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[2013] ZASCA 176
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Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk (802/2012) [2013] ZASCA 176; [2014] 1 All SA 517 (SCA); 2014 (2) SA 494 (SCA) (28 November 2013)
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no: 802/2012 Reportable
In the
matter between:
BOTHMA-BATHO
TRANSPORT (EDMS) BPK
……………………….
Appellant
and
S
BOTHMA & SEUN TRANSPORT (EDMS) BPK
……………………
Respondent
Neutral
citation
:
Bothma
Batho Transport v S Bothma & Seun Transport (802/2012)
[2013]
ZASCA 176
(28 November 2013)
Coram
: MTHIYANE AP, LEWIS, SHONGWE, WALLIS and PILLAY JJA
Heard
: 21 November 2013
Delivered
: 28 November 2013
Summary
: Contract - interpretation a unitary process
commencing with the words and construing them in the light of all
relevant circumstances
- no distinction to be drawn between
background and surrounding circumstances.
ORDER
On appeal from
: Free State High Court (Hancke AJP sitting as
court of first instance):
The appeal is dismissed with costs.
JUDGMENT
WALLIS JA (??? concurring)
Introduction
[1]
The
respondent, S Bothma & Seun Transport (Edms) Bpk (Bothma &
Seun), was originally a family company established by a father
and
handed on to his sons, Louis, Pelham and Tertius. Louis died, and in
2005 Pelham and Tertius went their separate ways. Pelham
retained
Bothma & Seun and Tertius established the appellant, Bothma-Batho
Transport (Edms) Bpk (Bothma-Batho). In dividing
the original
business between them they had to deal with a tank farm situated in
Standerton, which Bothma & Seun were hiring
from Omnia Kunsmis
Bpk (Omnia) under a contract executed in 1999, but pre-dating that
date. In 2005 a new lease agreement was concluded
with Omnia to which
both Bothma & Seun and Bothma-Batho were parties. It provided for
Bothma & Seun to have the use of
three tanks, numbers 1, 2 and 3,
with a total capacity of some 15 000 cubic metres and for
Bothma-Batho to have the use of six
tanks, numbers 4 to 9, having a
total capacity of some 11 800 cubic metres. In return they became
obliged to pay rental to Omnia
on a monthly basis.
[2]
Although
both Bothma & Seuns and Bothma-Batho were parties to the lease,
Omnia only wished to deal with one of them. Accordingly
the lease
provided that Omnia would invoice Bothma-Batho for the entire rental
due under the lease in respect of all nine tanks,
and that Bothma-
Batho would have the exclusive management and control over the tank
farm. It would have to enter into a separate
agreement with Bothma &
Seuns on how to deal with the management and handling costs. It also
undertook not to recover more
from Bothma & Seun in respect of
rental of tanks than the latter was obliged to pay to Omnia under the
lease. In addition Bothma
& Seuns were to be given free access to
the facility to store product in its tanks and to accompany clients
there. In practice
Bothma-Batho let its tanks to Sasol and Bothma &
Seun let its tanks to FFS Refiners.
[3]
The
present dispute arose from the separate agreements concluded between
Bothma & Seun and Bothma-Batho in relation to the allocation
and
recovery of expenses incurred in the operation of the Standerton tank
farm. Two such agreements were concluded, the first in
settlement of
an arbitration between the parties and the second in settlement of
subsequent litigation between them. Bothma-Batho
contends that on a
proper interpretation of the relevant clause in the second agreement
it was entitled to receive the entire benefit
from an increase in the
rental paid by FFS Refiners to Bothma & Seun during the period
from 1 July 2008 to 28 February 2009.
That claim was disputed. It was
dismissed by Hancke AJP at first instance and the appeal is with his
leave.
The contracts
[4]
It is convenient
to start with the first agreement dealing with the allocation and
recovery of the operating costs of the tank farm.
It was concluded on
14 February 2007 as part of an overall settlement of issues that were
at the time being debated in an arbitration.
The clause dealing with
these issues was clause 7, which reads as follows:
‘Ten
opsigte van die Standerton Stoortenks van Omnia sal Bothma-Batho
Transport (Edms) Bpk self sy
kliënte
faktureer ten opsigte van die tenks deur Bothma-Batho
Transport (Edms) Bpk gebruik. S Bothma en Seun Transport (Edms) Bpk
sal self
vir sy
kliënte
FFS faktureer
ten opsigte van die stoortenks wat Bothma en Seun Transport (Edms)
Bpk se
kliënte
van tyd tot tyd
gebruik. Bothma en Seun Transport (Edms) Bpk sal die pro rata uitgawe
plus 10% bestuursfooi ten opsigte van die
bestuur van die stoortenks
oorbetaal binne sewe dae na lewering van faktuur van Bothma-Batho
Transport (Edms) Bpk welke uitgawes
ooreenkomstig die tenkkapasiteit
persentasie wat Bothma en Seun Transport (Edms) Bpk se
kliënte
gebruik van tyd tot tyd.’
[1]
[5]
Some
aspects of this arrangement are reasonably clear. Bothma- Batho would
incur expenses in the management of the tank farm and
those costs
would be divided between it and Bothma & Seun in proportion to
the tank capacity of the tanks that they and their
clients
respectively used. As the tanks allocated to Bothma & Seun under
the lease with Omnia had a greater capacity than those
allocated to
Bothma- Batho, the latter would bear a smaller proportion of the
expenses. According to a schedule reflecting the
period between March
and September 2007 Bothma & Seun bore 57.34 per cent of the
expenses. The same schedule covering the period
from January to
October 2008 reflected that it bore 52.1 per cent of the expenses.
[6]
A
problem arose in the implementation of clause 7 of the first
settlement agreement because Bothma-Batho, instead of furnishing
an
invoice to Bothma & Seun for the expenses and administration fee,
rendered an account directly to FFS Refiners, who paid
these accounts
and deducted the amount of such payments from the rental that they
paid to Bothma & Seun. According to the latter
this meant that
they had no predictable income and no control over or means of
monitoring the expenses raised by Bothma-Batho.
They claimed that
money due to them from the rental of their tanks had been withheld.
Along with other claims this formed the subject
of litigation against
Bothma-Batho. That is the litigation that lead to the second
settlement agreement embodying the clause that
gave rise to this
case.
[7]
The
disputed clause appeared in an agreement under which all claims
between the parties were settled. This involved a payment to
Bothma-Batho by Bothma & Seun that included an amount of R190 000
plus VAT in respect of expenses for the storage tanks for
October
2007. It was agreed that Bothma-Batho would not invoice FFS Refiners
for these expenses for that month. It was also agreed
that apart from
this payment and the amounts payable under the disputed clause Bothma
& Seun would not be responsible for any
additional expenses in
relation to the operation of the tank farm.
[8]
The
clause in issue reads as follows:
‘6. Die partye kom ooreen dat vir sodanige tydperk as wat die
Respondente die reg het op die gebruik van (3) drie tenks in
terme
van die ooreenkoms met Omnia dan in daardie geval sal die respondente
hulle
kliënt
faktureer vir die
verhuring van die tenk kapasiteit van die (3) drie tenks wat tans
R245 000 (BTW uitgesluit) bedra. Die
Applikante sal die Respondente se
kliënt
sodanig faktureer ten opsigte van die prorata uitgawes
asook die administrasie fooi van 10% dat die verhaling van die
Respondente
se
kliënt
teenoor die
Respondent nie meer sal wees as die bedrag van R190 000 (BTW
uitgesluit) nie, met dien verstande dat indien die fakture
gelewer
vir die verhuring van die tenkkapasiteit sou verhoog of verlaag die
fakturering ten opsigte van die uitgawes met sodanige
fluktuasie
aangepas sal word.’
[2]
[9]
Bothma-Batho contended that on its proper interpretation this
clause entitled it to render an invoice to FFS for R190 000 each
month
and that Bothma & Seun would be guaranteed an amount of R55
000 per month. If the rentals payable by FFS increased, the invoices
Bothma- Batho rendered to FFS would be adjusted (‘aangepas’)
by such (‘sodanige’) increase, in other words
by the
gross amount of the increase. Bothma & Seun disputed this. It
pleaded that the clause meant that Bothma-Batho could
recover a pro
rata proportion, calculated on the relative tank capacity used by
each of them, of the operating expenses, increased
by an
administration fee uplift of ten per cent of the expenses, subject to
a cap of R190 000. If the rentals that it recovered
increased or
decreased the cap would be adjusted by a like percentage increase or
decrease. The parties joined issue on these contentions.
Interpretation
[10]
In
Natal Joint Municipal Pension Fund v Endumeni Municipality
[3]
the current state of our law in regard to the interpretation of
documents was summarised as follows:
‘Over the last century there have been significant developments
in the law relating to the interpretation of documents, both
in this
country and in others that follow similar rules to our own. It is
unnecessary to add unduly to the burden of annotations
by trawling
through the case law on the construction of documents in order to
trace those developments. The relevant authorities
are collected and
summarised in Bastian Financial Services (Pty) Ltd v General Hendrik
Schoeman Primary School. The present state
of the law can be
expressed as follows: Interpretation is the process of attributing
meaning to the words used in a document, be
it legislation, some
other statutory instrument, or contract, having regard to the context
provided by reading the particular provision
or provisions in the
light of the document as a whole and the circumstances attendant upon
its coming into existence. Whatever
the nature of the document,
consideration must be given to the language used in the light of the
ordinary rules of grammar and
syntax; the context in which the
provision appears; the apparent purpose to which it is directed and
the material known to those
responsible for its production. Where
more than one meaning is possible each possibility must be weighed in
the light of all these
factors. The process is objective, not
subjective. A sensible meaning is to be preferred to one that leads
to insensible or unbusinesslike
results or undermines the apparent
purpose of the document. Judges must be alert to, and guard against,
the temptation to substitute
what they regard as reasonable, sensible
or businesslike for the words actually used. To do so in regard to a
statute or statutory
instrument is to cross the divide between
interpretation and legislation; in a contractual context it is to
make a contract for
the parties other than the one they in fact made.
The 'inevitable point of departure is the language of the provision
itself
1
, read in context and having regard to the purpose
of the provision and the background to the preparation and production
of the
document.’
[11]
That
statement reflected developments in regard to contractual
interpretation in Masstores (Pty) Ltd v Murray & Roberts
Construction
(Pty) Ltd; KPMG Chartered Accountants (SA) v Securefin
Ltd & another and Ekurhuleni Municipality v Germiston Municipal
Retirement
Fund
[4]
I return to it and to those cases only because we had cited to us the
well- known and much cited summary of the earlier approach
to the
interpretation of contracts by Joubert JA in Coopers & Lybrand &
others v Bryant,
[5]
that:
‘The correct approach to the application of the 'golden rule'
of interpretation after having ascertained the literal meaning
of the
word or phrase in question is, broadly speaking, to have regard:
(1)
to the
context in which the word or phrase is used with its interrelation to
the contract as a whole, including the nature and purpose
of the
contract ... ;
(2)
to the
background circumstances which explain the genesis and purpose of the
contract, ie to matters probably present to the minds
of the parties
when they contracted. . ;
(3)
to
apply extrinsic evidence regarding the surrounding circumstances when
the language of the document is on the face of it ambiguous,
by
considering previous negotiations and correspondence between the
parties, subsequent conduct of the parties showing the sense
in which
they acted on the document, save direct evidence of their own
intentions.’
[12]
That
summary is no longer consistent with the approach to interpretation
now adopted by South African courts in relation to contracts
or other
documents, such as statutory instruments or patents.
[6]
Whilst the starting point remains the words of the document, which
are the only relevant medium through which the parties have
expressed
their contractual intentions, the process of interpretation does not
stop at a perceived literal meaning of those words,
but considers
them in the light of all relevant and admissible context, including
the circumstances in
which the document came into
being. The former distinction between permissible background and
surrounding circumstances, never very
clear,
has fallen away.
Interpretation is no longer a process that occurs in stages but is
‘essentially one unitary exercise’
[7]
.
Accordingly it is no longer helpful to refer to the earlier approach.
Discussion
[13]
Clause
6 had its genesis in clause 7 of the earlier settlement agreement
that provided for the apportionment of the costs of operating
the
tank farm between Bothma-Batho and Bothma & Seun. There was no
dispute about the way this was to be done by pro rating
the expenses
in proportion to the relative tank capacity of which each party
enjoyed the benefit. The only issue in regard to calculation
of the
share of Bothma & Seun related to the management fee.
Bothma-Batho said that this was to be calculated on the rental
payable to Bothma & Seun by its client FFS. However, it is plain
from clause 7 of the original settlement agreement that it
was to be
calculated as a proportion of the expenses (‘die pro rata
uitgawe plus 10% bestuursfooi’). That language
was simply
incapable of being construed as requiring that the administration fee
be calculated as a percentage of the rentals received
by Bothma &
Seun.
[14]
There
was nothing in the background or context of the second settlement
agreement and clause 6 dealing with the administration fee
to
suggest
that the parties had in mind amending the basis upon which it was to
be calculated. Their focus was on other issues entirely,
more
especially
those arising from Bothma-Batho’s practice of
invoicing FFS directly, which was plainly contrary to the provisions
of clause
7 of the original settlement agreement. It must be accepted
therefore that the administration fee was to be calculated as a
percentage
uplift of Bothma & Seun’s pro rata share of the
monthly expenses of operating the tank farm.
[15]
The
first sentence of clause 6 recorded that Bothma & Seun would
invoice their client, effectively FFS, for the use of the three
tanks
hired by them and that the current rentals were R245 000 per month,
exclusive of VAT. The second sentence, by necessary implication,
authorised Bothma-Batho to invoice the client for Bothma & Seun’s
pro rata share of the expenses plus the administration
fee, but its
main purpose and effect was to qualify that entitlement by subjecting
it to a limit of R190 000, exclusive of VAT.
It provided that
Bothma-Batho was to invoice Bothma & Seun’s client in such
a way that its recovery from the client would
not exceed R190 000.
The effect of this was to ensure that Bothma & Seun would receive
at least R55 000 per month from the
use of its tanks for so long as
the rentals it was charging remained at or above R245 000 per month.
[16]
The
problem of interpretation arises from that portion of clause 6
commencing with the words ‘met dien verstande’ (‘provided
that’). In the appellant’s argument this was said to be
the third sentence of the clause. That introduced the fundamental
error, one often identified by our
courts
[8]
,
of treating a proviso as a separate substantive provision, rather
than as qualifying that to which it stands as a proviso. The
latter is the correct approach. In this case it means that this part
of the clause must be construed as qualifying the obligation of
Bothma-Batho to render invoices to Bothma & Seun’s client
in respect of operating expenses and the administration fee in such a
way as not to exceed R190 000 per month.
[17]
The
proviso would take effect if the invoices for rental raised by Bothma
& Seun either increased or decreased. In that event
the invoicing
in respect of the expenses had to be adjusted in accordance with that
fluctuation in rental. The argument on behalf
of Bothma-Batho was
that this meant that the whole of the adjustment in rental had to be
added to or subtracted from the invoices
it was entitled to render in
respect of expenses and the administration fee. However, that would
not in any way qualify the provision
preceding it, which was that
Bothma-Batho was to invoice Bothma & Seun’s client in such
a way as not to recover more
than R190 000 per month. Indeed in the
events that occurred, where the monthly rental increased by nearly
R192 000 per month, it
would have rendered the cap nugatory. It would
also have altered the basis upon which Bothma-Batho was rendering
those invoices.
In terms of the contract that was that the invoices
reflected the pro rata share of tank farm expenses allocated to
Bothma &
Seun plus the administration fee. On the appellant’s
argument it would, by virtue of the operation of the proviso, not
only
have recovered that share of the expenses plus the
administration fee, but also a share of the rentals due to Bothma &
Seun
unrelated to these items. It would have acquired a share in the
profits accruing from the operation of a business in which it had
no
interest.
[18]
There
is not the slightest indication in the terms of the settlement
agreement or any of the background that such a result was
contemplated by the parties. They were addressing the problems that
had arisen from Bothma-Batho invoicing FFS directly for Bothma
&
Seun’s share of the costs and the administration fee. The cap
was plainly directed at meeting the latter’s concerns
about an
absence of control over the level of expenses in the operation of the
tank farm, that had the potential to undermine its
ability to exploit
its interest in the tank farm in a profitable manner. In addition the
suggested construction of the proviso
raises the question of why, in
that event, Bothma & Seun would have bothered to obtain a higher
rental from its client if the
whole of that increase would enure to
the benefit of Bothma-Batho. The history of the relationship between
the parties excluded
any possibility that brotherly love or some
other ground of charitable benevolence had motivated the conclusion
of the settlement
agreement.
[19]
It was
submitted that this construction of the proviso was justified by the
fact that Bothma-Batho had incurred substantial capital
expenditure
in upgrading the facilities at the tank farm in order to bring them
up to current international requirements for such
storage facilities.
The weakness in that, however, is that Bothma & Seun had made it
clear that they were not willing to make
any contribution to the
costs of the upgrade. The fact that the increased rental they
negotiated with FFS may have been influenced
by the upgrade does not
affect the matter. It is not a reason for giving the proviso a
meaning that its language cannot bear, that
is inconsistent with the
balance of the provisions in clause 6 and that finds no support in
the context in which the agreement
was concluded.
[20]
It
is unnecessary to reach a final conclusion on how the cap was to be
adjusted in the light of an increase or decrease in the rentals
chargeable by Bothma & Seun, although a pro rata increase
or decrease in line with the increase or decrease in the rentals
would
appear to be logical. It is only necessary to conclude that the
interpretation contended for by Batho-Bothma that on a proper
interpretation
of clause 6 it was entitled to payment of the increase
in the amount of the invoices rendered to the client of Bothma &
Seun,
is not correct.
[21]
For
those reasons the appeal must fail and it is dismissed with costs.
M J D WALLIS
JUDGE OF APPEAL
[1]
‘
In
connection with Omnia’s Standerton Storage tanks Bothma-Batho
Transport (Pty) Ltd will itself invoice its clients in
connection
with the tanks used by Bothma-Batho Transport (Pty) Ltd. S Bothma
and Son (Pty) Ltd will itself invoice its clients
FFS in connection
with the storage tanks used by the clients of Bothma and Son (Pty)
Ltd from time to time. Bothma and Son (Pty)
Ltd will pay its pro
rata share of the expenses plus a 10% management fee in respect of
the management of the storage tanks seven
days after delivery by
Bothma-Batho Transport (Pty) Ltd of an invoice, which expenses shall
be determined in accordance with
the tank capacity percentages that
Bothma and Son (Pty) Ltd and its clients use fro time to time.’
(My translation.)
[2]
‘
The
parties agree that, for such period as the respondent has the right
to use three tanks in terms of the agreement with Omnia,
then in
that case the respondent will invoice its client for the hire of the
tank capacity of the three tanks, which at present
is an amount of
R245 000.00 (excluding VAT). The applicant will invoice the
respondent's client in such a way in respect of the
pro rata
expenses as well as the administration fee of 10%, that the recovery
from the respondent's client against the respondent
shall not be
more than R190 000.00 (excluding VAT), provided that if the invoices
rendered for the hire of the tank capacity
increase or decrease the
invoicing in connection with expenses shall be adjusted in
accordance with such fluctuations.’
(My translation.)
[3]
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012 (4) SA 593
(SCA) para 18 (footnotes omitted).
[4]
Masstores
(Pty) Ltd v Murray & Roberts Construction (Pty) Ltd
[2008] ZASCA 94
;
2008 (6) SA
654
(SCA) para 7; KPMG Chartered Accountants (SA) v Securefin Ltd &
another
2009 (4) SA 399
(SCA) para 39 and Ekurhuleni Municipality v
Germiston Municipal Retirement Fund
2010 (2) SA 498
(SCA) paras
12-14.
[5]
Coopers
& Lybrand & others v Bryant
[1995] ZASCA 64
;
1995
(3) SA 761
(A) at 768A-E.
[6]
AktiebolagetHassle
& another v Triomed (Pty) Ltd
2003
(1) SA 155
(SCA) paras 8 and 9.
[7]
Per
Lord Clarke SCJ in Rainy Sky SA & others v Kookmin Bank
[2011]
UKSC 50
([2012] Lloyds Rep 34 (SC)) para 21. He relied also on the
following passage in Society of Lloyd’s v Robinson
[1999] 1
All ER (Comm) 545
, 551 ‘Loyalty to the text of a commercial
contract, instrument, or document read in its contextual setting is
the paramount
principle of interpretation. But in the process of
interpreting the meaning of the language of a commercial document
the court
ought generally to favour a commercially sensible
construction. The reason for this approach is that a commercial
construction
is likely to give effect to the intention of the
parties. Words ought therefore to be interpreted in the way in which
a reasonable
commercial person would construe them. And the
reasonable commercial person can safely be assumed to be unimpressed
with technical
interpretations and undue emphasis on niceties of
language’.
[8]
Mphosi
v Central Board for Co-operative Insurance Ltd
1974
(4) SA 633
(A) at 645C - F.