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[2012] ZASCA 126
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Comwezi Security Services (Pty) Ltd and Another v Cape Empowerment Trust Ltd (759/2011) [2012] ZASCA 126 (21 September 2012)
Not reportable
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no: 759/2011
In the matter between:
COMWEZI SECURITY SERVICES (PTY) LTD
.................
First Appellant
MOHAMMED SHAFFIE MOWZER NO
(in his capacity as the trustee for the Grapsy Trust)
...........
Second Appellant
and
CAPE EMPOWERMENT TRUST LIMITED
.............................
Respondent
Neutral citation:
Comwezi Security Services
(Pty) Ltd v Cape Empowerment Trust Ltd
(759/11)
[2012] ZASCA 126
(21 September 2012)
Coram:
CLOETE, CACHALIA, LEACH, THERON and WALLIS
JJA.
Heard
: 31 August 2012
Delivered
: 21 September 2012
Summary:
Contract
– resolutive condition – interpretation – power of
relaxation vested in one party – exercise of
power –
evidence of conduct of parties in implementing contract –
admissibility.
ORDER
On appeal from:
Western
Cape
High Court (Louw J
sitting as court of first instance)
The appeal is dismissed with costs, such costs to
include the costs of two counsel where two counsel were employed.
JUDGMENT
WALLIS JA (CLOETE, CACHALIA, LEACH and THERON JJA
concurring)
[1] The first appellant, Comwezi, borrowed R4 million
from the respondent (CET). Repayment of this amount was secured by
way
of a cession and pledge of 20 shares in Comwezi held by the
Grapsy Trust, which was represented, as it has been in this
litigation,
by the second appellant, Mr Mowzer, in his capacity as
trustee of the trust. The loan was not repaid on 30 April 2009 in
accordance
with the loan agreement. On 8 June 2010, the parties
entered into a settlement agreement in terms of which the loan would
be discharged by way of the issue to CET of 25 shares in Comwezi.
[2] The settlement agreement contained a resolutive
condition that had to be fulfilled within three months, relating to
the conduct
by CET of a due diligence exercise in respect of Comwezi.
Failing fulfilment of the condition the settlement agreement would
lapse
and the parties would revert to their respective positions
under the loan agreement. CET was given the right to waive or ‘relax’
the resolutive condition. It purported to do so by extending the date
for its fulfilment no less than 13 times, on the grounds
that Comwezi
was in breach of its obligations to co-operate with the due diligence
investigation and provide documents to enable
the investigation to be
undertaken. The issue before us is whether these extensions were
effective or whether the condition, and
therefore the settlement
agreement, failed. In the high court, Louw J held that the extensions
were permissible and that the agreement
remained in force. He issued
an order compelling Comwezi to co-operate with CET in the due
diligence investigation. The appeal
against that order is with his
leave.
[3] The relevant provisions of the settlement agreement
are those embodying the right to conduct a due diligence
investigation and
the resolutive condition. These are to be found in
clauses 7 and 10, the relevant portions of which read as follows:
'7 DUE DILIGENCE INVESTIGATION
7.1 CET shall be entitled, immediately after the Signature Date to
conduct a comprehensive due diligence investigation in respect
of the
affairs of Comwezi.
7.2 Comwezi and the Grapsy Trust shall co-operate with CET in
conducting the due diligence investigation and shall procure that
CET
and its duly authorised representatives are given every reasonable
assistance in this regard and that all documentation of
Comwezi are
made available for inspection.
7.3-7.5 …
7.6 CET shall have the sole and absolute discretion to proceed with
or abandon this Settlement Agreement based on the outcome of
its own
findings and conclusions from the due diligence investigation.
7.7 CET shall, for purposes of the resolutive condition contained
herein, notify Comwezi by not later than 3 months after the Signature
Date whether or not it is satisfied with the outcome of its due
diligence investigation and accordingly whether it wishes to proceed
with this transaction, provided that if CET fails to so notify
Comwezi timeously CET shall be deemed not to be satisfied.
10 RESOLUTIVE CONDITION
10.1 The Parties agree that this Settlement Agreement is subject to
the resolutive condition that CET has completed the due diligence
investigation set out clause 7 in respect of Comwezi and has notified
Comwezi that it is satisfied with the outcome thereof by
no later
than 3 (three) months after the Signature Date.
10.2 In the event of CET not notifying Comwezi that it is satisfied
with the outcome of the due diligence investigation, this Settlement
Agreement will automatically fail and be of no further force and
effect and the Parties shall restore the
status quo ante
as
near as possible and no party shall have any claim against the other
party arising from this Settlement Agreement and for the
avoidance of
doubt, the Parties will then only be able to rely on the terms of the
Loan Agreement to enforce its rights against
the other.
10.3 The resolutive condition contained herein is imposed for the
benefit of CET and may be waived or relaxed, in writing, by CET
prior
to the period of 3 (three) months after the Signature Date.'
[4] Comwezi argued that the power to relax the
resolutive condition did not entitle CET to extend the period within
which it was
required to conduct the due diligence investigation.
Accordingly, it submitted that when that investigation was not
completed within
the three month period specified in clause 10.1 the
settlement agreement was automatically terminated and the parties
reverted
to their respective positions in terms of the loan
agreement. It argued that the power to relax contained in clause 10.3
was
limited to a power to make the clause less stringent in its
operation and effect. This argument was expressed in the following
terms in the heads of argument delivered on its behalf.
' … "relaxing" the resolutive condition is also very
different from "extending" it, and also quite distinct
from
extending
the time allowed for complying with the condition.
Clause 10.3 notably does not say that the resolutive condition may be
extended by CET; nor that CET could extend the time for complying
with that condition … Clause 10.3 should therefore not be read
as if it did. A power to "relax" a condition does
not give
licence to "alter" it, as "
relaxation"
and
"
alteration
" are different concepts.'
In advancing this argument it relied on
Ex parte
Bain
1
and
Ronnie's Motors (Pty) Ltd & Others v Van der Walt &
Others
.
2
[5] In the heads of argument it was submitted that this
approach accorded with the ‘plain meaning’ of the word
‘relax’
and that it was not open to us to go beyond that.
That contention was based upon an approach to the interpretation of
documents
that is no longer appropriate. This court recently restated
the correct approach in
Natal Joint Municipal Pension Fund v
Endumeni Municipality
3
in the following terms:
‘
Interpretation is the process
of attributing meaning to the words used in a document, be it
legislation, some other statutory instrument,
or contract, having
regard to the context provided by reading the particular provision or
provisions in the light of the document
as a whole and the
circumstances attendant upon its coming into existence. Whatever the
nature of the document, consideration must
be given to the language
used in the light of the ordinary rules of grammar and syntax; the
context in which the provision appears;
the apparent purpose to which
it is directed and the material known to those responsible for its
production. Where more than one
meaning is possible each possibility
must be weighed in the light of all these factors. The process is
objective not subjective.
A sensible meaning is to be preferred to
one that leads to insensible or unbusinesslike results or undermines
the apparent purpose
of the document. Judges must be alert to, and
guard against, the temptation to substitute what they regard as
reasonable, sensible
or businesslike for the words actually used. To
do so in regard to a statute or statutory instrument is to cross the
divide between
interpretation and legislation. In a contractual
context it is to make a contract for the parties other than the one
they in fact
made. The “inevitable point of departure is the
language of the provision itself”, read in context and having
regard
to the purpose of the provision and the background to the
preparation and production of the document.’
[6] In argument before us counsel departed from the
heads of argument in the light of this judgment. Instead stress was
placed upon
the portion of the quoted passage where it was said that
the invariable point of departure in an exercise in interpretation is
the language of the provision under consideration. Taking that as the
starting point it was submitted that the parties had stipulated
a
period within which the due diligence investigation was to take place
in the interests of certainty. It was submitted that construing
the
power to ‘relax’ the provisions of the resolutive
condition as enabling CET to extend that period would undercut
the
manifest purpose of creating certainty in regard to the acquisition
of the shareholding by CET. That certainty was desirable
in view of
the fact that Command Holdings Ltd, a major shareholder in Comwezi of
which Mr Mowzer is the Chief Executive, and CET
itself were both
listed on the alternative board of the JSE. There was accordingly a
public interest in achieving certainty in
regard to ownership of the
shares in Comwezi. Presumably, for so long as the entire settlement
agreement might fall away, this
could cause difficulties in filing
public accounts for both Command Holdings and CET.
[7] Accepting that the starting point is the language of
the provision under consideration, the issue is simply whether the
power
given to CET in clause 10.3 to ‘relax’ the
resolutive condition afforded CET the right to extend the period
within
which it had to inform Comwezi that it was satisfied with the
outcome of the due diligence and, by necessary inference, the period
within which it was to conduct that exercise. Comwezi contended that
it did not and CET that it did. That is the sole issue in
this appeal
as Comwezi did not contend that the exercise of the power was subject
to any tacit limitation, such as that it had
to be exercised bona
fide and
arbitrio boni viri
4
and that it was not so exercised.
[8] The word ‘relax’ in clause 10.3 cannot
be read or construed in isolation from the rest of that clause or
from the
provisions of clause 10.1. In clause 10.3 it is
counterpoised with the power to waive fulfilment of the resolutive
condition in
clause 10.1. That power was given exclusively to CET
because the resolutive clause was inserted into the agreement for its
sole
benefit. In other words, Comwezi was content to have CET as a
shareholder, but CET needed to be satisfied that the shares it was
acquiring were an appropriate recompense for its foregoing its
monetary claim to be paid the four million rand plus interest that
it
was owed under the loan agreement. This is reinforced by clause 7.6
where it is said that it is in CET’s ‘sole and
absolute
discretion’ to continue with the contract after concluding the
due diligence investigation.
[9] The resolutive condition in clause 10.1 has three
elements. These are the completion of the due diligence investigation
provided
in clause 7, the giving of written notice of satisfaction
with the outcome of that investigation and the requirement that such
notice be given within three months of the date of signature of the
settlement agreement. The power of relaxation is given generally
in
relation to the condition as a whole. It is helpful to consider how
that power could be exercised in relation to each element
of the
condition.
[10] Whilst the due diligence investigation is described
in clause 7.1 as ‘comprehensive’, it is plain from the
fact
that CET had the power to dispense with it altogether by waiver
that it was primarily for CET to determine the scope of the enquiries
that it wished to make pursuant to the investigation and to decide
what documents it needed for that purpose. Comwezi was obliged
to
provide all documents required by CET and to give all reasonable
assistance in the conduct of the investigation. It could not
demand
that CET be more thorough in its enquiries or do more than it wished.
In those circumstances, because CET already had the
power to
determine the precise scope and extent of the due diligence
investigation, there can be no question of it needing or exercising
a
power to relax the requirements of the investigation as suggested to
us.
[11] It was not suggested that the power of relaxation
could be exercised in relation to the obligation to give written
notice of
CET’s satisfaction with the outcome of the
investigation. That seems clear. To relax that provision would indeed
throw the
operation of the entire agreement into the morass of
uncertainty that Comwezi’s counsel referred to, because it
would never
be possible for the parties to know when or whether
finality had been reached.
[12] That leaves only the three month period in respect
of which the power of relaxation could be exercised. If, as contended
by
Comwezi, that power cannot be exercised in relation to the time
period then it has no operative effect and, contrary to the
submission
that the starting point of the interpretative exercise is
the language of the provision under consideration, we would not be
interpreting
the contract but altering it by deleting the reference
to a power to relax the resolutive condition. That is impermissible.
Whilst
there may be circumstances in which a court can disregard
words in the process of interpretation, where, for example, they were
clearly included in error, those circumstances do not apply in this
case.
[13] Once it is recognised that the power of relaxation
in clause 10.3 must relate to the three month period in clause 10.1
then
its only possible meaning is that it is a power to extend that
period. Accepting that conclusion, without conceding its correctness,
an alternative argument was advanced in reply that in that event the
power could only be exercised once and would thereafter be
exhausted.
This was based on the provision in clause 10.3 that any relaxation be
conveyed in writing prior to the expiry of the
three month period.
However, that is not a sensible interpretation of that portion of
clause 10.3. The power is one to relax a
time period. The period of
three months in clause 10.3 is the same three month period as that in
clause 10.1. If the latter period
is relaxed by way of an extension
by a further three months the former must likewise be relaxed. That
is also consistent with the
practicalities, because CET will never be
able to determine with certainty what period of extension is
necessary to complete the
due diligence investigation. If it could
only exercise the power once that would tempt it to extend the period
by an unreasonably
lengthy period. Counsel was unable to explain why
it would be permissible for it to extend the period by 12 months, but
not by
six periods of two months. Nor was he able to suggest why an
extension to an indeterminate date, such as two weeks after the
conclusion
of the due diligence investigation, would be
impermissible. Those two examples make it clear that the restriction
for which he
contended is unwarranted by the language of the clause
properly construed.
[14] One final point is worth mentioning. It is that
Comwezi’s response to the initial extensions of time by CET was
to accept
them and profess a willingness to co-operate in the due
diligence investigation. On Comwezi’s argument the settlement
agreement
would have lapsed by 8 September 2010. Yet, as late as
26 January 2011 Mr Mowzer sent an e-mail to CET’s attorney
confirming that the due diligence investigation would be completed by
CET by 28 February 2011 ‘to meet with all other deadlines
in
terms of the acquisition’. In other words Comwezi accepted that
the various extensions of time prior to that date, of
which there had
been six, were proper and effective. Its conduct in regard to the
implementation of the agreement was therefore
inconsistent with the
interpretation of the agreement for which it contends in this
litigation. That is a factor that reinforces
the construction I have
given to clause 10.3 and its use of the word ‘relax’.
[15] It was suggested that for us to place reliance on
this conduct is impermissible in the light of the exposition of the
law in
Natal Joint Municipal Pension Fund v Endumeni Municipality
,
supra. However, that is incorrect. In the past, where there was
perceived ambiguity in a contract, the courts held that the
subsequent
conduct of the parties in implementing their agreement was
a factor that could be taken into account in preferring one
interpretation
to another.
5
Now that regard is had to all relevant context, irrespective of
whether there is a perceived ambiguity,
6
there is no reason not to look at the conduct of the parties in
implementing the agreement. Where it is clear that they have both
taken the same approach to its implementation, and hence the meaning
of the provision in dispute, their conduct provides clear
evidence of
how reasonable business people situated as they were and knowing what
they knew, would construe the disputed provision.
It is therefore
relevant to an objective determination of the meaning of the words
they have used and the selection of the appropriate
meaning from
among those postulated by the parties. This does not mean that, if
the parties have implemented their agreement in
a manner that is
inconsistent with any possible meaning of the language used, the
court can use their conduct to give that language
an otherwise
impermissible meaning. In that situation their conduct may be
relevant to a claim for rectification of the agreement
or may found
an estoppel, but it does not affect the proper construction of the
provision under consideration.
[16] In the result the appeal is dismissed with costs,
such costs to include the costs of two counsel where two counsel were
employed.
M J D WALLIS
JUDGE OF APPEAL
Appearances
For appellants: I V Maleka SC (with him P B J Farlam)
Instructed by: Edward Nathan Sonnenbergs, Cape Town
Lovius Block, Bloemfontein
For respondent: M J Fitzgerald SC (with him P A van
Eeden)
Instructed by: Hayes Inc, Cape Town
Naudes, Bloemfontein.
1
Ex
parte Bain
1964 (2) SA 798
(C) 801D-F.
2
Ronnie's
Motors (Pty) Ltd & Others v Van der Walt & Others
1962
(4) SA 660
(A).
3
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012 (4) SA
593
(SCA) para 18.
4
NBS
Boland Bank Ltd v One Berg River Drive CC & others; Deeb &
another v ABSA Bank Ltd; Friedman v Standard Bank of SA
Ltd
1999
(4) SA 928
(SCA) para 25.
5
Shill
v Milner
1937 AD 101
at 110-111;
Shacklock
v Shacklock
1949 (1) SA 91
(A) at 101;
MTK Saagmeule (Pty) Ltd v Killyman
Estates (Pty) Ltd
1980 (3) SA 1
(A) at
12F-H.
6
Formerly
it was said that ‘background circumstances’ were always
admissible to provide context, but ‘surrounding
circumstances’
could only be considered if there was ambiguity. That distinction
was swept away in
KPMG Chartered
Accountants (SA) v Securefin Ltd & another
2009
(4) SA 399
(SCA) para 39