg
op die
25
dag van
Februarie
2005.’
[18]
It is clear from the contract that there is no express term dealing
with its duration. Having regard to the wording of the
contract it is
also clear that there is no indication that the parties intended to
be bound in perpetuity.
[19]
The next investigation concerns the intention of the parties, having
regard to the nature of the relationship between the parties,
as well
as the surrounding circumstances.
[20]
A
tacit term cannot be imported where it will be contradicted by an
express term.
[5]
In this regard counsel for the respondent submitted that it was
unlikely that the appellant had the
actual
intention
for the agreement to be terminable on reasonable notice, in view of
the evidence of Mr Cross that the contract would lapse the
moment
Mitsui withdraws from the contract. He therefore submitted that the
proposed tacit term would be in conflict with the evidence
of Mr
Cross. I disagree with this submission.
[21]
It is
clear that the contract required the parties to form and maintain a
close working relationship with regular contact and interaction
between them. It also covers a wide spectrum of products in respect
of both existing and new products. It is reasonable to assume
that
the nature of the relationship may change over time. It is this
commercial reality that strongly suggests an intention by
the parties
not to be and remain bound in perpetuity. It is apparent that the
respondent was to a certain degree the alter ego
of Dr Engelbrecht.
In view of the fact that he was no longer involved with the
respondent, the dynamic, and the relationship between
the parties
obviously changed. It is doubtful that without the involvement of Dr
Engelbrecht the respondent and the appellant would
collaborate,
consult and work together.
[6]
[22]
It is important to note that the respondent, in its particulars of
claim alleged the existence of a fiduciary relationship,
which
suggests a duty of good faith, mutual trust and confidence.
[23]
In this regard the high court erred in stating that the working
relationship between the parties was open to serious doubt.
There is
no basis to doubt the intended working relationship as it appears
from the contract as being one of good faith and trust.
[24]
Regarding the surrounding circumstances it appears that the contract
involved the local distribution authority to import chemical
products. A number of factors would undoubtedly have impacted upon
the profitability and the financial viability of the contract.
It is
unlikely, given the unpredictable and variable nature of the factors
such as production costs, transportation costs, landing
costs and the
applicable exchange rates, that the parties would or could have
intended being and remaining bound in perpetuity.
[25]
Another uncertainty is the respondent’s foreign partner Mitsui
with whom it had a contract of a limited duration and
who eventually
chose to do business with the appellant. The evidence of Mr
Engelbrecht on behalf of the respondent is in this regard
important.
He acknowledged that, when the contract was concluded it could, for
whatever reason, have died a ‘slow death’.
He
acknowledged that the contract could have transpired not to live up
to their expectations.
[26]
Taking
the surrounding circumstances into account and in view of the fact
that the contract is silent as to its duration, it is
necessary that
a tacit term be imported. Apart from the surrounding circumstances
already mentioned, there is no doubt that it
is necessary and
commercially efficacious that the tacit term should be to the effect
that the contract would be terminable on
reasonable notice. In fact,
in the absence of an express provision to that effect, it is
difficult to imagine circumstances indicating
that the parties
intended to be bound in perpetuity.
[27]
Regarding
the formulation of the tacit term it is important that it must be
capable of clear formulation, although the formulation
need not be
concise.
[7]
In this case the term can be clearly and concisely formulated as
follows:
‘
The contract
may be terminated by either party on reasonable written notice.’
[28]
It
follows from the aforegoing that the legal point in para 6.1 of the
MINUTE OF AGREEMENT must be decided in favour of the appellant.
Being
the successful party there is no reason not to award the appellant
costs of appeal as well as costs in the high court.
[8]
[29]
It is important to note that this decision does not have any effect
regarding other disputes between the parties which may
still be
pending between them.
[30] Accordingly the
following orders are issued:
1 The appeal
succeeds with costs.
2 The order of the
high court is set aside and substituted with the following order:
‘
(a) It is
declared that the written agreement between the parties concluded on
25 February 2005 does have a tacit term that it may
be terminated by
either party on reasonable written notice.
(b) The plaintiff is
ordered to pay the costs incurred by the determination of this
issue.’
________________________
S P B HANCKE
ACTING JUDGE OF
APPEAL
APPEARANCES:
For the Appellant: J
Daniels
Instructed by:
Mahons
Attorneys, Johannesburg
Lovius
Block Attorneys, Bloemfontein
For the Respondent:
S G Maritz
Instructed by:
VFV Mseleku
Attorneys, Pretoria
Symington &
De Kok, Bloemfontein
[1]
See also
Transnet
Ltd v Rubenstein
2006
(1) SA 591
(SCA) at 596H-I, 598D-599C.
[2]
Martin-Baker
Aircraft Co Ld v Marison
[1955]
2 QB 556
;
Martin-Baker
Aircraft Co Ld v Canadian Flight Equipment Ld, Martin-Baker Aircraft
Co Ld v Murison
.
[3]
Llanelly
Railway and Dock Company v London and North-Western Railway Company
(1873) LR 8 Ch App 942
(CA) at 950. Other examples in English law
where it was found that an agreement was terminable by reasonable
notice, see
Crediton
Gas Co v Crediton UDC
(1928) Ch 174
(CA);
Re
Spenborough Union District Council’s Agreement
[1967]
1 All ER 959
;
Staffordshire
Area Health Authority v South Staffordshire Waterworks Co
[1978]
3 All ER 769
;
Alpha
Lettings Ltd v Neptune Research & Development Inc
[2003] EWCA Civ 704
para 36.
[4]
One object of requiring a reasonable notice is to give the receiving
party sufficient time to regulate its own affairs (at 545B).
In
Putco
Ltd v TV & Radio Guarantee Co (Pty) Ltd
,
supra
,
mention is made of the fact that the notice was received by TV
through the post on 2 June 1981, but it was common cause that
Putco’s intention to terminate the agreement was known to TV
prior to the end of May 1981 (at 825B). See also R H Christie
The
law of contract in South Africa
6 ed (2011) at p 452-453.
[5]
Transnet
Ltd v Rubenstein
2006
(1) SA 591
SCA at 596H-I; 598D-599C.
[6]
Putco
Ltd v TV & Radio Guarantee Co (Pty) Ltd
,
supra
,
at 827H-I;
Amalgamated
Beverage Industries Ltd v Rondvista Wholesalers
,
supra
,
at 543-4 para 15.
[7]
OK
Bazaars v Bloch
1929
WLD 37
at 44;
Smith
NO v Van Reenen Steel (Pty) Ltd
[2001]
2 All SA 604
(D) at 614.
[8]
Fulane
v Road Accident Fund
2003
(3) SA 461
(W) at 463H-J;
Baptista
v Stadsraad van Welkom
1996 (3) SA 517
(O) at 521A-B; 522E.