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[2012] ZAECPEHC 42
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Building Product Design Ltd v Cordustex Manufacturing (Pty) Ltd and Another (929/2012) [2012] ZAECPEHC 42 (3 July 2012)
NOT REPORTABLE
IN THE HIGH COURT OF SOUTH AFRICA
EASTERN CAPE, PORT ELIZABETH
Case No.: 929/2012
Date Heard: 10 May 2012
Date Delivered: 3 July 2012
In the
matter between:
BUILDING
PRODUCT DESIGN LIMITED
…...........................................................
Applicant
and
CORDUSTEX MANUFACTURING
(PROPRIETARY) LIMITED
….....................................................................
First
Respondent
UKUVULA INVESTMENT HOLDINGS
(PROPRIETARY) LIMITED
…...............................................................
Second
Respondent
JUDGMENT
EKSTEEN J:
[1] This is an application in which the applicant, a company with
limited liability registered in England in accordance with the
laws
of England and carrying on its business in that country, seeks a
declaratory order confirming the cancellation by it of an
agreement
concluded with the first respondent, a South African company.
[2] The applicant, as its name suggests, carries on business as a
manufacturer and distributor of building products with a special
emphasis on roof ventilation, natural ventilation systems, louvers
and solar shading and natural daylight products and including
construction membranes for roofs and walls.
[3] The first respondent carries on business as a marketer,
manufacturer and distributor of polypropylene spunbond and laminated
textiles to the hygiene, medical, construction and industrial
markets.
[4] The second respondent is Ukuvula Investment Holdings
(Proprietary) Limited (Registration Number 1999/018692/07), a company
with limited liability registered in accordance with the Laws of the
Republic of South Africa carrying on business as a direct
and
indirect investor in a variety of companies. The second respondent
has guaranteed the obligations of the first respondent under
the
equipment loan agreement referred to below.
[5] On 17 April 2008 the applicant and the first respondent entered
into an equipment loan agreement in terms of which the applicant
agreed to purchase a 3.2 metre single beam non-woven spunbond machine
for the manufacture of spunbond non-woven material and to
loan the
machine to the first respondent, an expert in the manufacture and
supply of high quality spunbond non-woven material,
on certain terms.
The purpose of the agreement, from the perspective of the applicant,
was to secure a guaranteed source of high
quality spunbond non-woven
material for itself. I shall revert to the terms of the equipment
loan agreement later.
[6] Simultaneously with the conclusion of the equipment loan
agreement, the applicant and the first respondent accordingly entered
into a material supply agreement in terms of which the applicant
would place purchase orders for the supply of spunbond material
with
the first respondent from time to time. The terms of this agreement
are not directly material to the present application.
[7] During the subsistence of these agreements a number of issues of
dispute arose between the parties which culminated in a notice
of
termination of the equipment loan agreement (the initial
cancellation) by the applicant to the first respondent on 25 November
2011. Further discussions occurred between the parties and further
disagreements arose which ultimately led to a further notice
of
termination (the final cancellation) by the applicant to the first
respondent on 2 March 2012.
[8] As a result of these events the applicant launched the present
application as one of urgency on 19 March 2012 in which the
following
relief is sought:
‘
1. …
2. That the Applicant’s
termination of the Equipment Loan Agreement concluded between the
Applicant and the Respondents on
17 April 2008 (the “Agreement”)
be and is hereby confirmed.
3. That the First Respondent be
and is hereby directed to:
3.1 permit the Applicant, its
employees or duly authorized agents:
(a) Access to its premises
situated at Caravelle Street, Walmer Industrial, Port Elizabeth, (the
“Premises”) as envisaged
in clause 11.1 of the Agreement;
(b) To de-install the
Applicant’s 3.2 meter single beam non-woven spunbond machine,
otherwise known as line 3, (the “Equipment”)
from the
Premises as envisaged in clause 11. of the Agreement;
3.2 Following the aforementioned
de-installation:
(a) transport the Equipment to
the First Respondent’s loading dock, goods inwards or similar
facility for collection by the
Applicant, its employees or authorized
agents; and
(b) opening up or dismantling
the Premises as may be required to facilitate the removal of
Equipment from the Premises;
as envisaged in clause 11.4 of
the Agreement, alternatively to re-imburse the Applicant such costs
as may be incurred in undertaking
the activities listed in paragraph
3.2(a) and 3.2(b) above within 7 days of invoice.
4. As to costs:
4.1 That the First Respondent
pay the Applicant’s costs on a party and party scale;
4.2 In the event of the Second
Respondent opposing the Application, an order directing the
Respondents to pay the Applicant’s
costs on the party and party
scale, jointly and severally, the one paying the other to be
absolved.’
[9] A number of preliminary issues arise from the papers. The
respondent issued a notice calling for security for costs to be
provided on the basis that the applicant was a foreign company. I was
advised at the commencement of proceedings that this matter
had been
resolved and that the security called for had been forthcoming.
[10] A dispute appears too on the papers relating to the validity of
the attestation of affidavits on behalf of the applicant which
had
purportedly been signed and attested to before a notary public in
England. At the commencement of the proceedings before me
I was
handed a fresh copy of the same affidavits now attested to before a
commissioner of oaths in South Africa. The parties were
agreed that
the original difficulty had accordingly been cured and I was not
called upon to make any finding in this regard.
Urgency
[11] Mr
Buchanan
, on behalf of the respondents, argues
that the application ought not to have been launched as a matter of
urgency and that on this
basis the application ought to be dismissed
with costs.
[12] It is not in dispute that clause 11 of the agreement provides
that the applicant will be entitled to remove the equipment
from the
premises upon termination of the agreement. I have recorded above
that the applicant has on two occasions given notice
of the
cancellation of the agreement. The first respondent disputes the
validity of the termination and denies that it has breached
the
agreement in any material respect. In response hereto the applicant
contends, on the papers, that there exists no legitimate
basis to
dispute the termination of the agreement and hence seeks the relief
which I have set out above.
[13] On 2 March 2012, after the final cancellation, the attorneys of
record of the applicant directed a demand to the attorneys
of record
of the first respondent that the first respondent give an undertaking
in writing that it will permit the applicant to
collect the equipment
on the expiry of fourteen days from the date of the letter. By virtue
of the attitude taken by the respondent
in respect of the validity of
the cancellation such undertaking was naturally not forthcoming.
Against this background the deponent
to the founding affidavit for
the applicant alleges:
“
142. I
am informed that vindicatory applications are always inherently
urgent.
143. The Applicant owns the
Equipment and the lawful basis upon which the First Respondent was
entitled to possess the Equipment
has been legitimately terminated.
144. The Equipment is valuable,
worth well in access of R7.5 (seven point five) million, and for so
long as it remains in the possession
of the First Respondent whilst
these acrimonious proceedings endure, the greater the exposure of the
Applicant to intentional or
malicious damage being caused to the
Equipment. “
[14] These, essentially, constitute the grounds of urgency.
[15] Mr
Buchanan
argues that the dispute between the
parties as to the alleged termination of the underlying agreement
arose, at best for the applicant,
in November 2011 and that the
applicant has unduly delayed the institution of these proceedings.
[16] I consider that this argument overlooks the very extensive
negotiations which continued between the parties after the initial
cancellation. On 10 February 2012 the attorneys of record of the
applicant addressed an email to the attorneys of record of the
respondent in which it recorded in unequivocal terms that “[o]ur
client accepts that the first Equipment Loan Agreement between
the
parties is still of full force and effect”. It appears
accordingly that the urgency of this application cannot arise
from
the initial cancellation. Given the context in which this continuing
correspondence occurred in which the entitlement to cancel
the
agreement was in issue, I think that this communication, coming from
the applicant’s attorneys as it did, constitutes
a waiver of
any further reliance on the initial cancellation. On any version of
events, it seems to me, that the parties were in
agreement after 10
February 2012 that the contract continued to exist. No right to
reclaim the equipment can exist prior to cancellation.
The final
cancellation occurred on 2 March 2012 and it is only then that the
right which is sought to be enforced in this application
arose. In
the circumstances, I am of the view that the argument advanced in
respect of the dispute arising in November 2011 cannot
be sustained.
[17] Mr
Buchanan
argues, however, that in any event the
grounds of urgency set out in the founding affidavit are “scanty
to say the least”.
I have set out above the essential grounds
of urgency alleged in the founding papers. I think the submission
made by Mr
Buchanan
in respect of the cogency of these
averments has some force. I do not think, however, that this should
be viewed in isolation.
[18] The application was delivered on 20 March 2012. Although the
form of the application deviates from form 2A of the Uniform
Rules of
Court the applicant did not seek to approach the court as a matter of
extreme urgency. It afforded the respondents until
16h30 on 22 March
2012 to enter an appearance to defend and to 16h30 on 29 March 2012
to file answering affidavits. A comprehension
answering affidavit was
filed. The applicant thereafter, on 10 April 2012, filed very
extensive replying papers and raising a number
of matters which were
not contained in the founding papers. The matter was only enrolled
for hearing on 10 May 2012 and at the
hearing the respondent sought
leave to file yet another set of affidavits more than two hundred
pages in length.
[19] What emerges from the aforegoing is that all parties have had
ample opportunity to file whatever papers may have been required
and
to air all the issues raised fully and comprehensively. The time
frames set by the applicant in its deviation from form 2A
of the
Uniform Rules of Court did not materially curtail the opportunity for
the respondents to place their case before court,
rather it sought to
obtain a preference on the roll over other cases pending on the
opposed roll. Viewed in this context I think
that the grounds of
urgency alleged, scanty as they may be, do provide some basis for
urgency. The nature of the application is
the vindication of heavy
machinery which is in constant use with the inescapable consequence
of an ongoing depreciation in value,
even without any intentional or
malicious damage. Whilst these circumstances may not provide
justification for a party to run to
court on a few hours notice, I
think that they do afford a greater measure of urgency to this
application than an ordinary claim
for damages sounding only in
money.
[20] In all the circumstances I do not think that the interests of
justice would be served by dismissing the application at this
stage
and thereby compelling the applicant merely to commence proceedings
afresh at very considerable costs to all concerned.
Governing Law
[21] Clause 24 of the agreement provides as follows:
“
24.1
The construction, interpretation, meaning, validity and performance
of this Agreement shall be governed by English Law which
is agreed to
be the proper law of this Agreement and, subject to Clause 24.2, each
party hereby submits to the exclusive jurisdiction
of the English
Courts.
24.2 Notwithstanding the
provisions of Clause 24.1 with respect to jurisdiction only, BPD
retains the right and will be entitled
to, in its discretion,
commence legal proceedings in the courts of the Republic of South
Africa for the recovery of the Equipment.
CDX hereby irrevocably
waives any objection to, and agrees to submit to, the jurisdiction of
such other courts.
24.3 …
24.4 CDX and the Guarantor agree
that, in the event that any mandatory local law means that any
dispute arising out of or in connection
with this Agreement is
judicable in any court that is not in England, then, notwithstanding
Clause 24.1, CDX or the Guarantor shall
not seek to argue any matter
which would be unlawful under, or incapable of being argued in
accordance with, English Law and shall
limit its arguments
accordingly.”
[22] The references in the contract to BPD, CDX and “the
guarantor” are references to the applicant, the first
respondent
and the second respondent respectfully.
[23] At common law courts do not ordinarily take judicial notice of
foreign law which must be proved by the evidence of an expert
witness. The common law was, however, considerably varied by the Law
of Evidence Amendment Act, 45 of 1988 (the Act) which provided
in
section 1(1) as follows:
“
(1)
Any court may take judicial notice of the law of a foreign state and
of indigenous law in so far as such law can be ascertained
readily
and with sufficient certainty: Provided that indigenous law …”
[24] In
Harnischfeger Corporation and Another v Appleton and
Another
1993 (4) SA 479
(W) at 485D-E Flemming DJP gave
consideration to the meaning of section 1(1) of the Act. He concluded
that although the words “readily”
and “sufficient
certainty” in subsection (1) defy definition, they cannot be
ignored. In issue in the
Harnischfeger Corporation
supra
case was the law of copyright applicable in Milwaukee,
USA in 1966-1969. Flemming DJP reasoned that the libraries to which
he had
access were entirely inadequate for him to determine the law
of Milwaukee “with sufficient certainty”. He reasoned,
accordingly, that the law of Milwaukee was not “readily”
ascertainable and accordingly he declined to take judicial
notice of
the foreign law.
[25] By contrast, in
C Hoare and Co v Runewitsch and Another
1997 (1) SA 338
(W) at 340G-H Flemming DJP reasoned that:
“…
our
Courts have always taken the liberty of being influenced by
authorities on English law and practice in regard to determining
what
our law on a specific point is or should be. In this process lines of
accessibility and of grasp have developed which are
important to
assessing, as I have to do in this case, what the English Law is for
its own sake. In regard to establishing that
(not to decided what our
law is), such qualities are present to an adequate extent to permit
judicial cognisance in terms of
section 1(1)
of the
Law of Evidence
Amendment Act 45 of 1988
”.
(See also
The
South African Law of Evidence
:
DT Zeffertt and AP Paizes (2
nd
ed at p. 879).
[26] I am in full agreement with the latter comments of Flemming DJP
set out in the case of
C Hoare and Company
supra
.
In addition access to English legal textbooks and law reports are
readily available in South African court libraries.
[27] Where the foreign law relates to a foreign statute, the statute
should be laid before the court, generally speaking, to allow
the
court to determine its meaning and effect. (See for example
Skilya
Property Investments (Pty) Ltd v Lloyds of London Underwriting
Syndicate Nos 960, 48, 1183 & 2183
2002 (3) SA 765
(T) at
794A; and
Zeffertt and Paizes:
The South African Law of
Evidence
supra (
p. 338.) To this end Mr
Nelson
,
on behalf of the applicant, has placed before me, for purposes of his
argument, the relevant extract upon which reliance is placed
from the
English Bankruptcy Act, 1914 and the English Insolvency Act, 1986. I
shall revert to this below.
[28] Mr
Buchanan
argues, however, reliant on the common
law approach, that complex issues of English law of contract and
insolvency are involved
in the present matter. For this reason it is
argued that section 1(1) of the Act cannot assist and the law of
England must be proved
by evidence, or at least be referred to and
made available.
[29] In considering the application of section 1(1) of the Act in
The
MT “Yeros” v Dawson Edwards & Associates
and
Another
[2007] 4 All SA 922
(C) at 929e Bozalek J held:
“
Where,
however, this provision is not met, as in this case, the contents and
effect of foreign law must be treated as a question
of fact and be
proved by properly qualified experts. If that content and effect
relates to a foreign statute, the statute should
be laid before the
court to allow it to determine its meaning and effect.”
[30] I am in agreement with this approach. Where the foreign law in
issue cannot be readily ascertained with sufficient certainty
it is a
fact which ought to be proved by evidence and reference must be made
to this in evidence by an appropriately qualified
expert. Where,
however, such law can be readily ascertained with sufficient
certainty and the provisions of section 1(1) of the
Act are met, I do
not consider that it is incumbent upon a party seeking to rely upon
the foreign law to refer to the provisions
of that law in evidence.
The section entitles the court to take judicial notice of the content
of that law without reference thereto
in the evidence. This, I think,
applies both to common law and statue.
[31] In the alternative and in response to the argument of Mr
Buchanan
, Mr
Nelson
, argues that in the
absence of evidence to the contrary, foreign law is presumed to be
the same as the law in South Africa. In
this regard he has referred
to
MV Heavy Metal; Belfry Marine Limited v Palm Base Maritime
SDN BHD
1999 (3) SA 1083
(SCA) at 1101I-1102A;
Maschinen
Frommer GmbH & Co. KG v Trisave Engineering & Machinery
Supplies (Pty) Ltd
2003 (6) SA 69
(C) at 79C-E and to
Burchell v Anglin
2010 (3) SA 48
(ECG) at 57C-58D.
[32] As will transpire below, for purposes of this judgment the
issues in dispute are considerably narrowed and it is conceded
on
behalf of the respondents that for purposes of this judgment it is
not necessary to decide the issue and the respondents are
content to
argue the issues which I am called upon to decide as if such a
presumption does exist. Mr
Buchanan
has however
expressly stated that he reserves the right for purposes of issues
which may arise later in the litigation to argue
that such a
presumption does not exist in our law and that the application ought
to be dismissed in the absence of proof of the
law of England.
[33] In
Kwikspace Modular Buildings Limited v Sabodala Mining
Co. Sarl and Another
2010 (6) SA 477
(SCA), a similar
concession was made by counsel, however, at 482B-C Cloete AJA (as he
then was) said:
“
[7]
Counsel on both sides were content to submit that there is a
presumption (see the authorities collected in Harnischfeger
Corporation
and Another v Appleton and Another
1993 (4) SA 479
(W) at
486A-D) that the law of a foreign state is, in the absence of
evidence to the contrary, presumed to be the same as the law
of South
Africa. (This view is challenged in DT Zeffertt, AP Paizes & A
Skeen The South African Law of Evidence (2003) at 313;
and see also
Kahn
(1970) 87 SALJ 145).
But as I believe the law in
Australia on the points in issue in this appeal can be ascertained
readily and with sufficient certainty,
as contemplated in s 1(1) of
the Law of Evidence Amendment Act 45 of 1988, (‘Any court may
take judicial notice of the law
of a foreign State so far as such law
can be ascertained readily and with sufficient certainty’) I
propose applying the Australian
law to the interpretation of the
building contract and in particular, GC 5”.
[34] Similarly I am of the view that the law of England relating to
the interpretation of contracts can be readily ascertained
with
sufficient certainty and I accordingly propose to apply the law of
England in respect of the interpretation of the contract.
The issues
[35] I recorded earlier that the issues I am called upon to decide
are considerably narrower than those which emerge from the papers.
[36] At the commencement of proceedings Mr
Nelson
conceded that numerous genuine disputes of facts have arisen on the
papers and which cannot be resolved without reference to oral
evidence. He contends, however, that two issues emerge from the
papers in respect of which no material dispute of fact exists and
which are decisive of the application. If I hold in favour of the
applicant on either of these issues, so it is argued, then the
applicant has established that as at 2 March 2012 the applicant was
entitled to terminate the equipment loan agreement, the termination
is then valid and enforceable and the applicant is entitled to the
relief it seeks.
[37] In the first instance Mr Nelson argues that on the papers it is
established that the first respondent has failed and refused
to grant
the applicant access to documentation to which it is entitled in
terms of the equipment loan agreement and that such refusal
entitled
the applicant to terminate the agreement. (I shall refer to this
argument as the applicant’s first argument.)
[38] In the second instance Mr Nelson contends that the papers
clearly establish that the first respondent acknowledged in writing
in 2010 to Safripol (Pty) Limited, a supplier of polypropylene, that
it was unable to pay its debts. This, it is argued, entitled
the
applicant at any time to terminate the agreement in terms of the
provisions of the agreement. (I shall refer to this argument
as the
applicant’s second argument.)
[39] Mr
Buchanan
, on behalf of the respondents,
similarly argues two points which he contends are decisive of the
application. Firstly it is argued
that no notice of termination as
envisaged in the equipment loan agreement has been given and
accordingly that the contract has
not been validly cancelled. (I
shall refer to this argument as the respondents’ first
argument.)
[40] In any event, so it is argued, it is now conceded that there are
numerous disputes of fact which emerge from the papers and
which
cannot be determined on the papers. These disputes, Mr
Buchanan
argues, were clearly foreseeable and in those circumstances
application proceedings were not appropriate. For this reason alone
it is submitted that the application should be dismissed. (I shall
refer to this argument as the respondents’ second argument.)
Interpretation of the contract
[41] In order to determine the first three issues set out above it is
necessary to have regard to the terms of the contract.
[42] The rules of interpretation of contract in England are in many
respects similar to those which apply in our law. In respect
of the
origins thereof AA Roberts in
Wessels’ Law of Contract in
South Africa
(2
nd
ed), vol 1 at para 1894 states
as follows:
“
We
have seen what rules of evidence must be followed in order to prove
to the court what the actual terms of a contract are, and
we have
seen that these rules are taken from the law of England. Although we
know what the terms of a contract are, we may not
know the exact
meaning of these terms. To ascertain their true meaning, we must have
recourse to certain rules of construction
laid down by Roman-Dutch
law. It is only with regard to the proof of the contract that we
invoke the law of England: in order to
ascertain the meaning of the
contract when proved - the interpretation of the contract – we
must go primarily to the Civil
Law for guidance. As, however, the
rules of construction which prevail in the English courts are largely
based upon the principles
of the Civil Law, the difference between
the two systems of law with regard to the interpretation of contracts
is not great.”
[43] Like in our law, the general point of departure is that the
meaning of documents are to be found in the documents themselves
and
in the language used therein. It is presumed that the parties have
intended what they in fact said, so that their words must
be
construed as they stand. (See
IRC v Raphael
[1935] A.C.
96
, 142; and
British Movietonews v London and District Cinemas
[1952] A.C. 166.)
[44] This general rule was articulated by Lord Hoffman in
Investors
Compensation Scheme v West Bromwich Building Society; Investors
Compensation Scheme Ltd v Hopkin & Sons (a firm) and
Others;
Alford v West Bromwich Building Society and Others; Armitage v West
Bromwich Building Society and Others
[1998] 1 All ER 98
at
115 as follows:
‘
The
“rule” that words should be given their “natural
and ordinary meaning” reflects the common sense proposition
that we do not readily accept that people have made linguistic
mistakes, particularly in formal documents …’
[45] The words used in the contract cannot however be viewed in
isolation and must necessarily be considered against the background
of the circumstances under which the agreement was concluded and in
the light of the purpose for which it was concluded. (See
Mannai
Investment Company v Eagle Star Life Assurance
[1997] UKHL 19
;
[1997] 3 All
ER 352
at 376 and
Investors Compensation Scheme v West Bromwich
Building Society
supra
.)
[46] In interpreting the language of the contract the court will
therefore investigate the full background to and circumstances
surrounding the conclusion of the contract and take an objective
approach to ascertain the contextual meaning of the words in
question. (Compare
Sirius International Insurance Company
(PUBL) v FAI General Insurance Limited and Others
[2004] UK
HL 54
, at para 18.)
[47] Where the meaning of the words cannot be found from this enquiry
resort may be had to a number of guides, or “cannons
of
construction” in order to do justice between the parties.
Usually where ambiguity remains and it is to be determined in
whose
favour the ambiguity is to be decided the courts will resolve the
uncertainty surrounding the provision against the party
who would
benefit from the suggested interpretation. Compare
Photo
Production v Securicor Transport
[1980] UKHL 2
;
[1980] 1 All ER 556.
[48] Against this general background I turn to consider the relevant
provisions of the equipment loan agreement. I have recorded
earlier
that the purpose of the agreement, viewed from the prospective of the
applicant, was to purchase the equipment and to loan
it to the first
respondent on certain terms and conditions. Clause 2 of the agreement
deals with the duration of the loan whilst
clause 3 provides for the
guarantee by the second respondent. Clause 4 relates to the
obligations of the first respondent in respect
of the acquisition of
the equipment.
[49] Clause 5 deals with first respondent’s obligations in
respect of the equipment loan arrangements. In this regard clause
5.3
stipulates that the first respondent will pay to the applicant the
“initial payments” in consideration of the loan
of the
equipment during the loan period. The initial payments are defined in
clause 1 of the agreement to mean “the monthly
fee payable to
BPD by CDX during the term of the agreement calculated on the basis
of the Material price per tonne of 980 ZAR multiplied
by the monthly
output measured in tonnes of Material produced by CDX using the
Equipment.”
[50] To this end, clause 5.4 of the agreement provides:
“
Following
the Acceptance Date and for the duration of the Loan Period, CDX will
promptly following the end of each calendar month
forward to BPD a
report detailing the output of the Equipment for such month (if any)
by tonne, or part thereof, for each Material
and each of CDX’s
end user customers including, but not limited to BPD, along with
payment for the Initial Payments for that
month, or part thereof. CDX
agree to allow BPD to have access to any necessary records for the
purposes of audit verification of
the Material output.”
[51] Clause 6 provides for an option in favour of the first
respondent to purchase the equipment at the conclusion of the loan
period. In terms of clause 7 the parties committed themselves to
enter into a material supply agreement upon the conclusion of
the
equipment loan agreement. Clauses 8 and 9 of the agreement provides
for the obligations of the applicant and of the first respondent
respectively in respect of the maintenance, repair, upgrade,
safekeeping, insurance and security of the equipment.. Clause 9.3.2
which provides that the first respondent will, from the date of
receipt of the equipment, “keep the Equipment free of all
security interests, charges, liens and other encumbrances” is
significant to the applicant’s first argument. The remaining
obligations of the first respondent set out in clause 9 of the
agreement do not appear to me to be material to the present debate.
[52] At the heart of the first argument raised by Mr
Nelson
lies the interpretation of clause 10 of the agreement. I shall
accordingly set out the terms of this clause in full. It provides:
“
10.
ACCESS
TO CDX PREMISES AND BPD AUDIT RIGHTS
10.1 For the purpose of
verifying CDX’s compliance with its obligations under this
Agreement, including, but not limited to,
confirming the Material
output of the Equipment, BPD or its authorized representative will be
entitled upon reasonable advance
written notice to CDX and during
normal business hours in the Republic of South Africa, the right to
enter into and inspect all
records and documentation relating to the
Equipment, the Material and this Agreement held a CDX’s
premises.
10.2 CDX will grant the BPD full
access to all relevant CDX records for the purposes of Clause 10.1.”
[53] Clause 14 of the agreement lies at the heart of the second
argument advanced by Mr
Nelson
. Clause 14 provides for
the termination of the contract and the relevant provisions of clause
14 are:
“
14.2
Either Party may terminate this Agreement forthwith by sending a
written notice to the other Party, if:
14.2.1 the other commits a
material breach of its obligations under this Agreement and, in the
case of a breach capable of remedy
as determined under Clause 14.3,
such breach is not remedied to the satisfaction of the injured party,
within thirty (30) days
of that other Party being deemed to have
received such notice in accordance with clause 20.1;
14.2.2 the other enters into any
compromise or arrangement with its creditors, commits any act of
bankruptcy or, in the case of
a company, an order is made or an
effective resolution is passed for its winding up (except for the
purposes of amalgamation or
reconstruction as a solvent company) or
if a petition is presented to court, or if a receiver and/or manager,
receiver, administrative
receiver or administrator is appointed in
respect of the whole or any part of the other’s undertaking or
assets;
14.2.3 in an encumbrancer takes
possession or an administrative receiver or receiver is appointed of
the whole or any part of that
other Party’s undertaking or
property;
14.2.4 the other ceases to pay
its debts or becomes unable to pay its debts within the meaning of
Section 123(1) or (2) of the Insolvency
Act 1986;
14.2.5 anything analogous to any
of the events referred to in Sub-clauses 14.2.2 to 14.2.4 inclusive
under the law of any jurisdiction
occurs in relation to CDX;
14.2.6 …
14.2.7 …
14.3 For purposes of Clause
14.2.1, a breach shall be considered capable of remedy if the Party
in breach can comply with the provision
in question in all respects
to the reasonable satisfaction of the other Party, other than as to
the time of performance (provided
that time of performance is not of
the essence other than in respect of payment of debt properly due).”
[54] Clause 20 of the agreement deals with notices. It provides:
“
20.1
Any notices, requests, communications or other information required
to be given hereunder shall be made in writing, and may
be hand
delivered or sent by pre-paid first class post or facsimile to the
address of the relevant Party at its address set out
at the beginning
of this Agreement or at such other address as shall have been
notified for this purpose.”
[55] There is a dispute between the parties in respect of the
documentation to which the applicant is entitled pursuant to the
provisions of clause 10 of the agreement. The nature of the agreement
is such that the applicant has invested considerable funds
in the
purchase of an expensive and specialised piece of equipment which is
entrusted to the exclusive possession of the first
respondent. The
first respondent conducts business utilising the equipment for its
own benefit and to the benefit of the applicant
and other customers
of the first respondent. The initial payment, which constitutes the
consideration which is due to the applicant
in respect of the loan,
is calculated with reference to the extent of the use of the machine
as appears from the definition of
“initial payment”. This
information is solely within the knowledge of the first respondent
and the payments are calculated
by the first respondent. Clause 5.4
is formulated to protect the applicants’ interests in this
regard by affording it access
to the “necessary records”
to verify the material output. The records to which the applicant is
entitled to have access
to in terms of this clause are limited to
those which are necessary for purposes of audit verification of the
material output.
[56] The equipment requires ongoing maintenance and repair and the
provisions of clause 8 of the agreement stipulate that the applicant
is responsible for the costs of providing such services and repairs.
Save for these services and repairs, as defined in clause
1 of the
agreement, the further management and control of the equipment is
exclusively in the hands of the first respondent. Clause
9 of the
agreement places upon the first respondent a number of obligations in
respect of the ongoing maintenance and operation
of the machine,
insurance thereof and in particular the obligation to keep the
machine free of all security interests, charges,
liens and other
encumbrances. It further imposes an obligation upon the first
respondent to prepare an annual report on the condition
of the
machine for the benefit of the applicant.
[57] Clause 10 of the agreement provides a mechanism for the
applicant to verify that the first respondent is complying with his
obligations under the agreement, notably those obligations set out in
clauses 5 and 8 of the agreement and in particular its obligation
to
correctly quantify the initial payments and to make the initial
payments in respect of the material produced by the machine.
It is
for this purpose that clause 10 provides access to certain
documentation. It permits the applicant to enter into and to inspect
“all records and documentation relating to the equipment, the
material and this agreement held at CDX’s premises”.
The
records to which the applicant is entitled are further circumscribed
by clause 10.2. They are limited to such records which
are relevant
for the purpose of verifying the first respondent’s compliance
with his obligations under the agreement.
[58] Clause 14.2.1 of the agreement entitles either party to
terminate the agreement by sending a notice to the other party if
the
other party has committed a material breach of its obligations under
the agreement, provided that, where the breach is capable
of remedy,
the other party must first be afforded a period of thirty days to
remedy its breach.
[59] In addition to these circumstances clause 14.2.2 to 14.2.7
provides for a number of other instances, where no breach of any
obligation under the agreement has occurred, entitling either party
to terminate the agreement. These relate to circumstances where
the
solvency of the other party is placed at risk. When such a risk
occurs the other party is entitled to terminate the agreement.
The applicant’s first argument
[60] The applicant contends that there is no real dispute on the
papers that the “creditor aged analysis and correspondence
with
creditors” are relevant documents for purposes of clause 10 of
the agreement. These documents were specifically requested
and were
not forthcoming. When a demand was made for these documents it was
refused. This being so, so the argument goes, the applicant
was
entitled to terminate the agreement.
[61] It is necessary to consider the background leading up to this
dispute and the exchange of correspondence in this regard. It
is not
in dispute between the parties that the first respondent has
experienced financial difficulties over an extended period.
On behalf
of the applicant it is alleged that the precarious financial position
of the first respondent caused it to harbour serious
doubt about the
first respondent’s ability to discharge all its obligations in
terms of the agreement. In these circumstances
it is alleged on
behalf of the applicant that the applicant was left “with no
other alternative but to actively seek the
ultimate termination of
the agreement …”. It is against this background that the
initial cancellation occurred and
the subsequent negotiation and
exchange of correspondence proceeded.
[62] The relevant correspondence commenced on 2 February 2012 when
Attorneys Joubert, Galpin & Searle, representing the applicant,
addressed a letter to Rushmere Noach Attorneys, representing the
first respondent, in respect of the various concerns of the
applicant.
The relevant portion of the correspondence reads as
follows:
“
9. We
have received instructions from our client to conduct, with the
assistance of IT experts and auditors if necessary, an audit
in
relation to all the records and documentation of your client relating
to the equipment, the material, and the Equipment Loan
Agreement as a
whole in terms of Clause 10 of the Equipment Loan Agreement.
10. Would you please discuss our
client’s request with your client and provide us with a date
and time on which full and unrestricted
access will be granted to our
client and its authorised representatives of your client’s
records and documentation. Without
limiting the generality hereof our
client would require access to:
10.1 your client’s server;
and
10.2 the hard drives of the
following personnel in the employ of your client:
(a) the Managing Director;
(b) the Financial Manger, Senior
Manager: Finance and all finance staff reporting to them;
(c) the Sales Manager;
(d) the Operations Managers;
(e) the Quality Manager.
11. Your client’s response
to our client’s request, and the date on which access must be
granted are to take place within
seven (7) days of the date of this
letter.
12. In the event that your
client refuses to provide the said access;
12.1 Our client may regard such
refusal as a repudiation of your client’s obligations in terms
of the Equipment Loan Agreement
…”
[63] On 6 February 2012 Rushmere Noach Attorneys responded by drawing
attention to the provisions of clause 10.1 and contending
that the
applicant was entitled only to records and documentation which relate
to the equipment, the material and the agreement.
Attorneys Rushmere
Noach recorded:
“
Our
client is naturally prepared to provide your client with access to
the records and documentation to which it is entitled, which
our
client will extract and make available at its premises at such time
and on such date as may be agreed. In this regard, our
client is of
the view that a reasonable period within which to enable it to
assemble and segregate such records is seven days.
…”
[64] To this Attorneys Joubert, Galpin & Searle responded,
acknowledging the limitation and contending as follows:
‘
3.4
However, our client is entitled to inspect
all
your client’s records and documentation relating to the
following three items:
(a) “
the Equipment
”;
(b) “
the Material
”;
and
(c) “
this Agreement
.”
3.5 All records and
documentation relating to “
this Agreement
”, for
purposes of verifying your client’s compliance with its
obligations, would, needless to say, include the right
to verify your
client’s obligations stated or implied in clause 14 of the
Agreement, including,
inter alia
, your client’s
obligations:
(a) not to enter into any
compromise or arrangement with its creditors;
(b) not to commit any act of
bankruptcy;
(c) not to be subject to an
order, or to make a resolution for its winding up;
(d) not to find itself in a
position where an encumbrancer takes possession, or an administrative
receiver or receiver is appointed
in respect of the whole or any part
of your client’s undertaking or property;
(e) not to cease to pay its
debts or become unable to pay its debts within the meaning of Section
123(1) and (2) of the Insolvency
Act of 1986;
(f) not to dispose of the whole
or any substantial part of its undertaking in assets; and
(g) not to cease or threaten to
cease to carry on all or any substantial part of its business.
4. In order to verify your
client’s compliance with,
inter alia
its aforesaid
obligations, our client would, of necessity, require access to,
inter
alia
, and in addition to the records and documentation relating
specifically to the equipment and the material:
4.1 all the e-mails and
facsimiles of the personnel of your client listed in paragraph 10.2
of our letter dated 2 February 2012;
and
4.2 all of your client’s
financial records, which includes but is not limited to:
(a) all Agreements entered into
between your client and its funders/bankers;
(b) all correspondence between
your client and its funders/bankers;
(c) all your client’s bank
statements;
(d) all your client’s
annual financial statements and monthly management accounts for the
current financial year;
(e) all correspondence between
your client and its auditors and/or financial advisors;
(f) aged debtor and creditor
lists;
(g) all correspondence between
your client and its debtors and creditors;
5. It is furthermore important
to note that our client’s entitlement is not limited to be
provided with documentation which
your client will extract and make
available at its premises, as contended by your client. Such an
arrangement might defeat the
entire purpose of our client’s
verification and audit process.
6. Our client has the right “
to
enter into and inspect
” all the relevant records at your
client’s premises. This clearly means that our client will be
entitled, with the
assistance of IT experts and auditors, if
necessary, to conduct an audit in relation to all the relevant
records and documentation,
excluding the records and documentation
listed in paragraph 3.3 above. Your views on any further
documentation of your client which
might not be relevant to our
client’s enquiry would be considered on receipt of your
representations in this regard.”
[65] Paragraph 3.3 of the letter to which reference is made refers
only to customer and price lists in relation to material produced
by
the first respondent using equipment other than the applicant’s
equipment and secret formulas/recipes or research and
development
which does not affect the material manufactured by the first
respondent using equipment other than that of the applicant.
It is
apparent from this letter that the tender by Rushmere Noach Attorneys
to extract and make available such records as first
respondent
considers relevant was rejected.
[66] This communication from Attorneys Joubert, Galpin & Searle
was met on 14 February 2012 by a response from Rushmere Noach
Attorneys. They responded,
inter
alia
, as follows:
“…
,
your client persists with its demand that our client allow your
client’s agents unrestricted access to categories of
information
and to the various electronic and other mediums of data
storage referred to by you, without the right to extract data to
which
your client is not entitled or which is otherwise irrelevant
for the purposes of the agreement …
Our client has been advised that
your client is actively engaged in establishing a production facility
in South Africa, in cooperation
with our client’s erstwhile
employee, Mr Adlam with the intention of directly competing with our
client and for the purposes
of which, your client requires the
equipment.
The agreement does not provide
your client with a mechanism to engage in a speculative search for
information to assist it in this
endeavour or to try and establish a
basis to cancel the agreement and thereby obtain return of the
equipment or otherwise to advantage
your client in future litigation.
It is apparent that a dispute
has arisen as to the interpretation of the agreement. Our client is
willing to consider a suitable
and cost-effective mechanism for
resolving such dispute, including expedited arbitration on such basis
as may be agreed and we
await your client’s suggestion in this
regard.”
[67] On 15 February 2012 Attorneys Joubert, Galpin & Searle
replied,
inter alia
, as follows:
“
2. In
your letter dated 6 February 2012 your client tendered to extract and
make available to our client at a time and date
after
13 February 2012
,
those records of your client it considered to be relevant.
3. Whilst our client disputes
that its right of access to records is limited in the manner
suggested by your client, our client
has, … instructed us to
request that your client make copies of the records it has collated
available to our client for
collection.
4. We raised this request with
you telephonically this morning and you undertook to discuss it with
your client and get back to
us.
5. Given that by your client’s
own admission it has had sufficient time available to it to collate
the records we can see
no reason why copies of the records cannot be
made available for collection by 12H00 on Thursday 16 February 2012.
Our client tenders
your client’s reasonable copying charges.”
The tender to resolve the dispute relating to the interpretation of
the agreement was not accepted
.
[68] To this Rushmere Noach Attorneys again confirmed that it would
require seven days to extract, assemble and segregate the records.
They pointed out that their earlier tender to do so was not accepted
and accordingly tendered to make the information available
by 21
February 2012. This was not acceptable to Attorneys Joubert, Galpin &
Searle who advised on 16 February 2012,
inter alia
, that:
“
Our
client does not accept that a further delay of 7 (seven) days is
required in the circumstances and trusts that your client will
now
make every effort to place our client in possession of copies of the
records it has collated without delay.”
This was duly done and delivered on 21 February 2012.
[69] On 22 February 2012 Attorneys Joubert, Galpin & Searle, on
behalf of the applicant, again responded recording the extensive
documentation provided by the first respondent and then proceeds to
record:
“
2.3 On
10 February 2012 we addressed a letter to your offices in response to
your letter dated 6 February 2012 on behalf of our
client:
(a) Disputing your client’s
interpretation of clause 10.1 of the Agreement;
(b) Persisting with its demand
for access to records (both in manner and nature), listing the
following specific records it requires
access to:
(i) …
(ii) …
(iii) …
(iv) …
(v) …
(vi) aged debtor and creditor
lists;
(vii) all correspondence between
your client and its debtors and creditors.”
The documents demanded in paragraph 2.3(b)(vi) and (vii) are the
subject of the first argument.
[70] To this Rushmere Noach Attorneys again responded on 1 March
2012, by now exhausted by the debate, and indicated that they
did not
intend to enter into a debate on the subject. They record therein as
follows:
“
Our
client is satisfied that it has complied with its tender to provide
those documents and records which it is obliged to in terms
of the
agreement. Your client chose not to inspect these at our client’s
premises. Our client accordingly contests your client’s
contention that it has breached the agreement in this regard.”
The final cancellation followed the next day.
[71] This is the history of the debate as it emerges from the
founding and answering papers. The alleged breach now contended for
on behalf of the applicant is the failure to provide the aged debtor
and creditor lists and all correspondence between the first
respondent and its debtors and creditors. This was not a breach
relied upon in the founding papers but was raised in the replying
papers. In the replying papers the applicant refers to its demand for
these specific records and then proceeds to allege that it
“is
plainly entitled” to at least such records to verify whether
the first respondent has discharged its obligation
to “keep the
equipment free of all security interests, charges, liens and other
encumbrances” as required in clause
9.3.2 of the agreement and
relating directly to the first respondent’s “equipment
obligations”. No explanation
was provided as to how these
documents could assist the applicant in determining whether the
equipment had been kept free of security
interests, charges, liens
and other encumbrances.
[72] In response the respondents contend that the “aged
analysis and correspondence with customers” would not assist
the applicant in establishing whether the equipment is free of
“security interests, charges, liens and other income and other
encumbrances”. They contend in addition that the applicant was
provided with a copy of the most recent available annual financial
statements which is an appropriate source for determining which
assets have been encumbered as security to creditors. They then
proceed to state that the information regarding customers of the
first respondent (and correspondence with them) can have no relevance
to the determination by the applicant as to whether the first
respondent is complying with its obligations in terms of the
agreement.
[73] In argument before me Mr
Nelson
submits that the
first respondent has not disputed that “creditor aged analysis
and correspondence with creditors”
would be relevant records
for purposes of verifying whether or not the first respondent has
discharged its obligations specifically
to keep the equipment free of
all security interests, charges, liens and other encumbrances. He
submits further that the first
respondent’s reasons for not
providing “information regarding its customers” is
disingenuous as this information,
insofar as it could be of any
benefit to the applicant, must in any event be supplied in terms of
clause 5.4 of the agreement.
[74] I do not think that this argument can be upheld. The argument
loses sight of the fact that although the particular point was
never
raised in the founding papers the factual basis for the argument now
advanced was canvassed extensively with reference to
the
correspondence which flowed between the parties at the time. The
documentation which the applicant now contends that the first
respondent has failed to deliver was specifically demanded in the
correspondence and the unequivocal response from Rushmere Noach
Attorneys on 1 March 2012 is that “it has complied with its
tender to provide those documents and records which it is obliged
to
in terms of the Agreement”. I think accordingly that the first
respondent has in its answering affidavit clearly placed
in dispute
the relevance of aged debtor and creditor analysis and correspondence
with creditors. Its ultimate response to the averment
in the replying
papers must be read in conjunction with material already covered in
the answering affidavit.
[75] The accusation that the first respondent is “disingenuous”
in its reasons for not providing information regarding
its customers
is equally untenable in my view. The averment on behalf of the
applicant in its replying papers is set out above.
It was the
specific contention that the applicant was entitled to such
documentation to “keep the equipment free of all security
interests, charges, liens and other encumbrances” as required
by clause 9.3.2 of the agreement. No reliance was placed on
clause
5.4 thereof. The response on behalf of the first respondent, which is
now the subject of this criticism, was directed specifically
at the
averments of the applicant. In any event, clause 5.4 of the agreement
provides for the applicant to have access to “any
necessary
records” for the purposes of audit verification of the material
output. Neither in the founding papers nor in the
replying papers is
any case made out on behalf of the applicant as to why it is
contended that the aged debtor and creditor lists
and all
correspondence between the first respondent and its debtors and
creditors would be necessary to verify the material output.
Whether
such documentation is necessary documentation is a question of fact
which would have to be established on evidence. I have
earlier found
that I think that the relevance of this documentation has been
clearly and expressly placed in dispute. It is not
a denial which can
be said to be so fanciful as to be dismissed out of hand. In all the
circumstances I think that a real dispute
of fact has been raised in
respect of this documentation.
Applicant’s second argument
[76] The applicant contends that in terms of clause 14.2.2 of the
agreement it is entitled to give notice to terminate the agreement
in
the event that the respondent commits “any act of bankruptcy”
in terms of the law of England. Clause 14.2.5 provides
for the
applicant to terminate the agreement if anything analogous to any of
the events referred to in sub-clauses 14.2.2-14.2.4
inclusive under
the law of any other jurisdiction occurs in relation to the first
respondent. It is argued on behalf of the applicant
that a deed of
insolvency, as envisaged in the South African
Insolvency Act, 24 of
1936
, is analogous to an act of bankruptcy in England. Whereas the
first respondent has admitted in writing its inability to pay a
particular
debt in 2010, it is argued that such an event has occurred
and that the applicant is accordingly entitled to terminate the
agreement.
[77] For purposes of this judgment I shall accept, without making any
finding in that regard that a deed of insolvency under the
South
African
Insolvency Act is
analogous to an act of bankruptcy under the
English Bankruptcy Act and that accordingly the occurrence of such an
event would ordinarily,
on a proper interpretation of the equipment
loan agreement, entitle the applicant to terminate the agreement.
[78] Adopting a purposive approach to the interpretation of the
contract, as English law does, I think that the clear purpose of
entitling a party to terminate the agreement when the events set out
in clause 14.2.2-14.2.4 occur is to enable the applicant to
protect
the equipment against the risks which may ensue if the first
respondent were liquidated whilst the equipment was in the
possession
of the first respondent.
[79] The “deed of insolvency” relied upon by the
applicant herein is a deed of insolvency as envisaged in section 8(g)
of the South African
Insolvency Act which
provides that a debtor
commits an act of insolvency “if he gives notice in writing to
any one of his creditors that he is
unable to pay any of his debts”.
[80] There are numerous allegations and counter allegations made in
the papers relating to the conduct of the financial affairs
of the
first respondent. On behalf of the applicant it is acknowledged that
in respect of all but one there are
bona fide
disputes which
arise from the papers which cannot be resolved without resort to oral
evidence. One deed of insolvency, it is argued,
stands uncontested,
namely that relating to Safripol to which I have referred above. It
emerges from the papers that in January
2010 one Adlam, then in the
employ of the first respondent, forwarded an email to Safripol in
which he recorded that “we
are unable to settle the full R1M
this month – we can settle 300k. I do not anticipate end
February and onwards to be an
issue”.
[81] On 31 March 2010 Adlam again addressed an email to Safripol in
which he states as follows:
“
Based
on our current payment plan, I would appreciate if you would
reconsider current payment terms? Although we have service (sic)
the
account to the best of our ability to date, we are faced with some
challenges which are further exacerbated by the current
payment
terms. The company in terms of this month’s commitment is only
able to make an R500,000 payment on 09 April. Furthermore,
I would
appreciate if we could for a period of 6 months agree to R500,000 per
month as opposed to R1,000,000.”
[82] This proposal was not readily acceptable to Safripol and a
further exchange of emails occurred. In the interim, a turnaround
manager was appointed to attend to the financial woes of the first
respondent. He met with representatives of Safripol on 7 October
2010
and recorded in writing the outcome of the meeting as follows:
“
Our
request was for a moratorium in payment to Safripol of the
outstanding balance (estimated at just under R2m) until at least
to
the end of November, whereupon a formal plan and actions would be
presented..”
And later:
“
Your
agreement to the payment moratorium is appreciated …”
[83] On behalf of the applicant it is argued that there is
accordingly clear evidence of deeds of insolvency on the part of the
first respondent
viz-a-vis
Safripol.
[84] In response it is acknowledged on behalf of the first respondent
that it was necessary to make arrangements with Safripol
for payment
of the amount owing and it is contended that the first respondent did
so. The first respondent contends that the exigencies
of business
required the first respondent to renegotiate the terms originally
agreed and on each occasion Safripol did in fact
agree to new terms.
On each occasion the first respondent complied with its renegotiated
commitments and it has settled the outstanding
amount in full,
together with market related interest thereon in accordance with the
agreements reached.
[85] I have set out the terms of clause 14 of the equipment loan
agreement above. It seems to me, as recorded earlier, that on
a
reading of clauses 14.2.2-14.2.4 in the context of the agreement as a
whole and against the background circumstances which existed
at the
time the agreement was concluded that clauses 14.2.2-14.2.4 are
inserted to protect the applicant’s interest in the
equipment
when events occur which may threaten the solvency of the first
respondent. In the present case, the threat has come and
gone. The
debt referred to has been settled in full and there is no dispute
between Safripol and the first respondent relating
thereto. The
threat to the solvency of the first applicant which arose from the
interaction with Safripol has long past. I do not
think, in these
circumstances that it is open to the first respondent to seek to rely
on these events in March 2012, nearly 18
months after the threat had
passed.
[86] In the result I do not think that the applicant’s second
argument can be decisive of the application.
Respondents’ first argument
[87] Mr
Buchanan
, on behalf of the respondents, argues
that whatever disputes of fact may arise from the papers no valid
notice of termination of
the agreement has been given and accordingly
the application falls to be dismissed.
I have referred earlier in considering the urgency of the application
to the waiver by the applicant of its right to rely upon
the initial
cancellation.
[88] The circumstances giving rise thereto appear from the letters
exchanged between Rushmere Noach Attorneys and Attorneys Joubert,
Galpin & Searle on 6 February 2012 and 10 February 2012
respectively. On the former date Rushmere Noach Attorneys recorded
as
follows:
“
Your
client, through his previous attorneys, contended that it had
cancelled the equipment loan agreement and demanded return of
the
plant and equipment which is the subject matter thereof. Our client
contested this contention and advised that it would hold
your client
to the agreement. It would seem that your client has now accepted the
correctness of our client’s position, given
that it is seeking
specific performance by our
client
of the agreement.”
[89] In response thereto Attorneys Joubert, Galpin & Searle
record on 10 February 2012:
“
Our
client accepts that the Equipment Loan Agreement between the parties
is still of full force and effect. Your client’s
contention
that it is not and has not been in breach of the Agreement is however
noted. Our client’s right to hold a different
view in this
regard in due course is hereby expressly reserved.”
[90] This, I consider, is plainly an express abandonment of any right
to rely on the initial cancellation which was communicated
through
the applicant’s attorneys, on the instructions of the
applicant, with full knowledge of the right which was being
abandoned. In argument before me Mr
Nelson
did not
contend otherwise. In these circumstances I do not consider it
necessary to deal further with the first notice.
[91] Mr
Buchanan
argues that the notice of the final
cancellation does not constitute proper notice of cancellation in
that:
1. It was not forwarded in a manner or to the address stipulated in
the agreement and
2. To the extent that the alleged breach is capable of remedy are
referred to therein, it also does not constitute notice in terms
of
clause 14.2.1 of the agreement.
[92] Clause 20.1 of the agreement has been set out above. It clearly
requires that any notice given under the agreement “shall
be in
writing” and “may be” delivered in one or more of
the ways stipulated in clause 20.1 at the address set
out in the
agreement or such other address as may have been notified.
[93] I think that on a proper reading of the clause the requirement
for a notice to be in writing is clearly peremptory. The manner
and
address for delivery appears to me, however, to be merely directory.
It is introduced so as to provide certainty for the benefit
of the
party giving notice. If he has delivered a notice in the manner set
out in clause 20.1 and at the address set out therein,
such notice
will, by virtue of the terms of clause 20.1, be effective notice
whether or not the other party has in fact received
such notice. This
I think accords with the terminology of clause 14.2.1 which requires
an offending party who has received a notice
to remedy a breach to do
so within thirty days of him “being deemed to have received
such notice in accordance with clause
20.1”. Where, however, a
contracting party intending to give notice has delivered a notice in
writing, which is a valid notice,
in a manner or at a place other
than that stipulated in clause 20.1, it will be incumbent upon such
party to prove by way of evidence
that the notice came to the
attention of the opposing party. It will not be deemed to be
effective notice in the absence of such
evidence.
[94] In the current instance both parties were represented by
attorneys, correspondence flowed between the attorneys as discussed
earlier throughout February 2012. On 2 March 2012 Attorneys Joubert,
Galpin and Searle recorded:
“
We are
instructed to give notice to your client ( through your offices) of
our client’s decision to terminate the Equipment
Loan Agreement
(the “Agreement”) in terms of clause 14 of the
Agreement.”
[95] This notice was delivered to Rushmere Noach Attorneys. Rushmere
Noach Attorneys responded on 7 March 2012 recording as follows:
“
We
refer to the above matter and your letter dated 2 March 2012.
As previously recorded, our
client denies that it has breached the agreement as alleged or at
all. Our client has declared a
bona fide
dispute as to the
entitlement and extent of the parties’ rights flowing from the
agreement. All issues and allegations raised
by your client in your
above-mentioned letter are disputed.
Furthermore, our client denies
that your client has complied with its obligations in placing our
client on terms to rectify any
alleged breach of the agreement (in
any event, any alleged breach on the part of our client is denied).”
[96] From the aforegoing it is apparent that the notice was received
by Rushmere Noach, they brought it to the attention of the
respondents and obtained instructions to reply. I think that the
evidence before me clearly establishes an effective notice and
accordingly the argument founded upon the provisions of clause 20.1
cannot be upheld.
[97] The second attack on the notice is founded on the provisions of
clause 14.2. Clause 14.2.1 entitles a party to terminate the
agreement where the other party commits a material breach of its
obligations and, where such breach is capable of remedy, such
breach
is not remedied to the satisfaction of the injured party within
thirty days of that notice being deemed to have been received.
To the
extent that the applicant places reliance upon any breach by the
first respondent of its contractual obligations it is accordingly
obliged, I think, to demand that the breach be remedied within thirty
days, and to afford his counterparty thirty days to remedy
the
breach, in each instance where the breach is capable of remedy.
[98] The grounds for termination set out in clause 14.2.2 to 14.2.7
do not, as recorded earlier, arise from a breach of contractual
obligations. The applicant relies on a number of grounds set out in
clause 14.2.2-14.2.7, however, it is common cause that there
are
disputes of fact relating to these grounds which cannot be resolved
on the papers. In the circumstances I do not think that
the argument
founded upon the absence of proper notice can at this stage be
finally decided.
[99] To the extent that the applicant does rely on the respondents’
breach of its contractual obligations which may be capable
of remedy
the applicant is obliged to afford the respondent thirty days to
remedy its breach. If it does so the applicant’s
right to
terminate the agreement lapses.
[100] The applicant contends, however, on the strength of the
correspondence which flowed between the attorneys during February
and
March 2012 that the first respondent has repudiated its contract in
that it has unequivocally intimated that it refuses to
provide the
documentation to which the applicant contends that it is entitled.
This being so, it is argued, that it was entitled
to accept the
repudiation and that notice was not required. The difficulty for the
applicant in this argument is that the refusal
by the first
respondent as set out in the correspondence is founded upon its
interpretation of the contract. In
Freeth v Burr
[1874]
LR 9 CP 208
Lord Coleridge LCJ stated at p. 214:
“
the
true question is whether the acts or conduct of the party evince an
intention no longer to be bound by the contract.”
[101] This test was confirmed by the House of Lords in
Mersey
Steel Co. v Naylor
[1884] 9 A.C. 434.
[102] In
Re
Rubel Bronze and Metal Company and
Vos
[1918] 1 KB 315
at 322 McCardie J stated:
“
The
doctrine of repudiation must of course be applied in a just and
reasonable manner. A dispute as to one or several minor provisions
in
an elaborate contract or a refusal to act upon what is subsequently
held to be the proper interpretation of such provision should
not as
a rule be deemed to amount to repudiation … But, as already
indicated, a deliberate breach of a single provision
of a contract
may under special circumstances, and particularly if the provision is
important, amount to a repudiation of the whole
bargain … In
every case the question of repudiation must depend upon the character
of the contract, the number and weight
of the wrongful acts or
assertions, the intention indicated by such acts or words, the
deliberation or otherwise with which they
are committed or uttered,
and the general circumstances of the case.”
(See
Schlinkmann v Van der Walt
1947 (2) SA 900
(E) 919
where Lewis J referred to these authorities with approval.)
[103] I think that this dictum is particularly apposite to the
present debate. The applicant contends that it is “clearly
entitled” to the delivery of the documentation and to inspect
the documentation at the premises of the first respondent in
the
manner demanded in its correspondence. I have already held that I
think that there is a
bona fide
dispute of fact relating to
the relevance of such documentation. If, after the hearing of oral
evidence, it is patently clear that
such documentation ought to have
been provided and if the court is driven to the conclusion
accordingly that the refusal constitutes
a deliberate breach on the
part of the first respondent, then it may constitute a repudiation in
which event the applicant may
well have been entitled to accept the
repudiation. This issue too cannot be decided at this stage and it
too is dependent upon
the conclusions reached upon the disputed
factual issues. In the circumstances I do not think that the question
relating to the
validity of the notice of termination can be
determined on the papers.
Dispute of fact
[104] Mr
Buchanan
on behalf of the respondents argues
that the multitude of factual disputes which are now recognised by
the applicant were foreseeable
and that the applicant should not have
approached this court by way of application. He argues that the
application should for that
reason be dismissed. The argument has its
foundation in the decision in
Room Hire Company Limited v Jeppe
Street Mansions (Pty) Limited
1949 (3) SA 1155
(TPD). In this
matter Murray AJP summarised the position at 1162 as follows:
“
It is
obvious that a claimant who elects to proceed by motion runs the risk
that a dispute of fact may be shown to exist. In that
event (as
indicated
infra
)
the Court has a discretion as to the further course of the
proceedings. If it does not consider the case such that the dispute
of fact can properly be determined by calling
viva
voca
evidence
under
Rule 9
, the parties may be sent to trial in the ordinary way,
either on the affidavits as constituting the pleadings, or with the
direction
that pleadings are to be filed. Or the application may even
be dismissed with costs, particularly when the applicant should have
realised when launching his application that a serious dispute of
fact was bound to develop. It is certainly not proper that an
applicant should commence proceedings by motion with knowledge of the
probability of a protracted enquiry into disputed facts not
capable
of easy ascertainment, but in the hope of inducing the Court to apply
Rule 9
to what is essentially the subject of an ordinary trial
action.”
[107] It is apparent from the aforegoing that where such a dispute of
fact exists the court has a discretion whether or not to
dismiss the
action. In the present matter the applicant has annexed voluminous
correspondence which, on the face of it, suggests
acknowledgment by
the first respondent that it is unable to pay its debts. Whilst the
applicant recognises that there are, now
that lengthy affidavits have
been filed, disputes of fact which cannot be resolved on the papers I
do not think that the applicant
could be criticised for believing
that any disputes of fact which may be put up may not be
bona
fide. I consider that the applicant was justified in launching these
proceedings by way of application when regard is had to the
content
of a great deal of the correspondence annexed both to the founding
affidavit and the replying affidavit. I am accordingly
disinclined to
dismiss the application on this basis.
Conclusion
[108] Mr
Nelson
, on behalf of the applicant, has urged
upon me that if I find against the applicant in respect of his two
grounds of attack that
the matter should be referred for the hearing
of oral evidence on such terms and conditions as I may direct. Mr
Buchanan
, on behalf of the respondents, has similarly
urged upon me that in the event that I find against the respondents
in respect of
notice and in respect of the disputes of fact, as I
have done, I should refer the matter to the hearing of oral evidence.
Neither
party has sought to identify the specific issues to be
determined by oral evidence and as I have indicated there appear to
be a
multitude of issues in respect of which disputes of fact exist.
The eventual scope of such dispute is not clear from the affidavits
before court. In these circumstances it seems to me to be appropriate
to refer the matter to trial.
[109] In the result I make the following order:
1. The matter is referred to trial at a time to be arranged with the
Registrar. The Registrar is requested to give preference to
this
matter on the roll.
2. The founding affidavit, answering affidavit, replying affidavit
and supplementary answering affidavit will stand as the summons,
plea, replication and rejoinder respectively.
3. No witness who has not deposed to an affidavit in the application
proceedings shall be called by either party to testify unless:
3.1 It has served on the other party at least fourteen (14) days
before the date appointed for the hearing (in the case of a witness
to be called by the applicant) and at least ten (10) days before such
date (in the case of a witness to be called by the respondents)
a
statement wherein the evidence to be given in chief by such person is
set out; or
3.2 the court at the hearing, permits such person to be called
despite the fact that no such statement has been served in respect
of
his evidence.
4. Either party may subpoena any person to give evidence at the
hearing, whether such person has consented to furnish a statement
or
not.
5. The fact that a party has served a statement in terms of paragraph
3 hereof, or has subpoenaed a witness, shall not oblige such
party to
call the witness concerned.
6. Within twenty one (21) days of the making of this order, each of
the parties shall make discovery, on oath, of all documents
relating
to the issues relevant to the application which are or have at any
time been in the possession or under the control of
such party. Such
discovery shall be made in accordance with Rule of Court 35 and the
provisions of that rule with regard to the
inspection and production
of documents discovered shall be operative.
7. A pre-trial conference shall be held prior to trial and the
provisions of Rule of Court 37 shall apply in respect hereof.
8. The incidence of the costs incurred up until now shall be
determined at the trial.
__________________________
J W EKSTEEN
JUDGE OF THE HIGH COURT
Appearances:
For Applicant: Adv
Nelson
SC & Adv J
Huisamen
SC
instructed by Joubert Galpin & Searle, Port Elizabeth
For Respondent: Adv R
Buchanan
SC & Adv G Richards
instructed by Rushmere Noach Inc, Port Elizabeth