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[2014] ZASCA 138
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Air Traffic and Navigation Services Company v Esterhuizen (668/2013) [2014] ZASCA 138 (25 September 2014)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
no
:
668/2013
Not
Reportable
In
the matter between:
AIR
TRAFFIC AND NAVIGATION SERVICES
COMPANY
........................................................................................................................
APPELLANT
and
CHRISTIAAN
DAVID
ESTERHUIZEN
.....................................................................
RESPONDENT
Neutral
citation:
Air Traffic and Navigation
Services v Esterhuizen
(668/2013)
[2014] ZASCA 138
(25 September 2014)
Coram:
Lewis, Tshiqi, Theron and Wallis JJA and Fourie
AJA
Heard:
5 September 2014
Delivered:
25 September 2014
Summary:
Contract – Interpretation –
Contract must be interpreted by determining the parties’
intention having regard to
its context and purpose – sensible
meaning to be attributed.
Contract
of employment – Fixed term contract – Termination by
resignation before the expiry of the fixed term constitutes
a breach.
ORDER
On
appeal from:
North Gauteng
High
Court, Pretoria (Tuchten J sitting as court of first instance):
1
The appeal is upheld with costs, including those of two counsel.
2
The order of the high court is set aside and replaced with the
following:
‘
The
defendant is ordered to pay to the plaintiff:
(a) the sum of
R427 843;
(b) interest on this
amount at a rate of 15.5 per cent per annum, calculated from the date
of summons to the date of payment.
(c) costs of suit.’
JUDGMENT
Theron
JA (
Lewis, Tshiqi and Wallis JJA and
Fourie AJA
concurring):
[1]
At issue in this appeal is the liability of the respondent, Mr
Christiaan David Esterhuizen, to the appellant, Air Traffic and
Navigation Services Company, for breach of contract, following upon
the premature termination of his employment with the latter.
[2]
The appellant is the sole provider of air traffic, navigation and
associated services within South Africa. The company’s
operations include the training of licenced air traffic controllers
and technical staff. The company has, over a number of years,
experienced a significant outflow of air traffic controllers to other
air traffic navigation service providers (especially in the
Gulf
region), which do not train specialist technical staff, but instead
attract trained staff from companies such as the appellant,
by paying
extremely competitive rates. The appellant introduced a scheme,
called the retention scheme, to retain key and critical
skills. The
evidence was that the appellant had spent vast sums of money training
its staff, and suffered significantly when staff,
once trained, leave
the company. It suffered, both in terms of its capital investment in
training staff and in the smooth operation
of the company.
[3]
The retention scheme functioned by way of offering a substantial
financial reward to eligible employees, for as long as they
remained
in the appellant’s employ for the agreed period, whilst at the
same time acting as a deterrent to premature resignations.
The total
benefit payable in terms of the scheme to each employee was
calculated in advance, based on projected increases and paid
to
employees monthly. Employees had a choice of whether or not to
participate in the scheme.
[4]
The respondent had initially been employed by the appellant from 1994
until 1999. In 2006 the respondent (once again) became
employed by
the appellant as a Principal Air Traffic Controller. The employment
contract concluded between the parties stipulated
that after the
expiry of the three months’ probationary period, either party
could terminate the agreement on one month’s
notice.
[5]
The respondent elected to participate in the retention scheme and to
this end, on 10 April 2007, the parties entered into a
written
agreement recording the terms of the respondent’s participation
in the scheme. The material terms of the agreement
were that: (a) the
respondent would receive monthly retention payments in addition to
his normal remuneration as an incentive to
remain in the employ of
the appellant; (b) the respondent agreed to remain in the appellant’s
employ for a fixed term of
four years from 1 April 2007 to 31 March
2011; and (c) the respondent’s employment contract would
be amended to reflect
the terms of the agreement: more particularly,
the notice period would be substituted with a clause preventing the
termination
of employment by either party during the fixed term. The
agreement also provided for the consequences that would follow upon a
breach of its terms.
[6]
On 30 May 2008, the respondent tendered his resignation, effective
from the end of June 2008. By letter dated 30 May 2008, the
appellant
asserted that such resignation constituted a breach of the retention
agreement and called upon the respondent to remedy
the breach within
seven days, failing which it might cancel the agreement and claim
payment of all amounts already paid under the
agreement,
alternatively, the outstanding balance ‘in terms of the
remainder of the agreement’. The respondent did
not withdraw
his resignation and the appellant cancelled the agreement. The
benefit the respondent would have derived under the
scheme over the
four year period amounted to R584 162. As at the date of his
resignation, he had been paid R156 319.
[7]
The appellant caused summons to be issued out of the North Gauteng
High Court. Its main claim was based on a breach of the agreement.
It
claimed payment of the sum of R427 843, being the monthly
incentive amounts it would have paid to the respondent for the
period
July 2008 until 31 March 2011, but for the latter’s
resignation. Although the appellant, in its amended particulars
of
claim and in the alternative, claimed repayment of the retention
amounts it had already paid to the respondent, it did not pursue
this
claim at the trial. It similarly did not pursue its alternative
damages claim.
[8]
The respondent raised a number of defences in his plea. Relying on
clause 6.1 of the agreement, he alleged that if he resigned
prematurely, he would be indebted to the appellant only for the
retention payments already paid to him. He also alleged, inter
alia,
that clauses 6 and 10 of the agreement were mutually destructive,
alternatively, void for vagueness, further alternatively,
that clause
10 constituted a penalty provision which was subject to the
Conventional Penalties Act 15 of 1965. This last mentioned
defence
was not pursued. The high court (Tuchten J) dismissed the appellant’s
claim with costs and the appellant now appeals,
with the leave of the
high court.
[9]
The question is essentially whether the respondent, in consequence of
his resignation, is liable to repay the incentive amounts
the
appellant would have paid to him had he not resigned. That in turn is
dependent on the interpretation of the retention agreement.
The
intention of the parties, as it emerges from the language they have
used, is the determining factor in problems of contractual
interpretation. In
North
East Finance (Pty) Ltd v Standard Bank
of
South Africa Ltd,
Lewis
JA stated that a court must ‘examine what the parties intended
by having regard to the purpose of their contract’.
[1]
To determine the intention of the parties, the nature, character and
purpose of the contract must be established. This is ascertained
from
the language used, read in its contextual setting and in the light of
any admissible evidence.
[2]
[10]
The purpose of the agreement is to be gleaned from the following
clauses:
‘
2.3.
The Company is also committed to the growth of its capacity in order
to ensure that it will be able to handle the expected
increase in
aircraft movements and provide a seamless world class service.
2.4. In order to
ensure that the Company is able to grow its capacity to achieve its
objectives in clause 2.3 above, it is necessary
to retain employees
in certain job categories.
2.5. The Company has
therefore designed the Scheme, which is applicable only to certain
employees in the Company, in terms of which
the Employee will receive
a Retention Payment in addition to the Employee’s remuneration.
2.6. The Company and
the Employee have therefore agreed to enter into this Agreement in
terms of which the Employee hereby freely
and voluntarily agrees to
remain in the employment of the Company for the Fixed Term and to
continue indefinitely thereafter.
2.7. In exchange for
this undertaking, the Company will provide the Employee with a
Retention Payment which will result in the Employee
enjoying
additional financial compensation.’
It
was common cause between the parties that the purpose of the
retention agreement was to retain employees in certain job categories
for fixed periods.
[11]
The appellant’s main argument was that the premature unilateral
termination of the retention agreement by the respondent,
by way of
his resignation, amounted to a breach. The breach accordingly
triggered the provisions of clause 10.2, in terms of which
the
respondent became liable to the appellant, at the election of the
latter, for repayment of what he had actually received under
the
scheme or what he would have received had he continued in the
appellant’s employ for the fixed term. Clause 10, which
deals
with a breach of the agreement and its consequences, provides:
‘
10.1.
If the Employee breaches any provision of this Agreement, the Company
shall be entitled, but not obliged, to give written
notice to the
Employee requiring the breach to be remedied within 7 (seven) days of
the date on which the notice was given to the
Employee.
10.2. If the
Employee fails to remedy the breach within 7 (seven) days of receipt
of written notice from the Company calling upon
the Employee to do
so, then without further notice, the
Company may:
10.2.1. Cancel the
agreement and claim payment of all the amounts paid thus far in terms
of this agreement; alternatively claim
the full balance then
outstanding in terms of the remainder of the terms of this agreement
which will immediately become due and
payable forthwith and without
demand to the Company.
10.2.2. … at
its election proceed on the basis of this Agreement or on the basis
of any other cause of action.’
[12]
It was contended by the appellant that, in order to achieve the
purpose of the scheme (that the employee remain in its employ
for the
agreed period) that in the event of a premature resignation, an
employee could end up owing the appellant an amount in
excess of what
he had actually received under the scheme. According to the
appellant, this was exactly what the parties sought
to achieve by
clause 10.2.1 of the agreement. The election afforded to the
appellant by the clause achieves this. If the employee
had served for
more than half the four year period the appellant could reclaim what
had been paid up to the date of the breach.
If the employee had
served less than half the four year period the appellant could elect
to claim the balance for the period outstanding.
[13]
The respondent, on the other hand, contended that in terms of clauses
6 and 8 of the retention agreement, should he resign
prematurely, he
would be indebted to the appellant only for the retention moneys
already paid to him. Clause 6, to the extent here
relevant, provides:
‘
Recovery
of Retention Payments
6.1. It is hereby
agreed that if the Employee’s services are terminated due to:
6.1.1. resignation;
6.1.2. misconduct;
6.1.3. poor work
performance; or
6.1.4. failure to
meet and retain the necessary professional accreditation and
licensing (Rating and Validation) to perform his/her
own functions;
then
the Employee shall … truly and lawfully be indebted to the
Company for all the Retention Payments already paid in terms
of the
Agreement . . . .’.
[14]
Clause 8 sets out a framework for the repayment of the retention
moneys. Clause 6 is on the face of it inconsistent with clause
10. It
appears to provide that, should the respondent’s services be
terminated due to resignation, he would be obliged to
repay only the
retention moneys he had already received as at the date of his
resignation. The difficulty lies in understanding
what is meant by
the respondent’s services being terminated due to resignation.
The respondent contended that resignation
meant a unilateral act on
his part and that the provisions of clauses 6 and 10 were ambiguous
and mutually destructive. He argued
that termination (by
resignation), as provided for in clause 6, was not intended to
constitute a breach.
[15]
The word ‘terminated’ in clause 6.1 is ambiguous: it may
refer to termination by virtue of a right to give notice
under the
agreement or a deliberate breach by one party amounting to a
repudiation of the agreement. In this respect the agreement
is
incoherent and confusing, but clarity emerges when one reads all four
sub-clauses, from which it is apparent that the termination
of the
employee’s services to which it refers is a termination at the
instance of the employer, ie, the appellant. If the
word
‘resignation’ in clause 6.1.1 is taken to encompass the
situation where an employee has a bona fide reason to
resign, and
such resignation is accepted by the employer, then clauses 6 and 10
can be read together without any conflict. Where
the resignation of
the employee is accepted by the employer, the repayment procedure set
out in clause 8 would be triggered.
This is the only
interpretation which makes the agreement coherent, particularly
having regard to the primary purpose of the agreement,
namely, to
retain the service of specialist employees such as the respondent.
[16]
An interpretation to the effect that the word ‘resignation’
in clause 6.1.1 refers to a unilateral act by an employee
and not a
breach of the contract, would lead to the absurdity that clause 10 of
the agreement, which deals with any breach of the
contract, would be
superfluous and in fact have no practical meaning at all. This could
never have been the intention of the parties.
In the exercise of
interpreting documents, courts are slow to impute superfluity to a
document and an interpretation which has
this effect should not
readily be accepted.
[3]
The
preferred approach is to give some effect rather than no effect to
the words.
[4]
Wallis JA in
Bothma
-
Batho
pointed out that ‘[a] sensible meaning is to be preferred to
one that leads to insensible or unbusinesslike results or undermines
the apparent purpose of the document’.
[5]
Having regard to the purpose of the agreement, it is clear that it
must be the appellant’s prerogative whether or not to
accept a
resignation as termination as contemplated in clause 6.1 or consider
it a breach under clause 10. It is evident from the
letter dated 30
May 2008 that the appellant regarded the respondent’s
resignation as a breach of the retention agreement.
[17]
A contract of employment is generally entered into for a fixed period
or for an indefinite period. Where no date has been fixed
upon which
the contract will terminate, it will continue indefinitely until
terminated or will be terminable by either party on
the giving of
notice.
[6]
In such a contract, resignation is a unilateral act permitted by the
specific terms of the contract for bringing the contract to
an
end.
[7]
When the contract is for
a fixed period, none of the parties has the right to terminate the
contract prior to the expiry of the
fixed period.
[8]
Cheadle AJ in
Lottering
v Stellenbosch Municipality
[9]
endorsed this principle in the following terms:
‘
If
the contract is for a fixed term, the contract may only be terminated
on notice if there is a specific provision permitting termination
on
notice during the contractual period – it is not an inherent
feature of this kind of contract and accordingly requires
specific
stipulation.’
[10]
And
later,
‘
In
a fixed term contract, a notice to bring the contract to an early end
is a repudiation because it does not in itself constitute
a
contractually permissible act of termination. Being a repudiation,
the employer has an election to hold the employee to the contract
or
to accept the repudiation and cancel the contract.’
[11]
This
court has held that a premature termination of a fixed term contract
of employment gives rise to a claim for damages for breach
of
contract.
[12]
[18]
Clause 5 of the agreement is of particular relevance. In terms of
this clause the parties agreed to delete the clause dealing
with the
notice period in the employment contract and replace it with a clause
that the employment contract ‘is not terminable
by either party
prior to the expiry of the Fixed-Term Period’
.
The effect of this was that the
respondent waived his common law right to terminate the contract on
notice and was precluded from
resigning prior to the expiry of the
fixed term. In exchange for so waiving his right, he received
retention payments from the
appellant.
[19]
The respondent’s primary obligation was to remain in the employ
of the appellant for the fixed term. Clauses 2.6, referred
to in
paragraph 10 above, and 3.2.4, which provides that continued
participation in the scheme is dependent on the employee ‘remaining
exclusively in the employ of the Company until the expiry of the
Fixed-Term’ support this conclusion. The premature
termination of employment was contractually impermissible and
amounted to a breach of the respondent’s obligations under
the
retention agreement.
[20]
The agreement was poorly drafted and contained conflicting
provisions. The high court pointed out that there were gaps in it.
However, an examination of the entire contract, having regard to its
purpose, yields a clear meaning.
[13]
Bearing the purpose of the contract in mind, the words ‘remainder
of the terms of this agreement’ should be interpreted
to refer
to the remaining period of the agreement and not the contractual
provisions of the agreement, as found by the high court.
The
interpretation by the high court rendered clause 10.2 meaningless, a
consequence which should, if at all possible, be avoided.
[14]
The high court’s finding in this regard cannot be sustained.
[21]
Finally, it was contended by the respondent that, at all material
times during the negotiation and conclusion of the retention
agreement, it was agreed between the parties that should the
respondent resign before the expiry of the fixed term, he would only
be liable for repayment of the retention payments he had actually
received. In support of this contention he relied on a document
prepared by the appellant, titled ‘ATNS Retention Frequently
Asked Questions’, dated 16 March 2007. The evidence was
to the
effect that prior to the introduction of the retention scheme,
employees, including the respondent, had certain concerns
regarding
the operation of the scheme. The appellant subsequently prepared the
‘Frequently Asked Questions’ document.
One of the
questions recorded in the document was, ‘What happens if I
breach the retention agreement?’ The recorded
answer was: ‘If
you [breach] the retention agreement you will be required to pay back
all monies earned as a result of your
participation in the retention
scheme’.
[22]
Mr Pieter Marais, called as a witness by the appellant, testified
that the question and answer document had been distributed
prior to
finalisation of the contract and a consultative process was followed
whereby the proposed standard agreement underwent
several changes,
based on input received from employees and the trade union. The
respondent signed the retention agreement on 10
April 2007 and that
was the only contract that came into existence between the parties.
It is trite that when a person signs an
agreement, he or she is taken
to be bound by the ordinary meaning and effect of the words which
appear above his or her signature
(
caveat
subscriptor
)
.
[15]
The ‘Frequently Asked Questions’ document was misleading
and may have constituted a misrepresentation. However, the
respondent
did not plead misrepresentation and neither did he seek rectification
of the agreement.
[23]
Order:
1 The appeal is
upheld with costs, including those of two counsel.
2 The order of the
high court is set aside and replaced with the following:
‘
The
defendant is ordered to pay to the plaintiff:
(a) the sum of
R427 843;
(b) interest on this
amount at a rate of 15.5 per cent per annum, calculated from the date
of summons to the date of payment.
(c) costs of suit.’
_____________
L V THERON
JUDGE OF APPEAL
APPEARANCES
For
Appellant: H Woudstra SC with P Le Roux Theron
Instructed by:
Hlatshwayo Du
Plessis Van der Merwe Nkaiseng, Pretoria
Symington
& De Kok, Bloemfontein
For
Respondent: W F Wannenburg
Instructed
by:
C R Bothma &
Jooste, Pretoria
Peyper Sesele
Attorneys,
Bloemfontein
[1]
North
East Finance (Pty) Ltd v Standard Bank
of
South Africa Ltd
2013 (5) SA 1
(SCA) para 25.
[2]
Swart
en ‘n ander v Cape Fabrix (Pty) Ltd
1979
(1) SA 195
(A) at 202C;
Masstores
(Pty) Ltd v Murray & Roberts Construction (Pty) Ltd &
another
[2008] ZASCA 94
;
2008
(6) SA 654
(SCA) para 23;
KPMG
Ch
a
rtered
Accountants
(SA) v Securefin Ltd & another
2009
(4) SA 399
(SCA) para 39;
Ekurhuleni
Municipality v Germiston Municipal Retirement Fund
2010
(2) SA 498
(SCA) para 13;
Bothma-Batho
Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk
2014
(2) SA 494
(SCA) para 12.
[3]
Portion
1 of 46
Wadeville
(Pty) Ltd v Unity Cutlery
(
Pty
)
Ltd
&
others
1984
(1) SA 61(A)
at 70B-71A.
[4]
R
H Christie and G B Bradfield
The
Law of Contract
in
South Africa
6
ed (2011) at 229.
[5]
Paragraph
10.
Natal
Joint Municipality Pension Fund v Endumeni Municipality
2012
(4) SA 593
(SCA) para 26.
[6]
See
generally M J D Wallis
Labour
and Employment Law
para 33 at 5-10;
Tiopaizi
v Bulawayo Municipality
1923
AD 317
;
Lawsa
2 ed Vol 13 Part 1 para 94.
[7]
Lottering
& others v Stellenbosch Municipality
(2010)
19 LC and
12 BLLR 1306
(LC); 2923 (LC) (7 May 2010) para 20;
Rustenburg
Town Council v Minister of Labour & others
1942
TPD 220
;
Potgietersrust
Hospital Board v Simons
1943
TPD 269
at 274;
Rosebank
Television & Appliances Co (Pty) Ltd v Orbit Sales Corporation
(Pty) Ltd
1969
(1) SA 300
(T) at 302.
[8]
Lawsa
para
94.
[9]
Supra
.
[10]
Paragraph
14.
[11]
Paragraph
20.
[12]
Fedlife
Assurance Ltd v Wolfaardt
2002
(1) SA 49
(SCA) para 18.
[13]
Swart
en ‘n ander v Cape Fabrix (Pty) Ltd
1979
(1) SA 195
(A) at 202C;
Akasia
Road Surfacing (Pty) Ltd en ‘n ander v Shoredits Holdings Ltd
en andere
[2002] 3 All SA 117
(A) para 7;
Masstores
Pty) Ltd v Murray Roberts Construction (Pty) Ltd & another
[2008] ZASCA 94
;
2008
(6) SA 654
(SCA) para 23;
Bothma-Batho
Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk
2014
(2) SA 494
(SCA) para 13.
[14]
See
para 16 above.
[15]
Burger
v Central South African Railways
1903
TS 571
at 578;
George
v Fairmead (Pty) Ltd
1958
(2) SA 465
(A) at 472A;
Brink
v Humphries & Jewell (Pty) Ltd
2005
(2) SA 419
(SCA) para 1.