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[2012] ZASCA 124
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Sentinel Mining Industry Retirement Fund and Another v Waz Props (Pty) Ltd and Another (779/11) [2012] ZASCA 124; 2013 (3) SA 132 (SCA) (21 September 2012)
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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case No: 779/11
Reportable
In the matter between:
SENTINEL
MINING INDUSTRY RETIREMENT FUND
..............
FIRST
APPELLANT
FLUXMANS
ATTORNEYS INC
.............................................
SECOND
APPELLANT
and
WAZ
PROPS (PTY) LTD
........................................................
FIRST
RESPONDENT
WERLEX
PROPERTIES (PTY) LTD
..................................
SECOND RESPONDENT
Neutral citation:
Sentinel Mining Industry
Retirement Fund v Waz Props
(Pty)
Ltd
(779/11)
[2012] ZASCA 124
(21 September 2012).
Coram:
Cloete, Malan, Shongwe and Tshiqi JJA and
Southwood AJA
Heard:
15 August 2012
Delivered:
21 September 2012
Summary: Contract: use of heading in interpretation;
incorporation of tacit term.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from:
South Gauteng High Court,
Johannesburg (Willis J sitting as
court of first instance):
The appeal is dismissed with costs.
______________________________________________________________
JUDGMENT
______________________________________________________________
CLOETE JA (MALAN, SHONGWE, TSHIQI JJA AND SOUTHWOOD
AJA CONCURRING):
[1] Waz Props (Pty) Ltd and Sentinel Mining Industry
Retirement Fund (SMIRF) entered into a contract pursuant to which Waz
Props
caused Werlex Properties (Pty) Ltd to have a guarantee issued
by ABSA in favour of SMIRF’s attorneys. The guarantee was
presented
for payment and paid. In the court below, Waz Props and
Werlex (the applicants) instituted motion proceedings against SMIRF
and
its attorneys for repayment of the amount of the guarantee. They
succeeded before Willis J, who subsequently granted leave to appeal
to this court.
[2] The background to the contract is the following. Waz
Props owned properties in Elton Hill, Johannesburg. SMIRF owned the
Melrose
Arch Development and wished to embark on a project (the
project) to upgrade Park Road, Birnam, which is in close proximity to
the
properties owned by Waz Props. Waz Props applied to the local
authority for permission to rezone the properties. SMIRF lodged an
objection to the rezoning. The applicants alleged in their founding
affidavit that:
‘
The
objection was without any merit, and was aimed at pressuring [Waz
Props] into making a contribution to the [project].’
This allegation was admitted by SMIRF in its answering
affidavit. SMIRF withdrew the objection when Waz Props entered into
the contract.
[3] The contract contained the following terms, which it
is unfortunately necessary to quote in full (the ‘owner’
is
Waz Props):
‘
3.
Owner’s Obligations
The owner agrees and undertakes
to effect payment of its pro-rata share of the Park Road Upgrading
Project the total cost in an
amount of R115 531.87 (one hundred
and fifteen thousand five hundred and thirty one rand and eighty
seven cents).
4. Method of payment
The owner will secure its
obligations in terms of this agreement in either of the following
manners:-
4.1 the owner shall within 7
(seven) days of signature hereto, either:-
4.1.1 effect payment by way of a
bank transfer, which the owner undertakes to effect directly into the
account of the Attorneys,
Nedbank Rosebank Branch, Branch Code
195805, Account Number 1958 506060 which Attorneys Northrand Business
Branch, Branch Code
148-905, Account Number 1489-085-586, which
Attorneys are hereby authorised to invest such sum in an interest
bearing account with
a registered bank or financial institution and
in terms of Section 78(2A) of the Attorneys Act 53 of 1979. The said
account will
be in the name of Fluxmans Inc. with a reference to the
aforesaid section of the Attorneys Act but will be identified with
the
name “Park Road Upgrading Project” and the interest
earned thereon will accrue for the benefit of the Park Road Upgrading
Project;
alternatively
4.1.2 secure payment by way of a
registered bank or financial institution guarantee substantially
similar to the of the draft guarantee
annexed as Annexure “B”;
or
4.2 the owner:-
4.2.1 agrees to register the
following restrictive condition against the Title Deeds of the
property, imposed by and in favour of
SMIRF:
“
Restrictive
Condition:
1. The property shall not be
used for any purpose other than in accordance with its present
zoning, without the prior written consent
of SMIRF or its
successors-in-title, first having been had and obtained.
2. In the event of the property
being sold or disposed of in any manner whatsoever, then and in such
event the owner will ensure
that the amount referred to in 3, (which
in this instance will escalate at a rate of 10% (ten percentum) per
annum, escalated from
the date of registration of the restrictive
condition until date of payment, compounded monthly), is [to] be paid
to SMIRF out
of the proceeds of the sale and the owner shall ensure
further that an appropriate registered bank or financial institution
guarantee
is furnished to the Attorneys, which guarantee shall be
drawn in favour of SMIRF or its nominee and expressed to be payable
free
of exchange against registration of transfer.”
4.2.2 to that end the owner
simultaneously with its signature to this agreement gives and grants
to SMIRF an irrevocable power of
attorney in its name place and stead
and at the owner’s own cost and expense, to register the
abovementioned restrictive
condition against the Title Deed of the
property, hereby ratifying, allowing and confirming and promising to
ratify, allow and
confirm all and whatsoever the said Attorneys shall
lawfully do or cause to be done by virtue of this authority, upon and
subject
to the terms set out in Annexure “C” which Power
of Attorney shall remain valid and in full force and effect during
the currency of the agreement;
4.2.3 undertakes to contribute
the sum of R1 500.00 (one thousand five hundred rand), plus VAT,
towards the costs of registering
the said restrictive conditions;
4.2.4 undertakes to effect
payment of the costs associated with the obtaining of appropriate
consents from any bondholders in respect
of mortgage bonds registered
over the properties.
5. Non-completion of the Park
Road Upgrading Project
5.1 In the event that the Park
Road Upgrading Project is not completed by 1 April 2009 then and in
such event, the interest bearing
account referred to in 4.1.1 shall
be closed and the amount referred to in 3 together with the owner’s
pro rata share of
the interest earned thereon (less any
administration charges) shall be refunded to the owner.
5.2 Upon the happening of the
event referred to in 5.1, SMIRF undertakes, at its cost and expense,
to procure the cancellation of
the caveat referred to in 4.2.1.’
[4] There were therefore three options open to Waz Props
in terms of clause 4:
(a) To pay the amount mentioned in clause 3 to SMIRF’s
attorneys. In that event, the amount was to be invested in an
interest
bearing account and the interest would accrue for the
benefit of the project. (Option 1.)
(b) To provide a guarantee from a financial institution.
In that event, the draft guarantee annexed to the contract provided
that
Waz Props would have to pay the amount mentioned in clause 3
plus interest at ten per cent per annum compounded monthly. (Option
2.)
(c) To register a restrictive condition against the
title deeds of its properties in terms of which it undertook, if the
properties
were disposed of, to ensure that the amount referred to in
clause 3, escalated at ten per cent per annum compounded monthly,
would
be paid to SMIRF from the proceeds of the sale. (Option 3.)
[5] Waz Props chose option 2 and at the suit of Werlex
(acting on behalf of Waz Props) a guarantee was issued pursuant to
the provisions
of clause 4.1.2, in terms of which ABSA undertook to
pay SMIRF’s attorneys R115 531.87 together with interest
at 10%
per annum from 27 February 2004 (the day after the contract)
to date of payment calculated daily and compounded monthly. The
‘conditions
of payment’ clause in the guarantee contained
only one condition, namely:
‘
Upon
receipt of a Completion Certificate signed by the Quantity Surveyor,
confirming that construction of the upgrade to the “Park
Road
Upgrading Project” has been satisfactorily completed.’
The undertaking given by ABSA contained no expiry date.
It was not irrevocable and expressly provided that:
‘
The
original of this letter must be returned on payment being effected or
upon receipt of notice of withdrawal.’
[6] The project was not completed by 1 April 2009 (the
date mentioned in clause 5 of the contract). It was, however,
completed on
15 February 2010 and a completion certificate signed by
the civil engineer was issued on 22 February 2010. The applicants
made
nothing of the fact that the completion certificate was not
signed by the quantity surveyor as envisaged in the guarantee.
SMIRF’s
attorneys presented the guarantee for payment on 26
March 2010. Despite an objection by Waz Props on 30 March 2010
addressed to
SMIRF’s attorneys, ABSA on 6 April 2010 paid out
R207 810.35, being the amount of R115 531.87 referred to in
clause
3 of the agreement plus interest calculated as set out in the
guarantee, to SMIRF’s attorneys and debited the account of
Werlex. The applicants then commenced the motion proceedings in the
South Gauteng High Court, Johannesburg, that culminated in this
appeal.
[7] It is not disputed that ABSA was obliged to make the
payment to SMIRF’s attorneys:
Lombard
Insurance Co Ltd v Landmark Holdings (Pty) Ltd
2010
(2) SA 86
(SCA) paras 20 and 21. This is accordingly not the
appropriate case to reconsider the correctness of the majority
judgment in
Dormell Properties 282 CC v Renasa
Insurance Co Ltd & others NNO
2011 (1) SA
70
(SCA). The applicants’ case is that SMIRF’s attorneys
were not entitled to present the guarantee as Waz Props’
obligation under the contract to make payment had lapsed.
[8] The applicants argued that clause 5 of the contract
contains a resolutive condition which terminated the obligation to
pay the
amount of R115 531.87 and any further obligations under
clause 4, and which was express in respect of the obligations
undertaken
under clause 4.1.1 (option 1) and clause 4.2 (option 3),
but tacit in respect of clause 4.1.2 (option 2). The respondents
argued
that clause 3 contained what counsel termed Waz Props’
‘primary obligation’; clause 4 dealt with security for
payment of that amount; and clause 5 provided that if the project had
not been completed by 1 April 2009, two types of security
─
those envisaged in options 1 and 3 ─ would be released; but
that this did not apply in the case of the security under
option 2.
Counsel further submitted that in every case the obligation to pay
the amount referred to in clause 3 remained, whatever
happened to the
security in terms of clause 4; and that in the case of option 2,
there was no basis to import a tacit term into
clause 5 that if the
project were not completed by 1 April 2009, the security provided
under option 2 should suffer the same fate
as the security provided
under options 1 or 3.
[9] I have difficulties with the interpretation placed
on the contract by SMIRF’s counsel. The obligation imposed on
Waz Props
is not confined to clause 3. Nor is clause 4 confined to
the provision of security. Further financial obligations are imposed
on
Waz Props by each option in clause 4: in the case of option 1, Waz
Props loses the interest on the amount in clause 3 and the interest
accrues to SMIRF’s project; in the case of option 2, Waz Props
has to pay interest on the amount in clause 3 to SMIRF; and
in the
case of option 3, Waz Props has to pay the amount in clause 3
increased by ten per cent per annum. It cannot therefore be
said that
clause 3 contains a primary obligation and clause 4 contains
provisions solely relating to security for payment of that
primary
obligation. Undoubtedly clause 4 provides for security, but that is
not its only effect. It also determines the amount
to be paid, which
will vary depending upon the option chosen.
[10] Furthermore, it seems to me that the three options
for which clause 4 provides, also constitute the three agreed methods
of
payment (impliedly in the case of option 1). That accords with the
scheme of the contract. Clause 3 begins ‘[Waz Props] agrees
and
undertakes to effect payment . . .’. The immediately following
clause is headed ‘Method of Payment’. In the
absence of
express provision to the contrary, headings in contracts can be taken
into account in interpreting the contract.
1
It seems to me common sense that where a heading
conflicts with the body of the contract, it must be the body of the
contract which
prevails because the parties’ intention is more
likely to appear from the provisions they have spelt out than from an
abbreviation
they have chosen to identify the effect of those
provisions;
2
but that where the heading and the detailed provisions
can be read together, that should be done. And in the present case,
they
can. Clause 4 is headed ‘Method of Payment’. The
body of the clause begins ‘The owner will secure its
obligations
in terms of this agreement in either of the following
manners . . .’. The respondents’ counsel argued that
because
method of payment and security for payment are different
concepts, regard could only be had to the provisions of the clause
and
that the heading should be ignored. But if the terms of the three
options provided in clause 4 are considered, it is apparent that
each
serves the purpose both of securing the amount payable and specifying
the method of payment in terms of that option (as I
have said, in the
case of option 1 by necessary implication). I cannot agree with the
respondents’ counsel that in the two
cases dealt with by clause
5 (options 1 and 3) the obligation to pay the amount mentioned in
clause 3 survives. There is no provision
as to how payment shall be
made other than in clause 4, and the amount payable depends on the
option chosen. There is no express
residual obligation to pay the
amount in clause 3 at some future and undefined date. In the
circumstances I am of the view that
clause 4 is exhaustive of the
methods by which payment can be made.
[11] I therefore interpret the effect of clause 5 of the
contract, read with options 1 and 3, to mean that if the project is
not
completed by 1 April 2009, the obligation to pay ─ and not
merely the obligation to provide security ─ lapses.
Consequently
in regard to option 1, if the resolutive condition is
fulfilled, the amount referred to in clause 3 and the accrued
interest has
to be refunded to Waz Props; and in regard to option 3,
the restrictive condition has to be cancelled because there is no
longer
an obligation to secure. In both cases, the method of payment
falls away because the debt is no longer payable.
[12] The interpretation I have given accords to my mind
with commercial sense: the objection by SMIRF to Waz Props’
rezoning
application was, it is common cause, without any merit and
made for an ulterior purpose. The date referred to in clause 5 is
some
five years after the contract was concluded. I can therefore
readily understand a property developer in the position of Waz Props
adopting the attitude that it would only make a contribution to
SMIRF’s project, which it would otherwise not be obliged
to
make and which escalated as time went by, if the project were to be
completed by a certain date. The position is not analogous
to that of
a house owner whose house is completed late, as the respondents’
counsel submitted, because the project was not
being constructed at
the instance of Waz Props.
[13] I now turn to the question whether a tacit term
should be incorporated into clause 5 of the contract to the effect
that if
the project was not completed by 1 April 2009, the guarantee
in option 2 would also lapse ─ ie a term that the guarantee
would not be presented in such a case because the amount guaranteed
would no longer be owing.
[14] The respondents relied strongly on the decision in
Union Government (Minister of Railways) v Faux
Ltd
1916 AD 105
where Solomon JA said at 112:
‘
Now it
is needless to say that a Court should be very slow to imply a term
in a contract which is not to be found there, more particularly
in a
case like the present, where in the printed conditions the whole
subject is dealt with in the greatest detail; and where the
condition
which we are asked to imply, is one of the very greatest importance
on a matter which could not possibly have been absent
from the minds
of the parties at the time when the agreement was made.’
The respondents also emphasised that the court must be
satisfied not that it would be reasonable to incorporate the term,
but that
incorporation was necessary. I unhesitatingly agree that
ordinarily a court would be very slow to incorporate a tacit term so
fundamental
that it constituted a resolutive condition which would
put an end to the contract altogether, and the passage quoted from
Faux
would be directly
in point. But here, as I have already found, the contract expressly
contained such resolutive conditions in the
case of options 1 and 3
read with clause 5. And I cannot accept that if the project was not
completed by 1 April 2009 SMIRF would
lose the interest under option
1 or the ten per cent per annum increase under option 3, but not the
interest under option 2. It
was suggested in argument on behalf of
SMIRF that the security provisions under option 1 and 3 were more
onerous than the security
provisions under option 2; and that the
parties accordingly contemplated that if five years passed, the more
onerous securities
would be released. I am by no means convinced that
the premise on which this argument is based is correct. But I remain
unconvinced
why the parties should intend that in the case of two of
the options SMIRF would lose significant pecuniary advantages but not
in the case of the remaining option. That anomaly has not been
explained. And, as I have said, clause 4 does not merely provide
for
security.
[15] The court below reasoned as follows:
‘
To my
mind, if one was to ask an innocent bystander whether it must have
been intended by the parties that if the Park Road Upgrading
Project
was not completed by 1 April 2009 and if the first applicant paid a
sum of money into an interest-bearing trust account
and had been
repaid [option 1], would it have been their intention that the first
respondent would not call up the guarantee issued
[under option 2]
instead? To my mind the answer to this question has to be, “Of
course”.’
I agree. The same reasoning applies if option 3 is used
in the place of option 1; and both together are to my mind
conclusive.
[16] It may well be asked why the contract makes express
provision if option 1 or 3 is chosen and the project is not completed
by
1 April 2009, but makes no such provision in respect of option 2.
There is, however, a difference between options 1 and 3 on the
one
hand, and option 2 on the other. It was necessary in the case of
option 1 to provide expressly what would happen to the interest,
which until then had accrued for the benefit of the project, because
the parties intended the interest to be paid to Waz Props;
and it was
also necessary in the case of option 3 to provide expressly for the
cancellation of the caveat and the fact that such
cancellation would
be at SMIRF’s expense. But it was not necessary to provide
expressly what would happen in the case of
the guarantee. The parties
could of course have done so, but it was not essential. The right to
present the guarantee would simply
have lapsed.
[17] I am not prepared to find, as submitted on behalf
of the respondents, that the applicants’ failure to ask for the
return
of the guarantee after 1 April 2009 evidences an
interpretation of the contract inconsistent with the interpretation
which they
now advance, and consistent with the interpretation the
respondents place on the contract. That conduct is equally consistent
with
lax administration or a belief that SMIRF would not act in bad
faith and cause its attorneys to present the guarantee. Waz Props
certainly reacted immediately after it was brought to its attention
that SMIRF’s attorneys intended presenting the guarantee
for
payment. Nor do I attach significance to the fact that the applicants
caused a guarantee to be drawn up which did not provide
that it would
lapse on 1 April 2009. The guarantee provided was not irrevocable. It
could accordingly have been withdrawn after
1 April 2009.
[18] I should also deal with the argument advanced on
behalf of the respondents that the applicants are not entitled to the
relief
sought because there is a dispute of fact, in as much as the
applicants assert a tacit term and the respondents deny that there
was one. The argument rests upon a misconception. There is no dispute
in regard to the facts on which the applicants rely for a
tacit term
to be inferred. Those facts ─ particularly the express terms of
the contract ─ are common cause.
[19] Finally, I should deal with the suggestion made
during argument that the tacit term for which the applicants contend
would,
if inserted in clause 5, contradict the express terms of the
guarantee, which, because they are incorporated by reference in an
annexure to the agreement, form part of the agreement itself. But
that is not so. The express condition of payment to which the
guarantee was subject, is receipt of a completion certificate signed
by the quantity surveyor confirming that the project had been
satisfactorily completed. The insertion of a tacit term in clause 5
that the guarantee would not be presented after 1 April 2009,
would
supplement the express term and not contradict it.
[20] To my mind, once the contract is read as a whole,
the intention of the parties can readily be ascertained. Waz Props,
which
had no obligation to do so, agreed to pay an amount to SMIRF to
be calculated, secured and paid in one of three ways. If the purpose
for which the amount was to be paid had not been achieved within five
years, Waz Props’ continually increasing obligation
fell away ─
expressly in respect of options 1 and 3, and tacitly in respect of
option 2.
[21] The appeal is dismissed with costs.
___________
T D CLOETE
JUDGE OF APPEAL
APPEARANCES:
For First Appellant: L J van der Merwe SC
Instructed by:
Fluxmans Inc, Rosebank
McIntyre & Van der Post, Bloemfontein
For Respondents: J J Bitter
Instructed by:
Webber Wentzel, Johannesburg
Matsepes Incorporated, Bloemfontein
1
Parkinson
v Mathews & Drysdale
1930 WLD 58
;
Bekker v Western Province Sports Club
(Inc)
1972 (3) SA 803
(C) at 818-819.
2
Contrast
the position where writing appears in the margin or elsewhere in a
typed or printed contract:
Robertson &
Thompson v Finch
4 East 130 at 136 and
140-141,
102 ER 779
at 782-4; Wessels
Law
of Contract in South Africa
2 ed
(1951) paras 1981-1982;
Hayne & Co
Ltd v Central Agency for Co-operative Societies (in liquidation)
1938 AD 352
at 365-366;
Trever
Investments (Pty) Ltd v Friedhelm Investments (Pty) Ltd
1982 (1) SA 7
(A) at 15A-C and authorities there
quoted.